IP Transactions and 81&82 EC Treaty - PLC 2007

Transactions and practices: EC Intellectual property
transactions
Transactions and practices:

EC Intellectual property
transactions
When drafting or reviewing an agreement, it is important to appreciate the conflict that exists
between the rules of the EC Treaty that aim to promote competition and the free movement of
goods, and national laws that protect intellectual property rights. The Practice note Intellectual
property transactions examines the principles of EC law that apply to intellectual property
rights generally; the application of Article 81 of the EC Treaty to licences of technology (patents
and know-how), trade marks, copyright and computer software; and the application of Article
82 of the EC Treaty to the exercise of intellectual property rights.
Oliver Heinisch and Tony Woodgate, Simmons & Simmons

Reference: www.practicallaw.com/7-107-3704
When drafting or reviewing an agreement, it is important to appreciate the potential conflict that
exists between the rules of the EC Treaty that aim to promote competition and the free movement
of goods, and national laws that protect intellectual property (IP) rights.
Ownership of IP confers a legal monopoly right that enables the holder to prevent third parties
from manufacturing, selling or performing other specified acts in relation to goods or services
that make use of the IP. The courts face a difficult choice when drawing an appropriate dividing
line between IP rights and the general aim of ensuring free competition. An approach that is too
interventionist will lessen the value of IP rights, so reducing the financial incentive to innovate,
whereas if the courts were to disregard the effects that the unrestrained exercise of IP rights may
have on competition, a broad area of commercial activity would effectively be rendered immune
from competition law.
Two sets of EC Treaty provisions must be considered in relation to transactions involving IP

rights:
• The rules concerning free movement of goods (Articles 28 to 30, EC Treaty); and
• The competition rules relating to restrictive agreements and abuse of market power (Articles
81 and 82, EC Treaty).
The principles of EC law that apply to IP rights generally are dealt with first in this section,
followed by consideration of the application of Article 81(1) of the EC Treaty to specific categories
of IP agreements and, finally, an analysis of the application of Article 82 to the exercise of IP
rights.
Principles applicable to IP generally

Single market and free movement of goods
www.practicallaw.com/7-107-3704 1
transactions
The policy objectives of the EC Treaty are set out in Article 3 of the Treaty (see box, IP rights and
the single market: EC Treaty provisions). They include the establishment of:
• A single internal market by abolishing obstacles to the free movement of goods and services
between member states (Article 3(1)(c), EC Treaty); and
• A system to ensure that competition in the internal market is not distorted (Article 3(1)(c),
EC Treaty).
As a means of achieving this, quantitative restrictions on imports and exports (that is,
restrictions which are imposed by reference to the value or amount of imports or exports)
between member states, and measures having equivalent effect, are prohibited (Articles 28 and
29, EC Treaty). However, this is expressed not to preclude prohibitions or restrictions that are
justified on grounds of the protection of "industrial and commercial property" as long as they
do not constitute a means of arbitrary discrimination or a disguised restriction on trade between
member states (Article 30, EC Treaty). In addition, a further provision states that the Treaty
shall in no way prejudice the rules in member states governing the system of property ownership
(Article 295, EC Treaty).
There is a large amount of EC case law concerning the precise scope of Article 30. On the
one hand, it was recognised that the complete exclusion of IP rights from the EC rules on free
movement of goods and competition could undermine the creation of the single market, as an
IP owner could use differences in national IP protection to sub-divide the market. On the other
hand, if national differences in IP protection were always viewed as discriminatory or restrictive,
both Article 30 and Article 295 would be deprived of any effect.
Existence/exercise distinction
The European Court of Justice (ECJ) sought to resolve this apparent conflict by drawing a
distinction between the existence of an IP right, which Article 30 protects, and its exercise,
which is not protected by Article 30 and is therefore regulated by Articles 28 and 29, in addition
to Articles 81 and 82, of the EC Treaty (Cases 56 and 58/64 Consten and Grundig v Commission
[1966] ECR 299). This distinction enabled the ECJ to dismiss the argument that it lacked
jurisdiction to restrict the assertion of a trade mark right by virtue of Article 295. The ECJ
has repeatedly returned to this reasoning to emphasise that the court is only concerned with
policing the exercise of IP rights and is not seeking to interfere with their very existence.
A firm seeking to use or protect a right which constitutes the "specific subject matter" or "essential
function" of its IP rights will be regarded as protecting the existence of that right and therefore
as not infringing the free movement or competition rules of the EC Treaty. If, on the other hand,
a firm seeks to use or protect a right which does not constitute the specific subject matter or
essential function of its IP rights, this will be examined under the free movement and competition
rules of the Treaty.
• The specific subject matter of a patent was described by the ECJ as "the guarantee that
the patentee, to reward the creative effort of the inventor, has the exclusive right to use an
invention with a view to manufacturing industrial products or putting them into circulation
for the first time ... as well as the right to oppose infringements" (Case 15/74 Centrafarm
BV v Sterling Drug [1974] ECR 1147).
• The specific subject matter of a trade mark has been defined as the right, amongst other
things, to ensure the holder the exclusive right to use the mark for the first marketing of
transactions
a product, and so to protect him against competitors who would take advantage of the
position and reputation of the mark by selling goods improperly bearing that mark (Case
16/74 Centrafarm BV v Winthrop BV [1974] ECR 1183). The owner of a mark may therefore
enforce restrictions which prevent its mark being used in such a way that the origin of the
products on which it is used may be brought into doubt, or the reputation of the trade mark
itself be damaged.
• The specific subject matter of copyright may consist of a number of elements, including the
rights to:
• prevent reproduction of a work;
• first place a work on the market;
• require payment for public performance or transmission; or
• rent out a work.
Exhaustion of rights
A particularly important principle when establishing the impact of the free movement or EC
competition rules on an agreement is that of exhaustion of rights. Once the owner of IP rights
has received the benefit of the specific subject matter of those rights, the right is said to be
"exhausted". Therefore, the exclusive right of a holder of IP rights conferred by national law to
control the distribution of a product will expire (or is said to be exhausted) once that particular
product has been placed on the market within the EU by the holder or with his consent.
Therefore, a holder of IP rights in member state A cannot prevent the import of goods into
member state A if the goods have been marketed in member state B by the holder of such IP
rights or by another with the holder’s consent. In Deutsche Grammophon v Metro (Case 78/70
[1971] ECR 487), for example, the licensor of copyright in records marketed in France could
not rely on its copyright to prevent a third party from subsequently importing the records into
Germany and selling them at a price which undercut the licensor’s own distributors in Germany.
It is important to note that, for a sale to exhaust IP rights, the sale need not be made in a
jurisdiction where the rights-holder enjoys IP right protection. In Merck v Stephar (Case 187/80
[1981] ECR 2063), the holder of IP rights in the Netherlands used another member of the group
to sell a pharmaceutical product in Italy, where the product was not patented. It was held
that the firm could not invoke its Dutch patents to prevent the import of the products into the
Netherlands from Italy, as it had exhausted its rights by selling the products in Italy even though
the products were not protected by an Italian patent.
This principle is a major factor in reducing an IP rights-holders’ ability to prevent such parallel
imports (see Glossary) between territories within the EU. It should, however, be noted that:
• The relevant right is only exhausted with respect to the particular products that have been
marketed: the IP rights-holder can still control distribution of individual products which
have not yet been placed on the market (Case C-173/98 Sebago Inc v GB-Unic SA [1999] 2
CMLR 1317; see further Free movement of goods and services, and exhaustion of rights).
• Rights that relate to the existence of the IP, such as the right to prevent unauthorised copying
of a sound recording, will not be exhausted by the marketing of the product. In addition, the
specific subject matter of an IP right may extend beyond the element exhausted by first sale.
transactions
In the field of copyright, for example, the sale of a work, the public performance of the work
and the rental of the work have all been identified as distinct elements of the specific subject
matter. The exhaustion of, for example, the right of sale, will not necessarily exhaust the
rights of public performance or rental.
The principle of exhaustion of rights applies to all member states, including those that acceded to
the EU on 1 May 2004 and 1 January 2007. A "specific mechanism" applies, however, with regard
to parallel imports of patented pharmaceutical products in all the new member states, with the
exception of Cyprus and Malta. This will be applied on a product-by-product basis for each
member state during a period of transitional protection against parallel imports of medicinal
products. If someone wishes to import a product protected by the mechanism, then he must
notify the patent owner who has one month within which to object to the parallel import. This
provision is still valid for products where the patent or supplementary protection certificate was
granted at a time when equivalent protection was not available in what are now the newly acceded
member states. Parallel imports will be prevented until the patent or supplementary protection
expires.
Free movement and competition rules may both apply

A detailed analysis of the case law concerning the relationship between the free movement of
goods rules and the exercise of IP rights is beyond the scope of this Practice note. It is important to
note, however, that the Treaty objectives of creating a single market and ensuring that competition
in the internal market is not distorted mean that the enforcement of IP rights may be viewed under
EC law either as an attempt to frustrate the creation of a single market or as an anti-competitive
action, or both. An agreement will, therefore, often need to be considered both in the context
of the rules on the free movement of goods and those dealing with competition (see further
Application of Article 81 to IP agreements).
Article 81(1)
The following discussion focuses on the application of Article 81(1) of the EC Treaty to IP
transactions specifically and deals with the general aspects of Article 81 in outline only. It is not,
however, essential to read the section covering Article 81 (see Competition regime, Article 81
before reading this section, since where necessary cross-references in the text direct the user to
the relevant part of that section for more detailed consideration.
Scope of prohibition
Article 81(1) of the EC Treaty prohibits all agreements between undertakings, decisions by
associations of undertakings and concerted practices which may affect trade between EU
member states and which have as their object or effect the prevention, restriction or distortion
of competition within the common market. The prohibition applies to all agreements between
unrelated undertakings which may have an appreciable effect on trade between member states
(see below).
The European Economic Area (EEA) Agreement of 1 January 1994 effectively extends the
prohibition to agreements affecting trade with Iceland, Norway and Liechtenstein.
The terms on which IP rights are assigned or licensed may in certain circumstances constitute
restrictions on competition. Any agreement by which IP rights are assigned or licensed, and
which has an appreciable effect on trade within the EEA, should therefore be reviewed for its
effect on competition in order to establish whether Article 81(1) applies.
transactions
Deciding whether a particular contractual provision is in fact a restriction on competition and, if

so, what effect it may have on competition is not a straightforward task. In principle, competition
will be restricted if a provision reduces the ability of the parties to an agreement to compete freely
with each other or with third parties, or if it reduces the ability of third parties to compete freely
with either or both parties. In practice, it may be difficult to draw the line between a legitimate
contractual provision, which necessarily restricts the freedom of action of the party to which
it applies, and a provision with an anti-competitive effect. An additional factor is the need to
take account of the broader market context of the agreement. For example, a provision which
is inoffensive when entered into by a company with a weak market position may be viewed as
anti-competitive when the company becomes stronger, so bringing it within the scope of Article
81(1) (Passmore v Morland plc [1999] EuLR 501, CA).
Provisions that may fall within the scope of Article 81(1) are considered below in the context of
agreements relating to different kinds of IP.
Appreciable effect
Faced with policing all agreements entered into across the EU, the European Courts and
Commission have developed rules to limit the application of Article 81 to those agreements
that are viewed as likely to have an appreciable effect on competition or trade between member
states. The principle was first stated in the Völk case, where the ECJ said that "an agreement
falls outside the prohibition of Article [81] where it has only an insignificant effect on the
markets, taking into account the weak position which the persons concerned have on the market
of the product in question" (Case 5/69 Völk v Vervaecke [1969] ECR 295). The ECJ ruled that
an appreciable effect was not present in this case, as the products concerned represented only
between 0.2 and 0.5% of German production. Since then, the ECJ has established in a series of
cases that a business with a market share of less than 5% will not generally be capable of acting
in such a way that trade or competition are appreciably affected.
The European Commission’s current position on when it will regard an agreement as having
an appreciable effect on trade or competition is set out in its Notice on agreements of minor
importance (also known as the "de minimis notice") (OJ 2001 C368/07; see also Competition
regime, Article 81: Notice on agreements of minor importance).
The Notice (which is not binding on the Commission and, as with other Commission notices, is
subject to EC law as interpreted by the European Courts), provides that an agreement does not
fall under Article 81(1) if the parties’ combined shares of any relevant market do not exceed:
• 10%, where the agreement is between parties who are actual or potential competitors; or
• 15% where the agreement is between parties who are not actual or potential competitors.
In cases where it is difficult to classify the agreements as either an agreement between competitors
or an agreement between non-competitors, the 10% threshold applies.
The Notice refers to the Commission’s Guidelines on the applicability of Article 81 of the EC
Treaty to horizontal co-operation agreements for determining whether or not the parties involved
may be regarded as actual or potential competitors (see OJ 2001 C3/2).
Where an agreement forms part of a network of similar agreements which have a cumulative
effect, the above market share thresholds are reduced to 5% in respect of individual agreements.
transactions
A cumulative foreclosure effect is considered to be unlikely to exist if less than 30% of the relevant
market is affected by a network of parallel agreements.
Normal principles apply to determining the relevant product and geographical markets within
which parties’ shares should be assessed (see further Competition regime, Market definition).
The Notice provides that agreements between firms with market shares below these thresholds
may still fall within Article 81(1) if:
• In the case of horizontal agreements, the parties attempt to fix prices, limit production or
sales or share markets or sources of supply; or
• In the case of agreements between non-competitors, they attempt to restrict the ability
of the buyer to determine its minimum sale price, the maintenance of absolute territorial
protection, various restrictions relating to the operation of selective distribution systems,
and restrictions on the ability of a supplier of components to a manufacturer that would
limit the ability of the supplier to make those components available as spare parts.
The Notice also confirms that the Commission will generally not take action in respect of
agreements between small and medium-sized enterprises (SMEs), on the basis that they are
presumed not to be capable of significantly affecting trade and competition. The Commission
defines an SME as an independent enterprise with fewer than 250 employees and either an
annual turnover of EUR40 million or less, or a total balance sheet of EUR27 million or
less (Commission Recommendation concerning the definition of small and medium-sized
enterprises, OJ 1996 L107/4). An enterprise will not be independent if one or more large firms
own 25% or more of its capital or voting rights.
Exemption under Article 81(3)

Even if an agreement does fall within Article 81(1), the prohibition may be declared inapplicable
under Article 81(3) if it can be shown that the agreement contributes to improving the
production or distribution of goods or to promoting technical or economic progress, while
allowing consumers a fair share of the resulting benefit, provided that the restrictions on
competition are essential for the attainment of these objectives and do not allow competition
to be substantially eliminated (these conditions are considered in detail in Competition regime,
Article 81: Exemption under Article 81(3)).
Consequences of infringement
Article 81(2) provides that an agreement which contravenes the prohibition in Article 81(1) is
automatically void (this must now be read as subject to the Modernisation Regulation (see
The modernisation Regulation). If, however, the provision by virtue of which an agreement
infringes Article 81(1) can be severed from the remainder of the agreement without affecting its
underlying character, only that provision itself will be void and unenforceable (Case 56/65 La
Société Technique Minière v Maschinenbau Ulm [1966] ECR 235).
In addition to unenforceability, an intentional or negligent breach of Article 81(1) renders the

parties liable to fines of up to 10% of their turnover. Although fines will not generally be imposed
in the case of IP agreements, they will be imposed for serious infringements: the Commission has
shown itself to be increasingly prepared to impose heavy fines for clear breaches of Article 81(1).
transactions
Infringement of Article 81(1) also exposes the parties to possible third party actions in national
courts for damages or an injunction requiring the parties to cease the infringement. Following
the judgment of the ECJ in Courage v Crehan (ruling on a reference from the UK High Court),
a party to an anti-competitive agreement may also be allowed to sue the other contracting party
for damages and other relief before a national court, provided that he does not bear more than
negligible responsibility for the distortion of competition (Case C-453/99 [2001] 5 CMLR 28)
(see further box, Crehan). In assessing the degree of a party’s responsibility, the national court
should take into account matters such as:
• The economic and legal context in which the parties found themselves, and
• The parties respective bargaining power and conduct, in particular whether the party
claiming to have suffered loss was in a markedly weaker position than the other party, so
that his freedom to negotiate the terms of the contract and his capacity to avoid or reduce
the loss were seriously compromised or even eliminated.
(See further Competition regime, Article 81: Consequences of infringement.)
The modernisation Regulation

Regulation 1/2003 (OJ 2003 L1/1) (the modernisation Regulation) replaced Regulation 17/62 on
1 May 2004. Regulation 1/2003 abolished the system of authorisation under which agreements
could be notified to the Commission to gain exemption, when only the Commission could make
exemption decisions. The notification system was replaced by a system of "legal exemption".
Parties to agreements are required to assess their own behaviour and establish whether an
agreement that falls within Article 81(1) satisfies the criteria in Article 81(3) and is valid. Article
81(3) is now directly applicable to allow joint enforcement of the competition rules by the
Commission, the national authorities and the national courts.
Two additional goals of modernisation are the harmonisation of substantive competition

rules and the decentralised application of European competition law. Regulation 1/2003
obliges member states´ competition authorities and courts to apply EC competition law to
all cases where trade between member states may be affected and established Article 81 as
the common standard for the assessment of agreements by all enforcers within the EU. In
2002, the Commission set up a network of European Competition Authorities (ECN) to allow
systematic co-operation and to provide for an allocation of cases according to the principle of
the best-placed authority. The competition authorities in the ECN now co-operate closely with
each other and the European Commission. For further details see box, Modernisation.
Block exemptions and Commission Guidelines

The Commission has power to enact regulations, known as block exemptions, which disapply
Article 81(1) from certain categories of agreement, including agreements relating to industrial
property rights, and in particular patents and patent-related rights, designs, trade marks, and
know-how concerning manufacturing methods or the use or application of industrial processes.
If an agreement meets the conditions set out in the relevant block exemption, it is automatically
exempt from Article 81(1) without the need to notify it to the Commission. It is therefore
preferable to bring an agreement within the scope of a block exemption where possible.
The technology transfer block exemption (TTBE) (Regulation 772/2004 OJ 2004 L123/11),
which applies to licences of patents, know-how, designs and/or software copyright (or both)
is considered under Technology transfer block exemption. Licences of copyright (except in
transactions
software) and trade marks are not covered by any specific block exemption although, insofar as
licences of those IP rights are merely ancillary to a licence of those rights covered by the TTBE,
or to certain other types of agreement, they may also benefit from a block exemption (this is
considered further below in relation to each category of IP).
The vertical agreements block exemption (Regulation 2790/1999 OJ 1999 L336/21), which took
effect on 1 June 2000, removes vertical agreements from the scope of Article 81(1) (the block
exemption is considered in detail in Vertical agreements). The block exemption regulation defines
vertical agreements as those "between two or more undertakings each operating, for the purposes
of the agreement, at a different level of the production or distribution chain and relating to the
conditions under which the parties may purchase, sell or resell certain goods or services". Broadly,
the block exemption excludes all vertical agreements from the scope of Article 81(1) unless the
supplier’s market share exceeds 30% or unless the agreement contains hardcore restrictions such
as partitioning of territory. In the case of exclusive supply obligations, it is the market share of
the buyer which is relevant.
The vertical agreements block exemption applies to provisions relating to the licensing or
assignment of IP rights if the licence or assignment of IP rights is not the primary object of
the particular agreement, but is nonetheless directly related to the agreement. The exemption
applies on condition that the provisions do not contain restrictions of competition which have
the same object or effect as vertical restrictions that are not exempted under the block exemption
(for example, restrictions on the ability of the buyer to determine its sale price, or which confer
absolute territorial protection). Examples of IP-related provisions which will generally fall
within the scope of the block exemption on this basis are:
• A provision in a distribution agreement permitting the distributor to use the manufacturer’s

trade mark to sell the goods which are the subject of the agreement; and
• A licence of know-how and trade marks from the franchisor under a franchise agreement
to assist the franchisee in marketing goods or services under the franchise.
In contrast, an agreement for the licensing of patents and know-how to enable a licensee to
produce certain goods will not be covered by the block exemption, since the licence of patents
and know-how would be the primary object of the agreement. Such an agreement may, of
course, benefit from the technology transfer block exemption, which will continue to apply (see
Technology transfer block exemption).
Other block exemptions that might apply to IP-related provisions include the research and
development block exemption, which applies to certain collaborative agreements for the
purpose of conducting research and development (Regulation 2659/2000 OJ L304/7) and a block
exemption that deals with specialisation agreements (Regulation 2658/2000 OJ 2000 L304/3).
These block exemptions also exempt certain ancillary provisions relating to IP rights. They are
covered in detail in Collaborative agreements.
With Article 81(3) being directly applicable, it is often helpful to look at Commission Guidelines
(such as the Guidelines on the application of Article 81 of the EC Treaty to technology transfer
agreements) (2004/C 101/02)) not only for a description of the relevant block exemptions, but
particularly in order to help self-assess the agreement under Article 81(3).
Article 82
transactions
The possibility of infringing the prohibition on abuse of a dominant position in Article 82 of the
EC Treaty is of particular concern in relation to the exercise of IP rights. This is considered in
Application of Article 82 to the exercise of IP rights.
Application of Article 81 to IP agreements

