Antitrust Law Daily Wrap Up, ANTITRUST NEWS: ABA Sections Comment on European Commission Proposal to Revise Block Exemption for Technology Transfer Agreements, (May 20, 2013)

By Tobias J. Gillett, J.D., LL.M.

The American Bar Association’s Sections of Antitrust Law, Intellectual Property Law, International Law, and Science & Technology Law have commented on a European Commission (EC) draft proposal to revise its Technology Transfer Block Exemption Regulation (TTBER) and its associated guidelines.

The Sections applauded the Draft Guidelines’ provision of a safe harbor where there are sufficient technologies controlled by independent parties in addition to the technologies controlled by the parties. However, the Sections suggested that the safe harbor should be included in the TTBER itself, and that it should be presumed to be compatible with Article 101(3) of the Treaty on the Functioning of the European Union. The comments viewed the safe harbor as “an important amelioration” of the TTBER’s focus on market share, which the comments observed “poses non-trivial problems in practice.” The Sections also praised the Draft Guidelines’ statement that “there is no presumption that Article 101(1) applies merely because the market share thresholds are exceeded,” and recommended the addition of “the changes in the marketplace and the experience of the parties during the term of the agreement as factors in the application of Article 101 of the Treaty to individual cases.”

The comments also commended the EC for recognizing in its Draft Guidelines that “hardcore restrictions,” certain contractual provisions that generally deprive an agreement of the protection of the block exemption, “may be objectively necessary in exceptional cases . . . and therefore fall outside Article 101(1),” and that “undertakings may plead an efficiency defense under Article 101(3) in an individual case.” However, the Sections suggested excluding minimum resale price maintenance from the list of “hardcore restraints.” The comments noted that resale price maintenance may “stimulate interbrand competition,” and permit consumers to select among high-price high-service brands and low-price, low-service brands.

The Sections opposed a change in the TTBER that would exclude provisions that provide for “any right for a party to terminate the technology transfer agreement in the event that the other party challenges the validity of any of the intellectual property rights.” The comments contended that excluding them from the exemption would be “unwise” because it “would lead to situations in which a licensor must continue to support and provide technical information to a licensee, while at the same time defend against litigation in which the licensee may use such information,” because “the block exemption applies only in situations in which there are likely to be sufficient competing alternative technologies,” and because it would be “inconsistent” with a provision in the R&D block exemption regulation allowing “for the possibility to provide for the termination of the research and development agreement in the event of one of the parties challenging the validity of such intellectual property rights.”

The comments also urged the EC to retain its block exemption for exclusive grant-back provisions that cover non-severable improvement, those that cannot be exploited without infringing the licensed technology. The EC’s proposal would exclude all exclusive grant-backs from the scope of the TTBER. The Sections argued that “licensors may not enter into procompetitive licensing arrangements” in the absence of exclusive grant-backs, and that “exclusive grant-backs may spur innovation,” in particular where “competition occurs not only between firms within a given technology standard but also between standards.”

The Sections applauded the EC for clarifying “that field of use limitations may also consist of one or more ‘industrial sectors,’ and not just product markets or technical fields of application,” suggesting that this change would “help to increase licensing incentives without risking competitive harm.” However, the Sections recommended removing language stating that “industrial sectors” could cover several product markets “but not part of a product market.” The comments also suggest clarifying “that it is permissible to delineate technical fields of application by the characteristics of the licensed end product.”

With respect to reverse-payment settlements between competitors, the Sections recommended that settlements that do not limit generic entry should be included in the block exemption. Due to differences of opinion among their members, the Sections took no position on the treatment of settlements limiting generic entry in the pharmaceutical industry but providing for “no value transfer from the originator company to the generic company.” Only the Intellectual Property Section took a position on settlements that “limit generic entry and transfer value from the originator to the generic company,” and opposed “making such settlements per se illegal or adopting a rebuttable presumption that ‘reverse payments’ are unlawful.”

Finally, the Sections commended the EC’s adoption in its Draft Guidelines of “a comprehensive safe harbor for technology pools.” The comments suggest noting that this safe harbor would include the exchange of “pricing and output data,” to provide guidance as to the kind of information that may be considered sensitive. The Sections recommended that the EC should not “presum[e] that the inclusion of significant substitute technologies in the pool constitutes a violation of Article 101(1),” but rather should “adopt an effects-based analysis that includes consideration of whether potentially substitutable technologies (whether or not included within the same technology pool) are available for licensing outside the pool, and on what terms.” The comments suggested “that the analysis of whether the inclusion of non-essential patents in a pool restricts competition should turn on whether licensees that choose not to accept the pool license, and instead license pooled patents from individual licensors, are nonetheless able to compete effectively with pool licensees in the downstream market or markets for products that implement the technology included in the pool.”

The Sections previously commented on the EC’s block exemption in February 2012, November 2003, and April 2002.

News: Antitrust