Thank you, m’Lord

Apologies for the lack of posts in the last two weeks.  IP Draughts has been rather busy dealing with a flurry of client matters and recruiting an additional IT lawyer.

Last week he also gave an all-day, in-house talk in Cambridge.  A big thank-you to the Research Contracts team at the University for making the visit so enjoyable.  He greatly appreciated the comments from several people about how much they enjoyed reading this blog, and how they passed articles on to colleagues when they found them interesting.

Lord Clement-Jones

While we are on the subject of appreciation, IP Draughts is delighted, as a member of the Intellectual Property Working Party of the Law Society of England and Wales (IPWP), that an IPWP briefing paper has been extensively cited by Lord Clement-Jones in debates in the House of Lords about the Intellectual Property Bill that is currently progressing through Parliament.  Lord Clement-Jones expressed himself to be “indebted” to the Law Society for this paper during the Committee Stage of the Bill on 11 June, and he again quoted from it on the second day of debate on 18 June.

This leads on to a more general point, which is that the IPWP has been considering whether to run its own blog, to keep solicitors and others informed about developments in IP legislation, policy and practice in the UK and EU.  The blog would provide updates on the work of the IPWP, which seeks to represent the views of IP solicitors in England and Wales (often in conjunction with the Intellectual Property Lawyers Association and the City of London Law Society).  It would also enable a more direct engagement with English solicitors who are interested in this area, eg by enabling them to comment on articles on the blog.

Recent highlights of the IPWP’s work include:

• Active involvement in the campaign to improve, and secure a UK involvement in, the Unified Patent.  This led to David Cameron negotiating high-level terms of the underlying treaties directly with his European counterparts.
• Submissions on the IP Bill, mentioned above.
• A campaign over several years to revise the ‘unjustified threats’ provisions of UK IP legislation, which was probably a factor in the Law Commission making it a current subject of review.  That review is ongoing and the IPWP will be making further submissions.
• Attending meetings with Government ministers, officials and the IPO to discuss IP-related topics, including the implications for UK business if the UK left the EU.
• Submissions on numerous other items of proposed EU legislation, including (to take one small example) the draft Technology Transfer Block Exemption Regulation, on which IP Draughts led.

It seems to IP Draughts that an IPWP blog would be a useful way of engaging with others in the development of Law Society ‘positions’ on topics that can sometimes be overlooked by non-specialists, perhaps because the topics can seem rather technical and dry, or of limited relevance to mainstream commercial and legal life.  There are not, as far as IPWP is aware, any other similar blogs in other areas of the Law Society’s campaigning, and for some this might be regarded as a big step to take, requiring considerable volunteer effort with no certainty that any engagement will result.  IPWP members already commit a great deal of time to IPWP work.  Would running a blog significantly enhance the IPWP’s work, or would it be a damp squib?

What do readers think?

Why don’t the competition authorities understand IP licensing?

The European Commission (EC) has recently started a consultation exercise on its draft Technology Transfer Block Exemption Regulation (TTBER) and draft Guidelines for Technology Transfer Agreements.  The draft TTBER is designed to replace the current TTBER when it expires in 2014.  The draft Guidelines are being updated to reflect the EC’s current thinking on the competition issues that arise in licence agreements.  The draft documents can be found here.  The consultation exercise ends on 17 May 2013.

For readers who are not familiar with these documents, here is the nutshell summary.

Agreements that affect trade between EU member states and contain anti-competitive terms may be in breach of Article 101(1) of the Treaty on the Functioning of the European Union.  Where a breach occurs, parties may be fined up to 10% of their worldwide group turnover.  The agreement, or the offending terms, may be void.  Parties may be sued by third parties who suffer loss.  However, a breach doesn’t occur if the offending terms can be justified under Article 101(3).  That is generally up to a court to decide.

