(by Amelia Fletcher) The European Commission is currently consulting on  to the Technology Transfer Block Exemption Regulation (TTBER) and associated Guidelines. These documents provide legal rules and guidelines in relation to technology transfer agreements, otherwise known as IP licensing agreements. On 7th May, the Office of Fair Trading and the Intellectual Property Office held their first joint event: a debate on these proposed revisions. What were the most contentious issues?

At the event, Tobias Maass, speaking on behalf of DGComp, emphasised the importance of IP licensing agreements for generating innovation and growth. The guidelines will continue to highlight that such agreements will typically be pro-competitive, and indeed that they should not be presumed anti-competitive even if they do not fit within the specific criteria set out in the block exemption regulation. Nonetheless, there are clearly certain circumstances under which such licensing agreements are more likely to be anti-competitive, and the guidelines and block exemption are designed to address these.

Maass stated that the proposed revisions were, for the most part, designed simply to close off loopholes and tidy up a number of areas. In some instances, the debate has been greater around issues that DGComp has decided not to alter, rather than those that which have been revised. For example, there has been much debate, in evidence at this event too, around the usefulness of a Block Exemption Regulation based on market share limits, in the highly dynamic markets where IP licensing often occurs. Market definition is notoriously hard in such markets, and moreover a high market share may not necessarily confer real market power as innovations can quickly be overtaken. Despite recognising these concerns, DGComp does not intend to abandon the current market share thresholds.

There are, though, some more meaty revisions hidden amongst the draft revisions. Maass was keen to stress that the proposals constitute evolution not revolution. Nevertheless, it can be argued that they do – in combination – represent a shift in the balance of competition policy in the direction of limiting the ability of licensors to exploit invalid IP rights or to prevent such rights from being challenged in the Courts.

One such revision, which generated substantial debate at the event, was the proposal to exclude from the scope of the TTBER any contractual restriction which specifies that the licensing agreement will be terminated in the event that the licensee decides to challenge the validity of the licensor’s intellectual property right in Court. Clauses which prevented such challenge entirely (so-called ‘non-challenge’ clauses) were already excluded from the scope of the TTBER, and thus this could potentially be seen as ‘tidying up’. If a licensee faces losing access to IP if it challenges it validity, then this may have the same effect in practice as a formal non-challenge agreement, especially if the licensee has made specific investments in relation to the IP in question or is already producing on the basis of the IP.

On the other hand, a number of lawyers and industry practitioners took a different view at the event, arguing that such provisions are extremely prevalent in licensing agreements and that this revision is a step too far in terms of limiting contractual freedom. They argue that it may tip the balance for some innovators in deciding not to license their IP, with consequent harm to growth and competition. They argue that legal challenges of IP rights are inherently very adversarial, and that it is unreasonable to expect two parties engaged in such litigation to continue to engage positively with each other under the licensing agreement as if nothing had happened. They argue that it could result in spurious challenges – or the threat of spurious challenges – by licensees in order to negotiate better terms. Finally, they argue that licensors could end up ‘working around’ the restriction by including within future licensing agreements a general right to terminate, after a given notice period, and that this could in fact worsen the situation for licensees.

Maass made the point that these arguments were all very well in theory, but they had so far been under-evidenced. While stating that DGComp would welcome more evidence in this area, he also highlighted the important role that the right to challenge invalid IP rights plays in a well-functioning IP regime. It will always be impossible, in any cost-effective IP system, to ensure that every IP right awarded is valid. Thus, the IP regime relies on the Court system to ensure that valuable but invalid IP rights are weeded out. He made it clear that the authorities would typically take a dim view of any contractual revisions that limit the potential for firms to utilise this system.

In a further proposed revision, the draft guidelines clarify that settlements to IP litigation that limit or delay entry into a market may fall under Article 101 in certain circumstances. This revision is clearly a nod to the so-called ‘Pay For Delay’ pharmaceuticals cases that are ongoing in Europe, the US and the UK. Again, it is at least partly designed to prevent undue restrictions on challenges to invalid patents. However, it is another controversial area. While it is clearly important to prevent licensors with invalid patents from paying possible challengers to stay out of the market, there are many who claim that intervening in this area risks compromising more generally the potential for using efficient settlement to avoid costly litigation. At the OFT/IPO event, the arguments against this revision were more pithy. It is too early to make this change in the guidelines, it was said, since no authority has yet fully won one of these cases.

Another proposed revision to the guidelines clarifies that, as well as generally falling outside the scope of the TTBER, non-challenge clauses are likely to be anti-competitive if the licensor knows, or could be expected to know, that its technology does not meet the criteria for receiving IP protection. This revision has also generated much debate. In particular around how DGComp might ever assess whether a licensor ‘could be expected to know’ such a thing. However, it is again a clear step towards using competition law as a way of limiting the exploitation of invalid IP rights.

Finally, the guidelines clarify that the TTBER never covered patent pools, not least because it only covers bilateral agreements and patent pool licenses are inherently multilateral. Instead, the guidelines provide a soft safe harbour for patent pools where they meet a set of criteria. Most of these criteria are fairly standard, viz. that the pool should be open to all, only include essential technologies, involve no more information exchange than is necessary, licensing should be FRAND, IPR holders should still be able to license outside the pool, and there should be no restrictions on developing competing IP. However, another fits closely with the discussion above. To fall within the soft safe harbour, patent pools should not include any restriction on not challenging patent validity (or indeed essentiality).

Overall, these various proposed revisions seem almost more focussed on creating a more effective IP regime, by helping the Court system to fulfil its important role of eliminating unjustified IP rights, than on reducing anti-competitive behaviour per se. Nevertheless, in complementing the IP regime in this way, the revisions will clearly also work to support competition and innovation through reducing the potential for firms to exploit or otherwise abuse invalid IP.

The current TTBER expires in April 2014 and the closing date for comments on the is 17th May 2013.