Potential Tensions with Competition Law

If competition law is applicable, HEIs must not, according to Article 101(1) TFEU, enter into any form of anti-competitive collusion nor must national law bring them into a position where they would do so (Article 101(1) TFEU in conjunction with Article 4(3) TEU).[1] An especially severe form of anticompetitive collusion is price fixing. HEIs in England and the Netherlands have real full cost methodologies that relate actual costs to a research project and which do not seem to pose a problem under EU competition law. In Germany, however, there still seems to be some confusion and occasionally overheads are being used instead of real full cost methodologies. If these are fixed between HEIs, by statute or information on them is exchanged, this could potentially be classified as price fixing. After having arrived at the costs, HEIs in all three systems negotiate prices or follow the rules set by the funders. In the area of economic research, this could lead to potential problems, as, for example, pre-set funding rules could be regarded as price fixing. Furthermore, common guidelines between funders such as the Akkoord by NWO, VSNU and KNAW might potentially be seen as anticompetitive if the research would have to be classified as economic in nature.

Aside from price fixing, Article 101(1) TFEU also prohibits undertakings agreeing on any other special conditions or limitations within the collusion without there being an economically justified reason. This could cause problems if government policies are in place that require or encourage HEIs to prefer SMEs or local companies such as in innovation voucher initiatives. If HEIs in an area of economic activity agree on a collaboration which is not open to all interested parties without an economically justified reason, this could equally be seen as anticompetitive. One might, for example, wonder, if plans for sharing facilities, as envisaged between certain research intensive universities in the North of England,[2] could fall under Article 101(1) TFEU, if other willing HEIs were not allowed to participate or preferential conditions were given to the partners. Furthermore, the provision prohibits market division. This could cause issues, if HEIs agree (or are forced by government policy), to focus on local economies, share the market according to subject areas or enter into specialisation agreements. Research co-operations as such could be anti-competitive if entered into shortly before an individual discovery would have been made anyway or if there are any limitations beyond the research including limitations on parties exploiting the results. Finally, Article 101(1) TFEU could be infringed if quantitative limits on research of an economic nature are agreed upon or prescribed by national legislation. The latter does not seem to be the case, however, in England and the Netherlands. In Germany § 25(2) HRG only limits economic research at a level where it would collide with the statutory tasks of the HEIs.

Article 102 TFEU makes the abuse of a dominant position illegal. As discussed in Chap. 3 (Sect. 3.3.3), HEIs could come into conflict with this provision if they conduct an economic activity and are considered dominant in a specific market. In such cases it might, for example, cause problems, if HEIs do not charge full costs and reasonable profit, since this could be regarded as predatory pricing by their competitors. Furthermore, if HEIs operate unilaterally as dominant undertakings and offer special conditions, impose special duties, cooperate only with specific partners or limit outputs, they could potentially come into conflict with Article 102 TFEU rather than with Article 101(1) TFEU as in the cases outlined above. Finally, according to Article 102, dominant undertakings might be prevented from refusing access to essential facilities or refusing licenses for IPRs, dividing the market through licenses or attaching specific conditions. Private sector partners might, however, desire special conditions or exclusivity. HEIs would thus need to be aware of these potential issues and avoid them in contracts if operating as an undertaking.

If an economic activity is conducted, the state may also not give particular undertakings advantages through state resources exclusively since this could constitute state aid according to Article 107 TFEU. HEIs could get into conflict with this provision specifically, if they do not charge full costs and reasonable profit for research because the receiver of the research (be it their own company)[3] could then be regarded as being subsidised. The Netherlands and England have set up full costing systems, while there is some doubt whether every HEI in Germany has yet done so and whether the systems are correctly measuring full costs. Aside from this, universities still negotiate prices individually or follow funder rules which might not always cover full costs. In the Netherlands, a variety of national legislation and guidelines specifically point out that EU state aid rules have to followed, though they do not always give very precise guidance to HEIs. Generally, even if full costs are charged in private sector collaboration, this could still fall under Article 107(1) TFEU. Firstly, in the area of economic research, generically requesting full costs is usually insufficient, but market prices or full costs and reasonable profit have to be charged or the price has, at least, to be the, at arm length negotiated, maximum economic benefit that can be achieved.[4] This appears to be especially questionable in Germany. Secondly, the concept of undertaking goes beyond private sector companies. Third and public sector organisations can also be classified as undertakings and if HEIs cooperate with them in what constitutes an economic activity, they also need to charge market prices or prices reflecting the mentioned alternatives from them.

