- Article 101(3) TFEU application to individual contracts — Horizontal co-operation agreements — Basic principles of competition law
7.01 Definition Horizontal cooperation agreements are agreements that are entered into by undertakings operating at the same stage of the value chain in order to achieve a variety of efficiencies.1 While these agreements are generally pro-competitive,2 they may, however, raise anticompetitive concerns
for example … if the parties agree to fix prices or output or to share markets, or if the cooperation enables the parties to maintain, gain or increase market power and thereby, is likely to give rise to negative market effects with respect to prices, output, product quality, product variety or innovation.3
7.02 Different forms There are many different forms of horizontal cooperation agreements. Participating undertakings may decide to collaborate informally, for instance by attending meetings or exchanging information. Or the parties to such agreements may decide to (p. 424) cooperate in a more structured way, by sharing personnel and equipment within a new entity that is specifically created for this purpose (a ‘joint venture’ or JV).4 The JV between Fujitsu and Siemens AG, whereby the two companies produce computers, was a good example of such structural forms of cooperation.5
7.03 Effects on competition These agreements, which often create efficiencies in the form of economies of scale, range, or scope, or dynamic efficiencies such as launching new products on the market, are clearly distinct from the hardcore restrictions of competition that have been discussed above. This is why, under EU law, horizontal cooperation agreements are generally not considered to be agreements that have as their object the restriction of competition, although there may be exceptions.
7.04 However, as these cooperation agreements may adversely affect the parameters of competition, competition law has taken an interest in them. The restrictions of competition triggered by such agreements can be classified in two categories. First, in the market(s) affected by the cooperation, these agreements may increase the market power held by parties in the aggregate.6 Second, in the markets in which the parties remain separately present, the cooperation (upstream or downstream) may lead to anticompetitive effects of coordination (‘ spillover effects’).7 Automobile manufacturers collaborating, for instance, for the design and development of a brand new type of chassis could indeed be led to go beyond the primary scope of their cooperation to exchange information on prices, which would be useful for coordinating their price policies on the automobile sales market.
7.05 Legal implication The above considerations explain why cooperation agreements are typically caught by Article 101(1) TFEU. Nevertheless, horizontal cooperation agreements that trigger anticompetitive effects, but generate efficiencies as well, can be exempted under Article 101(3) TFEU. As we will see, the analytical principles guiding this assessment are (p. 425) provided in the Commission guidelines on the applicability of Article 101 to horizontal cooperation agreements.8
A. Origin of Applicable Texts
7.06 Background Sagging under the weight of notifications of horizontal cooperation agreements, the Commission was led very early on to adopt secondary law instruments (referred to as ‘block exemption Regulations’) clarifying the conditions under which such agreements could be exempted under Article 101(3). The regime of horizontal cooperation agreements was for a long time governed by two block exemption Regulations—one applying to Research and Development (R&D) agreements9 and the other to specialization agreements10—which established a rather rigid prescriptive legal framework. The Regulations in question distinguished between three types of clauses that could be found in such agreements: white clauses, which were deemed not to pose any problem from the point of view of competition law; black clauses, which were always prohibited; and grey clauses for which an in-depth analysis was required.
7.07 Criticism The analytical approach provided for in these Regulations was criticized by economists for taking no account of the market power of the parties to the agreements.11 As a result, a cooperation agreement covering 15 per cent of the affected markets was subject to the same legal obligations as a cooperation agreement covering 80 per cent of the market. Prompted by the desire to modernize the competition rules and in the wake of the reform of the rules relating to vertical restraints,12 the Commission initiated a reform of its assessment of horizontal agreements that incorporated teachings from economic theory.
7.08 Legal framework These criticisms led the Commission to adopt a new legal framework organized around two types of legal instruments. First, general guidelines specifying the extent to which horizontal cooperation agreements fall (or do not fall) under the prohibition of Article 101(1) TFEU and benefit (or do not benefit) from application of Article 101(3) (p. 426) TFEU.13 Next, two Commission block exemption Regulations specifically defining the conditions for exempting R&D agreements14 and specialization agreements.15
7.09 In December 2010 and January 2011, the Commission adopted instruments revising the EU competition rules on horizontal cooperation agreements. Without amending the structure of the legal framework (one set of Guidelines, two Regulations), it published a new set of Horizontal Guidelines16 and adopted two block exemption Regulations for R&D17 and specialization agreements.18 According to the Commission, the new texts ‘update and further clarify the application of competition rules in this area so that companies can better assess whether their co-operation agreements are in line with those rules.’19
B. Scope of Application of the EU Framework
7.10 Horizontal agreement concept The Commission regulatory framework covers only horizontal agreements, namely agreements concluded between existing or potential competitors, and distribution agreements between competitors.
7.11 Six major categories of agreements The Guidelines focus in particular on six types of horizontal agreements: R&D, production, purchase, commercialization, standardization, and information exchange.20 The exemption Regulations and the (more general) Guidelines apply concurrently to R&D agreements and specialization agreements.
7.12 ‘Complex’ agreements The Guidelines provide that with regard to agreements that combine several forms of cooperation (eg R&D and joint production), the ‘centre of gravity’ of the cooperation must be established in order to determine the principles that apply.21 To this effect, two elements are taken into account, the starting point of the cooperation (joint R&D phase followed by joint production phase) and the degree of integration of the different functions being combined.22 Depending on the particular case, the principles relating to one or other of the six types of agreements governed in the Guidelines apply.
(p. 427) 7.13 Sector-specific law Certain sectors subject to specific exemption Regulations (eg agriculture and the insurance sector) are also excluded from the scope of application of the exemption Regulations and Guidelines.23 The same is true of certain types of agreements, such as technology transfer agreements.23a
7.14 Interface with Regulation 139/2004 When the cooperation agreement takes the form of a full-function joint venture, the application of the exemption Regulations and of the Guidelines must yield to Regulation 139/2004.24 A full-function joint venture is the most comprehensive form of coordination as it fulfils all the functions which are normally exercised by the other undertakings present on this market (the joint venture will perform all the functions that are expected from an undertaking active in the sector and will not limit itself, eg, to R&D). It is also the most structural (or concentrated) form of cooperation, since the parties put into it all the resources needed (sufficient capital, labour, relevant IP rights, etc) to enable it to act independently. In practice, the parties only maintain supervisory power.
7.15 Full-function joint ventures are caught by Regulation 139/2004 on control of concentrations between undertakings, which is examined in Chapter 9.25 In the rest of this chapter, we will only deal with joint ventures that, due to the less comprehensive and structural cooperation they entail, do not fulfil the criteria for full-function joint ventures.26
7.16 To assess whether a horizontal cooperation agreement is compatible with Article 101 TFEU, the guidelines require that the following steps be undertaken.27 First, it must be determined whether the agreement in question restricts competition within the meaning of Article 101(1) (Section 1). Then, it must be determined whether the agreement in question can be exempted under Article 101(3) (Section 2).
(p. 428) (1) Is the agreement in question restrictive of competition within the meaning of Article 101(1)?
7.18 As far as restrictions by object are concerned, there is no need to examine the effects of such restrictions as by their very nature they are likely to restrict competition.28 The Guidelines provide that ‘in order to assess whether an agreement has an anti-competitive object, regard must be had to the content of the agreement, the objectives it seeks to attain, and the economic and legal context of which it forms part.’29
7.19 If an agreement does not restrict competition by object, it must be examined to assess whether it has appreciable actual or potential effects on competition in that it has or is likely to have an impact on competition parameters, such as price, output, product quality, product variety, or innovation.30 Restrictive effects on competition are likely to occur ‘where it can be expected with a reasonable degree of probability that, due to the agreement, the parties would be able to profitably raise prices or reduce output, product quality, product variety or innovation.’31 This depends on a variety of factors, including the ‘nature and content’ of the agreement, whether the parties ‘have or obtain some degree of market power’, and whether the agreement contributes ‘to the creation, maintenance or strengthening of that market power or allows the parties to exploit such market power.’32
7.20 In this respect, the Guidelines provide that when the parties have a low combined market share, the horizontal cooperation agreement is unlikely to produce restrictive effects within the meaning of Article 101(1), and that should be the end of the analysis.33 What is a low combined market share depends on the type of agreement in question and can be inferred from the ‘safe harbour’ thresholds set out in various chapters of the Guidelines.
7.21 Agreements that fall within the scope of Article 101(1) can be exempted under Article 101(3). As the burden of proof is placed on the undertaking(s) that invoke the benefit of this provision, such undertaking(s) must provide evidence allowing the Commission to assess whether the agreement in question is likely to bring pro-competitive efficiencies. Determining whether such efficiencies are present is, according to the Guidelines, ‘a question of identifying the complementary skills and assets that each of the parties brings to the agreement.’34
(a) Definition and scope
7.22 Information exchange scenarios The introduction of a chapter devoted to agreements entailing exchanges of information is an innovation of the new Guidelines.35 The relevant chapter begins by distinguishing different scenarios in which information can be exchanged.36 This can happen either directly between competitors or indirectly via a common agency (eg a trade organization) or a third party (eg market research organizations, suppliers, or retailers). Furthermore, the context of the exchange might differ. For instance, the main objective of the contact with the competitor might be the information exchange itself, or, by contrast, the exchange could be part of a broader horizontal agreement (eg an R&D agreement).
7.23 Possible pro-competitive effects Most information exchange agreements between undertakings are not likely to produce anticompetitive effects. After all, undertakings that merely exchange information are still free to act on the market as they see fit. They do not agree to coordinate their commercial conduct, as they would in the context of a cartel. Furthermore, according to the economic theory of perfect competition, perfect information is a prerequisite to achieve the optimal competitive outcome.37 From this point of view, as the Commission itself acknowledges,38 information exchange might even generate pro-competitive effects. However, as will be seen, exchange of information can also create competition concerns in that they may facilitate collusion and/or lead to foreclosure.
