27.4.2004 Official Journal of the European Union L 123/11 COMMISSION REGULATION (EC) No 772/2004 of 27 April 2004 on the application of Article 81(3) of the Treaty to categories of technology transfer agreements (Text with EEA relevance) THE COMMISSION OF THE EUROPEAN COMMUNITIES, Having regard to the Treaty establishing the European Com- munity, Having regard to Council Regulation No 19/65/EEC of 2 March 1965 on application of Article 85(3) of the Treaty to certain categories of agreements and concerted practices ('), and in par- ticular Article 1 thereof, Having published a draft of this Regulation (3), After consulting the Advisory Committee on Restrictive Prac- tices and Dominant Positions, Whereas: (1) Regulation No 19/65/EEC empowers the Commission to apply Article 81(3) of the Treaty by Regulation to certain categories of technology transfer agreements and corresponding concerted practices to which only two undertakings are party which fall within Article 81(1). (2)  Pursuant to Regulation No 19/65/EEC, the Commission has, in particular, adopted Regulation (EC) No 240/96 of 31 January 1996 on the application of Article 85(3) of the Treaty to certain categories of technology transfer agreements (°). (3)  On 20 December 2001 the Commission published an evaluation report on the transfer of technology block exemption Regulation (EC) No 240/96 (*). This generated a public debate on the application of Regulation (EC) No 240/96 and on the application in general of Article 81(1) and (3) of the Treaty to technology transfer agree- ments. The response to the evaluation report from Member States and third parties has been generally in favour of reform of Community competition policy on technology transfer agreements. It is therefore appro- priate to repeal Regulation (EC) No 240/96. (1) OJ 36, 6.3.1965, p. 533/65. Regulation as last amended by Regu- lation (EC) No 1/2003 (O] L 1, 4.1.2003, p. 1). () O] € 235, 1.10.2003, p. 10. () OJ L 31, 9.2.1996, p. 2. Regulation as amended by the 2003 Act of Accession. (% COM(2001) 786 final. (4) This Regulation should meet the two requirements of ensuring effective competition and providing adequate legal security for undertakings. The pursuit of these objectives should take account of the need to simplify the regulatory framework and its application. It is appro- priate to move away from the approach of listing exempted clauses and to place greater emphasis on defining the categories of agreements which are exempted up to a certain level of market power and on specifying the restrictions or clauses which are not to be contained in such agreements. This is consistent with an economics-based approach which assesses the impact of agreements on the relevant market. It is also consistent with such an approach to make a distinction between agreements between competitors and agreements between non-competitors. Technology transfer agreements concern the licensing of technology. Such agreements will usually improve economic efficiency and be pro-competitive as they can reduce duplication of research and development, strengthen the incentive for the initial research and development, spur incremental innovation, facilitate diffusion and generate product market competition. The likelihood that such efficiency-enhancing and pro- competitive effects will outweigh any anti-competitive effects due to restrictions contained in technology transfer agreements depends on the degree of market power of the undertakings concerned and, therefore, on the extent to which those undertakings face competition from undertakings owning substitute technologies or undertakings producing substitute products. This Regulation should only deal with agreements where the licensor permits the licensee to exploit the licensed technology, possibly after further research and develop- ment by the licensee, for the production of goods or services. It should not deal with licensing agreements for the purpose of subcontracting research and develop- ment. It should also not deal with licensing agreements to set up technology pools, that is to say, agreements for the pooling of technologies with the purpose of licen- sing the created package of intellectual property rights to third parties.