Technology transfer and state aid

Practical Law UK Articles 7-526-7632 (Approx. 14 pages)

Technology transfer and state aid

by Sabine Fehringer, DLA Piper Weiss-Tessbach Rechtsanwälte GmbH, Austria

Notification of R&D&I aid and exemptions

General prohibition of state aid

State aids are in principle prohibited (Article 107(1), TFEU). However, under specific circumstances, state aids can be compatible with the common market (Article 107(2) and (3), TFEU). R&D&I aids can be primarily exempted to:

Promote the execution of an important project of common European interest, or to remedy a serious disturbance in the economy of a member state (section 3(b), Article 107, TFEU).
Promote the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest (section 3(c), Article 107, TFEU).

Direct and indirect funding activities of the Community itself are not subject to Article 107 et seq of the TFEU.

Notification of state aid

State aid must be notified to the European Commission (Commission) (Article 108(3), TFEU). R&D&I can be exempted from the notification requirement according to either:

Regulation (EC) 800/2008 declaring certain categories of aid compatible with the common market in application of Articles 107 and 108 of the TFEU (formerly Articles 87 and 88 of the EC Treaty) (General Block Exemption Regulation) http://ec.europa.eu/competition/state_aid/reform/gber_final_en.pdf).
Regulation (EC) 1998/2006 on the application of Articles 107 and 108 of the TFEU (formerly Articles 87 and 88 of the EC Treaty) to de minimis aid (de minimis State Aid Regulation) (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2006:379:0005:0010:en:PDF).

The General Block Exemption Regulation replaced all prior existing general block exemptions, except for the de minimis State Aid Regulation which applies in parallel.

General Block Exemption Regulation

The exemption under the General Block Exemption Regulation covers aid for, among others (Article 31 to 37, General Block Exemption Regulation):

Research, development and innovation (Article 1(1) , General Block Exemption Regulation).
Research and development projects.
Technical feasibility studies.
Industrial property rights costs for small and medium enterprises (SMEs), which fulfil the criteria in Annex I of the General Block Exemption Regulation (Article 2(7), General Block Exemption Regulation). Large enterprises are enterprises which do not fulfil these criteria (Article 2(8), General Block Exemption Regulation).
Young innovative small enterprises.
Innovation advisory services and for innovation support services.
The loan of highly qualified personnel.
Research and development in the agricultural and fisheries sectors.

Types of aids. To qualify for an exemption under the General Block Exemption Regulation, aid schemes and all individual aids based on aid schemes must fulfil:

All general conditions of chapter I of the General Block Exemption Regulation (Article 1 to 12, General Block Exemption Regulation).
Any applicable special conditions for specific types of aid in chapter II of the General Block Exemption Regulation.

Ad hoc aids have to fulfil all general and special conditions of the General Block Exemption Regulation.

In particular:

An aid scheme means an act based on which, without further implementing measures, individual aid awards can be made to undertakings defined in the act in a general and abstract manner, and an act based on which aid not linked to a specific project can be awarded to one or several undertakings for an indefinite period of time and/or for an indefinite amount (Article 2(2), General Block Exemption Regulation).
Individual aids are ad hoc aids as well as notifiable awards of aid, based on an aid scheme (Article 2(3), General Block Exemption Regulation).
An ad hoc aid is an individual aid which is not awarded on the basis of an aid scheme (Article 2(4) , General Block Exemption Regulation).

General rules for exempted aid. The General Block Exemption Regulation defines general rules for all exempted categories of aid, relating to:

Eligible costs. These costs are regulated individually for each individual category of aid. Investment aids costs are regulated in a general way (Article 12, General Block Exemption Regulation).
Aid intensities. Aid intensity means the aid amount expressed as a percentage of the eligible costs (Article 2(5), General Block Exemption Regulation) per project and undertaking. When calculating aid intensities, the amounts before deduction of tax and other charges are used (maximum aid intensity). Regarding grants, the amount of aid is determined by the grant equivalent (discounting at the reference interest rate at the time of granting the aid).
Transparency. Transparent aid is aid where it is possible to calculate precisely the gross grant equivalent in advance, without a risk assessment (Recital 20, Article 2(6), General Block Exemption Regulation; Article 5, General Block Exemption Regulation). Special conditions have to be met to qualify for transparent aid in the form of loans, tax aids, guarantees, refundable advanced payments or risk capital. State aids in the form of capital injections are not exempted.
Documentation (Article 9, 10, 11, General Block Exemption Regulation; Appendix II and III, General Block Exemption Regulation).
Cumulation. Aid exempted by the General Block Exemption Regulation can be cumulated with other aid exempted under this regulation, as long as those aid measures concern different identifiable eligible costs (in essence, that means different projects) (Article 7, General Block Exemption Regulation).
Incentive effect. Aid granted in compliance with the General Block Exemption Regulation must provide an incentive effect for the beneficiary to develop further activities and projects (Recital 28, Article 8(1) and (6), General Block Exemption Regulation). Aid granted to SMEs is considered to have an incentive effect if, before work on the project or activity has started, the beneficiary has applied for the aid to the member state concerned. Aid granted to large enterprises is considered to have an incentive effect if, for example, a material increase in the size or scope of the project/activity due to the aid can be established (Article 8, General Block Exemption Regulation).
Transparency for third parties (publication obligation) (Article 9, General Block Exemption Regulation).
Eligible costs regarding investment aids (Article 12, General Block Exemption Regulation).

There are also absolute threshold amounts for the notification of individual aid (Article 6, General Block Exemption Regulation) such as for:

Research and development projects and feasibility studies (different thresholds apply to fundamental research and industrial research (as defined in Article 30, General Block Exemption Regulation).
Other projects.
EUREKA projects.
Industrial property rights costs for SMEs.

The General Block Exemption Regulation in part does not apply, among other things, to ad hoc state aids for large companies (see Article 1, General Block Exemption Regulation).

State aids for research and development projects (Article 31, General Block Exemption Regulation) are exempted from the notification requirement if the funded part of a project is completely assigned to one or several research categories such as fundamental research, industrial research or experimental development (as defined in Article 30(4), General Block Exemption Regulation).

The aid intensity of fundamental research can be up to 100% of the eligible costs. The respective lower aid intensities for industrial research and experimental development can be increased under certain circumstances, such as for aid granted to SMEs or certain co-operation projects (for example, 15% for certain co-operations between companies and research organisations) or if the results of industrial research will be widely spread (Article 31(4), General Block Exemption Regulation).

The General Block Exemption Regulation also defines the eligible costs for:

Research and development projects (Article 31(5)).
State aid for technical feasibility studies (Article 32).
Aid granted to SMEs for costs in relation to granting and maintaining patents and other industrial property rights (Article 33).

Articles 34 to 37 of the General Block Exemption Regulation contain special provisions relating to aid for:

Research and development in the agricultural and fisheries sectors.
Young innovative enterprises.
Innovation advisory services and innovation support services.
The loan of highly qualified personnel.

The de minimis State Aid Regulation

The de minimis State Aid Regulation applies to aids granted to undertakings in almost all economic sectors. Aids are exempted under this block exemption, and are not subject to any notification requirement to the Commission, if the total amount of the granted de minimis aid to an undertaking does not exceed EUR200,000 over any period of three fiscal years (Article 2(2), De minimis State Aid Regulation. In the road transport sector, a maximum of EUR100,000 applies).

The maximum amount applies to all categories of aid, irrespective of whether the aid granted by the member state is financed entirely or partly by resources of Community origin. When an overall amount provided under an aid measure exceeds this maximum amount, it cannot benefit from the block exemption, even for a fraction not exceeding the maximum amount (Article 2(2) , De minimis State Aid Regulation).

The Block Exemption Regulation only applies to transparent aids. De minimis aids cannot be cumulated with other aids for the same eligible costs when exceeding the aid intensity (Article 2(5), De minimis State Aid Regulation).