(b) Assessment under Article 101(1) TFEU
(i) Main competition concerns
7.25 Two types of competition concerns Exchanges of market information may lead to restrictions of competition, which can take two forms: (i) either a collusive outcome, which is encouraged or facilitated by an exchange of information, the effect of which is to make undertakings aware of competitors’ market strategies,39 (ii) or a foreclosure effect, which is (p. 430) created because competitors not participating in the exchange are placed in a disadvantageous position.40 Information exchange agreements are also likely to stifle competition in reducing the degree of uncertainty present in the market.41
7.26 Collusive outcome The exchange of information between competitors (especially strategic information, as described below) can artificially increase transparency in the market and, hence, facilitate coordination of companies’ behaviour.42 According to the Guidelines, this can happen through three channels: information exchanges can (i) provide the basis upon which the companies will then be able to reach a common understanding to coordinate their conduct in the market; or (ii) maintain the internal stability of a collusive outcome on the market (as parties can monitor internal deviations from an existing collusive outcome and then possibly take retaliation measures); or (iii) protect the external stability of a collusive outcome on the market (as, where a collusive outcome exists, they enable companies to monitor possible attempts of entry in the market and take targeted measures to prevent it).43
7.27 Anticompetitive foreclosure This can occur on the same market where the information exchanges take place or on a related market. In the former case, competitors who do not have access to the information exchanged can find themselves at a competitive disadvantage and be potentially foreclosed. Alternatively, information takes place on a given market, but also influences a related market (eg downstream). For instance, by gaining enough market power through exchanging information in an upstream market, vertically integrated companies may be able to raise the price of a key input for a downstream market, hence raising the costs of their downstream rivals.44
(ii) Restriction of competition by object
7.28 Principle In assessing whether an information exchange constitutes a restriction of competition by object, the Commission will pay ‘particular attention to the legal and economic context in which the information exchange takes place.’45 Exchanges of undertakings’ individualized intentions on future prices or quantities are likely to lead to a collusive outcome with resulting higher prices for consumers. Such exchanges are thus assessed as restrictions of competition by object in breach of Article 101(1) TFEU. The Guidelines note that such exchanges would normally be found to constitute cartels.46 They are very unlikely to fulfil the conditions of Article 101(3).47
(p. 431) 7.29 Individualized data regarding future conduct The exchange of information can be a restriction by object only when it refers to data that is individualized and relates to the undertaking’s future conduct. To qualify as individualized, information should allow participants to detect other operators’ deviations on the market (or from which individual operators are identifiable). Data should also refer to future conduct, especially future prices or quantities (including future sales, market shares, territories, and sales to particular groups of consumers). The notions of individualized (as opposed to aggregated) and future (as opposed to historic) data are also relevant for restrictions by effect and will be thoroughly discussed below.
7.30 Comment Overall, the final wording of the Guidelines is welcomed as much more reasonable and balanced than earlier drafts.48 The emphasis on future prices and the reference to the legal and economic context are regarded as positive elements; all the more so when compared to the aggressive approach followed in earlier drafts, whereby exchange of information even on ‘current conduct’ was also considered to restrict competition by object, as long as it ‘reveals intentions on future behaviour and … the combination of … data enables the direct deduction of intended future prices or quantities.’49
(iii) Restrictive effects on competition
[f]or an information exchange to have restrictive effects on competition within the meaning of Article 101(1), it must be likely to have an appreciable adverse impact on one (or several) of the parameters of competition such as price, output, product quality, product variety or innovation.50
The competitive assessment is based on two types of considerations: the economic conditions on the relevant markets and the nature of the information exchanged.
(iv) Restrictive effects on competition–market characteristics
7.32 Relevant market characteristics A collusive outcome is more likely to be achieved by companies exchanging information in a market which is sufficiently transparent, concentrated, non-complex, stable, and symmetric. When examining the characteristics of the market, emphasis should be placed not only on the initial situation in the market, but also on the changes that an exchange of information can bring to these characteristics.
7.33 Transparency According to the Guidelines, ‘transparency can facilitate collusion by enabling companies to reach a common understanding on the terms of coordination, or/and by increasing internal and external stability of collusion.’51 Both the pre-existing levels of transparency and the transparency achieved through the exchange of information must be taken into account. The number of market participants and the nature of transactions (eg public or confidential bilateral transactions) can be critical, when deciding on transparency.
(p. 432) 7.34 Concentration Tight oligopolies can facilitate collusion as ‘it is easier for fewer companies to reach a common understanding on the terms of coordination and to monitor deviations.’52 However, it is not uncommon for competition authorities to raise competition law concerns in relation to agreements that do not take place on tight oligopolies. For instance, in Wirtschaftsvereinigung Stahl, the Commission sanctioned an information exchange agreement between 20 undertakings.53 In practice, as long as the market structure is not atomistic (in the vast majority of cases) competition authorities consider that all information exchange agreements may pose competition problems.54
7.35 Complexity In its Guidelines, the Commission acknowledges that ‘it is difficult to achieve a collusive outcome in a complex market environment’.55 Put differently, it is simpler to collude on a price for a single, homogeneous product, than on numerous prices in a market comprised of differentiated products. However, it is not uncommon that undertakings circumvent these difficulties, for example by introducing simple pricing rules, such as pricing points.
7.36 Stability Exchange of information is less likely to have restrictive effects ‘[i]n an unstable environment, [whereby] it may be difficult for a company to know whether its lost sales are due to an overall low level of demand or due to a competitor offering particularly low prices, and therefore it is difficult to sustain a collusive outcome.’56 Volatile demand, substantial growth of existing competitors, frequent entry of new competitors, and constant innovation can all be used as indicators that the market situation is not sufficiently stable for a collusive outcome to be achieved.
7.37 Symmetry When undertakings are homogenous in terms of their costs, demand, market shares, product range, etc, they are in a better position to reach a common understanding on the terms of coordination as their incentives are more aligned.57 Hence, a collusive outcome through information exchange is more likely to occur in a symmetric market structure. On the other hand, it could also be argued that information exchange helps undertakings to understand their differences and the sources of their heterogeneity and, therefore, also allows for collusive outcomes in less symmetric markets.
7.38 Retaliation must be likely For a collusive outcome to be sustainable, the threat of a sufficiently credible and prompt retaliation must be likely as otherwise coordinating companies will not believe that it is in their best interest to adhere to the terms of the collusive outcome.58
7.40 Strategic information Strategic information refers to commercially sensitive data, which reduces uncertainty in the market. It can be related to ‘prices …, customer lists, production costs, quantities, turnovers, sales, capacities, qualities, marketing plans, risks, investments, technologies and R&D programmes’.59 The Guidelines classify strategic information by order of significance: prices and quantities are the most important, followed by costs and demand. The more strategic the data exchanged, the more likely it is that the exchange breaches Article 101(1) TFEU.
7.41 Market coverage For an information exchange to be likely to have restrictive effects, the companies involved in the exchange must cover a ‘sufficiently large part of the relevant market’.60 Otherwise, the competitors that are not participating in the information exchange could constrain any anticompetitive behaviour of the companies involved. For example, by pricing below the coordinated price level companies unaffiliated within the information exchange system could threaten the stability of a collusive outcome.
7.42 Individualized information Individualized information should be distinguished from aggregated data, the collection and publication of which is generally much less likely to lead to restrictive effects on competition. Only the exchange of the former is in principle problematic, and can even be considered a restriction by object, as mentioned above. In practice, competition authorities often verify whether firms can disaggregate global data to extract data concerning individual affiliate undertakings.
7.43 More generally, they apply the so-called ‘ + 3’ rule, according to which an exchange of aggregated statistics poses no problem as long as three (or more) undertakings participate in it. Conversely, when two undertakings participate in such an exchange, it is sufficient for each undertaking simply to deduct its own data (eg its sales) from the aggregate information (global sales) to obtain individual information about the other.
7.44 It cannot be excluded, however, that even the exchange of aggregated data may facilitate a collusive outcome in certain markets with specific characteristics, for example in tight and stable oligopolies. The reason is that in such market structures ‘companies may not always need to know who deviated, it may be enough to learn that “someone” deviated’.61 In addition, there may be other instances where aggregated data raise competition concerns. As highlighted in VEBIC, the calculation and dissemination of a price index that applies across an entire sector may discourage members from individually setting their own prices, and may induce them gradually to converge around a common price level, to the detriment of competition.62
7.45 Age of data According to the Guidelines, the exchange of historic data is unlikely to lead to a collusive outcome.63 By contrast, information on future conduct of the undertaking can (p. 434) amount to a restriction of competition by object. Overall, the rule is that the more recent the information exchanged (or the more frequently it is exchanged), the higher the risk of anticompetitive effects.64
7.46 What constitutes historic data can vary on a case-by-case basis. In its decisional practice, the Commission applied a threshold of 12 months:65 data exchanged that was more than 12 months old was deemed to be historic,66 while the opposite was true for information that was less than 12 months old.67 This ‘rule of thumb’ borders on arbitrary. From an economic perspective, what is important is the rate of market re-initialization, namely, the period after which commercial behaviour loses all reference value in the market. The market re-initialization rate may be less than 12 months in certain sectors (eg short-term trading markets, or ‘spot’ markets in the energy sector). Hence, the fact that the new Guidelines introduce general indicators, instead of the 12-month rule, is to be commended. These indicators include the frequency of price re-negotiations in the market, the data’s nature and aggregation, and the special elements of the market.
7.47 By contrast, the Commission takes a particularly strict approach to the exchange of information on future industrial, commercial, or strategic policies. These exchanges are generally prohibited since they are apt to eliminate all decision-making independence (subject to the satisfaction of other conditions).68 Under EU law, such exchanges are even tantamount to an illicit ‘concerted practice’.69 From an economic perspective, this is not surprising. The exchange of future information allows firms to ‘test’ new policies in a risk-free manner. If other firms respond to an announced future price increase with announcements of future price increases of their own, the price leader would have comfort that it was not likely to face competition and could thus go ahead with its price hike as planned. If rivals did not respond with announcements of their own, thus signalling that the price leader would probably be undercut by competitors, it could decide not to go forward with its announced increase. In this way, the exchange of future information stifles price competition and facilitates coordination among the firms.
7.48 Frequency of the exchange According to the Commission’s guidelines, ‘[f ]requent exchanges of information that facilitate both a better common understanding of the market and monitoring of deviations increase the risks of a collusive outcome.’70 In markets with long-term contracts, even less frequent exchanges could be sufficient to achieve a collusive outcome.
7.49 Non-public information Generally, only the exchange of information which is not genuinely public can give rise to competition concerns under Article 101. The exchange of (p. 435) information that is in the ‘public domain’ (eg information disclosed by a public institution, a regulatory authority, a market research firm,71 a financial newspaper, etc) does not normally infringe competition rules.72 Genuinely public exchanges of information make data equally accessible to all competitors and customers. The fact that information is exchanged publicly reduces the likelihood of a collusive outcome, given that unaffiliated companies, potential entrants, as well as customers can have access to the data.73 However, even data ‘in the public domain’ cannot be considered as genuinely public, if the costs involved in collecting it deter other companies or customers from doing so.74
(c) Assessment under Article 101(3) TFEU
7.50 Firms often argue that there are considerable virtues to information exchange agreements. Such redeeming efficiencies can form the basis for an exemption under Article 101(3) TFEU. For Article 101(3) to apply to information agreements, the following conditions must be fulfilled.
7.51 Efficiency gains The Commission recognizes that information exchange can result in various types of efficiency gains. Although it is made clear that the discussion therein is neither exclusive nor exhaustive, the guidelines place emphasis on the following efficiency gains.
