Questions and Answers on adoption of the new Horizontal Block Exemption Regulations and Horizontal Guidelines
A. General Questions
1. What are horizontal cooperation agreements?
Horizontal cooperation agreements are those agreements between competitors with a view to cooperating in certain areas, such as research and development, production, purchasing, commercialisation, standardisation, or exchange of information. Article 101(1) TFEU prohibits agreements between companies that restrict competition. However, under certain conditions, horizontal cooperation agreements can be pro-competitive and lead to substantial economic benefits, allowing companies to respond to increasing competitive pressure and changing market dynamics driven by globalisation. They can be a means to share risk, save costs, increase investments, pool know-how, enhance product quality and variety and speed up innovation. Similarly, horizontal cooperation in areas like research and development (‘R&D') and specialisation agreements is essential for the digital and green transition and can contribute to the well-functioning of the internal market.
2. What are the new rules for the assessment of horizontal co-operation agreements under EU competition law?
The new rules consist of two horizontal Block Exemption Regulations (together ‘HBERs') and guidelines, the "Horizontal Guidelines". The two HBERs exempt certain R&D and specialisation agreements from the application of Article 101 of the Treaty on the Functioning of the European Union (‘TFEU'). The Horizontal Guidelines provide guidance on how to apply the HBERs and on how to assess a range of other common types of cooperation agreements under competition rules. These include information exchange as well as agreements in the following fields: R&D, production, joint purchasing, commercialisation, standardisation and on standard terms. In addition, the revised Horizontal Guidelines include a new chapter on the assessment of so-called sustainability agreements.
3. What does it mean that an agreement is "block-exempted"?
Certain agreements between companies that (i) have limited market power (i.e. combined market shares of 25% or less for R&D agreements between competitors and of 20% or less for specialisation or joint production agreements) and (ii) comply with the conditions set out in the HBERs, can be presumed to produce positive effects that outweigh any restriction of competition. They can therefore be declared compatible with the single market in accordance with Article 101(3) TFEU. Based on this presumption, such agreements are exempted from the ban on restrictive agreements laid out in Article 101(1) TFEU. For R&D, specialisation or joint production agreements between companies whose market shares exceed the above-mentioned thresholds, the safe harbour provided by the HBERs does not apply. However, there is no presumption that such agreements are illegal. For these cases, it is necessary to assess individually whether such agreements restrict competition. The Horizontal Guidelines assist in making this assessment.
B. Block Exemption Regulations
1. What are the main changes?
The changes that have been made to the R&D BER and the Specialisation BER aim to make them clearer and easier to use. For example, both HBERs include clarifications on how to calculate market share thresholds and guidance on how to apply the block exemption. In particular, they clarify that, where sales data for the preceding calendar year is not representative of the parties' true position on the relevant market, sales data for the three preceding calendar years should be used. In addition, they simplify the grace period that applies when the parties' market share rises above the market share threshold (this is the period during which the agreement continues to benefit from the block exemption after the threshold is exceeded – it is now two calendar years in all cases). In addition, the R&D BER now sets out the legal consequences of including excluded restrictions in an R&D agreement (i.e., restrictions for which it cannot be assumed that they generally fulfil the conditions of Article 101(3) TFEU but their inclusion in the agreement does not remove the benefit of the exemption if they can be severed from the rest of the agreement). Lastly, the various conditions of the R&D BER relating to access to the results of the joint R&D, access to pre-existing know-how and joint exploitation of the results are now presented in separate articles, to improve clarity.
To increase its flexibility, the scope of the Specialisation BER has been expanded: it now covers agreements concluded by more than two parties for all the types of specialisation and production agreements that meet the definitions in the HBER.
The R&D BER now gives more prominence to the protection of innovation competition. In particular, the recitals of the Regulation and the related chapter of the Horizontal Guidelines make clear that where the parties to an R&D agreement do not compete in existing product or technology markets, they may nonetheless be competitors in innovation. New articles have been added to the BER explaining the powers of the Commission and the National Competition Authorities (‘NCAs') to withdraw the benefit of the block exemption in individual cases where they find that the conditions of Article 101(3) TFEU are not met, including where an R&D agreement would substantially restrict innovation competition. Similar provisions explaining these powers have been added to the Specialisation BER.
