Exemption for research and development agreements (from 2023)

 

SUMMARY OF:

Regulation (EU) 2023/1066 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of research and development agreements

WHAT IS THE AIM OF THE REGULATION?

• Article 101(1) Treaty on the Functioning of the European Union (TFEU) bans agreements between companies that restrict competition. However, Article 101(3) TFEU provides an exception for agreements the benefits of which outweigh their negative effects.
• The regulation applies Article 101(3) TFEU to certain types of research and development* (R & D) agreements that meet certain conditions, by exempting them from the ban in Article 101(1) TFEU. It creates a legal safe harbour for those agreements, thereby avoiding the need for an individual assessment of their compatibility with Article 101 TFEU.
• The regulation aims to promote cooperation between companies on research and development while protecting competition and providing legal certainty for companies.

KEY POINTS

Types of research and development agreement covered by the regulation

The regulation covers agreements between two or more parties that provide for:

• joint R & D relating to products or technologies, including the joint exploitation of the results of the R & D (production and/or distribution of the resulting products, or exploitation of resulting intellectual property (IP) rights);
• paid-for R & D relating to products or technologies, including the joint exploitation of the results of the R & D;
• joint exploitation of the results of joint or paid-for R & D carried out under a previous agreement between the same parties.

The regulation also applies where the R & D agreement includes provisions on the assignment or licensing of IP rights to the parties or to an entity established by them if the provisions are necessary to implement the agreement and are not its main aim.

Conditions for exemption

The R & D agreement must grant all parties full access to the final results of the joint or paid-for R & D, for the purpose of carrying out further R & D and for the purpose of exploitation, including any resulting IP rights and know-how (practical information that is secret, substantial and identified). There are exceptions for agreements that allocate production or distribution tasks to one or more of the parties and for agreements involving research institutes, academic bodies or companies that supply R & D as a service without normally being active in the exploitation of results.

Where the R & D agreement does not include the joint exploitation of the results, the agreement must grant each party access to the other parties’ pre-existing know-how if that know-how is indispensable to exploiting the results.

Any joint exploitation must be limited to results that are indispensable for the production of the products or the application of the technologies resulting from the joint or paid-for R & D and that are protected by IP rights or constitute know-how.

Where production of the products resulting from the joint or paid-for R & D is allocated to one or more of the parties, the agreement must require those parties to fulfil orders for the products from the other parties, except where:

• the R & D agreement provides for distribution to be done by a joint team or entity or by a third party; or
• the parties have agreed that only the producing party or parties may distribute the products.

Market share thresholds and duration of the exemption

Where the parties to the R & D agreement are actual or potential competitors in markets for the supply of existing products or technologies that are capable of being improved, substituted or replaced by the products or technologies resulting from the joint or paid-for R & D, the exemption applies for the duration of the R & D if the combined market share of the parties in those markets does not exceed 25% at the time when they enter into the R & D agreement. There are special rules for calculating market shares for paid-for R & D agreements.

Where the parties are not actual or potential competitors in markets for the supply of existing products or technologies that are capable of being improved, substituted or replaced by the products or technologies resulting from the joint or paid-for R & D, there is no market share threshold and the exemption applies for the duration of the R & D.

For R & D agreements that provide for joint exploitation of the results, the exemption continues to apply for 7 years after the products or technologies resulting from the R & D are first marketed in the internal market and continues thereafter as long as the parties’ combined market share does not exceed 25% in relevant markets for those products or technologies. Once this threshold is exceeded, the exemption continues to apply for a grace period of two consecutive calendar years.

Market shares are calculated on the basis of sales value data, or, if such data are not available, on the basis of sales volume data or other reliable market information, such as R & D expenditure.

