New EC Draft HBERs And UK Draft Horizontal Guidelines Shape Horizontal Agreements

• Published date: 06 July 2023
• Subject Matter: Antitrust/Competition Law, Consumer Protection, Antitrust, EU Competition , Consumer Law
• Law Firm: Sheppard Mullin Richter & Hampton
• Author: Mr Oliver Heinisch and Anton Gerber

In summary

The CMA is closely monitoring the European Commission's approach to horizontal agreement regulation. Signs of divergent paths between the two in areas like joint purchasing and sustainability agreements will define cooperation post-Brexit.

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Discussion points

• Joint purchasing
• Sustainability agreements
• Information exchange
• UK developments

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Referenced in this article

• Treaty on the Functioning of the European Union
• Horizontal Guidelines and the Draft Horizontal Guidelines
• Eturas
• Dole Food
• Duravit
• ICAP
• T-Mobile
• Guidelines on Vertical Restraints
• Car Emissions
• European Government Bonds

Introduction

The first paragraph of article 101 of the Treaty on the Functioning of the European Union (TFEU) prohibits agreements between undertakings that have as their object or effect a restriction of competition. The third paragraph of the same article provides for the exemption of agreements in scope of the first paragraph if they contribute to improving the production or distribution of goods, or promoting technical or economic progress, while allowing consumers a fair share of resulting benefits. In addition, restrictions in agreements must be indispensable, and not afford the possibility of eliminating competition in respect of a substantial part of the products in question. The European Commission (the Commission) is empowered to adopt regulations that define categories of agreements and certain conditions under which these satisfy article 101(3) TFEU's criteria and escape the prohibition.¹

The Commission has adopted two such block exemption regulations, which concern forms of horizontal cooperation (HBERs). Horizontal agreements are agreements between actual or potential competitors (ie, companies operating at the same level of the market). The types of cooperation covered by the regulations include research and development (R&D) and specialisation agreements, which typically result in efficiencies, innovation and consumer benefit. There are other forms of horizontal cooperation not exempted by a regulation that likewise may create efficiencies, such as joint purchasing, commercialisation or standardisation agreements. These are addressed in the more general Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal cooperation agreements (the Horizontal Guidelines).² While there are sections in the Horizontal Guidelines that provide guidance on the Commission's interpretation of the HBERs, other sections are independent from the binding legal instruments.³

The Block Exemption Regulation (BER) relating to R&D,⁴ the Specialisation Horizontal Block Exemption Regulation (the Specialisation BER),⁵ as well as the accompanying Horizontal Guidelines have been in place in their current form since 2011 and are now the subject of revision efforts that started in 2019. In a first step, stakeholders were invited to submit their views on the existing framework. According to the subsequently published evaluation study, the evidence collected pointed to an overall adequate degree of legal certainty afforded by the HBERs, together with the Horizontal Guidelines, especially for R&D and specialisation agreements.⁶ Yet, there were also reports of a lack of clarity in some specific areas.⁷

The Commission followed up with three draft revised documents, which were put to public consultation.⁸ The consultation period ended on 26 April 2022. Subsequently, the duration of the existing HBERs and Horizontal Guidelines (which were meant to expire on 31 December 2022) was extended to 31 June 2023 to allow the Commission to duly process the feedback received during the consultation phase.⁹

Proposed changes to the revised R&D BER include the introduction of a new test in relation to R&D poles in addition to market share thresholds. There is no longer an exemption foreseen for agreements where less than three competing R&D efforts would remain in addition to and comparable with those of the parties to the R&D agreement.¹⁰ Self-assessment pursuant to this requirement has been heavily criticised by stakeholders as unworkable in practice, since companies usually do not disclose detailed information about competing R&D projects.¹¹

The proposed revised Specialisation BER most notably widens the scope of unilateral specialisation agreements to exempt from now on also multi-party agreements of that kind (instead of only two-party agreements).¹²

In the United Kingdom (UK), relevant competition legislation, including the existing HBERs, formed part of the retained EU law following Brexit. Meanwhile, on 25 January 2023, the Competition and Markets Authority (CMA) put a draft for new guidance on horizontal cooperation agreements to consultation.¹³ Additionally, on 28 February 2023, it published a separate draft guidance on sustainability agreements.¹⁴

This article discusses some of the key changes proposed in the Commission's Draft Horizontal Guidelines and will then shed a light on the aspects where the CMA diverges. These changes are:

• joint purchasing agreements;
• sustainability agreements; and
• information exchange between competitors.

