Republic of Latvia Cabinet Regulation No. 798 Adopted 29 September 2008

Regulations Regarding Non-subjection of Separate Horizontal Co-operation Agreements to the Agreement Prohibition Specified in Section 11, Paragraph One of the Competition Law

Refinement - L.V., 15 October 2008, No. 160

Issued pursuant to
Section 11, Paragraph four of
the Competition Law

I. General Provisions

1. These Regulations prescribe:

1.1. separate horizontal co-operation agreements between market participants, which do not significantly affect competition (Paragraph 24 of these Regulations);

1.2. the criteria according to which separate horizontal co-operation agreements between market participants are not subjected to the agreement prohibition specified in Section 11, Paragraph one of the Competition Law (hereinafter - agreement prohibition).

2. Terms used in these Regulations:

2.1. horizontal co-operation agreement - an agreement between the actual or potential competitors regarding the performance of a joint activity in order to increase efficiency of the commercial activity;

2.2. goods - within the meaning of these Regulations - goods or services including intermediate consumption goods or services and final consumption goods or services to which horizontal co-operation agreements apply;

2.3. know-how - special knowledge - an entity of non-patented practical information that occurs as the result of experience and practice and is confidential (not publicly known and easy available), essential (includes information important in the production of goods or in the application of technological process) and it is possible to examine (such knowledge is described sufficiently in order to make it possible to examine whether it is confidential and essential);

2.4. research and development - acquisition of know-how (in relation to goods or technological processes), theoretical analysis, systematic study or experimentation (including experimental manufacturing), technical control of goods or a process, production of the necessary equipment, as well as acquisition of the intellectual property related with the results of the investigation and development;

2.5. intellectual property - within the meaning of these Regulations - industrial property rights, copyright and related rights;

2.6. specialisation agreement - a horizontal co-operation agreement, in accordance with which one party to the agreement undertakes to terminate the production of specific goods or to refrain from the production of such goods and to purchase them from the other party to the agreement that undertakes to produce and to sell the referred to goods, or an agreement, in accordance with which, two or more parties to the agreement mutually undertake to terminate the production of specific but different goods or to refrain from the production of such goods and to purchase them from one or more parties to such agreement that for their part undertake to produce and sell such goods;

2.7. agreement regarding a joint standard of a good - a horizontal co-operation agreement, in accordance with which, market participants agree upon joint technical or quality requirements for the good produced thereof currently or in the future, the production process or method;

2.8. common market share - within the meaning of these Regulations - a common market share of participants to horizontal co-operation agreement in a particular market which is affected by a particular horizontal agreement;

2.9. horizontal cartel agreement - agreement between competitors the purpose of which is to hinder, restrict or distort the competition amongst them, including agreement regarding direct or indirect fixing of prices or tariffs in any manner, or regarding provisions for their formation, as well as regarding such exchange information which related to prices or provisions regarding sale, agreement regarding restriction or control of the scope of production or sales, markets, technical development, or investment, agreement regarding division of markets taking into account territory, customers, suppliers or other conditions and agreement regarding participation or non-participation in competitions or auctions or regarding the provisions for such actions (inactions); and

2.10. prohibited horizontal co-operation agreement - agreement of competitors subject to agreement prohibition which is not a horizontal cartel agreement.

3. These Regulations shall also apply to the horizontal co-operation agreement, in accordance with which two or more market participants agree jointly to assign to any other market participant, who is not an actual or potential competitor thereof, to perform some of the commercial activity functions thereof or to organise a joint fulfilment thereof.

4. These Regulations shall also apply to the horizontal co-operation agreement, one of the implementation stages of which is a joint participation in a commercial company, by which the participants to the agreement acquire or not acquire joint decisive influence.

5. These Regulations shall not apply to a horizontal co-operation agreement which is entered into in the field of insurance.

6. Horizontal co-operation agreement shall be subject to agreement prohibition, if it directly or indirectly contains horizontal cartel agreement or prohibited horizontal co-operation agreement.

II. Agreement Regarding Joint Purchase, Sale or Distribution of Goods and Joint Advertising of Goods Not Subject to Agreement Prohibition

7. Horizontal co-operation agreement regarding joint purchase, sale or distribution of goods, as well as regarding joint advertising or other measures of popularisation of goods shall not be subject to agreement prohibition.

8. Horizontal co-operation agreements referred to in Paragraph 7 of these Regulations shall not be subjected to agreement prohibition, if the total market share of the market participants involved therein does not exceed 15%.

III. Specialisation Agreements and Agreements Regarding Joint Production of Goods Not Subject to Agreement Prohibition

9. The following horizontal co-operation agreements shall not be subject to agreement prohibition:

9.1. unilateral specialisation agreements by which one market participant undertakes to interrupt the production of certain goods or to refrain from production of these goods and to purchase them from a competing market participant, but a competing market participant undertakes to produce and supply these goods;

9.2. bilateral specialisation agreements by which two or more market participant bilaterally agree to interrupt production of some certain (different) good and to purchase such goods from other market participants who agree to supply them; and

9.3. the agreement regarding a joint production of goods (including the agreement regarding the stage of the joint production of goods).

10. The horizontal co-operation agreements referred to in Paragraph 9 of these Regulations shall not be subject to agreement prohibition, if the total market share of the market participants involved therein in the particular market affected by the relevant agreement does not exceed 20%:

10.1. if the total market share of participants to the agreement at the time of entering into agreement does not exceed 20%, however, after entering into agreement it increases not exceeding 25%, such horizontal co-operation agreement shall not be subjected to agreement prohibition for the next two calendar years following the year when a market share exceeded 20% for the first time; or

10.2. if the total market share of participants to the agreement at the time of entering into agreement does not exceed 20%, however, after entering into agreement it increases exceeding 25%, such horizontal co-operation agreement shall not be subjected to agreement prohibition for one calendar year following the year when a market share exceeded 20% for the first time.

11. Agreement prohibition shall not be applied if:

11.1. the specialisation agreement contains an exclusive supply (distribution) agreement, which is implemented within the framework of the specialisation agreement or non-competition obligation in relation to the purchase of the commodity; or

11.2. the market participants agree, within the framework of the specialisation agreement or the agreement regarding the joint production of a commodity, upon the joint sale or distribution of the commodity or agree to determine another market participant as an exclusive or non-exclusive distributor if only this person is not an actual or potential competitor.

IV. Agreements in the Field of Joint Research and Development Not Subject to Agreement Prohibition

12. The following horizontal co-operation agreements in the field of joint research and development shall not be subject to agreement prohibition:

12.1. the agreement regarding a joint research or development of a commodity or technological process; and

12.2. the agreement regarding a joint use of the results of the research and development, if the research and development have been carried out in accordance with the actual or former agreement between the same parties of the agreement.

13. The agreement prohibition shall not be applied for the time of the joint research and development and seven years after the commencement of the sale of the good, if the total market share of the participants to the agreement in the market of the commodity, which is possible to improve or replace with a new commodity, does not exceed 25%.

14. If the joint research and development are carried out by non-competing market participants, but the referred to market participants use the results jointly, then agreement prohibition shall not be applied for seven years after the commencement of the sale of the commodity, but, after the end of the referred to time period - as long as the total market share of the participant to the agreement in the market of the commodity, which was improved or replaced by a new commodity, does not exceed 25%.

15. The horizontal co-operation agreement in the field of joint research and development shall not be subjected to agreement prohibition, if it conforms with the following conditions :

15.1. it is allowed for all participants of the agreement to use the results of the joint research and development for further research and development. Science establishments or market participants, who carry out the research and development as a commercial activity, but generally do not use the results thereof, may agree to use the results of the research and development only for further research;

15.2. if the agreement only provides for joint research and development, each party has the right to independently use the results of the research and development, as well as all already existing know-how that is necessary for such use. Such rights of use may be limited only in relation to one or several technical fields of use, in which the parties are not competing market participants during the entering into agreement; and

15.3. the joint use of the results of the research and development relates to the results that are protected by the intellectual property rights or that comply with the know-how criteria and that are essential in the production of the goods or in the application of the agreement processes.

