The Swiss Competition Commission Are Coming! Novartis Dawn Raid shows clash between patent exclusivity and anti-competitive behaviours

The Swiss Competition Commission Are Coming! Novartis Dawn Raid shows clash between patent exclusivity and anti-competitive behaviours

Meena AlnajarMeena Alnajar is an IPilogue Senior Editor and a 3L JD Candidate at Osgoode Hall Law School .

A patent protects your intangible property from others’ use, but what happens when patent protection operates in a way that ensures no other innovators can build upon a patented invention? When IP and competition clashes, authorities will step in to regulate as demonstrated in a recent dawn raid.

On September 13, 2022 the Swiss Competition Commission (“COMCO”) visited the pharmaceutical company Novartis’ headquarters in Switzerland at dawn. A rather unusual visit, COMCO proceeded to raid the company’s headquarters for all information related to an unidentified dermatology drug. According to the regulator, the drug’s patent could be a blocking patent unlawfully used to prevent competing products’ entry into the market. Novartis is allegedly protecting its dermatology drug by using one patent to launch litigation proceedings against possible competitors in the market. Here we see IP and competition law colliding with blocking patents wielded as an anti-competitive tool.

A blocking patent can prevent another inventor from using the patent’s technology or improving it. A blocking patent is often cited by examiners during the patent application examination phase to block a patent application or a patent’s challenger (such as those claiming an existing patent should be invalid). On July 22, 2021, the U.S. Federal Court held in Chemours v. Daikin that “[a] blocking patent is one that is in place before the claimed invention because such a blocking patent may deter non-owners and non-licensees from investing the resources needed to make, develop, and market such a later, ‘blocked’ invention.” A blocking patent is therefore broad in scope to deter people from innovating in any way related to the blocking patent. Overall, these patents are a helpful business tool, blocking a competitor to conserve the patent’s commercial success while also observing where competitors are attempting to innovate. But when too successful, the blocking patent has a chilling effect on competition. Innovators’ fear of infringement liability overtakes their willingness to build on the invention and the blocking patent becomes an anti-competitive red flag to regulators.

In the Novartis investigation, authorities are questioning whether Novartis is acting appropriately with its drug patent. The investigation is still in its early stages and shares in the company have slightly fallen after the raid was announced. Regulators unexpectedly taking a business’ commercially sensitive information is not ideal. The investigation thus raises a further question, when does a business’ patent portfolio become anti-competitive and subject to a raid?

Patent rights and anti-competitive practices can overlap. Patent holders should take action to ensure that their IP use does not violate their jurisdiction’s competition law. Balance must be maintained in the patent system through the following means: setting strict patent content boundaries, preventing exclusive licensing that stops other competitors from market entry, and preventing restrictive selling practices where patent rights are used to price fix. While blocking patents can close the doors to competitors, these patents can open the doors for someone else, like regulators, to come in and conduct their information raids.