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25 February 2008
Lawyers are preparing for Europe’s ‘big bang’ on 1 May, when, as well as the accession of 10 new member states, a package of measures intended to modernise the existing European system of competition law will be introduced. Among these measures is a revision to the special exemption from competition rules, the Technology Transfer Block Exemption Regulation, issued by the European Commission for intellectual property (IP) licences and technology transfer agreements.
The notion behind the regulation of licences and technology transfer agreements by the Commission is that they can potentially have an adverse effect on competition, by the inclusion of territorial exclusivity and product tying clauses, for example. The existing Block Exemption Regulation for IP licences provides lists of clauses that have been sanctioned as generally pro-competitive by the Commission, together with a blacklist of clauses that generally cause competition problems in the eyes of the regulator. Not surprisingly, this regulation has had a straitjacketing effect on those responsible for drafting IP licence agreements, who will usually try to draft their agreement within the framework of the existing block exemption, so as to avoid competition concerns.
Avoiding the interest of the competition authorities in IP licensing agreements is not just a matter of good practice. If an agreement falls foul of the competition rules, it might be declared void and rendered unenforcable, with potentially disastrous consequences for the parties seeking to rely on it.
When issued in draft last autumn, the proposed new rules raised quite a furore in the IP legal fraternity, at what was seen by many as an attack on the freedom of holders of intellectual property rights to do licensing deals without interference from Brussels. The criticisms were heard at the highest level and even prompted the EU Commissioner for Competition Policy, Mario Monti, earlier this year to issue a speech of reassurance to the doubters. It seems highly unlikely that the Commission will be deterred from its chosen path of reform, and the proposed revision to the European technology licensing rules will almost certainly go ahead as planned, with the broad thrust of changes in line with the draft proposals. It is easy to be alarmist about new legislation, but the reform is on its way despite the protests. The Commission has promised simplification and liberalisation, which should be welcomed.
So, what are the changes likely to mean for businesses and their legal advisers? There is no doubt that the old regime, while cumbersome and sometimes difficult to apply in practice, left legal advisers in little doubt as to what was and was not acceptable. The long lists of dos and don’ts in the old regulation are to be swept away and replaced by a new regime, based much more on economic assessment of the likely pro and anti-competitive effects of the licence agreement in its market context. There is, however, a risk that the new rules might actually increase the regulatory cost burden for companies licensing their IP in Europe. This is because the key to the application of the new rules will be a self-assessment of whether parties to a licence agreement are competitors or non-competitors in the relevant market. The services of economists may be required to help the lawyers with market definitions, which can be difficult for new technology markets, and the calculation of the parties’ market shares. Depending on which category – competitors or non-competitors – applies, it will then be necessary to look to revised and shorter lists of ‘hardcore’ restrictions.
The Commission intends to produce extensive and detailed guidelines as an aid to the interpretation of the new rules. Unfortunately, some have questioned whether the proposed changes in the rules will live up to the promise of simplification, without the benefit of clear guidelines. It is hoped that sufficient work will have been done by the Commission on the draft guidelines by May so that they can be of genuine use to businesses seeking to negotiate their way around the new legal landscape for IP licences and technology transfers.