CEC proposes "more flexible" competition rules for patents

[Hartmut Pilch <phm@a2e.de>]

CEC Press Release

Commission proposes new safe harbour for the licensing of patents and know
how

DN: IP/03/1341 Date: 03/10/2003

TXT: EN
PDF: EN
DOC: EN
IP/03/1341

Brussels, 3 October 2003

Commission proposes new safe harbour for the licensing of patents and know
how The European Commission is seeking comments on changes to the
competition rules applicable to the licensing of patents, know how and
software copyright. Technology transfer licensing agreements currently
benefit of a block exemption (= safe harbour) if certain conditions are
met. The Commission proposes a number of changes to the block exemption
that will reduce the regulatory burden for companies, while ensuring an
effective control of agreements between companies holding significant
market power. The new approach must be seen in combination with the
modernisation of the European Union's enforcement rules for antitrust
which will come into force in May 2004.  Licensing is important for
economic development and consumer welfare as it helps disseminate
innovations and allows companies to integrate and use complementary
technologies and capabilities. However, licensing agreements can also be
used for anti-competitive purposes, for instance when two competitors use
a license agreement to divide markets between them, or when an important
licensor excludes competing technologies from the market by requiring its
licensees to use only the licensed technology. Competition is one of the
main driving forces of innovation and dissemination and it is therefore
important to find the right balance between protecting competition and
protecting intellectual property rights.  Licensing agreements that are
distortive of competition fall under the Community competition rules, in
particular Article 81 of the Treaty. Guidance for the assessment of such
agreements is currently given by a 1996 'block exemption' Regulation.(1)
That block exemption regulation exempts agreements that fulfil the
requirements of the regulation, saving them from individual scrutiny on
possible anti-competitive effects by the Commission, the courts and
national competition authorities. It's rather formalistic character has
contributed to a strait-jacket effect.  The proposed new rules will
replace the current Regulation. They contain a more economic approach and
leave companies more freedom to devise their licensing agreements
according to their commercial needs. The new rules will have a clear and
short hardcore list of restrictions that are normally prohibited. The new
rules will contain a safe harbour below certain market share thresholds,
20% for licensing agreements between competitors and 30% for agreements
between non-competitors. For those cases not covered by the safe harbour a
set of guidelines will explain the application of Article 81 to individual
cases.  The Commission invites all interested parties to send their
comments on the proposed new rules by 26 November 2003.  The draft texts
are published in the Official Journal (C 235 of 1 October). They are also
available on the internet at the following address:

http://europa.eu.int/comm/competition/general_info/consultation.html

Background

Article 81 (1) of the EU Treaty prohibits agreements which may affect
trade between Member States and which have as their object or effect the
prevention, restriction or distortion of competition within the common
market. Under Article 81(3) an anti-competitive agreement may be exempted
from the prohibition of Article 81(1) if the positive effects brought
about by the agreement outweigh its negative effects. The Commission can
'block exempt' categories of agreements of the same nature and has done so
in 1996 for certain licensing agreements by the current technology
transfer block exemption Regulation n° 240/96 (hereafter the 'TTBE') which
covers the licensing of patent and know how rights. In December 2001, the
Commission adopted a mid-term review Report as required by the TTBE. This
was taken as an opportunity to start a thorough review of our policy
towards intellectual property licensing agreements.  Most of 2002 was
spent consulting stakeholders on the review report. Since then the
Commission has been working out the details of a new draft block exemption
regulation and a set of guidelines. The draft texts for a new block
exemption regulation and guidelines were adopted by the Commission for
consultation purposes just before the summer break. They were discussed
with Member States and are now published for consultation of industry and
consumer organisations and other interested third parties. This public
consultation will take place during the months of October and November.
The objective is to have the revised rules in place prior to the
application of the new antitrust Modernisation regime in May 2004.  The
new rules will be firmly aligned on the new generation of block exemption
regulations and guidelines for distribution agreements and horizontal
co-operation agreements. This was also requested by many of those who
commented on the Evaluation Report of December 2001. This will have the
following advantages:  The block exemption regulation will only have a
back list. By doing away with the white and grey lists of the current
regulation, the strait jacket effect is avoided and the scope of the
regulation is extended and made more flexible: whatever is not explicitly
excluded from the block exemption is now exempted;  The scope of the new
rules is also extended by covering all types of technology transfer
agreements for the production of goods or services. The new regulation is
proposed to cover not only patent and know-how licensing but also software
copyright licensing, as requested by many of those who commented on the
Evaluation Report. Where the Commission does not have the powers to adopt
a block exemption regulation, as for patent pools and for copyright
licensing in general, the guidelines will give clear guidance as to future
enforcement policy.  The new rules will make a clear distinction between
licensing between competitors and licensing between non-competitors. For
obvious reasons competition policy should distinguish between licensing
between competitors and between non-competitors as in particular the
applicable hardcore list should differ. Competition problems are more
likely to arise in licensing between competitors than in licensing between
non-competitors.  In conclusion, these new rules will mean an important
improvement compared to the current TTBE in terms of clarity, scope, and
in protecting competition and innovation.  (1)Commission Regulation (EC)
240/96 of 31 January 1996 on the application of Article 81(3) of the
Treaty to certain categories of technology transfer agreements, OJ L 31,
9.2.1996.