0. Technology transfer agreements and competition law—training materials
[Name and details of speaker]
Summary: This presentation begins with an overview of the relevant competition laws and then goes on to consider some common areas of application in relation to the transfer and exploitation of intellectual property (IP).
Purpose of slides/seminar: The slides are intended for a general rather than specialist audience. Additional details reflecting the particular circumstances in which these slides are used can be added as appropriate (eg to reflect commercial or regulatory issues affecting a particular company).
How to use these ‘Speaker notes’: Under each slide there are ‘Speaker notes’ which summarise the point the slide is intended to address for the benefit of the person presenting the seminar. These notes are not intended for distribution to the audience as they are likely to contain more legal information than is desirable for a general audience.
How to use the slides: It is anticipated that each slide may take between three and five minutes to explain. It is not intended that a single seminar should contain all these slides as it would last too long. The speaker should select slides as appropriate to reflect the particular seminar to be given. Alternatively the speaker can use all the slides over a series of two or three separate seminars.
How to insert company logo
select ‘View’ from the menu
select ‘Slide Master’
click on the footer on slide 0
edit the text to insert the company name and/or select ‘Insert’ from menu and ‘Picture’ to upload a logo

1. Contents Conflict between IP and competition?
Prohibition of anti-competitive agreements
Competition law basics
Licensing agreements
Technology Transfer Block Exemption
Technology pools
Refusal to license
European Commission enforcement priorities
Example
This slide lists a variety of issues relating to technology transfer agreements (and the interplay between competition law and intellectual property in this context) that can be addressed in a seminar. Not all of these will be appropriate for a single seminar. Some of the principles relating to anti-competitive agreements will apply to other types of agreements involving the distribution or resale of goods and services (eg eBooks) more generally. Equally, other block exemptions, such as the Vertical Agreements Block Exemption, may be available. 
Further details of these matters can be found in practice notes:
Competition law considerations in intellectual property licensing—flowchart
Competition law aspects of distribution agreements
Anti-competitive agreements and arrangements
Getting the Deal Through annual report: Vertical agreements
and in the notes to the following slides.

2. Conflict between IP and competition?
IP confers exclusive rights in that owners are entitled to exclude others from exploiting their IP without consent
At first glance, awkward fit with competition law but IP in fact promotes dynamic competition by encouraging investment in developing new or improved products or processes
IP rights not immune from competition law— analysis required

3. Prohibition of anti-competitive agreements
Prohibition of agreements or concerted practices or association decisions which:
may affect trade between Member State/in the UK, and
have as their object or effect the appreciable prevention, restriction or distortion of competition within the EU/the UK
Individual exemption where efficiencies shared with consumers
Block exemptions eg Technology Transfer Block Exemption
This explanation of the prohibition of anti-competitive agreements covers both the UK law prohibition (found in Chapter I of the Competition Act 1998) and the EU law prohibition (found in art 101 of the Treaty on the Functioning of the European Union).
Satisfying the criteria for an individual exemption can be very difficult and uncertain; establishing whether you fall within a block exemption is a much more clear-cut exercise.
There are a number of block exemptions, for example, a distribution agreement could fall within the Vertical Agreements Block Exemption. The block exemption which we will focus on here is the Technology Transfer Block Exemption.

4. Competition law—abuse of dominance
Dominance arises where a company can act independently of competitors and customers
As a rule of thumb, unlikely to arise below 40%
Dominance in itself is not an abuse
Dominant companies have a ‘special responsibility’ not to abuse their market position
Objective justification
IP right does not automatically mean that a company is dominant/has a monopoly—market rarely defined by reference to an IP right
The UK prohibition is found in Chapter II of the Competition Act 1998; the EU prohibition is found in art 102 of the Treaty on the Functioning of the European Union.
Dominance is unlikely to arise where the company’s market share is less than 40%.
Objective justification, eg a refusal to supply/license by a dominant company (as discussed later) may be justified on the basis of concerns regarding the purchaser’s creditworthiness.
A market is usually broader than the IP right as the IP-protected product is still competing with other products, albeit that it may be a new and improved version of competing products. The general question is ‘Do customers regard the competing products as substitutable?’ In the case of a high definition television versus a non-high definition television, the answer may well be no, but what about different cough medicines?

5. Competition law—consequences of breach
Fines of up to 10% of group worldwide turnover
Unenforceability of clauses/agreements
Damages claims
Negative publicity
Criminal sanctions for cartels (eg in the UK: 5 years imprisonment and fines)
Director disqualification (eg in the UK: 15 years imprisonment and fines)
Significant fines may be imposed by competition authorities, eg the Competition and Markets Authority (CMA) in the UK or the European Commission in Brussels.
The fact that clauses or, if the offending clause is a key commercial term, whole contracts could be unenforceable can be very disruptive for business relations and cause uncertainty.
Third parties who have suffered loss as a result of the agreement could claim damages in court.
Dealing with negative publicity can take up management time, be detrimental to the company’s brand and, in the case of listed companies, lead to a drop in the share price.
Criminal sanctions: three individuals jailed in the UK to date. As of March 2015, there are further prosecutions underway, while recent legislative changes and CMA ambitions may mean that convictions become more regular.
Director disqualification, including where the director should have been aware of the breach of competition law but was not.

