If your business cooperates with competitors in any way, the new European Union ("EU") guidelines on horizontal cooperation agreements that the European Commission ("EC") has recently published is important reading.

On June 1, 2023, the EC issued a revised set of rules as a replacement for the horizontal guidelines and regulations that were published in 2010. The updated guidelines consist of:

• Two new horizontal block exemption regulations ("HBERs"), on the application of Article 101 (3) of the Treaty on the Functioning of the European Union ("TFEU") to certain categories of research and development agreements ("R&D Regulation") and on the application of Article 101 (3) TFEU to certain categories of specialization agreements ("Specialization Regulation"). The HBERs exempt R&D and specialization agreements that fulfil certain conditions from the application of Article 101 (1) TFEU because they are presumed to fulfil the conditions of the Article 101 (3) exception, thereby creating a safe harbor for those categories of agreements; and
• Revised guidelines on the applicability of Article 101 TFEU to horizontal cooperation agreements ("Horizontal Guidelines"). The Horizontal Guidelines specifically provide guidance on how to interpret and apply the HBERs, and more broadly on how to assess various common types of horizontal cooperation agreements under Article 101 (1) and (3) TFEU. This includes R&D and specialization agreements that do not meet the conditions of the HBERs, as well as purchasing, commercialization, standardization and standard term agreements, and exchanges of information.

The new rules aim to simplify and clarify the rules on horizontal cooperation, providing more legal certainty and flexibility for companies that engage in it. They also bring current market developments and decisional practice in line with the policy priorities of the EC, especially in relation to innovation, digitalization and sustainability. The EC took stakeholders' views into account through two public consultations in June 2021 (see Dentons' contribution to the consultation) and March 2022.

12 years later - What's new in the HBERs and Horizontal Guidelines? 

1. Sustainability agreements: A completely new chapter 9 in the Horizontal Guidelines

This chapter introduces perhaps the most significant novelty in the Horizontal Guidelines. In an acknowledgement of the overarching importance of the EU Green Deal, the EC's focus is to show that competition rules do not stand in the way of agreements among competitors which serve environmental, social or other sustainability objectives. 

The chapter includes a broad definition of sustainability objectives based on the UN Sustainable Development Goals. It provides a non-exhaustive list of agreements that are unlikely to raise competition concerns, such as agreements aiming to comply with international treaties, agreements or conventions, agreements relating to internal corporate conduct, agreements to set up a database containing general information about suppliers that have (un)sustainable value chains or production processes. However, where sustainability agreements may affect competition negatively, they should be assessed under Article 101 (1) TFEU - where they could instead benefit from the exception provided by Article 101 (3) TFEU. 

Further, a "soft safe harbor" has been provided for sustainability standardization agreements (a sub-category of sustainability agreements) that meet six cumulative conditions, i.e. 

1. transparent procedure, 
2. no obligation to comply with the standards, 
3. binding requirements on the participating undertakings, which must remain free to apply higher standard, 
4. no exchange of commercially sensitive information, 
5. effective and non-discriminatory access to the outcome of the standard setting process, 
6. no price increase or quality reduction, or combined market share must not exceed 20% on any relevant affected market. 

Moreover, the chapter introduces guidance on how to assess whether the requirements for a sustainability agreement under Article 101 (3) TFEU are met through four cumulative conditions: 

1. efficiency gains need to be substantiated and cannot be assumed, 
2. restrictions in sustainability agreements must be indispensable to their viability,
3. pass-on to consumers of a fair share of the benefits must occur, and
4. no elimination of competition, i.e. a degree of residual competition on the relevant market must remain.

While these conditions are quite standard, the new Horizontal Guidelines provide information on how to assess relevant consumer benefits from an individual use value and non-use value perspective, as well as a collective perspective. Collective benefits occur irrespective of a consumer's individual appreciation of the product and accrue to a wider section of society than just consumers on the relevant market (e.g. environmental benefits from consumers buying clothing made of sustainable cotton that reduces the use of fertilizers and water).

