European Union: New EC Draft HBERs And UK Draft Horizontal Guidelines Shape Horizontal Agreements

In summary

The CMA is closely monitoring the European Commission's approach to horizontal agreement regulation. Signs of divergent paths between the two in areas like joint purchasing and sustainability agreements will define cooperation post-Brexit.

Discussion points

• Joint purchasing
• Sustainability agreements
• Information exchange
• UK developments

Referenced in this article

• Treaty on the Functioning of the European Union
• Horizontal Guidelines and the Draft Horizontal Guidelines
• Eturas
• Dole Food
• Duravit
• ICAP
• T-Mobile
• Guidelines on Vertical Restraints
• Car Emissions
• European Government Bonds

Introduction

The first paragraph of article 101 of the Treaty on the Functioning of the European Union (TFEU) prohibits agreements between undertakings that have as their object or effect a restriction of competition. The third paragraph of the same article provides for the exemption of agreements in scope of the first paragraph if they contribute to improving the production or distribution of goods, or promoting technical or economic progress, while allowing consumers a fair share of resulting benefits. In addition, restrictions in agreements must be indispensable, and not afford the possibility of eliminating competition in respect of a substantial part of the products in question. The European Commission (the Commission) is empowered to adopt regulations that define categories of agreements and certain conditions under which these satisfy article 101(3) TFEU's criteria and escape the prohibition.¹

The Commission has adopted two such block exemption regulations, which concern forms of horizontal cooperation (HBERs). Horizontal agreements are agreements between actual or potential competitors (ie, companies operating at the same level of the market). The types of cooperation covered by the regulations include research and development (R&D) and specialisation agreements, which typically result in efficiencies, innovation and consumer benefit. There are other forms of horizontal cooperation not exempted by a regulation that likewise may create efficiencies, such as joint purchasing, commercialisation or standardisation agreements. These are addressed in the more general Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal cooperation agreements (the Horizontal Guidelines).² While there are sections in the Horizontal Guidelines that provide guidance on the Commission's interpretation of the HBERs, other sections are independent from the binding legal instruments.³

The Block Exemption Regulation (BER) relating to R&D,⁴ the Specialisation Horizontal Block Exemption Regulation (the Specialisation BER),⁵ as well as the accompanying Horizontal Guidelines have been in place in their current form since 2011 and are now the subject of revision efforts that started in 2019. In a first step, stakeholders were invited to submit their views on the existing framework. According to the subsequently published evaluation study, the evidence collected pointed to an overall adequate degree of legal certainty afforded by the HBERs, together with the Horizontal Guidelines, especially for R&D and specialisation agreements.⁶ Yet, there were also reports of a lack of clarity in some specific areas.⁷

The Commission followed up with three draft revised documents, which were put to public consultation.⁸ The consultation period ended on 26 April 2022. Subsequently, the duration of the existing HBERs and Horizontal Guidelines (which were meant to expire on 31 December 2022) was extended to 31 June 2023 to allow the Commission to duly process the feedback received during the consultation phase.⁹

Proposed changes to the revised R&D BER include the introduction of a new test in relation to R&D poles in addition to market share thresholds. There is no longer an exemption foreseen for agreements where less than three competing R&D efforts would remain in addition to and comparable with those of the parties to the R&D agreement.¹⁰ Self-assessment pursuant to this requirement has been heavily criticised by stakeholders as unworkable in practice, since companies usually do not disclose detailed information about competing R&D projects.¹¹

The proposed revised Specialisation BER most notably widens the scope of unilateral specialisation agreements to exempt from now on also multi-party agreements of that kind (instead of only two-party agreements).¹²

In the United Kingdom (UK), relevant competition legislation, including the existing HBERs, formed part of the retained EU law following Brexit. Meanwhile, on 25 January 2023, the Competition and Markets Authority (CMA) put a draft for new guidance on horizontal cooperation agreements to consultation.¹³ Additionally, on 28 February 2023, it published a separate draft guidance on sustainability agreements.¹⁴

This article discusses some of the key changes proposed in the Commission's Draft Horizontal Guidelines and will then shed a light on the aspects where the CMA diverges. These changes are:

• joint purchasing agreements;
• sustainability agreements; and
• information exchange between competitors.

