Commission Notice — Guidelines on the applicability of Article 81 of the EC Treaty to horizontal cooperation agreements (Text with EEA relevance)
Date: 2001-01-06
Institutions: European Commission
Subjects: competition law, cooperation agreement, horizontal agreement, merger control, single market

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Guidelines on the applicability of Article 81 of

the EC Treaty to horizontal cooperation

COMMISSION NOTICE

agreements

(2001/C 3/02)

(Text with EEA relevance)

1. INTRODUCTION

1.1. Purpose

1. These guidelines set out the principles for the assessment
of horizontal cooperation agreements under Article 81 of
the Treaty. A cooperation is of a (cid:145)horizontal nature(cid:146) if an
agreement or concerted practice is entered into between
companies operating at the same level(s) in the market. In
most instances, horizontal cooperation amounts to coop-
eration between competitors. It covers for example areas
such as research and development (R & D), production,
purchasing or commercialisation.

agreements (4)

agreement and research and development agreement
(R & D) respectively. Those two Regulations have now
been replaced by Commission Regulation (EC) No
2658/2000 of 29 November 2000 on the application
of Article 81(3) of the Treaty to categories of special-
isation
block
((cid:145)the
exemption Regulation(cid:146)) and Commission Regulation (EC)
No 2659/2000 of 29 November 2000 on the application
of Article 81(3) of the Treaty to categories of research
agreements (5)
((cid:145)the R & D block
and development
exemption Regulation(cid:146)). The
two notices provided
guidance in respect of certain types of cooperation
agreement falling outside Article 81 (6) and the asses-
sement of cooperative joint ventures (7).

Specialisation

2. Horizontal

to

lead

cooperation may

competition
problems. This is for example the case if the parties to
a cooperation agree to fix prices or output, to share
markets, or if
the cooperation enables the parties to
maintain, gain or increase market power and thereby
causes negative market effects with respect
to prices,
output, innovation or the variety and quality of products.

3. On the other hand, horizontal cooperation can lead to
economic benefits. Companies need to
substantial
and a
respond to increasing competitive pressure
changing market place driven by globalisation,
the
speed of technological progress and the generally more
dynamic nature of markets. Cooperation can be a means
to share risk, save costs, pool know-how and launch
innovation
and
medium-sized enterprises cooperation is an important
means to adapt to the changing market place.

particular

faster.

small

for

In

4. The Commission, while

recognising

economic
benefits that can be generated by cooperation, has to
ensure that effective competition is maintained. Article
81 provides
a balanced
framework for
assessment
taking into account both anti-competitive
effects as well as economic benefits.

legal

the

the

6. Changing markets have generated an increasing variety
and use of horizontal cooperation. More complete and
updated guidance is needed to improve clarity and trans-
parency regarding the applicability of Article 81 in this
area. Within the assessment greater emphasis has to be
put on economic criteria to better reflect recent devel-
opments in enforcement practice and the case law of the
Court of
the
European Communities.

Justice and Court of First

Instance of

7. The purpose of

is

form a key element of

to provide an
these guidelines
analytical framework for the most common types of hori-
zontal cooperation. This framework is primarily based on
criteria that help to analyse the economic context of a
cooperation agreement. Economic criteria such as the
market power of the parties and other factors relating
the
to the market structure,
assessment of the market impact likely to be caused by
a cooperation and therefore for the assessment under
Article 81. Given the enormous variety in types and
combinations of horizontal cooperation and market
circumstances in which they operate, it is impossible to
provide specific answers for every possible scenario. The
present analytical framework based on economic criteria
will nevertheless
in assessing the
assist businesses
compatibility of an individual cooperation agreement
with Article 81.

5.

provided

guidance

two Commission notices and two block
In the past,
exemption regulations
the
assessment of horizontal cooperation under Article 81.
Commission Regulation (EEC) No 417/85 (1), as
last
amended by Regulation (EC) No 2236/97 (2)
and
Commission Regulation (EEC) No 418/85 (3), as
last
amended by Regulation (EC) No 2236/97, provided for
specialisation
the

certain forms of

exemption of

for

8. The guidelines not only replace the Notices referred to in
paragraph 5, but also cover a wider range of the most
common
They
horizontal
complement the R & D block exemption Regulation and
the Specialisation block exemption Regulation.

agreements.

types

of

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1.2. Scope of the guidelines

referred to as

9. These guidelines cover agreements or concerted practices
(hereinafter
(cid:145)agreements(cid:146)) entered into
between two or more companies operating at the same
level(s) in the market, e.g. at the same level of production
or distribution. Within this context the focus is an coop-
eration between competitors. The term (cid:145)competitors(cid:146) as
used in these guidelines includes both actual (8) and
potential (9).

They

horizontal

agreements.
types of

10. The present guidelines do not, however, address all
are
only
possible
concerned with those
cooperation which
potentially generate efficiency gains, namely agreements
on R & D, production, purchasing, commercialisation,
standardisation, and environmental agreements. Other
types of horizontal agreements between competitors,
for example on the exchange of
information or on
minority shareholdings, are to be addressed separately.

R & D are decisive for production. The R & D agreement
can thus be regarded as the starting point of the coop-
eration. This assessment would change if the agreement
foresaw a full integration in the area of production and
only a partial integration of some R & D activities. In this
case, the possible anti-competitive effects and economic
benefits of the cooperation would largely relate to the
joint production, and the agreement would therefore be
in the
examined according to the principles set out
complex
section on (cid:145)Production Agreements(cid:146). More
arrangements such as strategic alliances that combine a
number of different areas and instruments of cooperation
in varying ways are not covered by the guidelines. The
assessment of each individual area of cooperation within
the
an alliance may be carried out with the help of
corresponding chapter
in the guidelines. However,
complex arrangements must also be analysed in their
totality. Due to the variety of areas an alliance may
it is impossible to give general guidance for
combine,
such an overall assessment. Alliances or other forms of
cooperation
are
primarily
impossible to assess under
the competition rules as
long as they lack a precise scope.

intentions

declare

that

that

level of

11. Agreements that are entered into between companies
the production or
operating at a different
distribution chain, that is to say vertical agreements, are
in principle excluded from these guidelines and dealt with
in Commission Regulation (EC) No 2790/1999 (10) (the
(cid:145)Block Exemption Regulation on Vertical Restraints(cid:146)) and
the Guidelines on vertical restraints (11). However, to the
distribution
extent
agreements, are concluded between competitors,
the
effects of the agreement on the market and the possible
competition problems can be similar
to horizontal
these agreements have to be
agreements. Therefore,
assessed according to the principles described in the
present guidelines. This does not exclude the additional
application of the Guidelines on Vertical Restraints to
restraints
these
included in such agreements (12).

agreements,

agreements

to assess

vertical

vertical

e.g.

the

12. Agreements may combine different stages of cooperation,
for example R & D and the production of
its results.
Unless they fall under Council Regulation (EEC) No
4064/89 of 21 December 1989 on the control of concen-
trations between undertakings (13), as last amended by
Regulation (EC) No 1310/97 (14) ((cid:145)the Merger Regulation(cid:146)),
these agreements are covered by the guidelines. The
centre of gravity of the cooperation determines which
section of
to the
the
agreement
centre of gravity, account is taken in particular of two
factors: firstly, the starting point of the cooperation, and,
secondly,
the different
functions which are being combined. A cooperation
involving both joint R & D and joint production of the
results would thus normally be covered in the section on
(cid:145)Agreements on Research and Development(cid:146), as the joint
the joint R & D is
production will only take place if
the joint
successful. This implies that

In the determination of

the degree of

the results of

integration of

in question.

the present

guidelines

applies

13. The criteria set out in these guidelines apply to coop-
eration concerning both goods and services, collectively
referred to as (cid:145)products(cid:146). However, the guidelines do not
apply to the extent that sector-specific rules apply, as is
insurance (15).
the case for agriculture,
Operations that come under the Merger Regulation are
also not the subject of the present guidelines.

transport or

14. Article 81 only applies to those horizontal cooperation
agreements which may affect
trade between Member
States. These guidelines are not concerned with the
analysis of the capability of a given agreement to affect
trade. The following principles on the applicability of
Article 81 are therefore based on the assumption that
trade between Member States is affected.
In practice,
however, this issue needs to be examined on a case-
by-case basis.

15. Article 81 does not apply to agreements which are of
minor
importance because they are not capable of
appreciably restricting competition by object or effect.
These guidelines are without prejudice to the application
of the present or any future (cid:145)de minimis(cid:146) notice (16).

16. The assessment under Article 81 as described in these
guidelines is without prejudice to the possible parallel
the Treaty to horizontal
application of Article 82 of
these guidelines
cooperation agreements. Furthermore,
are without prejudice to the interpretation that may be
given by the Court of First Instance and the Court of
Justice of the European Communities in relation to the
application of Article 81 to horizontal cooperation
agreements.

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1.3. Basic principles for the assessment under Article 81

1.3.1. Article 81(1)

17. Article

81(1)

applies

cooperation
agreements which have as their object or effect
the
prevention, restriction or distortion of competition (here-
inafter referred to as (cid:145)restrictions of competition(cid:146)).

horizontal

to

18.

In some cases the nature of a cooperation indicates from
the outset the applicability of Article 81(1). This is the
case for agreements that have as their object a restriction
of competition by means of price fixing, output limi-
tation or
sharing of markets or customers. These
agreements are presumed to have negative market
effects.
is therefore not necessary to examine their
actual effects on competition and the market in order
to establish that they fall within Article 81(1).

It

19. Many horizontal cooperation agreements, however, do
not have as their object a restriction of competition.
Therefore, an analysis of the effects of the agreement is
necessary. For this analysis it is not sufficient that the
It
agreement
must also be likely to affect competition in the market
to such an extent that negative market effects as to prices,
output, innovation or the variety or quality of goods and
services can be expected.

limits competition between the parties.

20. Whether the agreement is able to cause such negative
market effects depends on the economic context taking
into account both the nature of the agreement and the
parties’ combined market power which determines (cid:151)
together with other structural factors (cid:151) the capability
of the cooperation to affect overall competition to such
a significant extent.

Nature of the agreement

21. The nature of an agreement relates to factors such as the
area and objective of the cooperation, the competitive
to
relationship between the parties and the extent
which they combine
factors
their
indicate the likelihood of the parties coordinating their
behaviour in the market.

activities. These

22. Certain types of agreement,

for instance most R & D
agreements or cooperation to set standards or improve
likely to include
environmental conditions, are less
restrictions with respect to prices and output. If these
types of agreements have negative effects at all these
the variety of
are likely to be on innovation or
products. They may also give
to foreclosure
rise
problems.

23. Other

types of cooperation such as agreements on
production or purchasing typically cause a certain
degree of commonality in (total) costs. If this degree is
significant, the parties may more easily coordinate market
prices and output. A significant degree of commonality
in costs can only be achieved under certain conditions:
First,
the area of cooperation, e.g. production and
purchasing, has to account for a high proportion of the
total costs in a given market. Secondly, the parties need
to combine their activities in the area of cooperation to a
significant extent. This is, for instance, the case, where
they jointly manufacture or purchase an important inter-
mediate product or a high proportion of
their total
output of a final product.

Agreements that do not fall under Article 81(1)

24. Some categories of agreements do not fall under Article
81(1) because of their very nature. This is normally true
for cooperation that does not imply a coordination of the
parties’ competitive behaviour in the market such as

(cid:151) cooperation between non-competitors,

(cid:151) cooperation between competing companies
cannot
independently carry out
activity covered by the cooperation,

that
the project or

(cid:151) cooperation concerning an activity which does not
influence the relevant parameters of competition.

These categories of cooperation could only come under
Article 81(1) if they involve firms with significant market
power (17) and are likely to cause foreclosure problems
vi-(cid:224)-vis third parties.

Agreements that almost always fall under Article 81(1)

25. Another category of agreements can be assessed from the
outset as normally falling under Article 81(1). This
concerns cooperation agreements that have the object
to restrict competition by means of price fixing, output
limitation or sharing of markets or customers. These
restrictions are considered to be the most harmful,
because they directly interfere with the outcome of the
competitive process. Price fixing and output limitation
directly lead to customers paying higher prices or not
receiving the desired quantities. The sharing of markets
or customers reduces the choice available to customers
and therefore also leads to higher prices or reduced
output.
these
restrictions have negative market
effects. They are
therefore almost always prohibited (18).

can therefore be presumed that

It

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Agreements that may fall under Article 81(1)

26. Agreements that do not belong to the above-mentioned
categories need further analysis
to decide
whether they fall under Article 81(I). The analysis has
to include market-related criteria such as the market
position of the parties and other structural factors.

in order

Market power and market structure

27. The starting point for the analysis is the position of the
parties in the markets affected by the cooperation. This
determines whether or not they are likely to maintain,
gain or increase market power through the cooperation,
i.e. have the ability to cause negative market effects as to
innovation or the variety or quality of
prices, output,
goods and services. To carry out
the
relevant market(s) have to be defined by using the
the Commission’s market definition
methodology of
notice (19). Where
are
concerned such as purchasing or technology markets,
these guidelines will provide additional guidance.

this analysis

of markets

specific

types

28. If

the parties together have a low combined market
share (20), a restrictive effect of
the cooperation is
unlikely and no further analysis normally is required. If
one of just two parties has only an insignificant market
share and if it does not possess important resources, even
a high combined market share normally cannot be seen
as indicating a restrictive effect on competition in the
market (21). Given the variety of cooperation types and
the different effects they may cause in different market
situations, it is impossible to give a general market share
threshold above which sufficient market power
for
causing restrictive effects can be assumed.

29. In addition to the market position of the parties and the
addition of market shares, the market concentration, i.e.
the position and number of competitors, may have to be
taken into account as an additional factor to assess the
impact of the cooperation on market competition. As an
indicator the Herfindahl-Hirshman Index ((cid:145)HHI(cid:146)), which
sums up the squares of the individual market shares of
all competitors (22), can be used: With an HHI below
1 000 the market concentration can be characterised as
low, between 1 000 and 1 800 as moderate and above
1 800 as high. Another possible indicator would be the
leading firm concentration ratio, which sums up the indi-
vidual market shares of the leading competitors (23).

of buyers/suppliers or the nature of the products (e.g.
homogeneity, maturity) have to be considered as well.
Where an impact on competition in innovation is likely
and can not be assessed adequately on the basis of
these
existing markets,
impacts may have to be taken into account
(see
Chapter 2, R & D agreements).

to analyse

specific

factors

1.3.2. Article 81(3)

31. Agreements

that come under Article 81(1) may be
exempted provided the conditions of Article 81(3) are
fulfilled. This is the case if the agreement

(cid:151) contributes

or
distribution of products or to promoting technical
or economic progress

production

improving

the

to

(cid:151) allows consumers a fair share of the resulting benefit

and does not

(cid:151) impose restrictions which are not indispensable to the

attainment of the above listed objectives

(cid:151) afford the possibility of eliminating competition in
the products in

respect of a substantial part of
question.

