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.

Background

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.

Conclusions

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.