Technology transfer is generally seen as being a “pro-competitive” activity. Greater sharing of intellectual property (IP) usually means technology is made more accessible, which benefits competition, thus benefiting consumers. As such, since 1984 the EU antitrust authorities have offered “safe harbor” protection for certain types of technology transfer transactions, exempting them from the standard antitrust regulations. The original TTBER was for a period of ten years, and they have been renewed roughly every ten years since then.
The most recent “Technology Transfer Block Exemption Regulation (TTBER),” adopted in 2004, has expired and the European Commission has issued a new TTBER. The new TTBER will come into effect as of May 1, 2014 and will remain in effect until the end of April, 2026. The Commission also issued a new set of ‘Technology Transfer Guidelines (TTG)’ that provide guidance on the implementation of the TTBER and sets forth the procedures which will be used for regulating technology transfers that fall outside the safe harbor provisions.
The full text of the TTBER can be seen here; the full text of the TTG can be found here.
From reading the new TTBER, it appears that the Commission believed that the previous version of the TTBER was too generous in the antitrust exemptions it offered; the new version is more stringent. In a press releaseissued on March 21, 2014, the Commission acknowledged the benefits of licensing – stating that licensing “helps to spread innovation and allows companies to offer new products and services” – however, it also expressed concerns:
…it [licensing] can also be used to harm competition, for instance if two competitors [that are parties] in a licensing agreement divide markets between them instead of competing with each other. Another example would be a licensing agreement that excludes the use of competing technologies in the market
The fact that a form of TTBER continues to be in effect reflects the Commission’s belief that “licensing is in most cases pro-competitive.” However, under the new TTBER, certain contract provisions previously covered by the safe harbor will now need to be reviewed on a case by case basis to determine whether they will or will not be protected. Contract provisions affected include the following:
- Exclusive grant backs: An ‘exclusive grant back’ is a provision found in certain licensing agreements that grants the licensor exclusive rights to any development of the licensed technology by the licensee. Under the previous safe harbor rules, an exclusive grant back to ‘non-severable’ improvements (improvements to the licensed technology that cannot be used without infringing the original technology) were covered by the safe harbor exemption but an exclusive grant back to ‘severable’ improvements was not; according to the new TTBER the question of whether or not the improvements are or are not severable is not relevant; an exclusive grant back provision is no longer exempted. No longer exempted does not mean the provisions are prohibited; it simply means they are subject to review and no longer automatically considered acceptable from an antitrust point of view.
- Non-challenge clauses: A ‘non-challenge’ clause is a provision in a licensing agreement where the licensor reserves the right to terminate the license in the event the licensee challenges the validity of a patent being licensed. Under the previous rules all ‘non-challenge’ clauses were protected. Under the new rules, a non-challenge clause will only be included in the safe harbor as part of an exclusive license. Non-challenge clauses as part of a non-exclusive license will no longer be protected under the TTBER.
- Passive sales between territories: The previous TTBER allowed a licensor to grant complete exclusivity to a licensee for a specific territory for up to two years following the licensee’s first sales in such territory. Under the new TTBER “passive sales,” when a company simply responds to an unsolicited order, are not protected by the safe harbor at all; “active sales” are still protected for the same two year period as in the previous TTBER.
- Settlement agreements: The Commission has issued notice that settlement agreements that include “pay for restriction” or “pay for delay” provisions may be subject to regulatory scrutiny. In the pharmaceutical industry, there have been “licensing” agreements between a brand company and its generic competitor, whereby the brand company has agreed to provide compensation to the generic manufacturer to delay making a generic version of the drug available. The Commission has said that such restrictions may cause the contract to be other than a transfer of technology, and therefore not covered under the safe harbor.
The changes to the TTBER appear to favor licensees over licensors. Restricting the rights of patent owners in the interest of furthering a more competitive environment seems to be the objective.
Companies that are parties to existing technology transfer agreements need to be aware that the changes discussed above will apply retroactively to existing contracts. There is a one year transition period, ending April 30, 2015, in which existing agreements need to be brought into compliance with the new TTBER. Companies with existing technology transfer agreements in Europe are advised to review these contracts for compliance. In some cases, this may mean re-opening negotiations on contract clauses that were difficult to negotiate in the first place.