16. The horizontal co-operation agreement in the field of the joint research and development shall be subjected to agreement prohibition, if the agreement directly or indirectly contains at least one of the following conditions:

16.1. the restriction for the parties of the agreement on carrying out the research and development (regardless of whether the restriction applies to the co-operation with the third parties in the field not related to the specific research and development or - after the performance of the specific research and development - also in the field related to it);

16.2. the restriction on contesting the intellectual property rights, which are related to the research and development, after the performance of the research and development or the end of the time period of the agreement. The restriction referred to shall not apply to the right to terminate the agreement if one of the parties contests the referred to intellectual property rights; or

16.3. the restriction on granting the rights to the third parties to produce the agreement goods or to apply the technological process, if the results of the joint research and development are not used or if the agreement determines that at least one of the parties to the agreement shall not use the results of the joint research and development.

V. Agreements regarding the Joint Standards Not Subject to Agreement Prohibition

17. Horizontal co-operation agreement regarding the joint standards shall not be subject to agreement prohibition regardless of the total market share of the market participants involved therein.

18. Horizontal co-operation agreement regarding the joint standards shall be subject to agreement prohibition, if in the result of such agreement another market participant is forced to leave the relevant market or the entry of a potential market participant in a relevant market is burdened or the agreement directly or indirectly contains at least one of the following conditions:

18.1. it is prohibited for the parties by the agreement to develop an alternative standard of a commodity or to sell a commodity, which does not conform with the joint standard;

18.2. the agreement grants to a person exclusive rights to examine the conformity of a commodity with the standard; or

18.3. the agreement provides a possibility to the market participant to jointly control the process of production or a certain stage of production by limiting the possibilities of the market participants to compete with the individual features of the goods.

VI. Agreements in the field of Inland Carriage by Rail and Carriage by Road which are not Subject to Agreement Prohibition and which do not Significantly Influence the Competition

19. Horizontal co-operation agreement in the field of inland carriage by rail and carriage by road shall not be subject to agreement prohibition, if the objective or consequences of the agreement are the introduction of technical improvements or technical co-operation in the following matters:

19.1. exchange or joint use of personnel, equipment, vehicles or fixed installations in order to provide transport services;

19.2. determination of carriages, as well as the total price and conditions for carriages, or application thereto, if the referred to carriages are successive, supplement, join or replace each other;

19.3. from the point of view of exploitation the most rational selection of route for carriages with one type of vehicles;

19.4. co-ordination of vehicle schedules for connection of routes; or

19.5. grouping of certain freights.

20. Horizontal co-operation agreement in the field of internal carriage by road shall not be subject to agreement prohibition, if the relevant agreement has been entered into by the market participants the total market share of which does not exceed 25% and the agreement has been entered into regarding:

20.1. joint carriage by road; and

20.2. joint financing or acquisition of transport installations or equipment if such activities are directly related to the joint carriage by road referred to in Sub-paragraph 20.1 of these Regulations.

21. Agreement in the field of ancillary transport services shall not be subject to agreement prohibition in accordance with conditions referred to in Paragraphs 19 and 20 of these Regulations, if the relevant services are provided in order to ensure freight or passenger carriages including loading, unloading of the freight, forwarding services, ticket sale and booking.

VII. Closing Provisions

22. The Competition Council need not be informed regarding a horizontal agreement, which is not subjected to the agreement prohibition.

23. The Competition Council is entitled to prohibit a horizontal co-operation agreement already entered into, if the consequences of the agreement do not conform with the conditions referred to in Section 11, Paragraph two of the Competition Law.

24. The horizontal co-operation agreement of the market participants shall not be subjected to agreement prohibition, if the total market share does not exceed five per cent and the agreement does not contain the features of a horizontal cartel agreement.

Prime Minister I. Godmanis

Minister for Economics K. Gerhards