6. Licensing of IP rights Generally pro-competitive:
disseminate technology
promote innovation
Assessment required
Higher risk if:
between competitors
licensor/licensee has a strong market position
long duration
network of similar licences
mature market/barriers to entry
As a general point, IP licences are generally considered to be pro-competitive as they involve the dissemination of the IP to parties other than the rights holder.
An assessment under competition law is, however, necessary, particularly where one or more of the risk factors listed applies.

7. Licences—specific clauses
Field of use restriction—may encourage licensing but is it a limitation on pre-existing activities?
Restriction on output, customer groups or territories— may be necessary to encourage licensing, but can be problematic in some circumstances
Captive use—may be problematic if licensee forced to use technology only for own purposes while also restricted from selling contract products as spare parts
Tying and bundling—may give rise to efficiency, eg if the additional (tied) products necessary to exploit licensed technology or ensure quality standards, but problematic if risks foreclosing competitors or raising barriers to entry
Restricting the field within which the licensee may use the IP will often be acceptable as such a restriction does not amount to an allocation of markets or customers. However, to be permissible, the restrictions should not go beyond the scope of the licensed technologies. For example, if a licensee is also limited in the technological fields in which they can use their own technology rights, the agreement may amount to market sharing
Restriction on output—less problematic where non-reciprocal, ie only one party agrees to the restriction. In a reciprocal agreement, only permissible for one licensee to be restricted
Restriction on customer groups and territories—often acceptable to stop the licensee actively marketing itself to a customer group or to a territory exclusively reserved to the licensor, or passively responding to unsolicited order from such customers or territories. However, restrictions on a licensee’s ability to make passive sales to a customer or territories exclusively reserved for another licensee are not permissible
Tying and bundling, ie requiring that a licensee can only have a licence in respect of certain IP on the condition that it takes a licence of other IP. Less problematic if the additional technology is objectively necessary for quality reasons
All of these issues are exacerbated where the parties are competitors or either the licensor or the licensee has a significant market share.

8. Licences—specific clauses (cont)
Non-compete obligations (requiring licensee not to use competing technologies)—risk of foreclosure
Restrictions on use of own technology or on R&D—often problematic as negates pro-competitive effect
Cross-licensing—covered by TTBE but beware:
significant market power and restrictions going beyond what is required to unblock
market sharing through mutual field of use/territorial/customer restrictions
royalty provisions—leading to price coordination/having significant impact on market prices
intellectual property rights—restricting an ability to challenge validity of other party’s intellectual property rights
exclusive ‘grant back’ requiring licensee to assign/exclusively license its own improvements
Non-compete obligations—risk that competitors of the licensor are excluded from the market; less problematic where the parties have low market shares and the duration is short.
Restrictions on use of own technology or research and development (R&D) negate the benefit of disseminating IP rights to parties other than the rights holder. Possible justifications for restricting independent R&D where necessary to prevent the disclosure of the licensor’s know-how to third parties.
Cross-licensing may be permissible but requires particular care, especially where competitors are entering into a cross-licence whereby each licenses to the other IP which relates to competing products:
if such a licence includes a field of use/territorial/customer group restriction, this may amount to market sharing—a very serious breach of competition law
care would also need to be taken in relation to the royalty provisions to minimise the impact of the parties knowing each other’s costs, as this reduces pricing transparency and may lead to an alignment in pricing. Rising royalties that are disproportionate to the market rate of the licence may also be problematic
‘No challenge’ clauses generally raise competition concerns. However, an exclusive licence may generally provide that, to the extent the licensee challenges the licensor’s intellectual property rights, the licensor may terminate the agreement.
An obligation on a licensee to grant an exclusive licence or assign its own improvements to or applications of the licensed technology to the licensor or a third party designated by the licensor is likely to be problematic.

9. Technology Transfer Block Exemption
Technology Transfer Block Exemption (TTBE) applies to the licensing of certain technology rights, including know- how, patents and software copyright
New version introduced in 2014 creates a ‘safe harbour’ provided that:
competitors—combined market share not greater than 20% on affected relevant technology and product market
non-competitors—each party’s market share not greater than 30%
no hard-core restrictions, eg resale price maintenance, unlawful output restrictions, or market/customer sharing
Case-by-case assessment of agreements outside block exemption, including trade mark and non-software copyright licences
Examples of agreements to which TTBE applies:
for licensing of one or more of the following technology rights for the purposes of production of contract products by the licensee:
patents, trademarks, domain names, service marks, registered designs, rights in confidential information, know-how, copyright, database rights, design rights, trade and business names, and registrations and/or applications for any of the foregoing and any other similar protected rights in any country
a combination of such licences
an assignment of such technology rights for the purposes of production of the contract products where some risk remains with assignor, eg payment is in the form of royalties
Creates a safe harbour from the prohibition on anti-competitive agreements.
The market share threshold varies for non-competitors (30%) and competitors (20%).
Resale price maintenance—restricting the licensee’s ability to determine its resale prices. Minimum and fixed resale prices prohibited. Recommended and maximum resale prices permissible provided that not treated as fixed or binding.
Refer to TTBE arts 4 and 5 for a list of problematic clauses.

