PROPOSED AMENDMENTS TO EU LAW ON TECHNOLOGY TRANSFER AGREEMENTS

OVERVIEW

■ The European Commission ("Commission") is

currently reviewing its rules for the assessment of

technology transfer agreements under EU

competition law. In December 2011 it conducted a

consultation and has now proposed a revised draft

Technology Transfer Block Exemption Regulation

("TTBER") and revised draft Guidelines on

Technology Transfer Agreements ("Guidelines").

The Commission is now consulting on the

proposals, and interested parties have until 17 May

2013 to make submissions.

■ Various significant changes are being proposed to

the provisions relating to exclusive grant backs,

termination rights, settlement agreements and

removing the safe harbour on passive sales as well

as numerous clarifications to the Guidelines.

PROPOSED CHANGES TO THE TTBER

The following are the substantive changes to the

TTBER proposed by the Commission.

Subsidiarity of the TTBER

The Commission proposes to clarify that the TTBER

be subsidiary to other regulations - for example where

the licensing occurs in the context of a R&D joint

venture then the existing R&D Block Exemption or

the Specialisation Agreements Block Exemption

would apply1.

TTBER not to be a catch all

It also clarifies the relationship with the Vertical

Agreements Block Exemption (VABE). For example,

where the purpose of a licensing agreement is to

enable the reproduction and distribution of copyright

protected products, this amounts to a distribution

agreement and should be analysed under the VABE

and the associated Guidelines2.

PROPOSED AMENDMENTS TO EU LAW ON TECHNOLOGY TRANSFER AGREEMENTS

1 Commission Regulation 1217/2010 OJEU L 335, 18.12.2010, p36; and Commission Regulation 1218/2010 OJEU L 335, 18.12.2010, p43. 2 Commission Regulation 330/2010 OJEU L 102, 23.4.2010, p1-7; and Guidelines on Vertical Restraints, OJEU C 130, 19.05.2010, p1.

02 | EU Law on Technology Transfer Agreements

Out with the old test, in with the new

For agreements involving both the licencing of IPR and

purchase of raw material, a new test has been proposed to

establish whether the secondary obligations can be

exempted under the TTBER. The current test requires

(i) the licensing to be the primary object of the

agreement, and (ii) the other products are directly related

to the licensed IP. However, this has been notoriously

difficult to apply, particularly where the value of the

other products (eg related raw materials) was greater than

the IP being transferred. In those cases, the obligations

relating to the other products were not covered by the

existing regulation (on the basis that the licencing was no

longer deemed to be the primary purpose of the

agreement). The proposal sets out a new test which

requires the other products be directly and exclusively

related to the production of the licensed products. The

intention here is that this will give licensors greater

certainty in circumstances where the value of the other

products exceeds the value of the licensed IP.

Market shares

The current TTBER states that the parties' shares on the

downstream market must be assessed as it is a proxy for

their power on the technology market. The proposed

revision makes it clear that this applies not only in

relation to the technology market but also in relation to

its geographic market.

Agreements with non-competitors

Where a licensee already has a substitutable technology

used for in-house production, and wishes to use obtain a

licence for third party sales, the proposed revision

requires the parties' market share to comply with the

threshold set for agreements between competitors (20 per

cent). The Commission considers that such agreements

entail a higher risk of anti-competitive effects: the

concern here is that the licensee with its own internal

technology may foreclose potential entrants by entering

into an exclusive license with the licensor. The

Commission considers that because of the higher risk of

anti-competitive effects, such agreements should be

subject to the lower market share threshold. Agreements

between non-competitors will remain subject to a

different hard-core list than agreements between

competitors.

Passive sales not to be automatically protected

The current exemption allows a restriction on passive

sales into an exclusive territory or to an exclusive

customer group of another licensee for the first two years

of the license covering that territory or customer group.

