Commission Regulation (EC) No 772/2004 of 27 April 2004 on the application of Article 81(3) of the Treaty to categories of technology transfer agreements (Text with EEA relevance)
Date: 2004-04-27
Institutions: European Commission
Subjects: competition law, inter-company agreement, restrictive trade practice, technology transfer

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COMMISSION REGULATION (EC) No 772/2004

of 27 April 2004

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

(Text with EEA relevance)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

(4)

Having regard to the Treaty establishing the European Com-
munity,

Having regard to Council Regulation No 19/65/EEC of 2 March
1965 on application of Article 85(3) of the Treaty to certain
categories of agreements and concerted practices (1), and in par-
ticular Article 1 thereof,

Having published a draft of this Regulation (2),

After consulting the Advisory Committee on Restrictive Prac-
tices and Dominant Positions,

Whereas:

(1)

(2)

(3)

Regulation No 19/65/EEC empowers the Commission to
apply Article 81(3) of
the Treaty by Regulation to
certain categories of technology transfer agreements and
corresponding concerted practices to which only two
undertakings are party which fall within Article 81(1).

Pursuant to Regulation No 19/65/EEC, the Commission
has, in particular, adopted Regulation (EC) No 240/96 of
31 January 1996 on the application of Article 85(3) of
the Treaty to certain categories of technology transfer
agreements (3).

On 20 December 2001 the Commission published an
evaluation report on the transfer of technology block
exemption Regulation (EC) No 240/96 (4). This generated
a public debate on the application of Regulation (EC) No
240/96 and on the application in general of Article
81(1) and (3) of the Treaty to technology transfer agree-
from
ments. The response to the evaluation report
Member States and third parties has been generally in
favour of reform of Community competition policy on
technology transfer agreements.
It is therefore appro-
priate to repeal Regulation (EC) No 240/96.

(1) OJ 36, 6.3.1965, p. 533/65. Regulation as last amended by Regu-

lation (EC) No 1/2003 (OJ L 1, 4.1.2003, p. 1).

(2) OJ C 235, 1.10.2003, p. 10.
(3) OJ L 31, 9.2.1996, p. 2. Regulation as amended by the 2003 Act of

Accession.

(4) COM(2001) 786 final.

(5)

(6)

(7)

This Regulation should meet the two requirements of
ensuring effective competition and providing adequate
legal security for undertakings. The pursuit of
these
objectives should take account of the need to simplify
the regulatory framework and its application. It is appro-
priate to move away from the approach of
listing
exempted clauses and to place greater emphasis on
defining the
agreements which are
exempted up to a certain level of market power and on
specifying the restrictions or clauses which are not to be
contained in such agreements. This is consistent with an
economics-based approach which assesses the impact of
agreements on the relevant market. It is also consistent
with such an approach to make a distinction between
agreements
agreements
between non-competitors.

categories of

competitors

between

and

Technology transfer agreements concern the licensing of
technology. Such agreements will usually improve
economic efficiency and be pro-competitive as they can
research and development,
reduce
strengthen the incentive for the initial research and
development,
facilitate
incremental
diffusion and generate product market competition.

duplication of

innovation,

spur

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

This Regulation should only deal with agreements where
the licensor permits the licensee to exploit the licensed
technology, possibly after further research and develop-
ment by the licensee, for the production of goods or
services. It should not deal with licensing agreements for
the purpose of subcontracting research and develop-
ment. It should also not deal with licensing agreements
to set up technology pools, that is to say, agreements for
the pooling of technologies with the purpose of licen-
sing the created package of intellectual property rights
to third parties.

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(8)

(9)

(10)

(11)

(12)

(13)

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

should be excluded from the benefit of the block exemp-
tion established by this Regulation irrespective of the
market shares of the undertakings concerned. In the case
of
the whole agreement
should be excluded from the benefit of the block exemp-
tion.

such hardcore restrictions

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

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

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

There can be no presumption that above these market-
share thresholds technology transfer agreements do fall
within the scope of Article 81(1). For instance, an exclu-
sive licensing agreement between non-competing under-
takings does often not fall within the scope of Article
81(1). There can also be no presumption that, above
these market-share thresholds, technology transfer agree-
ments falling within the scope of Article 81(1) will not
satisfy the conditions for exemption. However,
it can
also not be presumed that they will usually give rise to
objective advantages of such a character and size as to
compensate for the disadvantages which they create for
competition.