7.52 Benchmarking Companies can become more efficient by comparing their performance against best practices in the industry and preparing relevant incentive mechanisms to upgrade their performance. Information needed to carry out this exercise can be legitimately obtained through information exchange agreements.75
7.53 Better allocation of demand and supply The Commission also recognizes in its decisional practice that information exchange agreements can be used to improve the use of existing capacities, prevent future over-and under-capacity, allow optimal planning of investments, help to monitor distributors, etc.76 This is also confirmed in the Guidelines and can be of particular importance for perishable goods.77
(p. 436) 7.54 Addressing asymmetric information problems Information exchange can be valuable in certain sectors, such as banking and insurance, where the problem of asymmetric information leads to higher prices for all customers. By providing information on accidents, consumer defaults, and other risk characteristics, tailored products can be provided, based on the true level of risk. This would in turn may result in lower prices for certain groups of customers.78
7.55 Moreover, exchange of data that is genuinely public can allow both consumers and companies to make more informed choices, hence reducing costs. According to the Guidelines, consumers are most likely to benefit from public exchanges of current data, which are the most relevant for their purchasing decisions.79
7.56 Indispensability To fulfil the condition of indispensability, the parties to an exchange of information will have to prove that the ‘data’s subject matter, aggregation, age, confidentiality and frequency, as well as market coverage of the exchange are of the kind that carries the lowest risks indispensable for creating the claimed efficiency gains.’80 When information exchange takes place in the context of another horizontal agreement (eg R&D or special ization), it should not go beyond what is necessary for the economic purpose of that agreement.
7.57 Pass-on to consumers Consumers should also be able to benefit from the these efficiency gains. The lower the market power of the parties, the more likely it is that the efficiency gains will be passed on to consumers. In Asnef/Equifax, the Court relaxed slightly the conditions for fulfilling this requirement as it stated that
[i]n order for the condition that consumers be allowed a fair share of the benefit to be satisfied, it is not necessary, in principle, for each consumer individually to derive a benefit from an agreement, a decision or a concerted practice. However, the overall effect on consumers in the relevant markets must be favourable.81
7.58 No elimination of competition For an information exchange agreement to be exempted under Article 101(3), it should not allow the parties to eliminate competition in respect of a substantial part of the market.
7.59 Given the growing importance of innovation, joint R&D agreements are in vogue. For instance, in November 2006, Microsoft and Novell announced the conclusion of a joint R&D agreement relating to interoperability solutions: their plan is to develop tools translating the format for exchanging XML-based documents, identity federation systems, and oversight tools, etc.82 This agreement was renewed in July 2011, to promote R&D cooperation between Microsoft and SUSE (which belongs to the Attachmate Group, as Novell).83
(i) Main competition concerns
7.60 R&D cooperation can restrict competition in various ways: (i) it may reduce or slow down innovation, leading to fewer or worse products that may come to the market later than they otherwise would; (ii) it may reduce significantly competition between the parties outside the scope of the agreement; and/or (iii) it may make anticompetitive coordination on those markets likely, hence leading to higher prices.84 The Guidelines underline that a foreclosure problem may only arise when the cooperation involves at least one player with a significant degree of market power for a key technology and the exclusive exploitation of the results.
(ii) Relevant markets
7.61 The Guidelines specify that an R&D agreement may affect: (i) existing product markets (including substitutes) when the cooperation concerns R&D for the improvement of existing products;85 (ii) technologies markets, covering, for example, the markets in which undertakings cooperate to develop new technologies which they will exploit by marketing the intellectual property rights separately from the products concerned to which they relate; and (iii) markets for innovation, when the cooperation is directed ‘at an entirely new product (or technology) which creates its own new market’ and ‘which may one day replace existing products’.86
(iii) Restrictions of competition by object
7.62 The Guidelines state that an agreement the ‘true object’ of which is not R&D but rather the creation of a disguised cartel is in all circumstances incompatible with Article 101(1).87 The presence of hardcore restrictions (price fixing, output limitation, or market allocation, etc) rules out the benefit of the block exemption Regulations, and also deprives the agreement of possible exemption under Article 101(3).88
(iv) Restrictive effects on competition
7.63 Agreements between non-competing undertakings and others The Guidelines clarify that most R&D agreements do not fall under Article 101(1). This is the case for ‘agreements relating to cooperation in R&D at a rather early stage, far removed from the exploitation of possible results’;89 R&D agreements between non-competitors (eg firms that ‘are not able to carry out the necessary R&D independently’);90 outsourcing agreements of previously captive R&D with ‘specialised companies, research institutes or academic bodies which are not active in the exploitation of the results’;91 and ‘pure’ R&D agreements, which do not (p. 438) include ‘the joint exploitation of possible results by means of licensing, production, and/or marketing.’92
7.64 Block exemption, market-share threshold, and specific conditions A block exemption mechanism defined in Article 1 of the R&D Regulation is available for the various types of cooperation in R&D, whether these are joint research and development of products or processes and joint exploitation of the results of that research and development; joint exploitation of the results of research and development of products or processes jointly carried out pursuant to a prior agreement between the same parties; or joint research and development of products or processes excluding joint exploitation of the results. The block exemption also extends to the restrictions that are directly associated and necessary (termed ancillary restraints).
7.65 The benefit of a block exemption is subject to a general condition, provided in Article 4 of the Regulation: the combined market share of the participating undertakings must not exceed 25 per cent of the relevant product and technology market.93 The fact that the combined market share exceeds the 25 per cent threshold does not, however, rule out the possibility of an individual exemption. An in-depth analysis must then be carried out in light of the Guidelines.
7.66 The following specific conditions must also be fulfilled for the block exemption to apply.94 First, all the parties must have access to the results of the joint R&D for the purposes of further research or exploitation (Art 3(2)).95 Second, where the R&D agreement provides only for joint R&D, each party must be independently free to exploit the results of the joint R&D and any pre-existing know-how necessary for the purposes of such exploitation (Art 3(3)). Third, any joint exploitation must relate to results which are protected by IP rights or constitute know-how, which are indispensable for the manufacture of the contract products or the application of the contract processes (Art 3(4)). Finally, undertakings charged with manufacturing must be required to fulfil orders for supplies from all the parties, except where the R&D agreement also provides for joint distribution (Art 3(5)).
7.67 In-depth individual analysis of joint R&D agreements Agreements that do not qualify for the block exemption (either because their combined share of the relevant market exceeds 25 per cent or because the above-mentioned conditions are not fulfilled) can nevertheless be justified pursuant to an in-depth individual analysis. It must then be verified whether there is a restriction of competition as defined in Article 101(1) TFEU, and, if so, whether the agreement benefits from the possibility of exemption under Article 101(3).
7.68 The Guidelines draw a distinction between ‘pure R&D agreements’ and ‘agreements providing for more comprehensive co-operation involving different stages of the exploitation of (p. 439) results’.96 Pure R&D agreements will generally not give rise to restrictive effects on competition within the meaning of Article 101(1), and this is particularly true for R&D aimed towards a limited improvement of existing products or technologies.97 In such a scenario, if the ‘joint exploitation’ of the cooperation takes only the form of licensing to third parties, restrictive effects are unlikely to ensue. In contrast, if the cooperation includes joint production and/or marketing of the slightly improved products or technologies, a closer examination of the possible effects on competition of the cooperation is needed.98
7.69 If the R&D cooperation is directed at an entirely new product or technology which creates its own new market, restrictive effects on existing markets are unlikely to occur.99 The Article 101(1) assessment should thus focus on ‘possible restrictions of innovation concerning, for instance, the quality and variety of possible future products or technologies or the speed of innovation.’100 Such restrictive effects are more likely to arise when the parties to the cooperation initiate their cooperation at a stage where they are each independently rather near to the launch of the product.
7.70 As many R&D agreements may have effects on both innovation and on existing markets, both the existing market and the effect on innovation may be of relevance for the assessment. R&D cooperation may thus have restrictive effects on competition in terms of higher prices or reduced output, product quality, product variety, or innovation in existing markets, as well as in the form of a negative impact on innovation by means of slowing down its development.101
(c) Assessment under Article 101(3)
7.71 If the agreement is likely to restrict competition, the Guidelines require a traditional analysis to be conducted in light of Article 101(3) TFEU.102 Paragraph 141 of the Guidelines and recital 10 in the Preamble to the R&D Regulation emphasize that these agreements promote technical and economic progress. The latter can result in cost reductions (particularly job duplication in the research sector), cross-fertilization of ideas and know-how, a more rapid development of products and techniques, etc.103
7.72 Scope According to Article 1 of the specialization block exemption Regulation, the concept of specialization agreements covers three categories of agreements: (i) unilateral specialization agreements, whereby one party agrees to cease production of certain products or to refrain from producing those products and instead to buy them from a competing undertaking, while the competing undertaking agrees to produce and supply those products; (ii) reciprocal specialization agreements, by virtue of which two or more parties on a reciprocal basis agree to cease or refrain from producing certain differentiated products and to purchase these products from the other parties, who agree to supply them; or (iii) joint production agreements, by virtue of which two or more parties agree to produce certain products jointly.104
7.73 Semantic curiosity While Article 1 of the Regulation refers to the notion of ‘specialization agreements’ to describe a certain number of cooperation agreements, the Guidelines refer to the notion of ‘production agreements’.105 For the sake of simplicity, this section and its subsections refer to both production and specialization agreements.
7.74 Example of joint production agreement In the VW/MAN case, the Commission examined an agreement by which VW and MAN undertook to develop, build, and distribute a range of utility vehicles in a particular weight category with the aim of improving their existing lines.106 The Commission found that the agreement could have restrictive effects on competition at the parts supply, sales, dealership, and servicing levels, which made it prima facie incompatible with Article101 (1) TFEU. However, the expected improved quality and reduced costs of the products justified the restrictive effects of the agreement.
7.75 Another example of a joint production agreement is the agreement between O2 and T-Mobile, whereby both mobile telecommunications operators wanted to build a joint third generation mobile communications network (sharing of sites, masts, base stations, and other network elements) in order to supply wireless telecommunications services.107 Pursuant to this agreement, O2 and T-Mobile would share the specified infrastructures and jointly offer national roaming of third generation mobile telecommunications (‘3G’) on the German market. The Commission authorized the agreement (although the decision was subsequently annulled by the General Court (GC)).108
7.76 Example of specialization agreements In the PRYM/BEKA case, the Commission was asked to review a unilateral specialization agreement in which PRYM, an undertaking active in the area of sewing machines, agreed to stop manufacturing needles, while the other party, BEKA, promised to supply PRYM with all the needles it would require at preferential (p. 441) prices.109 The Commission stated that although the agreement was prima facie in breach of Article 101(1) TFEU and did not fall under the exceptions of the Specialization Regulation, it could be still justified under Article 101(3) on the basis of the rationalization effects that it generated at the production level. In the Electrolux/AEG case, the Commission was asked to review an agreement whereby one of the undertakings was specializing in the production of washing machines and the other in the production of tumble driers. By a Notice of 5 October 1993, the Commission indicated that it intended to take a favourable position with respect to the agreement.110
7.77 Clarification on specialization Specialization agreements, regardless of whether they are unilateral or reciprocal, are accompanied by purchase/supply agreements. Although such relationships are vertical, they are analysed nonetheless as distribution agreements between competitors, that is in light of the rules relating to horizontal agreements. If specialization agreements consist of purely and simply agreeing not to engage in production activities, they may also consist of agreeing to forgo future investments in a specific area or in capacity increases.
7.78 Clarification on subcontracting agreements Subcontracting agreements are defined as those by which one party (the ‘principal’) entrusts another party (the ‘subcontractor’) to manufacture a given product.111 Subcontracting does not necessarily involve the transfer of know-how or an agreement to stop production by the subcontractor.