These forms of cooperation are not covered by the revised HBERs but are exclusively dealt with by the Horizontal Guidelines.¹⁵

Joint purchasing

Joint purchasing agreements operating as disguised buyer cartels are a serious breach of competition law. Recent enforcement action by the Commission shows that crossing the boundary between legitimate purchasing alliance and buyer cartel poses a major risk for businesses.¹⁶ This is why the Commission puts a particular focus on clarifying this distinction in the Draft Horizontal Guidelines.¹⁷

The Commission first sets out an overview of possible forms of cooperation that may be considered legitimate joint purchasing agreements, and notably also includes, in addition to established practices such as joint pooling of actual purchases or retail purchasing alliances, joint negotiation agreements including licensing negotiation groups for standard essential patents (SEPs).¹⁸ The Horizontal Guidelines do not, however, introduce more specific guidance on these last-mentioned particular types of agreements, which would have been welcomed.¹⁹

Expanded guidance on the delimitation to buyer cartels

Illegal buyer cartels have as their object the coordination of the purchasers' behaviour relating to their individual interaction with the supplier on the purchasing market.²⁰ The Commission stresses that undertakings must not fix the purchase price among themselves and subsequently individually negotiate with and purchase from the supplier.²¹ The illegality of this action could already stem from unlawful information exchange in that context.²² Buyer cartels are infringements by object and do not require an assessment of effects (including market definition).²³ The same is true for collective boycotts where a group of purchasers aims at excluding an actual or potential competitor from the same level of the selling market.²⁴

The Commission provides an indicative list of factors to be observed to ensure compliance. They include:

• that suppliers are aware that they are negotiating with a group of buyers operating a joint purchasing agreement, without it being necessary to disclose the exact identities of the buyers; and
• that the conditions of the joint purchasing agreement are set up in advance in writing to allow for ex-post scrutiny.²⁵

Even where an agreement does not amount to an infringement by object, its effects may still restrict competition. Joint purchasing agreements must be limited to what is necessary to create pro-competitive buyer power and not contain restrictions such as exclusivity clauses (but may, for instance, include non-compete clauses).²⁶ They may also give rise to a restrictive effect on competition where they increase buyer power to an extent that it is harmful to upstream competition. The Draft Horizontal Guidelines set out in more detail when this may be the case, including in relation to agreements having as their object to shun suppliers of unsustainable products, a practice that needs to be assessed in light of factors such as the nature of the products, and the market position of the purchasers and suppliers.²⁷ Conversely, the Commission also highlights the risk linked to coordination in circumstances where the parties to the joint purchasing agreement are also competitors downstream.²⁸ However, the Commission now emphasises that hard bargaining tactics, such as a temporary halt to purchases, are part of the normal functioning of a joint purchasing agreement. Therefore, this behaviour will not be assessed separately and usually does not restrict competition.²⁹

Exemption under article 101(3) TFEU

Even where a joint purchasing agreement restricts competition, it may be exempted under article 101(3) TFEU. The Commission provides expanded guidance in its Draft Horizontal Guidelines to facilitate this assessment. As a preliminary point, the Commission now stresses that a more resilient supply chain may be one of the potential efficiencies brought about by joint purchasing.³⁰ Additionally, the Commission gives significantly more detailed indications on situations in which the pass-on of efficiencies to consumers in the form of increased output or lower prices may be doubtful. This is the case where the parties to the joint purchasing agreement hold significant market power on the selling market,³¹ or where it only achieves a reduction in fixed costs as a result of the negotiations (eg, in the form of lump sum payments from the supplier).³² Moreover, the Commission considers joint purchasing agreements that limit their members' ability to independently source additional volumes as problematic.³³

Additional examples

The Commission provided in its 2011 Horizontal Guidelines a number of examples to illustrate the general principles on joint purchasing it outlined in the previous paragraphs. These examples have been retained and two additional ones have been added.

The first newly added example describes an illegal buyer cartel. The Commission's hypothetical case concerns five recycling firms agreeing to a maximum price for purchasing used mobile phones and the exchange of related information. The Commission explains that even though the five undertakings may hold a small share of only 12 per cent of the purchasing market, the fact that they continue to negotiate individually turns this agreement into a buyer cartel and an infringement by object.³⁴

Conversely, the second newly added example describes legitimate bargaining tactics in the context of a joint negotiation agreement by a retail alliance. The Commission exemplifies that even only jointly negotiating certain terms and conditions, while leaving the purchased quantities up to the discretion of the respective members, does not render the joint purchasing agreement illegal. Neither does a temporary stop of orders provided there is no overlap in the downstream selling markets and there is sufficient competitive pressure by alternative retailers to which consumers may resort.³⁵

Conclusion

Overall, the revised section on joint purchasing agreement adds further clarity to facilitate self-assessment. A main shortcoming of the 2011 Horizontal Guidelines was seen in the fact that they merely stated that joint purchasing agreements shall not serve as a tool to engage in a disguised cartel, without providing much further guidance.³⁶ This uncertainty has now been reduced by the Commission. Given the number of enforcement cases in this area, companies are well advised to set out clear rules of engagement before entering into joint purchasing.

