Understanding the Technology Transfer Block Exemption and Its Impact on IP Licensing Agreements

The European Commission and the UK’s Competition and Markets Authority (CMA) possess the authority to impose fines up to 10% of a company’s global group turnover for breaches of competition law. Beyond financial penalties, companies may face damages claims, reputational harm, director disqualifications, and in some cases, criminal sanctions.

To provide clarity and legal certainty, the European Commission has established several block exemptions, including the Technology Transfer Block Exemption Regulation (TTBER). The TTBER offers a safe harbour for companies engaged in technology licensing agreements involving a broad range of intellectual property rights (IPRs). Agreements that comply with the TTBER’s terms are generally shielded from competition law investigations.

The TTBER was revised with effect from 1 May 2014, narrowing its scope in several respects. A transitional period lasting until 30 April 2015 allowed agreements compliant with the previous TTBER but not the new one to remain covered temporarily. Updated guidelines accompanying the TTBER clarify its application.

Both UK and European competition laws can be invoked by competitors or third parties harmed by anti-competitive agreements. Consequently, companies relying on the TTBER must vigilantly monitor their market position and contractual conduct to ensure ongoing compliance. The exemption can cease to apply if there is a material change in circumstances or to the agreement itself, and it may be withdrawn under limited conditions.

The TTBER applies exclusively to licensing agreements between two undertakings concerning various IPRs, most commonly patents, know-how, and software copyright (excluding mere reproduction and copying), as well as combinations of these rights. It also covers assignments of technology rights where the licensor retains some exploitation risk. The technology transfer must relate to the production of goods or services exploiting the licensed IPRs; pure research and development or supply agreements fall outside the TTBER’s scope, with separate block exemptions addressing those areas.

Provisions related to the licensee’s purchase of products or licensing of other IPRs, such as trademarks, are covered only if directly connected to the production or sale of the contract products. Generally, trademark licenses are excluded unless the agreement primarily concerns other IPR transfers.

Multi-party agreements are excluded from the TTBER, meaning patent pools involving more than two undertakings typically do not qualify. However, the TTBER guidelines provide criteria under which such arrangements might be permissible.

After confirming the agreement’s subject matter falls within the TTBER, parties must assess whether their market shares meet specified thresholds. The TTBER distinguishes between agreements among competitors and those between non-competitors, reflecting the greater potential anti-competitive risks posed by the former.

Market share assessments consider both the relevant technology market and the relevant product market. For agreements between competitors, the combined market share must not exceed 20% in either market. For non-competitors, individual market shares must remain below 30%. These assessments are the responsibility of the parties and can be complex, particularly regarding the relevant technology market, often necessitating expert advice.

Recognising that market shares may fluctuate, the TTBER allows a two-year grace period after a party exceeds the threshold before the exemption ceases to apply. This “lag” accommodates temporary variations without immediate loss of protection.

Despite this, some technology companies argue the two-year period is insufficient to accommodate business growth and product success, potentially forcing frequent contract renegotiations, especially impacting innovative enterprises.

Once market share conditions are met, agreements must be scrutinised for “hardcore” restrictions—provisions deemed so harmful to competition that they void the entire agreement’s exemption. The list of hardcore restrictions varies depending on whether the parties are competitors or non-competitors, with non-competitors afforded slightly more flexibility.

For competitors, hardcore restrictions include resale price maintenance, reciprocal output or production limits, restrictions on a licensee’s exploitation of its own technology, prohibitions on independent research and development (unless necessary to protect licensed know-how), and market or customer allocation (subject to complex exceptions).

For non-competitors, hardcore restrictions also encompass resale price maintenance, certain restrictions on passive sales by the licensee (with exceptions), and limitations on sales to end users within selective distribution systems operating at retail level.

A significant change in the 2014 TTBER revision removed the previous carve-out allowing restrictions on passive sales by licensees into exclusive territories or customer groups allocated to other licensees during the first two years. Now, all passive sales restrictions between licensees fall outside the TTBER’s safe harbour.

Parties initially classified as non-competitors may become competitors during the agreement’s term. In such cases, the hardcore restrictions applicable to non-competitors continue to apply unless the agreement is materially amended. Parties anticipating such changes should consider longer-term agreements with break clauses to manage evolving competitive dynamics.