This Regulation should not exempt technology transfer
agreements containing restrictions which are not indis-
pensable to the improvement of production or distribu-
tion.
agreements
containing certain severely anti-competitive restraints
such as the fixing of prices charged to third parties

technology transfer

In particular,

(14)

(15)

(16)

(17)

In order to protect incentives to innovate and the appro-
priate application of intellectual property rights, certain
restrictions should be excluded from the block exemp-
tion. In particular exclusive grant back obligations for
severable improvements should be excluded. Where
such a restriction is included in a licence agreement only
the restriction in question should be excluded from the
benefit of the block exemption.

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

In particular cases in which the agreements falling under
this Regulation nevertheless have effects incompatible
with Article 81(3), the Commission should be able to
withdraw the benefit of the block exemption. This may
occur in particular where the incentives to innovate are
reduced or where access to markets is hindered.

Council Regulation (EC) No 1/2003 of 16 December
2002 on the implementation of the rules on competition
the Treaty (1)
laid down in Articles 81 and 82 of
empowers the competent authorities of Member States
to withdraw the benefit of
the block exemption in
respect of technology transfer agreements having effects
incompatible with Article 81(3), where such effects are
felt in their respective territory, or in a part thereof, and
where such territory has the characteristics of a distinct
geographic market. Member States must ensure that the
exercise of this power of withdrawal does not prejudice
the uniform application throughout the common market
of the Community competition rules or the full effect of
the measures adopted in implementation of those rules.

(18)

In order to strengthen supervision of parallel networks
of technology transfer agreements which have similar
restrictive effects and which cover more than 50 % of a
given market, the Commission should be able to declare
this Regulation inapplicable to technology transfer agree-
ments containing specific restraints
relating to the
market concerned, thereby restoring the full application
of Article 81 to such agreements.

(1) OJ L 1, 4.1.2003, p. 1. Regulation as amended by Regulation (EC)

No 411/2004 (OJ L 68, 6.3.2004, p. 1).

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(19)

trade, by,

This Regulation should cover only technology transfer
agreements between a licensor and a licensee. It should
cover such agreements even if conditions are stipulated
for more than one level of
for instance,
requiring the licensee to set up a particular distribution
system and specifying the obligations the licensee must
or may impose on resellers of the products produced
under the licence. However, such conditions and obliga-
tions should comply with the competition rules applic-
able to supply and distribution agreements. Supply and
distribution agreements concluded between a licensee
and its buyers should not be exempted by this Regu-
lation.

(20)

This Regulation is without prejudice to the application
of Article 82 of the Treaty,

HAS ADOPTED THIS REGULATION:

Article 1

Definitions

For the purposes of this Regulation, the following defini-

1.
tions shall apply:

(a) ‘agreement’ means an agreement, a decision of an associa-

tion of undertakings or a concerted practice;

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

(c) ‘reciprocal agreement’ means a technology transfer agree-
in the
ment where two undertakings grant each other,
same or separate contracts, a patent licence, a know-how

licence, a software copyright licence or a mixed patent,
know-how or software copyright licence and where these
licences concern competing technologies or can be used
for the production of competing products;

(d) ‘non-reciprocal agreement’ means a technology transfer
agreement where one undertaking grants another under-
taking a patent licence, a know-how licence, a software
copyright licence or a mixed patent, know-how or soft-
ware copyright licence, or where two undertakings grant
each other such a licence but where these licences do not
concern competing technologies and cannot be used for
the production of competing products;

(e) ‘product’ means a good or a service, including both inter-
mediary goods and services and final goods and services;

(f) ‘contract products’ means products produced with the

licensed technology;

(g) ‘intellectual property rights’

includes industrial property

rights, know-how, copyright and neighbouring rights;

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

(i) ‘know-how’ means a package of non-patented practical
information, resulting from experience and testing, which
is:

