Co-Operation and Competition: Antitrust Pitfalls in R&D Alliances and Other Strategic Partnerships


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Practical tips for in-house counsel on the assessment and management of key risks, ie. antitrust and intellectual property associated with strategic partnership opportunities (printed in International In-house Counsel Journal-Issue of April 2012)

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Co-Operation and Competition: Antitrust Pitfalls in R&D Alliances and Other Strategic Partnerships

  1. 1. International In-house Counsel JournalVol. 5, No. 18, Winter 2012, 1 Striking the Right Balance Between Co-Operation and Competition: Several Antitrust Pitfalls in R&D Alliances and Other Strategic Partnerships1 IOHANN LE FRAPPER General Counsel Networks Group, Alcatel-Lucent, & President Association of Corporate Counsel Europe & Aurélien Neret-Minet, Member of the Paris barABSTRACTThe aim of this article is to provide guidance to in-house counsel on the assessment andmanagement of key risks associated with partnership opportunities. As such, in-housecounsel should be able to quickly identify the antitrust risks related to each type ofpartnership (joint R&D, joint purchasing, joint manufacturing and/or joint marketing),taking in account the evolution in 2010 and 2011 of the EU regulatory framework on co-operations among firms.The authors highlight the various criteria needed to ensure antitrust compliance ( shares, threshold issues etc.) and the tricky practical situations that may arise(e.g. information exchange among partners, new “safe harbour” conditions regardingagreements in restraint of trade).The article also addresses the cornerstone issue of discussing upfront among potentialpartners the access to and allocation of background and foreground Intellectual PropertyRights (IPR), failing which the partnership may derail and lead to costly litigation anddetrimental business consequences. In this respect, the authors stress how undue IPRrestrictions may have an impact on the antitrust analysis of a partnership, this interactionillustrating the growing tension among antitrust and IP topics in high-tech business.KEYWORDSSTRATEGIC PARTNERSHIPS, ALLIANCES, R&D AGREEMENTS, ANTITRUST,COMPETITION LAW, INTELLECTUAL PROPERTY RIGHTS, BACKGROUND IP,FOREGROUND IP, STANDARDISATION AGREEMENTS, LICENSING REFUSAL,LEGAL PRIVILEGE, TECHNOLOGY TRANSFER, JOINT VENTURE,HORIZONTAL CO-OPERATION, VERTICAL CO-OPERATION, CO-OPETITION,ABUSE OF DOMINANT POSITION, EUROPEAN COMMISSION, GUIDELINES,BLOCK EXEMPTION, DEPARTEMENT OF JUSTICE, FEDERAL TRADECOMMISSION1 The views expressed herein are our own and do not express the position of our respective employers.International In-house Counsel Journal ISSN 1754-0607 print/ISSN 1754-0607 online
  2. 2. 2 Iohann Le FrapperPreliminary Section1. Lacklustre performance of strategic partnershipsResearch & development (R&D) strategic alliances among firms can be defined as thepooling of some companies’ resources in order to develop or upgrade products orservices that companies would not be able to develop or upgrade on a stand-alone basisor at the same accelerated pace.Such alliances, quite common in the hi-tech, biotech and pharmaceutical industries, maycover a large variety of situations, depending on the partners involved (companiesoperating on the same market as competitors or not, universities etc.) and the nature ofthe alliance (from contractual agreements such as licensing, joint research agreements,co-sourcing, joint marketing agreements etc. to equity mechanisms like incorporated jointventures2).As for an example of successful partnership in the automotive sector, one could have alook at TPCA, the Czech joint venture between PSA and Toyota, which seems to be asuccessful collaboration among competitors for almost 10 years now 3.Even though strategic alliances allowed some major breakthroughs in the field of hi-techindustry4, numerous cases of failed alliances have shown how unstable relationshipsamong firms could be5, some authors pointing out that “the corporate highway is litteredwith the burnt-out shells of thousands of strategic alliances, which are supposed to bevery close business relationships between two companies for their mutual benefit6”.2. Learn to share your intellectual property rightsAmong all the possible reasons for either the last-mile collapse of deal negotiations or theimplementation of strategic alliances to fall short of the business expectations, theineffective management of intellectual property rights has become a prominent one,especially in the case of horizontal co-operations, where companies might be partners andcompetitors at the same time (situations referred to as “co-opetition7”).In such cases, the success of a strategic alliance relies greatly on the partners’ ability toovercome their understandable reluctance to share their know-how and intellectualproperty rights with one another. In practice, drawing a line between partnership andcompetition is complex, and “some even argue that collaboration in strategic alliances istantamount to competition in a different form 8.”2 For a typology of strategic alliances, see: « Strategic Alliances, an Entrepreneurial approach to globalization”, M. Y. YOSHINO, U. SRINIVASA RANGAN, Harvard Business School Press, 1995, quoted in “Globalization: how strategic alliances bring production and market advantages. The case of Renault/Nissan”, J.J. CHANARON, TII Annual Conference, 27 th April 2006, available at: e.g. Sony and Philips on the compact-disk (for a rapid analysis of this case, see for instance: “Managing Innovation: integrating technological, market and organizational change”, J. TIDD, R. BESSANT, K. PAVITT, J. Wileys & Sons Ltd, 2005 third ed., p.2875 For an analysis of the concept of stability in strategic alliances: “The stability of strategic alliances: Characteristics, factors and stages”, XU LIANG, YUAN LI, SHANXING GAO, Journal of International Management 14 (2008), p. 173 – 189, available at: See « Why Strategic Alliances don’t work », B. ROBINSON, 2002, available at: See “Co-Opetition : A Revolution Mindset That Combines Competition and Cooperation”, A. BRANDENBURGER and B. NALEBUFF,1996, See « Learning in Strategic Alliances », O. SERRAT, Asian Development Bank, September 2009,
