European Union: New Rules For Licence And Other Technology Transfer Agreements In The EU

Last Updated: 7 April 2014
Article by Kiran S. Desai, Julian Ellison, Nathalie Jalabert Doury, Robert Klotz, Jens Peter Schmidt, Gillian Sproul, Dr. Ulrich Worm, Ana Elisa Bruder and Sarah Byrt
Most Read Contributor in Germany, September 2016

Keywords: European Commission, antitrust law, technololgy transfer agreements, life sciences, Technology Transfer Block Exemption Regulation,

The European Commission has just published the definitive text of the new rules on the interface between technology transfer agreements and antitrust law. This article looks at the main changes made by the new law which are likely to have a particular impact on the life sciences industry.

On 28 March 2014, following a public consultation process initiated in February 2013, the European Commission published a revised Commission Regulation EU 316/2014 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of technology transfer agreements (the so-called Technology Transfer Block Exemption Regulation) with accompanying guidelines. The new rules will enter into force on 1 May 2014 and replace the previous regulation (EC 772/2004) and accompanying guidelines, which will expire on 30 April 2014.

The new Regulation will apply not only to new technology transfer agreements entered into from 1 May 2014 onwards but also, as of 30 April 2015, to agreements concluded under the old regime.

The Regulation provides a safe harbour under Article 101(3) of the EU Treaty that prevents licence agreements being challenged under Article 101(1) of the EU Treaty (the prohibition of anti-competitive agreements). While the main principles underlying the Regulation remain the same, certain changes are worthy of notice.

Main changes with particular relevance for the Life Sciences industry:

Market share

Under both the new and the old Regulation, the safe harbour applies where the parties' combined market shares are below 20% if they are competitors, and 30% if they are not.

Under the new Regulation, the basis for calculating the licensor's market share has been clarified: it will now be based on the sales data for the products produced by the licensor and all its licensees combined, in the relevant geographic area.

This change is likely to particularly affect the life sciences sector, where it is often difficult to calculate market share. A single product may constitute a single market, and so mean that the licence does not benefit from the exemption. Calculating market shares on the basis of sales data is also problematic in the biotechnology industry, because innovations often originate in small- and medium-sized enterprises (SMEs), which do not have the resources or expertise to develop compounds into pharmaceutical products. The licensee – often a large and established company – is responsible for the further development, marketing and exploiting of finished products. Applying the new rule, the licensor and innovator will have no sales whereas the licensee may have 100% of sales and thus of market share. Such agreements will therefore fall outside the safe harbour established by the Regulation.

No-challenge clauses

An outright prohibition on the licensee challenging the licensed intellectual property right (e.g. applying to invalidate the licensed patent) remains inadmissible under the new Regulation. Under the old Regulation, however, parties were allowed to give the licensor the right to terminate if the licensee brought a challenge and this was a commonly used work-around.

The draft of the new Regulation suggested excluding termination on challenge clauses from the safe harbour altogether. During the consultation phase, this proposed tightening up of the rules was criticized by industry. While the suggestion might be important for the protection of licensees in industries in which they are economically weaker than the licensor, this is rarely the case in the life sciences sector. As indicated above, the licensor is often the smaller and weaker party to the agreement. Allowing the licensee to bring challenge claims against the licensor without allowing the latter to terminate the agreement may put the licensor in an even more vulnerable situation, since termination would often have been its only weapon against the licensee.

The solution adopted by the Commission is a half-way house: under the new Regulation, termination on challenge clauses will only be covered by the safe harbour if the licence is exclusive. Termination clauses in non-exclusive licences are excluded from the exemption, which means that they can be scrutinized and potentially declared anti-competitive by antitrust authorities. In the Commission's view, this will in particular support SME innovators, which now have an incentive to license out their technology on an exclusive basis, without creating a situation of dependence towards their exclusive licensees.

Pay-for-delay and no-challenge clauses in settlement agreements

Neither the old Regulation nor the accompanying guidelines contained provisions concerning reverse payments, paid by the innovator to generic competitors in order to delay or restrict the entry of the generic into the market. Following a number of enquiries and investigations by the European Commission in the pharma sector since 2009, reverse payments have been targeted by the Commission as possibly being anti-competitive.

In contrast to the USA, the issue has not yet been decided by the highest courts, but administrative proceedings have been initiated by the Commission against several players in the market, for instance against Servier, Johnson&Johnson and Novartis and Lundbeck. In the latter case, the innovator Lundbeck was condemned to pay a fine of EUR 93,8 Million and the four generic competitors, EUR 52,2 Million each.

The new guidelines address pay-for-delay clauses to clarify that they are not covered by the safe harbour and may be anti-competitive. If the parties to such a settlement agreement are actual or potential competitors and there is a significant value transfer from the licensor to the licensee, the Commission will be particularly attentive to the risk of market allocation or market sharing (paragraph 239 of the new guidelines), which can take the whole of the settlement agreement outside the safe harbour, since these are hardcore restrictions.

No-challenge clauses included in settlement agreements are also subject to a new regime. The new guidelines provide that these clauses may restrict competition, for instance where an intellectual property right was granted following the provision of incorrect or misleading information (new guidelines, paragraph 243), such as in the AstraZeneca case (C-457/10 P, AstraZeneca v. Commission [2012], not yet published). The Commission seems to have been particularly concerned that businesses are deliberately "stockpiling" patents which they know full well are invalid.

These changes increase the possibility for antitrust authorities in the EU to scrutinize settlement agreements with pay-for-delay or no-challenge clauses and initiate investigations and administrative proceedings against the parties, which can lead to fines. Parties involved in settlement agreements falling under the competence of the EU antitrust authorities – whether or not based in the EU – should therefore be particularly attentive to the newly adopted rules.

Effective Date

Last but not least, pursuant to Article 10 of the new Regulation, it applies not only to agreements concluded after the entry into force of the new Regulation (1 May 2014) but also to agreements already in force on 30 April 2014. If existing agreements satisfy the conditions for exemption of the old Regulation but not the conditions of the new Regulation, a transitional period is granted until 30 April 2015, during which the prohibition of Article 101(1) of the EU Treaty shall not apply. In other words, parties to licence agreements in force on 30 April 2014 have one year in which to make sure their agreements conform to the new rules, or risk having them declared anti-competitive by the competent authorities as of 30 April 2015.


The new Regulation and guidelines can be found here:

Press releases are available here:

Originally published April 1, 2014

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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