Technology licensing
It is common for owners of a new technology to license the technology to other companies for
them to exploit. An owner may not, for example, have the resources to exploit its technology
in a particular foreign country, or it may lack the knowledge of a particular market to which its
technology may apply. If it possesses few resources other than the technology itself, it may simply
wish to enable a better-equipped contractual partner to produce goods using the new technology.
Whatever the reasons for entering into such a licence, the basis of the agreement is the grant by
the technology owner to the licensee of the right to use its IP. This will generally take the form of
a licence of the owner’s patents, combined with a right to use its know-how to exploit the patents
most effectively. In a commercial sense, this is sometimes described as a transfer of technology,
although there is no outright assignment of rights in the technology, as the terms of the licence
enable the licensor to retain control over it.
In return, the licensee will generally pay the licensor a royalty, based on its sales of products
or services produced using the licensed technology. The licensor’s commercial goal will be to
maximise royalties by ensuring that the licensee can sell as many of these products as possible at
the highest possible price. In turn, this requires adequate protection of the owner’s technology,
in order to maintain its value, as well as protection of the licensee’s position, typically by
granting it the sole right to exploit the technology in a given territory. A licensor wishing to
exploit its rights over a large area may therefore create a network of licensed territories, in each
of which only one licensee may use its technology. Although the owner clearly has the right to
impose such restrictions on the licensee as may be necessary to protect its technology (in other
words, to protect the "specific subject matter" of its rights), competition issues may arise from
the imposition of additional restrictions on the licensees’ right to use the licensed technology,
since these may confer on both the licensor and licensee a level of protection from competition
which goes beyond that which is required for the licence to be effective.
It might be imagined that the Commission would take a relatively benign view of patent and
know-how licensing, on the basis that it generally reduces monopoly power and increases
competition by allowing more companies to have access to the means by which patented
processes may be exploited. In fact, the Commission has since the 1970s taken a fairly strict line
when applying Article 81 to such agreements. Generally speaking, the Commission took the
view that any patent or know-how licensing agreement which in any way restricts the exercise
by the licensee of the patent or know-how would be potentially subject to Article 81 whereas a
licence which only imposes restrictions which are necessary to protect the existence of the rights
concerned would not.
Open licences
Although elements of this strict approach remain in place, it was relaxed slightly as a result of
the ECJ’s judgment in the Nungesser case (Case 258/78 LC Nungesser KG and Kurt Eisele v
Commission [1982] ECR 2015). The French national agricultural institute (INRA) had granted a
German company the exclusive right to propagate and sell within the then West Germany certain
varieties of hybrid maize seed developed by INRA. The Commission decided that the licence
transactions
infringed Article 81(1), and the decision was appealed. The ECJ granted the appeal in part, on
the basis that the obligation on INRA not to license similar rights to any other plant breeder
in the licensed territory, or itself to sell or produce seeds in the licensed territory, was justifiable
given the specific nature of the products in question. In other words, the exclusivity obligation
was essential to the rights being acquired by the licensee and, without it, the licence would have
been deprived of its commercial substance.
Article 81 therefore did not apply at all to an open licence of this kind, where despite the grant
of exclusivity the licensee remained free to respond to orders from outside the licensed territory,
but a licence which conferred absolute territorial protection on the licensee by placing a complete
ban on imports from other licensed territories would infringe Article 81 (although the technology
transfer block exemption does allow for some limited absolute territorial protection (see below)).
Although the Nungesser case concerned plant breeders’ rights, the ECJ indicated that other
"commercial or industrial property rights" were to be treated in the same way, so the case
provides authority for regarding all "open" exclusive licences of IP rights as outside the scope of
Article 81. This is, however, subject to two important qualifications:
• The need for an exclusivity provision must be objectively justified; for example, by the level
of investment required by the licensor and licensee, the nature of the products concerned,
the degree of novelty and the need to ensure a sufficient return for the licensee; and
• The exclusivity provision must not appreciably restrict the exercise of the licensed rights
(see box, Windsurfing International Inc.). Many IP licence agreements contain appreciable
restrictions on the exercise of the licensed rights, and so will fall within the scope of Article
81(1).
If Article 81 does apply, the parties will generally wish to bring their agreement within the scope
of the technology transfer block exemption. Their other options will be to notify the agreement
to the Commission, which is a lengthy and time-consuming procedure (see Competition regime,
Article 81: Making a notification), or to decide not to notify, with the consequent risk of
unenforceabilty, fines and court actions for damages or other relief.
Technology transfer block exemption

The current Technology Transfer Block Exemption (TTBE) for patent, design right, know-how
and software copyright licensing and Guidelines on technology licensing came into force on 1
May 2004, replacing Regulation 240/96 (OJ 1996 L31/2). With the TTBE, the Commission also
issued a Notice Guidelines on the application of Article 81 of the EC Treaty to technology transfer
agreements (the Guidelines) (OJ 2004 C101/2), which are not binding on the Community courts.
The scope and application of the TTBE and its guidelines are considered below.
Agreements to license technology commonly contain terms such as exclusivity, field of use,
tying and non-compete obligations that may, depending upon all the circumstances, restrict
competition and fall within the prohibition in Article 81(1). This will affect the enforceability
of the agreements and may lead to private legal action or enforcement action by competition
authorities.
The TTBE provides a relatively narrow safe harbour for technology licensing agreements
containing clauses that are potentially anti-competitive.
transactions
Outside the safe harbour, the Guidelines will therefore be as important as the TTBE itself, as
they will be given high regard by any court or NCA assessing a technology licence. They outline
circumstances in which either the prohibition of Article 81(1) of the EC Treaty would not apply
at all, or the exemption in Article 81(3) of the EC Treaty might be applied on an individual basis
so as to exempt the agreement.
The TTBE will apply to fewer agreements than the previous block exemption and represents
a very significant change to the EC rules (see box, Differences between the old technology
transfer block exemption and the TTBE). The TTBE is similar in approach to the US analysis
of intellectual property rights in introducing a clear distinction between licensing agreements
made between competitors and those made between non-competitors. The TTBE exempts
only agreements that will in the circumstances set out clearly not amount to an unwarranted
restriction of competition. A noteworthy consequence of this is that the TTBE will only apply
where the parties have rather low market shares.
Highlights of the TTBE
• Market share thresholds are calculated by reference to both the relevant technology market
and the relevant product market.
• There is a distinction between competitors and non-competitors: actual or potential

competitors cannot rely on the block exemption in respect of certain clauses if they have a
combined market share above 20%, while there is a 30% threshold for non-competitors.
• The distinction between the treatment of competitors and non-competitors is carried

through into separate blacklists of "hardcore restrictions" for competitors and
non-competitors: inclusion of any blacklisted clause will take an agreement outside
the block exemption.
• The TTBE makes a further distinction between "reciprocal" and "non-reciprocal"

agreements. The former is treated more strictly under the hardcore restriction list than the
latter.
• The scope of the TTBE covers software copyright licensing for the purpose of producing
copies for resale.
• Only agreements between two parties are covered. Multiparty agreements and technology
pools are excluded (though these are dealt with in the Guidelines).
• Ancillary trade mark and copyright licensing other than software copyright licensing is
covered if it is necessary to exploit the licensed technology.
• There is a list of "excluded restrictions" relating to certain obligations to license

improvements or non-challenge obligations which need to be analysed for competition
effects, but will not take the whole agreement outside the block exemption.
Agreements which fall within the scope of the TTBE
The first thing to consider is whether the agreement is deemed to be a technology transfer
agreement under the TTBE. The TTBE covers two-party technology transfer agreements
allowing the production of contract products, which includes goods and services produced with
the licensed technology (Article 2, TTBER; Guideline 43). It also covers subcontracting.
transactions
The types of agreement covered by the TTBE include pure patent, pure know-how and mixed
patent and know-how licences, software copyright and design licences (Article 1(1)(b) and
1(1)(h)). In relation to the pure patent licences, the TTBE covers more specifically the licensing
of patent applications, utility models, semiconductor topography rights, supplementary
protection certificates for medicinal or other products and plant breeders’´ rights (Article
1(1)(h)). Other types of IP rights such as trade marks and copyright have not been included in
the TTBE, although agreements that fall within the TTBE may contain trade mark licences
provided that the licence does not constitute the primary object of the agreement, and the licence
is directly related to the application of the licensed technology (Article 1(1)(b), Guideline 53).
In addition, agreements concerning the purchase and sale of products and agreements concerning
joint research and development or specialisation in production will only be covered to the extent
that the agreement does not constitute the primary object of the agreement and is directly related
to the application of the licensed technology (Guidelines 49 and 45).
Multi-party licensing agreements (that is, between more than two undertakings) fall outside the
scope of the TTBE but guidance for assessment is provided in the Guidelines (in particular on
technology pools, that is, 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). The
TTBE principles will be applied by analogy if the multi-party agreement would be covered by the
TTBE if there were only two parties to the agreement (Guideline 40). Agreements allowing the
sub-licence of technology to third parties will be covered by the TTBE, as long as the production
of contract products constitutes the primary object of the agreement (Guideline 42).
The market share thresholds
To benefit from the block exemption the combined market share for competitors, whether
actual or potential, must not exceed 20% of the relevant product or technology market, and for
non-competitors must not exceed 30%. Calculating market shares will be crucial for companies
which license technology, but the basis for calculation may not be straightforward. Market
shares for both relevant product markets (the final and intermediate products incorporating
the technology and their substitutes), and relevant technology markets (the technology and its
substitutes) must be used. Data on market sales value should be used but, if this is not available,
other "reliable market information" (including, for example, sales volumes) may be used.
Importantly, the TTBE provides that data for the preceding calendar year should always be
used, which is likely to have particular impact for new products and new technologies. Beyond
the market share thresholds, the block exemption is not available. This requires the parties to
monitor the developments of the market shares carefully over the duration of their agreements.
Before markets shares can be calculated, the relevant markets need to be defined.
Relevant market for assessment of parties´ market shares
The next aspect to consider is the relevant market for assessment of parties’ market shares.
Guideline 19 states that market definition is assessed in the same way that the Commission
approaches any question of market definition, although there are special considerations to take
into account when dealing with technology licensing: both the relevant product market and the
relevant technology market must be defined. The reason for defining both the product market
and the technology market is that the input of technology into a product may affect competition
both at the input stage (that is, in direct relation to the use of the technology) and at the output
stage (that is, in direct relation to the finished product).
transactions
The relevant product market includes products that are regarded by buyers as interchangeable
with or substitutable for the contract products incorporating the licensed technology, by reason
of the products´ characteristics, price and intended use (Guideline 21). In defining the product
market, both the product and the geographic dimensions are considered (Guideline 20). In
determining market share, sales from the entire product market are added together in order to
work out the particular market share. The particular market share is evaluated by looking at:
• The licensee’s market share, calculated on the basis of the licensee’s sales of products
incorporating the licensor’s technology and competing products.
• If the licensor is also a supplier of products on the relevant market, the licensor’s sales on
the relevant market (Guideline 71).
• The sales value data, and where this is not available, sales volume data.
The relevant technology market includes the licensed technology and its substitutes, that is,
other technologies that are regarded as interchangeable with or substitutable for the licensed
technology, by reason of the technologies’ characteristics, royalties and intended use (Guideline
22). In identifying the technology market, both the product and the geographic dimensions are
considered. There are two approaches to be used to start defining the market. The first is by
looking at the licensor and identifying other technologies to which licensees could switch in
response to a small but permanent increase in relative prices, that is, royalties (Guideline 22).
The second approach (which is used under Article 3(3)) considers products incorporating the
licensed technology in the downstream market. 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. This approach is favoured because it captures potential
competition (that is, from undertakings that are using their own technology solely in-house but
are likely to licence it in the event of a small but permanent increase in the price for licences).
Also, it is important to assess the technology´s market share in relation to the product market,
as the licensor may not necessarily have market power on the technology market just because
he has a high share of licensing income. When the particular market share is evaluated, the
following should be considered, in particular:
• Sales of products on the downstream market (as mentioned above).
• Each technology’s total income from licensing, that is, royalties (Guideline 23).
• Competitors: where parties are competitors on the technology market, sales of products
incorporating the licensee´s own technology must be combined with the sales of the
products incorporating the licensed technology (Article 3(1) and Guideline 70). Parties are
competitors on the technology market if they are actual competitors, that is, the licensee
is already licensing out his technology and the licensor enters the technology market by
granting a licence for a competing technology to the licensee (Guideline 28).
• New technologies: where there are new technologies that have not yet generated any
sales, a zero market share is assigned. When sales commence, the technology will start
accumulating market share (Guideline 70).
• Sales value data: this normally gives a more accurate indication of the strength of a
technology than looking at volume data. However, sales volume data can be looked at
where there is no sales value data (Guideline 72).
transactions
Distinction between competitors and non-competitors
Different market share thresholds apply to competitors and non-competitors. Once the market
has been defined, on needs to consider whether the parties are (actual or potential) competitors
or non-competitors. Actual competitors on the product market are undertakings that are both
active on the same product and geographic market on which the products incorporating the
licensed technology are sold (Guideline 67). Parties are actual competitors on the technology
market if the licensee is already licensing out his technology and the licensor enters the technology
market by granting a licence for a competing technology to the licensee, as mentioned above
(Guideline 28). Potential competitors on the product market are undertakings that, in the absence
of the agreement and without infringing the intellectual property rights of the other party, it is
likely that they would have undertaken the necessary additional investment to enter the relevant
market in response to a small but permanent increase in product prices. Entry to the relevant
market would have to happen within one to two years for there to be potential competition
(Guideline 29). Potential competition on the technology market is not taken into account for
the application of the market share threshold or the hardcore list. However, it will be taken into
account outside the safe harbour of the TTBE (Guideline 66).
Parties are non-competitors under any other circumstances and also specifically when the
parties own technologies that are in a one-way or two-way blocking position. A one-way
blocking position exists when a technology cannot be exploited without infringing upon another
technology, resulting in a party needing to seek a licence from the holder of the basic technology.
A two-way blocking position exists where neither technology can be exploited without infringing
the other technology, resulting in both parties needing to obtain a licence or waiver from the
other party (Guideline 32). Parties can also be deemed to be non-competitors on the relevant
product and technology market by virtue of the licensed technology representing such a drastic
innovation that the technology of the licensee has become obsolete or uncompetitive. It has to
be obvious at the time of the agreement that the licensee´s technology will become obsolete
in order to be deemed non-competitors from the beginning. However, parties may become
non-competitors at a later date, when it becomes obvious that the technology is obsolete
(Guideline 33).
The question of whether or not the undertakings party to the agreement are competing
undertakings is determined at the time of the conclusion of the agreement. Where parties were
non-competitors at the start of the agreement, but become competitors later on, the agreement
will still be considered to be between non-competitors, unless the agreement is subsequently
amended in any material respect (Article 4(3)).
Market share thresholds for competitors and non-competitors
Having defined the relevant market and established whether the parties are competitors or not,
the relevant market share thresholds must be established:
• For competitors, in order to fall within the exemption, the combined market share of the
parties must not exceed 20% of the relevant technology market and product market (Article
3(1)).
• For non-competitors, in order to fall within the exemption, the market share of each of the
parties must not exceed 30% of the relevant product and technology market (Article 3(2)).
transactions
The basis for calculating market shares has been considered above.
Hardcore restriction list
A number of "hardcore restrictions" would cause the whole agreement to fall outside the TTBE.
In most cases these restrictions are unlikely to satisfy the exemption criteria in Article 81(3). The
list for competitors is more restrictive than for non-competitors.
Distinction between reciprocal and non-reciprocal agreements
For the application of the hardcore list, the TTBE distinguishes between reciprocal and
non-reciprocal agreements. A reciprocal agreement is a technology transfer agreement where
two undertakings grant each other a licence for competing technologies, or for technologies
that can be used for the production of competing products. A non-reciprocal agreement is a
technology transfer agreement where one undertaking grants another a licence or where two
undertakings grant each other a licence but for non-competing technologies or technologies for
the production of non-competing products (Guidelines 82-83). A reciprocal licence does not
necessarily have to be granted in the same agreement but can result from several agreements.
Hardcore restrictions between competitors
• Price-fixing: where the agreement between the competitors has as its object the fixing of
prices for products sold to third parties, including the products incorporating the licensed
technology. This will apply where there is fixed, maximum, minimum or recommended
pricing. However, an obligation on the licensee to pay a minimum royalty does not
necessarily amount to price fixing. Where the royalty is calculated on the basis of product
sales, the amount of the royalty will have an impact on the marginal cost of the product
and therefore an impact on the end product price. This means that competitors could
use cross-licensing with reciprocal running royalties to co-ordinate prices. In this case,
the Commission will only treat the arrangement as price fixing where the agreement is
devoid of any pro-competitive purpose and thus is not a bona fide licensing arrangement
(Guidelines 79-80).
• Limiting output: where a limit is set on how much a party may produce and sell. This
restriction does not apply to 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.
• Market or customer-sharing: where competitors agree not to produce in certain territories

or not to sell actively and/or passively into certain territories or to certain customers
reserved for the other party. This applies even where the licensee is still free to use his own
technology. Exceptions to this restriction are:
• where there is an obligation on the licensee to use only the licensed technology to
produce within one or more technical fields of use or one or more product markets
(Guideline 90-91);
• where there is an 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, one or more product markets or one or more exclusive territories reserved
for the other party. This is quite normal where, for example, the licensor grants an
transactions
exclusive licence on the basis of the licensed technology in a particular territory, and
thus agrees not to produce the contract products in that territory himself (Guideline
86);
• where there is an obligation on the licensor not to licence the technology to another
licensee in a particular territory, that is, the licensor appoints a licensee as his sole
licensee in a particular territory. This applies to reciprocal and non-reciprocal
agreements (Guideline 88);
• where there is a 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 (Guideline 87);
• where there is a 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. Giving such protection
to a licensee will most likely induce the licensee to exploit the licensed technology
more efficiently (Guideline 89);
• where there is an 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. This means that the licensee
can produce the parts to place in his own products, and can sell the parts to third
parties as spare parts for his own products, but he cannot sell the parts to third parties
for any other use (Guideline 92);
• where there is an 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. This exception also
covers the situation where more than one undertaking is granted a licence to supply
the same specified customer (Guideline 93).
• Restrictions on licensee´s use of his own technology: where there is a restriction of

the licensee´s ability to exploit his 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 indispensable to prevent the disclosure of the licensed know-how to
third parties. The restriction to protect the licensor´s know-how must be necessary and
proportionate. Regarding exploitation of the licensee´s own competing technology, the
licensee must not be subject to limitations in terms of where he produces or sells, how
much he produces or sells and at what price he sells as long as he does not infringe the
licensee´s technology. He must not be made to pay royalties on products produced based
on his own technology and he must not be restricted in licensing his own technology to
third parties (Guidelines 94-95).
Hardcore restrictions between non-competitors
• Price-fixing: where there is a restriction which has as its direct or indirect object the
establishment of a fixed or a minimum selling price, or a fixed or minimum price to be
observed by the licensor or licensee when selling products to third parties. It can cover
transactions
situations where agreements fix the margin, fix the maximum level of discounts, link the
sales price to the sales prices of competitors, and so on (Guideline 97).
• Passive sales: where there is a restriction of the territory into which, or of the customers
to whom, the licensee may passively sell the contract products. Passive sales restrictions
can be as a result of direct obligations, such as to not sell to certain customers, or to refer
orders from customers to other licensees. They can also be as a result of indirect measures,
by inducing the licensee to refrain from making sales, for example, by giving the licensee
financial incentives to do so, and by placing quantity restrictions on the licensee (where these
are being used to implement an underlying market partitioning agreement). The exceptions
to this restriction are as follows:
• where there is a restriction of passive sales into an exclusive territory or to an exclusive

customer group reserved for the licensor up to the market share threshold of 30%. For
a territory or group to be reserved to a licensor, it is not required that the licensor is
actually producing with the licensed technology in that territory or for that customer
group. A territory or group can be reserved for later exploitation by the licensor
(Guideline 100);
• where there is a restriction of passive sales into an exclusive territory or to an exclusive

customer group allocated by the licensor to another licensee for the first two years
that the protected licensee is selling the contract products in that territory or to that
customer group. This is to enable a licensee to develop its new territory without fear of
passive sales from other licensees. On expiry of the two-year period, the passive sales
restriction constitutes a hardcore restriction and is unlikely to be exemptable under
Article 81(3) (Guideline 101);
• where there is the obligation to produce the contract products incorporating the
licensed technology only for the licensee´s own use (captive use restriction) provided
that the licensee is not restricted in selling the contract products actively and passively
as spare parts for its own products (Guideline 102);
• where there is 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 (Guideline 103);
• where there is a restriction of sales to end users by a licensee operating at the wholesale
level of trade, that is, an obligation on the licensee not to sell to end users and only to
sell to retailers (Guideline 104);
• where there is a restriction of sales to unauthorised distributors by the members of

a selective distribution system, provided a licensee operating at the retail level is not
restricted from actively/passively selling to end users (Guideline 105).
Excluded restrictions
There are four restrictions listed in Article 5, which are not block exempted and which require
individual assessment of their anti-competitive and pro-competitive effects. However, if any of
the excluded restrictions are included in an agreement, the rest of the agreement can still be
covered by the block exemption, if the restriction can be severed from the agreement (Guideline
transactions
107). The question of severability is a question of national (contract) law. The excluded
restrictions are as follows:
• Exclusive grant back obligations: 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 own new applications of the licensed
technology. An improvement is severable if it can be exploited without infringing upon
the licensed technology. This would work as a major disincentive to licensees to innovate
using the licensed technology. The block exemption does cover non-exclusive grant back
obligations in respect of severable improvements and this is the case even where the grant
back obligation is non-reciprocal (that is, only imposed on the licensee and the licensor can
pass on severable improvements to other licensees). This is because it is pro-competitive to
allow the licensor to decide to what extent he wishes to pass on his own improvements to
licensees, and it means that all licensees are on an equal footing in terms of the technology
they have. When such an excluded restriction is individually assessed, factors looked at will
be whether the grant back was made against consideration, what the market position of
the licensor is, and what the position of the licensor´s technology is (Guidelines 109-111).
• Exclusive assignment back obligations: any direct or indirect obligation on the licensee to
assign, in whole or in part, to the licensor or to a third party designated by the licensor,
rights to its own severable improvements to or its own new applications of the licensed
technology (Guidelines 109-111).
• No challenge clauses: any direct or indirect obligation on the licensee not to challenge
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 technology transfer
agreement, in the event that the licensee challenges the validity of one or more of the licensed
intellectual property rights. A non-challenge restriction in relation to know-how could
satisfy the conditions for exemption in Article 81(3) of the EC Treaty, as the Commission
takes a favourable view of non-challenge clauses relating to know-how where disclosed, it
is likely to be impossible or very difficult to recover the licensed know-how (Guideline 112).
• Exploitation/development by the licensee of its own technology if non-competing: where

