Anti-Competitive Behaviour Alleged Against “Huggies” Owner

Anti-Competitive Behaviour Alleged Against “Huggies” Owner

Brent Randall is a JD candidate at the University of Ottawa.

Kimberly-Clark, manufacturer of infant diapers and training pants under the Huggies brand name, was recently denied a motion to dismiss a counterclaim made against it regarding patents for its products.  First Quality Baby Products claims that Kimberly-Clark, “uses its patents to disrupt competitors and to maintain a monopoly in the disposable diaper and training pants market.”

According to the Pennsylvania judgment, Kimberly-Clark currently maintains 35% of the market share for disposable baby diapers and a 75% market share in the training pants market.  First Quality claims that it is this financial strength that enables Kimberly-Clark to drain the resources of private label manufacturers through “sham litigation” as a means to protect their market share.  First Quality alleges such litigation is a “sham” because Kimberly-Clark litigates to enforce patents that are either invalid, procured through fraud on the patent office, or not actually infringed.

Since the decision was only regarding the motion to dismiss, much of the evidence is minimally weighed for the sake of finding that the allegations are sufficiently justified to continue to trial.  Regardless of the actions of Kimberly-Clark in this case, the decision does bring up a topic worth considering: what is anti-competitive behaviour in the Canadian patent context?

It is important to distinguish the line between the monopoly legally given to a patent holder and anti-competitive behaviour.  As Binnie J. wrote in Apotex Inc. v. Wellcome Foundation Ltd., “[a] patent…is a method by which inventive solutions to practical problems are coaxed into the public domain by the promise of a limited monopoly for a limited time.”  The US Department of Justice and Federal Trade Commission collaborated on a report addressing the balance between IP protection and competition in 2007. The report proceeded on the basis that patent rights and competition laws are intended to work together to bring better technologies and products to consumers at lower prices.

The recent Ontario Court of Appeal case of Harris v. Glaxosmithkline also contemplated the differentiation between “…monopoly, in the anti-competitive, unlawful sense of the word, and an intellectual property right, such as a patent.”  The case points to section 79(5) of the Canadian Competition Act which specifically excludes the enjoyment of a right derived under the Patent Act from those acts deemed anti-competitive.  Recognizing that patent rights can be abused in ways that may be anti-competitive, section 32(d) of the Competition Act gives the Federal Court the ability to restrict their conduct or grant licences where they deem proper.

Section 79(1) of the Competition Act seems to be very useful in determining when patent rights, like those Kimberly-Clark protects with its Huggies brand, are utilized for anti-competitive acts.  The section states that if the Competition Tribunal finds a party completely controls an area of business throughout Canada, that is engaged in anti-competitive acts which may be impacting competition in the market, the Tribunal can order the prohibition of such practices.  This section refers to the abuse of a position of dominance.  In Kimberly-Clark’s case, the success of their patent has enabled them to claim a significant share of the market that potentially puts them in the position of dominance that is referenced.  It appears that when any patent brings its creator enough success that they are a major force in the market, there is an increased chance that the protection of those patent rights may cross the line into anti-competitive action.

Kimberly-Clark has several problems that need to be addressed in the continuing litigation with First Quality.  Not only must they show that their patents were not obtained fraudulently and have been infringed, but they must also show that the means by which they go about protecting their rights is not an abuse of their market dominance.