Examination of notified state aid

Research and Development Aid Framework

If the requirements of the block exemption are not fulfilled the aid must be notified to the European Commission (Commission). The Community framework for state aid for research and development and innovation (OJ 2006 C323/01) (Research and Development Aid Framework) lays down the rules based on which the Commission must examine notified aids (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2006:323:0001:0026:en:PDF). The Research and Development Aid Framework applies to almost all economic sectors (2.1(4), Research and Development Aid Framework).

The Community framework also covers R&D aids regarding strengthening innovation (1.2(2), Research and Development Aid Framework). Innovation is related to a process connecting knowledge and technology with the exploitation of market opportunities for new or improved products, services and business processes compared to those already available on the common market, and encompassing a certain degree of risk.

Test for compatibility of aid with the common market

The compatibility of an aid measure with the common market is evaluated through a three stage balancing test (1.3.1(2), Research and Development Aid Framework):

Is the aid measure aimed at a well-defined objective of common interest (for example, growth, employment, cohesion and environment)?
Is the aid well designed to deliver the objective of common interest, that is, does the proposed aid address the market failure or other objective?:
- is state aid an appropriate policy instrument?
- is there an incentive effect, that is, does the aid change the behaviour of firms?
- is the aid measure proportional, that is, could the same change in behaviour be obtained with less aid?
Are the distortions of competition and effect on trade limited, so that the overall balance is positive?

This balancing test applies to the design of state aid rules, as well as to the assessment of cases. In evaluating the incentive effects, the Commission applies different legal presumptions to the notified aids (1.4(1), Research and Development Aid Framework).

Aids compatible with the common market

Chapter 5 of the Research and Development Aid Framework defines those aid measures which the Commission considers compatible with the common market, that is, aid for:

R&D projects and technical feasibility studies.
An SME, and the amount of aid granted to each SME and the project is below EUR7.5 million.
SMEs for industrial property rights costs.
Young innovative enterprises.
Process and organisation innovation in services.
Innovation advisory services and for innovation support services.
The loan of highly qualified personnel and aid for innovation clusters.

Incentive effect

Chapter 6 of the Research and Development Aid Framework explains how the Commission evaluates the necessity and incentive effect of the aid. The Commission excludes such an incentive effect, when the R&D&I activity has already been started before filing the aid notification. Basically, it is sufficient that aid measures comply with the requirements in chapter 5, provided that the conditions under chapter 6 for the assumption of the incentive effect are given. The incentive effect of some aid measures is considered given but has to be outlined at several occasions.

Evidence must be provided of the incentive effect for all other measures, that is:

R&D project aid for large enterprises.
SME aid above EUR7.5 million.
Aid for process and organisational innovation in services.
Aid for innovation clusters.

Chapter 7 of the Research and Development Aid Framework states in which cases the Commission has to do an extensive case-by-case assessment.

Research, technology transfer and prohibited state aid

Issues regarding research promotion and technology transfer which have to be assessed under state aid rules can arise in the following examples:

Research promotion programmes.
Corporate participation of a university in a patent exploiting vehicle.
Transfer of a university invention by the university to its patent exploiting vehicle.
Free of charge or not at arm's length delivery of services by the university to its patent exploiting vehicle.
Contract research by universities or research companies for industrial partners.
Publicly funded and not publicly funded research co-operations between companies and research companies.

State aid is given when the conditions of benefit granted through state resources are met, and a distortion of competition and an effect on trade between member states are caused. These elements are considered below.

Benefit

General definition of benefit. A benefit is a state measure where an undertaking or a branch of production receives a benefit without appropriate (that is, arm's length) consideration. According to the case law of the ECJ the criterion of benefit has to be widely interpreted and includes every monetary advantage, that is:

The supply of financial resources (financial supply).
Measures which reduce debts of an undertaking.
Investment in non-profitable corporations.
An active action or failure to act (for example, late or no enforcement actions regarding a due claim).

Organisations can both be the beneficiary of state aids and can grant, indirectly, aids to undertakings (3.1 and 3.2, Research and Development Aid Framework).

