The recent adoption of a new Technology Transfer Block Exemption (TTBE) means that certain previously common features of technology licences could now be unenforceable. Technology owners need to think about new ways to achieve their objectives without falling foul of competition law and existing technology licences should be reviewed.

The TTBE provides automatic exemption under EU and UK competition laws for certain licences of patents, know how and software whose restrictive terms might otherwise be unlawful.

The core principles in the new TTBE remain unchanged, but the scope of its safe harbour has narrowed in some key areas, which we outline below.

Changes to grant-backs

Those licensing their technology will often demand exclusive rights to any improvements made by their licensee (a 'grant-back' licence/assignment). Such provisions were previously permitted in certain cases, although all assignments and exclusive licences-back to the IP owner are now outside the TTBE.  Parties must determine on a case-by-case basis whether such clauses are anti-competitive.

However, the guidelines which accompany the new TTBE suggest that even grant-backs which fall outside the TTBE will only be anti-competitive where they act as a disincentive to licensees to make improvements. Licensors may, therefore, have to consider compensating their licensees for improvements that are assigned or exclusively licensed back.

Termination on challenge clauses in non-exclusive licences

A clause allowing the licensor to terminate an agreement if its licensee challenges the validity of the licensed IP was allowed under the old TTBE. Such challenges can be a big risk for licensors, as licensees have privileged access to the technology and, often, a vested interest in its IP protection being held invalid.

Where a licence is non-exclusive, such clauses now fall outside the TTBE, and must always be justified on a case-by-case basis. Where a licence is exclusive, however, the closeness of the relationship between licensor and licensee is considered to justify allowing a termination on challenge clause. In exclusive licences, therefore, such clauses will continue to come within the TTBE.

Territorial restrictions

The old TTBE allowed licensors to allocate exclusive territories to their licensees, and then prevent one licensee from selling in a territory reserved for another. Such restrictions could, in agreements between non-competitors for the first two years of the agreement, even prevent 'passive' sales (ie responding to an unsolicited request from a customer in a reserved territory).

This has now changed. Any restriction on sales into a territory reserved for another licensee will now only benefit from the TTBE where it is limited to preventing active sales (ie proactively selling into a territory reserved for another licensee). Restrictions on passive sales will now be classed as 'hardcore' restrictions, so that if they are included the whole agreement will be taken outside the TTBE, and will have to be justified by the parties on its competitive merits.

The new TTBE still allows licensors to prohibit sales (either active or passive) into a territory reserved exclusively for the licensor itself.

Continuity and conclusion

The new TTBE is very much an evolution rather than a revolution. The existing prohibitions on 'hardcore' restrictions, such as price fixing, remain. Additionally, as previously, businesses can only get the benefits of the TTBE where the parties’ market shares are each no more than 30% (or, where they are competitors, no more than 20% in combination).

Many of the changes will be welcomed by licensees, who find themselves in a stronger position to negotiate previously standard clauses such as termination on challenge and grant-back. However, the changes mean that with the increased need to make individual assessments, competition risks will inevitably become less predictable.

Licensors entering into new arrangements need to ensure that they take specialist advice to achieve their objectives without falling foul of the changes. Parties to licences signed before 1 May 2014 have until 30 April 2015 to bring their agreements in line with the new TTBE in order to preserve their exemption, and should consider having them reviewed and, if necessary, amended to conform with the new TTBE.