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The European Commission’s guidelines on horizontal cooperation are foggy. As they go under review, Marjorie Holmes and Fred Houwen shed light on the issues

The European Commission is currently reviewing the procedures for the assessment of horizontal cooperation agreements (that is, cooperation agreements between actual or potential competitors) under the EC competition rules. The review presents an important opportunity for the Commission to adapt its guidance to the changed circumstances since the current regime was adopted.

The Commission’s current approach is set out primarily in its guidelines on the application of Article 81 of the EC Treaty (which, broadly speaking, prohibits anti-competitive collusion in the EU) to horizontal cooperation agreements (known as the Horizontal Guidelines) and in separate block exemption regulations relating to cooperation under specialisation and research and development agreements. Those provisions were adopted by the Commission in late 2000 and early 2001. The Horizontal Guidelines in particular were widely welcomed when they were introduced, not least because they sought to place a greater emphasis on economic criteria and made the Commission’s approach to enforcement more transparent.

Much has changed since the current regime was introduced. Perhaps the most notable development in the intervening period, from a competition enforcement perspective, has been the ‘modernisation’ of EC competition enforcement. The modernisation package that came into effect in May 2004 was aimed at decentralising the enforcement of EC competition law so that not just the Commission, but also national courts and competition authorities could apply EC competition law in full.

Changing times

Prior to modernisation, undertakings could notify those arrangements to the Commission and (in some cases, and usually after a significant delay) obtain formal clearance under EC competition law. Since May 2004, that option has no longer been available. Instead, businesses now have to ‘self assess’ their arrangements with their advisers and satisfy themselves that they are compatible with competition law. This leaves the risk, particularly in marginal cases, that a competition authority or court will subsequently take a different view. While there is much that a business can do to minimise its exposure, there are circumstances under the current regime where undertakings have to live with the risk that their arrangements will be attacked under competition law, with all it entails in terms of costs, the risk of the arrangements (or part of them) being found void and possible claims for damages.

In addition, businesses active in complex and interdependent sectors such as shipping and chemicals are to a greater extent than ever, and of necessity, forced to deal with one another in order to respond to more demanding customer requirements. Regulatory developments such as the introduction of the REACH (Registration, Evaluation, Authorisation and Restriction of Chemical substances) regime for chemicals imported into the European Union positively encourage cooperation and sometimes require the exchange of detailed information between competing businesses.

Against that backdrop, it is essential that businesses and their advisers have as much guidance as possible as to what is permissible under the rules. This is especially true in an area such as competition law, which involves complex economic assessments and where the primary legislation and case law will often not be conclusive in a particular set of circumstances.

A business that is not able to determine with a sufficient degree of certainty whether its proposed course of conduct will comply with the competition rules may well opt for an alternative strategy that, while less satisfactory from a commercial standpoint, is at least firmly within the scope of what is permitted under the relevant guidance. As a result, pro-competitive ventures may be abandoned or altered unnecessarily, ultimately to the economic detriment of consumers. In order to minimise such risks, guidance should be as clear and comprehensive as possible.

Information exchange between businesses, particularly between businesses at the same level in the supply chain – where the current guidance could be significantly improved – is one area on which competition lawyers are regularly called to advise. Such information exchange is, perhaps understandably, viewed with suspicion by competition authorities, given that it constitutes one of the elements of the most serious infringements of competition law such as price-fixing, bid-rigging and market-sharing. This should not, however, lead to a prejudice against such information exchange. A growing body of economic evidence has underlined the potential pro-competitive benefits of information exchange, when handled correctly and in a pro-competitive manner. The US courts and antitrust enforcement agencies have also recognised the potentially beneficial effects of such transparency. These benefits can include increased output, greater efficiency and reduced consumer prices. The risks of anti-competitive collusion in this context are generally capable of being managed by putting in place relatively straightforward safeguards.

Cautious approach

Unfortunately, the Commission tends to gives the impression that its starting viewpoint on the matter is that information exchange is generally bad. This is evident in the current version of the Horizontal Guidelines, which duck this important issue and refer to it only in passing when mentioning certain cases when information exchange was found to be problematic in concentrated markets.

In its more recent guidelines on the application of Article 81 EC to the maritime transport sector (the Maritime Guidelines), published in September last year, the Commission, to its credit, considered the issue of information exchange in more detail. However, the approach taken to information exchange in those guidelines remains very cautious. Providing information on an aggregated and/or historic basis is one common way of avoiding competition concerns arising from the exchange of such information. The guidelines appear to suggest that information less than one year old is insufficiently historic to allay competition concerns.

While the Maritime Guidelines were clearly not intended to provide guidance for all industries, it is inevitable, in the absence of more general guidance from the Commission, that businesses and their advisers will refer to them for guidance on information exchange. In some industries, information that is a day old may be historic. In the absence of more general guidance on information exchange, the one-year benchmark can leave business feeling unnecessarily exposed. Overly cautious guidance of this nature risks having a chilling effect on initiatives in the maritime sector and beyond.

Finding a solution

The Commission urgently needs to provide clarity on the scope of what is and what is not permissible in relation to information exchange. Its starting point should be that such exchange is legitimate unless clear anti-competitive behaviour can be identified. Where modifications such as the provision of information on an aggregated or historic basis are required, these should be confined to the bare minimum necessary to address the issues identified.

The Commission’s response to the current financial crisis demonstrates that it is capable of devising pragmatic guidance in the state aid area that goes no further than is strictly necessary to ensure that competition is protected within the common market. A similarly bold approach is now required in the revised Horizontal Guidelines, particularly in relation to information exchange, in order to demonstrate that, in Commissioner Kroes’ words, the Commission is “part of the solution” rather than “part of the problem”.

Marjorie Holmes is a partner and Fred Houwen an associate in the competition and EU group of Reed Smith.

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