Sustainability agreements

The Commission added a new chapter on sustainability agreements to its Draft Horizontal Guidelines. These are agreements between competitors that pursue one or more sustainability objectives,³⁸ and usually take the form of known types of collaboration covered in the Horizontal Guidelines without being a distinct type of collaboration agreement.

Sustainability is an area that was identified as not sufficiently addressed in the old Horizontal Guidelines during the evaluation³⁹ and was a subject promoted by several member states to be included in the revision process, the Dutch competition authority (ACM) being the one of the most outspoken ones in this regard.⁴⁰ The ACM advocated in favour of taking into account benefits to society as a whole under article 101(3) TFEU's fair share requirement. It stressed the need for a departure from an excessively limited focus on consumer welfare and short-term considerations in terms of price increases. According to the ACM's president, these price increases should be considered fair, under certain circumstances, if they translate into a benefit for our planet as a whole.⁴¹

The Draft Horizontal Guidelines' chapter does not go this far, and the Commission makes clear that 'agreements that restrict competition cannot escape the prohibition of Article 101 (1) for the sole reason that they are necessary for the pursuit of a sustainability objective'.⁴² Ancillary restraints to legal sustainability agreements are exempt, however. The Draft Horizontal Guidelines provide some limited guidance on how to assess known cooperation agreements, such as on R&D and production, with a sustainability objective in line with policy objectives included in the European Green Deal, the United Nations objectives in the 2030 Agenda for Sustainable Development and article 3 TFEU. In a nutshell, sustainability objectives may be taken into account when determining whether a restriction of competition in question constitutes a restriction by object or effect.⁴³ Companies will be required to provide evidence on the sustainability objective to underpin reasonable doubt as to the anticompetitive object of the agreement.⁴⁴

A residual mechanism

The Draft Horizontal Guidelines point out that sustainability objectives may already be achieved through existing regulatory mechanisms such as the EU's Emissions Trading System (ETS). Additional measures may then be unnecessary. Sustainable cooperation agreements should be reserved for residual market failures not fully addressed by specific instruments.⁴⁵ Unfortunately, the Draft Horizontal Guidelines do not offer more detailed guidance on how this '(un)necessity' to redress market failure may be determined, thereby creating legal uncertainty.⁴⁶

The Commission also explains where sustainability objectives are achieved through known categories of horizontal collaboration, such as joint R&D, these agreement would be assessed under the principles and considerations applicable to them and set out in the respective chapters of the Draft Horizontal Guidelines, while taking into account the specific sustainability objective pursued as one element in the assessment. The Guidelines indicate where an agreement 'genuinely pursues one or more sustainability objectives, irrespective of the form of cooperation',⁴⁷ it would be defined as a sustainability agreement. Again, this wording leaves room for ambiguity. To determine the applicable chapter of the Horizontal Guidelines to be used as basis for the assessment, the 'centre of gravity' test introduced in the Draft Horizontal Guidelines' introductory section should be applied.⁴⁸

Overall, this residual role of the chapter on sustainability casts doubt as to whether it truly provides added value, given that its provisions do not claim to take precedence over the guidance specific to certain types of agreements - while the new chapter may make it easier for companies to justify certain types of cooperation, it certainly does not create a well-defined safe harbour similar to the ones established by BERs, and companies should be ready to discharge their burden of proof.

Permissible sustainability agreements versus greenwashing

In four short paragraphs,⁴⁹ the Draft Horizontal Guidelines list three non-exhaustive examples of agreements with a sustainability objective deemed to not restrict competition. This list of unproblematic agreements encompasses: first, those that do not concern the economic activity of competitors; second, those that create databases of sustainable suppliers; and third, those that relate to the organisation of industry-wide awareness campaigns.

