Commission Notice — Guidelines on the application of Article 81 of the EC Treaty to technology transfer agreements (Text with EEA relevance)
Date: 2004-04-27
Institutions: European Commission
Subjects: competition, technology transfer

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Official Journal of the European Union

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

COMMISSION NOTICE

(2004/C 101/02)

(Text with EEA relevance)

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
the
licensee to exploit
production of goods or services, as defined in Article
1(1)(b) of Commission Regulation (EC) No 773/2004
the Treaty to
on the application of Article 81(3) of
categories
(the
TTBER) (1).

the licensed technology for

agreements

technology

transfer

of

2. The purpose of the guidelines is to provide guidance on
the TTBER as well as on the
the application of
application of Article 81 to technology
transfer
agreements that fall outside the scope of the TTBER.
The TTBER and the guidelines are without prejudice to
the
the possible parallel application of Article 82 of
Treaty to licensing agreements (2).

6.

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. Examples given serve
as
intended to be
exhaustive. The Commission will keep under review the
functioning of the TTBER and the guidelines in the new
enforcement system created by Regulation 1/2003 (3) to
consider whether changes need to be made.

illustrations only and are not

4. The present guidelines are without prejudice to the inter-
pretation of Article 81 and the TTBER 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

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
by
undertakings
practices
associations of undertakings (4) which may affect trade
between Member States (5) and which have as their
object or effect the prevention, restriction or distortion
of competition (6). As an exception to this rule Article
81(3) provides that the prohibition contained in Article

decisions

between

and

81(1) may be declared inapplicable in the case of
agreements between undertakings which contribute to
improving the production or 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 elim-
inating competition in respect of a substantial part of the
products concerned.

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 (7)
(principle of Community exhaustion). The right holder
has no right under intellectual property laws to prevent
sales by licensees or buyers of such products incor-
porating the licensed technology (8). The principle of
Community exhaustion is in line with the essential
intellectual property rights, which is to
function of
grant
from
exploiting his intellectual property without his consent.

to exclude others

the holder

the right

and

property

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 in particular applicable to
agreements whereby the holder licenses another under-
taking to exploit his intellectual property rights (9). Nor
does it imply that there is an inherent conflict between
intellectual
the Community
rights
competition rules. Indeed, both bodies of law share the
same basic objective of promoting consumer welfare and
an efficient allocation of resources. Innovation constitutes
an 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 by putting
pressure on undertakings to innovate. Therefore, both
are
intellectual
rights
necessary
a
competitive exploitation thereof.

competition

innovation

property

promote

ensure

and

and

to

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8.

9.

that

In the assessment of licence agreements under Article 81
it must be kept in mind that the creation of intellectual
property rights often entails substantial investment and
that it is often a risky endeavour. In order not to reduce
dynamic competition and to maintain the incentive to
innovate, the innovator must not be unduly restricted
in the exploitation of
intellectual property rights that
turn out to be valuable. For these reasons the innovator
should normally be free to seek compensation for
to maintain
is
successful projects
investment
into
projects
taking
account. Technology licensing may also require the
licensee to make significant sunk investments in the
licensed technology and production assets necessary to
applied without
exploit
considering such ex ante
investments made by the
parties and the risks relating thereto. The risk facing
that must be
the parties and the sunk investment
falling
committed may thus
fulfilling the conditions of
outside Article 81(1) or
Article 81(3), as the case may be,
for the period of
time required to recoup the investment.

it. Article 81 cannot be

lead to the agreement

sufficient
failed

incentives,

In assessing licensing agreements under Article 81, the
existing analytical
framework is sufficiently flexible to
take due account of the dynamic aspects of technology
licensing. There is no presumption that
intellectual
property rights and licence agreements as such give rise
to competition concerns. Most licence agreements do not
restrict competition and create pro-competitive effi-
ciencies. Indeed, licensing as such is pro-competitive as
it leads to dissemination of technology and promotes
innovation. In addition, even licence agreements that do
restrict
to
pro-competitive efficiencies, which must be considered
under Article 81(3) and balanced against the negative
effects on competition (10). The great majority of licence
agreements are therefore compatible with Article 81.

competition may

often

give

rise

2. The general framework for applying Article 81

10. Article 81(1) prohibits agreements which have as their
object or effect the restriction of competition. Article
81(1)
competition
between the parties to an agreement and to restrictions
of competition between any of
the parties and third
parties.

applies both to restrictions of

11. The assessment of whether a licence agreement restricts
competition must be made within the actual context in
which competition would occur in the absence of the
agreement with its alleged restrictions (11).
In making
this assessment it is necessary to take account of the
the agreement on inter-technology
likely impact of
competition (i.e.
competition between undertakings
using competing technologies) and on intra-technology
competition (i.e.
competition between undertakings
using the same technology) (12). Article 81(1) prohibits
restrictions of both inter-technology competition and
is therefore necessary
intra-technology competition.
to assess to what extent
the agreement affects or is
likely to affect these two aspects of competition on the
market.

It

of

the

impact of

12. The following two questions provide a useful framework
for making this assessment. The first question relates to
the
agreement on inter-technology
competition while the second question relates to the
intra-technology
impact
competition. As restraints may be capable of affecting
both inter-technology competition and intra-technology
competition at the same time,
it may be necessary to
analyse a restraint in the light of both questions before
it can be concluded whether or not competition within
the meaning of Article 81(1) is restricted:

agreement

the

on

(a) Does the licence agreement restrict actual or potential
competition that would have existed without
the
contemplated agreement? If so, the agreement may
be caught by Article 81(1). In making this assessment
it
is necessary to take into account competition
between the parties and competition from third
parties. For instance, where two undertakings estab-
licence
lished in different Member States
cross
to sell
competing technologies and undertake not
(potential)
products in each other's home markets,
competition that existed prior to the agreement is
restricted. Similarly, where a licensor imposes obli-
gations on his licensees not to use competing tech-
nologies and these obligations foreclose third party
technologies, actual or potential competition that
would have existed in the absence of the agreement
is restricted.

(b) Does

the agreement

restrict actual or potential
competition that would have existed in the absence
of the contractual restraint(s)? If so, the agreement
may be caught by Article 81(1). For instance, where
a licensor restricts its licensees from competing with
each other,
(potential) competition that could have
existed between the licensees absent the restraints is
restricted. Such restrictions
include vertical price
fixing and territorial or customer sales restrictions
between licensees. However, certain restraints may
in certain cases not be caught by Article 81(1)
when the restraint is objectively necessary for the
that
existence of an agreement of
that
type or
nature (13). Such exclusion of
the application of
Article 81(1) can only be 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 not 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 not 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) for a certain duration if the
restraints are objectively necessary for a licensee to
penetrate a new market. Similarly, a prohibition
imposed on all
to certain
licensees not
categories of end users may not be restrictive of
competition if
is objectively
necessary for reasons of safety or health related to
in question.
the dangerous nature of

the product

restraint

such a

to sell

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Claims that in the absence of a restraint 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 undertaking concerned.

13. In the application of the analytical framework set out in
the previous paragraph it must be taken into account
that Article 81(1) distinguishes between those agreements
that have a restriction of competition as their object and
those agreements that have a restriction of competition
as their effect. An agreement or contractual restraint is
only prohibited by Article 81(1) if its object or effect is to
restrict
inter-technology competition and/or intra-tech-
nology competition.

any

actual

in which it

very nature

to demonstrate

competition. These

14. Restrictions of competition by object are those that by
are
restrict
their
restrictions which in light of the objectives pursued by
the Community competition rules have such a high
potential for negative effects on competition that it is
the purposes of applying Article
not necessary for
effects on the
81(1)
market (14). 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 a restriction of competition is based on a
in particular,
number of factors. These factors include,
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 (15).
In other words, an examination of the facts underlying
the agreement and the specific circumstances in which it
operates may be required before it can be concluded
whether a particular restriction constitutes a hardcore
competition. The way in which an
restriction of
agreement
a
implemented may
actually
is
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
factor but not a
to restrict competition is a relevant
necessary
the
agreements,
licence
Commission considers that the restrictions covered by
the
competition
contained in Article 4 of the TTBER are restrictive by
their very object.

restrictions

condition.

hardcore

reveal

For

list

of

of

15. If an agreement is not restrictive of competition by object
it is necessary to examine whether it has restrictive effects
on competition. Account must be taken of both actual
and potential effects (16). In other words the agreement
licence
must have likely anti-competitive effects. For
agreements to be restrictive of competition by effect
they must affect actual or potential competition to such
an extent that on the relevant market negative 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 (17). Appreciable 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 not insignificant period
of time. The degree of market power normally required
for a finding of an infringement under Article 81(1) is
less than the degree of market power required for a
finding of dominance under Article 82.

to maintain output

16. For the purposes of analysing restrictions of competition
by effect it is normally necessary to define the relevant
market and to examine and assess, inter alia, the nature of
the market
the products and technologies concerned,
the market position of
the parties,
position of
competitors,
the
the market position of
existence of potential competitors and the level of entry
barriers. In some cases, however, it may be possible to
show anti-competitive effects directly by analysing the
conduct of the parties to the agreement on the market.
It may for example be possible to ascertain that an
agreement has led to price increases.

buyers,

17. Licence

also have

the level of

agreements, however,

pro-competitive.
innovation by

substantial
Indeed, the vast majority of
pro-competitive potential.
Licence
licence
are
agreements
allowing
agreements may promote
innovators to earn returns to cover at
least part of
their research and development costs. Licence agreements
also lead to a dissemination of technologies, which may
create value by reducing the production costs of the
licensee or by enabling him to produce new or
improved products. Efficiencies at
the
licensee often stem from a combination of the licensor's
technology with the assets and technologies of
the
licensee. Such integration of complementary assets and
technologies may lead to a cost/output configuration that
would not otherwise be possible. For instance, the combi-
nation of an improved technology of the licensor with
more efficient production or distribution assets of the
licensee may reduce production costs or lead to the
production of a higher quality product. Licensing may
removing
also serve the pro-competitive purpose of
the
obstacles to the development and exploitation of
licensee's own technology.
in sectors
where large numbers of patents are prevalent licensing
to create design freedom by
in order
often occurs
claims by the
infringement
risk of
removing the
licensor. When the licensor agrees not
to invoke his
intellectual property rights to prevent
the sale of the
licensee's products, the agreement removes an obstacle
to the sale of the licensee's product and thus generally
promotes competition.

In particular

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18. In cases where a licence agreement is caught by Article
81(1) the pro-competitive effects of the agreement must
be balanced against its restrictive effects in the context of
Article 81(3). When all four conditions of Article 81(3)
are satisfied, the restrictive licence agreement in question
is valid and enforceable, no prior decision to that effect
being required (18). Hardcore restrictions of competition
only fulfil the conditions of Article 81(3) in exceptional
circumstances. Such agreements generally fail
(at least)
one of the first two conditions of Article 81(3). They
generally do not create objective economic benefits or
benefits
types of
the indispensability test
agreements generally also fail
under the third condition. For example,
if the parties
fix the price at which the products produced under the
licence must be sold, this will generally lead to a lower
output and a misallocation of resources and higher prices
for consumers. The price restriction is also not indis-
pensable to achieve the possible efficiencies resulting
from the availability to both competitors of the two tech-
nologies.

consumers. Moreover,

these

for

licensed technology, by reason of the products' charac-
teristics, their prices and their intended use.

22. Technology markets consist of the licensed technology
and its substitutes,
i.e. other technologies which are
regarded by the licensees as interchangeable with or
substitutable for the licensed technology, by reason of
the technologies' characteristics, their royalties and their
intended use. The methodology for defining technology
markets follows the same principles as the definition of
product markets. Starting from the technology which is
marketed by the licensor, one needs to identify those
other technologies to which licensees could switch in
response to a small but permanent increase in relative
i.e. the royalties. An alternative approach is to
prices,
look at
incorporating the
licensed technology (cf. paragraph below).

for products

the market

3. Market definition

is

19. The Commission's approach to defining the relevant
definition
in
market
guidelines (19). The present guidelines only address
aspects of market definition that are of particular
importance in the field of technology licensing.

its market

down

laid

license

relating

technologies

20. Technology is an input, which is integrated either into a
product or a production process. Technology licensing
can therefore affect competition both in input markets
and in output markets. For
instance, an agreement
between two parties which sell competing products and
which cross
to the
production of these products may restrict competition
on the product market concerned. It may also restrict
competition on the market for technology and possibly
also on other
the purposes of
input markets. For
assessing the competitive effects of licence agreements
it may therefore be necessary to define relevant goods
and service markets (product markets) as well as tech-
nology markets (20). The term ‘product market’ used in
Article 3 of the TTBER refers to relevant goods and
service markets in both their geographic and product
dimension. As
the
TTBER, the term is used merely to distinguish relevant
goods and service markets from relevant
technology
markets.

from Article 1(1)(j) of

is clear

21. The TTBER and these guidelines are concerned with
effects both on product markets for final products and
intermediate products. The
on product markets
for
includes products which are
relevant product market
regarded by the buyers as
interchangeable with or
substitutable for the contract products incorporating the

23. 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-
the market where competing tech-
nology's share of
nologies are licensed. However,
this may often be a
mere theoretical and not a practical way to proceed
because of
lack of clear information on royalties etc.
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 down-
stream product markets (see paragraph 70 below). Under
this approach all sales on the relevant product market are
taken into account, irrespective of whether the product
incorporates a technology that is being licensed. In the
case of technology markets the approach of Article 3(3)
to take into account technologies that are (only) being
used in-house,
Indeed, this approach is in
general a good indicator of the strength of the tech-
it captures any potential competition
nology. First,
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
the licensor
technology owners would start
does not necessarily have market power on the tech-
nology market even if he has a high share of licensing
income.
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
In individual cases outside the safe
market power.
the TTBER it may be necessary, where
harbour of
practically possible,
the described
approaches
to assess more accurately the
market strength of the licensor.

downstream product market

to apply both of

the costs of

is justified.

licensing,

in order

the

If

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24. Moreover, outside the safe harbour of the TTBER it must
also be taken into account that market share may not
always be a good indication of the relative strength of
available technologies. The Commission will therefore,
inde-
inter alia, also have regard to the number of
pendently controlled technologies available in addition
to the technologies controlled by the parties to the
agreement that may be substitutable for the licensed tech-
nology at a comparable cost to the user (see paragraph
131 below).

27. In order

relationship
to determine the competitive
between the parties it is necessary to examine whether
the parties would have been actual or potential
competitors in the absence of the agreement. If without
the agreement the parties would not have been actual or
potential competitors in any relevant market affected by
the agreement they are deemed to be non-competitors.

