Beware antitrust law when assigning or licensing a technology
An overview of Commission Regulation (EU) No. 316/2014 on technology licensing and transfer agreements
14 December 2018
Under Article 101 of the Treaty on the Functioning of the European Union (TFEU), all agreements between undertakings which may affect trade between Member States and whose object or effect is the restriction of competition within the internal market are prohibited and shall be automatically void. This is the case unless they qualify for the exemption established in Section 3 of Article 101 TFEU for agreements that contribute towards improving the production or distribution of goods, or towards promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which do not (i) impose restrictions on the undertakings concerned which are not essential to achieving such objectives; nor (ii) make it possible for such undertakings to eliminate competition in respect of a substantial part of the products in question. This exemption has been further developed by the European Commission (Commission) through the corresponding block exemption regulations for different agreement categories. We can also find similar provisions in the respective national antitrust regulations of the Member States.
By means of technology licensing and transfer agreements, the owner of an intellectual property right (IPR) protecting a particular technology assigns its right to a third party, or authorises it to produce products using or incorporating the licensed technology. As such agreements are entered into by undertakings, they fall within the category of "agreement between undertakings" governed by Article 101 TFEU. Thus, if their object or effect is to restrict competition they will be prohibited under the antitrust provisions and deemed void, unless they qualify for the above-mentioned exemption. The Commission approved a specific block exemption regulation for these kinds of agreements: Commission Regulation (EU) No. 316/2014 of 21 March 2014 on the application of Article 101.3 TFEU to categories of technology transfer agreements (the TTBER). It also developed Guidelines 2014/C 89/03 on the application of the TTBER and the criteria for assessing such agreements under Article 101 TFEU.
Generally speaking, the Commission recognises that such agreements will usually improve economic efficiency and be pro-competitive, as they can reduce the duplication of research and development, strengthen the incentive for initial research and development, spur incremental innovation, facilitate diffusion and generate product market competition (Recital 4 TTBER). However, this does not imply that these agreements have full impunity under the antitrust regulations. Note that this position is in line with Article 40 of the TRIPS Agreement.
The TTBER aims to provide a sort of "safe harbour" for (i) technology rights licensing agreements entered into by two undertakings for the production of contract products by the licensee, and (ii) the assignment of technology rights between two undertakings for the purpose of producing contract products where part of the risk associated with the exploitation of the technology remains with the assignor. If the combined market share of the parties to the agreement does not exceed 20% (if they are competing undertakings) or 30% (if they are not), and the agreement in question does not contain any clauses classified in the TTBER as "hardcore restrictions" (Article 4) or "excluded restrictions" (Article 5), the agreement will qualify for the block exemption. Consequently, pursuant to Article 101.3 TFEU, the prohibition established in Article 101.1 TFEU shall not apply thereto.
The "hardcore restrictions" set out in the TTBER differ according to whether or not the parties are competing undertakings, with regulation in the latter case being more lenient. As this article is only providing a general overview of the TTBER, we will not discuss in length the complexity of "hardcore restrictions". However, they essentially refer to the restriction of the counter party’s ability to determine its prices when selling products to third parties, the limitation of output and the allocation of markets or customers. If an agreement includes any such restrictions, it will not benefit from the TTBER and, unless the parties can justify through a case-by-case analysis that they qualify for general exemption foreseen in Article 101.3 TFEU, the agreement will be deemed void. The parties might even be sanctioned for implementing an agreement that breaches antitrust provisions.
As for the "excluded restrictions" governed in Article 5 TTBER, while the TTBER exemption will not apply to these particular restrictions, the rest of the agreement may still be able to benefit. The TTBER foresees three "excluded restrictions": (i) any direct or indirect obligation vis-à-vis the licensee to grant an exclusive licence or to partially or fully assign rights to the licensor or to a third party designated by the licensor, in respect of its own improvements to, or its own new applications of, the licensed technology; (ii) any direct or indirect obligation vis-à-vis a party not to challenge the validity of IPRs held by the other party in the EU, save the possibility, in the case of an exclusive licence, of providing for the termination of the technology transfer agreement should the licensee challenge the validity of any of the licensed technology rights; and (iii) when the undertakings party to the agreement are non-competing, any direct or indirect obligation limiting the licensee’s ability to exploit its own technology rights or limiting the ability of any of the parties to the agreement to carry out research and development, unless the latter restriction is essential to preventing the disclosure of the licensed know-how to third parties.
Although the TTBER does not deal with them, the Guidelines set out the Commission's stance regarding settlement agreements entered into by parties within the context of litigation concerning the validity and/or infringement of an IPR and technology pools, the latter being arrangements whereby two or more parties assemble a package of technology which is licensed not only to the pool's contributors, but also to third parties.
We note that the Commission recognises settlement agreements as a legitimate means of resolving a dispute, while also highlighting that they can risk restricting competition, with the following regarded as "suspect": cross licensing or non-challenge clauses in a settlement agreement, and "pay-for-restriction" or "pay-for-delay" type settlements.
As for technology pools, the Commission points out that when assessing them under antitrust law, it will take into account, inter alia, the transparency of the pool creation process; the selection and nature of the pooled technologies, including the extent to which independent experts are involved in the creation and operation of the pool, and; whether safeguards against the exchange of sensitive information and independent dispute resolution mechanisms have been put in place.