Competition rules relating to technology transfer agreements — Communication pursuant to Article 5 of Council Regulation No 19/65/EEC of 2 March 1965 on the application of Article 81(3) of the EC Treaty to certain categories of agreements and concerted practices, as last amended by Regulation (EC) No 1/2003 (Text with EEA relevance)
Date: 2003-10-01
Institutions: European Commission
Subjects: competition policy, inter-company agreement, technology transfer

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Competition rules relating to technology transfer agreements

Communication pursuant to Article 5 of Council Regulation No 19/65/EEC of 2 March 1965 on the
application of Article 81(3) of the EC Treaty to certain categories of agreements and concerted
practices, as last amended by Regulation (EC) No 1/2003

(2003/C 235/04)

(Text with EEA relevance)

The Commission invites all interested parties to send their comments on the following texts:

— draft Commission Regulation on the application of Article 81(3) of the EC Treaty to categories of

technology transfer agreements,

— draft Guidelines on the application of Article 81 of the EC Treaty to technology transfer agreements.

These comments should be sent to the Commission not later than eight weeks after the date of the
publication in the Official Journal of the European Union. It is standard Commission practice to publish
the submissions received in response to a public consultation. However,
it is possible to request that
submissions or parts thereof remain confidential. Should this be the case, please indicate clearly on the
front page of the submission that you request it should not be made publicly available. In this case, a
non-confidential version of the submission should also be forwarded to the Commission for publication.
Comments should be sent either by e-mail to:

COMP-TECHNOLOGY-TRANSFER@cec.eu.int

or in writing to:

European Commission
Directorate-General for Competition
Unit A 1 — Policy Development (Antitrust/mergers)
Technology Transfer Review
B-1049 Brussels.

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Draft Commission Regulation on the application of Article 81(3) of the Treaty to categories of
technology transfer agreements

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community,

Having regard to Council Regulation No 19/65/EEC of 2 March
1965 on application of Article 85(3) of the Treaty to certain
categories of agreements and concerted practices (1), as last
amended by Regulation (EC) No 1/2003 (2), and in particular
Article 1 thereof,

Having published a draft of this Regulation (3),

Having consulted the Advisory Committee on Restrictive
Practices and Dominant Positions,

Whereas:

(1) Regulation No 19/65/EEC empowers the Commission to
apply Article 81(3) of the Treaty by Regulation to certain
categories of technology transfer agreements and corre-
sponding concerted practices to which only two under-
takings are party, falling within Article 81(1).

(2) Pursuant to Regulation No 19/65/EEC, the Commission
has, in particular, adopted Regulation (EC) No 240/96 of
31 January 1996 on the application of Article 81(3) of
the Treaty to certain categories of technology transfer
agreements (4).

(3) On 20 December 2001 the Commission published an
Evaluation Report on the Transfer of Technology Block
Exemption Regulation (EC) No 240/96 (5). This generated
a public debate on the application of this Regulation and
on the application in general of Articles 81(1) and (3) of
the Treaty to technology transfer
agreements. The
response to the Evaluation Report from Member States
and third parties has been generally in favour of reform
of Community competition policy on technology transfer
agreements. It has been considered therefore that Regu-
lation (EC) No 240/96 should be replaced.

(4) A new regulation, replacing Regulation (EC) No 240/96,
should meet the two requirements of ensuring effective
competition and providing adequate legal security for
undertakings. The pursuit of these objectives should take
account of the need to simplify the regulatory framework
and its application. It is appropriate to move away from

(1) OJ 36, 6.3.1965, p. 533/65.
(2) OJ L 1, 4.1.2003, p. 1.
(3) OJ C 235, 1.10.2003, p. 10.
(4) OJ L 31, 9.2.1996, p. 2.
(5) COM(2001) 786 final, 20.12.2001.

the approach of listing exempted clauses and to place
greater emphasis on defining the categories of agreements
which are exempted up to a certain level of market power
and on specifying the restrictions or clauses which are not
to be contained in such agreements. This is consistent
with an economics based approach which assesses the
impact of agreements on the relevant market. It is also
consistent with such an approach to make a distinction
between agreements between competitors and agreements
between non-competitors.

(5) Technology transfer agreements concern the licensing of
technology. This Regulation should only deal with such
agreements where the licensor permits the licensee to
exploit the licensed technology for the manufacture or
provision of goods or services. It should not deal with
licensing agreements for the purpose of doing further
research and development. It should also not deal with
licensing
i.e.
agreements
technologies with the
agreements for the pooling of
purpose of licensing the created package of intellectual
property rights to third parties.

to set up patent pools,

(6) For the application of Article 81(3) by regulation, it is not
necessary to define those technology transfer agreements
that are capable of falling within Article 81(1). In the
individual assessment of agreements under Article 81(1),
account has to be taken of several
factors, and in
particular the market structure on the relevant technology
and product markets.

(7) The benefit of the block exemption should be limited to
those agreements which can be assumed with sufficient
certainty to satisfy the conditions of Article 81(3).
In
order to attain the benefits and objectives of technology
transfer the benefit of this Regulation should also apply to
provisions contained in technology transfer agreements
that do not constitute the primary object of
such
agreements, but are directly related to the application of
the licensed technology.

(8) Transfer of technology agreements will usually improve
economic efficiency and be pro-competitive as they can
facilitate diffusion, reduce duplication of research and
the initial
development,
strengthen the incentive for
research and development, spur incremental
innovation
and generate product market competition.

(9) The

likelihood that

such efficiency enhancing and
pro-competitive effects will outweigh any anti-competitive
effects due to restrictions contained in technology transfer
agreements depends on the degree of market power of the
undertakings concerned and, therefore, on the extent to
which those undertakings face competition from under-
takings owning substitute technologies or undertakings
producing substitute products.

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(10) For technology transfer agreements between competitors,
it can be presumed that, where the combined share of the
relevant markets accounted for by the parties does not
exceed 20 % and the agreements do not contain certain
they generally
severely anti-competitive restraints,
lead to an improvement in production or distribution
and allow consumers a fair share of the resulting benefits.

that

(11) For

transfer

technology

agreements

between non-
competitors it can be presumed that, where the individual
share of the relevant markets accounted for by each of the
parties does not exceed 30 % and the agreements do not
contain certain severely anti-competitive restraints, that
they generally lead to an improvement in production or
distribution and allow consumers a fair share of
the
resulting benefits.

(12) Above these market share thresholds there can be no
presumption that technology transfer agreements falling
within the scope of Article 81(1) will usually give rise to
objective advantages of such a character and size as to
compensate for the disadvantages which they create for
competition.

of

to

the

production

(13) This Regulation should not exempt technology transfer
agreements containing restrictions which are not indis-
pensable
or
improvement
distribution. In particular, technology transfer agreements
restraints
containing certain severely anti-competitive
such as the fixing of prices charged to third parties
should be excluded from the benefit of
the block
exemption established by this Regulation irrespective of
the market shares of the undertakings concerned. In the
case of such hardcore restrictions, the whole agreement
should be excluded from the benefit of
the block
exemption.

(14) In order to protect incentives to innovate and the appro-
priate application of intellectual property rights, certain
conditions should be attached to the block exemption.
To this end, the exemption of, in particular, grant back
obligations for severable improvements should be limited
to non-exclusive obligations. Where such conditions are
not respected, only the restriction in question should be
excluded from the benefit of the block exemption.

(15) The market-share thresholds, the non-exemption of tech-
nology transfer agreements containing severely anti-
competitive restraints and the conditions provided for in
this Regulation will normally ensure that the agreements
to which the block exemption applies do not enable the
participating undertakings to eliminate competition in
respect of a substantial part of the products in question.

the block exemption. This may occur

in
benefit of
particular where the incentives to innovate are reduced
or where access to the markets is hindered.

effects

having

incompatible with

(17) Regulation (EC) No 1/2003 empowers the competent
authorities of Member States to withdraw the benefit of
the block exemption in respect of technology transfer
agreements
the
laid down in Article 81(3), where such
conditions
effects are felt in their respective territory, or in a part
thereof, and where such territory has the characteristics of
a distinct geographic market. Member States
should
this power of withdrawal
ensure that
does not prejudice the uniform application throughout
the Community competition
the common market of
rules or
the measures adopted in
implementation of those rules.

the full effect of

the exercise of

transfer

agreements which have

(18) In order to strengthen supervision of parallel networks of
technology
similar
restrictive effects and which cover more than 50 % of a
given market, the Commission may declare this Regu-
lation inapplicable to technology transfer agreements
containing specific restraints
relating to the market
concerned,
thereby restoring the full application of
Article 81 to such agreements.

(19) This Regulation

only

covers

technology

transfer
agreements between a licensor and a licensee. It covers
such agreements even if conditions are stipulated for
more than one level of trade, by for instance requiring
the licensee to set up a particular distribution system and
specifying the obligations the licensee must or may
impose on resellers of the products produced under the
licence. However, such conditions and obligations must
comply with the competition rules applicable to supply
and distribution agreements. Supply and distribution
agreements concluded between a licensee and its buyers
are not exempted by this Regulation. These agreements
are only exempted if covered by a block exemption regu-
lation for supply and distribution agreements.

(20) This Regulation is without prejudice to the application of

Article 82,

HAS ADOPTED THIS REGULATION:

Article 1

Definitions

For the purposes of this Regulation the following defi-

1.
nitions shall apply:

(16) In particular cases in which the agreements falling under
this Regulation nevertheless have effects incompatible
with Article 81(3), the Commission may withdraw the

(a)

‘agreement’ means
association of undertakings or a concerted practice;

an agreement,

a decision of

an

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licensing

software copyright

(b) ‘technology transfer agreement’ means a patent licensing
agreement, a know-how licensing agreement, a software
a mixed patent,
copyright
agreement or
know-how or
licensing agreement,
including such agreement containing provisions which
relate to the sale and purchase of products or which
relate to the licensing of other intellectual property rights
or the assignment of intellectual property rights, provided
that those provisions do not constitute the primary object
of the agreement and are directly related to the manu-
facture or provision of the contract products; assignments
of patents, know-how, software copyright or a combination
thereof where the risk associated with the exploitation of
the technology remains with the assignor,
in particular
where the sum payable in consideration of the assignment
is dependent on the turnover obtained by the assignee in
respect of products manufactured or provided with the
such products
assigned technology,
carried out
the number of operations
produced or
employing the technology, shall also be deemed to be tech-
nology transfer agreements;

the quantity of

(c)

‘product’ means a good and/or a service,
intermediary goods
and/or services;

services

and/or

including both
and final goods

— undertakings compete on the ‘relevant

technology
market’
the undertakings license competing tech-
nologies (actual competitors on the technology market),

if

— undertakings compete on the ‘relevant product market’
the undertakings are both active on the relevant
if
product
and geographic market(s) on which the
contract products are sold (actual competitors on the
product market) or would, on realistic grounds,
investments or
undertake the necessary additional
they could
other necessary switching costs so that
enter
geographic
and
relevant
in response to a small and permanent
market(s)
increase in relative prices (potential competitors on
the product market);

product

the(se)

(i)

‘selective distribution system’ means a distribution system
where the licensor undertakes to license the manufacture
and provision of the contract products only to licensees
selected on the basis of specified criteria and where these
licensees undertake not to sell the contract products to
unauthorised distributors.

The terms ‘undertaking’,

2.
include their respective connected undertakings.

‘licensor’ and ‘licensee’ shall

(d)

‘contract products’ means products manufactured or
provided with the licensed technology;

‘Connected undertakings’ means:

(e)

‘intellectual property rights’
rights, copyright and neighbouring rights;

includes industrial property

(a) undertakings in which a party to the agreement, directly or

indirectly:

(f)

‘patents’ means patents, patent applications, utility models,
registration of utility models, designs,
applications for
topographies of semiconductor products, supplementary
protection certificates
for medicinal products or other
products
for which such supplementary protection
certificates may be obtained and plant breeder's certificates;

(g)

‘know-how’ means a package of non-patented practical
information, resulting from experience and testing, which
is secret, substantial and identified: in this context, ‘secret’
means that the know-how is not generally known or easily
accessible;
‘substantial’ means that the know-how includes
information which is indispensable for the manufacture or
‘identified’ means that
provision of the contract products;
the know-how is described in a sufficiently comprehensive
manner so as to make it possible to verify that it fulfils the
criteria of secrecy and substantiality;

(h) ‘competing

undertakings’ means

undertakings which
technology market and/or the

compete on the relevant
relevant product market:

(i) has the power to exercise more than half the voting

rights; or

(ii) has the power to appoint more than half the members
of the supervisory board, board of management or
bodies legally representing the undertaking; or

(iii) has the right to manage the undertaking's affairs;

(b) undertakings which directly or indirectly have, over a party

to the agreement, the rights or powers listed in (a);

(c) undertakings in which an undertaking referred to in (b) has,
directly or indirectly, the rights or powers listed in (a);

(d) undertakings in which a party to the agreement together
with one or more of the undertakings referred to in (a), (b)
or (c), or in which two or more of the latter undertakings,
jointly have the rights or powers listed in (a);

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(e) undertakings in which the rights or the powers listed in (a)

are jointly held by:

the contract
share on the relevant product market(s) of
products manufactured or provided by the licensor and its
licensees.

(i) parties to the agreement or their respective connected

undertakings referred to in (a) to (d); or

(ii) one or more of the parties to the agreement or one or
more of their connected undertakings referred to in (a)
to (d) and one or more third parties.

Article 4

Hardcore restrictions

1. Where the undertakings party to the agreement are
competing undertakings,
in
Article 2 shall not apply to agreements which, directly or
indirectly,
in isolation or in combination with other factors
under the control of the parties, have as their object:

exemption provided for

the

Article 2

Exemption

(a) the restriction of a party's ability to determine its prices

when selling products to third parties;

this Regulation,

Pursuant to Article 81(3) of the Treaty and subject to the
provisions of
is hereby declared that
Article 81(1) shall not apply to technology transfer agreements
entered into between two undertakings for the manufacture or
provision of contract products.

it

This exemption shall apply to the extent that such agreements
contain restrictions of competition falling within the scope of
Article 81(1). The exemption shall apply for as long as the
intellectual property right on the licensed technology has not
expired or been declared invalid or, in the case of know-how,
remains secret, except
in the event where the know-how
becomes publicly known as a result of action by the licensee,
in which case the exemption shall apply for the duration of the
agreement.

Article 3

Market share thresholds

are

competing

1. Where the undertakings party to the technology transfer
agreement
exemption
provided for in Article 2 shall apply on condition that the
combined market share of the parties does not exceed 20 %,
either on a relevant
technology market, or on a relevant
product market.

undertakings,

the

(b) the limitation of output or sales, except limitations on the
output of contract products imposed on the licensee in a
non-reciprocal agreement;

(c)

the allocation of markets or customers except:

(i) the obligation on the licensee in a non-reciprocal
the licensed technology only
agreement
within one or more technical fields of use or one or
more product markets;

to exploit

that

(ii) the requirement

the licensee manufactures or
provides the contract products only for its own use,
including sale of the contract products as spare parts
for its own products;

(d) the restriction of the licensee's ability to exploit its own
technology or the restriction of the ability of the parties to
the agreement
to carry out research and development,
unless such latter restriction is indispensable to prevent
the disclosure of the licensed know-how to third parties.

2. Where the undertakings party to the technology transfer
agreement are not competing undertakings,
the exemption
provided for in Article 2 shall apply on condition that the
market share of each of the parties does not exceed 30 % on
the relevant technology and product markets.

2. Where the undertakings party to the agreement are not
competing undertakings, the exemption provided for in Article
2 shall not apply to agreements which, directly or indirectly, in
isolation or in combination with other factors under the
control of the parties, have as their object:

3.
For the purposes of paragraphs 1 and 2, the market share
of a party on the relevant technology market(s) is defined in
terms of
the licensed technology on the
relevant product market(s). A licensor's market share on the
relevant technology market(s) shall be the combined market

the presence of

(a) the restriction of a party's ability to determine its prices
when selling products to third parties, without prejudice to
the possibility to impose a maximum sale price or
recommend a sale price, provided that
it does not
amount to a fixed or minimum sale price as a result of
pressure from, or incentives offered by, any of the parties;

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(b) the restriction of

the
customers to whom, the licensee may sell the contract
products, except:

the territory into which, or of

for

termination of

common market, without prejudice to the possibility to
provide
transfer
agreement in the event that the licensee challenges the
validity or contests the secrecy or substantiality of
the
licensed intellectual property rights.

technology

the

(i) the restriction of sales into the exclusive territory or to
an exclusive customer group reserved for sales by the
licensor;

(ii) the restriction of active sales into the exclusive territory
or to an exclusive customer group allocated by the
licensor to another licensee;

2.
The exemption provided for in Article 2 shall not apply
to any direct or indirect obligation limiting the output of
contract products by the licensee in a non-reciprocal tech-
nology transfer agreement between competing undertakings.

(iii) the requirement

that

the licensee manufactures or
provides the contract products only for its own use,
including sale of the contract products as spare parts
for its own products;

(iv) the restriction of sales to end users by a licensee

operating at the whole sale level of trade;

(v) the restriction of sales to unauthorised distributors by

the members of a selective distribution system;

(c) the restriction of active or passive sales to end users by a
licensee which is a member of a selective distribution
system and which operates at
level, without
prejudice to the possibility of prohibiting a member of
the system from operating out of an unauthorised place
of establishment.

the retail

Article 5

Conditions

3.
The exemption provided for in Article 2 shall not apply,
where the undertakings party to the agreement are not
competing undertakings, to any direct or indirect obligation
limiting the licensee's ability to exploit its own technology or
limiting the ability of the parties to the agreement to carry out
research and development, unless such latter restriction is
indispensable
licensed
to prevent
know-how to third parties.

the disclosure of

the

Article 6

Withdrawal of the benefit of the Regulation

1.
The Commission may withdraw the benefit of this Regu-
lation, pursuant to Article 29 of Regulation (EC) No 1/2003,
where it finds in any particular case, that a technology transfer
agreement to which this Regulation applies nevertheless has
effects which are incompatible with the conditions laid down
in Article 81(3) of the Treaty, and in particular where:

(a) access of

third parties'

is
restricted, for instance by the cumulative effect of parallel
networks of
restrictive agreements prohibiting
licensees from using third parties' technologies;

technologies to the market

similar

1.
The exemption provided for in Article 2 shall not apply
to any of the following obligations contained in technology
transfer agreements:

(a) any direct or indirect obligation on the licensee to grant an
exclusive license to the licensor or
to a third party
designated by the licensor in respect of its own severable
improvements to or its new applications of the licensed
technology;

(b) access of potential licensees to the market is restricted, for
instance by the cumulative effect of parallel networks of
similar restrictive agreements prohibiting licensors from
licensing to other licensees;

(c) without any objectively valid reason, the parties do not

exploit the licensed technology.

(b) any direct or indirect obligation on the licensee to assign,
in whole or in part, to the licensor or to a third party
designated by the licensor, rights to improvements to or
new applications of the licensed technology;

(c) any direct or indirect obligation not

to challenge the
validity or contest the secrecy or substantiality of intel-
lectual property rights which the licensor holds in the

2. Where in any particular case, a technology transfer
agreement to which the exemption provided for in Article 2
applies has effects incompatible with the conditions laid down
in Article 81(3) of the Treaty in the territory of a Member
State, or in a part thereof, which has all the characteristics of
a distinct geographic market, the competition authority of that
Member State may withdraw the benefit of application of this
Regulation in respect of
the same
that
conditions as those set out in paragraph 1.

territory, under

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Article 7

Non-application of the Regulation

1.
Pursuant to Article 1a of Regulation No 19/65/EEC, the
Commission may by regulation declare that, where parallel
networks of
technology transfer agreements cover
more than 50 % of a relevant market, this Regulation shall
not apply to technology transfer agreements
containing
specific restraints relating to that market.

similar

A regulation pursuant to paragraph 1 shall not become

2.
applicable earlier than six months following its adoption.

Article 8

Application of the market share thresholds

For the purposes of applying the market share thresholds

1.
provided for in Article 3, the following rules shall apply:

(a) the market share shall be calculated on the basis of market
sales value data; if market sales value data are not available,
estimates based on other
information,
including market sales volumes, may be used to establish
the market share of the undertaking concerned;

reliable market

(b) the market share shall be calculated on the basis of data

relating to the preceding calendar year;

(c) the market share held by the undertakings referred to in
point 2(e) of Article 1 shall be apportioned equally to each
undertaking having the rights or the powers listed in point
2(a) of Article 1.

If the market share referred to in Article 3(1) or Article
2.
3(2)
is initially not more than 20 % respectively 30 % but
subsequently rises above those levels without exceeding 25 %
respectively 35 %, the exemption provided for in Article 2 shall
continue to apply for a period of two consecutive calendar
years following the year in which the 20 % threshold or
30 % threshold was first exceeded.

If the market share referred to in Article 3(1) or Article
3.
is initially not more than 20 % respectively 30 % but
3(2)
subsequently
the
exemption provided for in Article 2 shall continue to apply
for one calendar year following the year in which the level of
25 % or 35 % was first exceeded.

above 25 % respectively 35 %,

rises

The benefit of paragraphs 2 and 3 may not be combined

4.
so as to exceed a period of two calendar years.

Article 9

Transitional period

Regulation (EC) No 240/96 is repealed with effect from 1

1.
May 2004.

2.
The prohibition laid down in Article 81(1) of the Treaty
shall not apply during the period from 1 May 2004 to 31
October 2005 in respect of agreements already in force on
30 April 2004 which do not satisfy the conditions for
exemption provided for in this Regulation but which, on 30
April 2004, satisfied the conditions for exemption provided for
in Regulation (EC) No 240/96.

Article 10

Period of validity

This Regulation shall enter into force on 1 May 2004.

