Guidelines on the applicability of Article 53 of the EEA Agreement to horizontal cooperation agreements
Date: 2002-10-31
Institutions: EFTA Surveillance Authority
Subjects: cooperation agreement, horizontal agreement, merger control, restriction on competition

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I

(Information)

EUROPEAN ECONOMIC AREA

EFTA SURVEILLANCE AUTHORITY

GUIDELINES ON THE APPLICABILITY OF ARTICLE 53 OF THE EEA AGREEMENT TO
HORIZONTAL COOPERATION AGREEMENTS

(2002/C 266/01)

A.

B.

C.

The present notice is issued pursuant to the rules of the Agreement on the European Economic
Area (EEA Agreement) and the Agreement between the EFTA States on the establishment of a
Surveillance Authority and a Court of Justice (Surveillance and Court Agreement).

The European Commission has issued a notice entitled ‘Guidelines on the applicability of Article 81
of the EC Treaty to horizontal cooperation agreements.’ (1) That non-binding act sets out the
principles which the European Commission follows for the assessment of horizontal agreements
under Article 81 EC.

The EFTA Surveillance Authority considers the abovementioned act to be EEA relevant. In order to
maintain equal conditions of competition and to ensure a uniform application of the EEA
competition rules throughout the European Economic Area, the EFTA Surveillance Authority
adopts the present notice under the power conferred upon it by Article 5(2)(b) of the Surveillance
and Court Agreement. It intends to follow the principles and rules laid down in this notice when
applying the relevant EEA rules to a particular case.

1.

INTRODUCTION

1.1. Purpose

1.

These guidelines set out the principles for the assessment
of horizontal cooperation agreements under Article 53
of the EEA Agreement (2). A cooperation is of a ‘horizon-

tal nature’
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 cooperation between competi-
tors.
It covers for example areas such as research
and development (R & D), production, purchasing or
commercialisation.

( 1) OJ C 3, 6.1.2001, p. 2.
( 2) The competence to handle individual cases falling under Article 53
of the EEA Agreement is divided between the EFTA Surveillance
Authority and the European Commission according to the rules
laid down in Article 56 of the EEA Agreement. Only one authority
is competent to handle any given case.

2.

Horizontal cooperation may lead to competition prob-
lems. 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

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3.

4.

5.

causes negative market effects with respect to prices,
output, innovation or the variety and quality of products.

On the other hand, horizontal cooperation can lead
to substantial economic benefits. Companies need to
respond to increasing competitive pressure and a chang-
ing 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
faster. In particular for small and medium-sized enter-
prises cooperation is an important means to adapt to
the changing market place.

The EFTA Surveillance Authority, while recognising the
economic benefits that can be generated by cooperation,
has to ensure that effective competition is maintained.
Article 53 provides the legal framework for a balanced
assessment taking into account both anti-competitive
effects as well as economic benefits.

In the past, two EFTA Surveillance Authority notices
and two block exemptions provided guidance for the
assessment of horizontal cooperation under Article 53.
The act previously referred to in point 6 of Annex XIV
to the EEA Agreement (Regulation (EEC) No 417/85 (3),
as last amended by Regulation (EC) No 2236/97 (4)) and
the act previously referred to in point 7 of Annex XIV
to the EEA Agreement (Regulation (EEC) No 418/85 (5),
as last amended by Regulation (EC) No 2236/97)
provided for the exemption of certain forms of specialis-
ation agreement and research and development agree-
ment (R & D) respectively. Those two block exemptions
have been replaced by the act now referred to in point 6
of Annex XIV to the EEA Agreement (Regulation (EC)
No 2658/2000 (6) on the application of Article 53(3)
of the EEA Agreement to categories of specialisation
agreements (the Specialisation block exemption) and the
act now referred to in point 7 of Annex XIV to the EEA

( 3) OJ L 53, 22.2.1985, p. 1.
( 4) OJ L 306, 11.11.1997, p. 12.
( 5) OJ L 53, 22.2.1985, p. 5.
( 6) OJ L 304, 5.12.2000, p. 3, as incorporated into the EEA
Agreement by EEA Joint Committee Decision No 113/2000 of
22.12.2000 (OJ L 52, 22.2.2001, p. 38 and EEA Supplement to
the OJ No 9, 22.2.2001, p. 5), e.i.f. 1.1.2001.

6.

7.

Agreement (Regulation (EC) No 2659/2000 (7) on the
application of Article 53(3) of the EEA Agreement to
categories of research and development agreements (the
R & D block exemption). The two notices provided
guidance in respect of certain types of cooperation
agreement falling outside Article 53 (8) and the assess-
ment of cooperative joint ventures (9).

Changing markets have generated an increasing variety
and use of horizontal cooperation. More complete and
updated guidance is needed to improve clarity and
transparency regarding the applicability of Article 53 in
this area. Within the assessment greater emphasis has to
be put on economic criteria to better reflect recent
developments in enforcement practice and the case law
of the Court of Justice of the European Communities
and the Court of First Instance (10).

The purpose of
these guidelines is to provide an
analytical framework for the most common types of
horizontal 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 to the market structure, form a key element of
the assessment of the market impact likely to be caused
by a cooperation and therefore for the assessment under
Article 53. 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 assist businesses in assessing the com-
patibility of an individual cooperation agreement with
Article 53.

8.

The guidelines not only replace the notices referred to in
point 5, but also cover a wider range of the most
common types of horizontal agreements. They comp-
lement the R & D block exemption and the Specialisation
block exemption.

(7) OJ L 304, 5.12.2000, p. 7, as incorporated into the EEA
Agreement by EEA Joint Committee Decision No 113/2000 of
22.12.2000 (OJ L 52, 22.2.2001, p. 38 and EEA Supplement to
the OJ No 9, 22.2.2001, p. 5), e.i.f. 1.1.2001.

(8) OJ L 153, 18.6.1994, p. 25 and EEA Supplement to the OJ No 15,

18.6.1994, p. 24.

(9) OJ L 186, 21.7.1994, p. 58 and EEA Supplement to the OJ No 22,

21.7.1994, p. 4.

(10) Rulings from the Court of Justice of the European Communities
and the Court of First Instance are relevant to the practice of the
the
Authority by virtue of
EEA Agreement and Article 3 of the Surveillance and Court
Agreement.

the provisions of Article 6 of

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1.2. Scope of the guidelines

9.

These guidelines cover agreements or concerted practices
(hereinafter referred to as agreements) 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 on
cooperation between competitors. The term competitors
as used in these guidelines includes both actual (11) and
potential (12).

10.

The present guidelines do not, however, address all
possible horizontal agreements. They are only concerned
with those types of cooperation which potentially
generate efficiency gains, namely agreements on R & D,

( 11) 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
the Authority’s Notice on the definition of the relevant market
for the purposes of competition law within the EEA (OJ L 200,
16.7.1998, p. 48 and EEA Supplement to the OJ No 28,
16.7.1998, p. 3).

( 12) 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 necessary additional
investments or other
necessary switching costs so that it could enter the relevant
market in response to a small and 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
Authority’s Notice on the definition of the relevant market for
the purposes of competition law within the EEA (paragraph 24);
see also the European Commission’s Thirteenth Report on
Competition Policy, point 55 and the European 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 Authority’s Guidelines
on Vertical Restraints (the Authority’s Decision No 250/01/COL
of 25 July 2001, not yet published, paragraph 26) consider a
period of maximum 1 year for the purposes of application of the
Block Exemption on Vertical Restraints (see footnote 14).
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.

production, purchasing, commercialisation, standardis-
ation, and environmental agreements. Other types of
horizontal agreements between competitors, for exam-
ple on the exchange of information or on minority
shareholdings, are to be addressed separately.