parties are non-competitors, arrangements are excluded from the scope of the block
exemption, if they impose a 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 indispensable to prevent
the disclosure of the licensed know-how to third parties. This provision corresponds with
the hardcore restriction in Article 4(1)(d), but applying to non-competitors, which will
require individual assessment, as such clauses do not necessarily have a negative effect on
competition (Guideline 114).
White List
Guideline 155 outlines obligations in agreements that will fall outside of Article 81(1) of the EC
Treaty. These are:
• Confidentiality obligations.
• Obligations on licensees not to sub-licence.
transactions
• Obligations not to use the licensed technology after the expiry of the agreement, provided
that the licensed technology remains valid and in force.
• Obligations to assist the licensor in enforcing the licensed intellectual property rights.
• Obligations to pay minimum royalties or to produce a minimum quantity of products

incorporating the licensed technology.
• Obligations to use the licensor´s trade mark or indicate the name of the licensor on the
product.
Withdrawal or disapplication of the benefit of the TTBE
The Commission and the national competition authorities in each member state of the EU will
be able to withdraw the benefit of the block exemption if the effect of an agreement will be to
restrict access to the market for other technologies or for other potential licensees, or where the
licensed technology is not exploited. The application of Article 81 in this event is considered
below. Where the withdrawal procedure is applied, the withdrawing authority bears the burden
of proving that the agreement that satisfies the conditions in Article 2 nevertheless does not
satisfy the four conditions under Article 81(3) of the EC Treaty. In particular, withdrawal may be
warranted in the following situations (listed in Article 6):
• Access of third parties’ technologies to the market is restricted.
• Access of potential licensees to the market is restricted.
• Without any objectively valid reason, the parties do not exploit the licensed technology. In
the case of licensing between competitors, the fact that parties do not exploit the technology
may be a sign of a disguised cartel (Guidelines 117-122).
Under Article 7, the Commission can disapply from the scope of the TTBE, by regulation,
agreements containing specific restraints where there are parallel networks of similar technology
transfer agreements covering more than 50% of a relevant market. This measure is not addressed
to individual undertakings, but encompasses all undertakings whose agreements are pinpointed
as being disapplied by the regulation. Where a disapplication regulation is adopted, Article
81 will apply to each individual agreement. For the purpose of calculating the 50% market
coverage, account must be taken of each individual network of licence agreements containing
restraints, or combinations of restraints, producing similar effects on the market. Any regulation
adopted under Article 7 must clearly set out its scope. The product and geographic markets
must be defined and the type of licensing restraint that it is covering must be laid out. The
Commission can be flexible in what licensing restraint the regulation covers, to keep it in line
with the competition concern. For example, the Commission may restrict the scope of the
regulation to restraints in agreements over a certain duration, because agreements for lesser
durations, although containing the same restraint, are not as restrictive in nature. Article 7(2)
allows for a grace period of six months from the issue of the regulation to allow undertakings to
modify their agreements to take account of the regulation. The regulation will have no effect on
the block exempted status of the agreements prior to its entering into force (Guidelines 123-129).
Existing agreements
transactions
As the TTBE is of more limited scope than the previous block exemption, there were many
existing agreements of significant duration that it did not cover. To some degree this was catered
for by a transitional period, which provided that an agreement that benefited from the outgoing
block exemption on 30 April 2004 would continue to be exempted until 31 March 2006. Longer
term agreements will now have to be considered in light of the new rules.
Assessing and addressing the risks
The analysis of particular clauses as to whether the TTBE might apply or not will require a more
complete understanding of the market dynamics and context of the agreement concerned than
under the previous, more formalistic, block exemption. However, it should not be thought that
this will always be a taxing process. Indeed in many instances the analysis will be reasonably
straightforward. However, if a potential competition issue is identified which is not clearly
resolved by the TTBE, the Guidelines or existing case law, a number of questions arise:
• What are the potential outcomes if a competition issue arises? The risks that may arise
from a competition restriction in a licensing agreement are: lack of enforceability of all
or part of the contract, intervention by a competition authority (perhaps with fines being
imposed), and private actions for damages or other remedies before a national court. The
most obvious scenario is that one party might seek to enforce the contract against the
other and be met by a defence (and/or counterclaim) of breach of the EC competition
prohibition. If the restriction of competition is particularly severe, however, intervention by
a competition authority (and fines) may be a possibility. Equally, a party to an agreement
may in principle sue the other for damages caused to it, as may a third party suffering
damage.
• Which party is at risk? There may be asymmetrical risk as between the parties. For example,
if an exclusivity provision might not be enforceable (perhaps because the licensee is already
dominant on the relevant product market), it may be that this clause alone would be struck
out by a court (depending on the possibility of severability under national law). The licensor
may thus in effect be free to license others while the licensee is left paying royalties on the
basis of exclusivity - all the risk is on the licensee in such a case, unless the agreement is
drafted to anticipate the problem.
• How great is the risk? A broad range of commercial and legal considerations will affect
the degree of risk if an agreement contains potentially unlawful restrictions. As well as
the nature of the ongoing relationship between the parties, risk may be affected by the
nature of the industry concerned and the territories affected.Some national competition
authorities are perceived to be more interventionist than others, and the approach may
vary across industries. Further, the choice of law of the contract and likely forum for any
dispute may materially affect the risk of a legal dispute being brought before a national
court. Whether the restrictions affect parallel importation will be an important factor in
assessing likelihood of action by the European Commission. Finally, the likelihood of a
competitor complaining or bringing other action will vary depending upon the industry
and the importance and profile of the arrangements in question.
• What can be done to avoid or minimise any risks? There are a number of means of
addressing the competition risks. If the concerns justify a very cautious approach it may
be possible to seek the views of one or more competition authorities. In certain member
states national authorities still allow parties to obtain a formal or informal view regarding
transactions
their approach to an issue, while the European Commission will in terms of its formal
procedures give guidance only if novel issues arise.
Informal contact may in certain circumstances provide assistance. In respect of

enforceability concerns in particular, severability will be a central issue. In most situations
it will be desirable to ensure that the agreement is drafted in such a way that any infringing
clauses may be severed from the rest of the agreement (and subject to national contractual
laws which permit such a result). There may also be a need to ensure that royalty and other
payments also fall away or are reduced in the event of unenforceability, or that the period
of termination is short enough to permit the affected party to exit from an arrangement
that has become unattractive. These solutions not only reduce exposure to risk, but tend
to reduce the incentive to dispute enforceability on competition grounds.
Agreements falling outside of the TTBE
Where an agreement falls outside of the TTBE, it will generally have to be assessed under Article
81. First of all, it will be necessary to assess whether the agreement is anti-competitive under
Article 81(1) EC Treaty. Guideline 12 of the TTBE offers two questions to be asked in order to
facilitate this analysis:
• Does the licence agreement restrict actual or potential competition that would have existed
without the contemplated agreement? If so, it will be caught by Article 81(1). This question
is aimed at assessing the impact of the agreement on inter-technology competition.
• Does the agreement restrict actual or potential competition that would have existed in the
absence of the contractual restraint? If so, it will be caught by Article 81(1). This question is
aimed at assessing the impact of the agreement on intra-technology competition. The test
is an objective one, that is, whether a less restrictive agreement would have been adopted
by undertakings in a similar situation. Guideline 12 makes an exception for agreements
containing restraints that are objectively necessary for the existence of an agreement of
that type or that nature, for example, are necessarily restrictive for a certain duration
to allow a licensee to establish itself in a market. Article 81(1) also makes a distinction
between agreements that have a restriction of competition as their object and those that
have it as their effect. In the case of agreements restricting competition as their object, it is
highly unlikely that they will qualify for exemption under Article 81(3) (see below). The
restrictions covered by the list of hardcore restrictions in Article 4 are restrictive by their
object. If it is thought that an agreement has a restriction of competition as its effect, it
will be necessary to look at both the actual and potential effect on competition and then
to assess whether such an effect is appreciable (such as when one party has considerable
market power).
Where an agreement is found to restrict competition and fall within Article 81(1), it will be
necessary to consider whether the agreement will satisfy all of the four criteria for exemption
under Article 81(3). This is an exemption for agreements that fall within Article 81(1), where the
pro-competitive effects of the agreement outweigh the anti-competitive effects. The four criteria
to be satisfied are (Guidelines 146-152):
• The agreement offers efficiency benefits by contributing to the improvement of production

or distribution or to the promotion of technical or economic progress. In the context of
licensing agreements, licensing often occurs because it is more efficient for the licensor to
transactions
licence the technology than exploit it himself, and it is more efficient for the licensee to
utilise the licensor´s technology in unison with other products to enhance and find new
technology.
• The agreement offers consumer benefits. This in fact means that the consumer should not
be affected by any negative effects of the agreement and should be benefited, whether that
be by lower prices, or by access to better technology.
• The agreement does not impose on the undertakings concerned any restrictions that are not
indispensable to the attainment of the efficiency benefits. The parties here would have to
show that less restrictive agreements would not have been efficient and in fact would have
caused a loss in efficiencies, making the restriction indispensable.
• The agreement does not afford the undertakings the possibility of eliminating competition
in respect of a substantial part of the products concerned.
Settlement and non-assertion agreements
The individual terms and conditions of settlement and non-assertion agreements may be caught
by Article 81(1), even if the licensing contained in such agreements is not in itself restrictive
of competition. Licensing is treated like other licence agreements, that is, if technologies are
substitutes then they must be assessed to analyse whether they are in a one-way or two-way
blocking position (Guideline 204). The TTBE will apply to such agreements provided that it
does not contain any of the Article 4 hardcore restrictions (Guideline 205). If the agreement is
a cross-licensing agreement, the extent of the parties´ market power and the extent to which the
agreement impacts on the parties´ incentive to innovate must be assessed to consider whether the
agreement is likely to be caught by Article 81(1) under Guidelines 207-208.
Patent pools
Patent pools are arrangements whereby two or more parties assemble a package of technology
that is licensed not only to contributors to the pool but also to third parties (Guidelines 210-235).
Agreements establishing such pools and setting out the terms and conditions of the pool will not
be covered by the TTBE. However, individual licences granted from the pool to third parties´
licensees are treated like other licence agreements that are block-exempted when the conditions
set out in the TTBE are fulfilled.
Patent pools can be restrictive of competition by reducing competition between the parties,
foreclosing alternative technologies, in particular when the pool supports an industry
standard, and creating barriers to entry (Guideline 213). However, these considerations can
be counter-balanced by the pro-competitive effects of patent pools, such as reduced costs and
one-stop licensing of technologies covered by the pool.
The competitive risks of pools will depend on the relationship between the pooled technologies
and the technologies outside the pool. Basic distinctions need to be made between technology
complements and substitutes and between essential and non-essential technologies. Two
technologies will be complements where they are both required to produce the product, or carry
out the process to which the technologies relate. Two technologies will be substitutes where
either technology allows the holder to produce a product or carry out the process to which the
technologies relate. A technology is essential if there are no substitutes for that technology
inside and outside the pool and the technology is necessary to produce the product, or carry
transactions
out the process to which the pool relates. Technologies that are essential are by necessity also
complements (Guideline 216).
Generally, the Commission considers the inclusion of substitute technologies in a pool to be an

infringement of Article 81(1), and that it is unlikely that such an inclusion would satisfy the
conditions of Article 81(3). Where the pool is mainly made up of substitutes, the arrangement
effectively amounts to price-fixing between competitors (Guideline 209).
Where the pool is solely made up of essential (and therefore complementary) technologies, this
will generally fall outside of Article 81(1), irrespective of the market positions of the parties. The
conditions under which licences are granted may however be caught by Article 81(1).
Where non-essential but complementary technologies are included in the pool, this can amount
to collective bundling and is likely to be caught by Article 81(1) where the pool has a significant
position on any relevant market.
The assessment of essentiality is an on-going process, given that substitute and complementary
technologies may be developed after the creation of the pool. A technology may therefore become
non-essential later on due to the emergence of third party technologies, so one way around this
is to exclude from the pool technologies that have become non-essential. In the assessment of
technology pools comprising non-essential technologies, the Commission will take into account
the following factors (Guideline 222):
• Whether there are any pro-competitive reasons for including the non-essential technologies
in the pool;
• Whether the licensors remain free to licence their respective technologies independently;
• Whether the pool offers the technologies only as a single package, or whether it offers
different packages for distinct applications;
• Whether the pool offers the technologies only as a single package, or whether the licensees
can obtain a licence for only part of the package with a corresponding reduction of royalties.
Assessment of individual restraints
Certain restraints are commonly found in patent pools relating to the terms agreed between the
pool and the licensee. The Commission will assess the licences for the purposes of the TTBE,
and will have regard to the following main principles (Guideline 224):
• The stronger the market position of the pool, the greater the risk of anti-competitive effects.
• Pools that hold a strong position in the market should be open and non-discriminatory.
• Pools should not unduly foreclose third party technologies or limit the creation of
alternative pools.
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. The Commission will take
into account whether licensors are also subject to royalty obligations. Licensors and licensees
must be free to develop competing products and must be free to grant and obtain licences outside
transactions
the pool. Grant back obligations should be non-exclusive and be limited to developments that
are essential or important to the use of the pooled technology.
In early 2006, the Commission closed an investigation into allegations that the European
CD-Recordable (CD-R) Disc Licensing Programmes administered by Philips Electronics
infringed both Articles 81 and 82 of the EC Treaty. For a number of years Philips offered
European disc manufacturers joint portfolio licences including patents for its own CD-R discs
as well as those of Sony and Taiyo Yuden. It also offered an individual licence, the Philips Only
Licence Agreement (PLA), solely for its own CD-R patents. In 2003, the Commission received a
complaint from the Federation of Interested Parties in Fair Competition in the Optical Media
Sector (FIPCOM), which represents European manufacturers of CD-R discs. FIPCOM alleged
both that Philips was abusing its dominant position contrary to Article 82 by implementing
these licensing programmes and that the terms and conditions of the programmes infringed
Article 81.
In December 2005, Philips decided to discontinue the joint patent portfolio licences and revised
the terms and conditions of the PLA so that:
• Summaries of independent expert reports on those Philips patents that were essential to
produce CD-R discs were made available on Phlips’ website.
• Philips had an express obligation to address technical problems associated with the
management of the CD-R standard.
• The CD-R standard was updated to clarify that discs that do not use certain proprietary
technology but instead use alternative technologies wouldstill qualify as CD-R discs.
• The level of royalty has been reduced from 4.5 US cents to 2.5 US cents per disc. This rate
would apply retroactively from 1 October 2005 for all licensees that have paid all royalties
due and which were compliant with the licensing programme.
The Commission was satisfied that the changes were sufficient to address any potential
competition concerns (see Commission press release IP/06/139).
Standard setting
Patent pools may support a de facto, or de iure industry standard. This may give rise to
additional concern. In the absence of a standard there may be competing patent pools relating
to competing technologies to chose from. Where a patent pool relates to an adopted industry
standard there usually is no competing patent pool. This may lead to foreclosure of new and
improved technologies. Also, controlling the patent pool or individual essential patents which
relate to an industry standard confers control over the industry which is required to use the
standard. This addresses the concern of hold-up. Hold-up usually occurs where the owner of
standard related essential IP right is in a position by way of assertion of the IP right to block the
use of the standard and hold-up the entire industry which is "locked into" using the industry
standard. This issue was dealt with in recent US cases such as In the matter of Rambus Inc.,
FTC Docket 9302.
On 30 July 2007, the Commission itself sent Rambus a statement of objections alleging that
Rambus had breached Article 82 of the EC Treaty by claiming unreasonable royalties for use
of certain patents. The Commission considers that Rambus engaged in intentional deceptive
transactions
conduct in the context of the standard-setting process. In particular, it engaged in a "patent

ambush" by not by not disclosing standards that it later claimed were relevant to the JEDEC
adopted standard (see further Patent ambush).
However, standard setting may also have pro-competitive effects such as increasing efficiencies
and allowing interoperability between products. Therefore, agreements relating to standard
setting may benefit from exemption under Article 81(3) provided that they do not unduly
restrict competition or innovation in the way mentioned before. The Commission will assess
standard related agreements according to the principles it applies to patent pools. It will usually
be required that patents which form the basis of the standard, either as a result of deliberate
choices of a standard setting organisation or because of choices in the market, be licensed to
third parties on fair, reasonable and non-discriminatory terms.
The European Commission closed an investigation into the standard setting rules adopted
by the European Telecommunications Standardisation Institute (ETSI) after ETSI adopted
changes to its rules requiring for an early disclosure of those IP rights which are essential for the
implementation of a standard in order to minimise the risk that a company hides the fact that
it owns IP rights essential for a standard and asserts them once the standard is adopted in the
market to hold-up the industry using the standard (see Commission press release IP/05/1565).
Vertical agreements block exemption
The vertical agreements block exemption, which came into effect on 1 June 2000, applies to
distribution, franchising and sales agency agreements (among other agreements) (Regulation
2790/1999 OJ 1999 L336/21). It exempts provisions relating to the licensing or assignment of
IP rights if the licence or assignment of IP rights is not the primary object of the particular
agreement, but is nonetheless directly related to the agreement (see further Block exemptions
and Commission guidelines).
Research and development block exemption
The research and development block exemption, which came into effect on 1 January 2001 and
will expire on 31 December 2010, applies to certain collaborative agreements for the purpose of
conducting research and development (Regulation 2659/2000 OJ L304/7). It exempts provisions
allowing the joint exploitation of the results of research and development provided that these are
protected by intellectual property rights which are decisive for the manufacture of the contract
products or the application of the contract processes.
Specialisation agreements block exemption
The specialisation agreements block exemption also applies to provisions which do not constitute
the primary object of a specialisation agreement, but which are directly related to and necessary
for its implementation, such as those concerning the assignment or use of intellectual property
rights (Article 1(2), Regulation 2658/2000 OJ 2000 L304/3).
Trade mark licensing

The application of Article 81 to trade mark licensing raises many of the same issues as arise in
relation to the licensing of other IP rights. There is, however, less express guidance in this area
than in the case of patent and know-how licensing, because there is no block exemption dealing
specifically with trade mark licensing, and there are few decided cases dealing specifically with
transactions
the application of Article 81 to trade mark licences. On the other hand, there is a substantial
body of case law dealing with the effect of the EC Treaty’s free movement of goods provisions
on the enforcement of trade mark rights, which is considered separately under Free movement of
goods and services, and exhaustion of rights.
The essential purpose of a trade mark is to guarantee the origin of the goods in relation to which
it is used. By using a trade mark on a product, the producer associates it with the owner of the
trade mark, so enhancing the value of the product (depending on the reputation of the owner).
As the use of a trade mark without the owner’s consent is generally an infringement of the mark,
any arrangement for the use of the trade mark will require a licence.
The licence of a trade mark in a commercial agreement is often linked to, and dependent on, the
creation of a wider relationship between the parties, to which the right to use the licensor’s trade
mark is ancillary. Agreements which typically contain a trade mark licence of this kind include:
• Distribution agreements.
• Franchising agreements.
• Sales agency agreements.
• Technology transfer agreements.
• Original equipment manufacturer (OEM) manufacturing and tolling agreements. These

agreements, which can take many different forms, typically involve the manufacture of
goods by one party (the original equipment manufacturer or "OEM", also known as a
sub-contractor), using the intellectual property of the other party (the contractor). The
goods may then be sold by the OEM directly to end users, using the contractor’s trade
mark, or supplied exclusively to the contractor, in which case a trade mark licence may not
be required.
Application of block exemptions

The specific block exemptions that apply to specialisation, technology transfer and vertical
agreements will generally also cover the terms on which necessary trade marks may be licensed:
• Technology transfer block exemption. Agreements that fall within the TTBE may contain
a trade mark licence, provided that the trade mark licence "does not constitute the primary
object of the agreement" (recital 4 and Article 1(1)(b)); and is directly related to the
application of the licensed technology (recital 4 and Article 1(1)(b)
The second of these requirements ensures that agreements covering other types of
intellectual property rights are only block exempted to the extent that these other rights
serve to enable the licensee to better exploit the licensed technology. It is common, for
example, for a technology licence to include a provision permitting the licensee to attach
the licensor’s trade mark to finished goods made using the licensed process. This will fall
within the scope of the block exemption, provided that (as is usually the case) the use of
the trade mark helps the licensee to exploit this process (for example, by higher sales) (see
Technology Transfer Block Exemption).
• Vertical agreements block exemption. The vertical agreements block exemption, which
came into effect on 1 June 2000, applies to distribution, franchising and sales agency
transactions
agreements (among other agreements) (Regulation 2790/1999 OJ 1999 L336/21). It exempts

provisions relating to the licensing or assignment of IP rights if the licence or assignment of
IP rights is not the primary object of the particular agreement, but is nonetheless directly
related to the agreement.
? Research and development block exemption. The research and development block
exemption, which came into effect on 1 January 2001 and will expire on 31 December 2010,
applies to certain collaborative agreements for the purpose of conducting research and
development (Regulation 2659/2000 OJ L304/7). It exempts provisions allowing the joint
exploitation of the results of research and development provided that these are protected by
intellectual property rights which are decisive for the manufacture of the contract products
or the application of the contract processes.
• Specialisation agreements block exemption. The specialisation agreements block

exemption also applies to provisions which do not constitute the primary object of
a specialisation agreement, but which are directly related to and necessary for its
implementation, such as those concerning the assignment or use of intellectual property
rights (Article 1(2), Regulation 2658/2000 OJ 2000 L304/3).
Position where no block exemption available

