Competition and dissemination of innovation.
The new block exemption regulation for technology transfer agreements
On 31 January 1996, following a long consultation process with
industry, the Commission adopted its new block exemption regulation
on technology transfer agreements. This regulation marks a step
forward by the Commission towards the creation of a favourable
legal environment for development of technological innovation
and its dissemination within the European Union, while ensuring
that both healthy competition as well as the achievement of the
single market are not affected.
I. ORIGIN OF THE REGULATION
A certain number of factors and, in particular, a recognition
of the stimulus provided by technology transfers to economic development
in today's society as highlighted in the White Paper on Growth,
Competitiveness and Employment, has led the Commission to introduce
significant simplification to the existing rules governing technology
These rules were set out in the former regulations (EEC) 2349/84
of 25th July 1984 and 556/89 of 30th November 1988, under which
the Commission had already granted block exemptions to pure patent
of know-how licences as well as to mixed patent and know-how licences.
These regulations enabled businesses to avoid having to notify
most of their patent or know-how licence agreements in order to
obtain an exemption from Article 85(1).
The rules also enabled
the Commission to decide quickly on border-line cases by means
of an opposition procedure (under which the exemption extended
to agreements which included additional restrictions on competition
not included in the text of the regulation, on condition that
such agreements were notified to the Commission and the Commission
did not oppose them within six months of notification). However,
as the Commission stated in its 20th Report on Competition policy,
there remained practical difficulties. These were principally
related to the detailed character of the two former regulations
as well as the uncertain legal position concerning mixed licences,
which were covered in some manner by both regulations. The purpose
of the new regulation is to overcome these difficulties. It merges
the previous exemption regulations into a single legal instrument
enabling business to benefit from a single set of rules for patent
licences, know-how licences and mixed patent and know-how licences.
The new Regulation recognises the fact that in practice, mixed
agreements play an ever more important role in technology transfers.
At the same time, the adoption of the new rules offered the Commission
the possibility of broadening the scope of application of the
regulation. The previous regulations had in general been considered
as useful legal instruments but they restricted the contractual
freedom of the parties. The new regulation provides for a series
of improvements and simplifications and is marked by a more open
attitude to provisions which are frequently encountered in practice.
From the outset, given the primary objective of disseminating
new technology in a competitive climate in the Community, the
Commission considered the current rules inadequate in that they
took no account of undertakings' economic power and the danger
that companies with a significant market share could potentially
block the implementation of innovations which would compete with
their products and processes.
You will recall that the Commission,
influenced by the Tetra Pak case and similar cases(1) initially
favoured a solution which would have excluded from the benefit
of an automatic exemption, agreements granting territorial exclusivity
in favour of a licensee which was part of a close oligopoly of
which, at the time the agreement was made, had a market share
of at least 40%. After heated discussion with several industry
groups (in particular UNICE and the European Committee of LES
International) the Commission decided to adopt a less rigid position
and reserve the 40% market share threshold only as a criterion
for possible withdrawal of the benefit of the exemption.
II. STRUCTURE AND PRINCIPAL PROVISIONS OF REGULATION 240/96
The structure of the new regulation follows the usual model with
respect to block exemptions by making a distinction between white,
black and grey clauses. Its principal elements can be summarised
as follows :
1. Article 1 sets out the list of obligations which restrict competition
and are normally covered by Article 85, paragraph 1, and which
are automatically exempted by the Regulation. A licence agreement
containing such provisions does not have to be notified to the
Commission. Article 1 primarily concerns clauses providing for
territorial restrictions between parties or between licensees.
They are exempted between parties throughout the term of validity
of the patent, of for 10 years in the case of know-how agreements
and, in particular, between licensees for 5 years with respect
to the prohibition on both active and passive sales.
2. Article 2 sets out a certain number of obligations which are
often found in licence agreements but which do not generally restrict
competition. It provides that, if by reason of a particular economic
or legal context, they were to be covered by Article 85, paragraph
1, they should also be covered by the block exemption (these are
the so-called white-listed clauses). New white clauses were also
added (in particular, the right for the licensor to terminate
the agreement where the licensee contests the validity of the
patent, to terminate the exclusive character of the licensee's
rights were the licensee competes and the right of the licensor
to reserve the right to avail of the rights conferred by a patent
in order to oppose exploitation by the licensee of the technology
outside the territory granted to the licensee.
3. Article 3 sets out the "black list" of clauses or
restrictions whose presence in an agreement prevents the grant
of a block exemption (price limitations, restrictions on competition,
restrictions on clientele between competing manufacturers, restrictions
on the extent of exploitation, an obligation on the licensee to
assign improvements to the technology, territorial restrictions
in-excess of the exempted period).