11. Agreements that are entered into between companies
level of 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 the act referred to in point 2 of Annex XIV to
the EEA Agreement (Regulation (EC) No 2790/1999 (13)
on the application of Article 53(3) of the EEA Agreement
to categories of vertical agreements and concerted
practices (the Block Exemption on Vertical Restraints)
and the Authority’s Guidelines on vertical restraints (14).
However, to the extent that vertical agreements, e.g.
distribution agreements, are concluded between com-
petitors, the effects of the agreement on the market and
the possible competition problems can be similar to
horizontal agreements. Therefore, these agreements have
to be assessed according to the principles described in the
present guidelines. This does not exclude the additional
application of the Guidelines on Vertical Restraints to
these agreements to assess the vertical restraints included
in such agreements (15).

12. Agreements may combine different stages of cooper-
ation, for example R & D and the production of its
results. Unless they fall under Article 57 of the EEA
Agreement on the control of concentrations between
these agreements are covered by the
undertakings,
guidelines. The centre of gravity of the cooperation
determines which section of the present guidelines
applies to the agreement in question. In the determi-
nation of the centre of gravity, account is taken in
particular of two factors: firstly, the starting point of the
cooperation, and, secondly, the degree of integration of
the different functions which are being combined. A
cooperation involving both joint R & D and joint
the results would thus normally be
production of
covered in the section on ‘Agreements on research and
development’, as the joint production will only take
place if the joint R & D is successful. This implies that

(13) OJ L 336, 29.12.1999, p. 21.
(14) The Authority’s Decision No 250/01/COL of 25 July 2001, not

yet published.

(15) 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, points 26 and 29.

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the results of the joint R & D are decisive for production.
The R & D agreement can thus be regarded as the
starting point of the cooperation. This assessment would
change if the agreement foresaw a full integration in the
integration of
area of production and only a partial
some R & D activities.
the possible
In this case,
anti-competitive effects and economic benefits of the
cooperation would largely relate to the joint production,
and the agreement would therefore be examined accord-
ing to the principles set out in the section on ‘Production
agreements’. More complex arrangements such as stra-
tegic 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 an alliance may be
carried out with the help of the corresponding chapter
in the guidelines. However, complex arrangements must
also be analysed in their totality. Due to the variety of
areas an alliance may combine,
is impossible to
give general guidance for such an overall assessment.
Alliances or other forms of cooperation that primarily
declare intentions are impossible to assess under the
competition rules as long as they lack a precise scope.

it

13.

The criteria set out in these guidelines apply to cooper-
ation concerning both goods and services falling within
the scope of the EEA Agreement (16), collectively referred
to as ‘products’. However, the guidelines do not apply to
the extent that sector-specific rules apply, as is the case
for transport and insurance (17). Operations that come

( 16)

It should be noted that the EEA Agreement is limited in scope
compared to the EC Treaty, for instance the absence of a customs
union and limited application to certain products by virtue of
Article 8 of the EEA Agreement.

( 17) Point 10 of Annex XIV to the EEA Agreement and Chapter VI of
Protocol 4 to Surveillance and Court Agreement
(Council
Regulation (EEC) No 1017/68, OJ L 175, 23.7.1968, p. 1)
(transport by rail road and inland waterway); Point 11 of
Annex XIV to the EEA Agreement and Chapter IX of Protocol 4
to Surveillance and Court Agreement (Council Regulation (EEC)
No 4056/86, OJ L 378, 31.12.1986, p. 4) (maritime transport);
Chapter XI of Protocol 4 to the Surveillance and Court Agreement
(Council Regulation (EEC) No 3975/87, OJ L 374, 31.12.1987,
p. 1)
(air transport); Point 11 b) of Annex XIV to the EEA
Agreement and Chapter IX of Protocol 4 to Surveillance and
Court Agreement (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); Point 11 c) of Annex XIV
to the EEA Agreement (Commission Regulation (EC) No 823/
2000, OJ L 100, 20.4.2000, p. 24) (Block exemption covering
certain agreements
companies);
Point 15 a) of Annex XIV to the EEA Agreement (Commission
Regulation (EEC) No 3932/92, OJ L 398, 31.12.1992, p. 7)
(Block exemption covering certain agreements in the insurance
sector).

between liner

shipping

under Article 57 of the EEA Agreement are also not the
subject of the present guidelines.

14. Article 53 only applies to those horizontal cooperation
agreements which may affect trade between the Con-
tracting Parties to the EEA Agreement. These guidelines
are not concerned with the analysis of the capability of
a given agreement to affect trade. The following prin-
ciples on the applicability of Article 53 are therefore
based on the assumption that trade between the Con-
tracting Parties to the EEA Agreement is affected. In
practice, however, this issue needs to be examined on a
case-by-case basis.

15. Article 53 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 ‘de minimis’ notice (18).

16.

The assessment under Article 53 as described in these
guidelines is without prejudice to the possible parallel
application of Article 54 of the EEA Agreement to
horizontal cooperation agreements. Furthermore, these
guidelines are without prejudice to the interpretation
that may be given by the EFTA Court, the Court of First
Instance and the Court of
Justice of the European
Communities in relation to the application of Articles 81
of the EC Treaty and 53(1) of the EEA Agreement to
horizontal cooperation agreements.

1.3. Basic principles for the assessment under Article 53

1.3.1. Article 53(1)

17. Article 53(1) applies to horizontal cooperation agree-
ments which have as their object or effect the prevention,
restriction or distortion of competition (hereinafter
referred to as restrictions of competition).

18.

In some cases the nature of a cooperation indicates from
the outset the applicability of Article 53(1). This is the
case for agreements that have as their object a restriction
of competition by means of price fixing, output

(18) See Notice on agreements of minor importance which do not
fall under Article 53(1) of the EEA Agreement, OJ L 200,
16.7.1998, p. 55 and EEA Supplement to the OJ No 28,
16.7.1998, p. 13.

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limitation or sharing of markets or customers. These
agreements are presumed to have negative market
effects. It is therefore not necessary to examine their
actual effects on competition and the market in order to
establish that they fall within Article 53(1).

the total costs in a given market. Secondly, the parties
need to combine their activities in the area of cooper-
ation to a significant extent. This is, for instance, the
case, where they jointly manufacture or purchase an
important intermediate product or a high proportion of
their total output of a final product.

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
agreement limits competition between the parties. It
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.

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,
together with other structural factors, 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
relationship between the parties and the extent to which
they combine their activities. These factors indicate the
likelihood of the parties coordinating their behaviour in
the market.

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

Agreements that do not fall under Article 53(1)

24.

fall under
Some categories of agreements do not
Article 53(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:

— cooperation between non-competitors,

— cooperation between competing companies that
cannot independently carry out the project or
activity covered by the cooperation,

— cooperation concerning an activity which does not

influence the relevant parameters of competition.

These categories of cooperation could only come under
Article 53(1) if they involve firms with significant market
power (19) and are likely to cause foreclosure problems
vis-à-vis third parties.

Agreements that almost always fall under Article 53(1)

25. Another category of agreements can be assessed from
the outset as normally falling under Article 53(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

(19) Companies may have significant market power below the level
of market dominance, which is the threshold for the application
of Article 54.

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output. It can therefore be presumed that these restric-
tions have negative market effects. They are therefore
almost always prohibited (20).

Agreements that may fall under Article 53(1)

26. Agreements that do not belong to the abovementioned
categories need further analysis in order to decide
whether they fall under Article 53(1). The analysis has
to include market-related criteria such as the market
position of the parties and other structural factors.

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
prices, output, innovation or the variety or quality of
goods and services. To carry out this analysis the relevant
market(s) have to be defined by using the methodology
of the Authority’s market definition notice (21). Where
specific types of markets are concerned such as purchas-
ing or technology markets, these guidelines will provide
additional guidance.

28.

If the parties together have a low combined market
share (22), a restrictive effect of
the cooperation is

( 20) 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 53(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 53(1) (see point 90).

( 21) See EFTA Surveillance Authority Notice on the definition of the
relevant market for the purposes of EEA competition law, OJ
L 200, 16.7.1998, p. 48 and EEA Supplement to the OJ No 28,
16.7.1998, p. 3.