  3. 3. R&D Alliances and Other Strategic Partnerships 3And not only failure to share out intellectual property rights in an effective manner mayimpede a strategic alliance’s achievement, it may as well put the partners at risk of non-compliance with antitrust principles.3. Pro-competitive effects of strategic alliancesEven though strategic alliances entail close relationships between independent andsometimes competing enterprises, theses alliances are usually regarded, from an antitrustviewpoint, as contributing to technical and economic progress. For that reason, they mayenjoy positive assessment by antitrust authorities and be exempted from enforcement ofantitrust prohibitions9.Under EU competition law, Article 101 § 3 of the Treaty on the Functioning of theEuropean Union (TFEU) acknowledges that certain agreements restricting competitionamong firms may have an overall positive impact on the market and should be allowed.Such agreements are allowed in the sense that they are exempted from the enforcement ofArticle 101 § 1, which prohibits agreements restricting competition among firms.Under US law and according to the US Supreme Court 10, the famous Article 1 of theSherman Act11, which prohibits agreements in restraint of trade, should be applied underthe “rule of reason”, according to which an agreement among competitors, whose effectsare beneficial to the economy, is not prohibited by antitrust law.4. No pre-notification process for strategic alliancesAs there is neither in the US nor in EU a notification and clearance process to provide asafe heaven to partners prior to completion of an alliance transaction (except for: 1)mandatory joint ventures deemed “concentrative” 12 under EU law whose parents’turnover exceeds the relevant thresholds and 2) the US Department of Justice’s relativelyslow Request for Business Review Letter procedure 13), the respective antitrust agencieshave issued several regulations and/or guidelines to give broad or specific guidance toenterprises whether their co-operation agreements could have pro-competitive effects.Thus, as the assessment by antitrust regulators of the anti-competitive purpose or effect ofan alliance may occur a posteriori, in practise several years after the deal execution, therole of the corporate counsel is even more critical in providing clear guidance to his orher client ahead of the deal structuring and negotiations. Neither the corporate counselnor the management of the partners will have the comfort of securing a regulatoryapproval before consummating the planned alliance.9 The exemption scheme, as detailed in this article, implies two steps: first, an agreement must raise antitrust concerns and fall within the scope of provisions prohibiting agreements in restraint of trade; then, such agreement could seek exemption. Yet, it may happen that some agreements do not raise any antitrust concerns at all in the first place, and that no exemption scheme is therefore applicable (See Infra, EU Guidelines 2011/C 11/01 on horizontal co-operation agreements, § 20).10 National Soc’y of Prof’l. Eng’rs v. United States, 435 U.S. 679,692 (1978)11 15 U.S.C § 112 Under EU law, see Council Regulation (EC) N°139/2004 of 20 January 2004 on the control of concentrations between undertakings, Article 3 § 4: Under US law, see Hart-Scott-Rodino Antitrust Improvement Act on pre-merger notification and related provisions (on joint venture: 16 C.F.R. § 801.40), and National Cooperative Research Act (NCRA); cf. Infra p.10 footnote 1.13 To get the Agencies’ assessment on planned joint ventures and other business conducts:
  4. 4. 4 Iohann Le Frapper5. Check relevant regulations and guidelinesBeforehand, corporate counsel should determine clearly which sets of rules are applicableto their project, starting with the main jurisdictions (US, EU, China, etc.), depending onthe market impacted by the planned alliance.Simultaneous compliance with these regulations is sometimes difficult, in particular ifboth EU and US laws need to be taken into account for one project (as in globalpartnerships). In case of blatant discrepancies between the US and EU conditions ofvalidity, companies should be advised, in our view, to seek compliance with the moststringent requirements so as to mitigate the exposure in the future to possible antitrustchallenges in either jurisdiction. 5.1. Under EU law: a net of detailed rulesDepending on their impact on competition, co-operation agreements may be exemptedeither automatically (“block exemption”) or on an individual and case-by-case basis,following the European Commission’s block exemptions and guidelines, as renewed in2010 and 2011.For any agreement that does not meet the conditions of block exemption, the factorswhich merit an exemption are to be invoked on an individual basis, in which case partiesdo not benefit from any presumption and should be able, if required by the antitrustagencies or a national court in which the invalidity of a clause has been alleged, to provecompliance with the conditions set forth under aforesaid Article 101 § 314. Except in acase triggering merger control, the Commission does not require prior-notification ofstrategic alliances. Bear in mind that joint ventures may qualify as mergers in certainprecise cases and may need to be notified accordingly before implementation.An important distinction to make between so-called vertical and horizontal alliances:Vertical co-operation: if the planned co-operation agreement is entered into bycompanies operating at different levels of the supply chain (vertical), it may be governedby the Commission’s regulation N°330/2010 on vertical agreements as interpreted by theCommission’s guidelines on vertical restraints issued in same year 15; the aforesaidregulation provides automatic “block exemption” for vertical alliances under certainconditions.Horizontal co-operation: If the planned co-operation agreement is entered into bycompanies operating on the same level of the supply chain (horizontal), which usuallyimplies they are current or potential competitors, the Commission distinguishes betweenthe various possible horizontal co-operations: R&D agreements, specialisationagreements, joint purchasing agreements, agreements on joint commercialisation andstandardisation agreements.R&D and specialisation agreements: among all these types of horizontal co-operationagreements, the Commission provides automatic “block exemptions” for R&D andspecialisation agreements16, the European Commission assuming that, at least if the14 Namely, the agreement should promote technical or economic progress, allow consumers a fair share of theresulting profit, restrain from imposing unnecessary restrictions upon the partners and refrain from eliminatingcompetition on the relevant market.15 For vertical co-operation, see Guidelines on vertical restraints C 130/1 (19.5.2010): http://eur- and the Commission Regulation N°330/2010 of April 20th, 2010: http://eur- Commission regulations (EU) N°1217/2010 of 14 December 2010 on research and development agreements:
  5. 5. R&D Alliances and Other Strategic Partnerships 5parties are below a certain market share ceiling when applicable, such agreements areunlikely to harm competition on the relevant markets and that they necessarily fosterinnovation and economic progress.The concept of “R&D agreements” encompasses both joint R&D and joint exploitation ofthe results, the exploitation being the processes of production or distribution (throughlicensing of intellectual property for instance, communication of required know-how forthe manufacture of the product etc.17)For the other categories of horizontal co-operations: the exemption is possible on anindividual and case-by-case basis, which means that, if challenged ex-post by the antitrustagencies, the companies will usually have to prove that their agreement bears pro-competitive effects18. On that point, the Commission has issued guidelines on how toconduct this antitrust assessment, with the revised 2011 Guidelines on horizontal co-operation agreements (“the Guidelines”).19Technology transfers: in the case where companies have not entered into a co-operationagreement but have merely planned licensing arrangements, the Commission has issuedan automatic “block exemption” regulation on transfers of technology 20. When horizontalor vertical co-operation agreements imply technology transfers among the partners, anissue is to distinguish whether the block exemption on technology transfer agreements isrelevant.In fact, the block exemptions on horizontal or vertical agreements supersede theregulation on transfers of technologies regulations for technology transfers arrangementstaking place among partners21, provided that these transfers are strictly necessary for theproject to be implemented and do not constitute the primary object of such agreements.It is to be noted that, under EU law, if the parties are competitors, the Guidelines onhorizontal co-operation prevail over other guidelines, even in the case where thecompetitors operate at different levels of the supply chain (vertical agreements) 22.Finally, strategic alliances usually imply various stages of co-operation (e.g. jointpurchasing, joint production, joint marketing, etc.) that may be governed by different setsof exemption conditions; in case of conflicting conditions, it might be necessary todetermine the alliance’s “centre of gravity” by which the most important part of the co-operation agreement will determine which conditions for exemption should prevail 23. and Commission regulation (EU) N°1218/2010 of 14 December 2010 on specialisation agreements: http://eur- Op.cit. Regulation N°1217/2010, Article 1, (i) and (g)18 On the basis of Article 101 § 3 TFEUs requirements19 Guidelines on the applicability of Article 101 TFEU to horizontal co-operation agreements, 2011/C, 11/01, January 14 2011: Commission regulation N°772/2004, 27 April 2004 on the application of Article 81§ 3 of the Treaty tocategories of technology transfer agreements: Guidelines on the application of Article 81 of the EC Treaty to technology transfer agreement, April 27 th,2004: Op. cit. Commission Regulation N°1217/2010, article 2 § 2.22 Op.cit. EU guidelines on horizontal co-operation agreements, § 12: the block exemption for vertical agreements does not apply to agreements between competitors (on the relevant market).23 Ibid. §13 and 14. The US Guidelines have adopted a rather similar approach, although more general, statingthat each agreement composing the alliance should be analysed, as well as the overall co-operation. If someagreements composing the overall alliance are sufficiently closely related and dependent on one another, thenthey should be analysed as a whole.
  6. 6. 6 Iohann Le FrapperIndeed, joint research and development is often the cornerstone of such strategic alliancesbut rarely the sole purpose of the cooperation.Figure 1 gives a broad - not comprehensive - overview of current EU block exemptionson strategic alliances.Fig.1: Overview of current block exemptions on strategic alliances: 5.2. A broader US approachThe US Department of Justice (“DoJ”) and Federal Trade Commission (“FTC”) – the USantitrust agencies - have issued Guidelines for Collaborations among Competitors whichestablish the agencies’ positive view of strategic alliances which have pro-competitiveeffects24. Licensing arrangements are governed by the Agencies’ Guidelines for theLicensing of Intellectual Property (the “Intellectual Property Guidelines”) 25; as stated inthe Guidelines on collaboration among competitors, these Intellectual PropertyGuidelines remain in effect to address issues in their special contexts 26.To be noted, as opposed to EU law, there are no “block exemptions” as such; case-by-case analysis is therefore necessary, based on the application of the competitiveassessment under the rule of reason and the prohibition of certain agreements illegal perse27. Nonetheless, several “safety zones” are provided under the current guidelines 28, andthe US antitrust agencies do not challenge competitors’ collaborations “when the market-share of the collaboration and its participants collectively account for no more than 20%of each relevant market in which competition may be affected”29. More specifically,24 US DoJ and FTC Antitrust Guidelines for collaborations among competitors (2000):; to be noted, the National Cooperative Research Act was passed in 1984 in order to give joint ventures for R&D protection against antitrust actions. Said Act provides that the rule of reason shall govern the antitrust analysis of joint R&D; it also provides a notification process to antitrust agencies of joint ventures for R&D, allowing companies to get damages limitations in case of antitrust infringements.25 Antitrust Guidelines of the Licensing of Intellectual Property (1995):,26 Op.cit. Antitrust Guidelines for Collaborations among Competitors, p.2: “the analytical framework set forth in these Guidelines is consistent with the analytical frameworks in the (…) Intellectual Property Guidelines, which remain in effect to address issues in their special context”.27 Op.cit. Antitrust Guidelines for Collaborations among Competitors, p.8 § 3.228 Section 4 of the Guidelines, see Op.cit. Antitrust Guidelines on collaboration among competitors, 4.2 and 4.3
  7. 7. R&D Alliances and Other Strategic Partnerships 7R&D agreements are not challenged when three or more research efforts being carriedout at the same time are considered to be close substitutes of the parties’.For each type of agreement (joint-selling and marketing, joint-purchasing etc.), somespecific market-share thresholds are to be found in the guidelines.Fig. 2: Overview of current thresholds under EU and US laws – B.SICALIDES andB.SHER30:NB: Note that this chart takes into account the specific “DoJ and FTC Statements ofAntitrust Enforcement Policy in Health Care”’s thresholds on information exchange andjoint purchasing6. Striking the right balanceCorporate counsel advising their clients are well aware of the difficulty of striking abalance between the managers’ tendency to impose restrictions upon their partnersconcerning access to their intellectual property, and the corporate objective to fullycomply with the antitrust provisions that strictly limit such restrictive conducts. Beloware some pitfalls to bear in mind at the various stages of the co-operation. ***30 Source: B. SICALIDES, B. SHER, “Competitor Collaborations: new EU Guidelinesand US law compared”, Cross-Border Competition Handbook 2011, Practical LawCompany, p.3,
