This document discusses various types of horizontal agreements under EU competition law. It summarizes that horizontal agreements between competitors can involve price fixing, market sharing, limiting output, or collusive tendering. It notes the key tests used to analyze these agreements, including effects on competition and market power. The document also reviews exceptions for agreements that may generate efficiencies, such as certain joint ventures, research and development collaborations, and specialization agreements, provided they do not contain hardcore restrictions like price fixing.

1. Horizontal
agreements
Julija Jerneva

2. Was Adam Smith right?
“People of the same trade seldom meet together, even for merriment
and diversion, but the conversation ends in conspiracy against the
public, or in some contrivance to raise prices.”

3. Points of interest
• Price fixing
• Market sharing
• Collusive tendering
• Resource pooling
• Information exchange

4. Structure of analysis
• Agreement
• Undertakings
• De minimis
• Object/effect
• Article 101(3)
• Block exemption (unless hardcore restrictions)
• Individual exemption (all conditions must be met, no hardcore
restrictions)

5. De minimis
• Commission Notice on agreements of minor importance which
do not appreciably restrict competition under Article 81(1) of the
Treaty establishing the European Community (de minimis)
• 10% for horizontal agreements
• 15% for vertical agreements

6. Object cases
• The object-category consist of “obvious restrictions of
competition”
• European Night Services v Commission, Joined cases T-374-375/94,
384/94
• The “object” rule can be described as a presumption rule:
• if object is found, harmful effects on competition are presumed
• certain types of agreements under normal market conditions always, or
almost always, restrict competition

7. Object cases
• Horizontal agreements:
• fixing prices
• sharing markets
• limiting output

8. Effects cases
• All cases, not falling within the “object box”
• Negative effects on competition within the relevant market are
likely to occur when:
• the parties individually or jointly have or obtain some degree of market
power and
• the agreement contributes to the creation, maintenance or
strengthening of that market power or allows the parties to exploit such
market power.

9. Horizontal Arrangements
• Article 101(3)
• Commission Guidelines
• R & D Block Exemption Regulation (Reg 1217/2010)
• Specialisation Block Exemption Regulation (Reg. 1218/2010)

10. Price Fixing
• An agreement amongst ‘competitors’ to raise, fix or otherwise
maintain the price at which goods or services are sold
• Can occur directly or indirectly
• Prohibition applies to both purchase and selling prices
• Frequently includes a policing mechanism

11. Price fixing
• Wholesales/retail price
• Commission fees
• Discount levels

12. Nintendo
• In the time from 1991 until 1998, Japanese producer of
videogames Nintendo and seven its official distributors in
Europe cooperated to preserve artificially large price differences
in Europe.
• parallel sales, imports and exports controlled.
• The merchants which allowed parallel export were punished by
providing smaller deliveries or boycotting them.
• United Kingdom prices were 65% lower than in Germany and the
Netherlands.

13. Vitamin Cartel
• In 2001, the European Commission inflicted a money fine to
companies (among them also Hoffman-La Roche) for
participation in cartels, which were made with a purpose to
decrease the competition in vitamin industry.
• Duration:10 years
• Violation: fixing prices

14. The banks’ case in Latvia
• Total fine: LVL 5 495 462,19
• 22 banks
• MIF – „Multilateral Interchange Fee” (commission for the
transactions in the POS terminals and internet
• MSC – „Merchant Service Charge” (service fee, charged to a
retailer)

15. The payment system “at issue”
Payment system
Issuing bankReceiving bank
Retailer Card holder
Price minus
retailer’s fee
(MSC)
Price, plus account
management fees,
yearly fees, etc.
Goods or services
Price minus (MIF)
fee fee

16. Tests (to be?) used
• HACR - („Honour All Cards Rule”)
• Merchant indifference test (compare the customer paying
w/cash or card)
• Issuer cost approach

17. Market Allocation
• An agreement between ‘competitors’ to divide markets amongst
themselves
• In such schemes, competitors
• allocate specific customers or suppliers to one another;
• allocate territories to one another; and/or
• allocate types of goods or services to one another