( 22) Market shares should normally be calculated on the basis of the
market sales value (see Article 6 of the R & D block exemption
and Article 6 of the Specialisation block exemption). In determin-
ing 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 and
point 2 of Article 2 of the Specialisation block exemption).

unlikely and no further analysis normally is required.
If one of just two parties has only an insignificant
it does not possess important
market share and if
resources, even a high combined market share normally
cannot be seen as indicating a restrictive effect on
competition in the market (23). 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 (HHI),
which sums up the squares of the individual market
shares of all competitors (24), 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 individual market shares of the
leading competitors (25).

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
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 cannot be assessed adequately on the basis of
existing markets, specific factors to analyse these impacts
may have to be taken into account (see Chapter 2, R & D
agreements).

(23) 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.

(24) A market consisting of four firms with shares of 30 %, 25 %,
25 % and 20 %, has a HHI of 2 550 (900+625+625+400) pre-
cooperation. If the first two market leaders would cooperate, the
HHI would change to 4 050 (3 025+625+400) post-cooperation.
The HHI post-cooperation is relevant for the assessment of the
possible market effects of a cooperation.

(25) E.g. the three-firm concentration ratio CR3 is the sum of the
market shares of the leading three competitors in a market.

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1.3.2. Article 53(3)

31. Agreements that come under Article 53(1) may be
exempted provided the conditions of Article 53(3) are
fulfilled. This is the case if the agreement:

— contributes to improving the production or distri-
bution of products or to promoting technical or
economic progress,

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 that the
consumers receive a fair share of the economic benefits.

— allows consumers a fair share of the resulting

Indispensability

benefit,

and does not,

— impose restrictions which are not indispensable to
the attainment of the above listed objectives,

— afford the possibility of eliminating competition in
respect of a substantial part of the products in
question.

Economic benefits

32.

The first condition requires that the agreement con-
tributes to improving the production or distribution of
products or to promoting technical or economic pro-
gress. As these benefits relate to static or dynamic
efficiencies, they can be referred to as ‘economic ben-
efits’. 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
efficiencies stem from the combination and integration
of different skills or resources. The parties must demon-
strate that the efficiencies are likely to be caused by the
cooperation 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.

33.

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

Fair share for the consumers

34.

Economic benefits have to favour not only the parties to
the agreement, but also the consumers. Generally, the
the benefits to the consumers will
transmission of

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.
Whether or not individual restrictions are necessary
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 circum-
stances they may, however, not be necessary and worsen
a restrictive effect.

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 53 can
in principle not be exempted.

Block exemptions for R & D and specialisation

37. Under certain conditions the criteria of Article 53(3) can
be assumed to be fulfilled for specified categories of
agreements. This is in particular the case for R & D
and production agreements where the combination of
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
exemptions. Those block exemptions exempt most
common forms of agreements in the fields of pro-
duction/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 block exemption

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and do not contain ‘hard core’ restrictions (black clauses)
that render the block exemption inapplicable. The block
exemptions do not provide severability for hard core
restrictions. If there are one or more hard core restric-
tions, the benefit of the block exemptions is lost for the
entire agreement.

growing SMEs, more often called ‘start-up companies’,
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.

1.4. Structure of the following chapters on types of

cooperation

42. Under certain circumstances, however, R & D agree-
ments may cause competition problems such as restric-
tive effects on prices, output, innovation, or variety or
quality of products.

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).

2.2. Relevant markets

2. AGREEMENTS ON RESEARCH AND DEVELOPMENT

2.1. Definition

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
cooperation concerning the research, development and
marketing of completely new products. They may take
the form of a cooperation agreement or of a jointly
controlled company. This chapter applies to all forms
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 Article 57 of
the EEA
Agreement.

40. Cooperation in R & D may reduce duplicative, unnecess-
ary costs, lead to significant cross fertilisation of ideas
and experience and thus result in products and tech-
nologies being developed more rapidly than would
otherwise be the case. As a general rule, R & D
cooperation tends to increase overall R & D activities.

41.

Small and medium-sized enterprises (SMEs) form a
dynamic and heterogeneous community which is con-
including the growing
fronted by many challenges,
demands of larger companies for which they often work
fast
as subcontractors.

In R & D intensive sectors,

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 in a product (or technology) which competes in
an existing product (or 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
they are somehow related to the
innovation 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
technology) 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.

if

Existing markets

(a)

Product markets

44. When the cooperation concerns R & D for the improve-
ment of existing products, these existing products includ-
ing its close substitutes form the relevant market con-
cerned by the cooperation (26).

(26) For market definition see the EFTA Surveillance Authority Notice

on the definition of the relevant market.

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45.

46.

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 market for
existing products may nevertheless be 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.

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
manufacturers 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
only relevant for the assessment, if the component at
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.

response to a small but permanent increase in relative
prices. Once these technologies are identified, one can
calculate market shares by dividing the licensing income
generated by the parties with the total licensing income
of all sellers of substitutable technologies.

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 technology (see example 3 below).

Competition in innovation (R & D efforts)

(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,
i.e. other technologies which customers
could use as a substitute.

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

In this respect,

48.

The methodology for defining technology markets fol-
lows the same principles as product market defi-
nition (27). Starting from the technology which is market-
ed by the parties, one needs to identify those other
to which customers could switch in
technologies

51.

( 27) See EFTA Surveillance Authority Notice on the definition of the
relevant market; see also, for example, European Commission
Decision 94/811/EC of 8 June 1994 in Case No IV/M.269 —
Shell/Montecatini (OJ L 332, 22.12.1994, p. 48).

In the first scenario, which is for instance present in the
pharmaceutical industry, the process of 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
technology, 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 timing. In this case, it can be analysed if after the
agreement there will be a sufficient number of R & D

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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 credibility 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 capability to exploit
possible results. An R & D pole is not a credible
competitor if it cannot be regarded as a close substitute
for the parties’ R & D effort from the viewpoint of, for
instance, access to resources or timing.

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
exempts these agreements irrespective of market share
for a period of seven years after the product is first put
on the market (29). However, the benefit of the block
exemption may be withdrawn if the agreement would
eliminate effective competition in innovation (30). After
the seven year period, market shares based on sales value
can be calculated, and the market share threshold of
25 % applies (31).

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. In this situation, the
EFTA Surveillance Authority 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.

2.3. Assessment under Article 53(1)

2.3.1. Nature of the agreement

Calculation of market shares

53.

is the market

The calculation of market shares, both for the purposes
of the R & D block exemption 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
for
products capable of being improved or replaced by the
products under development. If 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
product will, if successful, become a substitute to the
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.
Consequently, the R & D block exemption bases its
exemption of these situations on the market share in
‘the relevant market for the products capable of being
improved or replaced by the contract products’. For an
automatic exemption, this market share may not exceed
25 % (28).

( 28) Article 4(2) of the R & D block exemption.

2.3.1.1. Agreements that do not fall under Article 53(1)

55. Most R & D agreements do not fall under Article 53(1).
First, this can be said for agreements relating to cooper-
ation in R & D at a rather theoretical stage, far removed
from the exploitation of possible results.

56. Moreover, R & D cooperation between non-competitors
does generally not restrict competition (32). The competi-
tive 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 out the
necessary R & D independently, there is no competition
to be restricted. This can apply, for example, to firms
bringing together complementary skills, technologies
and other resources. The issue of potential competition
has to be assessed on a realistic basis. For instance,
parties cannot be defined as 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.

(29) Article 4(1) of the R & D block exemption.
(30) Article 7(e) of the R & D block exemption.
(31) Article 4(3) of the R & D block exemption.
(32) An R & D cooperation between non-competitors can however
produce foreclosure effects under Article 53(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.

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57. R & D cooperation by means of outsourcing of pre-
viously 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 53(1)
does not apply.

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 53(1). Those pure R & D agreements can only
cause a competition problem, if effective competition
with respect to innovation is significantly reduced.

2.3.1.2. Agreements that almost always fall under Article 53(1)

59.

If the true object of an agreement is not R & D but the
creation of a disguised cartel, i.e. otherwise prohibited
price fixing, output limitation or market allocation, it
falls under Article 53(1). However, an R & D agreement
which includes the joint exploitation of possible future
results is not necessarily restrictive of competition.

