Comments in response to European Commission’s questionnaire on technology transfer agreements

  • 3 February 2012
ICC policy statement old

Comments in response to European Commission’s questionnaire on technology transfer agreements.

1. Is your company primarily a licensor or licensee of technology? In which sector(s) or broad product groups?

ICC’s membership comprises both technology licensors and licensees in a wide range of industry sectors. ICC would like to emphasise its support of a competition policy that promotes innovation and intellectual property. IP licensing is generally very pro-competitive and the competition rules should not overly restrict the parties’ freedom to enter efficiency-enhancing licences. The Commission’s Block Exemption and Guidelines are very important in promoting a competition policy that is conducive to innovation. Throughout the world the European Commission is watched by other agencies as a leading authority in this area; when considering any revisions to the Block Exemption and Guidelines, the Commission should be aware of this.

2. Do you, overall, consider that the Block Exemption Regulation and the Guidelines have proven to be a well-functioning system for assessing technology transfer agreements?

On the whole ICC considers that the Block Exemption and the accompanying Guidelines have provided a good workable framework for analysing technology transfer agreements’ effects on competition. Nonetheless, as discussed below – see, in particular, the answers to questions 4, 5, 10, 11, 12 and 13 – ICC thinks that the system could be improved.

3. Can you give an indication of the impact (positive and negative) of the current competition rules on the business of your company? What would be the impact on your business if there were no Block Exemption Regulation and Guidelines?

The impact on ICC’s various members and stakeholders varies.

4. Please report any problems raised by the application of the Block Exemption Regulation and/or the Guidelines. Please indicate also the sector/broad product group(s) in which such problems were encountered and the type of solution found, if any, to address the problems and results obtained.

The relationship between the Technology Transfer Block Exemption Regulation and the Guidelines, on the one hand, and the R&D Block Exemption and Horizontal Guidelines, on the other, causes problems.

Paragraph 45 of the Technology Transfer Guidelines states that they cover “development work before obtaining a product or a process that is ready for commercial exploitation, provided that a contract product has been identified”. Development work is, however, also covered by the R&D Block Exemption and Horizontal Guidelines (Article 1(1)(a)(iv) refers to “paid-for research and development of contract products” and see Example 2 in paragraph 147 of the Guidelines). Does this apparent overlap mean that the parties can choose which Block Exemption is applicable or do they have to analyse agreements containing both R&D and licensing for compliance with both Block Exemptions and under both the Technology Transfer and Horizontal Guidelines? ICC would like to see clarification of this, potentially by way of examples that would show when each Block Exemption is applicable. The fact that two Block Exemptions/Guidelines can be applicable is particularly problematic when the two diverge. Notably, there are/have been divergences on:

5. Do you have any suggestions as to how one could clarify either the concepts or terminology used in the two instruments?

The treatment of sub-contracting in the Block Exemption and Guidelines should be clarified. First, while the Guidelines’ paragraph 44 provides that they cover ‘subcontracting’ “whereby the licensor licenses technology to the licensee who undertakes to produce certain products on the basis thereof exclusively for the licensor”, this is inexplicably not reflected in the Block Exemption. Second, if the other conditions of the Block Exemption are met, ICC believes that language should be added to the Block Exemption explicitly exempting a licence under which the licensee must supply the contract product exclusively to the licensor or to a designated third party who performs a subsequent process in the manufacturing chain on the licensor’s behalf. Third, the licensor’s scope to determine the transfer price of an intermediate manufacturer to a final manufacturer should be clarified. Currently it could be argued that there is more latitude for doing this under the Subcontracting Notice than under the Block Exemption as under the latter it may constitute RPM. Yet, it should be the Block Exemption that provides greater legal certainty.

ICC would welcome clarification of whether a right of reproduction and distribution of copies under a software licence qualifies as a licence for “production of contract products” and is therefore exemptible. The concept of a field of use could be clarified. Fields of use are often indispensable to the licensor deciding to license in the first place. They should not automatically be equated to restrictions on the licensee. Please see more on this in our answer to question 10. ICC believes that Guidelines paragraph 180’s statement that a “field of use must be defined objectively by reference to identified and meaningful technical characteristics of the licensed product” is too narrow; there can be other procompetitive grounds for a field of use apart from its technical characteristics and the Guidelines should not fetter the parties’ freedom in this respect.

