On 21 March 2014, the EU Commission adopted new competition rules for the assessment of technology transfer agreements in the European Union. These rules apply to license agreements between companies through which a licensor permits a licensee to exploit patents, know-how, software copyright and certain other intellectual property rights for the production of goods and services.
Put very briefly, the EU competition rules on technology licensing are comprised of a so-called technology transfer block exemption regulation (TTBER) and related guidelines. The key features of the TTBER are its so-called black list, which sets out clauses which are very likely contrary to EU competition law, its grey list, which sets out clauses that always require a case-by-case assessment and its safe harbour, i.e. technology license agreements and clauses that fulfil the conditions for the application of the TTBER are practically exempt from scrutiny under EU competition law.
The new rules consist of a new TTBER and new related guidelines. They will replace the existing framework from 1 May 2014 onwards. However, the TTBER includes a one-year transitional period for agreements already in force on 30 April 2014. The TTBER will be in force for the next 12 years, i.e. until 30 April 2026.
Prior to the adoption of the new rules, the European Commission held a thorough consultation on the existing regime and a draft of the proposed new regulation and guidelines. The industry feedback largely supported the continuation of the existing regime.
Whilst the new set of rules largely follow the existing technology transfer regime and the Commission continues its policy of viewing technology licensing as being in most cases pro-competitive, the new rules nonetheless include certain issues that companies practicing the in- or out-licensing of patents, know-how or software must be aware of. Indeed, the Commission has taken a more stringent approach to certain types of clauses which are not uncommon in technology licensing agreements today.
Key Changes to the TTBER and Guidelines
The new TTBER and guidelines include numerous changes that improve the clarity and comprehensiveness of the competition rules on technology licensing. As regards the key changes in the new legislation, we would like to draw attention to the following issues:
- The new TTBER includes a more strict approach to non-challenge clauses. Non-challenge clauses, i.e. clauses where parties to a license agreement agree not to challenge each other’s IP rights, are already currently excluded from the TTBER’s safe harbour. However, the current TTBER provides a safe harbour for clauses under which the parties may terminate the license agreement upon a challenge by the other party. Under the new TTBER, the scope of this termination right has been reduced. A termination right in case of a challenge by the other party is only within the safe harbour in case of an exclusive license and the termination right limited to a situation where the licensee challenges the validity of the licensed technology rights.
- The new TTBER also includes a stricter approach to exclusive grant-back clauses. An exclusive grant back is a clause which prevents the licensee from exploiting its improvement of, or its new application of, the licensed technology. Under the expiring TTBER, exclusive grant-back clauses benefit from the safe harbour to the extent they concern so-called non-severable improvements, i.e. improvements that cannot be exploited without infringing upon the licensed technology. Under the new rules, only non-exclusive grant-back clauses may benefit from the TTBER’s safe harbour.
- Certain passive sales restrictions, which are within the safe harbor of the current TTBER, are considered as black-listed restrictions under the new TTBER.
- The new guidelines include further guidance on settlement agreements. The Commission notes that licensing in the context of settlement agreements is not restrictive as such, since it allows the parties to exploit their technologies. However, settlement agreements may include individual terms and conditions that are not compatible with EU competition rules (of these, the Commission draws particular attention to so-called pay-for-restrictions as well as certain cross-licensing and non-challenge clauses).
- The guidelines include a new safe harbour for technology pools. The creation and operation of the pool as well as licensing out from the pool benefit from the new safe harbour provided that seven listed conditions are fulfilled.
- Field-of-use clauses between competitors are now no longer mentioned as being exempted from the black-listed restrictions concerning market and customer sharing. However, the new guidelines confirm that field-of-use clauses are no longer considered to be market and customer sharing. This implies a more lenient approach to field-of-use clauses.
Overall, we welcome the new set of rules. With the adoption of the new TTBER, companies are provided with further legal certainty concerning their technology licensing agreements throughout the EU for the next twelve years. The improvements in the TTBER and guidelines bring additional clarity to the assessment under competition law of a variety of technology licensing scenarios.
However, at the same time, companies will need to adapt to the new rules in a relatively short period of time. All licensing agreements entered into on 1 May 2014 or later will be assessed under the new rules, and many existing contracts may continue to be in force after the end of the transition period, i.e. 30 April 2015.
We consider the most important change brought about by the rules the loss of the safe harbour currently provided by the TTBER for certain types of non-challenge and exclusive grant-back clauses. In our experience, such clauses are not uncommon and have been found to be useful in a variety of situations. Companies will now need to more carefully assess whether it is appropriate to continue to include such clauses in their technology licensing agreements. A review of existing agreements including such clauses is encouraged. Furthermore, we consider that the new guidance on settlement agreements will also mean added emphasis on ensuring that settlement arrangements between right holders and alleged infringers are in accordance with EU competition rules.
The new competition rules on technology licensing are available at: http://ec.europa.eu/competition/antitrust/legislation/transfer.html