Brussels gives air to companies to share technological innovation under a new surveillance

After fourteen years without updates, Brussels has announced this week the update of its competition rules for technology licensing agreements. A set of rules that tells companies how they can share and sell their technology without creating a monopoly or harming consumers.

That is to say, the regulation that affects those contracts through which a company owner of technological rights —patents, software copyrights…— authorizes another company to use said rights to produce goods or services. The community executive seeks to promote innovation and dissemination in this area, ensuring at the same time that effective competition is not eliminated.

“Clear and predictable rules are essential for strengthening innovation,” has celebrated the Executive Vice-President of the Commission, Teresa Ribera, regarding the update. In her opinion, the new regulation offers companies practical guidance on licensing in a digital economy in constant evolution. By promoting licensing, the Spanish official says “contribute to ensuring greater circulation of technology, including data.”

The new “safe harbors”

The Category Exemption Regulation establishes what it calls a “safe harbor” for agreements between two companies that license technology rights to produce goods or services. If the agreement of the interested parties enters the zone that the Commission has called “safe harbor”, the EU will assume that it is legal and beneficial, so it will not be investigated or sanctioned.

In this way, those agreements that comply with the established conditions will be able to benefit from an automatic exemption from the prohibition of restrictive agreements. The Commission explains that they will generate efficiencies that compensate for any restriction, which is why they will become legally valid and applicable without the need for an individual evaluation by the community services.

In the event that an agreement exceeds market share limits or contains excluded restrictions, it will not be presumed illegal from the outset, but companies must carry out an individual assessment to demonstrate that their agreement does not affect competition. The Commission will scrutinize it closely and companies will have to demonstrate that the collaboration really helps to improve technology.

How to comply with the requirements?

In order to be considered as a beneficiary of this “safe harbor”, the alliance must be celebrated between two companies and that the object of the same be the concession over technology rights for the production of goods and services. Among the rights covered by the new legislation are patents, secret technical know-how, substances and certain utility models, designs, topographies of semiconductors, as well as supplementary protection certificates and software licenses.

However, Brussels rejects applying the regulation to the simple resale of software or research and development agreements, such as specialization, that have their own specific regulations.

The limits of market share

The exemption will only be automatic if the parties do not exceed certain power thresholds. For example, the joint market share cannot exceed 20% in the affected technology or product markets, in the same way that the market share of each of the parties must not exceed 30%. If these limits were to be exceeded after the signing, the exemption will remain valid for three years, since Brussels intends to allow the adaptation of the agreement to the rules.

But even if it concerns small companies, Brussels does set red lines that would make "the safe harbor" disappear and the agreement would come to be considered illegal. Price fixing will not be allowed, nor dividing the market among companies, and much less limiting production.

Brussels will now distinguish between clauses that will annul the entire exception and those that will only annul the clause itself. If especially serious restrictions are detected, the entire agreement would lose its approval. This includes price fixing to third parties, production limitation, and the sharing of markets or customers.

However, in the case of excluded restrictions, only the specific clause will fall outside the exemption, but the rest of the contract can remain valid if it is separable. Such are considered: obliging the licensee to exclusively assign to the licensor the improvements it makes to the technology or preventing one party from questioning the validity of the other's intellectual property rights.

Technology within everyone's reach 

New guidelines are now also established that detail how to evaluate those complex agreements or those that exceed quotas. Thus, special vigilance will be placed on pay-for-delay agreements, where a company pays a potential competitor not to enter the market, which can become a restriction by object.

Here enter those cases where several parties pool technologies. Brussels reminds that, to be competitive, they must be transparent, include only essential technologies, and license under fair conditions. Furthermore, a new section is introduced that regulates groups of companies that negotiate technological licenses together so as not to become buyer cartels that force sub-competitive conditions.

In the Executive, they explain that what is intended is for technology to circulate and spread. On the one hand, it gives companies security to invest money in research without the fear that the technology will be stolen from them or that they will be fined for collaborating. Consumers can benefit in the event that companies achieve better products and more modern through this sharing.

One of the most important novelties introduced by the texts disseminated this Thursday is the fact that for the first time a section is included specific that explains how to evaluate license agreements on protected databases when used to develop goods. The Executive wants data to circulate to generate innovation, but ensuring they are not used to exchange sensitive commercial information between competitors.

Another completely new section is the one that has to do with those associations in which several companies that require technology ally themselves to jointly negotiate the license conditions. Brussels will intervene to avoid buyer cartels that force unfairly low prices.

Ribera's cabinet  opts for a delicate balance between opening the door to greater circulation of technology and keeping under control the risks of concentration and abuse. The update of the rules seeks to provide security to companies in an increasingly complex digital environment, but makes it clear that flexibility does not equate to a blank check. From now on, sharing innovation will be easier, but it will also be more monitored.