AmCham EU submission to DG Competition regarding the January 2004 Draft of the Proposed Technology Transfer Block Exemption Regulation and Guidelines (link)

Brussels, 23 Mar 2004

Amcham EU would like to take this opportunity to comment on the latest draft of the TTBE in advance of the Advisory Committee meeting scheduled to discuss the matter on 18 February 2004.

We appreciate that the current text represents a significant improvement of the draft circulated by the Commission in October 2003. However, we have a number of concerns which we believe are widely shared by other industry organisations which we would like to draw to your attention.

Market Share Thresholds

We continue to believe that market share thresholds are a particularly blunt and arbitrary instrument to measure market power in the context of technology transfer. In particular, we urge the Commission to revise the 20% and 30% thresholds upwards. Relevant markets in dynamic innovative industries tend to be defined rather narrowly with the result that a great many agreements will exceed the thresholds envisaged by the Commission. The Guidelines are helpful in determining how the Commission will apply Article 81 above those thresholds. However, at this point in time, industry is seeking legal certainty against the background of untested decentralised enforcement of the rules by national authorities once Regulation 1/2003 comes into effect.

With respect to agreements between competitors, we urge the Commission to adopt a higher threshold as it seemed willing to do so in the 2001 Evaluation Report. With respect to agreements between non-competitors, we believe that the 30% market share threshold is unhelpful and unnecessary: the Commission should revert to its position in the 2001 Evaluation Report, namely that such agreements are normally acceptable up to a dominance threshold. Article 82 is sufficient to cover any potential problems coupled with the envisaged withdrawal mechanism.

For example, Paragraphs 159-160 of the Guidelines indicate that exclusive licensing between non-competitors is likely to satisfy Article 81(3) up to the level of dominance unless the dominant licensee obtains an exclusive license in order to foreclose the market. This one example is helpful but further guidance is needed on how the rules apply to dominant companies and under which circumstances the Commission is likely to intervene below the dominance level.

Availability of Independent Technologies

Although, at Paragraphs 24 and 63, the Commission states that outside the TTBE it will look not only at market share but also the number of independently controlled technologies available that are substitutable for the licensed technology at a comparative cost for the user, in innovative markets it is unrealistic to expect that there will be five independently available technologies on the market. This "4 plus" rule does not provide any realistic safe harbour and ought to be reduced to a "2 plus" rule.

Qualification of the Competitive Relationship

We welcome the inclusion of Article 4(3) in the Regulation which provides that where the parties are not competing at the conclusion of the agreement but subsequently compete, they will continue to be treated as non-competitors for the life of the agreement. We strongly urge the Commission to abandon the proviso that the regime applicable to competitors will apply as of the moment the agreement is altered or amended. This proviso should only apply if such amendment were to seek to introduce a hard-core restraint as listed at Article 4(1) into an agreement between parties who have subsequently become competitors. We would also ask the Commission to clarify whether the same approach will be taken to agreements which are already in existence and which, when concluded, were between parties who were not competitors but who have in the interim become competitors. There would seem to be no reason to treat pre-existing agreements more harshly by excluding them from the Article 4(3) rule for as long as the parties do not include during the lifetime of the agreement any restraints which are prohibited at Article 4(1).

The Manufacturing Requirement

We urge the Commission to clarify the manufacturing requirement at Article 2 to ensure that it expressly covers software licensing where the software is an input, however negligible, into the production of a product or provision of a service (e.g., design software or software solutions developed for a customer's equipment).

At Paragraph 39 of the Guidelines we would urge the Commission to delete the proviso whereby the Regulation will only apply to agreements allowing the licensee to sublicense "...unless the manufacture or provision of contract products constitutes only an insignificant part of the contractual relationship between the parties". What is insignificant is not an objective test and the parties' relationship may vary over time: this proviso introduces an unnecessary complication.

Settlement Agreements

We welcome the Commission's willingness to include settlement agreements in the scope of the block exemption Regulation. We would urge the Commission to revise Paragraph 200 which purports to exclude from the Regulation and indeed from the availability of Article 81(3) any restraints on competition in areas not covered by the actual dispute between the parties. We believe that the wording in Paragraph 30 of the Guidelines remains too suspicious of settlement agreements in that this language embodies an assumption that where competing technologies are concerned the parties will have a common interest in alleging a block: even though evidence other than court decisions "can be relevant," the Commission is still unnecessarily ambiguous in this respect.

Transitional Period

We welcome the extension of the transitional period at Article 9(2) to 31 March 2006. Although the new text is at least as generous as the old Technology Transfer Block Exemption Regulation, the lack of a grandfathering clause will require parties to conduct an in-depth review of the nature of their relationship. For sectors where licensing is a common phenomenon this represents a significant burden for industry. In adopting the current TTBE the Commission was prepared to grandfather in pre-existing agreements for their duration. There is no obvious reason why a similar approach should not be adopted in this case, particularly in light of the very significant changes of the Commission is proposing and against the backdrop of modernisation.

Conclusion

Although we welcome the progress made since the October 2003 draft, we regret that the consultation procedure has been so truncated and that this latest text will not be made available for public comment. The Guidelines introduce a complex economics based analysis and, in light of modernisation, we strongly believe that industry ought to have been more fully consulted on issues of such competitive importance. We urge the Commission to re-look at the Guidelines to ensure that they are as clear as possible and would urge a greater use of headings, subheadings and practical examples to illustrate the underlying theory.

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American Chamber of Commerce in the EU