Treaty establishing the European Community 1957

Council Regulation 1/2003 on the implementation of a81 & a82 of the treaty

Application of 81(3) to vertical agreements Regulation 2790/99

Application of 81(3) to technology transfer agreements Regulation 772/2004

 

Treaty establishing the European Community 1957

3

28

29

30

81

82

220

295

 

Council Regulation 1/2003

1 Application of articles 81 and 82 of the EC Treaty

2 Burden of proof

3 Relationship between Arts 81 & 82 and national laws

5 Powers of the competition authorities of the member states

6

8

9

 

Application of 81(3) to vertical agreements Regulation 2790/99

1 Definitions

2 Exemption

3 Market Share thresholds

4 Exceptions

5 Exceptions

 

Application of 81(3) to Technology Transfer agreements Regulation 772/2004

1 Definitions

2 Exemption

3 Thresholds

4 Hardcore Restrictions

5 Excluded Restrictions

6 Withdrawal

7 Non-application

8 Application of Thresholds

10 Transitional period

 

Treaty establishing the European Community 1957

[The high contracting parties] determined to lay the foundations of an ever closer union among the peoples of Europe, have decided to create a European Community,

3 (1) ... the activities of the community shall include...,

a. the prohibition, as between Member States, of customs duties and quantitative restrictions on the import and export of goods, and of all other measures having equivalent effect;

c. an internal market characterised by the abolition, as between Member States, of obstacles to the free movement of goods, persons, services and capital,

28 Quantitative restrictions on imports and all measures having equivalent effect, shall be prohibited between Member States.

29 Quantitative restrictions on exports, and all measures having equivalent effect, shall be prohibited between Member States.

30 28 & 29 shall not preclude prohibitions or restrictions on imports, exports or goods in transit justified on grounds of public morality, public policy or public security; the protection of health and life of humans, animal or plants; the protection of national treasures possessing artistic, historic or archaeological value; or 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.

 

81

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

 

3) The provisions of paragraph 1 may, however, be declared inapplicable in the case of any (agreement or category of agreements between undertakings, decision or category of decisions by associations of undertakings, or 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 concerted restrictions which ore not indispensable to the attainment of these objectives or

b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question

 

82

Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market insofar as it may affect trade between member states.

Such abuse may, in particular, consist in:

a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;

b) limiting production, markets or technical development to the prejudice of consumers;

c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;

d) making 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.

 

220.

Member States shall, so far as is necessary, enter into negotiations with each other with a view to securing for the benefit of their nationals:

- the protection of persons and the enjoyment and protection of rights under the same conditions as those accorded by each State to its own nationals;

- the abolition of double taxation within the Community;

- the mutual recognition of companies or firms within the meaning of the second paragraph of Art. 58, the retention of legal personality in the event of transfer of their seat from one country to another, and the possibility of mergers between companies or firms governed by the laws of different countries;

- the simplification of formalities governing the reciprocal recognition and enforcement of judgments of courts or tribunals and of arbitration awards.

 

295 This treaty shall not prejudice the national rules governing the system of property ownership.

 

Council Regulation 1/2003

 

1 Application of articles 81 and 82 of the EC Treaty

1) Agreements, decisions and concerted practices caught by art 81(1) which do not satisfy art 81(3) are prohibited.

2) Those caught by art 81(1) which do satisfy art 81(3) are not prohibited.

3) The abuse of a dominant position referred to in art 82 is prohibited.

 

2 Burden of proof

In any national or community proceedings for the application of Arts 81 & 82 the burden of proving an infringement of Art 81(1) or 82 shall rest on the party or the authority alleging the infringement. The undertaking or association of undertakings claiming the benefit of art 81(3) shall bear the burden of proving that the conditions of that paragraph are fulfilled.

 

3 Relationship between Arts 81 & 82 and national competition laws

1) Where national competition law is applies to agreements, decisions by associations of undertakings or concerted practices within Art 81(1), which may affect trade between member states within the meaning of that provision, Art 81 shall also be applied. Where the national competition law is applied to any abuse prohibited by Art 82, Art 82 shall also be applied.

