Commission Notice on Horizontal Cooperation Agreements

Commission Notice on Horizontal Cooperation Agreements: What You Need to Know

On December 14, 2010, the European Commission published the “Commission Notice on the Definition of the Relevant Market for the Purposes of Community Competition Law” (the Notice). This Notice provides guidance to companies and practitioners on how to define the relevant market when assessing the compatibility of horizontal cooperation agreements with EU competition law. If you are a business owner or a practitioner in the EU, this article will give you an overview of the Commission Notice and its implications for horizontal cooperation agreements.

What is a Horizontal Cooperation Agreement?

A horizontal cooperation agreement is an agreement between two or more competitors operating at the same level of the supply chain. These agreements can take many forms, including:

– Research and development agreements

– Production agreements

– Commercialization agreements

– Joint purchasing agreements

– Joint distribution agreements

– Joint marketing agreements

Why is the Definition of the Relevant Market Important?

The definition of the relevant market is crucial in assessing the market power of the parties involved in a horizontal cooperation agreement. The relevant market is defined as the product market and the geographic market in which the parties operate, and it is used to assess the competitive constraints that the parties face.

If the relevant market is defined too narrowly, the parties may have market power, and the cooperation agreement may lead to anticompetitive effects. On the other hand, if the relevant market is defined too broadly, the parties may not have market power, and the cooperation agreement may have pro-competitive effects.

What is the Commission Notice on the Definition of the Relevant Market?

The Commission Notice provides guidance on how to define the relevant market when assessing horizontal cooperation agreements. The Notice emphasizes that the definition of the relevant market should be based on the demand-side substitutability test and the supply-side substitutability test.

According to the demand-side substitutability test, products or services are in the same relevant market if they are interchangeable from the point of view of consumers. The demand-side substitutability test takes into account the following factors:

– Price

– Characteristics

– Intended use

– Consumer perceptions

According to the supply-side substitutability test, products or services are in the same relevant market if they can be produced or supplied by the same producers or suppliers without significant additional costs. The supply-side substitutability test takes into account the following factors:

– Production costs

– Barriers to entry

– Switching costs

– Investments required

Implications for Horizontal Cooperation Agreements

The Commission Notice provides guidance on how to define relevant markets when assessing the compatibility of horizontal cooperation agreements with EU competition law. The Notice emphasizes that the definition of the relevant market should be based on the demand-side and supply-side substitutability tests.

If the parties to a horizontal cooperation agreement can demonstrate that their cooperation will have pro-competitive effects and that they will not have market power, the agreement is likely to be compatible with EU competition law.

However, if the parties to a horizontal cooperation agreement have market power, the agreement may have anticompetitive effects, and they may be subject to fines and other penalties under EU competition law.

Conclusion

The Commission Notice on the Definition of the Relevant Market provides guidance to companies and practitioners on how to define the relevant market when assessing horizontal cooperation agreements. The Notice emphasizes that the relevant market should be defined based on the demand-side and supply-side substitutability tests.

If you are a business owner or a practitioner in the EU, you should be aware of the Commission Notice and its implications for horizontal cooperation agreements. You should consult with legal counsel if you have any questions about the compatibility of your horizontal cooperation agreements with EU competition law.

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