Agreements between actual or potential competitors have the potential to raise significant risks under EU and UK competition law, particularly if they involve price-fixing, output limitation or market allocation.
However, if they fulfil certain criteria, such agreements may benefit from a safe harbour provided by the European Commission (“Commission”) Research and Development Block Exemption Regulation (the “RDBER”), the Commission Specialisation Block Exemption Regulation (the “SBER”) and the accompanying horizontal guidelines.
RESEARCH AND DEVELOPMENT BLOCK EXEMPTION REGULATION
A research and development (“R&D”) agreement is an agreement pursuant to which two or more parties agree to collaborate in relation to research and development of products, technologies or processes. The agreement may involve joint exploitation of the results of the R&D and it may also cover paid-for R&D. The RDBER provides a safe harbour for R&D agreements that fulfil certain criteria.
Market share threshold and duration of exemption
In the case of agreements between competitors, the RDBER will only apply if at the time of entering into the agreement, the combined market share of the parties is 25% or less.
In the case of agreements between non-competitors, the RDBER will apply for the duration of the R&D phase. Where the results are jointly exploited, the exemption will continue to apply for seven years from the time the contract products are first put on the market in the EU. If the parties continue to exploit the results of the R&D jointly after the 7 year period has elapsed, the block exemption will continue to apply if the combined market share of the parties does not exceed 25%.
The following conditions must be satisfied for the R&D agreement to benefit from the safe harbour provided by the RDBER:
- All parties must have full access to the results of the joint or paid-for R&D, including any resulting IP and know-how, and each party must be given access to the pre-existing know-how of other parties if this know-how is indispensable for the purposes of exploiting the results of the R&D. The parties may compensate each other for such access but the compensation must not be so high as to impede access.
- Any joint exploitation must relate to results which are protected by intellectual property rights, or comprise know-how, which are indispensable for the manufacture of the contract products or the application of the contract technologies.
- Undertakings charged with manufacture by way of specialisation in production are required to fulfil orders for supplies from all the parties, except where the R&D agreement also provides for distribution or where the parties have agreed that only the party manufacturing the contract products may distribute them.
R&D agreements containing any of the following ‘hardcore’ restrictions will not benefit from the safe harbour provided for by the RDBER:
- restricting the parties from carrying out R&D independently or with third parties in an unrelated field (or, after the completion of the R&D in question, in the same or a related field);
- limiting output or sales (with certain exceptions);
- fixing prices when selling the contract product or licensing the contract technologies to third parties;
- restricting the territory in which, or of the customers to whom, the parties may passively sell the contract products or license the contract technologies;
- imposing a requirement not to make any, or to limit, active sales of the contract products or contract technologies in territories or to customers which have not been exclusively allocated to one of the parties by way of specialisation in the context of exploitation;
- imposing the requirement to refuse to meet demand from customers in the parties’ respective territories, or from customers otherwise allocated between the parties by way of specialisation in the context of exploitation, who would market the contract products in other territories within the internal market;
imposing the requirement to make it difficult for users or resellers to obtain the contract products from other resellers within the internal market.
The following restrictions in a R&D agreement will not benefit from the safe harbour provided for by the RDBER, although the remainder of the agreement will still fall within the safe harbour (assuming it fulfils all the relevant criteria):
- Prohibiting challenges to the validity of intellectual property rights which the parties hold in the EU and which are relevant to the R&D or, after the expiry of the R&D agreement, the validity of IP rights which the parties hold in the internal market and which protect the results of the research and development (but provisions which allow a party to terminate the R&D agreement if its intellectual property rights are challenged by the other are permitted).
- The requirement not to grant licences to third parties to manufacture the contract products or to apply to contract technologies unless the agreement provides for the exploitation of the results of the joint R&D or paid-for R&D by at least one of the parties and such exploitation takes place in the internal market vis-a-vis third parties.
SPECIALISATION BLOCK EXEMPTION REGULATION
A specialisation agreement is an agreement where one or more parties agree not to manufacture a particular product and instead only obtain it from the other party, or two parties agree to have a product manufactured only jointly. This type of arrangement may also involve exclusive supply or purchase agreements.
The SBER provides a safe harbour for the following types of specialisation agreement:
- Unilateral specialisation agreements between two parties that are active on the same product market, by virtue of which one party agrees to fully or partly cease production of certain products or to refrain from producing those products and to purchase them from the other party, who agrees to produce and supply those products.
- Reciprocal specialisation agreements between two or more parties who are active on the same product market, by virtue of which two or more parties on a reciprocal basis agree to fully or partly cease or refrain from producing certain but different products and to purchase these products from the other parties, who agree to produce and supply them.
- Joint production agreements, by virtue of which two or more parties agree to produce certain products jointly.
The SBER provides that the SBER will not apply to agreements containing any of the following hardcore restrictions:
- fixing of prices when selling the products to third parties (although prices charged to immediate customers in the context of joint distribution can be fixed);
- limitation of output or sales, however the following are permitted:
- setting an agreed amount of products in the context of unilateral or reciprocal specialisation agreements.
- setting the capacity and production volume of a production joint venture in the context of a joint production agreement.
- setting sales targets in the context of joint distribution.
- allocation of markets or customers.
Market share threshold and duration of exemption
The SBER will only apply if the parties’ combined market share is 20% or less on any relevant market. The relevant market includes the relevant product and geographic market to which the specialisation products belong and, where such products are intermediary products which one or more parties use captively for the production of downstream products, the relevant product and geographic market to which the downstream products belong.
If the market share fluctuates, there is a grace period during which the parties will still benefit from the exemption:
- If the market share rises above 20% but does not exceed 25%, the SBER will continue to apply for two consecutive calendar years following the year in which the 20% threshold was first exceeded.
- If the market share rises above 25%, the SBER will continue to apply for one calendar year following the year in which the 25% threshold was first exceeded.
These periods cannot be combined and so the overall maximum is two years.
OUTSIDE THE SAFE HARBOUR
If a horizontal agreement does not fulfil the criteria of a block exemption regulation and therefore does not benefit from a safe harbour, this does not mean there is a presumption that the agreement is unlawful. The agreement will require individual analysis with regard to the guidance provided in the Commission’s horizontal guidelines. The analysis will need to consider the rationale and the effect of the agreement in practice.
If you have any questions in relation to the above, or related competition law issues, please do not hesitate to contact Gustaf Duhs, Beverley Whittaker or Beverley Flynn on 01483 302264.
This information is necessarily brief and is not intended to be an exhaustive statement of the law. It is essential that professional advice is sought before any decision is taken.
© Stevens & Bolton LLP 2016