© 2008 innovate legal services limited overview of presentation 1. introduction 2. the block...

© 2008 Innovate Legal Services Limited

Overview of presentation

1. Introduction

2. The block exemptions

3. The Technology Transfer Block Exemption (TTBER)

4. Outside the block exemption: the Guidelines and the Article 101(3) Notice

5. Conclusions


Introduction

Article 101 of the EC Treaty

Article 101 regulates joint conduct between companies (‘undertakings’)

Article 102 of the EC Treaty

Article 102 regulates the unilateral conduct of dominant firms


Introduction

Infringement of Article 101 and Article 102 may lead to fines and other sanctions by the European Commission.

Recent fines:

- Euro 131 Million to marine hose producers (price fixing cartel)- Euro 1.06 Billion in an abuse of dominance case (Intel)

Companies may sue for damages in the national courts if they have been adversely affected by the anti-competitive behaviour of other firms.


Introduction

Vertical agreements

Agreements entered into between companies when each of them operate at a different level of the production or distribution chain.

Horizontal agreements

Agreements between undertakings operating at the same level of the production or distribution chain.


Introduction

Article 101(1) of the EC Treaty may catch legal agreements containing anti-competitive contractual restrictions

including franchising agreements, research and development agreements, technology transfer agreements, patent licence agreements, patent pooling arrangements, patent litigation settlement agreements, non-assertion agreements...

Article 101(1)(b) expressly prohibits agreements between companies that limit or control ‘production, markets, technical development or investment’.


The block exemptions

Article 101(3) of the EC Treaty permits the pro-competitive effects of an agreement to be taken into account, so as to provide exemption from the effect of Article 101(1).

The European Commission issues block exemptions so that companies and their advisers can determine when a potentially anti-competitive agreement may benefit from exemption under Article 101(3).

The block exemptions provide what is often called a safe harbour or safety zone by way of an automatic exemption from the effect of Article 101(1).



If an agreement comes within the scope of a block exemption, it is within the safe harbour (or safety zone) and it is presumed to be exempt from the prohibition of anti-competitive agreements in Article 101(1).

Why important?

- Ensures the agreement is legal and enforceable- Avoids the risk of fines from the European Commission

Note: the Commission may still revoke the application of a block exemption in special cases, where an agreement has effects incompatible with Article 101(3).



The Commission has issued a series of block exemption regulations for different categories of agreement.

Commission Regulation 2790/1999 on the application of Article 101(3) to categories of vertical agreements and concerted practices.

Commission Regulation 2659/2000 on the application of Article 101(3) to categories of research and development agreements.

Commission Regulation No. 772/2004 on the application of Article 101(3) to categories of technology transfer agreements.



Vertical Agreements Block Exemption

‘Manufacturers and retailers often do not trade their goods through a simple linear pricing mechanism in which the retailers pay the manufacturers an amount proportional to the quantity bought. Instead, they use a variety of complex contracts. ..

…Vertical agreements are those that arise in a channel of distribution between firms at different levels of trade or industry, i.e. between a manufacturer and wholesaler, between a supplier and customer or between a licensor of technology and its licensee.’

Economic Analyses of Vertical Agreements, Doris Hildebrand, Kluwer (2005)




Applies in principle to all vertical agreements concerning the sale of goods or services; does not generally apply to agreements concerning the assignment or licensing of certain intellectual property rights, such as patents.

Provisions relating to intellectual property rights ARE covered by the vertical agreements block exemption if they are ancillary to a vertical agreement and facilitate the purchase, sale or resale of contract goods or services. Example: a trade mark licence agreement granted by a manufacturer to a distributor




Relevance in the IP context

Trade mark licensing provisions in:

- Exclusive distribution agreements- Selective distribution agreements




Further guidance

Commission Notice - Guidelines on Vertical Restraints



The block exemptions and IPRs

The European Commission has for many years recognised that activities such as cooperation in the conduct of innovative research, technology transfer and the associated licensing of intellectual property rights between firms often assists in the development and exploitation of risky new technologies, thereby enabling more and better products to be brought to market and facilitating greater consumer choice.



