1. © 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

2. © 2008 Innovate Legal Services Limited 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

3. © 2008 Innovate Legal Services Limited 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.

4. © 2008 Innovate Legal Services Limited 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.

5. © 2008 Innovate Legal Services Limited 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’.

6. © 2008 Innovate Legal Services Limited 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).

7. © 2008 Innovate Legal Services Limited The block exemptions 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).

8. © 2008 Innovate Legal Services Limited The block exemptions 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.

9. © 2008 Innovate Legal Services Limited The block exemptions 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)

10. © 2008 Innovate Legal Services Limited The block exemptions Vertical Agreements Block Exemption 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

11. © 2008 Innovate Legal Services Limited The block exemptions Vertical Agreements Block Exemption Relevance in the IP context Trade mark licensing provisions in: - Exclusive distribution agreements - Selective distribution agreements

12. © 2008 Innovate Legal Services Limited The block exemptions Vertical Agreements Block Exemption Further guidance Commission Notice - Guidelines on Vertical Restraints

13. © 2008 Innovate Legal Services Limited The block exemptions 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.

14. © 2008 Innovate Legal Services Limited The block exemptions 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

15. © 2008 Innovate Legal Services Limited The block exemptions Research and Development Agreements Block Exemption 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).

16. © 2008 Innovate Legal Services Limited The block exemptions Research and Development Agreements Block Exemption ‘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

17. © 2008 Innovate Legal Services Limited The block exemptions Research and Development 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.

18. © 2008 Innovate Legal Services Limited The block exemptions Research and Development Agreements Block Exemption 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….

19. © 2008 Innovate Legal Services Limited The block exemptions The Commission’s Notice on horizontal cooperation agreements: - Sets out basic guidance for the assessment of horizontal agreements - Complements the R&D Block Exemption

20. © 2008 Innovate Legal Services Limited The block exemptions 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…’

21. © 2008 Innovate Legal Services Limited The block exemptions 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)

22. © 2008 Innovate Legal Services Limited 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)?

23. © 2008 Innovate Legal Services Limited The Technology Transfer Block Exemption 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 competitors by raising their costs, restricting their access to technological inputs or otherwise raising barriers to entry

24. © 2008 Innovate Legal Services Limited The Technology Transfer Block Exemption 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 ).

25. © 2008 Innovate Legal Services Limited The Technology Transfer Block Exemption 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 agreements Know-how is defined as a package of non-patented practical information resulting from experience and testing which is secret, substantial and identified. Software copyright licences Mixed patent, know-how or software copyright licences NB: bipartite agreements (2 parties) only are covered

26. © 2008 Innovate Legal Services Limited The Technology Transfer Block Exemption 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.

27. © 2008 Innovate Legal Services Limited The Technology Transfer Block Exemption What are excluded? Multiparty licences ‘Simple’ trade mark licences Agreements 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&D Technology 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

28. © 2008 Innovate Legal Services Limited The Technology Transfer Block Exemption 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

29. © 2008 Innovate Legal Services Limited The Technology Transfer Block Exemption 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.

30. © 2008 Innovate Legal Services Limited The Technology Transfer Block Exemption The TTBER – the safe harbour 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

31. © 2008 Innovate Legal Services Limited The Technology Transfer Block Exemption The TTBER – the safe harbour 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.

32. © 2008 Innovate Legal Services Limited The Technology Transfer Block Exemption The TTBER – the safe harbour 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)

33. © 2008 Innovate Legal Services Limited The Technology Transfer Block Exemption The TTBER – the safe harbour Hardcore contractual restrictions - separate lists for competitors and for non-competitors

34. © 2008 Innovate Legal Services Limited The Technology Transfer Block Exemption The TTBER – the safe harbour 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

35. © 2008 Innovate Legal Services Limited The Technology Transfer Block Exemption Outside the TTBER No assumption of illegality The Technology Licensing Guidelines and the Article 101(3) Notice issued by the European Commission may assist

36. © 2008 Innovate Legal Services Limited The Technology Transfer Block Exemption Outside the TTBER - No assumption of illegality Scenarios discussed in the Guidelines Tying and Bundling Non-compete obligations Settlement agreements Technology pools

37. © 2008 Innovate Legal Services Limited 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

38. © 2008 Innovate Legal Services Limited 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

39. © 2008 Innovate Legal Services Limited 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: info@innovatelegal.co.uk www.innovatelegal.co.uk