Collaborating with competitors? The CMA issues final guidance on horizontal agreements

United Kingdom

Competition authorities have long sought to strike the right balance between preventing illegal forms of collaboration and allowing businesses to cooperate in a way that will foster innovation and promote competition. Two recent developments have increased the need for greater clarity on permitted forms of so-called ‘horizontal agreements’, specifically: (i) the ‘cost-of-living’ crisis increasing pressure to meet consumer demands for lower prices; and (ii) calls for better ESG and innovation.

Horizontal agreements, for example for research & development, can deliver a wide range of benefits to consumers and businesses, particularly from the perspective of increased innovation and efficiencies. They can also provide businesses with an important means to share costs and/or address disruptions in supply chains. However, competition authorities remain very much alive to the risks of collaboration between competitors. They will continue to take a robust approach to agreements which could give rise to competition concerns, not least because horizontal agreements can create a context in which other forms of harmful coordination are more likely to occur, for example by providing opportunities for the exchange of commercially sensitive information.

A new framework for assessing horizontal agreements

Following a consultation earlier this year, the CMA recently published its final guidance on the application of competition rules to horizontal agreements between actual or potential competitors (the “CMA Guidance”). Click here to access the guidance.

The CMA Guidance outlines the application of two new block exemptions for research & development and specialisation agreements which came into force on 1st January 2023: the R&D BEO and SABEO (together, the “HBEOs”). Click here to access our Law-Now on this topic published earlier this year.

The CMA Guidance also outlines the circumstances in which a horizontal agreement will meet the conditions for automatic individual exemption, i.e. where the agreement will give rise to significant efficiency gains outweighing appreciable restrictions in competition.

As well as helping businesses establish whether they can benefit from HBEOs, the CMA Guidance clarifies the application of competition law to other common types of horizontal agreement. It therefore extends not only to research & development and specialisation agreements which do not meet the conditions for the HBEOs, but also to purchasing, commercialisation and standardisation agreements, as well as information exchange and standard terms of business. Helpfully, the CMA Guidance also outlines the application of competition rules to agreements that combine various stages of cooperation, e.g. an agreement to produce and commercialise the results of joint R&D.

Businesses should note that the CMA Guidance applies to both new and existing agreements and that the concept of ‘agreement’ is broad, incorporating other forms of cooperation such as decisions by trade associations or other professional regulatory bodies. However, a horizontal agreement will fall outside the scope of competition rules if the combined market share of the parties to the agreement is no more than 10% on any of the markets affected, as long as it does not contain any serious restrictions of competition, such a price fixing.

This guidance should also be used to assess the legality of ‘vertical’ agreements (i.e. agreements where the parties are operating at different levels of the supply chain) between actual or potential competitors, as these may give rise to competition concerns similar to those raised by horizontal agreements.

Relationship with EC Guidelines

In the UK, the CMA Guidance now replaces the European Commission Guidelines on Horizontal Cooperation Agreements (the “EC Guidelines”), which are no longer applicable in the UK post-Brexit. During the consultation period for the CMA Guidance, respondents raised concerns that significant divergence between the CMA Guidance and the recently amended EC Guidelines would increase compliance costs for businesses. The CMA appears to have taken these concerns on board, ensuring broad alignment between the UK and the EU. For example, the CMA Guidelines  confirm that when considering market definition issues, the CMA will refer to the EC’s market definition notice as well as its own guidance. It will also take account of the EC’s notice on agreements of minor importance when considering whether an agreement will fall within the scope of competition rules.

Helpfully, the CMA Guidance also largely mirrors the expanded EC Guidelines in its approach to both basic competition law concepts and the assessment of individual horizontal agreements. For example, both sets of guidelines offer new advice in relation to:

  • ‘Centre of gravity’; the determination of the ‘centre of gravity’ for horizontal agreements which involve cooperation across more than one type of activity.   
  • Joint ventures; the application of competition rules on anti-competitive agreements to joint ventures and their parents.
  • Production agreements; a specific section on mobile telecommunications infrastructure sharing agreements as an illustration of production agreements where services are involved.
  • Purchasing agreements; guidance on the distinction between buyer cartels and joint purchasing arrangements.
  • Commercialisation agreements; a specific section on the assessment of bidding consortia agreements.
  • Information exchange; confirmation that businesses involved in illegal pricing practices cannot escape liability on the basis that their pricing was determined by algorithms.

