The European Commission has just published the definitive text of the new rules on the interface between technology transfer agreements and antitrust law. This article looks at the main changes made by the new law.
On 28 March 2014, following a public consultation process initiated in February 2013, the European Commission published a revised Commission Regulation EU 316/2014 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of technology transfer agreements (the so-called Technology Transfer Block Exemption Regulation) with accompanying guidelines. The new rules will enter into force on 1 May 2014 and replace the previous regulation (EC 772/2004) and accompanying guidelines, which will expire on 30 April 2014.
The new Regulation will apply not only to new technology transfer agreements entered into from 1 May 2014 onwards but also, as of 30 April 2015, to agreements concluded under the old regime.
The Regulation provides a safe harbour under Article 101(3) of the EU Treaty that prevents licence agreements being challenged under Article 101(1) of the EU Treaty (the prohibition of anti-competitive agreements). While the main principles underlying the Regulation remain the same, certain changes are worthy of mention.
Extension of the exemption
First of all, the exemption applies from now on even to technology licences containing other elements, such as obligations to buy raw materials or equipment from the rights owner, as long as these are directly related to the products which the licensee makes with the licensed technology. This is the case even if those other elements are more valuable than the licensed technology – good news for industry, since this will extend the scope of the safe harbour.
However, most of the other changes restrict that scope and so expose licences to a greater risk of being found anti-competitive and, potentially, unenforceable in their entirety.
Under both the old and new Regulations, the safe harbour applies where the parties’ combined market shares are below 20% if they are competitors, and 30% if they are not.
The new Regulation clarifies the basis for calculating the licensor’s share of a technology market. Its predecessor was silent on this, leaving it to the guidelines to set out alternative approaches. A single approach has been adopted under the new rules – using sales data for the products produced by the licensor and all its licensees in the relevant geographical catchment area.
A further key change, likely to particularly concern licensees expected to expend significant effort in developing the licensed technology, relates to passive sales. These are unsolicited sales made to customers outside a licensee’s allotted territory – sales made “passively” in response to an order, rather than “actively” through marketing efforts in that territory. The old Regulation was out of step with other safe harbour rules, as it protected a licensee from passive sales into its territory by other licensees, for the first two years of the licensee’s sales. That two-year period has now been removed so that passive sales are now allowed from day one of the licence. Any ban on passive sales is treated as a “hardcore” restriction of competition, taking the entire licence outside the safe harbour. Licensees cannot therefore protect themselves from incursions into their exclusive territory in the form of passive sales by other licensees.
Termination on challenge and exclusive grant-backs
In addition, two well-used ways of legitimately getting around antitrust restrictions have been removed or cut back. The consequences of including them in a licence are less drastic than for passive sales bans - they are not treated as hardcore, so that the remainder of the agreement continues to benefit from automatic exemption, but the clauses themselves are unenforceable, unless they can be justified under the general EU rules on exemption, which need to be applied on a case-by-case basis. They are as follows:
- An outright prohibition on the licensee challenging the licensed intellectual property right (e.g. applying to invalidate the licensed patent) remains inadmissible under the new Regulation. Under the old Regulation, however, parties were allowed to give the licensor the right to terminate if the licensee brought a challenge and this was a commonly used work-around. Under the new Regulation, termination on challenge clauses are only covered by the safe harbour if the licence is exclusive. Termination clauses in non-exclusive licences are excluded from the exemption, which means that they can be scrutinized and potentially declared anti-competitive by antitrust authorities. This is a welcome change from the interim draft text, which would have taken all termination on challenge clauses outside the scope of the safe harbour.
- Before, a licensor could not insist on owning improvements to its IP which the licensee made, but it could insist on these being exclusively licensed back to it (so achieving a similar effect) where those improvements were “non-severable” – meaning that the improvements could not be used without also infringing the underlying patent, or disclosing the underlying know-how. This carve-out from the antitrust rules has disappeared from the safe harbour. All exclusive grant-backs are now excluded from the safe harbour, regardless of whether the improvements are severable or not, so that at most, a licensor looking to bring all its licence terms within the scope of the exemption can require only a non-exclusive licence of improvements, leaving the licensee free to exploit them.
Settlement agreements and technology pools
Finally, the guidelines accompanying the Regulation have also been amended, in particular in relation to settlement agreements and to technology pools (such as patent pools between several companies).
Whilst settlement agreements can often be pro-competitive, the revised guidelines note that “pay for delay” clauses, and others where a licensee takes payment in exchange for more restrictive settlement terms, might be anti-competitive. The Commission will be particularly attentive to the risk of market allocation or market sharing through pay for delay clauses, which can take the whole of the settlement agreement outside the safe harbour, since these are hardcore restrictions. Other clauses in settlement agreements also fall outside the safe harbour and may be declared anti-competitive, for instance cross-licensing of IP between competitors and no-challenge clauses.
Similarly, technology pools can be pro- or anti-competitive. For a pool to be treated as pro-competitive, the technology in it must be essential. The guidelines clarify the meaning of “essential”: there must be no viable substitutes both from a commercial and technical point of view, and the technology must be necessary either to produce the product(s) or carry out the process(-es) to which the pool relates, or to comply with the standard supported by the pool. They also set out the conditions under which both the creation of a pool and licensing of technology by the pool to third parties generally benefit from the exemption.
The new Regulation and guidelines can be found here:
Press releases are available here: