PATENT LICENSES

For agreements valid in the EU, this subject is specifically regulated by Regulation No 240 of 31 January 1996.
The Regulation has an expiry date, which is 31 March 2006.

The word “patent” is given a broad interpretation inasmuch as the following are considered equal to granted patents:

• patent applications;
• utility models;
• applications for registration of utility models;
• topographies of semiconductor products;
• “certificats d’utilité” and “certificats d’addition” according to French law;
• supplementary protection certificates for medicinal or all other products for which such certificates may be obtained;
• certificates concerning new plant varieties.

The territorial protection which is typical of exclusive licences is admitted for the licensee. In fact, the licensee is required:

• not to authorise other companies to use the invention granted in the territory guaranteed by the licence, in so far and as long as at least one of the patents granted under licence remains in force;
• not to use himself the invention granted in the territory covered by the licence in so far and as long as at least one of the patents granted under licence remains in force.

These obligations are also included in the European Patent Convention which allows the European patent to be granted under licence, either exclusive or non-exclusive, throughout the territory of the Community or only in one part thereof. Moreover, the rights deriving from a European patent can be exercised against a licensee who exceeds the limits imposed by the licence. One of these limits may be the territorial limit.

It is a consequence of the territorial restrictions that every licensee must respect the territorial limits imposed by the agreement; to be more precise:

• not to use the invention in the exclusive territory of the licensor inside the EU;
• not to manufacture or use the product under licence and not to use the patented method and the know-how imparted, in the territories of other licensees inside the EU.

“Using” the invention means not only manufacturing and using the product and the method, but also putting the products onto the market for the first time.

Competition is generally divided into active and passive competition.
Active competition is always forbidden when it involves the licensee in looking for clients outside his own territory. Passive competition occurs when the licensee satisfies requests, which he had not sought, coming from the territory of other licensees.
This type of competition is forbidden for a maximum period of five years.
To be more exact, the licensee can be required not to market the product under licence in the territories of other licensees inside the EU for a period of not more than five years starting from the date on which the product was marketed for the first time by the licensor or one of the other licensees.

Parallel imports, however, greatly reduce the value of territorial exclusivity, since anyone is free to purchase the products from the licensor or from one of the licensees and then resell them in the territory of a licensee or of the licensor.
It is recognised that parallel imports have the important function of promoting competition on the level of distribution.

It is admissible for a clause to be included in the agreement whereby the licensee is obliged to buy supplies from the licensor, or from an undertaking designated by him, or to use particular services, but only if this obligation serves to guarantee that the invention covered by the licence is exploited in a technically correct manner.
In the absence of this condition, the clause cannot be applied.

Another obligation which can be applied to the licensee is to respect minimum quality specifications of the product under licence. Minimum quality means the quality required for there to be a technically correct exploitation of the invention (Burroughs/Geha Werke, GADI, 1972, No 231; Raymond/ Nagoya, GADI, 1972, No 236).
However, the quality specifications must answer objective, pre-determined and verifiable criteria, so as to prevent the licensee’s activity from suffering from arbitrary interference. The obligation must not extend beyond what is indispensable and, above all, it must not give the licensor the opportunity to interfere in those commercial decisions which are reserved for the licensees.

Another obligation which is allowed is that the parties must reciprocally communicate to each other the experience they have acquired in using the invention under licence, and that they grant each other a licence for all inventions of improvement or application, on condition that the communication or licence is not exclusive.
However, this obligation is not allowed to be unilateral on the licensee’s side, nor that he should be “required to grant the licensor, either in whole or in part, his own patent rights concerning inventions of application or improvement on the patents under licence, or the rights to such patents” (Davison Rubber, GADI, 1972, No 235).

A licensee can be obliged to limit his exploitation of the invention licensed to him to one or more of the technical applications included in the patent.
On the contrary, there are no limits allowed with regard to clients, and in particular with regard to supplying particular classes of clients, employing certain forms of distribution, or, with the aim of sharing customers, adopting particular forms of packaging for the products.

Other constraints which are held to be inadmissible are:

• to limit the quantity of products under licence to manufacture or sell (Maize seed, GADI, 1978, No 1127);
• to set the prices, the components of the price or the discounts for the products under licence;
• to forbid the supply to particular classes of users, or to ban using particular means of distribution or particular forms of packaging for the products;
• to oblige the licensee to carry out the production process in a single location (Windsurfing International Inc./EC Commission, GADI, 1987, No 2224).

It is also forbidden for the licensee to have to pay royalties for the manufacture of unpatented products, or products which are the subject of expired patents, or to use know-how which has become public knowledge, on condition that it cannot be imputed to the licensee himself or to a Company connected therewith that the know-how has entered the public domain.

Another forbidden clause is that which prevents the licensee from contesting the validity of the patent granted under licence or any other rights of industrial and commercial property belonging to the licensor or to undertakings connected therewith (AOIP/Beyrard, GADI, 1975, No 777; Bayer, IIC, 1990, No 212).
A further inadmissible constraint is the automatic extension of the agreement beyond the duration of the patents granted under licence and extant at the date when the agreement was made, except when the agreement states that all the contracting parties have the right to withdraw from the agreement at least every year starting from the date of expiry of the patents under licence.