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Global rules on foreign direct investment (FDI)
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Canada | Publication | juni 2021
Reproduced with permission from Law Business Research Ltd. This article was first published in Lexology GTDT - Pharmaceutical Antitrust 2021. For further information, please visit: https://www.lexology.com/gtdt.
Regulatory framework
Pharmaceutical products are regulated under the Food and Drugs Act and associated regulations. Drugs cannot be marketed in Canada without a pre-market authorisation from Health Canada. Innovative pharmaceutical companies must submit a new drug submission (NDS) to Health Canada that contains data on the safety and effectiveness of the new product. If Health Canada is satisfied that the NDS complies with the regulatory requirements, as well as the overall safety and effectiveness of the product, Health Canada will authorise its sale, and issue a notice of compliance (NOC) and a drug identification number (DIN).
Generic manufacturers may also submit an NDS or they may file an abbreviated new drug submission (ANDS) that demonstrates bioequivalence to a marketed Canadian reference product. If the ANDS references a product with a patent listed on the Patent Register, the Patented Medicines (Notice of Compliance) Regulations (PM(NOC)) require the generic manufacturer to demonstrate patent invalidity or non-infringement before receiving its NOC and DIN.
Pricing
The pricing of certain drugs is regulated by the Patented Medicine Prices Review Board (PMPRB).
Under the Patented Medicines Regulations (PMR) made under the Patent Act, the PMPRB has jurisdiction over any drug to which a patent pertains. The PMPRB has taken a broad view of when a patent pertains to a drug. If no patents pertain to the drug, then the price is not regulated by the board.
The PMPRB sets the ceiling price nationally for patented drugs. Federal, provincial and territorial insurers will then negotiate the actual listing price through a confidential listing agreement so as to include the drug on their respective formularies. Private insurers may also seek to negotiate agreements as to the price of certain drugs for the benefit of their plan members.
Confidential listing agreements may also be negotiated for generic drugs. Some provinces have imposed significant price restrictions on the list price for generic drug products, with some products’ prices being limited to 10 per cent of the price of the bioequivalent brand product.
Marketing
The marketing of pharmaceutical products is governed by the Food and Drugs Act and Food and Drug Regulations. Advertising of prescription products to the general public is limited to the product’s name, price and quantity. Non-prescription drugs may be advertised to the general public, unless they are for the treatment or cure of certain prescribed diseases. Advertising of prescription drugs to healthcare professionals (HCPs) is permitted. In all cases, advertising or promotional labelling must not be false, misleading, deceptive or likely to create an erroneous impression with respect to the product’s characteristics.
The Pharmaceutical Advertising Advisory Board has a Code of Advertising Acceptance and pre-clears advertising materials directed to HCPs. Ad Standards maintains the Canadian Code of Advertising Standards and associated guidelines that apply to any direct-toconsumer advertising of vaccines and non-prescription products. Innovative Medicines Canada and Biotech Canada have codes of ethical practices that govern marketing activities of their member companies. Likewise, generic manufacturers who are members of the Canadian Generic Pharmaceutical Association adhere to its Code of Marketing Conduct Governing the Sale of Generic Pharmaceutical Products in Canada. For non-member companies for any of these industry organisations, these codes represent industry best practices.
The Competition Act (the Act) applies to marketing generally, so its provisions apply to drugs. Consumer protection legislation across Canada also speaks to the necessity of ensuring that marketing or other representations are accurate and not misleading. The application of consumer protection legislation to prescription drugs varies by province. If the drug is a narcotic or controlled substance, the Controlled Drugs and Substances Act and associated regulations contain other provisions.
Regulatory authorities
Health Canada, a branch of the federal government overseen by the Minister of Health, is responsible for the administration and enforcement of the Food and Drugs Act and its associated regulations. It is tasked with issuing NOC and DIN authorisations, as well as with monitoring post-marketing safety and marketing activities. It has the authority to impose fines and other penalties including warnings, stop sale orders, seizure of products, suspension of market authorisation, injunctions, refusals of importation and initiation of criminal proceedings.
The Minister of Health also oversees the PMPRB, which enforces ceiling pricing of patented medicines. If, after a public hearing, the PMPRB finds that a price is excessive, it may order the patentee to reduce the price and take measures to offset excess revenues it may have received. The offset of excess revenues may be achieved through additional price reduction or a payment to the federal government.