(b) Assessment under Article 101(1)
(i) Main competition concerns
7.79 According to the Guidelines, in the course of an Article 101(1) TFEU assessment, specialization agreements can give rise to the following types of competition concerns: direct limitation of competition between parties, foreclosure of third parties in related markets, and collusive outcome.
7.80 Direct limitation of competition between parties Production agreements can lead the parties directly to align their output levels, the product quality, the price (if, eg, a joint venture also markets the products), and other important factors of competition.112 In the same vein, the 2001 Guidelines stated that these agreements harbour a risk of ‘market partitioning’.113 Partitioning presumably refers to market-sharing problems, where the parties agree not to compete head-on, but instead to specialize and, de facto, agree not to engage in cross-supplies. However, as noted above, undertakings generally conclude long-term supply agreements at the same time as the specialization agreements.
7.81 Collusive outcome Specialization agreements may accentuate the risk of anticompetitive coordination between the parties on the markets where they remain active. This is, as the economic literature explains, the risk of the agreement being used as a means of exchanging (p. 442) information (particularly on volumes) which may make collusion easier in an oligopolistic market.114 What is more, economic analysis warns against the effects of harmonizing the cost structures of the undertakings that are parties to the agreement. This is what the Guidelines define as ‘commonality of costs’, namely the proportion of variable costs that the parties have in common. When costs are so aligned (or, put differently, when commonality is higher), coordinated conduct becomes much easier even without active effort.115
7.82 Foreclosure of third parties in related markets Such related markets include, for instance, downstream markets which rely on input from the market in which the specialization agreement takes place. If one or both parties to a production agreement are also present in the downstream market, they can use the joint production to raise the costs of the components to the downstream market and, hence, the costs of their rivals in that market. This could ultimately force competitors out of the (downstream) market.
7.83 Other possible competition concerns There are, however, other scenarios where competition might be harmed. Specialization agreements create a risk of limiting the diversity of goods supplied, and ultimately therefore can reduce consumer choice. Moreover, such agreements may create situations of dependence to the extent that one of the undertakings ceases to manufacture the product.116
(ii) Relevant markets
7.84 Markets affected by such agreements are (i) product and geographic market(s) directly concerned by the cooperation (ie, the market(s) to which products subject to the agreement belong) and (ii) the upstream, downstream or neighbouring markets ‘closely related’ to the market directly concerned by the cooperation. These latter markets, termed ‘spill-over markets’, are the markets on which the parties remain independently active. There may be anticompetitive spill-over effects when the cooperation leads the parties to coordinate their behaviour on these markets.117
(iii) Restrictions of competition by object
7.85 Principle The Guidelines state unambiguously that agreements containing hardcore restrictions, that is, agreements of the parties to fix their prices for market supplies, limit output or share markets or customer groups have the object of restricting competition and almost always fall under Article 101(1) TFEU.118
7.86 Exception The Regulation and the Guidelines however introduce a noteworthy exception to the principle of per se prohibition of hardcore restrictions. In Article 4(b) and paragraph 160 respectively, the Regulation and the Guidelines state that Article 101(1) TFEU does not automatically apply (i) to agreements where the parties agree on the output directly concerned by the production agreement (eg the capacity and production volume of a joint venture or the agreed amount of outsourced products) or (ii) where a production joint (p. 443) venture that also carries out the distribution of the manufactured products sets the sales prices for these products, provided that price fixing by the joint venture is the effect of integrating the various functions.119 In such circumstances, the production agreement and the hardcore restriction must be assessed in the light of the ‘overall effects’ of the cooperation on the market.120
(iv) Restrictive effects on competition
7.87 Block exemption, market-share threshold, and specific conditions The benefit of the block exemption provided in Article 2 of the Regulation is subject to meeting a market-share threshold. Article 3 of the Regulation (as elaborated in Art 5) exempts agreements in which the combined market share of the participating undertakings does not exceed 20 per cent of the relevant market.121 Below this, the parties do not have market power and the individual exemption conditions are deemed to be fulfilled. As regards the 20 per cent threshold, the new Guidelines clarified that in situations where a specialization agreement concerns intermediary products used by one or more of the parties for the production of their own downstream products, the combined market share of the parties must also not exceed 20 per cent in the downstream product market.122
7.88 Ancillary restraints and related commitments Pursuant to Article 2(2) of the Regulation, the block exemption also covers ancillary restraints which do not constitute the primary object of such agreements, but are directly related to and necessary for their implementation, such as those concerning the assignment or use of IP rights. It also covers certain related purchasing and marketing ‘arrangements’ defined in Article 2(3) of the Regulation. It extends in particular to the exclusive purchase and exclusive supply obligations often required in specialization agreements, as well as the joint distribution of the products or the appointment of a third party distributor on an exclusive or non-exclusive basis in the context of a joint production agreement.123
7.89 In-depth individual analysis of production/specialization agreements Crossing the 20 per cent threshold does not eliminate the benefit of an exemption, but a detailed individual analysis must be conducted based on the Guidelines. In this respect, the Guidelines elaborate at paragraphs 174 to 182 on the main competitive concerns raised by such agreements.
(v) Assessment under Article 101(3)
7.91 Efficiency gains Production/specialization agreements generally go hand in hand with a series of efficiency gains in the form of reduced production costs, technological innovations (p. 444) (via the pooling of certain licences and IP rights in order to allow new products to be developed), improved product quality, and variety.124
7.92 In addition, these agreements may enable undertakings to focus their productive effort on the activities where they are most efficient, transferring to other more efficient undertakings a subset of their activities. The economic idea here is ‘comparative advantage’—by focusing on their particular strengths, the parties may gain overall on the marketplace by producing more of the end product. In other words, specialization may result in economies of scale and a more rapid pay-off of new facilities and capital investments. What is more, if joint production allows parties to increase the number of different types of products, it can also lead to cost savings by means of economies of scope.
7.93 Another potential efficiency gain (not mentioned in the Guidelines) is that these agreements allow for product homogenization, which is desirable in some sectors in order to prevent customers/consumers from facing non-standard, incompatible products: hence, limiting their ability to make useful comparisons of competing offers.
7.94 Indispensability It is important, according to the Guidelines, that the agreement does not limit the competitive behaviour of the parties concerning production not covered by the cooperation. In other words, if the joint venture only supplies part of the total output of the parties, and the latter parties also continue to produce individually (the same good/service as well as other goods/services), the agreement must not contain any restriction relating to the latter activities.125
7.95 Pass-on to consumers Efficiency gains generated by the agreement need to be passed on to consumers in the form of lower prices, or better product quality or variety to an extent that outweighs the restrictive effects on competition.126 Hence, efficiency gains that only benefit the parties or cost savings that are caused by output reduction or market allocation are not sufficient to meet the criteria of Article 101(3).
7.96 No elimination of competition The Guidelines state, again in relatively obscure wording, that when the parties are given the chance to eliminate competition for substantial parts of the products in question, the agreement cannot in principle be exempted.127 The 2001 Guidelines also explicitly mention cases where an undertaking is or becomes dominant, as a result of an agreement. This reference has been eliminated in the current version of the Guidelines.128
7.97 Concept In joint purchasing agreements, two or more undertakings decide collectively to buy the products or services they need to perform their activities. Joint purchasing can be carried out in different ways: by setting up a jointly controlled company or a company in (p. 445) which many other companies hold non-controlling stakes, through contractual arrangement or even looser forms of cooperation.129
7.98 These agreements usually aim at the creation of buying power allowing participating companies to benefit from better terms and conditions (lower prices, higher quality, etc). Such benefits may in turn be passed on to consumers. As will be seen, buying power may, however, generate some competition concerns.
7.99 Examples There is scant case law in this area, but one example is the case of European Broadcasting Union (EBU), an association of undertakings combining Hertz television channels for the purposes of acquiring rights to retransmit international sporting events.130 More generally, joint purchasing agreements frequently combine small and medium sized enterprises (SMEs) concerned with obtaining from their suppliers the same commercial advantages as their bigger competitors (large retailers). By joining forces, undertakings can increase their bargaining power and thus create or maintain a more level playing field, all to the benefit of consumers to the extent that input costs are held in check.131
7.100 Specific feature Unlike the agreements examined above, no block exemption governs joint purchasing agreements. The text of the Guidelines is therefore the main source of legal guidance in this area.
7.101 Vertical relations? When a joint purchasing agreement involves both horizontal and vertical agreements, a two-step analysis is necessary. The horizontal agreements have to be assessed according to the principles of the Guidelines covering these types of agreement, whereas vertical agreements (those that involve suppliers) must be the subject of ‘a further assessment’ in light of the principles defined in Regulation 330/2010.132
(b) Assessment under Article 101(1)
(i) Relevant markets
7.102 Two markets may be affected by a joint purchasing arrangement. First, the market(s) with which such an arrangement is directly concerned, that is, the relevant purchasing market(s). Second, the selling market(s), that is, the market(s) downstream where the parties to the joint purchasing arrangement are active as sellers.
(ii) Main competition concerns
(p. 446) 7.104 If competitors purchase a significant part of their products together, their incentives for price competition on the selling market(s) may be reduced. In addition, if they enjoy a significant degree of market power on the selling market(s), the lower purchase prices achieved by the joint purchasing arrangement are unlikely to be passed on to consumers.
7.105 If the parties acquire a significant degree of market power on the purchasing market, they may be in a position to force suppliers to reduce the range or quality of products they produce, which may create negative effects on competition (ie, decrease in innovation or in the quality of products, or even output reduction, etc). Buying power of the parties to the joint purchasing arrangement may also be used to foreclose competing purchasers by limiting their access to efficient suppliers.
(iii) Restrictions of competition by object
(iv) Restrictive effects on competition
7.107 Agreements between non-competing undertakings The Guidelines state that agreements between purchasers not operating on the same relevant downstream market (therefore not competing) do not fall under Article 101(1) TFEU. This applies, in particular, to agreements between retailers who are active in separate geographic markets.134 Such a situation may also occur when undertakings operating on different product markets engage in joint buying relations. For example, considering an increase in the price of steel owing to Chinese demand, it is thus perfectly conceivable for manufacturers from different sectors that consume large quantities of steel to cooperate in the acquisition of steel.
7.108 Market-share threshold Although no block exemption Regulation applies to purchasing agreements, the Guidelines adopt market-share thresholds analogous to those used for R&D and specialization agreements.135 The Guidelines provide that, while there is no ‘absolute threshold’ above which it can be presumed that the parties to a joint purchasing arrangement have market power so that this arrangement is likely to give rise to restrictive effects within the meaning of Article 101(1), it is unlikely that market power exists if the parties to the joint purchasing arrangement have a combined market share not exceeding 15 per cent on the purchasing market(s), as well as a combined market share not exceeding 15 per cent on the selling market(s).
7.109 It is interesting to observe that the threshold provided in the Guidelines has, to a certain extent, a greater legal impact than the thresholds that apply to R&D and specialization agreements, even though the latter are formally provided by instruments of greater legal force, ie, Regulations. Here, in fact, the threshold allows not only for the exemption as defined in Article 101(3) TFEU to be presumed, but even causes the agreement to fall outside Article 101(1) TFEU.
