SMEs gain from new EU antitrust immunity

Small firms are set to be the main beneficiary of new European Commission regulations governing fair competition when companies strike business deals agreeing to co-operate with one another.

The boost to small business will come when European Competition Commissioner Mario Monti announces next Wednesday (November 29) new 'block exemptions' from EU anti-trust rules for two separate types of agreement which, he says, improve rather than hamper competition in the Union's 365-million-consumer single market.

The first of the two block exemptions widens the scope for EU-based firms to team-up with rival companies to shoulder the financial burden of research and development.

In general, this exemption will give a free hand to companies to make R and D agreements with rivals, provided they have 25% or less share of their respective market. This is an increase of 5% in the current threshold.

This increase recognises that R and D collaboration is particularly conducive to the creation of efficencies, Monti says in his new regulation.

If the agreement forsees the distribution of the product which is the fruit of the R and D collaboration, then the commission will allow firms to do this also, provided their respective market shares are 25% or less. This represents an even bigger increase in threshold: up from 10% under the existing rules.

There is no economic rationale for impeding joint distribution of products which are jointly developed and produced, below the level of 25% market share, Monti adds.

The second exemption, covers 'specialisation agreements' between firms, for example where two or more companies agree to give up the manufacture of a certain product in favour of a rival or where firms undertake to jointly manufacture certain products or provide certain services. This is all contingent on their market share being 20-25% or less.

Crucially, it will also allow companies far more leeway than before to make deals outsourcing some of their production of goods or services to rivals and to then buy it back by granting antitrust immunity to most deals provided they meet new, more relaxed criteria for proving that they do not damage competition.

Monti says such 'unilateral cooperation between competitors' should be covered by the exemption because of its increased importance across industry and its potential for boosting economic efficiency.

In both new regulations, which have already been discussed with EU governments, industry and European Parliament members, the commission will exempt agreements from its rules which normally ban 'concerted practices' between companies, provided they meet the terms of the block exemptions.

In a further bid to reduce red-tape faced by companies trying to live by the terms of the new rules, Monti will get rid of a prescriptive list of contract clauses which officials had previously insisted that companies adhere to in order to benefit from the old exemptions on offer.

This, the commission claims, will give companies more scope to draw-up contracts that suit their individual circumstances, provided they do not overstep the mark. Monti said the impact of the proposed changes would be positive for all types of firms and a particular boon to SMEs.

The increase in legal security should stimulate co-operation between companies with little or no market power, in particular SMEs.He said these companies will have greater contractual freedom for their co-operation and will be freed from the costs and delays of having to notify the commission of many of their agreements.

That is because deals falling inside the new block exemptions would automatically be deemed to be legal without the need for the commission to give the formal go-ahead.

Better still, claims Monti, consumers will also gain from the new rules, because his officials would be able to devote more of their scarce time to fight cartels and other damaging market behaviour that really impede competition in the Union.

The new rules come as the commissioner is seeking approval for a much broader reform of the EU's antitrust regime designed to cut down the red tape entangling his officials. Among the key proposals is the devolvement of control over most cases from Brussels to national authorities.