23 March 2022

Commission drafts revised horizontal rules on cooperation between competitors

+ 1 other expert

As the current EU regulations exempting specific categories of anti-competitive behaviour expire in 2022, the European Commission is revising these rules. It has now published drafts of the block exemption regulations on research & development and on specialisation agreements, accompanied by a draft of the revised horizontal guidelines.

While the online publication is for consultation purposes only, it provides a sneak preview of the most significant changes that we may expect in the final version law. The most noteworthy additions are new chapters in the guidelines on: (1) agreements that pursue sustainability goals (see our more detailed article on that chapter here); (2) bidding consortia for procurement processes; and (3) data-sharing/data-pooling agreements and algorithms. Furthermore, the Commission clarifies the distinction between illegal buyer cartels and joint purchasing agreements, and proposes narrowing the application of the R&D block exemption to completely new products.

Rules on cooperation between competitors

Both EU law and national competition laws of the member states contain a prohibition on anti-competitive agreements. The prohibition includes price-fixing or market-sharing cartels, as well as agreements and/or concerted practices with anti-competitive effects that may have a legitimate goal. The latter can be exempted from the prohibition, either on an individual basis or as a group of specific agreements under a block exemption regulation, provided certain criteria are met. The Commission has issued guidelines to explain how companies must self-assess compliance with the prohibition and how the conditions for exemption may be fulfilled. The most important block exemptions - for agreements between competitors (horizontal agreements) and for agreements between undertakings active at different levels of the supply chain (vertical agreements) - expires this year. The Commission is in the last stages of revising these regulations and the accompanying guidelines. On 1 March 2022, the Commission published new draft revised rules on horizontal agreements and launched a public consultation inviting stakeholder comments. The Commission drafted a block exemption regulation for agreements between competitors to jointly pursue R&D, and a block exemption regulation for specialisation agreements. The draft guidelines cover a wider variety of agreements. We highlight some of the key changes in the recently published drafts below.

Bidding consortia

Public or private entities may procure their purchases through a tender. However, an undertaking might not individually meet the tender criteria and decide to team up with one or more other undertakings that are in the same position in order to make an offer as a consortium. This is pro-competitive since, by allowing cooperation within the context of the consortium, an extra, viable competitor can be included in the tender process. In the current horizontal guidelines, there is no guidance on these types of agreements. To address this, the Commission introduces a new paragraph on bidding consortia in the recently published draft guidelines. It starts by making a distinction between illegal bid-rigging and legal bidding consortia. The most important test for allowing a bidding consortium is that all consortium members cannot individually meet the criteria of the tender. It is, however ,disappointing that the Commission does not give more hands-on guidance or examples on how to assess the "individual" test, such as on how to assess the financial capacity, solvability and experience of a consortium member. Reference is simply made to the need to assess on a case-by-case basis, without providing general principles or examples.

Joint purchasing agreements

In recent years, we have seen an increase in enforcement by competition authorities against buyer cartels, such as scrap car batteries, ethylene producers, French and Belgian supermarkets, and German car manufacturers purchasing steel. Joint purchasing by competitors may, however, also lead to lower prices, provided that the members also compete effectively on the downstream market. In principle, this is considered pro-competitive. To identify the distinction between a legal joint purchasing agreement and an illegal buyer cartel, the Commission has expanded its guidance by including paragraphs on buyer cartels in addition to the current paragraphs on joint purchasing. A buyer cartel has the restriction of competition as its object. For example, joint purchasing involves collective negotiation with the supplier for the whole group, whereas a buyer cartel consists of individual negotiations with the supplier, while the cartel members secretly coordinate those negotiations. The Commission has requested the views of Richard Whish and David Bailey - renowned competition law specialist - on this topic and has published the expert report of their relevant case law analysis. They conclude that buyer cartels "have never involved joint purchasing".

Given the recent increase of enforcement against buyer cartels, we welcome the guidance on this point. However, the Commission seems to restrict the distinction between the two, mainly on points of appearance towards the supplier: coordination between competitors of their purchases is not prohibited if they present themselves collectively to the supplier. If the supplier is unaware of the coordination because the purchasers present themselves individually to the supplier, it constitutes a buyer cartel.

With this approach, the Commission ignores that the economic advantage or economic harm of both types of coordinated purchases by competitors are equal. "Countervailing buyer power" normally leads to lower prices and increases consumer welfare, provided that the purchasing undertakings compete on the downstream market. This economic effect exists regardless of how buyers negotiate with the supplier: jointly or individually, lower prices will result. Coordinated buyer power that exceeds the seller's power (or even results in a monopsony) may lead to economic harm: purchase prices being too low and the supplier having to reduce supply volume.

Data sharing/pooling and algorithms

The Commission acknowledges that data has gained importance over the past few years and that the results of big data analytics and machine learning are increasingly used for commercial decision making. Therefore, benchmarking as well as data sharing and pooling have especially gained traction. The recently proposed EU Data Act will create more access to data for consumers and businesses and offer possibilities for them to share those data with third parties. If and when that act enters into force, data sharing will increase even further. With regard to these two practices, there is a rebuttable presumption in EU competition law that the exchange of commercially sensitive information between competitors is an illegal concerted practice restricting competition. This is why the Commission has included more guidance on data sharing between competitors in the draft guidelines. In the same manner, the related use of algorithms has been addressed in the draft guidelines. The use of algorithms can increase market transparency and therefore reduce the uncertainty about competitors' behaviour (whereas this uncertainty is indispensable for competing on the lowest price/highest quality), or it can even lead to collusion.

In addition, it is not only data sharing that can be anti-competitive, but also the denial of access to data. This issue is included in the draft guidelines and has recently been illustrated by the commitments offered to the Commission by Insurance Ireland, concerning access to its data-sharing platform. In our view, the Commission rightfully recognises the importance of data and algorithms in today's economy, and we believe it is right to address this in the draft guidelines.

Research & Development

According to the Commission, an evaluation of the current rules indicates that when competitors pool their R&D efforts to develop new products, technologies or processes, an undesired restriction of competition may arise. Therefore, the Commission proposes that the revised block exemption only apply if – in addition to the joint R&D - at least three other competing R&D efforts remain active. So only when there are at least four R&D efforts, the R&D block exemption will apply. How companies at the start of a confidential R&D process are expected to ascertain the number of competing R&D projects remains unclear. The Commission seems to assume that companies know their market so well that they can also assess their competitors' R&D projects against the specific conditions of this new rule in the block exemption. We anticipate questions about this during the consultation process.

The current horizontal guidelines also contain a chapter on R&D agreements. This guidance is limited to an analysis of R&D agreements between competitors under the prohibition on anti-competitive agreements and to anpossible individual exemption that might be available. In the current guidelines, no reference is made to the block exemption on R&D agreements. The draft of the new guidelines solves this by adding a paragraph devoted to this block exemption, explaining its definitions and concepts (the same is the case for the block exemption on specialisation agreements). We think this is an improvement.

What next?

Of all block exemption regulations related to the prohibition on anti-competitive agreements, the vertical block exemption regulation (VBER) is the first to expire - by the end of May this year. A consultation similar to the one for the horizontal block exemptions already took place last year (see our previous article on that here) with an additional consultation specifically in relation to dual distribution earlier this year. The next step will be for the Commission to publish the new VBER, accompanied by the new vertical guidelines. The new horizontal block exemption regulations and horizontal guidelines will follow later this year.