Practical Impact Of European Community Anti Trust Law On R&D Agreements Volker Linden, Rechtsanwalt, German-Australian-Pacific Lawyers Association International.

Practical Impact Of European Community Anti Trust Law On R&D Agreements

Volker Linden, Rechtsanwalt,

German-Australian-Pacific Lawyers Association

International Australian-European Lawyers Conference, Canberra,

3rd March 2007

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Volker Linden DAPJV - GAPLA

Introduction

• There are many reasons to think about a R&D cooperation with third parties, e.g.

additional resources, access to expertise and know-how, fullfill requirement for public

funding, gain time, save costs.

• The pure fact of a R&D cooperation as well as the following exploitation of the results of

such cooperations must be in line with anti trust law.

• For all cooperations of more than regional importance Community law is applicable. But

also national law follows in general Community law standards. (Consequence of Art. 3 (2)

Regulation 1/2003)

• You have the burden of proof (Art. 2 Regulation 1/2003). The questions to be answered

are not always easy and you may probably not like what the law tells you.

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Article 81 EC Treaty

1. The following shall be prohibited as incompatible with the common market: all

agreements between undertakings, decisions by associations of undertakings and

concerted practices which may affect trade between Member States and which have

as their object or effect the prevention, restriction or distortion of competition within

the common market, and in particular those which:

a) directly or indirectly fix purchase or selling prices or any other trading conditions;

(b) limit or control production, markets, technical development, or investment; c)

share markets or sources of supply;

(d) apply dissimilar conditions to equivalent transactions with other trading parties,

thereby placing them at a competitive disadvantage;

(e) make the conclusion of contracts subject to acceptance by the other parties of

supplementary obligations which, by their nature or according to commercial usage,

have no connection with the subject of such contracts.

2. Any agreements or decisions prohibited pursuant to this article shall be

automatically void.

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Exception rule Art 81 (3) EC Treaty

The provisions of paragraph 1 may, however, be declared inapplicable in the case of:

- any agreement or category of agreements between undertakings,

- any decision or category of decisions by associations of undertakings,

- any concerted practice or category of concerted practices,

which 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, and which does not:

(a) impose on the undertakings concerned restrictions which are not indispensable to the

attainment of these objectives;

(b) afford such undertakings the possibility of eliminating competition in respect of a

substantial part of the products in question.

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Community Framework To Ensure Competition

• Art. 81 (1) EC Treaty

– Agreement – Appreciability as to... – ... (Negative) effect on trade – ... Restriction of competition

- Exception Art 81 (3) EC Treaty

- Improved efficency- Fair share of benefits of consumers- Restrictions are indespensable - No elimination of competition

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Community Law To Ensure Competition

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Art 81 EC-Treaty and Guidelines

• Art. 81 (1) EC Treaty

– Agreement – Appreciability as to... – ... (Negative) effect on trade Guideline 2004/C 101/07– ... Restriction of competition Commission notice 2001/C 368/07

- Exception Art 81 (3) EC Treaty- Improved efficency

- No 48 – 72 Guidelines on the application of Art. 81 (3), 2004/C 101/08- Fair share of benefits of consumers

- No 83 – 104 Guidelines- Indispensability of the restrictions

- No 73 – 82 Guidelines - No elimination of competition

- No 105 – 116 Guidelines

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Art 81 (1) EC Treaty: Effect on Trade

• Guidelines on the effect on trade concept contained in Articles 81 and

82 of the Treaty (Commission 2004 C 101/07)

• Case-by-case, however (non-)appreciability indicated if

– not met: market share not exceeding 5% and 40 mio Euro (Rule 52)

– met: several Member States, or import/export and turnover with

relevant products > 40 mio Euro or 5 % market share (Rule 53)

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Art 81 (1) EC Treaty: Concept of Appreciability

• Commission Notice on agreements of minor importance: “de minimis”-rule (2001/C 368/07)

• not met if market share of up to 10 % in case of competitors,

– up to 15 % non-competitors = “de minimis-rules”

• provided no “hardcore restrictions” are included

– price fixing, output or sale limitations, sharing/allocation of markets

and customers

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Community Law To Ensure Competition

– Commission Regulations on the application of Article 81 (3) EC Treaty to

categories of various agreement and concerted practices, so-called Group

Exemption Regulations (5):

• on vertical agreements, (EC) 2790/1999

• on specialization agreements, (EC) 2658/2000,

• research and development agreements (EC) 2659/2000,

• vertical agreements in the motor vehicle sector (EC) No

1400/2002, and

• on technology transfer agreeements, (EC) 772/2004

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Group Exemption Regulations

• Group exemption regulations result in a “safe harbor”: When your

agreement fulfill its conditions, your agreement is “safe” in light of the

Community and the national anti trust laws (e.g. § 2 (2) German GWB).