Rather than run the risk of breach, parties sometimes or often try to bring their agreement within the “safe harbour” of a block exemption regulation (BER).  Agreements that fit with a BER get automatic exemption under Article 101(3).  The BER for technology licensing is the Technology Transfer BER (TTBER), which covers patent and know-how licensing and a whole lot else besides.  BERs typically remain in force for about a decade and are then replaced.  The current TTBER is due to expire in 2014.  Hence the consultation over what should replace it.

Regrettably, the EC does not seem to have published a red-line version of the two drafts, showing changes over the current documents.  IP Draughts’ excellent trainee, Christopher Beck, has done so; please let us know if you would like a copy.

In the last few days, IP Draughts has been working on a draft submission to the EC in response to its consultation.  There is plenty to react to in the two documents, but two points really jumped out when he reviewed the drafts, and a third point seems to follow a trend.

1. Still no certainty for mid-level agreements. The TTBER continues to drift away from its original purpose as a simple checklist of what terms are, or are not, acceptable in a technology licence agreement.  This really started to happen in the 2004 TTBER; the draft TTBER takes us further on this path.  The EC has expanded its thinking on new and, in some cases, rather exotic scenarios where IP licensing causes serious competition concerns.  What we don’t have, though, is a straightforward set of rules for the majority of licence agreements that are, potentially, in breach of Article 101 but are not likely to cause competition concerns.  In particular, it is unrealistic to expect managers of SMEs and general commercial lawyers to understand and interpret complex provisions in the TTBER about market shares in technology markets and whether the parties are competitors in those markets.
2. No-challenge clauses. For decades, transactional IP lawyers in the EU have known that, if you want to fit with the TTBER, you mustn’t include in the licence agreement any provision that prohibits the licensee from challenging the validity of the licensed IP, but it is acceptable to include a provision that allows the licensor to terminate the agreement if such a challenge is made.  The draft TTBER would tighten up on no-challenge clauses by making even a “termination on challenge” clause fall outside the TTBER.  This could have the effect of locking a party into a licence agreement with its commercial enemy.  This seems, to IP Draughts, a crazy and counter-intuitive idea, which is unlikely to be acceptable to IP owners.
3. Software distribution is not IP licensing. It is interesting to see that the EC now considers software distribution agreements to be closer to distribution agreements than IP licence agreements, and therefore to be assessed under the BER for Vertical Agreements, rather than the TTBER.  Similarly, the Guidelines state that shrink-wrap licences are not really IP licences either, and are more in the nature of the sale of goods.  This view from a competition perspective coincides with some of IP Draughts’ thoughts from a commercial law perspective, which he has previously expressed on this blog.  It is unclear to IP Draughts how much software licensing is left to be assessed under the TTBER.  It seems from the Guidelines that software licensing where software is incorporated into a licensed product is what the EC has in mind.

IP Draughts perceives a sharper mind behind the draft TTBER than the one that hatched the 2004 TTBER; certainly some of the drafting changes show a more incisive approach and a better command of English.  But it is still the mind of an economist who sees dangers rather than opportunities in IP licensing, and who seems to be very remote from the practical realities of technology transfer.

New draft EU TT Regulation: more tinkering at the edges

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:

1. 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.
2. 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?

European unitary patent: latest news

For the last 2 days, IP Draughts has been attending an excellent 2-day conference, Standards, FRAND, NPEs and Injunctions, jointly run by the law firm Taylor Wessing and by Professor Sir Robin Jacob of the Institute of Brand and Innovation Law of University College London.  Rarely has IP Draughts been to a conference where both speakers and most of the audience were so expert in the subject-matter and so clear in their explanations of law and policy issues.  They represented most if not all of the commercial and legal interests involved, including several industry sectors, trade organisations, private-practice and in-house lawyers (across several disciplines, including IP and competition law) and the judiciary.  Several jurisdictions were represented, including the UK, Germany, Netherlands, France and the USA.