Fields of use are a complex area and the future revised Block Exemption and Guidelines should address a variety of potential fields of use and scenarios.

6. According to your experience, do you consider that some of the provisions in the current Block Exemption Regulation and/or parts of the text of the Guidelines have become unsatisfactory or need to be updated due to developments (in particular developments after 2004 when the current system was put in place) that have taken place at the national and European level either generally or in a particular industry? Please provide reasons for your response.

Please see above our answer to question 4 regarding the Block Exemption’s relationship with the revised R&D Block Exemption.

Please also see our comments on patent pools in the answer to question 12 below.

7. Do you believe that there are any specific competition “issues” related to technology transfer agreements not currently addressed by the current Block Exemption Regulation or Guidelines and that should be considered in the review? For example should the scope of the Block Exemption Regulation and/or the Guidelines cover other types of production related agreements such as agreements, where trade-marks are licensed for display on consumer goods but there is no licensed technology? In addition, are there new contractual arrangements or clauses in technology transfer agreements which could have an impact on competition and which are not explicitly dealt with in the Block Exemption Regulation and/or the Guidelines? Please provide reasons for your response.

Trade mark licensing could fall under a revised Block Exemption but it may also often be ancillary to distribution and fall under the General Verticals Block Exemption. In addition to software, there are other copyright works that are of a technical character that could explicitly be covered by the Block Exemption. Any rationale for always excluding non-software copyright from the Block Exemption would not be justified. Currently, however, unless they constitute know-how, such works fall outside the Block Exemption. Likewise, databases protected by the sui generis database right could explicitly be covered by the Block Exemption. Since Article 1(b) of the “enabling” Council Regulation 19/65/EEC only empowers the Commission to apply Article 101(3) by regulation to technology transfer agreements involving two undertakings, we have not considered the possibility for the Block Exemption to apply to patent pools. However, multiparty agreements have become increasingly important in certain sectors and reflect the growing complexity of some new technologies.

8. Have you been involved in litigation and/or competition investigations concerning the Block Exemption Regulation and/or the Guidelines? Or are you aware of national cases and/or arbitration awards that could be relevant for the Commission’s review. Please specify.

ICC’s task-force members have not been involved in litigation or investigations where the Block Exemption or Guidelines have been at the core of the litigation or investigation. Nor are we aware of relevant national cases or arbitration.

9/ Do you consider that there is a need to keep a Block Exemption Regulation in this field or would it be enough to merely give guidance (including relevant safeharbours) in the Guidelines?

ICC would prefer to see the Block Exemption retained as it provides for greater legal certainty if an agreement fulfils its conditions.

10. Do you have any particular comments on the list of hardcore restrictions in Article 4 and/or the list of excluded restrictions in Article 5 of the Block Exemption Regulation? In particular, should the lists include also other type of restrictions or should, on the contrary, certain restrictions be removed from them? We would welcome comments as to whether you consider the balance right as regards the Commission’s policy toward territorial restrictions, field of use restrictions and possibilities of exclusive and non-exclusive grant-backs.

Article 4(1): Hardcore restrictions between competitors

This article is complex and causes difficulty in practice.

In particular, the exceptions to Article 4(1)(c) could be read as being inherently restrictive of competition if the parties’ combined market shares exceed 20%. This reading would be regrettable since, as noted above, field of use restrictions are often necessary and pro-competitive. It should be expressly provided that the listing of the provisions in Article 4(1)(c)(i) to (vii) is without prejudice to whether they are restrictive of competition at combined market shares above 20%.

The treatment of reciprocal agreements under Article 4(1)(b) and (c) is too strict. Restrictions in reciprocal agreements under which the parties are still allowed use their own technology should be excluded restrictions under Article 5.

Article 4(2): Hardcore restrictions between non-competitors

ICC believes that agreements between entities that are neither actual nor potential competitors rarely restrict competition. Moreover, almost any anti-competitive effects of such agreements will fall under Article 102. The concept of hardcore restrictions in agreements between non-competitors who must both have market shares below 30% is thus overly restrictive – see more on this market share threshold issue below under question 11.

In particular, the treatment of passive sales is unsatisfactory. The two-year time limit in Article 4(2)(b)(ii) seems arbitrary and illogical when under Article 4(2)(b)(i) the licensor can protect its territory and customers from passive sales for an unlimited period.