Member Article

Last week, the European Commission (“EC”) adopted revised rules for evaluating cooperation agreements between horizontal competitors at the same level in the supply/distribution chain. The Guidelines on the Applicability of Article 101 of the Treaty on the Functioning of the European Union to Horizontal Co-Operation Agreements (the “Guidelines”) provide a framework for analyzing common forms of cooperation agreements between competitors. The revised Guidelines contain (i) a new chapter on information exchange and (ii) a revised chapter on standard-setting. The EC also revised two Block Exemption Regulations (“BERs”) governing R&D and specialization/joint production agreements.

Horizontal Cooperation Guidelines

The Guidelines replace existing guidelines enacted in 2001. The new Guidelines become effective once they are published in the Official Journal of the EU, which should occur shortly.

New Chapter on Information Exchange

The Guidelines contain a new chapter that provides guidance on the line between permissible and impermissible information exchanges under EU competition law. Information exchange between competitors can enhance competition by enabling companies to gather market data that may allow them to become more efficient and to better serve their customers. Information exchange, however, can also harm competition if it enables competitors to use sensitive information to coordinate pricing, capacity and output, and other strategic decisions.

• The exchange of individualized information regarding intended future prices or quantities will be deemed to be intended to restrict competition. This type of exchange is considered the most likely type of exchange to be taking place for anticompetitive reasons and to harm consumers.
• The chapter provides guidance on how to assess restrictive effects and efficiencies for those information exchanges that are not intended to restrict competition, including practical examples for assessing these types of information exchanges.

Revised Chapter on Standard-Setting

The Guidelines promote an open and transparent standard-setting system that increases the transparency of licensing costs for relevant intellectual property costs.

• The revised chapter gives guidance on ensuring that the standard-setting process is competitive and that, once a standard is adopted, access is provided under “fair, reasonable and non-discriminatory” (“FRAND”) terms to interested users.
• The chapter sets out safe harbor criteria under which the Commission will not challenge a standard-setting agreement. Where participation in the standard-setting process is unrestricted and the standard adoption procedure is transparent, standardization agreements that contain no obligation to comply with the standard and that provide FRAND access to the standard will normally not be considered to restrict competition.
• The chapter contains guidance on assessing the competitive nature of agreements that do not fall within the safe harbor criteria.
• The chapter clarifies that members of a standard-setting organization may unilaterally disclose, prior to setting a standard, the maximum rate that they would charge for their intellectual property rights if those rights are included in the standard. These types of ex ante disclosures will typically not violate EU competition rules.

Block Exemption Regulations

The two revised BERs automatically exempt certain types of (i) horizontal R&D agreements and (ii) horizontal specialization and joint production agreements. The BERs become effective January 1, 2011, subject to a two-year transitional period, during which the old BERs will remain in effect for agreements that do not fall under the new BERs.

• The R&D BER has been expanded to cover “paid-for research” (in which one party merely finances the research and development activities of another party).
• The specialization/joint production BER has been clarified to provide that the exemption also applies to agreements under which one party only partly ceases production.
• The revised BERs use market share screens for qualifying agreements (no more than 25 percent for R&D agreements and no more than 20 percent for specialization/production agreements).
• Agreements that do not exceed the market share thresholds and that comply with other conditions set out in the BERs will be presumed not to have anticompetitive effects. Neither exemption applies to hardcore restrictions on competition such as price-fixing.

The complete text of the Guidelines and the Block Exemption Regulations is available for review here. For additional information, please feel free to contact one of the attorneys listed below.