On the other hand, the Commission clearly dissuades undertakings from attempting to disguise, for example, what is essentially a price-fixing agreement as a sustainability agreement, thereby circumventing the applicable rules. In paragraph 560, the Draft Horizontal Guidelines state that if a restrictive agreement actually pursues a sustainability objective, undertakings relying on that fact 'will have to bring forward all facts and evidence demonstrating that the agreement genuinely pursues such objective'. This is intended to serve as a reminder to undertakings that attempting to greenwash anticompetitive agreements and practices will not work.

Sustainability standardisation agreements

Notion

Sustainability standardisation agreements take up the largest part of the Draft Horizontal Guidelines' sustainability chapter. These agreements are defined as including: competitor collaborations relating to the phase out; withdrawal; replacement of unsustainable products; harmonisation of packaging material to facilitate recycling, packaging sizes and product content to reduce waste; animal welfare; and relating to sustainable production input.⁵⁰ The use of labels, the absence of interoperability and compatibility concerns, and their process, management or performance-based nature, and a sustainability goal and an increase of costs related to the compliance to such a standard, are some characteristics that distinguish sustainability standardisation from regular standardisation as defined in Chapter 7 of the Draft Horizontal Guidelines.⁵¹ Thus, companies should carefully assess the right chapter to apply for the assessment of their standardisation efforts.

One of the most noteworthy examples of competition law application to sustainability standard agreements was the Dutch 'Chicken of Tomorrow'⁵² saga. The Dutch ACM had decided in that case that animal welfare was not a sufficiently strong justification to exempt an agreement in the chicken industry to adopt minimum standards for chicken husbandry. The Draft Horizontal Guidelines seemingly take a more benevolent position and mention animal welfare as one possible justification of these agreements as a possible implicit reference to this case.⁵³

Anticompetitive sustainability standards

The Commission also mentions three ways in which sustainability standard agreements may reduce competition, all of which are familiar categories: price coordination, foreclosure of alternative standards, and the exclusion or discrimination of certain competitors.⁵⁴

Sustainability standards falling into the 'restriction by object' category include agreements to pass on the additional costs of sustainable standards to customers.⁵⁵

Soft safe harbour

If an agreement does not have the object of restricting competition, an assessment of its effects needs to be carried out. According to the Draft Horizontal Guidelines, sustainability standardisation agreements are unlikely to produce appreciable negative effects on competition if they follow seven cumulative conditions as follows:⁵⁶

• the procedure for developing the standard is transparent and every competitor can participate;
• there is no obligation to comply with the standard for those who do not wish to;
• the participating companies should be free to adopt higher standards;
• no exchange of commercially sensitive information that is not necessary for the work pertaining to the standard;
• effective and non-discriminatory access to the final outcome of the standard;
• the standard does not lead to a significant increase in price and reduction of choice; and
• there is a system to monitor compliance to the standard.

When these conditions are met, it is assumed that a sustainability standard agreement will not produce the negative effects on competition as discussed above, and the agreement will be granted a 'soft safe harbour' in the words of the Commission.

Assessment under article 101(3)

The Commission sets out some guidance for the assessment of sustainability agreements under article 101(3) TFEU:

Efficiency gains

This condition will often be satisfied by a sustainability agreement. The efficiencies gained may be, for example, reduced pollution, a more resilient supply chain and better quality products.⁵⁷ There is no definitive list of potential efficiencies, and sustainability agreements tend to have the inherent efficiency by sustainability themselves but the efficiency still needs to be objective, concrete and verifiable.⁵⁸

Indispensability

The Commission states that sustainability agreements might not be indispensable for reaching sustainability goals, but they are for achieving it in a cost efficient way.⁵⁹ There are also instances where market failures may create a need for a sustainability agreement.⁶⁰

Pass on to consumers

Here, the Draft Horizontal Guidelines make a distinction between individual use value benefits, individual non-use value benefits and collective benefits. Non-use benefits may relate to consumers simply feeling appreciation that a product is less harmful to the environment than an ordinary one.⁶¹ Endorsing collective benefits, which occur irrespective of a consumer's individual preference,⁶² is a novelty that was welcomed by stakeholders.⁶³ The Guidelines use the example of an agreement to phase out a polluting technology in favour of a newer, greener one that consumers might not have been willing to pay for if the original technology was still on the market.⁶⁴ However, the Commission falls short of including out-of-market benefits, which had been proposed by the Dutch ACM, for instance.⁶⁵ Instead, the point of reference remains the resulting consumer benefit in the affected market.⁶⁶

No elimination of competition

Some residual competition must still exist. If the agreement, for example, eliminates competition on quality and variety, competition on price may still exist.⁶⁷

Conclusion

Many companies have started considering or engaging in collaboration to accelerate their transition towards a more sustainable business model.⁶⁸ Guidance by the Commission on those initiatives is overdue but falls short of two things: first, the Commission shies away from introducing a sound new framework for assessing restrictions of competition, but merely adds aspects that complement the more general rules; and second, the Commission does not embrace a more holistic approach to the notion of consumer benefits. While the approach avoids putting competition authorities in a potentially uneasy position of having to balance non-economic interests, the Commission's new chapter is less ambitious than many had wished for.

