ADDITIONAL OPINION OF THE ECONOMIC AND SOCIAL COMMITTEE on the Proposed Commission Regulation on the application of Article 85(3) of the Treaty to certain categories of technology-transfer agreements
Date: 1995-01-25
Institutions: European Economic and Social Committee
Subjects: industrial cooperation, technology, technology transfer













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51995AC0044

ADDITIONAL OPINION OF THE ECONOMIC AND SOCIAL COMMITTEE on the Proposed Commission Regulation on the application of Article 85(3) of the Treaty to certain categories of technology-transfer agreements  


Official Journal C 102 , 24/04/1995 P. 0001 





Opinion on the proposed Commission Regulation on the application of Article  85(3) of the Treaty to  certain categories of technology-transfer agreements ()(95/C 102/01)On 13  September  1994, the Economic and Social Committee, acting under the second paragraph of Article  23 of its  Rules of Procedure, decided to draw up an Opinion on the proposed Commission Regulation on the  application of Article  85(3) of the Treaty to certain categories of technology-transfer  agreements. The Section for Industry, Commerce, Crafts and Services, which was responsible for preparing the  Committee's work on the subject, adopted its Opinion on 4  January 1995. The Rapporteur was Mr  Little. At its 322nd Plenary Session (meeting of 25  January 1995), the Economic and Social Committee  adopted the following Opinion by a large majority with one abstention. 1. Introduction 1.1. The application of Article  85(3) of the Treaty is currently  determined for certain categories of patent licensing agreements by Regulation 2349/84 of 23  July  1984 () and of know-how agreements by Regulation 556/89 of 30  November 1988 () both as amended by  Regulation 151/93 of 23  December 1992. 1.2. The Commission proposes to combine those regulations into a single regulation covering  technology-transfer agreements thus enabling the rules governing patent licensing agreements and  know-how agreements to be harmonized as far as possible. 1.3. The underlying purpose of the regulations and the block exemptions determined therein is to  encourage the dissemination of technical knowledge and to promote the manufacture of new and  improved products within the European Union. 2. General comments 2.1. The Committee commends the initiative taken by the Commission in  formulating plans to merge into one instrument the Regulation on patent licensing, now due for  renewal, and the know-how Regulation which would, otherwise, continue to apply until 31  December  1999. 2.2. The Committee is supportive of the Commission's proposals subject to the qualifications  expressed in subsequent parts of this Opinion and to certain key changes being made. 2.3. The Committee is pleased to note that the Commission continues to seek to encourage patent and  know-how licensing as a means of promoting both the development of new products and the  dissemination of technical knowledge within the EU. Both those objectives are essential for the  EU's longer-term economic and social well-being not least because of the ability of less-developed  economies to catch up with current European technology. 2.4. The Committee endorses the aim of the Commission in seeking to provide clarification of the  rules and to simplify procedures by drawing on its experience of the operation of the block  exemption legislation. 2.5. The current block exemption regulations appear to have given some of that essential  encouragement to technology development and transfer within the EU and the Committee believes that  the current regulations provide a reasonable balance between the stimulation of technical progress  permitted under Article  85(3) and other competition policy rules. 2.6. The Committee concludes that certain of the detailed proposals should be beneficial, in  particular the reduction of the 'black list' in Article  3. The Committee also welcomes the greater  clarity which should be given by the specific references to mixed licensing agreements. 2.7.1. However, the draft Commission Regulation incorporates other detailed proposals where the  Committee feels that insufficient weight is given to the need to stimulate investment in new  technology and its transfer from one EU country to another. If implemented, these proposals would  actively discourage the transfer of technology and thus prevent the stated prime objectives being  realized. 2.7.2. It is essential that neither the granting of licences nor the acquisition of licences by  European Union enterprises is undermined by undue complexity and ambiguity in the regulation of  technology-transfer agreements. Certain elements of those proposals would also run counter to the  Commission's stated aim of simplifying the rules and procedures governing technology transfer  agreements and that would be a particular drawback for small- and medium-sized enterprises in  Europe. 2.7.3. It appears to the Committee that inadequate weighting has been given, in drawing up those  parts of the proposals, to the emphasis given within the Commission's own White Paper on Growth,  Competitiveness and Employment to the necessity both to encourage the dissemination of new  technology and to avoid unnecessary procedural burdens. 2.7.4. The Committee feels that the introduction of a market share criterion, as proposed by the  Commission, would seriously upset the balanced position achieved in promoting technical development  and dissemination within competition policy. 