(i) secret, that is to say, not generally known or easily

accessible,

(ii) substantial, that is to say, significant and useful for the

production of the contract products, and

(iii) identified, that is to say, described in a sufficiently
comprehensive manner so as to make it possible to
verify that it fulfils the criteria of secrecy and substan-
tiality;

(j) ‘competing undertakings’ means undertakings which
compete on the relevant technology market and/or the
relevant product market, that is to say:

being

license

(i) competing undertakings on the relevant

undertakings which

technology
market,
out
competing technologies without infringing each others'
intellectual property rights (actual competitors on the
technology market); the relevant
technology market
includes technologies which are regarded by the licen-
sees as interchangeable with or substitutable for the
the technologies'
licensed technology, by reason of
characteristics, their royalties and their intended use,

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(ii) competing undertakings on the

are

contract products

relevant product
market, being undertakings which, in the absence of
the technology transfer agreement, are both active on
the relevant product and geographic market(s) on
which the
sold without
intellectual property rights
infringing each others'
(actual competitors on the product market) or would,
on realistic grounds, undertake the necessary additional
investments or other necessary switching costs so that
they could timely enter, without infringing each others'
the(se) relevant product
intellectual property rights,
and geographic market(s) in response to a small and
permanent increase in relative prices (potential compe-
titors on the product market); the relevant product
market comprises products which are regarded by the
buyers as interchangeable with or substitutable for the
contract products, by reason of the products' charac-
teristics, their prices and their intended use;

(k) ‘selective distribution system’ means a distribution system
where the licensor undertakes to license the production of
the contract products only to licensees selected on the
basis of specified criteria and where these licensees under-
take not to sell the contract products to unauthorised
distributors;

(l) ‘exclusive territory’ means a territory in which only one
undertaking is allowed to produce the contract products
with the licensed technology, without prejudice to the
possibility of allowing within that
territory another
licensee to produce the contract products only for a par-
ticular customer where this second licence was granted in
order to create an alternative source of supply for that
customer;

(m) ‘exclusive customer group’ means a group of customers to
which only one undertaking is allowed actively to sell the
contract products produced with the licensed technology;

(n) ‘severable improvement’ means an improvement that can
be exploited without infringing the licensed technology.

The terms ‘undertaking’,

2.
include their respective connected undertakings.

‘licensor’ and ‘licensee’ shall

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

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

are jointly held by:

(i) parties to the agreement or their respective connected

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

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

Article 2

Exemption

Pursuant to Article 81(3) of the Treaty and subject to the provi-
sions of this Regulation, it is hereby declared that Article 81(1)
of the Treaty shall not apply to technology transfer agreements
entered into between two undertakings permitting the produc-
tion of contract products.

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

lapsed or been declared invalid or,

Article 3

Market-share thresholds

‘Connected undertakings’ means:

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

indirectly:

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

rights, or

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

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

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

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

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

1. Where the undertakings party to the agreement are
competing undertakings, the exemption provided for in Article
2 shall apply on condition that the combined market share of
the parties does not exceed 20 % on the affected relevant tech-
nology and product market.

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

For the purposes of paragraphs 1 and 2, the market share
3.
of a party on the relevant technology market(s) is defined in
terms of the presence of the licensed technology on the rele-
vant product market(s). A licensor's market share on the rele-
vant technology market shall be the combined market share on
the relevant product market of the contract products produced
by the licensor and its licensees.

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Article 4

Hardcore restrictions

(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 develop-
ment, unless such latter restriction is indispensable to
prevent the disclosure of the licensed know-how to third
parties.

