On 1 March 2022, the European Commission (“Commission”) published drafts of the revised Research & Development Block Exemption Regulation (“R&D BER”) and Specialization Block Exemption Regulation (“Specialisation BER”, together the “Horizontal Block Exemption Regulations” or “HBERs”) as well as the accompanying Horizontal Guidelines for stakeholder comments. The current HBERs are due to expire on 31 December 2022.

The HBERs set out how competitors can work together on projects and enter into horizontal agreements without breaching collusion-related prohibitions. During the Commission’s evaluation of the current HBER rules and horizontal guidelines, the Commission identified a number of areas for improvement, including the need to update the rules in line with the Commission’s policies on digitalization and sustainability (see our previous blog post here).

Three things for you to know about the recent amendments to the HBERs:

  1. There is a strong focus on sustainability, and how sustainability agreements may comply with EU competition law, which provides greater scope for companies to enter into sustainability agreements (which is detailed in this blog post).
  2. Data sharing and information exchange is at the forefront of the HBER update, with additional guidance on identifying and sharing commercially sensitive information and the use of algorithms.
  3. The competition rules for research and development agreements and specialisation agreements have been explained and clarified, including new definitions of key competition terms (e.g., active and passive sales, unilateral specialisation agreements).

Sustainability agreements. The Commission has dedicated a separate chapter in the revised horizontal guidelines to analyze the conformity of sustainability agreements with EU competition law, thus underlining the increasing importance such agreements can play in achieving the European Green Deal objectives. It is worth noting that the analysis of “agreements between competitors that pursue one or more sustainability objectives” would be assessed each time in line with the relevant chapter of Horizontal Guidelines specifically dealing with the type of cooperation concerned (e.g., information exchange, joint production etc.) – i.e., the Commission has not created a separate methodology for examining sustainability agreements.

  • Scope. While the draft guidelines make clear that sustainability-related agreements would generally fall within the scope of Article 101 TFEU (dismissing proposals from national authorities that were calling for a wholesale exemption), they confirm that “agreements that do not affect parameters of competition, such as price, quantity, quality, choice or innovation, are not capable of raising competition law concerns”. For example, (i) agreements that concern internal corporate conduct; (ii) industry-wide awareness campaigns; and (iii) agreements to create databases containing information about sustainable suppliers or distributors would not be infringing the competition rules.
  • A “soft” safe harbor – sustainability standardization agreements. The draft guidelines envisage certain standard-setting sustainability agreements, such as agreements to phase out non-sustainable products or harmonizing packaging sizes and product content to reduce waste fall. Even though sustainability standards have distinct features compared to traditional technical standards (g., they would not require interoperability or describe in detail a method to achieve a goal), the draft guidelines draw parallels to previous practice to create a “safe harbor” for sustainability standard-setting agreements meeting certain conditions, involving transparency, openness, non-discrimination, effective compliance monitoring, and voluntary participation.
  • Article 101(3) TFEU exemptions. The guidelines confirm the Commission’s historically strict interpretation of Article 101(3) TFEU, which stipulates that agreements which prima facie restrict competition can benefit from an exemption if (i) restrictions are indispensable to the agreements’ benefits and (ii) consumers get a fair share of the resulting benefits. The interpretation by the guidelines of the notions of “consumers” and “fair share of benefits” seems to reflect a compromise between traditional competition law and ambitious sustainability policy objectives.

To avoid potential “greenwashing” (an issue that has already been spotted in the green bond market), the guidelines seek to narrow down the scope of “consumers” as beneficiaries, providing that sustainability agreements should lead to a direct or indirect benefit to consumers paying for the goods or services, rather than the broader general public. On the other hand, “fair share of benefits” is constituted of three cumulative criteria:

    • Individual use value benefits, reflecting traditional efficiency considerations which seek to quantify direct benefits related to the intrinsic characteristics of a product, e.g., improved quality or price decrease.
    • Individual non-use value benefits (indirect qualitative benefits), which attempt to capture the “feel-good” effect of a product. In this case, parties seeking a 101(3) TFEU exemption would rely heavily on feedback from consumers (e.g., through consumer surveys) indicating that consumers would be willing to pay a “sustainability premium” for the products’ beneficial impact on others or the environment.
    • Collective benefits, focusing on positive externalities to society instead of looking at an agreement through the individual consumer’s perspective. Even while acknowledging the existence of “collective benefits” (e.g., contribution to climate change mitigation or the reduction of large scale pollution), para. 603 of the Guidelines provides that only “where consumers in the relevant market substantially overlap with, or are part of the beneficiaries outside the relevant market”, can the collective benefits be taken into account, thus potentially “weakening” the breadth of this prong. Also, the apportioning of benefits to consumers of the relevant market will probably require a challenging quantification exercise.

The German approach. Germany’s Federal Cartel Office (“FCO”) has been an active national regulator in the field of sustainability. It has provided guidance for the implementation of sustainability initiatives in the food retail industry and has also recently examined agreements in the banana and milk sectors. In particular, the FCO recently reviewed two similar sustainability initiatives within the milk sector. Both initiatives were based on a proposed scheme of surcharges that ultimately led to price increases for consumers, but the objectives of the initiatives differed. The first initiative did not include clear sustainability elements and only related to the fact that low milk prices cannot cover the cost of production for farmers – this “economic” rationale was rejected by the FCO. The second initiative related to compliance with animal welfare and sustainability criteria, providing for a uniform “sustainability” labelling of products – it was approved by the FCO. The FCO’s different views and outcomes on these initiatives could inform the practical enforcement of the horizontal guidelines in the field of sustainability, by identifying the agreements that “genuinely address sustainability objectives”, even if there may be an effect on price.

The HBERs and accompanying Horizontal Guidelines were open for public consultation until 26 April 2022. Following the public consultation period, the European Commission may make further changes to the HBERs and Horizontal Guidelines to address stakeholder feedback. The new rules would then come into effect by 1 January 2023.