Information exchange

The section in the 2011 Horizontal Guidelines on exchange of information between competitors has been significantly reworked in the Draft Horizontal Guidelines. It tries to address challenges posed by modern trends, such as data pooling and algorithmic decision-making, but also sets out how new technologies may be used to ensure information exchange does not harm competition.

The Commission adds more detailed guidance on situations in which information exchange forming an integral part of a wider horizontal cooperation agreement will be assessed as part of this cooperation and not separately. Only where the information exchange constitutes the main objective of the cooperation will the dedicated section in the Draft Horizontal Guidelines apply.⁶⁹ The same is true for information exchange directly related to and necessary for an acquisition process, which will usually be subject to the relevant rules of the Merger Regulation unless it is not ancillary and goes beyond what is necessary.⁷⁰ The Commission also underlines in the Draft Horizontal Guidelines that information exchange mandated by specific EU regulation does not constitute a carte blanche, but undertakings still have to adhere to the general principles set out in the Guidelines.⁷¹

The Commission's updated guidance summarises the principles set out in recent case law on information exchange, namely Eturas, Dole Food, Duravit and ICAP.⁷² In the case of exchanged commercially sensitive information, there is a presumption that the recipient competitor will take into account this information when determining its future conduct without there being a need to establish an actual course of conduct. The Commission expands its guidance on the factual circumstances in which this assumption may apply.⁷³

Algorithms and data sharing

The emergence of new data-driven technologies and artificial intelligence has given rise to novel types of commercial conduct whose assessment under competition law is subject to debate. The Commission tries to address some of those questions in the Draft Horizontal Guidelines. For instance, algorithmic price monitoring has become commonplace in certain sectors in recent years. In the Draft Horizontal Guidelines, the Commission confirms that the use of these tools increases market transparency and, consequently, the risk of collusion. It further specifies that this consequence usually occurs (only) in markets characterised by a high frequency of interactions, limited buyer power and the presence of homogenous products and services.⁷⁴ The Commission now also clarifies that commercially sensitive information shared via an algorithmic tool is to be treated in the same way as information exchanged by classic means of communication.⁷⁵ The idea behind that being that, at least to date, the algorithm can be traced back to human action that has framed the algorithm. The Commission cites an example where input in an online price-setting tool in the form of, for example, 'always 5 per cent higher or lower than competitors' prices' would constitute an infringement of article 101(1) TFEU.⁷⁶

The Draft Horizontal Guidelines also address data sharing. Interestingly, the Commission advocates in favour of a more lenient approach to wider information exchanges in this context. The Commission namely emphasises the risk of foreclosure by data sharing if undertakings with significant market power do so only among themselves, or offer access to the shared data only on non-transparent and discriminatory terms.⁷⁷ The Draft Horizontal Guidelines clarify that, in general, sharing of information that is strategic for competition may facilitate entry of new operators if it covers a large fraction of the market. This sharing must not, however, pose a risk of collusive outcome and must be shared in a non-discriminatory manner.⁷⁸ The Commission, therefore, recommends that data pools representing valuable assets should be operated under an open membership or access model.⁷⁹

Nature of the exchanged information

By way of reference to recent case law, the Commission now includes an indicative list of commercially sensitive information, whose exchange is at particular risk of amounting to an anticompetitive practice by object. This includes types already present in the 2011 Horizontal Guidelines, such as information on future pricing and quantities,⁸⁰ but the Commission now expands the list to exchanges on business strategy, future demand and future product characteristics, for instance.⁸¹

As regards the publicity of the information subject to exchange, the Commission expanded the example of petrol stations already included in the 2011 Guidelines to illustrate its approach on 'genuinely public information', whose exchange usually does not pose any risks. The mere advertising of these prices on billboards itself is not problematic, but the exchange of prices from all over the country (which cannot that easily be obtained under normal circumstances) solely among the petrol station owners would risk to facilitate collusion.⁸² Another example added by the Commission to clarify the demarcation to anticompetitive collusion is one of competitors convening to discuss increasing costs of supply. While the fact that these costs increase may be public knowledge and, thus, can safely be shared, coordinating the response to the increase would be prohibited.⁸³