In chapter 9, the EC also clarifies the interaction between sustainability agreements and other agreements dealt with in other chapters of the Horizontal Guidelines: Horizontal cooperation agreements that both fall under one of the types of agreements addressed in other chapters of the Horizontal Guidelines as well as having sustainability objectives should be assessed using both chapter 9 and the other relevant chapter.

Finally, the EC commits to provide additional guidance on individual sustainability agreements through the Notice on informal guidance relating to novel or unresolved questions concerning Articles 101 and 102 TFEU that arise in individual cases ("Notice on informal guidance"), published in October 2022. Provided that two conditions are met: (i) the issue in question is novel or unresolved, and (ii) the EC has a significant interest in providing guidance, companies may receive a written statement (guidance letter) outlining the EC's interpretation of Articles 101 or 102 TFEU as pertaining to their agreement. Companies might therefore find it easier to consult with the EC, increasing legal certainty of the application of Articles 101 and 102 TFEU to their envisaged sustainability agreements. 

2. Information exchange: a substantial revision of the dedicated chapter in the Horizontal Guidelines

The chapter on information exchange has been substantially revised to reflect developments in decisional practice and enforcement, as well as specific issues raised by digitalization and data processing which permeate the entire chapter. The greatest change is the provision of guidance on the exchange of digital content and data. The EC has clearly broadened the scope of the definition of "information" to include all types of data, as well as the characteristics of an exchange of commercially sensitive information, e.g. unilateral disclosure, such as the introduction of a pricing rule in a shared algorithmic tool, indirect information exchange, for example via an online platform or facilitated by a shared algorithm and also through mergers (this point could have been explored a bit more in the Horizontal Guidelines). The EC also provides additional guidance on how to assess whether information is commercially sensitive by elaborating on the concept of genuinely public information, aggregation of information and the age of information. 

It is worth noting that there is no safe harbor for the exchange of information. So, while helpful, the chapter only provides guidance on how to minimize the risk of competition law infringements. For instance, in addition to traditional public distancing (where a company receives commercially sensitive information from a competitor during a meeting and responds with a clear statement that it does not wish to receive such information), the EC suggests measures to reduce possible infringement such as setting up clean teams, using an independent third party such as independent trustee, or including data pools in data sharing arrangements. 

The new chapter also provides updated and additional examples for self-assessment (e.g. data sharing agreements to address shortages or to combat counterfeiting), as well as a general self-assessment step-by-step chart and an information exchange liability table. 

3. Revisions of the R&D and Specialization Regulations and the respective chapters in Horizontal Guidelines 

a) Changes to R&D Regulation and a revised chapter on R&D agreements of the Horizontal Guidelines 

In the initial draft of the R&D Regulation the EC introduced the concept of "an undertaking competing in innovation", which would have enjoyed an exemption under R&D Regulation, though only if there were, at the time the agreement would have been entered into, three or more competing R&D efforts. However, concerns raised during the consultation process, in which Dentons actively participated, led to the idea of linking the exemption to "at least three independent comparable innovation efforts" being dropped. While most critics had pointed to the impracticability of the test, our submission emphasized its fundamental economic flaw: this test would penalize exactly the collaborations the economy needs to have, i.e. those between innovative start-ups and large industrial players. 

Other than that, the EC extended its powers and the powers of National Competition Authorities ("NCAs") to withdraw the benefit of the exemption in individual cases, including where an R&D agreement would significantly restrict competition in innovation. 

