On 4 May 2010, the European Commission published for consultation a number of documents dealing with the assessment of co-operation between competitors (“horizontal co-operation”) under EU competition rules. These included revised guidelines on the assessment of horizontal co-operation in general (the “Guidelines”) and two specific “block exemption” regulations in the areas of research and development (“R&D”) and of specialisation in production (“Specialisation”) respectively. Existing exemptions in these areas will expire at the end of this year. The Commission is now inviting comments with a view to finalising its proposals in good time for adoption prior to the expiry of the current texts.

R&D agreements have for many years benefitted from an automatic exemption for such agreements that fulfil certain criteria. The Commission proposes effectively to extend the benefit of this exemption regime until 2022 and there are only a few amendments to the existing rules. One proposed change, however, is material because it could affect the way corporations fund academic research.

There has been a rising tension over the last 15 years or so with the research departments of Universities, research institutions and academic bodies being driven to self-fund. They have sought to maximise the commercial value of their research. Prior to the current automatic exemption, they increasingly argued the automatic exemption did not apply if there was a restriction on a party having access to all the IPRs developed under the R&D agreement, and to the pre-existing background IPR, for the purpose of further research or exploitation. Exploitation includes the ability to licence third parties. Hence, Universities et al were being paid by large corporations to undertake research, and whilst handing over the IPRs, were insisting on the ability to licence third parties (potentially to competitors of the funder!) to commercialise those rights. The current automatic exemption stopped this practice because Universities et al “may agree to confine their use of the results for the purposes of further research”.

A view promoted by Universities et al, even prior to the current automatic exemption, was that such an agreement with a corporation was «paid for research», with all the research being undertaken by the University et al, and the corporation only providing the funding. Consequently, so the argument goes, this did not constitute joint research and development as defined by the automatic exemption, and hence the automatic exemption does not apply to such an agreement. This means the parties’ agreement should be subject to an analysis under general principles of EU competition law and those would suggest that not granting the University et al access and the right to exploit the IPRs was prohibited as anti-competitive.

The proposed automatic exemption appears to be a potential loss for corporations that engage in “paid for research”. The proposed automatic exemption includes a new definition of “specialisation in research and development”, stating that “This does not include a scenario where one party carries out all the research and development and the other party merely finances these activities...”

If the new proposed automatic exemption comes into effect in its current form, corporations would be at a much higher risk that Universities et al will claim the agreement is merely paid for research and the automatic exemption does not apply. Corporations would thus be in an uncertain legal position, and may need to concede during the pre-agreement negotiation to grant some commercialisation rights, or to risk losing control if it comes to litigation. A restriction that is prohibited by EU competition law is void and unenforceable, and it would in practice be for the corporation concerned to go to Court to prevent the University from licensing “its” IPRs to a third party. That is already a defensive position for a corporation to be in, and could have a depressing effect on paid for research. Ironically, that would not benefit the Universities, and could lead to a lower level of innovation generally, which is a disservice to society.

The consultation period is open until 25 June 2010. Corporations may wish to bring their concerns on this point to the attention of the Commission’s Competition Directorate. The new automatic exemption would be expected to become effective 1 January 2011, and would probably be adopted early in Q4 this year.