25. Some licence agreements may affect innovation markets.
In 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 (21). Competition on such markets
may be affected by agreements that delay the intro-
duction 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 also define innovation
markets. This
the
agreement affects innovation aiming at creating new
products and where it is possible at an early stage to
identify research and development poles (22).
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 maintained.

is particularly

case where

the

4. The

distinction

between

competitors

and non-

competitors

competing

26. In general, agreements between competitors pose a
greater risk to competition than agreements between
non-competitors. However, competition between under-
takings that use the same technology (intra-technology
competition between licensees) constitutes an important
complement to competition between undertakings that
use
(inter-technology
technologies
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 for consumers of these
products, but also spur further competition between
undertakings that use competing technologies.
In the
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-
entiation
between
licensees than in the case of vertical agreements for the
resale of products.

quality-based

competition

and

28. Where the licensor and the licensee are both active on
the same product market or the same technology market
without one or both parties infringing the intellectual
property rights of
they are actual
competitors on the market concerned. The parties are
deemed to be actual competitors on the technology
market if the licensee is already licensing out his tech-
nology and the licensor enters the technology market by
granting a license for a competing technology to the
licensee.

the other party,

is

In order

likely that

29. The parties are considered to be potential competitors on
the product market if in the absence of the agreement
and without infringing the intellectual property rights of
the other party it
they would have
undertaken the necessary additional investment to enter
the relevant market in response to a small but permanent
increase in product prices.
to constitute a
realistic competitive constraint entry has to be likely to
occur within a short period. Normally a period of one to
in individual cases
two years is appropriate. However,
longer periods can be taken into account. The period
of time needed for undertakings already on the market
to adjust their capacities can be used as a yardstick to
determine this period. For instance, the parties are 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 licensed competing technology.
In such circum-
it is likely that the licensee would have been
stances,
able to enter the second geographic market on the
such entry is
basis of
precluded by objective factors,
including the existence
of blocking patents (see paragraph 32 below).

its own technology, unless

30. The parties are considered to be potential competitors on
the technology market where they own substitutable
technologies if in the specific case the licensee is not
licensing his own technology, provided that he would
be likely to do so in the event of a small but
permanent increase in technology prices. However, for
the application of the TTBER potential competition on
the technology market is not taken into account (see
paragraph 66 below).

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the parties were non-competitors at

31. In some cases the parties may become competitors
subsequent to the conclusion of the agreement because
the licensee develops and starts exploiting a competing
technology. In such cases it must be taken into account
the time of
that
conclusion of
the agreement
the agreement and that
was concluded in that context. The Commission will
therefore mainly focus on the impact of the agreement
on the licensee's ability to exploit his own (competing)
technology. In particular, the list of hardcore restrictions
applying to agreements between competitors will not be
applied to such agreements unless the agreement
is
subsequently amended in any material respect after the
parties have become competitors (cf. Article 4(3) of the
TTBER). The undertakings party to an agreement may
also become competitors subsequent to the conclusion
of the agreement where the licensee was already active
on the product market prior to the licence and where the
licensor subsequently enters the product market either on
the basis of the licensed technology or a new technology.
Also in this case the hardcore list relevant for agreements
between non-competitors will continue to apply to the
agreement unless the agreement is subsequently amended
in any material respect (cf. article 4(3) of the TTBER.

it

the

the licensee's

licensed technology represents

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
technology from the market.
excludes
Often, however,
is not possible to come to this
conclusion at the time the agreement is concluded. It is
usually only when the technology or the products incor-
porating it have been available to consumers for some
time that it becomes apparent that the older technology
has become obsolete or uncompetitive. For instance,
when CD technology was developed and players and
discs were put on the market, it was not obvious that
this new technology would replace LP technology. This
only became apparent some years later. The parties will
therefore be considered to be competitors if at the time
of the 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 Article
81(3) must be applied in light of the actual context in
which the agreement occurs, the assessment is sensitive
to material changes in the facts. The classification of the
therefore change
relationship between the parties will
if at a later
into a relationship of non-competitors,
point
technology becomes
the
obsolete or uncompetitive on the market.

licensee's

in time

technology

32. 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 pre-supposes 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. Particularly convincing evidence of the existence
of a blocking position is required where the parties may
have a common interest in claiming the existence of a
as
blocking
order
non-competitors,
claimed
two-way blocking position concerns technologies that
are technological substitutes. Relevant evidence includes
court decisions including injunctions and opinions of
independent experts. In the latter case the Commission
will,
in particular, closely examine how the expert has
been selected. However, also other convincing evidence,
including expert evidence from the parties that they have
or had good and valid reasons to believe that a blocking
position exists or existed, can be relevant to substantiate
the existence of a blocking position.

be
instance where

qualified
the

position

for

to

in

33. 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,

III. APPLICATION OF THE BLOCK EXEMPTION REGULATION

1. The effects of the Block Exemption Regulation

34. 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 withdrawal of the block exemption by the
Commission or a Member State competition authority.
Block exempted agreements cannot be prohibited under
Article 81 by national courts in the context of private
litigation.

35. Block exemption of categories of

is based on the presumption that

technology transfer
such
agreements
agreements — to the extent that they are caught by
Article 81(1) — 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

concerned

possibility

the

of

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the hardcore

in question. The market

the
competition in respect of a substantial part of
share thresholds
products
(Article 3),
and the
excluded restrictions (Article 5) set out in the TTBER
aim at ensuring that only restrictive agreements that
can reasonably be presumed to fulfil the four conditions
of Article 81(3) are block exempted.

(Article 4)

list

36. As set out in section IV below, many licence agreements
fall outside Article 81(1), either because they do not
restrict competition at all or because the restriction of
competition is not appreciable (23). 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) (24).

37. Outside the scope of the block exemption it is 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 caught by Article 81(1) or fail to
satisfy the conditions of Article 81(3). In particular, the
mere fact that the market shares of the parties exceed the
market share thresholds set out in Article 3 of the TTBER
is not a sufficient basis for finding that the agreement is
the
caught by Article 81(1).
is only
likely effects of
when agreements
restrictions of
competition that it can normally be presumed that they
are prohibited by Article 81.

Individual assessment of
is required.

contain hardcore

the agreement

It

2. Scope and duration of the Block Exemption Regulation

2.1. Agreements between two parties

technology transfer agreements

38. 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 (25). The decisive factor in terms of distinguishing
between agreements between two undertakings and
in
multiparty agreements
question is concluded between more than two under-
takings.

the agreement

is whether

39. Agreements concluded by two undertakings fall within
the scope of the TTBER even if the agreement stipulates
conditions for more than one level of trade. For instance,
the TTBER applies to a licence agreement concerning not
only the production stage but also the distribution stage,
stipulating the obligations that the licensee must or may
impose on resellers of the products produced under the
licence (26).

agreements of

40. Licence agreements concluded between more than two
undertakings often give rise to the same issues as
licence
concluded
the
between two undertakings. In its individual assessment
of licence agreements which are of the same nature as
those covered by the block exemption but which are
concluded between more than two undertakings,
the
Commission will apply by analogy the principles set
out in the TTBER.

same nature

2.2. Agreements for the production of contract products

i.e. products

41. It follows from Article 2 that for licence agreements to be
covered by the TTBER they must concern ‘the production
of contract products’,
incorporating or
produced with the licensed technology. In other words,
to be covered by the TTBER the licence must permit the
licensee to exploit the licensed technology for production
of goods or services (see recital 7 of the TTBER). 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 license them as a package. The notion of technology
pools also covers arrangements whereby two or more
undertakings
and
to license
authorise him to license on the package of technologies.
Technology pools are dealt with in section IV.4 below.

third party

agree

a

42. The TTBER applies

for

to licence agreements

the
production of contract products whereby the licensee is
also permitted to sublicense the licensed technology to
third parties provided, however, that the production of
contract products constitutes the primary object of the
the TTBER does not apply to
agreement. Conversely,
agreements
their primary
object. However, the Commission will apply by analogy
the principles set out in the TTBER and these guidelines
to such ‘master licensing’ agreements between licensor
and licensee. Agreements between the licensee and
sub-licensees are covered by the TTBER.

that have sublicensing as

licensed technology’

43. The term ‘contract products’ encompasses goods and
services produced with the licensed technology. This is
the case both where the licensed technology is used in
the production process and where it is incorporated into
the product itself. In these guidelines the term ‘products
incorporating the
covers both
situations. The TTBER applies in all cases where tech-
nology is licensed for the purposes of producing goods
the
and services.
licensor undertakes not
intellectual
property rights against the licensee. Indeed, the essence
of a pure patent licence is the right to operate inside the
scope of the exclusive right of the patent. It follows that
the TTBER also covers so-called non-assertion agreements
and settlement agreements whereby the licensor permits
the licensee to produce within the scope of the patent.

to exercise his

in this respect

is sufficient

that

It

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44. The TTBER covers ‘subcontracting’ whereby the licensor
licenses technology to the licensee who undertakes to
produce certain products on the basis thereof exclusively
for the licensor. 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. Subcontracting is also covered
by the Commission's Notice concerning the assessment of
certain subcontracting agreements in relation to Article
81(1) of the Treaty (27). According to this notice, which
remains applicable, subcontracting agreements whereby
certain
subcontractor
the
the contractor generally fall
products exclusively for
outside Article 81(1). However,
restrictions
other
imposed on the subcontractor such as the obligation
not to conduct or exploit his own research and devel-
opment may be caught by Article 81 (28).

undertakes

produce

to

a

and

fields.

in various

development

45. The TTBER also applies to agreements whereby the
carry out development work before
licensee must
is ready for
obtaining a product or a process that
contract
exploitation, provided that
commercial
product has been identified. Even if such further work
and investment is required, the object of the agreement is
the production of an identified contract product. On the
other hand, the TTBER and the guidelines do not cover
agreements whereby a technology is licensed for the
purpose of enabling the licensee to carry out further
research
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. The framework
of the TTBER and the guidelines is based on the premise
that there is a direct link between the licensed technology
and an identified contract product. In cases where no
is
such link exists the main object of the agreement
research and development as opposed to bringing a
particular product
in that case the
to the market;
analytical framework of the TTBER and the guidelines
may not be appropriate. For
the same reasons the
TTBER and the guidelines do not cover research and
licensee
development
sub-contracting whereby
undertakes to carry out research and development
in
the field of 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 aimed at improving
the technology as opposed to the production of goods
and services on the basis of the licensed technology.

the

topographies

of
protection

rights,
supplementary

for utility models, design rights, plant
applications
semiconductor
breeders
products,
for
medicinal products or other products for which such
supplementary protection certificates may be obtained,
software copyright, and know-how. The licensed tech-
nology should allow the licensee with or without other
inputs to produce the contract products.

certificates

for

the

practical

resulting

information,

In other words,

‘Secret’ means that

this condition implies that

the process covered by the

47. Know-how is defined in Article 1(1)(i) as a package of
from
non-patented
experience and testing, which is secret, substantial and
the know-how is not
identified.
‘Substantial’ means
generally known or easily accessible.
information which is
the know-how includes
that
the
the production of
and useful
significant
the
products covered by the licence agreement or
application of
licence
agreement.
information must
significantly contribute to or facilitate the production of
In cases where the licensed
the contract products.
to a product as opposed to a
know-how relates
process,
the know-how is
useful
for the production the contract product. This
condition is not satisfied where the contract product
can be produced on the basis of freely available tech-
nology. However, the condition does not require that
the contract product is of higher value than products
produced with freely available technology. In the case
of process technologies, this condition implies that the
know-how is useful in the sense that it can reasonably be
expected at the date of conclusion of the agreement to be
improving
capable of
competitive
significantly
the
for instance by reducing his
position of the licensee,
production costs. ‘Identified’ means that it is possible to
verify that the licensed know-how fulfils the criteria of
secrecy and substantiality. This condition is satisfied
where the licensed know-how is described in manuals
in some cases this
or other written form. However,
licensed
may
not
know-how may
knowledge
possessed by the licensor's employees. For instance, the
licensor's employees may possess secret and substantial
knowledge about a certain production process which is
passed on to the licensee in the form of training of the
to
licensee's employees.
is sufficient
the general nature of
describe in the agreement
the
know-how and to list
the employees that will be or
have been involved in passing it on to the licensee.

reasonably
consist

In such cases it

possible.

practical

The

be

of

2.3. The concept of technology transfer agreements

46. The TTBER and these guidelines cover agreements for the
transfer of technology. According to Article 1(1)(b) and
(h) of
‘technology’ covers
patents and patent applications, utility models and

the TTBER the concept of

48. 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.

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49. The TTBER only applies to agreements that have as their
primary object the transfer of technology as defined in
that Regulation as opposed to the purchase of goods and
services or the licensing of other types of intellectual
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 the agreement and are
directly related to the application of the licensed tech-
nology. This is likely to be the case where the tied
products take the form of equipment or process input
which is specifically tailored to efficiently exploit
the
licensed technology. If, on the other hand, the product
is simply another input into the final product, it must be
the licensed technology
carefully examined whether
constitutes the primary object of
the agreement. For
instance, in cases where the licensee is already manufac-
turing a final product on the basis of another technology,
the licence must lead to a significant improvement of the
licensee's production process, exceeding the value of the
product purchased from the licensor. The requirement
that the tied products must be 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
relates to an activity on a separate product market.

that

50. 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 (29).

51. 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

transfer

agreements

products on the basis of an intellectual property right,
they are considered to be of a similar nature as tech-
nology
raise
comparable issues. Although the TTBER does not cover
copyright other than software copyright, the Commission
will as a general rule apply the principles set out in the
TTBER and these guidelines when assessing such
licensing of copyright under Article 81.

normally

and

52. On the other hand,

rights

licensing of

Such exploitation can take

in
the
is
performances and other rights related to copyright
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
work.
forms
including the performance, showing or the renting of
protected material
such as films, 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 (30). For instance, resale restrictions
may give rise to less competition concerns whereas
particular concerns may arise where licensors impose
on their licensees to extend to each of the licensors
more favourable conditions obtained by one of them.
The Commission will
therefore not apply the TTBER
and the present guidelines by way of analogy to the
licensing of these other rights.

various

53. The Commission will also not extend the principles
developed in the TTBER and these guidelines
to
trademark licensing. 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 (31).

licensing. Where

agreements

technology

than

and

of

2.4. Duration

54. Subject

the TTBER,

to the duration of

the block
exemption applies for as long as the licensed property
right has not lapsed, 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
in which case the
result of action by the licensee,
exemption shall
the
the
agreement (cf. Article 2 of the TTBER).

duration of

apply

for

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55. 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. paragraph above).

2.5. Relationship with other block exemption regulations

56. The TTBER covers agreements between two undertakings
concerning the licensing of technology for the purpose of
the production of contract products. However,
tech-
types of
nology can also be an element of other
agreements. In addition, the products incorporating 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
specialisation agreements (32),
Treaty to categories of
Commission Regulation 2659/2000 on the application
to categories of research and devel-
of Article 81(3)
and Commission Regulation
opment
(EC) No 2790/1999 on the application of Article 81(3)
of the Treaty to categories of vertical agreements and
concerted practices (34).

agreements (33)

2.5.1. The Block Exemption Regulations on specialisation and R&D

agreements

that Regulation covers,

57. According to Article 1(1)(c) of Regulation 2658/2000 on
specialisation agreements,
inter
alia,
joint production agreements by virtue of which
two or more undertakings agree to produce certain
products jointly. The Regulation extends to provisions
intellectual
the
concerning
property rights, provided that
they do not constitute
the primary object of the agreement, but are directly
related to and necessary for its implementation.

assignment or use of

58. Where undertakings establish a production joint venture
and license 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
2658/2000 and not the TTBER. Accordingly, licensing in
the context of a production joint venture normally falls
to be considered under Regulation 2658/2000. However,
where the joint venture engages in licensing of the tech-
linked to
nology to third parties,
production by the joint venture and therefore not
covered by that Regulation. Such licensing arrangements,
which bring together the technologies of
the parties,
constitute technology pools, which are dealt with in
section IV.4 below.

the activity is not

59. Regulation 2659/2000 on research and development
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 team, organisation or undertakings, jointly entrusted
to a third party or allocated between the parties by way
of specialisation in research, development, production
and distribution, including licensing.

