The New Block Exemption Regulation and Horizontal Guidelines on Research & Development Agreements

Market share thresholds

The EC assumes that, in general, the positive effects of R&D agreements will outweigh the negative effects on competition below a certain level of market power. The BER exemption therefore only applies to agreements between competing undertakings if their combined market share does not exceed 25%. Competing undertakings can mean actual or potential competitors. 

To address any confusion on how to calculate the market shares the new regulation makes clear that where sales data for the preceding calendar year is not representative of the parties' true position on the relevant market, sales data for the three preceding calendar years should be used. If sales value data is not available sales volume data can be used instead. Expenditure on research and development and R&D capabilities can be taken into account as well.

Furthermore, the BER simplifies the provision on the period during which the agreement continues to benefit from R&D immunity even in the event of a rise of the parties’ combined market share. This so-called grace period is now two consecutive calendar years following the year in which the threshold was first exceeded.

Legal consequences of excluded restrictions

The R&D BER contains two kinds of restrictions that lead to different legal effects. 

The inclusion of certain hard-core restrictions means that the entire agreement cannot benefit from an exemption. These restrictions involve, for example, price fixing or output and sales limitations. 

Excluded restrictions are, for example, obligations not to challenge, after the end of the R&D effort, the validity of those intellectual property rights relating to it and that the parties hold in the internal market. As a legal consequence of such restrictions the R&D BER will continue to apply to the remaining part of the agreement provided that the excluded restrictions can be severed from that remaining part. This legal consequence has now been set out explicitly for clarification.

Protection of innovation competition

In its initial draft the EC had attempted to put a special focus on R&D agreements concluded by undertakings competing in innovation. Following feedback during the consultation the EC abandoned its proposal foreseeing that the R&D of the parties to the agreement had to be in competition with at least three comparable R&D efforts for the block exemption to apply. The R&D BER now notes that agreements between non-competing undertakings can be exempted since effective innovation competition will only be eliminated in exceptional cases. The EC can address such circumstances by a withdrawal of the exemption. Notably, the Horizontal Guidelines still contain a section on R&D agreements relating to innovation efforts and their individual assessment should the R&D BER not apply. The Horizontal Guidelines state that innovation agreements are, generally, not restricting competition if a sufficient number of third parties have competing R&D projects.

Withdrawal of R&D BER benefits

As already stated in the recitals of the previous R&D BER the EC or a national competition authority (NCA) can withdraw the benefits of the block exemption. The new Horizontal Guidelines emphasise that this can happen on the EC’s initiative or based on a complaint. The provisions setting out this possibility are now contained in separate articles in the regulation itself. The non-exhaustive list of situations in which the benefit might be withdrawn has also been moved from the recitals to the operative part of the BER giving it more weight. As regards innovation competition a withdrawal is only envisaged in cases of a substantial restriction of competition.

The authors wish to thank Aliriza Ozturk, International Trainee, Norton Rose Fulbright LLP Brussels for his contribution.