The European Commission's new Guidelines on Horizontal Agreements

Article by Gillian Sproul , Nathalie Jalabert Doury , Jens Peter Schmidt and Kiran S. Desai

Originally published 17 December 2010

Keywords: European Commission, new guidelines, horizontal agreements, anti-competitive agreements

14 December 2010 saw the publication of three key documents relating to the application of the EU rules on anti-competitive agreements to the field of competitor co-operation.

The European Commission (the "Commission") adopted:

revised guidelines on the assessment of horizontal co-operation (the "Guidelines"), and
new block exemption regulations in the areas of:
- research and development ("R&D") and
- specialisation in production ("Specialisation").

These followed the Commission's 4 May 2010 consultation on draft versions of the guidelines and regulations.

The new Guidelines came into force immediately, replacing the 2000 guidance. The R&D and Specialisation block exemption regulations will come into force from 1 January 2011, replacing existing regulations 2659/2000 and 2658/2000.

The Guidelines

The Guidelines set out general principles for assessing horizontal cooperation, that is, cooperation between actual or potential competitors.

The final version of the Guidelines is substantially the same as the version published for consultation in May, covering the following six key areas of possible cooperation:

Information exchange
R&D agreements
Production agreements
Purchasing agreements
Commercialisation agreements
Standardisation agreements

The key change from the 2000 guidance is the welcome addition of guidelines on how to assess information exchanges between competing undertakings – see below.

Information Exchange

The new guidance on information exchange has come at the request of business, following an increasing focus by regulators throughout Europe on the potentially anti-competitive effects of exchanges of information among competitors. The Guidelines provide guidance on those exchanges that are acceptable and those that are not.

The Guidelines indicate that, where businesses exchange information relating to their individualised intentions concerning intended future prices or quantities, this will almost always be considered a serious restriction of competition, irrespective of the effect of the information exchange on competition.

Where the information exchange does not fit into the category described above, the parties will need to consider its effects on competition, in light of:

the economic conditions on the relevant markets, and
the characteristics of the information exchanged.

Information exchanges among competitors are particularly risky where the markets in which those competitors operate (i) are transparent, (ii) involve commoditised products with relatively simple pricing structures, (iii) are concentrated in the hands of a small number of players with similar costs and types of operation and (iv) are stable.

Exchanges of information will increase the risk of a breach of competition law in the following circumstances:

where the information is strategic, for example, it relates to actual prices, discounts, increases or reductions in price, rebates, customer lists, production costs, quantities, turnovers, sales, capacities, qualities, marketing plans, risks, investments, technologies or R&B programmes and their results;
where the competitors involved in the exchange cover a sufficiently large part of the relevant market;
where the data is individualised;
where the data is not historic – whether information is historic will depend on market conditions;
where the exchanges of information are frequent;
where the information is not genuinely public (i.e. where it is not generally equally accessible, in terms of costs of access, to all competitors and customers); and
where the fact that the information is being exchanged is not genuinely public.

Note that these factors are only indicative and that conditions on the relevant market will be key to assessing whether a particular exchange of information is likely to restrict competition.

Standardisation Agreements

The Guidelines also provide a substantially revised section on standardisation. This addresses two related types of agreement, namely:

Standardisation Agreements, which define technical or quality requirements with which current or future products, production processes, services or methods may comply; and
Standard Terms and Conditions, which establish standard conditions of sale of purchase of goods or service between competitors and consumers for substitute products.

These are generally likely to be acceptable, subject to certain conditions and as long as they do not, for example, affect the parties' prices or other market strategies.

The Specialisation Block Exemption

The Specialisation block exemption regulation is essentially unchanged from the May 2010 draft (and little changed from the previous 2000 version). Subject to certain conditions, it provides an exemption for agreements pursuant to which:

two parties active on the same product market agree that Party A will not produce certain products and will purchase them from Party B; or
two or more parties active on the same product market have a reciprocal agreement that Party A will not produce Product X and Party B will not produce Product Y (and so on) but will purchase those products from the other party; or
two or more parties agree to produce certain products jointly.

The exemption applies on condition that:

the combined market share of the parties does not exceed 20% on any relevant market; and
the agreement does not have as its object any of the "hardcore" infringements of competition law: price fixing, the limitation of output or sales, or the allocation amongst the parties of markets or customers.

The R&D Block Exemption

The R&D block exemption regulation provides an exemption for certain agreements entered into between two or more parties which relate to the conditions under which those parties pursue joint R&D and/or jointly exploit the results of that R&D.

The exemption applies for the duration of the R&D and, where the results are jointly exploited, seven years from the time the resulting products or technologies are first put on the market in the EU, provided that:

certain detailed conditions for exemption are met;
the agreement does not contain any of the hardcore infringements of competition law (see above); and
where two or more of the parties are actual or potential competitors, certain market share thresholds are met.

The final regulation contains a number of substantive changes from the May 2010 draft. Key changes include:

Removal of the condition that exemption will be available only if the parties agreed before commencing their R&D to disclose in an open and transparent manner any existing or pending intellectual property rights relevant for the exploitation of any results of the R&D to the other parties.
Expansion of the scope of the exemption to cover 'paid-for research'. This expands the benefit of the block exemption to cover where one party is merely financing the R&D activities of the other.
Broadening of the ability of the parties to jointly exploit the results of their combined R&D efforts (this had been expressly excluded from the May draft).
Permission of a restriction on the parties competing with the contract products or technologies during a pre-agreed period. Practices which fall under specialisation within the context of exploitation of the R&D are also generally acceptable.

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