It shall expire on 30 April 2014.

This Regulation shall be binding in its entirety and directly
applicable in all Member States.

Done at Brussels, . . .

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Draft Guidelines on the application of Article 81 of the EC Treaty to technology transfer
agreements

I. INTRODUCTION

1. These guidelines set out the principles for the assessment
of technology transfer agreements under Article 81 of the
Treaty. Technology transfer agreements concern the
licensing of technology where the licensor permits the
licensee to exploit the licensed technology for the manu-
facture or provision of goods or services, as defined in
Commission Regulation (EC) No . . ./2004 on the
application of Article 81(3) of the Treaty to categories
of technology transfer agreements (the TTBER) (1).

2. The purpose of the guidelines is to provide guidance on
the application of
the TTBER as well as on the
transfer
application of Article 81 to technology
agreements that fall outside the scope of the TTBER.
The guidelines are without prejudice to the possible
parallel application of Article 82 of
the Treaty to
licensing agreements. The application of Article 81(3)
by way of individual application or by way of block
exemption does not preclude the application of Article
82 (2).

3. The standards set

forth in these guidelines must be
applied in light of the circumstances specific to each
case. This excludes a mechanical application. Each case
must be assessed on its own facts and the guidelines must
be applied reasonably and flexibly. The Commission will
keep under review the functioning of the TTBER and the
guidelines to consider whether changes need to be made.

4. The present guidelines are without prejudice to the inter-
pretation of Article 81 that may be given by the Court of
Justice and the Court of First Instance.

II. GENERAL PRINCIPLES

1. Article 81 and intellectual property rights

5. The aim of Article 81 as a whole is

and

between

decisions

to protect
competition on the market with a view to promoting
consumer welfare and an efficient allocation of resources.
Article 81(1) prohibits all agreements and concerted
practices
by
undertakings
associations of undertakings (3) which may affect trade
between Member States (4) and which have as their
object or effect the prevention, restriction or distortion
of competition (5). As an exception to this rule Article
81(3) provides that the prohibition contained in Article
81(1) may be declared inapplicable in case of agreements
to improving the production or
which contribute
distribution of products or to promoting technical or
economic progress, while allowing consumers a fair
share of
the resulting benefits, and which do not
impose restrictions which are not indispensable to the
attainment of these objectives, and do not afford such

undertakings the possibility of eliminating competition
in respect of a substantial part of the products concerned.

6. Intellectual property laws confer exclusive rights on
holders of patents, copyright, design rights, trademarks
and other legally protected rights. The owner of intel-
lectual property is entitled under intellectual property
laws to prevent unauthorised use of his intellectual
inter alia, by licensing it to
property and to exploit it,
third parties. Once a product incorporating an intellectual
property right has been put on the market inside the EEA
by the holder or with his consent,
the intellectual
property right is exhausted in the sense that the holder
can no longer use it to control the sale of the product (6).
The licensor has no legally protected right to prevent
sales by licensees or buyers of products incorporating
the licensed technology. On the other hand, the sale of
copies of a protected work does not
lead to the
rental
exhaustion of performance
rights, in the work (7). The principle of exhaustion is in
line with the essential function of intellectual property
rights, which is to grant the holder the right to exclude
others from exploiting his intellectual property without
his consent.

including

rights,

7. The fact that intellectual property laws grant exclusive
rights of exploitation does not imply that
intellectual
property rights are immune from competition law inter-
vention. Articles 81 and 82 are applicable to agreements
whereby the holder
licenses another undertaking to
its intellectual property rights (8). Nor does it
exploit
imply that there is an inherent conflict between intel-
lectual property rights and the Community competition
rules. Indeed, both bodies of law share the same basic
objective of promoting consumer welfare and an efficient
an
allocation of
essential and dynamic component of an open and
competitive market
Intellectual property
economy.
rights promote dynamic competition by encouraging
undertakings to invest in developing new or improved
products and processes. So does competition since it
pushes undertakings to innovate. Therefore, both intel-
lectual property rights and competition are necessary to
promote innovation and ensure a competitive exploi-
tation thereof.

Innovation constitutes

resources.

the creation of

8. The assessment under Article 81 does not only focus on
the ex post situation where the exclusive right may
reduce the level of rivalry on the market. In order not
to reduce dynamic competition it must be kept in mind
that
intellectual property rights often
entail substantial investment and that it is often a risky
endeavour. Many intellectual property rights have little
commercial value. In order to maintain the incentive to
innovate, the innovator must therefore not be unduly
restricted in the exploitation of
intellectual property
rights that turn out to be valuable.

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the dynamic aspects of

9. In assessing licensing agreements under Article 81 the
Commission applies to intellectual property rights in
principle the same analytical framework as in the case
of any other property. This framework is sufficiently
flexible to allow the Commission to take due account
of
technology licensing. This
means, in particular, that there is no presumption that
intellectual property rights and licence agreements as
such give
Licence
agreements may be non-restrictive of competition and
create only pro-competitive efficiencies. Also, restrictive
licence agreements may often give rise to pro-competitive
efficiencies, which must be considered under Article
the negative effects on
81(3) and balanced against
restrictive
competition, which
agreements (9).

to competition concerns.

flow from such

rise

2. The general framework for applying Article 81

restrict

very nature

competition. These

10. Article 81(1) applies both to restrictions of competition
between the parties to an agreement and to restrictions of
competition between the parties or any of the parties and
third parties. These restrictions of competition can be
either restrictions by object or restrictions by effect.
Restrictions of competition by object are those that by
are
their
restrictions which in light of the objectives pursued by
the Community competition rules are presumed to have
negative effects on competition and in respect of which it
is therefore unnecessary for the purposes of applying
Article 81(1) to demonstrate any actual effects on the
market (10). Moreover,
the conditions of Article 81(3)
are unlikely to be fulfilled in the case of restrictions by
object. The assessment of whether or not an agreement
has as its object the restriction of competition is based on
a number of factors. These factors include, in particular,
the content of the agreement and the objective aims
pursued by it. It may also be necessary to consider the
context
is (to be) applied or the actual
conduct and behaviour of the parties on the market (11).
The way in which an agreement is actually implemented
may reveal a restriction by object even where the formal
agreement does not contain an express provision to that
effect. Evidence of subjective intent on the part of the
parties to restrict competition is a relevant factor but not
a necessary condition. For
the
Commission considers that the restrictions covered by
the
competition
contained in Article 4 of the TTBER are restrictive by
their very object.

in which it

agreements,

restrictions

hardcore

licence

list

of

of

11. For licence agreements to be restrictive of competition by
effect they must be capable of affecting competition to
that on the relevant market negative
such an extent
effects on prices, output,
innovation or the variety or
quality of goods and services can be expected with a
reasonable degree of probability. The likely negative
effects on competition must be appreciable (12). Anti-
competitive effects are likely to occur when at least one
of the parties has or obtains some degree of market
power and the agreement contributes to the creation,
maintenance or strengthening of that market power or

allows the parties to exploit such market power. Market
power is the ability to maintain prices above competitive
levels or
in terms of product
quantities, product quality and variety or innovation
below competitive levels for a significant period of time.

to maintain output

12. Licence agreements can contribute to the creation, main-
tenance or strengthening of market power by restricting
competition between the parties or by restricting
competition from third parties. In the assessment of the
likely negative effects on competition, it is important to
take account not only of effects on price and output but
also of any negative impact on innovation. Licence
agreements that have an appreciable negative impact on
innovation by the parties to the agreement or by third
parties are caught by Article 81(1).

it

13. For the purposes of analysing the restrictive effects of
is normally necessary to define the
agreements,
relevant market and to examine and assess,
inter alia,
the nature of the products and technologies concerned,
the market position of the parties, the market position of
competitors, the market position of buyers, the existence
of potential competitors and the level of entry barriers.

14. The assessment of whether a licence agreement

on

the

absence

competition

In making

inter-technology

its
assessment

agreement with
this

is
restrictive of competition must be made within the
in which competition would occur in
actual context
alleged
of
the
restrictions (13).
is
it
necessary to take account of the likely impact of the
agreement
(i.e.
competition between undertakings using competing tech-
and on intra-technology competition (i.e.
nologies)
competition between undertakings using the same tech-
nology) (14). Article 81(1) prohibits restrictions of both
intra-technology
inter-technology
competition
order
In
competition.
an
to
individual parts are restrictive of
its
agreement or
competition within the meaning of Article 81(1)
it is
relevant to ask the following two questions. The first
question relates to the impact of the agreement on inter-
technology competition while the second question relates
the agreement on intra-technology
to the impact of
competition:

ascertain whether

and

(a) Does

the agreement

restrict actual or potential
competition that would have existed had no licence
been granted? If so, the agreement is normally caught
by Article 81(1) provided that trade between Member
States is capable of being appreciably affected. For
two undertakings established in
instance, where
different Member States cross licence competing tech-
nologies and undertake not to sell products in each
others home markets,
(potential) competition that
existed prior to the agreement is restricted. Similarly,
where a licensor imposes on his licensees not to use
obligations
competing
foreclose
or
actual
potential competition that would have existed in
the absence of the agreement is restricted.

these
technologies,

technologies

party

third

and

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If so,

the agreement.

the conclusion of

(b) Does the agreement restrict competition that would
have existed in the absence of its alleged restriction(s)
of competition? This question relates to the issue of
whether or not the restriction is objectively necessary
the
for
agreement with its
is not caught by
restraints
Article 81(1). This assessment is made on the basis
of objective factors external to the parties themselves
and not the subjective views and characteristics of the
parties. The question is not whether the parties in
their particular situation would have accepted to
conclude a less restrictive agreement, but whether
given the nature of the agreement and the charac-
teristics of the market a less restrictive agreement
would have been concluded by undertakings in a
similar setting. For instance, territorial restraints in
an agreement between non-competitors may fall
outside Article 81(1), if the restraints are objectively
necessary in order to penetrate a new market. Claims
that in the absence of a restriction the supplier would
have resorted to vertical integration are not sufficient.
Decisions on whether or not to vertically integrate
depend on a broad range of complex economic
factors, a number of which are internal to the under-
taking concerned. The initial choice to rely on coop-
integration anyhow
eration rather
already generally indicates that vertical
integration
was not practicable.

than vertical

effects. They

15. Licence agreements, however, are not only capable of
producing anti-competitive
also have
significant pro-competitive potential. Licence agreements
may promote innovation by allowing innovators to earn
returns to cover at least part of their research and devel-
opment costs. Licence agreements may also lead to a
technologies, which creates value by
dissemination of
reducing the production costs of
the licensee or by
enabling him to produce new or improved products.
Efficiencies at the level of the licensee normally stem
from a combination of the licensor's technology with
the assets and technologies of the licensee. Such inte-
gration of complementary assets may lead to a cost/
output
configuration that would not otherwise be
possible. For instance, the combination of an improved
technology of the licensor with more efficient production
or distribution assets of
licensee may reduce
production costs or lead to the production of a higher
quality product.

the

these types of agreements generally also fail the indispen-
sability test under the third condition. For example,
if
two competitors license each other their respective tech-
nologies and as part of
this agreement restrict each
other's pricing or output of the products produced with
these technologies, this will normally lead to a lower
resources and higher
output and a misallocation of
prices
and output
restrictions on the products to be produced are also
indispensable to achieve the possible efficiencies
not
resulting from the availability to both competitors of
the two technologies.

consumers. The price

the

for

3. Market definition

is

17. The Commission's approach to defining the relevant
market
definition
in
guidelines (16). The present guidelines only address
aspects of market definition that are of particular
importance in the field of technology licensing.

its market

down

laid

18. Technology is an input, which is either integrated into a
product or a production process. Technology licensing
can therefore affect competition both in input markets
and in output markets. An agreement between two
parties which sell competing products and which cross
licence technologies used for the production of these
competition on the product
products may restrict
market concerned. It may also restrict competition on
the market for technology and possibly also on other
assessing the
input markets. For
competitive
it may
therefore be necessary to define relevant goods and
service markets (product markets) as well as technology
markets (17). The term ‘product market’ used in Article 3
of
to relevant goods and service
markets in both their geographic and product dimension.
As is clear from Article 1(1)(h) of the TTBER the term is
used merely to distinguish relevant goods and service
markets from relevant technology markets.

the TTBER refers

the purposes of

agreements

effects of

licence

19. Product markets comprise in particular final and inter-
mediate products incorporating the licensed technology
as well as their substitutes.

16. The pro-competitive effects of licence agreements must
be balanced against the restrictive effects in the context
of Article 81(3). When all
four conditions of Article
81(3) are fulfilled, the restrictive licence agreement in
question is valid and enforceable, no prior decision to
that effect being required (15). Hardcore restrictions of
competition only fulfil the conditions of Article 81(3)
in very exceptional circumstances. Such agreements
generally fail (at least) one of the first two conditions
of Article 81(3). They normally do not create objective
economic benefits or benefits for consumers. Moreover,

substitutes,

20. Technology markets consist of the licensed technology
and its
technologies which
i.e. other
customers could use as substitutes. The methodology
for defining technology markets follows the same prin-
ciples as the definition of product markets. Starting from
the technology, which is marketed by the parties, one
needs to identify those other technologies to which
customers could switch in response to a small but
permanent increase in relative prices,
i.e. the royalties.
An alternative approach is to look at the market for
products
cf.
point 21 below.

licensed technology,

incorporating the

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in the

case of

the approach of Article 3(3)
Indeed,

21. Once relevant markets have been defined, market shares
can be assigned to the various sources of competition in
the market and used as an indication of the relative
strength of market players.
In the case of technology
markets one way to proceed is to calculate market
shares on the basis of each technology's share of total
licensing income from royalties, representing a tech-
nology's share of
the market where competing tech-
nologies are licensed. An alternative approach, which is
the one used in Article 3(3) of the TTBER, is to calculate
market shares on the technology market on the basis of
sales of products incorporating the licensed technology
on downstream product markets. Under this approach all
sales are taken into account, irrespective of whether the
product incorporates a technology that is being licensed.
By taking into account technologies that are (only) being
from standard
used in-house, Article 3(3) departs
practice (18). However,
technology
is considered
markets
this approach is in general a good
justified.
indicator of
it
captures any potential competition from undertakings
that are producing with their own technology and that
are likely to start licensing in the event of a small but
permanent increase in the price for licenses. Secondly,
even where it is unlikely that other technology owners
would start licensing, the licensor does not necessarily
have market power on the technology market even if
he has a high share of licensing income. If the down-
stream product market is competitive, competition at this
level may effectively constrain the licensor. An increase in
royalties upstream affects
the licensee,
making him less competitive, causing him to lose sales.
A technology's market share on the product market also
captures this element and is thus normally a good
indicator of licensor market power. In individual cases
it may be
outside the safe harbour of
the described
necessary, however,
approaches in order to accurately assess the market
strength of the licensor.

the technology. First,

to apply both of

the strength of

the costs of

the TTBER,

innovation.

In
22. Some licence agreements may affect
analysing such effects, however,
the Commission will
normally confine itself to examining the impact of the
agreement on competition within existing product and
technology markets (19). Competition on such existing
markets may be affected by agreements that retard the
introduction of improved products or new products that
over time will replace existing products. In such cases
innovation is a source of potential competition which
must be taken into account when assessing the impact
of the agreement on product markets and technology
markets. In a limited number of cases, however, it may
be useful and necessary to define innovation markets.
This is particularly the case where the agreement affects
innovation aiming at creating new products and where it
is possible at an early stage to identify research and
development poles (20). In such cases, it can be analysed
whether after the agreement there will be a sufficient
number of competing research and development poles

left for effective competition in innovation to be main-
tained.

4. The

distinction

between

competitors

and

non-competitors

between

non-competitors.

risk to competition on the market

23. In general agreements between competitors pose a
than
greater
However,
agreements
competition between undertakings that use the same
technology (intra-technology competition) constitutes an
important complement to competition between under-
takings that use competing technologies (inter-technology
competition). For instance, intra-technology competition
may lead to lower prices for the products incorporating
the technology in question, which may not only produce
direct and immediate benefits to consumers of
these
products, but also spur further competition between
In the
undertakings that use competing technologies.
context of licensing it must also be taken into account
that licensees are selling their own product. They are not
re-selling a product supplied by another undertaking.
There may thus be greater scope for product differ-
competition between
based
entiation and
licensees than in the case of vertical agreements for the
resale of products.

quality

24. In order

the

agreement.

If without

absence of

to determine the competitive

relationship
it must be examined whether the
between the parties,
parties would have been actual or potential competitors
in the
the
agreement the parties would not have been actual or
potential competitors in any relevant market, they are
deemed to be non-competitors. Where on the other
hand, the licensor and the licensee are both active on
the same product market or
the same technology
market,
they are actual competitors on the market
concerned. The parties are considered to be potential
competitors on the product market if in the absence of
the agreement they would likely have undertaken the
necessary additional
to enter the relevant
investment
market in response to a small but permanent increase
in product prices. The parties are for instance likely to
be considered potential competitors on the product
market where the licensee produces on the basis of its
own technology in one geographic market and starts
producing in another geographic market on the basis
of a competing technology. In such circumstances, it is
likely that the licensee would have been able to enter the
second geographic market on the basis of its own tech-
nology, unless such entry is precluded by objective
factors. The parties are considered to be potential
competitors on the technology market where they own
substitutable technologies, even if in the specific case the
licensee is not licensing his own technology, provided
that he would be likely to do so in the face of a small
but permanent increase in technology prices.

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technology

25. If the parties own technologies that are in a one-way or
two-way blocking position, the parties are considered to
be non-competitors on the
technology market. A
one-way blocking position exists when a technology
infringing upon another
cannot be exploited without
technology. This is for instance the case, where one
patent covers an improvement of a technology covered
by another patent. In that case, the exploitation of the
improvement patent presupposes that the holder obtains
a licence to the basic patent. A two-way blocking
position exists where neither
can be
exploited without infringing upon the other technology
and where the holders thus need to obtain a licence or a
waiver from each other. In assessing whether a blocking
position exists the Commission will rely on objective
factors as opposed to the subjective views of
the
parties. The Commission assumes that holders of tech-
nologies, which from a technical point of view are
substitutable, are potential competitors on the technology
market, unless the parties provide convincing evidence of
Particularly
the
convincing evidence
case of a
two-way blocking position. Relevant evidence comprises
final court decisions on the matter and opinions of inde-
pendent experts. In the latter case the Commission will,
in particular, closely examine how the expert has been
selected.

a blocking position.
required in the

existence of

is

the

it
the

the licensee's

conclusion of

licensed technology represents

26. In some cases, it may also be possible to conclude that
while the licensor and the licensee produce competing
they are non-competitors on the relevant
products,
technology market
product market and the relevant
because
such a
drastic innovation that the technology of the licensee
has become obsolete or uncompetitive.
In such cases
the licensor's technology either creates a new market or
excludes
technology from the market.
is not possible to come to this
Often, however,
the
time of
conclusion at
the
agreement.
It is usually only when the technology or
the products incorporating it have been available to
consumers for some time that it becomes apparent that
the older technology has become obsolete or uncom-
instance, when CD technology was
petitive.
developed and players and discs were put on the
it was not obvious that this new technology
market,
would replace
technology. This only became
apparent some years later. The parties will therefore be
the
considered to be competitors if at
conclusion of the agreement it is not obvious that the
licensee's
technology is obsolete or uncompetitive.
However, given that both Articles 81(1) and 81(3) must
be applied in light of the actual context in which the
agreement occurs,
to
material changes in the facts. The classification of the
relationship between the parties will therefore change if
at a later point in time the licensee's technology becomes
obsolete or uncompetitive on the market.

the time of

assessment

sensitive

For

the

LP

is

III. APPLICATION OF THE BLOCK EXEMPTION REGULATION

1. The effects of the block exemption

27. Technology transfer agreements that fulfil the conditions
in the TTBER are block exempted from the
set out
prohibition rule
contained in Article 81(1). Block
exempted agreements are legally valid and enforceable.
Such agreements can only be prohibited for the future
and only upon formal withdrawal of the block exemption
by the Commission or a Member State competition
authority. Block exempted agreements cannot be held
invalid on competition grounds by national courts in
the context of private litigation.

