On 1 June 2023, the European Commission (EC) adopted a new block exemption for R&D agreements (New BER) together with new guidelines on R&D agreements as part of a revised version of its wider guidelines on horizontal agreements (New Guidelines). The New BER will enter into force on 1 July 2023.
The New BER
The EC has not included its most controversial proposal in the New BER. Parties that compete in innovation will not have to establish that three or more comparable competing R&D efforts exist in order to benefit from the BER the safe harbour, as the EC had proposed in the draft BER published on 1 March last year. Such a change would have significantly reduced legal certainty and had attracted significant criticism (see here).
That is, however, the only major change from the proposed draft. As a result, the application of the New BER remains subject to the same conditions that limit the value of existing R&D BER that it replaces, in particular:
- that all parties to the R&D agreement have full access to both the final results of the R&D and (in certain circumstances) each other’s pre-existing know-how; and
- a 25% market share threshold applicable to both the relevant technology market and the relevant downstream product market.
The New Guidelines
The New Guidelines also include changes from the draft guidelines published on 1 March 2022 (Draft Guidelines). Some are helpful. In particular, the Draft Guidelines had included a loose and uncertain description of the circumstances in which R&D collaboration might give rise to an automatic ‘by object’ restriction of competition (see here). The New Guidelines adopt a tighter definition as follows (paras 141 and 142):
“R&D agreements may restrict competition by object if their main purpose is not the pursuit of R&D, but to serve as a tool to engage in a cartel … For example, undertakings may use an R&D agreement to (i) prevent or delay the market entry of products or technologies; (ii) coordinate the characteristics of products or technologies that are not covered by the R&D agreement, or (iii) limit the improvement of a jointly developed product or technology”
This appears to be no more than a clarification of the language in the 2011 guidance (2011 Guidelines) that the New Guidelines replace.
Other changes are less helpful and arguably increase legal uncertainty in an already difficult area. The 2011 Guidelines stated clearly (at para 130) that:
“[if] the parties are not able to carry out the necessary R&D independently … the R&D agreement will not normally have any restrictive effects”.
The New Guidelines are more circumspect (para 135):
“In the absence of market power, R&D agreements entered into by non-competitors generally do not restrict competition. This may be the case where the parties’ assets, technologies or skills are complementary and they would not be capable of carrying out the R&D on their own within a short period of time”.
Also, the 2011 Guidelines recognized that granting all parties full access to the results of the joint R&D – as required for an agreement to benefit from the block exemption – would not render the deal unlawful where it was not commercially feasible to grant such access (para 140). The relevant language has been deleted from the New Guidelines. As a result, the New Guidelines give no express guidance on the lawfulness of R&D agreements in which “full access” to R&D results is not granted to all parties.
Divergence between EU and UK law
One consequence of EC dropping the proposed requirement for three or more comparable competing R&D efforts to exist from the New BER is to create new divergence between the application of EU and UK competition rules in this area. In order to benefit from the UK block exemption order for R&D agreements (UK BEO), parties that compete in innovation must show that either:
- three or more comparable competing R&D efforts exist; or
- three or more third parties able to independently engage in equivalent R&D exist.
It seems unfortunate that a situation has arisen in which the treatment of innovation agreements under UK law is now less generous than that under EU law.