The Commission also provides refined clarifications on the sensitivity of certain types of data. Firstly, it now not only distinguishes between raw and aggregated data, but also processed data, with the latter considered to be more sensitive.⁸⁴ It also adds an example illustrating that the notion of what may qualify as historic data (which is usually not considered sensitive), may depend on the decision-making patterns of the respective sector.⁸⁵

Unilaterally disclosed information

Since the European Court of Justice's judgment in T-Mobile, it is established case law that even unilateral provision of commercially sensitive information may amount to an anticompetitive agreement or concerted practice if the recipients do not distance themselves.⁸⁶ The Commission significantly expanded the explanations on situations of public announcements in the Draft Horizontal Guidelines; these announcements are problematic, and in turn companies have to take more drastic action to distance themselves, in particular the more specific the information and the more concentrated market is.⁸⁷

Hubs and spokes

The Commission also added a dedicated section on third parties acting as intermediaries of information exchange. These 'hubs' may be, for example, service providers used by a range of competing undertakings, or shared customers.⁸⁸ Facilitators of anticompetitive contacts may be liable for the infringement, even though they may not be active on the same market, which confirms existing case law.⁸⁹ The Draft Horizontal Guidelines also consider online platforms employed in order to secure certain margins or price levels as an illegal hub, if they are fed by commercially sensitive data.⁹⁰

Not all exchange of information via the hub amounts to an illegal cartel, though. Only where the recipient could reasonably foresee this exchange, or the intermediary was aware of planned conduct by the participants to the agreement, are these undertakings liable.⁹¹ The burden of proof on the Commission remains high.

Safeguards

Where commercially sensitive information is exchanged, undertakings may want to take measures mitigating the risks involved. For that reason, the Commission now provides guidance on how to avoid any undue influence on commercial behaviour. It recommends the use of clean teams working on a need-to-know basis and subject to confidentiality protocols, as well as access restricted to only aggregated data from a data pool that may be managed by independent third parties.⁹² The safeguards described in the Draft Horizontal Guidelines for exchange between competitors mirror the proposed safeguards included in the Commission's Guidelines on Vertical Restraints in dual distribution scenarios, which refer back to the relevant chapter in the future definitive version of the Horizontal Guidelines.⁹³

Restrictions by object and effect

The Commission also significantly reworked its guidance on situations in which information exchange amounts to an infringement by object. Referring to recent case law⁹⁴ it clarifies that it is the nature of the contacts and not their frequency that will be the decisive criterion for the Commission's assessment.⁹⁵ As an illustration of that point, the Commission provides examples of a legitimate joint lobbying attempt on environmental product standards on the one hand, and prohibited discussions about future product characteristics that may prevent undertakings from competing for the most environmentally friendly products on the other hand.⁹⁶ It is fairly obvious that the Car Emissions case⁹⁷ served as inspiration for this example.

The points discussed above concerning the nature of the information exchanged, the characteristics of the exchange and the market will be taken into consideration where the Commission assesses the anticompetitive effects of information exchange.⁹⁸

Assessment under article 101(3) TFEU

Similar to certain newly added considerations in the section on joint purchasing and sustainability (see above) - and, presumably, against the backdrop of multiple recent crises causing economic disruptions - the Commission underlines that information exchange may contribute to more resilient supply chains.⁹⁹ Interestingly, the Commission deleted certain paragraphs from the 2011 Horizontal Guidelines' section on the exemption pursuant to article 101(3) TFEU, notably those on potential efficiencies and indispensability linked to the sharing of future plans.¹⁰⁰ This may hint at a more restrictive approach than in the past.

Newly added example

In addition to the examples provided in the respective thematic paragraphs, the Commission added another practical example encapsulating the essentials from a number of newly introduced elements that were discussed above. It concerns a hypothetical data pool managed by a third-party consultancy firm with the objective to mitigate supply chain problems, subject to non-disclosure obligations and data aggregation. The Commission explains that this agreement poses significant risks of collusion and anticompetitive foreclosure, but may be permitted if sufficient safeguards are respected, such as limiting the exchanged information to what is strictly necessary, setting up information barriers between the intermediary and the undertakings, and offering all market participants access to the scheme.¹⁰¹

Conclusion

For the most part, the Commission incorporates recent case law in its revised section on information exchange. Certain parts on new digital forms of exchange, notably algorithms, data pools and corresponding safeguards are not based upon established case law, however, and will provide more legal certainty for companies wishing to make use of these new digital tools.

