1. Patent License Agreements under the new EU Block Exemption Regulation H. Ulrich Dörries and David Molnia df-mp Dörries, Frank-Molnia & Pohlman Munich, Germany

2. Territorial Overview EU EU Regulation/Directive EU - Austria, Belgium, Germany, Denmark, Spain, Finland, France, United Kingdom, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Sweden EU Enlargement (2004) - Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia, Slovakia Enlargement applicants - Bulgaria, Romania, Turkey EEA - Norway, Liechtenstein, Iceland

3. Technology Transfer Block Exemption Regulation Former System White list: permitted restrictive measures Black list: prohibited restrictive measures If an agreement contains a black clause, the agreement does not meet the block exemption (all-or-none regulation) Grey list: potentially permitted restrictive measures

4. Main Differences: No “white list”, no “gray list” Based on competition and market shares An extended “black list”, now called “Hardcore Restrictions” Relates to Patent, Know-how and Copyright Technology Transfer Block Exemption Regulation New System

5. 1.Determine whether parties are competitors Do they license out competing technologies without infringing each others’ IP ? Actual Competitors on the Technology Market Are they active on the market on which the products are sold without infringing each others’ IP ? Actual Competitors on the Product Market Would they undertake the necessary additional investments so that they could timely enter, without infringing each others’ IP ? Potential Competitors on the Product Market How to use the new system when preparing a license agreement

6. 1.Determine whether parties are competitors However, if one of the technologies cannot be used without infringing upon another technology (one-way block) or neither technologies can be used without infringing upon the other technology (two-way block) the parties are considered to be non-competing How to use the new system when preparing a license agreement

7. 1.Determine whether parties are competitors 2.Determine market shares for each year –On the relevant Technology Market Technologies which are regarded by the licensees as interchangeable with or substitutable for the licensed technology –On the relevant Product Market Products which are regarded by the buyers as interchangeable with or substitutable for the contract products How to use the new system when preparing a license agreement

8. 1.Determine whether parties are competitors 2.Determine market shares for each year The market share is calculated on the basis of market sales value data If market sales value data is not available, estimates based on other reliable market information, including market sales volumes, may be used to establish the market share The market share is calculated on the basis of data relating to the preceding calendar year How to use the new system when preparing a license agreement

9. 1.Determine whether parties are competitors 2.Determine market shares for each year 3.Determine whether safe harbor applies –Competitors, if the combined market share of the parties does not exceed 20 %, on the affected relevant technology and product market Safe Harbor How to use the new system when preparing a license agreement

10. 1.Determine whether parties are competitors 2.Determine market shares for each year 3.Determine whether safe harbor applies –Non-Competitors, if market share of each of the parties does not exceed 30 % on the affected relevant technology and product market Safe Harbor How to use the new system when preparing a license agreement

11. Y 1B: €25 (other) Y 2A gives B license; B: €15 (other), €15 (Xeran) A gives C license, C:€10 (Xeran) Y 3B: €40 (Xeran); C: €15 (Xeran) Y 4B: €40 (Xeran); C: €15 (Xeran) Example 1 - Xeran Company A has developed a new product Xeran. A is not active as a producer of Xeran. Company B is one of the producers of competing products, produced with freely available non-proprietary technologies. The total market of Xeran and its substitutes is worth €200 million annually. Market Share (TM/PM) A: 0% (TM) reflecting value produced by B & C in the preceding year B: 12.5%, C: 0% (PM) A: 12.5% (TM); B: 15%; C: 5% (PM) A: 27.5% (TM); B: 20%; C: 7.5% (PM)

12. Market Share (TM/PM) Y 1B: €25 (other) Y 2A gives B license; B: €15 (other), €15 (Xeran) A gives C license, C:€10 (Xeran) A: 0% (TM) reflecting value produced by B & C in the preceding year B: 12.5%, C: 0% (PM) Y 3B: €40 (Xeran); C: €15 (Xeran)A: 12.5% (TM); B: 15%; C: 5% (PM) Y 4B: €40 (Xeran); C: €15 (Xeran)A: 27.5% (TM); B: 20%; C: 7.5% (PM) Example 1 - Xeran As the license agreements are between non-competitors and the individual market shares of A, B and C are below 30% each year, the agreements fall within the safe harbor

13. 1.Determine whether parties are competitors 2.Determine market shares for each year 3.Determine whether safe harbor applies If the market share is initially not more than 20% respectively 30% but subsequently rises above those levels, the exemption provided for shall continue to apply for a period of two consecutive calendar years following the year in which the 20% threshold or 30% threshold was first exceeded. How to use the new system when preparing a license agreement

14. The situation is the same as in example 1, however now B and C are operating in different geographic markets. The total market of Xeran and its substitutes is worth €100 million annually in each geographic market. Example 2 – Xeran

15. Y 1B: €25 (other) Y 2A gives B & C license; B: €15 (other), €15 (Xeran); C:€10 (Xeran) Y 3B: €40 (Xeran); C: €15 (Xeran) Y 4B: €40 (Xeran); C: €15 (Xeran) Market 1 (B) A: 0% (TM) B: 25% (PM) A: 15% (TM); B: 30% (PM) A: 40% (TM); B: 40% (PM) Example 2 – Xeran In this case, A’s market share on the technology market has to be calculated separately for each of the two geographic markets. Market 2 (C) A: 0% (TM) C: 0% (PM) A: 0% (TM) C: 10% (PM) A: 0% (TM) C: 15% (PM)

