By Barry Prentice, Partner, Blaney McMurtry LLP

It’s no surprise that hospitals purchase thousands, even millions of dollars worth of capital equipment each year. Depending on the type of equipment and its intended function, it may also require the use of additional products such as tubing, electrodes, leads, etc. These additional products may have limited lifespan and, for that reason, are typically referred to as “consumables.” 

Consumables can usually be purchased from the equipment supplier (referred to as Original Equipment Manufacturer consumables or “OEM” consumables), but they are also often available from Third Parties. This sets up a competitive situation, where the OEM and the Third Party are both eager to sell their consumables to the hospital using the equipment.

The Dilemma

Is it legally permissible for an OEM to require the hospital to purchase all consumables for that equipment (referred to as a “Tied Sale”) from it in order for the hospital to maintain its warranty rights on that equipment?

How the Competition Tribunal Approaches Tied Selling

Under the terms of the Competition Act, the Competition Tribunal may prohibit
Tied Selling where its impact, if continued, would limit competition. When making such a determination, the Tribunal considers the likelihood of the Tied Sale impeding Third Parties from expanding or getting into the market (i.e., such as a seller of the consumables mentioned above).

Key Takeaway

A requirement for consumables to be purchased solely from the equipment supplier in order to preserve the warranty on that equipment (i.e. a Tied Sale) is prohibited by the Competition Act and potentially unenforceable.

It should be noted, however, that contractual language denying warranty coverage where an OEM part proves to be the cause of the equipment failure would not offend the Competition Act and may therefore be enforceable. It is accordingly recommended that hospitals carefully select non-OEM parts prior to their use in order to have confidence in both their quality and compatibility with the capital equipment .

If an equipment supplier has claimed that your warranty may be voided by using non-OEM consumables, it is recommended that you seek legal advice.

Disclaimer: The content of this article is provided for general information purposes only and does not constitute legal advice.  No-one should act or refrain from acting on the basis of this article without first seeking advice from legal counsel.