Hardcore restrictions

The exemption does not apply to R & D agreements containing hardcore restrictions, including:

• restrictions on a party’s freedom to carry out independent R & D in an unconnected field or, once the joint agreement is completed, in the same field or a connected field;
• limitations on output or sales, with exceptions for setting production and sales targets where the parties exploit the results of the R & D jointly;
• fixing prices for the sale of the resulting products or technologies to third parties, except for prices charged to immediate customers where the R & D agreement provides for joint distribution;
• restrictions of active or passive sales of the resulting products or technologies to particular territories or customers, with exceptions for R & D agreements that provide for exclusive licensing of the results between the parties or for exclusive distribution by one of the parties.

Excluded restrictions

The exemption does not apply to the following obligations in R & D agreements (if the obligation in question can be severed from the agreement, the rest of the agreement can still benefit from the exemption):

• obligations not to challenge, after completion of the R & D, IP rights held by the parties in the internal market that are relevant to the R & D, without prejudice to the possibility to provide for termination of the agreement in the event of such a challenge;
• obligations not to challenge, after the R & D agreement expires, IP rights held by the parties in the internal market that protect the results of the R & D, without prejudice to the possibility to provide for termination of the agreement in the event of such a challenge;
• obligations not to grant licences to third parties to produce or apply the resulting products or technologies, with the exception of R & D agreements that provide for exploitation of the results by one or more of the parties.

Withdrawal of the block exemption

The benefit of the block exemption may be withdrawn by the European Commission or by national competition authorities pursuant to Article 29 of Regulation (EC) No 1/2003 where they find that a particular R & D agreement has effects that are incompatible with Article 101(3) TFEU.

In particular, the Commission may use this power where:

• the existence of an R & D agreement substantially restricts the scope for third parties to carry out R & D in related fields;
• the parties do not exploit the results of the R & D vis-à-vis third parties without a valid reason;
• the resulting products or technologies are not subject to effective competition;
• the existence of the R & D agreement would substantially restrict innovation competition.

There are transitional rules for agreements that were already in force on 30 June 2023 and were covered by the previous block exemption for R & D agreements (Regulation (EU) No 1217/2010), but which do not meet the conditions of the new block exemption. Those agreements remain block-exempted until 30 June 2025.

FROM WHEN DOES THE REGULATION APPLY?

It has applied since 1 July 2023 and will apply until 30 June 2035.

BACKGROUND

• The previous block exemption for R & D agreements (Commission Regulation (EU) No 1217/2010) expired on 30 June 2023. A new regulation was therefore required. Regulation (EU) 2023/1066 improves the clarity of certain rules and gives more prominence to protecting innovation competition.
• The regulation is accompanied by revised horizontal guidelines on the application of Article 101 TFEU to horizontal cooperation agreements.
• For further information, see:
  • Block exemptions – Horizontal agreements (European Commission).

KEY TERMS

MAIN DOCUMENT

Regulation (EU) 2023/1066 of 1 June 2023 on the application of Article 101(3) of the Treaty on the Functioning of the European Union to certain categories of research and development agreements (OJ L 143, 2.6.2023, pp. 9–19).

RELATED DOCUMENTS

Communication from the Commission – Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal cooperation agreements (OJ C 259, 21.7.2023, pp. 1–125).

Consolidated version of the Treaty on the Functioning of the European Union – Part Three – Union policies and internal actions – Title VII – Common rules on competition, taxation and approximation of laws – Chapter 1 – Rules on competition – Section 1 – Rules applying to undertakings – Article 101 (ex Article 81 TEC) (OJ C 202, 7.6.2016, pp. 88–89).

Council Regulation (EC) No 1/2003 of 16 December 2002 on the implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty (OJ L 1, 4.1.2003, pp. 1–25).

Successive amendments to Regulation (EC) No 1/2003 have been incorporated into the original text. This consolidated version is of documentary value only.

Regulation (EEC) No 2821/71 of the Council of 20 December 1971 on application of Article 85 (3) of the Treaty to categories of agreements, decisions and concerted practices (OJ L 285, 29.12.1971, pp. 46–48).

See consolidated version.

last update 09.10.2023