Research and Development Agreements Block Exemption

‘Agencies’ interest in R&D collaborations ultimately aims to investigate whether the parties may exercise market power to reduce the level of innovation, leading to fewer or no products for consumers to choose from, lower-quality products, or products that reach consumers more slowly than they otherwise would’.

Innovation Markets and Competition Analysis, Marcus Glader (Edward Elgar), 2006




Covers R&D agreements for products and processes up to the stage of industrial application, including those which contain contractual provisions for exploitation of the results (such as provisions relating to intellectual property rights).




‘Below a certain level of market power it can, for the application of Article [101](3), in general be presumed that the positive effects of [research and development agreements] will outweigh any negative effects on competition’.

Recital to the R&D Agreements Block Exemption




If the parties are actual or potential competitors in a market which will be affected by the R&D (for which the R&D may create substitutes), their combined market share must not exceed 25 %.

Where the parties jointly exploit the results of their R&D, the exemption continues to apply seven years after the introduction of the products on to the common market or as long as the parties’ sales do not exceed 25 % of the market in total.




Contains a list of ‘hardcore’ contractual restrictions which are not to be contained in agreements if they are to take the benefit of the block exemption.

Such as a prohibition on the challenge - after completion of the R&D - of the validity of the intellectual property rights which the parties hold in the common market and which are relevant to the R&D or - after the expiry of the R&D agreement - the validity of intellectual property rights….



The Commission’s Notice on horizontal cooperation agreements:

- Sets out basic guidance for the assessment of horizontal agreements

- Complements the R&D Block Exemption



The Commission’s Notice on horizontal cooperation agreements

‘…horizontal cooperation can lead to substantial economic benefits…’

‘Companies need to respond to increasing competitive pressure and a changing market place driven by globalisation, the speed of technological progress and the generally more dynamic nature of markets. Cooperation can be a means to share risk, save costs, pool know-how and launch innovation faster…’



The Commission’s Notice on horizontal cooperation agreements

‘R&D cooperation may not – or not only – affect competition in existing markets, but competition in innovation. This is the case where cooperation concerns the development of new products/technology which either may – if emerging – one day replace existing ones or which are being developed for a new intended use and will therefore not replace existing products but create a completely new demand. The effects on competition in innovation are important in these situations, but can in some cases not be sufficiently assessed by analysing actual or potential competition in existing product/technology markets’.

- analysis of sources of innovation required (R&D efforts)


The Technology Transfer Block Exemption

Assessing intellectual property licensing arrangements and other technology transfer agreements for compliance with the competition rules

1. Is a block exemption (safe harbour) available?

[E.G. the TTBER]

2. If not, is the agreement otherwise exempt from the effects of Article 101(1)?



Assessing intellectual property licensing arrangements and other technology transfer agreements for compliance with the competition rules

What are the possible negative economic effects of licensing?

- Licensing between competitors may facilitate collusion- Certain licensing arrangements may stifle innovation- Licensing may foreclose competitorsby raising their costs, restricting their access to technological inputs or otherwise raising barriers to entry



The TTBER came into force on 1 May 2004.

It replaced the ‘old’ technology licensing block exemption (Regulation 240/96) with the objectives of- simplification- moving away from the old checklist (blacklist) approach and towards a more flexible, market-based analysis.

A detailed set of Guidelines has also been issued by the European Commission (Commission Notice 2004/C101/02 – Guidelines on the Application of Article 101 of the EC Treaty to Technology Transfer Agreements).



What is included?

Patent licence agreements‘Patent’ in this context is defined broadly to include granted patents, patent applications, designs, utility models, semiconductor topographies, supplementary protection certificates and plant breeders’ rights. Know-how licensing agreementsKnow-how is defined as a package of non-patented practical information resulting from experience and testing which is secret, substantial and identified.