2.8. In the light of the volume of submissions already made to it, the Commission has published a  Draft Regulation () extending the validity of Regulation 2349/84 by six months until 30  June 1995  and it has made arrangements to hold a Hearing on this subject on 31  January 1995. The Committee  welcomes the decision by the Commission to extend the time period for consideration of its  proposals. 3. Specific comments 3.1. Market Share Limits3.1.1. The proposed Articles 1.5 and 1.6 of the draft Regulation would  introduce the concept of a market share threshold as a condition for claiming the benefit of block  exemption. The Committee feels that the concept behind these proposals is flawed and based on  misconceptions and that the ambiguity and uncertainty generated would render the whole regulation  unworkable. 3.1.2. Therefore, the Committee strongly urges the Commission to withdraw Articles 1.5 and 1.6 in  their entirety. 3.1.3. The principles of Articles 1.5 and 1.6 should be incorporated in Article  7 as further  particular cases in which the Commission could withdraw the benefit of block exemption if the  consequences of the exemption would seriously prejudice competition. 3.1.4. The Commission fails to recognize that insofar as a new product is being developed, the  market will often be an oligopolistic one. By their very nature intellectual property rights  frequently relate to unique products and it is quite likely that the relevant market would be  defined by reference to these products. The resultant high market share would deprive the licensee  and the licensor of the advantages of the block exemption. Hardly any new product manufactured  under a licensing agreement would qualify for exemption. The inherent conflict between competition  law and intellectual property rights should not be resolved in such a way as to stifle technical  innovation. 3.1.5.1. The methodology for determining market share is not set out in the draft Regulation. Such  methodology as set out in certain other regulations is ambiguous and difficult to apply. Contrary  to the stated objective of the Commission, a potential licensee would be discouraged from taking  the risks of investment in the development and promotion of new technology if it cannot be  ascertained at the outset whether or not the available licence is exclusive. Because the need for  legal certainty is critical, in many cases the substantial upfront financial outlays will not be  made. 3.1.5.2. The estimation of market share would be extremely difficult, time-consuming and costly. In  the first place the relevant market may be difficult or practically impossible to identify and its  quantification requires expensive legal, technical and economic skills because of the lack of  settled criteria for any particular case. The use of prescribed Commission forms may be practicable  in the case of a concentration with a near European dimension but a similar exercise is wholly  inappropriate to ask of parties to licensing agreements. Moreover for the vast bulk of products, it  is impossible to assess accurately the market share of competitors and a company's own share. 3.1.5.3. In many Member States, the licensor of new technology is frequently a small start-up  business, a university research department or even a sole inventor lacking the resources to develop  or market the product. For such businesses, the onus and cost of investigating and establishing  market shares in order to take advantage of block exemption would be prohibitive. 3.1.6.1. When licensing does proceed, it is clear that more agreements would have to be notified to  the Commission both because of uncertainty as to market share and because more agreements would, if  market share can be assessed, fall out with the scope of the block exemption. The delays resulting  from increased notification are commercially unacceptable. Contrary to the rationale of block  exemptions, the burden on companies would increase and the burden on Commission resources would  become even more strained. 3.1.6.2. It is wholly unrealistic to expect larger companies who do handle numerous licensing  agreements to apply legal and economic analysis to each agreement in order to assess whether or not  it qualifies for block exemption. Such assessments would still be inconclusive as the Commission,  who would have even more difficulty in assessing market shares, might reach a different conclusion  from the parties to the agreement. 3.1.6.3. The Committee considers that it would be regrettable if unnecessary bureaucratic burdens  and uncertainty led to obligations to notify licensing agreements being ignored. 3.1.7. The above factors lead to the conclusion that companies will avoid licensing within the  European Union in order to eliminate the uncertainty which would be inherent if the draft  Regulation were to be implemented as it stands. Companies would be more attracted to the US and  Japan to develop their technology and European competitiveness would be undermined. 3.1.8. The proposed market share test is unnecessary because the Commission has maintained the  provision in Article  7 enabling it to withdraw the benefit of block exemption in any particular  case. Article  7 amended to incorporate the principles stated in draft Articles 1.5 and 1.6,  together with Articles 86 and 87 of the Treaty, would provide adequate means, in the Committee's  opinion, for dealing with possible cases of abuse. It is clear that concentrated market structures  with either single or multi-firm dominant positions will be subject to Article  86 even if block  exempted [as illustrated by the Tetrapak decision ()]. 