18. Collusive Tendering
• Firms agree, in advance, who will submit the winning bid on
tender
• Forms of collusive tendering include bid suppression, cover
bidding and bid rotation
• Often accompanied by sub-contracting
• Often found in engineering, construction and State tenders where
firms compete for very large contracts

19. Information exchange
• Characteristics of the market (concentration level, transparency,
stability, symmetry of costs, complexity of product, etc)
• Type of information (how specific, how recent,
aggregated/individualised, market coverage, public/non-public)
• Frequency of exchange

20. Research and development
• Concerns: slowing down of innovation; increased possibility of coordination,
reduced competition; foreclosure
• R & D Block Exemption Regulation (Reg 1217/2010):
• Competing undertakings - 25% market share cap
• Parties must have access to results for research/exploitation (research
bodies/universities can be confined to research)
• Parties must be free to conduct R&D in unconnected fields and to challenge
other party’s IP (however right to terminate R&D agreement)
• Hardcore restrictions:
• Setting production/sales targets
• Limitation of other R&D activities
• Specialisation re exploitation of results
• Restricting of manufacturing, sales, licensing
• Fixing prices
• Restriction of territory
• Restriction of active sales and reselling

21. Specialization
• Specialisation Block Exemption Regulation (Reg.
1218/2010):
• Competing undertakings
• Unilateral specialisation; reciprocal specialisation; joint
production
• 20% market share cap
• Hardcore restrictions
• Fixing of prices (except for fixed prices to immediate customers
in the context of joint distribution)
• Limitation of output or sales, unless:
• Setting of sales targets in the context of joint distribution
• Agreed output if unilateral or reciprocal specialisation
• Setting of capacity/production volumes if joint production
• Allocation of markets or customers

22. Production agreements
• Horizontal and vertical
• Horizontal:
• Joint production agreements
• Horizontal subcontracting agreements
• No substantial concerns if the market share of the parties is
below 20%

23. Purchase agreements
• No substantial concerns if the market share of the parties is
below 15%
• Main concerns: negative effects on the upstream/downstream
markets

24. Commercialisation arrangements
• Joint sales, distribution or promotion of the goods
• No substantial concerns if the market share of the parties is
below 15%
• Possible problems:
• Price fixing
• Output limitation
• Market sharing
• Information exchange

25. Standartisation
• Technical/quality requirements; standard terms of business
• Conditions for legality:
• Unrestricted participation in the process
• Transparency of adoption of the rules
• No obligation to comply (right to develop an alternative)
• Fair, Reasonable and Non-Discriminatory (FRAND) terms
• Good faith disclosure of the IPR of the participating companies

26. Other types of horizontal
agreements

27. Joint Ventures
• Joint-Ventures: as for mergers, trade-off between market power and
efficiency
• A special case: Research Joint-Ventures
• Because of spillovers and non-rivalry, R&D unlikely to attain socially
optimal levels
• RJV may promote R&D by sharing costs and avoiding duplications,
but: R&D may fall absent competition, and… collusion may extend to
marketing and production
• Only RJV on basic research should be allowed

28. Cross-licensing
• Cross-licensing: when two firms allow each other to use their
technology.
• When technologies are substitutable, it may be anticompetitive:
• firms have an incentive to set higher royalties to reduce competition
in the marketplace.
• When technologies are complementary, cross-licensing may be
indispensable.
• Suppose that two firms have ‘blocking’ (i.e., essential) patents. Then,
production or new innovation requires both patents

29. Patent pooling
• When patents are complementary, better to have a single owner of
all patents (“Cournot effect”: better a multiproduct monopolist than
two independent monopolists when products are complementary).
• Patent pool: firm or organisation which owns the patent rights and
licenses them to third parties as a package. If patents are
complementary , this will keep royalties down.
• Patent pooling may also save on transaction costs (rather than having
to negotiate with multiple parties, a firm has to deal with one party
only).

30. Thank you!
• Julija Jerneva
• Mobile: +371 29131597