On 21 March 2014, the European Commission (Commission) adopted a revised set of rules for the assessment of technology transfer agreements by the Commission and national competition authorities. The new Technology Transfer Block Exemption Regulation (TTBER) and accompanying Technology Transfer Guidelines (Guidelines) will enter into force on 1 May 2014. The revised regime provides clearer and, arguably much needed, guidance on licensing agreements. This enhanced clarity should make it easier for businesses to assess whether or not their licensing and other collaborative practices aimed at the transfer of technology are in compliance with EU competition law.
The TTBER lays down a safe harbour for certain licensing agreements. In essence, this means that those licensing agreements that do not contain certain blacklisted provisions and are entered into between companies that command only limited market power will be deemed not to infringe competition law. The Guidelines provide guidance on the application of the TTBER and on how EU antitrust rules apply to licensing agreements that do not qualify for the safe harbour.
Key Features of The New Regime
Market share thresholds and black-listed restrictions remain unchanged
A safe harbour is maintained under the TTBER for licensing agreements if the contracting parties have limited market power and the agreements do not contain certain specific hardcore restrictions. The relevant market share thresholds remain unchanged, i.e., combined market share of 20 per cent in a horizontal scenario and 30 per cent for each of the parties to vertical agreements.
It is important to note that the TTBER only applies to bilateral agreements and not to multi-party agreements, such as patent pools. Multi-party agreements are assessed under the substantive antitrust rules under Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU). Another important point is that the list of hardcore restrictions remains unchanged in substance.
Two new types of clause no longer automatically benefit from the safe harbour (excluded restrictions)
Clauses that allow the licensor to terminate a non-exclusive agreement if the licensee challenges the validity of the intellectual property rights will henceforth have to be assessed on a case-by-case basis. The same applies to clauses that force the licensee to license any improvements it makes to the licensor on an exclusive basis.
Both types of clause are fairly common in licence agreements. These changes are therefore likely to affect a significant number of licence agreements that will suddenly be left without the cover of the safe harbour provision.
New test for provisions concerning the purchase of raw material or equipment contained in licence agreements
The safe harbour now covers such provisions if they are directly related to the production or sale of the contract products, which are produced with the licensed technology. Under the previous test, in order to benefit from the exemption they needed to be “less important” than the actual licensing of technology.
Other Significant Changes
The Guidelines now clarify that settlement agreements between actual or potential competitors may infringe Article 101 TFEU if there is a significant value transfer from the licensor to the licensee that causes the licensee to forego or delay market entry. This clarification has been inserted by the Commission to reflect the position adopted in recent cases where it has qualified certain settlements in the pharmaceutical sphere as “pay-for-delay” or “reverse settlements” aimed at artificially prolonging the life of spurious patents.
Non-challenge clauses in settlement agreements may be prohibited by Article 101 TFEU under specific circumstances. For example, a non-challenge clause may infringe Article 101 TFEU where an intellectual property right was granted following the provision of incorrect or misleading information. The Commission also highlights that scrutiny of such clauses may be necessary if a licensor, in addition to licensing the relevant technology rights, induces a licensee to agree not to challenge the validity of the technology rights, for example.
So called patent pools receive relatively extensive treatment in the Guidelines. A principal point to note is that the creation and operation of a pool, including licensing out, generally fall within a safe harbour where
- Participation in the pool creation process is open to all interested technology rights owners.
- Sufficient safeguards are adopted to ensure that only essential technologies (a logical corollary of which is that they are also complements) are pooled.
- Sufficient safeguards are adopted to ensure that the exchange of sensitive information is restricted to what is necessary for the creation and/or operation of the pool.
- The pooled technologies are licensed into the pool on a non-exclusive basis.
- The pooled technologies are licensed out to potential licensees on terms that are fair, reasonable, and non-discriminatory, as defined in the Horizontal Cooperation Guidelines.
- Licensees and the parties contributing technology to the pool are free to challenge the validity and the essentiality of the pooled technologies.
- The licensee and parties contributing technology to the pool remain free to develop competing products and technology.
The original TTBER entered into force on 27 April 2004 and came up for renewal after 10 years. Although the Commission has shown little direct enforcement action in relation to the current TTBER and the Guidelines, the new rules intend to reflect the Commission’s vision for technology licensing as it has evolved over the past decade. The TTBER and the Guidelines apply to licensing agreements between a licensor and a licensee, permitting the latter to exploit patents, know-how or software for the production of goods and/or the provision of services. Licensing agreements often produce pro-competitive effects and this is specifically recognised by the European Union as reflected in the provisions of the TTBER and the Guidelines.
Conversely, licensing agreements can also be injurious to competition and thus lead to an infringement of Article 101 TFEU, e.g., when they are used to allocate markets. The TTBER and the Guidelines therefore assist business with staying on the right side of the law when entering into a licensing agreement, and provide for an increased level of legal and business certainty going forward.
Licensing in the majority of cases is pro-competitive, often leading to the diffusion of know-how and spurring innovation. That the core tenets of the new regime continue to reflect this means they are to be welcomed. At the same time, the scope of the safe harbour has been narrowed and certain guidelines, notably on patent settlements, appear to have been inserted in haste and in support of certain ongoing cases that remain controversial at this time and have not yet been tested before the courts.
The clearer guidance on certain fundamentals underpinning technology licensing agreements comes amid heightened enforcement activity by the Commission with respect to the interplay of intellectual property and the competition rules. Businesses are therefore recommended to bring their licensing practices into line with the new rules in order to avoid their licensing arrangements becoming unenforceable, or worse, that they are faced with sanctions or damages claims.
Partners Lionel Lesur and Veronica Pinotti have contributed on this article.