28. Block exemption of categories of restrictive technology
transfer agreements is based on the presumption that
such agreements fulfil the four conditions laid down in
Article 81(3). It is thus presumed that the agreements
give rise to economic efficiencies, that the restrictions
contained in the agreements are indispensable to the
attainment of these efficiencies, that consumers within
the affected markets receive a fair share of the efficiency
gains and that the agreements do not afford the under-
eliminating
takings
competition in respect of a substantial part of
the
thresholds
products
(Article 3), the hardcore list (Article 4) and the conditions
(Article 5) aim at ensuring that only agreements that can
reasonably be presumed to fulfil the four conditions of
Article 81(3) are block exempted.

in question. The market

concerned

possibility

share

the

of

29. Most technology transfer agreements are not restrictive of
competition within the meaning of Article 81(1). In a
number of cases, some of which are mentioned in
section IV below,
fall
outside Article 81(1) either because they do not restrict
restriction of
competition at
competition is not appreciable (21). To the extent that
such agreements would anyhow fall within the scope of
the TTBER, there is no need to determine whether they
are caught by Article 81(1) (22).

licence agreements

all or because

individual

the

30. Outside the scope of the block exemption,

it becomes
relevant to examine whether in the individual case the
agreement is caught by Article 81(1) and if so whether
the conditions of Article 81(3) are satisfied. There is no
presumption that technology transfer agreements falling
outside the block exemption are incompatible with
there is no presumption of
In particular,
Article 81.
illegality merely because the market
the
parties exceed the market share thresholds set out in
Article 3 of
the TTBER. Such agreements may be
non-restrictive or, if restrictive, may fulfil the conditions
of Article 81(3). The non-application of
the block
exemption merely signifies that individual assessment is
required. It is only when agreements contain hardcore
restrictions of competition that
it can normally be
presumed that they are prohibited by Article 81.

shares of

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2. Scope and duration of the Block Exemption Regulation

2.1. Agreements between two parties

licensing’ agreements between licensor and licensee.
Agreements between the licensee and sub-licensees are
covered by the TTBER.

technology transfer agreements

31. According to Article 2(1) of the TTBER the Regulation
‘between two
covers
undertakings’. Technology transfer agreements between
more than two undertakings are not covered by the
TTBER. The decisive factor in terms of distinguishing
between agreements between two parties and multiparty
agreements is whether
in question is
concluded between more than two parties.

the agreement

the TTBER even if

for more than one level of

32. Agreements concluded by two parties fall within the
the agreement stipulates
scope of
trade. For
conditions
the TTBER applies to a licence agreement,
instance,
concerning not only the production stage but also the
the
distribution stage, stipulating the obligations that
licensee must or may impose on resellers of
the
products produced under the licence (23).

same nature

agreements of

33. Licence agreements concluded between more than two
undertakings often give rise to the same issues as
licence
concluded
the
In its individual assessment of
between two parties.
licence agreements which are of
the same nature as
those covered by the block exemption but which are
concluded
the
Commission will apply by analogy the principles set
out in the TTBER. Agreements between more than two
undertakings that would have been block exempted had
they been concluded between only two undertakings will
in principle be treated as if they were covered by the
block exemption.

between more

parties,

than

two

2.2. Agreements
products

for

the manufacture or provision of

contract

34. It follows from Article 2 that for licence agreements to be
covered by the TTBER they must be ‘for the manufacture
or provision of contract products’,
i.e. products incor-
porating or produced with the licensed technology. The
TTBER does not cover technology pools. The notion of
technology pools covers agreements whereby two or
more parties agree to pool their respective technologies
and licence them as a package. The notion of technology
pools also covers arrangements whereby two or more
undertakings
and
to licence
authorise him to licence on the package of technologies.
Technology pools are dealt with in section IV.4 below.
the TTBER does not apply to agreements
Similarly,
whereby the licensee is authorised by the licensor to
grant
for the
licenses to third parties (sub-licensees)
exploitation of the licensor's technology. However, the
Commission will apply by analogy the principles set
out in the TTBER and these guidelines to such ‘master

third party

agree

a

own

technology

to prevent

35. The TTBER does not apply to licence agreements,
including cross
licensing agreements, which aim at
ensuring that one party does not invoke his intellectual
the other party from
property rights
exploiting
(non-assertion
his
agreements). Nor does it apply to agreements that aim
solely at settling claims that
the intellectual property
rights of one party infringes upon the intellectual
the other party and vice versa
property rights of
the
(settlement
agreement
or
provision of contract products. Such agreements are
dealt with in section IV.3 below.

neither
is
the manufacture

agreements).
into
entered

In
for

case

36. The term ‘contract products’ encompasses goods manu-
factured or services provided with the licensed tech-
nology. This is the case both where the licensed tech-
nology is used in the production process and where it is
incorporated into the product itself. In these guidelines
the term ‘products incorporating the licensed technology’
covers both situations. The TTBER applies in all cases
the purposes of
where
technology is
producing goods and services,
including subcontracting
by the licensor (24).

licensed for

certain

exclusively

37. Subcontracting is an arrangement whereby the licensor
licences technology to the licensee who undertakes to
manufacture
the
products
licensor on the basis thereof. Subcontracting may also
involve the supply of equipment by the licensor to be
used in the production of the goods and services covered
by the agreement. For the latter type of subcontracting to
be covered by the TTBER, the licensed technology and
not the supplied equipment must constitute the primary
object of the agreement.

for

38. Subcontracting agreements as such normally fall outside
the
Article 81(1) when the licensed technology or
the purpose of
supplied equipment
is necessary for
producing the goods and services
covered by the
agreement. It is not in itself restrictive of competition
for an undertaking to outsource production to another
undertaking and oblige the subcontractor to use the
licensed technology only to produce the goods and
services covered by the agreement and supply those
goods and services exclusively to the licensor. The
exclusive supply obligation is inherent in subcontracting
and does not constitute a customer restriction for the
purposes of the TTBER. The test of necessity is satisfied
if in the absence of the agreement the sub-contractor
could not have produced a product with the same
features as that ordered by the licensor.

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39. Subcontracting agreements, however, may be caught by
Article 81(1) when they go beyond simple outsourcing as
described in the previous point. Competition concerns
may for instance arise where subcontracting agreements
reduce the ability or incentive of the subcontractor to
innovate, where they foreclose third parties or where
they facilitate collusion on the market. Restrictions on
the subcontractor to carry out research and development
and grant back obligations are treated in the same way as
in the context of any other licence agreement. The same
is true of non-compete obligations,
imposing on the
subcontractor not to deal with third parties in respect
of products not manufactured for the subcontracting
licensor or in respect of technologies not licensed from
him. However, the mere fact that production under the
agreement takes up most or all of the subcontractor's
capacity is not sufficient for a finding of foreclosure,
provided that the subcontractor is not prevented from
expanding his capacity.

40. Subcontracting, as defined, does not encompass research
and development subcontracting whereby the licensee
undertakes to carry out further research and development
in the field covered by the licensed technology and to
hand back the improved technology package to the
licensor. The main object of such agreements is the
provision of research and development services aiming
as opposed to the
technology
at
production of goods and services on the basis of the
licensed technology. Such agreements fall outside the
scope of the TTBER and the present guidelines.

improving

the

41. Similarly, the TTBER and the guidelines do not cover
agreements whereby a technology is licensed for the
purposes of enabling the licensee to carry out further
research and development for his own account for later
exploitation. For instance, the TTBER and the guidelines
do not cover the licensing of a technological research
tool used in the process of further research activity.

2.3. The concept of technology transfer agreements

the TTBER the concept of

42. The TTBER and these guidelines cover agreements for the
transfer of technology. According to Article 1(1)(b) and
(f) of
‘technology’ covers
patents and patent applications, utility models and
for utility models, design rights, plant
applications
semiconductor
breeders
for
products,

rights,
supplementary

of
protection

topographies

certificates

medicinal products or other products for which such
supplementary protection certificates may be obtained,
software copyright, and know-how.

practical

resulting

information,

‘Secret’ means that

43. Know-how is defined in Article 1(1)(g) as a package of
non-patented
from
experience and testing, which is secret, substantial and
the know-how is not
identified.
‘Substantial’ means
generally known or easily accessible.
that the know-how includes information, which is indis-
the
pensable for
the manufacture or provision of
the
products covered by the licence agreement or
application of
licence
the know-how is
agreement.
described in a sufficiently comprehensive manner
to
make it possible to verify that it fulfils the criteria of
secrecy and substantiality.

the process covered by the

‘Identified’ means

that

44. The concept of ‘transfer’

the

form of

implies that technology must
flow from one undertaking to another. Such transfers
normally take
licensing whereby the
licensor grants the licensee the right to use his tech-
nology against payment of royalties.
It can also take
the form of sub-licensing, whereby a licensee, having
been authorised to do so by the licensor, grants
licenses to third parties (sub-licensees) for the exploitation
of the technology. In the case of sub-licensing, however,
the agreement between the licensor and the licensee is
not covered by the TTBER since that
licence is not
the purpose of producing goods and
granted for
the licensed technology, cf.
services on the basis of
point 34 above.

the

45. According to Article 1(1)(b) of the TTBER, the Regulation
also covers agreements whereby technology is assigned,
provided that the assignor retains the risk associated with
the intellectual property. This is
the exploitation of
sum payable
case where
particularly
in
the
consideration of
is dependent on the
the assignment
the
turnover obtained by the assignee in respect of
products manufactured or provided with the assigned
technology, the quantity of such products produced or
the number of operations carried out employing the tech-
nology. Such assignments are in functional terms akin to
a traditional licence agreement. It is a common feature of
licence agreements that the consideration payable to the
licensor depends on the licensee's use of the licensed
technology. Other cases of assignment are not covered
by the TTBER.

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of

types

intellectual

the agreement

input which is

46. The TTBER only applies to agreements that have as their
primary object the transfer of technology as opposed to
the purchase of goods and services or the licensing of
other
property. Agreements
containing provisions relating to the purchase and sale
of products are only covered by the TTBER to the extent
that those provisions do not constitute the primary object
of
and are directly related to the
application of the licensed technology. This is likely to
be the case where the tied products take the form of
machinery or process
specifically
tailored to incorporate the licensed technology or allow
it to be efficiently exploited. If, on the other hand, the
product is simply another input into the final product, it
must be carefully examined whether the licensed tech-
nology constitutes the primary object of the agreement.
For instance, in cases where the licensee is already manu-
facturing a final product on the basis of another tech-
significant
nology,
improvement of
licensee's production process,
exceeding the value of the product purchased from the
licensor. The requirement that the tied products must be
directly related to the licensing of technology implies that
the TTBER does not cover the purchase of products that
have no relation with the products incorporating the
licensed technology. This is for example the case where
the tied product is not intended to be used with the
licensed product, but
to an activity on a
relates
separate product market.

licence must

lead

the

the

to

a

that

47. The TTBER only covers the licensing of other types of
intellectual property such as trademarks and copyright,
other than software copyright, to the extent that they are
directly related to the exploitation of the licensed tech-
nology and do not constitute the primary object of the
agreement. This
agreements
condition ensures
covering other types of intellectual property rights are
only block exempted to the extent that these other intel-
lectual property rights serve to enable the licensee to
better exploit the licensed technology. The licensor may
for instance authorise the licensee to use his trademark
on the products incorporating the licensed technology.
The trademark licence may allow the licensee to better
exploit the licensed technology by allowing consumers to
make an immediate link between the product and the
characteristics imputed to it by the licensed technology.
An obligation on the licensee to use the licensor's
trademark may also promote the dissemination of tech-
nology by allowing the licensor to identify himself as the
source of the underlying technology. However, where the
value of the licensed technology to the licensee is limited
because he already employs an identical or very similar
technology and the main object of the agreement is the
trademark, the TTBER does not apply (25).

48. The licensing of copyright

for the purpose of repro-
duction and distribution of the protected work, i.e. the
is considered to be
production of copies for resale,
similar
such licence
to the production and sale of
agreements

to technology licensing. Since

relate

products on the basis of an intellectual property right,
they are considered to be of the same nature as tech-
nology transfer agreements and normally raise similar
issues. As a general rule the Commission will therefore
apply the principles set out in the TTBER and these
guidelines when assessing under Article 81 such
licensing of copyright.

49. On the other hand,

rights

licensing of

in
the
performances and other rights related to copyright
is
considered to raise particular issues and it may not be
warranted to assess such licensing on the basis of the
principles developed in these guidelines. In the case of
the various rights related to performances value is created
not by the reproduction and sale of copies of a product
the protected
but by each individual performance of
forms
work.
including the performance, showing or the renting of
protected material such as movies, music or sporting
events. In the application of Article 81, the specificities
of the work and the way in which it is exploited must be
taken into account (26). The Commission will therefore
not apply by way of analogy the TTBER and the
present guidelines to the licensing of these other rights.

Such exploitation can take

various

50. The Commission will also not extend the principles
developed in the TTBER and these guidelines
to
trademark licensing. However, trademark licensing often
occurs in the context of distribution and resale of goods
and services and is generally more akin to distribution
agreements
a
trademark licence is directly related to the use, sale or
resale of goods and services and does not constitute the
primary object of the agreement, the licence agreement is
covered by Commission Regulation (EC) No 2790/1999
the Treaty to
on the application of Article 81(3) of
categories
concerted
vertical
practices (27).

licensing. Where

agreements

technology

than

and

of

2.4. Duration

51. The block exemption applies for as long as the licensed
property right has not expired or been declared invalid.
In the case of know-how the block exemption applies as
long as the licensed know-how remains secret, except
where the know-how becomes publicly known as a
result of the action of the licensee,
in which case the
exemption shall apply for the duration of the agreement,
cf. Article 2 of the TTBER.

52. The block exemption applies to each licensed property
right covered by the agreement and ceases to apply on
invalidity or the coming into the
the date of expiry,
public domain of
intellectual property right
the last
which constitutes ‘technology’ within the meaning of
the TTBER, cf. point 42 above.

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53. Outside the scope of the block exemption the assessment
may differ according to the intellectual property in
question and whether,
the agreement
for
covers a basic patent or an improvement of an expired
basic patent.

instance,

Such licensing arrangements, which bring together the
technologies of the parties, constitute technology pools,
which are dealt with in section IV.4 below.

2.5. Relationship with other block exemption regulations

54. The TTBER covers agreements between two parties
concerning the licensing of technology for the purpose
of the manufacture or provision of contract products.
However, technology can also be an element of other
the products incor-
In addition,
types of agreements.
porating the licensed technology are subsequently sold
on the market. It is therefore necessary to address the
interface between the TTBER and Commission Regulation
(EC) No 2658/2000 on the application of Article 81(3) of
the Treaty to categories of specialisation agreements (28),
Commission Regulation (EC) No 2659/2000 on the
application of Article 81(3)
to categories of research
and development agreements (29), and Commission Regu-
lation (EC) No 2790/1999 on the application of Article
81(3) of the Treaty to categories of vertical agreements
and concerted practices (30).

2.5.1. The Block Exemption Regulations on specialisation and

R & D agreements

55. According to Article 1(1)(c) of Regulation (EC) No
2658/2000 on specialisation agreements, that Regulation
covers, inter alia, joint production agreements by virtue of
which two or more undertakings agree to produce
certain products
to
provisions concerning the assignment or use of intel-
they do not
lectual property rights, provided that
constitute the primary object of the agreement, but are
directly related to and necessary for its implementation.

jointly. The Regulation extends

57. Regulation (EC) No 2659/2000 on research and devel-
opment agreements covers agreements whereby two or
more undertakings agree to jointly carry out research and
development and to jointly exploit the results thereof.
According to Article 2(11), research and development
and the exploitation of
the results are carried out
jointly where the work involved is carried out by a
joint
jointly
entrusted to a third party or allocated between the
parties by way of specialisation in research, development,
production and distribution, including licensing.

undertakings,

organisation

team,

or

the research and development agreement

58. It follows that Regulation (EC) No 2659/2000 covers
licensing between the parties and by the parties to a
joint entity in the context of a research and development
agreement. In the context of such agreement the parties
can also determine the conditions for licensing the fruits
of
to third
parties. However, since third party licensees are not
party to the research and development agreement, the
concluded with third
individual
parties is not covered by Regulation (EC) No 2659/2000.
Such licence agreements are block exempted where they
fulfil the conditions of the TTBER.

agreement

licence

2.5.2. The Block Exemption Regulation on vertical agreements

59. Commission Regulation (EC) No 2790/1999 on vertical
agreements covers agreements entered into between two
or more undertakings each operating, for the purposes of
the agreement, at different levels of the production or
distribution chain, and relating to the conditions under
which the parties may purchase, sell or resell certain
goods or services. It thus covers supply and distribution
agreements (31).

56. Where undertakings establish a production joint venture
and licence the joint venture to exploit technology, which
is used in the production of the products produced by
the joint venture, such licensing is subject to Regulation
(EC) No 2658/2000 and not the TTBER. Accordingly,
licensing in the context of a production joint venture
normally falls to be considered under Regulation (EC)
No 2658/2000. However, where
joint venture
engages in licensing of the technology to third parties,
the activity is not
linked to production by the joint
venture and therefore not covered by that Regulation.

the

60. Given that the TTBER only covers agreements between
two parties and that a licensee, selling products incor-
porating the licensed technology,
is a supplier for the
purposes of Regulation (EC) No 2790/1999, these two
block exemption regulations are closely related. The
agreement between licensor and licensee is subject to
the TTBER whereas agreements concluded between a
licensee and buyers are subject to Regulation (EC) No
2790/1999 and the Guidelines on Vertical Restraints (32).

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sell

the products

exclusive distribution or

61. The TTBER block exempts agreements between the
licensor and the licensee also where the agreement
imposes obligations on the licensee as to the way in
incorporating the
which he must
the licensee can be
In particular,
licensed technology.
obliged to establish a certain type of distribution
system such as
selective
distribution. However,
agreements
the
concluded for the purposes of implementing such obli-
in order to be block exempted, comply
gations must,
with Regulation (EC) No 2790/1999. For instance, the
licensor can impose on the licensee to establish a
system based on exclusive distribution in accordance
with specified rules. However,
follows from Article
4(b) of Regulation (EC) No 2790/1999 that distributors
must be free to make passive sales into the territories of
other exclusive distributors.

distribution

it

62. Furthermore, distributors must in principle be free to sell
both actively and passively into territories covered by the
distribution systems of other licensees producing their
own products on the basis of the licensed technology.
For the purposes of Regulation (EC) No 2790/1999
each licensee is a separate supplier. However,
the
reasons underlying the block exemption contained in
that Regulation may also apply where the products incor-
porating the licensed technology are sold by the licensees
under a common brand belonging to the licensor. When
the products incorporating the licensed technology are
sold under a common brand identity there may be the
same efficiency reasons for applying the same types of
restraints between licensees' distribution systems as
within a single vertical distribution system.
In such
cases, the Commission would be unlikely to challenge
restraints where by analogy the requirements of Regu-
lation (EC) No 2790/1999 are fulfilled. For a common
brand identity to exist the products must be sold and
marketed under a common brand, which is predominant
relevant
in terms of
information to the consumer. It does not suffice that in
addition to the licensees' brands the product carries the
licensor's brand, which identifies him as the source of the
licensed technology.

conveying quality and other

3. The safe harbour established by the Block Exemption

Regulation

63. According to Article 3 of

the TTBER the block
exemption of restrictive agreements is subject to market
the block
share thresholds, confining the scope of
exemption to
be
agreements
presumed to fulfil the conditions of Article 81(3).

can generally

that

64. The

applicable

agreement

is

threshold depends on whether
competitors
between
concluded

the
or

the purposes of

the
between non-competitors. For
TTBER undertakings are competitors on the relevant
technology market when they licence competing tech-
nologies to third parties. Potential competition on the
in the
technology market
application of the market share thresholds. Outside the
safe harbour potential competition on the technology
market is taken into account and may lead to a re-qualifi-
cation of
the competitive relationship between the
parties, see in particular point 24 above.

taken into account

is not

65. Undertakings are competitors for the products concerned
where the undertakings are both active on the relevant
product and geographic market(s) on which the products
incorporating the licensed technology are sold (actual
also considered competitors
competitors). They are
where they would, on realistic grounds, undertake the
investments or other necessary
necessary additional
they could enter the relevant
switching costs so that
product and geographic market(s)
in response to a
small and permanent increase in relative prices (potential
competitors).

66. It follows from points 64 and 65 that two undertakings
are not competitors for the purposes of the TTBER where
the licensor is neither an actual nor a potential supplier
of products on the relevant market and the licensee,
already present on the product market, is not licensing
out a competing technology even if he owns and
produces on the basis of a competing technology. The
parties, however, become competitors if at a later point
in time the licensee starts licensing out his technology or
the licensor becomes an actual or potential supplier of
products on the relevant market. Moreover, as indicated
in point 64, above the market share threshold potential
is taken into
competition on the technology market
account.

it

the agreement

licensing agreement
is covered if

67. In the case of agreements between competitors the
market share threshold is 20 % and in the case of
agreements between non-competitors,
is 30 %, cf.
Article 3(1) and (2) of the TTBER. Where the under-
are not
takings party to the
competitors,
the market
share of each of the parties does not exceed 30 % on
relevant
technology and product markets. Where the
are
undertakings party to the
competitors, the agreement is covered if the combined
market shares of the parties does not exceed 20 % on
relevant technology and product markets. It follows, that
the market share thresholds apply both to technology
markets and markets for products incorporating the
licensed technology.
share
threshold is exceeded on any relevant market, the block
exemption does not apply to the agreement
for that
relevant market.

the applicable market

licensing agreement

If

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68. In the case of technology markets, it follows from Article
3(3) of the TTBER that the licensor's market share is to
be calculated on the basis of all sales by the licensor, the
licensee and other licensees of products incorporating the
licensor's technology and this for each product market
separately (33). Where the parties are competitors on the
technology market, sales of products incorporating the
licensee's technology must be added to the sales of the
products incorporating the licensed technology. In the
case of new technologies that have not yet generated
any sales, a zero market share is assigned. When sales
commence the technology will start accumulating market
share.

69. In the case of product markets, the licensee's market
share is to be calculated on the basis of the licensee's
sales of products incorporating the licensed technology
and competing products,
the
i.e.
licensee on the product market in question. Where the
licensor is also a supplier of products on the relevant
market, the licensor's sales on the product market in
question must also be taken into account. In the calcu-
lation of product market shares, however, sales made by
other licensees are not taken into account when calcu-
lating the licensee's and/or licensor's market share.

the global sales of

70. Market shares should be calculated on the basis of sales
value data where such data are available. Such data
the
normally provide a more accurate indication of
strength of a technology than volume data. However,
where value based data are not available, estimates
based on other
information may be
used, including market sales volume data.

reliable market

that product market before. C produces and sells only
Xeran, EUR 10 million in year 1 and EUR 15 million
in year 2 and thereafter. Assume it is established that the
total market of Xeran and its substitutes where B and C
are active is worth EUR 200 million in each year.

In year 1, the year the license agreement is concluded,
A's market share on the technology market is 0 % as its
market share has to be calculated on the basis of the total
In year 2, A's
sales of Xeran in the preceding year.
market
is 12,5 %,
reflecting the value of Xeran produced by B and C in
the preceding year 1. In year 3 and thereafter, A's market
share on the technology market is 27,5 %, reflecting the
value of Xeran produced by B and C in the preceding
year.

share on the technology market

In year 1, B's market share on the product market is
12,5 %, reflecting B's EUR 25 million sales in year 0.
In year 2, B's market share is 15 % because its sales
have increased to EUR 30 million in year 1. In year 3
and thereafter, B's market share is 20 % as its sales are
EUR 40 million annually. C's market
share on the
is 0 % in year 1,5 % in year 2 and
product market
7,5 % thereafter.

