Home Education Higher Education Institutions in the EU: Between Competition and Public Service
Already in the previous version of the Research Framework, the Commission acknowledged in Section 3.1.2 that research organisations such as HEIs might be conducting economic activities if they are ‘renting out infrastructure, supplying services to business undertakings or performing contract research’ which has later been reinforced in the Communication on state aid and SGEIs. During the revision process of the Research Framework, the Commission in its 2011 Staff Working Paper as well as in the 2012 Issue Paper on the revision of the Research Framework acknowledged that this separation had become more important and needed clarification. The new Research Framework now defines non-economic research as ‘independent R&D for more knowledge and better understanding’ including such research as part of an effective collaboration. The Research Framework provides further that ‘dissemination of research results on a non-exclusive and non-discriminatory basis, for example through teaching’ and publication are non-economic activities. Also generally of a non-economic character are ‘knowledge transfer activities’ by, jointly with or on behalf of (if contracted out by open tender) the research organisation (here HEI) if all profits are re-invested into the primary activities.
In the revision process certain areas had particularly been considered as needing clarification. The Issue Paper, for example, pointed out that the simple ‘labelling’ of an activity as ‘collaborative research’ does not make it non-economic, but that it depends on the actual activity conducted. In the new Research Framework the clarification on collaborations can now be found in para 15(h) and para 27 saying that effective collaboration involves that parties ‘jointly define the scope of the project, contribute to its implementation and share its risks,[] as well as its results’, while ‘contract research and provision of research services are not considered forms of collaboration’ no matter what the parties might label them.
As regards knowledge transfer, the Issue Paper had stated that this can amount to an economic activity if exclusive or if arising from work outside the ‘primary non-economic activities’. However, the classification of knowledge transfer activities has become somewhat confusing in the actual new Research Framework. While the description of non-economic activities as regards knowledge transfer in para 19(b) (stated above) as such is similar to the old version, a new, very broad, definition of ‘knowledge transfer’ has been added in para 15(v). Accordingly, ‘knowledge transfer’ is ‘any process which has the aim of acquiring, collecting and sharing explicit and tacit knowledge, including skills and competence in both economic and non-economic activities such as research collaborations, consultancy, licensing, spin-off creation, publication and mobility of researchers and other personnel involved in those activities [emphasis added]’. The combined reading of paras 19(b) and 15(v) seems to suggest that, while knowledge transfer can generally be of an economic nature, it is always going to be regarded as noneconomic if conducted by a research organisation and if the profits are re-invested. Yet, this appears strange, as it would then per se exclude consultancy, licensing, spin-off creation and staff exchanges from economic activities. Consultancy, for example, has previously widely been regarded as an economic activity, as it is a service provided for a recipient who usually pays for it and which could be (and sometimes is) conducted on a market in competition with private sector competi- tors. Indeed, the Court in University of Cambridge, a public procurement case, considers income from research services, consultancy and public conference organisation, etc. as contractual income for the purposes of public procurement law. One may draw the analogy here that this would also have to be regarded as an economic activity then. If the combined reading of paras 19(b) and 15(v) would render all such activities as per se non-economic if profits are reinvested this also seems to contradict the differentiation made in the Issue Paper. It would appear that either the Commission purposely substantially broadened the scope of what is to be regarded as non-economic in nature here (perhaps to accommodate European research policy which encourages such activities) or this in fact rather refers to particular areas of knowledge transfer (e.g. intellectual property right (IPR) exploitation) which are based on non-economic research activities and are nonexclusive (thus generally excluding consultancy work, for example). In the latter case, which seems to fit better with the overall conception of competition law and the declared intention of the Commission in the Issue Paper, the revision of the Research Framework does not seem to have achieved its goal to clarify the distinction between economic and non-economic knowledge transfer ‘in a clearer and more comprehensive way, in order to provide a maximum of legal certainty’. One thing that does, in any case, seem clear is that, if the exploitation is not handled by, with or on behalf of the HEI and/or all profits are not reinvested (e.g. when venture capital firms are brought on-board), this would need to be regarded as economic in nature.
