EUR-Lex - 31976D0743 - EN

This does not imply that the purchaser may benefit from protection without limit as to time, since the goodwill of an undertaking enjoys no absolute right of protection. It consists rather in a purely factual state of affairs which is constantly exposed to attacks by competing firms. The protection claimed by a purchaser against the competitive activity of the seller is justified only on the ground that the seller, as the former owner of the undertaking, may enjoy an advantage over outsiders in possessing special information about the undertaking's production and sales situation ; this makes him more dangerous than other competitors. However, this protection must be limited to the period required by an active competitive purchaser for him to take over undiminished the undertaking's market position such as it was at the time of transfer. Account must be taken of such organizational problems as may arise until the newly acquired firm has been integrated into the purchaser's undertaking or group.

(b) It is further recognized that it may be necessary in certain cases to provide additional safeguards to ensure the effective performance of an agreement in cases where technical knowledge, constituting an important part of the value of a transferred undertaking, is placed at the disposal of the transferee. As in the case of goodwill, it must be possible to prevent the transferrer for a certain time from using such knowledge in a manner which would prevent the transferee from acquiring the undertaking with its market position undiminished.

Here too, the protection afforded to the transferrer should be limited in time, since the transfer of legally unprotected know-how confers no exclusive rights on the purchaser. Contrary to the contention of BASF, the transfer of technical know-how in connection with the sale of an undertaking does not automatically preclude any further activity on the part of the seller based on such know-how. The opportunity of using know-how which is unknown to competitors is, like goodwill, a competitive advantage. This advantage can be diminished by the development by third party competitors of their own know-how in the particular field of research. Unlike third parties the transferrer of an undertaking remains aware of the contents of any transferred know-how, since he cannot divest himself of his own knowledge. For this reason it appears legitimate to protect the transferee in order for a certain time to enable him to acquire the undertaking with its competitive position undiminished. This need to protect the competitive position of the undertaking provides the justification for and prescribes the time limits to any non-competition clause involved.

In determining the duration of the non-competition clause, the factors particularly to be taken into account are the nature of the transferred know-how, the opportunities for its use and the knowledge possessed by the purchaser. It is also reasonable to assume that the transferee will actively exploit the assets transferred. A distinction must be made between know-how existing at the date of transfer and new or further developments by the transferrer based on or in connection with the transferred know-how. A non-competition clause extending to new or further developments can be of shorter duration.

In respect of geographical extent and subject-matter the non-competition clause must in normal circumstances be confined to those markets in which the undertaking was active before its sale, or in which it may be regarded as a potential competitior on the basis of its relevant and demonstrable activity.

1. Having regard to the foregoing considerations the Commission finds that in this case the non-competition clause greatly exceeds that which is needed to secure the legitimate object of the agreement, namely, to secure to the buyer the transfer of the full commercial value of the transferred undertaking, and that at the time of this Decision the maintenance of that clause constitutes an appreciable restriction of competition. (a) In so far as the non-competition clause also covers non-commercialized research and development, it clearly exceeds the limits of what may be agreed to safeguard the takeover of an undertaking.

The development by the transferrer of the results of his research even to the stage of industrial use does not, provided no breach of the obligation of secrecy is involved, jeopardize the achievement of the legitimate purpose of the agreement. As long as the transferrer does not exploit the results of his research and development activity in such a way as to compete directly or indirectly with the purchaser of the undertaking, there is no adverse effect either on the undertaking's market position or on the value of the acquisition, and likewise there is no risk of customers being taken away.

It is clear that Dr Reuter would lose touch with scientific and technical progress if he did not continue research and development in polyurethanes, where there is constant innovation. His continuance in research would be in line with the Community's interest in maintaining genuine competition within the common market. If the prohibition on research and development were upheld, there would be a danger of his being eliminated once and for all as a potential competitor. This prohibition must thus be regarded as a clause which was ab initio unjustified as a safeguard for the takeover and which has as its object and effect an appreciable restriction of competition.

(b) A non-competition clause restricting the commercial exploitation of technical knowledge in the areas covered by the agreement can be accepted only to the extent that such exploitation would hinder the acquisition of the transferred assets of the undertakings concerned and thereby diminish their value.