If a trade mark licence provision does not fall within the scope of any block exemption, it is
necessary to consider the application of Article 81(1) to trade mark licences generally.
The principles developed in the TTBE and TTBE Guidelines will not be extended to trade mark
licensing, as trade mark licensing occurs more in the realm of distribution and resale of goods
and services, and is generally more akin to distribution agreements than technology licensing
(see TTBE Guidelines 53). Where a trade mark 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 the vertical agreements block exemption.
The Commission’s Guidelines on vertical restraints should also be of assistance in assessing how
likely it is that a trade mark licence which falls outside the various block exemptions may benefit
from an individual exemption (OJ 2000 C 291/1).
Provisions likely to fall outside Article 81(1). A provision in a trade mark licence may well
fall outside Article 81(1) altogether, on the ground that the maintenance of the link between
the owner’s trade mark and the goods produced or marketed under his control or authority is
necessary to protect an essential element of the mark’s existence. Restrictions falling outside
Article 81(1) on this basis would include, for example, an obligation on a licensee manufacturing
products on behalf and to the specification of the trade mark owner to affix the owner’s
trade mark to all products. However, more complex arrangements, such as where an OEM
manufactures equipment for another party for sale only under that party’s trade mark, may be
caught by Article 81(1) and need to be assessed under Article 81(3)).
As of 1 May 2004, parties to an agreement are required to assess their own behaviour and to
determine whether or not the agreement in question complies with Article 81.
Other restrictions will fall outside of the scope of Article 81(1) if they are justifiable for
maintaining the value of the trade mark. For example:
transactions
• Quality control measures (such as provisions requiring adherence to strict production

procedures, or that production should take place only at approved plants, or providing for
the supervision of production by the licensor).
• An obligation on the licensee to purchase special ingredients only from the licensor
(provided that such ingredients really are essential and are not available from other
sources).
• Advertising and promotion obligations on the licensee (provided that these are objective
and not excessive).
Restrictions may also fall outside Article 81(1) if they reflect the legitimate need of the licensor to
control the use of its trade mark, for example, a straightforward restriction on the sub-licensing
of the trade mark, or change of control provisions. An obligation on the licensee not to
challenge the licensor’s ownership of the mark will not be viewed as a restriction of competition,
because the question of whether the licensor or licensee owns the trade mark will not affect
the competitive position of third parties, who are in either case prevented from using the trade
mark (Moosehead-Whitbread’s Agreement OJ 1990 L100/32). However, a clause preventing
the licensee from challenging the validity of the mark may fall within Article 81(1) (see further
Provisions likely to fall within Article 81(1) for which individual exemption is unlikely, below).
Provisions likely to fall within Article 81(1). The Commission has taken a strict approach to
exclusive trade mark licences. Even though the granting of an exclusive right to exploit a trade
mark in a specific territory is inherent in most forms of distribution agreement, it is clear that
the Commission will view a restriction that prevents a licensor from licensing its trade mark to
any other party within the licensee’s appointed territory as a de facto restriction of competition,
on the basis that it prevents intra-brand competition (that is, competition from other companies
in the provision of the same goods and services bearing the same mark). This will be the case
whether or not the licensor itself is also prohibited from using the trade mark in the appointed
territory. An exclusive licence will therefore infringe Article 81(1) (assuming that the relevant
restriction is appreciable and that there is an effect on trade between member states), and will
accordingly be unenforceable. An obligation on a licensee not to sell any products which compete
with those bearing the licensed trade mark is liable to infringe Article 81(1), on the basis that it
reduces the scope for competition from such products.
A provision that prohibits the licensee from actively marketing products bearing the licensed trade
mark in an EEA territory outside its own allocated territory within the EEA is also likely to be
viewed as an infringement of Article 81(1), on the basis that it reduces the scope for competition
in that other territory.
The above three restrictions are common, and generally essential, elements of any distribution
arrangement based on territorial allocation. Since the ECJ’s judgment in the Nungesser case (see
Open licences), it has generally been acknowledged as an essential element of such arrangements
that the licensee is to some extent isolated from competition in the sale of the contract products
within its allocated territory, in order to maximise its return and so justify its investment.
While in Nungesser it was concluded that these factors could take such restrictions outside the
scope of Article 81(1) altogether, in the context of trade mark licences they are viewed simply
as grounds exemption under Article 81(3). Agreements which contain such provisions are
therefore potentially unenforceable unless they fall within a block exemption or are exemptable,
although the risk of fines is very low as long as the provisions are of the type that are not the
transactions
sort of restrictions that are hardcore restrictions in one of the block exemptions. As of 1 May
2004, when Regulation 1/2003 entered into force, parties to an agreement are required to assess
their own behaviour and to determine whether or not the agreement in question complies with
Article 81.
Examples of the application of the principles discussed above are set out in the box, Moosehead
and Campari cases.
Provisions likely to fall within Article 81(1) for which exemption is unlikely
Provisions which are unlikely to be capable of exemption under Article 81(3), and which would
therefore be more likely to render the parties liable to fines, include:
• A prohibition on passive sales (i.e. an obligation on the licensee not to supply anyone
outside the appointed territory, even if he is approached by a potential customer).
• Resale restrictions which distinguish permissible sales according to the type of customer
(such as an obligation to supply end-customers only), unless the agreement forms part
of a selective distribution arrangement (see Vertical agreements:Selective distribution
agreements).
• An outright prohibition on the licensee challenging the validity of the trade mark.
The Commission’s reasoning for not exempting a prohibition on challenges to the validity of
a trade mark is set out in the Moosehead case (above). The Commission stated that, whereas
a trade mark owner may prohibit its licensees from challenging its ownership of the mark, a
prohibition on challenges to its validity will not be acceptable if the trade mark is well-known, as
such a prohibition may lead to a potentially invalid trade mark remaining in place. If the trade
mark is well-known, so that its use gives an important advantage to any company entering or
competing in the market, the continued existence of the mark may constitute a significant entry
barrier. In the Commission’s view, therefore, any party, including the licensee, should be free to
remove such a barrier if the trade mark is in fact invalid. In this case, however, the Commission
found that the "Moosehead" trade mark was not well-known in the UK and therefore did not
constitute an appreciable barrier to entry for other companies wishing to enter the market. As a
result, the prohibition on challenging the trade mark’s validity did not constitute an appreciable
restriction of competition.
Since, as the Moosehead case demonstrates, an outright prohibition on a licensee challenging the
validity of a trade mark may infringe Article 81(1), a safer course is to provide that the licensor
may terminate the licence if the licensee challenges the validity of its trade mark.
Trade mark delimitation agreements

A trade mark owner will frequently seek to prevent another company from registering or
assigning a trade mark on the ground that the other party’s trade mark is confusingly similar
to a trade mark owned and used by the objecting party for similar products. In order to avoid
litigation, the parties will often enter into an agreement, commonly known as a trade mark
delimitation agreement, under which one party agrees not to use the specified trade mark for
certain products or not to challenge the other party’s use of the specified trade marks in a
certain geographical area or with respect to certain products.
transactions
Although the case law in this area is not entirely consistent, the Commission’s general approach
to such agreements has been relatively pragmatic. One relevant issue will be the extent to which
there is a real risk of confusion between the parties’ respective marks: an agreement relating to
the mutual use of genuinely similar marks will generally be viewed as a genuine attempt to avoid
infringements, and thus litigation (see, for example, Toltecs/Dorcet OJ 1982 L379/90).
The key factor when considering such an agreement is whether it will lead to territorial division
of the single market. For example, in the appeal to the ECJ against the Commission’s decision
in Toltecs/Dorcet (Case 35/83 BAT Cigaretten-Fabriken GmbH v Commission [1985] ECR 363),
the ECJ made it clear that although delimitation agreements are generally lawful and useful, to
the extent that they are intended to avoid confusion or conflict between the parties, they may
infringe Article 81 if they are aimed at dividing up the market. The application of this principle
in practice is illustrated in the box, Chiquita/Fyffes case.
Free movement of goods and services, and exhaustion of rights

In addition to the rules on competition, the rules relating to free movement of goods must
also be taken into account when considering how EC law applies to a licence of IP rights. The
circumstances in which a trade mark owner may use his rights to control the circulation of goods
bearing that mark are limited by the principle of exhaustion of rights. According to this, the
exclusive right of a holder of IP rights conferred by national law to control the distribution of a
product will expire (or is said to be "exhausted") once that particular product has been placed
on the market within the EU by the holder or with his consent. Therefore, a holder of IP rights
in, say, Germany, generally cannot prevent the import of goods into Germany if the goods have
been marketed in France by the holder of such IP rights or by another with the holder’s consent
(see also Single market and free movement of goods).
The circumstances in which the right to control distribution and resale of a trade-marked product
is exhausted have been the subject of much public debate in recent years. This debate has largely
been due to the ECJ’s judgment of July 1998 in the Silhouette case (see box, Silhouette), in which
it was established that the national laws of member states must allow a trade mark owner to
prevent imports of products bearing his mark into the EU if they have already been placed on the
market by him or with his consent outside the EU. Because there is no principle of international
exhaustion of rights under EC law, the trade mark owner’s rights are not exhausted in such
circumstances. This is in contrast to the principle of Community exhaustion explained above,
according to which a trade mark owner cannot prevent the import of products into an EU member
state if those products have already been placed on the market within the EU by or with the
owner’s consent (see box, Exhaustion of rights).
The position is somewhat different in the case of the EFTA states, Norway, Iceland and
Liechtenstein, which form part of the EEA by virtue of the EEA agreement of 1 January
1994. Following a decision of the EFTA Court, these countries may still apply the principle of
international exhaustion to products originally marketed outside the EEA and subsequently
imported into any of those countries (Case E-2/97 Mag Instrument Inc. v California Trading
Company, Advisory opinion OJ 1998 C20/17).
The Silhouette decision was reaffirmed by the ECJ in the Sebago case (Case C-173/98 Sebago
Inc and Ancienne Maison Dubois et Fils SA v GB-Unic SA [1999] 2 CMLR 1317), where the
ECJ also confirmed that, in a case where the principle of Community exhaustion applies, a trade
mark owner’s right to prevent the use of his trade mark on goods imported into a member state
will only be exhausted with respect to those specific goods which have previously been marketed
transactions
in the EEA with his consent. The fact that goods within a certain class have been sold in the
EEA with the trade mark owner’s consent does not, therefore, constitute general exhaustion with
respect to a whole class of identical goods. In the Sebago case itself, for example, Sebago Inc., the
proprietor of the trade marks "Dockside" and "Sebago", had granted an exclusive distribution
licence for the sale of Sebago "Dockside" shoes in Belgium. A parallel importer had bought
a batch of "Dockside" shoes manufactured in El Salvador (it was not disputed that these were
genuine Sebago products). The importer argued that Sebago had consented to sale of these shoes
within the EEA because it had consented to the marketing by its licensee of Sebago "Dockside"
shoes in Belgium, but this was rejected by the ECJ on the grounds that the consent must relate to
the individual items. The fact that Sebago had consented to the sale of one batch of Sebago shoes
in the EEA, through its Belgian distributor, did not mean that it had also consented to the sale in
the EEA by a third party of an entirely different batch of shoes made and sold outside the EEA.
The ECJ has recently considered the meaning of "on the market" in the context of exhaustion of
trade mark rights (Case C-16/03 Peak Holding AB v Axolin-Elinor AB [2004] ECR I-11313). The
case concerned the manner in which Axolin-Elinor marketed a consignment of clothing bearing a
trade mark held by Peak Holding. In this case, the ECJ ruled that placing goods bearing a trade
mark on the market must actually involve a sale of the goods within the EEA, rather than the
mere importation or the offering for sale without the sale actually taking place. Further, the ECJ
held that a contractual restriction on reselling such goods within the EEA does not mean that the
goods will not be considered as having been placed on the market and thus does not preclude
the exhaustion of rights in the event of resale within the EEA in breach of such contractual
prohibition.
Consent
The precise meaning of "consent to sale in the EEA" was dealt with by the ECJ in Davidoff, a
reference from the English High Court for a preliminary ruling pursuant to Article 234 of the EC
Treaty (Case C-414/99 Zino Davidoff SA v A&G Imports Limited [2001] ECR I-8691). In this
case, the trade mark owner, Davidoff SA, opposed the sale in England of its perfume sourced
from Singapore, by virtue of a contract in which it had required its distributor not to sell outside
the specified territory of South East Asia. Davidoff SA sought summary judgment, believing
that (following Silhouette), the defendant had no defence to the action. However, the judge,
Laddie J., found that Silhouette only meant that a member state may not impose international
exhaustion. The owner of the trade mark could still itself choose (directly or indirectly) to
consent to marketing in England (and thus the EEA). The real question was therefore whether
Davidoff SA could be said to have directly or indirectly consented to such sale. In fact, Laddie
J. continued, a series of cases in English contract law show that there will be a presumption
that a purchaser may do what it likes with goods it has purchased, unless restrictions are clearly
notified to it at the time of sale. English law was taken to be the proper law of the contract.
Turning to the facts of the case, Davidoff SA had contractually restricted the purchaser from
selling outside South East Asia, but had not gone further and effectively restricted those further
down the supply chain in South East Asia from doing so. Davidoff SA was therefore treated as
having consented to marketing within the EEA.
The Davidoff case was referred to the ECJ for a preliminary ruling and was joined with further
cases raising the same issues. The ECJ delivered its judgment on 20 November 2001 (Joined Cases
C-414/99, C-415/99 and C-416/99, Zino Davidoff SA v A & G Imports Ltd and Levi Strauss
& Co/Levi Strauss (UK) Ltd v Tesco Stores, Tesco plc and Costco Wholesale UK Ltd.). The
ECJ found conclusively in favour of the trade mark owners. It held that unequivocal consent to
transactions
the marketing within the EEA of goods put on the market outside that area was required from
the trade mark proprietor, although it could be express or implied. It was not for the trade
mark proprietor to demonstrate absence of consent but rather for the trader alleging consent to
prove it. Implied consent could therefore not be inferred from the mere silence of the trade mark
proprietor. Furthermore, implied consent may not be inferred from the trade mark proprietor’s
failure to communicate his opposition to marketing the goods within the EEA or from the absence
of any warning carried on the products themselves to that effect. In the same vein, consent could
not be inferred from the fact that the trade mark proprietor had transferred ownership of the
goods in question without imposing contractual reservations where the property right transferred
would, in the absence of such reservations, include an unlimited right of resale or a right to market
the goods subsequently within the EEA. A rule of national law which proceeded upon the mere
silence of the trade mark proprietor would not recognise implied consent but rather deemed
consent - which was not sufficient.
The ECJ concluded its judgment by finding that it was not relevant that the importer of goods
bearing the mark was unaware that the proprietor objected to them being marketed in the EEA.
It was also irrelevant that the authorised retailers and wholesalers had not imposed contractual
reservations on their own purchasers, setting out the trade mark proprietor’s objection to
marketing in the EEA, even though they were aware of such objection.
Following the ECJ ruling, the claimants sought summary judgment, arguing that consent could
not be inferred in this case. The High Court held under English and EC law that a trade mark
proprietor can prevent the resale in the EEA of its marked goods sourced outside the area and
that on the facts there was at least one example of the sale of jeans to the defendants without
the consent of the claimants (Levi Strauss & Co and Levi Strauss (UK) Limited v Tesco Stores
Limited, Tesco Stores plc and Costco Wholesale UK Limited [2002] EWHC 1556).
It may on occasion be difficult for the person importing the product to know if consent has
been given, or for the brand owner to prove that it has not. It may be hard to identify the
provenance and nature of the product. Differing competition rules may complicate issues further.
For example, an importer may remove product codes, on some occasions, on the grounds that
batch codes may force it to reveal its source and there may be risk of market partitioning if sources
are revealed (Case C-244/00 Van Doren [2003] ECR I-3051).
The effect of the ECJ cases has been to confirm the right of trade mark owners to prevent parallel
imports of products from outside the EEA. Since this means that there is less scope for goods to be
imported from cheaper countries for sale in the EEA without the manufacturer’s consent, there
is greater scope for trade mark owners to maintain higher prices for their products within the
EEA. This has led to much political discussion within, and between, member states.
Trade mark owners increasingly use customs actions in an attempt to restrict parallel imports
by detaining goods bearing their trade marks at ports around Europe. There are two provisions
under the Community Customs Code (Regulation 2913/92) which provide that:
Non-Community goods can be moved from one point to another in the customs territory of the
Community without being subject to import duties and other charges, as long as they are sold
on outside the EU (the External Transit Procedure or ’ETP’).
transactions
Non-Community goods can be stored in warehouses in the Community without being subject
to import duties and other charges, as long as they are sold on outside the EU (the Customs
Warehousing Procedure or ’CWP’).
In a recent case regarding shipments of branded toothpaste, the ECJ held that a trade mark
owner cannot oppose the mere entry of original goods into the EEA under either the ETP or
the CWP which had not already been put on the market by the proprietor or with his consent
(Case C-405/03 Class International BV v (1) Colgate-Palmolive Company (2) Unilever NV (3)
Smithkline Beecham plc (4) Beecham Group plc [2005] ECR I-8735). This is the case even in
the absence of a specified final destination outside the EEA. The trademark owner may oppose
the offering or the sale of such goods if the importer puts the goods on the market in the EEA.
Putting the goods on the market may include the offering and sale of goods bearing a trade mark
and having the customs status of non-Community goods while the goods are under the ETP or
the CWP. The trade mark owner can still legitimately oppose the imports from outside the EEA
where the ultimate destination of the goods is within the EEA. However, the burden will be on
the trade mark owner to prove the final destination of the goods.
The Trade Marks Directive (Directive 89/104 OJ 1989 L40/1) confirms that exhaustion of rights
will not apply where there are "legitimate reasons" for a trade mark owner to oppose further
commercialisation of the goods (Article 7(2)). A trade mark owner may therefore still prevent
the sale of its products by a parallel importer if this is justified in order to preserve the essential
function of the trade mark, namely to guarantee the origin of the product on which it is used and
to preserve the value of the owner’s brand. Where goods have been repackaged or relabelled, the
ECJ has held that the trade mark owner has legitimate interests which he may lawfully protect
by preventing the sale of the goods in ensuring that the repackaging cannot adversely affect the
original condition of the product and that the presentation of the product is not such as to be
liable to damage the reputation of the trade mark (Cases C-427/93, C-429/ 93 and C-436/93
Bristol-Myers Squibb [1996] ECR 3457; Case 102/77 Hoffmann-La Roche v Centrafarm [1978]
ECR 1139).
Decisions of the ECJ in cases concerning pharmaceutical products have confirmed that the
circumstances in which a trade mark owner will not be able to prevent such parallel importation
are where:
• The assertion of the trade mark rights by the trade mark owner would contribute towards
artificially dividing markets in member states (it is not necessary that the trade mark owner
deliberately sought to achieve this effect); and
• Where the parallel importer has repackaged the goods (for example, to conform to national
laws relating to the marketing of goods):
• the repackaging is not capable of affecting the original condition of the product
marked;
• the new packaging clearly states who it is responsible for carrying out the repackaging;
• the presentation of the repackaged product will not harm the reputation of the trade
mark and/or its owner; and
• the parallel importer has given prior warning of its intention to repackage the goods
and import them. It is for the national court to decide whether the period of notice
transactions
provided the trade mark proprietor with a reasonable time to react to the proposed
repackaging. The ECJ has indicated that a notice period of 15 working days is likely
to be reasonable if a sample of the repackaging is provided with the notice.
(See, for example, Bristol-Myers Squibb and Hoffmann-La Roche v Centrafarm, above and Case
C-143/00 Boehringer Ingelheim KG & Ors v Swingard Ltd & Ors [2002] ECR 2002 I-3759 (see
further box, Boehringer).)
The circumstances in which the assertion of trade mark rights may contribute to the artificial
partitioning of markets between member states as mentioned above can include a situation where
the same product is sold under different trade marks in different member states (Case C-379/97
Pharmacia & Upjohn SA v Paranova A/S [19992] ECR I-6927). In such a case, a parallel importer
of the product must be allowed to replace the original trade mark with the trade mark of the
country of import if it is "objectively necessary" for the marketing of the product in that country.
According to the ECJ:
• It would be "objectively necessary" to replace a trade mark where the rules or practices
in the importing member state would prevent the product from being marketed under the
original trade mark (for example, where there was a rule which would prohibit the use of
the original trade mark on the ground that it was liable to mislead consumers);
• It would not be objectively necessary if the replacement of the trade mark was explicable
"solely by the parallel importer’s attempt to secure a commercial advantage". The ECJ
expressed its view in Boehringer Ingelheim KG & Ors v Swingard Ltd & Ors (see above and
box, Boehringer) that strong resistance to relabelled products from a significant proportion
of consumers could hinder effective access to the market, but this is for a national court to
determine.
Although the pharmaceutical market has special characteristics, it is likely that similar principles
will apply in the case of all goods sold or services offered by reference to a trade mark.
Assignments of national trade marks - no exhaustion

