Competition law issues

Restrictions on trade

Are practices that potentially restrict trade prohibited or otherwise regulated in your jurisdiction?

Practices that have as their object or effect the prevention, restriction or distortion of competition within the European Union and may affect trade between member states are prohibited by article 101 of the TFEU. A similar prohibition applies to practices having an effect on trade within the United Kingdom under Chapter I of the Competition Act 1998 (CA). Agreements or practices relating to price fixing, output limitation, market sharing, resale price maintenance or absolute territorial protection are particularly likely to be caught by this prohibition. However, commercial agreements may contain other terms that affect competition, such as exclusivity provisions or customer restrictions. These need to be considered in their market context.

Article 102 of the TFEU and Chapter II of CA 1998 similarly prohibit practices affecting trade that constitute an abuse of a dominant position. This can include acts by a dominant company such as predatory pricing, refusal to supply and tied selling.

Serious infringements of these prohibitions carry heavy penalties. Agreements that infringe article 101 and the Chapter I prohibition may be partly or wholly unenforceable. Such agreements can be investigated by the competition authorities (in the United Kingdom, the Competition and Markets Authority (CMA) or the European Commission), and may also be the subject of private litigation.

Legal restrictions

Are there any legal restrictions in respect of the following provisions in licence agreements: duration, exclusivity, internet sales prohibitions, non-competition restrictions and grant-back provisions?

The prohibitions outlined in question 26 can apply to licence agreements. Licences that comply with the terms of the TTBER are deemed compliant with competition law. Licence agreements outside of the block exemption require fuller consideration, with the assistance of the Technology Transfer Guidelines.

The duration of a licence rarely leads to competition concerns in itself, although it can be problematic where restrictions continue to apply to a licensee after a licensed right has expired.

Exclusivity may be permitted, depending on the market context; a licensor can also generally prevent licensees from actively soliciting customers from other countries. However, if a licence confers absolute territorial protection, it is likely to be found anticompetitive. Prohibitions in internet selling are treated as restrictions on passive sales, and are usually prohibited, although bans on third-party platforms may be permitted in selective distribution systems (Case C-230/16, Coty).

Direct or indirect non-compete obligations that last longer than five years are specifically excluded from the Vertical Agreements Block Exemption (applicable to brand licences contained in distribution agreements). Licensors are not permitted to prevent licensees from exploiting their own technology, but other non-compete obligations are permitted under the TTBER.

Exclusive grant-back provisions, where the licensee is required to assign or license improvements back to the licensor on an exclusive basis, are likely to breach competition law. Non-exclusive grant-backs are permitted under the TTBER.

IP-related court rulings

Have courts in your jurisdiction held that certain uses (or abuses) of intellectual property rights have been anticompetitive?

The United Kingdom’s competition regulator, the CMA, has held in Paroxetine (Case CE-9531/11), that patent settlement agreements that delay entry of a generic drug in return for value transfers (a ‘pay for delay’ deal) breached the prohibition against anticompetitive agreements and amounted to an abuse of the patentee’s dominant position. GSK appealed the decision to the Competition Appeals Tribunal, which referred a number of questions to the Court of Justice of the European Union (CJEU) in March 2018. Judgment is pending. Similar decisions have been reached by the European Commission and the General Court of the European Union; these are currently binding on UK courts. In Case C-179/16, Hoffmann-La Roche Ltd, Roche, the CJEU warned that entering into a licence agreement that complies with competition law does not justify later anticompetitive conduct connected to that licence.

Certain patent life-cycle management strategies in the pharmaceutical sector have also been held to be anticompetitive. ‘Product hopping’, which encourages a switch from a product for which a patent is about to expire to a newly patented product with no generic alternatives, has been held anticompetitive where the company recommending the switch intends to limit generic competition (see Reckitt Benckiser, Case CA98/02/2011).

In Case C-170/13, Huawei v ZTE, the CJEU has held that in certain circumstances it may be anticompetitive for holders of standard essential patents that have committed to license those patents on fair, reasonable, and non-discriminatory (FRAND) terms to seek injunctions against potential licensees. In Unwired Planet v Huawei ([2017] EWHC 711 (Pat)) the English High Court was willing to set a global FRAND rate and licence terms, and impose an injunction for failure to accept those terms. Conversely, a licensor who failed to grant a licence on terms established by the Court to be FRAND would be refused an injunction. The English Court of Appeal upheld this decision in October 2018 ([2018] EWCA Civ 2344).