Blog

07
feb

European Union: EU Competition Rules For Cooperation Between Competitors

The European Commission has adopted revised horizontal guidelines which amongst other changes for the first time provide specific guidance on information exchange between competitors. Two block exemption regulations on research and development as well as on specialisation have also been revised to cover more agreements than before.

 

On 14 December 2010 the European Commission adopted two revised block exemption regulations, on R&D cooperation and on specialisation, as well revised horizontal guidelines covering a wider scale of cooperation agreements between competitors.

 

The new block exemptions enter into force in the beginning of the year 2011 with a transitional period of two years. The horizontal guidelines are effective as soon as they have been officially published. The new guidance aims to ensure a uniform application of EU competition rules in all EU Member States.

 

A block exemption regulation provides a safe harbour for certain types of agreements between companies with a limited combined market share (below 25 % in case of R&D agreements and below 20 % in case of specialisation and joint production agreements). These agreements are by their nature considered to have more positive than negative effects on competition and are therefore block exempted from the general prohibition to restrict competition. If the company’s market share exceeds the threshold of the block exemption, the agreement is not automatically illegal but its effects on competition must be assessed individually.

 

Horizontal guidelines describe how the competition authorities assess common forms of cooperation between competitors such as R&D, production, purchasing, commercialisation, standardisation and information exchange. As the competition authorities no longer grant exemptions for individual agreements, companies can use this guidance when they assess whether their cooperation agreements could lead to restriction of competition. National competition authorities of EU Member States also have a common set of guidelines which should make interpretation of EU competition rules at a national level faster and more predictable.

 

The revised horizontal guidelines provide for the first time specific guidance regarding information exchange between competitors. Information exchanges have been one of the focus areas of the competition authorities for quite a while and a number of important developments have recently taken place both in EU and national case law.

 

All information exchange is not problematic from a competition law point of view but the application of rather general competition rules together evolving case law on information exchange is often complex. This had led to companies abandoning pro-competitive cooperation as too risky as well as to unintentional breaches of competition law as business people are unaware of the recent developments in case law, for instance, regarding uniform disclosure of information.

 

The second major development in the horizontal guidelines relates to standardisation which is one of the key development issues in certain technical sectors. The guidelines aim to explain how competitive selection of industry standards can be ensured and how access to the chosen standard is given on fair, reasonable and non-discriminatory terms. In practice many disputes regarding standard-setting have related to the role of IPRs and the lack of transparency during the selection of the standard.

 

According to the horizontal guidelines the Commission will not intervene in standard-setting agreements that fulfil certain criteria:

(i) the procedure for the setting of the standard is unrestricted;

(ii) there is transparency regarding the development of the standard and ongoing work;

(iii) in cases where the standard involves IPRs, there is a clear and balanced IPR-policy with a good faith disclosure of IPRs that are essential for the implementation of the standard and a requirement of all relevant IPR holders to commit to license their IPR on a fair, reasonable and non-discriminatory (“FRAND”) terms.

 

Agreements that do not fulfil the above criteria are not automatically considered illegal and the horizontal guidelines provide further clarifications for self-assessment of agreements falling outside the safe harbour. The guidelines also state that the Commission would not normally have an issue with agreements that allow members of standard-setting organisations to disclose their most restrictive licensing terms such as the maximum royalty rates for their intellectual property rights if those were to be included in a standard as a part of FRAND commitments.

 

In addition to technical standardization, the horizontal guidelines contain guidance and examples for the use of standard contractual terms. As long as the establishment of standard industry terms is unrestricted for all competit-ors and they are non-binding and accessible to everyone, competition issues do not normally arise unless the terms include specific restrictive clauses.

 

As regards the R&D block exemption, it has been extended to cover research agreements where one party merely finances the R&D carried out by another party. It also gives companies broader scope to exploit R&D results. However, the relatively low combined market share threshold (25 %), which also includes companies that would be able to enter the market within three years, has been criticized for making the safe harbour available only to very small companies.

 

Both the block exemption and the horizontal guidelines give limited guidance for self-assessment of individual contractual restrictions in R&D agreements. The Commission originally proposed that the R&D block exemption would only apply if the parties disclosed their existing and pending IPRs that are relevant for the exploitation of the R&D results by the other parties. After public consultation this requirement was abandoned as it was concluded that potential “patent ambushes” can be adequately dealt with by contractual agreements between the parties.

 

The specialisation block exemption allows competitors with limited market share joint production and distribution or specialisation whereby one party gives up production and is supplied by the other party, provided that the cooperation does not include serious competition restrictions such as division of markets or agreement on prices outside joint distribution. The revised block exemption covers even partial specialisation agreements where one of the parties ceases production, for instance, in one of its two plants and purchases the output of the closed plant from the other party.

 

Due to lack of recent case law in area of the R&D and specialisation block exemptions, the revised block exemptions and the horizontal guidelines provide an important and useful tool for self-assessment. From a self-assessment perspective it is unfortunate, however, that the significant attempt to clarify the application of competition law to agreements between a 50/50 joint venture and its parents was removed from the final horizontal guidelines. Such arrangements are, in practice, quite common and further guidance would have been very welcome.

 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

 

Source: Dittmar & Indrenius (author: Hanna Laurila)