Territorial Restraints in International Technology Agreements after Topco

• Published date: 01 September 1972
• Author: Martin J. Adelman,Ernie L. Brooks
• DOI: 10.1177/0003603X7201700302
• Date: 01 September 1972
• Subject Matter: Article

TERRITORIAL

RESTRAINTS

IN

INTERNATIONAL

TECHN'OLOGY

AGREEMENTS

AFTER

TOPCO

by

MARTIN

J.

ADELMAN·

and

ERNIE

L.

BROOKS··

INTRODUCTION

Owners of

proprietary

technology, patented or secret,

are

often unable or unwilling to directly exploit

that

technology

in all countries.

For

example, an American company

may

directly exploit its

proprietary

technology in the United

States, refusing to license others in the United States, but still

seek to

earn

money abroad from its technology by licensing a

foreign company.' In such a license, in order to protect the

home market, the licensor may insist on a restriction restrain-

ing competition from the licensee in the United States, and

occasionally the licensor may even agree not to compete with

the licensee in the prescribed

territory

of the licensee. Re-

cently, limitations in international

proprietary

technology li-

censes have received close scrutiny by the Justice Department

• McGlynn, Reising, Milton &Ethington, Troy, Michigan; Adjunct

Professor of Law, Wayne State University.

••

McGlynn, Reising, Milton &Ethington, Troy, Michigan.

1Licensing rather than direct foreign investment for exports is

receiving renewed attention by American companies. See generally the

article in the

Commerce

Department publication Commerce Today

reprinted in 84 P.T.C.J. D-1 (June 29, 1972). The most complete

recent work on the international aspects of American antitrust law ia

COMMON

MARKET

AND

AMERICAN

ANTITRUST

(Rahl, ed. 1970) [herein-

after

RAHL].

See also

BREWSTER,

ANTITRUST

AND

AMERICAN

BUSINESS

ABROAD

(1958);

FUGATE,

FOREIGN

COMMERCE

AND

THE

ANTITRUST

LAWS

(1958).

763

764

THE

ANTITRUST

BULLETIN

in articles.s in speeches," and, most importantly, in the filing

of the Weetimqhouee complaint."

In

addition,

just

this term

the Supreme Court declared in Topco"

that

horizontal terri-

torial restrictions, like price fixing,

are

per

se violations of

the

antitrust

law. Since the

parties

to an international pro-

prietary

technology license

are

in a horizontal relationship,

at

least

after

the license is in effect, these developments make

timely an intensive study of the

antitrust

status

of

territorial

restraints on United

States

imports

and

exports found in

international

proprietary

technology licenses.

In the first

part

of the following discussion the effects of

United

States

antitrust

law on technology licenses will be

put

to one side in favor of hypotheticals designed to crystal.

lize the issues presented by

territorial

restrictions in pro-

prietary

technology licenses. Subsequently, these issues will

be scrutinized in the light of United

States

antitrust

law in-

cluding Topeo and earlier authorities. This analysis demon-

SSee, e.g., Wilson, Patent and Know-How License Agreements:

Field of

Use,

Territorial, Price and Quantity Restrictions, in

ANTI-

TRUST

PRIMER:

PATENTS,

FRANCHISING,

TREBLE

DAMAGE

SUITS,

PROC.

OF

THE

FOURTH

NEW

ENGLAND

ANTITRUST

CONF.

11 (1970) [herein-

after

WILSON]

;Stern, The Antitrust Status of Territorial Limitations

in Territorial Licensing, 14

IDEA

580 (1970) [hereinafter

STEllN].

SAddress by Richard H. Stern, before the New York State

Bar

Association, New York,

Jan.

27, 1971; Address by Richard H. Stern,

before the American

Patent

Law Association, Chicago, May 15, 1970;

Address by Bruce B. Wilson, before the Boston

Bar

Antitrust

Com-

mittee, Boston, Nov. 6,

~970.

.. United States v. Westinghouse Elec. Corp., Civil No.

C-70-852-

SAW (M.D. Cal.

Filed

Apr. 22, 1970). The complaint is based on

technology licensing agreements executed in the mid-1960's between

Westinghouse

and

Mitsubishi. These agreements were preceded by

similar agreements dating from 1923. Under the agreements Westing-

house

and

Mitsubishi exchanged patented

and

unpatented technology.

Territorial restrictions included in the agreements limited Mitsubishi's

sales in Canada

and

the United States

and

Westinghouse's sales in

Japan.

The Justice Department asserted

that

the

territorial

restraints

included in the technology agreements were in violation of Section 1

of the Sherman Act.

SUnited States v. Topco Assoc., Inc.,

--

U.S.

--,

31 L. Ed.2d

515 (1972).