The revised HBERs enter into force on 1 July 2023 and will remain valid for 12 years. There is a transitional period of 2 years, during which agreements that do not meet the conditions of the new HBERs but which meet the conditions of one of the previous HBERs will remain block-exempted.
C. Horizontal Guidelines
1. What are the main changes?
The main changes that have been introduced in the Horizontal Guidelines are (i) the introduction of a new chapter on sustainability agreements; (ii) a new section on mobile telecommunications infrastructure sharing agreements; and (iii) a substantial revision of the information exchange chapter. The chapters on R&D and specialisation agreements have been expanded, to offer specific guidance on the application of the two HBERs for these types of agreements. The chapters have also been thoroughly reviewed to ensure that the rules are clearer and easier to apply by companies, especially small- and medium-sized enterprises (‘SMEs'). The chapters on joint purchasing and commercialisation have been updated, especially with a view to providing more guidance on the distinction between, on the one hand, legitimate horizontal cooperation in joint purchasing and commercialisation and, on the other, illegal buyer cartels and bid rigging.
The Guidelines also make clear that the guidance on production agreements covers all types of horizontal sub-contracting, and there is additional guidance on the notion of preparation of services.
2. What is the guidance provided for mobile telecommunications infrastructure sharing agreements?
First, the newly introduced section on mobile telecommunications infrastructure sharing agreements recognises the potential benefits arising from cost reductions or quality improvements and highlights that such agreements have to be assessed on the basis of their possible effects on competition, unless they are used to engage in a cartel. The basic principle is that each agreement should be assessed on a case-by-case basis under Article 101 TFEU.
Second, the chapter sets out factors that are relevant for the competitive assessment, such as the characteristics of the mobile infrastructure sharing, the scope of the shared services and technologies, the geographic scope and market coverage, the characteristics of the markets in question and the number of agreements and identity of participating operators. Furthermore, it sets out minimum requirements for a mobile infrastructure sharing agreement to be considered, prima facie, as unlikely to have restrictive effects under Article 101 TFEU.
Finally, the chapter lists the broad principles to be used for the self-assessment of different types of mobile infrastructure sharing agreements (i.e. passive sharing, active sharing, spectrum sharing).
3. What are sustainability agreements?
Sustainability agreements are any type of horizontal cooperation agreement between companies that pursues a sustainability objective, irrespective of the form of the cooperation. They typically pursue goals aimed at economic, environmental and social development, such as combatting climate change, reducing pollution, limiting the exploitation of natural resources, upholding human rights, ensuring a living income, protecting animal welfare and reducing food waste.
4. How does the Commission assess sustainability agreements?
The chapter of the Horizontal Guidelines on sustainability agreements provides a framework for companies to self-assess the compatibility of their joint sustainability initiatives with the competition rules.
First, it is necessary to assess whether the agreement in question affects the parameters of competition. The chapter provides examples of sustainability agreements between competitors that fall outside Article 101(1) TFEU and therefore do not raise competition concerns, as they do not affect parameters of competition (for example, agreements relating to internal corporate behaviour or to awareness-raising campaigns).
Second, the chapter explains that where main object of the agreement is the pursuit of a sustainability objective, and where it is not used to disguise a severe restriction of competition, the agreement will generally not be treated as a ‘by object' restriction but would require an assessment of its effects on competition.
Third, the chapter provides a specific safe harbour for agreements that set a sustainability standard and comply with six cumulative conditions, on the basis that: (i) standardisation agreements are a common type of cooperation between competitors for pursuing sustainability objectives that often have neutral or positive effects on competition; and (ii) sustainability standards differ from the usual technical standards covered in the standardisation chapter of the Horizontal Guidelines.
Finally, the chapter provides specific guidance on the assessment of sustainability benefits and the four cumulative conditions of the exemption under Article 101(3) TFEU, building on the general 2004 Guidelines on the application of Article 101(3) TFEU.
5. What types of sustainability benefits can be taken into account under Article 101(3) TFEU?
For the assessment of efficiencies under Article 101(3) TFEU, the new chapter presents three categories of benefits stemming from sustainability agreements that may be taken into account.
First, sustainability agreements may generate ‘traditional' qualitative efficiencies, in the form of improvements to the quality of the product, increased product variety or price decreases. Consumers obtain these benefits through their consumption or use of the product covered by the sustainability agreement (i.e. individual use value benefits).