Enforcement of advertising generally falls to industry organisations through the enforcement of their respective codes. Although these codes do not have the force of law and remedial action can be limited, they are generally effective and Health Canada has rarely needed to intervene and exercise its authority. However, in certain cases, it may take action independently – such as where there is a potential health risk, wilful non-compliance with industry codes, direct-to-consumer advertising of a prescription drug or marketing of an unauthorised product.
Misleading advertising or marketing under the Act is enforced by the Commissioner of Competition, who heads the Competition Bureau.
Pricing
Drug prices are subject to regulatory control as long as a patent pertains to the drug. The PMPRB considers several factors when determining a ceiling price for a patented medication. Generally, these tend to include the level of therapeutic improvement over other products, the prices of products in the same therapeutic class and the list prices of the products in seven other comparator countries. Annual price increases are evaluated in reference to the consumer price index. When no patents pertain, the product's price is no longer regulated by the board.
Recent amendments to the PMR have introduced a complex set of criteria for determining the ceiling price. These changes include a change to reference comparator countries (effectively lowering the comparator prices) and the introduction of three new pricing factors: a pharmacoeconomic evaluation, the size of the market and gross domestic product. The proposed regulations also increase reporting requirements. At the time of writing, the regulatory amendments are being challenged in the courts and implementation of the guidelines has been delayed.
Generic prices are controlled by provincial legislation in some provinces. For example, in Ontario, generic products are priced at between 10 and 75 per cent of the innovator product's price, depending on the number of generics on the market and the molecule itself. Pharmacies are precluded from accepting rebate payments, other than ordinary commercial terms as defined in the relevant legislation.
Public and private insurers may negotiate prices with both brand and generic manufacturers through confidential agreements in exchange for listing the product on their respective formularies. In recent years, the public payers have negotiated collectively through the pan-Canadian Pharmaceutical Alliance before listing drugs on the public formularies. Public payers typically provide drug coverage for veterans, indigenous peoples, seniors, persons on social assistance programmes and persons with high drug-cost-to-net-income ratios.
Distribution
The distribution of pharmaceutical products is regulated at both the federal and provincial levels. Federal regulations, including the Food and Drug Regulations, impose limits and licensing obligations on those who fabricate, package or label, test, import, distribute and wholesale drugs. Wholesaling may be further regulated at the provincial level. For example, wholesalers are required to register with the Ontario College of Pharmacists to operate in Ontario. Also, payments from manufacturers or wholesalers to pharmacies, such as rebates or volume discounts, are restricted in certain provinces.
All provinces regulate HCPs and the activity of dispensing. Generally speaking, prescription drugs must be sold by a regulated HCP with the authority to dispense (generally by a pharmacist pursuant to a prescription). Pharmacies must also be registered by their respective provincial regulatory authorities. While internet pharmacies are permitted, they typically must be associated with a brick-and-mortar location. The distribution of certain speciality or high-cost products (eg, those requiring special storage and handling or distribution through an infusion clinic) may be limited to certain pharmacies or pharmacy networks.
The Controlled Drugs and Substances Act, the accompanying Narcotic Regulations and provincial legislation impose further restrictions on the sale and distribution of controlled substances to ensure the heightened tracing of these products through the supply chain.
Intersection with competition law
Competition between innovative drug manufacturers is often governed by industry codes that deal with the nature of appropriate advertising claims and marketing activities for products. The application of these codes may vary slightly depending on the therapeutic area. These codes also allow for comparative advertising in many contexts, which may be the subject of complaints to the respective industry organisation.
Competition between innovative drug manufacturers and generic manufacturers is mostly impacted by the regulations related to generic drug market entry, such as the PM(NOC). Provincial formulary listing agreements and other pricing regulations may also significantly impact the competition for market share between these entities.
Competition between generic drug manufacturers is mainly impacted through agreements to be the preferred supplier for various pharmacy chains or hospital buying groups.
Legislation and enforcement authorities
The Commissioner of Competition (the Commissioner) is the head of the Competition Bureau (the Bureau) and administers and enforces the Competition Act (the Act). The Act contains merger provisions that would apply to a pharmaceutical merger, prohibitions on anticompetitive conduct such as price-fixing and bid rigging that are per se illegal, and other practices such as exclusive dealing, tied selling and abuse of dominance that are only problematic where they have an adverse or substantial impact on competition.
