On 21 March 2014, the European Commission (EC) adopted new rules governing technology transfer agreements under the EU antitrust rules. The purpose of such agreements is to enable companies to license the use of patents, know-how or software held by another company for the production of goods and services.
Although the changes are not dramatic as compared with the previous regime, these rules are important for any company active in this area in the EU. They should be reviewed carefully and companies should know how they operate. The new rules take effect on 1 May 2014 and will run until 30 April 2026.
The new regime consists of two instruments. The first is the Technology Transfer Block Exemption Regulation (TTBER), which creates a safe harbour for licensing agreements concluded between companies that have limited market power (measured by market share thresholds, which are unchanged) and that respect certain conditions set out in the TTBER. Such agreements are deemed to have no anticompetitive effect or, if they do, the positive effects outweigh the negative ones. The second instrument is the Technology Transfer Guidelines, which provide guidance on the application of the TTBER as well as on the application of EU antitrust law to technology transfer agreements that fall outside the safe harbour of the TTBER.
Probably the most significant changes introduced by the new rules relate to the particular restrictions which are not included in the TTBER safe harbour. All exclusive grant-back obligations will now fall outside the safe harbour and will require an individual assessment under EU antitrust law. However, the rest of the agreement can still benefit from the safe harbour. This change is designed to ensure that there are sufficient incentives for follow-on inventions. All non-exclusive grant-back obligations are still covered by the TTBER.
In addition, the new TTBER excludes termination clauses in non-exclusive licensing agreements (that allow the licensor to terminate the agreement if the other party challenges the validity of the licensed technology) from its safe harbour. However, again, including such a provision in an agreement does not prevent the rest of the agreement from benefiting from the safe harbour of the TTBER. The TTBER will continue to cover termination clauses in exclusive agreements.
The revised TTBER also introduces a new test for determining whether provisions concerning purchases of raw material or equipment from a licensor or the use of the licensor’s trademark are exempted from EU antitrust law together with the technology transfer agreement itself. The safe harbour of the TTBER now covers such provisions if, and to the extent that, they are directly related to the production or sale of the contract products which are produced with the licensed technology. This means, for example, that even if the input bought from the licensor (and to be used with the licensed technology) is more expensive than the royalties to be paid for the licensed technology, the provisions relating to the purchase are still covered by the exemption of the TTBER.
The Technology Transfer Guidelines, in practice a very important document, have been updated to reflect the changes in the TTBER. In addition, notable changes have been introduced in the guidance on settlement agreements and technology pools (e.g. patent pools), with the latter being of most interest in the Life Sciences sector.
The Guidelines recognise that licensing of technology rights in settlement agreements may serve as a means of settling disputes or avoiding the case of one party exercising its intellectual property rights to prevent the other party from exploiting its own technology rights. Settlement agreements in the context of technology disputes are seen as in principle a legitimate way to find a mutually acceptable compromise to a bona fide legal disagreement, and licensing, including cross licensing, in the context of settlement agreements is generally not, as such, restrictive of competition.
However, the Guidelines indicate that individual terms and conditions of settlement agreements may be caught by EU antitrust law and here particular reference is made to pay-for-delay agreements. If a settlement agreement also includes a licensing of the technology rights related to the underlying dispute, and that agreement leads to a delayed or otherwise limited ability for the licensee to launch the product on any of the markets concerned, the agreement may still be caught by EU antitrust law. If the parties to such a settlement agreement are actual or potential competitors and there was a significant value transfer from the licensor to the licensee, the Commission will be particularly attentive to the risk of market allocation/market sharing (which could result in the TTBER not applying and, most likely, the agreement being seen as anti-competitive under an individual assessment).
Even where such an agreement does not involve the transfer of technology rights, but is based on a simple value transfer from one party in return for a limitation on the entry and/or expansion on the market of the other party, the EU antitrust rules may apply.
A well-known example of this is the Lundbeck case from June 2013. In that case, its first reverse payment settlement decision, the EC imposed a fine of €93.8 million on Danish pharmaceutical company Lundbeck and fines totalling €52.2 million on several producers of generic medicines. Lundbeck had agreed with each of these companies to delay the market entry of cheaper generic versions of Lundbeck’s branded citalopram, a blockbuster antidepressant. At the time, the EC expressly made it clear that it does not object to settlement agreements as such, stating that “The overwhelming majority of such agreements are entirely legitimate as they do not involve any payments by originators to exclude generic companies.” However, those which it sees as anti-competitive will be treated harshly.
Referring to further pharmaceutical sector cases (the seminal Astra Zeneca judgment of 2012 from the European Court of Justice), the Guidelines also state that no-challenge clauses in settlement agreements may be caught by EU antitrust law where an intellectual property right was granted following the provision of incorrect or misleading information (in any event, no-challenge clauses continue not to benefit from the TTBER safe harbour under the new rules). Further, it states that scrutiny of such clauses may also be necessary if the licensor, besides licensing the technology rights, induces, financially or otherwise, the licensee to agree not to challenge the validity of the technology rights or if the technology rights are a necessary input for the licensee’s production.
The new TTBER and the Guidelines have set the framework for the next decade and more of EU antitrust law enforcement in the area of technology licensing. They will affect new and existing agreements, although the latter benefit from a one-year transitional period. Licensors and licensees need to consider and if necessary adjust their agreements and general practices in the light of the new rules.