60. It follows that Regulation 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 agreements the parties can also
determine the conditions for licensing the fruits of the
research and development agreement
to third parties.
However, since third party licensees are not party to
the research and development agreement, the individual
licence agreement concluded with third parties is not
licence
covered
agreements are block exempted by the TTBER where
they fulfil the conditions of that Regulation.

by Regulation

2659/2000.

Such

2.5.2. The Block Exemption Regulation on vertical agreements

61. 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 (35).

62. Given that the TTBER only covers agreements between
two parties and that a licensee, selling products incor-
is a supplier for the
porating the licensed technology,
purposes of Regulation 2790/1999,
these two block
The
are
regulations
exemption
agreement between licensor and licensee is subject to
the TTBER whereas agreements concluded between a
licensee
to Regulation
are
2790/1999 and the Guidelines on Vertical Restraints (36).

related.

subject

closely

buyers

and

63. The TTBER also block exempts agreements between the
licensor and the licensee where the agreement imposes
obligations on the licensee as to the way in which he
must sell the products incorporating the licensed tech-
nology.
the licensee can be obliged to
establish a certain type of distribution system such as
exclusive distribution or selective distribution. However,
the distribution agreements concluded for the purposes
of implementing such obligations must, in order to be

In particular,

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block exempted, comply with Regulation 2790/1999. For
instance, the licensor can oblige the licensee to establish a
system based on exclusive distribution in accordance with
specified rules. However, it follows from Article 4(b) of
Regulation 2790/1999 that distributors must be free to
make passive sales into the territories of other exclusive
distributors.

for the application of the market
taken into account
share threshold or the hardcore list. Outside the safe
harbour of the TTBER potential competition on the tech-
nology market is taken into account but does not lead to
the application of the hardcore list relating to agreements
between competitors (see also paragraph 31 above).

a

is

for

is because

64. 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.
the purposes of Regulation
This
2790/1999 each licensee
supplier.
separate
However, the reasons underlying the block exemption
contained in that Regulation may also apply where the
products incorporating 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
licensees'
types
the
same
distribution
vertical
systems
distribution system.
the Commission
would be unlikely to challenge restraints where by
analogy the requirements of Regulation 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
in terms of conveying
quality and other relevant 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.

restraints
as within
In such cases

between
a

single

of

3. The safe harbour established by the Block Exemption

Regulation

65. According to Article 3 of

the TTBER the block
exemption of restrictive agreements is subject to market
share thresholds, confining the scope of
the block
exemption to agreements that although they may be
restrictive of competition can generally be presumed to
fulfil the conditions of Article 81(3). Outside the safe
harbour created by the market share thresholds individual
assessment is required. The fact that market shares exceed
the thresholds does not give rise to any presumption
either that the agreement is caught by Article 81(1) or
that
the conditions of
Article 81(3).
In the absence of hardcore restrictions,
market analysis is required.

the agreement does not

fulfil

66. The market share threshold to be applied for the purpose
of the safe harbour of the TTBER depends on whether
the agreement
is concluded between competitors or
non-competitors. For the purposes of the TTBER under-
takings are competitors on the relevant
technology
market when they license
competing technologies.
Potential competition on the technology market is not

67. Undertakings are competitors on the relevant product
market where both undertakings are active on the same
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 be likely, on realistic grounds,
to
undertake the necessary additional investments or other
necessary switching costs to enter the relevant product
and geographic market(s) within a reasonably short
and
in response
period of
permanent
(potential
relative
in
competitors).

time (37)
increase

to a
prices

small

is not

licensee,

68. It follows from paragraphs 66 and 67 that two under-
takings 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
already present on the product
and the
market,
licensing out a competing technology
even if he owns a competing technology and produces
on the basis of that technology. However, the parties
in time the
become competitors if at a later point
the
licensee starts
licensor becomes an actual or potential
supplier of
In that case the
products on the relevant market.
between
hardcore
to
non-competitors will
the
agreement
subsequently
amended in any material respect, see Article 4(3) of the
TTBER and paragraph 31 above.

agreements
apply
is

to
agreement

licensing out his

for
continue

technology or

relevant

unless

the

list

it

licensing agreement
is covered if

69. 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 agreement
the market
share of neither party exceeds 30 % on the affected
technology and product markets. Where the
relevant
undertakings party to the
are
competitors the agreement is covered if the combined
market shares of the parties do not exceed 20 % on the
relevant technology and product markets. The market
share thresholds apply both to technology markets and
markets for products incorporating the licensed tech-
share threshold is
nology.
the block
exceeded on an affected relevant market,
exemption does not apply to the agreement
for that
relevant market. For instance,
if the licence agreement
concerns two separate product markets or two separate
geographic markets, the block exemption may apply to
one of the markets and not to the other.

the applicable market

licensing agreement

If

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70. 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 the sales of the licensor and
all his licensees of products incorporating the licensed
technology and this for each relevant market sepa-
rately (38). Where the parties are competitors on the tech-
nology market,
incorporating the
sales of products
licensee's own technology must be combined with the
sales of the products incorporating the licensed tech-
nology. 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 accumu-
lating market share.

71. 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 licensor's technology
and competing products, i.e. the total sales of the 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 calculation of market
shares for product markets, however, sales made by other
licensees are not taken into account when calculating the
licensee's and/or licensor's market share.

Licensing between non-competitors

Example 1

and

and

products

techniques

for which it has neither

Company A is specialised in developing bio-tech-
nological
has
developed a new product Xeran. It is not active as a
producer of Xeran,
the
production nor the distribution facilities. Company B
is one of
the producers of competing products,
produced with freely available non-proprietary tech-
nologies. In year 1, B was selling EUR 25 million
worth of products produced with the freely available
In year 2, A gives a licence to B to
technologies.
produce Xeran. In that year B sells EUR 15 million
produced with the help of the freely available tech-
nologies and EUR 15 million of Xeran. In year 3 and
the following years B produces and sells only Xeran
worth EUR 40 million annually. In addition in year 2,
A is also licensing to C. C was not active on that
product market before. C produces and sells only
Xeran, EUR 10 million in year 2 and EUR 15
is established
million in year 3 and thereafter.
that
the total market of Xeran and its substitutes
where B and C are active is worth EUR 200 million
in each year.

It

In year 2, the year the licence 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 sales of Xeran in the preceding year. In year
3 A's market share on the technology market
is
12,5 %, reflecting the value of Xeran produced by B
In year 4 and
and C in the preceding year 2.
technology
thereafter A's market
market
reflecting the value of Xeran
produced by B and C in the preceding year.

share on the

is 27,5 %,

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

reliable market

In year 2 B's market share on the product market is
12,5 %, reflecting B's EUR 25 million sales in year 1.
In year 3 B's market share is 15 % because its sales
have increased to EUR 30 million in year 2. In year 4
and thereafter B's market share is 20 % as its sales are
EUR 40 million annually. C's market share on the
product market is 0 % in year 1 and 2, 5 % in year
3 and 7, 5 % thereafter.

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

following examples:

the

licence

agreements

As
between
non-competitors and the individual market shares of
A, B and C are below 30 % each year, the agreements
fall within the safe harbour of the TTBER.

are

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Example 2

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

is established that

It

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 million, i.e. half the size of the market in
example 1, the market share of A is 0 % in year 2,
15 % in year 3 and 40 % thereafter. B's market share
is 25 % in year 2, 30 % in year 3 and 40 % thereafter.
In year 2 and 3 both A's and B's market share does
not exceed the 30 % threshold. The threshold is
however exceeded from year 4 and this means that,
in line with Article 8(2) of the TTBER, after year 6 the
licence agreement between A and B can no longer
benefit from the safe harbour but has to be assessed
on an individual basis.

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 2, 10 %
in year 3 and 15 % thereafter. The market share of C
on the product market is the same: 0 % in year 2,
10 % in year 3 and 15 % thereafter. The licence
agreement between A and C therefore falls within
the safe harbour for the whole period.

Licensing between competitors

Example 3

Companies A and B are active on the same relevant
product and geographic 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 to use their respective technologies. In year 1 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 2 they
technology.
both use their own and the other's
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 2 EUR 15 million of
the product produced with its own technology and
EUR 10 million of the product produced with A's
technology. 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, by both A and B,
with A's technology. In year 2 the market share of A
on the technology market is therefore 15 %, reflecting
its own production and sales of EUR 15 million in
year 1. From year 3 A's market share on the tech-
nology 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 2 B's market share on the tech-
nology market is 20 % and thereafter 25 %.

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 2 and 20 % thereafter. The market share of B on
the product market
is 20 % in year 2 and 25 %
thereafter.

the agreement

is between competitors,

As
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 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 2 and
45 % thereafter. This agreement between competitors
will therefore have to be assessed on an individual
basis.

4. Hardcore restrictions of competition under the Block

Exemption Regulation

4.1. General principles

74. Article 4 of

classification of

competition. 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 (39) such a restriction may result
from the clear objective of the agreement or from the
circumstances of the individual case (cf. paragraph 14
above).

In line with the

law of

case

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75. When a

it

technology transfer agreement

contains a
hardcore restriction of competition,
follows from
Article 4(1) and 4(2) of the TTBER that the agreement
as a whole falls outside the scope of the block exemption.
the TTBER hardcore restrictions
For the purposes of
the agreement.
cannot be severed from the rest of
Moreover,
in the
context of individual assessment hardcore restrictions of
competition will only in exceptional circumstances fulfil
(cf. paragraph 18
the four conditions of Article 81(3)
above).

the Commission considers

that

76. Article 4 of the TTBER distinguishes between agreements
between

competitors

agreements

and

between
non-competitors.

4.2. Agreements between competitors

77. Article 4(1)

lists the hardcore restrictions for licensing
between competitors. According to Article 4(1),
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;

the licensor into the exclusive territory or to the
exclusive customer group reserved for the other
party;

(v) the restriction, in a non-reciprocal agreement, of
active sales by the licensee into the exclusive
territory or to the exclusive customer group
allocated by the licensor to another licensee
provided that the latter was not a competing
undertaking of the licensor at the time of the
conclusion of its own licence;

(vi) the obligation on the licensee to produce the
contract products only
its own use
provided that the licensee is not restricted in
selling
and
contract products
passively as spare parts for its own products;

actively

the

for

(vii) the

on

licensee

obligation

a
the
the
agreement
non-reciprocal
contract
particular
only
customer, where the licence was granted in
order to create an alternative source of supply
for that customer;

produce
a

products

to
for

in

(b) The limitation of output, except limitations on the
output of
imposed on the
licensee in a non-reciprocal agreement or imposed
on only one of
reciprocal
agreement;

contract products

licensees

in a

the

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

the disclosure of

to prevent

(c) The allocation of markets or customers except

(i) the obligation on the licensee(s) to produce with
the licensed technology only within one or more
technical fields of use or one or more product
markets;

(ii) the obligation on the

and/or

licensor

the
in a non-reciprocal agreement, not to
licensee,
produce with the licensed technology within one
or more technical fields of use or one or more
product markets or one or more exclusive terri-
tories reserved for the other party;

(iii) the obligation on the licensor not to license the
technology to another licensee in a particular
territory;

(iv) the restriction, in a non-reciprocal agreement, of
active and/or passive sales by the licensee and/or

the

and

licensed

between

technologies or

is an agreement where only one of

technologies
can be used for

78. For a number of hardcore restrictions the TTBER makes a
distinction
non-reciprocal
reciprocal
agreements. The hardcore list is stricter for reciprocal
agreements than for non-reciprocal agreements between
competitors. Reciprocal agreements are cross-licensing
are
agreements where
competing
the
production of competing products. A non-reciprocal
agreement
the
parties is licensing its technology to the other party or
where in case of cross-licensing the licensed technologies
are not competing technologies and cannot be used for
the production of competing products. An agreement is
not reciprocal merely because the agreement contains a
grant back obligation or because the licensee licenses
back own improvements of the licensed technology. In
case at a later point in time a non-reciprocal agreement
becomes a reciprocal agreement due to the conclusion of
a second licence between the same parties, they may have
the
to revise the first
agreement
In the
a hardcore
assessment of the individual case the Commission will
take into account the time lapsed between the conclusion
of the first and the second licence.

licence in order to avoid that

restriction.

contains

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79. 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, including the products incorporating
the licensed technology. 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 is imma-
terial whether the agreement concerns fixed, minimum,
maximum or recommended prices. Price fixing can also
be implemented indirectly by applying disincentives to
for example, by
deviate from an agreed price level,
providing that the royalty rate will
increase if product
prices are reduced below a certain level. However, an
obligation on the licensee to pay a certain minimum
royalty does not in itself amount to price fixing.

82. The hardcore restriction of competition set out in Article
4(1)(b) concerns reciprocal output restrictions on the
parties. An output restriction is a limitation on how
much a party may produce and sell. Article 4(1)(b)
does not cover output limitations on the licensee in a
non-reciprocal agreement or output limitations on one of
the licensees in a reciprocal agreement provided that the
output limitation only concerns products produced with
the licensed technology. Article 4(1)(b) thus identifies as
hardcore restrictions reciprocal output restrictions on the
parties and output restrictions on the licensor in respect
of his own technology. When competitors agree to
impose reciprocal output
the object and
likely effect of the agreement is to reduce output in the
market. The same is true of agreements that reduce the
incentive of the parties to expand output, for example by
obliging each other to make payments if a certain level of
output is exceeded.

limitations,

80. When royalties are calculated on the basis of individual
product sales, the amount of the royalty has a direct
impact on the marginal cost of the product and thus a
impact on product prices (40). Competitors can
direct
therefore use cross licensing with reciprocal
running
royalties as a means of co-ordinating prices on down-
stream product markets (41). However, the Commission
will only treat cross licences with reciprocal running
royalties as price fixing where the agreement is devoid
of any pro-competitive purpose and therefore does not
In such
constitute a bona fide licensing arrangement.
cases where the agreement does not create any value
and therefore has no valid business justification,
the
arrangement is a sham and amounts to a cartel.

restrict

agreements

competition

81. 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
In general
own technology (see paragraph 95 below).
such
the
since
agreement raises the cost of using the licensee's own
competing technology and restricts competition that
existed in the absence of the agreement (42). 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.