Public enforcement and remedies
The Act covers two broad tracks, criminal and civil remedies, for anticompetitive conduct or agreements between competitors such as pharmaceutical companies.
Section 45 creates a per se criminal offence for cartel-type conspiracy agreements between competitors, while section 90.1 creates a civil remedy that allows the Commissioner to challenge agreements that are not within the scope of a section 45 offence but that may prevent or lessen competition substantially.
Criminal charges can be laid against individuals and corporations under section 45 for conspiring to fix prices, allocate markets or restrict supply, and the penalty can be a fine of up to C$25 million or up to 14 years of imprisonment, or both.
Under section 90.1, the Commissioner can bring an application to the Competition Tribunal (the Tribunal). The only available remedy is the issuance, by the Tribunal, of an order that prohibits the offending conduct or that requires the person to take some action, or both.
Other anticompetitive conduct is also prohibited under the Act, including:
Private enforcement and remedies
There are two possible avenues for private parties to obtain competition- related remedies.
The first is section 36 of the Act, which creates a private right of action for persons that have suffered a loss or damage as a result of conduct contrary to the criminal provisions of the Act or breach of a civil prohibition order. The affected person can seek to recover damages from the person who engaged in the conduct in an amount equal to the loss or damage proved. Most proceedings under section 36 are class actions, where an applicant claims damages for losses resulting from price fixing, etc.
The second avenue allows a person to apply to the Tribunal for leave, under section 103.1 in respect of refusals to deal, price maintenance, exclusive dealing, tied selling and market restrictions. However, remedies available under this process are limited to prohibition orders, and monetary damages are expressly not available. As a result, there have not been many such actions.
Sector inquiries
The Bureau conducts sector-wide inquiries from time to time, although the Act provides no explicit legislative basis to do so. The Bureau will often pick an area of focus, which could be the result of information it learned during a merger filing, through a complaint or of its own initiative.
The Bureau has undertaken a number of studies of the pharmaceutical area, including a 2007 study on the generic drug sector, hosting a one-day symposium on competition issues in the pharmaceutical industry in 2013, and releasing a white paper in September 2014 on patent litigation settlement agreements. The Bureau also made a submission to the OECD Competition Committee roundtable on Competition Issues in the Distribution of Pharmaceuticals in 2014. All of these are available on the Bureau’s website.
Health authority involvement
Health authorities have no formal role in the application of competition law to the pharmaceutical sector, although they may be consulted by the Competition Bureau.
NGO involvement
The Bureau consults NGOs, trade associations or consumer groups when reviewing mergers and as part of inquiries into both civil and criminal matters. While these groups could bring private litigation, they rarely do so. These entities can also play a role in bringing allegations of anticompetitive conduct to the attention of the Bureau through a variety of means.
Thresholds and triggers
Pursuant to sections 109 and 110 of the Competition Act (the Act), a transaction that fits the definition of a merger in section 110 of the Act would be subject to merger reporting requirements if the party-size threshold and the transaction-size threshold are exceeded.
The party-size threshold is exceeded where the parties to the transaction, together with their affiliates, have assets in Canada that exceed C$400 million, or gross revenues from sales in, from or into Canada, that exceed C$400 million.
The transaction-size threshold is exceeded where the aggregate value of the acquired assets, or the gross revenues from sales in or from Canada generated from those assets, exceed C$93 million (down slightly from the previous year's C$96 million).
The acquisition of any of the assets in Canada of an operating business is considered a merger, and if the thresholds in sections 109 and 110 of the Act are exceeded, the acquisition of a patent or licence would be notifiable.
Market definition
As stated in the Competition Bureau’s (the Bureau) Merger Enforcement Guidelines (MEGs), for the purpose of product market definition, what matters is not the identity of sellers, but the characteristics of the products and buyers’ ability or willingness to switch from one product to another in response to changes in relative prices. A relevant product market consists of a given product of the merging parties and all substitutes required for a small but significant and non-transitory increase in price (SSNIP) to be profitable.
In determining the relevant product market for a merger in the pharmaceutical sector, the Bureau will typically seek detailed information on products currently supplied by the merging parties in Canada in an effort to assess any competitive overlaps. Given the sophistication of the pharmaceutical sector, parties may need to disclose information not only on a product category level, but also on a product molecular basis.
