European Commission adopts the final version of the much-anticipated Research & Development Block Exemption Regulation and Specialisation Block Exemption Regulation, as well as the Horizontal Guidelines.
On 1 June 2023, the European Commission (Commission) adopted and published the revised Research and Development Block Exemption Regulation (R&D BER) and Specialisation Block Exemption Regulation (Specialisation BER), together referred to as the Horizontal Block Exemption Regulations (HBERs), accompanied by the revised Horizontal Guidelines (HGLs).
The adoption of the new HBERs and HGLs comes after the conduct of a similar review process and adoption of the Vertical Block Exemption Regulation and Vertical Guidelines in May 2022, which we discussed in our European Competition Review 2022.
This revised horizontal package aims at providing businesses with clearer and up-to-date guidance to help them self-assess the compatibility of their horizontal cooperation agreements with EU competition law. As the current horizontal rules and guidelines are due to expire on 30 June 2023, the revised HBERs will apply from 1 July 2023, while the revised HGLs will enter into force following their publication in the Official Journal of the European Union, which should take place in the course of July 2023.
Horizontal agreements are entered into between actual or potential competitors. While these types of agreements can lead to substantial benefits, they can also reduce competition and may potentially infringe Article 101(1) of the Treaty on the Functioning of the European Union (TFEU), which prohibits agreements between companies that restrict competition.
Adopted in 2010 and 2011 respectively, the current horizontal regulations and guidelines exempt research and development and specialisation agreements, as well as other types of agreements (such as production, purchasing, commercialisation, standardisation and information exchange) that meet specific thresholds and certain conditions under Article 101(1) TFEU, thus falling within the scope of the safe harbour.
Following different public consultations processes conducted over several months, the Commission has considered the suggestions for improvements made during these public consultations and adopted the final version of the regulations and guidelines, which have been adapted in line with the Commission’s policies on digital and green transitions. Below, we highlight the main changes in the revised HBERs and HGLs and provide key takeaways for businesses.
Overview of the Main Changes in the Revised HBERs and HGLs
Clarification of Key Competition Law Concepts
With the aim of providing clearer guidance, the revised HGLs provide definitions and clarifications of key competition law concepts used in the application of Article 101 TFEU. The following notions are now defined in line with recent EU case law: undertaking, concerted practice, actual and potential competition, restrictions by object and by effect, and ancillary restraints (see Chapter 1 HGLs).
The HGLs also reflect developments in EU case law in their guidance on the application of Article 101 TFEU to agreements between joint ventures and their parent companies (see Chapter 1 HGLs).
Expanded Scope of the Horizontal Block Exemption and Further Clarification
The revised HBERs and HGLs introduce significant changes regarding their scope of application and guidance clarification:
Type of Agreement
Same market shares thresholds (25%) to benefit from the exemption but clarification on the method of calculating the market shares (see Article 7 R&D BER)
In the pursuit of protecting innovative competition, new powers granted to the Commission and the National Competition Authorities (NCAs) to withdraw the benefit of the exemption in individual cases where they find that the conditions set by R&D BER are not met, especially where the existence of the R&D agreement would substantially restrict innovation competition in a particular field (see Articles 10 and 11 R&D BER)
Simplification of the grace period that applies when the parties’ market share rises above the market share threshold (two consecutive calendar years following the year in which the relevant market share threshold was first exceeded – see Article 6(5) R&D BER)
Clarification of the legal consequences of including excluded restrictions in an R&D agreement (the exemption continues to apply to the remaining part of the R&D agreement provided that the excluded restrictions can be severed from the remaining part and provided that the other conditions of the R&D BER are met – see Article 9 R&D BER)
Expansion of the scope of application – “specialisation agreement” covers agreements concluded by two or more parties for all the types of specialisation and production agreements that meet the definitions in the HBERs (see Article 1(1), point (1)(a) Specialisation BER)
Same market shares thresholds (20%) to benefit from the exemption but guidance on intermediary products and on the method of calculating the market shares (see Articles 3(2) and 4 Specialisation BER)
Simplification of the grace period that applies when the parties’ market share rises above the market share threshold in one of the relevant markets (two consecutive calendar years following the year in which the 20% threshold was first exceeded – see Article 4, point (d) Specialisation BER)
New powers granted to the Commission and the NCAs to withdraw the benefit of the exemption in individual cases where they find that the conditions set by the Specialisation BER are not met, especially when the relevant market is highly concentrated and competition is already weak (see Articles 6 and 7 Specialisation BER)
Clarification of the chapter related to joint purchasing arrangements as follows (see Chapter 4 HGLs): (i) guidance applying to all types of sectors and not only actual joint purchasing but also the joint negotiation of purchasing conditions, (ii) distinction between joint purchasing arrangements and buyer cartels, (iii) clarification on the circumstances in which joint purchasing arrangements may cause upstream harm to suppliers and the circumstances in which it is less likely that lower purchasing prices will be passed on to the consumers, (iv) clarification on the assessment of negotiating threats and temporary suspensions of purchase orders, and (v) additional guidance on the assessment under Article 101(3) TFEU of passing the benefits of joint purchasing to consumers
A new specific section on bidding consortia, which includes guidance on distinction with bid rigging (see Chapter 5, Section 5.4 HGLs)
Additional guidance on the main risks of output limitation and clarifications on the affected markets and on anti-competitive effects
Standardisation Agreements and Standards Terms
New structure but no substantive changes – separate chapters for standardisation agreements and standard terms and conditions for the sale or purchase of goods or services for clarity purposes (see Chapters 7 and 8 HGLs)
Limited changes meant to increase transparency in the standard-setting process and streamline the development of standardisation efforts, such as more flexibility for (un)restricted participation in the development of a standard, criteria for good faith intellectual property rights disclosure, and no restriction of competition (in principle) in case of the disclosure by participating intellectual property rights holders of maximum accumulated royalty rates
New Agreements Covered by the HBERs and HGLs
The HGLs introduce a new section within the Chapter on Production Agreements that focuses on mobile telecommunications infrastructure sharing agreements, also referred to as network sharing agreements (NSAs). NSAs are defined as agreements under which mobile telecommunications network operators share the use of parts of their network infrastructure, operating costs, and the cost of subsequent upgrades and maintenance.