2.3.1.3. Agreements that may fall under Article 53(1)

as

60. R & D agreements that cannot be assessed from the
outset
clearly non-restrictive may fall under
Article 53(1) (33) 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 innovation markets.

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 existing
markets 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 technology and the exclusive exploi-
tation of results.

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 53(1).
However, R & D agreements are exempted provided that
they are concluded between parties with a combined
market share not exceeding 25 % and that the other
conditions for the application of the R & D block
exemption are fulfilled. Therefore, for most R & D
agreements, restrictive effects only have to be analysed
if the parties’ combined market share exceeds 25 %.

63. Agreements falling outside the R & D block exemption
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 innovation is restricted,
the more likely is the application of Article 53(1) and
the assessment requires a more detailed analysis.

2.3.2. Market power and market structures

64.

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

( 33) Pursuant to Article 4(2)(3) of Chapter II of Protocol 4 to the
Surveillance and Court Agreement, agreements which have as
their sole object joint research and development need not to, but
may, be notified to the EFTA Surveillance Authority.

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
products are, if invariably, very limited. In general, a
distinction has to be made between pure R & D
agreements and more comprehensive
cooperation
involving different stages of the exploitation of results
(i.e. licensing, production, marketing). As said above,
pure R & D agreements rarely come under Article 53(1).
This is in particular true for R & D directed towards a
limited improvement of existing products/technology.

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If, in such a scenario, the R & D cooperation includes
joint exploitation only by means of licensing, restrictive
effects such as foreclosure problems are unlikely. If,
however,
joint production and/or marketing of the
slightly improved products/technology are 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.

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 restric-
tions of innovation 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 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 pro-competitive. This principle does not
change 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.

66. Most R & D agreements will 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 to the parties’ combined
positions, concentration ratios, number of players/inno-
vators and entry conditions. In some cases there can be
restrictive price/output effects on existing markets and a
negative impact on innovation by means of slowing
down the speed of development. For instance, if signifi-
cant competitors on an existing technology 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 incum-
bent’s position.

67. Agreements may also fall outside the block exemption
irrespective of the market power of the parties. This
applies for instance to agreements which restrict access
of a party to the results of the work because they do not,
as a general rule, promote technical and economic
progress by increasing the dissemination of technical
knowledge between the parties (34). The block exemption
provides for a specific exception to this general rule in
the case of academic bodies, research 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 (35). Neverthe-
less,
it should be noted that agreements containing
exclusive access rights may, where they fall under
Article 53(1), meet the criteria for exemption under
Article 53(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 development.

2.4. Assessment under Article 53(3)

2.4.1.

Economic benefits

68. Most R & D agreements, with or without joint exploi-
tation of possible results, 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 con-
ditions it appears reasonable to provide for the exemp-
tion 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 53(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 exempts those R & D agreements which fulfil
certain conditions (see Article 3) and which do not

(34) See Article 3(2) of the R & D block exemption.
(35) See Article 3(2) of the R & D block exemption.

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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 the cooperation, the parties have to demonstrate
significant benefits in carrying out R & D, a quicker
launch of new products/technology or other efficiencies.

2.4.2.

Indispensability

70. An R & D agreement cannot be exempted if it imposes
restrictions that are not indispensable to the attainment
of the abovementioned benefits. The individual clauses
listed in Article 5 of the R & D block exemption 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

71. No exemption will be possible, if the parties are afforded
the possibility of eliminating competition in respect of a
in
substantial part of the products (or technologies)
question. Where, as a consequence of an R & D
agreement, an undertaking is dominant or becoming
dominant either on an existing market or with respect
to innovation, such an agreement which produces anti-
competitive effects in the meaning of Article 53 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.

73. At the beginning of an R & D cooperation, its success
and factors such as the parties’ future market position as
well as the development of future product or technology
markets are often not known. Consequently, the assess-
ment at the point in time when the cooperation is
formed is limited to the (then) existing product or
technology markets and/or
innovation markets as
described in this chapter. If, on the basis of this analysis,
competition is not likely to be eliminated, the R & D
agreement can benefit from an exemption. This will

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 this additional exemption phase is that the first
companies to reach the market with a new product/
technology will often enjoy very high initial market
shares and successful R & D is also often rewarded
by intellectual property protection. A strong market
position due to this ‘first mover advantage’ cannot
normally be interpreted as elimination of competition.
Therefore, the block exemption covers R & D agreements
for 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 53(3) as to the other
aspects of the agreement are fulfilled. This does not
exclude the possibility that a period of more than seven
years also meets the criteria of Article 53(3) if it can be
shown to be the minimum period of time necessary
to guarantee an adequate return on the investment
involved.

74.

If a new assessment of an R & D cooperation is made
after that period, for instance, following a complaint,
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 53(3) continues to
apply to R & D agreements falling outside the block
exemption provided that the criteria for an exemption
are fulfilled.

2.5. Examples

75.

Example 1

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

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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 individually 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 the parties to exploit
their strong position on the existing market must be
taken into account. Since they would face no compe-
tition 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 components to third parties
on reasonable terms, it may not be possible to remedy
all concerns and fulfil the conditions for an exemption.

substantially. 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 rights
during the 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.

77.

Example 3

76.

Example 2

Situation: A small research company A which does not
have its own marketing organisation has discovered and
patented a pharmaceutical substance based on new
technology 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 the existing products company B has a market share
of around 75 % in all EEA 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 development, 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. It is expected that
the parties could jointly bring the product to market in
five to seven years.

Analysis: The product is likely to belong to a new
relevant market. The parties bring complementary
resources and skills to the cooperation, and the prob-
ability of the product coming to market increases

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 technology licensing businesses in this
area, but will continue to manufacture separately. The
two companies have market shares within the EEA of
15 % and 20 % on the OEM product market. There are
two other major competitors together with several in-
house research programmes by large vehicle manufac-
turers. 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.

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 cooperation could allow them to spend
more on R & D than individually. Several other tech-
nologies exist and the parties’ combined market share
on the OEM market does not bring them into a dominant
position. Although their market share on the technology
market, at 45 %, is very high, there are competing
technologies. In addition, the vehicle manufacturers,
who do not currently licence their technology, 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.

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3. PRODUCTION AGREEMENTS (INCLUDING SPECIALIS-

81.

ATION AGREEMENTS)

Subcontracting agreements between competitors are
covered by these guidelines (39). Guidance for the assess-
ment of subcontracting agreements between non-com-
petitors involving the transfer of know-how to the
subcontractor is given in a separate notice (40).

3.1. Definition

3.2. Relevant markets

78.

Production agreements may vary in form and scope.
They may take the form of joint production through a
joint venture (36), 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.

82.

79. Generally, one can distinguish three categories of
production agreements: Joint production agreements,
whereby the parties agree to produce certain products
jointly,
(unilateral or reciprocal) specialisation agree-
ments, whereby the parties agree unilaterally or
reciprocally to cease production of a product and to
purchase it from the other party, and subcontracting
agreements whereby one party (the contractor) entrusts
to another party (the subcontractor) the production of
a product.

80.

Subcontracting agreements are vertical agreements. They
are therefore, to the extent that they contain restrictions
of competition, covered by the Block Exemption and the
Guidelines on Vertical Restraints. There are however
two exceptions to this rule: Subcontracting agreements
between competitors (37), and subcontracting agree-
ments between non-competitors involving the transfer
of know-how to the subcontractor (38).

( 36) As indicated above, joint ventures which fall under Article 57 of
the EEA Agreement are not the subject of these guidelines. Full-
function joint ventures below EFTA or Community dimension
are normally dealt with by the competition authorities of the
EEA States. The application of Chapter II of Protocol 4 to the
Surveillance and Court Agreement 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 (‘spill-over effect’). In this
respect, the European Commission has declared that it will leave
the assessment of such operations to the EU Member States as
far as possible (see Statement
for the Council Minutes on
Regulation (EC) No 1310/97, pt. 4). The EFTA Surveillance
Authority will apply a similar principle vis-à-vis the EFTA States.