10. Technology pools
Arrangements whereby two or more parties assemble package of technology which is licensed not only to pool contributors but also third parties. Often linked to industry standards
Licence agreements between pools and third parties fall outside the scope of the TTBE as they are multi-party
The Commission may view pools as pro-competitive and their creation and licensing out may benefit from ‘safe harbour’ if certain conditions are met (eg open access, non-competing technologies, licensed on non-exclusive and fair basis, etc)
Pools can be problematic if they reduce innovation by foreclosing alternative technologies
Agreements relating to the creation or operation of technology pools are not covered by the TTBE because they do not generally permit a licensee to produce contract products and are multilateral. However, the TTBE Guidelines provide a safe harbour provided the following conditions are satisfied:
participation in pool creation process is open to all interested rights owners
only essential technologies (which therefore necessarily are complements) are pooled
safeguards ensure the exchange of sensitive information is restricted
the pooled technologies are licensed into the pool on a non-exclusive basis
the pooled technologies are licensed out to potential licensees on fair, reasonable and non-discriminatory (FRAND) terms
the parties contributing technology to the pool and the licensees are free to challenge the validity and the essentiality of the pooled technologies, and
the contributors remain free to develop competing products and technology
The TTBE Guidelines provide guidance on the assessment of pools and restrictions that fall outside the safe harbour. Generally speaking, pools will be problematic where they involve the pooling of competing technologies and/or the risks of foreclosure are high (eg because the pool has a strong market position).

11. Refusal to license Potential abuse of dominance
Freedom to choose trading partners curtailed
Remember—IP right does not automatically mean that a company has market power/is dominant
Even where dominant, exercise of the exclusive right only abusive in certain circumstances
It is a general principle of English contract law that companies should be able to choose who they do business with. Competition law is careful about curtailing this freedom and will not do so lightly.
However, a dominant licensor should be careful to ensure it does not act in a manner that could be deemed abusive, eg which forecloses competitors on a downstream market.
The court has held that a refusal to licence an intellectual property right may amount to an abuse of dominant position. See the seminal case of Radio Telefis Eireann v European Commission [1995] All ER (EC) 41 where a TV broadcaster’s dominance over information used to compile TV listings meant they were able to prevent effective competition on the market for weekly TV magazines. The court held there was no justification for refusal to license.

12. European Commission enforcement priorities
European Commission has identified three prioritisation criteria:
IP objectively necessary to compete on downstream market
refusal likely to lead to elimination of effective competition downstream
refusal likely to lead to consumer harm, eg stifling innovation
Problems most likely where dominant licensor competes downstream
Termination of licensing more likely to be abusive than de novo refusal to license
The EC has published a guidance paper setting out the principles it will follow in determining whether to prioritise certain alleged abuses of dominance. In relation to refusals to license, three criteria should be satisfied if the case is to be prioritised.
Where a dominant licensor competes with its licensee downstream, it has a possible anti-competitive motive to ‘cut off’ the licensee and possibly make it more difficult for the licensee to compete on the downstream market.
A refusal to license where there has been an existing course of dealing is more likely to be abusive as the question arises as to what has changed to make the dominant licensor want to stop licensing its IP to the licensee.

13. Example—iPhone
Licence agreements with developers of apps for iPhone OS required apps to be written in Apple’s native code only, potentially shutting out competitors to the iPhone
EC closed case September 2010—restriction in licence agreements removed
Ultimately, there is no finite list of possibly problematic behaviour, as this example shows.
It can often be helpful to consider the impact of a proposed agreement/clause/practice on customers and competitors.
EC investigation resolved by Apple agreeing a change to its practices.

14. Summary Getting competition law compliance wrong can be serious:
legal consequences—regulatory fines (UK Competition and Markets Authority and European Commission), criminal sanctions, director disqualifications
commercial consequences—disruption to business if contracts are found to be unenforceable, damages claims from parties who suffer loss as a result of the agreement, negative publicity
Arrangements with a pro-competitive effect in terms of disseminating technology and promoting innovation are unlikely to be problematic
But arrangements will be higher risk if:
between competitors
licensor/licensee has a strong market position
long duration
network of similar licences
mature market/barriers to entry
Take care with certain types of clauses, eg restrictions on use of own technology or on R&D, non-compete, tying and ‘bundling’ restrictions

15. Final comments
Any questions?