More than a year after its public consultation, the European Commission has published revised block exemption regulations (BER) on R&D cooperation and specialisation agreements, along with updated guidelines for horizontal cooperation agreements (Horizontal Guidelines). The BERs became effective on 1 July 2023.
The Horizontal Guidelines include new guidance on sustainability agreements, offering welcome clarity on collaboration towards sustainability objectives, including welcome safe harbours for unproblematic conduct. The EC’s open-door policy creates scope to seek further informal comfort. But, concerned about floodgates opening, the EC has not bowed to pressure to flex the existing rules further (as advocated by the more liberal approach of Dutch and UK competition regulators). We look forward to seeing how the EC’s approach evolves in practice, and whether competition concerns may continue to hamper green collaborations.
Key aspects of the sustainability guidance
The 2022 sustainability guidance (see our previous blog post), largely carried through into this final version, clarifies that competition law can only bite agreements which affect competition parameters (e.g., price or quality). Many sustainability agreements will fall outside Article 101(1), such as agreements following binding international rules on emissions. The guidance also provides specific guidance on standardisation agreements (e.g., where competitors adopt and comply with sustainability standards like manufacturing methods), creating a safe harbour for agreements meeting certain conditions, such as not leading to a significant increase in price or quality.
The guidance also recognises that sustainability agreements can create a range of benefits for consumers and explains how sustainability agreements may benefit from exemption under the four criteria in Article 101(3) (relevant benefits to consumers; indispensability; fair share for consumers; no elimination of competition).
These features remain in the finalised guidelines, with the updates largely providing welcome clarity on several issues.
The revised guidance offers welcome clarity
- A major concern for businesses has been the absence of written guidance (or precedent) on the EC’s approach to assessing sustainability agreements, leading to uncertainty and stifling legitimate collaborations. While not perfect, the clarity provided in the revised sustainability guidance is welcome. The EC confirms that cooperation can be indispensable and justified to realise greater benefits or to achieve a sustainability goal more quickly. This reflects the urgency of many sustainability issues and the need to overcome first mover disadvantages and regulatory failures.
- The EC’s position on assessing consumer benefits for the purposes of exemption under Article 101(3) provides businesses with a framework. Whilst the guidance could have gone further, the clear position on the hotly debated topics of “in vs out of market efficiencies” and “full compensation” provides businesses with a basis for evaluation (as explained below).
- The EC’s more structured approach to providing informal guidance on sustainability collaborations between businesses is helpful, but still falls short of equivalent Dutch and UK provisions which protect parties from fines where comfort letters are given.
Yet we still observe areas of concern
- When interpreting Article 101(3), the EC continues to require that consumers in the relevant market receive a “fair share” of benefits and be “fully compensated” for any harm (direct or indirect, or as part of collective benefits for society of which the consumer is part). The EC believes this stance goes as far as the legal framework permits and reaffirms its earlier position that it has no authority to consider benefits for consumers outside the relevant market.
- The EC has suggested its relatively conservative approach to identifying pro-environmental benefits will have a minimal practical impact but may still have a discouraging effect. The approach diverges from other regulators – notably the Dutch Competition Authority – which have favoured an approach aimed at considering benefits for society, rather than only focussing on benefits for the users of the products involved.
- The updated 20% market share safe harbour for sustainability standardisation agreements that lead to an increase in prices or quality reductions is practical. However, larger market coverage increases sustainability benefits, and broader industry engagement will likely exceed 20%. Such cases will require assessment under normal Article 101(1) and 101(3) principles. The EC helpfully states that, even outside the safe harbour, it is possible that standardisation agreements will not result in a restriction of competition or could benefit from exemption under Article 101(3).
Key developments to watch
- The Dutch Authority has responded to the Horizontal Guidelines by indicating that it will bring its draft guidelines on sustainability agreements in line with the EC’s guidelines. What this means in practice will be an area to watch given significant divergence in approach. The President of the Dutch Competition Authority, Martijn Snoep, has already declared that it would not shy away from bringing a test case on sustainability to the EU courts to settle the debate.