( 37) Article 2(4) of the Block Exemption on Vertical Restraints.
( 38) Article 2(3) of the Block Exemption 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 on Vertical Restraints.

In order to assess the competitive relationship between
the cooperating parties,
the relevant product and
geographic market(s) directly concerned by the cooper-
ation (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 (41)
(so-called spill-over markets).
However, spill-over effects only occur if the cooper-
in the
ation in one market necessarily results
in another
coordination of competitive behaviour
market,
if the markets are linked by interdepen-
dencies, and if the parties are in a strong position on
the spill-over market.

i.e.

3.3. Assessment under Article 53(1)

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.

(39) 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.

(40) Notice of the EFTA Surveillance Authority concerning its assess-
ment of certain subcontracting agreements in relation to
Article 53(1) of the EEA Agreement, OJ L 153, 18.6.1994, p. 30
and EEA Supplement to the OJ No 15, 18.6.1994, p. 29.

(41) As also referred to in Article 2(4) of the act referred to in point 1
of Annex XIV to the EEA Agreement (Regulation (EEC) No 4064/
89 (OJ L 395, 30.12.1989, p. 1. Corrected version OJ L 257,
21.9.1990, p. 13), as last amended by Regulation (EC) No 1310/
97 (OJ L 180, 9.7.1997, p. 1), the Merger Regulation).

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84.

85.

The fact
that the parties are competitors does not
automatically 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 compe-
tition, especially in the case of homogenous products.

In addition to coordination concerns, production agree-
ments 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 possibility of fore-
closure mainly needs to be examined in the case of
joint production of an important component and of
subcontracting agreements (see below).

the production costs of

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 final product and,
consequently, the total costs. The same applies to a
subcontracting agreement between competitors where
the input which one competitor purchases from 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.

89.

Thirdly, subcontracting agreements between competi-
tors do not fall under Article 53(1) if they are limited to
individual sales and purchases on the merchant market
without any further obligations and without forming
part of a wider commercial relationship between the
parties (42).

3.3.1.1. Agreements that do not fall under Article 53(1)

3.3.1.2. Agreements that almost always fall under Article 53(1)

86. Unless foreclosure problems arise, production agree-
ments between non-competitors are not normally
caught by Article 53(1). This is also true for agreements
whereby inputs or components which have so far been
manufactured for own consumption (captive pro-
duction) 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
for sales to third parties without
merchant market
incurring significant additional costs or risks in response
to small, permanent changes in relative market prices.

87.

Even production agreements between competitors do
not necessarily come under Article 53(1). First, cooper-
ation between firms which compete on markets closely
related to the market directly concerned by the cooper-
ation, cannot be defined as restricting competition, if the
cooperation is the only commercially justifiable possible
way to enter a new market, to launch a new product or
service or to carry out a specific project.

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 53(1). This does,
however, not apply to cases:

— where the parties agree on the output directly
concerned by the production agreement (e.g. the
capacity and production volume of a joint venture
or the agreed amount of outsourced products), or

— 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 (43).

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

(42) As any subcontracting agreement such an agreement can how-
ever fall under Article 53(1) if it contains vertical restraints, such
as restrictions on passive sales, resale price maintenance, etc.
(43) A production joint venture which also carries out joint distri-
bution is, however, in most of the cases a full-function joint
venture.

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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 53(1).

3.3.1.3. Agreements that may fall under Article 53(1)

91.

Production agreements that cannot be characterised as
clearly restrictive or non-restrictive on the basis of the
above factors may fall under Article 53(1) (44) 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.

93.

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.

and thus

There is no absolute market share threshold which
indicates that a production agreement creates some
degree of market power
falls under
Article 53(1). However, agreements concerning unilat-
eral or reciprocal specialisation as well as joint pro-
duction are block exempted provided that they are
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 are fulfilled. Therefore,
for agreements covered by the Specialisation block
exemption, restrictive effects only have to be analysed if
the parties combined market share exceeds 20 %.

94. Agreements which are not covered by the Specialisation
block exemption 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
market(s) with which the cooperation is directly con-
cerned. Under certain circumstances, e.g. if the parties
have a very strong combined position on upstream or
downstream markets or on markets otherwise closely
related to the markets with which the cooperation is
directly concerned, these spill-over markets may how-
ever have to be analysed as well. This applies in 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.

Market position of the parties, concentration ratio, num-
ber of players and other structural factors

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
concentration as well as market shares will be a signifi-
cant factor. The higher the combined market share of
the parties, the higher the concentration in the market
concerned. However, a moderately higher market share
than allowed for in the Specialisation block exemption
does not necessarily 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 1 800 (45). In such
a scenario a restrictive effect is unlikely. In a more
concentrated market, however, a market share of more
than 20 % may, alongside other elements, lead to a
restriction of 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.

97.

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

98. Under specific circumstances a cooperation between
potential competitors may also raise competition con-
cerns. This is, however, limited to cases where a strong

( 44) Pursuant to Article 4(2)(3) of Chapter II of Protocol 4 to the
Surveillance and Court Agreement, agreements which have as
their sole object specialisation in the manufacture of products
need, under certain conditions, not to be notified to the EFTA
Surveillance Authority. They may, however, be notified.

(45) See point 29.

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player in one market cooperates with a realistic potential
entrant, for instance, with a strong supplier of the same
product or service in a neighbouring geographic market.
The reduction of potential competition creates particular
problems if actual competition is already weak and
threat of entry is a major source of competition.

Specialisation agreements

101. Reciprocal specialisation agreements with market shares
beyond the threshold of the block exemption will almost
always fall under Article 53(1) and have to be examined
carefully because of the risk of market partitioning (see
example 5 below).

Cooperation in upstream markets

3.4. Assessment under Article 53(3)

99.

Joint production of an important component or other
input to the parties’ final product can cause negative
market effects under certain circumstances:

3.4.1.

Economic benefits

— Foreclosure problems (see example 3 below) pro-
vided 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.

— 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
downstream market for the final product.

Subcontracting agreements between competitors

100. Similar problems can arise if a competitor subcontracts
an important component or other input to its final
product from a competitor. This can also lead to:

— Foreclosure problems provided that the parties
have a strong position as either suppliers or buyers
on the relevant input market (non-captive use).
Subcontracting 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.

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
technologies unless they are an instrument for price
fixing, output restriction or market and customer allo-
cation. 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 53(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 exemption) 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 agreements not covered by the block exemp-
tion 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.

3.4.2.

Indispensability

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.

— Spill-over effects provided that the input is an
important component of costs and that the parties
have a strong position in the downstream market
for the final product.

105. No exemption will be possible, if the parties are afforded
the possibility of eliminating competition in respect of a

3.4.3. No elimination of competition

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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 53 can in principle not be exempted. This has
to be analysed on the relevant market to which the
products subject
to the cooperation belong and on
possible spill-over markets.

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 concentration and also link E to A and B. This
cooperation is likely to cause a severe restrictive effect,
and — as in example 1 — high efficiency gains cannot
be expected.

3.5. Examples

Joint production

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

107. Example 1

Situation: Two suppliers, A and B, of the basic chemical
product X decide to build a new production plant
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 a 10 to 15 % market share and several smaller
players.

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.

108. Example 2

Situation: Two suppliers, A and B, form a production
joint venture on the same relevant market as in exam-
ple 1. The joint venture also produces 50 % of the
parties’ total 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.

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).

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 the non-captive market. A’s share 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.

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

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

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

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cover their needs of X exclusively from the joint venture.
The intermediate 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 share
and several smaller competitors.

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

Reciprocal specialisation

113. Example 5

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 to 10 % shares.

Analysis: The degree of commonality of costs is
extremely high, only the relatively minor distribution
costs remain separate. Consequently, there is very little
room for competition left. The parties would gain
market power through coordination of their behaviour
on the markets for X and Y. Furthermore, it is likely that
the market 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 scenario may change if X and Y were heterogeneous
products with a very high proportion of marketing and
total costs).
distribution costs (e.g. 65 to 70 % of
Furthermore, if the offer of a complete range of 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.

