The European Commission has revised its rules for the assessment of co-operation agreements between competitors, so called horizontal co-operation agreements. The most important changes for the medical devices industry are in the areas of standardisation, information exchange and R&D.  The new rules replace the previous Horizontal Guidelines and the two Block Exemption Regulations for R&D and for specialisation and joint production agreements, which entered into force in 2001. These changes are part of a larger package revising the EU competition rules for horizontal cooperation agreements adopted on 14 December 2010. All changes are described succinctly in a convenient Q&A document of the Commission.

Key features of the reform relevant to the medical devices industry are a new chapter on information exchange in the Horizontal Guidelines, a substantial revision of the chapter on standardisation agreements and extension of the scope of the R&D agreements block exemption. The documents conctaining the new texts can be found here.

Standards

The Guidelines promote a standard-setting system that is open and transparent and thereby increases the transparency of licensing costs for intellectual property rights used in standards. The revised standardisation chapter sets out the criteria under which the Commission will not take issue with a standard-setting agreement (‘safe harbour’). Moreover, the chapter gives detailed guidance on standardisation agreements that do not fulfil the safe harbour criteria, to allow companies to assess whether they are in line with EU competition law.

Standards are important to the medical devices industry, for example in e-Health, of which the development is slowed down as a result of lack of standards. Declaration of compliance with standards is the core of the EU CE system.  A known problem with standards is that someone may have a patent, or a patent pool, that you need a licence for to be able to conform to the standard. Patent owner may keep these patents secret until the standard is finished and implemented, a so-called ‘patent ambush‘. The  new Guidelines promote a standard-setting system that is open and transparent and thereby increases the transparency of licensing costs for intellectual property rights (IPRs) used in standards. The revised standardisation chapter sets out the criteria under which the Commission will not take issue with a standard-setting agreement (‘safe harbour’). Moreover, the chapter gives detailed guidance on standardisation agreements that do not fulfil the safe harbour criteria, to allow companies to assess whether they are in line with EU competition law. The rules focus on the process of setting the standard and the subsequent terms on which the standard is made availabel to others.

The safe harbour criteria for the process are that:

1. the standard-setting process is transparent and open to all;
2. the standardisation agreement imposes no obligation to comply with the resulting standard; and
3. the standardisation agreement provides access to the standard on fair, reasonable and non-discriminatory (widely known as “FRAND”) terms, including by providing a fair and balanced policy for intellectual property rights .

In summary the requirements for the terms for access to the standard are that the terms:

1. are established through a transparent and inclusive process;
2. are non-binding and effectively accessible for anyone;
3. are not likely to become a de facto industry standard; and
4. do not relate to price-sensitive aspects of competition (such as prices, rates, discounts, rebates, and interest) or important characteristics of consumer goods or services.

The revised rules now clarify that it is normally not contrary to competition law if standard-setting organisations provide for their members to unilaterally disclose, prior to setting a standard, the maximum rate that they would charge for their intellectual property rights (IPRs) if those were to be included in a standard. Such a system could enable a standard-setting organisation and the industry to take an informed choice on quality and price when selecting which technology should be included in a standard.

Information exchange

Information exchange can take many forms, such as disclosure of information via published materials and coordinated public announcements, through a common third party such as a trade association or via direct communication between competitors. It can be pro-competitive, for example, when it enables companies to gather market data that allow them to become more efficient and better serve customers, like EDMA’s publications about the IVD markets. However, there are also situations where the exchange of market information can be harmful for competition, for instance when companies use sensitive information to align their prices by disclosing an individual company’s intended future prices or quantities (including future sales, market shares, territories, and sales to particular groups of consumers). The Guidelines give guidance on how to assess the compatibility of information exchanges with EU competition law.

R&D

The Commission has extended the scope of the old R&D Block Exemption Regulation, which now not only covers R&D activities carried out jointly but also so-called ‘paid-for research” agreements where one party finances the R&D activities carried out by the other party. In addition, the new Regulation gives parties more scope to jointly exploit the R&D results.

The Commission made some last minute changes compared to the consultation draft:

1. the block exemption is not conditional on disclosure by the parties of their background IPR prior to starting the R&D;
2. parties to an R&D agreement may benefit from the block exemption even if they limit their rights of exploitation to certain field-of-use areas;
3. there is a transitional period until 31 December 2012 for agreements that cease to be block exempted as a result of changes introduced.

When does it enter into force?

The Horizontal Guidelines will enter into force as soon as they have been published in the Official Journal of the EU, which should take place in the coming days. The R&D and Specialisation Agreements Block Exemption Regulations will enter into force on 1 January 2011, with a transitional period of two years (until 31 December 2012) during which the previous Regulations will remain in force for such agreements that fulfil the conditions of those Regulations but do not fall under the new Regulations.