UK: European Commission Consults on New Regime for Horizontal Co-Operation Agreements

Last Updated: 7 May 2010
Article by Caroline Hobson and Alexander Howe

On 4 May 2010, the European Commission (EC) published draft Regulations and Guidelines for the assessment of co-operation agreements between competitors, so called horizontal co-operation agreements. Interested parties can submit comments on the draft until 25 June 2010, with the final text due to be published before the two current Regulations expire on 31 December 2010.

Guidance on horizontal co-operation agreements is currently set out in two Block Exemption Regulations (BERs) (Commission Regulation (EC) No. 2659/2000 on research and development (R&D) agreements and Commission Regulation (EC) No. 2658/2000 on specialisation agreements) and the accompanying Horizontal Guidelines. The two Regulations exempt research and development as well as specialisation and joint production agreements from the general EU ban on restrictive business practices, provided the companies have limited market power (reflected in a market share not exceeding 25% for joint R&D agreements between competitors or not exceeding 20% for specialisation or joint production agreements). In addition, the agreements must have no anticompetitive effects or, if they do, the positive effects must outweigh any negative ones.

Draft R&D Block Exemption Regulation

There are no fundamental changes to the R&D BER. The few amendments are designed to ensure that one party to an R&D agreement cannot unduly impair the exploitation of the results by other parties, thereby depriving customers and consumers of the benefits of the joint R&D. Moreover, restrictions on active sales to territories not exclusively allocated to one party are considered hardcore and can therefore not benefit from the BER. Passive sales restrictions with regard to customers, and not only those with regard to territories, are also considered hardcore restrictions. Finally, the definition of "potential competitor" has been clarified by introducing a three-year time frame during which a party would need to be likely to enter a market in order to be considered to be a potential competitor. As the R&D BER applies to co-operations between competitors (including potential competitors) only if their combined market share does not exceed 25%, it is important for parties to know when one of them will be considered a potential competitor.

Draft Specialisation Block Exemption Regulation

The Draft BER clarifies that its benefit applies to specialisation agreements, even where one of the parties to the agreement only partly ceases production. This would enable a company that has two production plants for a certain product to close down one of its plants, outsource the output of the closed plant, and still fall under the Specialisation BER. The Draft BER also provides that, where the products concerned by a specialisation or joint production agreement are intermediary products which one or more of the parties use solely for the production of certain downstream products which they also sell, the exemption is also conditional upon a 20% market share threshold downstream.

Draft Horizontal Guidelines

The main changes that have been introduced in the Guidelines are (i) a new chapter on information exchange; and (ii) a substantial revision of the standardisation chapter. The Guidelines also reflect the need for self-assessment and explain how they should be applied to agreements covering more than one type of co-operation (e.g. joint R&D, production and distribution). The Guidelines now also provide explicit guidance as to when a joint venture and its parent companies form part of one undertaking within the meaning of Article 101. This is an area of great importance for businesses as Article 101 is not applicable to the relationship between a joint venture and its parents if they form part of the same undertaking.

The new chapter on information exchange outlines the elements to be taken into account when assessing the exchange of market information between competitors. Information exchange can be pro-competitive in some instances as it can lead to significant efficiency gains, however, the exchange between competitors of individualised information regarding intended future prices or quantities is to be considered a restriction of competition. Furthermore, the chapter provides guidance on assessing the effects of exchanges of information that do not aim at restricting competition (e.g. for statistical or benchmarking purposes), i.e. the vast majority of information exchanges.

The revised chapter on standardisation outlines how to ensure that the selection process is competitive and that, once a standard is adopted, access is given on "fair, reasonable and non-discriminatory" (FRAND) terms to interested users. The Draft Horizontal Guidelines clarify that there are various methods to assess the level of FRAND in the context of standard-setting in case of a dispute. The chapter also contains guidance and examples on standard terms following the recent review of the Insurance Block Exemption Regulation, where the EC noted that the use of standard terms in contracts was not specific to the insurance industry.

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Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 06/05/2010.

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