On 1 June 2023 the EU Commission adopted its new horizontal block exemption Regulations (covering R&D agreements and Specialisation agreements) and Horizontal Guidelines (Guidelines). The new block exemption Regulations will apply as of 1 July 2023 (with a transitional period of two years for agreements that meet the conditions of the current block exemptions) and the new Guidelines will take effect once they have been published in the Official Journal. The new Guidelines are far more detailed than the current ones (178 pages long as opposed to the current version at 72 pages) and provide more extensive guidance with additional practical examples. There is also a new chapter on sustainability agreements, new sections on mobile telecoms infrastructure sharing agreements and on bidding consortia and the chapter on information exchange has been substantially rewritten.
We have set out below a summary of the key changes made by the Guidelines. We will produce separate and more detailed posts on some of the chapters in the Guidelines including on sustainability agreements and on the assessment of information exchange.
Research and development block exemption
The provisions of the R&D block exemption Regulation have been updated in order to make the block exemption clearer and easier to use. There is also a new section in the Guidelines explaining how to apply the R&D block exemption.
The provisions on how to calculate the market share thresholds have been clarified and the grace period that applies when the parties' market shares exceed the market share thresholds is now two calendar years in all cases. Where the parties to the R&D agreement are not competing undertakings the exemption is not subject to a market share threshold.
There is greater emphasis on the protection of innovation competition, both in the recitals of the Regulation and in the Guidelines. Parties to an R&D agreement who do not compete in existing product or technology markets can still be competitors in innovation.
Specialisation block exemption
Similar clarifications on market share calculation and grace period have been made to the provisions of the specialisation block exemption Regulation, and there is also a new section in the Guidelines to help companies in better understanding how to apply the Regulation.
The scope of the specialisation block exemption Regulation has been expanded and the definition of unilateral specialisation agreements now covers agreements that include more than two parties.
All types of horizontal subcontracting agreements, as opposed to only those that aim to expand production, can benefit from the safe harbour of the Guidelines.
Agreements between joint ventures and their parent companies
The Introductory Chapter of the Guidelines contains new guidance on the application of Article 101 TFEU to agreements between joint ventures and their parent companies. Under the CJEU caselaw parent companies will be liable for infringements of their joint venture, in so far as the parent companies exercise decisive influence over the joint venture.
The Guidelines state that, in light of this case law the Commission will in general not apply Article 101 TFEU to agreements between parent companies and their JV, to the extent they concern conduct that occurs in the relevant market where the JV is active and in periods during which the parent companies exercise decisive influence over the JV.
The Commission will however generally apply Article 101 TFEU to:
- agreements between parent companies to create a JV
- agreements between parent companies to modify the scope of their JV
- agreements between parents and JV concerning products or geographies in which the JV is not active
- agreements between parent companies not involving their JV, even if it concerns products or geographies in which the JV is active
This guidance is welcome but scope for uncertainty remains. The wording that the Commission "will in general not apply Article 101" is not equivalent to a statement that Article 101 TFEU does not apply in that context, and seems to leave the Commission with some discretion. The Guidelines do also not address more complex scenarios such as the scenario where a parent company has several JVs over which it has decisive influence, all of which are active in the same market.
Mobile telecoms infrastructure sharing agreements
A new section on mobile infrastructure sharing agreements (NSAs) has been added to the Chapter on Production Agreements. The Commission recognises that NSAs can provide benefits in terms of cost reductions and improvements in quality and choice, faster roll-out of new networks and technologies, wider coverage etc. It considers that, in principle, these agreements do not restrict competition by object but need to be assessed on the basis of their possible effects on competition. The Guidelines set out the factors that may be relevant for the assessment and also provide general guidance for the various types of mobile infrastructure sharing agreements.
Joint purchasing agreements
The Guidelines on Joint Purchasing Agreements are expanded to reflect recent caselaw. There is a new section explaining the distinction between joint purchasing agreements and buyer cartels. Buyer cartels are agreements or concerted practices between purchasers which, without engaging in joint negotiations with the supplier, coordinate the purchasers' individual competitive behaviour through practices such as fixing or coordinating purchase prices, allocating purchase quota or sharing of markets and suppliers. Where purchasers deal individually with suppliers they must make their purchasing decisions independently.
The Guidelines also explain in more detail the risk of harm to competition on the supply side, which can occur where the members of the purchasing arrangement have a significant degree of buying power on the purchasing market. Joint purchasing may harm suppliers' investment incentives and force them to reduce the range or quality of the products they produce which may, in the long term, also be detrimental for consumers.
Joint purchasing extends to arrangements whereby buyers negotiate purchase conditions jointly, but where each buyer makes its purchases independently (joint negotiation with supplier only). There is also guidance on joint negotiating tactics which are seen as an integral part of the joint purchasing arrangement if they relate to the products that are subject to the negotiations and are temporary in nature, ceasing when the parties have resumed their negotiations or concluded their agreement.