Economic benefits

32. The

the

first

that

condition

agreement
requires
contributes to improving the production or distribution
to promoting technical or economic
of products or
progress. As these benefits relate to static or dynamic
efficiencies, they can be referred to as (cid:145)economic benefits(cid:146).
Economic benefits may outweigh restrictive effects on:
competition. For
instance, a cooperation may enable
firms to offer goods or services at lower prices, better
quality or to launch innovation more quickly. Most effi-
ciencies stem from the combination and integration of
different skills or resources. The parties must demonstrate
that the efficiencies are likely to be caused by the coop-
eration and cannot be achieved by less restrictive means
(see also below). Efficiency claims must be substantiated.
Speculations or general statements on cost savings are
not sufficient.

30. Depending on the market position of the parties and the
concentration in the market, other factors such as the
stability of market shares over time, entry barriers and
the likelihood of market entry, the countervailing power

33. The Commission does not take into account cost savings
that arise from output reduction, market sharing, or from
the mere exercise of market power.

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Fair share for the consumers

the benefits

34. Economic benefits have to favour not only the parties to
the agreement, but also the consumers. Generally, the
transmission of
to the consumers will
depend on the intensity of competition within the
relevant market. Competitive pressures will normally
ensure that cost-savings are passed on by way of lower
prices or that companies have an incentive to bring new
products to the market as quickly as possible. Therefore,
if sufficient competition which effectively constrains the
parties to the agreement is maintained on the market, the
competitive process will normally ensure
the
consumers receive a fair share of the economic benefits.

that

Indispensability

35. The restriction of competition must be necessary to
achieve the economic benefits. If there are less restrictive
means to achieve similar benefits, the claimed efficiencies
cannot be used to justify the restrictions of competition.
restrictions are necessary
Whether or not
depends on market circumstances and on the duration
of the agreement. For instance, exclusivity agreements
may prevent a participating party from free riding and
may therefore be acceptable. Under certain circumstances
they may, however, not be necessary and worsen a
restrictive effect.

individual

No elimination of competition

36. The last criterion of elimination of competition for a
substantial part of the products in question is related to
the question of dominance. Where an undertaking is
dominant or becoming dominant as a consequence of a
horizontal agreement, an agreement which produces anti-
competitive effects in the meaning of Article 81 can in
principle not be exempted.

Block Exemption Regulations for R & D and Specialisation

the

37. Under certain conditions the criteria of Article 81(3) can
be assumed to be fulfilled for specified categories of
agreements. This is in particular the case for R & D and
combination of
production agreements where
complementary skills or assets can be the source of
substantial efficiencies. These guidelines should be seen
as a complement to the R & D and Specialisation block
exemption Regulations. Those block exemption Regu-
lations exempt most common forms of agreements in
the fields of production/specialisation up to a market
share threshold of 20 % and in the field of R & D up
to a market share threshold of 25 % provided that the
agreements fulfil the conditions for application of the
contain (cid:145)hard core(cid:146)
block exemption and do not
restrictions
the block
exemption inapplicable. The block exemption Regulations
do not provide severability for hardcore restrictions. If
there are one or more hardcore restrictions, the benefit

((cid:145)black clauses(cid:146))

render

that

of the block exemption Regulation is lost for the entire
agreement.

1.4. Structure of the following chapters on types of coop-

eration

38. The guidelines are divided into chapters

relating to
certain types of agreements. Each chapter is structured
according to the analytical framework described above
under point 1.3. Where necessary, specific guidance on
the definition of relevant markets is given (e.g. in the field
of R & D or with respect to purchasing markets).

2. AGREEMENTS ON RESEARCH AND DEVELOPMENT

2.1. Definition

research, development

39. R & D agreements may vary in form and scope. They
range from outsourcing certain R & D activities to the
joint improvement of existing technologies or to a coop-
eration concerning the
and
marketing of completely new products. They may take
the form of a cooperation agreement or of a jointly
forms
controlled company. This chapter applies to all
of R & D agreements
including related agreements
concerning the production or commercialisation of the
R & D results provided that the cooperation’s centre of
gravity lies in R & D, with the exception of mergers and
joint ventures falling under the Merger Regulation.

40. Cooperation

in

duplicative,
reduce
R & D may
unnecessary costs,
lead to significant cross fertilisation
of ideas and experience and thus result in products and
technologies being developed more rapidly than would
otherwise be the case. As a general rule, R & D coop-
eration tends to increase overall R & D activities.

41. Small and medium-sized enterprises

and heterogeneous

form a
(SMEs)
community which is
dynamic
including the growing
confronted by many challenges,
demands of
for which they often
larger companies
work as sub-contractors. In R & D intensive sectors, fast
growing SMEs, more often called (cid:145)start-up companies(cid:146),
also aim at becoming a leader in fast-developing market
segments. To meet
those challenges and to remain
competitive, SMEs need constantly to innovate. Through
R & D cooperation there is a likelihood that overall
R & D by SMEs will increase and that they will be able
to compete more vigorously with stronger market
players.

42. Under certain circumstances, however, R & D agreements
restrictive
innovation, or variety or

may cause competition problems
effects on prices, output,
quality of products.

such as

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2.2. Relevant markets

(or

43. The key to defining the relevant market when assessing
the effects of an R & D agreement is to identify those
products, technologies or R & D efforts, that will act as
a competitive constraint on the parties. At one end of the
spectrum of possible situations, the innovation may result
(or technology) which competes in an
in a product
existing product
technology) market. This is the
case with R & D directed towards slight improvements
or variations, such as new models of certain products.
Here, possible effects concern the market
for existing
products. At the other end, innovation may result in an
entirely new product which creates its own new market
(e.g. of the spectrum of a new vaccine for a previously
incurable disease). In such a case, existing markets are
only relevant if they are somehow related to the inno-
vation in question. Consequently, and if possible,
the
effects of
the cooperation on innovation have to be
assessed. However, most of the cases probably concern
situations in between these two extremes, i.e. situations
in which innovation efforts may create products (or tech-
nology) which, over time, replace existing ones (e.g. CDs
which have replaced records). A careful analysis of those
situations may have to cover both existing markets and
the impact of the agreement on innovation.

Existing markets

(a) Product markets

44. When

the

cooperation

concerns R & D for

improvement
products
relevant market concerned by the cooperation (24).

of
including

existing
its

substitutes

products,

these

close

the
existing
form the

45. If the R & D efforts aim at a significant change of an
existing product or even at a new product replacing
existing ones, substitution with the existing products
may be imperfect or long-term. Consequently, the old
and the potentially emerging new products are not
likely to belong to the same relevant market. The
existing products may nevertheless be
market
for
concerned,
if the pooling of R & D efforts is likely to
result in the coordination of the parties’ behaviour as
suppliers of existing products. An exploitation of power
in the existing market, however, is only possible if the
parties together have a strong position with respect to
both the existing product market and R & D efforts.

46. If the R & D concerns an important component of a final
product, not only the market for this component may be
relevant for the assessment, but the existing market for
the final product as well. For instance,
if car manu-
facturers cooperate in R & D related to a new type of
engine, the car market may be affected by this R & D
cooperation. The market for final products, however, is

if the component at
only relevant for the assessment,
which the R & D is aimed, is technically or economically
a key element of these final products and if the parties to
the R & D agreement are important competitors with
respect to the final products.

(b) Technology markets

47. R & D cooperation may not only concern products but
also technology. When rights to intellectual property are
marketed separately from the products concerned to
which they relate, the relevant technology market has
to be defined as well. Technology markets consist of
the intellectual property that is licensed and its close
substitutes,
technologies which customers
could use as a substitute.

i.e. other

48. The methodology

for defining technology markets
follows the same principles as product market defi-
nition (25). Starting from the
technology which is
marketed by the parties, one needs to identify those
other technologies to which customers could switch in
response to a small but permanent increase in relative
prices. Once these technologies are identified, one can
calculate market
licensing
income generated by the parties with the total licensing
income of all sellers of substitutable technologies.

shares by dividing

the

49. The parties’ position in the market

for existing tech-
nology is a relevant assessment criterion where the
R & D cooperation concerns the significant improvement
of existing technology or a new technology that is likely
to replace the existing technology. The parties’ market
share can however only be taken as a starting point for
this analysis. In technology markets, particular emphasis
must be put on potential competition. If companies, who
do not currently license their technology, are potential
entrants on the technology market they could constrain
the ability of the parties to raise the price for their tech-
nology (see Example 3 below).

Competition in innovation (R & D efforts)

50. R & D cooperation may not (cid:151) or not only (cid:151) affect
competition in existing markets, but competition in inno-
vation. This is the case where cooperation concerns the
development of new products/technology which either
may (cid:151) if emerging (cid:151) one day replace existing ones
or which are being developed for a new intended use
replace existing products but
and will
effects on
create
a
in these
competition in innovation are
situations, but can in some cases not be sufficiently
assessed by analysing actual or potential competition in
existing product/technology markets. In this respect, two
scenarios can be distinguished, depending on the nature
of the innovative process in a given industry.

therefore not
completely new demand. The

important

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51.

industry,

In this case,

the process of

In the first scenario, which is for instance present in the
pharmaceutical
innovation is
structured in such a way that it is possible at an early
stage to identify R & D poles. R & D poles are R & D
efforts directed towards a certain new product or tech-
nology, and the substitutes for that R & D,
i.e. R & D
aimed at developing substitutable products or technology
for
those developed by the cooperation and having
comparable access to resources as well as a similar
it can be analysed if after the
timing.
agreement there will be a sufficient number of R & D
poles left. The starting point of
the analysis is the
R & D of
the parties. Then credible competing R & D
poles have to be identified. In order to assess the credi-
bility of competing poles, the following aspects have to
be taken into account: the nature, scope and size of
possible other R & D efforts,
their access to financial
and human resources, know-how/patents, or other
specialised assets as well as their timing and their capa-
bility to exploit possible results. An R & D pole is not a
credible competitor if it can not be regarded as a close
substitute for the parties’ R & D effort from the viewpoint
of, for instance, access to resources or timing.

52. In the second scenario,

the innovative efforts in an
industry are not clearly structured so as to allow the
identification of R & D poles.
the
Commission would, absent exceptional circumstances,
not try to assess the impact of a given R & D cooperation
on innovation, but would limit its assessment to product
and/or
technology markets which are related to the
R & D cooperation in question.

situation,

In this

Calculation of market shares

If

53. The calculation of market shares, both for the purposes
of the R & D block exemption Regulation and of these
guidelines, has to reflect the distinction between existing
markets and competition in innovation. At the beginning
of a cooperation the reference point is the market for
products capable of being improved or replaced by the
products under development.
the R & D agreement
only aims at improving or refining existing products,
this market includes the products directly concerned by
the R & D. Market shares can thus be calculated on the
basis of the sales value of the existing products. If the
R & D aims at replacing an existing product, the new
if succesful, become a substitute to the
product will,
existing products. To assess the competitive position of
the parties, it is again possible to calculate market shares
on the basis of the sales value of the existing products.
the R & D block exemption Regulation
Consequently,
bases its exemption of these situations on the market
share in (cid:145)the relevant market for the products capable
of being improved or replaced by the contract products(cid:146).
For an automatic exemption, this market share may not
exceed 25 % (26).

54. If the R & D aims at developing a product which will
create a complete new demand, market shares based on
sales cannot be calculated. Only an analysis of the effects
of
the agreement on competition in innovation is
possible. Consequently, the R & D block exemption Regu-
lation exempts these agreements irrespective of market
share for a period of seven years after the product is
first put on the market (27). However, the benefit of the
block exemption may be withdrawn if
the agreement
would eliminate effective competition in innovation (28).
After the seven year period, market shares based on sales
value can be calculated, and the market share threshold
of 25 % applies (29).

2.3. Assessment under Article 81(1)

2.3.1. Nature of the agreement

2.3.1.1. A g r e e m e n t s t h a t d o n o t f a l l u n d e r A r t i c l e

8 1 ( 1 )

55. Most R & D agreements do not fall under Article 81(1).
First, this can be said for agreements relating to coop-
eration in R & D at a rather theoretical stage, far removed
from the exploitation of possible results.

not

generally

competition (30).

the necessary R & D independently,

56. Moreover, R & D cooperation between non-competitors
The
does
restrict
competitive relationship between the parties has to be
analysed in the context of affected existing markets
and/or innovation. If the parties are not able to carry
there is no
out
competition to be
for
to firms bringing together complementary
example,
skills,
technologies and other resources. The issue of
potential competition has to be assessed on a realistic
cannot be defined as
basis.
potential competitors simply because the cooperation
enables them to carry out
the R & D activities. The
decisive question is whether each party independently
has the necessary means as to assets, know-how and
other resources.

instance, parties

restricted. This

can apply,

For

57. R & D cooperation by means of outsourcing of previously
captive R & D is often carried out by specialised
companies, research institutes or academic bodies which
are not active in the exploitation of the results. Typically
such agreements are combined with a transfer of
know-how and/or an exclusive supply clause concerning
possible results. Due to the complementary nature of the
cooperating parties in these scenarios, Article 81(1) does
not apply.

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58. R & D cooperation which does not

include the joint
exploitation of possible results by means of
licensing,
production and/or marketing rarely falls under Article
81(1). Those (cid:145)pure(cid:146) R & D agreements can only cause a
competition with
competition problem,
respect to innovation is significantly reduced.

effective

if

for

the application of

the R & D Block
conditions
Exemption Regulation are fulfilled. Therefore, for most
R & D agreements, restrictive effects only have to be
analysed if the parties’ combined market share exceeds
25 %.

