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Technology transfer agreements

Licensing agreements that restrict competition are prohibited by the European Union (EU) competition rules, and in particular Article 101 of the Treaty on the Functioning of the European Union (TFEU) (ex-Article 81 of the Treaty Establishing the European Community (TEC)). In most cases, however, these agreements also have positive effects that outweigh their restrictive effects on competition. The new provisions, which comprise a "block exemption" regulation and guidelines, create an area of certainty for most licensing agreements.

ACT

Commission Regulation (EC) No 772/2004 of 7 April 2004 on the application of Article 81(3) of the Treaty to categories of technology transfer agreements.

SUMMARY

Intellectual property legislation confers exclusive rights on holders of patents *, copyright, design rights, registered trademarks and other rights protected by the law. A holder of intellectual property rights is authorised to prevent any unauthorised use of its intellectual property * and to exploit such property, in particular by licensing it to third parties. Technology transfer agreements * concern the licensing of technology.

Such agreements will usually improve economic efficiency and be pro-competitive as they can reduce duplication of research and development, strengthen the incentive for the initial research and development, spur incremental innovation, facilitate diffusion and generate product market competition. However, licensing agreements may also be used for anti-competitive purposes, e.g. where two competitors use a licensing agreement to share out markets between themselves or where an important licence holder excludes competing technologies from the market.

In order to strike the right balance between the protection of competition and the protection of intellectual property rights, this block exemption regulation creates an area of certainty for most licensing agreements. The guidelines specify how Article 101 of the Treaty on the Functioning of the European Union (TFEU) (ex-Article 81 of the Treaty establishing the European Community (TEC)) should be applied to agreements not falling within the area of certainty.

Scope

The scope of the new rules not only covers patent and know-how * licensing agreements but also applies to design and model rights and software copyright licences. In cases where the Commission does not have the right to adopt a block exemption regulation, e.g. for agreements on patent pooling or the granting of copyright licences in general, the guidelines provide clear guidance on the future policy regarding the application of the rules. This regulation does not, however, concern licensing agreements relating to the subcontracting of R&D activities.

Implementing conditions

In order to determine the area of certainty applicable to licensing agreements, this regulation distinguishes between competing and non-competing undertakings, regarding the former as undertakings which compete on the relevant technology market and/or the relevant product market.

The regulation stipulates, however, that the following are exempt from the restrictions laid down in Article 101(1) TFEU (ex-Article 81(1) TEC):

  • agreements concluded between competing undertakings where the market share does not exceed 20 % of the relevant market;
  • agreements concluded between non-competing undertakings where the market share does not exceed 30 % of the relevant market.

These exemptions are granted on condition that the agreements do not contain certain restrictions that have serious anti-competitive effects. In this respect, the regulation lists a whole set of hardcore and excluded restrictions (Articles 4 and 5) that have serious anti-competitive effects and are, therefore, prohibited. In other words, anything not expressly excluded from the block exemption regulation is exempt. In the absence of hardcore restrictions, undertakings that sign agreements not exceeding the market share thresholds may consider their agreements to be compatible with European competition legislation.

Market share is calculated on the basis of market sales value data relating to the preceding calendar year. If the market share is initially not more than 20 % or 30 % but subsequently rises above that level, the exemption continues to apply for a period of two consecutive calendar years following the year in which the 20 % or 30 % threshold was first exceeded.

Withdrawal of the exemption

Regulation (EC) No 1/2003 empowers the competent authorities of European Union (EU) countries to withdraw the benefit of the block exemption in respect of technology transfer agreements having effects incompatible with Article 101(3) TFEU (ex-Article 81(3) TEC) in their respectively territory or in a part of that territory and where such territory has the characteristics of a distinct geographic market. EU countries must ensure uniform application throughout the common market of the EU competition rules.

The Commission may also withdraw the benefit of this regulation where:

  • it finds in any particular case that a technology transfer agreement has effects which are incompatible with Article 101(3) TFEU;
  • it notes the existence of parallel networks covering more than 50 % of a relevant market. In this case, the Commission may declare by regulation that this regulation is not applicable.

Agreements already in force on 30 April 2004 which satisfy the conditions for exemption provided for in Regulation (EC) No 240/96 are not prohibited during the period from 1 May 2004 to 31 March 2006.

Background

Regulation (EC) No 772/2004 falls within the framework of Regulation No 19/65/EEC empowering the Commission in accordance with Article 101(3) TFEU to exempt certain types of agreement. It replaces Regulation (EC) No 240/96 of 31 January 1996, which expired on 30 April 2004.

Key terms used in the act
  • Technology transfer agreement: a patent licensing agreement, a know-how licensing agreement, a software copyright licensing agreement or a mixed patent, know-how or software copyright licensing agreement, including any such agreement containing provisions which relate to the sale and purchase of products or which relate to the licensing of other intellectual property rights or the assignment of intellectual property rights, provided that those provisions do not constitute the primary object of the agreement and are directly related to the production of the copyright products; assignments of patents, know-how, software copyright or a combination thereof where part of the risk associated with the exploitation of the technology remains with the assignor are also deemed to be technology transfer agreements.
  • Intellectual property rights: industrial property rights, know-how, copyright and neighbouring rights.
  • Patents: patents, patent applications, utility models, applications for registration of utility models, designs, topographies of semi-conductor products, supplementary protection certificates for medicinal products or other products for which such supplementary protection certificates may be obtained and plant breeder’s certificates.
  • Know-how: a package of non-patented practical information, resulting from experience and testing, which is secret (that is to say, not generally know or easily accessible), substantial (that is to say, significant and useful for the production of the contract products) and identified (that is to say, described in a sufficiently comprehensive manner so as to make it possible to verify that it fulfils the criteria of secrecy and substantiality).
Act Entry into force - Date of expiry Deadline for transposition in the Member States Official Journal

Regulation (EC) No 772/2004

1.5.2004 - 30.4.2014

-

OJ L 123 of 27.4.2004

RELATED ACTS

Commission Notice - Guidelines on the application of Article 81 of the EC Treaty to technology transfer agreements [Official Journal C 101 of 27.4.2004].
The purpose of these guidelines is to provide guidance on the application of the block exemption regulation and on the application of Article 101 TFEU (ex-Article 81 TEC) to technology transfer agreements that fall outside the scope of the regulation. For example, in the case of agreements pooling patents or the granting of copyright licences in general, the guidelines provide clear guidance on the future policy on applying the rules. The block exemption regulation and the guidelines are not prejudicial to possible parallel application of Article 102 TFEU (ex-Article 82 TEC) to licensing agreements. The criteria set out in the guidelines must be applied in the light of the circumstances of the individual case, thereby ruling out any mechanical application. The Commission will monitor how the regulation and the guidelines are being applied under the new implementation arrangements introduced by Regulation (EC) No 1/2003 in order to determine whether any amendments should be made.

Last updated: 22.02.2011
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