The R&D Regulation gives companies even more flexibility in applying the exemption. It had been previously established that where results are jointly exploited, the exemption continues to apply for seven years from the date on which the products or technologies are first put on the market. Until now, however, the EC had considered that for the exemption to apply, the parties' market shares should not exceed the 25% threshold. In the R&D Regulation, if the parties' market shares increase above the threshold of 25%, the exemption will continue to apply for a period of two consecutive calendar years. In addition, the EC has introduced a further element of flexibility in that market shares will be calculated on the basis of an average of the three preceding calendar years if the preceding year is not representative. 

b) Changes to Specialization Regulation and a revised chapter on production agreements, in particular specialization agreements; a new section on mobile telecommunications infrastructure sharing agreements

Chapter 3 on production agreements of the Guidelines covers all forms of horizontal joint production agreements and horizontal subcontracting agreements (i.e. unilateral and reciprocal specialization agreements as well as other types of subcontracting agreements). It also includes a new section providing guidance on the application of the Specialization Regulation to joint production agreements that fulfil the criteria set out in the Specialization Regulation. 

The scope of the new Specialization Regulation has been broadened through an updated definition of "unilateral specialization agreements", which now includes agreements involving "more than two parties". This revision is likely to be important for small and medium-sized enterprises ("SMEs"), as their size may necessitate cooperation with more than one party. 

In addition, the new Specialization Regulation streamlines the grace period that applies when the parties' market share increases above the 20% threshold, as the exemption should apply for a period of two consecutive calendar years. Similarly, to the R&D Regulation, market shares are calculated on the basis of an average of the three preceding calendar years if the previous calendar year is not representative. Again, similar to the R&D BER, the Specialization Regulation gives EC and NCAs the power to withdraw the benefit of the exemption in individual problematic cases, e.g. where the relevant market is highly concentrated, and competition is already weak. 

The chapter also includes a new section setting out general principles for self-assessment with regard to any agreements on the sharing of mobile telecommunications infrastructure (referred to as a "network sharing agreement", "NSA"). In principle, the EC considers that NSAs do not restrict competition by object, unless they "serve as a tool to engage in a cartel". They can however give rise to restrictive effects on competition, for example by limiting competition in the supply of mobile telecommunications services. Therefore, they always require an individual assessment under Article 101 TFEU. The Guidelines set out factors that may be relevant to the assessment, such as the nature and depth of the sharing, the scope of the shared services, the geographic scope and the market coverage of the NSA, etc. The Guidelines also set out a list of minimum conditions that companies must comply with to reduce the risk of competition law infringements. These conditions include the requirement that operators each control and manage their own core network, maintain their independent retail and wholesale activities and refrain from exchanging unnecessary commercially sensitive information.

4. Other main changes in the Horizontal Guidelines

a) A revised chapter on standardization agreements and a (not so) new chapter on standard terms 

Chapter 7 provides guidance on how to assess the compatibility of standardization agreements with Article 101 TFEU. For example, the development of a standard may not restrict competition if there is competition between several standards or if the restrictions are both limited in time and aim at speeding up the standard-setting process. The new chapter also deals with the specific issues of intellectual property rights, the licensing of standard-essential patents and the involvement of public authorities in standard-setting. A standardization agreement can also be considered as a sustainability standard-setting agreement, which is addressed in Chapter 9. 

Previously categorized under standardization agreements, all guidance related to standard terms are now classified under a separate Chapter 8. 

b) A revised chapter on purchasing agreements 

Chapter 4 clarifies the scope of joint purchasing by reminding that joint purchasing agreements cover all sectors where buyers group together to purchase goods or services jointly. It also includes the joint negotiation of purchasing conditions. Consequently, the chapter explains the possible effects of joint purchasing on upstream markets, specifically that lower purchase prices for suppliers are less likely to be passed on to consumers and the downstream market, and covers the specific issues related to the use of threats or coercion by joint purchasers. The revised Guidelines provide a non-exhaustive list of factors that may help to assess whether a joint purchasing agreement amounts to a buyer cartel, which gives companies practical guidance for implementation of joint purchasing arrangements. 