The conference may provide materials for future blog postings, but for now we will focus on one session – the keynote speech of Mr Klaus-Heiner Lehne MEP.  Mr Lehne is Chairman of the Committee on Legal Affairs of the European Parliament, and his committee has responsibility for the unitary patent legislation.  The title of his speech was Formation of the Unified Patent Court.

It was interesting to hear Mr Lehne’s description of the draft legislation, the stage it reached in the legislative process, and how he thought it would work in practice. Apparently, the Cyprus Presidency of the European Council has recently sent papers to the European Parliament that make a proposal to resolve the open question of whether the unitary patent will be subject to the jurisdiction of the European Court of Justice, and that this proposal incorporates the “political proposal” of David Cameron, the British Prime Minister.  It seems that the Parliament’s legal advisers have given a “green light” to this proposal, and have confirmed that the requirements of European law have been fulfilled.  Mr Lehne was hopeful that the “problem will be solved” by the end of this month, and that it would formally go to the Parliament before the Christmas break.

Interesting as this news was, what IP Draughts found most interesting were the questions that were put to Mr Lehne by members of the audience, and his replies.

One of the questioners said there were real concerns within industry about the transparency of the legislative process.  He hoped that there would be a continuing dialogue, eg on directing the judges as to the tests that they should apply when deciding whether to grant injunctions. (At other points in the conference, there was discussion of the risk that poor-quality judicial decision-making in a local or regional court in relation to a unitary patent could have a disastrous commercial effect throughout the whole of the EU (less Spain and Italy if they don’t join in).

Mr Lehne’s response was that the main industry bodies had supported the legislative process, and that most of the key decisions had now been taken.  The main focus of any lobbying at this stage should be limited to the rules of procedure, which were currently being developed by an expert group.

At this point, Sir Robin Jacob pointed out that most of the main industry players in the telecommunications sector were representated at the conference (including both manufacturers and operators), and asked industry representatives in the audience whether they were happy or unhappy with the current proposals.  A large number of hands went up in response to the “unhappy” question; few if any were “happy”.

Mr Lehne responded that the industry lobby – “official” bodies representing industry – all supported the process and agreed with the legislation in principle, even though they may have comments about some of the details.

At this point several other members of the audience intervened.  One said that industry supported the objective, not the proposals.  Another said that none of industry’s concerns had been addressed; that they had tried to explain their concerns over and again without achieving any changes, and that the proposals could “open the floodgates” for actions by non-practising entities.

Another member of the audience said he was a representative of an industry association, and their position had consistently been that they supported the package “provided it leads to a better system than we have today”.  This qualifier was often overlooked by commentators.  As the proposal stands today it is not better.

Mr Lehne reiterated that there was not a chance, at this stage, to change much in the two regulations or in the intergovernmental agreement.  There was still an opportunity to influence the rules of procedure.

At this point, a member of the expert committee deciding those rules spoke to the conference.  He explained how the rules were being developed.  The plan is to produce a final draft by the end of November and then pass it to the politicians to make a final politicial decision within members states.

Sir Robin Jacob pointed out that there had been a meeting of judges in Venice, and that they had come up with some uncontroversial proposals.  They were not, however, concerned with rules of procedure.  Mr Lehne agreed that the proposals were uncontroversial and said that he would mention them to the Cyprus Presidency, which would decide whether they could include them.

Shortly after this point, Sir Robin thanked Mr Lehne for coming into the lion’s den and giving his speech. Mr Lehne then had to leave for a meeting with “an important German lady”.  There was speculation among members of the audience that this was a reference to Chancellor Merkel.

Early in his speech, Mr Lehne had said that the proposed legislation was a political compromise that we should live with, even though it is not perfect.  He didn’t agree that it would lead to an inefficient patent system.

IP Draughts was left feeling that the European political process is completely unsuited to dealing with a technically difficult subject such as patent legislation, and that many people whose professional work brings them into contact with patents seem to be close to the point of rejecting the unitary patent as unfit for purpose.