Second, the chapter clarifies that it is also possible to consider the positive effects of the sustainable products on others if those positive effects are valued by the consumers of the products. Consumers' appreciation of these indirect benefits can be measured, for example, through surveys of consumers' willingness to pay. From an economic point of view, these indirect qualitative benefits are no different from direct qualitative benefits (i.e. individual non-use benefits).
Third, sustainability benefits that occur outside the relevant market and accrue to a wider section of society (so-called out-of-market efficiencies) can also be considered to the extent that they still compensate the harm caused by the agreement to consumers in the relevant market (i.e. collective benefits). This is only possible if these benefits are significant for the consumers of the product and these consumers are part of or substantially overlap with the wider group of beneficiaries. This is because the Court of Justice of the European Union has consistently ruled that, for the purpose of applying Article 101 TFEU, it is necessary to assess how an agreement or practice affects consumers in the relevant market.
Sustainability benefits can only be taken into account in the assessment under Article 101(3) TFEU to the extent that they benefit the consumers of the product in the relevant market. It is also possible to take into account a combination of all of the above three categories of benefits in the context of a single sustainability agreement.
6. What types of scenarios are covered by joint purchasing?
The chapter on purchasing agreements covers all types of situations in all sectors of the economy in which several buyers team up to jointly purchase goods or services from a supplier. Joint purchasing covers both the scenario where the buyers actually purchase the goods or services together and distribute them among the participants in the cooperation, and also situations where the buyers limit themselves to joint negotiation with a supplier. Such joint negotiation can cover purchase prices, components of the purchase price or other terms and conditions. Each buyer would subsequently make its actual purchases individually from the supplier, based on the prices and/or terms and conditions negotiated jointly by the buyers with that supplier.
Moreover, the guidance does not prescribe any particular form or arrangement for joint purchasing, so buyers can choose whether they organise their cooperation through a company that they jointly control or in which they hold non-controlling stakes, through a cooperative (often used in the agricultural sector), or through other types of contractual or practical arrangements.
Depending on the sector, the buyers may consume the jointly purchased products or use them as inputs for their own activities, as in the case of, for example, energy or fertilisers. Alternatively, the buyers may resell the products, as, for example, in the case of fast-moving consumer goods (e.g. food, home or personal care products) or consumer electronics.
7. When assessing joint purchasing agreements, does the Commission only consider harm to consumers?
The Commission takes into account possible harm to consumers downstream and to upstream competition between suppliers caused by joint purchasing agreements. Already the previous Horizontal Guidelines applied a broad interpretation of the consumer welfare standard, whose focus was not limited to consumer harm in terms of price. Nonetheless, the chapter on purchasing agreements now explains in more detail the risk of harm to competition on the supply side, as in the long term this may also be detrimental for consumers. Joint purchasing agreements may harm suppliers' investment incentives and force them to reduce the range or quality of products that they produce. This may lead to restrictive effects on competition in the upstream market, such as quality reductions, lessening of innovation efforts and ultimately sub-optimal supply. At the same time, such risks are not automatic and largely depend on the degree of market power of the buyers and the countervailing seller power of the supplier.
8. Why has a new section on bidding consortia been added?
During the evaluation of the Horizontal Guidelines, stakeholders commented that specific guidance on bidding consortia would be extremely useful, in particular on the circumstances in which the submission of joint bids in public procurement procedures would and would not amount to a restriction of competition ‘by object'. Given that public procurement is also regulated by EU Law, the necessity to provide clarifications on this was even greater. A section on bidding consortia and a specific example have therefore been added to the chapter on commercialisation agreements.
9. What has been changed in the chapter on information exchange?
The chapter on information exchange has been almost entirely rewritten. In part, the revision was required due to the expanding case law of the Court of Justice of the European Union on conduct involving information exchange. The other main reason for the thorough revision was the feedback received during the evaluation of the Horizontal Guidelines, which generally stressed that the chapter did not provide sufficient legal certainty and did not sufficiently cover new developments regarding benchmarking, data pooling and data sharing and other new types of collaboration.
The chapter has now been adapted to cover digitalisation and offers expanded guidance on many different types of data sharing. It includes new or expanded guidance on direct and indirect information exchanges, exchanges in the context of other types of horizontal cooperation agreements and in the context of regulatory initiatives.
