European Commission publishes draft rules applicable to horizontal co-operation agreements

On 4 May 2010, the European Commission published its awaited draft regulations and guidelines for the assessment of co-operation agreements between competitors.

Currently, guidance for horizontal co-operation is provided by two block exemption regulations, Commission Regulation (EC) No. 2659/2000 on research and development (R&D) agreements ("R&D BER"), Commission Regulation (EC) No. 2658/2000 on specialisation agreements ("Specialisation BER"), and the accompanying horizontal guidelines. The block exemption regulations exempt research and development as well as specialisation and joint production agreements from the EU's general ban on restrictive business practices laid down in Article 101 (1) of the Treaty on the Functioning of the European Union ("TFEU"), provided they meet all conditions set out in the regulations. The horizontal guidelines provide an elaborated analytical framework for the assessment of the most common types of horizontal co-operation agreements (including certain concerted practices) and are therefore of the highest practical importance. The European Commission has now opened the discussion on the proposed rules as the current versions of the R&D BER and the Specialisation BER expire at the end of this year.

The main objective of the amendments to the R&D BER is to provide improved legal certainty:

• It is now explicitly stated that an exemption under the Draft R&D BER is only available if prior to starting their research and development all participating companies agree that they will disclose in an open and transparent manner all their existing and pending intellectual property rights relevant for the exploitation of the results by the other co-operating companies (Article 3 (2) Draft R&D BER) .

• The Draft R&D BER also spells out that passive sales restrictions with regard to customers, and not only those with regard to territories, will be considered a hardcore restriction and therefore cannot benefit from the exemption (Article 5 (d) Draft R&D BER).

• Restrictions on active sales to territories not exclusively allocated to one party are also considered to be hardcore restrictions (Article 5 (e) Draft R&D BER).

• The R&D BER provides exemptions for co-operation between actual and potential competitors. Whereas the time frame for potential competition has been unspecified (the main indication was found in the one year period reference in paragraph 26 of the year 2000 vertical guidelines), the Draft R&D BER now specifies that a "potential competitor" would have to enter the market "within not more than three years" (Article 1 (12) Draft R&D BER). This delineation can be crucial for the duration of the exemption if one of the parties has market shares of 25% or more (see Article 4 Draft R&D BER).

The most significant proposed changes to the Specialisation BER are the following:

• The Draft Specialisation BER introduces a second market share threshold for specialisation or joint production agreements on intermediary products which one or more of the companies use captively for the production of certain downstream products. In case the company sells these downstream products on the merchant market, exemption is only granted if the share of the parties on this downstream market does not exceed 20% (Article 3 and recital 10 Draft Specialisation BER).

• The Draft BER Specialisation clarifies that it can also apply to specialisation agreements where one of the co-operating companies only partly ceases production. This means that a company can close down only one of its two production plants for the product and nonetheless benefit from the exemption of the BER Specialisation (Article 2 (b) and recital 7 Draft Specialisation BER).

• The definition of "potential competitor" has been changed in alignment with Draft R&D BER as explained above (Article 1 (12) Draft Specialisation BER).

The European Commission also proposes substantial changes to the horizontal guidelines, such as the inclusion of a chapter on information exchanges and the substantial revision of the chapter on standardisation:

• In the chapter on information exchanges, the European Commission recognizes that information exchanges can also be pro-competitive as they can lead to significant efficiency gains. As a consequence, the chapter on information exchanges provides guidance on assessing the effects of exchanges of information that do not aim at restricting competition, such as exchanges for statistical or benchmarking purposes, which in practice form the vast majority of information exchanges (chapter 2 of the draft guidelines).

• In the chapter on standardisation (chapter 7 of the draft guidelines) the European Commission provides clear guidance on how to ensure an open and transparent standard-setting process which seems to be driven by recent experience. The draft guidelines thus provide that the policy on intellectual property rights ("IPR") in standardisation agreements should require good faith disclosure of those intellectual property rights that might be essential for the implementation of a standard under development before that standard is agreed. This requires that the IPR holders make reasonable efforts to identify existing and pending IPR reading on the potential standard (paragraph 281). This should avoid the misuse of the standardisation process through hold-ups and the charging of abusive royalty rates by IPR holders (paragraph 280).

• In addition, access to standards shall be given on "fair, reasonable and non-discriminatory" ("FRAND") terms to interested company users. In response to specific concerns raised by industry and standard-setting organisations, the draft guidelines suggest to oblige holders of essential IPR to grant a FRAND commitment in writing in order to avoid excessive prices after the adoption of the standard (paragraphs 282 et seq.).

• The chapter on standardisation now also provides guidance and examples on standard terms. Since the use of standard terms in contracts is not specific to the insurance industry the specific exemption for co-operation on standard insurance policy conditions had not been renewed by the European Commission in its recent review of the block exemption regulation for the insurance sector. Instead the Commission deals with the standard terms generally in the new draft guidelines.

The European Commission is requesting comments by companies and other stakeholders on the draft regulations and guidelines by 25 June 2010. The final version of regulations and guidelines are to be adopted before the end of this year.

Leading experts from the European Commission, the judiciary, academia, in-house and private practice will discuss the implications of the proposed EU draft rules for horizontal co-operation at the ICC and Crowell & Moring Annual Conference 2010 "Trends and Developments in Global Competition Law" on 7 May 2010 in Brussels. This will be the first public discussion of the new rules. Click here for the conference programme and registration.

Click here for the Draft R&D Block Exemption Regulation [PDF]

Click here for the Draft Specialisation Block Exemption Regulation [PDF]

Click here for the Draft Horizontal Guidelines [PDF]

Useful background information is also provided in the "Frequently asked questions" memo of the European Commission.