Competition Law

Strong legislation applies in all the major territories to prevent agreements between companies and organisations and their activities which have the effect of preventing, distorting or restricting free competition in commerce. This includes production, sale and distribution of goods and services and extends to transactions involving intellectual property such as licensing and franchising.

In the EU, the Commission is largely focussing its enforcement on larger companies whose impact in the market is significant, and has indicated that distortion of markets is unlikely to apply in the case of agreements between SME's with a combined market share of less than 10%. This may however raise pertinent questions on what constitutes 'the market' if development products are intended to address a need for which there is no established market during the pre-commercial activity.

Competitive questions also arise for technology companies in R&D and licensing agreements where competitors or suppliers/customers agree to collaborate on development of new products, and share the IP generated. The Commission has allowed Block exemptions for this type of agreement as it recognises that the pro-competitive benefits of the innovation generated by such collaborations usually outweigh any resulting restrictions on the exploitation. Nevertheless it is important to ensure that agreements are drafted to ensure conformance with the legislation, particularly in the exploitation phase.

This is a complex area to navigate and requires both competition law and intellectual property review, to ensure that the company's strategic needs are supported, but that the agreement benefits from the various exemptions available.

It is important to note however that exemption does not mean immunity from the effect of legislation. Changes in market structure over time may mean that agreements which are initially exempt may lose the benefit. It is important in long term collaborations to be vigilant in this area.