IBT – Problem 9.4 Patent and Know-how Licensing Victor H. Bouganim WCL, American University.
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Transcript of IBT – Problem 9.4 Patent and Know-how Licensing Victor H. Bouganim WCL, American University.
IBT – Problem 9.4IBT – Problem 9.4Patent and Know-how LicensingPatent and Know-how Licensing
Victor H. Bouganim
WCL, American University
Victor H. Bouganim, WCL, American University, Spring 2001
Patent and Know-how Licensing Patent and Know-how Licensing Problem 9.4, Textbook p. 865Problem 9.4, Textbook p. 865
Drill-Bit Manufacturing Company, Inc.– Delaware Corporation. Formed in 1949– Manufactures drilling cutting bits for oil rigs for the
U.S. market– Success is largely dependent on patented several
style of drilling bits– Has a larger share of the high end quality market
Event I - Licensing production in Germany Event II - Establishing subsidiary in Mexico
Victor H. Bouganim, WCL, American University, Spring 2001
Licensing Production in GermanyLicensing Production in Germany NordMetall in Hamburg, a German company, is the
potential licensee Drill-Bit will move cautiously into Germany
seeking a transfer of technology via a licensing agreement rather than a wholly owned subsidiary
Drill-Bit proposes a draft of the licensing agreement to NordMetall
EU has adopted regulations on transfer of technology agreements
Victor H. Bouganim, WCL, American University, Spring 2001
Draft License AgreementDraft License Agreement Grant
– Sub licensing– No Competition
Supply of Know-How– Technical Assistance– Engineering
Development Production and
Marketing– Manufacturing and sales
responsibility– Quality control– Marketing
Requirements
Licensing– Trademarks– Patents– Know-how
Confidential relations
– Royalty Initial Payment Records
Term– Termination– Continuing rights and
obligations– Surrender of rights
Governmental Approval
Victor H. Bouganim, WCL, American University, Spring 2001
EU Competition RulesEU Competition Rules In its 1982 Maize Seed judgment, the European Court of
Justice addressed patent license restrictions under the Community’s competition rules.
Article 81(3) of The Treaty of Rome establishing the European Common Market [formerly Article 85(3)] addresses:– Actions affecting trade among member states– Actions restraining competition within the Common Market
Regulation 17– Sets up the investigatory and law enforcement
institutes for European competition law
Victor H. Bouganim, WCL, American University, Spring 2001
Licensing and Competition Licensing and Competition Maize Seed Case, ECJ, 1982Maize Seed Case, ECJ, 1982
Open License Agreement
Do not involve third parties– including restrictions on
parties for non-competition – Necessary for the
dissemination of new technology
Valid
Closed License Agreement
Involve third parties– e.g. preventing third-
parties from export/import– impact on free competition
Violates European competition law
Victor H. Bouganim, WCL, American University, Spring 2001
EU Commission Approval EU Commission Approval Regulation 17Regulation 17
Individual Exemptions– Businesses may prevent
enforcement action by the Commission by notifying the Commission in advance
– Notification suspends the possibility of fines
– Granted by the Commission for a limited period of time
Negative Clearances– Agreements which are
not violating competition rules
– Granted on the basis of the factual and legal background
– Indicates that the Commission sees no grounds at present to intervene
Victor H. Bouganim, WCL, American University, Spring 2001
Group Exemptions Group Exemptions Regulation 17Regulation 17
Inapplicability of competition rules may be done for “Group Exemptions”: I.e. for certain types of agreements
Also known as policy notices Eliminate the need for individual exemptions and
negative clearance Rely upon business self regulation Example: Commission Regulations 240/96
on certain types of technology transfer
Victor H. Bouganim, WCL, American University, Spring 2001
EU Technology Transfer RegulationsEU Technology Transfer RegulationsCommission Regulation 240/96Commission Regulation 240/96
Effective”: 31 January 1996 Regulates technology transfer agreements and
practices to avoid violations of competition rules Covers technology transfer agreements
– Pure patent agreements Acquisition and use of industrial property rights including patents,
designs and trademarks.