2.3.1.2. A g r e e m e n t s t h a t a l m o s t a l w a y s f a l l u n d e r

A r t i c l e 8 1 ( 1 )

59. If the true object of an agreement is not R & D but the
i.e. otherwise prohibited
creation of a disguised cartel,
price fixing, output limitation or market allocation,
it
falls under Article 81(1). However, an R & D agreement
which includes the joint exploitation of possible future
results is not necessarily restrictive of competition.

63. Agreements falling outside the R & D Block Exemption
Regulation due to a stronger market position of
the
parties do not necessarily restrict competition. However,
the stronger the combined position of the parties on
existing markets and/or the more competition in inno-
vation is restricted, the more likely is the application of
Article 81(1) and the assessment requires a more detailed
analysis.

2.3.1.3. A g r e e m e n t s
8 1 ( 1 )

t h a t m a y f a l l u n d e r A r t i c l e

60. R & D agreements that cannot be assessed from the
outset as clearly non-restrictive may fall under Article
81(1) (31) and have to be analysed in their economic
context. This applies to R & D cooperation which is set
up at a stage rather close to the market launch and which
is agreed between companies that are competitors on
either existing product/technology markets or on inno-
vation markets.

2.3.2. Market power and market structures

61. R & D cooperation can cause negative market effects in
three respects: First, it may restrict innovation, secondly it
may cause the coordination of the parties’ behaviour in
existing markets and thirdly, foreclosure problems may
occur at the level of the exploitation of possible results.
These types of negative market effects, however, are only
likely to emerge when the parties to the cooperation have
significant power on the
and/or
competition with respect to innovation is significantly
reduced. Without market power there is no incentive to
coordinate behaviour on existing markets or to reduce or
slow down innovation. A foreclosure problem may only
arise in the context of cooperation involving at least one
player with significant market power for a key tech-
nology and the exclusive exploitation of results.

existing markets

62. There is no absolute market

share threshold which
indicates that an R & D agreement creates some degree
of market power and thus falls under Article 81(1).
However, R & D agreements are exempted provided that
they are concluded between parties with a combined
the other
market share not exceeding 25 % and that

and more

comprehensive

64. If the R & D is directed at the improvement or refinement
of existing products/technology possible effects concern
the relevant market(s) for these existing products/tech-
nology. Effects on prices, output and/or innovation in
existing markets are, however, only likely if the parties
together have a strong position, entry is difficult and few
other innovation activities are identifiable. Furthermore,
if the R & D only concerns a relatively minor input of a
final product, effects as to competition in these final
In general, a
if
products are,
invariably, very limited.
to be made between pure R & D
distinction has
agreements
cooperation
involving different stages of the exploitation of results
licensing, production, marketing). As said above,
(i.e.
rarely come under Article
pure R & D agreements
81(1). This is in particular
true for R & D directed
towards a limited improvement of existing products/tech-
in such a scenario, the R & D cooperation
nology.
includes joint exploitation only by means of
licensing,
foreclosure problems are
such as
restrictive effects
unlikely. If, however, joint production and/or marketing
slightly
of
are
the
included,
the cooperation has to be examined more
closely. First, negative effects as to prices and output in
existing markets are more likely if strong competitors are
involved in such a situation. Secondly, the cooperation
may come closer to a production agreement because the
R & D activities may de facto not form the centre of
gravity of such a collaboration.

improved products/technology

If,

65. If the R & D is directed at an entirely new product (or
technology) which creates its own new market, price and
output effects on existing markets are rather unlikely. The
analysis has to focus on possible restrictions of inno-
vation concerning, for instance, the quality and variety
of possible future products/technology or the speed of
innovation. Those restrictive effects can arise where two
or more of the few firms engaged in the development of
such a new product, start to cooperate at a stage where

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they are each independently rather near to the launch of
the product. In such a case, innovation may be restricted
even by a pure R & D agreement. In general, however,
R & D cooperation concerning entirely new products is
change
pro-competitive.
significantly if the joint exploitation of the results, even
joint marketing,
is involved. Indeed, the issue of joint
exploitation in these situations is only relevant where
foreclosure from key technologies plays a role. Those
problems would, however, not arise where the parties
grant licences to third parties.

principle

does

This

not

66. Most R & D agreements will

to the parties’

lie somewhere in between
the two situations described above. They may therefore
have effects on innovation as well as repercussions on
existing markets. Consequently, both the existing market
and the effect on innovation may be of relevance for the
assessment with respect
combined
concentration ratios, number of players/
positions,
In some cases there
innovators and entry conditions.
can be
effects on existing
restrictive price/output
markets and a negative impact on innovation by means
of slowing down the speed of development. For instance,
significant competitors on an existing technology
if
market cooperate to develop a new technology which
may one day replace existing products, this cooperation
is likely to have restrictive effects if
the parties have
significant market power on the existing market (which
would give an incentive to exploit it), and if they also
have a strong position with respect to R & D. A similar
effect can occur, if the major player in an existing market
cooperates with a much smaller or even potential
competitor who is just about to emerge with a new
product/technology which may endanger the incumbent’s
position.

the

The

between

parties (32).

67. Agreements may also fall outside the block exemption
irrespective of
the parties. This
the market power of
applies for instance to agreements which restrict access
of a party to the results of the work because they do not,
rule, promote technical and economic
as a general
technical
progress by increasing the dissemination of
Block
knowledge
exemption provides
for a specific exception to this
general rule in the case of academic bodies, research
Regulation institutes or
specialised companies which
provide R & D as a service and which are not active in
the industrial exploitation of the results of research and
development (33). Nevertheless,
it should be noted that
agreements
rights may,
where they fall under Article 81(1), meet the criteria
for exemption under Article 81(3), particularly where
exclusive access rights are economically indispensable in
view of the market, risks and scale of the investment
required to exploit the results of the research and devel-
opment.

containing exclusive

access

2.4. Assessment under Article 81(3)

2.4.1. Economic benefits

it appears

reasonable to provide for

such agreements which result
competition up to a market

68. Most R & D agreements (cid:151) with or without joint exploi-
tation of possible results (cid:151) bring about economic
benefits by means of cost savings and cross fertilisation
of ideas and experience, thus resulting in improved or
new products and technologies being developed more
rapidly than would otherwise be the case. Under these
the
conditions
in a
exemption of
share
restriction of
threshold below which it can,
for the application of
Article 81(3), in general, be presumed that the positive
effects of
research and development agreements will
outweigh any negative effects on competition. Therefore,
the R & D Block Exemption Regulation exempts those
R & D agreements which fulfill certain conditions (see
Article 3) and which do not include hard core restrictions
(see Article 5), provided that the combined market share
of the parties in the affected existing market(s) does not
exceed 25 %.

69. If considerable market power is created or increased by
to demonstrate
the parties have
the
significant benefits in carrying out R & D, a quicker
launch of new products/technology or other efficiencies.

cooperation,

2.4.2. Indispensability

70. An R & D agreement can not be exempted if it imposes
restrictions that are not indispensable to the attainment
of the above-mentioned benefits. The individual clauses
listed in Article 5 of the R & D block exemption Regu-
lation will in most cases render an exemption impossible
following an individual assessment too, and can therefore
be regarded as a good indication of restrictions that are
not indispensable to the cooperation.

2.4.3. No elimination of competition

a

technologies)

consequence of

the products (or
as

71. No exemption will be possible, if the parties are afforded
the possibility of eliminating competition in respect of a
in
substantial part of
a R & D
question. Where
agreement an undertaking is dominant or becoming
dominant either on an existing markets or with respect
to innovation, such an agreement which produces anti-
competitive effects in the meaning of Article 81 can in
principle not be exempted. For innovation this is the
case, for example,
if the agreement combines the only
two existing poles of research.

Time of the assessment and duration of the exemption

72. R & D agreements extending to the joint production and
marketing of new products/technology require particular
attention as to the time of the assessment.

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73. At the beginning of an R & D cooperation,

additional

exemption phase

If, on the basis of

its success
and factors such as the parties’ future market position
as well as the development of future product or tech-
nology markets are often not known. Consequently, the
assessment at the point in time when the cooperation is
formed is limited to the (then) existing product or tech-
nology markets and/or innovation markets as described
in this chapter.
this analysis,
competition is not likely to be eliminated, the R & D
from an exemption. This will
agreement can benefit
normally cover the duration of the R & D phase plus,
in as far as the joint production and marketing of the
possible results is concerned, an additional phase for a
possible launch and market introduction. The reason for
first
this
companies to reach the market with a new product/tech-
nology will often enjoy very high initial market shares
and successful R & D is also often rewarded by intel-
lectual property protection. A strong market position
due to this (cid:145)first mover advantage(cid:146) cannot normally be
interpreted as elimination of competition. Therefore, the
block exemption covers R & D agreements
an
additional period of seven years (i.e. beyond the R & D
phase) irrespective of whether or not the parties obtain
with their new products/technology a high share within
this period. This also applies to the individual assessment
of cases falling outside the block exemption provided that
the criteria of Article 81(3) as to the other aspects of the
agreement are fulfilled. This does not exclude the possi-
bility that a period of more than 7 years also meets the
if it can be shown to be the
criteria of Article 81(3)
minimum period of
time necessary to guarantee an
adequate return on the investment involved.

that

the

for

is

develop miniaturised electronic components and have
developed early prototypes. They now agree to pool these
R & D efforts by setting up a JV to complete the R & D and
produce the components, which will be sold back to the
parents, who will commercialise them separately. The
remainder of the market consists of small firms without
sufficient resources to undertake the necessary investments.
Analysis: Miniaturised electronic components, while likely
to compete with the existing components in some areas, are
essentially a new technology and an analysis must be made
of the poles of research destined towards this future market.
If the JV goes ahead then only one route to the necessary
manufacturing technology will exist, whereas
it would
appear likely that A and B could reach the market indi-
vidually with separate products. While the agreement
could have advantages
in bringing a new technology
forward quicker,
it also reduces variety and creates a
commonality of costs between the parties. Furthermore,
the possibility for
strong
position on the existing market must be taken into
account. Since they would face no competition at
the
R & D level, their incentives to pursue the new technology
at a high pace could be severely reduced. Although some of
these concerns could be remedied by requiring the parties
to license key know-how for manufacturing miniature
it may
components to third parties on reasonable terms,
not be possible to remedy all concerns and fulfil
the
conditions for an exemption.

the parties

to exploit

their

74.

If a new assessment of an R & D cooperation is made
after that period (cid:151) for instance, following a complaint
(cid:151) the analysis has to be based on the (then) existing
market situation. The block exemption still continues to
apply if the parties’ share on the (then) relevant market
does not exceed 25 %. Similarly, Article 81(3) continues
to apply to R & D agreements falling outside the block
exemption provided that the criteria for an exemption are
fulfilled.

76. Example 2

2.5. Examples

75. Example 1

Situation: There are two major companies on the European
market
electronic
components: A (30 %) and B (30 %). They have each
in the R & D necessary to
made significant

the manufacture

investment

existing

for

of

Situation: A small research company A which does not
have its own marketing organisation has discovered and
patented a pharmaceutical substance based on new tech-
nology that will revolutionise the treatment of a certain
disease. Company A enters into an R & D agreement with
a large pharmaceutical producer B of products that have so
far been used for treating the disease. Company B lacks any
similar R & D programme. For
existing products
company B has a market share of around 75 % in all
Member States, but patents are expiring over the next
five-year period. There exist two other poles of research
at approximately the same stage of development using the
same basic new technology. Company B will provide
considerable funding and know-how for product devel-
opment, as well as future access to the market. Company
B is granted a license for the exclusive production and
distribution of the resulting product for the duration of
the patent.
the parties could jointly
bring the product to market in five to seven years.

is expected that

the

It

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increases

to market

Analysis: The product is likely to belong to a new relevant
market. The parties bring complementary resources and
skills
the
to the cooperation, and the probability of
product
substantially.
coming
Although Company B is
likely to have considerable
market power on the existing market, this power will be
decreasing shortly and the existence of other poles of
research are likely to eliminate any incentive to reduce
R & D efforts.
the
exploitation
remaining patent period are likely to be necessary for
Company B to make the considerable investments needed
and Company A has no own marketing resources. The
agreement is therefore unlikely to restrict competition.

during

rights

The

3. PRODUCTION AGREEMENTS (INCLUDING SPECIALISATION

AGREEMENTS)

3.1. Definition

78. Production agreements may vary in form and scope.
They may take the form of joint production through a
joint venture (34), i.e. a jointly controlled company that
runs one or several production facilities, or can be
carried out by means of specialisation or subcontracting
agreements whereby one party agrees to carry out the
production of a certain product.

77. Example 3

Situation: Two engineering companies that produce vehicle
components, agree to set up a JV to combine their R & D
efforts to improve the production and performance of an
existing component. They also pool
their existing tech-
nology licensing businesses in this area, but will continue
to manufacture separately. The two companies have market
shares in Europe of 15 % and 20 % on the OEM product
market. There are two other major competitors together
with several
research programmes by large
vehicle manufacturers. On the world-wide market for the
licensing of technology for these products they have shares
of 20 % and 25 %, measured in terms of revenue generated,
and there are two other major technologies. The product
life cycle for the component is typically two to three years.
In each of the last five years one of the major firms has
introduced a new version or upgrade.

in-house

Analysis: Since neither company’s R & D effort is aimed at
a completely new product, the markets to consider are for
the existing components and for the licensing of relevant
technology. Although their existing R & D programmes
broadly overlap, the reduced duplication through the coop-
eration could allow them to spend more on R & D than
individually. Several other technologies exist and the parties’
combined market share on the OEM market does not bring
them into a dominant position. Although their market
is very high,
share on the technology market, at 45 %,
there are competing technologies. In addition, the vehicle
manufacturers, who do not currently licence their tech-
nology, are also potential entrants on this market
thus
constraining the ability of the parties to raise price. As
described, the JV is likely to benefit from an exemption.

