Commission updates guidance on standardisation agreements in new horizontal guidelines

On 14 December 2010, the Commission adopted revised horizontal guidelines laying down detailed rules on the assessment of co-operation between competitors. In particular, the section of the guidelines covering standardisation agreements has undergone significant revision and now contains a much more detailed analysis of the specific features of, and competition risks resulting from, standard-setting arrangements. In comparison with the existing version (published in 2001), the new guidelines set out far-reaching recommendations for the internal procedures of standard-setting bodies by taking on board the Commission's recent experiences in, among others, the Rambus and Qualcomm cases (see VBB on Competition Law, Vol. 2009, No. 6 and Vol. 2007, No. 11).

The guidelines recognise that standardisation agreements usually have a positive economic effect, for example by promoting "economic interpenetration", improving supply conditions and encouraging the development of new markets. However, standard-setting can also give rise to restrictive effects on competition by reducing price competition and limiting or controlling production, markets, innovation or technical development. The guidelines confirm that agreements that use a standard as part of a broader restrictive agreement aimed at excluding actual or potential competitors are considered to restrict competition by object. For instance, an agreement whereby a national association of manufacturers sets a standard and puts pressure on third parties not to market products that do not comply with the standard would fall into this category.

On the other hand, the guidelines indicate that standard-setting agreements that are in compliance with the following principles will normally fall outside the scope of Article 101(1) TFEU:

  • participation in the standard-setting process is unrestricted;
  • the procedure for adopting a standard is transparent;
  • the standardisation agreement contains no obligation to comply with the standard; and
  • the standardisation agreement provides for access to the standard on fair, reasonable and non-discriminatory terms ("FRAND").

With regard to the requirement of access to the standard on FRAND terms, the guidelines specify that the policy on intellectual property rights ("IPR") of the standard-setting body must require participants to provide an irrevocable commitment in writing to license their IPR to all third parties on FRAND terms prior to the adoption of the standard. Participants may exclude specified technology from the standard-setting process (and thereby from the FRAND commitment) but only if that exclusion takes place at an early stage in the development of the standard.

In addition, the IPR policy of the standard-setting body would need to require good faith disclosure by participants of their IPR that might be essential for the implementation of the standard under development. The guidelines give some explanations as regards the extent of participants' disclosure efforts. In particular, a participant will not be required to disclose IPR applications and a simple declaration that he is likely to have IPR claims will suffice.

Interestingly, the guidelines provide assistance on how to determine whether fees charged for access to IPR in the standard-setting context are unfair or unreasonable and thus in breach of the FRAND commitment. According to the guidelines, one possible method for assessing whether the fees bear a reasonable relationship to the economic value of the IPR is to compare the licensing fees charged before the standard was adopted (ex ante) with those charged after the industry has been locked in (ex post). An alternative method would be to obtain an independent expert assessment of the relevant IPR portfolio's "objective centrality and essentiality" to the standard at issue.

Notably, the guidelines also state that standard-setting agreements providing for ex ante disclosures of most restrictive licensing terms will not, in principle, restrict competition. According to the guidelines, if the IPR policy of a standard-setting organisation chooses to provide for IPR holders to disclose individually their most restrictive licensing terms – including the maximum royalty rates they will charge – prior to the adoption of the standard, this will normally not be considered to be a restriction of competition. In the Commission's view, unilateral ex ante disclosures of most restrictive licensing terms is one way to ensure that the parties involved in the selection of a standard are fully informed not only as to the available technical options but also as to the likely cost of the IPR.

Finally, the guidelines also cover standard terms to the extent that they establish standard conditions of sale or purchase between competitors and consumers for substitute products. The guidelines recognise that standard terms can be drawn up either by a trade association or directly by competitors and that they play an important role in certain industry sectors (e.g., insurance and banking). According to the guidelines, when standard terms are effectively accessible and non-binding (i.e., the parties remain free to use other terms when selling their products to consumers), standard terms are generally not likely to give rise to restrictive effects on competition. In contrast, standard terms containing any provisions that are likely to have a negative effect on competition relating to prices (e.g., by defining the type of rebates to be given) will be likely to restrict competition within the meaning of Article 101(1) TFEU.

For more information on the horizontal guidelines, see the Cartels and Horizontal Agreements section of this newsletter.

Commission adopts new R&D Block Exemption Regulation

On the same day that the European Commission published its new horizontal guidelines (see article above and also the Cartels and Horizontal Agreements section of this newsletter), it also adopted a new R&D Block Exemption Regulation ("New R&D BER").

While the New R&D BER retains the structure of the previous BER, there are some changes of note. In particular, the Commission has extended the scope of the New R&D BER to cover "paid-for research" agreements, where one party finances the R&D activities carried out by the other party. Previously, the application of the block exemption was restricted to situations in which the parties were working together. Also, the list of hardcore restrictions has been subject to some minor amendments. For example, restrictions are permitted on active sales into exclusively allocated territories or to certain customer groups without the former seven-year limit. In addition, two restrictions that until now had been classified as hardcore will now be treated as simply not exempted. This means that their inclusion no longer removes the benefit of the block exemption from the rest of the agreement. The restrictions concerned are prohibitions on challenging IPR and certain requirements not to grant third parties licences to manufacture contract goods or apply contract processes.

The New R&D BER also contains a number of changes from the draft that was circulated for consultation earlier this year. The draft BER provided that the exemption would only apply where parties agreed, prior to starting the R&D, to the disclosure of their existing and pending IP rights insofar as these were relevant for the exploitation of results of joint R&D by the other party(ies). There was significant opposition to this condition during the consultation and it has been dropped from the adopted version. The Commission appears to have concluded that such an obligation is not necessary as potential patent ambushes can be addressed through contractual agreements between the parties.

The New R&D BER allows for parties to compensate each other for giving access to the results for the purposes of further research or exploitation. However, such compensation must not be so high as to effectively impede access. Furthermore, where the R&D agreement provides for joint R&D or paid-for R&D, the agreement must provide for access by all parties to any pre-existing know-how belonging to the other parties.

The New R&D BER will enter into force on 1 January 2011, with a transitional period of two years. During that period, the previous Regulation will remain in force for agreements that fall within the scope of the existing rules.

OTHER DEVELOPMENT

EUROPEAN UNION: On 30 November 2010, the European Commission carried out unannounced inspections ("dawn raids") at the premises of certain companies active in the pharmaceutical sector in several EU Member States. The Commission stated that it has reason to believe that the companies concerned may have acted individually or jointly to delay generic entry for a particular medicine. On 2 December 2010, AstraZeneca confirmed that it was one of the companies that had been visited.

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