83. The more

favourable

treatment of non-reciprocal
quantity limitations is based on the consideration that a
one-way restriction does not necessarily lead to a lower
output on the market while also the risk that
the
agreement is not a bona fide licensing arrangement is
less when the restriction is non-reciprocal. When a
it is
licensee is willing to accept a one-way restriction,
likely that the agreement leads to a real
integration of
complementary technologies or an efficiency enhancing
integration of the licensor's superior technology with the
licensee's productive assets. In a reciprocal agreement an
output restriction on one of the licensees is likely to
reflect the higher value of the technology licensed by
one of
to promote
and may
pro-competitive licensing.

the parties

serve

84. The hardcore restriction of competition set out in Article
4(1)(c) concerns the allocation of markets and customers.
share markets and
Agreements whereby competitors
the
their object
customers have
restriction of
restriction where
competition.
hardcore
a
It
to
competitors in a reciprocal agreement agree not
produce in certain territories or not
to sell actively
and/or passively into certain territories or to certain
customers reserved for the other party.

as
is

85. Article 4(1)(c) applies irrespective of whether the licensee
remains free to use his own technology. Once the
licensee has tooled up to use the licensor's technology
to produce a given product, it may be costly to maintain
a separate production line using another technology in
order to serve customers covered by the restrictions.
the
Moreover, given the anti-competitive potential of
restraint
to
incentive
licensee may have
produce under his own technology. Such restrictions
are
for
also highly unlikely
pro-competitive licensing to occur.

indispensable

to be

little

the

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86. Under Article 4(1)(c)(ii) it is not a hardcore restriction for
the licensor in a non-reciprocal agreement to grant the
licensee an exclusive licence to produce on the basis of
the licensed technology in a particular territory and thus
agree not to produce himself the contract products in or
provide the contract products from that territory. Such
exclusive licences are block exempted irrespective of the
scope of the territory. If the licence is world-wide, the
exclusivity implies
from
the
licensor
remaining on the market. The block
entering or
exemption also applies where the licence is limited to
one or more technical
fields of use or one or more
product markets. The purpose of agreements covered
by Article 4(1)(c)(ii) may be to give the licensee an
in and develop the licensed tech-
incentive to invest
nology. The object of the agreement
is therefore not
necessarily to share markets.

abstains

that

90. According to Article 4(1)(c)(i) restrictions in agreements
between competitors that
limit the licence to one or
more product markets or technical fields of use (44) are
not hardcore restrictions. Such restrictions are block
exempted up to the market share threshold of 20 %
irrespective of whether the agreement is reciprocal or
not. It is a condition for the application of the block
exemption, however,
the field of use restrictions
do not go beyond the scope of the licensed technologies.
It is also a condition that licensees are not limited in the
use of their own technology (see Article 4(1)(d)). Where
licensees are limited in the use of their own technology
the agreement amounts to market sharing.

that

87. According to Article 4(1)(c)(iv) and for the same reason,
to non-reciprocal
the block exemption also applies
agreements whereby the parties
to sell
actively or passively (43) into an exclusive territory or to
an exclusive customer group reserved for the other party.

agree not

implying that

88. According to Article 4(1)(c)(iii) it is also not a hardcore
restriction if the licensor appoints the licensee as his sole
licensee in a particular territory,
third
parties will not be licensed to produce on the basis of
the licensor's technology in the territory in question. In
the case of such sole licences the block exemption applies
irrespective of whether the agreement is reciprocal or not
given that the agreement does not affect the ability of the
parties to fully exploit
their own technology in the
respective territories.

91. The block exemption applies irrespective of whether the
field of use restriction is symmetrical or asymmetrical. An
field of use restriction in a reciprocal
asymmetrical
licence agreement implies that both parties are allowed
to use the respective technologies that they license in
only within different
fields of use. As long as the
parties are unrestricted in the use of their own tech-
nologies, it is not assumed that the agreement leads the
parties to abandon or refrain from entering the field(s)
covered by the licence to the other party. Even if the
licensees tool up to use the licensed technology within
the licensed field of use, there may be no impact on
assets used to produce outside the scope of the licence.
It is important in this regard that the restriction relates to
distinct product markets or fields of use and not
to
customers, allocated by territory or by group, who
falling within the same product
purchase products
market or technical
field of use. The risk of market
sharing is considered substantially greater in the latter
case (see paragraph 85 above). In addition, field of use
restrictions may be necessary to promote pro-competitive
licensing (see paragraph 182 below).

share

89. Article 4(1)(c)(v) excludes from the hardcore list and thus
threshold
block exempts up to the market
restrictions
in a non-reciprocal agreement on active
sales by a licensee into the territory or to the customer
group allocated by the licensor to another licensee. It is a
condition, however, that the protected licensee was not a
the licensor when the agreement was
competitor of
concluded.
such
is not warranted to hardcore
It
restrictions. By allowing the licensor to grant a licensee,
who was not already on the market, protection against
active sales by licensees which are competitors of the
licensor and which for that reason are already established
on the market, such restrictions are likely to induce the
licensed technology more
licensee
to exploit
the licensees agree
efficiently. On the other hand,
between themselves not to sell actively or passively into
certain territories or to certain customer groups,
the
agreement amounts to a cartel amongst the licensees.
Given that such agreements do not involve any transfer
of technology they fall outside the scope of the TTBER.

the

if

92. Article 4(1)(c)(vi) 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. Where the
contract product is a component the licensee can thus
be obliged to produce that component only for incor-
poration into his own products and can be obliged not to
sell the components to other producers. 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 restrictions as defined may be
necessary 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.

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licensee

93. Finally, Article 4(1)(c)(vii) excludes from the hardcore list
an obligation on the
in a non-reciprocal
agreement to produce the contract products only for a
particular customer with a view to creating an alternative
source of supply for that customer. It is thus a condition
for the application of Article 4(1)(c)(vii) that the licence is
limited to creating an alternative source of supply for that
particular customer. It is not a condition, however, that
only one such licence is granted. Article 4(1)(c)(vii) also
covers situations where more than one undertaking is
licensed to supply the same specified customer. The
potential of such agreements to share markets is limited
where the licence is granted only for the purpose of
supplying a particular customer. In particular,
in such
circumstances it cannot be assumed that the agreement
will cause the licensee to cease exploiting his own tech-
nology.

restrictions are imposed on the licensee's use of his
own technology or to carry out research and devel-
opment, the competitiveness 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.

4.3. Agreements between non-competitors

96. 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:

agree

applies

to provide

effect on competition of

94. The hardcore restriction of competition set out in Article
4(1)(d) covers firstly restrictions on any of the parties'
ability to carry out research and development. Both
parties must be free to carry out independent research
and development. This
irrespective of
rule
whether the restriction applies to a field covered by the
licence or to other fields. However, the mere fact that the
parties
each other with future
improvements of their respective technologies does not
to a restriction on independent research and
amount
development. The
such
agreements must be assessed in light of the circumstances
of the individual case. Article 4(1)(d) also does not extend
to restrictions on a party to carry out research and devel-
opment with third parties, where such restriction is
necessary to protect
the licensor's know-how against
disclosure. In order to be covered by the exception, the
restrictions imposed to protect the licensor's know-how
against disclosure must be necessary and proportionate to
the
ensure
agreement
the
licensee to be trained in and responsible for the use of
the licensed know-how, it may be sufficient to oblige the
licensee not to allow those employees to be involved in
research and development with third parties. Other
safeguards may be equally appropriate.

instance, where
employees of

designates particular

such protection.

For

(a) the restriction of a party's ability to determine its
to third parties,
prices when selling products
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;

(b) the restriction of the territory into which, or of the
customers to whom, the licensee may passively sell
the contract products, except:

(i) the restriction of passive sales into an exclusive
to an exclusive customer group

territory or
reserved for the licensor;

(ii) the restriction of passive sales into an exclusive
to an exclusive customer group
territory or
licensee
allocated by the licensor
during the
this other
two years
licensee is selling the contract products in that
territory or to that customer group;

to another
that

first

95. 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
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. paragraph 81
above). Moreover, the licensee must not be restricted in
licensing his own technology to third parties. When

(iii) the obligation to produce the contract products
only for its own use provided that the licensee is
not restricted in selling the contract products
actively and passively as spare parts for its own
products;

(iv) the obligation to produce the contract products
only for a particular customer, where the licence
was granted in order to create an alternative
source of supply for that customer;

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

operating at the wholesale level of trade;

(vi) 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 prejudice
to the possibility of
prohibiting a member of the system from operating
out of an unauthorised place of establishment.

threats,

terminations

the fixing of

97. 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
linking the sales price to the sales
level of discounts,
intimidation, warnings,
prices of competitors,
penalties, or
in relation to
contract
observance of a given price 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 implementation of a price moni-
toring 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 that reduce the licensee's incentive to lower
the licensor obliging the
his
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. The same means
can be used to make maximum or recommended prices
work as fixed or minimum selling prices. However, the
provision of a list of recommended prices to or the
imposition of a maximum price on the licensee by the
licensor is not considered in itself as leading to fixed or
minimum selling prices.

selling price,

such as

98. Article 4(2)(b)

concerted practices

identifies as hardcore

restrictions of
competition agreements or
that
have as their direct or indirect object the restriction of
passive sales by licensees of products incorporating the
licensed technology (45). Passive 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 territories or
the obligation to
refer orders from these customers to other licensees. It

may also result from indirect measures aimed at inducing
the licensee to refrain from making such sales, such as
financial incentives and the implementation of a moni-
toring system aimed at verifying the effective destination
of the licensed products. Quantity limitations may be an
indirect means to restrict passive sales. The Commission
will not assume that quantity limitations as such serve
this purpose. However,
it will be otherwise where
quantity limitations are used to implement an underlying
thereof
agreement.
market
include the adjustment of quantities over time to cover
only local demand, the combination of quantity limi-
tations and an obligation to sell minimum quantities in
the territory, minimum royalty obligations linked to sales
in the territory, differentiated royalty rates depending on
the destination of the products and the monitoring of the
destination of products sold by individual licensees. The
general hardcore restriction covering passive sales by
licensees is subject to a number of exceptions, which
are dealt with below.

partitioning

Indications

that

restrictions

assumption

99. Article 4(2)(b) does not cover sales restrictions on the
licensor. All sales restrictions on the licensor are block
exempted up to the market share threshold of 30 %. The
same applies to all restrictions on active sales by the
licensee, with the exception of what is said on active
selling in paragraphs 105 and 106 below. The block
exemption of restrictions on active selling is based on
the
promote
such
investments, non-price competition and improvements
in the quality of services provided by the licensees by
solving free rider problems and hold-up problems.
In
the case of restrictions of active sales between licensees'
territories or customer groups, it is not a condition that
the protected licensee has been granted an exclusive
territory or an exclusive customer group. The block
exemption also applies to active sales restrictions where
more than one licensee has been appointed for a
Efficiency
particular
enhancing investment is likely to be promoted where a
licensee can be ensured that he will only face active sales
competition from a limited number of licensees inside
the territory and not also from licensees outside the
territory.

customer

territory

group.

or

100. Restrictions on active and passive sales by licensees into
an exclusive territory or to an exclusive customer group
reserved for the licensor do not constitute 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 restrictive
of competition, promote pro-competitive dissemination
of technology and integration of such technology into
the production assets of the licensee. For a territory or
customer group to be reserved for the licensor, it is not
required that the licensor is actually producing with the
licensed technology in the territory or for the customer
group in question. A territory or customer group can
also be reserved by the licensor for later exploitation.

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substantial

101. Restrictions on passive sales by licensees into an exclusive
territory or customer group allocated to another licensee
are block exempted for two years calculated from the
date on which the protected licensee first markets the
products incorporating the licensed technology inside
his exclusive territory or
to his exclusive customer
group (cf. Article 4(2)(b)(ii)). Licensees often have to
in production assets
commit
investments
to start up and
and promotional activities in order
facing the new
develop a new territory. The risks
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
often the case that licensees would not enter into the
licence agreement without protection for a certain
period of
(active and) passive sales into
their territory by other licensees. Restrictions on passive
sales into the exclusive territory of a licensee by other
licensees therefore often fall outside Article 81(1) for a
period of up to two years from the date on which the
product incorporating the licensed technology was first
in the exclusive territory by the
put on the market
licensee in question. However, to the extent that in indi-
vidual cases such restrictions are caught by Article 81(1)
they are block exempted. After
this
two-year period restrictions on passive sales between
Such
hardcore
licensees
restrictions are generally caught by Article 81(1) and
are unlikely to fulfil the conditions of Article 81(3). In
particular, passive sales restrictions are unlikely to be
indispensable for the attainment of efficiencies (46).

the expiry of

time against

restrictions.

constitute

102. 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
licensee must however be able to
producers. The
actively and passively 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.

104. Article 4(2)(b)(v) 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) (47).

licensee

105. Finally Article 4(2)(b)(vi) brings under

the block
exemption a restriction on the licensee not to sell to
unauthorised distributors. This exception allows
the
licensor to impose on the licensees an obligation to
In that
form part of a selective distribution system.
case, however, the licensees must according to Article
4(2)(c) be permitted to sell both actively and passively
to end users, without prejudice to the possibility to
restrict the licensee to a wholesale function as foreseen
in Article 4(2)(b)(v) (cf. the previous paragraph).

agreements whereby

these obligations must

106. It is recalled (cf. paragraph 39 above) that the block
exemption covers
the
licence
licensor imposes obligations which the licensee must or
including distributors.
may impose on his buyers,
However,
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 obli-
gations are not covered by the TTBER. Such agreements
are only block exempted when they comply with Regu-
lation 2790/1999 (cf. section 2.5.2 above).

5. Excluded restrictions

assessment

anti-competitive

107. Article 5 of the TTBER lists four 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
of severability applies to the restrictions set out
in
Article 5.

103. As in the case of agreements between competitors (cf.
paragraph 93 above) the block exemption also applies
is obliged to
to agreements whereby the
produce the contract products only for a particular
customer in order to provide that customer with an alter-
native source of supply (cf. Article 4(2)(b)(iv)). In the case
of agreements between non-competitors, such restrictions
are unlikely to be caught by Article 81(1).

licensee

108. Article 5(1) provides that the block exemption shall not

apply to the following three obligations:

(a) Any direct or indirect obligation on the licensee 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 of
the licensed technology.

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C 101/21

(b) Any direct or indirect obligation on the licensee to
assign to the licensor or to a third party designated
by the licensor rights to severable improvements to
or new applications of the licensed technology.