During the period required by BASF to incorporate the acquired undertakings within its group and to build up its own clientele, BASF considered it reasonable justification for the restriction of competition that the transferrer might use the assigned know-how in competing for the customers of the transferred undertakings. The know-how in the present case consists mainly of recipes for mixes of polyurethane raw materials adapted to particular types of use and thus to particular customers. On the other hand, it should be remembered that the transferred undertakings have continued to use the assigned know-how, so that it is reasonable to assume that, after an initial period of several years of complete protection from the "insider competition" of Dr Reuter, BASF is now able to make full use of the know-how transferred in its dealings with its customers. There are therefore no grounds remaining for preventing Dr Reuter, by means of the non-competition clause, from entering the market as a competitor with new further developments based on the transferred know-how.

With respect to the determination of the period necessary for the incorporation of the transferred undertakings, there is no evidence to suggest that BASF met any special difficulties in reorganizing these fully operational undertakings which could not be overcome by an active management in a relatively short time. As to the practical arrangement of customer-supplier relationships - taking polyurethane customers in the motor vehicle industry as an example - BASF stated that supply contracts were normally terminable at six months' notice, or a year's notice at the most. Thus Elastomer's existing customers had repeated opportunities over a period of several years to change their supplier. Those who chose not to do so after this time must therefore be regarded as among the clientele acquired by BASF's own efforts. In this sense BASF can be said to have attained the former market position of the undertakings it had taken over. A longer protection by means of the non-competition clause seems unjustified, because the customer relationships with Elastomer have been replaced by new relationships with BASF.

Account has been taken of the fact that the field of activity of the transferred undertakings was a wide one and that the customer relations were not easy to manage in view of the activities of the Elastomer group, which in 1971 comprised 50 firms extending over 11 countries.

On the other hand, BASF is a financially strong multinational enterprise with an internationally experienced management, with its own relevant experience appropriate to the new field of activities. Moreover, the acquired group of undertakings was taken over as a going concern.

In considering the transfer of know-how in this field it is to be noted that the rapid progress of polyurethane research and the constant emergence of new raw materials produces constant changes in manufacturing processes, so that continuous research efforts are needed.

Even if it were accepted that the development of new know-how emerges in a step-by-step process, it may be considered that over a period of several years the sum of these individual steps would give an active firm a considerable competitive advantage over an inactive firm.

Having considered these aspects, the Commission still takes the view that, in spite of the importance of the acquired goodwill and know-how at the time of transfer, BASF should not, in any event at the date of this Decision (being approximately five years after the takeover), need special protection from the competition of Dr Reuter.

(c) The contention by BASF that the non-competition clause, in its scope as agreed between the parties, was necessary in order to protect the secrecy of the transferred know-how cannot be accepted.

It is not necessary to decide whether the terms of the obligation of secrecy agreed between the parties with respect to the assigned know-how are compatible at all with the rules of competition in the Treaty. The following general observations may however be made.

The obligation of secrecy towards third parties does not in itself affect the competitive relationship between transferrer and transferee, but is completely compatible with independent behaviour by the tranferrer in the fields covered by the agreement. In the present case the technical knowledge transferred consisted primarily of recipes for polyurethane mixes specifically adapted to customers' requirements.

In view of the rapid development of technology in polyurethane chemistry, it may be questioned whether such know-how has at the present time sufficient economic value to justify its continued protection by an obligation of secrecy.

In no circumstances may an obligation to keep know-how secret from third parties, imposed on the transfer of an undertaking, be used to prevent the transferrer, after the expiry of the reasonable term of a non-competition clause, from competing with the transferee by means of new and further developments of such know-how.

(d) Nor can it be said that a non-competition clause of a particularly long duration would be justified by the high costs incurred by BASF in taking over the undertaking. Since the undertaking was taken over very much as a going concern, its existing liabilities could have affected the purchase price but could not have prolonged the time for which protection was needed from the competition of Dr Reuter.

(e) It follows from the foregoing that a non-competition clause may only be used to secure the market position of an undertaking. In consequence, the contention of BASF that it needed first to acquire for itself the raw material know-how which Dr Reuter had formerly received from Bayer together with raw materials and which it would no longer receive, is irrelevant.