79. Generally, one

or

(unilateral

can distinguish three

categories of
production agreements:
Joint production agreements,
whereby the parties agree to produce certain products
jointly,
specialisation
agreements, whereby the parties agree unilaterally or
reciprocally to cease production of a product and to
from the other party, and subcontracting
purchase it
agreements whereby one party (the (cid:145)contractor(cid:146)) entrusts
to another party (the (cid:145)subcontractor(cid:146)) the production of a
product.

reciprocal)

80. Subcontracting agreements are vertical agreements. They
are therefore, to the extent that they contain restrictions
of competition, covered by the Block Exemption Regu-
lation and the Guidelines on Vertical Restraints. There are
however
two exceptions to this rule: Subcontracting
agreements between competitors (35), and subcontracting
agreements between non-competitors
the
transfer of know-how to the subcontractor (36).

involving

are
81. Subcontracting agreements between competitors
covered by these guidelines (37). Guidance
the
for
between
agreements
assessment
non-competitors involving the transfer of know-how to
the subcontractor is given in a separate Notice (38).

subcontracting

of

3.2. Relevant markets

the

relevant product

cooperating parties,

82. In order to assess the competitive relationship between
the
and
geographic market(s) directly concerned by the coop-
eration (i.e. the market(s) to which products subject to
the agreement belong) must first be defined. Secondly, a
production agreement in one market may also affect the
competitive behaviour of the parties in a market which is
downstream or upstream or a neighbouring market
closely related to the market directly concerned by the
cooperation (39) (so-called (cid:145)spill-over markets(cid:146)). However,
spill-over effects only occur if the cooperation in one
coordination of
market necessarily
the
competitive behaviour
if
i.e.
markets are linked by interdependencies, and if
the
parties are in a strong position on the spill-over market.

in the
in another market,

results

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3.3. Assessment under Article 81 (1)

to enter a new market,
service or to carry out a specific project.

to launch a new product or

3.3.1. Nature of the agreement

83. The main source of competition problems that may arise
from production agreements is the coordination of the
parties’ competitive behaviour as suppliers. This type of
competition problem arises where the cooperating parties
are actual or potential competitors on at least one of
these relevant market(s),
i.e. on the markets directly
concerned by the
cooperation and/or on possible
spill-over markets.

84. The fact that the parties are competitors does not auto-
matically cause the coordination of their behaviour. In
addition, the parties normally need to cooperate with
regard to a significant part of their activities in order
to achieve a substantial degree of commonality of costs.
The higher the degree of commonality of costs,
the
greater the potential for a limitation of price competition,
especially in the case of homogenous products.

85. In addition to coordination concerns, production
agreements may also create foreclosure problems and
other negative effects towards third parties. They are
not caused by a competitive relationship between the
parties, but by a strong market position of at least one
of the parties (e.g. on an upstream market for a key
component, which enables the parties to raise the costs
of their rivals in a downstream market) in the context of
a more vertical or complementary relationship between
the cooperating parties. Therefore, the possibilty of fore-
closure mainly needs to be examined in the case of joint
production of an important component and of subcon-
tracting agreements (see below).

3.3.1.1. A g r e e m e n t s t h a t d o n o t f a l l u n d e r A r t i c l e

8 1 ( 1 )

86. Unless foreclosure problems arise, production agreements
between non-competitors are not normally caught by
Article 81(1). This is also true for agreements whereby
inputs or components which have so far been manu-
factured for own consumption (captive production) are
purchased from a third party by way of subcontracting or
unilateral specialisation, unless there are indications that
the company which so far has only produced for own
consumption could have entered the merchant market for
incurring significant
sales
small,
in response
additional
permanent changes in relative market prices.

to third parties without
or

costs

risks

to

the

final product

88. Secondly, an effect on the parties’ competitive behaviour
as market suppliers is highly unlikely if the parties have a
small proportion of their total costs in common. For
instance, a low degree of commonality in total costs
can be assumed where two or more companies agree
on specialisation/joint production of an intermediate
product which only accounts for a small proportion of
the production costs of
and,
the total costs. The same applies to a
consequently,
subcontracting agreement between competitors where
from
the
another only accounts for a small proportion of
the
production costs of the final product. A low degree of
commonality of total costs can also be assumed where
the parties jointly manufacture a final product, but only a
small proportion as compared to their total output of the
final product. Even if a significant proportion is jointly
manufactured, the degree of commonality of total costs
may nevertheless be low or moderate, if the cooperation
concerns heterogeneous products which require costly
marketing.

competitor purchases

input which one

89. Thirdly, subcontracting agreements between competitors
do not fall under Article 81(1)
if they are limited to
individual sales and purchases on the merchant market
without any further obligations and without forming part
of
relationship between the
parties (40).

commercial

a wider

3.3.1.2. A g r e e m e n t s t h a t a l m o s t a l w a y s f a l l u n d e r

A r t i c l e 8 1 ( 1 )

90. Agreements which fix the prices for market supplies of
the parties,
limit output or share markets or customer
groups have the object of restricting competition and
almost always
fall under Article 81(1). This does,
however, not apply to cases

(cid:151) where the parties agree on the output directly
concerned by the production agreement
the
capacity and production volume of a joint venture
or the agreed amount of outsourced products), or

(e.g.

87. Even production agreements between competitors do not
necessarily come under Article 81(1). First, cooperation
between firms which compete on markets closely related
to the market directly concerned by the cooperation,
cannot be defined as restricting competition, if the coop-
eration is the only commercially justifiable possible way

(cid:151) where a production joint venture that also carries out
the distribution of the manufactured products sets the
sales prices for these products, provided that the price
fixing by the joint venture is the effect of integrating
the various functions (41).

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In both scenarios the agreement on output or prices will
not be assessed separately, but in light of the overall
effects of the joint venture on the market in order to
determine the applicability of Article 81(1).

particular to cooperation in upstream markets by firms
which also enjoy a strong combined market position
further downstream. Similarly, problems of foreclosure
may need to be examined if
the parties individually
have a strong position as either suppliers or buyers of
an input.

3.3.1.3. A g r e e m e n t s
8 1 ( 1 )

t h a t m a y f a l l u n d e r A r t i c l e

91. Production agreements that cannot be characterised as
clearly restrictive or non-restrictive on the basis of the
above factors may fall under Article 81(1) (42) and have to
be analysed in their economic context. This applies to
cooperation agreements between competitors which
create a significant degree of commonality of costs, but
do not involve hard core restrictions as described above.

3.3.2. Market power and market structures

92. The starting point for the analysis is the position of the
parties in the market(s) concerned. This is due to the fact
that without market power the parties to a production
agreement do not have an incentive to coordinate their
competitive behaviour as suppliers. Secondly, there is no
effect on competition in the market without market
power of the parties, even if the parties would coordinate
their behaviour.

93. There is no absolute market

that a production agreement creates

share threshold which
indicates
some
degree of market power and thus falls under Article
81(1). However, agreements concerning unilateral or
reciprocal specialisation as well as joint production are
block exempted provided that
concluded
between parties with a combined market share not
exceeding 20 % in the relevant market(s) and that the
other conditions for the application of the Specialisation
block exemption Regulation are fulfilled. Therefore, for
agreements covered by the block exemption, restrictive
effects only have to be analysed if the parties combined
market share exceeds 20 %.

they are

94. Agreements which are not

covered by the block
exemption Regulation require a more detailed analysis.
The starting point is the market position of the parties.
This will normally be followed by the concentration ratio
and the number of players as well as by other factors as
described in Chapter 1.

95. Usually the analysis will only involve the relevant
cooperation is directly
market(s) with which the
the
concerned. Under certain circumstances, e.g.
parties have a very strong combined position on up- or
downstream markets or on markets otherwise closely
related to the markets with which the cooperation is
directly
spill-over markets may
however have to be analysed as well. This applies in

concerned,

these

if

Market position of the parties, concentration ratio, number of
players and other structural factors

the higher

96. If the parties’ combined market share is larger than 20 %,
the likely impact of the production agreement on the
market must be assessed. In this respect market concen-
tration as well as market shares will be a significant
factor. The higher the combined market share of
the
the concentration in the market
parties,
concerned. However, a moderately higher market share
than allowed for in the block exemption does not neces-
sarily imply a high concentration ratio. Far instance, a
combined market share of the parties of slightly more
than 20 % may occur in a market with a moderate
concentration (HHI below 1800). In such a scenario a
restrictive effect
In a more concentrated
market, however, a market share of more than 20 %
lead to a restriction of
may, alongside other elements,
competition (see also example 1 below). The picture
may nevertheless change, if the market is very dynamic
with new participants entering the market and market
positions changing frequently.

is unlikely.

97. For joint production, network effects, i.e. links between a
significant number of competitors, can also play an
In a concentrated market the creation
important role.
of an additional
link may tip the balance and make
collusion in this market likely, even if the parties have
a significant, but still moderate, combined market share
(see example 2 below).

98. Under

also

raise

specific circumstances a cooperation between
competition
potential
competitors may
concerns. This is, however,
limited to cases where a
strong player in one market cooperates with a realistic
potential entrant, for instance, with a strong supplier of
in a neighbouring
the
potential
The
geographic market.
competition
actual
if
particular
creates
competition is already weak and threat of entry is a
major source of competition.

of
problems

same product or

reduction

service

Cooperation in upstream markets

99. Joint production of an important component or other
final product can cause negative

input to the parties’
market effects under certain circumstances:

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(cid:151) Foreclosure problems (see example 3 below) provided
that the parties have a strong position on the relevant
input market
(non-captive use) and that switching
between captive and non-captive use would not
occur in the presence of a small but permanent
relative price increase for the product in question.

(cid:151) Spill-over effects (see example 4 below) provided that
the input is an important component of costs and
that the parties have a strong position in the down-
stream market for the final product.

exemption Regulation) provided that they do not contain
hard core restrictions (see Article 5) and that they are
concluded between parties with a combined market share
not exceeding 20 % in the relevant market(s).

103. For

those

covered by

agreements not

the block
exemption the parties have to demonstrate improvements
of production or other efficiencies. Efficiencies that only
benefit the parties or cost savings that are caused by
output reduction or market allocation cannot be taken
into account.

Subcontracting agreements between competitors

3.4.2. Indispensability

100. Similar problems can arise if a competitor subcontracts
to its final

an important component or other input
product from a competitor. This can also lead to:

input market

(cid:151) Foreclosure problems provided that the parties have a
strong position as either suppliers or buyers on the
(non-captive use). Subcon-
relevant
tracting could then either lead to other competitors
not being able to obtain this input at a competitive
price or to other suppliers not being able to supply
the input competitively if they will be losing a large
part of their demand.

(cid:151) Spill-over effects provided that

is an
important component of costs and that the parties
have a strong position in the downstream market
for the final product.

the input

Specialisation agreements

104. Restrictions that go beyond what is necessary to achieve
the economic benefits described above will not be
accepted. For instance, parties should not be restricted
in their competitive behaviour on output outside the
cooperation.

3.4.3. No elimination of competition

105. No exemption will be possible, if the parties are afforded
the possibility of eliminating competition in respect of a
substantial part of the products in question. Where as a
consequence of a production agreement an undertaking
is dominant or becoming dominant, such an agreement
which produces anti-competitive effects in the meaning
of Article 81 can in principle not be exempted. This has
to be analysed on the relevant market
to which the
products
to the cooperation belong and on
subject
possible spill-over markets.

101. Reciprocal specialisation agreements with market shares
beyond the threshold of the block exemption will almost
always fall under Article 81(1) and have to be examined
carefully because of the risk of market partitioning (see
example 5 below).

3.5. Examples

Joint production

3.4. Assessment under Article 81(3)

3.4.1. Economic benefits

106. The following two examples concern hypothetical cases
causing competition problems on the relevant market to
which the jointly manufactured products belong.

102. Most common types of production agreements can be
assumed to cause some economic benefits in the form
of economies of scale or scope or better production tech-
nologies unless they are an instrument for price fixing,
output restriction or market and customer allocation.
Under these conditions it appears reasonable to provide
for the exemption of such agreements which result in a
restriction of competition up to a market share threshold
below which it can, for the application of Article 81(3),
in general, be presumed that
the positive effects of
production agreements will outweigh any negative
effects on competition. Therefore, agreements concerning
unilateral or reciprocal specialisation as well as joint
production are block exempted (Specialisation block

107. Example 1

Situation: Two suppliers, A and B, of the basic chemical
to build a new production plant
product X decide
controlled by a joint venture. This plant will produce
roughly 50 % of their total output. X is a homogeneous
product and is not substitutable with other products,
i.e.
forms a relevant market on its own. The market is rather
stagnant. The parties will not significantly increase total
output, but close down two old factories and shift
capacity to the new plant. A and B each have a market
share of 20 %. There are three other significant suppliers
each with 10-15 % market share and several smaller players.

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Analysis: It is likely that this joint venture would have an
effect on the competitive behaviour of the parties because
coordination would give them considerable market power, if
not even a dominant position. Severe restrictive effects in
the market are probable. High efficiency gains which may
outweigh these effects are unlikely in such a scenario where
a significant increase in output cannot be expected.

However, only very rapid switching would counteract the
high market share of 60 %. Otherwise this production
venture raises serious competition concerns which cannot
be outweighed even by significant economic benefits.

108. Example 2

Situation: Two suppliers, A and B, form a production joint
venture on the same relevant market as in example 1. The
total
joint venture also produces 50 % of
output. A and B each have 15 % market share. There are
3 other players: C with a market share of 30 %, D with
25 % and E with 15 %. B already has a joint production
plant with E.

the parties’

Analysis: Here the market is characterised by very few
players and rather symmetric structures. The joint venture
creates an additional link between the players. Coordination
between A and B would de facto further increase concen-
tration and also link E to A and B. This cooperation is likely
to cause a severe restrictive effect, and (cid:151) as in example 1
(cid:151) high efficiency gains cannot be expected.

111. Example 4 concerns cooperation regarding an important
intermediate product with spill-over effects on a down-
stream market.

112. Example 4

Situation: A and B set up a production joint venture for an
intermediate product X. They will close their own factories,
which have been manufacturing X, and will cover their
needs of X exclusively from the joint venture. The inter-
mediate product accounts for 50 % of the total costs of the
final product Y. A and B each have a share of 20 % in the
market for Y. There are two other significant suppliers of Y
each with 15 % market
smaller
competitors.

and several

share

the

commonality of

is high;
Analysis: Here
furthermore,
the parties would gain market power
through coordination of their behaviour on the market Y.
The case raises competition problems and the assessment is
to example 1 although here the coop-
almost
eration is taking place in an upstream market.

identical

costs

109. Example 3 also concerns the relevant market to which
the jointly manufactured products belong, but demon-
strates the importance of criteria other than market
share (here: switching between captive and non-captive
production).