Additionally, public funding (contracts or calls) which could be classified as an economic activity might potentially not be given directly to one undertaking or calls not be limited to certain types of undertakings respectively. Instead, such activities might have to be commissioned according to the rules set out by the

Court or in the Research Framework[5] which usually requires a public procurement procedure also allowing private and foreign providers to tender.[6] Furthermore, Article 107(1) TFEU may be infringed if additional subsidies are provided to HEIs and other partners in collaborations for research which could be classified as economic in nature or innovation vouchers are given out by the state or HEIs, as this way public funding would exclusively reach specific undertakings. If HEIs reinvest commercially gained money in further commercial activities and offer discounts in an economically reasonable way, this might, however, not pose a problem in terms of state aid law. To an extent this is therefore a question of how separate accounts are. Finally, if IPRs, created in the publicly funded area of research, are given out exclusively or for preferential conditions or if staff use their knowledge generated in the area of publicly funded research during an exchange exclusively for the benefit of one other company, this could equally be regarded as state aid, though under the new Research Framework this may partly be considered non-economic knowledge transfer if profits are re-invested as has been discussed in Chap. 3 Sects. and above.

Generally, it would appear that the Member States under scrutiny have become somewhat more aware of state aid rules in the last couple of years and execute more caution when it comes to statements in guidelines or on information sites. For example, in the Netherlands, previous versions of legislation (e.g. Article 41 Kaderbesluit EZ subsidies) only required full costs (rather than market prices or full cost plus) to be charged from the private sector (rather than from any undertaking). Now, the Kaderbesluit avoids such specific statements (Article 41 has been repealed) and generally repeats or points to the EU state aid rules. Further, while the Kaderbesluit already previously contained the EU definition of ‘undertaking’, the webpage containing definitions for TKI subsidies seemed to have used the terms ‘industrial partners’, ‘private contributions’ and ‘undertaking’ interchangeably and defined ‘private contribution’ as a monetary contribution which is not received from a research organisation, the NWO, KNAW, public bodies or third sector organisations thereby apparently not considering them undertakings per se.[7] These definitions have now disappeared from the new site on TKI subsidies.[8] Similarly, as regards providing additional public funding to a collaboration with industry, the BMBF used to genetically point to EU guidelines mentioning that undertakings must contribute their own assets to a collaboration without providing any details of how this is done. It also appeared that the term ‘undertaking’ was used interchangeably with ‘private sector entity’.[9] While the link still exists the site has changed now and points to the definitions in EU law. Further, in the Netherlands, the Regeling nationale EZ subsidies now also provides specific rules on certain forms of subsidies (e.g. on secondment in Article 3.4.16 or on research infrastructure in Article 3.17.9).

  • [1] 13 /77 INNO v ATAB (Judgment of 16 November 1977, EU:C:1977:185) para 30 seq. Seefurther on the state action doctrine Chap. 3 Sect. 3.2.2 above.
  • [2] See N8 Research Partnership (2016) N8 Efficiency. http://www.n8research.org.uk/asset-collaboration/. Accessed 14 August 2016.
  • [3] If the companies do not belong to a single economic entity. Further, in some cases there maybe a case of in-house provision under procurement law (see Chap. 2 Sect. 2.3.4 above).
  • [4] C-280/00 Altmark (Judgment of 24 July 2003, EU:C:2003:415), Research Framework para25. See also Chap.3 Sect. above.
  • [5] C-280/00 Altmark, Research Framework para 32 seq. See also Chap. 3 Sect. above.
  • [6] Directive 2014/24 on public procurement and repealing Directive 2004/18/EC OJ [2014] L94/65 contains specific provisions about how and when research needs to be procured and thecreation of the new innovation partnership broadens the set of tools that the State can use toprocure innovation. See also Chap. 2 Sect. 2.3.4 above.
  • [7] Agentschap NL, ‘Definities TKI-toeslag’ (English translation: Definitions TKI award)(EZ Topkonsortia voor Kennis en Innovatie 2013) http://www.agentschapnl.nl/programmas-regelingen/definities-tki-toeslag. Accessed 1 May 2013. This website does not exist anymore.
  • [8] RVO (2016) Definities bij TKI-projecttoeslag 2015 en 2016 (English translation: Definitionsfor TKI award 2015 and 2016). http://www.rvo.nl/subsidies-regelingen/definities-bij-tki-projecttoeslag-2015-en-2016. Accessed 14 August 2016.
  • [9] BMBF, ‘Forderung in der Forschung’ (English translation: Research Funding) (2012) http://www.bmbf.de/de/1398.php. Accessed 2 August 2012. This website has now been changed.
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