This article was written in co-authorship by Ricardo Filipe Costa, Principal Consultant at Vieira de Almeida, and Marie Barani, Knowledge Lawyer, Allen & Overy (Belgium) LLP.
A new regime for a changed world The Horizontal Block Exemption Regulations exempt certain horizontal agreements, i.e., agreements between competitors operating at the same level in the market, from the application of the prohibition rule in Article 101(1) of the Treaty on the Functioning of the European Union (the TFEU), based on the assumption that they meet the requirements of Article 101(3) of the TFEU for the exemption of certain pro-competitive, efficiency-enhancing agreements. The current regime governing IP and innovation, consisting of Regulation No 1217/2010 on R&D agreements (R&D BER), Regulation No 1218/2010 on specialisation agreements (Specialisation BER) and the corresponding Horizontal Guidelines, is now over ten years old and expires at the end of 2022. The European Commission’s proposed revised draft regulations and guidelines, the final versions of which will apply until the end of 2034, are undoubtedly influenced by a desire to push the envelope of R&D and innovation. This need has become more pressing as economies seek to recover from the pandemic and respond to the war in Ukraine. This article focuses on the proposed changes to the R&D BER and related parts of the draft Horizontal Guidelines.
Key amendments on scope and duration of R&D exemption The draft R&D BER continues to apply to collaborative R&D agreements as well as to paid-for research agreements, with or without joint exploitation of the results. It maintains the requirement that each party to the agreement must have full access to the results of the R&D/agreement. The draft R&D BER introduces a new notion of ‘competition in innovation’. This relates to R&D agreements between competitors in innovation, namely undertakings that are not competing for an existing product and/or technology and that independently engage in or, in the absence of the R&D agreement, would be able and likely to independently engage in R&D efforts which concern: (i) the research and development of the same or likely substitutable new products and/or technologies as those to be covered by the R&D agreement; or (ii) R&D poles pursuing substantially the same aim or objective as the ones to be covered by the R&D agreement. Such agreements will be exempted only if three or more competing and comparable R&D efforts exist in addition to and comparable with those of the parties. The determination of competition in innovation will be based on ‘reliable information’ including on (i) the size, stage and timing of the R&D efforts; (ii) third parties’ access to financial and human resources, their own intellectual property, know-how assets and previous R&D efforts; and (iii) third parties’ capability and likelihood to directly or indirectly exploit possible results of their own R&D efforts. Such ‘reliable information’ may arguably be problematic to assess in practice. First, most of this information is classified to the relevant party. Second, points (ii) and (iii) are based on assumptions. Furthermore, significant R&D efforts may lead to results that will never be successfully exploited. The duration of the exemption remains generally aligned with the current framework, but is more favourable for the parties in one specific circumstance: R&D agreements whose results are jointly exploited. For these agreements, the exemption remains valid for seven years, irrespective of the parties’ market shares, from the time the contract products or technologies are first put on the market within the internal market. After that initial seven-year period, the exemption is only maintained for so long as the combined market share does not exceed 25%. Under the draft R&D BER, if the 25% market share threshold is subsequently exceeded, the exemption will continue for a further two years, regardless of the new market share. In comparison, the current R&D BER limits this extended exemption to one year if the market share rises above 30%.
Information exchanges may be problematic Interestingly, while information, including data, is not expressly covered by the Regulations, the Guidelines set out criteria to assess the potentially anticompetitive effect of information exchange. Notably these include: (i) the strategic importance and nature of the data (such as its degree of aggregation and age); (ii) the characteristics of the exchange (including frequency, measures put in place to limit/control access to the information and access to information and data collected); and (iii) market characteristics. At a time when data is becoming ever more critical and valuable to companies and research organisations, and may be subject to GDPR requirements, it remains to be seen how these criteria, which are not clearly detailed, will be applied and construed in view of the specificities of the contractual relations at stake.
Practical application of the proposed revised regime Although the proposed changes prima facie appear to be minimal and targeted, their practical impact may be significant. Take for instance a case in which two non-competing undertakings enter into a R&D agreement with a view to develop an entirely new product or technology. Currently, such an agreement would fall under the safe harbour for the duration of the R&D and, if the results are jointly exploited, also for seven years from the time the contract products or contract technologies are first put on the market within the internal market. In comparison, under the revised R&D BER, if the undertakings are competitors in innovation, the exemption would only be available if three competing and comparable R&D efforts exist and remain in the market in addition to the parties to the R&D agreement. Despite introducing some more flexible conditions, notably in respect to access to pre-existing know-how in R&D projects, in certain circumstances the revised R&D BER may hamper rather than foster investment and pro-competitive cooperation. Clearly any such discouragement would be undesirable, especially in the current context of business uncertainty and a possible economic downturn. Conversely, the ongoing revision of the Specialisation BER appears to be generally conducive to further cooperation between companies in the market. The draft Specialisation BER expands the scope of the safe harbour by both widening the definition of ‘unilateral specialisation agreements’ to cover agreements between more than two parties and also by extending the exemption to horizontal subcontracting agreements in general (and no longer solely those aimed at expanding production).
What lies ahead Although the revised BERs are still consultation drafts, the final versions will probably not change much. As the new regime should be in place at the start of 2023, significant efforts will be required from companies, for, although a general two-year transition period allows agreements to be adapted where necessary, agreements between companies competing in innovation will need to be immediately compliant with the new rules.
 The regime also includes the Technology Transfer Block Exemption Regulation (Commission Regulation (EU) No 316/2014 of 21 March 2014 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to categories of technology transfer agreements, OJ L 93/17), which is in force until 30 April 2026.
 See the call for evidence on “A New European Innovation Agenda”. The call underlines the critical role of innovation for Europe, in particular for the green and digital transition, and the need for regulatory and financing systems that support innovation in Europe.