Claimant, a US company, and Defendants, Belgian and UK companies, entered into a licensing agreement ('Technical Agreement') governed by the laws of the State of Ohio, USA. This agreement provided, inter alia, that technical information made available by Claimant was for Defendants' sole use and that such use was limited to Belgium and the United Kingdom during the term of the agreement and for five years thereafter. The agreement allowed Defendants to grant non-exclusive sub-licences to companies under their control or with Claimant's prior approval. Such sub-licences could only cover areas within Europe and Asia and no sub-licence could be granted to any company that was directly or indirectly owned or controlled by a competitor of Claimant. Claimant alleges that Defendants improperly terminated the agreement, refuting the claim that it had breached its obligations. It asks the sole arbitrator to find that Defendants are still bound by the agreement and seeks reimbursement of costs and expenses and any other appropriate relief. Defendants request the arbitrator to find that the parties' agreement is null and void because it infringes EC competition law or Ohio law relating to unfair competitive practices, or that it has been terminated, and claim reimbursement of costs and expenses and any other appropriate relief. The first issue addressed by the arbitrator is whether the parties' agreement violates Article 85 of the EC Treaty (now Article 81 EC) or other antitrust law and, if so, what the consequences of such violation are for the parties.

'Alleged violation of Article 85 of the Rome Treaty

A. The claims of the parties

The Defendants have argued that the Technical Agreement is void under Article 85 of the Rome Treaty because Article 6 of the Technical Agreement does not permit the Defendants to use the Claimant's know-how to manufacture licensed products outside Belgium and the United Kingdom. The Defendants submit that this situation prevents them from competing effectively with the Claimant and other industry competitors. Furthermore, the Defendants argue that the Know-How Block Exemption embodied in Commission Regulation No. 556/89 of November 30, 1988 is inapplicable for several reasons. The Defendants also argued at one point that the provisions in the Technical Agreement dealing with territorial limitations concerning manufacturing rights are not severable from the rest of the Technical Agreement, and therefore that if any provisions of the Technical Agreement were found to violate Article 85(1) of the Rome Treaty, then it must be entirely invalidated; however, in their Rebuttal Brief . . . the Defendants have accepted severability on this issue.

The Claimant argues that the Technical Agreement does not violate Article 85(1) because (a) conditions relating to sublicensing of affiliates are not restrictive of competition, and (b) there is in reality no territorial manufacturing restriction in the Technical Agreement because Defendants may manufacture products in any country in Europe or Asia through an affiliate established in any such country. The Claimant also argues that the Technical Agreement is an "open licence" within the meaning of EC competition law. Moreover, the Claimant argues that, even assuming that the Technical Agreement were to be caught by Article 85(1), it would be exempted from the effects of Article 85(2) by reason of the Know-How Block Exemption. On this latter point, each of the three arguments raised by the Defendants in support of their position is rebutted by the Claimant, as follows: (a) the Know-How Block Exemption applies to the Technical Agreement because the parties are not subject to any territorial restriction within the Common Market with regard to manufacture, use or marketing of the products or processes; (b) the Technical Agreement is not a reciprocal licence and is thus covered by the Know-How Block Exemption; and (c) the duration of any alleged restriction does not take the Technical Agreement outside the scope of the Know-How Block Exemption. Finally, the Claimant argues that any manufacturing territorial restriction is severable.

B. Discussion

The parties have agreed in their respective submissions . . . that, notwithstanding the choice of law provision making Ohio law applicable to this dispute, EU competition law (and no other potentially applicable antitrust laws) should apply to the competition law aspects of the Technical Agreement. This follows logically in view of the fact that the implementation of the Technical Agreement was obviously to take place within the European Union.

The Claimant has raised a threshold point to the effect that during the negotiations which led to the signing of the Technical Agreement, EU competition law matters were carefully examined by both parties with a view to ensuring that the agreement would be enforceable, and that the resulting agreement was regarded by both parties not only as fair and balanced, but also as enforceable. This is a plausible argument, and has been borne in mind in considering the EU competition law issue.