(p. 447) 7.110 In-depth individual analysis of purchasing agreements Crossing the 15 per cent threshold ‘does not automatically indicate that the joint purchasing arrangement is likely to give rise to restrictive effects on competition’. However, in such a situation, this arrangement requires a detailed assessment of its effects on the market.136
7.111 It is possible to discern, within the Guidelines, three theories of anticompetitive harm, namely exploitation of suppliers by creating or strengthening purchasing power, exploitation of downstream market power to the detriment of customers, and finally foreclosure of downstream competitors.
7.112 Exploitation of suppliers through buyer power All buyers seek to lower the prices and improve the conditions on which they obtain supplies—this is universal. Suppliers may offer special concessions for group orders as such orders may be a source of efficiencies, such as lower transaction costs and guaranteed volumes. As noted, buyer power may, however, force suppliers to reduce prices to such a level that they may no longer be able to trade profitably.137 In other words, there is the risk of suppliers being ‘asphyxiated’ by their purchasers, which is a complaint often made in the large distribution sector. The Guidelines observe that buying power may lead to a drop in ‘prices … below the competitive level’ and to reduce the variety and quality of the supply of products on the selling market.138 A good example is the Sogecable/Telefonica case where the Commission was concerned by the fact that the joint acquisition of sporting rights would lead both channels to exploit the Spanish soccer clubs upstream by excessively depreciating the prices paid for the rights.139
7.113 Collusion As noted, joint purchasing arrangements may lead to a collusive outcome if they facilitate the coordination of the parties’ behaviour on the selling market.140 This can be the case if the parties: (i) achieve a high degree of commonality of costs (and, in particular, variable costs) through joint purchasing, provided the parties have market power and the market characteristics are conducive to coordination and (ii) exchange commercially sensitive information such as purchase prices and volumes as it may facilitate coordination with respect to price and output on the selling market(s) to the detriment of consumers.
7.114 Foreclosing competitors or increasing their costs The Guidelines explain that the buying power resulting from the agreement may also be used to foreclose the market to competitors and, by doing so, create or strengthen market power downstream.141 The increase in buying power is sometimes accompanied by an increase in rivals’ costs. Suppliers faced with a group of joint purchasers holding buying power may be tempted to price discriminate against certain customers in order to recover the price decreases granted to the joint purchasers.142 By doing so, the purchasing agreement may distort the ability of competing purchasers to remain viable, since their costs go up in a relative sense.
7.115 Buying power vs Selling power The Commission rightly emphasizes the need for a detailed analysis of the structure of both sides of the market and, in particular, the power of sellers. (p. 448) Case law shows that the more concentrated the upstream supply is, the less problematic the strengthening of the buying power will be since market power on the two sides can offset each another. For instance, in the Métropole Télévision case, the broadcasting union, despite the presence of a joint purchasing agreement, was still faced with large international sports associations (FIFA, UEFA, etc).143 These two positions of economic power mutually neutralized one other.
(v) Analysis under Article 101(3)
7.116 Economic benefits If the joint purchasing arrangement produces restrictive effects, a detailed analysis of the efficiency gains and objective justifications for the agreement is necessary.144 Joint purchasing may reduce transaction costs (as one group will negotiate for its members), as well as transport and storage costs. It may also allow small players on the selling market better to compete with leading market actors (eg by buying their supplies as a group, small distributors may be able better to engage in price competition with large retail chains).
7.117 Indispensability Competition law provides no clear response regarding the exclusive purchasing obligations that require the parties to the agreement to buy solely through the cooperation. The Guidelines merely state that such obligations must be examined on a case-by-case basis, subject to the condition of proportionality provided in the third paragraph of Article 101(3) TFEU. They emphasize, without giving any other details, that exclusive purchasing obligations may be indispensable to ‘achieve the necessary volume for the realisation of economies of scale’.145 This principle codifies the Court’s case law in Gottrup-Klim .146 In that case, the issue was whether the provision in a cooperative agreement for purchasing fertilizer and plant-protection products prohibiting its members from purchasing through other competing channels could be justified under Article 101(3). Such a provision eliminated all competition by neutralizing the possibility of obtaining supplies on better terms (particularly regarding pricing) outside the cooperative. On the other hand, the prohibition could appear necessary since it allowed large volumes to be purchased, and resulted in a drop in costs and, ultimately, prices. The Court examined the market and concluded that, due to the influence of volumes on prices, exclusivity could be necessary. The Commission has not always been of this opinion. In the ‘ Rennet’ case of 5 December 1979, for instance, the Commission refused to exempt the exclusive purchase obligation imposed on members of a dairy cooperative.147
7.118 Pass-on to consumers As in the case of specialization/production agreements, efficiencies that only benefit the parties to the joint purchasing arrangement will not suffice.148 Efficiency gains, such as cost efficiencies or qualitative efficiencies, achieved by indispensable restrictions (p. 449) must be passed on to consumers to an extent that outweighs the restrictive effects on competition caused by the joint purchasing arrangement.
7.119 Absence of elimination of competition For a joint purchasing arrangement to be exempted under Article 101(3), it should not allow the parties to eliminate competition in respect of a substantial part of both the purchasing and selling markets.149
7.120 Concept Commercialization agreements, under which producers decide to sell, distribute, or promote their products jointly, are symmetrically opposite to joint purchasing agreements. Several degrees of cooperation can be envisaged.150 First, parties can choose to cooperate intensively in that they jointly determine ‘all commercial aspects related to the sale of the product, including price’.151 This form of cooperation is referred to as ‘joint selling’. Alternatively, parties can limit their cooperation to address only one specific commercialization function, such as distribution, after-sales service, or advertising.
7.121 Law applicable to joint distribution agreements Distribution agreements, by which competing undertakings jointly organize the sale of a good/service to the end consumer, are a frequent form of limited cooperation.152 As will be seen in Chapter 8, the Block Exemption Regulation on Vertical Restraints and Guidelines on Vertical Restraints generally cover distribution agreements unless the parties to the agreement are actual or potential competitors (which is generally the case in the case of horizontal agreements). If the parties are competitors, the Block Exemption Regulation on Vertical Restraints only covers non-reciprocal vertical agreements between competitors:
(a) the supplier is a manufacturer and a distributor of goods, while the buyer is a distributor and not a competing undertaking at the manufacturing level, or
(b) the supplier is a provider of services at several levels of trade, while the buyer provides its good or services at the retail level and does not provide competing services at the level of trade where it purchases the contract services.153
(b) Assessment under Article 101(1)
(i) Relevant markets
7.123 To assess the competitive relationship between the parties, the relevant product and geographic market(s) directly concerned by the cooperation (ie, the market(s) to which the (p. 450) products subject to the agreement belong) must be defined. The Guidelines insist on the importance of defining neighbouring markets:
As a commercialisation agreement in one market may also affect the competitive behaviour of the parties in a neighbouring market which is closely related to the market directly concerned by the co-operation, any such neighbouring market also needs to be defined. The neighbouring market may be horizontally or vertically related to the market where the co-operation takes place.154
(ii) Main competition concerns
7.124 Commercialization agreements can create different types of restrictions of competition in that they may: (i) lead to price fixing; (ii) facilitate output limitation as the parties may decide on the volume of products placed on the market; (iii) be used as a tool for the parties to divide the markets or to allocate orders or customers; and (iv) lead to an exchange of strategic information relating to aspects within or outside the scope of the cooperation or commonality of costs that may facilitate a collusive outcome.155
(iii) Restrictions of competition by object
7.125 Price-fixing The Guidelines state that agreements limited to ‘joint selling’ (an expression which seems to be synonymous in the Guidelines with ‘grouped selling’)156 ‘generally have the object of coordinating the pricing policy of competing manufacturers or service providers’.157 Not only do they eliminate price competition, but also restrict the total volume of products to be delivered by the parties. Consequently, these agreements automatically fall under Article 101(1) TFEU. Grouped selling is therefore prohibited per se in EU competition law. Another specific competition concern relates to distribution agreements between competitors operating on separate geographic markets, when they result in a serious risk of ‘market partitioning’.158 This risk concerns, if not exclusively then at least mainly, reciprocal distribution agreements. Under such agreements, parties could be led to allocate markets among themselves, thereby eliminating competition.
7.126 Illustration in case law In the Floral case of 28 November 1979, the Commission held as incompatible (and refused to exempt) a joint commercialization agreement between three French fertilizer companies.159 The object of the joint venture, called Floral, was to export the products of the founders to Germany. The founders had reached an agreement to sell their fertilizer at the same price in Germany. German purchasers therefore had a uniform supply. What is more, the parties applied the agreement exclusively with the consequence that German customers had no way of buying directly from the three manufacturers. In 1977, the order from a wholesaler in Cologne had been refused by Cofaz, one of the parties, on the grounds that the latter already had a distribution channel via Floral and that it did not want to extend its sales given that its plants were geographically distant.
7.127 Agreements between non-competing undertakings A commercialization agreement that is objectively necessary to allow one party to enter a market it could not have entered individually is normally not likely to give rise to competition concerns.160 Consortia arrangements that allow the companies involved to participate in projects that they would not be able to undertake individually (eg large construction projects) are normally not likely to give rise to competition concerns.
7.128 Market-share thresholds In line with the principles applicable to purchasing agreements, the Guidelines state that commercialization agreements are only subject to Article 101(1) TFEU if the parties possess a certain ‘degree of market power’.161 It is ‘unlikely’ that such a market power exists if the parties to the agreement hold a combined market share that is less than 15 per cent. In addition, at this level of market share, it is ‘likely’ that the conditions of Article 101(3) TFEU are met.
7.129 In-depth individual analysis of commercialization agreements Joint commercialization agreements that do not fall under the safe harbour are subject to a detailed analysis of their impact on the market.162 The Guidelines state that commercialization agreements may, apart from the per se prohibition of grouped selling, create risks of collusion between the parties to the agreement.
7.130 Collusion Joint commercialization agreements are likely to give rise to restrictive effects on competition ‘if it increases the parties’ commonality of variable costs to a level which is likely to lead to a collusive outcome.163 This risk is particularly serious when, prior to the agreement, the parties already had a high proportion of their variable costs in common (through, eg other forms of cooperation) as the additional increment (ie, the commercialization costs of the product subject to the agreement) can tip the balance towards a collusive outcome.
7.131 The Guidelines, however, note that commonality of costs can only increase the risk of a collusive outcome if the parties have market power and if the commercialization costs constitute a large proportion of the variable costs related to the products concerned.164 That is, for instance, the case when the agreement concerns homogeneous products for which the costs of commercialization (marketing, transport, etc) represent an important part of the total costs incurred by the producers.
7.132 The Guidelines also insist on the need to pay attention to the exchanges of sensitive commercial information that often take place in the context of a joint commercialization agreement. The extent to which such exchanges create competition concerns depends on the structure of the market and the type of information exchanged.165 The assessment of such exchanges should be carried out based on the principles contained in the section of the Guidelines devoted to exchanges of information, which has been discussed above.
