Aid Through Knowledge Transfer

If we are assuming that para 19b of the Research Framework means that all knowledge transfer in the broad definition given to it para 15(v) including ‘research collaborations, consultancy, licensing, spin-off creation, publication and mobility of researchers and other personnel’ is entirely non-economic in nature if profits are re-invested, there will be little tension with the state aid rules as long as indeed all profits are reinvested. Yet, as discussed in Sect. above, there seem some inconsistencies with this interpretation. It has thus been suggested above that this may only refer to particular areas of knowledge transfer (e.g. IPR exploitation) which are based on non-economic research activities and are nonexclusive as has been initially advised by the Commission in the Issue Paper.[1]

Furthermore, the new Research Framework contains detailed rules on when state aid might be present in collaboration. Nowhere in these section is there a reference to para 19(b) or any other indication that it is intended that these rules are not applicable if profits are reinvested. It therefore seems possible that HEIs provide state aid to companies they collaborate with, even if any potential profits are reinvested. As we have seen above (Sect. collaboration has to be effective and the research has to be ‘independent R&D for more knowledge and better understanding’ otherwise the activity may have to be regarded as a research service no matter as what it labelled as. Effective collaboration is usually longer term and more open-ended, following a common objective the scope of which has been jointly defined, risks and labour are shared and terms and conditions should be clearly set out in advance, so that industry does not receive advantage.[2] In an effective collaboration with an HEI no state aid is present, according to para 28, if either (1) the other undertakings carry all costs, (2) the results maybe widely disseminated and the HEI gets to keep its IPRs, (3) IPRs are allocated reflecting work packages or (4) the HEI receives compensation at market price levels for IPRs. The other undertakings must at least bear their own costs. Only if other undertakings contribute beyond that, can such contributions be deducted from the market price it has to pay to keep IPRs. The latter has particularly been emphasised by the Commission as an area that has not been clearly understood in the past.[3] Para 29 provides when the compensation is equivalent to market price:[4] either the price has been established through an open sales procedure or through expert evaluation or through arm length negotiation or, if right of first refusal exists, the possibility to get other offers which have to be matched is existent. Para 30 of the Research Framework makes very clear that if these conditions are not fulfilled ‘the full value of the contribution of the research organisation [...] will be considered as an advantage for the collaborating undertakings, to which State aid rules apply’.

Licensing seems to be a clear example of a non-economic activity given that profits are reinvested. However, one may still wonder if the condition of nonexclusivity suggested by the Commission in the Issue Paper[5] as well as, as is the case for collaboration, a requirement to achieve a reasonable price does or should apply, as otherwise situations may arise where an undertaking can legitimately receive a significant advantage. The thus far only EU level competition law case on research in HEIs, Sarc,[6] has indeed concerned such a case. Here Sarc, a Netherlands company for ship design software, complained to the Commission alleging that its competitor Delftship had received state aid through ‘advantageous conditions’ in a software licence agreement with the Technische Universiteit Delft (TUD) of whom Delftship was a spin-off. Sarc essentially saw the state aid in the low royalty that Delftship had to pay TUD which allowed it to offer its software at a low rate on the market. The Commission indeed looked into the case, thus seemingly indicating that it did not consider this a non-economic activity under the previous version of the Research Framework,[7] but decided that Delftship did not receive an advantage and that there was thus no state aid present in this case. Sarc then brought the case before the General Court which, due to Sarc’s limited standing in this case,[8] only checked for manifest errors in the Commission decision and decided against Sarc. However, the arguments brought (e.g. that royalties paid to universities in the UK are around ten times as high, that TUD had exclusively negotiated with Delftship and that independent assessments had come to the result that Delftship had received an advantage) were rather strong and it seems possible that had the Court applied Article 107 TFEU itself rather than checking for obvious errors that the result might have been different. On the other hand, the fact that the Commission and the Court found the practice by TUD acceptable might once again point to a more considered approach in an area were not only significant responsibility remains with the Member State, but also a research policy is being followed which is encouraged at the EU level (namely the interplay between the public and the private as regards research policy and encouragement of exploitation). In any case, Sarc also shows that the more the activities of HEIs intertwine with the market place, the more competitors might feel their rights to be infringed which can open the practises of HEIs to EU level scrutiny and thereby potentially to spill-over from competition law.

Since the two previously discussed examples of knowledge exchange (collaboration and licensing) may indicate that knowledge exchange activities might not as easily be regarded as non-economic activities as the combined reading of paras 15(v) and 19(b) of the Research Framework might initially suggest, one might also wonder if there are other areas of knowledge exchange where HEIs could get into conflict with state aid law. One such example may be students writing their Masters or PhD theses with a private firm. In such cases a student writes his or her dissertation on a subject that interests the company and normally has a supervisor in the company as well as in the HEI.[9] If such an activity has to be considered a research service for the company and the student is not or only marginally paid by the firm or even receives state funding (e.g. from a research council), this could possibly be regarded as state aid.

Of course, if in any of these examples state aid is deemed present it may be de minimis or exempted according to the rules set out above. It would depend on the individual case in how far this would be possible. In any case the rules for such exemptions (e.g. on transparency) would have to be adhered to.

  • [1] European Commission 2012 para 7 seq.
  • [2] Research Framework para 27, European Commission 2012, p. 7 seq.
  • [3] European Commission 2011, p. 8 seq.
  • [4] In the draft (n 102) para 29 it said that ‘particularly’ if the four conditions are fulfilled theprice would be equivalent to market price, now the four options seem exhaustive.
  • [5] European Commission 2012, p. 7 seq.
  • [6] Case T-488/11 Sarc.
  • [7] The previous Research Framework in its Section 3.1.1 also provided that licensing would benon-economic if handled by, with or on behalf of the research organisation and all income wasreinvested.
  • [8] Sanchez Graells argues that in ‘adopting such a strict approach and imposing such a high[...] burden of proof of significant alteration of its competitive position, the GC only recognisesthe applicant’s standing to protect its procedural rights, which fundamentally limits the possibility for competitors to challenge State aid decisions’ (Sanchez Graells 2014).
  • [9] This is, for example, increasingly popular in Germany. See Zander H (2009) Starthilfe.Der Tagesspiegel, 26 April 2009 28 February 2012, (2012) Abschlussarbeit Teil 4. Accessed 28 February 2012.
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