The Defendants have argued that, under Article 6 of the Technical Agreement, the Defendants cannot use the Claimant's know-how to manufacture licensed products outside Belgium and the United Kingdom, citing the Commission Decisions in Boussois/Interpane (O.J.L. 50/30 of February 19, 1987), and in Delta Chemie/DDD (O.J.L. 309/34 of November 15, 1988). The Defendants' argument in essence is that Article 6 of the Technical Agreement, which restricts to Belgium and the United Kingdom the licence "to use processes, to manufacture and use machines, and to manufacture, use and sell, or otherwise dispose of Licensed Products embodying Licensed Inventions and Trade Secrets", is prohibited under Article 85(1). The Claimant's principal argument regarding Article 85(1) is that, under Article 5(d)(i) of the Technical Agreement the Defendants may grant a non-exclusive sub-licence of the Claimant's technology to an affiliated company in which the Defendants hold 75% of the voting rights, thus permitting the Defendants to manufacture through subsidiaries or affiliates in any country of Europe (or Asia). The Claimant further argues that, under Case 258/78 Nungesser v. Commission [1982] E.C.R. 2015 (the Maize Seed decision), the European Court of Justice ruled that "open licences" whose restrictions are limited to the parties to the agreement (and thus do not affect the competitive positions of third parties) do not violate Article 85(1).

While it is far from clear that the territorial manufacturing restriction in Article 6 of the Technical Agreement violates Article 85(1), there is enough uncertainty on this point to make it appropriate to assume arguendo that Article 6 constitutes prima facie a violation of Article 85(1). This then moves the discussion to an examination of whether the agreement falls within the Know-How Block Exemption. Here, the Defendants have argued that the block exemption is unavailable because: (a) the Technical Agreement is not an agreement between two undertakings; (b) Article 5(1)(3) of the Know-How Block Exemption precludes the application of the Block Exemption to the Technical Agreement; and (c) the duration of the restriction on the right to manufacture exceeds ten years. The Claimant persuasively argues that, as [Defendants] are part of a single "undertaking", there are in fact only two parties to the Technical Agreement. As to Defendants' second argument, the Claimant asserts quite persuasively that Article 5(2)(b) allows the Block Exemption to apply to reciprocal licences of the sort described in Article 5(1)(3), so long as the parties are not subject to any territorial restriction within the Common Market regarding manufacture, use or marketing of the contract products, or the use of licensed processes. The Defendants assert again that the Technical Agreement contains strict territorial limitations on manufacturing, and the Claimant responds once again that there are in reality no territorial manufacturing restrictions because Defendants could manufacture through affiliates. Defendants argue that Article 7(f) of the Technical Agreement is a reciprocal licence; the Claimant objects that this clause is standard in all of its licence agreements, and that it is intended to protect the Claimant from infringement claims by licensees based on on-site visits by representatives of the Claimant. As for Defendants' third argument, regarding the permissible duration of the territorial manufacturing restriction, the Defendants argue that the relevant date as the point of departure for the ten year limit is the date of signature of the first licence agreement entered into by the licensor within the EEC for the same technology, and that so little new technology (apart from technology for the . . . machine which was introduced at [Defendant 1] in 1992) is being conveyed under the Technical Agreement that it is no longer covered by the Block Exemption. The Claimant argues that the Defendants' argument fails because substantial new secret know-how has been licensed to the Defendants during the past ten years. Further, Claimant argues that, since [Defendant 1] and the Claimant constituted the same "undertaking" until 1990, it is that date which should be deemed to be the date of the first use of the relevant technology under licence in the EEC within the meaning of Article 1(2).

In light of all of the foregoing, it appears that the Defendants have failed to establish that the Technical Agreement violates Article 85(1) and, even if it were to be held to violate Article 85(1), the Claimant has demonstrated that the Technical Agreement could benefit from the application of the Know-How Block Exemption of 1988. Accordingly, the Defendants' argument that the Technical Agreement is null and void because it violates EU competition law is rejected.

. . . . . . . . .

Now therefore, the Arbitrator decides as follows:

1. The Technical Agreement is not in violation of Article 85 of the Rome Treaty or other applicable antitrust laws.'