Technology Transfer Agreements: EU (European Union) Promulgates New Antitrust Rules
The licensing of technology is core to the business model of many companies operating in IP-sensitive industries. Its commercial benefits are myriad. For example, it allows a licensor to take advantage of a licensee’s greater manufacturing capacities and/or depth and breadth of sales network. It also allows a licensee to benefit, for example, from superior technology and thus to sell more attractive and better products. As such, technology transfer agreements pervade the business landscape.
The European Commission (Commission), which sits at the apex of the EU’s antitrust enforcement structure, recognizes that technology transfer agreements are capable of improving economic efficiency and that they are pro-competitive in particular by spurring research and development and innovation. The Commission is also aware that licence arrangements facilitate the diffusion of technology and know-how and generally constitute a welfare-enhancing option as compared with the alternative scenario of firms exploiting technologies themselves. With that said, the licensing of intellectual property can in certain scenarios be anti-competitive with attendant negative consequences for the consumer.
In acknowledgment of the pro- and negative effects of technology licensing arrangements, and in a bid to provide bright line guidance to business, the Commission has published various iterations of legislation and guidance pertaining to such arrangements. Ten years after the promulgation of Commission Regulation (EC) 772/2004 in 2004, on March 21, 2014, the Commission adopted a new regime for assessing technology transfer agreements under the EU antitrust rules. The revised regime comprises two instruments, namely the Technology Transfer Block Exemption Regulation (TTBER) and accompanying Technology Transfer Guidelines (TT Guidelines). These two instruments enter into force on May 1, 2014.
By way of preliminary, Article 101(1) of the Treaty on the Functioning of the European Union (TFEU) lays down a statutory prohibition of anti-competitive agreements and practices. An anti-competitive agreement or practice can, however, be saved by Article 101(3) TFEU, where the negative effects flowing from such agreement or practice are outweighed by countervailing efficiencies. Furthermore, subject to the fulfilment of certain conditions, some categories of agreement automatically benefit from Article 101(3) TFEU, i.e., they are block-exempted. Technology transfer agreements are one such category (as encapsulated in the TTBER).
The TTBER operates not by listing approved practices, but by exempting agreements as a whole on the proviso that certain conditions are met. Any restriction not expressly prohibited by the TTBER is permitted if the agreement falls within the TTBER “safe harbor.” In essence, to benefit from the safe harbor, the parties to the agreement must:
Not transgress a certain market share threshold; and
Not incorporate any “hard-core” restrictions into the agreement.
Salient Features of the New Regime
In the following, some of the most notable changes to the revised technology transfer regime are set out:
Market shares: The TTBER applies to agreements where the combined market share of competing parties is up to 20 percent. Where the parties to the agreement do not compete the TTBER applies where the parties hold a market share of up to 30 percent each.
Grant-backs: Exclusive grant-back obligations fall outside the safe harbor of the TTBER and require individual assessment as to whether they are compatible with Article 101 TFEU. All non-exclusive grant-back obligations, on the other hand, remain covered by the TTBER.
Termination clauses: In non-exclusive licence agreements termination clauses, i.e., clauses that allow the licensor to terminate the license agreement if the licensee challenges the validity of the licenses IPR, no longer benefit from the safe harbor. These clauses will now be assessed individually under Article 101 of the TFEU on a case-by-case basis.
Raw materials: The TTBER also covers provisions concerning the purchase of raw material or equipment contained in licence agreements, provided they are directly related to what the licensee produces with the licensed technology.
Settlement agreements: Settlements in the context of technology licensing are generally seen as pro-competitive. That said, the Commission has taken the stance that settlement agreements that lead to a delayed or limited ability to launch a product may be subject to Article 101(1) TFEU. Reverse payments (i.e., payment flowing from the licensor to the licensee) will attract a heightened level of scrutiny. The Commission’s concern here is that such agreements artificially extend the monopoly that owners of patented drugs enjoy in the market by delaying the launch of cheaper generic medicines.
Furthermore, where the parties cross-license each other and impose restrictions on the use of their technologies this may be challenged under Article 101 TFEU, in particular when the parties have a significant degree of market power. Non-challenge clauses contained in settlement agreements are held to generally fall outside the purview of Article 101 TFEU. However, such clauses may infringe the rules in certain specific circumstances, e.g. where an IPR was granted following the provision of incorrect or misleading information.
Technology pools: The TT Guidelines provide that the creation and operation of a pool will generally fall outside the scope of Article 101 TFEU where the following cumulative conditions are met:
Participation in the pool creation process is open to all interested IP owners;
Sufficient safeguards are adopted to ensure that only essential technologies 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 on fair, reasonable and non-discriminatory (FRAND) terms;
Licensees and the parties contributing technology to the pool are free to challenge the validity and essentiality of the pooled technologies; and
The licensee and parties contributing to the pool remain free to develop competing products and technology.
Licensing agreements between the pool and third parties continue to fall outside the ambit of the TTBER.
The revised regime purports to provide bright line guidance to businesses that have entered or are contemplating entering into technology transfer agreements. In many ways it does so, particularly with respect to the operation of patent pools, for example. With that said, when looking at the regime overall, the TTBER has created a more restrictive regime for technology transfer agreements when compared to the previous regime. As a result, it can be expected that going forward businesses will experience a greater degree of uncertainty when assessing their licensing arrangements. Indeed, given the very limited enforcement activity in the field of technology transfer agreements under the previous regime, it is difficult to understand the basis for some of the changes to the regime.