New Block Exemption Regulation for Research and Development Agreements

On 1 July 2023 the new horizontal block exemption regulation for agreements on research and development (Regulation (EU) 2023/1066; "R&D BER") entered into force. The R&D BER is relevant for companies that carry out or intend to carry out joint or paid-for research and development of products or technologies and/or the joint exploitation of the results of such research and development (“R&D”). It has replaced Regulation (EU) No. 1217/2010 on research and development 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 R&D BER grants a block exemption to agreements between two or more parties on joint R&D and paid-for R&D of contract products or contract technologies and/or the joint exploitation of the results, provided that they fulfil the criteria set out in the R&D BER. The parties can establish a joint undertaking or joint team for the cooperation, but can also jointly entrust a third party with R&D or cooperate by way of specialisation (division of labour). In case of paid-for R&D, one party carries out R&D and the other finances the work.

The duration of the block exemption depends on whether the parties are competitors or not.

• R&D-period: If the parties do not compete with each other, the exemption applies for the duration of the R&D. If the parties are competitors, the exemption applies for the duration of the R&D, provided that at the time the parties enter into the R&D agreement, the combined market share of the parties does not exceed 25% on the relevant product and technology markets. For the calculation of the combined market share in case of paid-for R&D, any R&D agreements concluded by the financing party with third parties relating to the same contract products or contract technologies needs to be taken into account.
  
• 7-year-period: If the results are jointly exploited, the exemption continues to apply for seven years after the contract products or contract technologies are first put on the internal market. If the parties are competitors, the combined market share must not exceed the relevant threshold at the time the agreement was entered into.
  
• Thereafter: After the 7-year-period, the exemption continues to apply as long as the combined market share does not exceed 25% on the relevant product and technology markets.

If the R&D agreement does not fulfil the criteria of the R&D BER, but restricts competition, it 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 R&D BER

• The R&D BER has been restructured. The conditions relating to access to the final results of the joint R&D, access to pre-existing know-how and joint exploitation of the results are now presented in separate articles;
• The power of the EU Commission (“Commission”) and the competition authorities of the Member States to withdraw the benefit of the R&D BER is now contained in its Art. 10 and 11 (no longer only mentioned in its recitals).

The Commission has not adopted its initial proposal that parties competing in innovation must demonstrate that at least three additional competing and comparable R&D efforts exist in order for the R&D BER to apply. The Commission is of the opinion that agreements between companies which are not competing suppliers of products, technologies or processes capable of being improved, substituted or replaced by the results of the R&D and which satisfy the conditions of the R&D BER will only eliminate effective innovation competition in exceptional circumstances. Therefore, Art. 10 (2) lit. e R&D BER gives the Commission the power to withdraw the benefit of the R&D BER where the existence of the R&D agreement would substantially restrict innovation competition in a particular field;

• New definitions and clarifications have been added to Art. 1 (1) R&D BER. For example, “active sales” as well as “passive sales” are now defined in the R&D BER and the definition of “potential competitor” was modified by removing the reference to small but permanent increase in relative prices, the so-called SSNIP test;
• The R&D BER clarifies legal consequences of including excluded restrictions in a R&D agreement. The block exemption continues to apply to the remaining part of the R&D agreement, provided that the excluded restrictions can be severed from the remaining part and provided that the other conditions of the R&D BER are met, Art. 9 (3) R&D BER.
• The R&D BER now contains two clarifications with regard to the calculation of the market shares:
  • If the market sales value data are not available for the calculation of the market shares, the calculation shall be based on market sales volumes. Otherwise, estimates can be made on the basis of reliable market information. The Commission clarified that the expenditure on R&D or R&D capabilities are one type of reliable market information;
  • The calculation of the market shares shall be based on the data of the preceding calendar year. The R&D BER now contains a clarification that if the data of the preceding calendar year are not representative for the parties’ market position, 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 R&D BER, if the combined market share of the parties does not exceed 25% on the relevant markets to which the contract products or contract technologies belong at the end of the 7-year-period, but exceeds 25% subsequently thereafter. If the threshold is exceeded, the block exemption applies for a period of two consecutive calendar years following the year in which the threshold was first exceeded.

Chapter 2 of the new Horizontal Guidelines

In addition to the R&D BER, the Horizontal Guidelines were revised. The Horizontal Guidelines have been in force since their adoption and publication in the Official Journal of the EU, which took place on 21 July 2023. Chapter 2 of the new Horizontal Guidelines navigates the assessment of R&D agreements, including how to apply the R&D BER.

Conclusion

Overall, the changes in the revised R&D BER and in Chapter 2 of the new Horizontal Guidelines are less extensive than expected. It is favorable that the Commission has not included its most controversial proposal, namely for companies competing in innovation to have three or more additional competing and comparable R&D efforts for the R&D BER to apply. Such a change would have reduced the practicability of the R&D BER. It remains to be seen in how far the revised R&D BER will lead to more legal certainty in the future. It is valid for the next 12 years (until 30 June 2035).