Safe harbours for R&D collaboration agreements: Quick guide to the updated EU and UK rules

The European Commission’s (EC) new R&D block exemption regulation entered into force on 1 July 2023, introducing updated rules for businesses to assess whether their existing or contemplated research and development agreements fall within the EC’s safe harbours.  The equivalent UK block exemption entered into force earlier this year on 1 January 2023, with the associated final Competition and Markets Authority (CMA) horizontal agreements guidance expected to follow soon.

The updated EU rules are substantially similar to the 2011 R&D block exemption regulation which they replace. Provisions and definitions in the new EU block exemption have been amended to increase clarity, but the most material change is a new test in the UK rules relating to agreements between parties that “compete in innovation”. This introduces unhelpful ambiguity for parties assessing whether they fall within the UK safe harbour. It also creates divergence between the EU and the UK rules, which will both apply to agreements that are broader than national in scope.

Nevertheless, both block exemptions continue to recognise that collaboration in R&D can bring significant benefits, including supporting efficient allocation of resources and facilitating early breakthroughs in new products, services and technologies. The EC and the CMA have been, and are expected to remain, open to recognising the long-term benefits of genuinely pro-competitive R&D collaboration agreements, especially when they bring together complementary skills and resources.

We summarise below the key changes in the EU and UK block exemptions and set out practical takeaways for R&D collaborations going forward.

Overall, the updated EU rules and new UK rules are substantially similar to the previous EU R&D block exemption  

The market share thresholds for the safe harbour remain the same:

• For parties that are actual or potential competitors, their combined market share on relevant product and technology markets for the existing product or technology must not exceed 25%. This threshold also applies to paid-for R&D, where the relevant market share is that of the financing party (if any) and that of all the parties funded by the financing party which are engaged in R&D for the same contract products or technologies.
• There is no market share threshold for parties that are not actual or potential competitors in relevant product and technology markets. 

In addition, the other criteria required for the safe harbour to apply remain in place:

• Both parties must receive full access to final results (subject to certain limited exceptions regarding access for the purpose of exploitation – e.g., in respect of research institutes, academic bodies or other companies providing R&D services without being active in commercialisation).
• Where the R&D agreement does not provide for joint exploitation of results, each party must be granted access to pre-existing know-how of the other party where it is indispensable for exploiting the results.
• The R&D agreement must not contain any hardcore restrictions (e.g. limitations on R&D in unconnected fields, output or sales restrictions, price fixing, and certain territorial restrictions).

The duration of the safe harbour for R&D agreements where the results are jointly exploited is also unchanged – if the safe harbour applies at the time the agreement is entered into, an R&D agreement between actual or potential competitors is exempted for the duration of the R&D plus an additional seven years following the first launch of the product/technology onto the EU internal market, and thereafter if the parties to the agreement continue to stay below the market share thresholds.

Diverging approaches in the UK and EU for agreements between parties “competing in innovation”

UK approach

The new UK rules introduce an additional threshold for parties that compete in innovation, i.e. where there is not yet any existing market for a product or technology in development. This aligns with the CMA’s policy goal of protecting dynamic competition in respect of innovation.       

“Competing in innovation” is a potentially broad concept and covers the individual pursuit by each party of “comparable” R&D efforts, being:

• R&D of the same or likely substitutable new products and/or technologies as those contemplated by the R&D agreement; and
• R&D “clusters” pursuing substantially the same aim or objective as the ones to be covered by the R&D agreement.  This could, for example, capture R&D in relation to certain platform technologies where the specific aim or objective cannot yet be defined as a specific product or technology or involves a substantially broader target than products/technologies on a specific market.

Under the new UK rules, for R&D agreements entered into on or after 1 January 2024, parties “competing in innovation” may only benefit from the exemption if at the time of entering into the agreement there are three or more:

• competing R&D efforts in addition to and comparable with those of the parties to the R&D agreement; or
• third parties that are able independently to engage in a comparable R&D effort.

