Licensing Agreements and Their Role in Merger Control
Licensing agreements occupy a unique and often ambiguous position within the framework of merger control, existing at the intersection of asset acquisitions and standard commercial contracts. These agreements are distinct in their structure and purpose compared to mergers and acquisitions (M&A) or joint ventures. However, they possess the potential to effectuate a transfer of control over commercial activities linked to the license, which, when not merely provisional, may raise significant competition concerns warranting regulatory scrutiny. In the MENA region, there is a noticeable lack of specific guidelines from national regulators or institutions regarding the treatment of licensing agreements within the context of merger control. Consequently, parties engaged in such agreements find themselves with limited resources to evaluate their obligations and potential implications. By consulting more developed merger control regimes that have established clearer frameworks for reviewing licensing agreements, stakeholders in the MENA region can gain valuable insights. Notably, the practices of competition regulators in the region are increasingly influenced by the European Commission, suggesting that an examination of the EU's approach could yield essential guidance. This article aims to elucidate how the European Commission's precedents may inform the treatment of licensing agreements under the merger control regimes of Morocco and Saudi Arabia.
Comparative Analysis of EU, Moroccan, and Saudi Merger Control Regimes
Under the EU Merger Regulation, control can be acquired not only through the transfer of shares or assets but also via various contractual arrangements, including licensing agreements, provided that these contracts facilitate the exercise of decisive influence on a lasting basis. The core determination revolves around whether the transaction leads to a significant structural change in the market, particularly through the transfer of the capacity to conduct business autonomously. According to the European Commission's Consolidated Jurisdictional Notice, it is vital that the licensed assets qualify as a 'business' with a discernible market presence, allowing for the attribution of turnover. Thus, licensing agreements are classified as concentrations only if they are (i) exclusive, at least within a specified territory; (ii) granted for a duration sufficient to engender a lasting market change; and (iii) confer decisive influence, permitting the licensee to operate the associated business independently, including making critical decisions regarding commercial strategy and market conduct.
In Morocco, the merger control regime similarly stipulates that control can be acquired not just through shares or assets but also by contractual means that enable decisive influence over an entity's operations. The Moroccan Competition Council (MCC) Merger Control Guidelines affirm that rights of use and contractual arrangements can confer control provided they empower the acquirer to manage an undertaking’s resources and lead to a significant market change. Although the MCC Guidelines do not explicitly mention licensing agreements, they necessitate a functional and effects-based evaluation, which aligns closely with the EU's approach. Recent practices by the MCC demonstrate a preference for substance over form, indicating a willingness to recognize licensing agreements as constitutive of concentrations when they facilitate the transfer of an autonomous economic activity.
Similarly, in Saudi Arabia, the General Authority for Competition (GAC) has not issued formal guidance on licensing agreements within the merger control framework. However, the GAC's interpretation aligns closely with that of the European Commission. The Saudi Competition Law defines a concentration as any act resulting in the transfer of ownership or control over an undertaking or its assets, thereby implicitly encompassing licensing agreements. The GAC has taken jurisdiction over licensing agreements that are exclusive, granted for a lasting duration, and confer control over a business. While the GAC has considered the duration of such licenses, there remains ambiguity regarding what constitutes sufficient length. Nonetheless, the GAC has not pushed back against the EU's standards in practice, suggesting a more flexible interpretation of current turnover requirements, thereby echoing the EU's forward-looking perspective on future revenue generation.
In summary, while the treatment of licensing agreements in the merger control context remains unregulated in both Saudi Arabia and Morocco, the practices of the MCC and GAC indicate a strong alignment with European Commission standards. Firms operating in these regions should consider leveraging EU principles when navigating the complexities of licensing agreements in merger control, while being mindful that the MCC and GAC will ultimately develop their positions independent of EU law. Therefore, while European precedents may serve as persuasive references, they are not binding, and parties should be prepared for the MCC and GAC to adopt their interpretations based on local practices and legal frameworks.
As reported by mondaq.com.
