Brussels, 20 February 2013
Antitrust: Commission consults on proposal for revised competition regime for technology transfer agreements – frequently asked questions
A. General Questions
What are the current EU competition rules applicable to technology transfer agreements?
Article 101 of the Treaty on the Functioning of the European Union (TFEU) prohibits anticompetitive agreements and practices. Companies need to assess whether agreements they conclude are anticompetitive and would therefore be prohibited by Article 101 TFEU. In order to simplify this assessment, the Commission, in view of its market and case experience, has defined certain categories of agreements that are unproblematic from a competition point of view. An agreement that respects all criteria defining a certain category is exempted from the prohibition in Article 101 TFEU. These criteria are set out in so-called "Block Exemption Regulations" (BER).
The rules on how to assess technology transfer agreements are set out in two instruments, the technology transfer block exemption regulation (TTBER) and accompanying Guidelines. The TTBER exempts certain categories of agreements concluded between companies that have limited market power (market share not exceeding 20% for agreements between competitors and 30% for agreements between non-competitors) and that respect certain conditions set out in the TTBER. Such agreements are deemed to have no anticompetitive effects or, if they do, the positive effects outweigh the negative ones. The Guidelines provide guidance on the application of the TTBER as well as on the application of EU competition law to technology transfer agreements that fall outside the safe harbour of the TTBER. The competition rules aim to strengthen the incentives for initial R&D, facilitate diffusion of intellectual property and generate market competition.
What are technology transfer agreements?
Under the EU competition rules, a technology transfer agreement is a licensing agreement where one party (the licensor) authorises another party or parties, the licensee(s), to use its technology (patent, know-how, software license) for the production of goods and services.
Technology transfer agreements cover licensing agreements between two (bilateral) or several parties (such as patent pools). The TTBER covers only bilateral agreements while the Guidelines also cover multi-party agreements in the form of patent pools. They cover agreements between competitors (so-called "horizontal agreements" because they are concluded between companies that compete against each other for the sale of the same product or service) and non-competitors (so-called "vertical agreements" because they are concluded between companies active at different levels of the production or supply chain, such as for example a mining company and a steel manufacturer).
What is the public consultation about?
The TTBER will expire on 30 April 2014 and the Commission has to decide what regime will apply after that date. The Commission commissioned a study and consulted stakeholders in December 2011 on the application of the current regime.
The Commission has now drafted a proposal for a revised TTBER and Guidelines. The current consultation is seeking stakeholders' views on this proposal.
What feedback has the Commission received on the 2011 consultation?
On 6 December 2011, the Commission launched a first public consultation on the current technology transfer regime. The consultation ended on 3 February 2012. 38 replies were received, mainly from law firms, law associations and industry associations, although comments from several companies and citizens were also received. The answers are available here.
A majority of stakeholders considered that the present system is largely satisfactory. Both the TTBER and the technology transfer Guidelines are regarded as useful and important tools for the industry. Many respondents also made suggestions for incremental improvements in both texts. Most comments focused on issues concerning the scope of the TTBER, market share thresholds and patent pools. Stakeholders also commented on hardcore restrictions, grant-back provisions and cross-licensing.
B. Draft Technology Transfer Block Exemption
What are the main proposed changes?
Explicit rule on which BER to apply
The Commission clarifies that the TTBER will only apply if the block exemption regulation on R&D agreements or the block exemption regulation on specialisation agreements (see IP/10/1702 and MEMO/10/676) are not applicable.
Changed test for when purchase of raw material or equipment is covered by the safe harbour of the TTBER
The TTBER proposes a new test for deciding whether certain provisions surrounding a technology transfer agreement, in particular concerning purchases of material or equipment from a licensor or the use of the licensors trademark, are exempted from Article 101 TFEU along with the technology transfer agreement itself. The previous test included assessing whether the provision, for example purchase conditions for input to produce the products covered by the agreement, was more important than the actual licensing of technology. The new test only looks at whether the provisions are "directly and exclusively related" to what the licensee produces with the licensed technology. This means in practice that even if the input bought from the licensor is worth more than the licensed technology, the provisions relating to the purchase are still covered by the TTBER.
Lower market share threshold for certain licensing agreements between non-competitors
The market share threshold of 20%, up to which agreements between competitors are deemed unproblematic, is applied also to the situation where, in an agreement between non-competitors, the licensee owns a technology which it only uses for in-house production and which is substitutable for the licensed technology. The object of this change is to capture the higher potential for anticompetitive effects of this type of agreement on the downstream product market or the upstream innovation market (as compared to a technology transfer agreement between non-competitors where the licensee does not own a technology used in-house). For example, in this type of scenario, the licensee could (under the TTBER currently in force) foreclose potential entrants to the downstream market by entering into an exclusive license with the only company licensing out technology, but still benefit from the more beneficial market share thresholds for non-competitors (30%).
