IP As Property / IP Rights Licensing / International Licensing

7.1 The Intellectual Property/Antitrust Interface in the European Union

Antitrust issues affecting intellectual property license agreements have probably been thrashed out most thoroughly in the European Union (EU).

Article 85 of the Treaty of Rome prohibits anti-competitive agreements. However, the European Commission has the power to grant exceptions from the prohibition where this is for the public good. Such exemptions may be granted for individual agreements (although in most cases the delay in action on an application for such an exemption renders this impracticable) or by way of a group exemption. One such group exemption exists for technology licenses.

One further factor to bear in mind with respect to Europe is a near obsession in the thinking of the authorities in Brussels that nothing should be done that might resurrect trade barriers between the European countries. For this reason, in addition to addressing antitrust type issues discussed above, the European legislation is also particularly concerned about provisions in agreements that might have the effect of separating national markets. Case law of the European Court of Justice has long ago established that one cannot use an intellectual property right that one owns in one EU member country to prevent the import into that country of a product first put on to the market by the owner of the right or with his consent in any other EU-member country, irrespective of whether there were any rights in the country in which the product was initially marketed. This case law has had an impact on the wording of the Technology License Group Exemption.

As of April 1, 1996, two previously existing group exemptions, one relating to patent licensing and the other relating to know-how licensing, have been combined into a single exemption applying to technology licensing in general, although for agreements between relatively small enterprises protection may also be found in the Notice on Minor Agreements.

The basic provision of the new technology license group exemption is the grant of an exemption to patent and know-how license agreements that confer a certain measure of exclusivity on the licensee as long as certain prohibited clauses (on the so-called "black list") are not present. The group exemption also sets out a list of clauses that are not regarded as being anti-competitive in themselves (the "white list") and that therefore do not require an exemption. To qualify under the know-how provisions, the license must relate to unpatented technical know-how that is "secret, substantial and identified", however, the actual definition of these terms is not particularly strict. "Secret" is given a broad meaning and covers a know-how package as a body or in the precise configuration and assembly of its components that is not generally known as easily accessible, so that part of its value consists in the lead time the licensee gains when it is communicated to him. It is specifically stated that the term should not be construed narrowly so as to require every element to be totally unknown or unobtainable outside the licensor's business. "Substantial" essentially means that the know-how being licensed must be useful in improving the competitive position of the licensee. "Identified" means that the know-how is described or recorded in such a way as to enable one to verify that the criteria of secrecy and substantiality have been met. It is not necessary that the licensed know-how is set out in detail in the license agreement itself.

The basic provisions on exclusivity are set out in Article 1 of the regulation as follows. An exemption is granted thereby making permissible clauses in agreements that impose any of the following obligations:

1) an obligation on the licensor not to grant other licenses in the licensed territory or to exploit the invention himself in the licensed territory so long as at least one of the licensed patents remains in force or in the case of the know-how element for a period of ten years from the date on which the licensed product is first put onto the market in the EU by a licensee;

2) an obligation for the same periods as noted above on the licensee not to exploit the licensed technology nor to manufacture or use the licensed product or process in other countries within the EU where exploitation in such other countries is reserved to the licensor or other licensees;

3) an obligation on the licensee not to sell at all in any EU territory licensed to another licensee for a period of five years from the date of first sale of the product within the EU;

4) an obligation by the licensee not to establish an active sales policy (for example, by advertising or establishing branches or distribution depots) in other EU territories that are licensed to other licensees;

5) an obligation on the licensee to use the licensor's trademark (although the licensee must be allowed to identify itself as the manufacturer of the licensed product);

6) an obligation on the licensee that it shall limit production of the licensed product to what it requires for its own use only and to sell the licensed product only as an integral part of some other product or as a replacement part for that other product.

The exemption will, however, not apply at all if certain prohibited clauses are present in the license. Prohibited clauses set out in Article 3 include the following:

1) restrictions on the ability of either party to determine the price at which it will sell licensed products;

2) non-competition clauses in respect of research and development, manufacture, use or distribution of competing products;

3) any requirement on either party to refuse, without any objectively justified reason, to meet demand from users or resellers who might sell in other areas of the EU or a requirement to make it difficult for such users or resellers to act in this way;

4) if the parties were already competing manufacturers and one of them is restricted in choosing the customers that may be served within the same technical field or product market;

5) limitations on the maximum amount of use the licensee may make of the licensed technology;

6) requiring the licensee to assign improvements to the licensor; and

7) clauses prolonging the duration of the exclusivity periods agreement beyond those set out in the general exemption.

The third of these provisions may lead a cautious licensor to include a provision that makes it clear that it will not use its patent to take steps to try to prevent imports by third parties of goods manufactured by licensees in other EU member states and to deny the licensee the right to use the licensed patent for such a purpose if national law permits licensees to enforce patents.

The group exemption specifically does not extend to licensing of designs, trademarks or software except when the licensing of such rights is clearly ancillary to the main purpose of the agreement. Therefore any agreement relating to these rights that is anticompetitive is invalid unless specifically exempted by the European Commission on the ground that it is overall in the public interest.