In the Commission's opinion, the promotion of non-economic activities of research organisations is not subject to Article 107(1) of the TFEU. Public authorities can commission R&D from companies or buy R&D results from them. If such R&D is (2.1(3), Research and Development Aid Framework):

Not procured at market price, this normally involves state aid.
Awarded according to market conditions (as indicated by, for example, a tender procedure according to public procurement directives), the Commission normally considers no state aid to be involved.

Research organisations receiving state aids

Definition of research organisation. Research organisations are defined in this context as entities such as universities or research institutes, irrespective of their legal status (organised under public or private law) or way of financing, whose primary goal is to conduct fundamental research, industrial research or experimental development, and to disseminate the results by way of teaching, publication or technology transfer (Article 30(1), General Block Exemption Regulation). All profits are reinvested in these activities, the dissemination of the results or teaching. Undertakings that can exert influence on such an entity, such as shareholders or members, must not enjoy preferential access to the research capacities of such an entity or to the research results generated by it.

Public funding of R&D&I activities by research organisations will qualify as state aids, if all conditions of Article 107(1) of the TFEU are fulfilled (3.1, Research and Development Aid Framework). For example:

The research organisation must qualify as an undertaking within the meaning of Article 107(1) of the TFEU.
This does not depend on its legal status (organised under public or private law) or economic nature (profit making or not). The research organisation must carry out an economic activity, that is, to offer goods and/or services on a specific market (see footer 23, Research and Development Aid Framework, with reference to Case 118/85 Commission v. Italy, ECR 1987, 2599, paragraph 7; Case C-35/96 Commission v. Italy [1998] ECR I-3851, CNSD, paragraph 36, Case C-309/99 Wouters [2002] ECR I-1577 paragraph 46).

Economic activities. These can consist of, for example (see footer 24 and 3.2.1(1), Research and Development Aid Framework):

Research carried out under contract with industry (commissioned R&D).
Renting out of research infrastructure and consultancy activities or services for industrial partners.

If a research organisation is granted aid for carrying out such activities, it is subject to the state aid regime.

However, the main activities of research organisations are considered non-profit making activities, such as (1.1(2), Research and Development Aid Framework):

Training of more and better qualified human resources.
Independent R&D, including collaborative R&D.
The dissemination of research results.

Technology transfer. The Commission also considers that technology transfer activities (licensing, spin-off creation or other forms of knowledge management created by the research organisation) are of a non-economic character if they are of an internal nature, and all income from them is reinvested in the primary activities of the research organisation (3.1.1(3), Research and Development Aid Framework).

For all remaining kinds of technology transfer receiving state funding, the Commission does not consider itself in a position, based on its current knowledge, to decide generally on the state aid character of the funding of such activities. It underlines the obligation of the member states under Article 108(3) of the TFEU to assess the character of such measures in each case, and notify them to the Commission if they consider them to represent state aid (footer 26, Research and Development Aid Framework).

Internal nature. In the Commission's view, internal nature (footer 25, Research and Development Aid Framework) is a situation where the management of the knowledge of the research organisation(s) is conducted either by a department or a subsidiary of the research organisation, or together with another research organisation. Contracting the provision of specific services to third parties by way of open tenders does not jeopardise the internal nature of such activities.

Cross-subsidisation. If the same research organisation carries out economic and non-economic activities, to avoid cross-subsidisation of the economic activity, public funding of the non-economic activities will not fall under Article 107(1) of the TFEU if the two kinds of activities and their costs and funding can be clearly separated (3.1.1(1), Research and Development Aid Framework). Evidence that the costs have been allocated correctly can consist of annual financial statements of the universities and research organisations (see also Directive 2006/111/EC on the transparency of financial relations between member states and public undertakings as well as on financial transparency within certain undertakings).

Cross-subsidisation is where an undertaking provides internal financial support to one or more areas of its business activities, with income derived from other areas. In this respect an undertaking passes on all or part of the costs of a spatial or factual market to another factual market.

Examining the cross-subsidisation, the recipient division will be considered a separate undertaking (undertaking in an undertaking) from the transferring division, whereas the transferring division has to be qualified under state aid rules to be attributed to the state. According to the Chronopost-decision (Case C-83/01 P, C-93/01 P Chronopost, ECR 2003, I-6993), explicitly denying the private investor test, the costs which have to cover the price of the service to avoid cross-subsidisation are full costs. All the costs of the service have to be included in the price.

