R&D agreements: illegal? For goodness sake…

Transactional lawyers have mental alarm bells that should go off when they spot a difficult legal issue in the terms that they are negotiating. They may not immediately know the answer to the problem, but when the alarm bell rings they recognise that there is a legal problem that needs to be addressed or researched. Common examples include tax issues, bribery, money-laundering, export controls, ultra vires and, of course, competition law. This posting is about competition law issues in R&D agreements.

Those of us who have attended one of Emeritus Professor Valentine Korah’s excellent LLM courses on competition law, or read one of her “monographs” on the subject, have these alarm bells deeply embedded. (Domestic debate: this blogger’s wife did her LLM competition law course with Professor Richard Whish, and thinks he is the best.)

This blogger finds troubling the idea that collaborative R&D can be regarded as anti-competitive. Perhaps it could, if we are talking about something really major, say Ford and General Motors collaborating on a new type of electric engine (defamation note: this example is plucked from the air and should not be treated as a comment on those parties or that technology!) But for the vast majority of R&D collaborations, it is very difficult to see how they could be anything other than pro-competitive, if they impinge upon competition at all.

This common-sense view is supported to some extent by the European Commission’s detailed analysis of R&D agreements in their document Guidelines on Horizontal Cooperation Agreements. And yet… When you look at the detailed analysis, it is not as simple as saying that R&D collaborations are not anti-competitive. Sometimes they could be. In particular, the European Commission is concerned about the potential restrictions on competition not only in existing product markets but also in something that they call “technology markets”. Paragraph 116 of the Guidelines explains this further:

R&D co-operation may not only concern products but also technology. When intellectual property rights are marketed separately from the products to which they relate, the relevant technology market has to be defined as well. Technology markets consist of the intellectual property that is licensed and its close substitutes, that is to say, other technologies which customers could use as a substitute.

This blogger finds the idea of technology markets, and assessing competition within them, more than a little unreal. We may be researching the next cure for a particular type of cancer, and our R&D collaboration makes it more, rather than less, likely that such a cure will be found. But when assessing the anti-competitive effects of the collaboration agreement, we have to consider the market for technologies that may lead to a cure for that type of cancer, including other scientific routes (mechanisms of action) that may lead to that result. What is our market share in this technology market? Who on earth knows?

It all seems far too theoretical, and far too bureaucratic, to have to jump through these kinds of hoops before determining whether an R&D collaboration agreement is “clean” from a competition law standpoint. The reality is that many parties just don’t bother about competition laws when negotiating a routine R&D agreement. But if the R&D is successful, and leads to a product that does have a big market share, will the competition authorities look retrospectively at the R&D agreement under which the product was developed? We hope not.

At a practical level, many parties (or at least those who consider EU competition laws at all) prefer to make sure that the R&D agreement fits within the terms of the R&D agreements block exemption regulation. A new regulation was introduced with effect from 1st January this year. An article on the content of the new regulation appears on the Anderson & Company website here.

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