Whereas a licensor will exhaust his national trade mark rights in granting a trade mark licence in
another territory within the EEA, an assignor will not do so unless he retains a degree of control
over the licensee. This means that, unlike a licensor, a trade mark owner who assigns certain of
his trade mark rights might be in a position to prevent the importation of products to which that
trade mark has been applied by the assignee by asserting his retained national trade mark rights
(see box, Exhaustion of rights).
Exhaustion of rights
This general position follows from the Ideal Standard case (Case C-9/93 IHT Internationale
Heiztechnik GmbH and Uwe Danzinger v Ideal-Standard GmbH and Wabco Standard GmbH
[1994] ECR2789) in which the ECJ held that the consent implicit in any voluntary assignment of
a trade mark is not the consent required for application of the doctrine of exhaustion of rights.
For that, the owner of the right in the importing state must, directly or indirectly, be able to
determine the products to which the trade mark may be affixed in the exporting state and control
their quality. The underlying logic to this position flows from the essential function of a trade
mark, which is to guarantee origin and quality.
transactions
Consequently, a trade mark owner may in certain cases wish to compare the relative commercial
benefits to be obtained by an assignment under which all control passes with licensing. The
similarities are greatest when the options being considered are a long-term exclusive licence or
an assignment. In each case, a third party obtains the exclusive right to apply the trade mark
to the product in return for payment, and there is a potential division of the internal market.
An exercise in comparing relative commercial advantages will be particularly relevant where the
licence/assignment is to a party in an EEA country where the products are likely to be sold at
substantially lower prices. If a licence (or assignment with a degree of control relating to product
quality remaining) is granted, losses could be expected to occur through parallel importation
into the higher priced "home" market. If an assignment is used, there will be no exhaustion.
An important caveat when considering the application of Ideal Standard is that the case did not
rule out the application of the competition rules. It will need to be carefully considered whether
Article 81 could apply to any implementation of a strategy to divide up the markets through trade
mark assignment. The ECJ was far from clear on this point, stating:
"Where undertakings independent of each other make trade mark assignments following a
market-sharing agreement, the prohibition of anti-competitive agreements under Article 81 of
the Treaty applies and assignments which give effect to such an agreement are consequently void.
However, a trade mark assignment can be treated as giving effect to an agreement prohibited by
Article 81 only after an analysis of the context, the commitments underlying the assignment, the
intention of the parties and the consideration for the assignment."
Likewise, the Advocate General in Ideal Standard did not find it necessary to reach a conclusion
on the question of whether a "pure" assignment (that is, with no contractual undertaking relating
to market division) might be caught by Article 81 on the basis of previous case law, saying the
point was "difficult".
It is nevertheless strongly arguable, following Ideal Standard, that where there is a pure
assignment of a trade mark and subsequent assertion of national trade mark rights, the division
of the internal market which occurs will be the result of the legitimate exercise of national trade
mark rights (and so outside Article 81).
Copyright licensing
The application of EC competition rules to copyright licensing is not straightforward. There
are no block exemptions or Commission notices dealing specifically with copyright licences.
In addition, there are relatively few decided cases dealing with the circumstances in which the
terms on which copyright is licensed will infringe competition law. As a result, when considering
copyright licences it is necessary to apply by analogy the law which applies to other IP rights, in
particular patents, while recognising that the specific characteristics of copyright may in some
cases produce a different result. Therefore, although the ECJ has stated that "the commercial
exploitation of copyright raises the same problems as that of any other industrial or commercial
property right" (Case C-92/92 Phil Collins v Imtrat Handels-GmbH [1993] ECR I-5145), the
permissible solutions to these problems may differ.
The Commission’s reports on competition policy provide useful guidance on its approach to
copyright licensing, although cases referred to in these reports do not have the same authority
as formal decisions or court judgments. The notes in the reports concerning copyright cases
transactions
consistently refer to the Commission’s use of a similar approach to that adopted in patent
licensing cases.
When dealing with copyright licences, it is important to bear in mind that a range of subject
matter is protected by copyright, and that each type of subject matter may give rise to different
competition law considerations. This reflects the fact that, although ownership of copyright
generally confers the exclusive rights to copy the protected work, to issue copies to the public, to
perform it in public and to broadcast it, the relative importance of each of these rights will vary
according to the nature of the work concerned, for example whether it is a book, painting, table
of data, sound recording or film. Restrictions which may be permissible to prevent a film being
rebroadcast in another territory may not be acceptable if applied to control the distribution of a
book, since the importance of restricting performance is fundamental to the value of the former,
whereas the primary value of copyright in a book lies in the owner’s ability to prevent copying,
rather than in controlling distribution of the physical medium on which the work is printed (see
the discussion of the Coditel 1 case, below). The distinction between so-called "performance
rights", which control the performance or broadcasting of a work, and "non-performance rights",
which control copying and other infringing activities, is particularly important with respect to
the free movement of goods and services, and is considered further in Free movement of goods
and services, and exhaustion of rights.
It is settled that the means by which a copyright owner exercises his rights is subject to Article
81(1). In the leading case of Deutsche Grammophon GmbH v Metro-SB-Grossmärkte (Case
78/70 [1971] ECR 487), the ECJ was asked whether Article 81(1) prohibited the copyright owner,
Deutsche Grammophon (DG), from taking action against Metro to prevent it selling records in
Germany which it had bought in France from DG’s French subsidiary. Although the ECJ’s ruling
(that DG’s right to control distribution of the records was exhausted when they were sold with
DG’s consent in France) was primarily founded on the Treaty’s rules as to the free movement of
goods, the ECJ made it clear that the exercise of the exclusive distribution right conferred by
copyright may infringe Article 81(1) "...if it is proved that it is the object, means or consequence
of a cartel agreement which effects a division of the common market by prohibiting imports from
other Member States of products duly brought onto the market in those States." (The Court’s use
of the term "cartel" in this context appears simply to refer to an anti-competitive agreement.)
Restrictions involving exclusivity

The most common form of restriction contained in copyright licences relates to the exclusive
right to exploit the copyright in a certain territory. The Commission’s attitude to such
restrictions differs according to whether the relevant licence relates to performance or
non-performance rights.
• Non-performance rights. The Commission has made it clear in a series of informal

decisions that copyright does not entitle the owner to restrict the physical distribution of
goods covered by the copyright in a manner which imposes absolute territorial exclusivity
(that is, it amounts to an export ban). The Commission has, for example, required the
British Broadcasting Corporation to remove a restriction in a copyright sub-licence which
prevented its sub-licensee from exporting copyright goods to other member states, and has
objected to a licence which prohibited sales of Ernest Hemingway’s The Old Man and the
Sea in the UK and Ireland. Consequently, any provision in a copyright licence which seeks
to prevent the export of copyright goods to other member states is likely to infringe Article
81(1) and is unlikely to be exempted under Article 81(3) (Sixth Report on Competition
Policy (1976), paragraph 163). As of 1 May 2004, when Regulation 1/2003 entered into
transactions
force, the system of notification to the Commission was abolished. Parties to an agreement
are required to assess their own behaviour and to determine whether or not the agreement
in question complies with Article 81.
Although the Commission has made it clear that the principles in the Nungesser case
(see Open licences), according to which "open" IP licences may fall outside Article 81(1),
also apply to exclusive licences of copyright and related rights, it may in practice be
difficult to prove that the requirements set out in Nungesser are met. For example, the
Commission ruled that these requirements were not met in the Knoll/Hille-Form case,
since the novelty of the product and the level of investment required by the licensee did not
justify an exclusive copyright and design right licence lasting for eight years (13th Report
on Competition Policy, paragraph 142). The Commission’s note of the case suggests,
however, that a more limited period of exclusivity may have led to the conclusion that the
licence fell outside Article 81(1) on the basis of the principles in Nungesser.
• Performance rights. In the case of performance copyrights, in contrast, absolute territorial

protection may be acceptable. This conclusion is based on the two related Coditel
judgments, in which the ECJ was required to consider whether EC law prevented Ciné Vog,
the holder of the exclusive right to transmit a French film in Belgium, from suing three
Belgian cable television companies who had picked up the film from a German broadcast
and retransmitted it to their own subscribers in Belgium. The ECJ ruled in Coditel 1 that
the EC Treaty’s rules on the free movement of services, as set out in Article 49, did not
prevent such a claim (Case 62/79 Coditel v Ciné Vog Films (1) [1980] ECR .881). The Court
noted that a film belonged "...to the category of literary and artistic works made available
to the public by performances which may be infinitely repeated..." and that it therefore
raised different copyright issues from works, such as books or records, the placing of which
at the disposal of the public was inseparable from the circulation of the material form of
such works. The Court said that the owner of copyright in a film had a legitimate interest
in restricting broadcasts of the film to a particular time in a particular territory, in order to
ensure the recovery of adequate royalties, and that a copyright owner’s right to require fees
for any showing of a film was "...part of the essential function of copyright in this type of
literary and artistic work". The absolute territorial exclusivity of Cine Vog was therefore
not incompatible with the Treaty rules on the free movement of services.
The ECJ followed this approach in Coditel 2, which concerned the compatibility of Ciné
Vog’s exclusive licence with Article 81(1) (Case 262/81 Coditel v Ciné Vog Films (2) [1982]
ECR 3381). The Court held that the mere fact that the owner of copyright in a film had
granted a sole licensee the exclusive right to exhibit that film in the territory of a member
state (and consequently to prohibit its showing by others during a specified period)
did not necessarily mean that the licence infringed Article 81(1). Owing to the specific
characteristics of the film industry and of its markets in the EU, including the need to fund
films on the basis of controlled re-broadcasting, an exclusive exhibition licence would not
in itself infringe Article 81(1). The Court emphasised, however, that such licences could
infringe competition law where there were "economic or legal circumstances the effect of
which is to restrict film distribution to an appreciable degree or to distort competition on
the cinematographic market". It would be up to national courts to establish whether the
exercise of exclusive rights created "artificial and unjustifiable" barriers, for example by
imposing excessive royalties or maintaining the exclusivity for a disproportionate period.
Although these are somewhat subjective tests, this case provides useful authority that the
transactions
scope of permissible restrictions is related to the nature of the right protected and the need
to ensure its commercial exploitation.
The Commission’s approach to exclusive licences of performance rights was illustrated in a

case concerning a licence granted by MGM/United Artists to the ARD television companies
of the exclusive right to show its films on television in German-speaking countries (Film
purchases by German television stations OJ 1989 L284/36). The Commission decided that
the duration and scope of the exclusivity conferred by the licence was such that Article 81(1)
was infringed. Important factors were the number and popularity of the films covered by the
agreement, and the fact that the exclusivity could extend beyond the initial 15-year term.
The Commission did, however, grant an individual exemption under Article 81(3) for a
ten-year period after amendments had been made to reduce the scope of the exclusivity, for
example by allowing licensing to third parties during certain "windows", and permitting
foreign language broadcasts.
The granting of exclusive rights to broadcast sports events is now a particularly sensitive
issue under EC competition rules (see box, Broadcasting sports events).
Other restrictions
By analogy with the Commission’s treatment of licences of patents, know-how and trade marks,
it may be assumed that certain restrictions relating to copyright will not infringe Article 81(1),
where the copyright licence relates to the production of goods (see box, Restrictions in copyright
licences). This list is not exhaustive: close examination of the TTBE provides further examples
of provisions which are likely to be judged not restrictive of competition.
Given the very few decisions of the ECJ or the Commission relating to the treatment of clauses
in copyright licences (other than those relating to exclusivity) that do fall within Article 81(1), it
is again necessary to consider such clauses by analogy with the Commission’s treatment of other
forms of IP rights (see box, Restrictions in copyright licences). Reference should also be made to
the TTBE and to the Commission’s Guidelines on the application of the EC competition rules to
vertical restraints.
TTBE
As discussed above, the TTBE applies to licences of patents, know-how and software copyright
and design. The TTBE only extends to the licensing of copyright other than software copyright
to the extent that it is directly related to the exploitation of the licensed technology, rather than
being the primary object of the agreement (TTBE Guideline 50). Furthermore, the Commission
will generally apply the principles of the TTBE and the TTBE Guidelines when considering
the application of Article 81 to the licensing of copyright (TTBE Guideline 51). However,
TTBE Guideline 52 makes clear that the Commission will not consider the licensing of rights in
performance or resale restrictions to be analogous to technology transfer agreements.
The potential importance of this block exemption should not be overlooked when considering the
exploitation in the EU of developments in information technology which involves the production
of a new product or service (for example, a new development relating to provision of services
over the internet), rather than a simple distribution or sales agreement relating to software. In
such a case, patented information and/or know-how may well be central to the transaction, and
the software only ancillary. In the absence of clear direction on software licensing from the
Commission (or the European Courts), difficult questions will arise as to the circumstances in
which software may cease to be "ancillary"
transactions

Vertical agreements for the supply of goods or services which contain copyright licensing
provisions may be covered by the new vertical agreements block exemption (Regulation
2790/1999 L336/21). This exempts all agreements between companies operating at different
levels of the supply chain for the purposes of the agreement, provided that:
• The parties are not competitors;
• The copyright provisions are not the primary object of the agreement and are directly related
to the use, sale or resale of the relevant goods or services (note that the block exemption
does not apply to rental or lease agreements);
• The agreement contains no "blacklisted" provisions; and
• The supplier/licensor does not have a share of more than 30% of the relevant market.
The Guidelines issued by the Commission to assist in the interpretation of the block exemption
state that an obligation on a licensee only to resell copyright works under the condition that the
buyer is obliged not to infringe the copyright will, to the extent that it would infringe Article
81(1), be covered by the block exemption (although it is difficult to envisage circumstances in
which such a provision would in any event be restrictive of competition) (paragraph 39, Guidelines
on the application of the EC competition rules to vertical restraints, above).
The application of the block exemption to IP rights is considered further in Vertical agreements:
Intellectual property rights.
Free movement of goods and services, and exhaustion of rights

Whereas the right to restrict distribution of copyright works in the form of physical media is
subject to the provisions relating to free movement of goods in Articles 28 to 30 of the EC Treaty,
performance rights are subject to the Treaty’s rules as to the free movement of services in Articles
49 to 55.
As has been noted above in relation to patents and trade marks, a rights owner may restrict
the free movement of goods or services incorporating its intellectual property if such restriction
is justified in order to protect the specific subject matter of that property. Owing to the wide
variety of interests protected by copyright law, the means by which the specific subject matter in
a copyright work may be legitimately protected will vary.
Copyright gives an author the exclusive right to protect the expression of his ideas, and as there
are many possible forms of expression, the "specific subject matter" of copyright may consist of
various elements. The following examples have been drawn from the case law:
• The right to reproduce the work.
• The right of first marketing or sale in relation to a work (in the case of physical media).
• The right to require payment for public performance or transmission.
• The right to rent out a work (or so-called "rental right", now contained in the Directive on
rental right and lending right and on certain rights related to copyright (Council Directive
92/100 (Rental Directive) OJ 1992 L346/61).
transactions
The specific rules relating to one category of copyright works - computer programs - are
considered separately in Computer software licensing.
The right of first marketing or sale of physical media (such as a video cassette), referred to in the
Rental Directive as the distribution right, will be exhausted once the product is first placed on the
market anywhere in the EU. This is a straightforward application of the Treaty rules on the free
movement of goods. The ECJ has also recently confirmed that the exhaustion of rights doctrine
in relation to imports and sales of DVDs is confined to the European Community. Therefore,
when transposing EC Directives into national law, member states may not provide for measures
that would allow for the exhaustion of rights on a wider international basis (Case C-479/04
Laserdisken ApS v Kulturministeriet, judgment of 12 September 2006, [2007] 1 CMLR 6).
However, the sale of the physical media will not exhaust other elements of the specific subject
matter of the copyright. In Warner Bros. and Metronome v Christiansen, the sale of video
cassettes in the UK was held not to have exhausted the separate right to sell cassettes for rental
use in Denmark (Case 158/86 [1988] ECR 2605).
The nature of the rental right was clarified further in a case decided after the Rental Directive
came into force, where it was held that the right to authorise rental of a film was not exhausted
when it was first exercised in one member state, so that the holder of the right could prohibit
copies of the film from subsequently being offered for rental in another member state (Case
C-61/97 Foreningen af Danske Videogramdistributører and others v Laserdisken [1998] ECR
5171).
Similarly, the ECJ has held that the free movement rules did not mean that an author’s right to
require royalties for public performance (of recorded music) in one member state was exhausted
by having exacted payment for reproduction of that work (by placing it on the market in the form
of a physical product, such as a record) in another member state. Like the rental right, the right
to exact payment for public performance was not one subject to the principle of exhaustion of
rights (Case 395/87 Ministère Public v Jean-Louis Tournier [1989] ECR 2521).
Computer software licensing

As computer software is protected as a form of literary work by the Software Directive (see
below), many of the competition law issues which arise from the licensing of computer software
are similar to those described above in relation to copyright licences. However, the particular
characteristics of computer software raise certain issues which merit separate consideration.
Forms of software
Software takes many different forms, from boxed "off-the-shelf" programs to individually written
"bespoke" programs developed for one user. The common characteristic of all types of software
is that its use requires the software to be copied to the memory of the computer on which it is to
be used; an action which, without a licence, would infringe the owner’s copyright.
Licences permitting the use of software also take a variety of forms, depending on the nature of
the software (see box, Common types of software licence).
Software Directive
The Software Directive was introduced to harmonise the legal protection of software programs
across the EU (Council Directive 91/250 on the legal protection of computer programs, OJ
transactions
1991 L122/42, as amended by Council Directive 93/98 OJ 1993 L290/9 and by Annex XVII
of the Agreement on the European Economic Area OJ 1994 L1/482). The Directive has been
implemented by all member states.
Although the Directive is not directly concerned with EC competition law, the application of
the competition rules must be informed by the rules contained in the Directive. Specifically, the
Directive effectively sets out the "specific subject matter" of copyright in relation to computer
software and contains rules relating to the exhaustion of copyright in this context.
The Directive provides that the author of a computer program shall have the exclusive right to
copy, adapt, rent and distribute the program or to authorise such actions (Article 4). The first sale
in the EU of a copy of a program by the rights-holder or with his consent is expressed to exhaust
the distribution right within the EU of that copy, but does not exhaust the right to control the
further rental of that program or a copy of it (Article 4(c)).
This separation of the specific subject matter of computer software copyright into different
elements is analogous to that described above in relation to copyright generally (see Free
movement of goods and services, and exhaustion of rights). In particular, the distinction
between a distribution right relating to the individual physical product (which is exhausted on
first sale) and a rental right (which is not exhausted) follows the approach of the Rental Directive
(see above).
With regard to copying or reproduction, it is specifically provided that a lawful acquirer of the
software does not require authorisation to reproduce, load or perform other specified acts in
relation to the software where those acts are necessary to use the program in accordance with its
intended purpose (Article 5(1)).
The Directive also grants certain rights to lawful users of software, including the right to copy,
translate or alter the software where this is necessary for the use of the program in accordance
with its intended purpose or to correct errors. In addition, a lawful user is entitled to:
• Make a back-up copy of the software;
• Observe, study or test the functioning of the software in order to determine its underlying
elements and principles; and
• Decompile a program in order to obtain interface information necessary to permit the

operation of the software with another program, provided that such interface information
is not readily available from the copyright owner.
Common restrictions in software licences

The competition law issues raised by a software licence will depend on the type of licence
in question. Some of the general issues which are likely to arise are as follows (see also box,
Microsoft software licences for an indication of the Commission’s approach to restrictive
provisions in software licences):
• Restrictions on copying or dealing in software. As mentioned above, it is clear from the

Software Directive that the right to distribute an individual physical product is exhausted
by the first placing of the product on the market in a member state by the rights-holder
or with his consent. However, the use of the software by anyone other than the original
licensee will be an infringing act without the consent of the owner of the IP rights, as it is in
transactions
the very nature of software that such use involves copying. Equally, software distribution or
resale agreements may permit the distributor to copy the software for distribution purposes,
provided that the software is only supplied to end users.
• Territorial restrictions. As with the licensing of other IP rights, territorial restrictions may
create specific problems. Therefore, if a licensor wishes to establish a distribution system
based on national territories, it may be advisable simply to prohibit active sales outside
the distributor’s territory, as in the case of standard distribution arrangements (see Open
licences ).
• Restrictions as to the location at which the software may be used. A provision which
allows a program only to be used on one computer at one specified site could be viewed as
preventing the user from moving it to another member state, and therefore as an unlawful
restriction on the free movement of goods. Although the law in this area is by no means
clear, the Commission has in one case issued a statement of objections in respect of such
a provision in an IP licence (the case was ultimately closed without a formal decision)
(Case IV/E-2/36.233 ARCO Chemical/Repsol). The safest course may be to grant the
user an option to move the software to another site, possibly on payment of a reasonable
administrative fee.
• Restrictions as to the hardware on which the software may be used. Provisions which
require the software to be used only on specified hardware (for example, hardware sold
by the licensor) may contravene Article 81(1) if the software could readily be used on third
party hardware. This potentially forecloses market access by hardware manufacturers. In
practice, this may only be viewed as a serious issue if the software supplier is dominant
in the supply of software or hardware, although the risk remains that such a tie will be
unenforceable.