As it concerns an agreement between non-competitors
and the market share of A, B and C is below 30 %
each year,
the agreements are falling within the safe
harbour of the TTBE.

71. The principles set out above can be illustrated by the

following examples:

Example 2

Licensing between non-competitors

Example 1

Company A is specialised in developing bio-technological
products and techniques and has developed a new
product Xeran. It is not active as a mass producer of
Xeran, for which it has neither the production nor the
distribution facilities. Company B is one of the producers
of competing products, produced with freely available
non-proprietary technologies.
In year 0, B was selling
EUR 25 million worth of products produced with the
In year 1, A gives a
freely available technologies.
In that year B sells
license to B to produce Xeran.
EUR 15 million produced with the help of the freely
available technologies and EUR 15 million of Xeran. In
year 2 and the following years B produces and sells only
Xeran worth EUR 40 million annually.
In addition in
year 1, A is also licensing to C. C was not active on

The same situation as in example 1, however now B and
C are operating in different geographic markets. Assume
it is established that the total market of Xeran and its
substitutes is worth EUR 100 million annually in each
market.

In this case, A's market share on the technology market
has to be calculated for each of
the two geographic
markets. In the market where B is active, A's market
share depends on the sale of Xeran by B. As in this
example the total market is assumed to be EUR 100
i.e. half the size of the market in example 1,
million,
the market share of A is 0 % in year 1, 15 % in year 2
and 40 % thereafter. B's market share is 25 % in year 1,
30 % in year 2 and 40 % in year 3. In year 1 and 2 both
A's and B's market share does not exceed the 30 %
threshold. The threshold is however exceeded from year
3 and this means that, in line with Article 8(3) of the
TTBER, after year 4 the license agreement between A and
B can no longer benefit from the safe harbour but has to
be assessed on an individual basis.

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In the market where C is active, A's market share
depends on the sale of Xeran by C. A's market share
on the technology market, based on C's sales in the
previous year, is therefore 0 % in year 1, 10 % in year
2 and 15 % thereafter. The market share of C on the
product market is the same: 0 % in year 1, 10 % in
year 2 and 15 % thereafter. The licence agreement
between A and C falls
safe
harbour for the whole period.

therefore within the

As it concerns an agreement between competitors their
combined market share, both on the technology and on
the product market, has to be below the 20 % market
share threshold in order to be able to benefit from the
safe harbour. It is clear that this is not the case here. The
combined market share on the technology market and on
the product market is 35 % in year 1 and 45 % thereafter.
This agreement between competitors will therefore have
to be assessed on an individual basis.

Licensing between competitors

Example 1

Companies A and B are active on the same relevant
market for a certain chemical product. They also each
own a patent on different technologies used to produce
this product. In year 1, A and B sign a cross licence
agreement licensing each other the use of their respective
technologies. In year 0, A and B produce only with their
own technology and A sells EUR 15 million of
the
product and B sells EUR 20 million of
the product.
From year 1 they both use their own and the other's
technology. From that year onward A sells EUR 10
million of the product produced with its own technology
and EUR 10 million of the product produced with B's
technology. B sells from year 1, EUR 15 million of the
product produced with its own technology and EUR 10
million of the product produced with A's technology.
Assume it is established that the total market of the
product and its substitutes is worth EUR 100 million
in each year.

To assess the licence agreement under the TTBER, the
market shares of A and B have to be calculated both
on the technology market and the product market. The
market share of A on the technology market depends on
the amount of the product sold in the preceding year that
was produced, either by A or B, with A's technology. In
year 1 the market share of A on the technology market is
therefore 15 %, reflecting its own production and sales of
EUR 15 million in year 0. From year 2, A's market share
on the technology market is 20 %, reflecting the EUR 20
million sale of the product produced with A's technology
and produced and sold by A and B (EUR 10 million
each). Similarly, in year 1, B's market share on the tech-
nology market is 20 % and thereafter 25 %.

4. Hardcore restrictions of competition under the Block

Exemption Regulation

4.1. General principles

72. Article 4 of

classification of

competition. The

In line with the

the TTBER contains a list of hardcore
restrictions of
a
restraint as a hardcore restriction of competition is
based on the nature of the restriction and experience
showing that such restrictions are almost always anti-
competitive.
the
Community Courts (34) such a restriction may result
from the clear objective of the agreement or from the
circumstances of the individual case, cf. point 10 above.
An examination of the facts underlying the agreement
and the specific circumstances in which it operates may
therefore be required before it can be concluded whether
a particular restriction constitutes a hardcore restriction
of competition.

law of

case

73. When a technology transfer

it

follows

agreement

contains a
hardcore restriction of competition,
from
Article 4(1) and 4(2) of the TTBER that the agreement
as a whole falls outside the scope of the block exemption.
There
restrictions.
Moreover, the Commission holds the view that in the
context of individual assessment hardcore restrictions of
competition will only in exceptional circumstances fulfil
the four conditions of Article 81(3), cf. point 16 above.

is no severability

for hardcore

74. Article 4 of the TTBER distinguishes between agreements
between

competitors

agreements

and

between
non-competitors.

4.2. Agreements between competitors

The market shares of A and B on the product market
depend on their respective sales of the product in the
previous year,
irrespective of the technology used. The
market share of A on the product market is 15 % in year
1 and 20 % thereafter. The market share of B on the
product market is 20 % in year 1 and 25 % thereafter.

75. Article 4(1) lists the hardcore restrictions for licensing
between competitors. According to this provision, the
TTBER does not cover agreements which, directly or
indirectly,
in isolation or in combination with other
factors under the control of the parties, have as their
object:

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Official Journal of the European Union

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(a) the restriction of a party's ability to determine its

prices when selling products to third parties;

(b) the limitation of output or sales, except limitations on
the output of products incorporating the licensed
technology
a
on
non-reciprocal agreement;

imposed

licensee

the

in

(c)

the allocation of markets or customers except

(i) the obligation on the licensee in a non-reciprocal
agreement to exploit the licensed technology only
within one or more technical fields of use or one
or more product markets, and

(ii) the requirement that the licensee manufactures or
provides the contract products only for its own
use including sale of the contract products as
spare parts for its own products;

(d) The restriction of the licensee's ability to exploit its
own technology or the restriction of the ability of the
parties to the agreement to carry out research and
development, unless such latter restriction is indis-
the disclosure of the licensed
pensable to prevent
know-how to third parties.

76. The hardcore restriction of competition contained in
Article 4(1)(a) concerns agreements between competitors
that have as their object the fixing of prices for products
sold to third parties. Price fixing between competitors
constitutes a restriction of competition by its very
object. Price fixing can for instance take the form of a
direct agreement on the exact price to be charged or on a
price list with certain allowed maximum rebates. It can
also be implemented indirectly by applying disincentives
to deviate from an agreed price level, for example, by
providing that the royalty rate will
increase if product
prices are reduced below a certain level.

77. Price fixing may also occur where parties, who sell
competing products, cross licence technologies that are

treat

final product,

the Commission will

In the absence thereof

the royalty has a direct

incorporated into those products. When royalties are
calculated on the basis of individual product sales, the
amount of
impact on the
marginal cost of the product and thus a direct impact
on product prices (35). Competitors can therefore use
royalties as a means of coordinating prices on down
stream product markets (36). Where
competitors
conclude an agreement providing for cross licensing
and reciprocal royalty payments based on the sales of
the
the
arrangement as price fixing where the agreement does
not lead to a significant integration of complementary
technologies.
is
devoid of any pro-competitive purpose and does not
In cases
constitute a bona fide licensing arrangement.
where
the agreement does constitute a bona fide
licensing arrangement because it leads to a significant
integration
the
agreement will normally not fall under Article 4(1)(a)
and will
in that event be block exempted up to the
market share threshold of 20 %. The Commission will
only consider
the arrangement constitutes price
fixing where the parties could reasonably have chosen
a less restrictive payment scheme such as lump sum
payments or one-way payment of net
royalties and
where the amount of the royalty is such that it is likely
to have a not insignificant impact on prices.

complementary

the agreement

technologies

that

of

78. The hardcore restriction contained in Article 4(1)(a) also
covers agreements whereby royalties are calculated on the
basis of all product sales irrespective of whether the
licensed technology is being used. Such agreements are
also caught by Article 4(1)(d) according to which the
licensee must not be restricted in his ability to use his
own technology, see point 89 below. The very nature of
such agreements is to restrict competition since the
agreement raises the cost of using the licensee's own
competing technology and restricts competition that
existed in the absence of the agreement (37). This is so
reciprocal and non-reciprocal
both in the case of
arrangements. Exceptionally, however,
an agreement
whereby royalties are calculated on the basis of all
product sales may fulfil the conditions of Article 81(3)
in an individual case where on the basis of objective
factors it can be concluded that the restriction is indis-
pensable for pro-competitive licensing to occur. This may
be the case where in the absence of the restraint it would
be impossible or unduly difficult to calculate and monitor
the royalty payable by the licensee, for instance because
the licensor's technology leaves no visible trace on the
final product and practicable alternative monitoring
methods are unavailable.

79. The hardcore restriction of competition set out in Article
limitations. When
4(1)(b) concerns sales and output
limitations on output
competitors agree to reciprocal
the agreement amounts to a cartel. The same is true of
agreements that reduce the incentive of the parties to
expand output, for example by imposing on a party to
make payments to the other party if a certain level of
output is exceeded.

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a

licences

competitor

covered by the hardcore

the risk that the agreement

80. Quantity limitations on the licensee in non-reciprocal
agreements are neither covered by the list of hardcore
restrictions of competition, nor are they block exempted,
cf. Articles 4(1)(b) and 5(2) of
the TTBER. For the
purposes of these Articles an agreement is non-reciprocal
where one
technology from
another competitor but does not himself grant a licence
for a competing technology. Conversely, a licence is
reciprocal where a competitor licenses a technology to
another competitor and obtains a licence for a competing
technology from that competitor (38). The exclusion from
the hardcore list only covers quantity limitations on the
licensee in a non-reciprocal agreement. Restrictions on
the licensor in terms of where he produces or sells,
how much he produces or sells and at what price he
sells are
list. The more
favourable treatment of quantity limitations on the
licensee is based on the following two considerations:
is not a bona fide
First,
licensing arrangement
is less when the restriction is
only imposed on the licensee. When a licensee is
willing to accept a one-way restriction,
it is likely that
the agreement
integration of comple-
mentary technologies or an efficiency enhancing inte-
gration of the licensor's superior technology with the
licensee's productive assets.
In the case of reciprocal
agreements with output limitations, on the other hand,
there is a substantial risk that the object and effect of the
agreement is to reduce output and raise prices. Secondly,
an output restriction on the licensee may be necessary in
order to give the licensor an incentive to disseminate his
technology. Where the licensed technology, however,
does not allow the licensee to obtain cost or other effi-
ciencies to any significant extent the agreement will be
dealt with as
the
agreement is likely to restrict competition that existed
prior to the agreement without having a pro-competitive
purpose. The Commission will also examine whether in
the practical application of the agreement the licensor is
subject to restrictions as regards his commercial activities.
If so, the agreement is restrictive by object and subject to
the list of hardcore restrictions of competition.

restriction, because

leads to a real

a hardcore

81. The hardcore restriction of competition set out in Article
4(1)(c) concerns the allocation of markets and customers.
Agreements whereby competitors
share markets and
customers, for example by allocating exclusive territories
or customer groups, have as their object the restriction of
competition. Restrictions of this nature can for example
take the form of cross licensing arrangements whereby
each party is granted an exclusive right to exploit the
licensed technology in a particular territory. They can
also take the form of a non-reciprocal licence whereby
the licensee is granted an exclusive territory whereas the
licensor reserves another territory to himself. Even where
no explicit or implicit restrictions are imposed on the
licensor it is considered hardcore if the licence restricts
the licensee as to where and to whom he may sell. Such
restrictions restrict competition that existed prior to the
agreement. Moreover, they are not considered necessary
with a view to promoting the dissemination of tech-
sufficiently protected by
nology. This

interest

is

excluding non-reciprocal output limitations and field of
use restrictions on the licensee from the scope of Article
4 and by block exempting royalty obligations. Article
4(1)(c) applies
licensee
irrespective of whether
remains free to use his own technology. Once the
licensee has tooled up to use the licensor's technology,
it may be costly to use another technology. Moreover,
given the anti-competitive potential of the restraint the
licensee may have little incentive to produce under his
own technology.

the

the

to exploit

82. The hardcore restriction of competition set out in Article
4(1)(c) also covers agreements whereby the licensor
grants an exclusive licence according to which he
licensed technology
undertakes not
himself. Such a licence implies that the licensor leaves
the market on which the parties compete and thus entails
an extreme form of market sharing. Article 4(1)(c) on the
other hand does not extend to exclusive licensing
to licence other
whereby the licensor undertakes not
third parties within a particular
territory. The latter
form of exclusivity is covered by the block exemption
and is dealt with in section IV.2.2 below.

83. Field of use (39) restrictions between competitors may
amount to an allocation of markets and customers,
in
which case they are caught by Article 4(1)(c). Under a
field of use restriction the licence is either limited to one
of more technical fields of application or one or more
product markets. Article 4(1)(c)
is applicable where
competitors cross licence competing technologies and
impose reciprocal
field of use restrictions covering
distinct product markets or technical fields of application.
For instance, if A and B cross licence competing tech-
nologies and A limits the licence to product market X
and B limits his licence to product market Y,
the
agreement amounts to a sharing of product markets.
Article 4(1)(c) also applies to a field of use restriction
on the licensor in a non-reciprocal agreement, since it
amounts to reserving the market(s) concerned for the
licensee. In both cases, however,
it is only a hardcore
restriction if the restriction covers a market in which
the parties are actual or likely potential competitors.
Article 4(1)(c) does not apply to field of use restrictions
covering markets where the parties are neither actual nor
potential competitors.
is
treated in the same way as an agreement between
also falls outside
non-competitors. The
Article 4(1)(c) where the field of use restriction is
symmetrical
in the sense that both parties can exploit
the licensed technology only within the same field(s) of
use. Article 4(1)(c) does not require that in the case of
agreements between competitors the licensee must be
able to exploit the licensed technology within all actual
or potential fields of use. It is therefore not a hardcore
restriction of competition for competitors to cross licence
each other for the same field(s) of use.

In such cases the agreement

agreement

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84. Under Article 4(1)(c)(i) it does not amount to a hardcore
restriction of competition to impose in a non-reciprocal
agreement a field of use restriction on the licensee. The
fact that the licence is limited to one or more product
markets or one or more technical fields of use does not
in itself amount
in
accordance with Article 4(1)(d) the licensee is unrestricted
in the use of his own competing technology. If so,
it
cannot be presumed that the field of use restriction will
cause the licensee to withdraw from the markets excluded
by the restriction.

to market sharing, provided that

he produces or sells and at what price he sells. He must
also not be obliged to pay royalties on products produced
on the basis of his own technology, cf. point 78 above.
Moreover, the licensee must not be restricted in licensing
his own technology to third parties. When restrictions
are imposed on the licensee's use of his own technology
or to carry out research and development the competi-
tiveness of the licensee's technology is reduced. The effect
of this is to reduce competition on existing product and
technology markets and to reduce the licensee's incentive
to invest in the development and improvement of his
technology. Competition in the field of innovation also
suffers when the licensor is restricted in carrying out
research and development.

85. Article 4(1)(c)(ii) contains a further exception, namely
i.e. a requirement whereby the
captive use restrictions,
licensee may produce the products incorporating the
licensed technology only for his own use (40). Where
the contract product is a component, the licensee can
thus be obliged to produce that component only for
and can be
incorporation into his own products
the components to other manu-
obliged not
facturers. The licensee must be able, however,
to sell
the components as spare parts for his own products
and must
thus be able to supply third parties that
perform after sale services on these products. Captive
use
to
encourage the dissemination of technology, particularly
between competitors, and are covered by the block
exemption. Such restrictions are also dealt with in
section IV.2.5 below.

as defined may be necessary

restrictions

to sell

4.3. Agreements between non-competitors

88. Article 4(2) lists the hardcore restrictions for licensing
between non-competitors. According to this provision
the TTBER does not cover agreements which, directly
or indirectly, in isolation or in combination with other
factors under the control of the parties, have as their
object:

(a) The restriction of a party's ability to determine its
prices when selling products
to third parties,
without prejudice to the possibility to impose a
maximum sale price or recommend a sale price,
provided that
to a fixed or
it does not amount
minimum sale price as a result of pressure from, or
incentives offered by, any of the parties;

86. The hardcore restriction of competition set out in Article
4(1)(d) covers firstly restrictions on the parties to carry
out research and development. Both parties must be free
to carry out independent research and development. This
rule applies irrespective of whether the restriction applies
to a field covered by the licence or to other fields. It does
not, however, extend to restrictions on a party to carry
out research and development with third parties, where
the licensor's
such restriction is necessary to protect
know-how against
for
disclosure.
applying this exception is particularly likely to be
fulfilled where the third party in question is an actual
or likely potential competitor of the licensor on the tech-
nology market.

condition

The

(b) The restriction of the territory into which, or of the
the

the licensee may sell

customers
contract products, except:

to whom,

(i) the restriction of sales into the exclusive territory
or to an exclusive customer group reserved for
sales by the licensor;

(ii) the restriction of active sales into the exclusive
to an exclusive customer group

territory or
allocated by the licensor to another licensee;

87. According to Article 4(1)(d), the licensee must also be
unrestricted in the use of his own competing technology
provided that in so doing he does not make use of the
technology licensed from the licensor. In relation to his
own technology the licensee must not be subject to limi-
tations in terms of where he produces or sells, how much

(iii) the requirement that the licensee manufactures or
provides the contract products only for its own
use,
including sale of the contract products as
spare parts for its own products;

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(iv) the restriction of sales to end users by a licensee

operating at the wholesale level of trade;

(v) the

restriction

unauthorised
distributors by the members of a selective
distribution system;

sales

to

of

(c) The restriction of active or passive sales to end users
by a licensee which is a member of a selective
distribution system and which operates at the retail,
level without
of
prohibiting a member of the system from operating
out of an unauthorised place of establishment.

possibility

prejudice

the

to

is

that

licence

agreements whereby

recalled, cf. point 31 above,

the block
It
exemption covers
the
licensor imposes obligations that the licensee must or
may impose on his buyers, including distributors. Such
obligations do not constitute resale restrictions within the
meaning of Article 4(2)(b) of the TTBER. However, these
obligations must comply with the competition rules
applicable to supply and distribution agreements. Since
the TTBER is limited to agreements between two parties
the agreements concluded between the licensee and his
buyers implementing such obligations are not covered by
the TTBER. Such agreements are only block exempted
when they comply with Regulation (EC) No 2790/1999,
cf. section 2.5.2 above.

89. The hardcore restriction of competition set out in Article
4(2)(a) concerns the fixing of prices charged when selling
products to third parties. More specifically, this provision
covers restrictions which have as their direct or indirect
object the establishment of a fixed or a minimum selling
price or a fixed or minimum price level to be observed
by the licensor or the licensee when selling products to
In the case of agreements that directly
third parties.
the restriction is clear-cut.
establish the selling price,
However,
selling prices can also be
achieved through indirect means. Examples of the latter
are agreements fixing the margin, fixing the maximum
level of discount on a prescribed price level, linking the
prescribed resale price to the resale prices of competitors,
threats,
intimidation, warnings, penalties, or contract
terminations in relation to observance of a given price

the fixing of

level. Direct or indirect means of achieving price fixing
can be made more effective when combined with
measures to identify price-cutting, such as the implemen-
tation of a price monitoring system, or the obligation on
licensees to report price deviations. Similarly, direct or
indirect price fixing can be made more effective when
combined with measures
reduce the licensee's
incentive to lower his selling price, such as the licensor
obliging the licensee to apply a most-favoured-customer
clause, i.e. an obligation to grant to a customer any more
favourable terms granted to any other customer.

that

cover

does not

90. The hardcore restriction of competition set out in Article
4(2)(b) concerns agreements or concerted practices that
have as their direct or indirect object the restriction of
sales by licensees of products incorporating the licensed
technology. Article 4(2)(b)
sales
restrictions on the licensor. All sales restrictions on the
licensor are thus block exempted up to the market share
threshold. Sales restrictions on the licensee may be the
result of direct obligations, such as the obligation not to
sell to certain customers or to customers in certain terri-
from these
tories or
the obligation to refer orders
It may also result
customers to other licensees.
from
inducing the licensee to
indirect measures aimed at
refrain from making such sales,
financial
incentives and the implementation of a monitoring
system aimed at verifying the effective destination of
the licensed products. There are, however, a number of
important exceptions to this general hardcore restriction
covering the sales by licensees.

such as

the

91. Restrictions on active and passive sales (41) by licensees
into an exclusive territory or to an exclusive customer
licensor do not constitute
group reserved for
hardcore restrictions of competition, cf. Article 4(2)(b)(i).
Indeed, they are block exempted. It is presumed that up
to the market share threshold such restraints, where
competition, promote pro-competitive
restrictive of
dissemination of technology and integration of such tech-
nology into the production assets of the licensee.

92. Restrictions on active

sales between territories or
customer groups allocated to different
licensees are
the protected
block exempted on condition that
licensee has been granted an exclusive territory or an
exclusive customer group, cf. Article 4(2)(b)(ii). The
block exemption of active selling is based on the
such restrictions promote non-price
assumption that
in the quality of
competition and improvements
If no
services by solving free
exclusive territory or customer group has been granted,
restrictions on active selling imposed on other licensees
are caught by Article 4(2)(b).

rider problems (42).

