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

Patent License Agreements under the new EU Block Exemption

Regulation

H. Ulrich Dörries and David Molnia

df-mp Dörries, Frank-Molnia & Pohlman

Munich, Germany

Territorial Overview EU

• EU Regulation/DirectiveEU - 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

Technology Transfer Block Exemption RegulationFormer 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

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 RegulationNew System

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

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



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



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



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




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


Y 1 B: €25 (other)

Y 2 A gives B license; B: €15 (other), €15 (Xeran)

A gives C license, C:€10 (Xeran)

Y 3 B: €40 (Xeran); C: €15 (Xeran)

Y 4 B: €40 (Xeran); C: €15 (Xeran)

Example 1 - XeranCompany 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)

Market Share (TM/PM)

Y 1 B: €25 (other)

Y 2 A 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 3 B: €40 (Xeran); C: €15 (Xeran) A: 12.5% (TM);

B: 15%; C: 5% (PM)

Y 4 B: €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

1. Determine whether parties are competitors2. Determine market shares for each year3. 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.


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

Y 1 B: €25 (other)

Y 2 A gives B & C license; B: €15 (other), €15

(Xeran); C:€10 (Xeran)

Y 3 B: €40 (Xeran); C: €15 (Xeran)

Y 4 B: €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 – XeranIn 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)

Market 1 (B) Market 2 (C)

Y 1 B: €25 (other)

Y 2 A 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 3 B: €40 (Xeran); C: €15 (Xeran)

A: 15% (TM);

B: 30% (PM)

A: 0% (TM)

C: 10% (PM)

Y 4 B: €40 (Xeran); C: €15 (Xeran)

A: 40% (TM);

B: 40% (PM)

A: 0% (TM)

C: 15% (PM)

Example 2 – Xeran

License Agreement A – BThe 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

Market 1 (B) Market 2 (C)

Y 1 B: €25 (other)

Y 2 A 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 3 B: €40 (Xeran); C: €15 (Xeran)

A: 15% (TM);

B: 30% (PM)

A: 0% (TM)

C: 10% (PM)

Y 4 B: €40 (Xeran); C: €15 (Xeran)

A: 40% (TM);

B: 40% (PM)

A: 0% (TM)

C: 15% (PM)

Example 2 – Xeran

License Agreement A – CIt falls within the safe harbor for the whole period

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

product 1 product 2

Y 1 A: €15 B: €20

Y 2 A: €10

B: €10

A: €10

B: €15

Y 3 A: €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%

product 1 product 2 technology market product market

Y 1 A: €15 B: €20

Y 2 A: €10

B: €15

A: €10

B: €10

A: 15%

B: 20%

A: 15%

B: 20%

Y 3 A: €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.



3. Determine whether safe harbor applies

4. Determine whether “Hardcore Restrictions” are in the license agreement


• 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

• 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)


• 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 …)


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 RestrictionsExceptions:

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


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


• 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

End of Presentation

Thank you for your attention

H. Ulrich Dörries

[email protected]

David Molnia

[email protected]

Documents

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