7.133 Illustration UIP was a distribution subsidiary established by three Hollywood film producers (Paramount Pictures Corporation, Universal Studios Inc, and Metro-Goldwyn-(p. 452) Mayer Inc). Film distribution covers a series of intermediate activities, such as entering into licensing agreements with cinemas to show the films, paying back some of the receipts made by the operators to the producers, providing videotapes to cinemas, organizing promotional activities, etc. Since the distribution in Europe of two to three films per year was particularly onerous, Hollywood producers had entered into an agreement to distribute their films jointly to cinemas. The three producers in question represented only 16 per cent of the market and retained the individual freedom to set prices. The Commission held that the agreement did not produce any restrictive effect.166
(vi) Assessment under Article 101(3)
7.134 Economic benefits The Guidelines are fairly vague about the types of efficiency gains emanating from commercialization agreements.167 From an economic standpoint, joint commercialization agreements can result in efficiency gains as they may, for instance, allow parties to achieve economies of scale. By cooperating, participating undertakings can spread their fixed costs associated with distributing their products over a broader scale of production. In addition, joint distribution can also allow small producers (eg SMEs) to counterbalance the buying power of large purchasers (eg large retailers). Finally, reciprocal distribution can enable undertakings located in separate geographic markets to penetrate new markets by mutually benefiting from their distribution network and by thus contacting their reciprocal customers.
7.135 Other conditions The Guidelines stress some characteristics that efficiency gains must fulfil to justify the benefit of an exemption. First, the Commission emphasizes the fact that the size of the efficiency gains depends on the nature of the activity and the parties to the cooperation. This could mean, for example, that the wider the distribution of the relevant good/service (say, if it is a mass consumer product), the greater the potential economic advantages flowing from the agreement.168 Second, the Guidelines state that in very exceptional circumstances price fixing may be exempted. In those cases jointly setting prices must be ‘indispensable’ to achieving efficiency gains, and these gains must be ‘substantial’.169 Finally, the parties must demonstrate that the efficiency gains result from an actual process of economic integration and are not simply the result of neutralizing competition.170
7.136 The concept of standardization agreements171 These agreements ‘have as their primary objective the definition of technical or quality requirements with which current or future products, production processes, services or methods may comply.’172
(p. 453) 7.137 Standards have gained importance over the years in technology-driven sectors. In today’s technology-driven world, industry standardization, device interoperability, and product-compatibility have become critical to promoting innovation and competition. Standards are typically created by voluntary organizations (generally referred to as standard-setting organizations (SSOs)) composed of participants from a given industry (electronic components, communications, etc). They meet to discuss, analyse, refine, and ultimately adopt mutually acceptable standards, which ensure competing and complementary products and components are compatible and interoperable.
7.138 There are a wide variety of SSOs engaged in standardization efforts in an increasingly large number of industries.173 The European Telecommunications Standards Institute (ETSI),174 for instance, develops standards ensuring the compatibility and interoperability of products in the information and communications technology (ICT) sector. Technology developers, handset and network equipment manufacturers, and mobile carriers regularly meet within ETSI and other SSOs to pursue standardization work. It is within ETSI that the GSM (‘2G’) standard was developed. The 3rd Generation Partnership Project (3GPP), one of the entities which specify standards for 3G mobile phone systems, developed as a cooperative venture between ETSI and other relevant SSOs.175
7.139 Standardization activities, typically carried out by armies of engineers, would generally not be expected to fascinate lawyers and economists. But they do, in particular given the amount of money that may be at stake when the standards in question involve IP rights. The competition concerns that may result from the conduct of undertakings holding essential patents have recently received much attention as a result of complaints lodged with the Commission.176 These complaints led to two high-profile Commission investigations: Rambus and Qualcomm.
7.140 In the former case, the Commission sent a statement of objections to Rambus in July 2007 in which the Commission alleged that Rambus had infringed Article 102 TFEU by abusing a dominant position in the market for technologies relevant to Dynamic Random Access Memory (DRAM). In particular, the Commission considered that Rambus had engaged in a ‘patent ambush’ by intentionally concealing that it had patents and patent applications which were relevant to technology used in the JEDEC standard, and subsequently claiming royalties for those patents.177 Because, unlike in US antitrust law, ‘monopolization’ (the act (p. 454) of acquiring market power through anticompetitive means) is not an offence in EU competition law, the violation of Article 102 was not so much that Rambus had concealed that it had patents reading on the JEDEC standard, but that it had subsequently claimed unreasonable royalties for its patents. The Commission had thus turned the alleged patent ambush case into a claim that Rambus had charged excessive prices for its patents, a form of abuse that is contrary to Article 102. Eventually, in December 2009, the Commission adopted a so-called Article 9 settlement Decision whereby it rendered legally binding the commitments offered by Rambus that in particular put a cap on the licensing fees that Rambus could charge for certain patents essential to JEDEC’s standard for DRAM chips.178
7.141 The Qualcomm case also concerned alleged excessive royalties, although the context was quite different. In that case, six firms active in the mobile phone equipment sector filed complaints with the European Commission in the latter part of 2005 alleging that Qualcomm’s licensing terms and conditions for its patents essential to the WCDMA standard did not comply with Qualcomm’s commitment to license on fair, reasonable, and non-discriminatory (FRAND) terms and, therefore, breached EU competition rules.179 After a long and thorough investigation, the Commission eventually decided to close its formal proceedings against Qualcomm.180
7.142 The so-called ‘ ex ante/ex post’ test was most likely pivotal in the Commission dropping the case. In brief, the test compares licensing rates and terms from agreements entered into before the patented technology is included in the standard at issue to the licensing rates and terms from agreements after the patented technology is included in the standard.181 If the patent holder is exploiting its inclusion in the standard, using SSO members’ switching costs as the leverage to charge ‘excessive’ rates, then the ex post rates and terms should be markedly higher or more onerous than the ex ante ones. In Qualcomm that was not the case: the ex post rates were the same as the ex ante ones. Hence, either Qualcomm did not obtain market power from its patents’ inclusion in the standard, or it did not exploit that market power.
7.143 As explained elsewhere,182 the Qualcomm case—and also the Rambus case, where the Commission agreed to a weak settlement—illustrates the considerable difficulty for the Commission in determining whether the royalty rates sought by an essential patent holders are ‘fair and reasonable’ or ‘excessive’ under the standard set by the European Court of Justice in United Brands. While determining whether the price of a physical product is excessive is already difficult, that task is even more complex with respect to non-physical constructs, such as IP rights. Although a number of benchmarks were proposed to determine whether Qualcomm’s royalties were ‘fair and reasonable’, these benchmarks suffered from major weaknesses either because they were theoretically unsound or because they would have raised complex implementation issues.183 In the Qualcomm case, the allegations were particularly suspect considering that the royalty rates and other licensing terms contained in Qualcomm’s (p. 455) licences had been negotiated with large and sophisticated corporations at arm’s length—in some cases before the WCDMA standard was adopted, hence the ability to employ the ex ante/ex post test.
7.144 It is against this background that the chapter of the Guidelines dealing with standardization agreements, which was considerably revised and extended compared to the earlier Guidelines, must be seen. Indeed, although this chapter deals with horizontal cooperation agreements falling under Article 101(1), its content seeks to prevent some of the issues at stake in the Rambus and Qualcomm cases, in particular as they relate to standards involving IP rights. Whether or not Article 101 Guidelines were the right instrument to deal with such issues is an open question. Although the initial drafts of the Guidelines were subject to much criticism, the text eventually adopted by the Commission is seen by most experts as a reasonable compromise between essential patent holders and standards implementers.
(i) Relevant markets
7.145 Standardization agreements may produce their effects on four possible markets: (i) the product or service market(s) to which the standard or standards relates; (ii) where the standard-setting involves the selection of technology and where the IP rights are marketed separately from the products to which they relate, the relevant technology market; (iii) the market for standard-setting (if different standardization bodies or agreements exist); and where relevant, (iv) a distinct market for testing and certification.184
(ii) Main competition concerns
7.146 The Guidelines generally take a positive attitude to standardization agreements acknowledging that they ‘usually produce significant positive economic effects, for example by promoting economic interpenetration on the internal market and encouraging the development of new and improved products or markets and improved supply conditions.’185 Standards thus normally increase competition and lower output and sales costs, benefiting economies as a whole. Standards may maintain and enhance quality, provide information, and ensure interoperability and compatibility (thus increasing value for consumers).
7.147 The Guidelines, however, identify three sets of circumstances where standardization agreements may give rise to restrictive effects: (i) if SSO participants engage in anticompetitive discussions in the context of standard-setting, this could reduce or eliminate price competition in the markets concerned, hence facilitating a collusive outcome;186 (ii) standards that set detailed technical specifications for a product or service may limit technical development and innovation as the process results in technologies that are not selected as part of the standard being excluded from the market (especially if the SSO members are required exclusively to use a particular standard);187 and (iii) when one or several companies are prevented ‘from obtaining access to the result of the standard, or is only granted access on prohibitive or discriminatory terms, there is a risk of an anti-competitive effect.’188
(p. 456) 7.148 The Guidelines observe that IP law and competition law share the same objectives of promoting innovation and enhancing consumer welfare.189 However, it expresses concerns that a participant holding IP rights essential for implementing the standard, could, in the specific context of standard-setting, also acquire control over the use of a standard. This could allow companies to behave in anticompetitive ways, for example by ‘holding-up’ users after the adoption of the standard ‘either by refusing to license the necessary IP right or by extracting excess rents by way of excessive royalty fees thereby preventing effective access to the standard.’190 As observed elsewhere,191 the risk of hold-up in the context of standardization has often been exaggerated as there is little empirical evidence that hold-up occurs on a regular basis, thus warranting special policy attention. We have also shown that in the vast majority of circumstances essential patent holders are constrained and thus unable to engage in hold-up.
