Co-operation Between Competitors: A Practical Guide To The New European Horizontal Block Exemptions and Guidelines

December 20, 2010

On 14 December 2010, the European Commission adopted a revised set of Research and Development (“R&D Block Exemption”) and Specialisation (“Specialisation Block Exemption”) Block Exemption Regulations in addition to Guidelines on Horizontal Co-operation Agreements (“Guidelines”). These Block Exemptions and Guidelines extensively set out and clarify the European rules applicable to co-operation between competitors: 

  • The Block Exemptions provide a “safe harbour” for R&D and specialisation agreements meeting certain criteria, and come into force on 1 January 2011; and 
  • The Guidelines complement the Block Exemptions, providing analytical and interpretative guidance on R&D and specialisation agreements, in addition to various other types of horizontal co-operation between competitors. Unlike the Block Exemptions, the Guidelines are not legally binding, and will become effective in the coming days, following publication in the Official Journal.

The new texts may be accessed via the following links: The R&D Block Exemption; The Specialisation Block Exemption; and The Guidelines.

This OMM Client Alert provides an overview of the main changes in both the Block Exemptions and the Guidelines, and provides a practical account of two material chapters in the Guidelines, namely, standardisation and information exchange.

What are the Main Changes?
This revised package of measures on horizontal co-operation agreements includes substantially revised and extended Guidelines, clarifying and replacing guidance which was issued almost a decade ago. The Block Exemptions have also been amended, although to a lesser extent.

The aim was to provide a new set of rules, providing comprehensive guidance and increased legal certainty, while also being user-friendly. The Commission carried out a Public Consultation on draft Block Exemptions and Guidelines, which commenced in May 2010, and has attempted to address a number of points raised at the Consultation stage. The Commission’s increasingly economics-based analysis is also clearly reflected, especially in the Guidelines which provide numerous illustrative examples.

The main changes to the Block Exemptions involve expansion in terms of scope and a number of clarifications.

The main changes to the Guidelines involve:

  • a substantially revised and extended chapter on standardisation, which boosts transparency, provides guidance on determining FRAND terms, and includes the introduction of a “safe harbour” where set criteria are fulfilled;
  • a wholly new chapter on information exchanges, representing the first comprehensive coverage of the subject in a Commission document, which illustrates a relatively low threshold for potential infringement; and
  • clarification on the current application of EU anti-trust rules to agreements between joint ventures and their parent companies (removing the reference contained in the draft Guidelines on the decisive influence of a parent company in the context of a joint venture and the non-applicability of Article 101 of the Treaty).

The Block Exemptions
As with the previous versions, these Block Exemptions provide automatic exemptions or “safe harbours” under Article 101(3) of the Treaty for specified types of horizontal agreements which do not contain any of the listed hardcore restrictions (such as price-fixing, market sharing, etc. dependant upon the Block Exemption in question) and fall within the specified market share thresholds.

The R&D Block Exemption
The R&D Block Exemption provides an automatic exemption for certain types of R&D agreement, and now expressly includes R&D agreements involving “paid-for research”. The combined market share threshold of 25% for agreements between actual or potential competitors has not changed. While little amendment has been made to the hard-core restrictions themselves, it is now clarified that a “field of use” restriction is not regarded as a hardcore restriction.[1] The Block Exemption now also provides parties with more scope to jointly exploit their R&D results, including situations where one party is granted an exclusive license by the other to exploit the results of their R&D.

The Specialisation Block Exemption
The application of the Specialisation Block Exemption has been clarified - it now applies even in the case that one of the parties to the agreement only partly ceases production. This allows for undertakings with two production plants for a given product to still benefit from the Block Exemption where only one of those plants is closed down, and the production from that plant is outsourced.

In terms of market share, the combined market share threshold of 20% remains unchanged. However, it is provided that where intermediary products are concerned (i.e., which one undertaking uses for the production of a downstream product), the 20% market share threshold applies to both the intermediary product and the downstream product.

The Guidelines

Standard Setting
With standard setting agreements as one of the key areas for revision and the one which attracted two thirds of all comments from the Public Consultation, the Guidelines promote a standard setting system that is open and transparent and thus aims to increase the transparency of licensing costs for intellectual property rights (“IPRs”) used in standards. In doing so, the Commission has set out a number of criteria under which standard setting agreements are unlikely to raise anticompetitive concerns (thus defining a “safe harbour”). The Guidelines also provide - albeit limited - guidance on those standardisation agreements that do not fulfill the safe harbour criteria, in order to allow companies to self-assess whether they are compliant with EU competition law.

The Guidelines set out the following criteria which must be met in order for a standard setting procedure to benefit from the safe harbour:

  • unrestricted access to and participation in the standardisation process;
  • the standard in question is adopted, and the process is undertaken, in a transparent manner;
  • the standardisation agreement does not contain an obligation to comply with the standard; and
  • access to the standard is provided on fair, reasonable and non-discriminatory (“FRAND”) terms.

The above FRAND commitment entails the necessity for standard setting organizations (“SSOs”) to adopt a clear and balanced IPR policy, which would need to require a good faith disclosure[2] by participants, of their IPR that might be essential for the implementation of the standard under development.[3] Participants wishing to have their IPR included in the standard should also provide an irrevocable commitment in writing to offer to license their essential IPR to all third parties on fair, reasonable and non-discriminatory terms. In order to assess whether a license fee is fair and reasonable the Guidelines suggest to benchmark the royalty against the “economic value” of the IPR and whether the fee “bears a reasonable relationship” to that value.

