On December 31, 2022, the 2010 Block Exemption Regulation for Research and Development Agreements (R&D BER 2010) will expire. The importance of this regulation cannot be overestimated, even though it is often overlooked. It allows for R&D agreements to be exempted from the otherwise applicable antitrust restrictions (subject to certain conditions), and is particularly important where competitors join forces.
In March, the Commission already provided a draft regulation for a new BER (the R&D Draft). The draft is not revolutionary. Rather, to a large extent, it updates the previous regulations. But it unfortunately fails to answer many open questions, and provides new—and somewhat disturbing—provisions for the “protection” of innovation competition. Yet, it is a good opportunity to analyze the changes and remind us of the requirements:
Scope of application
The R&D Draft covers six variants of R&D agreements: Joint R&D with or without joint exploitation; contract research (where one party does research for the other) with or without joint exploitation; and joint exploitation subsequent to joint R&D or contract research.
In principle, these R&D agreements continue to be exempt from the prohibition on cartels under EU Antitrust law under—in summary—three requirements:
The first requirement for this exemption is that all parties have access to the final results for purposes of further research and development as well as for purposes of exploitation. Access must be granted as soon as the final results become available. This includes access to both the IP rights and the necessary know-how, both of which may be conditional on the payment of a remuneration (which may not be prohibitive). For universities, research institutes and R&D service providers, access may exclude further exploitation.
The second requirement is that also access to background know-how (not: IP rights) must be granted, provided that (i) such access is indispensable for the exploitation of the results and (ii) the agreement is an R&D agreement (joint research or contract research) without joint exploitation rights. Again, access may be made dependent on the payment of a (non-prohibitive) remuneration.
The third requirement sets rules for joint exploitation. Joint exploitation is only possible for results that are either indispensable for the production of the contract products (or the application of the contract technology), or that are protected by IP rights or know-how.
In this context, it might be important that the R&D Draft changes the definition of “IP rights”: This now only covers industrial property rights and copyrights. Previously, these two categories were listed as “including”. This restriction does not bode well for categories which cannot be clearly allocated to either one of those, such as especially trade secrets or machine data. Yet, exactly these types are becoming increasingly important. It is therefore doubtful whether access to these types of rights needs to be granted.
Duration of the exemption and market shares
The duration of the exemption depends on the market shares of the partners involved. If they are not competitors, the exemption applies for the entire duration of the R&D activity, regardless of their market shares. If at least two partners are competitors, the combined market share of all parties may not exceed 25% at the time of conclusion of the R&D agreement. In the case of contract research, the maximum market share shall not only apply to the parties involved, but also with respect to the funding party and all parties with whom such funding party has entered into R&D agreements in respect of the same contract products or technologies.
In the case of a joint exploitation after the R&D phase, the exemption applies for another seven years, starting from when the contract products (or technology) were first put on the market, and continues even beyond that period, if the combined market shares remains below 25%.
Protection of innovation competition
The most significant changes are made in respect of a completely new category – innovation competition.
The R&D Draft states that an exemption cannot be granted if there is a risk that innovation competition could be eliminated. It therefore contains an entirely new exemption requirement for situations where the R&D partners are competitors with regard to innovation, namely that at least three competing R&D projects by independent third parties must exist.
Competition in innovation takes place if companies undertake independent R&D efforts (or could do so) with respect to identical or interchangeable new products or technologies, or with respect to R&D poles. New products or technologies are such which do not exist at the time of the conclusion of the R&D agreement and which will result in a new market and not merely improve or replace an existing product or technology. An R&D pole in contrast is a specific research objective that cannot yet be defined as a product or technology, or that is much broader. The legislator seems to have the somewhat romantic idea that research is done for its own sake in these situations, and that only later consideration is given to what might possibly be obtained as a result or where any result could be applied to in a product.
In such situations of “innovation competition”, an exemption is only granted if three independent competing R&D projects of third parties exist that concern the same new products or technologies or pursue substantially identical R&D poles. This assessment shall be based on “reliable information” on factors such as the scope, status and timing of the (competing) R&D efforts, financial and human resources, intellectual property rights and the third party’s capacity for exploitation and the likelihood thereof.
This will be a significant challenge for companies. They not only have to show the existence of (likely very important and, thus, confidential) R&D projects of their competitors, but they will have to base this on reliable information—for which the R&D draft provides no help as to how these may be obtained in a legally permissible manner.
As a result, the fundamentally important area of basic research, which is already subject to significantly higher economic risks, is additionally burdened with considerable legal uncertainty. This can hardly be in the interest of Europe as a research location.
Subsequent withdrawal of the exemption
Similar uncertainty is caused by the new statements on a potential subsequent withdrawal of the exemption: Already now, the Commission (or the national competition authorities) may withdraw the legal advantage granted by the R&D BER in individual cases with effect for the future. This is thus nothing new.
The new R&D Draft, however, now lists various examples where this “could” be the case. The somewhat unusual legal wording is probably to be understood as meaning that these examples are not legal presumptions, but mere indications without concrete legal effect. The situations include that the R&D efforts of third parties or their market access are significantly restricted by the agreement; the parties fail to exploit the results of their R&D activities vis-à-vis third parties without a justification; or that the contractual products or technologies are not in effective competition with other similar products, technologies or processes in the internal market.
All of these “examples” are difficult to grasp, and the parties to an R&D agreement will have a hard time foreseeing or influencing such a situation (except for their own use of the results vis-à-vis third parties), and the R&D Draft again provides no help or clarification. However, simply ignoring the abovementioned situations when concluding one’s own R&D agreements and “hoping for the best” is not an option. Rather, companies should include these examples in their checklist for R&D agreements and consider, in consultation with the internal and external stakeholders involved, whether such a situation could arise (and, if so, when—after the start of the R&D activity, or in a subsequent exploitation) and how this could be responded to.
Outlook and to-dos
The new R&D BER is scheduled to take effect on January 1, 2023. Whether the current draft will apply as it currently stands or whether there will be (significant?) changes, remains to be seen. But companies can and should already now prepare (to some degree):
Agreements in force on December 31, 2022 will be exempt until December 31, 2024 if they meet the requirements of the “old” R&D BER 2010. It might thus be a good idea to conclude agreements still this year, especially where the R&D phase will not last beyond 2024.
New agreements or agreements that run beyond December 31, 2024 must meet the requirements of the new R&D BER. For these agreements, the provisions of the new R&D BER should be considered, and consequently the legislative process should be closely monitored.
And don’t forget: Agreements that have already been concluded should also be reviewed and, where necessary, adapted if they are valid beyond December 31, 2024. This is likely to become particularly relevant for exploitation agreements. Here, too, however, it is advisable to closely observe the further developments for the time being.