Vertical agreements for the supply of goods or services which contain copyright licensing
provisions may be covered by the new vertical agreements block exemption. However, as has
been mentioned above, the block exemption only applies to contracts involving the licensing of
IP rights (including computer software licensing) where the IP rights are not the primary object
of the agreement. The Guidelines issued by the Commission to assist in the interpretation of
the block exemption (see above) give the following examples of contracts to which the block
exemption can apply:
• A contract for the distribution of "shrink-wrapped" software (which will be treated as an

agreement for the supply of goods for resale); and
• An obligation on a buyer of hardware which incorporates software protected by copyright

not to infringe that copyright (for example by copying).
Application of Article 82 to the exercise of IP rights

The discussion below focuses on the application of Article 82 of the EC Treaty to the exercise
of IP rights specifically and deals with the general aspects of Article 82 in outline only. If, after
reading the following text, it is concluded that Article 82 may apply, the user should refer to
Competition regime, Article 82 for detailed consideration of Article 82 generally.
transactions
Article 82 of the EC Treaty prohibits any abuse by one or more undertakings of a dominant
position within the common market, or a substantial part of it, insofar as it may affect trade
between member states.
Article 82 provides examples of abuses, which include imposing unfair purchase or selling prices,
limiting production, markets or technical development, using discriminatory trading conditions
in a way that places other parties at a competitive disadvantage and making the conclusion of
contracts subject to acceptance by the other parties of unconnected supplementary obligations.
A firm which infringes Article 82 can be ordered by the Commission to cease the abusive conduct
and may be fined up to 10% of its annual turnover. An infringement may also enable third parties
to claim damages or injunctive relief in national courts.
It is not possible to gain an exemption from Article 82. An arrangement which has been
exempted from Article 81(1) may therefore still give rise to an infringement of Article 82, which
applies independently of Article 81 (case T-51/89 Tetra Pak Rausing SA v Commission [1990]
ECR II-309).
Whereas Article 81(1) only applies to agreements or concerted practices between undertakings,
Article 82 applies to unilateral conduct by one firm (a dominant position may also be held by
more than one firm if they are sufficiently closely linked: this is known as "joint" or "collective"
dominance). Such conduct may be expressed through the terms of an agreement with another
firm, such as a patent licence, or through a purely unilateral act, such as a decision to terminate
the licence.
Article 82 will only regulate the conduct of a firm if it is dominant. The ECJ has defined
dominance as:
"... a position of economic strength enjoyed by an undertaking which enables it to hinder the
maintenance of effective competition on the relevant market by allowing it to behave to an
appreciable extent independently of its competitors and customers and ultimately of consumers"
(Case 322/81 Nederlandsche Banden-Industrie Michelin NV v Commission [1983] ECR 3461).
Such a position of economic strength may be derived from a variety of factors including, but not
limited to, market share. When assessing market power, it is generally the case that the more
a company’s market share exceeds 40%, the greater is the likelihood that it will be found to
be dominant. Below 40%, it is quite unlikely that a company will have dominance, although
the Commission has stated that this cannot be ruled out if a company enjoys a market share
above 25%. Dominance at such a low market share would be very rare, although it could be
present, for example, if all other competitors were extremely weak and had correspondingly
low market shares. Even above 40%, many other factors are just as important as market share
in establishing dominance, such as the strength of competitors, barriers to market entry, the
regulatory environment and customer preferences.
Article 82 does not seek to penalise dominance itself. It does, however, place a "special
responsibility" on a dominant firm not to act in a manner which abuses its position
(Nederlandsche Banden-Industrie Michelin NV v Commission, above). As a rule, there must be
a link between the dominant position and the abusive conduct. This generally requires that the
abuse must impede competition on the market in which a dominant position is held. In certain
cases, however, it is possible for a firm to infringe Article 82 if it uses its dominant position on
transactions
one market to impede competition on a separate, albeit closely related, market (see, for example,
Case C-333/94 Tetra Pak International SA v Commission (Tetra Pak II) [1996] ECR 5951).
It is important to note that although owners of IP rights enjoy a legal monopoly over certain acts,
ownership of an IPR will not in itself place the owner in a dominant position. It may, however,
be an important factor in determining whether the owner can impede effective competition, and
in certain circumstances the IP rights concerned may be of such importance for competition on
the market that their possession alone comes close to conferring dominance (see Refusal to grant
a licence to any third party at all).
The different categories of abusive conduct which are of particular relevance to IP transactions
are examined below.
It is helpful to distinguish four situations:
• The acquisition of a licence by a firm in a dominant position which would strengthen that
dominance.
• The application of abusive terms in granting a licence, or the discriminatory refusal to grant
a licence to one party where other licences have already been granted.
• A refusal on the part of an IP rights-holder to grant a licence to any third party at all.
• The misuse of a patent which was obtained in an anti-competitive way either by making
misrepresentations to patent offices or by otherwise playing the rules.
Acquisition of a licence by a dominant firm

The acquisition of IP rights by a firm in a dominant position on a market which strengthens
that dominance may itself be an abuse of a dominant position contrary to Article 82. In Tetra
Pak I, the CFI held that Tetra Pak had abused its dominant position on the market for aseptic
milk cartons and filling machinery by acquiring its competitor and, with it, an exclusive licence
to a patented new technology (Case T-51/89 Tetra Pak v Commission [1990] ECR 309). It is
important to note, however, that the mere fact of dominant firm acquiring a patent will not in
itself infringe Article 82. The application of Article 82 must be looked at in the light of all the
circumstances, particularly the effect on the structure of the market as a whole: in Tetra Pak I, the
firm held a 90% share of the market and the acquisition would have prevented a new competitor
from entering the market.
The Carlsberg/Interbrew case (which did not involve a formal decision) provides a further
indication as to the likely approach of the Commission (24th Report on Competition Policy
(1994), paragraph 209). The Commission objected to an exclusive licence from Carlsberg to
Interbrew for the distribution of Carlsberg’s beer products in Belgium. Interbrew’s dominant
position would have been strengthened by increasing the portfolio of beers it would be able to
offer, while making it more difficult for competitors to make a similar offer. Although the case
primarily involved a distribution agreement rather than pure IP licensing, the Commission is
likely to look at any such "portfolio effect" as part of its analysis of the application of Article 82
to the acquisition of IP licences.
Applying abusive licence terms or refusing to license where

other licences have already been granted
transactions
Once an IP right holder has decided to grant a licence, if he is in a position of dominance the
situation may be analysed in the usual way under Article 82. The licensing of IP rights raises
few issues beyond those which occur in other situations involving the application of Article 82:
for example, tying ("bundling") one product or service to another so as to foreclose a market
from competitors, discriminatory refusal to licence, or discriminating between licensees without
objective justification may fall foul of Article 82 (see generally Competition regime, Article 82:
Abuse).
Excessive pricing
An exception to this is in the approach to deciding whether the level of royalties charged for an
IP licence is excessive. Excessive pricing in an IP licence may be contrary to Article 82 (excessive
pricing in a general commercial context is considered in Pricing: Excessive pricing). The
application of Article 82 to the charges exacted by a national copyright management society
(SACEM) from a discotheque in France for playing its records in public was considered in Case
402/85 Basset v SACEM [1987] ECR 1747. The ECJ held that it was possible that royalties
charged (or other conditions imposed) could infringe Article 82 as being unfair, but was not
asked to rule on the level of royalties.
The ECJ did, however, consider what may amount to excessive pricing in the context of copyright
licensing in Ministère Public v Tournier (above). The Court’s approach did not follow the normal
methodology set out in United Brands (Case 27/76 United Brands v Commission [1978] ECR
207), which would be to compare the costs actually incurred in producing the product (or service)
and the price actually charged as a first step in determining whether the price is excessive. The
Advocate General said that it would be inappropriate to use such a cost/price analysis in the
context of copyright licensing, because it was impossible to determine the cost of creating a work
of the imagination such as a musical work. The ECJ implicitly accepted this point, and (moving
straight to the second stage of the United Brands test) simply compared the rates charged by
SACEM with those charged by copyright management societies in other member states, which it
thought it could do on an objective basis.
Once it had been determined that SACEM charged rates significantly higher than its counterparts
in other member states, the onus was on SACEM to justify the difference by reference to objective
and relevant dissimilarities in copyright management between the member states.
It appears to follow from this case that, because of the special considerations which apply to IP
rights (namely the need to reward creative effort), the ECJ will not attempt to decide what may be
a "fair" rate of return in the abstract when considering whether prices are excessive and contrary
to Article 82. Instead it will seek to compare what it considers to be objectively similar situations
and require justification on the part of the IP rights-holder should large price differences be found.
It appears that the ECJ in the Tournier case would also have compared royalties charged to
discotheques in France with royalties charged to other types of user in France if the evidence
had permitted a comparison on an objective basis. This would in reality have been an analysis of
discriminatory pricing, which may also be contrary to the prohibition in Article 82.
Tying
The IBM case in 1984 provides an example of the tying of the purchase of one product to another
product as part of an IP licence which the Commission maintained was contrary to Article 82 (OJ
1984 L118/24). The Commission objected, among other things, to IBM’s practice of only selling
mainframe processors (CPUs) with memory included, a practice known as "memory bundling".
transactions
This, together with a practice of not providing necessary information to competitors, foreclosed
the market. IBM undertook to amend its practices in return for the Commission suspending
proceedings under Article 82.
The application of Article 82 to tying practices in a general commercial context is considered in

Competition regime, Article 82: Tying
Refusal to grant a licence to any third party at all

A more difficult question is to what extent an absolute refusal to grant a licence may fall foul of
Article 82.
In Volvo/Veng, Veng (UK) Ltd imported spare parts for Volvo cars into the UK which had been
manufactured without Volvo’s consent (Case 238/87 AB Volvo v Erik Veng (UK) Ltd [1988] ECR
6211). Volvo, who held IP rights in respect of the spare parts, brought an action against Veng
for infringement of those rights. On a reference to the ECJ, the Court held that the right to
prevent third parties from manufacturing and importing products incorporating Volvo’s IP rights
constituted the very subject matter of those rights. It could not be an abuse of a position of a
dominant position to refuse to licence the protected design, even in return for a reasonable royalty.
However, the Court did say that the following may nevertheless constitute an abuse:
• An arbitrary refusal to supply spare parts to independent repairers;
• The charging of unfair prices; or
• A decision no longer to produce spare parts for a particular model even though many cars
of that model are still in circulation.
The first two situations relate to use of the technology concerned on a downstream market,
namely car repairs, and so may be seen as consistent with the pre-existing case law on abuse of a
dominant position. The third situation, however, relates directly to the IP right itself: the owner
of the IP right is effectively required to put the IP to use. This may be regarded as detracting from
the absolute right of the IP rights-holder to decide whether, and how, it will use its IP right.
It is a small step from saying that the holder of an IP right must use that right in order to
manufacture goods (as in Volvo/Veng), to requiring it to license those rights (at least, should it
fail to exploit them itself). The extent to which the failure to license IP rights may amount to an
abuse of a dominant position fell to be decided again in the Magill case (which is also discussed
in Competition regime, Article 82: Essential facilities) (Joined Cases C-241/91 and C-242.91P
Radio Telefis Eireann (RTE) and Independent Television Publications Ltd (ITP) v Commission
[1995] ECR 743).
The case concerned the copyright of three television broadcasters in their programme listings.
Each published a weekly magazine listing its own programmes and Magill sought to amalgamate
the information and publish a single listings guide. The broadcasters sought to exercise their
copyright to prevent this activity.
The ECJ, upholding the decision of the CFI and the Commission, reiterated the statement in
Volvo/Veng that a refusal to licence cannot in itself amount to an abuse of a dominant position,
before going on to say that the exercise of an exclusive right may in exceptional circumstances
transactions
involve abusive conduct. The Court pointed to three exceptional circumstances that meant that
an abuse of dominance had occurred in this case:
• The refusal to provide basic information by relying on copyright prevented the appearance
of a new product for which there was potential consumer demand;
• There was no justification for such refusal; and
• The IP rights-holders reserved to themselves the secondary market of weekly television

guides by excluding all competition on that market, since they denied access to the basic
raw material (in this case, information) necessary to compile a guide.
The Advocate General had argued that an abuse could only occur where the refusal to licence
related to a product which would not compete with the product subject to the IP right itself. The
ECJ seems to have taken a rather broader approach, but did not elaborate on its reasoning for
doing so.
In Tiercé Ladbroke (Case T-504/93 Tiercé Ladbroke v Commission [1997] ECR 927, paragraphs
130-131), the CFI considered Magill and emphasised that Article 82 would only apply where the
emergence of a new product might be prevented. Article 82 would also apply where the concerned
product or service was essential for the exercise of the activity in question.
Although the Commission and the European Courts have gone some way to requiring a party in
a dominant position to deal with actual or potential competitors where necessary to enable them
to produce competing or new products (see Competition regime, Article 82:Essential facilities),
it is far from clear that this principle should extend to the holder of an IP right, who is supposed
to earn a reward for creative effort through his endeavours.
It is perhaps because there appeared to be little creative effort involved in the putting together of
TV listings (so that the analogy became clearer with the cases in which a simple "raw material",
rather than something worthy of IP right protection, was withheld from competitors) that the
ECJ took the line it did in Magill. Indeed, Advocate-General Jacobs referred to this factor in
Oscar Bronner v Mediaprint (Case C-7/97 [1994]4 CMLR 112, paragraph 63).
The difficulty in practice now is in identifying the exceptional circumstances in which a refusal
to licence an IP right may amount to an abuse of a dominant position. The distinction between
upstream and downstream markets is a useful one to bear in mind in this context. It is possible
in many cases to distinguish the market for the IP right necessary to produce a downstream
product, and the market for that downstream product itself. The examples of potential abuse of
dominance relating to IP rights set out in Volvo/Veng (above), and in the ECJ decision in Magill,
have in common the fact that the exercise (or non-exercise) of the IP right amounting to an abuse
would prevent a downstream market from being created - car maintenance in the case of Volvo,
or a comprehensive weekly guide in Magill.
In IMS Health, the President of the CFI, hearing an application for relief from interim measures,
gave positive guidance on the upstream-downstream debate, suggesting that it is an essential
condition to establish exceptional circumstances within the Magill test (Case T-184/01 R II, IMS
Health Inc. v Commission [2002] 4 CMLR 2).
IMS Health is a provider of sales data to pharmaceutical companies in Germany, and had
developed a successful system for compiling this information which was protected by copyright.
transactions
The pharmaceutical companies wished other suppliers of data to use the same format but,
when they did so, IMS Health obtained an injunction to stop this copyright infringement.
The infringers applied for a licence to use the system but were refused. Consequently, they
complained to the Commission alleging that the refusal was an abuse of a dominant position in
breach of Article 82.
The Commission took an interim measures decision and ordered that IMS Health grant a licence
to use the system to the complainants. IMS Health sought to have this decision annulled and, in
the meantime, applied for interim relief against the compulsory licence requirement. In a decision
given on 26 October 2001, the President of the CFI (confirming its earlier decision of 10 August
2001) held that the interim relief sought by IMS Health should be granted.
The President of the CFI found that serious doubts about the validity of the Commission’s
decision had been established by the applicant. This was on the basis that the copyrighted
system was based on freely available data and, very importantly, that both IMS Health and the
complainants were operating on the same market and competing for the same customers - there
was no downstream market and the refusal to licence was not preventing the emergence of a
new service.
The President’s decision reinforces the importance of the distinction between upstream and
downstream markets in order to establish exceptional circumstances within the meaning of
Magill. This is a positive statement on this debate, but it is not authoritative.
It should be noted that the complainants appealed to the ECJ against the CFI’s decision on the
interim measures (Case C-481/01 P(R) [2002] 5 CMLR 1). The President of the ECJ dismissed
the appeal. The President refused to overturn the CFI’s finding that the Commission’s decision
that IMS had a prima facie case of abuse to answer was open to dispute. He reiterated that the
exercise of IP rights may be subjected to restrictions imposed under Article 82 only in exceptional
circumstances, citing both Volvo v Veng and Magill.
In August 2003, the European Commission withdrew its interim measures decision that IMS
should grant a licence due to the fact that there was no longer any proven urgency, following a
decision by a German court, which had held that IMS´s competitors were permitted to use a
similar structure to meet customers´ requirements. A refusal to license a copyright work may
constitute abuse of a dominant position, if the work is essential for competition in the market
and if the competitor intends to produce goods or services with different features. On this
occasion, relevant factors in deciding whether the structure was essential include the involvement
of customers in its development (as they had originally helped to develop the structure) and the
costs they would incur in using a different structure.
This can be seen as diverging from the concept of "exceptional circumstances" laid down in
Magill, and instead tries to define the conditions under which a refusal to license will be an
abuse under Article 82. The Advocate General in his Opinion laid down two conditions under
which a dominant undertaking must grant a licence:
• There must be no objective justification for refusal to grant a licence; and
• The use of the IP right must be indispensable to compete in a downstream market. The
undertaking requesting the licence must intend to produce goods or services which are
transactions
different from those offered by the holder of the IP right and respond to specific needs of
consumers dissatisfied with the existing goods or services on offer.
Here it seems that for the refusal to be unlawful, it is not necessary that the refusal prevents the
appearance of a new product for which there is customer demand: it will be unlawful simply if the
new goods or services differ from those already supplied by the dominant undertaking holding
the IP right and if they allegedly attempt to meet the needs of dissatisfied customers.
The highest fine (EUR497 million) imposed for breach of EC law has involved the refusal by
Microsoft to supply information necessary to allow other suppliers to compete in an upstream
market (see box, Microsoft).
Until the legal position has been clarified, a holder of IP rights may need to consider as potentially
incompatible with Article 82 any refusal to licence its IP to a party wishing to create and market a
new product, or which leads to a downstream market failing to be satisfied. This raises questions
as to how many customers need to be dissatisfied or as to how materially different the proposed
products or services need to be for a refusal to be unlawful. However, given the legal uncertainty
brought about by the circumstances-based approach in Magill or the questions left open by IMS,
it is at least to be hoped that fines will not be imposed on a party unwittingly falling foul of
Article 82. It may be some comfort to note that fines were not imposed on the parties in Magill.
The CFI’s ruling upholding the Commission’s EUR497 million fine on Microsoft provides
guidance as to the test for determining how much interoperability information it is necessary to
disclose (in situations where such information is indispensable to competitors) (Case T-201/04
Microsoft Corporation v Commission, judgment of 17 September 2007). The CFI established
that sufficient information must be provided to ensure that the competitor can viably compete
on the market on essentially the same footing as the dominant undertaking’s own products.
Patent misuse
Patent misuse is a known defence in the US which is frequently used in patent litigation.
Although a patent might be valid and infringed the patent holder might be prevented from
asserting its patent if the patent was obtained by breaching antitrust laws or by illegally
extending the term of the patent. This problem has recently been dealt with by the European
Commission and can be expected to become increasingly an issue in Europe. (For a case on a
national level see UK volume: Transaction and practices: Intellectual property transactions:
box, SanDisk Corporation: Abusive enforcement of patent rights for a recent UK case involving
arguments on patent misuse.)
In June 2005, the Commission announced that it had fined AstraZeneca EUR60 million for
breach of Article 82 due to misuse of the patent system (Commission press release IP/05/737).
The Commission found that between 1993 and 2000, AstraZeneca abused its dominant position
in the market for proton pump inhibitors by blocking or delaying market access for generic
versions of Losec, which at that time was the world’s best-selling prescription medicine, and
preventing parallel imports of Losec. AstraZeneca achieved these abuses by:
• Making misrepresentations to a certain number of EEA national patent offices with a view
to obtaining supplementary protection certificates (SPCs) for Losec. By using misleading
information when making SPC applications, which was relied on by the patent offices,
AstraZeneca obtained additional patent protection in Belgium, Denmark, Germany,
transactions
the Netherlands, Norway and the UK without, as would be the case in normal patent
applications, having to show that the product was innovative.
• Misusing rules ’nd procedures (these have now been changed) applied by the national
medicines agencies that issue market authorisations for medicinal products. AstraZeneca
requested the national medicines agencies in Denmark, Norway and Sweden to de-register
the market authorisations for Losec capsules (having replaced the product with a tablet
form). This was done with the intent to block the entry of generic products or parallel
traders.
However, recognising that some of the abusive behaviour was novel in character, the
Commission imposed a fine that was significantly lower than the maximum fine of 10% of
turnover. AstraZeneca´s appeal seeking annulment of the Commission’s decision is currently
pending before the CFI.
In February 2007, the Commission opened an investigation into Boehringer’s potentially

anti-competitive patenting activity in relation to a mist inhaler for its chronic obstructive
pulmonary disease (COPD) drug, Spiriva, its best selling drug last year (EUR1.4billion) (Case
COMP/B2/39246). According to the Commission’s initiation of proceedings statement, the
investigation was opened with a view to adopting a decision in application of Chapter III of
Council Regulation 1/2003 and concern misuse of the patent system in order to exclude potential
competition from the market. This case is at a very early stage and it remains to be seen whether
the Commission will open proceedings formally.
Patent ambush
On 30 July 2007, the Commission sent Rambus a statement of objections alleging that Rambus
has breached Article 82 of the EC Treaty by claiming unreasonable royalties for use of certain
patents. The Commission considers that Rambus engaged in intentional deceptive conduct in
the context of the standard-setting process. In particular, it engaged in a "patent ambush" by not
by not disclosing standards that it later claimed were relevant to the JEDEC adopted standard.
As a result of this patent ambush, Rambus was able to charge higher royalty rates than it would
otherwise have been able to.
The statement of objections sets out the Commission’s provisional view that an appropriate
remedy to address the alleged abuse would be that Rambus charge a reasonable and
non-discriminatory royalty rate. The amount of this should be determined with regard to all
the circumstances of the case.
This is the first time that the Commission has considered an abuse of dominance in the context
of a patent ambush.
Applying unreasonable terms and conditions

On 1 October 2007, the Commission announced that it had decided to initiate formal proceedings
against US chipset manufacturer Qualcomm in relation to an alleged breach of Article 82. The
Commission is investigating complaints that Qualcomm has abused its dominant position by
imposing licensing terms and conditions for use of its intellectual property rights (in relation to
the standards for mobile phone technology) that are not fair, reasonable and non-discriminatory.
Qualcomm holds intellectual property rights in the CDMA and WCMDA standards for
mobile telephones. The WCDMA standard forms part of the third generation (3G) standard
transactions
for European mobile phone technology (UMTS). Therefore, licenses for use of Qualcomm’s
intellectual property rights are needed by anyone that wishes to manufacture mobile phone
technology that is compliant with the established standards.
The Commission received complaints from a number of mobile phone and/or chipsets
manufacturers claiming that Qualcomm’s terms and conditions for licensing its IP are not fair,
reasonable and non-discriminatory (FRAND) and so may breach Article 82 of the EC Treaty.
The complaints relate to the terms on which Qualcomm licenses the patents that are essential
to the WCDMA standard.
The Commission will examine whether Qualcomm has engaged in exploitative practices in the
WCDMA licensing market and whether this breaches Article 82 of the EC Treaty. In the context of
standard setting, holders of essential patents are subject to a commitment to licence on FRAND
terms so that they are not able to exploit the extra power that they have obtained as a result of
the fact that their patented technology is incorporated in the industry standard. Therefore, any
finding by the Commission as to whether Qualcomm has breached Article 82 may depend on
whether Qualcomm’s licensing terms are in breach of its FRAND commitment.
Syfait
The European Court of Justice (ECJ) considered in the Syfait case the extent to which conduct by
a dominant company may breach Article 82 of the EC Treaty where it refuses fully to meet orders
placed by pharmaceutical wholesalers with the intention of limiting parallel trade (Case C-53/03
Synetairismos Farmakopoion Aitolias & Akarnanias (Syfait) and Others v GlaxoSmithKline plc
and Others [2005] ECR I-4609). Refusal to supply is a recognised category of potential abuse of
dominance contrary to Article 82. This case involved a preliminary reference made by the Greek
Competition Commission under Article 234 of the EC Treaty. The ECJ found that it could not
rule on the case as the Greek authority is not a court or tribunal for the purposes of Article 234.
However, Advocate General Jacobs’ Opinion in this matter sets out a detailed analysis of the
issues referred.
Over recent years, the pharmaceutical industry has argued that the regulation of prices by
national governments and health authorities requires a sophisticated approach to be taken with
regard to restrictions on parallel imports. Despite this, the Commission has actively pursued
attempts by manufacturers to restrict parallel importation. The Advocate General found in
this case that, due to the unique nature of the pharmaceutical sector, in particular regarding
the level of applicable regulation and the sunk costs involved in research and development,
pharmaceutical companies may be objectively justified in refusing to supply wholesalers with the
aim of limiting parallel trade. He acknowledged that there are potentially negative consequences
for competition and reduced incentives for innovation arising from parallel trade. Therefore, it
cannot be assumed that there are consumer benefits from parallel importation in this industry,
which is, of course, the aim of the competition rules. This Opinion therefore suggests that the
Courts should take a flexible, economics-based approach in Article 81 and 82 cases relating to
the pharmaceutical sector in future.
Finally, in 2006, the Greek Competition Commission followed the Advocate General’s Opinion
in its decision on this case, allowing GSK to implement its innovative strategy to combat parallel
imports.
transactions
Figures
Figure 1
transactions
Boxes
IP rights and the single market: EC Treaty provisions