Reciprocal specialisation

113. Example 5

110. Example 3

Situation: A and B set up a production joint venture for an
intermediate product X through restructuring current
plants. The joint venture sells X exclusively to A and B. It
produces 40 % of A’s total output of X and 50 % of B’s total
output. A and B are captive users of X and are also
suppliers of
total
industry output of X is 10 %, B’s share amounts to 20 %
and the share of
the joint venture to 14 %. On the
non-captive market, however, A and B have respectively
25 % and 35 % market share.

the non-captive market. A’s share of

strong position on the
Analysis: Despite the parties’
the cooperation may not eliminate
non-captive market
effective competition in the market
if switching
costs between captive and non-captive use are small.

for X,

Situation: A and B each manufacture and supply the
homogeneous products X and Y, which belong to
different markets. A’s market share of X is 28 % and of Y
it is 10 %. B’s share of X is 10 % and of Y it is 30 %.
Because of scale economies they conclude a reciprocal
specialisation agreement according to which A will
in
future only produce X and B will produce only Y. Both
agree on cross-supplies so that they will both remain in
the markets as suppliers. Due to the homogeneous nature
of the products, distribution costs are minor. There are two
other manufacturing suppliers of X and Y with market
shares of roughly 15 % each, the remaining suppliers have
5-10 % shares.

Analysis: The degree of commonality of costs is extremely
high, only the relatively minor distribution costs remain
separate. Consequently,
room for
there
competition left. The parties would gain market power
through coordination of their behaviour on the markets
the market
it
for X and Y. Furthermore,

is very little

is likely that

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supplies of Y from A and X from B will diminish over time.
The case raises competition problems which the economies
of scale are unlikely to outweigh.

the offer of a complete range of

The scenario may change if X and Y were heterogeneous
products with a very high proportion of marketing and
distribution costs (e.g. 65-70 % of total costs). Furthermore,
if
the differentiated
products was a condition for competing successfully, the
withdrawal of one or more parties as suppliers of X
and/or Y would be unlikely.
In such a scenario the
criteria for exemption may be fulfilled (provided that the
economies are significant), despite the high market shares.

firms hold a small stake, by a contractual arrangement or
even looser form of cooperation.

to achieve

116. Purchasing agreements are often concluded by small and
medium-sized enterprises
and
to their bigger competitors. These
similar
discounts
agreements between small and medium-sized enterprises
are
a
therefore normally pro-competitive. Even if
moderate degree of market power is created, this may
scale provided the
be outweighed by economies of
parties actually bundle volume.

volumes

Subcontracting between competitors

114. Example 6

117.

Situation: A and B are competitors in the market for the
final product X. A has a market share of 15 %, B of 20 %.
Both also produce the intermediate product Y, which is an
input into the production of X, but is also used to produce
other products. It accounts for 10 % of the cost of X. A
only produces Y for internal consumption, while B is also
selling Y to third party customers. Its market share for Y is
10 %. A and B agree on a subcontracting agreement,
whereby A will purchase 60 % of its requirements of Y
its
from B.
requirements internally to not lose the know-how related
to the production of Y.

to produce 40 % of

continue

It will

a

In these

two-step analysis

Joint purchasing may involve both horizontal and vertical
agreements.
is
cases
necessary. First, the horizontal agreements have to be
assessed according to the principles described in the
present guidelines.
to the
conclusion that a cooperation between competitors in
the area of purchasing is acceptable, a further assessment
will be necessary to examine the vertical agreements
concluded with suppliers or individual sellers. The latter
assessment will follow the rules of the Block Exemption
Regulation and the Guidelines on Vertical Restraints (43).

this assessment

leads

If

it

internal
Analysis: As A has only produced Y for
first needs to be analysed if A is a
consumption,
realistic potential entrant
for
sales of Y to third parties. If this is not the case, then the
agreement does not restrict competition with respect to Y.
Spill-over effects into the market for X are also unlikely in
view of the low degree of commonality of costs created by
the agreement.

into the merchant market

If A were to be regarded a realistic potential entrant into
the merchant market for sales of Y to third parties, the
market position of B in the market for Y would need to
be taken into account. As B’s market share is rather low, the
result of the analysis would not change.

118. An example would be an association formed by a group
of retailers for the joint purchasing of products. Hori-
zontal agreements concluded between the members of
the association or decisions adopted by the association
have to be assessed first as a horizontal agreement
according to the present guidelines. Only if
this
assessment is positive does it become relevant to assess
the resulting vertical agreements between the association
and an individual members or between the association
and suppliers. These agreements are covered (cid:151) up to a
certain limit (cid:151) by the block exemption for vertical
restraints (44). Those
the
agreements
vertical block exemption will not be presumed to be
illegal but may need individual examination.

falling outside

4. PURCHASING AGREEMENTS

4.2. Relevant markets

4.1. Definition

115. This chapter focuses on agreements concerning the joint
buying of products. Joint buying can be carried out by a
jointly controlled company, by a company in which many

119. There are two markets which may be affected by joint
buying: First, the market(s) with which the cooperation is
directly concerned, i.e. the relevant purchasing market(s).
Secondly, the selling market(s), i.e. the market(s) down-
stream where the participants of the joint purchasing
arrangement are active as sellers.

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to identify

substitutability

120. The definition of relevant purchasing markets follows the
principles described in the Commission Notice on the
definition of the relevant market and is based on the
concept of
competitive
constraints. The only difference to the definition of
(cid:145)selling markets(cid:146) is that substitutability has to be defined
from the viewpoint of supply and not from the viewpoint
of demand. In other words: the suppliers’ alternatives are
decisive in identifying the competitive constraints on
purchasers. These could be analysed for instance by
examining the suppliers’ reaction to a small but lasting
price decrease. If the market is defined, the market share
can be calculated as
the percentage for which the
purchases by the parties concerned account out of the
total sales of the purchased product or service in the
relevant market.

121. Example 1

A group of car manufacturers agree to buy product X
for 15
jointly. Their combined purchases of X account
units. All the sales of X to car manufacturers account for
50 units. However, X is also sold to manufacturers of
products other than cars. All sales of X account for 100
units. Thus, the (purchasing) market share of the group is
15 %.

122. If the parties are in addition competitors on one or more
selling markets, these markets are also relevant for the
assessment. Restrictions of competition on these markets
are more likely if the parties will achieve market power
by coordinating their behaviour and if the parties have a
significant proportion of their total costs in common.
the case if retailers which are
This is,
for instance,
active in the same relevant
jointly
retail market(s)
purchase a significant amount of
the products they
It may also be the case if competing
offer for resale.
manufacturers and sellers of a final product
jointly
purchase a high proportion of their input together. The
selling markets have to be defined by applying the
methodology described in the Commission Notice on
the definition of the relevant market.

4.3. Assessment under Article 81(1)

4.3.1. Nature of the agreement

markets and cannot be regarded as realistic potential
competitors), Article 81(1) will rarely apply unless the
parties have a very strong position in the buying
markets, which could be used to harm the competitive
respective selling
position of other players
markets.

in their

4.3.1.2. A g r e e m e n t s t h a t a l m o s t a l w a y s f a l l u n d e r

A r t i c l e 8 1 ( 1 )

124. Purchasing agreements only come under Article 81(1) by
their nature if the cooperation does not truly concern
joint buying, but
to engage in a
serves as a tool
disguised cartel,
i.e. otherwise prohibited price fixing,
output limitation or market allocation.

4.3.1.3. A g r e e m e n t s
8 1 ( 1 )

t h a t m a y f a l l u n d e r A r t i c l e

125. Most purchasing agreements have to be analysed in their
legal and economic context. The analysis has to cover
both the purchasing and the selling markets.

4.3.2. Market power and market structures

126. The starting point for the analysis is the examination of
the parties’ buying power. Buying power can be assumed
if a purchasing agreement accounts for a sufficiently large
proportion of the total volume of a purchasing market so
that prices can be driven down below the competitive
level or access to the market can be foreclosed to
competing buyers. A high degree of buying power over
the suppliers of a market may bring about inefficiencies
such as quality reductions, lessening of innovation efforts,
or ultimately sub-optimal supply. However, the primary
concerns in the context of buying power are that lower
prices may not be passed on to customers further down-
stream and that
increases for the
it may cause cost
purchasers’ competitors on the selling markets because
either suppliers will try to recover price reductions for
one group of customers by increasing prices for other
customers or competitors have less access to efficient
suppliers. Consequently, purchasing markets and selling
markets are characterised by interdependencies as set out
below.

4.3.1.1. A g r e e m e n t s t h a t d o n o t f a l l u n d e r A r t i c l e

8 1 ( 1 )

Interdependencies
market(s)

between

purchasing

and

selling

between

123. By their very nature joint buying agreements will be
least
concluded
competitors on the purchasing markets.
If, however,
competing purchasers cooperate who are not active on
further downstream (e.g.
the same relevant market
geographic
in different
active
retailers which are

companies

that

are

at

127. The

of

competing

purchasers

cooperation

can
appreciably restrict competition by means of creating
buying power. Whilst the creation of buying power can
lead to lower prices for consumers, buying power is not
always pro-competitive and may even, under certain
circumstances,
on
severe
competition.

negative

effects

cause

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128. First, lower purchasing costs resulting from the exercise
of buying power cannot be seen as pro-competitive, if
the purchasers
together have power on the selling
markets. In this case, the cost savings are probably not
passed on to consumers. The more combined power the
parties have on their selling markets, the higher is the
incentive for the parties to coordinate their behaviour as
sellers. This may be facilitated if the parties achieve a
through joint
high degree of commonality of costs
large retailers
if a group of
purchasing. For instance,
buys a high proportion of their products together, they
total cost
will have a high proportion of
in
common. The negative effects of
joint buying can
therefore be rather similar to joint production.

their

129. Secondly, power on the selling markets may be created or
increased through buying power which is used to
foreclose competitors or to raise rivals’ costs. Significant
buying power by one group of customers may lead to
foreclosure of competing buyers by limiting their access
to efficient suppliers. It can also cause cost increases for
its competitors because suppliers will try to recover price
reductions for one group of customers by increasing
prices for other customers (e.g. rebate discrimination by
suppliers of retailers). This is only possible if the suppliers
of the purchasing markets also have a certain degree of
market power. In both cases, competition in the selling
markets can be further restricted by buying power.

130. There is no absolute threshold which indicates that a
some degree of market
buying cooperation creates
in
power and thus falls under Article 81(1). However,
most cases,
it is unlikely that market power exists if
the parties to the agreement have a combined market
share of below 15 % on the purchasing market(s) as
well as a combined market share of below 15 % on the
selling market(s). In any event, at that level of market
the conditions of Article 81(3)
share it
explained below are fulfilled by the agreement
in
question.

is likely that

131. A market share above this threshold does not auto-
matically indicate that a negative market effect
is
caused by the cooperation but requires a more detailed
assessment of the impact of a joint buying agreement on
the market, involving factors such as the market concen-
tration and possible countervailing power of
strong
suppliers.
involves parties with a
combined market share significantly above 15 % in a
concentrated market
is likely to come under Article
81(1), and efficiencies that may outweigh the restrictive
effect have to be shown by the parties.

Joint buying that

4.4. Assessment under Article 81(3)

4.4.1. Economic benefits

132. Purchasing

economic
benefits such as economies of scale in ordering or trans-

agreements

can bring

about

portation which may outweigh restrictive effects. If the
parties together have significant buying or selling power,
the issue of efficiencies has to be examined carefully. Cost
savings that are caused by the mere exercise of power
and which do not benefit consumers cannot be taken
into account.

4.4.2. Indispensability

133. Purchasing agreements cannot be exempted if

they
impose restrictions that are not
indispensable to the
the above mentioned benefits. An obli-
attainment of
gation to buy exclusively through the cooperation can
in certain cases be
the
necessary volume for the realisation of economies of
scale. However, such an obligation has to be assessed in
the context of the individual case.

indispensable

to achieve

4.4.3. No elimination of competition

134. No exemption will be possible, if the parties are afforded
the possibility of eliminating competition in respect of a
in question. This
the products
substantial part of
assessment has to cover buying and selling markets.
the parties can be
The combined market shares of
regarded as a starting point.
to be
then needs
It
evaluated whether these market shares are indicative of
a dominant position, and whether there are any miti-
of
gating
power
suppliers on the purchasing markets or potential
for
market entry in the selling markets. Where as a conse-
quence of a purchasing agreement an undertaking is
dominant or becoming dominant on either the buying
or selling market, such an agreement which produces
anti-competitive effects in the meaning of Article 81
can in principle not be exempted.

countervailing

such as

factors,

4.5. Examples

135. Example 2

Situation: Two manufacturers, A and B, decide to jointly
buy component X. They are competitors on their selling
market. Together their purchases represent 35 % of
the
total sales of X in the EEA, which is assumed to be the
relevant geographic market. There are 6 other manu-
facturers (competitors of A and B on their selling market)
accounting for
the purchasing
the remaining 65 % of
market; one having 25 %,
the others accounting for
significantly less. The supply side is rather concentrated
with 6 suppliers of component X, two with 30 % market
share each, and the rest with between 10 and 15 % (HHI of
2300-2500). On their selling market, A and B achieve a
combined market share of 35 %.

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reductions

Analysis: Due to the parties’ market power in their selling
market, the benefits of possible cost savings may not be
the joint
passed on to final consumers. Furthermore,
buying is
the parties’
likely to increase the costs of
smaller competitors because the two powerful suppliers
the group by
for
probably recover price
increasing smaller customers’ prices.
Increasing concen-
tration in the downstream market may be the result. In
addition, the cooperation may lead to further concentration
among suppliers because smaller ones, which may already
work near or below minimum optimal scale, may be driven
out of business if they cannot reduce prices further. Such a
case probably causes a significant restriction of competition
which may not be outweighed by possible efficiency gains
from bundling volume.

136. Example 3

Situation: 150 small retailers conclude an agreement to
form a joint buying organisation. They are obliged to buy
a minimum volume
through the organisation which
accounts for roughly 50 % of each retailer’s total costs.
The retailers can buy more than the minimum volume
through the organisation, and they may also buy outside
the cooperation. They have a combined market share of
20 % on each of the purchasing and the selling market(s).
A and B are their two large competitors, A has a 25 %
share on each of
the markets concerned, B 35 %. The
remaining smaller competitors have also formed a buying
group. The 150 retailers achieve economies by combining a
significant amount of volume and buying tasks.