Passive sales restrictions between licensees no longer covered by the safe harbour of the TTBER
The TTBER contains a list of so called "hardcore" restrictions, or practices that are deemed so serious that they can never be automatically exempted under a BER. The Commission proposes to remove passive sales restrictions protecting a licensee from passive sales from other licensees into its exclusive territory during the first two years of an agreement between non-competitors from the automatic exemption of the TTBER. This change will align the TTBER with the BER for vertical restraints, and the Guidelines still pass on the message that this type of passive sales restrictions can be allowed if the restraints are objectively necessary for the licensee to penetrate a new market. This should however be assessed on a case-by-case basis.
All exclusive grant-backs fall outside of the safe harbour of TTBER
All exclusive grant-backs (a provision where the licensee is obliged to license back to the licensor on an exclusive basis, and not even use itself, its own improvements to the licensed technology) will now be treated equally. The current TTBER makes a distinction between so called severable and non-severable improvements and excludes from the safe harbour exclusive grant-back obligations concerning severable improvements. All exclusive grant-backs will now fall outside the scope of the TTBER and will require an individual assessment. However, the rest of the agreement can still benefit from the safe harbour of the TTBER. This change will ensure that there are sufficient incentives for follow-on inventions. All non-exclusive grant-backs are still covered by the TTBER.
Also termination clauses fall outside of the safe harbour of the TTBER
In the current TTBER, no-challenge clauses (preventing the licensee to challenge the validity of the technology) do not benefit from the safe harbour of the TTBER. They are instead to be assessed individually. However, as with exclusive grant-backs, introducing such a provision in an agreement does not prevent the rest of the agreement from benefiting from the safe harbour of the TTBER. The Commission proposes to apply the same rule for termination clauses (that allow the licensor to terminate the agreement if the other party challenges the validity of the licensed technology). This is because in particular in cases where the licensee has made substantial investments, the two types of clauses have very similar effects.
C. Draft Guidelines for technology transfer agreements
What are the main general changes introduced?
The draft Guidelines have been updated to reflect the changes in the TTBER as described above. The only two sections in which there have been important changes in substance (not reflected in the TTBER) are in the section on settlement agreements and in the section on technology pools.
What are the main changes in the section on settlements?
This section now clarifies that settlement agreements involving a license may run counter to Article 101 TFEU, in particular where a licensee agrees, against a value transfer from the licensor, to more restrictive terms than the licensee would have accepted solely on the strength of the licensor's technology. This type of agreements is commonly referred to as "pay-for-delay" agreement or "reverse payment patent settlement". The term "reverse payment" refers to the fact that the payment moves in the opposite direction compared to what would ordinarily be expected in patent law (where a potential infringer often pays the patent holder for the right to enter the market).
Furthermore, clauses in settlement agreements not to challenge the patent in the future are in particular problematic if the patent holder knows or should have known that the patent does not meet the patentability criteria, for example because the patent was granted following the provision of incorrect, misleading or incomplete information.
What are the main changes in the section on technology pools?
For the assessment of whether technology pools such as patent pools are pro-competitive, an important factor is whether only complementary technology (i.e. non-competing technology) is included in the pool. Technology which is essential to produce a particular product is by definition complementary (if you need both A and B to produce X, then A and B are both essential and complementary). The Commission proposes to clarify that the definition of essentiality covers not only essentiality in relation to producing a particular product but also in relation to complying with a standard.
The section further clarifies that licensing agreements between a pool and third parties in principle fall outside the scope of the TTBER. This is because licensing out from a pool is normally considered to be a multiparty agreement given that contributors in general determine together the conditions for such licensing.
Finally, the section on pools now provides a comprehensive safe harbour for pools covering not only the creation of the pool but also its subsequent licensing out. By structuring their pool and the subsequent licensing agreements from the pool in such a way that the safe harbour conditions are fulfilled, the pool contributors can be certain that the pool is considered to be pro-competitive, regardless of the market share the pool could obtain. This is expected to give further incentives to the creation of pro-competitive pools.
Who are the addressees of this public consultation?
Citizens, public authorities, organisations, and, in particular, the business community and their representatives as well as other stakeholders including industry associations and consumer interest associations who have had direct experience of applying the current rules on technology transfer agreements and/or who deal to a significant extent with such technology transfer agreements.
Practical details on how to reply to the consultation can be found on this page: