European Commission Proposes Changes to the Rules Applicable to Technology Licensing

On 20 February 2013, the European Commission launched a public consultation in relation to a draft proposal for a revised block exemption for technology transfer agreements (the proposal).  The Commission seeks to improve and update the current legal regime on technology licensing, with a view to encouraging competition, strengthening incentives for research and development activities and facilitating the diffusion of intellectual property.

Background

Technology transfer agreements (license agreements that relate to the use of the licensor’s technology) are governed by the 2004 Technology Transfer Block Exemption Regulation (TTBER), which seeks to ensure that holders of intellectual property rights (IPRs) do not use their patents to divide markets or exclude competing technologies.  Together with the accompanying Guidelines on Technology Transfer Agreements (the Guidelines), the TTBER sets out rules pursuant to which technology licence agreements are to be assessed and guidance as to which agreements can benefit from automatic antitrust exemption and how agreements ought to be treated once they fall outside the TTBER safe harbour criteria.

These two legislative instruments will expire on 30 April 2014.  As a result, and having regard to an earlier consultation on the rules for the assessment of licensing agreements, the Commission is now seeking to revise the current legal framework.  It has published two draft proposals that set out the suggested amendments: one in relation to the TTBER and one in relation to the Guidelines.

Proposed Changes to the TTBER

Changes to the TTBER focus on, inter alia, the following areas.

Market share thresholds

The proposal suggests lowering the market share thresholds below which certain types of technology transfer agreements concluded between non-competing firms are deemed to be pro-competitive.  The TTBER exemption only takes effect currently if the combined market share of the parties to the technology licence agreement does not exceed 20 per cent when they are competitors, or 30 per cent when they do not compete.  Under the proposed rules, however, the 20 per cent threshold would also apply to agreements between non-competing firms, if the licensee already owns technology that it uses only for in-house production and is substitutable to the licensed technology.  The proposed extension of the 20 per cent ceiling to such agreements is expected to reduce the likelihood that a party to a technology licence agreement is able to restrict downstream competition by obtaining exclusive access to a substitutable technology.  The Commission believes the current 30 per cent threshold that is applicable to non-competitors does not capture sufficiently the higher potential for anti-competitive effects that such licensing agreements may have on downstream product markets.  

Termination and non-challenge clauses

Non-challenge clauses do not benefit from the safe harbour of the TTBER.  Although the agreement in question could still benefit potentially from the exemption, the non-challenge clause will not.  In the proposal, the Commission suggests that termination clauses that allow the licensor to terminate the agreement if the other party challenges the validity of the licensed technology should also attract the same rule, i.e., including such a clause does not prevent the remaining part of the licence agreement from benefiting from the exemption.

Passive sales restrictions between licensees

Article 4 of the TTBER provides a list of the so-called hardcore restrictions, the use of which prevent the application of the exemption to the agreement in question.  The Commission now proposes to remove Article 4(2)(b)(ii) TTBER (on restrictions protecting a licensee from passive sales from other licensees into its exclusive territory or to an exclusive customer group during the first two years of an agreement) from the list of hardcore restrictions.  As a result, passive sales would have to be permitted from the conclusion of the licence agreement, provided they can be justified as objectively necessary for the licensee to penetrate a new market.

Purchases of raw materials

The European regulator has suggested that the new TTBER should apply to other provisions in technology licence agreements that are directly and exclusively related to the products produced with the licensed technology.  More specifically, it is proposed that the exemption should apply to elements such as obligations to buy raw materials or equipment from the rights owner.  The Commission intends consequently to extend the scope of the current safe harbour criteria by introducing a new test for deciding whether any provisions, along with the technology transfer agreement itself, ought to be exempted as well.

Exclusive grant-backs

Under the current framework, a licensor cannot insist on owning improvements to its IP that have been made by the licensee, but it can insist on these being licensed back on an exclusive basis (grant-back) where these improvements are non-severable, i.e., when they cannot be used without simultaneously infringing the underlying patent rights, or disclosing the know-how.  The Commission now proposes, however, to treat all grant-backs equally, that is, without making a distinction between severable and non-severable improvements.  As a result, all exclusive grant-backs would fall outside the scope of the TTBER, thus requiring individual assessment under Article 101 of the Treaty on the Functioning of the European Union (TFEU).  The rest of the licence agreement will still be able to benefit from the exemption.  In practice, this will mean that a licensor could only require a non-exclusive licence for any improvements, and the licensee will be free to exploit the improvements.  

Proposed Changes to the Guidelines

Patent pools

Technology pools, consisting of patents and other types of intellectual property, can be either pro- or anti-competitive.  For a technology pool to be regarded as pro-competitive, the technology and IPRs would have to be complementary i.e., non-competing.  For the purpose of assessing whether a technology pool is pro-competitive, the Commission proposes to clarify what constitutes “complementary technology”, thereby indicating what structure—in terms of the selection and nature of the pooled technologies—a pool should take in order to limit antitrust exposure under Article 101 TFEU.

The proposed draft Guidelines provide explicitly that the creation and operation of a pool will generally fall outside the scope of Article 101 TFEU, irrespective of the market position of the parties.  The Guidelines also state that licences between the technology pool and a third party would not be covered by the TTBER, and hence would not benefit from the exemption contained therein, since licensing out is considered to be a multiparty agreement.  Some guidance as to the assessment of individual restraints in agreements between the pool and its licensees would nevertheless be provided in the Guidelines.  

Settlement Agreements

Agreements that settle ongoing patent litigation are generally not regarded as anti-competitive, provided they do not go beyond the scope of the protection afforded to the intellectual property in question, that entry to market is not prevented or delayed and there is no reverse payment.  In its proposed Guidelines, the Commission mentions explicitly that individual terms and conditions of settlement agreements may run counter to EU competition law.