cl = clause

LO = licensor

LE = licensee

EC = European commission

Amend a patent licence so that it complies with an EU reg

In the exam: wouldn’t be asked to draft, but would be asked to explain what you would delete or redraft

STEP 1- Does the agreement breach/infringe art 101 TFEU/s.2(1) CA 1998

Art 101 TFEU/s.2 CA 1998 Wording:

Agreement = Patent License
Between undertakings = two economically independent entities
May affect trade between MS = Between two different MS, cross border element
Has as its object or effect the prevention, restriction or distortion of competition without the internal market = need to look at each proposal in turn to determine the degree to which it raises Art 101/s.2(1) concerns

Proposed patent licence
Proposed term	(a) Art. 101 infringement – potential effect on competition?	(b) What does the TTBE have to say about these terms?	(c) Amendments to licence?
1. LO will grant LE exclusive licence to manufacture	Potentially yes – LO promise not to license to anyone else in the territory this affects trade within the EU by changing their behaviour, it will also distort competition within the EU BUT if exclusive territory was the only restriction, EC would be unlikely to challenge as encourages licensee to work harder	No restriction	n/a
2. LE only permitted to use the patents for laptop fans	Potentially yes - restricts manufacturer in how he uses the article, could have other applications BUT they are only being granted rights that they wouldn’t have had anyway, so any grant is increasing their commercial freedom	No restriction	n/a
3. No limit on the number of fans produced, but must pay 30% royalty	No – paying a royalty is not per se anti-competitive	No restriction	n/a
4. Minimum price of 8 per fan	Yes, minimum price fixing (101(1)(a)) object Stipulation as price, restricts LE behaviour so must distort trade. Given free reign, LE might well price below this level in order to responds to competitive pressures. LO is clearly trying to preserve its cachet and maximise earnings	Article 4(2)(a) – hardcore restriction – restricting the party's ability to determine its prices (4(1)(a) if the parties are competing) But can have a maximum price and a recommended If using a recommended price then must not be enforced as if it were a minimum price	Change “Net Sales Price” in cl 1.1 to “Recommended Sales Price” in order to avoid fixing the price
5. LE can sell anywhere in Europe, except France	Yes, export ban (101(1)(b)) object LO is clearly contemplating partitioning the market between exclusive licensees. Partitioning the market is an obvious way of restricting competition	Article 4(2)(b)(ii) – hardcore restriction - export ban (4(1)(c) if parties are competing) With this you can stop active sales but can’t restrict passive selling except during the first two years you allocate a territory to another licensee Can restrict passive sales for two years if there is another exclusive licensee in the jurisdiction	Change definition of “Territory” to exclude France for 2 years only Can’t active sell to France, but can passive sell after 2 years – write a clause that gives effect to this. Also see cl 2.1 in the amended licence for an alternative
6. If LE discovers improvements leading to new patent, will assign the patent to LO	Yes (effect needs to be proved) obligation on LE to assign improvements patents back to LO, this is an obligation to assign something to LO which in law is theirs to sell or licence freely, the effect is to distort trade	Exclusive restriction – art. 5(1)(b) cant have obligation on LE to assign rights or grant exclusive license to LO on its own improvements BUT you can have an obligation for LE to grant non-exclusive license to LO on its own improvements	Remove the last sentence of cl. 5 to remove the obligation to assign any patents based on improvements
7. LO will licence LE new patents which arise from improvements	Yes, similar to 6, but flipped for the other party LO are not free to do as they wish with their patent, they are compelled to licence it to LE this distorts the market	No restriction
8. B will not challenge any of A’s IP rights	Yes (effect needs to be proved) if flaws in the patent do become apparent it is in LE best interest to get LO monopoly removed and then LE can compete with LO, this therefore restricts competition	Art. 5(1)(c) – limiting the opportunity of the licensor to don’t have an obligation not to challenge the validity of IP rights But can have a clause saying that if one party challenges IP rights, the other party can terminate the agreement	Remove clause 9 so that the B may challenge, possibly add a clause saying that if B challenges, A may terminate the agreement
9. The licence will remain in force as long as their patent remains in existence (subject to termination for breaches of the licence)	No	Can ignore, because have no anti-competitive effects	Change clause 8.1 – (remove 20 years) add “for as long as the patent remains in existence This gives effect to the parties’ intentions
10. Upon expiry or termination, LE allowed to sell off its remaining stock	No	Can ignore, because have no anti-competitive effects	Cl 8.3(f) – remove this clause in order to give effect to the parties’ intentions LE should be allowed to sell of the stock, not to give it back to LO as the licence currently reads
11. If design defects lead to liability for LE, LO will indemnify LE against all costs and losses	No	Can ignore, because have no anti-competitive effects

Conclude by saying which terms the authority will find that have prevention, restriction or distortion of competition is the OBJECT of the terms and which ones they would have to prove it was the EFFECT and if the agreement breaches art 101/s.2 CA:

STEP 2 – CONSEQUENCES OF INFRINGEMENT

Entire agreement void subject to substantive law allowing severance s.101(2) TFEU/s.2(4) CA 1998	- Can only sever if it doesn’t alter commercial balance of agreement (must not be commercially critical to contract) - National law ability to sever cannot override EU competition law s.60 CA 1998
Fines for both parties – up to 10% of worldwide turnover – Modernisation Reg 1/2003 > infringer cannot be fined twice (e.g. once by EU and then by UK)
TP who are injured as a result can apply for damages/injunction
D can be disqualified for up to 15 years CDDA 1986s.9A
Imprisonment up to 5 years/fine for most serious price fixing, limitation of supply or production, market sharing or bid rigging in the UK
Time and costs (business grinds to a halt) while inspection ongoing – loss of goodwill/rep
Potential custodial sentence under s.188 EA 2002		Only for cartels (horizontal agreements)
Small case so national competition authority will investigate and may order cease and desist –CMA (competitions and markets authority)
Large cases European Competition commission will investigate and may order that infringement stopped immediately art 7 of Modernisation Reg 1/2003

STEP 3 – How to avoid the breach

De-minimus – Notice On Agreements Of Minor Importance NAOMI (non-binding guidelines)

EU (NAOMI) UK (Appreciablility test)

2 conditions:

Para 7 – aggregate market share of each party share doesn’t exceed (15% for non competitors and 10% for competitors

> argue whether % given is in relevant market

Para 11(2) – cannot contain hard-core restrictions (price fixing/export ban)

not strictly binding on UK courts

Self assessment (EU – art 101(3) TFEU (UK – s.9(1) CA 1998)

Involves the parties deciding for themselves whether the agreement is exempt under s.101(3).

- agreement must not contain hardcore restrictions AND must meet the 4 following conditions: pg 395 (first two are positive and second two negative)

1. The agreement must contribute to the improvement or production in the...

#10474 - Unit 8 Technology Transfer Block Exemption - International Intellectual Property

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