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June 2014

All contracts have to be evaluated in the light of this very general provision, but it is particularly relevant to the life sciences. This particularly concerns agreements dealing with the license of intellectual property rights. Although intellectual property rights such as patents entitle the holder to prevent unauthorised use of the protected technology and to exploit it, for example by licensing it to third parties, this exclusive right of exploitation does not exempt intellectual property rights from competition law intervention. Article 101 of the Treaty is, in particular, applicable to agreements whereby the holder licenses another undertaking to exploit its intellectual property rights. This does not imply that there is an inherent conflict between intellectual property rights and the EU competition rules. Indeed, both IP rights and competition law share the same basic objective of promoting consumer welfare and efficient allocation of resources.

In order to simplify the assessment of conformity with the EU competition rules, the European Commission now sets out various "Block Exemption Regulations" (BER). If an agreement fulfils all criteria of a certain BER, it is exempted from the prohibition under Article 101 of the Treaty. The Technology Transfer-BER exempts licensing agreements concluded between companies that have limited market power (i.e. a market share not exceeding 20% for agreements between competitors, or 30% for agreements between non-competitors), that fulfil certain conditions.

The new Regulation

On 30 April 2014, the TT-BER 772/2004 expired and was replaced by the new TT-BER 316/2014 from 21 March 2014.

What is new in the new TT-BER?

• it is clarified that the TT-BER only applies if the block exemption on R&D agreements and the exemption on specialisation agreements are not applicable;
• it is clarified that licence agreements between patent pools and third parties fall outside the scope of the TT-BER. Licensing out from a pool is usually considered a multi-party agreement which is not covered by the TT-BER. However, a safe harbour is provided for pools covering not only the creation of the pool but also the licensing out. Such a pool may even be considered pro-competitive;
• further limitations on passive sale restrictions between non-competing companies in favour of their licensees have been introduced. Passive sale restrictions are considered "hardcore" restrictions which are excluded from the safe harbour of a BER. The old TT-BER already excluded such restrictions on licensees not to sell into each other's territories, but it contained a small exception which allowed passive sales restrictions protecting a licensee during the first two years of an agreement between non-competitors. This exemption has now been deleted. As a consequence, the most important passive sales restrictions between non-competing companies (the "two-year exemption") is now outside the scope of the TT-BER. Small exceptions to this general rule remain, including the admissible restriction of passive sales to exclusive customer groups reserved for the licensor, the limitation to own use, the limitation to a particular customer, and the distribution level of sales to unauthorised distributors. The new TT-BER is now in line with the BER in terms of vertical restraints;
• no-challenge clauses are not exempt – no-challenge clauses, which prohibit the licensee from challenging the validity of the licenced IP right, never benefited from the exemption: the old TT-BER already limited the exemption of such clauses to a broad extent but allowed clauses which entitled the licensor to terminate the licence if the licensee contested the validity of the IP rights which were the subject of the licence agreement. Such clauses have been very common in licences as they strengthen the licensor's position. Invalid patents are, however, considered an obstacle and negatively influence the balance of value between the contractual parties, limiting innovation and economic activity. The new TT-BER, therefore, excludes such termination clauses in non-exclusive licence agreements. They will continue to be exempted in exclusive licence agreements because the exclusive licensee generally benefits from an invalid IP right as much as from a valid one and consequently does not benefit from challenging it.

Other than as detailed above, the list of hardcore restrictions has not changed significantly.

The new TT-BER is, however, not only relevant to licence agreements but also to settlements. Settlements usually follow a dispute about whether a technology is correctly patented and whether that patent has been infringed. Settlements, therefore, come close to no-challenge agreements which can be prohibited by Article 101 of the Treaty, eg. if the patent was granted on the basis of incorrect or misleading information. In this regard, settlement agreements often result in a delayed market launch of a product. If the parties are potential competitors and if there was a significant value transfer from the licensor to the licensee, the Commission may react sensitively to the risk of market manipulation by so-called "pay for delay" agreements.

The new TT-BER provides for a transitional period. Agreements which were already in force on 30 April 2014, will be exempt from the provisions of the new TT-BER until 30 April 2015. Companies would be well advised to use the transitional period to check that existing contracts which will remain in force after 30 April 2015, comply with the new TT-BER.

If you have any questions on this article or would like to propose a subject to be addressed by Synapse please contact us.

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