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93. Restrictions on passive

for

the

substantial

conclusion of

the conditions of Article 81(3).

sales between licensees are
covered by the list of hardcore restrictions. When
caught by Article 81(1) passive sales restrictions are
unlikely to fulfil
In
particular, such restrictions are unlikely to be indis-
efficiencies (43).
pensable
of
attainment
the
Restrictions on passive (and active)
sales by other
licensees
into the exclusive territory of a particular
licensee, however, often fall outside Article 81(1) for a
the
certain initial period after
agreement with this licensee. Licensees often have to
in production assets
commit
investments
to start up and
and promotional activities in order
develop a new territory. The risks
facing the new
licensee are therefore likely to be substantial, in particular
since promotional expenses and investment
in assets
required to produce on the basis of a particular tech-
nology are often sunk, i.e. they cannot be recovered if
the licensee exits the market. In such circumstances, it is
likely that
licensees would not enter into the licence
agreement without protection for a certain period of
time
into their
territory by other licensees. The Commission therefore
takes the view that restrictions on passive sales into the
exclusive territory of a licensee by other
licensees
normally fall outside Article 81(1) for a period of two
years from the date on which the product incorporating
the licensed technology was first put on the market by
the licensee in question.

against passive

(and active)

sales

94. Article 4(2)(b)(iii) brings under the block exemption a
restriction whereby the licensee is obliged to produce
products incorporating the licensed technology only for
his own (captive) use. Where the contract product is a
component the licensee can thus be obliged to use that
product only for incorporation into his own products
and can be obliged not to sell the product to other
manufacturers. The licensee must however be able to
sell the products as spare parts for his own products
and must
thus be able to supply third parties that
perform after sale services on these products. Captive
use restrictions are also dealt with in section IV.2.5
below.

licensor to impose on the licensees an obligation to
form part of a selective distribution system.
In that
case, however, the licensees must according to Article
4(2)(c) be permitted to sell both actively and passively
to end users, without prejuduce to the possibility to
restrict the licensee to a wholesale function as foreseen
in Article 4(2)(b)(iv), cf. the previous point.

5. Conditions under the Block Exemption Regulation

assessment

anti-competitive

97. Article 5 of the TTBER lists five types of restrictions that
are not block exempted and which thus require indi-
vidual
and
their
of
It follows from Article 5 that
pro-competitive effects.
the inclusion in a licence agreement of any of
the
restrictions contained in these provisions does not
prevent the application of the block exemption to the
rest of the agreement. It is only the individual restriction
in question that is not block exempted,
implying that
individual assessment is required. Accordingly, the rule
in
of severability applies to the restrictions set out
Article 5.

98. Article 5(1) contains the following three conditions:

(a) The licensee must not be obliged to grant an
exclusive licence to the licensor or to a third party
designated by the licensor in respect of
its own
severable improvements to or its new applications
is
the licensed technology. An improvement
of
severable,
if it can be exploited without infringing
upon the licensed technology or without making
use of licensed know-how.

(b) The licensee must not be obliged to assign to the
to a third party designated by the
new

licensor or
licensor
to
applications of the licensed technology.

improvements

rights

or

to

95. Article 4(2)(b)(iv) brings under the block exemption an
obligation on the licensee not to sell to end users and
thus only to sell to retailers. Such an obligation allows
the licensor to assign the wholesale distribution function
and normally falls outside Article
to the
81(1) (44).

licensee

(c) The licensee must not be prevented from challenging
the validity or contest the secrecy or substantiality of
intellectual property rights held by the licensor in the
common market. However, if the licensee challenges
the validity of the licensed technology the licensor is
entitled under the TTBER to terminate the licence
agreement.

96. Finally, Article 4(2)(b)(v) brings under

the block
exemption a restriction on the licensee not to sell to
the
unauthorised distributors. This exception allows

The purpose of Article 5(1)(a),
is to avoid
block exemption of agreements that may reduce the
incentive of licensees to innovate.

(b) and (c)

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improvements,

99. An obligation to assign to the licensor or grant him an
exclusive licence to severable improvements of
the
licensed technology is likely to reduce the licensee's
incentive to innovate since it hinders the licensee in
including by way of
exploiting his
licensing to third parties. This is the case both where
the improvement concerns the same application as the
licensed technology and where the licensee develops new
applications of
the licensed technology. According to
Article 5(1)(a) and (b) such obligations are not block
exempted. On the other hand,
the block exemption
covers non-exclusive grant back obligations. This is so
also where the grant back obligation is non-reciprocal,
i.e. only imposed on the licensee, and where under the
entitled to feed-on the
is
agreement
improvements to other licensees. A non-reciprocal grant
back obligation may promote
innovation and the
dissemination of new technology by permitting the
licensor to freely determine whether and to what extent
to pass-on his own improvements to his licensees. A
feed-on clause may also promote the dissemination of
technology because each licensee knows at the time of
contracting that he will be on an equal footing with other
the technology on the basis of
licensees in terms of
which he is producing. The block exemption covers in
addition exclusive grant backs concerning non-severable
improvements. The latter obligation, however, normally
falls outside Article 81(1), because the improvement
cannot be exploited independently of the licensed tech-
nology.

licensor

the

100. The application of Article 5(1)(a) and (b) does not depend
on whether or not the licensor pays a purchase price or
royalties in return for acquiring the improvement or for
obtaining an exclusive licence. However, the existence or
otherwise of such payments is a factor to be taken into
account in an individual assessment under Article 81.
When grant backs are made against consideration it is
less likely that the obligation creates a disincentive for the
licensee to innovate.

is also a relevant

101. In the assessment of grant backs outside the scope of the
block exemption the market position of the licensor on
the technology market
factor. The
stronger the position of the licensor, the more likely it
is that grant back obligations will have restrictive effects
on competition in innovation. The stronger the position
of the licensor's technology, the more likely it is that the
licensee will be an important source of innovation and
future competition. The impact of grant back obligations
can also be enhanced in case of parallel networks of
licence agreements containing such obligations. When
available
limited
number of licensors that impose grant back obligations
on licensees, the risk of anti-competitive effects is greater
than where there are a number of
technologies only
some of which are licensed on grant back terms.

controlled by a

technologies

are

102. The risk of negative effects on innovation is higher in the
case of cross licensing between competitors where a
grant back obligation is combined with an obligation
on each licensor
to share with the other party
improvements of his technology. The sharing of all
improvements
both
competitors from gaining a competitive lead over the
other.

competitors

prevents

between

103. The

that

the fact

in Article 5(1)(c)

condition set out

concerns
non-challenge clauses,
i.e. obligations not to challenge
the validity of the licensor's intellectual property. The
reason for excluding such restrictions from the scope of
licensees are
the block exemption is
normally in the best position to determine whether or
not an intellectual property right is invalid. In the interest
of undistorted competition and in conformity with the
principles underlying
intellectual
the protection of
invalid intellectual property rights should be
property,
eliminated. Invalid intellectual property stifles innovation
rather than promoting it. Article 81(1) is likely to apply
to non-challenge clauses where the licensed technology is
valuable and therefore creates a competitive disadvantage
for undertakings that are prevented from using it or are
only able to use it against payment of royalties (45). In
such cases the conditions of Article 81(3) are unlikely to
be fulfilled except where the non-challenge obligation is
imposed in the context of the settlement of a patent
dispute.

104. The TTBER, however, does cover the possibility for the
licensor to terminate the licence agreement in the event
of a challenge of the licensed technology. Accordingly,
the licensor is not forced to continue dealing with a
licensee that challenges the very subject matter of the
licence agreement,
implying that upon termination any
further use by the licensee of the challenged technology
is at the challenger's own risk. Article 5(1)(c) ensures,
however, that the TTBER does not cover contractual obli-
gations obliging the licensee not to challenge the licensed
technology, which would permit the licensor to sue the
licensee for breach of contract and thereby create a
further disincentive for the licensee to challenge the
technology. The provision
validity of
thereby ensures
same
licensee
position as third parties.

the licensor's
the
that

in the

is

105. The restraint covered by Article 5(2), which concerns
quantity
in
imposed
non-reciprocal licenses between competitors, has already
been explained in point 80 above.

limitations

on the

licensee

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in

of

agreements

limiting the ability of
to carry out

from the scope of
106. Article 5(3) excludes
the
case
any direct or

the block
between
exemption,
non-competitors,
indirect obligation
limiting the licensee's ability to exploit his own tech-
the parties to the
nology or
agreement
research and development,
unless such latter restriction is indispensable to prevent
the disclosure of licensed know-how to third parties. The
content of this condition is the same as that of Article
list concerning agreements
4(1)(d) of
between competitors, which is dealt with in points 80
and 81 above. However,
in the case of agreements
between non-competitors it cannot be presumed that
such restrictions have negative effects on competition
and that the conditions of Article 81(3) are generally
not satisfied (46). Individual assessment is required.

the hardcore

are

block

exemption the parties

107. In the case of agreements between non-competitors, the
licensee normally does not own a competing technology.
However, there may be cases where for the purposes of
the
considered
non-competitors in spite of the fact that the licensee
does own a competing technology. This is the case
where the licensee owns a technology but does not
licence it and the licensor is not an actual or potential
supplier on the product market. For the purposes of the
block exemption the parties are in such circumstances
neither competitors on the technology market nor
competitors on the product market (47). In such cases, it
is important to ensure that the licensee is not restricted
in his ability to exploit own technology and further
develop it. This technology constitutes a competitive
constraint in the market, which should be preserved. In
such a situation restrictions are therefore normally
considered to be restrictive of competition and not to
satisfy the conditions of Article 81(3).

(potential) source of

108. In cases where the licensee does not own a competing
technology or is not already developing such a tech-
nology, a restriction on the ability of
the parties to
carry out independent research and development may
be restrictive of competition where only a few tech-
nologies are available. In that case the parties may be
an important
innovation in the
market. This is particularly so where the parties possess
further
the necessary assets and skills to carry out
research and development. In that case the conditions
of Article 81(3) are unlikely to be fulfilled.
In other
cases, where several
technologies are available and
where the parties do not possess special assets or skills,
the restriction on research and development is likely to
either fall outside Article 81(1)
for lack of restrictive
effect or satisfy the conditions of Article 81(3). The
restraint may promote the dissemination of new tech-
nology by assuring the licensor that the licence does

not create a new competitor and by inducing the licensee
to focus on the exploitation and development of the
licensed technology.

6. Withdrawal and disapplication of the Block Exemption

Regulation

6.1. Withdrawal procedure

109. According to Article 6 of the TTBER the Commission
and the competition authorities of the Member States
may withdraw the benefit of the block exemption in
respect of individual agreements that do not fulfil the
the
conditions of Article 81(3). The power of
competition authorities of
to
States
withdraw the benefit of the block exemption is limited
to cases where the relevant geographic market
is no
wider than the territory of the Member State in question.

the Member

110. The four conditions of Article 81(3) are cumulative and
must all be fulfilled for
the exception rule to be
applicable (48). The block exemption can therefore be
withdrawn where a particular agreement
fails one or
more of the four conditions.

111. Where the withdrawal procedure is applied, the with-
drawing authority bears the burden of proving that the
agreement falls within the scope of Article 81(1) and that
four conditions of
the agreement does not satisfy all
Article 81(3). Given that withdrawal
the
implies that
agreement
restrictive of competition
in question is
within the meaning of Article 81(1) and does not fulfil
the conditions of Article 81(3), withdrawal is necessarily
accompanied by a negative decision based on Articles 5,
7 or 9 of Regulation (EC) No 1/2003.

112. According to Article 6 withdrawal may in particular be

warranted in the following circumstances:

1. access of third parties' technologies to the market is
for instance by the cumulative effect of
restricted,
parallel networks of similar
restrictive agreements
imposing on licensees not to use third party tech-
nology;

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2. access of potential licensees to the market is restricted,
for
instance by the cumulative effect of parallel
networks of similar restrictive agreements preventing
licensors from licensing to other licensees;

Article 2 of the TTBER and the block exemption does not
apply. For all these reasons the Commission will examine
very closely cases of non-exploitation.

3. without any objectively valid reason the parties refrain

from exploiting the licensed technology.

6.2. Disapplication of the Block Exemption Regulation

115. Article 7 of

the TTBER enables the Commission to
exclude from the scope of the TTBER, by means of regu-
lation, parallel networks of similar agreements where
these cover more than 50 % of a relevant market. Such
a measure is not addressed to individual undertakings but
concerns all undertakings whose agreements are defined
in the regulation disapplying the TTBER.

116. Whereas withdrawal of the benefit of the TTBER by the
Commission under Article 6 implies the adoption of a
decision under Articles 7 or 9 of Regulation (EC) No
1/2003, the effect of a Commission disapplication regu-
lation under Article 7 of the TTBER is merely to remove,
in respect of the restraints and the markets concerned,
the benefit of the application of the TTBER and to restore
the full application of Article 81(1) and (3). Following the
adoption of a regulation declaring the TTBER inap-
plicable for a particular market in respect of agreements
containing certain restraints, the criteria developed by the
the Community Courts and by
relevant case law of
notices
the
and
Commission will give guidance on the application of
Article 81 to individual agreements. Where appropriate,
the Commission will take a decision in an individual case,
which can provide guidance to all
the undertakings
operating on the market concerned.

decisions

previous

adopted

by

aim at

ensuring

restrictions of

113. Articles 4 and 5 of the TTBER, containing the list of
competition and excluded
hardcore
provisions,
that block exempted
agreements do not reduce the incentive to innovate, do
not delay the dissemination of technology, or do not
unduly restrict competition between the licensor and
licensee or between licensees. However,
the list of
hardcore restrictions and conditions do not as such
take into account the impact of the agreement on third
parties. In particular, the block exemption does not take
account of any cumulative effect of similar restrictions
licence agreements. Licence
contained in networks of
agreements may lead to foreclosure of
third parties
both at the level of the licensor and at the level of the
licensee. Foreclosure of other licensors may stem from
the cumulative effect of networks of licence agreements
imposing on the licensees not to exploit competing tech-
nologies,
leading to the exclusion of other (potential)
licensors. Foreclosure is likely to arise in cases where
most of
that could
the undertakings on the market
(efficiently)
take a competing licence are prevented
from doing so as a consequence of restrictive agreements
licensees are facing relatively high
and where potential
barriers to entry. Foreclosure of other licensees may stem
from the
agreements
imposing on licensors not to licence other licensees and
thereby preventing potential
from gaining
access to the necessary technology. The issue of fore-
closure is examined in more detail
in section IV.2.7
below.

cumulative

effect of

licensees

licence

114. The Commission is also likely to withdraw the benefit of
the block exemption where the parties refrain from
exploiting the licensed technology, unless they have an
objective justification for doing so.
Indeed, when the
parties do not exploit the licensed technology, no effi-
ciency enhancing integration of activity takes place,
in
which case the very rationale of the block exemption
disappears. In the case of licensing between competitors,
the fact that the parties do not exploit the licensed tech-
nology may be an indication that the arrangement is a
disguised cartel
list of hardcore
restrictions of competition contained in Article 4 of the
TTBER. Moreover, where it is clear that the licensee does
not intend to use the licensed technology for the purpose
of producing goods and services
incorporating the
licensed technology, the agreement does not constitute
a technology transfer agreement within the meaning of

covered by

the

117. For the purpose of calculating the 50 % market coverage
ratio, account must be taken of each individual network
of
licence agreements containing restraints, or combi-
nations of restraints, producing similar effects on the
market.

118. Article 7 does not entail an obligation on the part of the
Commission to act where the 50 % market-coverage ratio
is exceeded.
In general, disapplication is appropriate
when it is likely that access to the relevant market or
competition therein is appreciably restricted. In assessing
the need to apply Article 7, the Commission will consider
whether individual withdrawal would be a more appro-
priate remedy. This may depend,
in particular, on the
number of competing undertakings contributing to a
cumulative effect on a market or
the number of
affected geographic markets within the Community.

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the

licensing restraint

119. Any regulation adopted under Article 7 must clearly set
out its scope. This means, first, that the Commission
must define
and geographic
relevant product
market(s) and, secondly, that it must identify the type
in respect of which the TTBER
of
will no longer apply. As regards the latter aspect, the
Commission may modulate the scope of its regulation
according to the competition concern which it intends
to address. For instance, while all parallel networks of
non-compete arrangements shall be taken into account
in view of establishing the 50 % market coverage ratio,
the Commission may nevertheless restrict the scope of
the disapplication regulation only to non-compete obli-
gations exceeding a certain duration. Thus, agreements of
a shorter duration or of a less restrictive nature might be
left unaffected, due to the lesser degree of foreclosure
attributable to such restraints. Where appropriate, the
Commission may also provide guidance by specifying
in the specific market
the market share level which,
context, may be regarded as insufficient to bring about
a significant contribution by an individual undertaking to
the cumulative effect. In general, when the market share
of the products incorporating a technology licensed by
an individual licensor does not exceed 5 %, the agreement
or network of agreements covering that technology is not
considered to contribute significantly to a cumulative
foreclosure effect (49).

120. The transitional period of not less than six months that
the Commission will have to set under Article 7(2)
should allow the undertakings concerned to adapt their
agreements to take account of the regulation disapplying
the TTBER.

restrictive
thresholds
required.

effects merely because
exceeded.
are

Individual

the market

assessment

share
is

1.1. The relevant factors

123. In the application of Article 81(1) to individual cases it is
the way in which
necessary to take due account of
competition operates on the market
in question. The
following factors are particularly relevant in this respect:

(a) the nature of the agreement;

(b) the market position of the parties;

(c) the market position of competitors;

(d) the market position of buyers of

the

licensed

products;

(e) entry barriers;

(f) maturity of the market; and

121. A regulation disapplying the TTBER will not affect the
block exempted status of the agreements concerned for
the period preceding its entry into force.

(g) other factors.

IV. APPLICATION OUTSIDE THE SCOPE OF THE BLOCK

EXEMPTION REGULATION

1. The general framework for analysis

The importance of individual factors may vary from case
to case and depends on all other factors. For instance, a
high market share of
the parties is usually a good
indicator of market power, but in the case of low entry
barriers it may not be indicative of market power. It is
therefore not possible to provide firm rules on the
importance of the individual factors.

share

thresholds

the agreement

122. Agreements that fall outside the block exemption, for
are
the market
example because
exceeded or
involves more than two
parties, are subject to individual assessment. Agreements
that either do not
restrict competition within the
meaning of Article 81(1) or which fulfil the conditions
of Article 81(3) are valid and enforceable. It is recalled
that there is no presumption of illegality of agreements
that
the block exemption
provided that they do not contain hardcore restrictions
of competition. In particular, there is no presumption of

fall outside the scope of

It

the agreement

is therefore important
in terms of

124. Technology transfer agreements can take many shapes
to analyse the
and forms.
the competitive
nature of
relationship between the parties and the restraints that
In the latter regard it is necessary to go
it contains.
beyond the
agreement. The
terms of
existence of implicit restraints may be derived from the
way in which the agreement has been implemented by
the parties and the incentives that they face.

express

the

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125. The market position of the parties provides an indication of
the degree of market power,
if any, possessed by the
licensor, the licensee or both. The higher their market
share the greater their market power is likely to be.
This is particularly so where the market share reflects
cost
advantages
vis-à-vis competitors. These competitive advantages may
for instance result from being a first mover in the market,
from holding essential patents or from having superior
technology.

competitive

advantages

other

or

126. In analysing the competitive relationship between the
parties it
is sometimes necessary to go beyond the
analysis set out in the above sections II.3 on market
definition and II.4 on the distinction between competitors
and non-competitors. Even where the licensor is not an
actual or potential supplier on the product market and
the licensee is not an actual or potential competitor on
the technology market,
to the analysis
is relevant
whether
the licensee owns a competing technology,
which is not being licensed. If the licensee has a strong
position on the product market, an agreement granting
him an exclusive licence to a competing technology can
compared to the
restrict
situation where
an
exclusive licence or would licence other undertakings.

licensor would not grant

competition significantly

the

it

127. Market shares and possible competitive advantages and
disadvantages are also used to assess the market position of
competitors. The stronger the actual competitors and the
greater their number, the less risk there is that the parties
will be able to individually exercise market power.
However, if the number of competitors becomes rather
small and their market position (size, costs, R & D
potential, etc.)
this market structure
may increase the risk of collusion.

is rather similar,

is

128. The market position of buyers provides an indication of
whether or not one or more buyers possess buyer
indicator of buying power
power. The first
the
market share of
the buyer on the purchase market.
This share reflects the importance of his demand for
possible suppliers. Other indicators focus on the market
position of
including
the buyer on his resale market
characteristics such as a wide geographic spread of his
outlets, and his image amongst final consumers. In some
circumstances buyer power may prevent
the licensor
and/or the licensee from exercising market power on
the market and thereby solve a competition problem
that would otherwise have existed. This is particularly
so when strong buyers have the capacity and the
incentive to bring new sources of supply on to the
market in the case of a small but permanent increase
in relative prices. Where the strong buyers merely
favourable terms from the supplier or simply
extract
pass on any price increase to their customers,
the
position of the buyers is not such as to prevent the

exercise of market power by the licensor or licensee on
the product market and therefore not such as to solve the
competition problem on that market (50).