Analysis: The retailers may achieve a high degree of
commonality of costs if
they ultimately buy more than
the agreed minimum volume together. However, together
they only have a moderate market position on the buying
and the selling market. Furthermore, the cooperation brings
about some economies of scale. This cooperation is likely
to be exempted.

137. Example 4

Situation: Two supermarket chains conclude an agreement
to jointly buy products which account for roughly 50 % of
their total costs. On the relevant buying markets for the
different categories of products the parties have shares
between 25 % and 40 %, on the relevant selling market
(assuming there is only one geographic market concerned)

they achieve 40 %. There are five other significant retailers
each with 10-15 % market share. Market entry is not likely.

Analysis:
It is likely that this joint buying arrangement
would have an effect on the competitive behaviour of the
parties because coordination would give them significant
market power. This is particularly the case if entry is
weak. The incentive to coordinate behaviour is higher if
the costs are similar. Similar margins of the parties would
add an incentive to have the same prices. Even if efficiencies
are caused by the cooperation,
likely to be
exempted due to the high degree of market power.

is not

it

138. Example 5

to
Situation: small cooperatives conclude an agreement
form a joint buying organisation. They are obliged to buy
a minimum volume through the organisation. The parties
can buy more than the minimum volume through the
they may also buy outside the coop-
organisation, but
eration. Each of the parties has a total market share of
5 % on each of the purchasing and selling markets, giving
a combined market share of 25 %. There are two other
significant retailers each with 20-25 % market share and a
number of smaller retailers with market shares below 5 %.

Analysis: The setting up of the joint buying organisation is
likely to give the parties a market position on both the
purchasing and selling markets of a degree which enables
them to compete with the two largest retailers. Moreover,
the presence of these two other players with similar levels
of market position is likely to result in the efficiencies of
the agreement being passed on to consumers. In such a
scenario the agreement is likely to be exempted.

5. COMMERCIALISATION AGREEMENTS

5.1. Definition

a widely

139. The agreements covered in this section involve coop-
eration between competitors in the selling, distribution
or promotion of their products. These agreements can
have
varying scope, depending on the
marketing functions which are being covered by the
cooperation. At one end of the spectrum, there is joint
selling that
to a joint determination of all
commercial aspects related to the sale of the product
there are more
including price. At

the other end,

leads

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limited agreements
marketing function,
advertising.

that only address one
such as distribution,

specific
service, or

5.3. Assessment under Article 81(1)

5.3.1. Nature of the agreement

if

(a)

by

are

the

the

buyer,

covered

generally

140. The most important of these more limited agreements
would seem to be distribution agreements. These
agreements
Block
Exemption Regulation and Guidelines on Vertical
Restraints unless
the parties are actual or potential
competitors. In this case, the Block Exemption Regulation
only covers non-reciprocal vertical agreements between
together with its
competitors,
connected undertakings, has an annual
turnover not
exceeding EUR 100 million, or (b) the supplier is a manu-
facturer and a distributor of products and the buyer is a
distributor who is not also a manufacturer of products
competing with the contract products, or (c) the supplier
is a provider of services at several levels of trade, while
the buyer does not provide competing services at the
level of trade where it purchases the contract services (45).
If competitors agree to distribute their products on a
reciprocal basis there is a possibility in certain cases
that the agreements have as their object or effect the
partitioning of markets between the parties or that they
lead to collusion. The same is true for non-reciprocal
agreements between competitors exceeding a certain
to be assessed
size. These agreements have thus first
according to the principles
this
assessment leads to the conclusion that a cooperation
between competitors in the area of distribution would
in principle be acceptable, a further assessment will be
necessary to examine the vertical restraints included in
such agreements. This assessment should be based on the
principles set out in the Guidelines on Vertical Restraints.

set out below.

If

141. A further

be

distinction

drawn between
should
agreements where the parties agree only on joint
commercialisation and agreements where the commer-
cialisation is related to another cooperation. This can
be for instance the case as regards joint production or
joint purchasing. These agreements will be dealt with as
in the assessment of those types of cooperation.

5.2. Relevant markets

142. To assess the competitive relationship between the coop-
erating parties, first the relevant product and geographic
market(s) directly concerned by the cooperation (i.e. the
market(s) to which products subject to the agreement
belong) have to be defined. Secondly, a commercialisation
agreement in one market may also affect the competitive
behaviour of the parties in a neighbouring market closely
related to the market directly concerned by the coop-
eration.

5.3.1.1. A g r e e m e n t s t h a t d o n o t f a l l u n d e r A r t i c l e

8 1 ( 1 )

143. The

the competition rules if

commercialisation agreements

covered by this
section only fall under
the
parties to the agreements are competitors. If the parties
clearly do not compete with regard to the products or
services covered by the agreement, the agreement cannot
create competition problems of a horizontal nature.
However, the agreement can fall under Article 81(1) if
it contains vertical restraints, such as restrictions on
passive sales, resale price maintenance, etc. This also
applies
cooperation in commercialisation is
objectively necessary to allow one party to enter a
market
for
involved. A specific
example because of
consortia
application of
arrangements
involved to
that allow the companies
mount a credible tender for projects that they would
not be able to fulfil, or would not have bid for,
indi-
vidually. As they are therefore not potential competitors
for the tender, there is no restriction of competition.

it could not have entered individually,

this principle would be

the costs

if

a

5.3.1.2. A g r e e m e n t s t h a t a l m o s t a l w a y s f a l l u n d e r

A r t i c l e 8 1 ( 1 )

144. The principal competition concern about a commercial-
isation agreement between competitors is price fixing.
Agreements limited to joint selling have as a rule the
object and effect of coordinating the pricing policy of
competing manufacturers.
In this case they not only
eliminate price competition between the parties but
also restrict the volume of products to be delivered by
the participants within the framework of the system for
allocating orders. They therefore restrict competition
between the parties on the supply side and limit the
choice of purchasers and fall under Article 81(1).

145. This appreciation does not change if the agreement is
non-exclusive. Article 81(1) continues to apply even
where the parties are free to sell outside the agreement,
as long as it can be presumed that the agreement will
lead to an overall coordination of the prices charged by
the parties.

5.3.1.3. A g r e e m e n t s
8 1 ( 1 )

t h a t m a y f a l l u n d e r A r t i c l e

146. For commercialisation arrangements that

fall short of
joint selling there will be two major concerns. The first
the joint commercialisation provides a clear
is
opportunity for
commercial
information particularly on marketing strategy and
pricing. The second is that, depending on the cost

exchanges of

sensitive

that

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structure of the commercialisation, a significant input to
the parties’ final costs may be common. As a result the
actual scope for price competition at the final sales level
Joint commercialisation agreements
may be limited.
they either
therefore can fall under Article 81(1)
allow the exchange of sensitive commercial information,
or if they influence a significant part of the parties’ final
cost.

if

the more useful

will be a significant factor. The more concentrated the
information about prices or
market
marketing strategy
to reduce uncertainty and the
greater the incentive for the parties to exchange such
information (46).

if

active

distribute

the agreement

In the
each

147. A specific concern related to distribution arrangements
between competitors which are
in different
geographic markets is that they can lead to or be an
case of
instrument of market partitioning.
reciprocal
other’s
to
agreements
products, the parties to the agreement allocate markets
or customers and eliminate competition between them-
selves. The key question in assessing an agreement of this
type is
in question is objectively
necessary for the parties to enter each other’s market. If
it is, the agreement does not create competition problems
of
the distribution
a horizontal nature. However,
it contains
agreement can fall under Article 81(1)
vertical restraints, such as restrictions on passive sales,
If the agreement is not
resale price maintenance, etc.
objectively necessary for
to enter each
other’s market, it falls under 81(1). If the agreement is
the risk of market partitioning is less
not reciprocal,
the
pronounced.
non-reciprocal agreement constitutes
for a
mutual understanding to not enter each other’s market
or is a means to control access to or competition on the
(cid:145)importing(cid:146) market.

It needs however to be assessed if

the parties

the basis

if

5.3.2. Market power and market structure

148. As indicated above, agreements that involve price fixing
irrespective of the
will always fall under Article 81(1)
market power of
the parties. They may, however, be
exemptable under Article 81(3) under the conditions
described below.

149. Commercialisation

between

agreements

competitors
which do not involve price fixing are only subject to
Article 81(1) if the parties to the agreement have some
degree of market power. In most cases, it is unlikely that
market power exists if the parties to the agreement have
a combined market share of below 15 %. In any event, at
that level of market share it is likely that the conditions
of Article 81(3) explained below are fulfilled by the
agreement in question.

150.

If
the parties’ combined market share is greater than
15 %, the likely impact of the joint commercialisation
agreement on the market must be assessed.
In this
respect market concentration, as well as market shares

5.4. Assessment under Article 81(3)

5.4.1. Economic benefits

151. The efficiencies to be taken into account when assessing
whether a joint commercialisation agreement can be
exempted will depend upon the nature of the activity.
Price fixing can generally not be justified, unless it is
indispensable for
the integration of other marketing
functions, and this integration will generate substantial
efficiencies generated
efficiencies. The
depends
the joint
inter alia on the importance of
marketing activities for the overall cost structure of the
product in question. Joint distribution is thus more likely
to generate significant efficiencies for producers of widely
distributed consumer products than for producers of
industrial products which are only bought by a limited
number of users.

size of

the

152.

In addition, the claimed efficiencies should not be savings
which result only from the elimination of costs that are
inherently part of competition, but must result from the
integration of
activities. A reduction of
transport cost which is only a result of customer allo-
cation without any integration of the logistical system
can therefore not be regarded as an efficiency that
would make an agreement exemptable.

economic

element

respect would be

153. Claimed efficiency benefits must be demonstrated. An
important
the
in this
contribution by both parties of significant capital, tech-
nology, or other assets. Cost savings through reduced
duplication of
resources and facilities can also be
accepted. If, on the other hand, the joint commercial-
isation represents no more than a sales agency with no
investment, it is likely to be a disguised cartel and as such
cannot fulfil the conditions of Article 81(3).

5.4.2. Indispensability

154. A commercialisation agreement cannot be exempted if it
indispensable to the
benefits. As
indispensability is
involving

imposes restrictions that are not
attainment
discussed above,
especially important
price fixing or the allocation of markets.

the
the question of

those agreements

abovementioned

for

of

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5.4.3. No elimination of competition

to evaluate whether

the combined market shares of

155. No exemption will be possible, if the parties are afforded
the possibility of eliminating competition in respect of a
substantial part of the products in question. In making
this assessment,
the
parties can be regarded as a starting point. One then
needs
shares are
indicative of a dominant position, and whether there
are any mitigating factors, such as the potential
for
market entry. Where as a consequence of a commercial-
an undertaking is dominant or
isation agreement
agreement which
becoming
an
dominant,
in the meaning of
produces anti-competitive effects
Article 81 can in principle not be exempted.

these market

such

5.5. Examples

156. Example 1

Situation: 5 small food producers, each with 2 % market
share of the overall food market, agree to: combine their
distribution facilities; market under a common brand name;
and sell their products at a common price. This involves
transport, adver-
significant
tising, marketing and a sales force. It significantly reduces
their cost base, representing typically 50 % of the price at
which they sell, and allows them to offer a quicker, more
efficient distribution system. The customers of
the food
producers are large retail chains.

in warehousing,

investment

Three large multinational food groups dominate the market,
each with 20 % market share. The rest of the market is
made up of small
independent producers. The product
ranges of the parties to this agreement overlap in some
significant areas, but
in no product market does their
combined market share exceed 15 %.

Analysis: The agreement involves price fixing and thus falls
under Article 81(1), even though the parties
to the
agreement cannot be considered as having market power.
However, the integration of the marketing and distribution
appears to provide significant efficiencies which are of
benefit to customers both in terms of improved service,
and lower costs. The question is therefore whether the
agreement is exemptable under Article 81(3). To answer
this question it must be established whether the price
fixing is indispensable for the integration of
the other
marketing functions and the attainment of the economic
benefits. In this case, the price fixing can be regarded as
indispensable, as the clients (cid:151) large retail chains (cid:151) do not
want to deal with a multitude of prices. It is also indis-
pensable, as the aim (cid:151) a common brand (cid:151) can only be
credibly achieved if all aspects of marketing,
including
price, are standardised. As the parties do not have market
power and the agreement creates significant efficiencies it is
compatible with Article 81.

157. Example 2

the products, determine

Situation: 2 producers of ball bearings, each having a
market share of 5 %, create a sales joint venture which
will market
the prices and
allocate orders to the parent companies. They retain the
right to sell outside this structure. Deliveries to customers
continue to be made directly from the parents’ factories.
They claim that this will create efficiencies as the joint
sales force can demonstrate the parties’ products at the
same time to the same client thus eliminating a wasteful
duplication of sales efforts. In addition, the joint venture
would, wherever possible, allocate orders to the closest
factory possible, thus reducing transport costs.

Analysis: The agreement involves price fixing and thus falls
under Article 81(1), even though the parties
to the
agreement cannot be considered as having market power.
It is not exemptable under Article 81(3), as the claimed
efficiencies are only cost reductions derived from the elim-
ination of competition between the parties.

158. Example 3

Situation: 2 producers of soft drinks are active in 2
different, neighbouring Member States. Both have
a
market share of 20 % in their home market. They agree
to reciprocally distribute each other’s product
in their
respective geographic market.

Both markets are dominated by a large multi-national soft
drink producer, having a market share of 50 % in each
market.

Analysis: The agreement falls under Article 81(1)
if the
parties can be presumed to be potential competitors.
Answering this question would thus require an analysis of
the barriers to entry into the respective geographic markets.
If the parties could have entered each other’s market inde-
pendently,
then their agreement eliminates competition
between them. However, even though the market shares
of the parties indicate that they could have some market
power, an analysis of the market structure indicates that
this is not the case. In addition, the reciprocal distribution
agreement benefits customers as it increases the available
choice in each geographic market. The agreement would
thus be exemptable even if
it were considered to be
restrictive of competition.

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6. AGREEMENT ON STANDARDS

6.1. Definition

159. Standardisation agreements have

of

or

the

definition

as
technical

their primary
objective
quality
requirements with which current or future products,
production processes or methods may comply (47). Stan-
dardisation agreements can cover various issues, such as
standardisation of different grades or sizes of a particular
product or
technical specifications in markets where
compatibility and interoperability with other products
or systems is essential. The terms of access to a particular
quality mark or for approval by a regulatory body can
also be regarded as a standard.

