UK: The Technology Transfer Block Exemption - Revisions

Last Updated: 2 September 2003
Article by Bernardine Adkins

The publication by the European Commission of the proposed revamped Transfer Technology Block Exemption in September of this year draws closer.

The timetable for consultation and adoption of the draft Block Exemption will be tight, as it is planned that the Regulation should come into force by 1 May 2004. This will be at the same time as the "modernization" Regulation (Regulation 1/2003). This latter Regulation will scrap the notification system and render Article 81 of the EC Treaty directly effective in its entirety, thus enabling exemptions to be granted retrospectively by both national courts and by national competition authorities. It is in the context of this novel regulatory environment that the draft Block Exemption must necessarily be considered.

Early drafts of the Block Exemption that are currently circulating around national authorities promise an equally radical overhaul of technology licensing.

The timetable set for consultation of third Parties of only two months in October/November 2003 means that industry will have to be very quick on its feet to ensure that adequate representations are made to the European Commission. A whole new interest grouping is also expected to emerge, as software, for the first time, is likely to be included in the draft proposals.

It is understood that the current draft of the Block Exemption is, on the face of it, a relatively short document. However, some 50 pages of thick text comprising its "Guidelines" accompany it. The draft Block Exemption, in many respects, follows the formula of Vertical Restraints Block Exemption (Regulation 2790/99) and Guidelines; and the Specialisation and R&D Block Exemptions (Regulations 2658/2000 and 2659/2000 respectively) and the Guidelines on Horizontal Co-operation Agreements.

Thus, there will be a "safe (sic) harbour" whereby Block Exemption is available for transfer technology agreements between non-competitors with a combined relevant market share of less than 30%; and, in the case of competitors, less than 20%.

Much consternation is due to emerge as to what markets should be considered in this exercise. Circulating drafts indicate that both the technology and the product market should be taken into account. With respect to technology of a particularly discreet application, this means that the "safe harbour" is unlikely to be available. This would be, notwithstanding that, in practice, the parties may have little or negligible market share; especially in the case of emerging technology.

As expected, the "black and white" lists have gone, to be replaced by a "hardcore restrictions" list. Inclusion of any of these hardcore instructions will result in the benefits of Block Exemption being lost to an agreement altogether.

These are supplemented by "conditions". Predictably, they are a refined pronouncement on licensing and grant back clauses and no challenge clauses. Inclusion in an agreement of restraints in breach of those conditions is likely to result in those restraints being unenforceable, with the Block Exemption remaining available to the rest of the agreement.

Much of the meat, however, will be found in the accompanying Guidelines, particularly as many technology IP transfers of sufficient import will not be able to benefit from the "safe harbour". Even a brief reading (if such a thing is possible of so impenetrable a document) reveals that the Commission is pushing for clear blue water between licensing agreements concluded between non-competitors and those concluded between competitors.

The Commission is keen to make clear there will be no presumption of restrictive effects where the "safe harbour" is not available. However, should an agreement be between competitors this assurance appears to fall away as the higher the market share of the parties the less likelihood that an exemption will be forthcoming. In all this, there appears to be an underlying assumption that technology transfer licences, rather than being a commercial necessity in certain industries, is a tool to facilitate collusion between competitors and therefore a Bad Thing.

In sum, we are in for an interesting Autumn. Most important of all, the question is begged as to whether the Commission’s heralded "modernisation" approach, which promotes a less legalistic, but altogether more uncertain world, is apt to apply in the context of the transfer and exploitation of valuable intellectual property rights. The jury is out and is likely to remain there for some time.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

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