1. 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

2. Volker Linden DAPJV - GAPLA 2 | Li 02-2007 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.

3. Volker Linden DAPJV - GAPLA 3 | Li 02-2007 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.

4. Volker Linden DAPJV - GAPLA 4 | Li 02-2007 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.

5. Volker Linden DAPJV - GAPLA 5 | Li 02-2007 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

6. Volker Linden DAPJV - GAPLA 6 | Li 02-2007 Community Law To Ensure Competition –Guidelines (binding the Commission) „although not binding on them these guidelines also intend to give guidance to the courts and authorities of the Member States“ (No 3, Guidelines to Art. 81 (3), 2004/C/101/07) on vertical restraints, horizontal cooperation agreements, on the effect on trade concept, on the application of Art. 81 (3) –Commission Notices, e.g. on agreements of minor importance http://eur-lex.europa.eu –

7. Volker Linden DAPJV - GAPLA 7 | Li 02-2007 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

8. Volker Linden DAPJV - GAPLA 8 | Li 02-2007 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)

9. Volker Linden DAPJV - GAPLA 9 | Li 02-2007 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

10. Volker Linden DAPJV - GAPLA 10 | Li 02-2007 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

11. Volker Linden DAPJV - GAPLA 11 | Li 02-2007 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)

12. Volker Linden DAPJV - GAPLA 12 | Li 02-2007 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)

13. Volker Linden DAPJV - GAPLA 13 | Li 02-2007 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

14. Volker Linden DAPJV - GAPLA 14 | Li 02-2007 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)

15. Volker Linden DAPJV - GAPLA 15 | Li 02-2007 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

16. Volker Linden DAPJV - GAPLA 16 | Li 02-2007 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)!

17. Volker Linden DAPJV - GAPLA 17 | Li 02-2007 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...

18. Volker Linden DAPJV - GAPLA 18 | Li 02-2007 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

19. Volker Linden DAPJV - GAPLA 19 | Li 02-2007 If you want to be safe of surprises..........check European law first

20. Volker Linden DAPJV - GAPLA 20 | Li 02-2007 ANNEX

21. Volker Linden DAPJV - GAPLA 21 | Li 02-2007 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.

22. Volker Linden DAPJV - GAPLA 22 | Li 02-2007 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? (+)

23. Volker Linden DAPJV - GAPLA 23 | Li 02-2007 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?