– Pure know-how agreements “Rights arising out of contracts for assignment of, or the right to
use a method of manufacture of knowledge relating to use or application of industrial processes”
– mixed agreements
Victor H. Bouganim, WCL, American University, Spring 2001
EU Technology Transfer RegulationsEU Technology Transfer RegulationsRegulation 240/96 - The ListsRegulation 240/96 - The Lists
White List– Clauses in technology
agreements that will not be challenged for anticompetitive reasons
Permissible List– Clauses in technology
transfer agreements that are “generally not restrictive of competition”
Black List– Clauses in technology
agreements that require review because they usually violate competition rules
Gray List– All clauses restrictive of
competition within the scope of the ‘white’ or ‘permissible’ lists and not listed in the ‘black’ list.
– Subject to special procedure
Victor H. Bouganim, WCL, American University, Spring 2001
EU Technology Transfer RegulationsEU Technology Transfer RegulationsWhite List ExamplesWhite List Examples
Exclusive licensing agreements– “an obligation on the licensor not to license other
undertakings to exploit the licensed technology”
Competition clauses– “an obligation on the licensor not to exploit the
licensed technology in licensed territory himself”
– “an obligation on the licensee not to put the licensed product on the market in the territories licensed to other licensees within the common market in response to unsolicited order”
Victor H. Bouganim, WCL, American University, Spring 2001
EU Technology Transfer RegulationsEU Technology Transfer RegulationsPermissible List ExamplesPermissible List Examples
Confidentiality agreement– “an obligation on the licensee not to divulge the
know-how communicated by the licensor…” Assignment clauses
– “an obligation on the licensee not to grant sublicenses or assign the license”
Trademark and source indicator agreements– “an obligation on the licensee to mark the
licensed product with an indication of the licensor’s name”
Victor H. Bouganim, WCL, American University, Spring 2001
EU Technology Transfer RegulationsEU Technology Transfer Regulations Black List examplesBlack List examples
Price dictation by licensor– “one party is restricted in the determination of prices…”
Manufacturing limitation clauses– “the quantity of the licensed products one party may
manufacture or sell or the number of operations exploiting the licensed technology he may carry out are subject to limitations…”
New development assignment clauses - “Grant-back”– “the licensee is obliged to assign in whole or in part to the
licensor rights to improvements to or new applications of the licensed technology”
Victor H. Bouganim, WCL, American University, Spring 2001
EU Technology Transfer RegulationsEU Technology Transfer RegulationsGray List ProcedureGray List Procedure
Parties may notify the Commission on any ‘gray’ clause in their licensing agreements for exemption.
The Commission may exempt such clauses or opposed them.
The Commission has four months to oppose such exemptions. The four month period begins upon notification.
Opposition by the Commission may be withdrawn if the undertakings concerned have shown that the conditions of the competition rules are satisfied.
Victor H. Bouganim, WCL, American University, Spring 2001
EU Regulations - AnalysisEU Regulations - Analysis Are there any provisions in the proposed draft licensing
agreement which might be objectionable to the EU Commission under the Regulations?– Refer to the “Black” and “Gray” Lists.
Can you assume that practices listed as the “White” and “Permissible” Lists can be safely incorporated in the agreement? – Must they be incorporated in a licensing agreement?
Is Regulation 240/9 consistent with EU obligations under TRIPS?
Victor H. Bouganim, WCL, American University, Spring 2001
Control of Anti-Competitive PracticesControl of Anti-Competitive Practices
TRIPS, Article 40TRIPS, Article 40 Acknowledgement that some licensing practices
pertaining to IPR which restrain competition may have adverse effects on trade and may impede technology transfer.