Commercialisation agreements and bidding consortia
The Chapter on Commercialisation Agreements now includes a new section on bidding consortia, clarifying the conditions under which independent firms may group together to submit joint competitive tenders without infringing Article 101(1) TFEU. A bidding consortium agreement will not restrict competition if it allows the parties to participate in projects they would not be able to undertake individually.
The Guidelines provide welcome guidance on assessing bidding consortia agreements between parties that would be able to undertake the project individually. In such case the agreement will be caught under Article 101(1) TFEU but may still benefit from an exemption under Article 101(3) TFEU where the bidding consortium allows the parties to submit an offer that is more competitive than the offer they would have submitted individually, in terms of price and/or quality and where the benefits for consumers and the contracting entity outweigh the restrictions of competition. Crucially, any efficiencies must be passed on to consumers. If they only benefit the parties to the bidding consortium, the Article 101(3) exemption does not apply.
See also our article for CPI on Consortia and Competition Law, published on 24 August 2022.
The Chapter on Information Exchange has been rewritten to take account of the CJEU's case law and to cover new developments such as benchmarking, data pooling and data sharing and other types of collaboration not covered in the previous guidelines. It includes additional guidance on what constitutes commercially sensitive information and guidance on various concepts relevant for the assessment of information exchange, such as what constitutes genuinely public information, aggregation of information, the age of information, unilateral disclosure etc.
The Guidelines warn that unilateral public announcements may, depending on the legal and economic context, be considered as a restriction by object. There is also a new section on indirect (hub-and-spoke) information exchange, where a case-by-case analysis of the role of each participant will be required, taking into account the level of awareness of the providers or recipients of the information regarding the exchanges between other providers or recipients of the information and the third party.
Unlike for several other chapters in the Guidelines, there is no safe harbour for information exchange, as an exchange between competitors of commercially sensitive information, even where they have a very small market share, can still have a significant effect on competition.
The guidelines also describe the measures undertakings can take in order to minimise the risk of infringement, such as the use of clean teams, independent third parties and through publicly distancing where commercially sensitive information is disclosed.
The Chapter on Standardisation Agreements has been updated and provides for greater flexibility in the requirement for participation in the development of a standard. Whereas preventing certain undertakings from being able to influence the choice and definition of the standard is likely to restrict competition, restricting participation will be permitted in certain circumstances, such as where there is competition between several standards and standard development organisations, or where the restriction is limited in time with a view to progressing quickly.
In order to increase transparency in the standard setting process the IPR policy should require specific disclosure by participants of their IPRs that may be essential for the implementation of the standard being developed. For patents the disclosure should include the patent number or patent application number.
In order to ensure that parties involved in the selection of a standard have all the necessary information, including regarding the likely cost of an IPR, the Guidelines provide that ex ante disclosure of the most restrictive licensing terms for standard essential patents by individual IPR holders, or of a maximum accumulated royalty rate by all IPR holders will not, in principle, restrict competition.
A new Chapter on Sustainability Agreements has been added to the Guidelines setting out a framework of analysis for agreements between competitors that pursue sustainability objectives. The chapter provides examples of sustainability agreements between competitors that fall outside the scope of Article 101(1) TFEU as they do not affect parameters of competition. This includes agreements aimed at ensuring compliance with requirements or prohibitions in legally binding international treaties, agreements or conventions and agreements concerning internal corporate conduct, such as measures aimed at increasing the industry's reputation for acting environmentally responsible.
It also provides a soft safe harbour for sustainability standardisation agreements that meet certain criteria, including transparency, voluntary participation, freedom to adopt higher standards, no exchange of sensitive information, non-discriminatory application and a monitoring mechanism to ensure compliance.
As with any type of agreement caught under Article 101(1) TFEU, in order to benefit from an exemption under Article 101(3) TFEU a sustainability agreement will need to meet the four conditions of that provision. On the requirement for pass-on of the benefits to consumers, the benefits must go to consumers in the relevant market (market for the products covered by the agreement) and out-of-market efficiencies will typically not be considered.
For collective sustainability benefits to be taken into account, the parties to the agreement must be able to describe clearly the claimed benefits with evidence that they have occurred or are likely to occur; define clearly the beneficiaries; demonstrate that the consumers in the relevant market substantially overlap with the beneficiaries or form part of them; and demonstrate that the share of collective benefits that accrues to consumers in the relevant market outweighs the harm suffered by those consumers as a result of the restriction.
In a change from the draft guidelines the Guidelines recognise that the benefits from the sustainability cooperation do not need to materialise immediately in order to benefit from the exemption. The Commission also encourages parties to a sustainability agreement to seek informal guidance for novel or complex issues, under its Informal Guidance Notice.
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.