Monopoly and fair competition – learn the principles of creating contracts

In times of rapid technological progress and an economy based on information and knowledge, two autonomous legal concepts play a significant role in shaping business environment, concepts which may seem to be contradictory: intellectual property law and competition law. The first one protects investments, progress and innovations by granting the entitled person an exclusivity, i.e. a legal monopoly to use their products or solutions, in specific territories (most often in specific countries). The second one, as a public law, protects the free and competitive market.

The existence of a monopoly in any form, including a monopoly on intellectual property goods, stays in fundamental conflict with basic objectives and priorities of competition law. Because of them, on a monopolistic market, competition becomes significantly limited, if not completely excluded. On the other hand, the aim of both areas of law is in fact the effective allocation of resources and the promotion of technical progress, and the final beneficiary of the constantly developing technology, often protected by intellectual property law, is the consumer whose welfare in a broader aspect is also protected by competition law. The relationship between these two legal concepts is particularly complicated.

In recent years, the relationship between intellectual property and competition law has become increasingly strong due to technological advances, globalization, the development of digital economy, and the proliferation of data and knowledge-based business models. In order to navigate this changing landscape, entrepreneurs must have knowledge, on one hand, how to secure their assets and increase their competitive advantage on the market, and on the other hand, how to manage antitrust risk so as not to expose themselves to sanctions for violating the rules of competition law.

Get to know the 4 principles of competition law relevant to holders of exclusive rights that are regulated by the Industrial property law or rights to works within the meaning of copyright law. Let’s get started!

1. Follow the rules of fair competition to be able to hold monopoly

In the Polish legal order, competition law recognizes a possibility of granting legal monopoly on goods protected by intellectual property law and does not interfere with it as long as it is not used contrary to competition law. The Act applies to the assessment of behaviour of an intellectual property right holder when he makes a decision and steps to commercially exploit his products or services.

2. Competition on the market is needed – by limiting it, you will not gain

Competition law prohibits all agreements and concerted practices between undertakings, the object or effect of which is to eliminate, restrict or otherwise distort competition in the relevant market. By way of exception to this rule, the prohibition of anti-competitive agreements does not apply to agreements entailing economic benefits if the restrictions contained therein are necessary to achieve these benefits and consumers gain a significant share in them. Moreover, such agreements must not allow the undertakings concerned to eliminate competition in relation to a significant part of the products. Since it is extremely difficult and risky to determine whether the above conditions have been met, the legislator introduced the so-called block exemption for a specific category of agreements which, after meeting the conditions contained therein, are considered compatible with competition law, even if in fact they affect it significantly.

One such block exemption is provided by the Regulation of the Council of Ministers of 30 July 2007 on technology transfer agreements (hereinafter the “block exemption“). What is important, similar solutions are adopted at the EU level.

3. Check if your relationship with the contractor is eligible for more lenient treatment

Technology transfer within the meaning of the block exemption includes contracts on licensing of use of rights to technology (including know-how) or contracts on transfer of rights to technology between two entrepreneurs in order to manufacture goods covered by the agreement, only if part of the risk related to the use of technology is still borne by the entrepreneur transferring the right.

The rules specified in the block exemption shall also apply to any agreements on the waiver of claims and on the settlement of disputes related to transfer of technology.

The rules concerning block exemption vary depending on the market position of the parties to the agreement. In short, if companies are competitors, the block exemption applies when their combined market share does not exceed 20%. However, if companies are not competitors, the threshold is 30%. The regulations may vary according to the type of agreement. For example, when one company grants a licence to another, or when both companies grant each other licences to use rights to technology. There are also differences in situations when the license concerns technologies that do not compete with each other (unilateral transfer of technology) and when the license concerns competing technologies (bilateral transfer of technology).

4. Be sure to familiarize yourself with detailed regulations for specific contract provisions:

Based on the law provisions, it can be indicated that clauses which limit the freedom of either party to set the prices of goods for entities that are not parties to the agreement are not allowed in technology transfer contracts, unless the agreement is concluded between non-competitors, in which case it is possible to set the maximum sale price or the recommended sale price. Clauses which restrict production are also not allowed, with the few exceptions concerning restrictions imposed on the licensee in a unilateral transfer of technology agreement or only on one of the licensees in a bilateral transfer of technology agreement. It is also forbidden to divide market shares or customers subject to strictly defined exceptions that are different for agreements concluded between competitors and non-competitors.  In principle, provisions limiting the licensee’s ability to use their own intellectual property rights or to conduct research and development are also prohibited. Clauses which oblige the licensee to transfer to or grant an exclusive license to the licensor for their own solutions that constitute a development or improvement of the licensed technology also remain prohibited.

As can be seen, navigating through the meanders of competition law is not easy, and if you add another block exemption which is also important for the implementation and use of intellectual property rights (as it will described in the next post) with regard to specialization and research and development agreements, the level of attention that entrepreneurs must show in order to avoid legal conflicts and possible financial consequences resulting from competition law regulations is very high.