At the beginning of 2011, the EU "Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements" became effective. These guidelines have an introductory section on "Basic Principles" applied to agreements of this kind, followed by six sections that deal separately with specific kinds of horizontal agreements: information exchanges between competitors, research and development agreements, agreements to rationalize production, joint purchasing agreements, joint selling and marketing agreements (referred to as Commercialization), and standardization.
It is not possible to provide in a brief article an adequate summary of guidelines that contain 335 paragraphs on 93 pages. This article offers general observations of experienced U.S. antitrust lawyers who often need to take account of antitrust regulation in the European Union and work with their European colleagues to provide global advice to clients.
The most striking aspect of these new EU guidelines is the scope and the depth of the economic analysis that supports each of the various propositions that are asserted. Not so long ago, some commentators in the United States claimed that the evolving rules in the European Union were not supported by the same wealth of economic learning as those that had evolved over a longer period in this country. These critiques may or may not have been justified at the time they were made but, in any event, no one can rationally claim that these latest EU guidelines neglect economic learning.
The text not only supplies an economic rationale for even the most noncontroversial principles but also seems to require economic analysis in more situations than may be required in the United States. Most notable is the fact that the EU guidelines seem to require an initial definition of a "relevant market" when it may not be necessary to do so in the United States. For example, a pure research joint venture, the results of which are freely available to all competitors on reasonable terms, with no ancillary restrictions, has never been challenged in the United States — regardless of the market share of the participants or the duration, so few U.S. lawyers would conduct a detailed analysis. But ¶¶ 43 and 112 of the EU guidelines seem to require it.
In general, however, these guidelines seem to endorse the more flexible and realistic economic principles favored in recent statements by U.S. agencies. For example, the new U.S. merger guidelines emphasize nonprice competitive effects to a greater degree than their predecessors. The new EU guidelines on horizontal arrangements (e.g., ¶ 27) similarly recognize that price and output are not the only significant variables and also explicitly consider possible effects on "product quality, product variety or innovation."
Perhaps an even more significant illustration of parallel evolution in the European Union and the United States is a refinement of the long-standing, but overly simplistic, distinction between per se and rule-of-reason analysis. Tying arrangements, for example, are nominally subject to per se analysis in the United States, but the test can only be applied after a sometimes extensive factual inquiry. And it has been apparent since the U.S. Supreme Court issued its decision in California Dental Ass'n v. FTC, 526 U.S. 756 (1999), that the parameters of a "quick look" rule of reason are ill-defined. Notwithstanding the semantic confusion, the 2000 U.S. Guidelines on Competitive Collaborations continued to rely on the simple per se/rule-of-reason dichotomy.
A more descriptive distinction has now emerged in the United States. It is probably now more useful to think about situations in which the initial inquiry will focus on the "nature of the restraint" (which includes the traditional per se practices and those that are "inherently suspect") and situations in which the focus will be in the "nature of the market" (rule-of-reason inquiries at varied levels of detail).
The new EU guidelines on horizontal agreements use slightly different terminology to describe what seem to be similar categories. They refer to "Restrictions of competition by object" (e.g., ¶ 24), which are defined as "those that by their very nature have the potential to restrict competition." In these cases, it is "not necessary to examine the actual or potential effects...on the market," and thus resembles a U.S. per se or inherently-suspect analysis. In other situations, there must be an inquiry into whether "the agreement must at least be likely to have anti-competitive effects" (e.g., ¶ 26), which is similar to a U.S. rule-of-reason analysis.
Finally, in the initial statement of basic principles and in the discussion of each specific horizontal arrangement, the new EU guidelines explicitly call for consideration of the "pro-competitive effects of restrictive agreements" (e.g., ¶ 48), an inquiry that we in the United States would undertake as part of a full rule-of-reason analysis and would describe as an "efficiencies defense." The EU guidelines provide that the efficiency benefits must be passed on to consumers to a degree that offsets "the restrictive effects of the agreement" (e.g., ¶ 49). This requirement is substantially identical to a similar provision (¶ 3.37) in the U.S. 2000 Guidelines on Collaboration Among Competitors.
Significance for U.S. counselors
The EU guidelines may actually have more probative value than comparable U.S. guidelines. Judges, not antitrust agencies, have the final authority in both jurisdictions. But agency decisions in the European Union are more likely to be outcome-determinative because the European Union relies on an administrative system of antitrust enforcement while so much antitrust law is created in purely private litigation in the United States.
It is also true that the EU guidelines sometimes refer to the potential for a "block exemption" for arrangements that are highly unlikely to have an anti-competitive effect because the parties' market shares are beneath certain thresholds. These protections are actually stronger than the "safe harbors" or "safety zones" sometimes provided in U.S. guidelines, because the European Union offers a true legal exemption rather than an assurance that a U.S. agency or court can override in an exceptional case.
But a U.S. counselor is unlikely to be familiar with the process for determining whether a block exemption applies, and is also not likely to appreciate the significance of the myriad cross-references in the EU guidelines to "Articles on the Functioning of the European Union" and to an extensive body of case law. It is clear that in most situations even the most experienced U.S. antitrust counselors would be well advised to consult with EU experts when there are client inquiries about the new EU guidelines.
In the preliminary planning stage, however, a client may want to know whether the rules in the European Union are likely to be similar to those they customarily encounter in the United States. In this respect, U.S. antitrust counselors (like the authors of this article) are in roughly the same position as generalist corporate lawyers in this country who look at guidelines issued by the U.S. Department of Justice and the Federal Trade Commission.
We believe that outcomes in the United States and the European Union are likely to be similar, and that the free exchange of views across the Atlantic has led to ever greater convergence. But we also believe that the antitrust agencies in both jurisdictions could provide better answers for relatively simple questions.
The new EU guidelines on horizontal cooperation agreements, and recent guidelines in the United States for horizontal agreements, as well as the recent U.S. Horizontal Merger Guidelines, all provide a detailed road map for internal analysis of complex cases and for the likely issues in the event of an agency investigation or litigation. They are crafted for consumption by antitrust experts, who scrutinize every line and debate nuances of expression.
Yet many businesses want to avoid any arrangements that will be close to the line of illegality. They do not want to risk an investigation or litigation, and they do not want to undertake the extensive and expensive economic inquiries that the various guidelines outline in voluminous detail. The "guidance" they seek is a brief summary of what they can safely do.
The new EU guidelines on horizontal arrangements do, in fact, provide this kind of advice with bold clarity in one place. The discussion of standardization agreements emphasizes in ¶¶ 280-286 the importance of unrestricted industry participation, a transparent evaluation procedure, the absence of an obligation to comply and access to any needed intellectual property on fair, reasonable, and nondiscriminatory terms (emphasis in the original). These may be the most important things that a client involved in standard setting needs to know.
This section of the new EU horizontal guidelines are an admirable example of useful guidance for the bar and business community. Would that the antitrust agencies in the United States and abroad provide more guidance of this kind.