On 20 February 2013, the European Commission ("Commission") launched a consultation, seeking industry input on its draft proposal for a revision of the Block Exemption Regulation for technology transfer agreements, Regulation 772/2004 ("TTBER") and the accompanying Guidelines. The TTBER covers many common, but important, industry practices such as patent and know-how manufacturing licenses, trademark licenses, certain copyright licenses, as well as licensing and non-assertion agreements involving patent settlements and technology pools. Any company interested in commenting on the new Regulation is invited to do so, as discussed below.
The current TTBER provides an automatic exemption or "safe harbour" from EU and national antitrust enforcement for certain technology licensing agreements. Right now, the exemption applies to agreements where the parties are below certain market share thresholds (20% combined if they are competitors, 30% if they are non-competitors), provided these agreements do not contain “black-listed” restrictions set out in the TTBER. The black list includes output and price-related restrictions imposed on licensees, as well as certain territorial restrictions. The accompanying Guidelines provide guidance on the assessment under Article 101(1) and 101(3) TFEU of specific types of technology licensing arrangements, such as royalty obligations, exclusive licensing agreements, bundling and tying of technologies, settlement agreements and technology pools.
Under the draft proposal, the majority of the provisions of the existing TTBER and Guidelines remain unchanged. However, there are some potentially significant changes:
- several types of clauses are excluded from the TTBE’s safe harbour and so would require individual assessment of competitive effects, such as (i) the restriction of passive sales by other licensees into the exclusive territory of the licensee for the first two years in agreements between non-competingcompanies, (ii) exclusive grant back clauses requiring the licensee to grant back to the licensor, on an exclusive basis, any improvements to licensed technology and (iii) "no challenge" clauses, allowing the licensor to terminate the agreement if the licensee challenges the validity of the licensed right;
- the market share safe harbour threshold is lowered from 30% to 20% for licensing between non-competitors in cases where the licensee already owns a technology which it uses only for in-house production and which is substitutable for the licensed technology;
- the method for calculation of market shares of the licensor would be modified and would now be based on the combined market sales value of the contract products produced by the licensor and its licensees (rather than royalty income);
- the definition of technology transfer agreements falling within the scope of the TTBER would become more flexible, so that provisions which relate to the purchase by the licensee of inputs from the licensor only need to be "directly and exclusively" related to the production of the contract products, and no longer need to be only a secondary object of the contract;
- the hierarchy between the TTBER and other block exemption regulations is more clearly established as the new TTBER would not apply to agreements falling within the scope of application of block exemption regulations on R&D agreements (Regulation 1217/2010) or on specialisation agreements (Regulation 1218/2010).
The revised Guidelines also contain new sections. They reflect, amongst other things, Commission concerns over "pay-for-delay" agreements and potentially anticompetitive arrangements in the context of the formation and operation of technology pools. Overall, the proposed revisions display a more rigorous treatment of licensing agreements under the EU competition rules going forward. This stricter approach is motivated, at least in part, by the Commission’s wish to weed out invalid patents, particularly in sectors where patent thickets are prevalent, by enabling licensees to challenge the validity (and essentiality) of licensed patents. Other concerns relate to the foreclosure of rival technologies in conventional licensing arrangements and settlement agreements. This concern also applies to technology pools, in relation to which the Commission proposes significantly more detailed and prescriptive rules.
Companies involved in technology licensing may wish to evaluate how the proposed changes affect their business practices and can make their views known to the Commission. The consultation will close on 17 May 2013. Baker Botts is actively involved in the consultation process and intends to comment on the proposed amendments.
The new TTBER and Guidelines should enter into force on 1 May 2014 (with a one year transitional period) and remain in force until 2026.