New block exemption for technology transfer

Spotlight
15 June 2014

On 1 May 2014 the new block exemption for technology transfer agreements entered into force. The new block exemption, to a significant extent, maintains the previous scheme, but introduces a limited number of elements which limit its scope. Together with the block exemption, the European Commission also published new guidelines for the assessment of agreements which do not benefit from the block exemption.

Technology transfer agreements are, essentially, agreements by which one party (the licensor) authorises another party (the licensee) to use its technology, e.g. patent, know-how, or software, for the production of goods or services. These licensing agreements will be considered to be compatible with competition law, if, on the one hand, they do not contain one of the black-listed clauses and, on the other hand, the market shares of the parties to the agreement remain below the thresholds set out in the block exemption.

The new block exemption does not alter the overall approach, nor does it modify the market share thresholds. Licensing agreements between competitors will, therefore, continue to benefit from the block exemption as long as their combined market share does not exceed 20%. Agreements between non-competitors enjoy a more flexible approach and fall under the block exemption as long as the individual market shares of the contracting parties remain below 30%.


Restriction of the block exemption

A few changes, however, result in a restriction – albeit small – of the scope of the block exemption.

For instance, all restrictions on passive sales by a licensee into a territory or to a customer group allocated to another licensee are now classed as "hardcore" restrictions. The same approach has been followed in the general block exemption for vertical agreements. Agreements containing such hardcore restrictions cannot benefit from the block exemption. The old block exemption still allowed for a restriction on passive sales during the first two years in agreements between non-competitors.

Furthermore, two types of provisions have been excluded from the safe harbour of the block exemption. The first type is the exclusive grant-back obligation. Such an obligation requires the licensee to license back to the licensor, on an exclusive basis, improvements which the licensee has made to the licensed technology. 

Secondly, clauses in non-exclusive licensing agreements which allow the licensor to terminate the agreement if the licensee challenges the validity of the licensed technology no longer benefit from the safe harbour of the block exemption. According to the Commission, this type of clause has the same effect as a no-challenge clause, which already fell outside the scope of the block exemption. The block exemption, however, continues to cover termination clauses in exclusive agreements. The Commission considers that under these circumstances the licensee has no incentive to challenge the validity of the technology, but could use this to exert pressure on small innovative licensors.


Settlements and technology pools

The guidelines explain the conditions under which the creation and licensing out of technology pools is likely to fall outside the scope of Article 101(1) TFEU. One of these conditions is to pool only essential technologies. A technology can be essential to produce a particular product, but also to comply with a certain standard.

The guidelines also clarify, for the first time, under which circumstances settlement agreements may be contrary to the competition rules. The guidelines reiterate the strongly negative assessment which the European Commission made earlier regarding "pay-for-delay agreements" or "reverse payment settlements" in the pharmaceutical sector. These, essentially, are agreements in the context of which a producer pays its competitors to delay the marketing of their competing products.


Transitional period

The new rules are valid until 30 April 2026 and apply to agreements which are signed after 1 May 2014. Existing agreements can benefit from a one-year transitional period, but have to be in line with the new regime by 30 April 2015 at the latest.