The Commission appears to acknowledge that such assessment is difficult to make in practice, and so the Guidelines observe that fees charged before the industry was locked into the standard, or royalty rates charged for the same IPR in other comparable standards, might be useful proxies. Alternatively, independent expert advice may be sought to determine an IPR’s “centrality and essentiality to the standard.” To ensure a transparent and fair process, the Guidelines even propose that SSOs should provide for IPR holders to individually disclose their most restrictive licensing terms, including the maximum royalty rates they would charge, prior to the adoption of the standard. This would enable a standard setting organization and the industry to take an informed choice on quality and price when selecting which technology should be included in a standard. Furthermore, such “unilateral ex ante disclosure” would “normally not lead to a restriction of competition within the meaning of Article 101(1).”

For those standardisation agreements that do fall within the scope of Article 101(1) because they restrict competition, the Guidelines set out under which conditions their anticompetitive effects could be outweighed by potential pro-competitive effects under Article 101(3); namely efficiencies such as the promotion of market integration, technical interoperability and compatibility, as well as product quality and innovation. The Commission specifically refers to the requirement that restrictions must not go beyond what is necessary to achieve the efficiency gains, and to the need to pass on to the consumers any such gains to an extent that outweighs the restrictive effects. It also stresses the need to ensure that standardisation agreements must in no circumstances eliminate competition (e.g., by foreclosing third parties from access to the standard). The guidance on these points is, however, limited.

Information Exchange
The new chapter on information exchanges is a welcome addition to the Guidelines and is intended to provide clear and comprehensive guidance on acceptable and unacceptable forms of information exchange between competitors. The Guidelines state that information exchanges represent a common feature of many competitive markets, and may be pro-competitive, generating various types of efficiency gains. However, it is also highlighted that certain types of information exchanges may lead to restrictions of competition, particularly in situations where it is liable to enable undertakings to be aware of the market strategies of their competitors.

The concept of an information exchange is considered in two contexts: (i) where the main economic function is the exchange of the information itself; and (ii) where the exchange is part of another type of horizontal agreement, and is assessed in combination with an assessment of the underlying horizontal agreement (such as information on costs as part of a production agreement).[4]

The Guidelines provide an analytical framework to be applied in the assessment of various types of information exchanges for resulting efficiency benefits/restrictive effects, including benchmarking, statistics and consumer data exchanges.[5] The Guidelines illustrate that the competitive outcome of the information exchange depends on the characteristics of the market in which it take place, including concentration, transparency, stability, symmetry, complexity etc. as well the type of information that is exchanged, which may modify the relevant market environment towards one of co-ordination. Such characteristics and the form of information are individually examined in detail.[6] The Guidelines highlight that higher-risk information exchange involves individualised intentions regarding future prices or quantities, or other “strategic” information which reduces strategic certainty in the market. The sharing of strategic information can give rise to restrictive effects on competition because it reduces the undertaking’s decision-making independence by decreasing incentives to compete.

The Guidelines highlight that information exchange of individualised data regarding intended future prices or quantities is particularly likely to lead to a collusive outcome by “object”.[7] However, even a situation where only one undertaking discloses strategic information to its competitors, who accept it, can constitute an unlawful exchange of information. This can take the form of contact via mail, emails, phone calls, and meetings etc. It is further clarified that unless an undertaking who receives any such strategic information from another competitor responds with a clear statement to the effect that it does not wish to receive such information, it will be presumed to have accepted the information and adapted its market conduct accordingly. It is also emphasised that attendance at a single meeting during which sensitive information is exchanged is capable of constituting a “restriction by object”, depending on the structure of the market and the overall context of the exchange, following the General Court’s precedent set out in its T-Mobile decision.[8]

This extensive new guidance appears indicative of the Commission’s view that the applicable threshold for finding an infringement of competition law on the basis of information exchange is relatively low. It is, therefore, recommended that this guidance is given due consideration in the short term as regards updating internal compliance programmes and ongoing competition training.

Undertakings with business activities in Europe must ensure their horizontal agreements are brought into line with the revised EU horizontals package. The new Block Exemptions allow for a transitional period of two years for pre-existing agreements which met the conditions of the previous Block Exemptions. This means that undertakings who are party to such agreements have a grace period up until the 1 January 2013, to comply with the new rules. However, the Guidelines will apply once they have been published in the Official Journal, as is expected in the coming days.

Agreements between competitors will continue to be the focus of the Commission’s enforcement initiatives, and it is to be expected that both the Commission and National Competition Authorities in Europe will increase their scrutiny of co-operation agreements under the new horizontals regime. Hardcore infringements of the Block Exemptions, and other infringements of Article 101 of the Treaty can lead to the nullity of the relevant agreement, severe fines, damages claims and even criminal penalties in certain Member States.

It is consequently recommended that undertakings embrace this opportunity to review their agreements and compliance programmes in good time, not only from a “compliance” perspective, but also to ensure that due advantage can be taken of some of the more liberal and flexible features of the new regime.


[1] Preamble, para. 15.
[2] At the Commission’s press conference, a Commission official specified that “good faith disclosure” does not amount to a “patent search” requirement; see Guidelines, para. 286.
[3] It is worth noting that the final version of the Guidelines no longer requires the disclosure of “pending IPRs”; see draft Guidelines, para. 281.
[4] Guidelines, para. 56.
[5] Guidelines para 95 to 100.
[6] Guidelines para. 77 to 94.
[7] Preamble, para. 15.
[8] Guidelines para. 91 and footnote 69; Case C-8/08, T-Mobile Netherlands.