16. Market 1 (B)Market 2 (C) Y 1B: €25 (other) Y 2A gives B & C license; B: €15 (other), €15 (Xeran); C:€10 (Xeran) A: 0% (TM) B: 25% (PM) A: 0% (TM) C: 0% (PM) Y 3B: €40 (Xeran); C: €15 (Xeran) A: 15% (TM); B: 30% (PM) A: 0% (TM) C: 10% (PM) Y 4B: €40 (Xeran); C: €15 (Xeran) A: 40% (TM); B: 40% (PM) A: 0% (TM) C: 15% (PM) Example 2 – Xeran License Agreement A – B The threshold is exceeded from year 4 and this means that after year 6 the license agreement can no longer benefit from the safe harbor, but has to be assessed on an individual basis

17. Market 1 (B)Market 2 (C) Y 1B: €25 (other) Y 2A gives B & C license; B: €15 (other), €15 (Xeran); C:€10 (Xeran) A: 0% (TM) B: 25% (PM) A: 0% (TM) C: 0% (PM) Y 3B: €40 (Xeran); C: €15 (Xeran) A: 15% (TM); B: 30% (PM) A: 0% (TM) C: 10% (PM) Y 4B: €40 (Xeran); C: €15 (Xeran) A: 40% (TM); B: 40% (PM) A: 0% (TM) C: 15% (PM) Example 2 – Xeran License Agreement A – C It falls within the safe harbor for the whole period

18. Companies A and B are active on the same relevant product and geographic market for a certain chemical product. They also each own a patent on different technologies used to produce this product. It is established that the total market of the product and its substitutes is worth €100 million in each year. Example 3

19. product 1product 2 Y 1A: €15B: €20 Y 2A: €10 B: €10 A: €10 B: €15 Y 3A: €10 B: €10 A: €10 B: €15 technology market A: 15% B: 20% A: 20% B: 25% Example 3 As the agreement is between competitors, their combined market share, both on the technology and on the product market, has to be below the 20% market share threshold in order to benefit from the safe harbor. In this case, A’s and B’s market share has to be calculated separately for each of the technology market and product market. product market A: 15% B: 20% A: 20% B: 25%

20. product 1product 2technology marketproduct market Y 1A: €15B: €20 Y 2A: €10 B: €15 A: €10 B: €10 A: 15% B: 20% A: 15% B: 20% Y 3A: €10 B: €15 A: €10 B: €10 A: 20% B: 25% A: 20% B: 25% Example 3 The combined market share on the technology market and on the product market is 35% in year 2 and 45% thereafter. This agreement between competitors will therefore have to be assessed on an individual basis.

21. 1.Determine whether parties are competitors 2.Determine market shares for each year 3.Determine whether safe harbor applies 4.Determine whether “Hardcore Restrictions” are in the license agreement How to use the new system when preparing a license agreement

22. Obligations on the licensee to grant an exclusive license in respect of improvements or new applications of the licensed technology Obligations on the licensee to assign rights to improvements or new applications of the licensed technology Obligations on the licensee not to challenge the validity of intellectual property rights which the licensor holds in the common market, without prejudice to the possibility to provide for termination of the technology transfer agreement in the event that the licensee challenges the validity of one or more of the licensed intellectual property rights Hardcore Restrictions

23. In an agreement between non-competing undertakings, obligations limiting the licensee’s ability to exploit its technology or limiting the ability of any of the parties to carry out research and development, (unless such latter restriction is indispensable to prevent the disclosure of the licensed know-how to third parties) Hardcore Restrictions

24. The restriction of a party's ability to determine its prices when selling products to third parties The limitation of output, except limitations on the output of contract products imposed on the licensee in a non-reciprocal agreement or imposed on only one of the licensees in a reciprocal agreement The allocation of markets or customers (except …) Hardcore Restrictions

25. i.the obligation on the licensee(s) to produce with the licensed technology only within one or more technical fields of use or one or more product markets ii.the obligation on the licensor and/or the licensee, in a non- reciprocal agreement, not to produce with the licensed technology within one or more technical fields of use or one or more product markets or one or more exclusive territories reserved for the other party iii.the obligation on the licensor not to license the technology to another licensee in a particular territory Hardcore Restrictions Exceptions:

26. iv.the restriction, in a non-reciprocal agreement, of active and/or passive sales by the licensee and/or the licensor into the exclusive territory or to the exclusive customer group reserved for the other party v.the restriction, in a non-reciprocal agreement, of active sales by the licensee into the exclusive territory or to the exclusive customer group allocated by the licensor to another licensee provided that the latter was not a competing undertaking of the licensor at the time of the conclusion of its own license Hardcore Restrictions Exceptions:

27. vi.the obligation on the licensee to produce the contract products only for its own use provided that the licensee is not restricted in selling the contract products actively and passively as spare parts for its own products vi.the obligation on the licensee in a non-reciprocal agreement to produce the contract products only for a particular customer, where the license was granted in order to create an alternative source of supply for that customer Hardcore Restrictions Exceptions:

28. Entered into force May 1, 2004 Expires on April 30, 2014 Transitional period from 1 May 2004 to 31 March 2006 for agreements already in force on 30 April 2004, which satisfied the conditions for exemption provided for in Regulation (EC) No. 240/96 Timeline

29. End of Presentation Thank you for your attention H. Ulrich Dörries ulrich.doerries@df-mp.com David Molnia david.molnia@df-mp.com