For example, in respect of the generic pharmaceutical industry, the Bureau will typically find that the parties’ products will generally be considered within the same relevant product market where they contain the same molecule or active ingredient and are supplied in the same format.
For the purpose of geographic market definition, the Bureau will assess buyers’ ability or willingness to switch their purchases in sufficient quantity from suppliers in one location to suppliers in another, in response to changes in relative prices. A relevant geographic market consists of all supply points that would have to be included for an SSNIP to be profitable.
The relevant geographic market for the supply of pharmaceutical products is typically defined to be no broader than Canada, as significant regulatory barriers limit the entry of pharmaceutical products from outside of Canada. The Bureau has noted that because pharmaceuticals are generally marketed on a national basis, the starting point of its analysis would be to consider that the relevant geographic market is national. However, because provinces regulate healthcare, pharmacies and the pricing of generic drugs, the actual relevant geographic market is often provincial in scope.
Sector-specific considerations
Yes, specific features of the pharmaceutical industry will be taken into account when the Bureau is assessing a merger between two pharmaceutical companies. For instance, the regulatory regime in which pharmaceutical companies in Canada operate will be an important consideration in assessing a merger (eg, as this relates to barriers to entry).
In the Bureau’s position statement on Teva Pharmaceuticals Industries Ltd’s (Teva) proposed acquisition of Allergan plc’s generic pharmaceutical business in 2016, it stated that it assessed the regulatory framework in Canada with respect to the development of new generic drugs. In particular, the Bureau examined certain public and non-public information on drugs currently under development, and coordinated with Health Canada to make assessments as to the expected timing for regulatory approval and entry into the market.
In a 2017 merger concerning retail pharmacies in the province of Quebec, the Bureau took into account the regulation of pharmacists and prices of generic drugs in Quebec to conclude that the transaction did not substantially lessen competition.
Addressing competition concerns
Yes, as stated in the MEGs, when considering cost savings brought about by a proposed merger in relation to the efficiency defence under section 96 of the Act, the Bureau examines claims related to, among other things, savings that arise from the rationalisation of research and development activities.
Additionally, the Bureau also examines claims that the merger has, or is likely to result in, gains in dynamic efficiency, including those attained through the optimal introduction of new products, the development of more efficient productive processes and the improvement of product quality and service.
Horizontal mergers
A proposed merger that will result in a post-merger market share of 35 per cent or greater will typically garner heightened scrutiny by the Bureau. Mergers that give rise to market shares that exceed this threshold are not, however, necessarily deemed anticompetitive by the Bureau. Under these circumstances, the Bureau examines various factors to determine whether such mergers would likely create, maintain or enhance market power, and thereby prevent or lessen competition substantially.
For example, in April 2016, the Bureau found that Teva’s proposed acquisition of Allergan plc’s generic pharmaceutical business would likely have resulted in a substantial lessening or prevention of competition for the sale of two pharmaceutical products in Canada (tobramycin inhalation solution and buprenorphine/naloxone tablets) owing to the elimination of future competition between the parties.
Product overlap
Overlaps with respect to products under development will, in all probability, be considered problematic under the merger provisions of the Act where the products are likely to receive regulatory approval, the products will be sold in Canada within a reasonable period following the merger and the post-closing merged company will be able to exercise market power in respect of the products.
By way of an example, pursuant to the terms of a consent agreement the Bureau entered into with Merck & Co, Inc and Schering-Plough Corporation in relation to their proposed merger, the parties agreed to divest to a third party a human health product that was currently under development for the treatment of chemotherapy-induced and postoperative side effects. This divestiture was designed to protect future competition for the supply of products used in the treatment of these medical conditions.
Remedies
Typical remedies required in the case of anticompetitive mergers involve the divestitures of assets (ie, structural remedies).
For example, the remedy negotiated by the Bureau in Teva’s 2016 acquisition of Allergan’s generic pharmaceutical business involved Teva entering into a consent agreement with the Commissioner, the terms of which required Teva to divest either its own or Allergan’s Canadian assets relating to tobramycin inhalation solution and buprenorphine/ naloxone tablets to buyers approved by the Commissioner.
