Adjusting Competition Policy To The Digital And Green Transition: The European Commission Publishes Draft New Rules For Cooperation Between Competitors

On March 1, 2022, the European Commission published its draft revised block exemption regulations on research and development agreements (“R&D BER”) and specialization agreements (“Specialization BER”), together referred to as the Horizontal Block Exemption Regulations (“HBERs”). At the same time, it published draft revised Guidelines for Horizontal Cooperation Agreements (“Horizontal Guidelines”). The stated aim of the revision is to make it easier for companies to cooperate in ways that are economically desirable and contribute to the digital and green transition. The current HBERs are set to expire on December 31, 2022; it is therefore to be expected that the final revised HBERs and Horizontal Guidelines will be adopted before the end of this year.

Horizontal cooperation agreements, i.e., agreements between competitors operating at the same level of trade, can be pro-competitive. The HBERs set out the conditions under which such cooperation agreements in the areas of R&D and production are presumed to comply with EU competition law, inter alia on the basis of market share thresholds (25% combined market share for R&D agreements; 20% for specialization agreements). In other words, they create a “safe harbor” for certain categories of agreements. The accompanying Horizontal Guidelines provide guidance to companies for a “self-assessment” of the compatibility with competition law of various forms of cooperation outside of the safe harbor of the HBERs.

The draft new rules follow a review and evaluation process launched in September 2019. In May 2021, the Commission published a Staff Working Document setting out the results of the evaluation of the current HBERs and Horizontal Guidelines (see also, the executive summary of the findings). The evaluation found that the HBERs and Horizontal Guidelines met their overall objectives by facilitating economically desirable cooperation, providing legal certainty to companies and simplifying the administrative supervision by enforcers. However, the evaluation identified a number of areas where the current texts are considered to be not sufficiently clear, overly strict or otherwise difficult to interpret.

The draft revised texts now proposed by the Commission aim at addressing these issues by modernizing, streamlining and clarifying the rules.

As regards the HBERs, the following are the most important changes:

• Changes common to both the R&D and Specialization BERs: The revised texts propose simplifying the grace period which applies if market shares increase above the “safe harbor” threshold, adding some new definitions and clarifying existing ones, calculating market shares on the basis of the preceding calendar year or the average of the three preceding years depending on the market (the current rules use only the preceding calendar year as a calculation basis), and slightly modifying the definition of “potential competitors” to take out the reference to a small but permanent increase in prices.
• Changes to the R&D BER: The revised text exempts (1) R&D agreements concerning entirely new products, technologies and processes and (2) R&D efforts oriented towards a specific objective but not yet specific in terms of product or technology only where there are at least three competing R&D efforts in addition to and comparable with those of the parties to the R&D agreement.
• Changes to the Specialization BER: The specialization BER covers cooperation agreements in the area of production, including unilateral specialization agreements, reciprocal specialization agreements and joint production agreements. The revision slightly expands the scope of the Specialization BER to explicitly include unilateral specialization agreements entered into by more than two parties (the current text refers only to agreements between two parties).

As regards the Horizontal Guidelines, the most important changes can be summarized as follows:

• General: The draft amended Guidelines contain additional guidance on the determination of the “center of gravity” of horizontal cooperation agreements involving different types of cooperation (e.g., both joint R&D and joint production of the results, or both joint production and joint commercialization of the products).
• R&D agreements and production agreements: The draft Guidelines now include new sections explaining the application of the two HBERs, to help companies to better understand the way the HBERs work and the concepts and definitions on which they are based. In addition, the chapter on production agreements now includes specific guidance on mobile infrastructure sharing agreements.
• Joint Purchasing Agreements: The new Guidelines clarify that the chapter on joint purchasing applies to all types of sectors, and not only to actual joint purchases but also to joint negotiations (including by licensees of a standard essential patent (SEP) license). The updated chapter additionally clarifies the distinction between joint purchasing arrangements and buyer cartels, and discusses retail alliances.
• Commercialization agreements: The chapter on commercialization agreements now contains a specific section on bidding consortia, which notably provides guidance on the assessment of consortia agreements between parties that would be able to take part individually in tenders.
• Information exchange: The chapter on information exchanges between competitors now provides additional guidance on the different types of information exchanges, including different types of data sharing, as well as on exchanges in the context of acquisitions. It clarifies various concepts relevant to self-assessment, such as “commercially sensitive information,” “genuinely public information,” “historic information,” etc., and it provides additional guidance on unilateral disclosure and indirect information exchanges (including hub-and-spoke scenarios). New sections provide guidance on measures to control/limit how data is used, including discussion of clean teams and data pools.
• Standardization agreements: The existing chapter is split into two chapters – one on standardization agreements and one on standard terms. The chapter on standardization agreements proposes introducing more flexibility in the effects analysis by allowing, under certain circumstances, a more limited participation in the development of a standard, and a requirement of more specific disclosure by participants of their intellectual property rights (IPR) that might be essential for the implementation of the standard under development (considering that “blanket disclosures” without identifying specific IPR claims/applications should be the exception rather than the rule). The chapter also contains a statement that standard development agreements providing for ex ante disclosure of a maximum accumulated royalty rate by all IPR holders will not, in principle, restrict competition.
• New chapter on sustainability agreements: In line with the objectives of the European Green Deal, the draft Guidelines contain a new chapter on the assessment of horizontal agreements that pursue sustainability objectives, which devotes particular attention to sustainability standardization agreements (this is expected to be the most frequent form of cooperation in pursuing sustainability objectives). To some extent, this is a reversal of the Commission’s decision not to carry over the chapter on “environmental standards” from the 2001 Guidelines into the 2010 Guidelines. The chapter explains when such agreements escape the general prohibition on agreements restricting competition contained in Article 101(1) of the Treaty on the functioning of the European Union (TFEU), and when agreements caught by that prohibition may nevertheless qualify for an exemption under Article 101(3) TFEU:
  • Sustainability agreements do not fall under Article 101 provided they do not affect parameters of competition such as price, quantity, quality, choice or innovation. If they do, the fact that an agreement genuinely pursues a sustainability objective may be taken into account in determining whether the restriction in question is a restriction “by object” (i.e., presumed illegal) or “by effect.” The Commission notes in this context that an agreement between competitors on how to translate increased costs resulting from the adoption of a sustainability standard into increased sale prices towards customers, or an agreement between the parties to a sustainability standard to put pressure on third parties to refrain from marketing non-compliant products, restricts competition by object. The chapter also sets out criteria for the effects-based assessment of sustainability standardization agreements, outlining a “soft safe harbor” for agreements that fulfil certain conditions.
  • With respect to the assessment under Article 101(3), the draft Guidelines indicate that sustainability benefits may be taken into account as efficiencies potentially outweighing the restrictive effects of an agreement, emphasizing however that such efficiencies must be substantiated and cannot be assumed, and should be objective and verifiable. It is also noteworthy that the Commission maintains that the sustainability benefits that ensue from the agreements must be related to the consumers of the product covered by those agreements (“in-market” efficiencies), although it accepts that the concept of “consumers” encompasses all direct and indirect users of the products concerned. Sustainability benefits that are not related to the consumers in the relevant market, or that would not be significant enough to compensate for the harm done in the relevant market, cannot justify an exemption. The chapter contains detailed guidance on how to assess whether the sustainability benefits are indispensable to achieve the stated sustainability goals and if they are sufficiently related to the market’s consumers. The chapter concludes by stating (or recalling) that the involvement of public authorities in sustainability agreements is not in itself a reason to consider such agreements compatible with competition rules. Public authority involvement therefore does not absolve the parties from potential liability, unless they have been compelled or required by a public authority to conclude the agreement, or an authority has reinforced the restrictive effect of the agreement.

The Commission has invited stakeholders to comment on the draft revised texts by April 26, 2022.