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

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

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

when selling products to third parties;

(b) the limitation of output, except limitations on the output of
contract products imposed on the licensee in a non-reci-
procal agreement or imposed on only one of the licensees
in a reciprocal agreement;

(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 licensor and/or the licensee, in a
non-reciprocal agreement, not to produce with the
licensed technology within one or more technical
fields of use or one or more product markets or one
or more exclusive territories reserved for the other
party,

(iii) the obligation on the licensor not to license the tech-
nology 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
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 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 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,

(vii) the obligation on the licensee,

in a non-reciprocal
agreement, 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;

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

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

(i) the restriction of passive sales into an exclusive terri-
tory or to an exclusive customer group reserved for
the licensor,

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

(iii) the obligation to produce the contract products only
the licensee is not
for its own use provided that
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,

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

ating at the wholesale level of trade,

(vi) the restriction of sales to unauthorised distributors by

the members of a selective distribution system;

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

3. Where the undertakings party to the agreement are not
competing undertakings at the time of the conclusion of the
agreement but become competing undertakings afterwards,
paragraph 2 and not paragraph 1 shall apply for the full life of
the agreement unless the agreement is subsequently amended
in any material respect.

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Article 5

Excluded restrictions

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

(a) any direct or indirect obligation on the licensee to grant an
exclusive licence to the licensor or to a third party desig-
its own severable
nated by the licensor in respect of
improvements to or
the
licensed technology;

its own new applications of

(b) any direct or indirect obligation on the licensee to assign,
in whole or in part, to the licensor or to a third party desig-
nated by the licensor, rights to its own severable improve-
ments to or its own new applications of the licensed tech-
nology;

(c) any direct or indirect obligation on the licensee not to chal-
lenge the validity of intellectual property rights which the
licensor holds in the common market, without prejudice to
the possibility of providing for termination of the tech-
nology transfer agreement in the event that the licensee
challenges the validity of one or more of the licensed intel-
lectual property rights.

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

Article 6

Withdrawal in individual cases

1.
The Commission may withdraw the benefit of this Regu-
lation, pursuant to Article 29(1) of Regulation (EC) No 1/2003,
where it finds in any particular case that a technology transfer
agreement to which the exemption provided for in Article 2
applies nevertheless has effects which are incompatible with
Article 81(3) of the Treaty, and in particular where:

(a) access of

third parties'

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

technologies to the market

Treaty in the territory of a Member State, or in a part thereof,
which has all
the characteristics of a distinct geographic
market, the competition authority of that Member State may
withdraw the benefit of this Regulation, pursuant to Article
29(2) of Regulation (EC) No 1/2003, in respect of that territory,
under the same circumstances as those set out in paragraph 1
of this Article.

Article 7

Non-application of this Regulation

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

A regulation pursuant to paragraph 1 shall not become

2.
applicable earlier than six months following its adoption.

Article 8

Application of the market-share thresholds

1.
For the purposes of applying the market-share thresholds
provided for in Article 3 the rules set out in this paragraph
shall apply.

The market share shall be calculated on the basis of market
sales value data. If market sales value data are not available,
estimates based on other reliable market information, including
market sales volumes, may be used to establish the market
share of the undertaking concerned.

The market share shall be calculated on the basis of data
relating to the preceding calendar year.

The market share held by the undertakings referred to in point
(e) of the second subparagraph of Article 1(2) shall be appor-
tioned equally to each undertaking having the rights or the
powers listed in point (a) of the second subparagraph of Article
1(2).

2.
If the market share referred to in Article 3(1) or (2) is
initially not more than 20 % respectively 30 % but subsequently
rises above those levels, the exemption provided for in Article
2 shall continue to apply for a period of two consecutive
calendar years following the year in which the 20 % threshold
or 30 % threshold was first exceeded.

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

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

exploit the licensed technology.

Article 9

Repeal

2. Where, in any particular case, a technology transfer agree-
ment to which the exemption provided for in Article 2 applies
has effects which are incompatible with Article 81(3) of the

References to the repealed Regulation shall be construed as
references to this Regulation.

Regulation (EC) No 240/96 is repealed.

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Article 10

Transitional period

The prohibition laid down in Article 81(1) of the Treaty shall not apply during the period from 1 May
2004 to 31 March 2006 in respect of agreements already in force on 30 April 2004 which do not satisfy
the conditions for exemption provided for in this Regulation but which, on 30 April 2004, satisfied the
conditions for exemption provided for in Regulation (EC) No 240/96.

Article 11

Period of validity

This Regulation shall enter into force on 1 May 2004.

It shall expire on 30 April 2014.

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

Done at Brussels, 27 April 2004.

For the Commission

Mario MONTI

Member of the Commission