160. Standards

related to the provision of professional
liberal

services,
admission to a
profession, are not covered by these guidelines.

rules of

such as

6.2. Relevant markets

to which the standard(s)

161. Standardisation agreements produce their effects on three
possible markets, which will be defined according to the
the
Commission notice on market definition. First,
product market(s)
relates.
Standards on entirely new products may raise issues
similar to those raised for R & D agreements, as far as
market definition is concerned (see Point 2.2). Second,
the service market
if different
standard setting bodies or agreements exist. Third,
where relevant, the distinct market for testing and certifi-
cation.

standard setting,

for

6.3. Assessment under Article 81(1)

162. Agreements to set standards (48) may be either concluded
between private undertakings or set under the aegis of
public bodies or bodies entrusted with the operation of
the
services of general economic interest,
Directive
bodies
standards
98/34/EC (49). The
is
subject to the obligations of Member States regarding
the preservation of non-distorted competition in the
Community.

recognised
involvement of

such bodies

such as

under

by the recognised standards bodies which are based on
non-discriminatory, open and transparent procedures.

164. No appreciable restriction exists for those standards that
have a negligible coverage of the relevant market, as long
as it remains so. No appreciable restriction is found either
in agreements which pool together SMEs to standardise
access forms or conditions to collective tenders or those
that standardise aspects such as minor product charac-
teristics, forms and reports, which have an insignificant
effect on the main factors affecting competition in the
relevant markets.

6.3.1.2. A g r e e m e n t s t h a t a l m o s t a l w a y s f a l l u n d e r

A r t i c l e 8 1 ( 1 )

165. Agreements that use a standard as a means amongst
other parts of a broader restrictive agreement aimed at
excluding actual or potential competitors will almost
always be caught by Article 81(1). For
instance, an
agreement whereby a national association of manu-
set a standard and put pressure on third
facturers
to market products that did not comply
parties not
with the standard would be in this category.

6.3.1.3. A g r e e m e n t s
8 1 ( 1 )

t h a t m a y f a l l u n d e r A r t i c l e

166. Standardisation agreements may be caught by Article
the parties joint control
81(1)
insofar as they grant
over production and/or innovation,
thereby restricting
their ability to compete on product characteristics,
while affecting third parties like suppliers or purchasers
the standardised products. The assessment of each
of
agreement must
the
take into account
standard and its likely effect on the markets concerned,
on the one hand, and the scope of possible restrictions
that go beyond the primary objective of standardisation,
as defined above, on the other.

the nature of

6.3.1. Nature of the agreement

6.3.1.1. A g r e e m e n t s t h a t d o n o t f a l l u n d e r A r t i c l e

8 1 ( 1 )

163. Where participation in standard setting is unrestricted
and transparent, standardisation agreements as defined
above, which set no obligation to comply with the
standard or which are parts of a wider agreement to
ensure
restrict
compatibility of products, do not
competition. This normally applies to standards adopted

167. The existence of a restriction of competition in standard-
isation agreements depends upon the extent to which the
parties remain free to develop alternative standards or
products that do not comply with the agreed standard.
competition
Standardisation agreements may restrict
where they prevent the parties from either developing
alternative standards or commercialising products that
do not comply with the standard. Agreements
that
entrust certain bodies with the exclusive right to test
compliance with the standard go beyond the primary
objective of defining the standard and may also restrict
competition. Agreements
impose restrictions on
that
marking of conformity with standards, unless imposed
by regulatory provisions, may also restrict competition.

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6.3.2. Market power and market structures

is

Their

agreements.

effectiveness

168. High market shares held by the parties in the market(s)
affected will not necessarily be a concern for standard-
often
isation
proportional to the share of the industry involved in
setting and/or applying the standard. On the other
hand, standards that are not accessible to third parties
may discriminate or foreclose third parties or segment
of
markets
application.
the
focus, necessarily
agreement restricts competition will
on an individual basis, on the extent
to which such
barriers to entry are likely to be overcome.

geographic
assessment whether

according
Thus,

to their
the

scope

6.4. Assessment under Article 81(3)

important inefficiencies in such participation or unless
recognised procedures are foreseen for
the collective
representation of interests, as in formal standards bodies.

173. As a general rule there should be a clear distinction
between the setting of a standard and, where necessary,
the related R & D, and the commercial exploitation of
that standard. Agreements on standards should cover
no more than what is necessary to ensure their aims,
whether this is technical compatibility or a certain level
of quality. For instance, it should be very clearly demon-
strated why it is indispensable to the emergence of the
economic benefits that an agreement to disseminate a
standard in an industry where only one competitor
offers an alternative should oblige the parties to the
agreement to boycott the alternative.

6.4.1. Economic benefits

6.4.3. No elimination of competition

169. The Commission generally takes a positive approach
towards agreements that promote economic interpen-
etration in the common market or encourage the devel-
opment of new markets and improved supply conditions.
the necessary
To materialise those economic benefits,
information to apply the standard must be available to
those wishing to enter the market and an appreciable
proportion of
the industry must be involved in the
setting of the standard in a transparent manner. It will
be for the parties to demonstrate that any restrictions on
the setting, use or access
to the standard provide
economic benefits.

170.

In order to reap technical or economic benefits, standards
should not limit innovation. This will depend primarily
on the lifetime of the associated products, in connection
with the market development
(fast growing,
growing, stagnant . . .). The effects on innovation must
be analysed on a case-by-case basis. The parties may also
have to provide evidence that collective standardisation is
efficiency-enhancing for
the consumer when a new
standard may trigger unduly rapid obsolescence of
existing products, without objective additional benefits.

stage

6.4.2. Indispensability

171. By their nature, standards will not include all possible
specifications or technologies. In some cases,
it would
be necessary for the benefit of the consumers or the
technological
large to have only one
economy at
standard must be set on a
solution. However,
this
Ideally, standards should be
non-discriminatory basis.
technology neutral. In any event,
it must be justifiable
why one standard is chosen over another.

172. All competitors in the market(s) affected by the standard
should have
the possibility of being involved in
discussions. Therefore, participation in standard setting
should be open to all, unless the parties demonstrate

174. There will clearly be a point at which the specification of
a private standard by a group of firms that are jointly
dominant is likely to lead to the creation of a de facto
industry standard. The main concern will
then be to
ensure that these standards are as open as possible and
applied in a clear non-discriminatory manner. To avoid
elimination of competition in the relevant market(s),
access to the standard must be possible for third parties
on fair, reasonable and non-discriminatory terms.

175. To the extent that private organisations or groups of
companies set a standard or their proprietary technology
becomes a de facto standard, then competition will be
eliminated if third parties are foreclosed from access to
this standard.

6.5. Examples

176. Example 1

Situation: EN 60603-7:1993 defines the requirements to
connect television receivers to video-generating accessories
such as video recorders and video games. Although the
standard is not legally binding,
in practice manufacturers
both of television receivers and of video games use the
standard, as the market requires so.

Analysis: Article 81(1) is not infringed. The standard has
been adopted by recognised standards bodies, at national,
European and international level, through open and trans-
parent procedures, and is based on national consensus
reflecting the position of manufacturers and consumers.
All manufacturers are allowed to use the standard.

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177. Example 2

Situation: A number of videocassette manufacturers agree
to develop a quality mark or standard to denote the fact
that
the videocassette meets certain minimum technical
specifications. The manufacturers are free to produce
videocassettes which do not conform to the standard and
the standard is freely available to other developers.

is not

Analysis: Provided that the agreement does not otherwise
infringed, as
restrict competition, Article 81(1)
participation in standard setting is unrestricted and trans-
parent, and the standardisation agreement does not set an
obligation to comply with the standard.
the parties.
agreed only to produce videocassettes which conform to
technical
the new standard,
development and prevent the parties from selling different
products, which would infringe Article 81(1).

the agreement would limit

If

178. Example 3

Situation: A group of competitors active in various
markets which are interdependent with products
that
must be compatible, and with over 80 % of the relevant
markets, agree to jointly develop a new standard that will
be introduced in competition with other standards already
present in the market, widely applied by their competitors.
The various products complying with the new standard will
not be compatible with existing standards. Because of the
investment needed to shift and to maintain
significant
production under the new standard, the parties agree to
commit a certain volume of sales to products complying
with the new standard so as to create a (cid:145)critical mass(cid:146) in the
market. They also agree to limit their individual production
volume of products not complying with the standard to the
level attained last year.

Analysis: This agreement, owing to the parties’ market
power and the restrictions on production,
falls under
Article 81(1) while not being likely to fulfil the conditions
of paragraph 3, unless access to technical information were
provided on a non-discriminatory basis and reasonable
terms to other suppliers wishing to compete.

7. ENVIRONMENTAL AGREEMENTS

7.1. Definition

179. Environmental agreements (50) are those by which the
parties undertake to achieve pollution abatement, as
environmental
defined

environmental

law,

or

in

objectives, in particular, those set out in Article 174 of
the Treaty. Therefore, the target or the measures agreed
need to be directly linked to the reduction of a pollutant
or a type of waste identified as such in relevant regu-
lations (51). This
trigger
pollution abatement as a by-product of other measures.

agreements

excludes

that

180. Environmental agreements may set out standards on the
environmental performance of products
(inputs or
outputs) or production processes (52). Other possible
categories may include agreements at the same level of
trade, whereby the parties provide for
the common
attainment of an environmental target such as recycling
the
of
improvement of energy-efficiency.

emission reductions, or

certain materials,

181. Comprehensive,

industry-wide schemes are set up in
many Member States for complying with environmental
obligations on take-back or
recycling. Such schemes
usually comprise a complex set of arrangements, some
of which are horizontal, while others are vertical
in
character. To the extent that these arrangements contain
vertical restraints they are not subject to these guidelines.

7.2. Relevant markets

is not

itself a product,

182. The effects are to be assessed on the markets to which
the agreement relates, which will be defined according to
the Notice on the definition of the relevant market for
the purposes of Community competition law. When the
the relevant market
pollutant
into which the
encompasses
pollutant
for collection/recycling
is
agreements, in addition to their effects on the market(s)
on which the parties are active as producers or
distributors,
the effects on the market of collection
services potentially covering the good in question must
be assessed as well.

that of
incorporated. As

the product

7.3. Assessment under Article 81(1)

183. Some environmental agreements may be encouraged or
made necessary by State authorities in the exercise of
their public prerogatives. The present guidelines do not
deal with the question of whether such State intervention
is in conformity with the Member State’s obligations
under the Treaty. They only address the assessment that
must be made as to the compatibility of the agreement
with Article 81.

7.3.1. Nature of the agreement

7.3.1.1. A g r e e m e n t s t h a t d o n o t f a l l u n d e r A r t i c l e

8 1 ( 1 )

184. Some environmental agreements are not

likely to fall
within the scope of
the prohibition of Article 81(1),
irrespective of the aggregated market share of the parties.

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if

they

185. This may arise if no precise individual obligation is
placed upon the parties or
loosely
committed to contributing to the attainment of a
sector-wide environmental target. In this latter case, the
assessment will focus on the discretion left to the parties
as to the means that are technically and economically
available in order to attain the environmental objective
agreed upon. The more varied such means,
the less
appreciable the potential restrictive effects.

are

186. Similarly,

the

setting

agreements

environmental
that do not
performance of products or processes
appreciably affect product and production diversity in
the relevant market or whose importance is marginal
for influencing purchase decisions do not
fall under
Article 81(1). Where some categories of a product are
from the market, restrictions
banned or phased out
cannot be deemed appreciable in so far as their share
is minor in the relevant geographic market or,
in the
case of Community-wide markets, in all Member States.

for

187. Finally, agreements which give rise to genuine market
creation,
instance recycling agreements, will not
generally restrict competition, provided that and for as
long as, the parties would not be capable of conducting
the activities in isolation, whilst other alternatives and/or
competitors do not exist.

7.3.1.2. A g r e e m e n t s

t h a t

a l m o s t

a l w a y s

c o m e

u n d e r A r t i c l e 8 1 ( 1 )

188. Environmental agreements come under Article 81(1) by
their nature if the cooperation does not truly concern
environmental objectives, but serves as a tool to engage
in a disguised cartel, i.e. otherwise prohibited price fixing,
output limitation or market allocation, or if the coop-
eration is used as a means amongst other parts of a
broader restrictive agreement which aims at excluding
actual or potential competitors.

7.3.1.3. A g r e e m e n t s
8 1 ( 1 )

t h a t m a y f a l l u n d e r A r t i c l e

189. Environmental agreements covering a major share of an
industry at national or EC level are likely to be caught by
Article 81(1) where they appreciably restrict the parties’
ability to devise the characteristics of their products or
the way in which they produce them, thereby granting
them influence over each other’s production or sales. In
addition to restrictions between the parties, an environ-
mental agreement may also reduce or substantially affect
the output of
third parties, either as suppliers or as
purchasers.

190. For

the parties’

instance, environmental agreements, which may
phase out or significantly affect an important proportion
of
their products or
production processes, may fall under Article 81(1)
when the parties hold a significant proportion of the
market. The same applies to agreements whereby the
parties allocate individual pollution quotas.

sales as

regards

191. Similarly, agreements whereby parties holding significant
market shares in a substantial part of
the common
market appoint an undertaking as exclusive provider of
collection and/or recycling services for their products,
may also appreciably restrict competition, provided
other actual or realistic potential providers exist.

7.4. Assessment under Article 81(3)

7.4.1. Economic benefits

192. The Commission takes a positive stance on the use of
environmental agreements as a policy instrument
to
achieve the goals enshrined in Article 2 and Article
174 of the Treaty as well as in Community environmental
are
action
compatible with competition rules (54).

agreements

plans (53),

provided

such

193. Environmental agreements caught by Article 81(1) may
attain economic benefits which, either at individual or
aggregate
level, outweigh their negative
consumer
there
effects on competition. To fulfil
must be net benefits in terms of reduced environmental
pressure resulting from the agreement, as compared to a
baseline where no action is taken. In other words, the
expected economic benefits must outweigh the costs (55).

this condition,

194. Such costs include the effects of

lessened competition
along with compliance costs for economic operators
and/or effects on third parties. The benefits might be
assessed in two stages. Where consumers individually
have a positive rate of
return from the agreement
under reasonable payback periods, there is no need for
the aggregate environmental benefits to be objectively
established. Otherwise, a cost-benefit analysis may be
necessary to assess whether net benefits for consumers
in general are likely under reasonable assumptions.