Additionally, in December 2016, the Commissioner entered into a consent agreement with McKesson Canada Corporation to resolve concerns related to its proposed acquisition of the healthcare businesses of the Katz Group, which include the Rexall pharmacy retail chain and the ClaimSecure healthcare claims adjudication business. This consent agreement required McKesson to sell retail chain locations in 26 markets. It further restricted McKesson from transmitting commercially sensitive information between its pharmaceutical wholesale business and the Rexall retail business, to ensure that competition is preserved for the wholesale and retail supply of pharmaceutical products and services in local markets across Canada.
Assessment framework
Offences in relation to competition are set out in Parts VI and VII of the Competition Act (the Act). Section 45 makes it an offence to:
Where these conditions are not met, an agreement may nonetheless be reviewable under section 90.1 of the Act where it prevents or lessens, or is likely to prevent or lessen, competition substantially in a market.
Additionally, agreements involving abuses of dominance may be reviewed under section 79 of the Act, which allows the Competition Tribunal (the Tribunal), on application by the Commissioner of Competition, to make an order prohibiting persons that substantially or completely control a class of business from engaging in practices of anticompetitive acts that have had, are having or are likely to have, the effect of preventing or lessening competition substantially in a market. However, subsection 79(5) of the Act sets out that an act engaged in, pursuant only to the exercise or enjoyment of any interest derived under certain IP legislation including the Patent Act, is not an anticompetitive effect for the purposes of the abuse of dominance provision.
With respect to IP specifically, in its Intellectual Property Enforcement Guidelines (IPEGs), the Competition Bureau (the Bureau) sets out its framework for approaching anticompetitive conduct associated with the exercise of IP rights. The Bureau sets out that the Act generally applies to conduct involving IP as it would apply to conduct involving other forms of property. However, the Bureau applies a twopronged approach to cases involving IP or IP rights: those involving something more than the mere exercise of the IP right; and those involving the mere exercise of the IP right and nothing else. The Bureau states in the IPEGs that it will use the general provisions of the Act (including those discussed above) to address the former circumstances and section 32 (special remedies) to address the latter. Section 32 addresses situations involving the use of exclusive rights and privileges conferred by patents, trademarks or copyrights, for example, to restrain trade or limit the production of products. In such cases, the Federal Court may take action, including declaring such an agreement or licence void in whole or in part. With respect to the general provisions, in practice, the mere exercise of IP rights has not been found to offend the Act.
Technology licensing agreements
According to the IPEGs, licensing is, in many cases, pro-competitive, in that it facilitates use of an IP right by additional parties. However, in order to assess whether a technology licensing agreement is anticompetitive, the Bureau would examine the terms of the licence and assess whether they create, enhance or maintain the market power of either party to the agreement. Generally, the Bureau will ‘not consider licensing agreements involving IP to be anticompetitive unless they reduce competition substantially relative to that which would have likely existed in the absence of the licence’s potentially anticompetitive terms’.
Several cases have dealt with IP licensing agreements. For example, in Canada (Director of Investigation and Research) v Tele- Direct (Publications) Inc, the Tribunal found that the enforcement of trademark rights, including the refusal to license trademarks, even selectively, were not anticompetitive acts within the meaning of section 79(5) of the Act, because the Trademark Act grants to trademark owners the right to exercise these very rights.
The Commissioner of Competition v the Toronto Real Estate Board (TREB), 2016 Competition Tribunal 7, also dealt in part with IP licences. The case involved a restriction on certain virtual uses of the TREB real estate multiple listing service (MLS) database. TREB argued that its copyright in the MLS database was a complete defence to the allegations that it had abused its dominance contrary to section 79 of the Act. In its 2016 decision, the Tribunal found, among other things, that the restrictions were more than the ‘mere exercise’ of TREB’s IP rights. TREB also argued that the Tribunal did not have jurisdiction to order it to grant compulsory IP licences, but the Tribunal found that its broad remedial jurisdiction included jurisdiction in respect of IP rights. In December 2017, the Federal Court of Appeal dismissed TREB’s appeal with costs (see Toronto Real Estate Board v the Commissioner of Competition, 2017 FCA 236). TREB sought leave to appeal to the Supreme Court of Canada but was denied.