Subcontracting between competitors

114. Example 6

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 from B. It will
continue to produce 40 % of its requirements internally
to not lose the know-how related to the production
of Y.

Analysis: As A has only produced Y for internal
consumption,
it first needs to be analysed if A is a
realistic potential entrant into the merchant market for
sales of Y to third parties. If this is not the case, then
restrict competition with
the agreement does not
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.

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.

4. PURCHASING AGREEMENTS

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 firms hold a small stake, by a contractual arrange-
ment or even looser form of cooperation.

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

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117.

Joint purchasing may involve both horizontal and
vertical agreements. In these cases a two-step analysis is
necessary. First, the horizontal agreements have to be
assessed according to the principles described in the
present guidelines. If this assessment leads to the con-
clusion 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
and the Guidelines on Vertical Restraints (46).

118. An example would be an association formed by a
group of retailers for the joint purchasing of products.
Horizontal 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 assess-
ment is positive does it become relevant to assess the
resulting vertical agreements between the association
and individual members or between the association and
suppliers. These agreements are covered, up to a certain
limit, by the block exemption for vertical restraints (47).
Those agreements falling outside the vertical block
exemption will not be presumed to be illegal but may
need individual examination.

4.2. Relevant markets

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.

120. The definition of relevant purchasing markets follows
the principles described in the Authority’s Notice on the
definition of the relevant market and is based on
the concept of substitutability to identify competitive
constraints. The only difference to the definition of
‘selling markets’ is that substitutability has to be defined
from the viewpoint of supply and not from the view-
point of demand. In other words: the suppliers’ alterna-

( 46) See Guidelines on Vertical Restraints, point 29.
( 47) Article 2(2) of the Block Exemption on Vertical Restraints.

tives are decisive in identifying the competitive con-
straints 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
jointly. Their combined purchases of X account for
15 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.
This is, for instance, the case if retailers which are active
in the same relevant retail market(s) jointly purchase a
significant amount of the products they offer for resale.
It may also be the case if competing 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 Authority’s Notice on the definition of
the relevant market.

4.3. Assessment under Article 53(1)

4.3.1. Nature of the agreement

4.3.1.1. Agreements that do not fall under Article 53(1)

123. By their very nature joint buying agreements will
be concluded between companies that are at least
competitors on the purchasing markets. If, however,
competing purchasers cooperate who are not active on
the same relevant market further downstream (e.g.
retailers which are active in different geographic markets
and cannot be regarded as realistic potential competi-
tors), Article 53(1) will rarely apply unless the parties
have a very strong position in the buying markets, which
could be used to harm the competitive position of other
players in their respective selling markets.

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4.3.1.2. Agreements that almost always fall under Article 53(1)

124. Purchasing agreements only come under Article 53(1)
by their nature if the cooperation does not truly concern
joint buying, but serves as a tool to engage in a disguised
i.e. otherwise prohibited price fixing, output
cartel,
limitation or market allocation.

4.3.1.3. Agreements that may fall under Article 53(1)

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 downstream and that it may cause
cost increases for the 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.

Interdependencies between purchasing and selling mar-
ket(s)

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
high degree of commonality of costs through joint
purchasing. For instance,
if a group of large retailers
buys a high proportion of their products together, they
will have a high proportion of
in
common. The negative effects of joint buying can
therefore be rather similar to joint production.

their total cost

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 increas-
ing 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
buying cooperation creates some degree of market
power and thus falls under Article 53(1). However, in
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 share it is
likely that the conditions of Article 53(3) explained
below are fulfilled by the agreement in question.

127. The cooperation of competing purchasers can appreci-
ably 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 circum-
stances, cause severe negative effects on competition.

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

131. A market share above this threshold does not automati-
cally 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 concentration and
possible countervailing power of strong suppliers. Joint
buying that involves parties with a combined market
share significantly above 15 % in a concentrated market
is likely to come under Article 53(1), and efficiencies
that may outweigh the restrictive effect have to be
shown by the parties.

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4.4. Assessment under Article 53(3)

4.4.1.

Economic benefits

132. Purchasing agreements can bring about economic ben-
efits such as economies of scale in ordering or transpor-
tation 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
attainment of the above mentioned benefits. An obli-
gation to buy exclusively through the cooperation can
in certain cases be indispensable to achieve the necessary
volume for the realisation of economies of scale. How-
ever, such an obligation has to be assessed in the context
of the individual case.

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 substantial part of the products in question. This
assessment has to cover buying and selling markets. The
combined market shares of the parties can be regarded
It then needs to be evaluated
as a starting point.
whether these market shares are indicative of a dominant
position, and whether there are any mitigating factors,
such as countervailing power of suppliers on the pur-
chasing markets or potential for market entry in the
selling markets. Where as a consequence 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 53 can in principle not be
exempted.

4.5. Examples

135. Example 2

market) accounting for the remaining 65 % of the
purchasing market; one having 25 %, the others account-
ing for significantly less. The supply side is rather
concentrated with six suppliers of component X, two
with 30 % market share each, and the rest with between
10 and 15 % (HHI of 2 300-2 500). On their selling
market, A and B achieve a combined market share of
35 %.

Analysis: Due to the parties’ market power in their
selling market, the benefits of possible cost savings may
not be passed on to final consumers. Furthermore, the
joint buying is likely to increase the costs of the parties’
smaller competitors because the two powerful suppliers
probably recover price reductions for the group by
increasing smaller customers’ prices. Increasing concen-
tration in the downstream market may be the result. In
addition, the cooperation may lead to further concen-
tration 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.

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 six other
manufacturers (competitors of A and B on their selling

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.

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137. Example 4

Situation: Two supermarket chains conclude an agree-
ment 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, it is
not likely to be exempted due to the high degree of
market power.

138. Example 5

Situation: Five small cooperatives conclude an agree-
ment to form a joint buying organisation. They are
obliged to buy a minimum volume through the organis-
ation. The parties can buy more than the minimum
volume through the organisation, but they may also buy
outside the cooperation. 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 to
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

promotion of their products. These agreements can have
a widely 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
leads to a joint determination of all commercial aspects
related to the sale of the product including price. At the
other end,
there are more limited agreements that
only address one specific marketing function, such as
distribution, service, or advertising.

if

(a)

140. The most important of these more limited agreements
would seem to be distribution agreements. These agree-
ments are generally covered by the Block Exemption
and Guidelines on Vertical Restraints unless the parties
are actual or potential competitors. In this case, the
block exemption only covers non-reciprocal vertical
the buyer,
agreements between competitors,
together with its connected undertakings, has an annual
turnover not exceeding EUR 100 million, or (b) the
supplier is a manufacturer 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 pur-
chases the contract services (48). 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 size. These agreements have thus
first to be assessed according to the principles set out
below. If 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.

141. A further distinction should be drawn between agree-
ments where the parties agree only on joint commer-
cialisation and agreements where the commercialisation
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.

139. The agreements covered in this section involve cooper-
ation between competitors in the selling, distribution or

(48) Article 2(4) of the Block Exemption on Vertical Restraints.

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5.2. Relevant markets

142. To assess the competitive relationship between the
cooperating parties, first the relevant product and geo-
graphic market(s) directly concerned by the cooperation
to the
(i.e. the market(s) to which products subject
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 cooperation.

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 53(1).

145. This appreciation does not change if the agreement is
non-exclusive. Article 53(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. Assessment under Article 53(1)

5.3.1. Nature of the agreement

5.3.1.1. Agreements that do not fall under Article 53(1)

143. The commercialisation agreements covered by this sec-
tion only fall under the competition rules if 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 53(1) if it contains
vertical restraints, such as restrictions on passive sales,
resale price maintenance, etc. This also applies if a
cooperation in commercialisation is objectively necess-
ary to allow one party to enter a market it could not
have entered individually, for example because of the
costs involved. A specific application of this principle
would be consortia arrangements that allow the com-
panies involved to mount a credible tender for projects
that they would not be able to fulfil, or would not have
bid for, individually. As they are therefore not potential
competitors for the tender, there is no restriction of
competition.