7.4.2. Indispensability

195. The more objectively the economic efficiency of an
environmental agreement
the more
clearly each provision might be deemed indispensable
to the attainment of the environmental goal within its
economic context.

is demonstrated,

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196. An objective evaluation of provisions which might (cid:145)prima
to be indispensable must be
facie(cid:146) be deemed not
supported with a cost-effectiveness analysis
showing
that alternative means of attaining the expected environ-
mental benefits, would be more economically or finan-
cially costly, under reasonable assumptions. For instance,
it should be very clearly demonstrated that a uniform fee,
charged irrespective of
for waste
collection,
is indispensable for the functioning of an
industry-wide collection system.

individual

costs

7.4.3. No elimination of competition

197. Whatever the environmental and economic gains and the
necessity of the intended provisions, the agreement must
not eliminate competition in terms of product or process
differentiation, technological innovation or market entry
in the short or, where relevant, medium run. For
instance,
in the case of exclusive collection rights
granted to a collection/recycling operator who has
potential
such rights
should take into account the possible emergence of an
alternative to the operator.

the duration of

competitors,

7.5. Examples

198. Example

Situation: Almost all Community producers and importers
of a given domestic appliance (e.g. washing machines)
agree, with the encouragement of a public body, to no
into the Community
longer manufacture and import
products which do not comply with certain environmental
criteria (e.g. energy efficiency). Together, the parties hold

90 % of the Community market. The products which will
be thus phased out of the market account for a significant
proportion of total sales. They will be replaced with more
environmentally friendly, but also more expensive products.
Furthermore, the agreement indirectly reduces the output of
third parties (e.g. electric utilities, suppliers of components
incorporated in the products phased out).

Analysis: The agreement grants the parties control of indi-
vidual production and imports and concerns an appreciable
proportion of
their sales and total output, whilst also
reducing third parties’ output. Consumer choice, which is
partly focused on the environmental characteristics of the
product, is reduced and prices will probably rise. Therefore,
the agreement is caught by Article 81(1). The involvement
of the public authority is irrelevant for this assessment.

However, newer products are more technically advanced
and by reducing the environmental problem indirectly
aimed at (emissions from electricity generation), they will
inevitably create or increase another environmental
not
problem (e.g. water consumption, detergent use). The net
contribution to the improvement of
the environmental
situation overall outweighs increased costs. Furthermore,
individual purchasers of more expensive products will also
increase as the more environ-
rapidly recoup the cost
mentally friendly products have lower
running costs.
Other alternatives to the agreement are shown to be less
certain and less cost-effective in delivering the same net
benefits. Varied technical means are economically available
to the parties in order to manufacture products which do
comply with the environmental characteristics agreed upon
and competition will still
take place for other product
characteristics. Therefore, the conditions for an exemption
under Article 81(3) are fulfilled.

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(1) OJ L 53, 22.2.1985, p. 1.

(2) OJ L 306, 11.11.1997, p. 12.

(3) OJ L 53, 22.2.1985, p. 5.

(4) OJ L 304, 5.12.2000, p. 3.

(5) OJ L 304, 5.12.2000, p. 7.

(6) OJ C 75, 29.7.1968, p. 3.

(7) OJ C 43, 16.2.1993, p. 2.

(8) A firm is treated as an actual competitor if it is either active on the same relevant market or if, in the absence of the agreement, it is able to switch
production to the relevant products and market them in the short term without incurring significant additional costs or risks in response to a
small and permanent increase in relative prices (immediate supply-side substitutability). The same reasoning may lead to the grouping of different
geographic areas. However, when supply-side substitutability would entail the need to adjust significantly existing tangible and intangible assets, to
make additional investments, to take strategic decisions or to incur time delays, a company will not be treated as a competitor but as a potential
competitor (see below). See Commission Notice on the definition of the relevant market for the purposes of Community competition law (OJ
C372, 9.12.1997, p. 5, paragraphs 20-23).

(9) A firm is treated as a potential competitor if there is evidence that, absent the agreement, this firm could and would be likely to undertake the
investments or other necessary switching costs so that it could enter the relevant market in response to a small and
necessary additional
permanent increase in relative prices. This assessment has to be based on realistic grounds, the mere theoretical possibility to enter a market
is not sufficient (see Commission Notice on the definition of the relevant market for the purposes of Community competition law (paragraph 24);
see also the Commission’s Thirteenth Report on Competition Policy, point 55 and Commission Decision 90/410/EEC in case Elopak/Metal
Box-Odin (OJ L 209, 8.8.1990, p. 15). Market entry needs to take place sufficiently fast so that the threat of potential entry is a constraint
on the market participants’ behaviour. Normally, this means that entry has to occur within a short period. The Guidelines on Vertical Restraints
(OJ C 291, 13.10.2000, p. 1, paragraph 26, consider a period of maximum 1 year for the purposes of application of the Block Exemption
Regulation on Vertical Restraints (see footnote 11). However, in individual cases longer time periods can be taken into account. The time period
needed by companies already active on the market to adjust their capacities can be used as a yardstick to determine this period.

(10) OJ L 336, 29.12.1999, p. 21.

(11) OJ C 291, 13.10.2000, p. 1.

(12) The delineation between horizontal and vertical agreements will be further developed in the chapters on joint purchasing (Chapter 4) and joint

commercialisation (Chapter 5). See also the Guidelines on Vertical Restraints, paragraph 26 and 29.

(13) OJ L 395, 30.12.1989, p. 1. Corrected version OJ L 257, 21.9.1990, p. 13.

(14) OJ L 180, 9.7.1997, p. 1.

(15) Council Regulation 26/62 (OJ 30, 20.4.1962, p. 993) (agriculture).

Council Regulation (EEC) No 1017/68, (OJ L 175, 23.7.1968, p. 1) (transport by rail road and inland waterway);
Council Regulation (EEC) No 4056/86, (OJ L 378, 31.12.1986, p. 4) (maritime transport);
Council Regulation (EEC) No 3975/87, (OJ L 374, 31.12.1987, p. 1) (air transport);
Council Regulation (EEC) No 3976/87, (OJ L 374, 31.12.1987, p. 9) (air transport);
Commission Regulation (EEC) No 1617/93, (OJ L 155, 26.6.1993, p. 18) (Block exemption concerning joint planning and coordination of
schedules, joint operations, consultation on passenger and cargo tariffs on scheduled air services and slot allocation at airports);
Council Regulation (EEC) No 479/92, (OJ L 55, 29.2.1992 p. 3) (Liner shipping companies);
Commission Regulation (EC) No 870/95, (OJ L 89, 21.4.1995, p. 7) (Block exemption covering certain agreements between liner shipping
companies);
Council Regulation (EEC) No 1534/91, (OJ L 143, 7.6.1991, p. 1) (insurance sector);
Commission Regulation (EEC) No 3932/92, (OJ L 398, 31.12.1992, p. 7) (Block exemption covering certain agreements in the insurance sector).

(16) See Notice on agreements of minor importance (OJ C 372, 9.12.1997, p. 13).

(17) Companies may have significant market power below the level of market dominance, which is the threshold for the application of Article 82.

(18) This does, however, exceptionally not apply to a production joint venture. It is inherent to the functioning of such a joint venture that decisions
on output are taken jointly by the parties. If the joint venture also markets the jointly manufactured goods, then decisions on prices need to be
taken jointly by the parties to such an agreement. In this case, the inclusion of provisions on prices or output does not automatically cause the
agreement to fall under Article 81(1). The provisions on prices or output will have to be assessed together with the other effects of the joint
venture on the market to determine the applicability of Article 81(1) (see paragraph 90).

(19) See Commission Notice on the definition of the relevant market for the purposes of Community competition law (OJ C 372, 9.12.1997, p. 5).

(20) Market shares should normally be calculated on the basis of the market sales value (see Article 6 of the R & D Block Exemption Regulation and
Article 6 of the Specialisation Block Exemption Regulation). In determining the market share of a party in a given market, account must be taken
of the undertakings which are connected to the parties (see point 2 of Article 2 of the R & D Block Exemption Regulation and point 2 of Article
2 of the Specialisation Block Exemption Regulation).

(21) If there are more than two parties, then the collective share of all cooperating competitors has to be significantly greater than the share of the

largest single participating competitor.

(22) A market consisting of four firms with shares of 30 %, 25 %, 25 % and 20 %, has a HHI of 2550 (900+625+625+400) pre-cooperation. If the first
two market leaders would cooperate, the HHI would change to 4050 (3025+625+400) post-cooperation. The HHI post-cooperation is relevant for
the assessment of the possible market effects of a cooperation.

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(23) E.g. the three-firm concentration ratio CR3 is the sum of the market shares of the leading three competitors in a market.
(24) For market definition see the Commission Notice on the definition of the relevant market.
(25) See Commission Notice on the definition of the relevant market; see also, for example, Commission Decision 94/811/EC of 8 June 1994 in Case

No IV/M269 (cid:151) Shell/Montecatini (OJ L 332, 22.12.1994, p. 48).

(26) Article 4(2) of the R & D Block Exemption Regulation.
(27) Article 4(1) of the R & D Block Exemption Regulation.
(28) Article 7(e) of the R & D Block Exemption Regulation.
(29) Article 4(3) of the R & D Block Exemption Regulation.
(30) An R & D cooperation between non-competitors can however produce foreclosure effects under Article 81(1)

if it relates to an exclusive

exploitation of results and if it is concluded between firms, one of which has significant market power with respect to key technology.

(31) Pursuant to Article 4(2)(3) of Regulation No 17, agreements which have as their sole object joint research and development need not to, but may,

be notified to the Commission.

(32) See Art. 3(2) of the R & D Block Exemption Regulation.
(33) See Art. 3(2) of the R & D Block Exemption Regulation.
(34) As indicated above, joint ventures which fall under the Merger Regulation are not the subject of these guidelines. Full-function joint ventures
below Community dimension are normally dealt with by the competition authorities of the Member States. The application of Regulation No 17
could be relevant only where such a full-function joint venture would lead to a restriction of competition resulting from the coordination of the
parent companies outside the joint venture ((cid:145)spill-over effect(cid:146)). In this respect, the Commission has declared that it will leave the assessment of
such operations to the Member States as far as possible (see Statement for the Council Minutes on Regulation (EC) No 1310/97, pt. 4).

(35) Article 2(4) of the Block Exemption Regulation on Vertical Restraints.
(36) Article 2(3) of the Block Exemption Regulation on Vertical Restraints. See also Guidelines on Vertical Restraints, paragraph 33, which notes that
subcontracting arrangements between non-competitors under which the buyer provides only specifications to the supplier which describe the
goods or services to be supplied are covered by the Block Exemption Regulation on Vertical Restraints.

(37) If a subcontracting agreement between competitors stipulates that the contractor will cease production of the product to which the agreement
relates, the agreement constitutes a unilateral specialisation agreement which is covered, subject to certain conditions, by the Specialisation Block
Exemption Regulation.

(38) Notice concerning the assessment of certain subcontracting agreements in relation to Article 85(1) of the EEC Treaty, OJ C 1, 3.1.1979, p. 2.
(39) As also referred to in Article 2(4) of the Merger Regulation.
(40) As any subcontracting agreement such an agreement can however fall under Article 81(1) if it contains vertical restraints, such as restrictions on

passive sales, resale price maintenance, etc.

(41) A production joint venture which also carries out joint distribution is, however, in most of the cases a full-function joint venture.
(42) Pursuant to Article 4(2)(3) of Council Regulation No 17, agreements which have as their sole object specialisation in the manufacture of products

need, under certain conditions, not to be notified to the Commission. They may, however, be notified.

(43) See Guidelines on Vertical Restraints, paragraph 29.
(44) Article 2(2) of Block Exemption Regulation on Vertical Restraints.
(45) Article 2(4) of Block Exemption Regulation on Vertical Restraints.
(46) The exchange of sensitive and detailed information which takes place in an oligopolistic market might as such be caught by Article 81(1). The
judgments of 28 May 1998 in the (cid:145)Tractor(cid:146) cases (C-8/958 P: New Holland Ford and C-7/95 P: John Deere) and of 11 March 1999 in the (cid:145)Steel
Beams(cid:146) cases (T-134/94, T-136/94, T-137/94, T-138/94, T-141/94, T-145/94, T-147/94, T-148/94, T-151/94, T-156/94 and T-157/94) provide
useful clarification in this respect.

(47) Standardisation can take different forms, ranging from the adoption of national consensus based standards by the recognised European or national
standards bodies, through consortia and fora, to agreements between single companies. Although Community law defines standards in a narrow
way, these guidelines qualify as standards all agreements as defined in this paragraph.

(48) Pursuant to Article 4(2)(3) of Regulation No 17, agreements which have as their sole object the development or the uniform application of

standards and types need not to, but may, be notified to the Commission.

(49) Directive 98/34/EC of the European Parliament and of the Council on 22 June 1998 laying down a procedure for the provision of information in

the field of technical standards and regulations (OJ L 204, 21.7.1998, p. 37).

(50) The term (cid:145)agreement(cid:146) is used in the sense defined by the Court of Justice and the Court of First Instance in the case law on Article 81. It does not
necessarily correspond to the definition of an (cid:145)agreement(cid:146) in Commission documents dealing with environmental issues such as the Communi-
cation on environmental agreements COM(96) 561 final of 27.11.1996.

(51) For instance, a national agreement phasing out a pollutant or waste identified as such in relevant Community directives may not be assimilated to

a collective boycott on a product which circulates freely in the Community.

(52) To the extent that some environmental agreements could be assimilated to standardisation, the same assessment principles for standardisation

apply to them.

(53) Vth Environmental Action Programme (OJ C 138, 17.5.1993), p. 1; European Parliament and Council Decision No 2179/98/EC of 24 September

1998 (OJ L 275, 10.10.1998, p. 1).

(54) Communication on environmental agreements COM(96) 561 final of 27.11.1996, paragraphs 27-29 and Article 3(1)f of EP and Council Decision
ut supra. The communication includes a (cid:145)Checklist for Environmental Agreements(cid:146) identifying the elements that should generally be included in
such an agreement.

(55) This is consistent with the requirement to take account of the potential benefits and costs of action or lack of action set forth in Article 174(3) of

the Treaty and Article 7(d) of European Parliament and Council Decision ut supra.