Sustainability concerns and need for competition law to better reflect market developments prompts public consultation on revision of horizontal block exemption

While many agreements between competitors are prohibited under competition law, the European Commission carves out certain collaborations in a "block exemption" from competition law – guidance that is currently followed in the UK. The Horizontal Block Exemption Regulations (HBERs), which combine exemptions for research and development (R&D) and specialisation agreements, are currently under review and, for the first time, the Commission has said that there is a clear need for this area of competition law to better reflect recent socio-economic developments, such as digitalisation and sustainability.

In respect of digitalisation, the Commission has recognised that a range of cooperation agreements, including data sharing and pooling, can be pro-competitive where they allow innovation and growth by small and medium-sized enterprises. It also highlights that collaboration can be necessary to achieve sustainability goals, with other European regulators already actively engaged in creating regulatory sandboxes for decarbonisation projects.

The Commission has now launched a public consultation, via an online questionnaire, seeking more specific feedback from stakeholders. This gives businesses an opportunity to advocate for greater collaboration in areas where this would help to achieve digitalisation or decarbonisation goals.

HBERs evaluated

The R&D Block Exemption and Specialisation Block Exemption entered into force on 1 January 2011 and will expire on 31 December 2022. In order to assess whether they were still fit for purpose, in 2019 the Commission launched an evaluation of the HBERs (including accompanying guidelines) to determine whether to allow the exemptions to lapse, prolong their duration, or revise them to take proper account of new market developments since they were drafted in 2010.

On 6 May 2021, the Commission published a Working Paper setting out the results of its evaluation of the HBERs. In the publication, the Commission has identified several areas where effectiveness can be strengthened – in particular asserting that the HBERs and Horizontal Guidelines are not fully adapted to economic and societal developments such as digitalisation and the pursuit of sustainability goals. This is now out for consultation.

Digital future on the horizon(tal)

One of the Commission's main conclusions, alongside the need to update existing chapters of the Horizontal Guidelines to take account of recent case law and provide greater clarity, is that economic and policy developments in the last ten years require the introduction or expansion of chapters to address new and developing forms of cooperation which emerged as a direct result of the ongoing digitalisation processes taking place around the world.

The evaluation of HBERs and accompanying Guidelines identified a number of issues in potential need of revision, mainly concerning clarity of the rules and their ability to address new market developments. The Working Paper provides that the guidance is lacking clarity with regards to the impact that digitalisation has on horizontal cooperation and entails significant legal uncertainty for agreements that often involve substantial investments.

The HBERs currently provide limited guidance on many new cooperation models that appeared because of digitalisation – including agreements with sustainability goals, joint bidding, joint production and distribution agreements, new forms of cooperation in the telecommunications and digital sectors, infrastructure sharing, data pooling, data sharing and data access between small and medium-sized enterprises, industry alliances and industry-wide cooperation agreements. Currently there is no dedicated chapter devoted to data sharing and pooling or network sharing agreements. Further, with regard to information sharing, some of the key feedback identified by the Commission relates to the fact that there is insufficient legal certainty, in particular around new business models that have developed as a consequence of digitalisation, for example in scenarios where parties are at the same time in a horizontal and vertical relationship.

Digitalisation and its impact on the wider competition law landscape has already been on the European Commission's radar for a while, with the whole of the EU preparing for significant legislative changes in how major online platforms will be regulated.

In December 2020, the EU published drafts of its two major legislative instruments aimed at updating the current EU legal framework under the (over 20 year old) e-Commerce Directive – (i) the Digital Services Act (DSA) setting out the Commission's proposal to update the responsibilities and liabilities of digital services, including rules on illegal content, notice-and-takedown and online targeted advertising, with powers to fine companies up to 6% of global annual turnover; and (ii) the Digital Markets Act, a companion to the DSA, intended to boost online competition in the EU by imposing new rules on large online platforms that act as "gatekeepers" and introduce the much-discussed New Competition Tool, with powers to fine companies up to 10% of global annual turnover (please see our Insight for more detail).

In pursuit of more sustainable goals

Another area of focus in the European Commission's review of its HBERs is sustainability and an underlying aim of achieving wider decarbonisation across a range of industries and sectors. In recent years there has been a lot of debate on the significance and specific role that sustainability objectives can play in shaping and enforcing competition policy, with some commentators and policymakers suggesting that competition rules may deter collaboration between businesses given the traditional approach to efficiency claims under Article 101(3) of the Treaty on the Functioning of the European Union.

In an important move towards recognising the importance of sustainability considerations in competition law, the Commission has acknowledged in its Working Paper that the Horizontal Guidelines need to be revised in order to provide greater clarity in this area (although the Commission has not yet provided any tangible indication as to how it may do so). The movement is linked to the EU’s strong commitment to sustainability and, in its evaluation of HBERs, the Commission admitted that the current competition rules governing agreements between competitors “are not sufficiently adapted to the pursuit of sustainability goals”.

One of the places from which the European Commission could draw inspiration are the recent initiatives proposed by some of the national competition authorities across Europe. Up to now, the most advanced one has been introduced by the Dutch competition authority (ACM) which has published its guidelines on the treatment of sustainability agreements in January 2021. The guidelines are intended to serve as a starting point in a move to work out a uniform EU approach in the competition law assessment of sustainability initiatives. In addition to its initiative, the Dutch ACM, in cooperation with the Greek competition authority (HCC), has also published a joint economic report on the methods to quantify the efficiency gains of environmental sustainability initiatives. This has been recently followed by the public consultation process initiated by the HCC regarding its proposal to create a sandbox for sustainable development in the Greek market to give businesses more clarity on how they can cooperate in order to contribute to sustainable goals.

In the UK, the CMA has retained "climate change and supporting the transition to a low carbon economy" as one of its priorities for 2021/2022. Further, in its recently updated Merger Assessment Guidelines, the CMA has included environmental sustainability as a recognised possible relevant "customer benefit" (including to future customers) to be taken into account in the assessment of a merger. While the CMA does not attempt to tackle some of the more challenging questions in this area, it has acknowledged that this guidance is an "interim step" which suggests it will likely take further steps. The CMA has also confirmed that it is able to take into account a broader range of efficiencies and benefits from a merger as they apply to consumers and society more generally, including whether a merger may lead to a lower carbon footprint for the firm’s products.

Osborne Clarke comment

It is positive to see the European Commission recognising the challenges of digitalisation and decarbonisation – benefits that can be delivered by collaboration – and the need for clear guidance on when companies can lawfully work together. This consultation is an important opportunity to shape that guidance and the deadline for responding to is 5 October 2021. If you would like to submit your response, or to discuss any of the issues relating to digitalisation and decarbonisation in more detail, please get in touch with one of our experts or your usual Osborne Clarke contact.