Finally, an entirely new addition to the section on non-economic activities is para 20 of the new Research Framework on purely ancillary activities. Accordingly, if a non-economic activity by a research organisation requires a merely ancillary economic activity, this may be regarded as a whole and as such fall outside the state aid rules if the economic activity is limited in scope (less than 20 %). This section is equally a bit unclear. It can be assumed, however, that this does not take all research organisations which conduct less than 20 % of noneconomic activities automatically out of the state aid frame. Firstly, para 20 talks about an organisation which conducts ‘a non-economic activity’ which seems to point to either a specific activity or an organisation that just conducts one activity which is not the case for most research organisations and, especially, not for HEIs, though it may well be for research infrastructures. Indeed, the example given in the competition policy brief on the new state aid rules for research and develop- ment is that of a large research infrastructure mainly used for non-economic research which conducts certain economic activities ‘that are inseparable from its predominant area of activity’. This focus on the research infrastructure may suggest that para 20 has been inserted mainly with research infrastructures in mind. This would be supported by the Issue Paper where the concept of ancillary activities first appeared in context with revisions of the rules on research infrastruc- tures. Accordingly, it was planned to widen the application of the framework to research infrastructures generally (previously it had been limited to situations where the infrastructure construction was in itself research or part of an innovation cluster) and then to differentiate between economic and non-economic activi- ties. More specifically, research infrastructures owned by a research organisa?tion should be presumed as non-economic if they are in the relevant field of activity of a research organisation, are primarily used for non-economic purposes and any potential access for other parties is non-exclusive. Here, the concept of the ancillary activities first appeared (in nearly the same terms as in para 20 of the new Research Framework). One may thus assume that this concept was envisioned for research infrastructures, where it seems to fit in more clearly, and was then broadened to also include research organisations where these conduct a single activity. Such an interpretation would thus mean that not all research organisations and certainly not HEIs could per se be taken out of the state aid frame if they conduct less than 20 % of economic activities.
Secondly, para 20 provides that the activity must be purely ancillary (‘correspond to an activity that is directly related to and necessary for the operation of the research organisation or research infrastructure or intrinsically linked to its main non-economic use’) which is hardly the case for all economic activities (e.g. contract research). In the new Notice on the Notion of State Aid an example given is the renting out of laboratories or equipment to industrial ‘partners’. In the footnote of that paragraph the difference is made between strictly ancillary and secondary economic activities and it is made clear that the latter are economic. This and the use of the term ‘partners’ would imply a strong link to the non-economic activity such as a situation where a collaborative non-economic project is being conducted and the partner rents the equipment/ laboratory to conduct its part of the project rather than general renting out of infrastructure to undertakings. Thirdly, it says further that ‘the Commission will consider that to be the case where the economic activity consumes exactly the same inputs (such as materials, equipment, labour and fixed capital) as the non-economic activities’. This seems equally not the case for all economic activities as for certain projects additional staff will be hired and the whole point of contract research is that it is funded from external capital. This might rather point to a case where, for example, a product is created through a teaching measure (e.g. an art student creates a piece of art as part of their coursework) and this is then sold. Fourthly, it would seem at odds with the whole logic of competition law and the market liberalisation agenda if whole organisations were taken out of the state aid frame despite conducting 20 % of economic activities unless very specific circumstances were applicable. If that would have been the intention, the Commission could have just stated clearly in the Research Framework that, if in a public research organisation the economic activities took up less than 20 %, the whole organisation was to be regarded as only conducting non-economic activities. It would not have to go through the length of elaborating about the ancillary nature of specific economic activities. It thus seems to follow that this provision does not take HEIs per se out of the state aid frame if they conduct less than 20 % of economic activities. Instead this only seems to concern certain activities related to the main activity, while other economic activities will still fall within the state aid rules. In any case, the Research Framework does not actually provide that such ancillary activities would be noneconomic, but merely that they ‘may fall outside State aid rules’. Therefore, the other competition provisions would still apply regardless.
Overall, as regards research in HEIs, it seems clear that contract research and research services are economic activities (for example, a research institute in a university providing research for a private business or research commissioned from a university by the state). Whether or not a research activity qualifies as a research service, depends on the facts (does the receiving undertaking specify the terms, own the results, carry the risk, etc.) and not on how it is labelled by the providing HEI. Thus, the more externally pre-defined the research and the expected results and the more of the results are to be received by the other party, the likelier it is that a research project qualifies as an economic activity. Equally renting out infrastructure would be an economic activity and, arguably, and in light of the Court’s elaborations in University of Cambridge, so would consultancy services, despite the ambiguity in the new Research Framework. Furthermore, other areas of knowledge transfer are economic in nature if the exploitation is not handled by, with or on behalf of the research organisation and/or not all profits are reinvested (e.g. when a venture capital firm is involved). Research that could be classified as economic under these definitions has increasingly been encouraged by EU and national research policies and has become more common in European HEIs. For all such economic research activities the HEI in question would be an undertaking and fall under the competition rules.
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