In addition (3.1.2, Research and Development Aid Framework):

If research organisations or other non-profit innovation intermediaries (like technology centres, incubators and chambers of commerce) perform economic activities, this should be done in normal market conditions, and public funding of these economic activities will generally involve state aid.
If the research organisation or not-for-profit innovation intermediary can prove that all the state funding it received to provide certain services has been passed on to the final recipient, and there is no advantage granted to the intermediary, the intermediary organisation cannot be a recipient of state aid. For the state aid to the final recipient, normal state aid rules apply.

Indirect state aid through publicly funded research organisations

The functional and solely benefit-orientated notion of state aid also includes indirect benefits. Therefore, the benefit does not only affect the primary beneficiary, but also an indirect third party (second beneficiary). Whether a third party is a recipient, or only enjoys a positive economic reflection caused by the benefits of the intermediary of the aid, is often difficult to answer, and subject to individual assessment. A claim for return of indirect state aids is often no longer possible.

In the Commission's view, the grant of indirect state aid can occur in cases of:

Contract research by a research organisation.
Collaboration with a research organisation.

Contract research and state aid. The Commission considers contract research as where both (3.2.1, Research and Development Aid Framework):

The agent receives payment of an adequate remuneration for its service.
The principal specifies the terms and conditions of this service.

The Commission considers that the principal typically owns the results of the project and carries the risk of failure. As a general rule, in the Commission's view, there is no state aid when the research organisation provides its services at market price or, if there is no market price, at a price which reflects its full costs plus a reasonable margin. The Commission does not provide information on what full costs and reasonable margin means.

Concerning costs, some authors suggest full-cost accounting. In this case, the full-cost accounting approach of the Chronopost decision may give guidance. The reasonable margin can possibly be assessed following the private investor test criteria (see below, Establishing a patent exploitation vehicle by a university).

Collaboration and state aid. The Commission considers co-operation to occur when at least two partners participate in the design of the project, contribute to its implementation and share the risk and the output (3.2.2(1), Research and Development Aid Framework). No indirect state aid is granted to the industrial partner through the research organisation, due to the favourable conditions of the collaboration, if one of the following conditions is fulfilled (3.2.2(1), Research and Development Aid Framework):

The participating undertakings bear the full cost of the project.
The results which do not give rise to intellectual property rights can be widely disseminated, and any intellectual property rights to the R&D&I results which result from the activity of the research organisation are fully allocated to the research organisation. Full allocation means that the research organisation enjoys the full economic benefit of those rights by retaining full disposal of them, notably the right of ownership and the right to license. These conditions can also be fulfilled if the organisation decides to conclude further contracts concerning these rights, including licensing them to the collaboration partner (see footer 28, Research and Development Aid Framework).
The research organisation receives from the participating undertakings compensation equivalent to the market price for the intellectual property rights, which result from the activity of the research organisation carried out in the project, and which are transferred to the participating undertakings. Any contribution of the participating undertakings to the costs of the research organisation will be deducted from such compensation. Compensation equivalent to the market price for the intellectual property rights refers to compensation for the full economic benefit of those rights. In line with general state aid principles, and given the inherent difficulty to establish objectively the market price for intellectual property rights, the Commission considers this condition fulfilled if the research organisation as seller negotiates to obtain the maximum benefit, at the moment when the contract is concluded (see footer 29, Research and Development Aid Framework).

If none of the previous conditions are fulfilled, the member state can rely on an individual assessment of the collaboration project. However, this provision does not intend to modify the obligation to notify the measure to the Commission (as far as no exemption under the block exemption is fulfilled).

There may also be no state aid where the assessment of the contractual agreement between the partners leads to the conclusion that any intellectual property rights to the R&D&I results, as well as access rights to the results, are allocated to the different partners of the collaboration and adequately reflect their respective interests, work packages, and financial and other contributions to the project.

