What follows is rather technical. It may be of less general interest than, say, our recent posting about standard royalty rates. The latter was widely re-tweeted and was even copied and pasted, with IP Draughts’ permission, into the January issue of the Journal of the (UK) Chartered Institute of Patent Attorneys. Nevertheless, the subject of today’s posting is very important to anyone drafting an IP licence agreement for a European territory.
First, some legal context. Article 101 of the Treaty on the Functioning of the European Union prohibits certain anti-competitive agreements. Many exclusive IP licence agreements whose licensed territory includes all or part of the EU are, in principle, likely to be caught by Article 101. The EU Technology Transfer Block Exemption Regulation (“TTBER”) provides a safe harbour from Article 101 for “technology transfer agreements” that come within the TTBER’s scope. The TTBER mainly covers technology licensing agreements, as well as some assignments where part of the risk remains with the assignor (as in the case of ongoing royalty obligations).
TTBERs typically last for about 10 years and are then replaced by a new TTBER. The current one is due to expire in 2014. About a year ago, the European Commission began a consultation on what should replace it. IP Draughts was one of the main authors of a response to that consultation that was made jointly by the IP Working Party of the Law Society of England and Wales and the (UK) Intellectual Property Lawyers’ Association. That response can be found here.
The European Commission has now moved on to the next stage of its consultation by issuing a draft of a new TTBER and a draft of a new version of its Guidelines on Technology Transfer Agreements. The European Commission’s own summary of the main changes over the current versions of these documents can be found here, and this document is recommended for anyone wanting a quick overview of the main changes.
IP Draughts’ biggest criticism of the current TTBER is the extent to which it is a document written for economists rather than for IP lawyers. With earlier versions of the TTBER, it was a mechanical exercise (ie one that this jobbing IP lawyer could manage) to compare the terms of one’s licence agreement with the terms of the TTBER and determine whether the agreement was within the safe harbour. Under the current TTBER, it is necessary to consider more complex issues such as the market shares of the parties (not just in product markets, where one’s client may be able to help, but also in technology markets – a concept that IP Draughts finds troublesome) and whether they would be considered to be competitors. The European Commission seems to be very suspicous of licence agreements between competitors or where one or both parties has significant market power (which has a wider meaning that “dominant position” for the purposes of Article 102).
Regrettably, in the draft TTBER the European Commission has not taken the opportunity to make life simpler for licensing parties. The draft is mostly identical to the current TTBER. It does, however, including some revisions that seem to IP Draughts to be tinkering around the edges.
Some of the changes seem to be dealing with some highly specific situations, eg the reference in Article 3(2) to the situation where the licensee does not compete with the licensed technology but has a subsitutable technology that it uses for in-house production. An impression is given that the European Commission is addressing some obscure points that have occurred to it; perhaps it has been faced with such situations in cases that have come before it.
Looked at from the perspective of mainstream, plain vanilla licence agreements, two points, in particular, jumped out on first reading the document:
- Article 5(1)(b) continues to exclude from exemption (ie as a “grey” clause rather than a “hardcore” clause) obligations on the licensee not to challenge the validity of the licensor’s IP. However, there is now a new part to this paragraph which states that clauses allowing a licensor to terminate the agreement if the licensee challenges the licensor’s IP are also excluded from the block exemption. For many years, it has been a standard way for contract drafters to “get around” the prohibition on no-challenge clauses to draft instead a clause allowing termination if a challenge is made. Now, it seems, a licensor is to be locked into an agreement with a licensee who “declares war” on it by challenging its IP. This seems highly undesirable.
- The IP definitions in Article 1 are in a muddle. The chief definition is that of “technology” which is really a definition of IP rather than of the technology that is protected by the IP. It is then unclear whether, when the word “technology” is used in other definitions, eg “technology transfer agreement”, it has that defined meaning. More seriously, though, a definition of “intellectual property rights” has been introduced, which IP Draughts is guessing was done for the purposes of Article 1(1)(c) which refers to “other intellectual property rights”. However, this definition, which includes trade marks (trade mark licensing, per se, is not within the scope of the TTBER), doesn’t work in relation to the reference to “intellectual property right” in Article 2(2).
IP Draughts expects that there will be other changes that call for comment. Do readers have any views on this package of documents?