Article 3
"1. For the purposes set out in Article 2, the activities of the Community shall include, as provided
in this Treaty and in accordance with the timetable set out therein...
• (c) an internal market characterised by the abolition, as between Member States, of

obstacles to the free movement of goods, persons, services and capital...
• (g) a system ensuring that competition in the internal market is not distorted..."
Article 28
"Quantitative restrictions on imports and all measures having equivalent effect shall be prohibited
between Member States."
Article 29
"Quantitative restrictions on exports, and all measures having equivalent effect, shall be
prohibited between Member States."
Article 30
"The provisions of Articles 28 and 29 shall not preclude prohibitions or restrictions on imports,
exports or goods in transit justified on grounds of .... the protection of industrial and commercial
property. Such prohibitions or restrictions shall not, however, constitute a means of arbitrary
discrimination or a disguised restriction on trade between Member States."
Article 295
"This Treaty shall in no way prejudice the rules in Member States governing the system of
property ownership."
Crehan
Following the European Court of Justice’s (ECJ) ruling, the Crehan case returned in 2003 to the
UK High Court, which found that there was no evidence that Article 81 had been infringed.
However, this judgment was overturned by the Court of Appeal in 2004, which for the first time
awarded substantial damages to an individual in the UK for loss caused by a contract in breach
of Article 81. In the final instalment of this case in 2006, the House of Lords overturned the
Court of Appeal’s decision without, however, weakening the general principle that damages are
available for victims of competition law infringements (Inntrepreneur Pub Company and others
v Crehan [2006] UKHL 38).
transactions
Modernisation
The changes implemented by Regulation 1/2003 may lead to inconsistent application of Articles
81 and 82 by the national competition authorities (NCAs) and national courts and potentially
give aggrieved parties a range of potential venues for the dispute in the enlarged EU of 27
member states. Each NCA is, however, required by Regulation 1/2003 to send the Commission
drafts of its intended decisions at least 30 days before the NCA intends to adopt the decision
(Article 11, Regulation 1/2003). The Commission is thus able to detect any inconsistency in
the application of EC law and take over the investigation where necessary and there is close
co-operation between the NCAs and the Commission. The information mechanisms within the
ECN permit the detection of parallel investigations and Regulation 1/2003 expressly provides
for the rejection of complaints on the basis that another authority is dealing with or has already
dealt with a case.
The Commission issued notices providing guidance on a range of important aspects

concerning the new enforcement system. These were issued with Regulation 1/2003 to form
a "Modernisation Package". The guidance includes advice on co-operation amongst member
states, the handling of complaints by the Commission and the concept of "effect on trade"
together with guidelines on the application of Article 81(3) (Commission Notice on co-operation
within the Network of Competition Authorities (OJ 2004 C101/43), Commission Notice on
the co-operation between the Commission and the courts of the EU member states in the
application of Articles 81 and 82 EC (OJ 2004 C101/54), Commission Notice on the handling of
complaints by the Commission under Articles 81 and 82 of the EC Treaty (OJ 2004 C101/65),
Commission Notice on informal guidance relating to novel questions concerning Articles 81
and 82 of the EC Treaty that arise in individual cases (guidance letters) (OJ 2004 C101/178),
Guidelines on the effect on trade concept contained in Articles 81 and 82 of the treaty (OJ 2004
C101/81) and Guidelines on the Application of Article 81(2) of the Treaty (OJ 2004 C101/97)).
The NCAs within the ECN now have the power to exchange confidential information; to use
such information as evidence in their respective proceedings, subject to certain safeguards; and
are subject to information obligations (see, in particular, Articles 2.2 and 3.1, Commission
Notice on co-operation within the Network of Competition Authorities). Most member states´
competition authorities have signed a declaration that they will abide by the principles set out in
the Commission Notice on co-operation within the Network of Competition Authorities. Only
those authorities that have committed to these co-operative principles may receive information
on leniency cases and in order to receive detailed information, the national competition
authority will have to sign a declaration that it will not use the information transferred to
impose sanctions on the leniency applicant.
Regulation 1/2003 established that national judges may ask the European Commission for an
opinion or for information held and also created the possibility of the Commission submitting
observations to national courts. The Commission Notice on the co-operation between the
Commission and the courts of the EU member states in the application of Articles 81 and 82 of
the EC Treaty gives particular attention to the methods involved in a case where the national
court is dealing with a case in parallel with or subsequent to the European Commission and
details the nature of the co-operation. For example, the Commission may act as amicus curiae
in helping national courts apply EC competition rules as part of its duty to defend the public
interest (Section III A, Commission Notice on the co-operation between the Commission and the
courts of the EU member states in the application of Articles 81 and 82 EC). The Commission´s
observations are to be limited to an economic and legal analysis of the facts underlying the case
transactions
(Section III A, Commission Notice on the co-operation between the Commission and the courts
of the EU member states in the application of Articles 81 and 82 of the EC Treaty).
Negative clearance/individual exemptions

It was previously possible to ask the Commission to certify whether the agreement in question
infringes Article 81(1). This procedure, known as negative clearance, was triggered by notifying
the agreement to the Commission using Form A/B and usually accompanied by a request for
individual exemption (in case Article 81(1) applied).
With the coming into force of Regulation 1/2003 on 1 May 2004, Article 81(3) is directly
applicable to allow joint enforcement of the entirety of the competition rules by the
Commission, the competition authorities of the member states and their courts. Parties to
an agreement are required to assess their own behaviour and to determine whether or not the
agreement in question complies with Article 81 and would withstand an investigation by a
regulator or challenge by the other party during the life of the arrangements or even after they
are included. Only in very limited circumstances, where the "Community public interest" so
requires, may the Commission, on its own initiative, by decisions find that Article 81 or Article
82 is not applicable to an agreement (Article 10, Regulation 1/2003).
Regulation 1/2003 allows individual undertakings to seek informal guidance from the
Commission but only in exceptional circumstances: where cases give rise to genuine uncertainty
because they present novel or unresolved questions for the application of the rules. Informal
guidance cannot be used to circumvent proceedings pending before the Commission or before
a member state´s competition authorities or courts. Similarly, it is not to be used to replace
the notification system and it should be noted that any informal guidance given would in any
event not bind the European Commission, European courts, national competition authorities
or national courts (Commission Notice on informal guidance relating to novel questions
concerning Articles 81 and 82 of the EC Treaty that arise in individual cases (guidance letters)).
Windsurfing International Inc.

This case concerned the terms on which Windsurfing International Inc. (WI) licensed its
sailboard technology to its European distributors and, in particular, the extent to which WI
could use its German patent to restrict the activities of its distributors. The patent related to the
configuration of a sailboard’s rig (the mast and sail, and the joint on which these were mounted).
WI also licensed know-how to its distributors, together with the trade marks "Windsurfer",
"Windsurfing"’ and WI’s logo.
A number of trade competitors complained to the Commission about WI’s licensing

arrangements. Following an investigation, the Commission found that a number of provisions
in WI’s agreements infringed Article 81(1) of the EC Treaty. The Commission emphasised that
ownership of an IP right only entitles the owner to impose restrictions which reflect the specific
subject matter of the patent, and it concluded that a number of restrictions went beyond this. It
therefore fined WI EUR50,000.
On appeal, the ECJ substantially upheld the Commission’s decision, ruling that the following
restrictions did not fall within the specific subject matter of the patent:
transactions
• Quality controls imposed by the licensor either in respect of products not covered by the
patent or which were not based on objective criteria, laid down in advance;
• An obligation on the licensee only to sell the patented product (the rig) in conjunction with
a product outside the scope of the patent (the sailboard);
• A method of calculating royalties which was based on the selling price of a product that
comprised both patented and unpatented products, which induced the licensee to refuse to
sell separately a WI product which was not covered by the patent;
• An obligation on the licensee to affix a notice of the patent to a product not covered by the
patent; and
• A no-challenge clause with regard to the licensor’s trade marks and patents (preventing
licensees from challenging their validity).
(Case 193/83 Windsurfing International Inc. v Commission [1986] ECR 611.)
Technology transfer block exemption: key elements

The transfer technology block exemption (TTBE) applies to licences:
• Of certain types of IP (patents and related rights, know-how, software copyright and
design);
• Which may include ancillary provisions relating to other forms of IP rights;
• For the purposes of manufacturing a product or providing a service (pure sales agreements
are excluded);
• To which two undertakings are party;
• Which may contain any of the prohibited obligations set out in the so-called excluded
restrictions, as long as such an obligation does not infringe Article 81 affecting the rest of
the agreement; and
• Which may not contain any of the prohibited obligations set out in the so-called hardcore
restrictions.
Patent-related rights
In addition to patents (and applications for patents), the EC technology transfer block exemption
applies to the following patent-related rights, which are not defined in the block exemption:
• Utility models (and applications for their registration). These are "lesser inventions" that
do not qualify for protection as full patents and are instead given modified protection in a
number of countries under a utility model system.
• Semi-conductor topography rights. These are a form of design right which protect the layout
of integrated circuits (computer chips).
transactions
• Certificats d’utilité and certificats d’addition (and applications for them) under French law.
• Supplementary protection certificates. The effect of a supplementary protection certificate

(SPC) is, in respect of patented products which have received a marketing authorisation,
to extend the period of patent protection (20 years in the EU) for up to five years, or 15
years from the first such marketing authorisation in the EU, whichever is the less. SPCs may
currently be issued in relation to medicinal and plant protection products.
• Plant breeders’ certificates. Plant breeders’ or plant variety rights protect new varieties
of plant. The rights owner has the exclusive right to control the production and sale of
reproductive material (such as seeds or cuttings) and harvested material of the protected
variety. Such rights have much in common with patents, although in most countries they
are administered separately from the patent system.
Block exemption: definition of know-how

"Know-how" is defined under the TTBE as "a package of non-patented practical information,
resulting from experience and testing which is secret.., substantial.. and identified.." (Article
1(i)). For this purpose:
• "Secret" means "not generally known or easily accessible" (Article 1(i)(i));
• "Substantial" means "significant and useful for the production of the contract products"
(Article 1(i)(ii));
• "Identified" means "described in a sufficiently comprehensive manner so as to make it

possible to verify that it fulfils the criteria of secrecy and substantiality" (Article 1(i)(iii)).
Internet sales
A website used by a licensee to advertise the licensed products will generally be easily accessed
by buyers from outside the licensed territory. The question therefore arises as to whether sales
made by means of the site are to be regarded as active or passive sales.
The Commission has stated that it generally regards the use of the internet to advertise or sell
products as a form of passive selling, insofar as a particular website is not clearly designed
primarily to reach customers inside the territory or customer group exclusively allocated to
another distributor or distributors (for example, by using banners or links in pages specifically
made for such exclusively allocated customers) (Guidelines on vertical restraints, OJ 2000
C291/1).
However, the Commission considers the sending of unsolicited e-mails to individual customers
to be active selling.
Differences between the old technology transfer block exemption

and the TTBE
transactions
Regulation 240/96, the previous technology transfer block exemption, had been criticised for its
rigidity. Further to the Commission´s publication of an evaluation report on Regulation 240/96,
and the publication of a draft regulation, a consultation process resulted in a new technology
transfer block exemption. In the recitals to the TTBE, the Commission lists a number of ways
in which the legal position in this area has been improved. Most importantly, the TTBE takes
into consideration the need both to encourage innovation and to safeguard effective competition
(recital 4). Whilst pursuing these objectives, the TTBE also simplifies the regulatory framework
and its application (recital 4). The Commission´s new rules represent a significant shift in
the approach taken to technology licensing under the EC competition rules. Importantly,
new market share limitations have been introduced for the first time in relation to technology
licensing arrangements.
Moosehead and Campari cases

The Moosehead case concerned an exclusive trade mark licence from Moosehead to Whitbread
for the production and marketing of Moosehead’s beer in the UK. The licence included a ban
on active sales outside the UK and a non-compete clause, both of which the Commission found
appreciably restricted competition, and so breached Article 81(1), but it was prepared to exempt
the provisions under Article 81(3). The Commission found that other restrictions protecting the
licensor’s IP rights were outside the scope of Article 81(1). These included obligations to sell
the licensed product only under the "Moosehead" trade mark, to produce the beer only using
Moosehead’s know-how, and to purchase the special yeast required to give the beer its distinctive
taste only from Moosehead.
In Moosehead, the Commission followed closely its approach in the Campari case of over 12
years earlier, where it examined Campari’s arrangements for the production and marketing of its
famous aperitif in the EU. Under these arrangements, which were notified to the Commission,
Campari appointed exclusive licensees for certain EU member states. The licensees were granted
the exclusive right to use Campari’s trade marks for the manufacture of its aperitifs, using its
secret processes and concentrates, in their appointed territories. The agreements were granted
an individual exemption under Article 81(3) only after Campari had removed the obligation on
licensees to purchase non-secret raw materials exclusively from it. Campari was also required to
remove its prohibition on all exports by the licensees to other EU countries and replace it with
a prohibition on carrying on active sales, opening a branch or advertising outside the allotted
territory.
(Moosehead-Whitbread’s Agreement OJ 1990 L100/32; Campari-Milano’s Agreement OJ 1978

L70/69.)
Chiquita/Fyffes case
The Chiquita/Fyffes case arose out of the acquisition in 1986 by Fyffes plc of Chiquita Europe’s
UK distributor, Fyffes Group Ltd (FGL). Chiquita had previously sold its bananas in the EU
under the "Fyffes" brand, but was gradually phasing it out in favour of the "Chiquita" brand.
Under the arrangements for the acquisition, FGL granted Chiquita an exclusive licence to use the
"Fyffes" trade mark outside the UK and Ireland for three years. In addition, FGL agreed not to
use the "Fyffes" brand for sales of fruit outside the UK and Ireland until 2006, despite the fact
transactions
that Chiquita’s licence to use this trade mark expired in 1989. Fyffes was therefore prevented,
solely as a result of this non-use provision, from selling bananas in the continental EU after 1989
under its "Fyffes" trade mark, thus substantially reducing its ability to compete with Chiquita.
The Commission decided that the continuation of the restriction on Fyffes not to use its mark
in the continental EU after its exclusive licence to Chiquita had expired went beyond what was
necessary to effect the transfer of the business, including the "Fyffes" trade mark, from Chiquita
to Fyffes.
In order to meet the Commission’s concerns, Chiquita and Fyffes agreed that Fyffes would
acquire all remaining rights to the "Fyffes" trade mark and that the 1986 trade mark licence
would lapse. On this basis the Commission was prepared to take no further action.
(Commission Press Release IP/92/461, 4th June, 1992.)
UK and Ireland Rest of EU

Fyffes Group Limited retained exclusive Chiquita Europe was granted a three-year
rights to "Fyffes" trademark exclusive licence of "Fyffes" trade mark
Fyffes Group Limited agreed not to sell fruit
using "Fyffes" trade mark for 20 years
Silhouette
Silhouette was an Austrian producer of designer spectacle frames sold under the trade mark
"Silhouette", which took proceedings to prevent an Austrian discount retailer, Hartlauer, from
selling a large quantity of out-of-fashion spectacle frames which Silhouette had sold to a third
party exclusively for sale in Bulgaria and the former Soviet Union.
Hartlauer argued that, by placing the spectacles on the market outside the EU, Silhouette’s right
to prevent their resale within the EU without its consent had been exhausted, so that it could not
prevent the resale of the spectacles in Austria.
The ECJ held that Silhouette’s rights had not been exhausted. The ECJ stated that the rule of
Community exhaustion, as set out in the Trade Marks Directive (Article 7, Directive 89/104/EEC),
did not leave it open to EU member states to provide in their domestic laws for the exhaustion
of the rights conferred by a trade mark in respect of products put on the market in non-member
countries. The national laws of all EU member states were therefore required to permit a trade
mark owner to prevent imports into the EU of goods bearing its trade mark, even where those
goods had been placed on the market outside the EU with its consent.
(Case C-355/96 Silhouette International Schmied GmbH & Co KG v Hartlauer

Handelsgesellschaft mbH [1998] ECR 4799)
Broadcasting sports events

The importance of sports events for fans, and the corresponding value of broadcasting rights for
pay-TV operators, have made the granting of exclusive broadcasting rights a particularly sensitive
issue under EC competition rules.
transactions
Exclusivity is an accepted commercial practice in the broadcasting sector. However, in deciding

whether an exclusive broadcasting licence infringes Article 81(1), or whether it should be
exempted under Article 81(3), the Commission will pay particular attention to:
• The respective market strength of the parties;
• The scope and duration of the exclusivity;
• The impact on competition between broadcasters in the acquisition of rights and on

downstream television markets; and
• Whether exclusivity is justified in order to enable an operator to enter a new market with
an innovative service or to introduce a new technology which requires very high risk and
substantial investment.
For example, in 1993 the Commission issued a comfort letter exempting a five-year exclusive
agreement between the British Broadcasting Corporation, BSkyB and the English Football
Association in view of the fact that BSkyB was at the time a new entrant to the market. It stated
at the time that contracts of a duration of more than a single season would fall within Article
81(1).
In the 1998 Audiovisual Sport case, the Commission found that initial period of up to 11 years
exclusivity for the pay-per-view rights to Spanish football in Spain requested by the parties
would have foreclosed the market for too long. A three-year period of exclusivity was acceptable,
because it involved the introduction of new technology by the broadcaster and was related to
the level of risk involved (Case IV/M709 Telefónica/Sociedad Canal Plus/Cabletelevision, 19
July 1976).
The Commission has emphasised that it is not possible to state what the maximum duration of
an exclusive licence should be as much will depend on individual circumstances. An assessment
of market definition, the market power of the seller and the acquirer and the cumulative effect of
the acquisition of the rights, which may strengthen an already strong position of a broadcaster
because it adds to an already attractive portfolio of sports rights, will need to be made to see
whether the downstream market is likely to be foreclosed.
In particular, in 2006, the Commission accepted binding commitments from the Football
Association Premier League (FAPL) in the UK in respect of the joint selling of media rights to
Premier League matches. The Commission found that joint-selling of these rights restricted
competition for the acquisition of football media rights, created barriers to entry and led to
foreclosure on downstream markets. Under the commitments, which bind FAPL until June 2013,
FAPL agreed to create a range of packages of rights, which would be sold by auction. Additional
conditions were imposed, such as the FAPL not being permitted to sell all of the packages to a
sole bidder (OJ 2004 C115/3).
Given the potentially narrow market definitions which may be accepted by the Commission in
relation to sports rights (apparent from recent communications on the issue), agreements where
the duration of exclusivity goes beyond a single season, particularly where the rights in question
are especially valuable should be assessed carefully with respect to compliance with Article 81.
transactions
Restrictions in copyright licences

Restrictions which will not infringe Article 81(1)
Restrictions in copyright licences relating to the production of goods which will generally not
infringe Article 81(1) are listed below (the list is non-exhaustive).
Restrictions on the licensee:

• An obligation not to copy documents covered by a confidentiality obligation.
• An obligation not to sub-license the copyright.
• An obligation not to use the copyright material after termination, provided that the
copyright is still valid.
• Requirements to meet certain quality specifications and to purchase goods or services from
the licensor which are necessary for the proper exploitation of the licensed rights.
• An obligation on the licensee to restrict its exploitation of the copyright to a certain field
or market .
• Terms requiring the payment of a minimum royalty or the production of a minimum

quantity of goods covered by the copyright.
• An obligation to mark licensed products with the name of the licensor.
• An obligation to use the licensee’s best endeavours to manufacture and market the licensed
products.
Restrictions on the licensor:

• An obligation to grant the licensee any more favourable terms which the licensor may grant
other licensees during the term of the agreement.
Restrictions which generally infringe Article 81(1), but which are likely to be
exempted under Article 81(3)
The following are examples of restrictions in copyright licences which generally infringe Article
81(1), but which are likely to receive exemption under Article 81(3):

• An obligation not to pursue an active marketing policy outside its territory, especially by
using targeted advertising or establishing a branch or distribution depot.

• An obligation not to license others or to exploit the copyright itself within the licensee’s
territory (provided that the duration of the obligation is not excessive).
Restrictions which infringe Article 81(1) and which are unlikely to be exempted
under Article 81(3)
The following are examples of restrictions in copyright licences which will infringe Article 81(1)
and which are unlikely to benefit from exemption under Article 81(3):

• Export bans (unless relating to a performance right).
transactions
• A prohibition on challenging the validity of the licensor’s copyright (for example, on the
basis of lack of originality) (Neilson-Hordell/Richmark, 12th Report on Competition Policy
(1982), paragraphs 88-89).
• A prohibition on competing with the licensor (above).
• A requirement to assign copyright in improvements to the licensed products to the licensor

(above).
• Restrictions on the type of customers who may be supplied with goods produced using the
copyright.
• Restrictions on the licensee’s freedom to determine the prices of licensed products.
• Terms requiring the payment of royalties for sales of products not created using the licensed
copyright (Neilson-Hordell/Richmark, above).