- The EC has helpfully clarified that, for agreements whose “main objective” is the pursuit of sustainability aims, an effects analysis is required. This is an important development which should help to overcome businesses’ major concerns around engaging in anything which could be viewed as a per se infringement. Businesses will need to carefully consider the evidence required to establish first that the main purpose of their agreement is the pursuit of a sustainability objective and second what those effects are on the relevant markets.
For now, though, we welcome the Horizontal Guidelines as bringing much greater certainty for businesses. All eyes are on businesses to see whether projects that may previously have stalled due to unacceptable levels of antitrust risk could now be dusted off. For some, looking to run before they’re allowed to walk, the changes may not be enough.
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The below table presents a high-level outline of the changes to the sustainability guidance between the 2022 draft and the 2023 final version.
| Guidance topic | Key changes |
| Bifurcated approach to assessing sustainability agreements | The EC introduces a bifurcated framework of assessment depending on the type of sustainability agreement. First, the general horizontal rules remain the main port of call for horizontal agreements that pursue sustainability objectives amongst other objectives. Sustainability objectives must be considered when conducting the standard analysis under the horizontal rules, including both an by object and a by effect analysis. The general Horizontal Guidelines as such need to be read along with sustainability sections. Second, for agreements whose main objective is pursuit of sustainability, only an effects analysis will be required. This needs to consider the sustainability chapter including with regard to a new list of factors (i.e. market power of parties, market coverage of agreement, extent that information shared, etc). |
| Agreements that are not anti-competitive | The EC provides an additional example of a type of sustainability agreement that is not considered to raise competitive concerns. This involves agreements that aim solely to ensure compliance with sufficiently precise requirements or prohibitions in legally binding international treaties, agreements or conventions. |
| Sustainability standardisation agreements and safe harbour | The EC clarifies the contours of sustainability standardisation agreements: Agreements do not benefit from treatment as standardisation agreement if they reduce output of products.Agreements can benefit from a safe harbour (no negative effects on competition) even when they lead to increase in price or reduction in quality, if the combined market share of participating companies does not exceed 20% on any relevant market that may be affected by the standard.There is no longer a requirement for businesses to monitor compliance with the standard to benefit from the safe harbour, but monitoring will remain a factor to the overall assessment whether an agreement pursues a sustainability objective.The ability of third parties to participate in the sustainability standardisation agreement will be factored in the effects analysis (as well as into assessment of whether the safe harbour is met). A standardisation agreement will be considered to appreciably restrict competition if it eliminates less expensive product variants from the market. |
| By object restrictions | The EC will treat the following agreements as by object restrictions: agreements on how to pass on to customers increased costs in the form of increased or fixed prices of products incorporating the standard;agreements to put pressure on competing third parties to refrain from marketing products that do not comply with the sustainability standard;agreements to limit technological development to the minimum sustainability standards required by law.By object restrictions can still be allowed under Article 101(3) as long as the agreement is not used to “disguise a by object restriction”. |
| Indispensable sustainability benefits | Whereas the agreement must be indispensable to obtain the sustainability benefits, the EC also acknowledges that: even in presence of regulation, agreements may still be indispensable to achieving sustainability benefits (for example, where not all aspects of market failure addressed by regulations, or where the agreement would achieve a higher sustainability standard than the one set by regulation); andsustainability agreements may be needed to achieve a goal more quickly (not just more efficiently) or to overcome customer misconceptions. This is for example the case for an agreement to phase out excessively large packages that are perceived as better than small packages by consumers but add no real value to the product.Clarification on scope of “pass-on” requirement to acknowledge that in some cases time will be needed for the benefits to consumers to materialise, but that greater time lags will require greater efficiencies to compensate. |
| Informal guidance | The EC commits to provide informal guidance based on the Informal Guidance Notice (see our post on the IGN). |
In case you missed it, read more on the latest developments across antitrust enforcement and M&A regulatory hurdles, in our Summer’s Antitrust and Foreign Investment Top Stories 2023 publications.
For further information, please contact:
Jonathan Ford, Partner, Linklaters
jonathan.ford@linklaters.com