(c) Any direct or indirect obligation on the licensee not
to challenge the validity of intellectual property rights
held by the
common market.
However, the TTBER does cover the possibility for
the licensor to terminate the licence agreement in
the event that the licensee challenges the validity of
the licensed technology.

licensor

in the

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

the same application as

109. Article 5(1)(a) and 5(1)(b) concerns exclusive grant backs
or assignments to the licensor of severable improvements
of the licensed technology. An improvement is severable
if it can be exploited without infringing upon the licensed
the licensor an
technology. An obligation to grant
exclusive licence to severable improvements of
the
licensed technology or to assign such improvements to
the licensor is likely to reduce the licensee's incentive to
innovate since it hinders the licensee in exploiting his
including by way of licensing to third
improvements,
the case both where the severable
parties. This
is
improvement concerns
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
the block exemption does cover
exempted. However,
non-exclusive grant back obligations
in respect of
severable improvements. This is so even where the
i.e. only
grant back obligation is non-reciprocal,
and where under
imposed on the
the
entitled to feed-on the
agreement
severable
A
non-reciprocal grant back obligation may promote inno-
vation 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 dissemi-
nation of technology because each licensee knows at the
time of contracting that he will be on an equal footing
with other licensees in terms of the technology on the
basis of which he is producing. Exclusive grant backs and
obligations to assign non-severable improvements are not
restrictive of competition within the meaning of Article
cannot be
81(1)
exploited
licensor's
permission.

since non-severable
the

the
licensor
improvements

licensee without

licensee,
is

improvements

licensees.

other

the

by

to

110. The application of Article 5(1)(a) and (b) does not depend
on whether or not the licensor pays consideration in

factor

the licensor,

is also a relevant

factor. The stronger
is

return for acquiring the improvement or for obtaining an
the existence and level of
exclusive licence. However,
such consideration may be a relevant
in the
context of 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. In the assessment of exclusive grant
the block exemption the
backs outside the scope of
the licensor on the technology
market position of
the
market
position of
that
exclusive 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 inno-
vation and future competition. The negative impact of
grant back obligations can also be increased in case of
parallel networks of licence agreements containing such
obligations. When available technologies are controlled
by a limited number of licensors that impose exclusive
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 exclusive grant back terms.

the more likely it

111. The risk of negative effects on innovation is higher in the
case of cross licensing between competitors where a
grant back obligation on both parties is combined with
an obligation on both parties to share with the other
improvements of his own technology. The
party
sharing of all
improvements between competitors may
prevent each competitor from gaining a competitive
lead over the other (see also paragraph 208 below).
However, the parties are unlikely to be prevented from
gaining a competitive lead over each other where the
purpose of the licence is to permit
them to develop
their respective technologies and where the licence does
not lead them to use the same technological base in the
their products. This is the case where the
design of
purpose of
the licence is to create design freedom
rather than to improve the technological base of the
licensee.

112. The

licensor's

excluded restriction set out

the validity of
reason for

in Article 5(1)(c)
i.e. obligations not to
concerns non-challenge clauses,
intellectual
challenge
the
property. The
excluding non-challenge
clauses from the scope of the block exemption is the
fact that licensees are 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 the protection
of intellectual property, invalid intellectual property rights
should be 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
are
competitive disadvantage

for undertakings

that

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Official Journal of the European Union

27.4.2004

prevented from using it or are only able to use it against
payment of royalties (48). In such cases the conditions of
Article 81(3) are unlikely to be fulfilled (49). However, the
Commission takes a favourable view of non-challenge
clauses relating to know-how where once disclosed it is
likely to be impossible or very difficult to recover the
licensed know-how. In such cases, an obligation on the
licensee not
licensed know-how
promotes dissemination of new technology, in particular
by allowing weaker licensors to license stronger licensees
without fear of a challenge once the know-how has been
absorbed by the licensee.

to challenge

the

is not

113. The TTBER covers the possibility for the licensor to
terminate the licence agreement
in the event of a
challenge of the licensed technology. Accordingly, the
licensor
forced to continue dealing with a
licensee that challenges the very subject matter of the
implying that upon termination any
licence agreement,
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
same
licensee
thereby ensures
position as third parties.

the licensor's
the
that

in the

is

in

of

agreements

limiting the ability of
to carry out

114. Article 5(2) excludes
from the scope of
case
the
any direct or

the block
between
exemption,
non-competitors,
indirect obligation
limiting the licensee's ability to exploit his own tech-
nology or
the parties to the
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
4(1)(d) of
list concerning agreements
between competitors, which is dealt with in paragraphs
94 and 95 above. However,
in the case of agreements
between non-competitors it cannot be considered that
such restrictions generally have negative effects on
competition or that the conditions of Article 81(3) are
is
generally not
required.

the hardcore

satisfied (50).

assessment

Individual

115. In the case of agreements between non-competitors, the
licensee normally does not own a competing technology.

are

block

exemption the parties

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
license 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 (51). In such cases it
is important to ensure that the licensee is not restricted
in his ability to exploit his own technology and further
develop it. This technology constitutes a competitive
constraint in the market, which should be preserved. In
such a situation restrictions on the licensee's use of his
own technology or on research and development are
normally considered to be restrictive of competition
and not to satisfy the conditions of Article 81(3). For
instance, an obligation on the licensee to pay royalties
not only on the basis of products it produces with the
licensed technology but also on the basis of products it
produces with its own technology will generally limit the
ability of the licensee to exploit its own technology and
thus be excluded from the scope of the block exemption.

several

available

technologies are

(potential) source of

116. 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
the necessary assets and skills to carry out
further
research and development. In that case the conditions
In other
of Article 81(3) are unlikely to be fulfilled.
cases where
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 an appreciable
restrictive effect or satisfy the conditions of Article 81(3).
The restraint may promote the dissemination of new
the licence
technology by assuring the licensor that
does not create a new competitor and by inducing the
licensee to focus on the exploitation and development of
the licensed technology. Moreover, Article 81(1) only
applies where the agreement
the licensee's
incentive to improve and exploit his own technology.
This is for instance not likely to be the case where the
licensor is entitled to terminate the licence agreement
once the licensee commences to produce on the basis
of his own competing technology. Such a right does
not reduce the licensee's incentive to innovate, since
the
terminated when a
commercially viable technology has been developed and
products produced on the basis thereof are ready to be
put on the market.

can only be

agreement

reduces

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6. Withdrawal and disapplication of the Block Exemption

Regulation

6.1. Withdrawal procedure

117. 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

118. The four conditions of Article 81(3) are cumulative and
the exception rule to be
must all be fulfilled for
applicable (52). The block exemption can therefore be
withdrawn where a particular agreement
fails one or
more of the four conditions.

119. 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 in question restricts competition within the
fulfil
meaning of Article 81(1) and does not
the
conditions of Article 81(3), withdrawal
is necessarily
accompanied by a negative decision based on Articles
5, 7 or 9 of Regulation 1/2003.

120. 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
prohibiting licensees from using third party tech-
nology;

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

licensors. Foreclosure of

unduly restrict competition between the licensor and
licensee or between licensees. However,
the list of
hardcore restrictions and the list of excluded restrictions
do not take into account all the possible impacts of
In particular, the block exemption
licence agreements.
take account of any cumulative effect of
does not
similar
licence
restrictions contained in networks of
agreements. Licence 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 prohibiting the licensees
from exploiting
leading to the exclusion of
competing technologies,
other (potential)
licensors is
likely to arise in cases where most of the undertakings
on the market that could (efficiently) take a competing
licence are prevented from doing so as a consequence of
restrictive agreements and where potential licensees face
relatively high barriers to entry. Foreclosure of other
licensees may stem from the cumulative
effect of
licence agreements prohibiting licensors from licensing
other
potential
thereby
licensees from gaining access to the necessary tech-
nology. The issue of foreclosure is examined in more
the
detail
In addition,
Commission is likely to withdraw the benefit of
the
significant number of
block
licensors of
in individual
agreements impose on their licensees to extend to them
more favourable conditions agreed with other licensors.

exemption where
competing

in section IV.2.7 below.

a
technologies

preventing

licensees

and

122. 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 activity takes place, in which case the
very rationale of
the block exemption disappears.
However, exploitation does not need to take the form
of an integration of assets. Exploitation also occurs
where
the
licensee by allowing him to exploit his own technology
without facing the risk of infringement claims by the
licensor. 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. For these reasons the Commission will
examine very closely cases of non-exploitation.

creates design freedom for

licence

the

3. without any objectively valid reason the parties refrain

from exploiting the licensed technology.

6.2. Disapplication of the Block Exemption Regulation

121. Articles 4 and 5 of the TTBER, containing the list of
competition and excluded
hardcore
restrictions,
ensuring that block exempted
agreements do not reduce the incentive to innovate, do
not delay the dissemination of technology, and do not

restrictions of
aim at

123. 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.

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124. 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 1/2003, the
effect of a Commission disapplication regulation under
Article 7 of the TTBER is merely to remove, in respect
of the restraints and the markets concerned, the benefit
of the TTBER and to restore the full application of Article
81(1) and (3). Following the adoption of a regulation
declaring the TTBER inapplicable
a particular
in respect of agreements containing certain
market
the criteria developed by the relevant case
restraints,
law of
the Community Courts and by notices and
previous decisions adopted by the Commission will give
guidance on the application of Article 81 to individual
the Commission will
agreements. Where appropriate,
take a decision in an individual case, which can
provide guidance to all the undertakings operating on
the market concerned.

for

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

126. 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-
in particular, on the
priate remedy. This may depend,
number of competing undertakings contributing to a
cumulative effect on a market or
the number of
affected geographic markets within the Community.

the

licensing restraint

127. Any regulation adopted under Article 7 must clearly set
out its scope. This means, first, that the Commission
and geographic
relevant product
must define
market(s) and, secondly, that it must identify the type
of
in respect of which the TTBER
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 will be taken into account
for
establishing the 50 % market
coverage
the Commission may nevertheless
restrict the scope of the disapplication regulation only
to
certain
duration. Thus, agreements of a shorter duration or of
a less restrictive nature might be left unaffected, due to
foreclosure attributable to such
the lesser degree of
restraints. Where appropriate, the Commission may also
provide guidance by specifying the market share level
which, in the specific market context, may be regarded
as insufficient to bring about a significant contribution by
In
an individual undertaking to the cumulative effect.

the purpose of
ratio,

non-compete

obligations

exceeding

a

general, when the market share of the products incor-
porating 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 (53).

128. 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.

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

IV. APPLICATION OF ARTICLE 81(1) AND 81(3) OUTSIDE THE

SCOPE OF THE BLOCK EXEMPTION REGULATION

1. The general framework for analysis

share

thresholds

the agreement

130. Agreements that fall outside the block exemption, for
example because
are
the market
involves more than two
exceeded or
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
that Article 81(1) applies merely because the market
share thresholds are exceeded.
Individual assessment
based on the principles described in these guidelines is
required.

fall outside the scope of

131. In order to promote predictability beyond the application
of the TTBER and to confine detailed analysis to cases
that are likely to present real competition concerns, the
Commission takes the view that outside the area of
hardcore
restrictions Article 81 is unlikely to be
infringed where there are four or more independently
controlled technologies in addition to the technologies
controlled by the parties to the agreement that may be
substitutable for the licensed technology at a comparable
cost to the user. In assessing whether the technologies are
sufficiently substitutable the relative commercial strength
the technologies in question must be taken into
of
account. The competitive constraint imposed by a tech-
nology is limited if it does not constitute a commercially
viable alternative to the licensed technology. For instance,
if due to network effects in the market consumers have a
strong preference for products incorporating the licensed

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technology, other technologies already on the market or
likely to come to market within a reasonable period of
time may not constitute a real alternative and may
therefore impose only a limited competitive constraint.
The fact that an agreement falls outside the safe harbour
described in this paragraph does not
the
agreement
if so, that
is caught by Article 81(1) and,
the conditions of Article 81(3) are not satisfied. As for
the market
this
a negative
additional
is not prohibited by
presumption that
Article
individual
assessment of
the agreement based on the principles
developed in these guidelines is required.

safe harbour merely
the agreement
safe
the

share safe harbour of

81. Outside

the TTBER,

imply that

harbour

creates

1.1. The relevant factors

132. In the application of Article 81 to individual cases it is
necessary to take due account of
the way in which
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

(g) other factors.

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.

It

the agreement

is therefore important
in terms of

133. Technology transfer agreements can take many shapes
to analyse the
and forms.
nature of
the competitive
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

134. 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

135. 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
restrict
compared to the
situation where the licensor does not grant an exclusive
licence or licences other undertakings.

competition significantly

it

136. 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.
if the number of competitors is rather small
However,
and their market position (size, costs, R&D potential, etc.)
is rather similar, this market structure may increase the
risk of collusion.

such as

including

137. The market position of buyers provides an indication of
whether or not one or more buyers possess buyer power.
The first indicator of buying power is 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 position of the buyer on his resale
market,
a wide
characteristics
geographic spread of his outlets, and his brand 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 extract favourable terms from the supplier
or simply 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 licensee on the product
market
the
such as
competition problem on that market (54).

and therefore not

to solve

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138. Entry barriers are measured by the extent

price

tariffs,

render

factors

import

state aid,

resources where

such as economies of

to which
incumbent companies can increase their price above
the competitive level without attracting new entry.
In
the absence of entry barriers, easy and quick entry
unprofitable. When
increases
would
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
scale and scope,
of
government regulations, especially where they establish
intellectual
exclusive rights,
property rights, ownership of
the
supply is limited due to for instance natural limitations,
facilities, a first mover advantage or brand
essential
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 stages of
the
and
distribution process. The question whether certain of
these factors
should be described as entry barriers
depends particularly on whether they entail 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 for incumbents to leave the market. In
general, entry requires
sunk costs, sometimes minor
and sometimes major. Therefore, actual competition is
in general more effective and will weigh more heavily
in the assessment of a case than potential competition.

development,

production

research

and

139. 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 restrictions of competition are more likely to
have negative effects than in more dynamic markets.

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

the coverage of
the duration of

discrimination

facilitate

price

past

and

1.2. Negative effects of restrictive licence agreements

141. The negative effects on competition on the market that
transfer

technology

result

may
from restrictive
agreements include the following:

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.

142. Technology transfer agreements may reduce inter-tech-
i.e. competition between under-
nology competition,
takings
license or produce on the basis of
that
substitutable technologies. This is particularly so where
reciprocal obligations are imposed. For instance, where
to each
competitors
other and impose a reciprocal obligation to provide
each other with future improvements of their respective
technologies and where this agreement prevents either
lead over the
competitor from gaining a technological
other, competition in innovation between the parties is
restricted (see also paragraph 208 below).

transfer competing technologies

143. Licensing between competitors may

also facilitate
collusion. The risk of collusion is particularly high in
concentrated markets. Collusion requires that the under-
takings concerned have similar views on what is in their
common interest and on how the co-ordination mech-
anisms function. For collusion to work the undertakings
must also be able to monitor each other's market
behaviour and there must be adequate deterrents to
ensure that there is an incentive not to depart from the
common policy on the market, while entry barriers must
be high enough to limit entry or expansion by outsiders.
Agreements can facilitate collusion by increasing trans-
parency in the market, by controlling certain behaviour
and by raising barriers to entry. Collusion can also excep-
tionally be facilitated by licensing agreements that lead to
a high degree of commonality of costs, because under-
takings that have similar costs are more likely to have
similar views on the terms of coordination (55).

