Issue 6, 25th March 1996: The New Technology Transfer Regulation.
By Sonya Clarke.
[Computing, Law, Science and Technology, SciFi, Sport, The Unexplained, UPicons]
The Big Six' accountancy firms are edging into law, with Ernst & Youngjoining Arthur Andersen and Price Waterhouse in its plans to set up a legal practice, coming within the Law Society's rules on multi-disciplinary partnerships by affiliating with an associated legal practice, as with Arthur Andersen and Garrett & Co. This will inevitably affect the profits of established law firms. It is not yet known if the remaining big three firms will follow suit.
After considerable to-ing, fro-ing and redrafting, the Regulation exempting certain technology transfer agreements from EU competition law - or the technology transfer block exemption - (Regulation (EC) No. 240/96) takes effect on April 1, 1996. Many would argue that this is not before time. The block exemption has long been needed to provide the industry with a degree of certainty by simplifying the existing provisions and creating a structure that will encourage innovation. In practical terms, the new block exemption replaces the expired patent licence block exemption and the soon-to-be-defunct know-how licencing block exemption.
The delay was caused in large part by the European Commission's anxiety about market concentration. The principle concern was that companies with a large market share might buy up the competition and exploit the protection of the block exemption to establish market dominance. The commonly cited example of this is the Tetra Pak case. To counteract this possibility, the Commission proposed in an earlier draft of the new block exemption that companies with a market share of over 40% should notify their agreements to the Competition Director General for clearance. Industry argued strongly against this as a defeat of the central purpose of the block exemption, which was to minimise red tape and long-winded ratification procedures. The Commission backed down and this provision has not been included in the final draft. The 40% market share threshold does, however, come up in the block exemption in a modified guise.
The block exemption covers certain patent, know-how and mixed (patent and know-how) licence agreements. It extends to licences that include territorial restrictions on the licensor and the licensee, and exclusivity provisions (active sales bans and, to a more limited extent, passive sales bans). Licences with such provisions will be exempt from the competition law rules of Article 85 of the EC Treaty for a limited number of years, depending on the type of licence involved. The time limits run from the date that the licenced technology is first marketed in the European Community. In the case of mixed licences, the exemption from Article 85 will endure for the life of a patent that is "necessary" to protect the licenced technology. "Necessary" is defined in the block exemption as being "of technical, legal or economic interest" to the licensee, in that the realisation of the licenced technology would be impossible or limited without it. This is not a clear definition and may cause uncertainty about whether protection under the block exemption exists. The block exemption also covers licences that stipulate that the licensee is limited to using the rights granted in the licence only in combination with the licensor's manufacturing process.
In general, the block exemption defines patent and know-how licencing agreements widely, to include those agreements which grant the use of other intellectual property rights, provided those rights are ancillary to the main rights granted. Qualifying agreements that on their face breach competition law because of the inclusion of terms such as those set out above may be exempt from sanction under Article 85, provided they do not also incorporate terms proscribed by the Commission.
The block exemption's "black list" of prohibited terms is shorter than in the earlier block exemptions. It includes price-fixing and market sharing between competitors. In line with this more liberal approach, the "white list" of terms that may be included in a licence agreement without losing the exemption is longer than previously. In particular, it extends the right of the licensor to the grant-back of improvements in the licenced technology by the licensee to the grant-back of new applications of the technology. The shorter black list means that there are many more "grey clauses" that are not on the black or white list and do not give the parties the certainty of exemption. An agreement that includes grey clauses may be exempt on notification to the Commission under the block exemption's opposition procedure.
Though it has created a more liberal, user-friendly environment, the block exemption is likely to cause doubt for some companies. Although the original provisions for companies with high market shares were not incorporated into the final draft, it includes a provision for withdrawal of the exemption by the Commission where it concludes that the licenced products do not have real competition in the licenced territory. This will affect companies with a high market share. The block exemption specifies the 40% threshold as an indicator of what constitutes a substantial share of the market even though this is not always a guarantee of market dominance.
The Commission recommends that parties with a high market share apply for individual
exemption from Article 85. Taking this action may have the adverse effect of drawing the
Commission's attention to agreements that are exempt but might suffer withdrawal of the
exemption. There is also the risk of sanction under Article 86 for abuse of a dominant position.
It was held in the Tetra Pak case that the protection of a block exemption did not exempt parties
from Article 86, which will be applied separately.