If the parties “compete in innovation”, self-assessment may be challenging in practice

Given the broad scope of this new rule – particularly for competing “R&D clusters” which can have wide potential target applications that cannot yet be defined with certainty – it may be difficult to assess whether such R&D efforts pursue substantially the same aim or objective when the agreement is entered into. For example, recent breakthroughs in disciplines such as genetics, immunology, and cell biology have involved platform technologies whose application on individual product markets or for specific indications may not have been clear at the outset.

Moreover, collaboration partners will often not have sufficient knowledge of rivals’ R&D activities to assess (based on public information) whether their R&D efforts could have “substantially the same aim or objective”, or whether there are other third parties that are able to independently engage in a comparable R&D effort.

Indeed, the requirement that the assessment of comparability of competing R&D efforts must be made based on reliable information can present real-world challenges, especially for (very) early-stage R&D efforts.  For example, information on third parties’ access to sufficient financial and human resources, IP rights, know-how, and previous R&D efforts is likely to be difficult to obtain and highly sensitive (both commercially and from a competition law perspective), particularly for privately held, early-stage companies. 

Finally, it is not clear how close or far apart the competing R&D efforts can be from a timing perspective. In its draft guidelines on horizontal agreements, the CMA notes that an R&D effort that is six to eight years from market entry compared to an R&D effort that is one year from market entry may not be comparable.  That leaves a significant grey area in terms identifying potential competitors on the timing spectrum.

EU approach

Interestingly, the EC considered introducing a similar new threshold, but ultimately decided against it following a lengthy consultation with industry participants. The reversal of the EC’s approach highlights the potential practical difficulties raised by the introduction of the new UK threshold.  

Instead, the new EU rules state that agreements between undertakings that are not actual or potential competitors will only eliminate effective innovation competition in exceptional circumstances.  New articles have been added to the R&D block exemption regarding the powers of the EC and national competition authorities to withdraw the benefit of the block exemption in individual cases where they find that the conditions of Article 101(3) TFEU are not met, including where an R&D agreement would substantially restrict innovation competition in a particular field. Similar provisions have been added to the new Specialisation block exemption.

It remains to be seen whether the UK’s approach is a bellwether of future divergence in other areas with relevance for innovative sectors such as tech and life sciences. For example, the EU Technology Transfer Block Exemption Regulation (which runs until 2026) is currently under review, and a new UK equivalent is anticipated.

Practical takeaways 

As self-assessment is not always straightforward, businesses may additionally want to consider taking the following steps when entering into R&D agreements:

• Articulate and stress-test the overarching pro-competitive rationale for the collaboration, including by setting out clearly in internal documents what each collaboration partner will contribute to the project/venture and the likely benefits to consumers/patients. 
• Undertake a detailed assessment of the competitive landscape and maintain a contemporaneous record of evidence and public information relied on for self-assessment. It is important that parties that potentially compete in innovation conduct a detailed assessment of the competitive landscape, including looking at competing efforts in potentially wide and narrow areas of innovation or research. As information on e.g., publicly available R&D pipelines, planned clinical trials and announced investment decisions may change (or be removed) over time, it is important to maintain a record of the information relied upon (especially when seeking to rely on the block exemptions) and to update the analysis as needed as the competitive landscape evolves.
• Implement appropriate safeguards to manage competition law risk when collaborating with actual or potential competitors. Even in circumstances where an R&D agreement does not fall squarely within the EU and/or UK block exemptions, it may still qualify for individual exemption provided that appropriate competition law safeguards are put in place when competitors are engaging in joint R&D. For example, R&D collaboration partners may need to implement firewalls between competing R&D programs.

For further information about how these rules could affect your business, please don’t hesitate to contact us or your usual contact in our Antitrust, Competition and Trade team.

To read more about other antitrust developments in this area, see the Collaboration and Licensing – New Risks and Opportunities chapter of our Global antitrust in 2023: 10 key themes report.