  8. 8. 8 Iohann Le Frapper1. Setting up alliance agreements: antitrust pre-requisites for a successfulpartnership 1.1 Conditions for block exemption under EU law in R&D and specialisationagreements 1.1.1. First step: beware of market-share thresholdsAt first, in-house counsel need to check the market-share thresholds below which theautomatic exemption mechanism may be available. For R&D agreements amongcompetitors, their combined market-share should not exceed 25% - for specialisationagreements, 20%. Otherwise, the block exemption does not apply to the foreseen co-operation; yet, the benefit of possible individual exemption remains available.For other types of co-operation (joint purchasing, etc.), even though there are no specificblock exemptions provided, some “safety zones” exist where, below certain market-sharethresholds, agreements are deemed unlikely to threaten competition on their relevantmarket31.As to the determination of relevant markets, this could be all the more difficult sinceR&D may imply the development of new products, with no obvious substitutableequivalents. Both the EU and US guidelines provide indications on that question, whichshould be addressed with great care. 1.1.2. Second step: include what needs to be sharedCompanies should be careful regarding the access of their intellectual property rights,since one of the major inputs of the latest EU regulations and guidelines on horizontal co-operation (2010 and 2011) has been to require, in the case of joint R&D andspecialisation agreements, a fair management of the intellectual property rights, that mayrequest full access for partners to intellectual property rights resulting from the co-operation (“Foreground IP”), as well as access by either partner to the necessary know-how (or licence to patent) owned by (or licensed to) the other partner prior to the alliance(“Background IP”). Grant full access to partners to resulting intellectual property of a joint R&D agreementUnder the EU regulations, the exemption of joint R&D agreements is subject to thefollowing condition: “The research and development agreement must stipulate that allthe parties have full access to the final results of the joint research and development orpaid-for research and development, including any resulting intellectual property rightsand know-how, for the purposes of further research and development and exploitation, assoon as they become available32”.But the access to such results may be limited according to the objective nature of thepartnership (e.g. partnership with a university that does not plan to get involved in thejoint exploitation phase of the R&D), as well as in the case of production agreementsamong partners, where one company agrees not to get involved in “joint exploitation”,i.e., the production phase, or to specialise its production process 33.31 E.g. for joint selling, marketing or purchasing arrangements, the EU relevant market-share thresholds is 15%32 Op.cit. Commission Regulation (EU) N°1217/2010, Article 333 Ibid. “Where the parties limit their rights of exploitation in accordance with this Regulation, in particularwhere they specialise in the context of exploitation, access to the results for the purposes of exploitation may
  9. 9. R&D Alliances and Other Strategic Partnerships 9This access to the resulting intellectual property rights may give rise to compensation 34. Itis clear that the requested amount of such compensation should not lead to the exclusionof the other partner from access to the intellectual property.When R&D agreements provide restrictions on the partner’s access to the results of theco-operation, and there is no provision for “joint exploitation”, they cannot benefit fromthe automatic exemption35. An undue restriction, in the absence of joint exploitation,could be for example an exclusive license back by partner A of the Foreground IP topartner B, where partner A would be deprived of the right to use the Foreground IP or beprohibited from further innovation by making improvements to the Foreground IP. Grant access to your partner to the know-how necessary for the R&D projectAs for the access among partners to pre-existing intellectual property rights such aspatents and know-how (“Background IP”), the EU regulation provides that “where theR&D agreement provides only for joint research and development (…) the research anddevelopment agreement must stipulate that each party must be granted access to any pre-existing know-how of the other parties, if this know-how is indispensable for the purposesof its exploitation of the results36”.This provision is of significant importance for companies considering strategic alliances,but they should remain cautious as to disclosure of secret know-how which mayconstitute one of their major intangible assets. Corporate counsel need to consider how todetermine in the relevant agreements among the partners which confidential informationwill be shared for the purpose of the cooperation among two or more teams of engineers,by which means said information will be shared among partners and remain protected,failing which a broad and vague flow of data is likely to fall into the scope ofBackground IP.Yet, the Guidelines do not provide further guidance on that matter. Thus, it seems thatintellectual property sharing out mainly pertains to contractual freedom and thatcompanies should rather rely on sound contractual provisions to protect their interests. 1.1.3. Third step: avoid hardcore and excluded restrictions 37Hardcore restrictions are those provisions which, if included in the R&D or specialisationagreements, impede exemption of the whole alliance as it will be deemedanticompetitive. Such restrictions usually relate to price-fixing, allocation of markets andcustomers, limitations of output and restrictions as to the right of the other party to carryout other R&D projects in different fields of study38.As for excluded restrictions, those being less likely to threaten competition than hardcorerestrictions, they are to be considered not benefiting from the exemption if existing,casting doubt on their validity, but do not preclude the application of the exemption forthe rest of the agreement. Considered as excluded restrictions, are such obligations asthose aimed at limiting the other party’s right to challenge the validity of the intellectualbe limited accordingly. Moreover, research institutes, academic bodies, or undertakings which supply researchand development as a commercial service without normally being active in the exploitation of results may agree to confine theiruse of the results for the purposes of further research.”34 Ibid.35 Op. cit. EU Guidelines on horizontal co-operation, § 14036 Op.cit. Commission Regulation (EU) N°1217/2010 Article 337 Ibid. Article 5, Article 6 in the Commission Regulation (EU) N°1217/2010 and Article 4 in the Commission Regulation (EU) N°1218/201038 Ibid. Articles 5 and 4 of Commission Regulations N°1217 and 1218
