The European Union adopted on March 21, 2014, revised competition rules for the transfer of technology covering certain categories of agreements for licensing of patents, know-how and software copyrights. The EU reaffirmed its long-held view that technology transfers are generally pro-competitive. Under the terms of the new technology licensing rules, they are ‘block exempted’ from the application of the European competition prohibitions on anticompetitive agreements, provided certain conditions are met.
This is the latest in a series of Technology Transfer Block Exemption Regulations (TTBER) creating a ‘safe harbor' for licensing agreements between companies provided that the parties have limited market share, i.e. not exceeding 20% for agreements between competitors and 30% for agreements between non-competitors and provided that the agreement otherwise satisfies the conditions set out in the TTBER. Agreements that meet these conditions are considered compatible with the EU competition rules.
Even if the TTBER’s safe harbor market share thresholds are exceeded, there is no presumption that the agreement will be illegal or be incapable of exemption under the EU competition rules. However, an assessment of the likely effects of the individual agreement is required.
Along with the TTBER, the European Commission (‘Commission’) issued companion Technology Transfer Guidelines, which are an essential point of reference in assessing the legality of restrictions contained in license agreements that fall outside the scope of the TTBER. The guidelines are particularly important since parties to an agreement can no longer seek an individual exemption from the Commission and must litigate the legality the agreement in a member state national court.
What Are the Main Changes to the TTBER and the Guidelines?
The new rules clarify that the TTBER applies only to the extent that other potentially applicable block exemptions (e.g., R&D and specialization agreements) do not apply.
The new transfer technology rules also clarify that they now cover and exempt from Article 101 TFEU together with the technology transfer agreement itself provisions in technology transfer agreements relating to the purchase of raw material or equipment by the licensee or the use of the licensor trademark to the extent that those provisions are directly related to the production or sale of the licensed products.
All passive sales restrictions between licensees – with no exception - will no longer be covered by the new TTBER. These restrictions are considered as ‘hardcore’ restrictions. If included, hardcore restrictions preclude the protections provided by the TTBER.
Equally, exclusive grant-back obligations (provisions obligating the licensee to license back to the licensor on an exclusive basis and not use its own improvements to the licensed technology itself) do not benefit from the new TTBER and require an individual assessment. There is no distinction made between severable and non-severable improvements. However, the rest of the agreement can still benefit from the TTBER.
Termination clauses in non-exclusive licensing agreements (allowing the licensor to terminate the agreement if the other party challenges the validity of the licensed technology) also fall outside the exemption and therefore require an individual assessment. The Commission believes that in many cases a termination right – due to the licensee’s significant investment on the license - may have the same effect as a no-challenge clause. No-challenge clauses do not benefit from the safe harbor under the TTBER.
The Commission Guidelines have been updated to reflect the changes in the TTBER as described above. In addition, two main changes have been brought respectively on the section on settlement agreements and the one on technology pools (patent pools).
The revised Guidelines clarify that certain settlements agreements may be prohibited especially where the settlement involves a value transfer or restrictions not based on the value of the technology, including so called ‘pay for delay’ and ‘reverse payment patent settlement’ agreements.
Furthermore, the revised Guidelines also questions no-challenge clauses in settlement agreements that prohibit future challenges to a patent, in circumstances in which the patent holder knows or could reasonably be expected to know that the criteria for patentability are not met (i.e., patent granted on the basis of incorrect or misleading information).
Concerning the section on patent pools, the revised Guidelines clarify that the inclusion of non-competitive technology in a pool is an important factor in assessing whether a patent pool is pro-competitive. The definition of ‘essentiality’ of a technology covers not only essentiality in relation to producing a particular product but also essentiality in relation to complying with a standard.
The Guidelines also clarify that licensing agreements between a pool and third parties in principle fall outside the scope of the TTBER and therefore must be assessed individually.
Finally, the revised Guidelines provide a safe harbor for the creation and licensing by a patent pool, provided certain conditions are met. The Commission believes that most patent pools will be able to satisfy the conditions.
The new rules will come into force on 1 May 2014. Companies whose license agreements do not satisfy the conditions for exemption under the new TTBER will have until 30 April 2015 to bring them in line with the new requirements provided that their agreements already in place on 30 April 2014 comply with the current 2004 technology transfer rules.