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inter-technology
144. 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. For instance, third parties may 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 substitutable
technologies may also be foreclosed where a licensor
with a sufficient degree of market power ties together
various parts of
them
together as a package while only part of the package is
essential to produce a certain product.

technology and licenses

a

145. Licence agreements may also reduce intra-technology
competition, i.e. competition between undertakings that
produce on the basis of
the same technology. An
agreement
imposing territorial restraints on licensees,
preventing them from selling into each other's territory
reduces competition between them. Licence agreements
may also reduce intra-technology competition by facili-
tating collusion between licensees. Moreover,
licence
agreements
reduce intra-technology competition
may facilitate collusion between owners of competing
technologies or reduce inter-technology competition by
raising barriers to entry.

that

1.3. Positive effects of restrictive licence agreements and

the framework for analysing such effects

anti-competitive

146. Even restrictive licence agreements mostly also produce
pro-competitive effects in the form of efficiencies, which
effects. This
may outweigh their
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.

in time. The assessment

147. The assessment of restrictive agreements under Article
81(3) is made within the actual context in which they
occur (56) and on the basis of the facts existing at any
given point
is sensitive to
material changes in the facts. The exception rule of
Article 81(3) applies as long as the four conditions are
fulfilled and ceases to apply when that is no longer the
case (57). However, when applying Article 81(3)
in
accordance with these principles it is necessary to take
into account the initial sunk investments made by any of
the parties and the time needed and the restraints
required to commit and recoup an efficiency enhancing
investment. Article 81 cannot be
applied without
considering the ex ante investment and the risks relating
thereto. The risk facing the parties and the sunk

can thus

investment that must be committed to implement the
agreement
falling
fulfilling the conditions of
outside Article 81(1) or
Article 81(3), as the case may be,
for the period of
time required to recoup the investment.

lead to the agreement

148. The

first

requires

licence
together

condition of Article 81(3)

an
assessment of what are the objective benefits in terms
of efficiencies produced by the agreement.
In this
the potential of
agreements have
respect,
bringing
and
technologies
complementary
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 to exploit it
himself. This may particularly be the case where the
licensee already has access to the necessary production
assets. The agreement allows the licensee to gain access
to a technology 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 technologies 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 efficiencies at the distribution stage in the
same way as vertical distribution agreements. Such effi-
the
ciencies can take the form of cost
savings or
provision of
to consumers. The
services
valuable
positive effects of vertical agreements are described in
the Guidelines on Vertical Restraints (58). A further
example of possible
is agreements
whereby technology owners assemble a technology
licensing to third parties. Such pooling
package for
arrangements may in particular
transaction
costs, as licensees do not have to conclude separate
licence agreements with each licensor. Pro-competitive
licensing may also occur to ensure design freedom. In
sectors where large numbers of
intellectual property
rights exist and where individual products may infringe
upon a number of existing and future property rights,
to
licence agreements whereby the parties agree not
assert their property rights against each other are often
pro-competitive because they allow the parties to develop
their
risk of
subsequent infringement claims.

technologies without

efficiency gains

respective

reduce

the

individual

restrictions make

149. In the application of the indispensability test contained in
Article 81(3) the Commission will in particular examine
it possible to
whether
perform the activity in question more efficiently than
the
would have been the case in the absence of
restriction concerned.
the
In making this assessment
market conditions and the realities facing the parties
must be taken into account. Undertakings invoking the
benefit of Article 81(3) are not required to consider
hypothetical and theoretical alternatives. They must,
seemingly
explain and demonstrate why
however,
alternatives
restrictive
realistic

and significantly less

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27.4.2004

In some cases,

would be significantly less efficient. If the application of
what appears to be a commercially realistic and less
restrictive alternative would lead to a significant loss of
efficiencies, the restriction in question is treated as indis-
it may also be necessary to
pensable.
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 (59), in which case it must
be examined to what extent such inclusion gives rise to
particular efficiencies or whether, without a significant
loss of efficiencies, the pool could be limited to tech-
nologies for which there are no substitutes. In the case
of simple licensing between two parties it is generally not
necessary to go beyond an examination of the indispen-
sability of individual restraints. Normally there is no less
restrictive alternative to the licence agreement as such.

the efficiency gains must

150. 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 (60). This means
that
the likely
negative impact on prices, output and other relevant
factors caused by the agreement. They may do so by
the undertakings
changing
concerned, giving them an incentive to reduce price, or
by allowing consumers
to new or
improved products, compensating for any likely price
increase (61).

to gain access

structure of

fully off-set

cost

the

151. 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 (62). 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
that constitute an abuse of a dominant
agreements
position (63).

eliminates

imply, however, that the creation of a de facto industry
standard always
competition within the
meaning of the last condition of Article 81(3). Within
the standard, suppliers may compete on price, quality
the
and product
for
agreement
it must be
ensured that
the agreement does not unduly restrict
competition and does not unduly restrict future inno-
vation.

to comply with Article 81(3),

features. However,

in order

2. The application of Article 81 to various types of

licensing restraints

153. This section deals with various types of restraints that are
commonly included in licence agreements. Given their
prevalence it is useful to provide guidance as to how
the
they are assessed outside the safe harbour of
TTBER. Restraints that have already been dealt with in
the preceding parts of
in particular
sections III.4 and III.5, are only dealt with briefly in the
present section.

these guidelines,

154. This

covers

section

agreements

between
both
non-competitors and agreements between competitors.
In respect of the latter a distinction is made — where
appropriate — between reciprocal and non-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
reciprocal
licence is for all practical purposes no different from
two separate
the
parties assemble a technology package, which is then
licensed to third parties, are technology pools, which
are dealt with in section 4 below.

licences. Arrangements whereby

licensed technology,

a

155. This section does not deal with obligations in licence
agreements
of
competition within the meaning of Article 81(1). These
obligations include but are not limited to:

restrictive

generally

that

not

are

(a) confidentiality obligations;

(b) obligations on licensees not to sub-license;

152. 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

(c) obligations not to use the licensed technology after
the

the expiry of
the agreement, provided that
licensed technology remains valid and in force;

(d) obligations to assist

the licensor in enforcing the

licensed intellectual property rights;

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(e) obligations to pay minimum royalties or to produce a
minimum quantity of products incorporating the
licensed technology; and

(f) obligations

to use the licensor's
indicate the name of the licensor on the product.

trade mark or

159. Notwithstanding the fact that the block exemption only
applies as long as the technology is valid and in force, the
parties can normally agree to extend royalty obligations
beyond the period of validity of the licensed intellectual
property rights without falling foul of Article 81(1). Once
these rights expire, third parties can legally exploit the
technology in question and compete with the parties to
the agreement. Such actual and potential competition will
normally suffice to ensure that the obligation in question
does not have appreciable anti-competitive effects.

2.1. Royalty obligations

agreements

156. 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
applies both to agreements
81(1). This principle
between
between
and
competitors
non-competitors. 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 technology relates to an input which is
incorporated into a final product it is as a general rule
not restrictive of competition that royalties are calculated
on the basis of the price of the final product, provided
that it incorporates the licensed technology. In the case of
software licensing royalties based on the number of users
and royalties calculated on a per machine basis are
generally compatible with Article 81(1).

157. In the case of licence agreements between competitors it
is recalled, see paragraphs and above, that in a limited
number of circumstances royalty obligations may amount
to price fixing, which is a hardcore restriction (cf. Article
4(1)(a)). It is a hardcore restriction under Article 4(1)(a) if
competitors provide for reciprocal running royalties in
circumstances where the licence is a sham,
in that its
purpose is not to allow an integration of complementary
technologies or to achieve another pro-competitive aim.
It is also a hardcore restriction under Article 4(1)(a) and
4(1)(d)
if royalties extend to products produced solely
with the licensee's own technology.

that

royalties

158. Other types of royalty arrangements between competitors
are block exempted up to the market share threshold of
20 % even if they restrict competition. Outside the safe
harbour of the block exemption Article 81(1) may be
applicable where competitors cross license and impose
running
clearly disproportionate
are
compared to the market value of the licence and where
such royalties have a significant impact on market prices.
In assessing whether the royalties are disproportionate it
is relevant to have regard to the royalties paid by other
licensees on the product market
the same or
substitute technologies. In such cases it is unlikely that
the conditions of Article 81(3) are satisfied. Article 81(1)
may also apply where reciprocal running royalties per
unit increase as output increases. If the parties have a
significant degree of market power, such royalties may
have the effect of limiting output.

for

parties.

licensed

from third

160. In the case of agreements between non-competitors the
block exemption covers agreements whereby royalties are
calculated on the basis of both products produced with
the licensed technology and products produced with
Such
technologies
arrangements may facilitate the metering of royalties.
However, they may also lead to foreclosure by increasing
the cost of using third party inputs and may thus have
similar effects as a non-compete obligation. If royalties
are paid not just on products produced with the licensed
technology but also on products produced with third
party technology,
increase the
cost of the latter products and reduce demand for third
the block
party technology. Outside
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 below. In the case of appreciable foreclosure
effects such agreements are caught by Article 81(1) and
unlikely to fulfil the conditions of Article 81(3), unless
there is no other practical way of calculating and moni-
toring royalty payments.

then the royalties will

scope of

the

2.2. Exclusive licensing and sales restrictions

161. For

is useful

the present purposes it

to distinguish
between restrictions as to production within a given
territory (exclusive or sole licences) and restrictions on
the sale of products incorporating the licensed tech-
nology into a given territory and to a given customer
group (sales restrictions).

2.2.1. Exclusive and sole licences

162. A licence is deemed to be exclusive if the licensee is the
only one who is permitted to produce on the basis of the
licensed technology within a given territory. The licensor
thus undertakes not to produce itself or license others to
produce within a given territory. This territory may cover
the whole world. Where the licensor undertakes only not
to licence third parties
to produce within a given
territory, the licence is a sole licence. Often exclusive
or sole licensing is accompanied by sales restrictions
that limit the parties in where they may sell products
incorporating the licensed technology.

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163. Reciprocal exclusive licensing between competitors falls
under Article 4(1)(c), which identifies market sharing
between competitors as a hardcore restriction. Reciprocal
sole licensing between competitors is block exempted up
to the market share threshold of 20 %. Under such an
agreement the parties mutually commit not to license
their competing technologies to third parties.
In cases
where the parties have a significant degree of market
power
such agreements may facilitate collusion by
ensuring that the parties are the only sources of output
in the market based on the licensed technologies.

164. Non-reciprocal exclusive licensing between competitors is
block exempted up to the market share threshold of
20 %. Above the market share threshold it is necessary
to analyse what are the likely anti-competitive effects of
such exclusive licensing. Where the exclusive licence is
world-wide it implies that the licensor leaves the market.
In cases where exclusivity is limited to a particular
territory such as a Member State the agreement implies
that
the licensor abstains from producing goods and
services inside the territory in question. In the context
of Article 81(1) it must in particular be assessed what is
the competitive significance of the licensor. If the licensor
has a limited market position on the product market or
lacks the capacity to effectively exploit the technology in
the licensee's territory, the agreement is unlikely to be
caught by Article 81(1). A special case is where the
licensor and the licensee only compete on the technology
market and the licensor, for instance being a research
lacks
institute or a small research based undertaking,
the production and distribution assets
to effectively
bring to market products incorporating the licensed tech-
nology.
is unlikely to be
infringed.

In such cases Article 81(1)

large

165. Exclusive licensing between non-competitors — to the
extent that it is caught by Article 81(1) (64) — is likely
to fulfil the conditions of Article 81(3). The right to grant
an exclusive licence is generally necessary in order to
induce the licensee to invest in the licensed technology
and to bring the products to market in a timely manner.
This is in particular the case where the licensee must
make
in further developing the
licensed technology. To intervene against the exclusivity
once the licensee has made a commercial success of the
licensed technology would deprive the licensee of the
fruits of his
to
competition, the dissemination of technology and inno-
vation. The Commission will therefore only exceptionally
licensing in agreements
intervene
irrespective of the territorial
between non-competitors,
scope of the licence.

success and would be detrimental

investments

exclusive

against

166. The main situation in which intervention may be
warranted is where a dominant
licensee obtains an
exclusive licence to one or more competing technologies.
Such agreements are likely to be caught by Article 81(1)
and unlikely to fulfil the conditions of Article 81(3). It is

that entry into the technology
a condition however
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
party licensees and allow the licensee to preserve his
market power.

167. Arrangements whereby two or more parties cross licence
each other and undertake not to licence third parties give
rise to particular concerns when the package of tech-
nologies resulting from the cross licences creates a de
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 prin-
ciples as those applied to technology pools (see section
4 below).
It will normally be required that the tech-
nologies which support such a standard be licensed to
third parties on fair, reasonable and non-discriminatory
terms (65). Where the parties to the arrangement compete
with third parties on an existing product market and the
arrangement relates to that product market a closed
standard is
exclusionary
effects. This negative impact on competition can only
be avoided by licensing also to third parties.

likely to have

substantial

2.2.2. Sales restrictions

168. Also as regards sales restrictions there is an important
distinction to be made between licensing between
competitors and between non-competitors.

169. Restrictions on active and passive sales by one or both
parties in a reciprocal agreement between competitors
are hardcore restrictions of competition under Article
4(1)(c). Sales restrictions on either party in a reciprocal
agreement between competitors are caught by Article
81(1) and are unlikely to fulfil the conditions of Article
81(3). Such restrictions are generally considered market
sharing, since they prevent the affected party from selling
actively and passively into territories and to customer
groups which he actually served or could realistically
have served in the absence of the agreement.

170. In the

case of non-reciprocal

agreements between
competitors the block exemption applies to restrictions
on active and passive sales by the licensee or the licensor
into the exclusive territory or to the exclusive customer
group reserved for the other party (cf. Article 4(1)(c)(iv).
Above
threshold of 20 % sales
restrictions between licensor and licensee are caught by

the market

share

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the technology.

Article 81(1) when one or both of the parties have a
significant degree of market power. Such restrictions,
however, may be indispensable for the dissemination of
valuable technologies and therefore fulfil the conditions
of Article 81(3). This may be the case where the licensor
has a relatively weak market position in the territory
where he exploits himself
In such
circumstances restrictions on active sales in particular
may be indispensable to induce the licensor to grant
In the absence thereof the licensor would
the licence.
risk facing active competition in his main area of
activity. Similarly, restrictions on active sales by the
licensor may be indispensable,
in particular, where the
licensee has a relatively weak market position in the
territory allocated to him and has to make significant
investments in order to efficiently exploit the licensed
technology.

into the territory or

171. The block exemption also covers restrictions on active
to the customer group
sales
allocated to another licensee, who was not a competitor
of the licensor at the time when he concluded the licence
agreement with the licensor. It is a condition, however,
that the agreement between the parties in question is
non-reciprocal. Above the market share threshold such
active sales restrictions are likely to be caught by Article
81(1) when the parties have a significant degree of
market power. However, the restraint is likely to be indis-
pensable within the meaning of Article 81(3) for the
time required for the protected licensee to
period of
and establish a market
a new market
penetrate
presence
the
in the allocated territory or vis-à-vis
allocated customer group. This protection against active
sales allows the licensee to overcome the asymmetry,
which he faces due to the fact
the
licensees are competing undertakings of
the licensor
and thus already established on the market. Restrictions
on passive sales by licensees into a territory or to a
are
customer group allocated to another
hardcore restrictions under Article 4(1)(c) of the TTBER.

some of

licensee

that

172. In the case of agreements between non-competitors sales
restrictions between the licensor and a licensee are block
exempted up to the market share threshold of 30 %.
Above the market share threshold restrictions on active
and passive sales by licensees to territories or customer
groups reserved for the licensor may fall outside Article
81(1) where on the basis of objective factors it can be
concluded that in the absence of the sales restrictions
licensing would not occur. A technology owner cannot
normally be expected to create direct competition with
himself on the basis of his own technology. In other
cases sales restrictions on the licensee may be caught
by Article 81(1) both where the licensor individually
has a significant degree of market power and in the
case of a cumulative
similar agreements
concluded by licensors which together hold a strong
position on the market.

effect of

173. 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 within the meaning of Article 81(3)
in
order to induce the licensee to invest in the production,
marketing and sale of the products incorporating the
licensee's
is
licensed technology.
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.

likely that

the

It

174. As regards restrictions on sales between licensees in
agreements between non-competitors, the TTBER block
exempts restrictions on active selling between territories
or customer groups. Above the market share threshold
restrictions on active sales between licensees' territories
and customer groups limit intra-technology competition
and are likely to be caught by Article 81(1) when the
licensee has a significant degree of market
individual
power. Such restrictions, however, may
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 efficient 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.
paragraph 101 above, when they exceed two years
from the date on which the licensee benefiting from
the restrictions first put the product incorporating the
licensed technology on the market inside his exclusive
territory.
this
two-year period are unlikely to fulfil the conditions of
Article 81(3).

restrictions

exceeding

Passive

fulfil

sales

2.3. Output restrictions

175. Reciprocal output

restrictions

in licence agreements
between competitors constitute a hardcore restriction
covered by Article 4(1)(b) of the TTBER (cf. point 82
above). Article 4(1)(b) does not cover output restrictions
imposed on the licensee in a non-reciprocal agreement or
on one of the licensees in an reciprocal agreement. Such
restrictions are block exempted up to the market share
threshold of 20 %. Above the market share threshold,
output
restrict
the
competition where the parties have a significant degree
of market power. However, Article 81(3)
is likely to
apply in cases where
technology is
the
substantially better than the licensee's technology and
the output limitation substantially exceeds the output of
the licensee prior to the conclusion of the agreement. In

licensee may

restrictions

licensor's

on

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that case the effect of the output limitation is limited
even in markets where demand is growing.
In the
application of Article 81(3) it must also be taken into
account that such restrictions may be necessary in order
to induce the licensor to disseminate his technology as
widely as possible. For
instance, a licensor may be
reluctant to license his competitors if he cannot limit
the licence to a particular production site with a
specific capacity (a site licence). Where the licence
agreement leads to a real integration 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 substantial
market power.