  10. 10. 10 Iohann Le Frapperproperty rights resulting from the project, or aimed at limiting the potential licensing tothird parties, except in certain precise conditions. 1.2. Focus: practical guidance on contractual drafting and management of potential restrictionsBeforehand, given that parties to a co-operation are likely to exchange sensitiveinformation, sound confidentiality agreements are a prerequisite before planning furthercollaboration.Then, clauses related to intellectual property rights in the alliance-related agreementsshould at least address the following topics. 1.2.1. Which technologies and related intellectual property are needed in order to achieve the objective of the alliance?This process requires: A careful assessment and identification of intellectual property rights owned by or licensed to each party; Clear determination of the technology needed to carry out the partnership with clear representations, warranties and indemnity provisions regarding the Background IP information made available by each party to the other. 1.2.2. How should the access to intellectual property rights be organized among the partners?Contract provisions should include clearly the scope and length of the co-operation, withpotential limitations as to the purpose of the license: territory restrictions, compensatingfees, inclusion of a sub-licensing possibility to licensees such as the respective customersor contract manufacturers, right to use for joint design, right to manufacture or havemanufactured, right to sell related products, right to provide related services, right toimprove Background IP (against any compensation?) or Foreground IP, etc. Background IPObviously, the agreement will often state that each party’s licensing rights with respect tothe Background IP of the other party will be strictly limited to the purpose of the alliance.Thus, the licensee is prohibited from making any unauthorized use of the Background IPfor any other purpose, failing which it may be exposed to a legal action from the licensoron the ground of infringement of the latter’s rights.The allocation of IP rights among the parties will depend upon different factors such asthe equal or fair balance or not in the contribution by each partner of: Access to its Background IP falling into the scope of the alliance ; Financing of its share of joint R&D efforts; Resources (teams and facilities) made available to team up (via the joint venture, if any). The nature of the co-operation, either by way of contractual arrangement through licensing or assignment arrangements separate or incorporated into co-operation agreements, or by way of equity co-operation, with the incorporation of a joint venture vehicle that will receive cash and/or in-kind contributions from both shareholders and that will assign certain intellectual property rights to the joint-venture with license-back arrangements.
  11. 11. R&D Alliances and Other Strategic Partnerships 11Accordingly, the financial terms of the licensing of Background IP may be free of charge(one-way or two-way) or describe flows of royalty fees payable upfront and/or on ayearly basis by the licensee based, for example, on net sales of products put onto themarket (as contractually defined) by the licensee or its affiliates. Foreground IPCounsel should also address issues relating to the scope of rights related to theForeground IP resulting from joint R&D efforts: Freedom of either partner to sell or support resulting products to any customer or any market with or without restriction (is it on a royalty- free basis, depending on the respective contributions?) Right of each party to improve or customize related products independently from the other party or subject to a prior joint decision not to co-fund resources for that purpose?To be compliant with antitrust requirements, these limitations should not be justified bythe mere licensor’s willingness to protect its market power against competitors. 1.2.3. Other topics in-house counsel should address Beware: the co-operation will end one dayPotential partners often have lengthy discussions about their respective freedoms duringthe term of the co-operation but cannot or should not avoid dealing with the likely futurecircumstances when the co-operation expires or is subject to an early termination event.Thus, counsel should define which rights will or should survive upon the end of the co-operation to avoid a lethal risk of technology dependency by one partner towards itsformer partner. “No-poaching” undertakingsAlso, counsel should consider including non-solicitation provisions in the agreement withrespect to the teams that will cooperate, since strategic partnerships offer the opportunityfor competitors to get a good insight of each company’s key human assets. Obviously, thescope of the “no-poaching” undertakings should be carefully drafted to ensurecompliance with the applicable laws. ***2. Steering the partnership in a manner compliant with antitrust regulations 2.1. Beware not to exchange too much information with your partnerCompetitors planning to set up a strategic partnership have obviously to disclose sensitiveinformation about each other; but, depending on the nature of the information shared,such exchanges may lead to anticompetitive coordination of the competitors’ commercialconduct39.Since drawing a line between prohibited and lawful information exchanges requires acautious antitrust analysis, in-house counsel should be well aware of the antitrustagencies’ position on that topic. Corporate counsel should address these two issues in39 Op. cit. EU Guidelines on horizontal co-operation agreements, §65, « By artificially increasing transparency in the market, the exchange of strategic information can facilitate coordination (that is to say, alignment) of companies’ competitive behaviour and result in restrictive effects on competition. »
