Antitrust Alert: European Commission Adopts New Horizontal Cooperation Package

The European Commission recently adopted a revised package of guidelines and ‘block exemptions’ relating to various forms of horizontal cooperation.  Such measures are vital to businesses with activities in Europe, as they offer detailed guidance on the legality of horizontal cooperation between competitors and provide safe harbours for certain types of agreements. 

The revised measures are not radical redrafts of existing guidelines and regulations, but seek to align the Commission’s approach with legal and market developments.  New elements that warrant particular attention relate to standard-setting and information exchange, as well as the broadened scope of safe harbours for certain R&D and specialisation (production) agreements.

Revised horizontal cooperation package

Anticipating the expiry on 31 December 2010 of the existing set of guidelines and block exemptions from 2000, the Commission took this opportunity to clarify and update a wide array of forms of horizontal cooperation, particularly in view of legal and market evolutions.  The revised package consists of the Horizontal Cooperation Agreements Guidelines ("Guidelines"), the Research & Development Agreements Block Exemption ("R&D Block Exemption") and the Specialisation Agreements Block Exemption ("Specialisation Block Exemption").  While the Guidelines cover the range of potential forms of cooperation between competitors, the two Block Exemptions are limited to specific forms of collaboration, R&D agreements and joint production ventures.

The draft package underwent extensive stakeholder and public consultation for over two years.  Setting out the package’s lofty ambitions, Vice President of the European Commission, Joaquín Almunia, explained his hope that the package would stimulate innovation and competitiveness and "give companies the necessary freedom to co-operate in a globalised market place."  The Guidelines are expected to enter into force in December 2010.  The new Block Exemptions will apply as of 1 January 2011, with transition arrangements until end-2012 for agreements already in force that do not satisfy the terms of the new exemptions.

New Horizontal Cooperation Agreements Guidelines

The Guidelines’ overarching aim remains unchanged – to provide a clear methodology to companies and their advisors on how to self-assess the range of horizontal cooperation.  As before, the new Guidelines set out the Commission’s framework for assessing commercialisation, purchasing, production, and R&D agreements.  Also tackling the issues of standardisation and information exchanges, the approach on these issues is particularly novel and the drafts published earlier in 2010 prompted much public comment.

Standardisation and standard setting agreements.  In the wake of the lengthy and ultimately abandoned investigations in Rambus and Qualcomm, the Commission now provides enhanced guidance on ensuring the suitable competitivity of standard setting and, in particular, how access should be given on FRAND terms.  Notably, the Commission indicates that IP rights must be disclosed prior to adopting a standard, thereby preventing unclear disclosures, or at worst, patent ambushes.  However, the Guidelines remains opaque as to the Commission’s preferred interpretation of FRAND.  Rather than clearly endorsing a given method, the Commission highlights various ways to determine FRAND terms, with particular emphasis on the level of licence fees charged prior to a standard’s formal adoption.  While acknowledging the increased role of standard terms across industry sectors, including banking and energy, the Commission gives only limited guidance on such terms.

Information exchange.  After some recent uncertainty as to where the line should be drawn, the Commission now considers that a per se infringement arises with the exchange of "individualized data regarding intended future prices or quantities" or any other data capable of revealing future intentions regarding pricing or quantities.  This is a notable clarification of the existing precedents.  Where an analysis of actual competitive effect is required, the Commission will consider a number of factors, including specific market conditions, the strategic utility of the data (e.g., production costs, capacities, investments, technologies, R&D programs and results), whether the information exchanged is public or non-public, whether the information exchanged was aggregated or individualized data, the age of the data, and the frequency of the information exchange.  Useful guidance is also given on potentially acceptable forms of information exchange, such as for statistical or benchmarking purposes.

R&D Block Exemption

The revised R&D Block Exemption contains only a few changes, which fine tune the Commission’s approach and reflect the view that such agreements generally are procompetitive. 

• The safe harbour is maintained for agreements between competitors or potential competitors if their combined market share is below 25% and there are no hardcore restraints.  The definition of a potential competitor is clarified to mean a company likely to enter that market within three years.
• The Block Exemption’s scope is expanded to include "paid for" R&D, i.e., where one party finances the R&D activities of the other.

Specialisation Block Exemption 

The Specialisation Block Exemption also underwent few modifications.  Specialisation (commonly referred to as "production") agreements continue to be exempted if the combined market share is below 20% and there are no hardcore restraints.  Notable clarifications to the Block Exemption include: 

• inclusion of agreements where only one of the parties to the agreement partially ceases production (e.g., a company with two production plants for a particular product can close down one of the plants, outsource the output of such closed plant, and still fall within the exemption); and
• application of a 20% market share cap on the downstream market if the products covered by the agreement are intermediary products for a downstream market on which one of the parties is active.

Lawyer Contacts 

For more information, please contact your principal Jones Day representative or either of the lawyers listed below.

Vincent Brophy
Brussels / London
+ 32.2.645.15.35 / +44.20.7039.5192
vbrophy@jonesday.com

Yvan Desmedt
Brussels
+32 2 645 15 23
ydesmedt@jonesday.com

Marcus Pollard
Brussels
+32 2 645 14 11
mpollard@jonesday.com

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