2) National competition law may not lead to the prohibition of agreements, decisions by associations of undertakings or concerted practices which may affect trade between member states but which do not restrict competition within the meaning of Art 81(1), or which fulfill Art 81(3) or which are covered by a regulation for the application of Art 81(3). Member states shall not under this regulation be precluded from adopting and applying on their territory stricter national laws which prohibit or sanction unilateral conduct engaged in by undertakings.

3) Paragraphs 1 & 2 do not apply when the competition authorities and the courts of the member states apply national merger control laws, nor do they preclude the application of provisions of national law that predominantly pursue an objective different from that pursued by Arts 81 & 82.

 

5 Powers of the competition authorities of the member states

The competition authorities of the member states shall have the power to apply Arts 81 & 82 in individual cases. For this purpose, acting on their own initiative or on a complaint, they may take the following decisions:

- requiring that an infringement be brought to an end

- ordering interim measures

- accepting commitments

- imposing fines, periodic penalty payments or any other penalty provided for in their national law.

Where on the basis of the information in their possession the conditions for prohibition are not met they may likewise decide that there are no grounds for action on their part.

 

6 Finding and termination of infringement

1) Where the commission finds an infringement of Arts 81 or 82, it may require the undertakings and associations to end the infringement. It may impose any behavioral or structural remedies proportionate to the infringement committed and necessary to end the infringement effectively. Structural remedies can only be imposed either where there is no equally effective behavioural remedy or where such behavioral remedy would be more burdensome for the undertaking concerned. If the commission has a legitimate interest, it may also find a past infringement.

 

8 Interim measures

1) In cases of urgency due to the risk of serious and irreparable damage to competition, the commission, acting on its own initiative may by decision, on the basis of a prima facie finding of infringement, order interim measures.

2) Such a decision shall apply for a specified period and may be renewed as necessary and appropriate.

 

9 Commitments

1) Where the commission intends to adopt a decision requiring that an infringement be brought to an end and the undertakings offer commitments to meet the concerns, the commission may make those commitments binding on the undertakings. Such a decision may be adopted for a specified period and shall conclude that there are no longer grounds for action by the commission.

2) The commission may reopen the proceedings:

a) where there has been a change in any facts on which the decision was based;

b) where the undertakings concerned act contrary to their commitments; or

c) where the decision was based on incomplete, incorrect or misleading information provided by the parties.

 

Application of 81(3) to vertical agreements Regulation 2790/99

 

For the purposes or this regulation

“Competing undertakings” means actual or potential suppliers in the same product market; the product market includes goods or services which are regarded by the buyer as interchangeable with or substitutable for the contract goods or services.

“non-compete obligation” means any obligation causing the buyer not to manufacture purchase sell or resell goods or services which compete with the contract goods or services, or any obligation on the buyer to purchase more than 80% of purchases from the supplier or from another undertaking designated by the supplier, calculated on the basis of the value of its purchases in the preceding calendar year.

“exclusive supply obligation” means any obligation causing the supplier to sell the goods or services specified in the agreement only to one buyer inside the Community for the purposes of a specific use or for resale.

“selective distribution system” means a distribution system where the supplier undertakes to sell the contract goods or services, only to distributors selected on the basis of specified criteria and where these distributors undertake not to sell such goods or services to unauthorised distributors.

“IP rights” includes industrial property rights, copyright and neighbouring rights.

“know how” means a package of non-patented practical information, resulting from experience and testing by the supplier, which is secret, substantial and identified: in this context, “secret” means that the know-how, is not generally known or easily accessible; “substantial” means the know-how includes information which is indispensable to the buyer for the use, sale or resale of the contract goods or services; “identified” means the know-how must be described in a sufficiently comprehensive manner so as to make it possible to verify that it fulfils the criteria of secrecy and substantiality;

“buyer” includes in undertaking which, under an agreement falling within A81(1) of the Treaty, sells goods or services on behalf of another undertaking.

2 Exemption

1) Pursuant to A81(3), A81(1) shall not apply to agreements or concerted practices entered into between two or more undertakings each of which operates, 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 (“vertical agreements”).