  12. 12. 12 Iohann Le Frapperpriority: which information is considered strategic? When is the exchange of informationconsidered as being made?On the whole, the guidelines endorse roughly similar arrangements 40, according to whichsome exchanges of information are considered anticompetitive by nature (per se) - thisinformation being, for instance, individualised data on prices, quantities or customers;some others may have anticompetitive effects, depending on their characteristics and onthe nature of the relevant markets, but could be allowed if deemed necessary for anoverall pro-competitive partnership to be carried out41.Besides the uncertainty surrounding the concept of “strategic” information, lies theagencies’ broad interpretation of what constitutes an exchange. Indeed, for instance, theEuropean Commission has stated very clearly that “when a company receives strategicdata from a competitor (be it in a meeting, by mail or electronically), it will be presumedto have accepted the information and adapted its market conduct accordingly 42”.Especially under EU rules, in effect the mere exchange of strategic information can beconsidered and sanctioned as a cartel; since such exchange could occur easily, forinstance through mere e-mails, in-house counsel should monitor constantly whichinformation is being shared in the course of the alliance and give relevant training andadvice to employees on conduct to adopt. 2.2. Be careful not to gain decisive influence over your partnerCompanies planning to set up an alliance have to define ways to conduct and control theimplementation of their project without jeopardizing the need for flexibility in adjustingthe resources, timeline, and goals, as may be required; as such, they should set upgovernance mechanisms such as steering committees which enable quick resolution ofdeadlocks among the partners. These mechanisms should preserve the partners’respective independence and should not allow one entity to take, in practice, informalcontrol of the other (i.e. exercising such influence as to determine in practice the otherparty’s strategy).Indeed, such control of one company by another might lead to the triggering of themerger control regulations43. Even though joint ventures in strategic partnerships areusually not intended to last as independent and economically viable entities, partnersshould bear in mind that creations of joint ventures which have a “concentrative” nature,i.e., long-term entities, economically independent from their parent companies andviable, are usually subject to premerger review (above certain turnover or other thresholdrequirements)44. Failure to comply with premerger notification and waiting periodrequirements (“gun jumping”) violates both US and EU antitrust regulations when theyare applicable and lead to significant fines.40 Both EU and US Guidelines provide guidance to define which information exchanges are allowed in horizontal co-operations.41 Op. cit. EU Guidelines on horizontal co-operation agreements, § 102 « Similarly, information exchanges that form part of horizontal co-operation agreements are also more likely to fulfil the conditions of Article 101(3) if they do not go beyond what is indispensable for the implementation of the economic purpose of the agreement (for example, sharing technology necessary for an R&D agreement or cost data in the context of a production agreement). »42 Op.cit. EU Guidelines on horizontal co-operation agreements, § 6243 See Clayton Act, Article 7A, and Council regulation (EC) N°139/2004 (EC merger regulation): See for instance, EC merger regulation, Article 3 (4)
  13. 13. R&D Alliances and Other Strategic Partnerships 13 2.3. Focus: Standardisation agreements and RAND licensingBoth the EU and US antitrust analysis consider that standardisation agreements may havepro-competitive effects and should consequently be allowed. Yet, when certaintechnologies protected under intellectual property rights (e.g. patents) are necessary to setthe standards of the industry, the owner of such technology could easily gain decisivecontrol over the other participants and the companies willing to join the initiative, byimposing upon them abusive restrictions on access to its technology (through excessiveroyalty demands for instance 45).To make sure standardisation agreements bear pro-competitive effects, antitrust agenciesrequire fair and non-discriminatory access to the resulting standards and relatedintellectual property rights, as well as disclosure of such intellectual property rights priorto the standard-setting46. In-house counsel should remain attentive to the potentialimplementation of “FRAND” and “RAND” licensing schemes relating to their industry47. ***3. Managing the results of the partnership: strategic alliance and third parties 3.1. Licensing arrangements between partners and third partiesLicensing arrangements among firms may be subjected to antitrust analysis and often areconsidered pro-competitive. As such, they are governed by specific exemptionregulations and guidelines48, except when these transfers and licensing arrangements takeplace within the scope of certain strategic alliances (R&D and specialisationagreements)49.Outside of these particular partners’ relationship – e.g. between the partners’ joint ventureand a third party - licensing arrangements fall within the scope of common transfers oftechnology which might be “block exempted” as such under EU law, if compliant withthe specific conditions of Commission Regulation (EC) N°772/200450. The licensingarrangements should not include hardcore restrictions, aimed at limiting the other party’s45 See cases involving Rambus and Qualcomm companies, (FTC v Rambus (2009),, Qualcomm v Broadcom). For an analysis of these cases, see “Deterring “Patent Ambush” in Standard Setting: Lessons form Rambus and Qualcomm”, M. S. ROYALL, A. TESSAR, A. DI VINCENZO, Antitrust, Vol. 23, N°3, 2009, American Bar Association, available at: DeterringPatantAmbush.pdf46 Op. cit. EU Guidelines on horizontal co-operation agreements, § 257 et seq. (namely § 269)47 Reasonable and Non-discriminatory licensing (RAND) and Fair, Reasonable and Non-discriminatory licensing (FRAND) are types of licensing schemes used by standards setting organizations (SSO) in order to promote in an fair and effective manner the implementation of industry standards. See, for instance, See Antitrust Guidelines for the Licensing of Intellectual Property issued by the US DoJ and FTC (1995), and European Commission regulation N°772/2004 on block exemption for transfers of technology, April 2004 and relevant Guidelines 2004/C 101/0249 Op. cit. EC regulation N°1217/2010, Article 2, § 2: “The exemption provided for in paragraph 1 shall applyto research and development agreements containing provisions which relate to the assignment or licensing ofintellectual property rights to one or more of the parties or to an entity the parties establish to carry out thejoint research and development, paid-for research and development or joint exploitation, provided that thoseprovisions do not constitute the primary object of such agreements, but are directly related to and necessary fortheir implementation.”50 Op.cit. EU Guidelines on transfers of technology, § 60
