Revised EU Competition Rules For Co-operation Between Competitors

European Commission adopts revised competition rules for horizontal co-operation, information exchange and standardisation.

A new version of the Guidelines for Horizontal Co-operation (‘Guidelines’) and new versions of two Block Exemption Regulations (‘BERs’) entered into force on 1 January 2011. They replace the versions of 2001.

The new rules cover agreements and other forms of co-operation between actual or potential competitors at the same level of the supply chain.

The Guidelines cover joint purchasing, joint production, joint research and development, joint commercialisation, and standardisation and information exchange between competitors. The BERs cover certain R&D and specialisation agreements.

Horizontal co-operation may be pro-competitive and yield economic benefits such as efficiencies or innovation, but may also lead to a restriction of competition that is prohibited under Article 101(1) TFEU.

The BERs provide a safe harbour for certain R&D agreements and specialisation and joint production agreements by automatically exempting these categories of agreements from the prohibition of restrictive agreements in Article 101(1) TFEU. The Guidelines provide a general framework for the analysis whether or not an agreement falls under the prohibition, but do not provide a safe harbour.

The new horizontal guidelines

Horizontal agreements that fall outside the ambit of the BERs are not automatically exempted from the cartel prohibition. To determine whether those agreements meet the efficiency test and hence qualify for an individual exemption, the parties must make an ad hoc assessment weighing the negative effects on competition against the positive effects. The Guidelines provide guidance for the assessment of the most common types of horizontal agreements.

Compared with the version of 2001, the Guidelines contain a new chapter on information exchange and a revised section on standardisation agreements.

On the other types of agreement covered by the Guidelines (i.e., joint R&D, production, purchasing and commercialisation), the Guidelines are consistent with the 2001 version.

Information exchange

Information exchange between competitors may take various forms such as [i] direct sharing of data, or [ii] indirect sharing of data through a common agency (for example, a trade association) or [iii] indirect sharing of data through a third party (for example, a market research organisation, or 'hub-and-spoke' arrangements between retailers and their common supplier, or between suppliers and their common retailer).

The exchange of 'strategic information' is likely to be caught by Article 101.1 TFEU. Strategic information includes information which is related to pricing (such as actual and future prices, discounts, increases and rebates), capacities, costs, quantities, turnovers, sales, customer lists and market shares, and may also include data on such matters as investments, technologies, R&D, qualities, risks and marketing plans. The exchange of 'strategic information' is likely to be prohibited because it reduces the strategic uncertainty in the market and thus facilitates a collusive outcome on the market.

The exchange of [A] individualised data on [B] intended future [C] prices or quantities is illegal per se. Those exchanges will be fined as cartels, and the European Commission does not need to demonstrate the likely effects on competition.

Other exchanges only constitute a violation of competition law if it is demonstrated on a case-by-case basis that they are likely to have an appreciable restrictive effect on competition. The analysis consists of a comparison of the likely effects of the exchange with the competitive situation that would have existed without the exchange (counterfactual). Factors which influence the analysis are [a] the degree of concentration of the market (collusion is easier if the market is concentrated), [b] market transparency (transparency reduces uncertainties and facilitates collusion), [c] market complexity (homogeneous products are a more likely subject of collusion than differentiated products), [d] market stability (collusion is harder to achieve in a market which is characterised by volatile demand or new entrants), and [e] market symmetry (a symmetric market structure makes collusion easier).

The analysis may also be influenced by characteristics of the information exchange such as [f] aggregation of data (collusion is less likely if individual players cannot be identified), [g] age of data (the exchange of historic data is harmless), and [h] the public nature of the information (the exchange of 'genuinely public information' is harmless).

The Guidelines signal an attempt by the European Commission to bring more information within the ambit of Article 101.1 TFEU than is the case under existing practice. First, the existing benchmark that information which is more than one year old may be exchanged can no longer be relied on. One must now make an analysis of the effects of the exchange of historic information in order to determine whether the information is sufficiently old to be legally exchanged. This creates legal uncertainty. Secondly, the concept of 'genuinely public information' is new. According to the Guidelines information is 'genuinely public' if it is equally accessible in terms of costs of access to all customers and competitors. By contrast information is not 'genuinely public' if the costs of collecting that information deter other competitors and customers from doing so. The Guidelines fail to clarify how this new distinction affects collection of information through market research organisations. It remains to be seen to what extent the courts will endorse the new approach.

The Guidelines codify recent case law to the effect that even a one-off, one-way unilateral disclosure of strategic information to a competitor may constitute a cartel.

Standardisation agreements and standard terms

The Guidelines contain a revised chapter on standardisation agreements and standard terms.

The Guidelines cover standardisation agreements and standard terms of sale and purchase. Standard terms which apply between competitors and their customers are covered; standard terms which apply only between competitors are not.

The Guidelines set out the criteria under which standardisation agreements fall outside the prohibition in Article 101(1) TFEU. Standardisation agreements fall outside the prohibition if:-

•    participation in the standard-setting agreement is open and unrestricted and all competitors in the market affected by the standard can participate in the process leading to the selection of the standard;
•    the standard-setting organisation applies objective and non-discriminatory procedures for allocating voting rights, and objective criteria for selecting the technology;
•    the process is transparent, allowing stakeholders effectively to inform themselves of upcoming, on-going and finalised standardisation;
•    effective access to the standard on fair, reasonable and non-discriminatory ('FRAND') terms is ensured;
•    the participants disclose their IP rights in good faith to the extent those rights might be essential for the implementation of the standard; and
•    participants who want to have their IP rights included in the standard must undertake to license their essential IP rights to all third parties on FRAND terms. This FRAND commitment must be given prior to the adoption of the standard.

The conditions are cumulative.

In addition, the Guidelines provide guidance for assessing standardisation agreements which do not meet the conditions and hence require an individual efficiency assessment under Article 101(3).

The revised block exemption regulations

R&D and specialisation agreements which satisfy the conditions in the BERs and which are concluded between companies that have limited market power (as reflected in their market share) are presumed to have few if any anti-competitive effects. Any anti-competitive effects they may have are generally presumed to be outweighed by positive effects. Based on this positive presumption, those agreements are exempted from the prohibition on restrictive agreements and business practices in Article 101(1) TFEU.

The BER on R&D applies to joint research and development agreements between undertakings with a combined market share not exceeding 25%. The BER applies to agreements with or without joint exploitation of the R&D results.

The BER on specialisation agreements covers specialisation and joint production agreements between undertakings with a market share not exceeding 20%, including:-

•    unilateral specialisation agreements: one party fully or partly gives up the manufacture of certain products or preparation of certain services in favour of another party;
•    reciprocal specialisation agreements: each party fully or partly gives up the manufacture of certain products or preparation of certain services in favour of another party; and
•    joint production agreements: the parties agree jointly to manufacture certain products or prepare certain services.

The BERs have not been significantly changed compared with the versions of 2001. The scope of the BER on R&D has been extended to include ‘paid-for research’, i.e., where one party merely finances the R&D activities of the other party without itself conducting R&D. The BER on specialisation agreements clarifies the application of the market share threshold to specialisation agreements which cover intermediary products used by the parties for the production of downstream products.

Transitional period

The BERs and Guidelines entered into effect on 1 January 2011 and expire on 31 December 2022.

There is a transitional period until 31 December 2012 for pre-existing R&D and specialisation agreements that meet the conditions of the 2001 predecessors of the BERs.