CMA carves environmental sustainability from final guidance on horizontal agreements

The guidance, which also covers a range of horizontal agreements beyond those falling within the scope of the Horizontal Block Exemption Orders (HBEOs), comes months after two new HBEOs which cover research and development (R&D) agreements (21 pages / 502KB PDF) and specialisation agreements (10 pages / 287KB PDF).

The HBEOs came into force on 1 January 2023 and replaced the UK’s retained Horizontal Block Exemption Regulations (retained HBERs) on R&D and specialisation agreements, which expired on 31 December 2022. However the final UK guidance was only published more than half a year later, on 16 August, following public consultation by the CMA earlier this year. The new UK guidance replaced pre-existing EU guidelines on horizontal cooperation agreements which dated back to 2010.

The HBEOs provide for a two-year transitional period until 31 December 2024 for pre-existing R&D and specialisation agreements that complied with the old rules. R&D agreements between ‘undertakings competing in innovation’ – which are covered by a separate new test in the R&D HBEO – will have to comply with the new rules from 1 January 2024.

The two HBEOs provide updated rules on ‘safe harbours’ for certain R&D and specialisation agreements, exempting them from Chapter 1 of the 1998 Competition Act that prohibits agreements between firms that prevent, restrict or distort competition, provided that conditions set out in the relevant HBEO are satisfied. By avoiding the need to individually self-assess whether these types of agreements comply with competition law, block exemptions provide greater legal certainty and reduce compliance costs.

The UK guidance is intended to help businesses make their own assessment of common types of agreements between actual and potential competitors, known as ‘horizontal agreements’. This includes guidance on:

• when horizontal agreements are likely to restrict competition;
• when horizontal agreements are likely to be treated as automatically exempt under section 9(1) of Competition Act on the basis that they produce benefits which outweigh any restriction of competition; and
• the application of the two HBEOs, such as in joint purchasing agreements and joint negotiations, commercialisation agreements and information exchange.

Compared with the consultation draft, the final UK guidance provides more detail on a range of topics, such as:

• when certain restrictions may amount to competition law infringements;
• discussion of “R&D clusters” and dynamic competition;
• mobile telecommunications infrastructure sharing agreements;
• the role of standard development organisations (SDOs) including the adoption of a new “soft safe harbour” for certain standard development agreements;
• commercialisation agreements, including joint bidding and subcontracting; and
• the distinction between joint bidding and collusive tendering/bid-rigging. 

A revised chapter on information exchange adds more detail on:

• the use of algorithms and potential related competition concerns;
• the use of shared databases;
• the risks of price-signalling arising form public disclosures;
• how firms should distance themselves from anticompetitive exchanges of competitively sensitive information; and
• practical examples of precautions that firms can take to mitigate their competition law compliance risk.

The CMA-initiated road fuel price data scheme is cited as an example of how genuinely public information exchange may increase competition.

Within the EU, corresponding new horizontal block exemption regulations (HBERs) and new guidelines on horizontal cooperation agreements were adopted in June. The final UK guidance is largely aligned with the new EU guidelines (125-page / 3.87MB PDF). Indeed, the UK document frequently cites EU case law and guidance, and many final changes from the UK consultation draft reflect the final EU content.

However, there are also some areas of divergence between the finalised UK and EU guidance documents. For example, the UK guidance:

• does not include provisions on environmental sustainability agreements - contrary to its previous plans, the CMA has now stated that its guidance on sustainability agreements will be issued separately and therefore is not part of the UK guidance;
• creates some ambiguity as to whether certain information exchanges between actual or potential competitors may be considered “genuinely public” or could amount to “competitively sensitive” information, the sharing of which could potentially infringe competition law;
• covers the concept of “competition in innovation” between undertakings, which has no direct equivalent in the EU regime - it derives from the initial draft EU R&D block exemption but was ultimately abandoned in the final EU rules due to the complexities and uncertainty that such a concept could raise;
• in some instances, includes additional or divergent examples or content to reflect UK-specific case law, or to reflect specific feedback received during the CMA’s consultation.

Other areas of divergence relate more directly to legislative developments within the UK following Brexit. For example, legislative proposals to extend the exterritorial application of Chapter 1 prohibition in the Competition Act; disapplication within the UK of general principles of EU law from 1 January 2024 as result of the 2023 Retained EU Law (Revocation and Reform) Act; and obligations under the UK HBEOs for firms to provide information to the CMA within specified timeframes or risk having the block exemption withdrawn.

Multinational businesses that trade within the UK and EU will need to comply with both sets of rules, depending on whether their activities have an effect on trade within the UK or EU, and therefore will need to be mindful of any current and future divergence between the UK and EU rules and guidelines.

This will ultimately increase complexity, compliance cost and risk for such businesses. It remains to be seen to what extent the CMA’s finalised guidance on sustainability agreements, once it is published, diverges from the EU Guidelines.

Co-written by Tadeusz Gielas of Pinsent Masons.