In order to facilitate technology
transfers the black list has been significantly reduced - almost
by half - in comparison with the two former regulations. The black-listed
clauses which have been eliminated have not, however, been transferred
to the white list. They have been moved to the opposition procedure,
as is the case specifically, for the non-challenge clauses and
for the tie-in obligations which are not necessary for exploitation
of the transferred technology.
4. Article 4 requires that agreements notified to the Commission
which contain grey clauses, be subject to an opposition procedure.
Grey clauses are restrictions on competition not referred to
in Articles 1 and 2 and which are also not covered by Article
3. In order to make the procedure more efficient, the time within
which the Commission must intervene has been shortened from 6
to 4 months.
Moreover, in the 25th recital to the regulation,
the Commission has stated that instead of all the documentation
required by Form A/B, it requires only notification of the text
of the agreement and an estimate of the market.
notification will be considered as having been validly made at
the date of such communication, even if the Commission, in the
light of the particular circumstances, requires additional information
after this date.
5. Even though the regulation no longer provides for a market
share threshold beyond which the relevant licence agreements would
have to be notified, the existence of significant market share
will be particularly important in the context of possible withdrawal
of the exemption. In accordance with the provisions of Article
7, paragraph 1 of the Regulation, the Commission will attach particular
importance, in assessing conditions of competition, to situations
in which the licensee's market share exceeds a threshold of 40%
of the total market for the licensed products and all products
or services which the consumer considers as being interchangeable
or substitutable by reason of their properties, price and use.
The United States authorities also attach particular significance
to situations in which a licensee has a strong market share.
The Department of Justice has intervened in the past in order
to force the licensor to grant non-exclusive licences instead
of a single exclusive licence (see the Bayer/Johnson case).
Antitrust Guidelines for intellectual property licences highlight
the anti-competitive risks associated with the grant of exclusive
licences in concentrated markets or in favour of licensees holding
significant market share.
The 11th example of those guidelines
specifically refers to the case where a licence is granted for
the manufacture and distribution of a patented pharmaceutical
substance in favour of a business which already offers the only
remedy on the market for treating the same illness. Even though
such licence was not formally exclusive, the patent holder has
refused to grant other licences on reasonable conditions.
The importance of the market share threshold should not be exaggerated.
It is only one indication, among others, of the existence of
market power and does not itself lead to the conclusion that there
exists possible abuse of such power. In addition, if the Commission
were to institute proceedings, in particular on the basis of a
complaint, the parties would, prior to any possible decision to
withdraw the exemption, have the benefit of all procedural rights
available in cases of examination of individual cases such as
communication of the complaint, access to the file and the possibility
of an oral hearing.
III. RESULTS OF EXPERT STUDIES
In order to have an exact idea of the numbers and types of exclusive
licences, the Commission asked three experts, British, French
and German, to carry out studies (in their respective countries)
based on a representative sample of licensors and licensees.
In particular, the idea was to evaluate the annual flow of exclusive
licences for which the licensee's market share was above the 40%
There were difficulties in obtaining detailed data, by reason
of a certain foreseeable reluctance on the part of business to
divulge information on their licence agreements, to which must
be added the difficulty linked to the determination of the relevant
market. The studies nevertheless, permitted identification of
the sectors where the risk of concentration of technological protection
is highest as well as confirming that the annual flow of licences
above the 40% mark is limited (about 10 per year for the French
study whose results seem to be the most reliable). Another interesting
result was that the pharmaceutical and biotechnology sectors seem
to be the most likely sectors of anti-competitive risk.
In ending my speech, I would like to make the following observation
: at the dawn of the third millennium no one would dream of contesting
the vital importance of innovation in products and processes for
economic development. In the Commission's view, the industrial
progress in the European Union is inextricably linked to the dynamism
of its businesses in the conception of new technologies.
this purpose, the Commission has launched various international
cooperation programmes in the area of research, such as Esprit,
Drive and Brite, and a significant portion of the Community's
budget is devoted to them. Simplification of technology transfers,
in the context of the rules on competition, is an important addition
to these actions.
Of course, the new regulation is not revolutionary, but it appears
to be a significant improvement on the existing situation. The
new regulation abolishes the disparities which existed between
the patent licence regulation and the regulation on transfers
of know-how : it eliminates, or transfers to the opposition procedure,
several clauses from the old regulations which prevented the block
exemption being obtained and, in order to attach greater respect
to the freedom of parties to contract, it provides for new acceptable
(1) See the Sega-Nintendo case (MMC's Report - March 95).