5.3.1.2. Agreements that almost always fall under Article 53(1)

144. The principal competition concern about a commer-
cialisation agreement between competitors is price fix-
ing. 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

5.3.1.3. Agreements that may fall under Article 53(1)

146. For commercialisation arrangements that fall short of
joint selling there will be two major concerns. The first
is that the joint commercialisation provides a clear
opportunity for exchanges of sensitive commercial infor-
mation particularly on marketing strategy and pricing.
The second is that, depending on the cost 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 may be
limited. Joint commercialisation agreements therefore
can fall under Article 53(1) if they either allow the
exchange of sensitive commercial information, or if they
influence a significant part of the parties’ final cost.

147. A specific concern related to distribution arrangements
between competitors which are active in different geo-
graphic markets is that they can lead to or be an
instrument of market partitioning. In the case of recipro-
cal agreements to distribute each other’s products, the
parties to the agreement allocate markets or customers
and eliminate competition between themselves. The key
question in assessing an agreement of this type is if the
agreement 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 a horizontal
nature. However, the distribution agreement can fall
under Article 53(1) if it contains vertical restraints, such
as restrictions on passive sales, resale price maintenance,
etc. If the agreement is not objectively necessary for the
parties to enter each other’s market, it falls under 53(1).
If the agreement is not reciprocal, the risk of market
partitioning is less pronounced. It needs however to be
assessed if the non-reciprocal agreement constitutes the
basis for a mutual understanding to not enter each
other’s market or is a means to control access to or
competition on the ‘importing’ market.

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5.3.2. Market power and market structure

148. As indicated above, agreements that involve price fixing
will always fall under Article 53(1) irrespective of the
market power of the parties. They may, however, be
exemptable under Article 53(3) under the conditions
described below.

149. Commercialisation agreements between competitors
which do not involve price fixing are only subject to
Article 53(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 53(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
will be a significant factor. The more concentrated the
market the more useful information about prices or
marketing strategy to reduce uncertainty and the greater
the incentive for the parties to exchange such infor-
mation (49).

5.4. Assessment under Article 53(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
the efficiencies generated
efficiencies. The size of
depends,
the joint
inter alia, on the importance of
marketing activities for the overall cost structure of the

( 49) The exchange of sensitive and detailed information which takes
place in an oligopolistic market might as such be caught by
Article 53(1). The Court of Justice of the European Communities
judgments of 28 May 1998 in the ‘Tractor’ cases (C-8/95 P: New
Holland Ford and C-7/95 P: John Deere) and the Court of First
Instance judgement of 11 March 1999 in the ‘Steel Beams’ 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.

product in question. Joint distribution is thus more likely
to generate significant efficiencies for producers of
widely distributed consumer products than for pro-
ducers of industrial products which are only bought by
a limited number of users.

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 economic activities. A reduction
of transport cost which is only a result of customer
allocation without any integration of
the logistical
system can therefore not be regarded as an efficiency
that would make an agreement exemptable.

153. Claimed efficiency benefits must be demonstrated. An
important element in this respect would be the contri-
bution by both parties of significant capital, technology,
or other assets. Cost savings through reduced duplication
of resources and facilities can also be accepted. If, on the
other hand, the joint commercialisation 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 53(3).

5.4.2.

Indispensability

154. A commercialisation agreement cannot be exempted if
it imposes restrictions that are not indispensable to the
attainment of the abovementioned benefits. As discussed
above,
the question of indispensability is especially
important for those agreements involving price fixing or
the allocation of markets.

5.4.3. No elimination of competition

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 combined market shares of the
parties can be regarded as a starting point. One then
needs to evaluate whether these market 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 commercialisation
agreement an undertaking is dominant or becoming
dominant, such an agreement which produces anti-
competitive effects in the meaning of Article 53 can in
principle not be exempted.

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5.5. Examples

156. Example 1

Situation: Five 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 significant investment in
warehousing, transport, advertising, marketing and a
It significantly reduces their cost base,
sales force.
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 pro-
ducers are large retail chains.

will market the products, determine the prices and
allocate orders to the parent companies. They retain the
right to sell outside this structure. Deliveries to cus-
tomers 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 53(1), even though the parties to the
agreement cannot be considered as having market
power. It is not exemptable under Article 53(3), as the
claimed efficiencies are only cost reductions derived
from the elimination of competition between the parties.

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 %.

158. Example 3

Analysis: The agreement involves price fixing and thus
falls under Article 53(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 53(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, large retail chains, do not want to deal with a
multitude of prices. It is also indispensable, as the aim, a
common brand, 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 53.

157. Example 2

Situation: two producers of ball bearings, each having a
market share of 5 %, create a sales joint venture which

Situation: Two producers of soft drinks are active in two
different, neighbouring EEA 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 multinational
soft drink producer, having a market share of 50 % in
each market.

Analysis: The agreement falls under Article 53(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 independently, 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 as their primary objec-
tive the definition of technical or quality requirements
with which current or future products, production
processes or methods may comply (50). Standardisation
agreements can cover various issues, such as standardis-
ation of different grades or sizes of a particular product
or technical specifications in markets where compati-
bility 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 ser-
vices, such as rules of admission to a liberal profession,
are not covered by these Guidelines.

6.2. Relevant markets

161. Standardisation agreements produce their effects on
three possible markets, which will be defined according
to the EFTA Surveillance Authority notice on market
definition. First, the product market(s) to which the
standard(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 for standard
setting, if different standard setting bodies or agreements
exist. Third, where relevant,
the distinct market for
testing and certification.

public bodies or bodies entrusted with the operation of
services of general economic interest, such as the
standards bodies recognised under the act referred to in
point 1 of Chapter XIX of Annex II to the EEA
Agreement (Directive 98/34/EC (52). The involvement of
such bodies is subject to the obligations of EEA States
regarding the preservation of non-distorted competition
within the EEA.

6.3.1. Nature of the agreement

6.3.1.1. Agreements that do not fall under Article 53(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 compatibility of products, do not restrict
competition. This normally applies to standards adopted
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 characteristics, forms and reports, which have
an insignificant effect on the main factors affecting
competition in the relevant markets.

6.3. Assessment under Article 53(1)

6.3.1.2. Agreements that almost always fall under Article 53(1)

162. Agreements to set standards (51) may be either concluded
between private undertakings or set under the aegis of

( 50) 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 EEA
law defines standards in a narrow way, these guidelines qualify
as standards all agreements as defined in this paragraph.

( 51) Pursuant to Article 4(2)(3) of Chapter II of Protocol 4 to the
Surveillance and Court Agreement, 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
EFTA Surveillance Authority.

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 53(1). For instance, an
agreement whereby a national association of manufac-
turers set a standard and put pressure on third parties
not to market products that did not comply with the
standard would be in this category.

(52) 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).

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6.3.1.3. Agreements that may fall under Article 53(1)

166. Standardisation

be
by
caught
agreements may
the parties joint
Article 53(1) insofar as they grant
control over production and/or innovation,
thereby
restricting their ability to compete on product character-
istics, while affecting third parties like suppliers or
purchasers of the standardised products. The assessment
of each agreement must take into account the nature of
the standard and its likely effect on the markets con-
cerned, on the one hand, and the scope of possible
restrictions that go beyond the primary objective of
standardisation, as defined above, on the other.

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.
Standardisation agreements may restrict competition
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 that impose restrictions on
marking of conformity with standards, unless imposed
by regulatory provisions, may also restrict competition.

6.3.2. Market power and market structures

168. High market shares held by the parties in the market(s)
affected will not necessarily be a concern for standardis-
ation agreements. Their effectiveness is often pro-
portional 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 mar-
kets according to their geographic scope of application.
Thus, the assessment whether the agreement restricts
competition will focus, necessarily on an individual
basis, on the extent to which such barriers to entry are
likely to be overcome.

6.4. Assessment under Article 53(3)

6.4.1.

Economic benefits

169. The EFTA Surveillance Authority generally takes a
positive approach towards agreements that promote

economic interpenetration in the common market or
encourage the development of new markets and
improved supply conditions. To materialise those econ-
omic benefits, the necessary 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 demon-
strate that any restrictions on the setting, use or access
to the standard provide economic benefits.