129. Entry barriers are measured by the extent

tariffs,

import

property

intellectual

to which
incumbent companies can increase their price above
In the
the competitive level without attracting entry.
absence of entry barriers, easy and quick entry will
render such price increases unprofitable. When effective
entry, preventing or eroding the exercise of market
power, is likely to occur within one or two years, entry
barriers can, as a general rule, be said to be low. Entry
barriers may result from a wide variety of factors such as
economies of scale and scope, government regulations,
especially where they establish exclusive rights, state
rights,
aid,
ownership of resources where the supply is limited due
to for instance natural
limitations, essential facilities, a
first mover advantage and brand loyalty of consumers
created by strong advertising over a period of
time.
Restrictive agreements entered into by undertakings
may also work as an entry barrier by making access
more difficult and foreclosing (potential) competitors.
Entry barriers may be present at all
the
research and development, production and distribution
process. The question whether certain of these factors
should be described as entry barriers depends on
whether they are related to sunk costs. Sunk costs are
those costs which have to be incurred to enter or be
active on a market but which are lost when the market
is exited. The more costs are sunk, the more potential
entrants have to weigh the risks of entering the market
and the more credibly incumbents can threaten that they
will match new competition, as sunk costs make it costly
In general, entry
for incumbents to leave the market.
requires sunk costs, sometimes minor and sometimes
major. Therefore, actual competition is in general more
effective and will weigh more in the assessment of a case
than potential competition.

stages of

130. A mature market is a market that has existed for some
time, where the technology used is well known and wide-
spread and not changing very much and in which
demand is
In such a
relatively stable or declining.
market negative effects are more likely than in more
dynamic markets.

i.e.

the coverage of

131. In the assessment of particular restraints other factors may
have to be taken into account. Such factors include the
cumulative effect,
the market by
similar agreements, the duration of the agreements, the
regulatory environment and behaviour that may indicate
or facilitate collusion like price leadership, pre-announced
price changes and discussions on the ‘right’ price, price
rigidity in response to excess capacity, price discrimi-
nation and past collusive behaviour.

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1.2. Negative effects of licence agreements

132. The negative effects on competition on the market that
may result from technology transfer agreements are, in
particular, the following:

high degree of commonality of costs. However, this is
not necessarily the case. Even where production on the
basis of the licensed technology makes up a substantial
part of the cost structures of the undertakings concerned,
in efficiency in
individual undertakings may differ
operating the technology and may also use different
inputs, leading to different costs.

1. reduction of

inter-technology competition between
the companies operating on a technology market or
for products incorporating the tech-
on a market
nologies
of
question,
in
collusion, both explicit and tacit;

facilitation

including

2. foreclosure of competitors by raising their costs,
or

restricting
to essential
otherwise raising barriers to entry; and

inputs

access

their

3. reduction of

intra-technology competition between
undertakings that produce products on the basis of
the same technology.

133. Technology transfer agreements may reduce inter-tech-
i.e. competition between under-
nology competition,
licence or produce on the basis of
takings
that
substitutable technologies. This
is particularly so in
cases where reciprocal obligations are being imposed.
For instance, where competitors transfer competing tech-
nologies to each other and impose a reciprocal obligation
improvements,
to provide
each other with future
competition on innovation between the parties
is
restricted, because neither competitor will be able to
gain a technological
lead over the other. Where the
arrangement does not lead to an efficiency enhancing
integration of
the
outweighs
technologies, which
restrictive effects, the agreement violates Article 81.

134. Licensing between competitors may

also facilitate
collusion. Collusion normally requires that the market
is concentrated and that
the undertakings concerned
have similar views on what is in their common interest
and how the coordination mechanisms function. For
collusion to work the undertakings must also be able
to monitor each other's market behaviour and react to
and deter deviation from the common policy on the
market. Agreements can facilitate collusion by increasing
transparency in the market and by raising barriers to
entry. Collusion can also be facilitated by licensing
agreements that lead to a high degree of commonality
of costs, because undertakings that have similar costs are
more likely to have similar views on the terms of coor-
dination (51). Use of the same technology may lead to a

135. In the context of licence agreements royalties can be used
as a direct means of collusion, cf. point 77 above. The
risk of collusion is particularly high in the case of cross
licensing between competitors. Similar risks may occur
where one competitor licenses a technology to another
competitor against payment of royalties and purchases
from that competitor a component, which is incor-
porated into the product
in respect of which they
compete.

inter-technology
136. Licence agreements may also affect
competition by creating barriers
to entry for and
expansion by competitors. Such foreclosure effects may
stem from restraints that prevent licensees from licensing
from third parties or create disincentives for them to do
so. Third parties may for instance be foreclosed where
incumbent licensors impose non-compete obligations on
licensees to such an extent that an insufficient number of
licensees are available to third parties and where entry at
the level of licensees is difficult. Suppliers of substitute
technology may also be foreclosed where a licensor with
a sufficient degree of market power ties together various
parts of a technology and licenses them together as a
package while only part of the package is essential to
produce a certain product.

is

also

reduced where

competition between them.

137. Licence agreements may also reduce intra-technology
competition, i.e. competition between undertakings that
the same technology. An
produce on the basis of
agreement
imposing territorial restraints on licensees,
preventing them from selling into each other's territory
Intra-technology
reduces
competition
licensor
undertakes to appoint only one or a limited number of
licensees or to limit their output to certain quantities.
Such agreements foreclose potential
licensees and may
also reduce
competition between existing licensees.
Licence agreements may also reduce intra-technology
competition by facilitating collusion between licensees.
Moreover,
reduce intra-tech-
nology competition may facilitate collusion between
owners of competing technologies or reduce inter-tech-
nology competition by raising barriers to entry.

licence agreements

that

the

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1.3. Positive

of
framework for analysing such effects

restrictive

effects

licence

agreements

and the

138. Restrictive

also

effects

licence

form of

agreements may

produce
pro-competitive
efficiencies,
in the
which may outweigh their anti-competitive effects. This
assessment takes place within the framework of Article
81(3), which contains an exception from the prohibition
rule of Article 81(1). For this exception to be applicable
the licence agreement must produce objective economic
benefits, the restrictions on competition must be indis-
pensable to attain the efficiencies, consumers must
receive a fair share of
the efficiency gains, and the
agreement must not afford the parties the possibility of
eliminating competition in respect of a substantial part of
the products concerned.

to

the

assets.

necessary

production

139. As far as efficiencies are concerned, licence agreements
have in particular the potential of bringing together
complementary technologies and other assets allowing
new or improved products to be put on the market or
existing products to be produced at lower cost. Outside
the context of hardcore cartels,
licensing often occurs
because it is more efficient for the licensor to licence
the technology than exploiting it himself. This may
particularly be the case where the licensee already has
access
The
agreement allows the licensee to gain access to a tech-
nology that can be combined with these assets, allowing
him to exploit new or improved technologies. Another
example of potentially efficiency enhancing licensing is
where the licensee already has a technology and where
the combination of this technology and the licensor's
technology gives rise to synergies. When the two tech-
nologies are combined the licensee may be able to attain
a cost/output configuration that would not otherwise be
possible. Licence agreements may also give rise to effi-
ciencies at the distribution stage in the same way as
vertical distribution agreements. Such efficiencies can
take the form of cost savings or
the provision of
valuable services to consumers. The positive effects of
vertical agreements are described in the Guidelines on
Vertical Restraints (52). A further example of possible effi-
ciency gains is agreements whereby technology owners
assemble a technology package for licensing to third
parties. Such pooling arrangements may in particular
reduce transaction costs as licensees do not have to
conclude separate licence agreements with each licensor.

individual

restrictions make

140. In the application of the indispensability test contained in
Article 81(3), the Commission will in particular examine
whether
it possible to
perform the activity in question more efficiently than
the
would have been the case in the absence of
agreement or the restriction concerned. If the application
of what would appear to be a less restrictive alternative
the
would lead to a significant
restriction in question is treated as indispensable.
In
it may also be necessary to
some cases, however,

loss of efficiencies,

examine whether the agreement as such is indispensable
to achieve the efficiencies. This may for example be so in
the case of technology pools that include complementary
but non-essential technologies (53), in which case it must
be examined to what extent such inclusion gives rise to
particular efficiencies or whether the pool without a
significant
loss of efficiencies can be limited to tech-
nologies for which there are no substitutes. In the case
of simple licensing between two parties it is as a general
rule not necessary to go beyond an examination of the
indispensability of individual restraints. Normally there is
no less restrictive alternative to the licence agreement as
such.

the efficiency gains must

141. The condition that consumers must receive a fair share of
the benefits implies that consumers of
the products
produced under the licence must at least be compensated
for the negative effects of the agreement (54). This means
that
the likely
negative impact on prices and output caused by the
It may do so by impacting on the cost
agreement.
structure of
the undertakings concerned, giving them
an incentive to reduce price, or by allowing consumers
to gain access to new or improved products, compen-
sating for any likely price increase.

fully off-set

142. The last condition of Article 81(3), according to which
the agreement must not afford the parties the possibility
of eliminating competition in respect of a substantial part
of the products concerned, presupposes an analysis of
remaining competitive pressures on the market and the
impact of the agreement on such sources of competition.
In the application of the last condition of Article 81(3)
the relationship between Article 81(3) and Article 82
must be taken into account. According to settled case
law the application of Article 81(3) cannot prevent the
application of Article 82 of the Treaty (55). Moreover,
since Articles 81 and 82 both pursue the aim of main-
taining effective competition on the market, consistency
requires that Article 81(3) be interpreted as precluding
any application of
the exception rule to restrictive
agreements
that constitute an abuse of a dominant
position (56).

143. The fact that the agreement substantially reduces one
dimension of competition does not necessarily mean
that competition is eliminated within the meaning of
instance, can
Article 81(3). A technology pool,
result in an industry standard, leading to a situation in
which there is little competition in terms of the tech-
nological format. Once the main players in the market
adopt a certain format, network effects may make it very
difficult for alternative formats to survive. This does not

for

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imply, however, that any creation of a de facto industry
standard eliminates competition within the meaning of
the last condition of Article 81(3). Within the standard
suppliers may compete on price, quality and product
to
features. However,
comply with Article 81(3), it must be ensured that the
agreement does not restrict such competition or unduly
restrict future innovation.

the agreement

in order

for

licensor's trade mark or indicate the name of the licensor
on the product.

2.1. Royalty obligations

2. The application of Article 81 to various types of

licensing restraints

144. This section deals with various types of restraints that are
common to licence agreements and which may be
restrictive of competition. Restraints that have already
been dealt with in the preceding parts of these guidelines,
in particular sections III.4 and III.5, are only dealt with in
the present section to a limited extent.

145. This

covers

section

agreements

between
both
non-competitors and agreements between competitors.
the latter a distinction is made, where
In respect of
and non-reciprocal
appropriate, between reciprocal
agreements. No such distinction is required in the case
of agreements between non-competitors. When under-
takings are neither actual nor potential competitors on
a relevant technology market or on a market for products
incorporating the licensed technology, cross licensing is
for all practical purposes no different than two separate
licences. Cross licensing is defined as an arrangement
whereby one party grants a licence to the other party
and obtains a licence from that other party and both
licensed technologies are for internal use. This term
does not
arrangements whereby the parties
assemble a technology package, which is licensed to
third parties. Such arrangements are defined as tech-
nology pools, which are dealt with in section 4.

cover

146. This section does not deal with obligations in licence
agreements that,
the circumstances of
irrespective of
the case, are not restrictive of competition within the
meaning of Article 81(1). These obligations include but
are not limited to: (a) confidentiality obligations; (b) obli-
gations on licensees not to sub-licence; (c) obligations not
to use the licensed technology after the expiry of the
technology
agreement, provided
remains valid and in force; (d) obligations to assist the
licensor in enforcing the licensed intellectual property
rights;
(e) obligations to pay minimum royalties or to
produce a minimum quantity of products incorporating
the licensed technology; and (f) obligations to use the

licensed

that

the

agreements

147. The parties to a licence agreement are normally free to
determine the royalty payable by the licensee and its
mode of payment without being caught by Article
81(1). This principle
applies both to agreements
between
and
competitors
between
non-competitors subject to what has already been said
about licensing between competitors in points 77 and
135 concerning reciprocal
royalty payments and in
point 78 concerning royalties on products that do not
incorporate the licensed technology. In the context of
cross-licensing between competitors royalty obligations
may amount
to price fixing and thus constitute a
hardcore restriction of competition. When the royalty
to products produced with the
obligation extends
the
licensee's own technology the agreement
licensee's
less
competitive.

raises
technology

renders

costs

and

his

148. Royalty obligations may for instance take the form of
lump sum payments, a percentage of the selling price
or a fixed amount for each product incorporating the
licensed technology.
In cases where the licensed tech-
nology relates to an input, which is incorporated into a
rule not restrictive of
final product
competition that royalties are calculated on the basis of
the price of the final product, provided that it incor-
porates
can
licensed technology. The
normally also apply different royalties to each licensee
without falling foul of Article 81(1).

it as a general

licensor

the

149. Notwithstanding the fact that the block exemption only
applies as long as the technology is valid and in force, the
parties can normally without falling foul of Article 81(1)
agree to extend royalty obligations beyond the duration
of the licensed intellectual property rights. Once these
rights expire, third parties can legally exploit the tech-
nology in question and compete with the parties to the
agreement. Such actual and potential competition will
the obligation in
normally suffice
question does not have appreciable anti-competitive
effects. Exceptionally, however, Article 81(1) may be
applicable where third parties are facing significant
barriers to entry, which prevent or delay their entry as
an effective competitive force on the market.
In such
circumstances the agreement may allow a licensor with
substantial market power to preserve such market power
by raising the costs of his (former) licensees, whose use
of the technology no longer depends on the agreement.

to ensure

that

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150. In the case of agreements between non-competitors the
block exemption covers agreements whereby royalties are
calculated on the basis of all products irrespective of
whether the licensed technology is being used. While
the metering of
such arrangements may facilitate
royalties, they may also lead to foreclosure by increasing
the cost of third party input and thus have similar effects
as a non-compete obligation. If the licensee licences a
technology from a third party, the cost of the licence is
increased by the royalty payable to the licensor. Outside
the scope of the block exemption it must therefore be
examined whether the restriction has foreclosure effects.
For that purpose it is appropriate to use the analytical
framework set out in section 2.7. In the case of appre-
ciable foreclosure effects such agreements are caught by
Article 81(1) and unlikely to fulfil
the conditions of
Article 81(3).

2.2. Exclusive licensing and sales restrictions

151. A licence is exclusive for the present purposes where the
licensor undertakes not to licence to any other licensee at
all or not to licence to other licensees within a particular
territory or in respect of a particular customer group. An
exclusive licence as such does not imply that the licensor
is restricted in where he produces products incorporating
the licensed technology or that the licensor and other
licensees are restricted in their sales into the exclusive
territory or to an exclusive customer group. However,
very often exclusive licensing is accompanied by sales
restrictions. As regards these sales restrictions, there is
an important distinction to be made between licensing
between competitors and between non-competitors. Sales
restrictions in licensing agreements between competitors
are identified as hardcore restrictions under Article 4(1)(c)
of the TTBER (see point 81). Sales restrictions in licensing
agreements between non-competitors are dealt with
below (see points 157 to 161).

effect

foreclosure of other

152. Between competitors the restriction on the licensor not
to license other licensees in general or for a particular
territory or customer group, may have as its main anti-
(potential)
competitive
in
licensees. By limiting entry to the market this may,
addition,
facilitate collusion between the parties and
restrict inter-technology competition. This is particularly
so where parties that have a significant position on the
market conclude a reciprocal agreement granting each
other an exclusive licence to their respective technologies.
In that case the parties agree not to licence any third
parties within the scope of the exclusivity.

153. Between non-competitors the restriction on the licensor
not to licence other licensees, in general or in respect of a
particular territory or customer group attributed to the

licensee, may have two main anti-competitive effects: (a)
foreclosure of other (potential) licensees; and (b) reduced
intra-technology
and
licensees and between licensees,
in particular when
combined with sales restrictions.

competition between licensor

154. Exclusive licensing, however, may also give rise to effi-
ciencies. For instance, exclusivity may induce the licensee
to invest more quickly in the exploitation of the licensed
technology. It may also promote continuous investment
by avoiding free riding. The extent to which free riding is
an issue depends on the nature of the products incor-
porating the licensed technology and the extent to which
the licensee is involved in marketing and the provision of
pre-sales services. Where the licensee sells the products
under his own brand, the scope for free riding is more
limited than where the products are sold under a
common brand.

the

licensing without
licensees.

155. It follows from the above that the main anti-competitive
sales
risk attached to exclusive
In the
restrictions is foreclosure of potential
case of
exclusive
agreements between competitors
licensing is block exempted up to the market share
threshold exclusive
threshold of 20 %. Above
licensing between competitors may in particular be
caught by Article 81(1) where the licensee has a
significant degree of market power, entry into the tech-
nology market is difficult and the licensed technology
constitutes a real source of competition on the market.
In such circumstances an exclusive licence may foreclose
third parties and allow the licensee to preserve his market
power. To prevent new entry or expansion of existing
competitors the licensee is likely to be willing to share
his profits with the licensor. Indeed, in order to preserve
his market position the licensee may be willing to pay
more for the exclusive licence than third parties that
would face competition from the licensee.
In such
circumstances it is very unlikely that the conditions of
Article 81(3) would be fulfilled. Even where the combi-
nation of the two technologies gives rise to efficiency
gains, exclusivity is in particular unlikely to be indis-
pensable.

156. In the

a

case of

agreement

between
reciprocal
competitors, whereby the parties grant each other an
exclusive licence to each other's technologies, there is
in addition to the risk of foreclosure of other licensees
a risk that
inter-technology
competition between the parties. In the absence of the
exclusivity both parties could licence third parties which
would constitute a new source of competition on the
market. By agreeing not to do so, the parties ensure

the agreement

reduces

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to be satisfied,

that they will remain the only sources of products incor-
porating the licensed technology. Such agreements are
likely to be caught by Article 81(1) when the parties
have an appreciable degree of market power. In order
it
for the conditions of Article 81(3)
would have to be demonstrated that the licences lead
to an efficiency enhancing integration of technologies
for the benefit of consumers and that exclusivity is
necessary for these efficiencies to be attained. Exclusivity
will normally only be considered necessary where the use
of
sunk
investments. In that case the risks facing the licensees
may be such that exclusivity is required in order to
induce them to make the investments.

technology

requires

licensed

large

the

157. In the case of agreements between non-competitors,
exclusive licensing is block exempted up to the market
share threshold of 30 %. Above the market
share
threshold exclusive licensing as such is unlikely to give
rise to appreciable foreclosure effects unless there are
only a limited number of viable technologies available
on the market and most available technologies are
licensed on exclusivity terms. The effects of foreclosure
are more serious where two or more licensors in separate
bilateral agreements grant exclusive licenses to the same
licensee compared to the situation where the tech-
nologies are licensed to different
licensees. Multiple
exclusive licensing to the same licensee may also facilitate
collusion between licensors that compete on the same
same licensee or
technology market. Licensing the
licensees may allow the licensors
to coordinate on
royalties, i.e. the price for the licence. Such coordination,
is likely to be more difficult in the case of
however,
case of distribution, where
licensing than in the
multiple exclusive dealerships may give rise to more
serious competition concerns (57). However, as in the
case of agreements between competitors, exclusivity
may be necessary in order to induce the licensee to
in the licensed technology in which case the
invest
conditions of Article 81(3) may be fulfilled. Where the
licensee
investments,
substantial
agreements granting an exclusive licence are likely to
fulfil the conditions of Article 81(3) except where there
are no real alternatives to the licensor's technology on the
market or where most of the available technologies have
been licensed to the same licensee.

facing

sunk

is

158. Sales restrictions on the parties in the context of an
exclusive licence are dealt with in section II.4. on the
hardcore list contained in Article 4 of the TTBER and
in point 151 above as far as exclusive licensing between
competitors is concerned. As far as sales restrictions
is recalled
between non-competitors are concerned it
that such restrictions are covered by Article 4(2)(b) of
the TTBER (see points 90 to 96 above). Sales restrictions
are in principle qualified as hardcore restrictions, but this
classification is
important
exceptions.

to a number of

subject

individually has

the market
and passive

159. It is recalled that in the case of agreements between
non-competitors sales restrictions between the licensor
licensees are block exempted up to the
and individual
share
market
threshold. Above
share
sales
threshold restrictions on active
between territories or customer groups reserved for the
licensor and territories and customer groups licensed to
the licensee on an exclusive basis may be caught by
Article 81(1). This may be the case both where the
an appreciable degree of
licensor
market power and in the case of a cumulative effect of
similar
licensors which
concluded
collectively hold a strong position on the market.
However, where the parties are not competitors and
it can be
where on the basis of objective factors,
concluded that in the absence of the sales restrictions,
licensing would not occur, the agreement is not caught
by Article 81(1). This may be the case where the licensor
is active on the same product market as the licensee and
where without the licence the licensee would not have
been on the market. A technology owner cannot
normally be expected to create direct competition with
himself inside his own technology.

agreements

by

160. Sales restrictions on the licensor, when caught by Article
81(1), are likely to fulfil the conditions of Article 81(3)
unless there are no real alternatives to the licensor's tech-
nology on the market or such alternatives are licensed by
the licensee from third parties. Such restrictions and in
particular restrictions on active sales are likely to be
indispensable in order to induce the licensee to invest
in the production, marketing and sale of the products
incorporating the licensed technology.
It is likely that
the licensee's incentive to invest would be significantly
reduced if he would face direct competition from the
licensor whose production costs are not burdened by
royalty payments, possibly leading to sub-optimal levels
of investment.

161. In between licensees,

the TTBER block

exempts
restrictions on active selling between exclusive territories
or exclusive customer groups. Above the market share
threshold restrictions on active sales between licensees'
exclusive territories and customer groups limit intra-tech-
nology competition and are likely to be caught by Article
licensee has an appreciable
81(1) when the individual
degree of market power. Such restrictions, however,
may fulfil the conditions of Article 81(3) where they
are necessary to prevent free riding and to induce the
licensee to make the investment necessary for efficienct
exploitation of the licensed technology inside his territory
and to promote sales of the licensed product. Restrictions
on passive sales are covered by the hardcore list of
Article 4(2)(b),
cf. point 93. Such restrictions are
unlikely to fulfil the conditions of Article 81(3).