Since the know-how involved here is that of a third party, the only question to be considered is whether the supplier-customer relationship with Bayer, on which the right to use the know-how is based, can be protected by a restriction of competition imposed upon the transferrer for a period of time longer than that necessary for taking effective charge of the acquired undertaking.

According to BASF's own statement, Bayer, a third party, ceased providing know-how of its own accord, quite independently of any action on the part of Dr Reuter. The customer relationship with Bayer was from the beginning subject to the uncertainties which occurred in the subsequent behaviour of this third party. The lack of protection against Bayer as a third party was sought to be compensated for by a restriction of competition imposed on the transferrer, not called for by any "peculiar competitive threat" posed by the latter and therefore unreasonable.

It is moreover established that raw materials are constantly changing. The parties differ only in their views on what effect this had on the "revision of recipe books". These continuing developments in raw materials constitute in the eyes both of Bayer and of BASF new developments and cannot therefore be included among the assets of the transferred firm contributing to its competitive position at the time it was taken over. Both Bayer and the Elastomer group carry out independent research and development at their respective production stages. Because their research and development can take separate courses, it cannot be said to follow, even if one were to accept the submissions of BASF, that BASF would have been able to go on using the Bayer raw material even if Bayer had continued to provide know-how. The raw material problem is a general one which arises from the rapid advances which are being made in polyurethane chemistry.

The protection of such advances, i.e. the protection of future activity, cannot serve as justification for the prohibition. As soon as the takeover of the assets was complete, the production facilities of the undertakings being fully operational, were able to use the Bayer raw materials supplied at that time ; and it is clear that, at least as far as raw materials are concerned, Bayer continued its supplies.

1. The non-competition clause is also likely to affect trade between Member States, since it affects goods and services which, if they could be offered by Dr Reuter, would or could be the subject of trade between Member States. This applies also to cooperation between Dr Reuter and undertakings in non-Community countries, which may be restricted by the clause in so far as such undertakings could become suppliers and competitors in the common market.

Through his remaining companies, and by reason of his advisory activities, Dr Reuter would normally be able to act as a competitor in the relevant European market. His importance is in relation to that field of the polyurethane market in which stage 3 products are transformed by end-users, for the most part by such users themselves, in accordance with their own needs. This field amounts to 25 % of the entire polyurethane market in Europe. Dr Reuter supplied systems in this field and could again do so were the restriction on competition to be removed. It seems clear that the provision of application know-how to enable foaming to be carried out in the various localities where polyurethane is used has, as regards inter-State trade in finished polyurethane foams, immediate advantages in terms of reduced transport costs. BASF itself stressed that competition could be more easily affected if Dr Reuter, acting as an adviser, were to place his extensive knowledge at the disposal of competing firms. With the systems he has developed, Dr Reuter could help to reduce considerably the share of the market (at present some 75 %) now held by goods foamed from stage 2 products to end-products under the multicomponents system. The polyurethane market is already a substantial one and continues to expand as new applications for polyurethanes are found. The restriction of competition on this market and the effect on trade between Member States is therefore appreciable.

III. Applicability of Article 85 (3) of the EEC Treaty

An exemption under Article 85 (3) cannot be considered, since the agreement, although notifiable, was not notified to the Commission (Article 4 (1) and (2) of Regulation No 17). The agreement in that it excludes any activity by Dr Reuter throughout the common market, relates to imports and exports between Member States (Article 4 (2) (1)). The exception set out in Article 4 (2) (2) (b) does not apply, because restrictions have been imposed on Dr Reuter as the assignor of the know-how. Moreover, it is not apparent how a restriction of competition of the scope of the prohibition on research, development, manufacture and application in the present case contributes to promoting technical or economic progress while allowing the consumer a fair share of the resulting benefit. It cannot be contended, in the light of BASF's financial strength, which now supports the acquired group of companies, that the assumption by BASF of liabilities amounting to DM 130 million entitled it to special protection for a period of eight years. The restriction of competition provides no appreciable objective advantages to offset the serious disadvantages for competition in the relevant market.

IV. Applicability of Article 3 (1) of Council Regulation No 17