The proposed regulation starts with a general exemption for technology transfer agreements between two parties (patent pools are not covered) for the manufacture or provision of goods or services manufactured or provided with licensed technology and then sets out certain derogations from this broad exemption. These include the following:
2. “Hard Core Restrictions” which take the agreement outside the exemption:
(b) restriction of the territory into which, or the customers to whom, the licensed products may be sold, except for (i) reservation of exclusive territory for the licensor’s own sales; (ii)) restriction of active sales into the territory of another licensee; (iii) restrictions where the licensee is producing only for its own use; (iv) restrictions on licensees acting as wholesalers to prevent them from selling to end-users; and (v) restrictions in furtherance of a permitted selective distribution system; and
(c) restriction on sales to end users by a licensee who is a member of a selective distribution system which operates at the retail level without prejudice to the possibility of prohibiting a member of the system from operating from an unauthorized location.
3. Other “conditions” to which the exemption does not apply include:
A. Where the licensee is required to grant an exclusive license to the licensor or its designee of any “severable improvement” or new application of the licensed technology developed by the licensee;
B. Where the licensee is required to assign to the licensor or its designee of any improvement or new application of the licensed technology developed by the licensee;
C. Where the agreement contains a direct or indirect obligation not to challenge the validity or contest the secrecy or substantiality of rights which the licensor holds in the EU, although the licensor may have the right to terminate the license if such challenge is made; and
D. Restrictions in an agreement between non-competing parties that prevent a party from using its own technology or carrying out research and development unless such limitation is necessary to maintain the secrecy of licensed know-how.
Other changes include the following:
1. The exemption will cover not only patent and know-how agreements, but will add “software computer licensing agreements.”
2. The definition of “know-how” has been changed so that this is now defined as being a “package of non-patented practical information, resulting from experience and testing, which is secret, substantial and identified”. In this context the definition of “substantial” has been changed from the current exemption so that this requirement is only met if it is indispensable for the manufacture or provision of the licensed products.
Finally, the new proposal provides that the benefit of the exemption may be withdrawn in certain circumstances particularly where the effect of agreements is to impede the access of third party technology or a licensee’s technology to the market by virtue of the existence of parallel networks of similar restrictive agreements or where “without any objective reason” there is a failure to exploit the licensed technology. In an interesting acknowledgment of the new competition regime that will follow the introduction of the Modernization Regulation, national competition authorities are authorized to act to withdraw the benefit of the exemption within their jurisdiction. The Commission also reserves the right to declare that the exemption does not apply where parallel networks of similar technology agreements cover more than 50% of a relevant market.
The main differences between the new proposal and the current exemption lie in the severely limited ability of competitors to grant exclusive licenses and the restricted definition of know-how. So far as the former is concerned, under the current regulation, one can grant an exclusive license to anyone with the assurance that no other licensee can sell into its territory for five years or carry out an active sales policy within its territory while any relevant patents remain in force for ten years if the license relates to know-how. Under the proposed regulation, once the 20% market share threshold has been reached, the only exclusivities with respect to other licensees that will be possible between competitors will be non-reciprocal field of use restrictions and restrictions in which the licensee agrees to produce only for its own use. In its commentary on the proposed regulation, the Commission makes much of the potential foreclosure of other potential licensees by the grant of exclusive licenses to justify this change. So far as the change in the definition of know-how is concerned, the proposed regulation will limit the type of know-how to which the exemption applies to that which is indispensable to the manufacture or provision of the licensed products rather than anything that “can reasonably be expected at the date of the agreement to be capable of improving the competitive position of the licensee”. No explanation for the change is given, but its effect may be to make the grant of an exclusive license to use useful but non-essential know-how the subject matter of a complaint that such a grant is anticompetitive. It is to be hoped that this will be looked at again before the regulation is finally adopted.
March 2004 Index