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required that

terms (58). Where

licenses creates a de

162. Licence agreements whereby two or more parties cross
licence technologies on an exclusive basis give rise to
particular concerns when the package of technologies
resulting from the cross
facto
industry standard to which third parties must have
access in order to compete effectively on the market. In
such cases
the agreement creates a closed standard
reserved for the parties. The Commission will assess
such arrangements according to the same principles as
those applied to technology pools, see section 4. It will
normally be
technologies, which
the
the standard, be licensed to third parties on
support
the
reasonable
arrangement compete with third parties on a product
to that
market
product market, an exclusivity arrangement between the
parties is likely to have substantial exclusionary effects.
This negative impact on competition can only be avoided
by licensing also to third parties. Where the licensed
technology allows the parties to create a new market
and where accordingly the products produced with the
licensed technology do not
compete with existing
products, exclusivity will assessed in the same way as
licence agreements. Restrictions on the parties
other
licensing their own technology may be caught by
Article 81 but there will normally not be an obligation
on the parties to collectively licence the whole package to
third parties.

agreements

and the

licence

parties

relate

the

to

limit

his technology and to do so as widely as possible. For
to licence his
instance, a licensor may be reluctant
competitors if he could not
the licence to a
particular production site with a specific capacity (a site
licence). Where the licence agreement leads to a real inte-
gration of complementary assets output restrictions on
the licensee may therefore fulfil
the conditions of
Article 81(3). However, this is unlikely to be the case
where the parties have significant market power and
limitation of the
where the agreement leads to a real
licensee's output.

165. Output

restrictions

agreements between
in licence
non-competitors are block exempted up to the market
share threshold of 30 %, provided that the licensor is
not obliged to limit the output of other licensees or
licensees.
the total output of all
is normally
considered that
implementing a
agreement
concerted practice limiting output at the level of the
licensees.

If so it
is

the

2.3. Output restrictions

163. Output

restrictions

restrictions

agreements between
in licence
competitors constitute a hardcore restriction covered by
the TTBER with the exception of
Article 4(1)(b) of
non-reciprocal output
imposed on the
licensee. This latter restriction is not covered by the
hardcore list but is excluded from the block exemption
by way of condition, cf. Article 5(2) of the TTBER, cf.
points 80 and 105 above. Output restrictions on the
licensee may restrict competition where the market
position of the licensee(s) is not insignificant and where
the agreement imposes a real limitation on the licensee's
total output.
In that case the agreement appreciably
restricts competition that existed prior to the agreement.
In making this assessment it is relevant to compare the
quantity restriction with the licensee's output prior to the
agreement and expected market growth. It must also be
taken into account to what extent it is likely that the
licensee will switch entirely to the licensor's technology
or, conversely, whether he will continue to employ his
own technology on a stand alone basis or is actually
doing so.

164. However,

non-reciprocal
between

in
have
agreements
pro-competitive
they may be
necessary in order to induce the licensor to disseminate

output
competitors may
In particular,

restrictions

effects.

also

in

on

licensees

agreements

166. The main anti-competitive risk flowing from output
restrictions
between
non-competitors is reduced intra-technology competition
between licensees. The
such anti-
competitive effects depends on the market position of
the licensor and the licensees and the extent to which
the output limitation imposes a real
limitation on the
sales of each licensee.

significance of

167. Output

and to extend

limitations may also be used to facilitate the
territorial
partitioning of markets
protection beyond what
is allowed under the TTBER
and the present guidelines. The Commission, however,
will not assume that quantity limitations as such serve
this purpose.
It will be otherwise, however, where
quantity limitations are used to implement an underlying
thereof
agreement.
market
include the adjustment of quantities over time to cover
only local demand, differentiated royalty rates depending
on the destination of the products, and the monitoring of
the destination of products sold by individual licensees.

partitioning

Indications

168. When output restrictions are combined with exclusive
territories or exclusive customer groups, the restrictive
effects are increased. The combination of the two types
of restraints makes it more likely that the agreement
serves to partition markets.

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either

169. Output limitations imposed on licensees may also have
pro-competitive effects by promoting the dissemination
of technology. As a supplier of technology the licensor,
like suppliers of physical goods, should normally be free
to determine how much he sells. Since intellectual
property is
incorporated into a production
process or into a product, the way in which a licensor
determines his output is by limiting the licensee's use of
the licensed technology to a certain number of operations
or a certain quantity. If the licensor were not free to
determine the output of
the licensee, a number of
licence agreements might not be concluded in the first
place, which would have a negative impact on the
dissemination of new technology. This is particularly
is also a
likely to be the case where the licensor
producer, since in that case the output of the licensees
may find their way back into the licensor's main area of
impact on these
operation and thus have a direct
likely that
activities. On the other hand,
to ensure
output
technology when
dissemination
the
combined with sales
licensee
imposing on him not
into a territory or
customer group reserved for the licensor.

less
restrictions are necessary in order

licensor's
restrictions on the
to sell

of

is

it

2.4. Field of use restrictions

factor

decisive

170. Under a field of use restriction the licence is either
limited to one or more technical fields of application
or one or more product markets. There are many cases
in which the same technology can be used to make
different products or can be incorporated into products
belonging to different product markets. A new moulding
technology may for instance be used to make plastic
bottles and plastic glasses, each product belonging to
separate product markets. The
is
whether the products incorporating the licensed tech-
nology belong to separate product markets. A restriction
on the licensee based on the use made by the buyer of
the products incorporating the licensed technology is not
a field of use restriction for
these
guidelines. Such a restriction is a customer restriction.
licence agreements whereby one licensee
For instance,
is licensed to produce vehicle transmissions for incor-
poration into cars having engines with four cylinders
or less and another licensee is licensed to produce the
same transmissions for incorporation into cars having
allocates
than four
engines with more
customers between the licensees and is not treated as a
field of use restriction. Customer restrictions are covered
by Article 4(1)(c) and Article 4(2)(b) of the TTBER and
are dealt with in points 81 and 90 to 96.

the purposes of

cylinders

171. In the case of agreements between competitors reciprocal
field of use restrictions and non-reciprocal field of use
restrictions on the licensor are hardcore under Article
4(1)(c) of the TTBER, cf. point 82. Field of use restrictions
covered by Article 4(1)(c) are caught by Article 81(1) and

are very unlikely to fulfil the conditions of Article 81(3),
in particular the third condition on indispensability.

172. Field

licensee

on the

restrictions

use
of
in a
licence between competitors are block
non-reciprocal
exempted up to the market share threshold of 20 %.
The main competitive concern in the case of such
restrictions is the risk that the licensee ceases to be a
competitive force within the scope of the field of use
restriction. Competition concerns may in particular
arise where the licensee's production facility, which is
tooled up to use the licensed technology,
is also used
to produce products covered by the
field of use
If in such cases the agreement is likely to
restriction.
have or has had a negative impact on the licensee's
ability to exploit his own technology within the field of
use restriction imposed by the licensor, causing him to
reduce output, the agreement restricts competition that
existed in the absence of the agreement. In that case the
agreement is likely to be caught by Article 81(1) and is
unlikely to fulfil
the conditions of Article 81(3), as
consumers of the products covered by the field of use
the
restriction are unlikely to receive a fair share of
benefits (59).
is block
exempted, the block exemption is likely to be withdrawn.

in such cases the agreement

If

173. Field

in

of

use

restrictions

agreements

between
non-competitors whereby the licensor reserves one or
more product markets or technical
fields of use for
himself are generally either non-restrictive of competition
or efficiency enhancing. They promote dissemination of
new and valuable technology by giving the licensor an
incentive to licence for exploitation in fields in which he
does not want to exploit the technology himself. If the
licensor could not prevent licensees from operating in
fields where
technology
it would likely create a disincentive for the
himself,
licensor to licence.

exploits

licensor

the

the

174. The licensor is normally also entitled to grant licences to
different licensees limited to one or more fields of use.
Given that the products concerned belong to different
product markets, cf. point 170, such restrictions do not
give rise to the allocation of customers or territories.
However, when combined with exclusivity, i.e. an obli-
gation on the licensor not to grant other licenses within a
particular field of use, such restrictions limit intra-tech-
nology competition between licensees in the same way as
exclusive licensing and are analysed in the same way, cf.
point 2.2.

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2.5. Captive use restrictions

175. A captive use restriction can be defined as an obligation
on the licensee to limit his production of the licensed
product to the quantities required for the production of
his own products and for the maintenance and repair of
his own products.
this type of use
In other words,
restriction takes
the form of an obligation on the
licensee to use the products incorporating the licensed
technology only as an input for incorporation into his
own production, whereas it does not cover the sale of the
licensed product for incorporation into the products of
other producers.

the licensor would not grant

179. Captive use restrictions, however, may also promote
pro-competitive licensing. If the licensor is a supplier of
components, the restraint may be necessary in order for
the dissemination of technology to occur. If on the basis
of objective factors it is likely that in the absence of the
restraint,
the licence,
because doing so would create direct competition to
the licensor on the component market, the restraint is
not caught by Article 81(1)
It is a
condition, however, that the licensee is not restricted in
selling the licensed product as replacement parts for his
own products. The licensee must be able to serve the
after market, including independent service organisations
that service and repair the products produced by the
licensee.

in the first place.

176. Captive use restrictions are block exempted up to the
respective market share thresholds of 20 % and 30 %.
Outside the scope of the block exemption it must be
examined what
and anti-
competitive effects of the restraint. In this respect it is
necessary
between
non-competitors from agreements between competitors.

the pro-competitive

agreements

distinguish

are

to

the licensee was not an actual or

177. In the case of licence agreements between competitors a
restriction that imposes on the licensee to produce under
the licence only for incorporation into his own products
prevents him from being a supplier of components to
third party producers. If prior to the conclusion of the
agreement,
likely
potential supplier of components to other producers,
the captive use restriction does not change anything
compared to the pre-existing situation. In those circum-
stances the restriction is treated in the same way as in the
case of agreements between non-competitors. If, on the
other hand, the licensee is an actual or likely component
supplier, the restriction restricts competition that existed
prior to the agreement and may result in serious negative
market
restriction between
competing component suppliers may have as effect to
share markets between them,
in particular in case of
cross licensing with a reciprocal captive use restraint.
Moreover, if not only the use of the licensed technology
would be limited but also the use of the licensee's own
technology it would amount to a hardcore restriction
under Article 4(1)(c) of the TTBER.

effects. A captive use

178. In

of

the

case

agreements

between
licence
non-competitors there are two main competitive risks
stemming from captive use restrictions: (a) a restriction
of intra-technology competition on the market for the
inputs and (b) an exclusion of arbitrage
supply of
between licensees enhancing the possibility for
the
licensor of imposing discriminatory royalties on licensees.

180. Where the licensor is not a component supplier on the
relevant market, the above reason for imposing captive
use restrictions does not apply. In such cases a captive
use restriction may in principle promote the dissemi-
nation of technology by ensuring that licensees do not
sell to producers that compete with the licensor on other
markets. However, a restriction on the licensee not to sell
into certain customer groups reserved for the licensor
alternative.
normally
Consequently, in such cases a captive use restriction is
normally not necessary for the dissemination of tech-
nology to take place.

constitutes

restrictive

less

a

181. Captive use

restrictions may in addition promote
licensing by allowing the licensor to more effectively
monitor the payment of royalties. Monitoring may be
easier when royalties can be charged on each product
incorporating the input produced on the basis of the
licensed technology. However, where the licensor has a
significant degree of market power, any such efficiency is
unlikely to outweigh the anti-competitive effects.

2.6. Tying

182. In the context of technology licensing tying occurs when
the licensor makes the licensing of one technology (the
tying product) conditional upon the licensee taking a
licence for another technology or purchasing a product
from the licensor or someone designated by him (the tied
product). There is no tying where the tying product is
from the tied product. Technologies or
not distinct
in the
products are considered to be distinct where,
absence of the tie, from the licensee's/buyer's perspective
the technologies or products belong to different markets.
This is normally not the case where the technologies or
products are linked in such a way that the licensed tech-
nology cannot be exploited without the tied product.

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183. Tying is block exempted in the case of agreements
between competitors up to the market share threshold
of 20 % and in the
case of agreements between
non-competitors up to the market share threshold of
30 %. Above the market share threshold it is necessary
to balance the anti-competitive and pro-competitive
effects of tying.

the restraint

the tying product,

184. In cases where the licensor has market power on the
market for the tied product rather than on the market
for
is analysed as
non-compete or quantity forcing, reflecting the fact that
any competition problem has its origin on the market for
the ‘tied’ product and not on the market for the ‘tying’
product (60). Article 3 of the TTBER, which subjects the
application of
the block exemption to market share
thresholds, ensures that such agreements are not block
exempted
thresholds of
respectively 20 % and 30 %. The market share thresholds
apply to any relevant
technology or product market,
including the market for the tied product.

the market

above

share

185. The main restrictive effect of

for

the

tying product. These

tying is foreclosure of
competing suppliers of the tied product. However, tying
may also allow the licensor to increase royalties,
in
particular when the tying product and the tied product
are partly substitutable and the two products are not used
in fixed proportion. Tying prevents the licensee from
switching to substitute inputs in the face of increased
royalties
competition
concerns are independent of whether the parties to the
agreement are competitors or not. For tying to produce
likely anti-competitive effects the licensor must have a
significant degree of market power in the tying product
so as to restrict competition in the tied product. In the
the
absence of market power
anti-
cannot use his
licensor
competitive purpose of foreclosing suppliers of the tied
product. Furthermore, as in the case of non-compete
obligations the tie must cover a certain proportion of
the market for the tied product for foreclosure effects
to occur.

in the tying product
technology for

the

name or where it is otherwise obvious to consumers that
there is a link between the product incorporating the
licensed technology and the licensor, the licensor has a
legitimate interest
in ensuring that the quality of the
products are such that it does not undermine the value
of his technology or his reputation as an economic
operator. Moreover, where it
is known to consumers
the licensees (and the licensor) produce on the
that
basis of
is unlikely that
technology it
licensees would be willing to take a licence unless the
technology is exploited by all in a technically satisfactory
way.

same

the

187. Tying is also likely to be pro-competitive where the tied
product allows the licensee to exploit the licensed tech-
nology significantly more efficiently than other available
alternatives. For instance, where the licensor licenses a
particular process technology, the parties can also agree
that the licensee buy a catalyst from the licensor, which
is developed for use with the licensed technology and
which allows
the technology to be exploited more
efficiently than in the case of other catalysts. Where in
such cases the restriction is caught by Article 81(1), the
conditions of Article 81(3) are likely to be fulfilled also
above the market share thresholds.

2.7. Non-compete obligations

188. Non-compete obligations in the context of technology
licensing take the form of an obligation on the licensee
not to use third party technologies, which compete with
the
a
non-compete obligation covers a product or additional
technology supplied by the licensor the obligation is
dealt with in the preceding section on tying.

technology. To

licensed

extent

that

the

189. The TTBER exempts non-compete obligations both in the
case of agreements between competitors and in the case
of agreements between non-competitors up to the market
share thresholds of 20 % and 30 % respectively.

186. Tying can also give rise to efficiency gains. This is for
instance the case where the tied product is necessary for
a technically satisfactory exploitation of the licensed tech-
nology or for ensuring that production under the licence
conforms to quality standards respected by the licensor
and other licensees. In such cases tying is normally either
not restrictive of competition or covered by Article 81(3).
Where the licensees use the licensor's trademark or brand

190. The main competitive risk presented by non-compete
obligations is foreclosure of
third party technologies.
Non-compete obligations may also facilitate collusion
between licensors in the case of cumulative use. Fore-
closure of competing technologies reduces competitive
pressure on royalties charged by the licensor and
reduces competition between the incumbent technologies
by limiting the possibilities for licensees to substitute

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the

same

in the

between competing technologies. As in both cases, the
main problem is foreclosure, the analysis can in general
be
case of agreements between
competitors and of agreements between non-competitors.
However, in case of cross licensing between competitors
where both agree not to use third party technologies the
agreement may facilitate collusion between them on the
product market, thereby justifying the lower market share
threshold of 20 %.

third parties, since in this case the restriction ties only
production capacity but not demand for the product
incorporating the licensed technology. To enter
the
market in the latter case, licensors only need access to
licensees that have suitable production capacity and
unless only few undertakings possess or are able to
obtain the assets
is
unlikely that by imposing non-compete obligations on
its licensees the licensor is able to deny competitors
access to efficient licensees.

required to take a licence,

it

191. Foreclosure may arise where a substantial part of
potential
in the
licensees are already tied to one or,
case of cumulative effects, more sources of technology
and are prevented from exploiting competing tech-
nologies. Foreclosure effects may result from agreements
concluded by a single licensor with a significant degree of
market power or by a cumulative effect of agreements
concluded by several
licensors, even where each indi-
vidual agreement or network of agreements is covered
by the TTBER. In that case, however, a serious cumu-
lative effect is unlikely to arise as long as less than 50 %
of the market is tied. Above this threshold significant
foreclosure is likely to occur when there are relatively
high barriers to entry for new licensees. If barriers to
the
entry are low, new licensees are able to enter
market and exploit commercially attractive technologies
held by third parties and thus represent a real alternative
to incumbent licensees. In order to determine the real
possibility for entry and expansion by third parties it is
necessary also to take account of the extent to which
distributors are tied to licensees by non-compete obli-
gations. Third party technologies only have a real possi-
bility of entry if
they have access to the necessary
production and distribution assets. In other words, the
ease of entry depends not only on the availability of
licensees but also the extent to which they have access
the
to distribution.
distribution level
the
framework set out in section IV.2.1 of the
analytical
Guidelines on Vertical Restraints (61).

In assessing foreclosure effects at
apply

the Commission will

effects

to occur

foreclosure

appreciable

192. When the licensor has a significant degree of market
power obligations on licensees to obtain the technology
only from the licensor can lead to significant foreclosure
effects. The stronger the market position of the licensor
the higher the risk of foreclosing competing technologies.
For
the
non-compete obligations must not necessarily cover a
substantial part of
the market. Even in the absence
thereof, appreciable foreclosure effects may occur where
non-compete obligations are targeted at undertakings that
are the most likely to licence competing technologies.
The risk of foreclosure is particularly high where there
are only a limited number of potential licensees and the
licence agreement concerns a technology which is used
by the licensees to make an input for their own use. In
such cases demand on the market
is limited to the
licensees. Foreclosure is less likely in cases where the
technology is used to make a product that is sold to

193. Non-compete

also

obligations
effects. First,

may
produce
pro-competitive
such obligations may
promote dissemination of technology by reducing the
in
risk of misappropriation of the licensed technology,
particular know-how. If a licensee is entitled to licence
competing technologies from third parties there is a risk
that particularly licensed know-how would be used in the
exploitation of competing technologies and thus benefit
competitors. When a licensee also exploits competing
technologies,
it normally also makes monitoring of
royalty payments more difficult, which may act as a
disincentive to licensing.

194. Second, non-compete obligations may be necessary to
ensure that the licensee has an incentive to invest in
and exploit
the licensed technology effectively. Often,
however, it will in cases where the agreement is caught
by Article 81(1) be sufficient for that purpose to impose
minimum output or royalty obligations, which normally
have less potential to foreclose competing technologies.

195. Third,

in cases where the licensor undertakes to make
instance in
significant client specific investments for
training and tailoring of the licensed technology to the
licensee's needs, non-compete obligations or alternatively
minimum output or minimum royalty obligations may
be necessary to induce
to make the
the
investment and to avoid hold-up problems. However,
normally the licensor will be able to charge directly for
such investments by way of a lump sum payment,
implying that less restrictive alternatives are available.

licensor

3. Settlement and non-assertion agreements

196. Technology transfer agreements concern the transfer of
technology from licensor to licensee in order to allow the
licensee to exploit the licensor's technology. However, in

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sectors

licensing

becoming

increasingly
is
some
important as a means of settling conflicts or avoiding
that one party exercises his intellectual property rights
to prevent the other party from exploiting his own tech-
nology. Cross licensing in the context of settlement
agreements and non-assertion agreements is not as such
restrictive of competition since they allow the parties to
compete ex post. However,
terms and
the individual
conditions of
such agreements may be caught by
Article 81(1).

197. Agreements

that

impose restrictions on the parties
respective technologies,
their
concerning the use of
including licensing to third parties, are likely to be
caught by Article 81(1). Even if the parties are deemed
to be non-competitors due to the existence of a two-way
blocking position, cf. point 25, such a restraint is likely
for lack of objective
to be caught by Article 81(1)
necessity, cf. point 14. Moreover, such agreements are
unlikely to fulfil the conditions of Article 81(3). The
main benefit of the agreement
is the bringing to an
end of the dispute or the avoidance of future disputes.
to
Cross licensing without any restraints is sufficient
achieve this.

is different, provide for one-way (lump sum) royalties,
reflecting the objective difference in value.

200. In

of

the

and

context

settlement

non-assertion
agreements, non-challenge clauses are considered to
generally fall outside Article 81(1).
in
such agreements that the parties agree not to challenge
ex post the intellectual property rights covered by the
agreement. Indeed, the very purpose of the agreement
to avoid future
is to settle existing disputes and/or
disputes.

is inherent

It

It

the TTBER.

in Article 4 of

201. The block exemption applies provided that the agreement
does not contain any hardcore restrictions of competition
as set out
is recalled,
however, cf. point 34, that according to Article 2 of
the TTBER the block exemption only applies where the
licence is entered into between two undertakings for the
production of products incorporating the licensed tech-
nology.
It follows that the block exemption does not
apply where licenses are granted only for the purpose
of settling a dispute or avoiding future disputes and not
for the purpose of production.

