5 June 2025

Patent licenses are agreements in which the patent holder (licensor) grants specific rights to another party (licensee) to use its patented invention. Similar to other business contracts, these licenses can contain complex provisions, and at times, the dominant licensor may impose conditions that appear unfair. One such provision that may be included in patent licenses is an exclusive grant-back clause.

Paemen defines an exclusive grant-back obligation as an obligation where the licensee “is required to license or grant back to the licensor on an exclusive basis any technology derived from or improving on that of the licensor”. Galli and Botta explain that exclusive grant-back clauses require the licensee to transfer rights to the licensor for any improvements or new applications of the licensed technology, either through assignment or an exclusive license. They provide the following example of such a clause:

“Subject to the terms and conditions of this Agreement, Licensee, on behalf of itself and each of its Affiliates, hereby grants a personal, non-transferable, worldwide, exclusive, fully-paid, and royalty-free license, with the right to sublicense, under Licensee’s patent portfolio, to Licensor, and each of its respective Affiliates, to make (and have made), import, use, offer to sell, sell, lease, and otherwise dispose of otherwise infringing products.”

Licensees are well-suited to improve the licensed technology because they implement it, gain market insights, and receive customer feedback. However, through exclusive grant-back clauses, a dominant licensor can take advantage of its licensees by making them relinquish differentiating competition and innovation incentives, leveraging its market power.

The South African Competition Act 89 of 1998 does not expressly refer to or prohibit exclusive grant-back obligations.

However, section 4 and 5 of the Competition Act deal with restrictive practices by parties both in a horizontal and vertical relationship. Amongst other things, these sections provide that an agreement between parties, either in a horizontal or vertical relationship, is prohibited if it has the effect of substantially preventing or lessening competition in a market, unless any technological, efficiency or other pro-competitive gain resulting from the agreement that outweighs the anti-competitive effect can be proven.

As the law in South Africa in this area is underdeveloped, there are limited sources to refer to. Many commentators appear to be of the opinion that exclusive grant-back obligations may contravene competition law.

In particular, Sutherland & Kemp in Competition Law of South Africa state that a grant-back provision or the requirement for an exclusive license to be granted to the original licensor can potentially hinder innovation and may be anti-competitive. Dam echoes this statement and asserts that “exclusive grant-back provisions, where the licensee is required to assign or license improvements back to the licensor on an exclusive basis, are likely to breach competition law.”

Sutherland & Kemp refers to the Guidelines on the application of Article 101 of the Treaty on the Functioning of the European Union to technology transfer agreements 2014/C 89/03, which explains that an “obligation to grant the licensor an exclusive licence to improvements of the licensed technology or to assign such improvements to the licensor is likely to reduce the licensee’s incentive to innovate since it hinders the licensee in exploiting the improvements, including by way of licensing to third parties”.  The Guidelines further mention that, when grant-back provisions are accompanied by consideration, the obligation is less likely to discourage the licensee from innovating.

In sections 4 and 5, the Competition Act refers to a balancing exercise in deciding whether a restrictive practice is anti-competitive, by allowing pro-competitive gain resulting from the agreement that outweighs the anti-competitive effect to be proven. Sutherland and Kemp affirm this in the context of exclusive grant-back obligations, stating that, when assessing whether such a clause may be anti-competitive, it is essential to examine the precise content of the provision and the context in which it is applied.

Dominant licensors can present several defences against claims of exploitation. Firstly, the patentee might argue that the license provides adequate compensation for the grant-back, either through balancing payments or reduced license fees, thereby maintaining the licensee’s incentive to innovate by ensuring an outlet for their innovations and sharing future innovation risks. Secondly, grant-backs can prevent moral hazard and reduce competitive actions by licensees that could harm the licensor. Lastly, a grant-back could be limited to inventions related to the initially licensed patents, such as dependent or complementary patents, which cannot be utilised without the licensor’s acquiescence.

Thus, although exclusive grant-back clauses warrant careful attention in patent licensing, we need to engage in a balancing exercise and consider the precise content of a provision as well as the circumstances in which it will apply to determine whether it may be deemed anti-competitive.

Sources:

• Galli N & M Botta “It’s Unfair! Non-price Exploitation in ICT Patents Licenses.” The International Review of Intellectual Property and Competition Law 200–222 (2023).
• Sutherland PJ & K Kemp Competition Law of South Africa (2006), Durban: LexisNexis Butterworths.
• Paeman D The Intellectual Property and Antitrust Review, European Union (2023), United Kingdom: Law Business Research Ltd.
• Dam K “Licensing in South Africa” Lexology 2019 (https://www.lexology.com/library/detail.aspx?g=f8221a69-6416-4c93-a1e9-5be8b3971654)
• Guidelines on the application of Article 101 of the Treaty on the Functioning of the European Union to technology transfer agreements 2014/C 89/03
• Kasdan MJ “Patent Licenses: Licensing Fundamentals” LexisNexis 1-7 (2020)