• List of “black clauses” which are forbidden

• Follow an “economical solution approach”: Exemptions may be

granted until certain market share thresholds are reached

• Differentiation: Agreements between competitors or between non-

competitors (= higher market shares are allowed)

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Calculation of Market Share

- Relevant market...means the relevant product and geographic market to

which the contract product belongs ( Art. 2 no 13, Regulation 2659/2000)

(prior: only European Community)

- Data basis of the preceeding calender year

- Machine building industry: last 3 -5 years

- Product which creates a complete new demand: 0% market share

- (Guideline on horizontal cooperations, 2001/C 3/02, no 54)

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Group Exemption Regulations: Different Market shares (logic?) • Idea that below a certain level of market power of market share the positive effects of an

agreement will outweigh any negative effect

• Vertical Agreements:

• limit 30 %

• Specialization Agreements:

• limit 20 %

• Vertical Agreements motor vehicle sector:

• limit 30%

• but 40% in case of a selective distribution system

• TT agreements

• 20 % if (potential) competitors

• 30 % if non-competitors

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Regulation (EC) 2659/2000 related to R&D Agreements: Market Share (Art. 4, 6)

R&D-phase exempted:

Competitors: up to 25 % Non-competitors: unrestricted

First 7 years of exploitation of results of R&D (Exploitation phase I):

unrestricted

Exploitation phase II (following Exploitation phase I):

competitors and non-competitors: 25 % (up to 30%: valid up to 2 years)

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R&D Agreements: Exclusive Exploitation of Results possible?

Exclusive exploitation as to defined application

areas

Joint Exploitation

Party A: Exclusive manufacure

Party B:

Exclusive sale

Exclusive exploitation by one party

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Exclusive rights for R&D results under the Group Exemption Regulation

• Complete Exclusivity as to R&D results for one party

– in many cases not allowed, but...

Exclusive exploitation of results reserved for one party

– depends on competitive situation (if competitors: no), only limited to

defined applications

• You might be forced to give access to your pre-existing know-how (but not

to your Intellectual Property Rights)!

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Regulation (EC) 2659/2000 regarding R&D Agreements Article 3 (English Version)

1. The exemption provided for in Article 1 shall apply subject to the conditions set out in

paragraphs 2 to 5.

2. All the parties must have access to the results of the joint research and development for the

purposes of further research or exploitation. However, research institutes, academic bodies, or

undertakings which supply research and development as a commercial service without normally

being active in the exploitation of results may agree to confine their use of the results for the

purposes of further research.

3. Without prejudice to paragraph 2, where the research and development agreement provides

only for joint research and development, each party must be free independently to exploit the

results of the joint research and development and any pre-existing know-how necessary for the

purposes of such exploitation. Such right to exploitation may be limited to one or more technical

fields of application, where the parties are not competing undertakings at the time the research

and development agreement is entered into...

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Summary

• Before you invest in a R&D cooperation in Europe be shure that you have

carefully checked the Community anti trust law situation.

• Challenge: burden of proof, lack of decisions, different languages, non-

systematic notes, guidelines and regulations

• In order to come into the „safe harbor“ provided by the R&D regulation you may

have to swallow provisions which may be surprising to you in the first moment.

• Exclusive rights for one party: As a rule only possible on a limited basis, time

and application wise

• Cooperation with (potential) competitor problematic:

Right of access to background know-how under R&D regulation

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If you want to be safe of surprises...

.......check European law first

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ANNEX

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Regulations: Empowerment of the Commission

•Article 83

•1. The appropriate regulations or directives to give effect to the principles set out in Articles

81 and 82 shall be laid down by the Council, acting by a qualified majority on a proposal from

the Commission and after consulting the European Parliament.

•2. The regulations or directives referred to in paragraph 1 shall be designed in particular:

•(a) to ensure compliance with the prohibitions laid down in Article 81(1) and in Article 82 by

making provision for fines and periodic penalty payments;(b) to lay down detailed rules for

the application of Article 81(3), taking into account the need to ensure effective supervision

on the one hand, and to simplify administration to the greatest possible extent on the other;

(c) to define, if need be, in the various branches of the economy, the scope of the provisions

of Articles 81 and 82;(d) to define the respective functions of the Commission and of the

Court of Justice in applying the provisions laid down in this paragraph;(e) to determine the

relationship between national laws and the provisions contained in this section or adopted

pursuant to this article.

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R&D Regulation: conditions for exemptions Art. 3 Para. 2

„Access“ (what does THAT mean?) to the results for the purpose of further research or exploitation

to other/ reseach/exploitation Forschungs- Verwertungszwecken (++)

for the targeted exploitation purpose? (??)

German: „Zugang“ zu den Ergebnissen für weitere Forschungs- oder Verwertungszwecke für alle Parteien

French: „complémentaires“ against (reasonable) payments? (+)

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Exclusive manufacturing by party A, exclusive sale through party B possible?

• Is as a rule, no joint exploitation Art. 3 para. 3 !! – provisions Art. 5

• Applicability of other regulations, e.g. No. 2790/1999 as to vertical

agreements? (-)

Article 2 (5)

• Art 81 (1) Treaty: competition? sub-supplier: different level of production

or distribution chain

• Art. 81 (3) Treaty fulfilled otherwise?

Practical Impact Of European Community Anti Trust Law On R&D Agreements Volker Linden, Rechtsanwalt, German-Australian-Pacific Lawyers Association International.

Documents

rd agreements volker

rd cooperation

associations of undertakings

national law

category of agreements

category of decisions

distortion of competition

trading parties