176. Output

restrictions

from output

restrictions on licensees

agreements between
in licence
non-competitors are block exempted up to the market
share threshold of 30 %. The main anti-competitive risk
flowing
in
agreements between non-competitors is reduced intra-
technology
The
significance of such anti-competitive effects depends on
the market position of the licensor and the licensees and
the extent to which the output limitation prevents the
licensee from satisfying demand for the products incor-
porating the licensed technology.

competition

licensees.

between

177. 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.

178. Output limitations imposed on the licensee in agreements
between non-competitors may also have pro-competitive
effects by promoting the dissemination of technology. As
a supplier of technology, the licensor should normally be
free to determine the output produced with the licensed
technology by the licensee. If the licensor were not free
to determine the output of the licensee, a number of
licence agreements might not come into existence in
the first place, which would have a negative impact on
the dissemination of new technology. This is particularly
likely to be the case where the licensor is also a producer,
since in that case the output of the licensees may find
their way back into the licensor's main area of operation
and thus have a direct impact on these activities. On the
it is less likely that output restrictions are
other hand,
the
necessary in order
licensor's
sales
restrictions on the licensee prohibiting him from selling
into a territory or customer group reserved for the
licensor.

to ensure dissemination of

technology when

combined with

2.4. Field of use restrictions

179. 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. However, a single product
market may encompass several technical fields of use.
For
technology may be
employed in four cylinder engines and six cylinder
engines. Similarly, a technology to make chipsets may
be used to produce chipsets with up to four CPUs and
more than four CPUs. A licence limiting the use of the
licensed technology to produce say four cylinder engines
and chipsets with up to four CPUs constitutes a technical
field of use restriction.

a new engine

instance

are

180. Given that field of use restrictions are block exempted
restrictions are hardcore
and that certain customer
the
restrictions under Articles 4(1)(c) and 4(2)(b) of
TTBER, it is important to distinguish the two categories
of restraints. A customer restriction presupposes that
specific customer groups are identified and that
the
parties
restricted in selling to such identified
groups. The fact that a technical field of use restriction
may correspond to certain groups of customers within a
product market does not imply that the restraint is to be
classified as a customer restriction. For instance, the fact
that certain customers buy predominantly or exclusively
chipsets with more than four CPUs does not imply that a
licence which is limited to chipsets with up to four CPUs
constitutes a customer restriction. However, the field of
use must be defined objectively by reference to identified
and meaningful technical characteristics of the licensed
product.

181. A field of use restriction limits the exploitation of the
licensed technology by the licensee to one or more
limiting the licensor's
particular fields of use without
ability to exploit the licensed technology.
In addition,
as with territories, these fields of use can be allocated
to the licensee under an exclusive or sole licence. Field
of use restrictions combined with an exclusive or sole
licence also restrict the licensor's ability to exploit his
own technology, by preventing him from exploiting it
himself, including by way of licensing to others. In the
case of a sole license only licensing to third parties is
combined with
restricted.
exclusive and sole licences are treated in the same way
as the exclusive and sole licenses dealt with in section
licensing between
2.2.1 above.
competitors,
exclusive
this means
licensing is hardcore under Article 4(1)(c).

In particular,

Field of use

restrictions

reciprocal

that

for

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182. Field of use restrictions may have pro-competitive effects
by encouraging the licensor to license his technology for
applications that fall outside his main area of focus. If the
licensor could not prevent licensees from operating in
fields where he exploits the technology himself or in
fields where the value of the technology is not yet well
established, it would be likely to create a disincentive for
the licensor to license or would lead him to charge a
higher royalty. It must also be taken into account that
in certain sectors licensing often occurs to ensure design
freedom by preventing infringement claims. Within the
scope of the licence the licensee is able to develop his
own technology without fearing infringement claims by
the licensor.

183. Field of use restrictions on licensees

in agreements
competitors are block
between actual or potential
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 outside the licensed field of use. This
risk is greater in the case of cross licensing between
competitors where the agreement provides for asym-
metrical field of use restrictions. A field of use restriction
is asymmetrical where one party is permitted to use the
licensed technology within one product market or
technical field of use and the other party is permitted
to use the other licensed technology within another
product market or technical
field of use. Competition
concerns may in particular arise where the licensee's
tooled up to use the
production facility, which is
licensed technology,
is also used to produce with his
own technology products outside the licensed field of
If the agreement is likely to lead the licensee to
use.
reduce output outside the licensed field of use,
the
likely to be caught by Article 81(1).
agreement
Symmetrical
i.e. agreements
whereby the parties are licensed to use each other's tech-
nologies within the same field(s) of use, are unlikely to be
caught by Article 81(1). Such agreements are unlikely to
restrict competition that existed in the absence of the
agreement. Article 81(1) is also unlikely to apply in the
case of agreements that merely enable the licensee to
develop and exploit his own technology within the
fearing infringement
scope of
claims by the licensor.
In such circumstances field of
use restrictions do not in themselves restrict competition
that existed in the absence of
In the
absence of
licensee also risked
infringement claims outside the scope of the licensed
field of use. However,
if the licensee without business
justification terminates or scales back his activities in
the area outside the licensed field of use this may be
an
sharing
arrangement amounting to a hardcore restriction under
Article 4(1)(c) of the TTBER.

field of use restrictions,

underlying market

licence without

the agreement

the agreement.

indication

the

the

an

of

is

184. Field of use restrictions on licensee and licensor

in
agreements
block
exempted up to the market share threshold of 30 %.
Field
between
non-competitors whereby the licensor reserves one or

non-competitors

in agreements

restrictions

between

use

are

of

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

185. In agreements between non-competitors the licensor is
normally also entitled to grant sole or exclusive licences
to different licensees limited to one or more fields of use.
competition
Such restrictions
between licensees
exclusive
as
licensing and are analysed in the same way (cf. section
2.2.1 above).

intra-technology
same way

limit
in the

2.5. Captive use restrictions

186. 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; it does not cover the sale of the licensed
product
for incorporation into the products of other
producers. 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
is necessary to examine what are the pro-competitive and
anti-competitive effects of the restraint. In this respect it
is
between
competitors from agreements between non-competitors.

agreements

distinguish

necessary

to

the licensee was not an actual or

187. 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 assessed in the same way as in
the case of agreements between non-competitors. If, on
likely
the other hand,
component supplier, it is necessary to examine what is
the impact of the agreement on this activity. If by tooling
up to use the licensor's technology the licensee ceases to
use his own technology on a stand alone basis and thus
to be a component supplier,
the agreement restricts
competition that existed prior to the agreement. It may
result in serious negative market effects when the licensor
has a significant degree of market power on the
component market.

the licensee is an actual or

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188. 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 to impose discriminatory royalties on licensees.

In the

technology

absence of

dissemination

189. 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
between
the
of
the
to occur.
non-competitors
restraint the licensor may not grant the licence or may
do so only against higher royalties, because otherwise he
would create direct competition to himself on the
component market. In such cases a captive use restriction
restrictive of competition or
is normally either not
covered by Article 81(3).
is a condition, however,
It
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 for his
service organi-
including independent
own products,
sations that service and repair the products produced
by him.

190. 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
normally
alternative.
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

that tying and bundling are not block exempted above
the market share thresholds of 20 % in the case of
agreements between competitors and 30 % in the case
of agreements between non-competitors. The market
technology or
share thresholds apply to any relevant
product market affected by the
licence agreement,
including the market for the tied product. Above the
market share thresholds it is necessary to balance the
anti-competitive and pro-competitive effects of tying.

for

are

the

the

and

tied

product

product

tying product. These

tying is foreclosure of
193. The main restrictive effect of
the tied product. Tying may
competing suppliers of
also allow the licensor to maintain market power in
the market for the tying product by raising barriers to
entry since it may force new entrants to enter several
markets at the same time. Moreover, tying may allow
the licensor to increase royalties, in particular when the
tying
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
licensor
anti-
cannot use his
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 appreciable fore-
closure effects to occur. In cases where the licensor has
market power on the market for the tied product rather
than on the market for the tying product, the restraint 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 (66).

in the tying product
technology for

the

2.6. Tying and bundling

191. 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). Bundling occurs where two technologies or a
technology and a product are only sold together as a
bundle. In both cases, however,
it is a condition that
the products and technologies involved are distinct in
the sense that there is distinct demand for each of the
products and technologies forming part of the tie or the
bundle. This is normally not the case where the tech-
nologies or products are by necessity linked in such a
way that the licensed technology cannot be exploited
without the tied product or both parts of the bundle
cannot be exploited without the other. In the following
the term ‘tying’ refers to both tying and bundling.

192. Article 3 of the TTBER, which limits the application of
the block exemption by market share thresholds, ensures

194. 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
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
is known to consumers
operator. Moreover, where it
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

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195. Tying is also likely to be pro-competitive where the tied
product allows the licensee to exploit the licensed tech-
nology significantly more efficiently. For instance, where
the licensor licenses a particular process technology the
parties can also agree that the licensee buys 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 even above the market share thresholds.

2.7. Non-compete obligations

196. 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

199. 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
In the latter case, however, a serious
by the TTBER.
cumulative 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 entry are low, new licensees are able to
enter the market and exploit commercially attractive
technologies held by third parties and thus represent a
real alternative to incumbent
to
determine the real possibility for entry and expansion
by third parties it is also necessary to take account of
the extent to which distributors are tied to licensees by
non-compete obligations. Third party technologies only
have a real possibility of entry if they have access to the
In other
necessary production and distribution assets.
words, the ease of entry depends not only on the avail-
ability of licensees but also the extent to which they have
access to distribution. In assessing foreclosure effects at
the distribution level
the Commission will apply the
framework set out in section IV.2.1 of the
analytical
Guidelines on Vertical Restraints (67).

In order

licensees.

197. 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.

198. 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
between competing technologies. As in both cases the
main problem is foreclosure, the analysis can in general
be
case of agreements between
competitors and agreements between non-competitors.
However,
licensing between
competitors where both agree not to use third party
technologies
collusion
between them on the product market, thereby justifying
the lower market share threshold of 20 %.

agreement may facilitate

case of

in the

in the

same

cross

the

the

are

that

likely

effects

risk of

to occur

the most

foreclosure

foreclosure

appreciable

200. 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.
the
For
non-compete obligations do not necessarily have to
the market. Even in the
cover a substantial part of
absence thereof, appreciable
foreclosure effects may
occur where non-compete obligations are targeted at
to license
undertakings
competing technologies. The
is
particularly high where there is 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 the entry barriers
for a new licensor are likely to be high. Foreclosure may
be less likely in cases where the technology is used to
make a product that is sold to third parties; although in
this case the restriction also ties production capacity for
it does not tie demand for the
the input in question,
product
incorporating the input produced with the
licensed technology. To enter the market in the latter
case licensors only need access to one or more licensee(s)
that have suitable production capacity and unless only
few undertakings possess or are able to obtain the
assets required to take a licence,
it is unlikely that by
imposing non-compete obligations on its licensees the
licensor is able to deny competitors access to efficient
licensees.

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201. Non-compete

also

obligations
effects. First,

produce
may
pro-competitive
such obligations may
promote dissemination of technology by reducing the
risk of misappropriation of the licensed technology,
in
particular know-how. If a licensee is entitled to license
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
it normally also makes monitoring of
technologies,
royalty payments more difficult, which may act as a
disincentive to licensing.

202. Second, non-compete obligations possibly in combi-
nation with an exclusive territory may be necessary to
ensure that the licensee has an incentive to invest in and
exploit the licensed technology effectively. In cases where
the agreement is caught by Article 81(1) because of an
it may be necessary in
appreciable foreclosure effect,
to choose a less
from Article 81(3)
order to benefit
restrictive alternative, for instance to impose minimum
output or royalty obligations, which normally have less
potential to foreclose competing technologies.

203. Third,

in cases where the licensor undertakes to make
significant client specific investments for
instance in
training and tailoring of the licensed technology to the
licensee's needs, non-compete obligations or alternatively
minimum output or minimum royalty obligations may
to make the
the
be necessary to induce
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

204. Licensing may serve as a means of settling disputes or
avoiding that one party exercises his intellectual property
rights to prevent the other party from exploiting his own
technology. Licensing including cross licensing in the
context of
settlement agreements and non-assertion
agreements is not as such restrictive of competition
since it allows the parties to exploit their technologies
terms and
the individual
post agreement. However,
conditions of
such agreements may be caught by
Article 81(1). Licensing in the context of settlement
agreements is treated like other licence agreements. In
the case of technologies that from a technical point of
view are substitutes, it is therefore necessary to assess to
what extent it is likely that the technologies in question
are in a one-way or two-way blocking position (cf.
paragraph 32 above). If so, the parties are not deemed
to be competitors.

205. The block exemption applies provided that the agreement
does not contain any hardcore restrictions of competition
as set out in Article 4 of the TTBER. The hardcore list of
Article 4(1) may in particular apply where it was clear to
the parties that no blocking position exists and that
consequently they are competitors.
In such cases the
settlement
is merely a means to restrict competition
that existed in the absence of the agreement.