• Obligations involving the grant of excessively long periods of exclusivity (see main text,
Restrictions involving exclusivity).
Collecting Societies and the internet

Collecting societies act as trustees of copyright-protected musical works on behalf of their
members. They both manage copyright and grant exploitation licences to commercial users of
public performance rights. Traditionally, collecting societies have had exclusivity to manage and
exploit the works in their portfolio on a national basis. In addition, collecting societies across
the EEA have reciprocal contracts with each other. This allows them to have a global portfolio
of works for exploitation on a national basis by commercial users who hold a licence.
Recently, the European Commission has tried to initiate a move away from the territorial
protection of licensing rights approved in the SACEM case (see Applying abusive licence terms
or refusing to license where other licences have already been granted) and is reviewing new
methods of licensing. This has been prompted by the growth in new forms of digital media such
as the increase in downloads of online music.
In particular, the Commission requested commitments from collective rights managers in the
Santiago case (COMP/C-2/39152 - BUMA, COMP/C-2/39151 - SABAM (Santiago Agreement)
OJ 2005 C200/11) that, in relation to online music, they would not accept licensing restrictions
requiring commercial users to obtain their licences from a particular national collecting society.
Furthermore, in the IFPI case (Commission press release IP/02/1436) the European Commission
exempted under Article 81 agreements between collecting societies to grant "one-stop-shop"
licences covering all the territories of the EEA to broadcasters. These licences were to be
granted in respect of "simulcasting", whereby the radio and television broadcasters broadcast
their programmes via the Internet alongside the more traditional media. This move enabled
collecting societies across the EEA to compete to grant licences for the commercial exploitation
of copyright, particularly in relation to the fees charged for such licences.
The Commission has also recently sent a Statement of Objections to the International
Confederation of Societies of Authors and Composers (CISAC) and its EEA members (see
Commission memorandum MEMO/06/63) in relation to restrictive clauses in its model
contract. The Commission once again has indicated that territorial restrictions in relation to
transactions
the membership of collecting societies and the requirement for licensing to occur on a domestic
basis are restrictive. Further, the network effects of the agreements create barriers to entry. The
Commission is therefore sending a clear signal that it wishes to create EEA-wide licensing and
improve competition on the market for copyright licences in general.
In order further to emphasise this aim, the Commission adopted a recommendation in 2005 on
collective cross-border management of copyright and related rights for legitimate online music
services (Commission Recommendation 2005/737 OJ 2005 L276/54). This recommends that
member states should promote the growth of legitimate online services and that these should
not be subject to restrictions in terms of territory or customer allocation. It also recommends
that member states should improve regulatory regimes in a number of ways to facilitate the
management of copyright and related rights at Community level.
However, the recommendation is non-binding and so it will be interesting to see the extent
to which it is put into practice by member states. With respect to the collective licensing of
traditional mechanical copyright (sound recording on physical carriers) the Commission has
also recently indicated that it will not tolerate attempts by record companies/publishers to
impose restrictions on collecting societies by asking them to agree not to enter the publishing
or record production markets or to control price competition in this market (e.g. by imposing
conditions on the granting of rebates) (Universal International Music BV/MCPS and others,
The Cannes Extension Agreement, OJ 2007 L296/27).
Common types of software licence

The following are among the most common arrangements for the licensing of software:
• Standard off-the-shelf software is often licensed by means of a "shrink-wrap" agreement,

under which the opening of the packaging is taken to be consent by the user to be bound
by the licence terms. Owing to uncertainties over the legal effect of such licences, consent
to be bound by the licence terms may be sent to the licensor as part of the user registration
process.
• Sub-licences of software may be issued by an intermediate distributor of the software.
• A software licence may be combined with other provisions, as in the case of a value added
reseller agreement, where the software is sub-licensed in conjunction with hardware or
services supplied by the licensee.
• In the case of more complex programs, a licence of software which is designed to meet the
user’s specific requirements may be individually negotiated between the software developer
and the user.
Microsoft software licences

An indication of the Commission’s approach to restrictive provisions in software licences was
provided by its reaction to a series of standard software licences notified to it by Microsoft.
These agreements set out the terms on which Microsoft agreed to license its web browser software
(Internet Explorer) to internet service providers (ISPs). The agreements provided that details
transactions
of the ISPs would be provided to users of Microsoft Internet Connection Wizard in return for
a referral fee for each new user signed up in this way. In addition, the ISPs would acquire the
non-exclusive right to adapt the Explorer software and to distribute it to their customers.
The Commission objected to certain licensing terms, on the basis that they risked foreclosing
access to the browser market by competitors (principally Netscape), and unduly benefited
Microsoft’s own technology. As a result, Microsoft agreed to remove clauses requiring minimum
distribution volumes for, and use of, Internet Explorer, as well as clauses preventing ISPs
promoting other browser software, and on this basis the Commission agreed to issue a comfort
letter to Microsoft.
It was notable that the Commission did not raise objections to licence terms which permitted
ISPs to distribute the software, via specified territorial channels, only to their end customers in
conjunction with their own services.
Although the Commission’s approach in this case may have reflected its specific concern with
issues of dominance under Article 82 of the EC Treaty, rather than vertical restraints, it does
at least suggest that such resale restrictions in software licences will not be viewed as serious
infringements of Article 81(1). The risk remains, however, that they will be unenforceable.
Boehringer
The European Court of Justice (ECJ) in Boehringer considered the extent to which trade mark
proprietors may rely on their trade mark rights to prevent a parallel importer from repackaging
pharmaceutical products within the EU.
The parallel importers in this case had altered the packaging of the products and their
accompanying instruction leaflets. In some cases, a label setting out the name of the parallel
importer was attached to the original package and the trade mark was not covered up. In other
cases, the product was repackaged in boxes designed by the parallel importer and the trade
mark was reproduced on packaging. All the packages contained an instruction leaflet written
in English bearing the trade mark. The trade mark proprietors brought proceedings for trade
mark infringement (and in some cases passing off), arguing that the changes in packaging were
not necessary to enable the products to be marketed in the UK and that the parallel importers
were doing more repackaging than necessary and so gaining an unfair advantage.
The UK High Court referred the case to the ECJ under Article 234 of the EC Treaty with questions
regarding the interpretation of Article 7(2) of the Trade Mark Directive (89/104), which provides
that exhaustion of rights will not apply where there are "legitimate reasons" for a trade mark
owner to oppose further commercialisation of the goods.
The ECJ held:
• A trade mark proprietor may rely on its trade mark rights in order to prevent a parallel
importer from repackaging pharmaceutical products. However, he may not do so where
exercise of those rights contributes to an artificial partitioning of the markets between
member states, provided that the repackaging respects the trade mark proprietor’s
legitimate interests.
transactions
• A trade mark proprietor can oppose the import of repackaged goods unless the
repackaging is "necessary". He does not need to provide evidence of actual damage to the
mark. Replacement packaging is necessary if without the repackaging effective access to
the market concerned is hindered. A trade mark proprietor’s opposition to repackaging
is not justified where there are national rules relating to packaging, which prevents the
products from being placed on the market in their original packaging. However, the trade
mark proprietor may oppose repackaging where it is not necessary and instead is merely
intended to give the importer a commercial advantage. Strong resistance to relabelled
products from a significant proportion of consumers could hinder effective access to the
market, but this is for a national court to determine.
• A parallel importer must give prior notice of the repackaging to the trade mark proprietor
and, if requested, supply a sample of the repackaging. It is not sufficient that the proprietor
receives notice from other sources. If such notice is not given, the marketing of the
repackaged product constitutes trade mark infringement. The national court must decide
whether the period of notice provides the trade mark proprietor with a reasonable time to
react to the proposed repackaging. However, the ECJ considered that a notice period of
15 working days is likely to be reasonable if a sample of the repackaging is provided with
the notice.
The judgment will be welcomed by trade mark proprietors as confirming that they are entitled to
receive reasonable notice of any proposed repackaging. If a trade mark proprietor’s products are
repackaged, this will amount to trade mark infringement unless the repackaging is necessary to
gain effective access to the market and protects the trade mark proprietor’s legitimate interests.
However, the judgment did not expressly cover the extent to which the repackaging must protect
legitimate interests of the trade mark proprietor. The ECJ also failed to provide guidance on
what constitutes hindrance to effective access to a significant part of the market, an issue which
the national court must decide.
Following this ECJ ruling, the UK High Court found that although the defendants were entitled
to rebox, the co-branding and de-branding effected by defendants’ reboxing were objectionable as
they did not respect the legitimate interests of the trade mark owner (Glaxo Group Ltd and others
v Dowelhurst Ltd and other actions [2003] EWHC 110 (Ch), 6 February 2003). Consequently, all
the trade mark actions in respect of reboxing succeeded. Those actions in respect of relabelling
failed.
The defendants appealed the case to the Court of Appeal, which has deferred its judgment on
the form of the reboxing and relabelling permitted, because it considered that, despite years of
repackaging cases, the law was not free from doubt. It referred a number of questions to the ECJ
for a preliminary ruling, on which judgment was handed down on 26 April 2007. The ECJ ruled
that the conditions to be made out by a parallel importer in order to avoid a claim for trade mark
infringement, as set out in the Bristol-Myers Squibb case apply not only to the repackaging of
pharmaceuticals but also to cases of "over-stickering". The Court of Appeal’s application of the
ECJ’s ruling is awaited.
Case C-143/00 Boehringer Ingelheim KG & Ors v Swingard Ltd & Ors [2002] ECR 2002 I-3759.
Case C-348/04 Boehringer Ingelheim KG, Boehringer Ingelheim Pharma GmbH & Co. KG,
Glaxo Group Limited, The Wellcome Foundation Ltd, Smithkline Beecham Plc, Beecham Group
Plc, SmithKline & French Laboratories Ltd and Eli Lilly and Co v Dowelhurst Limited.
transactions
Microsoft
In the Microsoft case, Article 82 had potentially been infringed by Microsoft. It had refused
to supply competitors with the interface information necessary to create their own different,
innovative products capable of interoperating with Microsoft’s desktop operating systems. This
refusal foreclosed competition in the adjacent workgroup server market.
The Commission adopted its formal decision (Case COMP/C-3/37.792) on Microsoft on 24

March 2004. This found that Microsoft , the quasi-monopoly provider of desktop operating
systems had infringed Article 82 by refusing to provide information. Further, it found that
Microsoft had engaged in illegal tying of its media player into the Windows operation system
(for further information on tying see Competition regime, Article 82: Tying and bundling).
The Commission held amongst other things that Microsoft had to take action to change its
behaviour and imposed an obligation on Microsoft to license this interface information (limited
to information necessary to create interoperable software and not Microsoft’s program code) to
competitors on reasonable and non-discriminatory terms. It also ordered Microsoft to provide
an unbundled version of Windows without the media player. Further, it imposed a fine of
EUR497 million, the highest fine ever imposed on an individual company. The Commission´s
decision is very specific to the facts of the case.
Microsoft however lodged an appeal with the Court of First Instance (CFI) on 7 June 2004 (Case
T-20/04). The President of the CFI handed down judgment in July 2004, according to which
various third parties were granted leave to intervene. Microsoft sought interim relief to suspend
the operative parts of the Commission’s decision and the Commission agreed not to enforce the
decision until this issue had been resolved. In December 2004, the CFI dismissed the interim
measures application. The CFI agreed that Microsoft had demonstrated that it had a prima
facie case. However, Microsoft had argued that if the decision were to be enforced, its IP rights
would be damaged as would Microsoft´s commercial freedom and capability of developing its
products and that therefore market conditions would be irreversibly altered. The CFI held that
Microsoft had not shown that the urgency condition was satisfied on each of these issues and
that Microsoft had failed to prove to the necessary legal standard that the remedies might cause
serious or irreparable damage. The President of the CFI also held that two parties be removed
as interveners in the interim measures proceedings following their settlement with Microsoft.
Following this judgment, the remedies were effective against Microsoft as of 22 December 2004.
Microsoft made available an unbundled version of Windows but discussions continued with
the Commission about the scope of the interoperability remedy. In June 2005, the Commission
announced that Microsoft had made proposals relating to the implementation of this remedy,
but informed Microsoft that it was required to permit distribution to non-licensee third parties,
in source code form, of software developed by competitors who had received the interoperability
information (Windows protocol specifications), unless that software included a novel invention
by Microsoft.
Microsoft appealed this requirement to disclose the source code information, claiming that the
distribution in source code form of the software in question would give non-licensees access
to Microsoft’s trade secrets and would not allow Microsoft to impose licensing conditions
requiring protection of confidential information (Case T-313/05). It also claimed that the
remedy required by the Commission would unlawfully deprive Microsoft of its property rights
transactions
and that the criteria of novelty and inventiveness, which give rise to an exception to the disclosure
obligation, are unclear, imprecise and difficult to apply meaningfully and so breach the principle
of legal certainty and that, by requiring global, and so extraterritorial, disclosure of Microsoft’s
property rights, the Commission was in breach of binding principles of public international law.
The Commission then appointed a Monitoring Trustee to provide the Commission with
impartial advice in relation to Microsoft’s compliance with the remedies. The Commission had
been market testing Microsoft’s proposals in relation to the interoperability remedy. In light
of the results of this market testing, the Commission made a decision on 10 November 2005
under Article 24(1) of Regulation 1/2003 (which provides for the imposition of periodic penalty
payments) which provided that the Commission would impose a daily fine of EUR2 million if
Microsoft did not comply, by 15 December 2005, with its obligation to supply complete and
accurate interoperability information, and make that information available on reasonable terms.
This deadline was subsequently extended to 15 February 2006.
Microsoft revised the interoperability information that it was obliged to disclose. However,
despite these revisions, the Commission still considered that the information was incomplete
and inaccurate. The Commission therefore issued Microsoft with a statement of objections
setting out the Commission’s preliminary view that it failed to supply complete and accurate
interoperability information. The Commission continued to assess, on the basis of additional
information submitted by Microsoft, whether Microsoft had complied with the second
requirement of making the interoperability information on reasonable terms (the Commission
had concerns about the level of royalty payments being imposed).
In July 2006, the Commission announced that, as of 20 June 2006, Microsoft had still not
supplied complete and accurate interoperability information as required by the interoperability
remedy in the Commission’s 2004 decision. The Commission considered that the obligations on
Microsoft and the aim of the interoperability remedy were clearly set out in the 2004 decision
and had not been changed subsequently. Further, Microsoft had been allowed full access to all
the reports on which the Commission based its conclusion. The Commission therefore decided,
under Article 24(2) of Regulation 1/2003, to impose penalty payments totalling EUR280.5
million. This comprised daily penalties of EUR1.5 million from 16 December 2005 to 20 June
2006.
In November 2006, the Commission announced that Microsoft had provided interoperability
documentation and that it would decide in due course whether Microsoft is in compliance with
its obligations or whether further penalty payments should be imposed.
Microsoft has brought an appeal before the Court of First Instance requesting that the
Commission’s decision to impose the above penalty payments be annulled (Case T-271-06
Microsoft v Commission (OJ 2006 C294/56)).
This is the first time that the Commission has used its powers under Article 24 of Regulation
1/2003, or the equivalent provision in Regulation 17/62, to fine a company for failure to comply
with an Article 81 or 82 decision.
On 17 September 2007, the CFI essentially upheld the Commission’s decision of 24 March 2004. It
upheld the Commission’s finding that Microsoft had breached Article 82 by virtue of its refusal to
grant interoperability information and its bundling of Windows Media Player with the Windows
PC operating system. The CFI also confirmed the EUR497 million fine imposed on Microsoft
transactions
and the Commission’s remedies requiring the provision of interoperability information and the
unbundling of Windows Media Player.
However, the CFI did conclude that the mechanism for the appointment of a monitoring trustee
was unlawful. It concluded that the Commission had no authority to compel Microsoft to grant
a monitoring trustee powers that the Commission itself is not authorised to confer on a third
party or to require Microsoft to pay the costs of the monitoring trustee.
As noted above, the remedies imposed in the Commission’s March 2004 decision became effective
after the refusal of interim measures. Microsoft made available an unbundled version of Windows
but discussions continued with the Commission about the scope of the interoperability remedy.
On 22 October 2007, the Commission announced that Microsoft had agreed to take the steps that
the Commission considers to be necessary for it to comply fully with the remedial interoperability
obligations imposed in the Commission’s decision.
Microsoft has agreed to make the interoperability information available to "open source"
software developers and it also to reduce the royalties payable. Microsoft will also guarantee the
completeness and accuracy of the information provided in agreements that will be enforceable
before the High Court in London.
Microsoft subsequently confirmed that it will not appeal the judgment of the CFI. It has also
withdrawn two other outstanding appeals: one relating to the scope of the obligations in the
interoperability remedy with respect to open source licences (Case T-313/05) and the other
relating to the periodic penalty of EUR280,500,000 imposed by the Commission in July 2006 for
non-compliance with its remedial obligations (Case T-271/06).
transactions
Article Information
RESOURCE INFORMATION
The fulltext is available at http://www.practicallaw.com/7-107-3704
General
· Article ID: 7-107-3704
· Document Generated: 07/01/08 14:36:03
Resource Type
· Practice notes · http://www.practicallaw.com/1-103-0982
Jurisdiction
· European Union · http://www.practicallaw.com/4-103-0626
Subject
· Intellectual property: competition · http://www.practicallaw.com/0-103-2057
· Parallel trading · http://www.practicallaw.com/6-103-1168
References
· Transactions and practices: EC Pricing: Excessive pricing

(http://www.practicallaw.com/A14476)
· Vertical agreements (http://www.practicallaw.com/A14480)
· Article 81 (http://www.practicallaw.com/A14484)
· Article 82 (http://www.practicallaw.com/A14485)
· Market Definition (http://www.practicallaw.com/A14487)
· Glossary (http://www.practicallaw.com/A14505)
· Transactions and practices: EC Collaborative agreements

(http://www.practicallaw.com/3-107-3701)
· Competition regime: Article 82: Tying and bundling (http://www.practicallaw.com/8-107-3708)
© Legal & Commercial Publishing Limited 1990 - 2007. http://www.practicallaw.com.

Subscription enquiries +44 (0)20 7202 1210 or email lisa.byers@practicallaw.com
Please read our licence and disclaimer, and privacy policy.

IP Transactions and 81&amp;82 EC Treaty - PLC 2007

Enviado por

Dados do documento

Descrição original:

Direitos autorais

Formatos disponíveis

Compartilhar este documento

Compartilhar ou incorporar documento

Opções de compartilhamento

Você considera este documento útil?

Este conteúdo é inapropriado?

Direitos autorais:

Formatos disponíveis

IP Transactions and 81&amp;82 EC Treaty - PLC 2007

Enviado por

Direitos autorais:

Formatos disponíveis

Transactions and practices: EC Intellectual property

Transactions and practices:

Oliver Heinisch and Tony Woodgate, Simmons & Simmons

Two sets of EC Treaty provisions must be considered in relation to transactions involving IP

Principles applicable to IP generally

• prevent reproduction of a work;

• first place a work on the market;

• require payment for public performance or transmission; or

• rent out a work.

Free movement and competition rules may both apply

Deciding whether a particular contractual provision is in fact a restriction on competition and, if

Exemption under Article 81(3)

In addition to unenforceability, an intentional or negligent breach of Article 81(1) renders the

(See further Competition regime, Article 81: Consequences of infringement.)

The modernisation Regulation

Two additional goals of modernisation are the harmonisation of substantive competition

Block exemptions and Commission Guidelines

• A provision in a distribution agreement permitting the distributor to use the manufacturer’s

Application of Article 81 to IP agreements

Technology transfer block exemption

Highlights of the TTBE

• There is a distinction between competitors and non-competitors: actual or potential

• The distinction between the treatment of competitors and non-competitors is carried

• The TTBE makes a further distinction between "reciprocal" and "non-reciprocal"

• There is a list of "excluded restrictions" relating to certain obligations to license

Agreements which fall within the scope of the TTBE

The market share thresholds

Relevant market for assessment of parties´ market shares

• Sales of products on the downstream market (as mentioned above).

Distinction between competitors and non-competitors

Market share thresholds for competitors and non-competitors

Hardcore restriction list

Distinction between reciprocal and non-reciprocal agreements

Hardcore restrictions between competitors

• Market or customer-sharing: where competitors agree not to produce in certain territories

• where there is an obligation on the licensor and/or the licensee in a non-reciprocal

• where there is a restriction, in a non-reciprocal agreement, of active and/or passive

• where there is a restriction, in a non-reciprocal agreement, of active sales by the

• where there is an obligation on the licensee, in a non-reciprocal agreement, to produce

• Restrictions on licensee´s use of his own technology: where there is a restriction of

Hardcore restrictions between non-competitors

• where there is a restriction of passive sales into an exclusive territory or to an exclusive

• where there is a restriction of passive sales into an exclusive territory or to an exclusive

• where there is a restriction of sales to unauthorised distributors by the members of

• Exploitation/development by the licensee of its own technology if non-competing: where

• Obligations on licensees not to sub-licence.

• Obligations to pay minimum royalties or to produce a minimum quantity of products

Withdrawal or disapplication of the benefit of the TTBE

• Access of third parties’ technologies to the market is restricted.

• Access of potential licensees to the market is restricted.

Assessing and addressing the risks

Informal contact may in certain circumstances provide assistance. In respect of

Agreements falling outside of the TTBE

• The agreement offers efficiency benefits by contributing to the improvement of production

Settlement and non-assertion agreements

Generally, the Commission considers the inclusion of substitute technologies in a pool to be an

Assessment of individual restraints

conduct in the context of the standard-setting process. In particular, it engaged in a "patent

Vertical agreements block exemption

Research and development block exemption

Specialisation agreements block exemption

Trade mark licensing

• Sales agency agreements.

IP Transactions and 81&82 EC Treaty - PLC 2007

IP Transactions and 81&82 EC Treaty - PLC 2007