BREAKING NEWS – New EU Technology Transfer Regulation and Guidelines

21.03.2014

The European Commission has announced that it has adopted a revised technology transfer block exemption regulation and new technology transfer guidelines (see press release, FAQs, new TTBER and the new guidelines). The TTBER and guidelines come into force on 1 May 2014 and will apply for twelve years.
Given that the existing TTBER and guidelines are due to expire on 30 April, the Commission had been expected to release a revised text in November or December 2013. The delay was likely the result of the initial draft being subject to substantial criticism (see consultation feedback here). Despite this, the finalised text remains broadly the same as the earlier draft, although the Commission has included some significant revisions. These are noted below:
Termination-on-challenge clauses in exclusive licences will continue to be block-exempted:
• Existing position and draft proposal: under Article 5(2) of the existing regulation all ‘terminate-on-challenge’ clauses can be block exempted. The Commission had initially proposed to remove this exemption, requiring all such clauses to be subject to case-by-case scrutiny. This was heavily criticised for being: (i) likely to make the agreement of new licences more difficult, (ii) likely to cause disruption to licensing arrangements once completed, and (iii) liable to be circumvented by a reframing of the licence terms by the licensor. The proposal was seen as particularly bad for SMEs, e.g. in the biotech industry – if the change had come into force larger licensees could use the threat of revocation actions to ‘renegotiate’ the terms of deals they enter into.
• Final revised text: in light of the consultation feedback, the Commission has revised its text such that termination-on-challenge clauses will continue to benefit from the block exemption where they are included in exclusive licences (and subject to the market share thresholds being fulfilled). In non-exclusive licences these clauses will in future be subject to individual scrutiny before exemption. The guidelines also now include new text which states that termination-on-challenge clauses are unlikely to be exempted in the field of standardised technologies (e.g. mobile telephony).
Clearer (or less unclear!) guidance in relation to settlement agreements
• Existing position and draft proposal: the current Technology Transfer Guidelines are rather liberal where settlement agreements are concerned. However, given the change in Commission priorities in this area, with its annual patent settlement monitoring exercise, the shift towards a more restrictive approach in the draft proposal was unsurprising. The draft proposal was, however, unsatisfactory in a number of particulars, not least in the conflict with the Monitoring Reports. According to these, licences granted in conjunction with a settlement agreement represent a ‘value transfer’ from the patentee, thus bringing the agreement into the ‘potentially problematic’ zone. The references to patentees ‘knowing’, or being in a situation where they ‘ought to have known’ that their rights were invalid was also very problematic.
• Final revised text: the guidance provided on these issues has been somewhat clarified. The Guidelines explain that a particular concern around licences grants in conjunction with settlement is where they relate only to ‘some of the markets concerned’ – i.e. the theory of harm is based around market sharing. It is notable, however, that the Guidelines refer to the need for such licences to comply with sections of the TTBER applicable to competitors – in other words, parties in litigation with each other are regarded as competitors, and any subsequent licence grant is thus to be reviewed under the stricter list of hardcore terms. Despite the removal from the final draft of the concept of licensors who know, or “ought to know” that their rights are invalid, the underlying assumption appears to be that the patent rights which were the subject of the litigation should be assumed to have been invalid or not infringed by the other party, and that there was therefore no relevant blocking position. Indeed, the separate section of the Guidelines dealing with when parties should be viewed as potential competitors considerably broadens that concept, requiring ‘particularly convincing evidence’ of a blocking position where both parties have an interest to claim one (i.e. in many settlement situations), and also emphasising that ‘substantial investments already made or advanced plans to enter a market can support the view that the parties are at least potential competitors, even if a blocking position cannot be excluded’. Strangely, this is the opposite approach to that which was taken in the recent Teva/Cephalon merger decision, as we discussed recently on the Bristows CLIP Board blog.
• The guidance on settlement agreements maintains the endorsement in the draft proposal of broad freedom-to-operate type cross licences, provided there is no limitation on the parties’ ability to gain a competitive lead over each other in product pipelines – this should be welcome in the IT and TMT sectors in particular.
Confirmation of safe harbour for technology pools
• Existing position and draft proposal: the section on technology pools in last year’s draft Guidelines took with one hand – explaining that licences granted by pools could not be covered by the TTBER – and gave back with the other, by providing for an informal safe harbour for pools. This covered not only the creation of the pool but also its subsequent licensing out, regardless of the pool’s market share. Finally, the Commission clarified that the definition of essentiality covered both commercially essential as well as technically essential technologies.
• Final position: the latest text remains largely the same, albeit with the addition of a few minor clarifications. The safe harbour is retained, as is the express statement that essentiality covers both commercially essential as well as technically essential technologies. A related change is that the Guidelines now expressly state that the mere fact that a technology holder declares a technology as essential does not imply that such a technology is in fact (commercially or technically) essential, or remains so throughout the life of the pool. This may be of (marginal) assistance to parties that wish to challenge the true essentiality of declared essential patents (however, this is arguably uncontroversial as it is well understood that many declared patents are not truly essential). The latest Guidelines describe ‘indicating factors’ that pooled technologies are complements (i.e. truly commercially / technically essential) as opposed to substitutes: (i) the technology holders remain free to license their technology individually (as well as via the pool), (ii) the pool is also willing to license the technology of each party separately, and (iii) the total royalties charged when taking separate licences to all pooled technologies do not exceed the royalties charged by the pool for the whole package of technologies. However, it does not appear that there is any actual obligation on the pool to make such separate licences available.
Commission presses ahead with removal of block exemption for grant backs of ‘non-severable’ technologies
• Existing position and draft proposal: under Article 5(1) of the existing regulation exclusive grant backs of non-severable technologies can be block exempted. The Commission was concerned that this provision would limit follow-on innovation by licensees as such firms would have little to gain from experimenting or innovating with licensed technology. The proposal was again heavily criticised by many in industry for being: (i) likely to make the agreement of new licences more difficult, (ii) likely to disrupt ongoing licensing relationships.
• Final revised text: despite the criticism of its position, the Commission is pressing ahead with its proposal. Disappointingly, thetransitional period remains limited to one year, so agreements already in force will need to be compliant by 30 April 2015 at the latest.
Further thoughts…
These are our first impressions of the proposals. We are not entirely convinced that the Commission’s revisions to its initial text have really resolved all of the many legitimate concerns expressed during the consultation process. We intend to follow up with some further thoughts once we have had a chance to review the new texts more thoroughly.