  14. 14. 14 Iohann Le Frapperability to determine its prices when selling products, sharing markets and customers orrestricting its ability to exploit its own technology or to carry out R&D projects 51.Under US law, licensing arrangements are governed by the Antitrust Guidelines for theLicensing of Intellectual Property (1995). As a reminder, the Guidelines provide anantitrust “safety zone” for licensing arrangements made by companies whose combinedmarket shares do not exceed a 20% threshold. Otherwise, safe harbour could be alsogranted to licensing arrangements regarding a technology which has three or moresubstitutable equivalents on the market52. Given that the Guidelines have not beenofficially updated, one might question their relevance; counsel should thus remainparticularly aware of the potential new agencies’ stance on that matter. 3.2. Partners’ refusal to grant licences to third partiesParties to a strategic alliance should bear in mind that antitrust provisions related to theabuse of monopoly power are still applicable, regardless of their potential exemptionunder rules governing anti-competitive agreements.Also, when partners collectively refuse to grant a licence to a third party, such behaviourmay fall within the scope of provisions prohibiting agreements in restraint of trade. 3.2.1. Refusal to grant a licence under EU rules on abuse of dominanceUnder EU law, the famous case Tetra Pak53 expressly held that exemption under formerArticle 85 (art.101 TFEU) did not preclude application of Article 86 (art. 102 TFEU)prohibiting abuses of dominant market power.One major issue is to distinguish whether a partner’s refusal to grant a licence or to giveaccess to relevant intellectual property may constitute abuse of a dominant position.In fact, the European Court of Justice (“ECJ”) has decided in few cases that the refusal tolicense intellectual property rights may constitute an abuse of a dominant position. In thefamous RTE –ITP “Magill” case54, the ECJ observed that, although the mere ownershipof an intellectual property right cannot in itself confer a dominant position, “the exerciseof an exclusive right by the proprietor may, in exceptional circumstances, involve abusiveconduct” (§ 50). Some stringent conditions were nonetheless necessary for the refusal toqualify as an abuse of dominant position55.On that aspect, the Commission has specified that a dominant company’s “refusal tosupply” may constitute abusive conduct, including the “refusal to license intellectual51 See EC regulation N°772/2004, Article 4 for a full range of hardcore restrictions, depending on several factors to closely consider.52 Intellectual Property Guidelines, 4.353 ECJ, Case T-51/89, 1990, see § 23;;the EU Guidelines on horizontal co-operations refer to that case, stating that “the assessment under Article 101as described in these guidelines is without prejudice to the possible parallel application of Article 102 of theTreaty to horizontal co-operation agreements” (§ 16).54 ECJ, C-241/91 and C-242/91 RTE – ITP v. Commission (1995) – “Magill” case55 Op.cit. “Magill” case § 319/ the Court decided that the refusal to grant a licence can constitute an abuse ofdominant position in some exceptional circumstances, these being, in particular: “in the first place, the refusalrelates to a product or service indispensable to the exercise of a particular activity on a neighbouringmarket; in the second place, the refusal is of such a kind as to exclude any effective competition on thatneighbouring market; in the third place, the refusal prevents the appearance of a new product for which there ispotential consumer demand. Once it is established that such circumstances are present, the refusal by theholder of a dominant position to grant a licence may infringe Article 82 EC unless the refusal is objectivelyjustified.”
  15. 15. R&D Alliances and Other Strategic Partnerships 15property rights, including when the licence is necessary to provide interfaceinformation”56.The most prominent example of abuse of a dominant position in the case of “refusal tosupply” is to be found in the case Microsoft v Commission (2007) on interoperabilityinformation.57As for strategic alliances, may the collective refusal, expressed by a group of licensors, togrant a licence to a third party, fall within the concept of collective abuse of dominantposition?In the case Tiercé Ladbroke58 (1997), the ECJ denied the application of Article 102TFEU to a collective refusal to grant licences expressed by a group of licensors, on theground that the criteria developed in the “Magill” case were not fulfilled; as aconsequence, the ECJ did not formally exclude such application in general andtheoretically may allow enforcement of Article 102 TFEU to a collective refusal if the“Magill” case’s criteria were fulfilled.As a general matter, these hypotheses appear quite unlikely to set a precedent formembers of a strategic alliance, given the stringent conditions set forth in the “Magill”case, and the very scarce and particular applications that have followed for the timebeing. 3.2.2. Refusal to grant a licence under US monopolization law: a more restrictive approachUnder US law, alliances and licensing of intellectual property are usually governed by the“rule of reason” assessment of the competitive effects of the intended alliance.Generally, it is acknowledged that the mere refusal to grant a licence is unlikely to besufficient to constitute, in itself, abuse of monopoly power 59, for it has long beenestablished that antitrust laws impose no duty upon a firm to deal with rivals. Thus, asopposed to the results of EU antitrust analysis from time to time, under US law,companies’ refusals to grant a licence have not typically been qualified as abuses ofmonopoly power.Yet, one should be careful since this issue remains unsettled: in some cases, companieswith tangible properties and equipment might be compelled to share them with others 60,under the “essential facility” doctrine. This doctrine “imposes liability when one firm,which controls an essential facility, denies a second firm reasonable access to a productor service that the second firm must obtain in order to compete with the first”61 and hasbeen enforced several times by the US Supreme Court62, though with strict limitations. 3.2.3. Concerted refusal to license the results of a partnership to third parties56 See Communication from the Commission (2009/C 45/02, 24.02.2009) – Guidance on the Commission’s enforcement priorities in applying Article 82 on the EC Treaty to abusive exclusionary conduct by dominant undertakings, § 78: ECJ, 17 september 2007, T-201/04 ; see also case IMS Health, 24 April 2004, C-418/0158 12 june 1997, Tiercé Ladbroke SA v. Commission, T-504-9359 Report “Competition and Monopoly: Single Firm Conduct under Section 2 of the Sherman Act”, US Department of Justice, 2008, p.124, see: For instance, US Supreme Court, Aspen Skiing Co. v. Aspen Highlands Skiing Corp (1985)61 See Alaska Airlines Inc. v. United Airlines Inc., 9th cir., 1991, cited in “The Essential Facilities Doctrine Under US Antitrust law”, R. PITOFSKY, 2002 United States v. Terminal Railroad Ass’, 224 U.S. 383 (1912)
