Promoting Innovation? : A Legal and Economic Analysis of the Application of Article 101 TFEU to Patent Technology Transfer Agreements

Abstract: This study examines the degree to which the application of Article 101(1) Treaty of the Functioning of the European Union (TFEU) to patent technology transfer licensing agreements considers and promotes innovation. The study presents a new view on the patent-antitrust intersection, by exploring the competition law assessment of licensing agreements in light of the economic concept of innovation, licensing efficiency and transactional hazards.The survey of the academic literature on patent licensing agreements suggests two points. Firstly, innovation cannot be equated to the invention protected by a patent right but includes the commercialization of the end-product. Licensing is a necessity in the innovation process, in particular, because of the patent holder’s lack of complementary assets. In addition, the effects of licensing on dynamic competition include also the impact on follow-up innovation. Secondly, licensing creates transactional hazards. A competition law assessment of licenses that promotes innovation must therefore adequately take into account the transactional hazards for both parties (licensing efficiency) when balancing market rivalry and dynamic competition.The analysis of Article 101 TFEU suggests that the Commission has adopted a broad view on innovation. Transactional hazards and effects on follow-up innovation are taken into account to a certain degree. The rules are also found to incorporate an effects-based analysis which has the result that transactional hazards are given less weight in the balance with the protection of market rivalry. Competition law may therefore prohibit agreements that pertain to resolve transactional hazards that arguably increase dynamic efficiency because of the presence of market power. The study therefore suggests that the assessment of justifications of restrictive clauses under competition law should focus less on market power and more on licensing efficiency.