Technology's Transfer Game

By Kemp, Richard | Management Today, January 1989 | Go to article overview

Technology's Transfer Game


Kemp, Richard, Management Today


On 30 November, the EC Council of Ministers approved two important regulations dealing with franchise agreements and know-how licensing agreements. These regulations (which are to come into force on 1 February and 1 April 1989 respectively), along with the similar patent licensing regulations passed in 1984, aim to provide in the context of Community competition policy a legal framework regulating technology transfer in the EEC.

Transfers of technology -- whether patented products or processes, or non-patented but confidential know-how -- play a key role in the dissemination of technical information and product commercialisation. Enterprises as diverse as high-street franchise outlets and large industrial multinationals may depend on technology for the kernel of their business -- whether as licensor/transferor for the income stream it generates or as licensee/transferee for the availability and enhancement of the technology concerned.

In the generation after 1945, the proliferation of international technology transfer was, in the context of burgeoning world trade, largely a matter of private contract between transferor and transferee, along with the continuing relaxation of export and import restrictions. Although protection of the underlying rights to the technology (arising under national laws) might (and still does) vary considerably from country to country, the regulatory requirements for, say, a patent licence were not unduly onerous -- once the patent had been applied for and obtained in the home state, and corresponding foreign protection obtained under the various international conventions.

Curiously enough, it was EC competition policy, rather than intellectual property law, that started from the early 1970s to intervene and regulate technology transfer. The transfer of technology predicates some form of agreement between transferor and transferee; and non-minor agreements which restrict competition and affect trade between EEC member states fall within Article 85 EEC Treaty, which makes competition restrictions void unless an exemption has been obtained.

The legal effect of the intellectual property rights underlying most forms of technology -- patent, copyright trade marks, know-how, etc. -- is to create some sort of limited monopoly under the particular national law where they may arise. The technology transferee, if he is to avoid infringing his transferor's rights and unless he is to buy outright the technology concerned, needs a licence -- which in this context just means permission to do something which he could otherwise be stopped from doing through legal proceedings.

In some rather convoluted reasoning, the European Court of Justice resolved this conflict between the monopoly effect of intellectual property rights and competition law by saying that the full force of Article 85 applies to technology transfer agreements involving the exercise of intellectual property rights. Since then, a large number of Commission decisions have been made under Article 85, examining the effect of competition law on many typical clauses in technology licence agreements; and it is this experience that resulted in 1984 in the patent licensing block exemption regulation under Article 85(3) and which has led to the new franchise and know-how licensing agreement regulations. …

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