UK: Competitor Contacts Condoned – New Guidance on Agreements Between Competitors

Last Updated: 6 October 2010
Article by Simon Dodd

The European Commission has published a draft of its revised guidelines on the applicability of competition law to agreements between competitors. These new provisions are the latest step in the European Commission's programme to update all competition law legislation and guidance and follow the new block exemption for vertical agreements which came into force earlier this year.

Agreements Between Competitors

Any agreement between competitors will need to be assessed in relation to the prohibition on anti-competitive agreements. Competitors are defined as companies that operate at the same level of production or distribution in the market. This includes potential as well as actual competitors. However, just because an agreement is between competitors does not mean that it will contravene competition law. Indeed, competition regulators recognise that certain agreements between competitors are in fact beneficial and pro-competitive. Therefore, any agreements between competitors need to be assessed to ensure that the co-operation will not reduce competition but instead provide economic benefits and be pro-competitive.

The Draft Guidelines

The proposed new guidelines are intended to replace the current guidelines which were adopted in 2000. It is intended that the new guidelines will come in force in December 2010.

The guidelines are very useful when businesses are considering entering into agreements with competitors and set out how compliance with competition law can be assessed in such circumstances. Therefore, these moves to update the guidelines to reflect changing circumstances are welcomed.

The key change in the draft guidelines is the introduction of a section dealing with agreements for the exchange of information between competitors. This is the first time that the European Commission has set out general guidelines for the exchange of information between competitors.

Exchange of Information

Information exchange between competitors is an extremely sensitive subject which, unless extreme caution is exercised, can lead to accusations of serious breaches of competition law and to the potential of severe sanctions being imposed. For example, the exchange of information between competitors can facilitate the operation of a price fixing cartel. However, the European Commission has recognised that, in certain circumstances, the exchange of information between competitors can be pro-competitive, leading to increased competition or improved efficiency and subsequent lower prices.

Where there is an agreement to exchange information, the draft guidelines state that the main competition law concerns relate to the co-ordination of companies' competitive behaviour and the foreclosure of competition. To this end, it is recognised that any exchange of information between competitors that includes specific data regarding intended future prices or quantities is likely to amount to a serious breach of competition law. Such an exchange will contravene competition law. Likewise, any exchange of information that has the potential to reveal intentions on future behaviour is also likely to be viewed as a serious breach of competition law.

In the draft guidelines, the European Commission sets out the key factors that will be relevant to considering whether information exchange between competitors is likely to breach competition law. These factors include the characteristics of the industry in question and the nature of the information to be exchanged. In relation to this second point, specific points to consider include:

  • Whether the information is commercially sensitive;

  • Whether the exchange is being made publicly or in private;

  • The age of the information exchanged:

  • Whether any data is aggregated; and

  • The frequency with which information is exchanged.

Therefore, a one-off exchange of historical, aggregated information between smaller competitors in an industry with a number of different participants is less likely to be problematic than regular exchanges of future prices between the two largest competitors in a concentrated industry.

Other Changes in the Draft Guidelines

The draft guidelines contain revised guidance on standardisation agreements. Standardisation agreements are agreements between competitors or potential competitors which are intended to set out agreed definitions of technical or quality requirements with which products, production processes, services or methods should comply. The European Commission notes that standardisation agreements may restrict competition by reducing price competition and/or limiting or controlling production, markets, innovation or technical development. However, it is accepted that such agreements may also be beneficial to competition, for example by promoting new entry, encouraging the development of new markets and improving supply conditions. Given changes in the application of competition law to such agreements over the last ten years, the European Commission has updated and revised its guidance on the application of competition law to standardisation agreements.

The draft guidelines also provide clarification on the application of competition law to joint ventures, in particular to the relationship between a joint venture and its parent companies. In particular, the European Commission notes that an agreement to limit the capacity and production volume of a joint venture is unlikely to infringe competition law.

Conclusion on the Draft Guidelines

The publication of these draft guidelines is an important step. For the first time, the European Commission has provided guidance on general agreements for the exchange of information between competitors. This will be of great assistance to many businesses which may have found their activities curtailed due to competition law concerns. Now it will be much clearer when and to what extent information can be shared amongst competitors without risking the severe sanctions that can be imposed for breaches of competition law.

New Rules for R&D and Specialisation Agreements

At the same time as publishing the new draft guidelines on horizontal agreements, the European Commission published draft new block exemptions covering specialisation agreements and research and development agreements. The new block exemptions are also expected to come into force in December 2010.

The research and development block exemption provides an exemption to the prohibition on anti-competitive agreements for certain agreements concerning the joint research and development and the joint exploitation of the results of such research and development. The main change in the new draft block exemption compared to the current block exemption is the fact that it is now made clear that the exemption is only available if, prior to starting the research and development, it is agreed that existing and pending intellectual property rights relevant for the exploitation of the results by the other parties will be disclosed in an open and transparent manner.

The specialisation block exemption provides an exemption from competition law to certain agreements where one or more parties agree to cease (or refrain from) producing certain products and agree instead to purchase them from another party. The draft specialisation block exemption is generally unchanged from the existing block exemption, although clarification is provided in relation to a number of points.

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.

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