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.
- 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.
- 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.
- 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.