2) This exemption shall apply to vertical agreements between an association of undertakings and its members, or between such an association and its suppliers, only if all its members are retailers of goods and if no individual member of the association, together with its connected undertakings, has a total annual turnover exceeding EUR 50 million;

3) This exemption shall apply to vertical agreements containing provisions which relate to the assignment to the buyer or use by the buyer of intellectual property rights, provided that those provisions do not constitute the primary object and they directly relate to the use, sale or resale of goods or services by the buyer or its customers – on condition that those provisions do not contain restrictions of competition having the same object or effect as vertical restraints which are not exempted under this regulation.

4) This exemption shall not apply to vertical agreements between competing undertakings unless the agreement is a non-reciprocal agreement and:

a) the buyer has a total annual turnover not exceeding EUR 100 million, or

b) the supplier is a manufacturer and a distributor of goods, while the buyer is a distributor not manufacturing goods competing with the contract goods, or

c) the supplier is a provider of services at several levels of trade, while the buyer does not provide competing services at the level of trade where it purchases the contract services.

5) This regulation shall not apply to vertical agreements the subject matter of which falls within the scope of any other block exemption regulation.

 

3 Market Share thresholds

1) Subject to paragraph 2, the exemption shall apply if the supplier's market share does not exceed 30%.

2) The exemption shall not apply in the case of vertical agreements containing exclusive supply obligations if the buyer's market share exceeds 30%.

 

4 Exceptions

This exemption shall not apply to vertical agreements which have as their object:

a) the restriction of the buyer's ability to determine its sale price, without prejudice to a maximum price or recommended price,..

b) the restriction of the territory into which, or of the customers to whom, the buyer may sell, except:

- the restriction of active sales into the exclusive territory or to an exclusive customer group reserved to the supplier or allocated by the supplier to another buyer, where such a restriction does not limit sales by the customers of the buyer,

- the restriction of sales to end users by a buyer operating at the wholesale level of trade,

- the restriction of sales to unauthorised distributors by the members of a selective distribution system, and

the restriction of the buyer's ability to sell components, supplied for the purposes of incorporation, to customers who would use them to manufacture the same type of goods as those produced by the supplier.

 

5 Exceptions

This exemption shall not apply to any of the following obligations in vertical agreements: a) non-compete obligation being indefinite or exceeding 5 years unless and while the sale is from buyer controlled premises. (Tacit renewal beyond 5 years is deemed to be indefinite)

b) buyer obligation not to make, buy or sell goods or services after termination of the agreement, unless the obligation:

relates to competing goods or services and

is limited to the premises from which the buyer has operated during the agreement, and

is indispensable to protect know-how transferred by the supplier to the buyer, and provided that the duration is limited to 1 year after termination. (This without prejudice to the possibility of imposing a restriction which is unlimited in time on the use and disclosure of know-how which has not entered the public domain.)

(c) any obligation causing the members of a selective distribution system not to sell the brands of particular competing suppliers.

 

Application of 81(3) to Technology Transfer agreements Regulation 772/2004

Regulation 19/65 empowers the commission to apply a81(3) to certain categories of tech transfer agreements (licensing of technology) and concerted practices with two parties.

This regulation replaces and repeals 240/96 – replacing lists of exempted clauses with categories of agreements exempted up to a threshold market power.

 

1 Definitions

“agreement” - an agreement, decision of an association or a concerted practice.

“tech transfer agreement” - a patent, know-how, software copyright, or mixed licensing agreement, and may relate to sale of products or licensing or assignment of other IP right, provided they are not the primary purpose and they relate to the production, assignment, know-how or software copyright where the assignor retains part of the tech exploitation risk.

“reciprocal agreement” - two undertakings grant each other patent, know-how, software copyright licenses, concerning competing technology.

“product” - good or service, intermediary or final.

“IP rights” - industrial property rights, know-how, copyright and neighbouring rights.

”patents” - patents (& applications), utility models (& applications), designs, topographies of semiconductor products, supplementary protection certificates (e.g. for medicinal products) & plant breeder's certificates.

“know-how” - a package of non-patented practical information from experience, which is secret (not generally known or easily accessible) substantial (significant and useful for production), and identified (verification of secrecy and substantiality possible).

“selective distribution system” - where the licensor licenses production based on specified criteria and where licensees undertake not to sell to unauthorised distributors.

“severable improvement” - improvement exploitable without infringing the licensed technology.

“connected undertakings” - means one has majority power in the other.

