UK: Major Changes In The Pipeline For EU Rules On Technology Licensing

Last Updated: 27 February 2013
Article by Sarah Byrt and Gillian Sproul

Keywords: technology licensing, anti-trust rules, public consultation, EU Technology Transfer Block Exemption Regulation

The European Commission has moved a step closer to adopting tougher anti-trust rules on technology licensing and has launched a public consultation on these. Industry has just under three months from now to make its views heard.

The current "safe harbour" rules aimed primarily at patent and know-how licences, contained in the EU Technology Transfer Block Exemption Regulation, expire on 30 April 2014 after 10 years in place. So the Commission consulted on new rules in December 2011 and responses to that consultation gave rise to a proposal for a new Regulation and revised explanatory Commission guidelines, issued on 20 February 2013. The deadline for comments on the proposal, which sets out some significant changes to the current regime, is 17 May 2013.

The old regime will continue after it expires to protect most pre-existing agreements that complied with it. Any new law based on the 20 February proposal will apply to agreements concluded after it comes into effect.

The key changes

The current Regulation confers on bipartite technology licences an automatic exemption from the EU prohibition on anti-competitive agreements, as long as they meet certain conditions. If it were to go through, the new proposal would preserve the principle of automatic exemption, but would make a number of changes.

First of all, the exemption would apply even to technology licences containing other elements, such as obligations to buy raw materials or equipment from the rights owner, that are directly and exclusively related to the products the licensee makes with the licensed technology. This is the case even if those other elements are more valuable than the licensed technology – good news for industry, since this would extend the scope of the safe harbour.

However, most of the other changes will restrict that scope and so open licences to a greater risk of being found anti-competitive and, potentially, unenforceable in their entirety.

  • The current Regulation applies only where the parties' market shares are below certain limits – 20% if they are competitors, 30% if they are not. The proposal is that the 20% threshold would now also apply where the parties are not competitors, but the licensee owns technology that it uses in-house only and that is a substitute for the technology being licensed to it. The rationale here is that allowing the safe harbour to apply up to a 30% licensor market share could result in competition being squeezed out where the licensee acquires exclusive access to the rights being licensed, as well as keeping its own technology to itself.
  • The proposal clarifies the basis for calculating the licensor's share of a technology market. The current Regulation is silent on this, leaving it to the guidelines to set out alternative approaches. Adoption of the proposal would mean a single approach –using sales data for the products produced by the licensor and all its licensees in the relevant geographic catchment area.
  • A further key change, likely to concern particularly licensees expected to expend significant effort in developing the licensed technology, relates to passive sales. These are unsolicited sales made to customers outside a licensee's allotted territory – sales made "passively" in response to an order, rather than "actively" through marketing efforts in that territory. The current Regulation is out of step with other safe harbour rules, as it protects a licensee from passive sales into its territory by other licensees, for the first two years of the licensee's sales. That two-year period would be removed so that passive sales would have to be allowed from day one of the licence, unless restricting them could be justified as objectively necessary for the relevant licensee to penetrate a new market. If not, any ban on passive sales would be treated as a "hardcore" restriction of competition, taking the entire licence outside the safe harbour.

In addition, two well-used ways of legitimately getting around anti-trust restrictions would be removed. The consequences of retaining them would be less drastic than for passive sales bans - they would not be treated as hardcore, so that the remainder of the agreement would continue to benefit from automatic exemption, but they would be treated as unenforceable, unless they could be justified under the general EU rules on exemption, which need to be applied on a case-by-case basis. They are as follows:

  • Any provision entitling the licensor to terminate the licence if its licensee challenges the IP in question within the EU (e.g. if the licensee brings a revocation action against a licensed patent) would fall outside the safe harbour. It is not possible to ban the licensee outright from attacking the IP (using "no challenge clauses") but a common way around this limitation has been to terminate the licence, so that the licensee is then in the same position as the rest of the world – it must take the risk that its attack fails, leaving it without the licence which it needs. This escape route would disappear.
  • Currently, a licensor cannot insist on owning improvements to its IP which the licensee makes, but it can insist on these being exclusively licensed back to it (so achieving a similar effect) where those improvements are "non-severable" – meaning that the improvements cannot be used without also infringing the underlying patent, or disclosing the underlying know-how. This carve-out from the anti-trust rules is also set to disappear from the safe harbour, so that at most, a licensor looking to bring all its licence terms within the scope of the exemption could require only a non-exclusive licence of improvements, leaving the licensee free to exploit them.

Settlement agreements and technology pools

Finally, the proposal would also amend the guidelines accompanying the Regulation, in particular in relation to settlement agreements and to technology pools (such as patent pools between several companies).

Whilst settlement agreements can often be pro-competitive, the draft revised guidelines note that "pay for delay" clauses, and others where a licensee takes payment in exchange for more restrictive settlement terms, might be anti-competitive. The same applies to settlements involving cross-licensing of IP between competitors and no-challenge clauses (mentioned above).

Similarly, technology pools can be pro- or anti-competitive. For a pool to be treated as pro-competitive, the technology in it is required to be complementary and the guidelines, if amended as proposed, would clarify the meaning of "complementary". They would also set out the conditions under which both the creation of a pool and licensing by the pool to third parties would benefit from exemption.

Next steps

We will offer further insights into the proposed new rules as the process moves forward. We are happy to assist those wishing to make submissions. Official information can be found at the links below.

Resources:

Responses to the December 2012 consultation can be found here: http://ec.europa.eu/competition/consultations/2012_technology_transfer/index_en.html

The new proposal can be found here: http://ec.europa.eu/competition/consultations/2013_technology_transfer/index_en.html

Originally published February 21, 2013

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