Co-promotion and co-marketing agreements
Such agreements are not per se or typically considered anticompetitive and are on their own unlikely to infringe the Act, particularly if the parties to the agreement are not competitors. However, the agreement may be considered an offence under section 45 if the parties to the agreement are competitors and the agreement, for example, fixes the price for the supply of a product, allocates sales territories or controls the production or supply of a product. Alternatively, the agreement may be reviewable under section 90.1 if the co-promotion or co-marketing agreement prevents or lessens, or is likely to prevent or lessen, competition substantially in a market.
Other agreements
How can these issues be resolved? Any type of agreement, whether existing or proposed, between persons, of whom two or more are competitors, that prevents or lessens, or is likely to prevent or lessen, competition substantially in a market is reviewable under section 90.1. This provision could capture all types of agreements, including supply and distribution agreements, joint ventures, collaborative research agreements and consortium agreements.
Issues with vertical agreements
There is no definition of ‘vertical restraint’ in the Act; however, the Act sets out various types of vertical restraints that are reviewable under Part VIII, including:
These restrictions are found in sections 75 to 81 and 84 of the Act.
Patent dispute settlements
According to the Bureau’s IPEGs, an ‘entry-split’ settlement, pursuant to which generic firms enter the market on or before patent expiry, will not pose an issue under the Act. In other words, the Bureau is generally not concerned with settlements that specify a market entry date for a generic company that is on or before the expiry date of the patent and in which the generic company does not receive any other consideration.
However, a settlement pursuant to which the generic company enters the market on or before patent expiry and that includes a payment to the generic company may be reviewed under section 90.1 of the Act or, in cases involving a potential abuse of dominance, section 79. The Bureau will generally not review a settlement under section 45 unless it is a ‘sham’ or it extends beyond the exclusionary potential of the patent by delaying generic entry past the date of patent expiry or by restricting competition for products unrelated to the patent in question. For further information, see section 7.3 of the Bureau’s IPEGs.
Joint communications and lobbying
Competitors are not, per se, prohibited from engaging in joint communications or lobbying, but should exercise caution when doing so. The Bureau publishes a pamphlet that includes dos and don’ts for trade associations and their members. Among other things, trade associations and their members should:
Trade associations should not:
Members of trade associations must, of course, refrain from communicating competitively sensitive information with one another, either at association meetings or related social events.
Public communications
Generally, public communications will not constitute an infringement of competition law unless they, for example, constitute price signalling to competitors or they communicate planned market behaviours that could lead to coordinated actions by competitors within the market. If a public communication is made for the purposes of promoting a business interest and contains a statement that is false or misleading, that could pose issues under the misleading advertising provisions of the Act.
Exchange of information
Not necessarily, though competitors should be sure not to disclose competitively sensitive information to one another in the context of such disclosures, either directly or through intermediaries such as HCPs.
Abuse of dominance
In Canada, abuse of dominance is a civil reviewable matter, meaning that there is no liability until the Competition Tribunal (the Tribunal) actually makes a finding that abuse of dominance has occurred. The provision is for general application to all sectors of the economy, a fact underscored by the 2009 repeal of special provisions designed to address abuse of dominance by a domestic airline and other sector-specific guidance that has been removed from the 2012 Enforcement Guidelines on the Abuse of Dominance Provisions.
The Commissioner of Competition (the Commissioner) must prove three elements on a balance of probabilities before the Tribunal may make an order proscribing the behaviour or imposing an administrative monetary penalty:
De minimis thresholds
The first element of abuse of dominance in Canada is that a firm or firms must have a dominant market position (ie, substantially or completely controlling a class or type of business). However, there is no minimum size of the market that must be controlled or affected to raise concerns.
Market definition
Product and geographic market definition are similar in merger cases and in unilateral conduct cases.
Establishing dominance
There are three elements to the abuse of dominance provision, and holding market power is a key consideration. Canada’s abuse of dominance law looks to market share (among other factors) as an indicia of market power or dominance, and the Competition Bureau (the Bureau) acknowledges generally using market share as a preliminary screen when assessing dominance cases. To date, there is no specific market share threshold for prima facie market power. All of the contested abuse cases thus far have concerned market shares in excess of 80 per cent, where a prima facie case was relatively obvious. But Canadian cases have found that 'no prima facie finding of dominance would arise' with respect to a market share below 50 per cent, and a 25 per cent market share 'falls well short of a level that might be considered to indicate market power'.
