New guidance in the UK for horizontal agreements… but pitfalls remain

On 25 January 2023, the UK’s Competition and Markets Authority (CMA) issued a call for submissions on draft Guidance on Horizontal Agreements.

The draft Guidance will, when finalised, replace the application of the EU guidelines on cooperation agreements in the UK, and follows the expiry of the Retained Horizontal Block Exemptions, and the new block exemptions for R&D and specialisation agreements (R&D SEO and SABEO) that replaced them in January this year.

While the draft Guidance has many similarities to the EU’s draft revised rules on horizontal cooperation agreements published for comment last year (which are expected to be published in final form shortly), there are also some notable differences which could, if confirmed, give rise to divergent outcomes as between the UK and the EU, particularly in the sphere of information exchange. Our main observations on the draft Guidance are summarised below and our full submission on the Guidance is linked here. The CMA has also subsequently entered into the sustainability debate by publishing draft sustainability guidance, which we will discuss in a forthcoming blog.

Information exchange

There are additions to the draft Guidance on information exchange, and while much of this reflects the approach taken in the revised draft EU horizontal guidelines, there are some notable differences which could result in divergent outcomes for the same conduct as between the UK and EU.

New category of “non-private” information creates confusion – and divergence with the EU

Historically, information that is public has been considered as unlikely to be particularly competitively sensitive, and the public availability of information has traditionally been a factor that businesses consider when assessing whether or not it is safe to exchange information. The draft Guidance appears to introduce a new category of problematic information exchange which concerns information which is not ‘private’ or ‘confidential’ in nature, but which may nevertheless not be considered to be ‘genuinely public’.

In short, the Guidance suggests that information that is publicly available could be classed as competitively sensitive depending on the relationship of the parties sharing the information, and whether that information is viewed as “reliable” by the undertaking receiving the information. It is unclear why a reliability assessment is contemplated in this section of the Guidance, given the test for determining whether information is ‘genuinely public’ is otherwise squarely described as relating to the costs involved in collecting the information.

Creating a new quasi-category non-private information also conflates the by object vs. by effect analysis and is likely to cause the UK and EU to have divergent approaches to information exchange. For example, an exchange of public information, which – while potentially at risk of leading to signalling between competitors - would not likely constitute a restriction by object in Europe, appears to have the potential to constitute a restriction by object in the UK if the relationship between the parties was such as to make that information more “reliable”.

Data pooling

Although the draft Guidance helpfully notes the benefits to consumers that can arise out of information sharing which allows algorithms to work more effectively, in our view the Guidance could provide more effective guidance to undertakings to self-assess when the pooling of data could be considered pro-competitive (or at least competitively neutral).

Guidance does not mirror recommendations of the Panel or National Data Strategy

The Report of the Digital Competition Expert Panel noted that the use of big data analytics and machine learning techniques plays an increasingly important role and can promote competition and in turn improve market outcomes for consumers. Similarly, the National Data Strategy highlighted the importance of “encouraging better coordination, access to and sharing of data of appropriate quality between organisations in the public, private and third sectors” and that its “first mission is to create an environment where data is appropriately usable, accessible and available across the economy – fuelling growth in organisations large and small.” This is needed to address the issue of data concentration and interoperability, which are a “critical factor to suboptimal competition and innovation in digital markets.”

However, the draft Guidance does not mirror the recommendations of the Panel or the National Data Strategy. Instead, it offers little in the way of positive reinforcement for data pooling initiatives and, as regards foreclosure, even takes a stricter line than the previous EU guidance.

Requirement that information be made accessible to “all undertakings” risks harm to smaller firms

Additionally, the draft Guidance states that (where it is necessary to compete effectively) data pooling will only be permissible if the information is made available “in a non-discriminatory manner, to all undertakings active in the relevant market.” This is problematic on a number of levels. It implicitly assumes a scenario where the undertakings forming the data pool have market power, and does not account for situations for instance where the purpose of forming the pool may be for smaller competitors to compete with the first party data pools of larger competitors.

This requirement also seems at odds with the expected approach in the upcoming digital markets legislation – if firms with Strategic Market Status were to be entitled to receive access to data pools set up by smaller rivals, this would risk eliminating the very pro-competitive purpose of such a data pool and indeed the objective of the digital markets unit to make targeted pro-competitive interventions (for example, to support interoperability).

In our view, a better approach would be make clear that the assessment of whether foreclosure is likely to result from a data pool will be made on the basis of effects – for example, by clarifying that (i) in the absence of market power, data pools are unlikely to lead to anticompetitive foreclosure; and (ii) where (combined) market power may be created by the data pool, by clarifying the factors which are likely to affect the assessment of possible foreclosure effects.

Extraterritorial application of Chapter I – alignment with the CMA reforms

The UK Government announced wide ranging reforms to the competition regime in April last year. One of these changes (which still requires legislation to implement) is a move from an “implementation” approach to a “qualified effects” approach. Under this approach, the Chapter I prohibition will apply if the conduct has or is likely to have direct, substantial and foreseeable effects within the UK – even if the agreement was not implemented (or intended to be implemented) in the UK.

Implementation approach or qualified effects?

However, the intended shift from an implementation to a qualified effects approach is not clearly reflected in the Guidance. Instead, the Guidance continues to refer to an implementation approach. This is potentially problematic, since it means the Guidance will be out-of-date as soon as the new CMA reforms are implemented. Instead, the CMA could amend the Guidelines to reflect – or at least account for – the incoming legislative changes.

Missed opportunity to clarify scope of changes

Additionally, the shift from an implementation to qualified effects approach raises substantial questions relating to how this change will be reflected in the law and in the CMA’s policy stance, and the Guidelines could be a good opportunity clarify the scope of these upcoming changes. For example, the Guidance could clarify that the shift from an implementation approach to a qualified effects approach does not mean that the CMA’s investigatory powers have extraterritorial reach, and that the qualified effects approach does not apply outside of Chapter I prohibitions.

What comes next?

The CMA closed its call for submissions on the draft Guidance on 8 March 2023. Linklaters submitted its views and concerns in response to the call. The complete feedback is available here.