The European Commission (the Commission) has recently published drafts of the proposed new Technology Transfer Block Exemption Regulation (the Draft TTBER) and accompanying guidelines (the Draft Guidelines). In what is a decennial event, the Draft TTBER and Draft Guidelines will, once finalised, replace the existing TTBER and guidelines which, after a decade in service, are scheduled to expire in April of 2014.

Technology transfer agreements are licensing agreements pursuant to which a licensor authorises a licensee to use its technology (such as patents, know-how and software licences) for the production of goods and services. The existing TTBER and guidelines constitute the framework for assessing the compliance of technology transfer agreements with EU competition law.

Firstly, certain categories of technology transfer agreements benefit from a so-called “safe harbour:” if the market share of the parties to the agreement does not exceed certain ceilings (i.e. 20% for agreements between competitors and 30% for agreements between non-competitors) and the agreement does not contain any so-called “hardcore” restrictions, it is deemed to comply with EU competition law. Agreements falling outside the safe harbour, either because the market share thresholds are exceeded or because they contain hardcore or other specified restrictions, are not automatically presumed to contravene EU competition law. However, such agreements need to be assessed on a case-by-case basis to ensure that they do not fall foul of the prohibition of anti-competitive agreements set out in Article 101 TFEU.

The Commission’s current reform proposals do not radically alter the existing framework for assessment. That said, the Draft TTBER and Draft Guidelines do contain a number of important “tweaks” to the current regime. The key changes proposed by the Commission are as follows:

• The Draft TTBER includes an exhaustive list of “technologies” covered: know-how, patents, utility models, design rights, topographies of semiconductor products, supplementary protection certificates, plant breeder’s certificates and software copyright.

• The Draft TTBER expressly clarifies that it will only apply if the agreement in question is not caught by the separate block exemption regulations for R&D agreements and specialisation agreements.

• The Commission proposes to use a new test to determine whether the Draft TTBER applies to agreements which – in addition to licensing technology – include purchases from the licensor relating to the product to be produced using the licensed technology. Previously, it had to be demonstrated that the licensing element constituted the “primary object” of the agreement. The Commission is proposing to relax this requirement. The new test now asks whether the purchase provisions are “directly and exclusively” related to the licensing element. If so, the agreement, including the purchasing element, can benefit from the safe harbour.

• The Commission does not propose to alter the safe harbour market share thresholds (i.e. these remain at 20% for agreements between competitors and 30% for agreements between non-competitors). However, it proposes to treat agreements between a licensee which owns a so-called “captive” technology (i.e. one which it only uses in-house) and a licensor of a substitutable product as competitors for the purposes of the Draft TTBER (i.e. such agreements will only benefit from the safe harbour if the combined market share of the licensee and licensor does not exceed 20%).

• As indicated above, the Draft TTBER sets out a list of hardcore restrictions. The presence of such restrictions means that the agreement in question cannot benefit from the safe harbour. In this context, the Commission is proposing to tighten up the current treatment of restrictions which protect licensees from passive sales of other licensees into exclusively allocated territories. Such restrictions will no longer benefit from the safe harbour.

• In contrast with the current regime, the Draft TTBER treats all exclusive “grant backs” (i.e. licence provisions obliging the licensee to exclusively licence improvements to the licensed technology back to the licensor) in the same way. The Commission proposed that all exclusive grant backs will fall outside of the safe harbour and must be assessed individually. However, this is not a hardcore restriction. The remainder of the agreement would be capable of benefiting from the safe harbour.

• The Commission proposes to tighten up the treatment of termination clauses which allow a licensor to terminate the agreement if the licensee challenges the validity of the licensed technology. The Draft TTBER treats such termination clauses in the same way as the current regime treats “no-challenge” clauses (which prevent a licensee from challenging the licenced technology). If the Commission gets its way, such termination clauses will, in future, fall outside of the safe harbour and must then be assessed individually. However, the remainder of the agreement would be capable of benefiting from the safe harbour.

• The Draft Guidelines clarify that settlement agreements relating to licences can breach Article 101 TFEU if “… a licensee agrees, against a value transfer from the licensor, to more restrictive terms than the licensee would have accepted solely on the strength of the licensor’s technology”. This section of the Draft Guidelines is geared at so-called “pay for delay” or “reverse payment patent settlements” which have featured heavily in recent Commission investigations.

• Lastly, the Draft Guidelines contain a new section on the treatment of technology pools, including guidance on the formation and operation of technology pools as well as on agreements between pools and their licensees. Technology pools are not covered by the Draft TTBER because the regulation only applies to bilateral, not multilateral, technology transfer agreements. Parties involved in technology pools will, therefore, need to look for guidance to the Draft Guidelines which set out the parameters of a “soft” safe harbour for such pools (i.e. one which is not contained in the Draft TTBER itself).

As indicated above, the Commission’s reform proposals do not represent a “big” departure from the current regime governing the assessment of technology transfer agreements under EU competition law. As illustrated above, the proposals do, however, contain important changes to the detail of its operation, which parties to existing and future technology transfer agreements would be well advised to take heed of.

The Draft TTBER and Draft Guidelines are currently being consulted upon. The consultation period ends on May 17, 2013. The Commission is expected to publish revised drafts later this year, with a view to adopting the new regulation and guidelines early next year so that they are in place before the current TTBER and guidelines expire.