These forms of cooperation are not covered by the revised HBERs but are exclusively dealt with by the Horizontal Guidelines.¹⁵

Joint purchasing

Joint purchasing agreements operating as disguised buyer cartels are a serious breach of competition law. Recent enforcement action by the Commission shows that crossing the boundary between legitimate purchasing alliance and buyer cartel poses a major risk for businesses.¹⁶ This is why the Commission puts a particular focus on clarifying this distinction in the Draft Horizontal Guidelines.¹⁷

The Commission first sets out an overview of possible forms of cooperation that may be considered legitimate joint purchasing agreements, and notably also includes, in addition to established practices such as joint pooling of actual purchases or retail purchasing alliances, joint negotiation agreements including licensing negotiation groups for standard essential patents (SEPs).¹⁸ The Horizontal Guidelines do not, however, introduce more specific guidance on these last-mentioned particular types of agreements, which would have been welcomed.¹⁹

Expanded guidance on the delimitation to buyer cartels

Illegal buyer cartels have as their object the coordination of the purchasers' behaviour relating to their individual interaction with the supplier on the purchasing market.²⁰ The Commission stresses that undertakings must not fix the purchase price among themselves and subsequently individually negotiate with and purchase from the supplier.²¹ The illegality of this action could already stem from unlawful information exchange in that context.²² Buyer cartels are infringements by object and do not require an assessment of effects (including market definition).²³ The same is true for collective boycotts where a group of purchasers aims at excluding an actual or potential competitor from the same level of the selling market.²⁴

The Commission provides an indicative list of factors to be observed to ensure compliance. They include:

• that suppliers are aware that they are negotiating with a group of buyers operating a joint purchasing agreement, without it being necessary to disclose the exact identities of the buyers; and
• that the conditions of the joint purchasing agreement are set up in advance in writing to allow for ex-post scrutiny.²⁵

Even where an agreement does not amount to an infringement by object, its effects may still restrict competition. Joint purchasing agreements must be limited to what is necessary to create pro-competitive buyer power and not contain restrictions such as exclusivity clauses (but may, for instance, include non-compete clauses).²⁶ They may also give rise to a restrictive effect on competition where they increase buyer power to an extent that it is harmful to upstream competition. The Draft Horizontal Guidelines set out in more detail when this may be the case, including in relation to agreements having as their object to shun suppliers of unsustainable products, a practice that needs to be assessed in light of factors such as the nature of the products, and the market position of the purchasers and suppliers.²⁷ Conversely, the Commission also highlights the risk linked to coordination in circumstances where the parties to the joint purchasing agreement are also competitors downstream.²⁸ However, the Commission now emphasises that hard bargaining tactics, such as a temporary halt to purchases, are part of the normal functioning of a joint purchasing agreement. Therefore, this behaviour will not be assessed separately and usually does not restrict competition.²⁹

Exemption under article 101(3) TFEU

Even where a joint purchasing agreement restricts competition, it may be exempted under article 101(3) TFEU. The Commission provides expanded guidance in its Draft Horizontal Guidelines to facilitate this assessment. As a preliminary point, the Commission now stresses that a more resilient supply chain may be one of the potential efficiencies brought about by joint purchasing.³⁰ Additionally, the Commission gives significantly more detailed indications on situations in which the pass-on of efficiencies to consumers in the form of increased output or lower prices may be doubtful. This is the case where the parties to the joint purchasing agreement hold significant market power on the selling market,³¹ or where it only achieves a reduction in fixed costs as a result of the negotiations (eg, in the form of lump sum payments from the supplier).³² Moreover, the Commission considers joint purchasing agreements that limit their members' ability to independently source additional volumes as problematic.³³

Additional examples

The Commission provided in its 2011 Horizontal Guidelines a number of examples to illustrate the general principles on joint purchasing it outlined in the previous paragraphs. These examples have been...