WTO Members may adopt measures to regulate such practices, which may include -– exclusive grant-back of IPR by licensee– preventing challenge to the validity of IPR – coercive package licensing
Victor H. Bouganim, WCL, American University, Spring 2001
Patent and Know-how Licensing Patent and Know-how Licensing Problem 9.4, Textbook p. 865Problem 9.4, Textbook p. 865
Drill-Bit Manufacturing Company, Inc.– Delaware Corporation. Formed in 1949– Manufactures drilling cutting bits for oil rigs for the
U.S. market– Success is largely dependent on patented several
style of drilling bits– Has a larger share of the high end quality market
Event I - Licensing production in Germany Event II - Establishing subsidiary in Mexico
Victor H. Bouganim, WCL, American University, Spring 2001
Technology Transfer Laws in MexicoTechnology Transfer Laws in Mexico
Transfer of Technology Act, 1972– Restrictive to IPR owners– Full-scope regulation and supervision of technology
transfer agreements– Repealed in 1991 by the following new IP regime
Industrial Property Law, 1991– In line with the views of IPR in developing nations– Deregulation of technology transfer: Requires registration
of licenses, but not approval of their conditions– Comply with TRIPS and NAFTA
Victor H. Bouganim, WCL, American University, Spring 2001
Technology Transfer Technology Transfer Registration in MexicoRegistration in Mexico
Requires the recordation of patent and trademark licenses and transfers
Does not extend to other types of technology transfer agreements
Concern over public disclosure of terms of the licensing agreement during the registration process
License must be recorded in order to receive legal protection
Victor H. Bouganim, WCL, American University, Spring 2001
Mexico’s Industrial Property LawMexico’s Industrial Property Law
Signals a significant step forward in Mexico’s efforts to join the global economy
Increases the industrial protection afforded most industrialized nations
Has improved the business climate in Mexico and removed a barrier to direct foreign investment and technology transfer
Compulsory licensing provisions for patents – If the patent has not been
worked in Mexico within 4 years from the patent application or 3 years from the patent grant
– Subject to public interest reasons
Where production, supply or distribution of basic commodities would otherwise be impeded
Victor H. Bouganim, WCL, American University, Spring 2001
Intellectual Property Controversy Intellectual Property Controversy
Industrialized Nations
Technology exporters Patent, trademark,
copyright and trade secrets protection is an essential part of their modern technology driven economies
Developing Nations
Technology importers
Intellectual property rights are seen as expensive barriers to economic improvement
Victor H. Bouganim, WCL, American University, Spring 2001
NAFTANAFTANorth America Free Trade AgreementNorth America Free Trade Agreement
Current parties include– Canada– United States– Mexico
Accession: Article 2204– The agreement is not limited to the current parties– Other countries are able to join NAFTA
Implemented on 1 January 1994
Victor H. Bouganim, WCL, American University, Spring 2001
NAFTA IP RegimeNAFTA IP RegimeChapter 17Chapter 17
Minimum standards for IP rights – Art. 1702 allows parties to enact higher standards in their
national laws. IPR covered by the IP Chapter of the NAFTA
Agreement – Copyright– Patents– Trade secrets– Trademarks
Geographical indications Industrial designs
– Layout designs of semiconductor integrated circuits
Victor H. Bouganim, WCL, American University, Spring 2001
NAFTA IP - OverviewNAFTA IP - Overview
Enforcement– Articles 1714 through 1719
Dispute settlement– Chapter 20
Dispute resolution procedures
– Article 1714(5) parties are not required to “establish a judicial system for the
enforcement of IP rights distinct from” their existing systems.
Substantially similar to TRIPS
Victor H. Bouganim, WCL, American University, Spring 2001
NAFTA IP PrinciplesNAFTA IP Principles
National Treatment Article 1703– “each party shall accord to
nationals of another Party no less favorable than that it accords to its own nationals with regard to the protection and enforcement of all IP rights”
Compare: TRIPS Art. 3
Article 1704 Control of Abusive or Anticompetitive Practices or Conditions– Parties may enact anti-
trust laws as long as they are consistent with NAFTA’s provisions
Compare: TRIPS, Art. 40
Victor H. Bouganim, WCL, American University, Spring 2001
NAFTA and TRIPSNAFTA and TRIPSSubstantially similar
– Both attempt a harmonization through minimum standards of IP protection
– Both give effect to IP Conventions as a starting point and National Treatment principle
– Both applies principles for dispute resolutionMinor differences in some details of the
provisions
Victor H. Bouganim, WCL, American University, Spring 2001
Problem 9.4 AnalysisProblem 9.4 Analysis Drill-Bit Mexican SubsidiaryDrill-Bit Mexican Subsidiary
Do you see any reason why Drill-Bit should not go forth with licensing technology to Mexico?
What steps should Drill-Bit take to secure its interest in transferring technology to Mexico?