New Block Exemption Regulation on Specialisation Agreements

On 1 July 2023, the new horizontal block exemption regulation for specialisation agreements (Regulation (EU) 2023/1067; "SBER") entered into force. The SBER is relevant for companies that cooperate or intend to cooperate in the production of products or services (i.e. in case of joint production, unilateral and reciprocal specialisation). It replaced Regulation (EU) No. 1218/2010 on specialisation agreements that had been in force since 1 January 2011.

Background

Block exemption regulations exempt the behaviour of companies from the prohibition of cartels (Art. 101 (1) Treaty on the Functioning of the European Union (“TFEU”)) under certain conditions and are therefore of particular importance for the cooperation between companies. The SBER grants a block exemption to certain production agreements during their respective duration, provided that they fulfil the criteria set out in the SBER.

Three types of production agreements are covered by the SBER:

• Unilateral specialisation agreements,
• Reciprocal specialisation agreements and
• Joint production agreements.
  
  

Unilateral specialisation agreements are agreements between two or more parties active on the same product market, under which one or more parties agree to fully or partly cease production of certain products or to refrain from producing those products and to purchase them from the other party or parties, which in turn agree to produce and supply them.

Reciprocal specialisation agreements are unilateral specialisation agreements on a reciprocal basis, i.e. the parties agree to fully or partly cease or refrain from producing certain but different products and to purchase those products from one or more of the other parties.

In both (unilateral and reciprocal) specialisation agreements, the party or parties that cease or refrain from producing products do not have to reduce their capacity, but only their production volume.

If the parties agree to produce products jointly (i.e. in a joint venture, a joint team or a joint organisation), the agreements are deemed joint production agreements. In contrast to unilateral and reciprocal specialisation agreements, the parties are not required to cease or refrain from producing products.

If the production agreements do not fulfil the criteria of the SBER, they can be individually exempted from the prohibition of cartels. According to Art. 101 (3) TFEU restrictions of competition are individually exempted from the prohibition of cartels if they improve the production or distribution of goods or promote technical or economic progress; they are indispensable for the attainment of these objectives; consumers receive a fair share of the resulting benefit; and the agreement does not afford the parties the possibility of eliminating competition in respect of a substantial part of the products in question.

What’s new? Main changes in the SBER

• Extension of the definition of “unilateral specialisation agreements” to encompass more than two parties;
• Inclusion of a specific market share threshold in case intermediary products are covered by the production agreement and are inputs for downstream products produced and sold by one or more of the parties of the agreement; in this case, the block exemption only applies if the combined market share of the parties on the relevant market(s) for both, the intermediary products and downstream products, does not exceed 20% respectively;
• In principle, the calculation of the market shares shall be based on the data of the preceding calendar year. The SBER now contains a clarification that if the data of the preceding calendar year are not representative for the parties’ market position (in case of irregular or lumpy demand), the calculation of the market shares shall be based on an average of the parties’ market shares for the three preceding calendar years;
• Simplification of the handling of the application of the SBER, if the combined market shares of the parties exceed 20% in at least one of the relevant markets. If the threshold is exceeded for the first time, the SBER applies for a period of two consecutive calendar years following the year in which the threshold was first exceeded;
• The power of the EU Commission and the competition authorities of the Member States to withdraw the benefit of the SBER is now contained in its Articles 6 and 7 (no longer only mentioned in its recitals).
  
  

Chapter 3 of the proposed new Horizontal Guidelines

In addition to the SBER, the Horizontal Guidelines were revised, which contain, among other aspects, the guidance on the application of the SBER. The EU Commission approved the revised Horizontal Guidelines on 1 June 2023. However, the Horizontal Guidelines will come into force after their adoption and publication in the Official Journal of the EU, which will probably take place even in July 2023.

The revised Horizontal Guidelines contain a chapter that navigates the assessment of production agreements, including how to apply the SBER. Therein, production agreements cover joint production and subcontracting agreements. Such subcontracting agreements cover unilateral and reciprocal specialisation agreements. Chapter 3 now clarifies that also other types of horizontal subcontracting agreements that are not qualified as joint production agreements but expand production are covered by the guidance of the Horizontal Guidelines.

In addition, the proposed new Horizontal Guidelines explicitly list and give guidance on the assessment of “mobile telecommunications infrastructure sharing agreements” as production agreements. The guidance is related to mobile telecommunications network operators who develop infrastructure jointly. The mobile telecommunications infrastructure sharing agreements have to be assessed individually under Art. 101 TFEU. The proposed new Horizontal Guidelines provide facts that should be taken into account while assessing its compatibility with Art. 101 TFEU and give guidance on certain sharing agreements, in particular whether they are likely or unlikely to give rise to restrictive effects on competition.

Conclusion

Overall, the changes in the revised SBER and in Chapter 3 of the proposed new Horizontal Guidelines are favourable as they simplify and clarify the rules on production and subcontracting agreements, providing more guidance and flexibility for companies to engage in it. It is commendable that the EU Commission has defined specific market share thresholds in case intermediary products are covered by the production agreement.

The regular revision and limited duration of the SBER ensures its reflection of current case law and innovations. However, it remains to be seen in how far the revised SBER will lead to more legal certainty in the future. It is valid for the next 12 years (until 30 June 2035).