Notwithstanding these pronouncements by the Tribunal, from an enforcement perspective, the Bureau's enforcement guidelines take a different approach. In the Bureau's 2012 Abuse of Dominance Enforcement Guidelines, the Bureau's general approach (to market share) included an indication that a market share of less than 35 per cent would generally not prompt further examination.
However, the Bureau released updated Abuse of Dominance Enforcement Guidelines in March 2019 and the 35 per cent safe harbour was removed. The Bureau’s new general approach is as follows:
The case law is clear that although market share is important to the dominance analysis, a finding of market power must be supported by findings other than market share, such as the existence of barriers to entry, the number and effectiveness of competitors, excess capacity and the state of the market.
Merely holding a patent does not confer dominance on its holder. If the product market were defined narrowly so as to include only the patented product, the holder may be dominant in that market. However, more than mere dominance is required. There must be some practice of anticompetitive acts. A patent holder would not likely be considered to be anticompetitive, though, if it faced no competitors as a result of its patent monopoly.
IP rights
If the application was made in good faith, there would be no exposure to liability for an antitrust violation in Canada. Where the conduct involves ‘something more’ than the mere exercise of patent rights, the general provisions of the Competition Act (the Act) may apply.
The Bureau has noted that the provisions of the Act ‘most likely to apply to product-switching conduct’ are the abuse of dominance provisions because the conduct ‘involves anticompetitive acts by a single dominant company designed to exclude competitors and to create, maintain, or enhance its market power’ (paragraph 34 of the Bureau’s submission to the OECD Competition Committee round table on Competition Issues in the Distribution of Pharmaceuticals, 28 February 2014).
The Bureau investigated product switching by Alcon Canada under the abuse of dominance provisions, but in the end declined to refer the matter to the Tribunal after Alcon Canada reintroduced the product it had initially withdrawn from the market.
Communications
Advertising of prescription products to the general public is prohibited, except in respect of name, price and quantity. Advertising of prescription drugs to HCPs is permitted, as is all advertising of non-prescription drugs. In all cases it must not be misleading, deceptive or likely to create an erroneous impression.
Authorised generics
A patent holder may market or license its drug as an authorised generic, or allow a third party to do so, before the expiry of the patent protection and, absent any other conduct or agreement, this should not raise concerns. The Bureau has stated that it may analyse such conduct in the context of other potentially anticompetitive conduct, such as pay-for delay settlements and brand switching strategies.
Restrictions on off-label use
The laws and regulations regarding pharmaceuticals in Canada prohibit the off-label promotion of drug products by drug manufacturers. To the extent drugs are discussed off label, it is only permissible at the HCP level where such discussions would be considered non-promotional and in pursuit of the scientific exchange of information (eg, in academic journals, continuing education, meetings and prescribing). If a patent claimed the off-label use, the patent holder could enforce its patent against anyone who infringes that claim.
Generally, there is no expectation that patent owners take actions to limit off-label use. Prescribers are permitted to prescribe off-label and this would be regulated as the practice of medicine. Although it is unlikely that attempts to limit off-label use would trigger antitrust liability, it is possible under the right set of facts.
Pricing
Predatory pricing occurs when a company deliberately sets prices below cost for long enough to eliminate, discipline or deter entry by a competitor. This involves an expectation that the company will be able to recoup its losses later, by raising prices again. Predatory pricing is an anticompetitive act under the abuse of dominance provisions, described above.
Merely having high prices is not abusive; the other elements of abuse of dominance must also be present.
Sector-specific issues
Canadian common law includes a notion of regulated conduct defence, which is an interpretative tool to deal with how to apply one statute to conduct that is authorised or required by a federal, provincial or other law. In one case, a generic manufacturer challenged an assignment of patent rights as contrary to section 45 of the Act dealing with anticompetitive agreements. The Federal Court held that a patent assignment could not lessen competition. Although the Federal Court of Appeal disagreed and held that it is possible that the assignment of a patent right ‘may, as a matter of law, unduly lessen competition’, the case was ultimately decided on other grounds.
Notably, while not related to the pharmaceutical industry specifically, in its decision released in October 2019 in The Commissioner of Competition v Vancouver Airport Authority (VAA), CT-2016-015, the Competition Tribunal found that the abuse of dominance provision of the Act (section 79) does not provide the requisite leeway language that must be present before the regulated conduct doctrine may be relied upon to exempt or shield conduct from the application of the Act.