  16. 16. 16 Iohann Le FrapperIt seems acknowledged under EU and US laws that the concerted refusal to grant alicence may constitute a particular type of anticompetitive agreement called a “groupboycott”, insofar as such refusal is intended or has the effect solely of restrictingcompetition on the relevant market. In the case of what appears to be a hardcore cartel-type restriction of competition agreed among competitors, a negative effect oncompetition will likely be presumed, and the arrangement may be deemed to be illegalregardless of assertions of positive intent.Under EU law, in the aforementioned case Tiercé Ladbroke63 (1997), the Court foundthat the concerted refusal to license may indeed fall within the scope of Article 101TFEU on anticompetitive agreements64 and be challenged as such.In the US, in the case Primetime 24 JV v. NBC (2000), the US Court of Appeal for the2nd Circuit held clearly that “a concerted refusal to license copyrighted programming toPrimeTime in order to prevent competition from it is a boycott that, if proven, violates theSherman Act”.65The aforesaid rulings show classic implementation of antitrust rules on agreements inrestraint of trade. In-house counsel should provide clear guidance to their management onthe fact that collaboration among partners is limited to their mutual relations for the solepurpose of the project carried out, and potential exemptions do not grant them protectionagainst the enforcement of antitrust rules to their relationships with third parties.Concluding remarksIn the global economy of today, strategic alliances are very likely to have an internationaldimension and may as such entail relationships between companies sharing very similaror to the contrary different corporate and legal cultures. Therefore, in-house lawyersshould be able to anticipate the risks linked to these differences, in the same manner asthey are able to comprehend a variety of laws applying to a single matter.This variety of applicable legal and cultural frameworks and related risks for counsel hasbeen recently illustrated by the Akzo Nobel decision rendered in 2010 by the ECJ, whichtriggered the resurgence of the old debate on the lack of legal privilege for in-houselawyers dealing with the EU Commission (likewise for in-house counsel in countries likeFrance) 66. The side effect of the EU case-law is in effect to put European in-housecounsel at a competitive disadvantage compared to their US legal peers in order to berecognized as “trusted legal advisers”. Such a stance can also be detrimental to the smalland medium enterprises in Europe as they may not always understand the opportunity orafford to seek the benefit of seeking advice from a law firm to ensure that the content ofthe legal opinion (subject to legal privilege) can not be relied upon by antitrust agenciesagainst the interests of the outside counsel’s client. ***Alcatel-Lucent is a global communications solutions provider, a leader in mobile, fixed,IP and optics technologies, and a pioneer in applications and services; Alcatel-Lucent63 12 june 1997, Tiercé Ladbroke SA v. Commission, T-504-9364 Op.cit. Tiercé Ladbroke, § 146: “it is conceivable that some aspects of the manner in which intellectual property right is exercised may prove to be incompatible with Article 85 [101 TFEU] where they serve to give effect to an agreement which may have as its object or effect the prevention, restriction or distortion of competition within the common market.”65 US Court of Appeal, 2nd Circuit, Primetime 24 JV v. NBC, point b), available at: ECJ, Akzo Nobel Chemicals Ltd/Commission, 14 September 2010, C-550/07 P; this case upheld a previous ECJ Court decision (AM & S Europe v Commission, 155/79, 1982 ECR 1575).
  17. 17. R&D Alliances and Other Strategic Partnerships 17operates in more than 130 countries and achieved revenues of Euro 16 billion in 2010. Itis incorporated in France and headquartered in Paris.
  18. 18. 18 Iohann Le FrapperACKNOWLEDGEMENTSWe are grateful to Alan Hoffman and Eva Bender, both corporate counsel at Alcatel-Lucent, for their useful comments and suggestions.REFERENCESBURROWS Euan, CUNINGHAME Neil, VANDENCASTEELE Alexandre, “Co-operation agreementsbetween competitors”, Ashurst Quickguide, 2011GOMES-CASSERES Ben, “Managing Beyond the Alliance”,, June – August 2004KOVAVIC E. William, “Intellectual Property Policy and Competition Policy”, 66 N.Y.U. Ann. Surv. Am. L.421 2010-2011LUGARD Paul, “The EC Commission’s Review of the EU Competition Rules on Horizontal Agreements”, CPIAntitrust Journal, Competition Policy International, 2010MOORE H. Gary, “Joint venture and Strategic Alliances: ownership of developed intellectual property – Issuesand Approaches”, The Computer & Internet Lawyer, Vol. 24, N°9, September 2007PEUGEOT Valerie et al. « La Coopération au cœur des modèles d’affaires », Vision Croisées - Usages,Technologies et marchés en mouvement N°2, Bearing Point - Sofrecom, 2009REIMANN Carsten, “Essential Function vs. Essential Facility: Defining the amount of R&D protection in high-tech industries after IMS and Microsoft”, The Competition Law Review, Vol.1 Issue 2, December 2004ROBINSON Bill, “Why Strategic Alliances Don’t Work”,, 07.01.2002ROYALL Sean, TESSAR Amanda, DI VINCENZO Adam, “Deterring “Patent Ambush” in Standard Setting:Lessons from Rambus and Qualcomm”, American Bar Association, Antitrust, Vol.23, N°3, Summer 2009SERRAT Olivier, “Learning in Strategic Alliances”, Asian Development Bank – Knowledge Solutions, 62,September 2009B. SICALIDES, B. SHER, “Competitor Collaborations: new EU Guidelines and US law compared”, Cross-Border Competition Handbook 2011, Practical Law CompanyUS Department of Justice and Federal Trade Commission, « Antitrust Enforcement and Intellectual PropertyRights : Promoting Innovation and Competition », 2007US Department of Justice, “Competition and Monopoly: Single Firm Conduct under Section 2 of the ShermanAct”, 2008VILMART Christian, VILMART Christine, “Les lignes directrices sur les restrictions horizontales: l’enferpave de bonnes intentions”, La Semaine Juridique Entreprise et Affaires N°7, 17 Février 2011, 1134VOGELAAR O.W. Floris, “The Compulsory Licence of Intellectual Property Rights under the EC CompetitionRules: an analysis of the exception to the general rule of ownership immunity form competition rules”, TheCompetition Law Review, Vol.6 Issue 1 pp.117-137, December 2009WILLIAMSON V. Dean, “Antitrust, Innovation, and Uncertain Property Rights: Some PracticalConsiderations”, 2010 Duke L. & Tech. Rev. 2010XU JIANG, YUAN LI, SHANXING GAO, “The stability of strategic alliances: Characteristics, factors andstages”, Journal of International Management 14 (2008), p.173-189