198. Where under the agreement the parties are entitled to use
each other's technology and the agreement extends to
future developments, it needs to be assessed what is the
impact of
incentive to
the agreement on the parties'
innovate. In cases where the parties have an appreciable
degree of market power and where the agreement
prevents the parties from gaining a competitive lead
over each other, the agreement is likely to be caught
by Article 81(1) and is unlikely to fulfil the conditions
of Article 81(3), in particular the condition of indispen-
the
sability. The
achievement of
agreement, namely to ensure
can
continue to exploit their own technology without being
blocked by the other party, does not require that the
parties agree to share future innovations.

the objective of
the parties
that

4. Technology pools

202. Technology pools are defined as arrangements whereby
two or more parties assemble a package of technology
which is not only licensed to members of the pool but
which is also licensed to third parties. In terms of their
structure technology pools can take the form of simple
arrangements between a limited number of parties and
elaborate organisational
the
organisation of the licensing of the pooled technologies
is entrusted to a separate entity. In both cases the pool
may allow licensees to operate on the market on the
basis of a single licence.

arrangements whereby

199. Royalty obligations and other payment schemes in the
context of settlement and non-assertion agreements may
be caught by Article 81(1) when they allow the parties to
coordinate their pricing and are assessed in the same way
as in the case of agreements between competitors, cf.
points 77 and 147. Licenses should be royalty free or,
where the objective value of the technologies in question

203. In some cases the technologies in the pool support
(wholly or partly) a de facto or de jure industry standard.
However, there is no inherent link between technology
pools and standards. When technology pools do support
an industry standard they do not necessarily support a
single
support
standard.
competing standards (62).

pools may

Technology

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204. Agreements establishing technology pools and setting out
the terms and conditions for their operation are not,
irrespective of the number of parties, covered by the
block exemption, cf. section III.2.2. Such agreements
are subject only to these guidelines. Pooling arrangements
give rise to a number of particular issues regarding the
selection of the included technologies and the operation
of the pool, which do not arise in the context of other
types of licensing. The individual licences granted by the
pool to third party licensees, however, are treated like
other licence agreements, which are block exempted
when the conditions set out in the TTBER are fulfilled,
including the requirements of Article 4 of the TTBER
containing the list of hardcore restrictions.

208. Two technologies

are

complements

as opposed to
substitutes when they are both required from a tech-
nological point of view to produce the product or
carry out the process to which the technologies relate.
Conversely, two technologies are substitutes when from a
technological point of view either technology allows the
holder to produce the product or carry out the process to
which the technologies relate. A technology is essential as
opposed to non-essential if there are no substitutes for that
technology inside and outside the pool and the tech-
nology in question constitutes a necessary part of the
package of technologies for the purposes of producing
the product(s) or carrying out the process(es) to which
the pool relates. Technologies that are essential are by
necessity also complements.

205. Technology pools may be restrictive of competition. The
creation of a technology pool necessarily implies joint
selling of the pooled technologies, which in the case of
pools composed of substitute technologies amounts to a
price fixing cartel. Moreover,
in addition to reducing
competition between the parties, technology pools may
also, in particular when supporting an industry standard
or establishing a de
restrict
competition in innovation by foreclosing alternative tech-
nologies. The existence of the standard and the related
technology pool may make it more difficult for new and
improved technologies to enter the market.

facto industry standard,

209. When technologies in a pool are substitutes royalties are
likely to be higher than they would otherwise be, because
licensees do not benefit from rivalry between the tech-
nologies in question. When the technologies in the pool
are complements, the arrangement reduces transaction
costs and may lead to lower overall royalties because
the parties are in a position to fix a common royalty
for the package as opposed to each fixing a royalty,
which does not take account of the royalty fixed by
others.

206. Technology pools can also produce pro-competitive
effects,
in particular by reducing transaction costs. The
creation of a pool allows for one-stop licensing of the
technologies covered by the pool. This is particularly
important in sectors where intellectual property rights
are prevalent and where in order to operate on the
market licenses need to be obtained from a significant
In cases where licensees receive
number of
the
on-going services concerning the application of
licensed technology,
licensing and servicing can
lead to further cost reductions.

licensors.

joint

4.1. The nature of the pooled technologies

207. The competitive risks and the efficiency enhancing
potential of technology pools depend to a large extent
on the relationship between the pooled technologies and
their relationship with technologies outside the pool.
Two basic distinctions must be made, namely between
technological
(a)
complements
substitutes; and (b) essential and non-essential
tech-
nologies.

technological

and

210. The distinction between complement and substitute tech-
nologies is not clear-cut in all cases, since technologies
may be substitutes in part and complements in part.
When due to efficiencies stemming from the integration
of two technologies, licensees are likely to demand both
technologies the technologies are treated as complements
even if they are partly substitutable. In such cases it is
likely that in the absence of the pool
licensees would
want to licence both technologies due to the additional
economic benefit of employing both technologies as
opposed to employing only one of them.

211. From a legal point of view, two technologies are also
complements when they are in a two-way blocking
position. However, as a general rule the Commission
will not consider that the creation of a pool is required
to unblock the blocking positions. As indicated in section
3, the parties can solve the blocking position by granting
a cross licence or concluding a non-assertion agreement

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that allows them both to exploit their respective tech-
nologies independently. The Commission will therefore
treat technology pools comprising blocking patents in
the same way as technology pools comprising substitutes.

212. The inclusion in the pool of substitute technologies
restricts inter-technology competition inside the pools
and amounts to collective tying. Moreover, where the
predominant part of the pool is composed of substitute
technologies, the arrangement amounts to price fixing
between competitors. As a general rule the Commission
considers that
the inclusion in the pool of substitute
technologies constitutes a violation of Article 81(1).
The Commission also considers that it is unlikely that
the conditions of Article 81(3) will be fulfilled in the
case of pools comprising substitute technologies. Given
that
the technologies in question are alternatives no
transaction cost savings accrue from including both tech-
nologies in the pool. In the absence of the pool licensees
would not have demanded both technologies. It is not
sufficient that the parties remain free to licence inde-
pendently. In order not to undermine the pool, which
the
allows
parties are likely to have little incentive to do so.

them to jointly exercise market power,

213. When a pool is composed only of technologies that are
essential and therefore by necessity also complements the
creation of the pool as such generally falls outside Article
81(1) irrespective of the market position of the parties.
However, the conditions on which licences are granted
may be caught by Article 81(1).

already

214. Where non-essential but complementary patents are
included in the pool, there is a risk of foreclosure of
third party technologies. Once a technology is included
in the pool and is licensed as part of
the package,
licensees are likely to have little incentive to licence a
competing technology when the royalty paid for the
technology.
package
Moreover, the inclusion of technologies, which are not
necessary for the purposes of producing the product(s) or
carrying out the process(es) to which the technology pool
relates also forces licensees to pay for technology that
they may not need. The inclusion of complementary
patents thus amounts to collective tying. When a pool
encompasses non-essential technologies the agreement is
likely to be caught by Article 81(1) where the pool has a
significant position on any relevant market.

substitute

covers

a

215. In the assessment of

technologies,

technology pools comprising
non-essential
technologies for which
substitutes exist outside the pool or which are not
necessary in order to produce one or more products to
inter alia,
which the pool relates the Commission will,
take account of the following factors:

i.e.

(a) whether there are any pro-competitive reasons for
including the non-essential technologies in the pool;

and there

is composed of a limited number of
are

(b) whether the licensors remain free to licence their
independently. Where the
tech-
technologies
it may be a viable option for
together their own technological
technology forming
technology owned by

respective technologies
pool
nologies
outside the pool,
licensees to put
package composed partly of
part of
third parties;

the pool partly of

substitute

the

find

technologies

In the latter case,

includes non-essential
pooled

(c) whether the pooled technology is available only as a
single package or whether licensees have the possi-
bility of obtaining a licence for only part of
the
package with a corresponding reduction of royalties.
This possibility is not only relevant in cases where the
technologies but also
pool
where
different
applications some of which do not require use of
all of the pooled technologies. In the former case, a
right to obtain a licence for only part of the package
reduces the risk of foreclosure of third party tech-
nologies outside the pool.
the
right to licence only part of the package avoids that
technologies that are not essential
to a particular
product or process are tied to essential technologies.
Licensing of part of the package is only a real option
if the licensee obtains a corresponding reduction in
royalties. This requires that a share of the overall
royalty has been assigned to each technology in the
pool. Where
concluded
the
licensees are of
between the pool and individual
relatively long duration and the pooled technology
supports a de facto industry standard,
it must also
be taken into account that the pool may foreclose
access to the market of new substitute technologies.
In assessing the risk of foreclosure in such cases, it is
relevant to take into account whether or not licensees
have the right to terminate at reasonable notice part
of the licence and obtain a corresponding reduction
of royalties.

agreements

licence

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4.2. Assessment of individual restraints

216. The purpose of

this section is to address a certain
number of restraints that in one form or another are
commonly found in technology pools and which need
to be assessed in the overall context of the pool. It is
recalled, cf. point 204, that the TTBER applies to licence
agreements concluded between the pool and third party
licensees,
including the list of hardcore restrictions
contained in Article 4 of the TTBER. This section is
therefore limited to addressing the creation of the pool
and licensing issues that are particular to licensing in the
context of technology pools.

217. In making its assessment the Commission will be guided

by the following main principles:

1. The stronger the market position of the pool, the

greater the risk of anti-competitive effects.

2. Pools that hold a strong position on the market

should be open and non-discriminatory.

3. Pools should not unduly foreclose third party tech-
nologies or limit the creation of alternative pools.

218. Undertakings setting up a technology pool are normally
free to negotiate and fix royalties for the technology
package and each technology's share of
the royalties.
Such agreement is inherent in the establishment of the
pool and cannot in itself be considered restrictive of
the tech-
competition.
nologies to be included in the pool is carried out by an
independent expert,
it may allow competition to take
place between available technological solutions. On the
other hand, licensees must be free to determine the price
and the quantity of products produced under the licence.

Indeed, where the selection of

and

other

terms

should

licensing

219. Where the pool has a strong position on the market
royalties
be
non-discriminatory and licenses should be non-exclusive.
Both requirements are necessary to ensure that the pool
is open and does not lead to foreclosure and other anti-
competitive effects on down stream markets. These
requirements, however,
different
royalties for different uses. It is in general not considered
restrictive of competition to apply different royalty rates
to different product markets, whereas there should be no

do not preclude

discrimination within product markets. In particular, the
treatment of licensees should not depend on whether
they
licensors or not. The Commission will
therefore take into account whether licensors are also
subject to royalty obligations.

are

220. Licensors

free

and licensees must be

to develop
competing products and standards and must also be
free to licence outside the pool. These requirements are
necessary in order to limit the risk of foreclosure of third
party technologies and ensure that the pool does not
of
limit
competing
a pool
creates a (de facto)
industry standard and where the
parties are subject to non-compete obligations, the pool
creates a particular risk of preventing the development of
new and improved technologies and standards.

preclude
solutions. Where

technological

innovation

creation

and

the

221. Grant back obligations should be non-exclusive and be
limited to developments that are essential to the use of
the pooled technology. This allows the pool to benefit
from improvements that are closely related to the pooled
technology, while leaving the owners free not to licence
severable improvements to the pool. It is legitimate for
the parties to ensure that the exploitation of the pooled
technology cannot be held up by licensees that hold or
obtain essential patents.

is

the risk that

222. One of the problems identified with regard to patent
they shield invalid patents.
pools
Pooling raises the costs/risks for a successful challenge,
because the challenge fails if only one patent in the pool
is valid. The shielding of invalid patents in the pool may
oblige licensees to pay higher royalties and may also
prevent innovation in the field covered by an invalid
patent. In order to limit this risk any right to terminate
a licence in the case of a challenge must be limited to the
technology owned by the licensor, who is the addressee
the challenge and must not extend to the entire
of
package of pooled technologies.

4.3. The institutional framework governing the pool

223. The way in which a technology pool is created, organised
and operated can reduce the risk of it having the object
competition and provide
or
assurances
is
that
pro-competitive.

restricting
effect

arrangement

effect of

to the

the

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224. When participation in the process

it

selected

technologies for
on the

is open to all
interests,
is
interested parties representing different
inclusion into the
more likely that
basis of price/quality
pool
are
is set up by a
considerations than when the pool
technology owners. Similarly, when
limited group of
the relevant bodies of
the pool are composed of
persons representing different interests, it is more likely
that licensing terms and conditions, including royalties,
will be open and non-discriminatory and reflect the value
of
is
the licensed technology than when the pool
controlled by licensor representatives.

225. Another relevant
experts

involved in the

factor is the extent
are

to which inde-
pendent
creation and
operation of the pool. For instance, the assessment of
whether or not a technology is essential to a pool
is
often a complex matter that requires special expertise.
The involvement in the selection process of independent
experts
a
commitment
technologies is
implemented in practice.

long way in ensuring that

to include only essential

can go a

226. The Commission will take into account how experts are
selected and what are the exact functions that they are to
perform. Experts must be independent from the under-
takings that have formed the pool. If experts are in any
way connected to the licensors or otherwise depend on
them, the involvement of the expert will be given no
weight. Experts must also have the necessary technical

expertise to perform the various functions with which
they have been entrusted. The functions of independent
experts may include,
in particular, an assessment of
whether or not technologies put forward for inclusion
into the pool are valid and whether or not they are
essential
is being
to the technological package that
assembled,
i.e. whether the technologies are necessary
for the purpose of producing the product(s) or carrying
out the pocess(es) to which the pool relates.

227. It

data may

and output

is also relevant

to consider the arrangements for
exchanging sensitive information among the parties. In
oligopolistic markets exchanges of sensitive information
facilitate
such as pricing
collusion (63).
In such cases, the Commission will take
into account to what extent safeguards have been put
in place, which ensure that sensitive information is not
exchanged. An independent expert or licensing body may
play an important role in this respect by ensuring that
output and sales data, which may be necessary for the
purposes of calculating and verifying royalties is not
disclosed to undertakings
that compete on affected
markets.

228. Finally,

it

is relevant

the dispute
to take account of
resolution mechanism foreseen in the
instruments
setting up the pool. The more dispute resolution is
entrusted to bodies or persons that are independent of
the pool and the members thereof, the more likely it is
that the dispute resolution will operate in a neutral way.

(1) OJ L . . . The TTBER replaces Commission Regulation (EC) No 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, p. 2).

(2) See Joined Cases C-395/96 P and C-396/96 P, Compagnie Maritime Belge, [2000] ECR I-1365, paragraph 130, and point 94 of the Commission

Guidelines on the application of Article 81(3) of the Treaty (OJ C . . .).

(3) In the following the term ‘agreement’ includes concerted practices and decisions of associations of undertakings.
(4) See Commission Notice on the concept of effect on trade between Member States contained in Articles 81 and 82 of the Treaty (OJ C . . .).
(5) In the following the term ‘restriction’ includes the prevention and distortion of competition.
(6) This principle of Community exhaustion is for example enshrined in Article 7(1) of Directive 104/89/EEC to approximate the laws of the Member
States relating to trade marks (OJ L 40, 11.2.1989, p. 1), which provides that the trade mark shall not entitle the proprietor to prohibit its use in
relation to goods which have been put on the market in the Community under that trade mark by the proprietor or with his consent.
(7) See in this respect Case 158/86, Warner Brothers and Metronome Video, [1988] ECR 2605, and Case C-61/97, Foreningen af danske videogram-

distributører, [1998] ECR I-5171.

(8) See, e.g. Joined Cases 56/64 and 58/64, Consten and Grundig, [1966] ECR 429.
(9) The methodology for the application of Article 81(3) is set out in the Commission Guidelines on the application of Article 81(3) of the Treaty

cited in note 2.

(10) See in this respect Case C-49/92 P, Anic Partecipazioni, [1999] ECR I-4125, paragraph 99.
(11) See Joined Cases 29/83 and 30/83, CRAM and Rheinzink, [1984] ECR 1679, paragraph 26, and Joined Cases 96/82 and others, ANSEAU-

NAVEWA, [1983] ECR 3369, paragraphs 23-25.

(12) Guidance on the issue of appreciability can be found in Commission notice on agreements of minor importance which do not appreciably restrict
competition under Article 81(1) of the Treaty (OJ C 368, 22.12.2001, p. 13). The notice defines appreciability in a negative way. Agreements,
which fall outside the scope of the de minimis notice, do not necessarily have appreciable restrictive effects. An individual assessment is required.

(13) See Case 56/65, Société Technique Minière, [1966] ECR 337, and Case C-7/95 P, John Deere, [1998] ECR I-3111, paragraph 76.
(14) See in this respect Joined Cases 56/64 and 58/66, Consten and Grundig, [1966] ECR p. 429.
(15) See Article 1(2) of Council Regulation (EC) No 1/2003 on the implementation of the rules on competition laid down in Articles 81 and 82 of the

Treaty (OJ L 1, 4.1.2003, p. 1).

(16) Commission notice on the definition of the relevant market for the purposes of Community competition law (OJ C 372, 9.12.1997, p. 5).

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(17) As to these distinctions see also Commission Guidelines on the applicability of Article 81 of the EC Treaty to horizontal cooperation agreements

(OJ C 3, 6.1.2001, p. 2, points 44 to 52).

(18) See, e.g. point 98 of the Commission Guidelines on Vertical Restraints (OJ C 291, 13.10.2000, p. 1).
(19) See to that effect points 50 to 52 of the Guidelines on horizontal cooperation agreements, cited in note 17.
(20) Idem, point 51.
(21) See in this respect the Notice on agreements of minor importance cited in note 12.
(22) According to Article 3(2) of Regulation (EC) No 1/2003 agreements which may affect trade between Member States but which are not prohibited

by Article 81 cannot be prohibited by national competition law.

(23) See recital 19 of the TTBER.
(24) The present guidelines replace the Commission Notice concerning the assessment of certain subcontracting agreements in relation to Article 81(1)

of the Treaty (OJ C 1, 3.1.1979, p. 2).

(25) See in this respect Commission Decision in Moosehead/Whitbread (OJ L 100, 20.4.1990, p. 32).
(26) See in this respect Case 262/81, Coditel (II), [1982] ECR 3381.
(27) OJ L 336, 29.12.1999, p. 21.
(28) OJ L 304, 5.12.2000, p. 3.
(29) OJ L 304, 5.12.2000, p. 7.
(30) See note 27.
(31) See the guide ‘Competition policy in Europe — The competition rules for supply and distribution agreements’, 2002.
(32) See notes 18 and 27.
(33) The reasons for this calculation rule are explained in point 21.
(34) See, e.g. the case law cited in note 11.
(35) See in this respect point 86 of the Guidelines on the application of Article 81(3) of the Treaty cited in note 2.
(36) This is also the case where one party grants a licence to the other party and accepts to buy a physical input from the licensee. The purchase price

can serve the same function as the royalty.

(37) See in this respect Case 193/83, Windsurfing International, [1986] ECR 611, paragraph 67 and point 14 above, where it is stated that agreements

which restrict actual or potential competition that would have existed in the absence of the agreement are caught by Article 81(1).

(38) Cross licensing of different non-competing technologies is treated as two non-reciprocal licenses.
(39) Field of use restrictions are defined in section IV.2.4 below.
(40) Captive use restrictions are also dealt with in section IV.2.5 below.
(41) As to the distinction between active and passive sales, see the Guidelines on Vertical Restraints cited in note 18, point 50.
(42) See in this respect point 116 of the Guidelines on Vertical Restraints cited in note 18.
(43) See in this respect Case 258/78, Nungesser, [1982] ECR 2015, paragraph 77.
(44) See in this respect Case 26/76, Metro (I), [1977] ECR 1875.
(45) If the licensed technology is outdated no restriction of competition arises, see in this respect Case 65/86, Bayer v Süllhofer, [1988] ECR, p. 5249.
(46) See point 10.
(47) See point 66.
(48) See in this respect point 38 of the Guidelines on the application of Article 81(3) of the Treaty, cited in note 2.
(49) See in this respect point 8 of the Commission Notice on agreements of minor importance, cited in note 12.
(50) See in this respect Case T-228/97, Irish Sugar, [1999] ECR II-2969, paragraph 101.
(51) See in this respect point 23 of the Guidelines on horizontal cooperation agreements, cited in note 17.
(52) Cited in note 18. See in particular points 115 et seq.
(53) As to these concepts see section IV.4.1
(54) See point 74 of the Guidelines on the application of Article 81(3) of the Treaty, cited in note 2.
(55) See paragraph 130 of the judgment cited in note 2. Similarly, the application of Article 81(3) does not prevent the application of the Treaty rules
on the free movement of goods, services, persons and capital. These provisions are in certain circumstances applicable to agreements, decisions
and concerted practices within the meaning of Article 81(1), see to that effect Case C-309/99, Wouters, [2002] ECR I-1577, paragraph 120.
(56) See in this respect Case T-51/89, Tetra Pak (I), [1990] ECR II-309. See also point 95 of the Guidelines on the application of Article 81(3) of the

Treaty cited in note 2 above.

(57) See point 164 of the Guidelines on Vertical Restraints cited in note 18.
(58) See in this respect the Commission's Notice in the Canon/Kodak Case (OJ C 330, 1.11.1997, p. 10).
(59) Benefits for one group of consumers cannot be balanced against harms to another distinct group of consumers, see point 39 of the Guidelines on

the application of Article 81(3) cited in note 2.

(60) For the applicable analytical framework see points 138 et seq. of the Guidelines on Vertical Restraints cited in note 18.
(61) See note 18.
(62) See in this respect the Commission's press release IP/02/1651 concerning the licensing of patents for third generation (3G) mobile services. This

case involved five technology pools creating five different technologies, each of which could be used to produce 3G equipment.

(63) See in this respect the judgment in John Deere cited in note 13.