206. In cases where it is likely that in the absence of the
licence the licensee could be excluded from the market,
the agreement is generally pro-competitive. Restrictions
that
intra-technology competition between the
licensor and the licensee are often compatible with
Article 81, see section 2 above.

limit

207. Agreements whereby the parties cross license each other
and impose restrictions on the use of their technologies,
including restrictions on the licensing to third parties,
may be caught by Article 81(1). Where the parties have
a significant degree of market power and the agreement
imposes restrictions that clearly go beyond what
is
required in order to unblock, the agreement is likely to
be caught by Article 81(1) even if it is likely that a
is
mutual blocking position exists. Article 81(1)
particularly likely to apply where the parties
share
markets or fix reciprocal running royalties that have a
significant impact on market prices.

208. Where under the agreement the parties are entitled to use
each other's technology and the agreement extends to
it is necessary to assess what is
future developments,
the impact of the agreement on the parties'
incentive
to innovate. In cases where the parties have a significant
degree of market power the agreement is likely to be
caught by Article 81(1) where the agreement prevents
the parties from gaining a competitive lead over each
other. Agreements that eliminate or substantially reduce
the possibilities of one party to gain a competitive lead
over the other reduce the incentive to innovate and thus
adversely affect an essential part of
the competitive
process. Such agreements are also unlikely to satisfy the
conditions of Article 81(3). It is particularly unlikely that
the restriction can be considered indispensable within the
meaning of the third condition of Article 81(3). The
achievement of the objective of the agreement, namely
to ensure that the parties 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. However, the parties are unlikely to
be prevented from gaining a competitive lead over each
other where the purpose of the licence is to allow the
parties to develop their respective technologies and where

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the licence does not lead them to use the same tech-
solutions. Such agreements merely create
nological
design freedom by preventing
infringement
claims by the other party.

future

209. In the

a

settlement

context of

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

is inherent

It

4. Technology pools

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

In both cases

211. There is no inherent link between technology pools and
standards, but in some cases the technologies in the pool
support (wholly or partly) a de facto or de jure industry
standard. When technology pools do support an industry
standard they do not necessarily support a single
standard. Different
support
competing standards (68).

technology pools may

section III.2.2 above).

212. 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.
Such
agreements are addressed only by 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
licensing. The individual
licences granted by the pool to third party licensees,
licence agreements,
however, are treated like other
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.

types of

213. 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 solely or predominantly of substitute
technologies amounts to a price fixing cartel. Moreover,
in addition to reducing competition between the parties,
in particular when they
technology pools may also,
support an industry standard or establish a de facto
industry standard, result in a reduction of
innovation
by foreclosing alternative technologies. The existence of
the standard and the related technology pool may make
it more difficult for new and improved technologies to
enter the market.

214. Technology pools can also produce pro-competitive
effects,
in particular by reducing transaction costs and
by setting a limit on cumulative royalties to avoid
double marginalisation. 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
licences need to be
order to operate on the market
In
obtained from a significant number of
cases where
services
licensees
concerning the application of the licensed technology,
joint
licensing and servicing can lead to further cost
reductions.

licensors.

on-going

receive

4.1. The nature of the pooled technologies

215. 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 (a)
between technological complements and technological
substitutes and (b) between essential and non-essential
technologies.

two

technologies

relate. Conversely,

216. Two technologies (69) are complements as opposed to
substitutes when they are both required to produce the
product or carry out the process to which the tech-
nologies
are
substitutes when 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 or 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. A technology for which there are no
substitutes, remains essential as long as the technology
is covered by at least one valid intellectual property right.
Technologies that are essential are by necessity also
complements.

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217. 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.

218. The distinction between complementary and substitute
technologies is not clear-cut
in all cases, since tech-
nologies 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.

price
rule

to
general

amounts
a

219. The inclusion in the pool of substitute technologies
restricts inter-technology competition and amounts to
is
collective bundling. Moreover, where
the pool
the
substantially composed of substitute technologies,
fixing
arrangement
between
competitors. As
the Commission
considers that
the inclusion of substitute technologies
in the pool 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 to a significant extent substitute
technologies. Given that
the technologies in question
are alternatives, no transaction cost savings accrue from
including both technologies in the pool. In the absence of
the pool licensees would not have demanded both tech-
nologies. It is not sufficient that the parties remain free to
license independently.
In order not to undermine the
pool, which allows them to jointly exercise market
power, the parties are likely to have little incentive to
do so.

220. 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).

covers

already

221. 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 license a
competing technology when the royalty paid for the
package
technology.
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 bundling. When a
pool
the
non-essential
agreement is likely to be caught by Article 81(1) where
the pool has a significant position on any relevant
market.

technologies,

encompasses

substitute

a

222. Given that substitute and complementary technologies
may be developed after the creation of the pool, the
assessment of essentiality is an on-going process. A tech-
nology may therefore become non-essential after the
creation of the pool due to the emergence of new third
party technologies. One way to ensure that such third
party technologies are not foreclosed is to exclude from
the pool technologies that have become non-essential.
However, there may be other ways to ensure that third
party technologies are not foreclosed. In the assessment
of
tech-
nologies,
technologies for which substitutes exist
outside the pool or which are not necessary in order to
produce one or more products to which the pool relates,
the Commission will in its overall assessment, inter alia,
take account of the following factors:

comprising non-essential

technology pools

i.e.

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

is composed of a limited number of
are

(b) whether the licensors remain free to license their
independently. Where the
respective technologies
tech-
pool
technologies
nologies
outside
to put
together their own technological package composed
partly of technology forming part of the pool and
partly of technology owned by third parties;

licensees may want

and there

the pool,

substitute

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(c) whether, in cases where the pooled technologies have
different applications some of which do not require
use of all of the pooled technologies, the pool offers
the technologies only as a single package or whether
it offers separate packages for distinct applications. In
the latter case it is avoided that technologies which
are not essential to a particular product or process
are tied to essential technologies;

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

225. Undertakings

that

setting up a technology pool

is
compatible with Article 81, and any industry standard
that it may support, are normally free to negotiate and
fix royalties for the technology package and each tech-
nology's share of the royalties either before or after the
standard is set. Such agreement is inherent in the estab-
lishment of the standard or pool and cannot in itself be
considered restrictive of competition and may in certain
circumstances lead to more efficient outcomes. In certain
circumstances it may be more efficient if the royalties are
agreed before the standard is chosen and not after the
standard is decided upon, to avoid that the choice of the
standard confers a significant degree of market power on
one or more essential technologies. On the other hand,
licensees must remain free to determine the price of
the
products produced under
selection of technologies to be included in the pool is
carried out by an independent expert this may further
competition between available technological solutions.

licence. Where

the

a

the

obtains

(d) whether the pooled technologies are available only as
a single package or whether licensees have the possi-
the
bility of obtaining a licence for only part of
package with a corresponding reduction of royalties.
The possibility to obtain a licence for only part of the
package may reduce the risk of foreclosure of third
party technologies outside the pool,
in particular
corresponding
licensee
where
reduction in royalties. This requires that a share of
the overall royalty has been assigned to each tech-
nology in the pool. Where the licence agreements
concluded between the pool and individual licensees
are of relatively long duration and the pooled tech-
nology supports a de facto industry standard, it must
also be taken into account
the pool may
foreclose access to the market of new substitute tech-
nologies. In assessing the risk of foreclosure in such
cases it is relevant to take into account whether or
not licensees can terminate at reasonable notice part
of the licence and obtain a corresponding reduction
of royalties.

that

4.2. Assessment of individual restraints

223. 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. paragraph 212 above, that the TTBER applies
to licence agreements concluded between the pool and
third party licensees. This section is therefore limited to
addressing the creation of the pool and licensing issues
that are particular to licensing in the context of tech-
nology pools.

224. 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.

226. Where the pool has a dominant position on the market,
royalties and other licensing terms should be fair and
non-discriminatory and licences should be non-exclusive.
These 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
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.

do not preclude

are

227. Licensors

free

and licensees must be

to develop
competing products and standards and must also be
free to grant and obtain licences 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 limit innovation and preclude the
creation of competing technological solutions. Where a
pool supports 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.

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228. Grant back obligations should be non-exclusive and be
limited to developments that are essential or important to
the use of the pooled technology. This allows the pool to
feed on and benefit from improvements to the pooled
technology. 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

229. One of the problems identified with regard to patent
pools
they shield invalid patents.
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
technologies owned by the licensor who is the addressee
of the challenge and must not extend to the technologies
owned by the other licensors in the pool.

4.3. The institutional framework governing the pool

230. 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

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

232. Another relevant

experts are

involved in the

factor is the extent

to which inde-
pendent
creation and
operation of the pool. For instance, the assessment of
whether or not a technology is essential to a standard
is often a complex matter that
supported by a pool
requires
in the
selection process of independent experts can go a long
way in ensuring that a commitment
to include only
essential technologies is implemented in practice.

expertise. The

involvement

special

that have formed the pool.

233. The Commission will take into account how experts are
selected and what are the exact functions that they are to
perform. Experts should be independent from the under-
If experts are
takings
connected to the licensors or otherwise depend on
them, the involvement of the expert will be given less
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.

234. 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
such as pricing
facilitate
collusion (70).
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
that compete on affected
disclosed to undertakings
markets.

235. Finally,

it

is relevant

to take account of
the dispute
instruments
resolution mechanism foreseen in the
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 123, 27.4.2004. The TTBER replaces Commission Regulation (EC) No 240/96 of 31 January 1996 on the
application of Article 85(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
paragraph 106 of the Commission Guidelines on the application of Article 81(3) of the Treaty, not yet published.

(3) 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).

(4) In the following the term ‘agreement’ includes concerted practices and decisions of associations of undertakings.

(5) See Commission Notice on the concept of effect on trade between Member States contained in Articles 81 and 82

of the Treaty, not yet published.

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(6) In the following the term ‘restriction’ includes the prevention and distortion of competition.

(7) 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.

(8) On the other hand, the sale of copies of a protected work does not lead to the exhaustion of performance rights,
including rental rights, in the work, see in this respect Case 158/86, Warner Brothers and Metronome Video, [1988]
ECR 2605, and Case C-61/97, Foreningen af danske videogramdistributører, [1998] ECR I-5171.

(9) See e.g. Joined Cases 56/64 and 58/64, Consten and Grundig, [1966] ECR 429.

(10) 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.

(11) See Case 56/65, Société Technique Minière, [1966] ECR 337, and Case C-7/95 P, John Deere, [1998] ECR I-3111,

paragraph 76.

(12) See in this respect e.g. judgment in Consten and Grundig cited in note 9.

(13) See in this respect the judgment in Société Technique Minière cited in note 11 and Case 258/78, Nungesser, [1982]

ECR 2015.

(14) See in this respect e.g. Case C-49/92 P, Anic Partecipazioni, [1999] ECR I-4125, paragraph 99.

(15) 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.

(16) See the judgment in John Deere, [1998] cited in note 11.

(17) 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.

(18) See Article 1(2) of Council Regulation No 1/2003 cited in note 3.

(19) Commission notice on the definition of the relevant market for the purposes of Community competition law (OJ C

372, 9.12.1997, p. 5).

(20) 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, paragraphs 44 to 52).

(21) See to that effect paragraphs 50 to 52 of the Guidelines on horizontal cooperation agreements, cited in the previous

note.

(22) Idem, paragraph 51.

(23) See in this respect the Notice on agreements of minor importance cited in note 17.

(24) According to Article 3(2) of Regulation 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.

(25) Under Council Regulation 19/65, OJ Special Edition Series I 1965-1966, p. 35, the Commission is not empowered

to block exempt technology transfer agreements concluded between more than two undertakings.

(26) See recital 19 of the TTBER and further section 2.5 below.

(27) OJ C 1, 3.1.1979, p. 2.

(28) See paragraph 3 of the subcontracting notice.

(29) See in this respect Commission Decision in Moosehead/Whitbread (OJ L 100, 20.4.1990, p. 32).

(30) See in this respect Case 262/81, Coditel (II), [1982] ECR 3381.

(31) OJ L 336, 29.12.1999, p. 21.

(32) OJ L 304, 5.12.2000, p. 3.

(33) OJ L 304, 5.12.2000, p. 7.

(34) See note 31.

(35) See the guide ‘Competition policy in Europe — The competition rules for supply and distribution agreements’,

2002.

(36) OJ C 291, 13.10.2000, p. 1, and note 31.

(37) See paragraph 29 above.

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(38) The reasons for this calculation rule are explained in paragraph 23 above.

(39) See e.g. the case law cited in note 15.

(40) See in this respect paragraph 98 of the Guidelines on the application of Article 81(3) of the Treaty cited in note 2.

(41) 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.

(42) See in this respect Case 193/83, Windsurfing International, [1986] ECR 611, paragraph 67.

(43) For a general definition of active and passive sales, reference is made to paragraph 50 of the Guidelines on vertical

restraints cited in note 36.

(44) Field of use restrictions are further dealt with in section IV.2.4 below.

(45) This hardcore restriction applies to licence agreements concerning trade within the Community. As regards
agreements concerning exports outside the Community or imports/re-imports from outside the Community see
Case C-306/96, Javico, [1998] ECR I-1983.

(46) See in this respect paragraph 77 of the judgment in Nungesser cited in note 13.

(47) See in this respect Case 26/76, Metro (I), [1977] ECR 1875.

(48) If the licensed technology is outdated no restriction of competition arises, see in this respect Case 65/86, Bayer v

Süllhofer, [1988] ECR 5249.

(49) As to non-challenge clauses in the context of settlement agreements see point 209 below.

(50) See paragraph 14 above.

(51) See paragraphs 66 and 67 above.

(52) See in this respect paragraph 42 of the Guidelines on the application of Article 81(3) of the Treaty, cited in note 2.

(53) See in this respect paragraph 8 of the Commission Notice on agreements of minor importance, cited in note 17.

(54) See in this respect Case T-228/97, Irish Sugar, [1999] ECR II-2969, paragraph 101.

(55) See in this respect paragraph 23 of the Guidelines on horizontal cooperation agreements, cited in note 20.

(56) See Joined Cases 25/84 and 26/84, Ford, [1985] ECR 2725.

(57) See in this respect for example Commission Decision in TPS (OJ L 90, 2.4.1999, p. 6). Similarly, the prohibition of

Article 81(1) also only applies as long as the agreement has a restrictive object or restrictive effects.

(58) Cited in note 36. See in particular paragraphs 115 et seq.

(59) As to these concepts see section IV.4.1 below.

(60) See paragraph 85 of the Guidelines on the application of Article 81(3) of the Treaty, cited in note 2.

(61) Idem, paragraphs 98 and 102.

(62) 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.

(63) See in this respect Case T-51/89, Tetra Pak (I), [1990] ECR II-309. See also paragraph 106 of the Guidelines on the

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

(64) See the judgment in Nungesser cited in note 13.

(65) See in this respect the Commission's Notice in the Canon/Kodak Case (OJ C 330, 1.11.1997, p. 10) and the IGR

Stereo Television Case mentioned in the XI Report on Competition Policy, paragraph 94.

(66) For the applicable analytical framework see section 2.7 below and paragraphs 138 et seq. of the Guidelines on

Vertical Restraints cited in note 36.

(67) See note 36.

(68) 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.

(69) The term ‘technology’ is not limited to patents. It covers also patent applications and intellectual property rights

other than patents.

(70) See in this respect the judgment in John Deere cited in note 11.