The Commission maintains that where a licensee must

invest heavily in order to use the licensed technology, the

licensee can be protected from active and passive sales

into its territory or to its customer group. However, the

Commission does not want this exception to apply to all

cases, particularly where no substantial investment is

required by the licensee. Accordingly, the Commission

proposes to remove this from the TTBER. However, the

revised Guidelines explicitly state that such restriction

may be allowed where substantial investment by the

licensee is required and must be protected.

Grant-backs to be excluded

The current TTBER excludes from its scope exclusive

grant-backs for severable improvements. However, the

Commission now proposes to remove the distinction

between severable and non-severable improvements, and

to exclude all exclusive grant-backs from the exemption

of the TTBER. (Non-exclusive grant-backs will be

covered by the TTBER.)

Right to terminate if IP challenged to be excluded

The Commission remains keen to ensure that any only

valid IP rights are enforced and recognises that licensees

are the best placed to challenge invalid rights.

The current TTBER provides that a restriction on the

licensee to challenge the validity of intellectual property

rights is an excluded restriction (ie not exempt). The

proposed revision also excludes any termination on the

basis of challenging intellectual property rights. The

Commission believes that in many cases - due to the

licensee's heavy investment for and reliance on the

license - the effect of a termination clause can amount to

a non-challenge clause.

PROPOSED CHANGES TO THE GUIDELINES

The changes to the accompanying Guidelines mainly

reflect the changes to the TTBER, and the drafting has

been clarified. The main changes are with regard to

settlement agreements and patent pools.

Settlement agreements

The revised Guidelines clarify that settlements may be

prohibited when the licensee agrees (in return for a value

transfer) to more restrictive settlement terms than would

otherwise have been accepted based solely on the

strength of the licensor's technology. The Commission is

currently pursuing various cases on reverse patent

settlements and has yet to reach a final decision in any of

them. The general message from the Commission is that

reverse payments make the settlement agreement

suspicious and indicate that the licensee would - but for

the reverse payment - have entered the market. There is

likely to be significant debate still as to what is meant by

"a value transfer".

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Non-challenge

The revised Guidelines clarify that non-challenge clauses

are likely to be anti-competitive where the licensor

knows or could reasonably be expected to know that the

licensed technology does not meet the respective legal

criteria to receive intellectual property protection. This is

one area where we expect significant comment, given

that it undermines the validity of a patent or other IP

right duly granted.

Patent pools

■ An important factor in assessing whether a patent

pool is pro-competitive is whether only non-

competing technology is included in the pool. The

revised Guidelines clarify that 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.

■ As regards licensing agreements between a patent

pool and third parties, the current Guidelines state

that they may be able to benefit from the TTBER.

The revised Guidelines clarify that licensing

agreements between a patent pool and third parties

fall outside of the TTBER. The reason for excluding

such agreements from the scope of the TTBER is that

in practice the terms of such agreements are agreed

by the pool members. The agreements are thus

multilateral agreements, while the Enabling Council

Regulation allows for block exemption regulations in

relation to bilateral agreements only. In any event,

even if the TTBER were to apply, the market share

thresholds would have been exceeded where the

patent pool was a successful one.

■ The revised Guidelines provide a comprehensive safe

harbour for the creation of and licensing by a patent

pool3. The conditions for the safe harbour are

conveniently set out in four pages in the revised

Guidelines, and the Commission believes most patent

pools will be able to satisfy the conditions.

The Commission's consultation closes on 17 May 2013

Copies of the draft proposals and details about how to

submit comments are available on the Commission's

website:

http://ec.europa.eu/competition/

consultations/2013_technology_transfer/index_en.html.

For more information please contact:

3 See recital 244 of the draft revised Guidelines.

Alexandra Kamerling

Partner

T +44 (0)20 7796 6490

[email protected]

Duncan Gillespie

Partner

T +44 (0)20 7796 6259

[email protected]

Martin Rees

Partner

T +44 (0)20 7796 6126

[email protected]

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