If the above conditions are not fulfilled, and the individual assessment of the collaboration project does not conclude that there is no state aid, the Commission considers the full value of the contribution of the research organisation to the project as aid to undertakings (3.2.2(3), Research and Development Aid Framework).

In the case of state aid for an R&D project being carried out in collaboration between research organisations and undertakings, the combined aid deriving from direct government support for a specific research project and, where they constitute aid (point 3.2, Research and Development Aid Framework), contributions from research organisations to that project, cannot exceed the applicable aid intensities for each benefiting undertaking (5.1.2(3), Research and Development Aid Framework; Article 31(3) third sentence, General Block Exemption Regulation). If a project funded by the state and if a contribution of a research organisation is considered as a state aid according to these rules, both have to be accounted for in the aid intensities.

In Austria, the university is basically publicly financed (sections 13 and 14, Austrian University Act 2002). As far as it fulfils its assigned public goals and tasks (sections 1 and 3, Austrian University Act 2002), it is not subject to the state aid law, as it does not participate in competition. However, the following are a participation in economic transactions, and are generally subject to the state aid rules:

Establishing or participating in a patent exploitation vehicle.
Transfer of university inventions to a patent exploitation vehicle for exploitation, or providing services to the patent exploitation vehicle.

Establishing a patent exploitation vehicle by a university

Private investor test of benefit. No benefit is granted if a hypothetical private comparison investor would also have made the investment choice to make the relevant expenditure in normal market conditions, in that specific investment situation at the point in time of the investment. The rendered service and the corresponding consideration must conform to usual market conditions (market investor test or private investor test). The assessment when a transparent market price (for example, listed shares) exists is unproblematic.

In other cases, the value has to be determined based on an open, transparent and unconditional bidding process, or based on an expert report given by an independent expert, whereby the Commission prefers the bidding process. The market investor test fails when no market is available. The Commission considers that detailed evidence of the costs for providing specific services can exclude a benefit. The purchase at market conditions is not sufficient when there was no actual need for the purchase.

Public funding through direct provision of equity or loan capital is evaluated by application of the private investor test. Illegal state aid is given if new capital is made available for undertakings, which is not acceptable to a private investor investing his money under normal economic conditions. In this respect, considerations beyond short-term profitability are taken into account, particularly the benchmark of a holding or a private group of undertakings that pursue a global or sectorial policy guided by long-term profitability. It is decisive that the injected capital corresponds to the value of the shares.

Likewise, strategic investments can be required under market economy considerations, even if the investments get profitable at a later point in time. Even risk-driven investments by the public can correspond to the behaviour of a private investor, if a return on investment can be expected due to development and innovation opportunities of the recipient undertaking.

However, the Commission also classifies technology transfer and the establishment of a patent exploitation vehicle (3.1.1(3), Research and Development Aid Framework) as a not-for-profit activity, if this activity is of internal nature and all income derived from it is reinvested in the main activity of the research organisations. In essence, this will be the case if the income, for example in the form of a dividend, is reinvested in the university, to fulfil the goals and tasks of the university.

Transferring a university invention to a patent exploitation vehicle and providing services

The transfer of a university invention to a patent exploitation vehicle for the purpose of exploitation, or providing services to the patent exploitation vehicle, against a consideration not at market price, is a state aid relevant benefit and an illegal cross-subsidisation.

Public funds

Attribution to the state. According to the relevant case law, to what extent the activity of the research organisation can be attributed to the state has to be examined (see footer 27, General Block Exemption Regulation: Compare Case C-482/99 France/Commission, ECR 2002, I-4397 regarding attribution to the state).

The state aid has to be granted "by a Member State or through State resources in any form whatsoever". State resources are granted by the federal government, the federal states or communities or a private or public entity designated or established by the state. Regarding designated entities, the public act of establishment of the entity and the governmental determination of the tasks can also be considered a sufficient governmental influence.