The Commission considers NSAs as unlikely to restrict competition by object unless they are used to engage in a cartel. However, NSAs can have restrictive effects on competition, and the guidelines subsequently set out the relevant factors for the case-by-case competitive assessment: characteristics of the mobile infrastructure sharing, scope of the shared services and technologies, geographic scope and market coverage, characteristics of the markets in question, and number of agreements and identity of participating operators. The HGLs further provide minimum cumulative requirements, so that NSAs are not considered, prima facie, as likely to have restrictive effects (see Chapter 3, Section 3.6 HGLs).
Also focusing on its green transition, the Commission included a whole new chapter on sustainability agreements, which are broadly defined and based on the UN Sustainable Development Goals. They refer to any horizontal cooperation agreement that pursues a sustainability objective, irrespective of the form of the cooperation, with further additional examples. Guidance is also included on the relationship between sustainability agreements and other chapters of the HGLs (e.g., joint purchasing agreements, commercialisation agreements and purchasing agreements), as there may be important overlap. The HGLs emphasize that sustainability agreements do not constitute a distinct category of horizontal agreement but must be assessed following guidance of all relevant chapters of the guidelines, in addition to the sustainability agreements guidance provided in Chapter 9.
More importantly, the HGLs clarify that agreements that restrict competition cannot escape the prohibition laid down in Article 101(1) simply by referring to a sustainability objective. To benefit from an exemption, sustainability agreements restricting competition – and therefore falling within the scope of article 101 TFEU – must satisfy four cumulative conditions set out in article 101(3) TFEU, for which the HGLs provide assessment guidance.
The HGLs also introduce a soft safe harbour for sustainability standardisation agreements meeting six cumulative conditions (see Chapter 9, Section 9.3 HGLs). The objective is to ensure that the sustainability standard does not lead to an appreciable restriction of competition.
Additional Guidance on Information Exchange
The expanded guidance on information exchange is a cornerstone of the new horizontal package. The new rules and guidelines now deliver accurate and up-to-date practical guidance, through an entirely rewritten chapter, to reflect significant recent EU case law.
For the purpose of the guidance, information exchange is defined as including the exchange of (i) raw, unorganised digital content that may need processing in order to make it useful (raw data); (ii) pre-processed data, that has already been prepared and validated; (iii) data that has been manipulated in order to produce meaningful information of any form, as well as (iv) any other type of information, including non-digital information. It includes physical information sharing and digital data sharing between actual or potential competitors.
While the Commission does not provide a safe harbour for information exchange, it aims at properly defining commercially sensitive information and the context in which the information exchange can or cannot occur, with additional practical examples (see Chapter 6 HGLs for more details).
To this extent, the revised guidance considers the following: (i) the concept of commercially sensitive information, (ii) the types of information exchange that may constitute restrictions of competition by object, (iii) potential pro-competitive effects of data pools, (iv) indirect forms of information exchange, including hub-and-spoke arrangements or shared algorithms, (v) anti-competitive signalling via public announcements, and (vi) practical measures that companies can take to avoid infringements, such as limiting the scope of the exchange, using clean teams or independent trustees and public distancing.
More specifically, the HGLs provide new specific developments on data sharing and indirect forms of information exchange (i.e., when taking place via third party, a case-by-case analysis would be required to establish whether the exchange constitutes an anti-competitive agreement). This extension reflects a surge in recent years of such exchanges, which can be pro-competitive unless companies use the information to coordinate. The guidelines emphasize in different examples that data and algorithms can generate efficiencies, as they can reduce costs and barriers to entry. The HGLs nevertheless consider the risk incurred, where the data shared is of strategic importance.
Finally, the guidelines aim to ensure that companies are able to perform a clear and adequate self-assessment before entering into sensitive information exchange with commercial partners. The HGLs provide a self-assessment flow chart (see Chapter 6, pt. 434 HGLs) and an indicative table to help assess liability for exchanges of commercially sensitive information (see Chapter 6, pt. 435 HGLs). As the HGLs do not include a safe harbour for information exchange, the assessment must be completed by the companies themselves.
How to Navigate the Revised HBERs and HGLs?
Application of the New HBERs and HGLs – Timetable
Long awaited, the new HBERs and HGLs bring welcomed clarity and hopefully more legal certainty.
The revised HBERs will enter into force on 1 July 2023 and apply until 30 June 2035. However, a transitional period of two years (from 1 July 2023 to 30 June 2025) is provided by the revised HBERs. During this period, agreements that do not satisfy the conditions for exemption set by the revised HBERs but which meet the condition of one of the previous HBERs will remain block exempted – meaning that the revised HBERs do not apply to contracts in force before 30 June 2023. In practice, contracts currently in line with the existing HBERs will need to comply with the new regulations from 1 July 2025.
Considering that the revised HBERs will enter into force very soon, companies should examine whether their existing agreements are in line with the revised horizontal rules and also see whether there are any new exemption opportunities from which they may benefit.
*Trainee Adrien Barrocas also contributed to this article.