 

2 Exemption

a81(1) shall not apply to tech transfer agreements between two undertakings permitting the production of contract products, as long as the IP rights in the disenchant technology exist, or the know-how remains secret (where the know-how becomes publicly known by action of the licensee the exemption applies for the duration of the agreement).

 

3 Thresholds

1) a2 applies to competing undertakings with combined market share not exceeding 20% (on the affected relevant tech & product market).

2) a2 applies to non competing undertakings where each market share does not exceed 30% (on the affected relevant tech & product market).

3) market share is defined in terms of the presence of the licensed tech on the relevant product market(s). the licensor's market share includes that of licensees.

4 Hardcore Restrictions

1) For competing undertakings, the exemption shall not apply to agreements which, have as their object:

a) restriction of determination of prices to 3^rd parties.

b) limitation of output, (except of contract products by one/the licensee).

c) the allocation of markets or customers except where:

production of licensee limited to specified technical field(s) or product market(s).

licensor not to license to another licensee in a particular territory.

licensee may produce only for own use but not restricted in selling spare parts for its own products

and particularly for non-reciprocal agreements where:

production of licensee and/or licensor limited to specified technical field(s), product market(s) or exclusive territories reserved for the other party.

restriction of active/passive sales to the exclusive territory (or customer group) reserved for the other party.

restriction of active sales by the licensee into the exclusive territory (or customer group) allocated by the licensor to another licensee (if not competing with the licensor at the time of its license).

licensee obliged to produce only for a particular customer, where license was granted to create an alternative source of supply for that customer.

d) restriction of licensee's ability to exploit own tech or of any party to carry out R&D, unless the restriction is indispensable to prevent the disclosure of licensed know-how to 3^rd parties.

2) For Non-competing undertakings, the exemption shall not apply to agreements which have as their object:

a) restriction of determination of prices to 3^rd parties, (a maximum or recommended price is OK - if not amounting to a fixed of minimum price due to pressure or incentives of any party)

b) restriction of passive sales to territory or customers, except:

i) to an exclusive territory or customer group reserved for the licensor.

ii) to an exclusive territory or customer group reserved for another licensee during the first two years that this other licensee is selling the contract products in that territory or to that customer group.

iii) obligation to produce only for its own use provided that the licensee is not restricted in selling as spare parts for its own products.

iv) obligation to produce only for a particular customer, where license was granted to create an alternative source of supply for that customer.

v) restriction of sales to end-users by wholesale licensee.

vi) restriction of sales to unauthorised distributors by members of a selective distribution system.

3). Non-competing rules apply if the parties become competitors after conclusion of the contract, unless the agreement is subsequently amended.

 

5 Excluded Restrictions

a2 shall not apply to any of the following obligations in tech transfer agreements:

any obligation on the licensee to grant an exclusive licence for or assign its own severable improvements or own new applications of the licensed technology.

any no-challenge obligation on the licensee, of licensor's common market IP rights (termination on challenge of validity of licensed IP rights is OK

a2 shall not apply to an obligation limiting a non-competing licensee's ability to exploit its own technology or of any party to carry out R&D, unless indispensable to prevent disclosure of licensed know-how to 3^rd parties.

 

6 Withdrawal

The commission may withdraw the benefit of this regulation pursuant to 29(1) of regulation 1/2003, where it finds that a tech transfer agreement nevertheless has effects which are incompatible with a81(3), in particular where access of technologies or potential licensees to the market is restricted (E.g. By cumulative parallel networks of restrictive agreements, or the parties do not exploit the licensed tech without any objectively valid reason).

 

7 Non-application

Pursuant to a1a of regulation 19/65, the commission may declare that, this regulation is not to apply to tech transfer agreements containing specific restraints relating to a market, where parallel networks of similar tech transfer agreements cover more than 50% of a market. Such a regulation shall not become applicable earlier than six months after its adoption.

 

8 Application of the thresholds

Market share shall be calculated on sales value data if available, otherwise sales volumes.

Market share shall be calculated from the preceding year.

If the market share rises to exceed a threshold, the exemption shall apply for two calendar years following the year this happened.

 

10 Transitional period

For agreements in force on 30 April 2004 not satisfying the conditions of this exemption, a81(1) shall not apply until 31 March 2006.