The EC also adds wage fixing agreements to the non-exhaustive list of agreements restricting competition by object. This is in line with Margrethe Vestager, Commissioner for Competition's statement of October 2021 that the EC intends to pay more attention to agreements restricting competition on the labor market. Thus far, the EC has only dealt with such agreements as part of complex cartels or within the assessment of ancillary restraints in merger control procedures, i.e. restraints that are directly related to the transaction and objectively necessary for its implementation. No-poaching or wage fixing agreements limited to a two-year duration usually meet the ancillary restraints test and the EC generally finds them compatible with the internal market. However, this new trend is also apparent on national level, as some NCAs have already developed guidance on this type of restriction and the number of cases relating to labor market restriction is rising. 

c) A revised chapter on commercialization agreements…

The chapter on commercialization agreements covers a wide range of horizontal cooperation agreements: from joint selling agreements, which can lead to joint determination of all commercial aspects related to the sale of the product, to limited agreements, which only cover a specific commercialization function (e.g. distribution, after-sales service, or advertising). With regard to distribution agreements, the EC clarifies in which situations these agreements are to be examined under which regulations: the Horizontal Guidelines alone, or together with the principles set out in the Guidelines on Vertical Restraints, or only under the Commission Regulation on the application of Article 101 (3) TFEU to categories of vertical agreements and concerted practices (the Vertical Block Exemption Regulation). The chapter provides additional guidance on the main risks of output limitation as well as more examples of the types of commercialization agreements that may or may not restrict competition, including the use of digital tools, such as joint internet sales or media distribution platforms, etc. 

d) ….with a brand-new section on bidding consortia

A bidding consortium occurs where bidders cooperate in a public or private procurement tender. This type of cooperation can easily slip into the establishment of bid rigging cartel, one of the most serious competition infringements. The EC has now finally provided useful guidance on this matter which reflects EU decisional practice. 

According to the Horizontal Guidelines, cooperation is not bid rigging if joining the capacities of the parties enables them to participate in a tender for a contract which they could not carry out individually. The possibility that they could do so must be a real one; a theoretical possibility is not enough. However, even where this real possibility exists, the parties can benefit from the exception under Article 101 (3) TFEU as discussed above.

Therefore, a consortium agreement resulting in, for example, a lower price, higher quality or faster completion of the contract, may still restrict competition and would not escape Article 101 (1) TFEU, prohibiting anticompetitive agreements. Thus, to be legal, the cooperation must be further assessed in the light of Article 101 (3) TFEU, i.e. (i) it must be indispensable, (ii) its benefits have to be passed-on the consumers, (iii) and the competition cannot be eliminated since other relevant competitors participate in the tender. In essence, a permissible cooperation between the parties that are capable of carrying out the contract individually should primarily aim to produce a more competitive offer in terms of price and quality than the offers they would have been able to submit alone. 

When will the new rules apply?

The two new HBERs on R&D and specialization agreements will enter into force on 1 July 2023 and will remain in force for twelve years. The Horizontal Guidelines are also expected to enter into force in July and in any event once they have been published in the Official Journal of the EU. 

The EC has granted a transitional period of two years for agreements that benefit from the HBERs and that are already in force on 30 June 2023. This transitional period allows the companies to adapt their agreements to the new rules, or to request an individual assessment of their agreements under Article 101 TFEU. 

What does this mean for businesses?

After twelve years, the revision of the HBERs and the Horizontal Guidelines is more than welcome. The EC has been able to provide more legal certainty and flexibility to companies to ensure that their cooperation agreements are in line with EU antitrust rules. The revisions are more user-friendly, with the inclusion of practical examples in each chapter and self-assessment charts, which will undoubtedly help companies to assess potential antitrust risks. 

Nevertheless, companies will need to review and update their existing and planned horizontal cooperation agreements in light of the new rules and the revised assessment criteria to ensure that their agreements either do not restrict competition or that they fulfil the conditions for an exemption under the HBERs or Article 101 (3) TFEU. In addition, for existing cooperation agreements, companies should monitor their market shares as well as the market conditions and regularly review agreements to ensure that they do not develop into problematic restrictions which would exclude them from the block or individual exemption from the ban on cartels.

If you have any questions on this matter or need assistance in implementing the various obligations resulting from the new HBERs and Horizontal Guidelines, please reach out to a member of the Dentons team.