170.

In order to reap technical or economic benefits, stan-
dards should not limit innovation. This will depend
primarily on the lifetime of the associated products, in
connection with the market development stage (fast
growing, growing, stagnant,
...). The effects on inno-
vation 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 obsol-
escence of
existing products, without objective
additional benefits.

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 economy at large to have only one technological
solution. However, this standard must be set on a
non-discriminatory basis. Ideally, standards should be
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 dis-
cussions. Therefore, participation in standard setting
should be open to all, unless the parties demonstrate
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
it should be very clearly
of quality. For instance,

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demonstrated 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.

6.4.3. No elimination of competition

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 53(1) is not infringed. The standard
has been adopted by recognised standards bodies, at
national, European and international level, through open
and transparent procedures, and is based on national
consensus reflecting the position of manufacturers and
consumers. All manufacturers are allowed to use the
standard.

as participation in standard setting is unrestricted and
transparent, and the standardisation agreement does not
set an obligation to comply with the standard. If the
parties agreed only to produce videocassettes which
conform to the new standard, the agreement would limit
technical development and prevent the parties from
selling different products, which would infringe
Article 53(1).

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 significant investment needed
to shift and to maintain 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 ‘critical mass’ 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 53(1) while not being likely to fulfil the con-
ditions 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

177. Example 2

179. Environmental agreements (53) are those by which the
parties undertake to achieve pollution abatement, as

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.

Analysis: Provided that the agreement does not other-
wise restrict competition, Article 53(1) is not infringed,

(53) The term ‘agreement’ is used in the sense defined by the Court of
Justice of the European Communities and the Court of First
Instance in the case law on Article 81 of the EC Treaty. It does
not necessarily correspond to the definition of an ‘agreement’ in
documents dealing with environmental issues such as the Euro-
pean Commission’s Communication on environmental agree-
ments COM(96) 561 final of 27.11.1996, relevant to the EEA by
virtue of point 1 of Article 3 of Protocol 31 to the EEA
Agreement.

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defined in environmental law, or environmental objec-
tives, in particular, those set out in Article 73 of the EEA
Agreement. 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
acts (54). This excludes agreements that trigger pollution
abatement as a by-product of other measures.

their public prerogatives. The present guidelines do not
deal with the question of whether such State intervention
is in conformity with the Contracting Parties’ obligations
under the EEA Agreement. They only address the
assessment that must be made as to the compatibility of
the agreement with Article 53.

180. Environmental agreements may set out standards on
the environmental performance of products (inputs or
outputs) or production processes (55). 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 EEA 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

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 competition law within the EEA.
When the pollutant is not itself a product, the relevant
market encompasses that of the product into which the
pollutant is incorporated. As for collection/recycling
agreements, in addition to their effects on the market(s)
on which the parties are active as producers or distribu-
tors, the effects on the market of collection services
potentially covering the good in question must be
assessed as well.

7.3. Assessment under Article 53(1)

183. Some environmental agreements may be encouraged or
made necessary by State authorities in the exercise of

7.3.1. Nature of the agreement

7.3.1.1. Agreements that do not fall under Article 53(1)

184. Some environmental agreements are not likely to fall
within the scope of the prohibition of Article 53(1),
irrespective of the aggregated market share of the parties.

185. This may arise if no precise individual obligation is
placed upon the parties or if they are 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.

186. Similarly, agreements setting the environmental per-
formance of products or processes that do not appreci-
ably affect product and production diversity in the
relevant market or whose importance is marginal for
influencing purchase decisions do not
fall under
Article 53(1). Where some categories of a product are
banned or phased out from the market, restrictions
cannot be deemed appreciable in so far as their share is
minor in the relevant geographic market or, in the case
of EEA-wide markets, in all EEA States.

187. Finally, agreements which give rise to genuine market
creation, for 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.

( 54) For instance, a national agreement phasing out a pollutant or
waste identified as such in relevant EEA acts may not be
assimilated to a collective boycott on a product which circulates
freely within the EEA.

( 55) To the extent that some environmental agreements could be
assimilated to standardisation, the same assessment principles
for standardisation apply to them.

7.3.1.2. Agreements that almost always come under Article 53(1)

188. Environmental agreements come under Article 53(1) by
their nature if the cooperation does not truly concern

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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
cooperation 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. Agreements that may fall under Article 53(1)

189. Environmental agreements covering a major share of an
industry at national or EEA level are likely to be caught
by Article 53(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 pro-
duction or sales. In addition to restrictions between the
parties, an environmental agreement may also reduce or
substantially affect the output of third parties, either as
suppliers or as purchasers.

190. For instance, environmental agreements, which may
phase out or significantly affect an important proportion
of the parties’ sales as regards their products or pro-
duction processes, may fall under Article 53(1) when
the parties hold a significant proportion of the market.
The same applies to agreements whereby the parties
allocate individual pollution quotas.

191. Similarly, agreements whereby parties holding signifi-
cant market shares in a substantial part of the territory
covered by the EEA Agreement 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 53(3)

7.4.1.

Economic benefits

192. The EFTA Surveillance Authority takes a positive stance
on the use of environmental agreements as a policy
instrument to achieve the goals enshrined in Article 1

and Article 73 of the EEA Agreement as well as in
environmental action plans (56), provided such agree-
ments are compatible with competition rules (57).

193. Environmental agreements caught by Article 53(1) may
attain economic benefits which, either at individual or
aggregate consumer level, outweigh their negative effects
on competition. To fulfil this condition, there 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 (58).

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 estab-
lished. Otherwise, a cost-benefit analysis may be necess-
ary 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 is demonstrated, the more
clearly each provision might be deemed indispensable
to the attainment of the environmental goal within its
economic context.

(56) Environmental action plans drawn up by the European Com-
munity are relevant to the EEA by virtue of point 1 of Article 3
of Protocol 31 to the EEA Agreement.

(57) See the European Commission’s Communication on environ-
mental agreements COM(96) 561 final of 27.11.1996, points 27
to 29 and Article 3(1)f of the third act referred to in point 1 of
Article 3 of Protocol 31 to the EEA Agreement (Decision No
2179/98/EC of the European Parliament and of the Council of
24 September 1998 on the review of the European Community
programme of policy and action in relation to the environment
and sustainable development ‘Towards sustainability’ (OJ L 275,
10.10.1998, p. 1)). The communication includes a ‘Checklist for
Environmental Agreements’ identifying the elements that should
generally be included in such an agreement. The checklist also
gives useful guidance in the context of Article 53 EEA.

(58) 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 7(d) of the third act referred to in point 1 of Article 3
of Protocol 31 to the EEA Agreement (Decision No 2179/98/EC
of the European Parliament and of the Council of 24 September
1998 on the review of the European Community programme of
policy and action in relation to the environment and sustainable
development ‘Towards sustainability’ (OJ L 275, 10.10.1998,
p. 1)).

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196. An objective evaluation of provisions which might
prima facie be deemed not to be indispensable must be
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 individual costs for waste
collection, is indispensable for the functioning of an
industry-wide collection system.

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 competitors, the duration of such rights
should take into account the possible emergence of an
alternative to the operator.

7.5. Examples

198. Example

Situation: Almost all EEA producers and importers of a
given domestic appliance (e.g. washing machines) agree,
with the encouragement of a public body, to no longer
manufacture and import into the EEA products which
do not comply with certain environmental criteria (e.g.
energy efficiency). Together, the parties hold 90 % of the

EEA 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 environ-
mentally friendly, but also more expensive products.
Furthermore, the agreement indirectly reduces the out-
put of third parties (e.g. electric utilities, suppliers of
components incorporated in the products phased out).

Analysis: The agreement grants the parties control of
individual 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 53(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
not inevitably create or increase another environmental
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 rapidly recoup the cost
increase as the more
environmentally 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 manu-
facture products which do comply with the environmen-
tal characteristics agreed upon and competition will still
take place for other product characteristics. Therefore,
the conditions for an exemption under Article 53(3) are
fulfilled.