UK: The New Competition Regime For Technology Transfer Agreements

Last Updated: 23 June 2014
Article by Paul Stone

This briefing looks at the key changes to the competition rules applicable to technology transfer agreements which came into effect on 1 May 2014.


Technology transfer agreements are licensing agreements where one party (the licensor) authorises another party (the licensee) to use the licensor's patents, know how or software for the production of goods or services.

The European Commission recognises that intellectual property licensing arrangements are usually pro-competitive and promote innovation, leading to the wider availability of goods and services to the benefit of consumers. For that reason, historically, the parties to licensing arrangements have been able to benefit from a block exemption, which provides an automatic exemption from the prohibition on anti-competitive agreements set out in Article 101 of the Treaty on the Functioning of the European Union.

The most recent block exemption was introduced in 2004. The Commission launched a review in December 2011 and issued a revised draft for consultation in February 2013. The final version of the new block exemption was issued on 21 March 2014 and came into effect on 1 May 2014.

The block exemption is accompanied by a set of guidelines that provide guidance on the application of the block exemption, as well as the application of Article 101 to agreements that fall outside the scope of the block exemption.

What are the key changes?

Most of the provisions of the block exemption and the guidelines are unchanged from the 2004 versions. In particular, the maximum market share thresholds that have to be met (20% for agreements between competitors and 30% for agreements between noncompetitors) remain as they were.

However, there are a number of detailed changes that have been made. The main changes are:

  • a new test for assessing when provisions relating to the licensing of other intellectual property rights and the purchase of products by the licensee are covered by the block exemption;
  • a change to the treatment of certain passive sales restrictions;
  • the removal of all exclusive grant back obligations from the scope of the block exemption;
  • changes to the treatment of clauses allowing a licensor to terminate if the licensee challenges the validity of the licensed intellectual property rights; and
  • clarifications of the Commission's approach to settlement agreements.

These changes are discussed in more detail below.

Provisions relating to other intellectual property rights and purchase of products

The revised block exemption introduces a new test for determining whether provisions relating to the licensing of other intellectual property rights to the licensee (such as the licensor's trademarks) and the purchase of products by the licensee are covered by the block exemption.

The previous test assessed whether these provisions were less important than the actual licensing of the relevant patents, know how and/or software (and, if they were less important, they were covered by the block exemption). However, the Commission's consultation indicated that this test was difficult to apply in practice.

The new test assesses whether these provisions are directly related to the production or sale of the products which are produced with the licensed patents, know how or software. This change means that, even where an input bought from the licensor is more expensive than the royalties paid for the licensed intellectual property rights, the provisions relating to the purchase of the input can still be covered by the block exemption.

Passive sales

The block exemption contains a list of hardcore restrictions, which, if present in an agreement, mean that the whole agreement falls outside the scope of the block exemption. Under the 2004 block exemption, a restriction on a licensee from making passive sales (i.e. sales made in response to unsolicited requests from customers) into the territory of another licensee was identified as a hardcore restriction. However, there was a limited exception for agreements between non-competitors that allowed a licensor to restrict a licensee from making passive sales into the territory of a new licensee for two years.

This exception has now been removed from the block exemption, although the guidelines indicate that such restrictions may still be justified if they are objectively necessary for the other licensee to penetrate a new market.

Exclusive grant-back obligations

An exclusive grant-back obligation is where the licensee is obliged to license back to the licensor on an exclusive basis its own improvements to the licensed technology. The 2004 block exemption made a distinction between severable and non-severable improvements and excluded only exclusive grant-back obligations relating to severable improvements from the block exemption.

Under the new block exemption, this distinction has been removed and all exclusive grant-back obligations fall outside the scope of the block exemption, requiring an individual assessment on a case by case basis. However, the rest of the agreement still benefits from the block exemption.

Termination clauses

The 2004 block exemption covered provisions which allowed the licensor to terminate the agreement if the licensee challenged the validity of the licensed intellectual property rights. In its consultation, the Commission proposed excluding all termination clauses of this kind from the block exemption.

However, under the final version of the new block exemption, such provisions will still be covered in the case of exclusive licences. For non-exclusive licences, such provisions will fall outside the scope of the block exemption and fall for individual assessment.

However, the remainder of the agreement will still be covered by the block exemption. The Commission's reasoning for making this change is that it is concerned that restrictions on non-exclusive licensees' ability to challenge the validity of intellectual property rights can be a significant barrier to the removal of invalid rights, creating unmerited extra costs for licensees and limiting innovation. In the case of exclusive licences, the Commission considers that generally the licensee has no incentive to have the rights declared invalid, and so it is appropriate to provide some protection for the licensor from the threat of a challenge.

Settlement agreements

The guidelines contain a revised section on settlement agreements, which seeks to clarify the Commission's approach to settlement agreements between actual or potential competitors where there is a significant value transfer from the licensor to the licensee (often referred to "pay-for-delay" agreements or "reverse payment" patent settlements). The Commission indicates that it will be particularly attentive to the risk of market allocation or market sharing associated with agreements of this kind. This reflects the Commission's approach in a number of recent cases concerning patent settlements, including the Lundbeck case where the Commission fined the parties involved almost €150 million for delaying the entry of generic alternatives to Lundbeck's citalopram antidepressant drug.

The guidelines also indicate that no-challenge clauses in patent settlement agreements may be prohibited by Article 101 where the patent was granted following the provision of incorrect or misleading information. They may also attract scrutiny where the licensor provides a financial or other inducement to the licensee to agree not to challenge the validity of the patent or if the patent is a necessary input to the licensee's products.


Although the changes to the block exemption and guidelines are relatively limited, the revised approach to exclusive grant backs and termination clauses will mean that parts of some existing agreements will no longer benefit from the block exemption. There is a transitional period of one year for agreements falling into this category. However, licensors may wish to review some of their key licences during this period and consider whether to make amendments to bring these provisions within the scope of the block exemption.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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