The above will provide businesses operating at the European level with a welcome level of legal certainty. However, the CMA Guidance does not provide any ‘protection’ in terms of the equivalent EU legislation. Businesses must therefore still consider the application of EU competition rules if their agreement has an effect on trade between Member States. 

A different approach to information exchange

While the EC Guidelines and CMA Guidance both offer significant advice in relation to the potential advantages and pitfalls of information exchange, the CMA goes further than the position taken by the EC by confirming that it could, in certain circumstances, characterise exchanges of publicly available information as ‘by object’ restrictions. For example, where direct exchange of pricing  data could give competitors valuable reassurance as to future market conduct. ‘By object’ restrictions are those which by their very nature have the potential to harm competition; price-fixing and market-sharing are examples of these. 

Many businesses rely on (what was) the ‘generally accepted’ position, i.e. that publicly available information is not likely to be competitively sensitive, in determining whether information exchanges are likely to breach competition law. However, the CMA Guidance states that even if the information is publicly available, it will not be considered ‘genuinely public’ if the time and cost associated with obtaining that information would discourage businesses or customers from gathering the information themselves. Equally, the guidance highlights that pricing information received directly from a competitor may be considered to be more ‘reliable’ than similar information obtained from a customer. 

What about sustainability agreements?

Unlike the equivalent EC Guidelines, the CMA Guidance does not currently offer specific advice on sustainability agreements. However, the CMA has recently consulted on separate draft guidance on the application of competition law to cooperation agreements delivering environmental sustainability goals and this should be read alongside the CMA Guidance once finalised.

The draft guidance indicates that the CMA’s approach to sustainability agreements may be less restrictive than that taken by the EC in certain areas, for example in relation to the application of competition rules to climate change agreements, on the basis that industry collaboration will play an essential role in meeting the UK’s net zero ambitions. Businesses should be mindful of this potential divergence when operating at a European level.

Impact of UK competition law reform

For now, and in contrast to the situation in the EU, the CMA Guidance only applies to agreements implemented, or intended to be implemented in the UK. However, the much-anticipated UK competition law reforms (which are set out in the Digital Markets, Competition and Consumers Bill) incorporate the UK government’s plans to shift to a ‘qualified effects’ approach when it comes to the application of competition law to anti-competitive agreements. This means that horizontal agreements that have (or are likely to have) direct, substantial, and foreseeable effects within the UK would fall within the scope of the UK competition law, regardless of where they were implemented (or intended to be implemented).

Key takeaways

  • Overall, the CMA Guidance will make it easier for businesses to collaborate in ways which are economically desirable without incurring competition law risk, offering a welcome level of legal certainty when negotiating and implementing horizontal agreements.
  • Compliance efforts should nonetheless be dedicated to keeping up to date with how the CMA Guidance and the equivalent EC Guidelines are applied in practice, to ensure that any ongoing or future collaborations do not lead to a breach of UK and/or EU competition law. 
  • Collaborating with competitors will always be a ‘high-risk’ territory. Businesses should bear in mind that competition authorities have wide-ranging enforcement powers that can lead to severe consequences for the businesses and individuals involved. In addition to large fines and potential exposure to damages claims, breaches of competition rules can result in disqualification orders for individual directors.
  • Whilst the CMA Guidance is a useful tool for assessing whether it is ‘safe’ to collaborate, businesses should always seek specialist legal advice in relation to any ongoing or future horizontal agreements to ensure they are compliant with UK and EU competition law. Please contact a member of our Antitrust, Competition & Trade team for further advice.

Article co-authored by Kaela Murie, Trainee Solicitor at CMS.