One shortcoming of the Commission's draft is the rather marginal treatment of information exchange in a merger setting.¹⁰² These questions are of very high practical importance for companies and may leave considerable legal uncertainty.

UK developments

On 25 January 2023, the UK CMA also published a Draft Guidance on Horizontal Agreements CMA174 (the Draft Horizontal Guidance). A separate draft document was published on 28 February 2023 on environmental sustainability agreements (Draft Sustainability Guidance CMA177). The two draft guidance documents are closely related to the entry into force on 1 January 2023 of the revised block exemption orders for R&D and specialisation agreements. These orders and the guidance will replace retained EU law and guidelines. There are many similarities between the proposed UK and EU rules, but certain aspects differ, which will be presented below. Additionally, the UK government has proposed an extensive reform of UK competition law, going far beyond horizontal agreements and encompassing also issues such as market inquiries, revised merger control thresholds, new investigative powers and an updated penalties system.¹⁰³

Extraterritorial application

To date, the UK Competition Act 1998's prohibition of anticompetitive agreements, which includes horizontal agreements discussed in the CMA's Draft Horizontal Guidance, only applies to agreements implemented or intended to be implemented in the UK.¹⁰⁴ In that respect, UK competition law differs from EU law, which applies the qualified effects doctrine (ie, capturing all conduct that, while not adopted within the EU, has anticompetitive effects liable to have an impact in the EU market).¹⁰⁵ The CMA's Draft Horizontal Guidance also adheres to the more restrictive implementation approach. However, it refers already to an anticipated amendment of the UK Competition Act 1998, which would bring its extraterritorial jurisdiction in line with EU law.¹⁰⁶ Since the UK government does not intend to expand the territorial scope of the UK Competition Act 1998's provisions on abuse of a dominant position,¹⁰⁷ a first indication on how the CMA intends to interpret its investigative powers in cases where both abuse of dominance and horizontal collusion seem possible (eg, in discriminatory access conditions to data pools) would have been welcome.

Information exchange

An example for the divergence between the UK and EU rules can be found in the list of commercially sensitive information whose exchange may amount to an infringement by object. While the UK guidance reiterates relevant EU case law dating from before Brexit, it does not include references to newer decisional practice of the Commission.¹⁰⁸ It follows that the important recent findings in the Commission cases Car Emissions¹⁰⁹ and European Government Bonds,¹¹⁰ where the information exchanged pertained to future (environmental) product characteristics and financial products may not that easily be relied upon in the UK. Instead, the CMA Draft Horizontal Guidance includes references to a recent ruling of the Competition Appeal Tribunal, where data on a potential entrant's launch as well as publicly available data on pricing was exchanged, a category of information not featuring in the EU's Draft Horizontal Guidelines.¹¹¹ The latter point is important since, presumably as a consequence of these separate bodies of case law, certain differences in the respective authority's assessments may materialise. A telling such instance of divergence can already be found in the Draft Horizontal Guidance. The CMA and the Commission present the exact same example to illustrate the competitive assessment of information exchange of current business data (but not future plans) by hotels. The Commission concludes this would not be considered a by-object infringement (yet likely still have anticompetitive effects),¹¹² while the CMA qualifies the exchange as a by-object.¹¹³ It follows that the CMA seems to adopt a stricter approach concerning exchange of current market data.

Sustainability

The CMA published its Draft Sustainability Guidance separately from the general Draft Horizontal Guidance, and more than a month later. This signifies already that the CMA very carefully considered what aspects to retain from the Commission's Draft Horizontal Guidelines. Indeed, a substantive analysis of the Draft Sustainability Guidance reveals that while the CMA often adopted paragraphs verbatim from the Draft Horizontal Guidelines in the Draft Horizontal Guidance, it largely went its own way in the Draft Sustainability Guidance. It follows that businesses active in the UK need to take into consideration certain key differences in the approaches on both sides of the English Channel.

