There is a natural tension between IP rights and competition law. On the one hand, IP rights grant a legal monopoly to the holder while, on the other hand, competition laws seek to control restrictive agreements and the use/abuse of a monopoly position. In this practical webinar we provided an overview of the application of competition law to IP agreements and in particular: • a general overview of competition law and the consequences of not complying with the law • the application of the law in relation to restrictive agreements (Article 101(1) TFEU and Chapter I of the Competition Act) to IP licences and the availability of block exemption 'safe harbours' • common competition law pitfalls and areas to watch out for when drafting IP agreements. Visit our website for more useful resources - https://www.brownejacobson.com

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Competition law and
IP Licences

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Connect with Matthew Woodford
Matthew.woodford@brownejacobson.com
+44 (0)121 237 3965
Competition law & IP Licences

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What will we cover?
• overview of law
• application to IP licences -
restrictive agreements/clauses
• block exemptions – availability?
• common clauses/provisions

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What will we cover?
• aims:
‐ high level review
‐ flag issues & questions to think
about
‐ practical drafting points

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Colliding or
complementing?
Old view
• tension between IP monopoly rights
and free competition

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Colliding or
complementing?
Current view
• more economic
• complimentary laws which
encourage innovation, creativity
and competition

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Colliding or
complementing?
Current view
• more economic
• complimentary laws which
encourage innovation, creativity
and competition
…ultimately there is a point of
collision!

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Why does it matter?
• fines of ↑10% of worldwide
group turnover
• third party actions for damages
• disruption of business
• huge expense

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Why does it matter?
• bad PR/reputation risk
• adverse effect on share price
• criminal sanctions
• director disqualification

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The law – two golden
rules
Agreements/abuse of dominance
• UK law – chapters I & II Competition
Act 1998
• EU law – articles 101(1) & 102
Treaty on the Functioning of the
European Union (TFEU)
• other EU domestic laws
• Brexit?

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Restrictive agreements
– key elements
3 key elements
• anti-competitive agreement
between two or more undertakings
• an appreciable effect on trade
between Member States/in the UK
• object or effect of restricting
competition

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Is the agreement
restrictive?
• no exhaustive list
• some agreements/clauses are
unlikely to restrict competition
in the first place
• some agreements/clauses are
inherently ‘bad’ – no need to
analyse effect

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Is the agreement
restrictive?
• some agreements/clauses may
have a restrictive effect
‐ consider market shares
‐ consider overall effect of
agreement on the market

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Not restrictive?
• confidentiality obligations
• obligation to licensee not to
sub-licence
• obligations not to use licensed
technology after termination of
agreement

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Not restrictive?
• obligations to assist licensor in
enforcing licensed IPRs
• obligations to pay minimum
royalties
• obligations to use licensor’s
trade mark or indicate name on
the product

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De minimis?
• EU notice and guidance
• market share thresholds
‐ 10%
‐ 15%

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De minimis?
• no cover for ‘object’/hardcore
restrictions
‐ price
‐ territory
‐ customer

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What about block
exemptions?
• block exemptions
‐ ‘safe harbour’
‐ often good practice to draft
within a block exemption

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What about block
exemptions?
• take care!
‐ not always clear if available
‐ consider content of agreement
carefully

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What about block
exemptions?
• two key block exemptions
‐ Transfer of Technology Block
Exemption (TTBE)
‐ Vertical Agreements Block
Exemption (BER)

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TTBE – key questions
• is the agreement bilateral?
• is it a technology transfer
agreement?
‐ patent licence
‐ know-how licence
‐ software copyright licence
‐ mixed licence

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TTBE – key questions
• is it an agreement for the
production of goods/services
with the licensed technology?

