March 27, 2014
On March 21, 2014, the European Commission (the Commission) adopted a new EU Technology Transfer Block Exemption Regulation (TTBER) and Guidelines, which set out revisions to the EU antitrust rules on technology transfer agreements such as patent, knowhow, and software licensing agreements.
Following an earlier public consultation launched in 2011 on the operation of the current system, the Commission proposed new versions of the TTBER and Guidelines in February 2013 to replace the existing rules, which expire on April 30, 2014. Following a further round of public consultation on the proposed drafts, the Commission has now adopted final versions, and the new rules will come into effect on May 1, 2014.
The EU antitrust rules, and in particular Article 101 TFEU (which prohibits anti-competitive agreements), apply to technology transfer agreements. However, as the vast majority of technology licences are pro-competitive, the TTBER provides a “safe harbour” by exempting certain bilateral agreements from the application of Article 101 TFEU, provided that the companies fall below certain market share thresholds (i.e., 20% for agreements between competitors, and 30% for agreements between non-competitors) and that certain other conditions are met. To provide further assistance in determining when licensing agreements might raise potential concerns, the Guidelines describe how the Commission is likely to apply the TTBER, and how it is likely to apply the antitrust rules to agreements that fall outside the scope of the TTBER.
The new TTBER and Guidelines retain the existing market share thresholds, and retain substantially the same list of “hardcore” clauses between competitors that are excluded from the scope of the TTBER because they are sufficiently likely to give rise to competition concerns (although the list has simplified). There are relatively minor incremental changes made to the current framework. The main changes are as follows:
- Revised scope of application. The TTBER would apply only when certain other block exemptions are not applicable (e., block exemptions on R&D agreements and specialisation agreements). In addition, the TTBER would apply to obligations to purchase products (such as raw material/equipment) from a licensor, or to agreements to license other IP rights from the licensor that are distinct from the technology licence (such as a trademark), only if these obligations are directly related to what the licensee produces with the licensed technology.
- Removal of safe harbour protection for certain provisions. Certain clauses commonly used in licensing agreements would no longer automatically benefit from the safe harbour of the TTBER, but would instead require individual assessment of their likely competitive effects. This would include the following:
- Grant-back clauses. All exclusive grant-back clauses that require the licensee to grant back improvements exclusively to the licensor will now fall outside the TTBER and require individual assessment. Non-exclusive grant-back clauses are still covered by the TTBER.
- Termination clauses where IP is challenged. Termination clauses in non-exclusive licensing arrangements that permit the licensor to terminate the agreement if the licensee challenges the licensed technology will fall outside the scope of the TTBER and require individual assessment. However, termination clauses in exclusive licensing arrangements will continue to benefit from the safe harbour of the TTBER. No-challenge clauses that prohibit licensees from challenging the validity of the licensed IP will continue to be outside the scope of the TTBER and require individual assessment.
- Passive sales restrictions. Passive sales restrictions that prevent licensees from making passive sales (e., sales made in response to unsolicited requests from customers) into the exclusive territories of other licensees for the first two years of an agreement between non-competitors will now fall outside the scope of the TTBER. All passive sales restrictions will therefore require individual assessment. The Commission has indicated that the necessity and duration of any such restrictions should be assessed on a case-by-case basis.
- New guidelines on settlement agreements and technology pools. The Guidelines include new sections on settlement agreements and patent pools:
- Settlement agreements. The Guidelines recognise that, while settlement agreements are a legitimate way in which to compromise a legal dispute, certain terms may raise concerns. The Guidelines indicate that certain agreements described by the Commission as “pay-for-delay” or “reverse payment” settlement agreements may raise market allocation concerns if the agreement includes a licence to the technology underlying the dispute and delays or limits the licensee’s ability to launch the licensed product. The Guidelines further state that no-challenge clauses in settlement agreements might raise concerns in certain circumstances, such as where the patents were originally obtained based on incorrect or misleading information.
- Patent pools. The Guidelines clarify that licensing arrangements between a patent pool and third parties fall outside the scope of the TTBER and therefore require individual assessment. However, the Guidelines further provide that patent pools can benefit from a safe harbour in respect to both the creation of and licensing out from the patent pool (regardless of the market share that the pool might obtain) provided that certain criteria are met as set out in paragraph 261 of the Guidelines. In brief, the criteria are: participation in the pool creation process must be open to all interested parties; only essential technologies may be pooled (the meaning of “essentiality” has been clarified to mean either in relation to producing a particular product or in relation to compliance with a standard); exchange of sensitive information must be limited to what is necessary for the creation and operation of the pool; pooled technologies must be licensed to the pool on a non-exclusive basis, and licensed out to third parties on FRAND terms; and pool participants and licensees must be free to challenge the validity and essentiality of the pooled technology, and free to develop competing technologies.
Further information, including the text of the new TTBER and Guidelines, is available on the Commission’s website at http://ec.europa.eu/competition/antitrust/legislation/transfer.html.