3.1.9. The Committee considers that the market share provisions, as proposed by the Commission, are  misguided and unnecessary and the need for them is unsubstantiated. They would lead to greater  uncertainty requiring companies to notify most agreements and creating an administrative burden and  generating costs which SME's, at least, would be unable to bear. Successful technology would be  penalized and the desired transfer of research results would be hampered. Thus, the Committee calls  on the Commission to withdraw the market share proposals as set out in the draft Regulation. 3.2. Territorial Protection3.2.1. Passive sales3.2.1.1. In its previous Opinions on patent licensing agreements (Rapporteur: Mr  Poeton) () and on know-how licensing agreements (Rapporteur: Mr Petersen) (), the Committee  supported the needs of licensor and licensee to have territorial protection against both active and  passive sales. 3.2.1.2. A potential licensee will not invest unless he has the chance to build up a market of his  own. Equally, the licensor needs assurance that he does not have to fear competition in his own  market, or in those of his other licensees, straightaway. The Committee considers that a five-year  period of territorial protection from passive sales, as the Commission proposes should continue, is  inadequate and that similar protection should be given as from sales actively pursued by a  licensee. 3.2.2. Starting point for time limit3.2.2.1. Under proposed Articles 1.2, 1.3 and 1.4, exclusive  territorial protection would apply to passive sales only for a period not exceeding five years from  the date when the product is first put on the market within the common market by the licensor or  one of his licensees. 3.2.2.2. In order to be eligible for territorial protection, enterprises would need to have all  licences in respect of one product executed at the same time: this would be impractical  particularly for SME's which need to build up interest in a product and test it in one market  first. No account would be taken of cases where the licensor may not have been in a position to  license the product during the first five years after it goes on the market. 3.2.2.3. The licensor's exploitation of the product is generally a separate step from licensing. To  encourage licensing as a spur to technical diffusion, there needs to be a reasonable period of  exclusive territorial protection after the licensing stage begins. 3.2.2.4. The Committee proposes that a more reasonable starting point would be the date of first  marketing in any part of the licensed territory or the date of the first licence for that  territory, whichever is the later. At the very least, the time limit should begin only when the  first licensee puts the goods on the market within the European single market. 3.2.2.5. The Committee also recommends that the starting point suggested in paragraph 3.2.2.4  should also apply to the ten-year period proposed by the Commission under Article  1.3. 3.3. The 'Opposition Procedure'3.3.1. Under current legislation, the Commission may oppose exemption in  a particular case, and can be requested by a Member State to so do. The Commission is proposing to  abolish this procedure. 3.3.2. The fact that little use is made of the procedure does not justify abolition; it remains a  useful facility and it is likely to be more effective given that the scope of Article  3 (listing  unpermissible clauses) has been reduced. The Committee recommends that the procedure be retained  and improved by reducing the period of six months for the Commission to make a decision. 3.4. Transitional Provisions3.4.1. The transitional provisions which are embodied in Article  9 of the  draft Regulation are considered by the Committee to be unsatisfactory. 3.4.2. In the Committee's view, it would be unreasonable - and extremely burdensome on business and  on the Commission itself - were existing patent agreements to be subjected to the new rules. It  should, therefore, be made clear that the new block exemption rules and procedures should apply  only to new agreements coming into effect after the date of entry into force of the new  Regulation. 3.4.3. The transition period for patent licences is too short and should be at least one year from  the date of entry into force of the new Regulation. 4. Additional comments on the text of the draft Regulation 4.1. Article  14.1.1. Articles 1.5 and 1.6 should be deleted. 4.2. Article  24.2.1. The Committee suggests reinstatement of a provision similar to Article  2(1)4(a)  of Regulation 556/89 on know-how to the effect that the freedom of the licensee to use his own  improvements or licensing them to other parties should not lead to disclosure of the know-how  supplied by the licensor. 4.2.2. Article  2.1.14 allows quantity limitations for the purpose of second sourcing only in the  case of know-how licensing. The need for a second source of supply can also exist in cases of  patent licensing and there is no justification for exempting know-how licences only. The reference  in this provision to a 'know-how-licence' should, therefore, be amended to read 'patent, know-how  or mixed licence'. 4.3. Article  74.3.1. The principles of Articles 1.5 and 1.6 should be incorporated in Article  7 as  further particular cases justifying withdrawal of exemption. 4.4. Article  114.4.1. The Committee suggests that a period for application of the Regulation of only  eight years is too short and that a ten-year period - as applies to the two current regulations -  is desirable for the purposes of legal certainty, especially as licensing agreements are often  drawn up to cover an extensive period of time. Done at Brussels, 25  January 1995. The Presidentof the Economic and Social CommitteeCarlos FERRER() OJ No C  178, 30. 6. 1994, p. 3.  () OJ No L 219, 16. 8. 1984.  () OJ No L 61, 4. 3. 1989.  () OJ No C 313, 10. 11. 1994.  () 21st report on Competition Policy 1991, Part two, Chapter  I,  B.  () OJ No C 248, 17. 9. 1984.  () OJ No C 139, 24. 5. 1988.