The EC Commission’s Review of the EU Competition Rules on Horizontal Agreements

Paul Lugard, Sep 15, 2010

It is no wonder that the revisions of the block exemption regulations for research and development agreements and specialization agreements, as well as the changes to the Horizontal Guidelines that the EC Commissions has proposed, have given rise to a lively debate on the proper regulation of agreements under EC antitrust law between actual and potential competitors and have uncovered some thorny policy issues. There are two principal reasons for this.

First, for many companies co-operation with competitors is key to their ability to develop and market both existing and innovative products. For instance, it is likely that the introduction of the CD technology as we know it would have been seriously delayed, or would not have taken place at all, if antitrust rules had prevented Philips and Sony from collaborating on optical storage technology in the 1970s and early 1980s. Similarly, the standard-setting activities in the telecommunications area that took place under the auspices of the European Telecommunications Standards Institute (“ETSI”) involving many actual and potential competitors have greatly facilitated the introduction of the 3rd generation mobile phone standard. And absent the collaborative research by Genzyme and Novazyme, there may not have been a treatment for Pompe disease. Exchange of market information and benchmarking enables numerous smaller and larger firms to more intelligently adapt to market circumstances and to improve their productivity.

While many businesses are increasingly required to cooperate in globalizing markets with quickly changing market dynamics, many of these activities require significant upfront investments that companies may not be willing to undertake against the backdrop of restrictive, overly prescriptive, or uncertain requirements under antitrust law. It is therefore important that antitrust law preserves and stimulates the incentives for companies to enter into efficiency-enhancing collaborative activities. As the two block exemption regulations and the Horizontal Guidelines have a direct bearing on precisely those incentives, there is a need for a clear, consistent, and economically rational framework to be embodied in those regulations, allowing companies to assess with a reasonable degree of certainty the risks involved. More fundamentally, unjustified restraints on desirable innovative activity are potentially the most damaging Type 1 errors as innovation is a key driver of consumer welfare.

The existing regime under European antitrust law for research and development agreements, as well as production agreements, has been in force since 2000 and has functioned relatively well-despite a number of notoriously technical difficulties and uncertainties involved in applying the block exemption regulations. For instance, over the years practitioners dealing with joint research and development projects have struggled with the notions of “specialisation in research and development” and “specialisation in exploitation” within the meaning of Article 1 Regulation 2659/2000 on Research and Development (“R&D”) agreements. The moderate satisfaction among practitioners and regulators with the current block exemptions and the current Horizontal Guidelines explains why the EC Commission believes that the current legislative framework does not require a radical overhaul. Instead, it has stated that it primarily seeks to update and clarify the existing rules.

However, as set out in the various contributions included in this special CPI Antitrust Chronicle issue, the proposed revisions do, in fact, raise a significant number of technical and more fundamental issues. This applies both to the proposed modifications of the two block exemption regulations, as well as-in particular-to the newly introduced chapter of the draft Horizontal Guidelines on the assessment of information exchange between companies and the largely revised section on standardization agreements.

The current EC competition law regime under EC competition law for horizontal cooperation consists of two block exemption regulations: Regulation 2659/2000 covers R&D agreements, while Regulation 2658/2000 applies to specialization and joint production agreements. The accompanying Horizontal Guidelines provide a framework for the assessment of specific types of horizontal agreements, such as joint commercialization, purchasing, standardization, and other types of agreements that are either not covered or not automatically exempted under the block two exemptions for horizontal agreements.