Comment: Innovation under fire

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EU proposals on technology transfer agreements pose a substantial threat to innovation, says Amit Khandelwal.

Amit Khandelwal

Mention innovation today, and most people think about new technologies, products and processes. Large amounts of public money are spent in the EU on studies investigating the importance of innovation, and how best to support it. It is also widely acknowledged that innovation is all about beating the competition by doing things faster, cheaper and better.

However, imminent and radical changes to EU competition law, in the form of revised Technology Transfer Block Exemption Regulations, are likely to have a detrimental impact on the way we convert our creative science base into innovative enterprise.

Current block exemption regulations judge whether or not technology transfer deals are anti-competitive based on terms used in the agreements. Any agreements that do not fall within block exemption terms are deemed anti-competitive. The proposed new regulations, which should come into force on 1 May 2004, move away from a text-based approach and aim instead to offer a ’safe harbour’ to agreements which are not judged to be anti-competitive. Involved parties must also have a market share below set thresholds to qualify for block exemption.

The proposals represent a radical departure from existing practice, lack clarity in their scope and fail to acknowledge the more complex transactions which companies now face when undertaking technology transfer agreements and licensing deals.

I believe that there is no need to replace the existing regulations, which have worked well and have not had an adverse effect on competition and innovation. The proposed regulations simply illustrate how change, driven by the Commission, can instil uncertainty and increase bureaucracy and legal costs for EU businesses.

There remains a pressing need for a wide-ranging debate to determine how introducing market-share testing will affect the strategic issue of innovation in Europe. This type of debate has yet to be held in the EU, unlike in the US where the Justice Department has used an evidence-based process to analyse the relationship between competition and intellectual property.

The Commission, however, appears intent on rushing this exercise through to meet a deadline that is driven only by political expedience and desire. The proposed regulation appears to be at odds with the Commission’s vision for innovation. The resulting climate of legal complexity and uncertainty is bound to be hostile to innovators and organisations, particularly small to medium-sized enterprises, prepared to take considerable risks in bringing new technologies to market.

The UK government has been very supportive of industry’s stance on this matter, and must encourage the Commission to undertake a wider-ranging review before any changes are made.

Ideally, the current situation should be left unchanged until there is at least significant objective evidence of its shortcomings. The Commission already recognises the complex relationship that can exist between intellectual property rights policy and competition policy.

However, to fulfil its objective of creating a workable technology transfer regime that benefits innovative enterprise, culture and competition, the Commission needs to listens to the constructive criticism of this new regulation. Otherwise the desire for Europe to become a global R & D juggernaut will remain little more than a concept and R & D enterprise will be damaged beyond repair.