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The European Commission has revised its rules on when competing companies can cooperate to set technical standards without prompting a competition investigation.

The Commission enforces EU competition law, which restricts cooperation between competing companies for fear that they will fix prices or establish cartels.

There are some areas of business which are exempted from the rules because consumers can benefit from cooperation in these areas. The rules governing what is permitted are the Commission's two 'block exemption' Regulations.

"The two Regulations exempt research and development as well as specialisation and joint production agreements from the EU's general ban on restrictive business practices, provided they meet all conditions set out in the Regulations," said a Commission statement.

The current Regulations expire at the end of 2010 and the Commission has published the new regulations and guidelines it wants to take their place.

The Commission has revised the way in which the rules apply to the setting of technical standards. This is a process which involves competing companies agreeing to build hardware or software in an agreed way so that technologies will easily work together. It is seen as being good for competition and consumers despite the fact that it necessitates competitor collusion.

"A key issue addressed [in the new rules] are standard-setting arrangements," said a Commission statement. "Standards are becoming increasingly important in facilitating innovation (in particular in the IT sector) but an efficient, open and transparent standard-setting process is key to ensure effective competition.

"In particular, the revision of the standardisation chapter – drawing on recent case related experience in the field – aims at ensuring that standards are set in such a way that the specific benefits of standard-setting are realised and passed on to European consumers," it said.

The draft guidelines outline why standards are good for industry, but also what dangers the standard-setting process holds.

"Standardisation agreements generally have a positive economic effect, for example by promoting economic interpenetration on the internal market and encouraging the development of new markets and improved supply conditions," said the new guidelines. "Standards may increase competition and lower output and sales costs, benefiting economies as a whole. Standards may maintain and enhance quality, provide information and ensure interoperability (thus increasing value for consumers).

"Standard-setting can, however, give rise to restrictive effects on competition by potentially restricting price competition and limiting or controlling production, markets, innovation or technical development. Discussions in the context of standard-setting, like all meetings between competitors, can provide an opportunity to reduce or eliminate price competition in the markets concerned, thereby facilitating a collusive outcome on the market."

Competition Commissioner Joaquin Almunia said that the process of revising the rules was vital if EU industry was to stay competitive.

"Innovation and competitiveness are fundamental to the Commission's Europe 2020 strategy. Efficiency enhancing co-operation agreements between competitors, and in particular R&D and standardisation agreements, can further innovation and competitiveness in Europe," he said. "An updated set of rules in this area will ensure that we are facilitating competitor collaboration where it contributes to economic welfare without creating a risk for competition."

The Commission is consulting on its new Regulations and Guidelines. Other changes include modifications to the rules concerning agreements between joint ventures and parent companies and a new chapter on information exchange between companies.

The consultation process runs until 25th June.

Copyright © 2010, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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