EU seeks to help competitors collaborate within competition law limits

The wide-ranging proposals, which are open to consultation until 26 April 2022, include planned changes to rules relevant to collaboration between competitors in the field of medical research, among other R&D initiatives. They also include new guidance on sustainability agreements and on how businesses might determine whether the terms of licenses for patents covering standardised technology – common in relation to wireless communications, among other technologies – are fair, reasonable and non-discriminatory (FRAND).

The EU’s consultations relate to three distinct developments. Two concern the planned revision of ‘block exemptions’ covering research and development (R&D) agreements and so-called specialisation agreements, respectively. Specialisation agreements are agreements specifying how two or more product manufacturers will focus their skills, assets or activities on distinct but complementary areas of specialism. Block exemptions serve as carve outs from EU competition law restrictions on anti-competitive agreements. In essence, agreements that conform to the block exemptions are considered to comply with competition law.

A whole suite of block exemptions has been developed by EU law makers of which the existing ones in relation to R&D agreements and specialisation agreements are just two. However, those two block exemptions are due to expire at the end of 2022 – as will sister block exemptions that were retained separately in UK law at the point of Brexit. The UK’s Competition and Markets Authority concluded its own public consultation on replacing the two block exemptions earlier this year. The CMA’s consultation outcome is expected imminently.

The third development concerns the publication of draft new guidelines on ‘horizontal cooperation agreements’.

While the guidelines will help businesses interpret the two block exemptions under consultation, they are much broader in scope and cover a variety of different forms of agreement under which rival businesses might collaborate, including joint purchasing, commercialisation, standardisation and standard terms agreements, and more generally regarding exchanges of information. Revisions include new guidance on data sharing, mobile infrastructure sharing agreements, and bidding consortia. The draft revised guidelines also include a new chapter on sustainability agreements between competitors that pursue sustainability objectives and addresses how they should be assessed for compatibility with EU competition law.

The European Commission has been evaluating the existing guidelines since September 2019 and has identified a need to update them to ensure they better reflect developments such as the greater use of digital technologies as well as the climate and sustainability agenda.

Competition law expert Robert Vidal of Pinsent Masons said: “This marks the first time the horizonal cooperation guidelines have been reviewed in a decade and highlights the European Commission’s desire to address the shortcomings identified during its long-running review. The revised documents will be an important tool to help businesses assess risk and ensure compliance across a range of types of cooperation initiatives.”

“Businesses should consider whether proposed changes to the two block exemptions may impact their existing and future R&D and/or specialisation agreements. More broadly, businesses will need to consider how the revised guidelines – once finalised – are likely to impact their current and future cooperation agreements with competitors. Given parallel changes to the UK regime, businesses must also be mindful of UK developments and consider how any UK-EU divergence could affect their ongoing competition law compliance,” Vidal said.

“The new rules and guidance are not perfect but do represent progress as the European Commission does deliver greater clarity on some critical issues such as when collaboration on R&D will be compliant with competition law. This will be particularly useful in the life sciences sector given the increased appetite for collaboration in pursuit of innovative new treatments. The additional guidance on how to undertake an effects analysis in a standardisation context and the suggestions on how to determine what is FRAND will also be useful to both standard essential patent holders and licensees when it comes to negotiating   an appropriate level of royalties,” he said.

The draft new block exemption is not confined to R&D agreements between competitors concerning new products. It can also apply to R&D agreements for technologies and processes, as well as innovation directed towards a specific objective but without a specific product or technology in mind.

Strict conditions are detailed in the draft new block exemption and the accompanying guidelines that dictate when R&D agreements will benefit from the exemption. While there is scope for joint collaboration on research initiatives as well as collaboration between researchers and financers under the block exemption, safeguards have been built in to prevent R&D agreements resulting in the foreclosure of markets, unfair price fixing and severe restrictions being imposed on unrelated R&D activities, among other things.

The draft new horizontal cooperation guidelines contain a chapter, for the first time, addressing agreements between competitors that pursue one or more sustainability objectives.

Frankfurt-based EU competition law expert Dr. Laura Stammwitz of Pinsent Masons said: “The fact that the assessment of sustainability initiatives – with a focus on agreements setting sustainability standards – is now included in the guidelines, is a significant step and reflects the Commission’s willingness to facilitate the EU’s Green Deal.”

“In the past, businesses were concerned that competition law hindered their ability to cooperate on genuine sustainability initiatives. There are now detailed examples and guidance to help to provide more legal certainty. However, companies must ensure their collaborative efforts do not amount to ‘greenwashing’, which in this context would be using the pretext of joint sustainability-focused activities to disguise illegal cartel conduct that breaches competition law,” she said.

Another specific topic that the draft new guidelines addresses is standardisation agreements.

Businesses often come together under the umbrella of a standardisation body to pool their skills and resources into developing new technical standards. One area where this form of collaboration between competitors has been prominent has been in relation to communications technology, such as those that comprise the ‘2G’, ‘3G’, ‘4G’ and ‘5G’ standards.

It is common for businesses that develop technology essential to the implementation of a standard to obtain patent rights for that technology. The bodies through which businesses collaborate to develop such standards – such as ETSI in the context of telecoms standards – require holders of these ‘standard-essential’ patents to make those patents available for others to use by way of a licence on fair, reasonable and non-discriminatory (FRAND) terms.

The draft new horizontal cooperation guidelines not only address the participation of businesses under standardisation agreements, they also provide further clarity on how businesses might determine whether licensing terms offered for standard-essential patents are in fact FRAND.

The question of whether standard-essential patent licenses comply with the obligations of FRAND has been heavily litigated across courts in Europe. The European Commission is currently considering a series of potential reforms aimed at reducing litigation in this area. Some of the proposals under consideration are reflected in the draft new horizontal cooperation guidelines. They include a suggestion that reference could be made to relevant licensing terms that have been disclosed to determine whether proposed licensing terms for standard-essential patents meet the obligations of FRAND. The draft guidelines also suggest reverting to an independent expert assessment on whether the patent at issue is in fact ‘essential’ to the implementation of the standard in question.

Patent law expert Mark Marfé of Pinsent Masons said: “Proposals for further clarity on how businesses may determine whether licensing terms are FRAND – including ex ante disclosure of royalty rates – are welcome. This will benefit the increasing number of SMEs and other new players in the ‘internet of things’ space that lack the resources to conduct detailed technical analyses of the patent landscape or engage in protracted licensing negotiations with rights holders. Such businesses will be required to license standardised technologies such as 5G or HEVC and they therefore need to understand how such licences will impact their bottom line in what is an increasingly complex IP ecosystem."