10. Has the Commission changed its assessment of information exchanges?
The Horizontal Guidelines still highlight the efficiency gains that can be generated by information exchange and recognise that it is a common feature of many competitive markets. The main competition concerns arising from the exchange of commercially sensitive information, i.e. the risk of collusion and of foreclosure, have not changed.
The chapter gives an updated overview of the types of exchanges that are most harmful to competition. This includes exchanges regarding an individual company's future conduct in relation to prices and quantities, but also exchanges of other types of information that either the Court of Justice of the European Union or the Commission have considered to be restrictions of competition ‘by object'.
The chapter also warns that unilateral public announcements are capable of being used as a communication channel between competitors to signal their future intentions in relation to key parameters of competition. In that case, such public announcements may - depending on the particular legal and economic context - also be considered as a restriction of competition ‘by object'.
11. What is the approach of the Commission towards data sharing?
The chapter recognises that data sharing that has a genuine pro-competitive objective will in most circumstances not amount to a restriction ‘by object'.
This clarification reflects that information exchange can be pro-competitive when it enables companies to become more efficient and serve customers better. However, there are also situations where the exchange of data can be harmful for competition, for instance when companies use commercially sensitive information to coordinate. The revised chapter on information exchange gives clear and comprehensive guidance to associations, businesses and their legal advisors on how to assess the compatibility of information exchanges with EU competition law.
12. Does the chapter contain a safe harbour for information exchanges?
The chapter does not contain a safe harbour, unlike several of the other chapters. The reason is that an exchange of commercially sensitive information between competitors, even if performed by companies with a relatively small market share, can still have a significant effect on competition and cannot be reversed.
The chapter contains a section setting out measures that companies and associations can take to minimise the risk of EU competition law infringements. This includes guidance on the use of trustees, transparency of the exchange and public distancing. The chapter contains a number of practical examples which will help businesses and their legal advisors to assess typical scenarios of information exchange. In addition, the chapter contains a self-assessment tree setting out steps to follow for companies and associations wishing to engage in an exchange of information. Finally, the chapter contains a table providing a framework for assessing the risk of liability for exchanges of commercially sensitive information in various contexts. Compared to the 2011 version of the Horizontal Guidelines, the guidance offered has significantly increased.
13. What has changed in the standardisation chapter?
The purpose of the standardisation chapter is to give guidance on how to ensure that the process of selecting industry standards is competitive and that, once the standard is adopted, access is given on “fair, reasonable and non-discriminatory” (‘FRAND') terms to interested users. The limited changes in the standardisation chapter are meant to: (i) increase transparency in the standard-setting process (encouraging good faith disclosure of intellectual property rights and clarifying that the disclosure of maximum accumulated royalty rates in principle will not restrict competition); and (ii) streamline the development of standardisation efforts.
14. Is the chapter on standard terms new?
The former standardisation chapter has been split into two: one chapter on standardisation agreements and one on standard terms and conditions for the sale or purchase of goods or services. The use of agreed standard terms is common practice in certain industries (such as banking or insurance). The change in structure is intended to improve clarity and readability and does not involve any substantive changes in the guidance on how to assess agreements relating to standard terms.
15. How do the Horizontal Guidelines help Small and Medium Enterprises (‘SMEs')?
The revised Horizontal Guidelines contain various changes intended to make self-assessment of horizontal cooperation agreements easier for SMEs. First, the Introductory Chapter setting out the general principles of Article 101 TFEU now contains guidance on the De Minimis Notice and the Effect on Trade Guidelines. These instruments state that agreements that do not appreciably affect competition or that are not capable of appreciably affecting trade between Member States fall outside the scope of Article 101(1) TFEU. These rules are likely to be particularly relevant for the assessment of cooperation agreements between SMEs.
Second, the chapters of the Horizontal Guidelines covering R&D agreements and production agreements now contain dedicated sections explaining how to apply the R&D and the Specialisation BERs. Again, this is intended to make this specialised competition law legislation more accessible to SMEs.
Third, the Horizontal Guidelines and the practical case studies accompanying each chapter of the Guidelines contain various references to SMEs, small companies and retailers. These references should provide useful guidance to SMEs wishing to enter into, for example, R&D agreements, production agreements, joint purchasing arrangements and joint commercialisation agreements.
16. When do the revised Horizontal Guidelines start applying?
The revised Horizontal Guidelines will apply as soon as they have been published in the Official Journal of the EU, which should take place in the course of July 2023.