2. What is Competition Law?

Competition Law is the branch of law (half way to Law, half way to Economics) that tries to protect the free market system. It therefore comes into play where significant distortions of competition take place in a particular market. Competition Law does not protect competitors but promotes competition.

EC Competition Law finds its main rules in the Treaty establishing the European Community (the EC Treaty). Just two articles (81 and 82) that have given rise to thousands of cases and practice. There are two kinds of conducts that are tackled by EC Competition Law (which is mirrored at national level in the EU Member States), namely: collusive practices affecting competition within the common market and the abuse of a dominant position 1.

1. Collusive practices

As regards the first kind of conducts, article 81.1 of the EC Treaty prohibits all agreements between undertakings (i.e. any entity/person engaged in economic activities), decisions by associations of undertakings and concerted practices which may affect trade (between Member States) and which have as their object or effect the prevention, restriction or distortion of competition (within the common market).

In principle, any contract between two or more undertakings might be caught within this head if it produces a considerable restriction of competition in the relevant market.

Art. 81.1 EC Treaty contains an indicative list of forbidden conducts:

directly or indirectly fix purchase or selling prices or any other trading conditions;
limit or control production, markets, technical development, or investment;
share markets or sources of supply;
apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

Broadly speaking, any agreements which are incompatible with the common market are automatically void according to art. 81.2. However, the conducts considered against competition under art. 81.1 can be authorised under certain conditions, namely:

where some economic and societal benefits outweigh the competition concerns,
no restrictions which are not indispensable to achieve such benefits are imposed, and
the conduct or agreement in question does not afford the undertakings concerned the possibility of eliminating competition in respect of a substantial part of the products in question (art. 81.3)

It is in this art. 81.3 where Commission Regulation 2659/2000 on R&D agreements and Commission Regulation 772/2004 on technology transfer agreements ("block exemption regulations") find their roots.

Where an R&D agreement (e.g. a Consortium Agreement) or a licensing agreement is planned under an FP6 project, the contractor(s) concerned should ensure that no distortion of competition takes place either because it is a completely white agreement or because it fits in the requirements of the Regulation and benefits of the block exemption 2.

Of course, no agreement can benefit from the block exemption if it contains severely anti-competitive restraints (hardcore restrictions). Some agreements may be block exempted with the exception of provisions which include anti-competitive restrictions (singular restrictions)3.

2. Abuse of a dominant position

Art. 82 EC Treaty prohibits the abuse of a dominant position (i.e., one or more undertakings enjoy a dominant position in the relevant market and taking advantage of such a position they act or impose conditions on others that can be deemed as abusive ones). This article mentions some examples of abusive practices, namely:

directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
limiting production, markets or technical development to the prejudice of consumers;
applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

Enjoying already a dominant position in the relevant market is the main requirement for proceeding under this head.

Under the point of view of FP6 projects, conducts of art. 81 and derived legislation may be more probable than those of art. 82. In any case, it seems clear that licensing a few entities from a medium-size project is likely to cause no significant distortion of competition in the common market. Participants should be most careful where big companies or companies with strategic position in a relevant market are involved in the agreement or when massive licensing to associated enterprises is foreseen at consortium level, as the risks increase.

3. Unfair Competition Law

Just for a question of clarification, broadly speaking, the Law of Unfair Competition tries to ensure a "fair play" within the market, preventing that competitors' strategies turn to dishonest practices.

Upon this premise, the Law of unfair competition usually envisages a wide range of practices that can be deemed contrary to fair competition. It is worthy mentioning that, typically, it is this branch of Law the one that protects trade secrets.

Depending on the applicable law one can find as unfair practices the following ones: acting in a way objectively contrary to good faith; confusing consumers as to the origin of the product or service, taking advantage of others' reputation; denigrating acts (i.e., prejudicing competitors' reputation); false or misleading advertising (e.g. stating "patent pending" on a product when no patent has been applied for), comparative advertising under some conditions, "bait and switch" selling practices, inducing to breach a contract 4, and a long so on.