The Legal Framework of Technology Transfer Agreements
Technology transfer — the transfer of a licence, franchise, technical know-how or a trade secret — falls within the general contractual framework of the Civil Code, which rests on the freedom of the parties. Subjects of private law may, within the limits of the law, freely conclude contracts and determine their content; they may even conclude contracts not provided for by law, provided these do not contradict it. In practice this freedom unfolds into a chain of three decisions: what is transferred — a broad assignment of the right, a licence, or the right to use a trade secret; within what limits — territorially, in time and by circle of use; and for what consideration — a lump sum or royalty form. Each of these decisions requires a separate clause of the contract, and the general framework of the law exists precisely so that the parties determine the content of those clauses themselves. Moreover, where the validity of a contract for the protection of the substantial interests of society or a person depends on state permission, this must be regulated by a separate law — the question of state control is likewise resolved by a defined rule, and not by administrative discretion.
The Duty to Contract and Loyal Competition
The law regulates two significant exceptions to the principle of freedom. First: where one party to a contract occupies a dominant position in the market, in that sphere of activity it bears the duty to conclude contracts and may not without grounds offer a counterparty unequal terms; nor may persons acquiring goods or services for non-commercial purposes or to satisfy essential needs be refused without justification. Second: even after contractual relations have ended, the parties owe each other loyal competition; with respect to a franchisee a prohibition of competition may be imposed within a defined territory, which may not exceed one year, and where the prohibition may threaten professional activity, the franchisee must be given appropriate financial compensation.
Standard Terms and the Penalty
Technology transfer agreements are often concluded on standard terms, and here too the law gives an instrument of defence: those provisions of standard terms which are so unusual in form that the other party could not have taken them into account do not become a constituent part of the contract. The parties may also freely determine a penalty, which may exceed the possible damage, and an agreement on a penalty requires written form — in other words, a penalty clause in a technology transfer package operates only when agreed in writing.
To summarize: a technology transfer agreement is concluded within the freedom framework of the Civil Code — the parties themselves determine the format, the limits and the consideration. This freedom has two boundaries: the dominant party's duty to conclude contracts and the prohibition of unequal terms, and, after the relationship ends, the duty of loyal competition, within which a non-compete imposed on a franchisee may not exceed one year. An unusual standard provision that was not taken into account does not enter the contract, and a penalty requires written form.
Stepwise Verification of the Transfer Package
Preparing a technology transfer package takes shape through five checks. First — the definition of the object and format of the transfer: the law gives force even to unnamed contracts, provided they do not contradict it. Second — an assessment of the party's position: a party dominant in the market may not refuse without grounds and may not propose unequal terms to a counterparty. Third — an understanding of the non-compete clause: territory, a term not exceeding one year, and financial compensation where professional activity is threatened. Fourth — a review of the standard terms: an unusual provision the other party could not have taken into account does not enter the contract. Fifth — the form of the penalty: the agreement must be concluded in written form, and the penalty may exceed even the possible damage, save for the exception provided by the Code. Each check rests on a separate norm, and together they form the framework within which the parties' freedom unfolds.
Frequently Asked Questions
Below we answer the questions most frequently asked on this topic.
May a contract not named in the law be concluded?
Yes — provided it does not contradict the law. The format of technology transfer is determined by the parties' agreement.
When does a duty to contract exist?
For a party in a dominant market position — in the relevant sphere; and a refusal cannot be unjustified toward buyers acting for non-commercial purposes.
For how long may competition be restricted in a franchise?
Within a defined territory — no more than one year, with financial compensation where professional activity is threatened.
Which standard terms do not enter the contract?
Those unusual provisions the other party could not have taken into account.
What form does a penalty agreement require?
Written form — an agreement on a penalty requires written form.
How We Help on Legal.ge
A technology transfer agreement demands simultaneous knowledge of intellectual property, competition and contract law. On Legal.ge you can consult an experienced advocate who will prepare the agreement in observance of the principles of freedom, assess the boundaries of a non-compete and protect your interests in performance disputes. Submit a request on the site and get qualified assistance.