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Publication
Merger law reform in Australia: What next after the Exposure Draft?
As expected, the Australian Commonwealth Treasury released an exposure draft for the proposed new Australian merger regime on 24 July 2024.
Global | Publication | July 2023
On 1 June 2023, the European Commission (EC) adopted the revised horizontal block exemption regulations (“HBERs”) on research and development (R&D) and specialisation agreements, as well as the revised Guidelines on horizontal cooperation (Guidelines). The updated EC regulations will enter into force on 1 July 2023 and will remain valid until 30 June 2035.
During a transitional period of 2 years agreements that do not meet the conditions of the new HBERs but which meet the conditions of one of the previous HBERs can remain block exempted.
The former chapter on standardisation has been split to improve clarity and readability. There are now two separate chapters on standardisation agreements and on standard terms. While no substantial changes stand out in the chapter for standard terms, the revised chapter for standardisation agreements introduces greater flexibility to restrict participation in the standard-setting process. Also, new guidance has been added about licensing on fair, reasonable, and non-discriminatory (FRAND) terms and the good-faith disclosure by parties of their intellectual property rights (IPRs).
Standardisation agreements may give rise to restrictive effects on competition when the agreement involves competitors. The EC is mainly concerned about a restriction of price competition due to collusion, foreclosure of innovation and a possible prevention of effective access to the standard.
When it comes to IPRs, the Guidelines identify three main groups of participants with different interests:
In addition to these three categories, the Guidelines note that undertakings may draw value from their IPRs through methods other than royalties. In practice, most undertakings use a mix of the three business models mentioned.
The Guidelines qualify certain standardisation agreements as restricting competition by their very nature eliminating the need to further analyse their effects. As an example, they mention agreements that use a standard to exclude actual or potential competitors. The agreements that do not restrict competition by object, must be analysed by looking at their legal and economic context to determine their effects on competition. The new Guidelines specify certain factors that should be considered in this analysis, including the nature of the goods, services or technologies affected and the structure and functioning of the market(s) in question. However, in the absence of market power due to competition between several voluntary standards, a standardisation agreement will not be anti-competitive.
Open participation in the standard development process will lower the risks of a likely restrictive effect on competition. However, the new Guidelines clarify that restricting participation may not lead to restrictive effects on competition in certain circumstances, for example, if
Furthermore, restricted participation might be less problematic if all stakeholders are kept informed and consulted on the work in progress. As a tool to achieve this, the new guidelines propose a collective representation of stakeholders. Generally, the more transparent the procedure and the more stakeholders can influence the process leading to the selection of the standard, the more likely it is that the adopted standard will consider the interests of all stakeholders.
To limit the risk of an agreement restricting competition, the Standard Development Organisation (SDO) should ensure effective access to the standard for users on FRAND terms and the IPR holders should provide the FRAND commitment before standard adoption. They can, however, exclude specified technology from the standard development process if this takes place at an early stage.
In the case of a dispute, the assessment of whether the license fees charged for access to IPR are unfair or unreasonable should depend on whether the fees are reasonable in relation to the underlying IPRs’ economic value. The EC now points out that the value should be irrespective of the market success of the product which is unrelated to the patented technology. As to the available methods, the license fees charged for the relevant patents before standard development (ex-ante) can be compared with the value/royalty charged after the industry has been locked in (ex-post) but also with the value/royalty of the next best available alternative (ex-ante). As in the previous version, the Guidelines state explicitly that FRAND can also cover royalty-free licensing. Other methods to determine the FRAND character would be, for example, an independent expert assessment on whether the relevant IPR is objectively central and essential to the respective standard or a comparison of the licensing terms of the IPR holders with other implementers of the same standard.
The revised Guidelines establish principles on good faith disclosure that should be fulfilled so that a standardisation agreement will, in general, not restrict competition. Good faith disclosure by participants of essential IPR (for the implementation of a standard) should be a requirement of any IPR policy. Additional information is now required in relation to patents. The disclosure should at least include the patent number or patent application number but, if this information is not yet publicly available, a so-called “blanket disclosure” is sufficient. In this case the participant declares that it is likely to have IPR claims over a particular technology without identifying specific IPR claims or applications. The participant is advised to complete the information as soon as possible since a blanket disclosure is an exception, and a less effective way for the industry to make an informed choice of technology and to ensure effective access to the standard. The Guidelines also encourage participants to update their disclosure when a standard is adopted, notably if there are any changes that may impact the essentiality or the validity of participants’ IPRs.
When the parties assess the restrictive effects of an agreement the new Guidelines explain that providing for ex-ante disclosure of the most restrictive licensing terms including maximum royalty rates or the maximum accumulated royalty rate will generally be unproblematic. Such ex-ante disclosures enable the parties to take an informed decision from a technical and a cost perspective.
The authors wish to thank Aliriza Ozturk, International Trainee, Norton Rose Fulbright LLP Brussels for his contribution.
Publication
As expected, the Australian Commonwealth Treasury released an exposure draft for the proposed new Australian merger regime on 24 July 2024.
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