KNOW-HOW LICENSES

The word Know-how is used all over the world except for France where the French expression “savoir faire” is used. It can be divided into two types: the industrial type, more common, concerning information of a technical nature and the exploitation of technologies; and the commercial type, concerning a patrimony of practical knowledge deriving from experience and experiments relating to services and organisational sales systems.

The subject is governed by Regulation No 240, 31 January 1996.

In the Regulation, know-how is defined as a body of technical information that is secret, substantial and identified in any appropriate form, where:

1. “secret” is the term applied to the know-how package as a body or in the precise configuration which is not known or easily accessible, so that part of its value lies in the temporary advantage which the licensee acquires when it is communicated to him. It is not necessary that the know-how should be absolutely secret, but that, especially within the field of the agreement, the know-how in its entirety should not be easily accessible or generally known, and should be such as to satisfy the technical and commercial requirements of the undertaking, giving results which could not otherwise be achieved at that moment.
   The essential aspect of a know-how agreement is not the transmission of something secret, but rather a communication or transmission (of drawings, formulas and similar) for a money consideration with the obligation to not reveal what has been transmitted or taught.
   It must be held that the obligation of secrecy (in the wide sense), or rather of confidentiality, constitutes a substantial element to qualify the object of a know-how agreement, since the economic value and the interest of the parties subsist for as long as the teachings communicated remain inaccessible to third parties and/or do not become public knowledge.
   We must make it clear that the obligation of confidentiality and secrecy must be expressly stipulated in the agreement;
2. “substantial” is the word applied to know-how which contains useful information which, at the moment the agreement is stipulated, is able to offer reasonable prospects of improvement for the licensee’s competitive position.
   The know-how must include important information for the whole, or a considerable part of:
   1. a method of production;
   2. a product or a service;
   3. the development of a method of production and/or a product and/or a service. It must exclude banal information.
3. “identified” is the word applied to know-how described or to be found on a material support, in such a way as to make possible to verify that it satisfies the requirements of secrecy and substantiality.
   Moreover, if the know-how is identified properly, the licensee is not subject to unjustified restrictions in exploiting his own technology.

The licensee must not divulge the know-how and in any case exploit it after the expiry of the agreement if the know-how is still secret. On the contrary, it is not possible to forbid the licensee from continuing to use the know-how after expiry if it has entered the public domain.

The licensor cannot:

• authorise other companies to use the technology granted in the territory of the licence, including the whole of the common market or a part thereof;
• himself use the technology licensed in the territory where the licence has been granted;
• require the payment of royalties for the manufacture of products which are not patented, or for goods or services which are not entirely or partly obtained by means of the licensed technology;
• require payment for using know-how which has become public knowledge for a reason which can be imputed to the licensor or to an undertaking connected therewith.
  The first two restrictions are admitted for a maximum of ten years from the date on which the first licensing agreement stipulated by the licensor is signed for the territory and concerning the same technology.
  The contracted territory may consist of a limited part of the common market, or of the whole.

The territorial limitations which the licensee must respect are:

• not to use the technology licensed to him in the territories of the common market (EU market) reserved for the licensor;
• not to manufacture or to use the product under licence, or to use the method under licence, in the territories of the other licensees inside the common market;
• not to follow an active policy of marketing the product under licence in the territories of the other licensees inside the common market and, particularly, not to do any specific advertising for those territories, to establish branches there, or maintain distribution depots;
• not to market the licensed product in the territories of the other licensees inside the common market.
  The first three categories have a maximum duration of ten years, the fourth of five years.
  The starting point for such periods is always the date of the first licensing agreement stipulated by the licensor for the territory and concerning the same technology.

The licensee can be obliged to respect the specific minimum quality of the product under licence. Moreover, he may be required to purchase goods or services from the licensor or from an undertaking connected therewith in so far that such purchases are necessary in order to:

• ensure that the technology under licence is exploited in a technically correct manner;
• guarantee that the production of the licensee is in conformity with the quality standards applied by the licensor and by other licensees, and also to allow the licensor to carry out inspections as per the agreement.

Other obligations of the licensee:

• to communicate to the licensor the experience acquired and to grant him a non-exclusive licence for any improvements made. The licensee must however remain free, while the agreement is in force and after it has expired, to use freely the improvements he has made, if and in so far as these improvements can be separated from the licensor’s know-how;
• he cannot grant sub-licences or assign the licence;
• he must pay a minimum royalty;
• to inform the licensor of any infringements, and to take legal action against them, or to give assistance to the licensor for this purpose;
• to limit the exploitation of the licensed technology to one or more of the technical applications covered thereby, or to limit the sale of the products to one or more markets. The European Commission has declared that similar obligations shall not be considered as restricting competition, since it necessarily comes within the rights of the licensee to transfer the know-how only for a limited purpose, provided that this does not constitute a means to share customers.

Just as applies in the norms regarding patents, no clause is allowed which prevents the licensee from contesting the secret nature of the know-how, that is to say, in fact, the validity thereof. In this case too, the licensor has the right to withdraw from the agreement if the licensee contests.

It is forbidden to automatically or tacitly prolong the licence, including therein any improvements communicated by the licensor. Such a clause would render the block exemption inapplicable, unless the licensee can refute the improvements or each party can withdraw at the expiry of the initial period and thereafter at least every three years.
The parties remain free to stipulate new agreements on the improvements, on condition that the overall duration of the agreements does not exceed the aforementioned limits.
Obviously these limitations do not prevent agreements of a longer duration from being stipulated.