even if the establishment of a standard can create or increase the market power of IPR holders possessing IPR essential to the standard, there is no presumption that holding or exercising IPR essential to a standard equates to the possession or exercise of market power. The question of market power can only be assessed on a case by case basis.192
(iii) Restrictions by object
7.150 Disguised hardcore restriction Clearly, standardization agreements used as part of a wider restrictive agreement meant to oust actual or potential competitors automatically fall under the prohibition in Article 101(1) TFEU.193
7.151 Illustration The Navewa/Anseau case is a good example of the problem of disguised hardcore restrictions.194 Manufacturers and official importers of washing machines in Belgium had, along with the association of public water distribution companies (Anseau), developed a label certifying the compatibility of their machines with the Belgian regulation on the connection of washing machines to the public water distribution network. This very strict regulation aimed to prevent waste water from washing machines flowing back into the public water system. Washing machines that met the standard carried a special warranty label. The problem was that only certain manufacturers and official importers could benefit from the compliance label; parallel importers who met the criteria of the standard nevertheless found themselves excluded from the warranty label. This conduct was found to be contrary to Article 101(1) TFEU and could not be justified under Article 101(3).195
7.152 The Guidelines provide that, in the absence of market power, a standardization agreement is not capable of restricting competition. Restrictive effects are thus unlikely to occur when there is effective competition between different voluntary standards.196
7.153 For those standardization agreements which risk creating market power, the Guidelines adopt a ‘safe harbour’ approach by setting the conditions under which such agreements would normally fall outside the scope of Article 101(1):
Where participation in standard-setting is unrestricted and the procedure for adopting the standard in question is transparent, standardisation agreements which contain no obligation to comply with the standard and provide access to the standard on fair, reasonable and nondiscriminatory terms will normally not restrict competition within the meaning of Article 101(1).197
7.154 Unrestricted participation and transparency The Guidelines indicate that when (i) participation in standard-setting is unrestricted (as all competitors in the market or markets affected by the standard can participate in the process leading to the selection of the standard) and (ii) the procedure for adopting the standard in question is transparent (as stakeholders can inform themselves of upcoming, on-going, and finalized standardization work in good time at each stage of the development of the standard), standardization agreements which contain no obligation to comply with the standard and provide access to the standard on FRAND terms will normally not restrict competition within the meaning of Article 101(1).198
7.155 FRAND commitment The IP rights policy that is traditionally adopted by SSOs requests that participants wishing to have their IP rights included in the standard provide an irrevocable commitment in writing to offer to license their essential patents to all third parties on FRAND terms.199 That commitment, which is of a contractual nature,200 should be given prior to the adoption of the standard, and shall bind undertakings to which essential patents might later be transferred.201 In order to avoid compulsory licensing, the IP rights policy should allow IP rights holders to exclude specified technology at an early stage in the development of the standard from the standard-setting process and thereby from the commitment to offer to license.202
7.156 Good faith disclosure The IP rights policy would also need to require good faith disclosure, by participants, of their IP rights that they believe are essential for the implementation of the standard under development.203 The Guidelines do not require participants to carry out a burdensome search of their portfolio, but merely require that the disclosure obligation be (p. 458) based on ‘reasonable endeavours’ to identify IP rights reading on the potential standard. This disclosure requirement does not apply to royalty-free standards.
(v) Restrictive effects—additional guidance on FRAND requirements
7.157 According to the Guidelines, ‘FRAND commitments are designed to ensure that essential IPR protected technology incorporated in a standard is accessible to the users of that standard on fair, reasonable and non-discriminatory terms and conditions.’204
7.158 One of the most complex issues with respect to FRAND requirements is the assessment of whether the licensing terms offered by an essential patent holder to a standard implementer is indeed ‘fair and reasonable’. Pursuant to the Guidelines, such an assessment ‘should be based on whether the fees bear a reasonable relationship to the economic value of the IPR’, in other words whether it meets the United Brands test.205 The Guidelines recognize that different methods can be used to make this assessment, including: (i) a comparison of the licensing fees charged by the company in question for the relevant patents in a competitive environment before the industry has been locked into the standard (ex ante) with those charged after the industry has been locked in (ex post). This assumes that the comparison can be made in a consistent and reliable manner;206 (ii) an independent expert assessment of the objective centrality and essentiality to the standard at issue of the relevant IP portfolio;207 and when appropriate, (iii) a reference to ex ante disclosures of licensing terms in the context of a specific standard-setting process.208 The last two methods also assume that the comparison can be made in a consistent and reliable manner.
(vi) Restrictive effects—effects-based assessment for standardization agreements
7.159 The Guidelines specify that the failure to fulfil any or all of the conditions set out for a standardization agreement to benefit from the safe harbour does not lead to any presumption of a restriction of competition within Article 101(1). This case, however, requires a self-assessment to establish whether the agreement falls under Article 101(1) and, if so, if the conditions of Article 101(3) are fulfilled.209
7.160 Whether standardization agreements may give rise to restrictive effects depends on a variety of circumstances, including whether: (i) the members of the SSO remain free to develop alternative standards or products that do not comply with the agreed standard;210 (ii) access to the standard in question is accessible on non-discriminatory terms;211 and (iii) participation in the standard-setting process is open in the sense that it allows all competitors (and/or stakeholders) in the market affected by the standard to take part in choosing and elaborating the standard.212 The assessment of the effects of a standard-setting agreement, should also take into account: (i) the market shares of the goods or services based on the standard,213 as (p. 459) well as (ii) whether the agreement which discriminates against any of the participating or potential members could lead to a restriction of competition.214
7.161 Finally, the Guidelines provide that standardization agreements providing for ex ante disclosures of the most restrictive licensing terms, will not, in principle, restrict competition within the meaning of Article 101(1).215 The Guidelines consider that such unilateral ex ante disclosures of most restrictive licensing terms would be one way to enable the standard-setting organization to take an informed decision based on the disadvantages and advantages of different alternative technologies, not only from a technical perspective but also from a pricing perspective.
7.162 Efficiency gains Standard-setting agreements often create significant efficiency gains when, for instance, they are EU-wide, facilitating market integration, and allow companies to market their goods and services in all Member States, leading to increased consumer choice and lower prices.216 Technical interoperability and compatibility standards also encourage competition between technologies from different companies and help to prevent lock-in to one particular supplier. Standards may also reduce transaction costs for sellers and buyers, and when they deal with quality and safety issues, enhance consumer welfare, as well as increase the quality of the products.
7.163 Indispensability Restrictions that are not necessary to achieve the efficiency gains that can be generated by a standardization agreement or standard terms do not fulfil the criteria of Article 101(3).217 In particular, standardization agreements should cover no more than what is necessary to ensure their objectives, whether this is technical interoperability and compatibility or a certain level of quality. In cases where having only one technological solution would benefit consumers or the economy at large, the standard in question should be developed on a non-discriminatory basis. The Guidelines, however, note that ‘technology neutral standards’ can, in certain circumstances, lead to larger efficiency gains.
7.164 Pass-on to consumers Efficiency gains attained by indispensable restrictions must be passed on to consumers to an extent that outweighs the restrictive effects on competition caused by a standardization agreement or by standard terms.218 In this respect, the extent to which procedures are used to guarantee that the interests of the users of standards and end consumers are protected should be assessed. It can be presumed that standards that facilitate technical interoperability and compatibility or competition between new and already existing products, services, and processes, will be beneficial to consumers.
7.165 No elimination of competition Whether a standardization agreement affords the parties the possibility of eliminating competition depends on the various sources of competition in the market, the level of competitive constraint that they impose on the parties, and the impact of the agreement on that competitive constraint.219 While market shares are relevant (p. 460) for that analysis, the magnitude of remaining sources of actual competition cannot be assessed exclusively on the basis of market share except in cases where a standard becomes a de facto industry standard. In the latter case, competition may be eliminated if third parties are foreclosed from effective access to the standard. However, if the standard only concerns a limited part of the product or service, competition is not likely to be eliminated.
7.166 Nationalization of case law in horizontal cooperation agreements The modernization of European competition law has resulted in a decentralization of the power of exemption following the recognition of the direct effect of Article 101(3) TFEU. In practice, this means that the NCAs and national courts will be (and already are) hearing cases involving the individual analysis of horizontal cooperation agreements. The Commission, which for its part focuses on cartel cases, no longer issues decisions in this area. The relevant case law is therefore developed at the national level. While the efficiency reasons for the change in approach are understandable, since this case law is not always readily accessible (given the diversity of promulgators and languages involved), a useful source of guidance has disappeared from the toolbox of practitioners and counsel. Moreover, it remains to be seen whether the recent judgment of the CJEU in Tele2 Polska will not equally lead to a dearth of Article 101(3) TFEU cases at the national level.219a
7.167 Comment In the Cabour case, the case law gave power to interpret the exemption regulations to the NCAs and national courts, within the limits provided by the principle of restrictive interpretation of exceptions.220 That means that the instruments analysed in this chapter are of direct use to the courts and the NCAs.
7.168 Guidelines on Article 101(3) TFEU The increase in litigation relating to Article 101(3) at the national level resulting from modernization, as well as the risks of differing interpretation and the complexity of assessments, led the Commission in 2004 to adopt general guidelines on the application of Article 101(3).221 These Guidelines supplement the Guidelines examined in this chapter, which are generally terse on the factors to be taken into account for horizontal cooperation under Article 101(3).
7.169 In substance, these Guidelines confirm two fundamental principles. First, the analysis under Article 101(3) consists in balancing the positive effects and the restrictive effects of the agreement in question. The agreement may benefit from an exemption under Article 101(3) if the positive effects (ie, the efficiencies) are greater than the restrictive effects that it generates. Second, it is essential that the four conditions in Article 101(3) be fulfilled for an agreement to be exempted. This implies that an agreement producing considerable efficiencies may nevertheless not be exempted if consumers do not, for example, directly benefit from it.
(iii) The restrictions of competition must be necessary to achieve the alleged efficiencies. This principle of necessity (‘indispensability’) exists across European competition law as a whole. No less restrictive alternative strategy must exist.222
(v) Consumers must obtain a significant proportion of the benefits produced by the agreement. This means that (i) the agreement must benefit not only the parties and (ii) to the extent that the agreement would also result in negative effects for the consumer, the positive effects for the consumer must offset the negative effects.
(vii) Under no circumstances can the presence of efficiencies justify the elimination of competition. If the agreement generates extremely large efficiencies for the benefit of undertakings that are already dominant on the market, a risk of eliminating all competition on the relevant market appears.
(viii) The efficiencies must be specific to the relevant market. An agreement’s restrictive effects in one market cannot be counterbalanced by benefits on another market (unless the markets are very closely linked).
(ix) The analysis of an agreement based on Article 101(3) derives from the substantive factual and legal circumstances surrounding the agreement. This means that an agreement that is justified at one time under Article 101(3) will not necessarily be justified at another time. This is a major difference from the previous practice of the Commission. Structural change in a market, for example, requires all the agreements of the undertakings on this market to be re-examined.
4 A joint venture is the most ‘structured’ form of horizontal cooperation agreement. According to the Commission, ‘joint ventures are undertakings which are jointly controlled by two or more other undertakings’ (Commission Notice on the concept of a full-function joint venture within the meaning of Council Regulation 4064/89 on the control of concentrations between undertakings, OJ C 66 of 2 March 1998, at 1, para 3). The existence of joint control is established when
two or more undertakings or persons have the possibility of exercising decisive influence over another undertaking. Decisive influence in this sense normally means the power to block actions which determine the strategic commercial behavior of an undertaking. (Commission Notice on the concept of concentration within the meaning of Council Regulation 4064/89 on the control of concentrations between undertakings, OJ C 66 of 2 March 1998, at 5, para 19)
5 In 2009, the company became Fujitsu Technology Solutions, as a result of Fujitsu buying out Siemens’ share of the company. See COMP/M. 5413, Fujitsu/Fujitsu Siemens Computers, OJ C 4 of 9 January 2009, at 1.
6 Thus, in joint production agreements, supply negotiations may be affected; in joint purchasing agreements, purchasing negotiations may be affected; in commercialization agreements, the sale of the product may be affected. See S. Bishop and M. Walker, The Economics of EC Competition Law—Concepts, Application and Measurement, 3rd edn (London: Sweet & Maxwell, 2010), at 212, para 5.57.
A production agreement can also have spill-over effects in markets neighbouring the market directly concerned by the co-operation, for instance upstream or downstream to the agreement (the socalled ‘spill-over markets’). The spill-over markets are likely to be relevant if the markets are interdependent and the parties are in a strong position on the spill-over market.
