The European Commission amends rules governing agreements between competitors
On June 1, 2023, the European Commission (“EC”) made public the new Block Exemption Regulations (“BERs”) for horizontal research and development (“R&D”) and specialization agreements, as well as the revised Guidelines on horizontal cooperation agreements (“Horizontal Guidelines”), replacing the rules in place since 2010/2011.
The BERs exempt from the prohibition of collusive agreements under article 101 of the Treaty on the Functioning of the European Union (TFEU) certain cooperation agreements between competitors for the development of R&D projects related to products, technologies or industrial processes. Also exempted is the implementation of specialization agreements (including joint production agreements or agreements whereby two companies decide respectively to specialize in the manufacture of a product, acquiring the remaining products of the other party).
The Horizontal Guidelines reflect the Commission’s interpretation of the application of the BERs. They provide economic operators with an assessment framework and guidance on agreements with competitors in areas such as joint purchasing or marketing, as well as on information exchanges, without infringing EU competition rules.
Context of the reform
These new rules are part of the overall reform of EU competition law that has been under way over the past years.
The new BERs and Horizontal Guidelines fill the gaps identified in the rules and introduce certain adjustments requested by economic operators that traditionally enter into horizontal cooperation agreements, especially in areas such as digitalization and cooperation to achieve sustainability objectives.
Main new features of the BERs
Here are the main new features introduced:
1. Extension of the scope of the BER for specialization agreements.
The exemption under the new BER will apply to agreements concerning the manufacture of goods and the preparation of services (e.g., the creation of a platform through which a service will be offered), provided that the parties’ combined market share does not exceed 20%. In this sense, the new BER will apply to agreements between more than two parties that meet the Regulation’s requirements.
2. Both BERs provide greater clarity in calculating the market share for exemption purposes.
Where sales data from the previous calendar year are not representative of the parties’ position in the relevant market, sales data from the previous three years may be used.
Main changes to the Horizontal Guidelines
Regarding the revision of the Guidelines, inaddition to incorporating the most recent case law, the introductory chapter now contains additional guidance on agreements between joint ventures and their parent companies, as well as on the application of the Guidelines to cooperation agreements involving more than one type of activity.
Furthermore, the revised Horizontal Guidelines include the following new features:
1. A new section on bidding consortia (e.g., in the form of joint ventures). In particular, the Commission has sought to clarify the criteria as to when joint bidding agreements may restrict competition by object or involve bid rigging. The new Guidelines define as restrictive those consortium agreements involving companies that could bid on their own considering the specific circumstances of the case (e.g., company’s size and capabilities, project’s financial risk, required investment level). Additional guidance is provided for assessing these types of joint ventures.
Operators and business associations have been calling for years for these guidelines on consortium agreements or joint ventures, in view of the existing uncertainty and the serious sanctions imposed by various European authorities (as discussed in this paper and in this post).
2. With regard to information exchange, the revision of the Guidelines has entailed substantial changes to reflect the case law of the Court of Justice of the European Union and to adapt to the new developments brought about by new technologies (benchmarking and data pooling).
The Guidelines specify that data sharing will not be considered a restriction by object except in certain cases (e.g., when involving the exchange of commercially sensitive information).
In addition, further guidance is provided in relation to the types of information exchanges that constitute hardcore restrictions of competition, indirect forms of information exchange such as hub-and-spoke, and price signaling.
3. One of the main novelties of the revised Guidelines concerns sustainability agreements. Sustainability agreements cover any type of horizontal cooperation between companies in pursuit of sustainability objectives, including in particular environmental and social development, the protection of animal welfare or the safeguarding of human rights across the value chain. This is one of the most eagerly awaited developments in this area, to which we will devote another post.
4. In addition to the above, a new section provides guidance on mobile telecommunications infrastructure sharing agreements—which must meet certain minimum requirements to be considered non-restrictive under article 101 TFEU.
5. The expanded section on joint purchasing clarifies that it covers both those agreements in which the buyers purchase the goods or services jointly, and those in which they simply negotiate together with a supplier and then purchase them independently. In addition to the consumer harm resulting from purchasing agreements already discussed in the previous Guidelines, the revised Guidelines also take into account the upstream harm that may result from purchasing agreements from the distributors’ point of view.
6. Finally, the revised Guidelines seek to facilitate greater accessibility and application by SMEs, so that they can carry out a more consistent self-assessment of their cooperation agreements. In this context, the additional guidance on the De Minimis Notice will be of particular relevance, since in many cases cooperation agreements between SMEs may fall outside the scope of article 101(1) TFEU.
Both the new BERs and the Horizontal Guidelines seek to reflect the case law and socio-economic developments of recent years, including references to sustainability or the use of algorithms, data sharing and other forms of digitalization. They thus aim to provide companies, and in particular SMEs, with clearer and updated guidance to help them assess the compatibility of their horizontal cooperation agreements with EU competition rules.
The new BERs will enter into force on July 1, 2023 (with a 2-year transitional period for those agreements that meet the requirements of the previous BERs), while the Guidelines will enter into force upon publication in the EU Official Journal, which is expected by July this year.The context is therefore appropriate to reassess the existing agreements and to plan new horizontal cooperation projects under the new framework for the next 12 years (until June 30, 2035).