Software copyright licencesMixed patent, know-how or software copyright licences

NB: bipartite agreements (2 parties) only are covered



What is included?

Assignments of patents, know-how, software copyright or mixed assignments, where part of the risk of exploitation of the technology remains with the licensor.

Licences and assignments which cover IP rights additional to those specifically embraced by the TTBER (such as trade marks) are also included within the block exemption, provided that the other provisions do not constitute the primary object of the agreement.



What are excluded?

Multiparty licences‘Simple’ trade mark licencesAgreements where technology is licensed for the sole purpose of enabling a licensee to carry out R&D – see the R&D agreements block exemption

Licensing agreements for the purpose of subcontracting R&DTechnology pools (agreements whereby the parties pool their patent rights, usually for the purpose of creating a package of IP rights which can then be licensed to third parties)Other (non-software) copyright licences



The TTBER – the safe harbour

Competitors or non-competitors?

- Product markets: interchangeability / substitutability

- Technology markets: ‘Technology markets consist of the intellectual property that is licensed and its close substitutes, i.e. other technologies which customers could use as a substitute’ – Commission’s Notice on Market Definition



Competitors or non-competitors?

‘Competing undertakings’ are those which compete on the relevant technology market and/or the relevant product market – TTBER, Article 1(1)(j)

1. Do the parties actually compete on a relevant technology market?2. Do the parties actually or potentially compete (in the absence of the licence agreement) on a relevant product market?

If the answer to either question is ‘yes’, the parties will be competing undertakings for the purpose of the TTBER.




The importance of assessing market power

‘Market power’ is the ability to maintain prices above competitive levels or to maintain output in terms of product quantities, product quality and variety or innovation below competitive levels for a not insignificant period of time.

- see the Guidelines, paragraph 28




The importance of assessing market power

The Guidelines say that appreciable anti-competitive effects are likely to occur when at least one of the parties to a technology transfer agreement has or obtains some degree of market power and the agreement contributes to the creation, maintenance or strengthening of that market power, or allows the parties jointly to exploit their market power.

In the Commission’s view, market shares constitute the prima facie evidence of market power.




Market share thresholds (Article 3 of the TTBER)

- For competitors: 20% (combined) on the affected technology and product market

- For non-competitors: 30% (maximum individual market share of one party) on the affected technology and product market

Block exemption continues for 2 consecutive calendar years following the year in which either of the thresholds is first exceeded – TTBER, Article 8(2)




Hardcore contractual restrictions

- separate lists for competitors and for non-competitors




Excluded restrictions or ‘Grey clauses’ – Article 5 of the TTBER

- grant-back / assignment of severable improvements- no-challenge clauses- restrictions on the licensee’s ability to exploit own technology

Now assessed individually for their pro- and anti-competitive effects

NB: severance



Outside the TTBER

No assumption of illegality

The Technology Licensing Guidelines and the Article 101(3) Notice issued by the European Commission may assist



Outside the TTBER - No assumption of illegality

Scenarios discussed in the Guidelines

Tying and BundlingNon-compete obligationsSettlement agreementsTechnology pools


Postscript

A sword as well as a shield?

Complaints to the European Commission

The Commission has said that it wishes both companies and citizens to come forward and provide information about suspected infringements of the competition rules...

...but the Commission is focussing its efforts only on the most serious infringements of Article 101 and Article 102


Postscript

A sword as well as a shield?

In the national courts, it is possible to sue for damages, basing a legal claim on an alleged breach of Article 101 or Article 102


Thank you for listening – questions?

Dr Duncan Curley

Innovate Legal

107 Fleet Street

London

EC4A 2AB

Tel: +44(0)20 7936 9056

Fax: +44(0)20 7936 9111

Email: [email protected]

www.innovatelegal.co.uk

© 2008 innovate legal services limited overview of presentation 1. introduction 2. the block...

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