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What about trade
mark/copyright
licences
• TTBE does not apply
• unlikely that BER applies
• but – often will apply BER by
analogy provided that parties
are not competitors

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Market share
thresholds
TTBE
• consider the technology and
product markets
• non-competitors – 30% or less
(combined) on the markets
• competitors – 20% or less
(combined) on the markets

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Market share
thresholds
BER
• ‘supplier’ is 30% or less on
supply market; and
• ‘customer’ is 30% or less on
purchase market

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Typical provisions &
pitfalls
• price & royalties
• exclusivity/territory/customer
restrictions
• field of use restrictions
• improvements
• no challenge

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Price & royalties
• minimum royalties are ok
• controlling a licensee’s resale
price is not ok

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Price & royalties
• take care not to fix the resale
price in order to achieve
desired revenue stream
• instead – establish a minimum
royalty that allows licensee to
discount if it wishes to

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Exclusivity – territory
and customer
• simple exclusive/sole licences
between non-competitors either
not restrictive or likely to
benefit from an exemption
• but – licensees will often want
more protection and licensors
often want to segment markets

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Territory/customer
restrictions
• the basic position is that
licensees are free to sell
wherever and to whoever they
want to – any restriction is a
hardcore restriction

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Territory/customer
restrictions
• the TTBE and BER have specific
‘carve outs’ to the general
position but careful review
required
• TTBE allows more than the BER

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Territory/customer restrictions:
TTBE – competitors
Restriction Reciprocal
agreement
Non-reciprocal
agreement
Ban on active and/or passive sales into
territory / customer group reserved to licensor
or licensee
No Yes
Ban on passive sales into territory / customer
group reserved to another licensee
No No
Ban on active sales into territory / customer
group reserved to another licensee
No Yes – provided other
licensee not a competitor
of licensor at time licence
concluded

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Territory/customer restrictions:
TTBE – non competitors
Restriction
Ban on active sales outside of territory / customer group Yes
Ban on passive sales into territory / customer group reserved to
licensor
Yes
Ban on passive sales into territory / customer group reserved to
another licensee
No – may be permitted
for up to 2 years if
objectively necessary
to enter a new market

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Territory/customer restrictions:
BER – non competitors
Restriction
General ban on active sales outside of territory / customer group No
Ban on active sales into territory / customer group reserved to another
licensee / licensor
Yes
Ban on passive sales into territory / customer group reserved to
licensor
No
Ban on passive sales into territory / customer group reserved to
another licensee
No

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Territory/customer restrictions: examples
Clause TTBE: competitor TTBE: non-
competitor
BER
The licensee is appointed as exclusive
licensee for the UK and will not sell the
products outside of the UK
Reciprocal = No
Non-reciprocal = No
No No
The licensee is appointed as exclusive
licensee for the UK and will not actively
sell the products outside the UK
Reciprocal = No
Non-reciprocal = No
Yes No
The licensee is appointed as exclusive
licensee for the UK and will not actively
sell the products outside the UK into any
territory that is exclusively reserved to the
licensor or exclusively allocated to another
licensee
Reciprocal = No
Non-reciprocal = Yes
Yes Yes

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Field of use
• permissible under TTBE
• as such, ban on sales outside of
field of use is ok (apart from
reciprocal licenses between
competitors)

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Field of use
• but…care needed to ensure that
not in reality a customer
restriction
• define objectively with
reference to technical
characteristics of product

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Improvements
• TTBE does not cover exclusive
licence or assignment of
improvements
• severability of improvement is
no longer relevant
• but…can require non-exclusive
grant-backs

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No-challenge clauses
• TTBE does not cover no-
challenge clauses
• but…in an exclusive licence
could provide for termination in
event of challenge

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Final thoughts
• a lot that can do
• but…care needed
• consider
‐ the IPRs
‐ whether or not competitors
‐ market and shares
‐ the scope of provisions/clauses

41. Have your say @brownejacobson
Connect with Matthew Woodford
Matthew.woodford@brownejacobson.com
+44 (0)121 237 3965
Keep your questions coming…
Connect with Nick Smee
nick.smee@brownejacobson.com
+44 (0)330 045 2122