In Stardust Marine (ECJ C-482/99 Stardust Marine ECR 2002, I-4397) the ECJ has restricted the attribution to the state, at least for public undertakings, to the extent that the state must actually make use of its powers. Potential public funds only convert into real public funds through attributing the specific individual finance transaction of the publicly designated entity to the state. The attribution derives from a nexus of factors, such as:

The activity of the undertaking (object of the undertaking and market practice under normal conditions).
Intensity of public control of the undertaking.
Integration of the undertaking into the structure of public administration.
Every other indication which refers to the investment of the public in the individual case.
Pressure on public budgets. This also includes state institutions with an increased autonomy, like universities.

Designated undertakings or branches of production

An undertaking is considered to be every unit exercising an economic activity irrespective of its legal form and the kind of financing. It is decisive that the economic activity is designed on a long-term basis. The intention of making profits is not required. Branches of production are the undertakings being active in a specific economic area (economic sectors). Therefore, public funding granted to the whole economic sector without any differentiation is excluded.

The exceptional nature of public funding, as a criterion distinguishing it from general measures of economic funding, has to be explicitly established by the Commission. A university patent exploitation vehicle exploits university inventions on the market and is therefore active in the market, and consequently is considered an undertaking.

Actual or threatened distortion of competition

A distortion of competition is given in case of an actual or potential interference into an existing or probable competitive relationship between undertakings or branches of production, which leads to a change in the process of competition. As there may be cases without any distortion of competition, the Commission has to establish the circumstances from which the distortion of competition may derive. A relevant market has to exist or may arise.

Affecting trade between member states

Affecting trade between member states (inter-state clause) must only be denied in exceptional cases, due to increased commerce, service and capital flows. The inter-state relationship is only denied for merely local economic activities. De-minimis aids and aids granted according to the General Block Exemption Regulation are excluded from the state aid regime.

Grant equivalent

The Commission can require member states to claim back illegally granted state aid to recipient undertakings, including interest. The grant equivalent is calculated as the difference between the market value and the actually rendered service. In many cases the particular grant equivalent cannot be clearly established, for example, indirect state aids or state aids in the form of public equity injections. This causes not only uncertainty regarding eligibility for approval, but also relating to any reclaim of state aids.

For the reclaim of state aids it is sufficient that the qualification of the particular measure as a state aid is sufficient in this respect, and that the Commission does not have to specify the specific amount of the state aids subject to claiming back. In this respect, the full cost approach laid down in the Chronopost judgment can be considered as the minimum including an appropriate margin. In case of the reclaim the de-minimis rules apply.

Summary

Public research promotion programmes have to be in accordance with the General Block Exemption Regulation or the de-minimis State Aid Regulation. Otherwise, such promotion programmes have to be notified to the Commission, and will be assessed considering the Research and Development Aid Framework.

Corporate participations of a university in a patent exploitation vehicle will be assessed on the basis of the private investor test. If the investment would be unacceptable for a private investor investing under normal economic conditions, an illegal state aid is given.

The service relationship between a university and a patent exploitation vehicle can be a breach of the prohibition of cross-subsidisation, if the compensation does not correspond to market price: this is an illegal state aid.

As far as a research organisation fulfils research contracts for undertakings, the services have to be provided at an adequate market price. If there is no adequate market price, the price has to cover full costs and an appropriate margin. Otherwise an illegal state aid is given.

In case of research collaborations between research organisations and undertakings no indirect state aid is given, if the undertakings bear all costs of the project or the results can be disseminated widely, and the intellectual property rights resulting from an activity of the research organisation in this project can be allocated to them, or if the research organisation receives a usual market price for the intellectual property rights, considering financial contributions to the costs of the research organisation.

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Sabine Fehringer

DLA Piper Weiss-Tessbach Rechtsanwälte GmbH, Austria

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Professional qualifications. Admitted to the Austrian Bar (Vienna)

Areas of practice

Partner with DLA Piper Weiss-Tessbach Rechtsanwälte GmbH in Austria, and heads the firm's IT/IP team. She has been practising law in Austria for more than 20 years.
Specialises in the areas of IT/IP, research and development, licensing, new media and advertising, including IT/IP related M&A and corporate transactions.
Advises in major national and EU research projects, IT, licensing and technology transfer projects, but also M&A transactions with a strong IT/IP focus.
Also deals with research promotion and state aid related issues.

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