However, the Tribunal went on to find that a respondent’s compliance with a statutory or regulatory requirement may nonetheless constitute a legitimate business justification for conduct that is potentially anticompetitive under section 79. In this case, the Tribunal concluded that VAA had a legitimate business justification for engaging in the impugned exclusionary conduct and that those justifications were more important in its decision-making process than any subjective or deemed anticompetitive intent, or any reasonably foreseeable anticompetitive effects of its conduct. Ultimately, the Tribunal dismissed the Commissioner’s application against VAA.
Recent developments
The Competition Bureau (the Bureau) released updated Competitor Collaboration Guidelines on 6 May 2021 and published a statement on the application of the Competition Act (the Act) to no-poaching, wagefixing and other buy-side agreements in November 2020, which clarified that the Bureau will only assess buy-side agreements under the civil enforcement provisions of the Act and not under the criminal conspiracy provisions – an approach that differs significantly from the position in the United States. In a decision released on 27 May 2021, the Federal Court of Canada confirmed this approach to wage fixing and section 45 (see Kobe Mohr v National Hockey League, American Hockey League Inc, ECHL Inc, Canadian Hockey League, Québec Major Junior Hockey League Inc, Ontario Hockey League, Western Hockey League, Hockey Canada, 2021 FC 488).
Coronavirus
The covid-19 pandemic has resulted in increased monitoring and surveillance of claims regarding the prevention, treatment or cure of covid-19, including pharmaceutical products. This increased enforcement has been a coordinated effort between Health Canada and the Bureau. Pre-authorisation marketing and off-label marketing and advertising continues to be prohibited and strictly enforced. Manufacturers and sponsors whose pharmaceuticals and vaccines have received authorisation for use against covid-19 must be careful to market their products strictly in accordance with terms of authorisation granted by Health Canada. Manufacturers and product sponsors must have strong compliance programmes to ensure they are not engaging in misleading or deceptive marketing practices.
With respect to competition generally in the covid-19 era, in May 2020, the Bureau outlined its two-pronged approach to covid-19 economic recovery in a brief to the Standing Committee on Industry, Science and Technology. Its priorities are to:
With respect to competitor collaborations, the Bureau issued guidance shortly after the onset of the pandemic, indicating that the exceptional circumstances surrounding the pandemic may call for the rapid establishment of short duration and limited-scope business collaborations to ensure the supply of critical products and services. The Bureau signalled that, where firms are acting in good faith and are motivated by a desire to contribute to the crisis response rather than achieve a competitive advantage, it would not wish to see competition law enforcement potentially chill helpful collaborations. As such, where there is a legitimate imperative for the collaboration and it is undertaken and executed in good faith and does not go further than what is needed, the Bureau will generally refrain from exercising scrutiny. At the same time, the Bureau has underlined that it has zero tolerance for any attempts to abuse this flexibility as cover for unnecessary conduct that would violate the Act.
The pandemic has also led to a resurgence in discussion of 'failing firms' claims. On 29 April 2020, the Bureau announced it would not challenge the acquisition of Total Metal Recovery Inc (TMR) by American Iron & Metal Company Inc (AIM), because TMR would have likely exited the market without the merger. The Bureau released a detailed position statement on the transaction, designed to assist parties seeking to rely on a 'failing firm' argument under subsection 93(b) of the Act.
With respect to foreign investment, on 24 March 2021, the Canadian government issued updated guidance on the types of foreign investments that may raise national security concerns under the Investment Canada Act. The new Guidelines on the National Security Review of Investments provide additional illustrative examples of the sectors in which foreign investments may draw scrutiny, and provide that Canada will subject any investment by a state-owned investor or a private investor deemed 'closely tied or subject to direction from foreign governments' to enhanced scrutiny under the Investment Canada Act, regardless of the value of the investment. Prior to this, the Canadian government had issued a policy statement in April 2020 related to the application of the Investment Canada Act during the covid-19 pandemic, which similarly signalled enhanced scrutiny for investments in certain sectors (eg, public health, and critical goods and services) and by stateowned investors.
* The authors wish to thank Maritza Woël, articling student, for her assistance in preparing this chapter.
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