Notion of sustainability

As a preliminary point, it should be noted that the Commission's section on sustainability agreements in the Draft Horizontal Guidelines interprets the notion of sustainability in a wider sense, also encompassing social objectives, such as respecting human rights.¹¹⁴ The CMA's Draft Sustainability Guidance seems to have a narrower scope, as it explicitly states to only apply to environmental sustainability agreements.¹¹⁵

Relationship with guidance on other agreements

The Commission and the CMA also differ in their approaches as regards the status of their respective guidance on sustainability agreements. The Commission clarifies that sustainability agreements do not constitute a separate category of agreements, but rather are determined on the basis of the objective they are informed by.¹¹⁶ These agreements may take various forms, including corresponding to the types of agreements addressed in other sections of the Draft Horizontal Guidelines (ie, R&D or specialisation agreements). The Commission considers that an agreement corresponding to a category addressed elsewhere in its Draft Horizontal Guidelines should be assessed on the basis of these principles, while the specific explanations on sustainability agreements are meant to simply provide additional guidance.¹¹⁷ The CMA's Draft Sustainability Guidance offers a more clear-cut delimitation: ehere an agreement corresponds to a type of cooperation addressed in the general Horizontal Guidance but pursues a sustainability objective, the Sustainability Guidance shall prevail where there is a conflict.¹¹⁸

Consumer benefits and climate change agreements

Section 9 of the UK Competition Act 1998 contains a rule corresponding to article 101(3) TFEU, including the criterion of allowing consumers a 'fair share of the benefit'. As explained above, for the purposes of assessing sustainability criteria, the Commission rejected calls to expand the notion of the consumer benefit to benefits accruing to society as a whole.¹¹⁹ In principle, only the consumer benefits in the relevant product market may be taken into consideration.¹²⁰ The Commission does, however, acknowledge the existence of collective benefits. If the benefits materialise on an adjacent market where there is substantial consumer overlap, these benefits may be taken into account as well, even though not all individual consumers may appreciate the result.¹²¹

The CMA adheres, in general, to the same principles.¹²² The Draft Sustainability Guidance, however, introduces a new category of agreements: climate change agreements. These are defined as agreements aiming at the reduction of the emission of greenhouse gases.¹²³ For the purposes of these kinds of agreements, the criterion of consumer benefit shall be understood as encompassing the entirety of consumers in the UK.¹²⁴ In these cases, businesses will (only) have to demonstrate that the environmental benefits offset the harm to competition.

Informal consultations

When it comes to sustainability agreements, the CMA emphasises that it pursues an open door policy. That means that it offers businesses wishing to receive informal guidance and comfort on envisaged agreements to contact the sustainability task force, which then gives an assessment of potential problems related to competition and proposes adjustments if necessary.¹²⁵ Importantly, the CMA pledges not to initiate any enforcement action against businesses that have sought informal guidance, provided comprehensive information and implemented the agreement in accordance with the CMA's recommendations.¹²⁶ In that regard, the CMA goes beyond what the Commission usually offers in terms of informal consultations. While there is a framework in place for requesting informal guidance from the Commission (which recently also had been subject to a revision), the relevant Informal Guidance Notice stipulates as a requirement for admissibility that there is neither 'sufficient clarity in the existing Union legal framework' nor 'sufficient publicly available general guidance'.¹²⁷ As there does exist publicly available general guidance in the form of the (Draft) Horizontal Guidelines, it is conceivable that informal guidance requests to the Commission on sustainability agreements might be rejected by pointing towards the publicly available Guidelines. What is more, the Informal Guidance Notice employs softer language when it comes to the protective effect of guidance letters compared to the CMA's reassurances, underlining that these letters do not create any rights, nor preclude the Commission from subsequently examining the conduct (even though the Commission also explains that it will 'in principle' not impose fines on businesses relying in good faith on guidance letters).¹²⁸

Conclusions

While still at a draft stage, the changes to the applicable rules on horizontal cooperation can already be said to have a significant impact on businesses. It is telling that the Commission saw the need for an extension of the 2011 HBERs of six months - the feedback received from stakeholders apparently encouraged a rethink of certain passages. It remains to be seen to what extend the Draft Horizontal Guidelines will see a rework.

At the same time, the CMA closely observed the revision efforts by the Commission and partially came to different conclusions in its draft legislation. While still broadly in line with the Commission's approach, the revision process of the rules on horizontal cooperation may provide further examples of divergence between EU and UK law, which will add further complexity to the assessment by those companies doing business across both regions. Using the stricter regime as the basis is easier said than done.

^* The authors would like to thank Slaven Hadzic for his research and support in preparing this article.

Originally published in Global Competition Review

Footnotes