Licensing Tutorial - EC Competition Law

Article 81 of the EC Treaty (formerly Article 85)
"1. The following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market............"

Article 82 of the EC Treaty (formerly Article 86)
Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market insofar as it may affect trade between Member States. ..........

Whilst minor agreements are exempt¹ such provisions could throw into doubt a wide range of IP licensing and R&D agreements. To give industry more certainty as to what is allowable the The European Commission have issued in the past issued the following "block exemption" regulations :

[Historical Note : Under 240/96 where there was a risk that the agreement would have been caught by Art81 then the parties could apply for negative clearance or exemption from the EC. A more usual course of action was to ensure that the terms of the agreement fall within the "block exemptions". Both the above regulations list "white" clauses which are allowable and "black clauses" which are definitely not and should be avoided. (Extracts of the "white" and "black" clauses from old 240/96 are attached). The situation under the new regulation is a little less precise / more complex in its definitions of what qualifies for exemption ]

It should be noted that these technology transfer agreement exemptions apply primarily to bilateral exclusive patent and know-how licences and not to collaboration agreements, R&D agreements or distribution agreements.

EC Documents relating to EC Competition Law may be found HERE. The recent Commission evaluation report on the transfer of technology block exemption regulation n° 240/96 which lead to 772/2004 can be found HERE together with associated submissions.

Commission Regulation (EC) No 772/2004 of 27 April 2004 on the application of Article 81(3) of the Treaty to categories of technology transfer agreements

and the associated :

Guidelines on the application of Article 81 of the EC Treaty to technology transfer agreements

The new regulations cover two situations under Art 3 where the exemption applies :

1. Where parties to the agreement are competitors and their combined market share does not exceed 20 % of the affected market.

2. Where parties to the agreement are not competitors and each of their market shares does not exceed 30 % of the affected market.

However, Article 12 of the preamble to the regulation states that above these thresholds there can be no presumption that technology transfer agreements do fall within the scope of Article 81(1). An exclusive licensing agreement between non-competing undertakings for example may not fall within the scope of Article 81(1). There can also be no presumption that, above these market-share thresholds, technology transfer agreements falling within the scope of Article 81(1) will not satisfy the conditions for exemption.

Articles (13) & (14) of the preamble also state that :

"(13) This Regulation should not exempt technology transfer agreements containing restrictions which are not indispensable to the improvement of production or distribution. In particular, technology transfer agreements containing certain severely anti-competitive restraints such as the fixing of prices charged to third parties should be excluded from the benefit of the block exemption established by this Regulation irrespective of the market shares of the undertakings concerned. In the case of such hardcore restrictions the whole agreement should be excluded from the benefit of the block exemption.

(14) In order to protect incentives to innovate and the appropriate application of intellectual property rights, certain restrictions should be excluded from the block exemption. In particular exclusive grant back obligations for severable improvements should be excluded. Where such a restriction is included in a licence agreement only the restriction in question should be excluded from the benefit of the block exemption."

The main body of the regulation in Article 4 lists "Hardcore Restrictions" in respect of competing (Art 4 (1)) and non-competing (Art 4 (2)) undertakings which will preclude an agreement containing them from exemption. Article 5 lists a few further excluded restrictions which the exemption of Article 2 does not apply to. These include :

(a) any direct or indirect obligation on the licensee to grant an exclusive licence to the licensor or to a third party designated by the licensor in respect of its own severable improvements to or its own new applications of the licensed technology;

(b) any direct or indirect obligation on the licensee to assign, in whole or in part, to the licensor or to a third party designated by the licensor, rights to its own severable improvements to or its own new applications of the licensed technology;

(c) any direct or indirect obligation 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 of providing 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.

Article 6 however gives the Commission a general right to exclude exemption where there adverse market access effects from the cumulative effect of parallel networks of similar restrictive agreements exist.

The EC guidelines to Regulation (EC) No 772/2004 mentioned above are crucial to understanding the exact effect of the regulation in practice.

The new TTBER or EC Regulation 772/2004 is in some senses simpler than the Regulation 240/96 that it replaced in abandonning White and Grey clauses and replacing Black clauses by Hardcore exclusions. At the same time it is in some senses more complex depending as it does on definitions of market share and competition in order to determine the extent to which it applies to any situation.

Regulation (EC) No 772/2004 will expire on 30 April 2014.