11 According to some writers, the provisions did not correspond to the reality of the horizontal agreements entered into in practice by undertakings. The texts therefore fell short of their mark by prohibiting agreements with effects that were often pro-competitive. In actual fact, the exemption regulations were not applied very often. See A. Jones and B. Sufrin, EU Competition Law, 4th edn (Oxford: Oxford University Press, 2010).
12 See our arguments in Chapter 8.
14 See Commission Regulation 2659/2000 of 29 November 2000 on the application of Article 81, paragraph 3, of the Treaty to categories of research and development agreements, OJ L 304 of 5 December 2000, at 7–12.
15 See Commission Regulation 2658/2000 of 29 November 2000 on the application of Article 81, paragraph 3, of the Treaty to categories of specialization agreements, OJ L 304 of 5 December 2000, at 3–6.
17 Commission Regulation 1217/2010 of 14 December 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of research and development agreements, OJ L 355 of 18 December 2010, at 36 (‘R&D Regulation’).
18 Commission Regulation 1218/2000 of 14 December 2010 on the application of Article 101(3) on the Treaty on the Functioning of the European Union to certain categories of specialization agreements, OJ L 355 of 18 December 2010, at 43 (‘Specialization Regulation’).
20 See Guidelines, n 7, at para 5. Information exchange agreements were included for the first time in the 2011 Guidelines. By contrast, the existing chapter on environmental agreements was removed, in this last revision. This reflects the fact that these will be assessed in the framework of another category included in the Guidelines, especially, R&D or standardization.
23 The insurance sector is subject to a block exemption Regulation (see Commission Regulation 267/2010 of 24 March 2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of agreements, decisions, and concerted practices in the insurance sector, OJ L 83 of 31 March 2010, at 2). The insurance companies sometimes cooperate out of necessity. These cooperations may be efficient in some respects. They allow for the joint establishment of risk premium rates based on collective statistics or on the number of claims (accuracy in risk assessment depends on the quantity of statistical information available and therefore it is sometimes necessary to team up with several firms), the establishment of standard insurance terms (good for small insurers or new entrants), joint coverage of certain types of risks (coinsurance—enables better coverage of very large risks or risks as yet unknown), more efficient settlement of the claims, verification and acceptance of safety equipment, the institution of registers of information on aggravated risks (fraud prevention).
25 See regarding this concept our arguments in Chapter 9.
35 Sector-specific guidance for information exchange has been available since 2008 for liner shipping (see Guidelines on the application of Article 81 of the EC Treaty to maritime transport services, OJ C 245 of 26 September 2008, at 2).
39 Ibid, at paras 58, 65–68. See also K.-U. Kühn and X. Vives, Information exchanges among firms and their impact on competition (Luxembourg: Office of Official Publications of the European Communities, 1995), at 3; F. Levêque, ‘Do all oligopolists have to be muzzled? Or the John Deere case law from an economist’s point of view’  3 Concurrences 3; see also M. Grillo, ‘Collusion and Facilitating Practices: A New Perspective in Antitrust Analysis’ (2002) 14(2) European J Law and Economics 151. For relevant case law, see T-141/94 Thyssen Stahl  ECR II-347, at 403ff.
40 Ibid, at 69–71.
41 The existence of a level of uncertainty is necessary in the market to incentivize both undertakings with a high degree of aversion to commercial risk (see Commission Decision, IV/31.370 and 31.446, UK Agricultural Registration Exchange, 17 February 1992, OJ L 68 of 13 March 1992, at 19, para 43) and a low degree (see T-35/92 John Deere Ltd v Commission  ECR II-957, at 47–9).
42 It should be made clear that the analysis which follows does not cover those information exchanges which take place as part of horizontal cartels, as these agreements are restrictions ‘by object’ which are deemed per se unlawful. See Commission Decision, IV/C/33.833, Cartonboard, 13 July 1994, OJ L 243 of 19 September 1994, at 1; T-53/03 BPB v Commission  ECR II-1333. See also Commission Decision, COMP/39.188, Bananas, 15 October 2008, not yet published (summary decision available at OJ C 189 of 12 August 2009, at 12).
48 P. Camesasca and A. Schmidt, ‘New EC Horizontal Guidelines: Providing Helpful Guidance in the Highly Diverse and Complex Field of Competitor Cooperation and Information Exchanges’ (2011) 2 J European Competition Law and Practice 227, 228.
54 See T-35/92 John Deere Ltd v Commission, n 41; C-7/95 John Deere v Commission, n 51. The Court of Justice notes that such agreements can also pose a problem on non-oligopolistic markets. According to the Court, ‘only general principle applied in relation to the market structure being that supply must not be atomised’ in nature, C-194/99 Thyssen Stahl AG v Commission  ECR I-10821, at 86.
69 See our arguments in Chapter 3.
72 In France, eg, telephone exchanges of information on retail oil prices between Esso, Total, BP, and Shell were found to be non-problematic, since those prices were the subject of mandatory public notices on French highways (see Paris Court of Appeals, Esso, Total, BP et Shell v Ministère de l’Economie, des Finances et de l’Industrie, 9 December 2003, BOCCRF no 2 of 12 March 2004). However, had the pump prices not been subject to mandatory public notice, the information would have been considered non-public. Here, the telephone exchange of pump prices probably would have become problematic. Cf, however, Example 5, in Guidelines, n 7, at para 109.
75 Ibid, at para 95. More generally, see B. Henry, ‘Benchmarking and Antitrust’ (1993–94) 62 Antitrust LJ 483 and J. Carle and M. Johnsson, ‘Benchmarking and EC Competition Law’ (1999) 2 European Competition L Rev 74.
76 See Commission Decision, IV/31.370 and 31.446, UK Agricultural Registration Exchange, 17 February 1992, OJ L 68 of 13 March 1992, at 19, para 60. In this case, the parties maintained that the exchange of information in question allowed them to accelerate the development of their products and to improve production planning and monitoring of licensees. The Commission, however, considered that the exchange was not indispensable to obtain the claimed benefits and that those efficiencies did not compensate for the resulting restrictions of competition. See also Commission Decision, IV/31.128, Fatty Acids, 2 December 1986, OJ L 3 of 6 January 1987, at 17.
82 See Microsoft Press Release of 2 November 2006, available at <http://www.microsoft.com/presspass/press/2006/nov06/11-02msnovellpr.mspx>.
83 See Microsoft Press Release of 25 July 2011, Microsoft and SUSE Renew Successful Interoperability Agreement, available at <http://www.microsoft.com/presspass/press/2011/jul11/07-25mssuseextensionpr.mspx>.
88 See Art 5 of the R&D Regulation. It will be noted however that two exceptions to the traditional black clauses are retained by Art 5(b)(i), (ii) of the R&D Regulation (fixing production objectives in the case of joint production and fixing sales and distribution objectives in the case of joint distribution).
93 Then the exemption is granted for seven years under Art 4 of the Regulation. If the undertakings are not competitors, the exemption is granted as long as the joint R&D lasts, and for seven years after the first market launch in the case of joint development. This scenario covers the case of new products. Competition law in fact protects what is termed first mover advantage.
For this purpose the Union shall, throughout the Union, encourage undertakings, including small and medium-sized undertakings, research centres and universities in their research and technological development activities of high quality; it shall support their efforts to cooperate with one another, aiming, notably, … at enabling undertakings to exploit the internal market potential to the full, in particular through the opening-up of national public contracts, the definition of common standards and the removal of legal and fiscal obstacles to that cooperation.
107 See our arguments concerning this decision in Chapter 3.
110 Ibid, at 4. No conclusion had been reached regarding this agreement, until June 1994, where the acquisition of 100 per cent share capital of AEG by Electrolux was cleared by the Commission (Case IV/M.458, Electrolux/AEG, 21 June 1994).
123 See Arts 1(o) and 1(p) of the Specialization Regulation. The exclusive supply obligation is defined as the obligation not to sell to a competing undertaking other than a party to the agreement concerning the product covered by the specialization agreement. The exclusive purchase obligation is defined as the obligation to purchase the product covered by the specialization agreement only from the party that agrees to supply it.
128 Horizontal cooperation agreements guidelines, n 13, at 2, para 105. It is debatable whether this reference was in line with the Guidelines on the application of Article 81(3) of the Treaty, OJ C 101 of 27 April 2004, at 97–118, para 106.
While it is true that the purchase of televised transmission rights for an event is not in itself a restriction on competition likely to fall under Article 81(1) EC and may be justified by particular characteristics of the product and the market in question, the exercise of those rights in a specific legal and economic context may none the less lead to such a restriction.
131 See Guidelines, n 7, at para 194. See Regulation 330/2010 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of vertical agreements and concerted practices, OJ L 102 of 23 April 2010, at 1 and Guidelines on Vertical Restraints, OJ C 130 of 19 May 2010, at 1.
147 Failure to comply with the clause was sanctioned in this case by a fine. In addition, other provisions of the articles of association allowed the operator of the cooperative to be excluded if the exclusivity obligation was not complied with. See Commission Decision of 5 December 1979, Rennet, IV/29.011, OJ L 51 of 25 February 1980, at 19.
153 Ibid, at para 226. Under the 2001 Guidelines, an additional requirement was provided, that the buyer, together with its connected undertakings, has an annual turnover, not exceeding €100 million (see Horizontal cooperation agreements guidelines, n 13, at 2, para 140).
174 ETSI, headquartered in Sophia Antipolis, France, was formed in 1988 by the CEPT and is officially recognized by the European Commission as the organization responsible for standardization of information and communication technologies within Europe. Its mission is to ‘develop globally applicable deliverables meeting the needs of the Information and Communications Technologies (“ICT”) community.’
175 3GPP is a collaboration agreement that was established in December 1998. It is a cooperation between ETSI (Europe), ARIB/TTC (Japan), CCSA (China), ATIS (North America), and TTA (South Korea). The scope of 3GPP is to make a globally applicable 3G mobile phone system specification within the scope of the ITU’s IMT-2000 project. Note that 3GPP should not be confused with 3GPP2, which was formed in 1998 to develop standards for the 3G evolution of the CDMA2000-based family of standards that previously had been under the aegis of TIA. 3GPP2’s organizational partners are TIA, ARIB, CCSA, TTA, and TTC.
199 R. Brooks and D. Geradin, ‘Interpreting and Enforcing the Voluntary FRAND Commitment’ (2011) 9 International J IT Standards and Standardization Research 1; D. Geradin, ‘Standardization and Technological Innovation: Some Reflections on Ex-ante Licensing, FRAND, and the Proper Means to Reward Innovators’ (2006) 29 World Competition 511.
200 R. Brooks and D. Geradin, ‘Taking Contracts Seriously: The Meaning of the Voluntary Commitment to Licence Essential Patents on “Fair and Reasonable” Terms’ in S. Anderman and A. Ezrachi, Intellectual Property and Competition Law: New Frontiers (Oxford: Oxford University Press, 2011).
219a See on Tele2 Polska Chapter 5, esp at para 5.31 and n 143.
221 See Chapter 3.