State Aid is a fundamental aspect of European law, embedded in the EU Treaty. It exists to prevent government-funded institutions enjoying an unfair business advantage over their competitors. It covers all state and European funds, together with people and resources (e.g. labs) funded through them, even if the institution itself is largely privately funded.
There have been horror stories of institutions having to return large sums of money because they have fallen foul of state aid law. The result is often that organisations may become overly risk averse when it comes to taking part in business or research ventures that they would otherwise be eager to embrace.
This is an issue to which the education sector in particular should be paying more attention. If we are to encourage research, development and innovation, it is important to demystify the law and regulations and to understand that there is a great deal of freedom to operate effectively if projects are properly structured to be compliant.
State Aid refers to public aid given to undertakings (usually, not exclusively, businesses) other than as market investment, which could potentially distort competition and create an uneven playing field between Member States of the European Union.
Not all aid to businesses is unlawful, but any State Aid which has an anti-competitive effect within the EU will be unlawful unless the Commission authorises that aid (either specifically or through an exemption) or decides not to raise any objection to it.
For instance, a General Block Exemption Regulation (GBER) allows aid to be provided to meet certain costs, within financial limits, without the need to fully notify the EU.
Universities can be both recipients of aid (if they engage in economic activity), and givers of aid, if they use state funds or state-funded resources to benefit an undertaking, for instance through collaborative research.
It is important to know the difference between what does and does not fall within the prohibition. Funding a university’s core activities – teaching and non-commercial research – will not usually be State Aid, because it is not classified as an economic activity.
If, however, a university carries out an economic activity – for example, contract research or the provision of consultancy services – using resources funded by the state, then there is a risk of unlawful State Aid to the university, and also to the customer. A key consideration is whether or not the institution charges the market rate for its services, so neither undercutting its competitors nor benefiting its customer through undercharging.
In terms of aid given by universities, there are significant exemptions that apply, particularly those which encourage investment in research, development and innovation, and tend to lead towards economic growth.
If the amounts involved are relatively small – lower than £200,000 in aggregate over three fiscal years – then a ‘de minimis’ exemption can apply, although the onus is on the institution to carry out a due diligence exercise and confirm the value of the aid in writing.
The biggest danger for institutions is that competitors who feel they have been unfairly disadvantaged by an institution’s receipt or giving of aid can notify the EU of their concerns.
That may have the immediate effect of paralysing the business undertaking while investigations are carried out. In the longer term, if it is found to be in breach of the regulations, the recipient of unlawful State Aid may be ordered to pay it back with interest, and may risk access to funds in future.
Even in the event of a British exit from the EU, State Aid rules are likely to apply for some time
To minimise the risks, it is clear that universities should keep their non-economic activities separate from their economic undertakings to ensure they can demonstrate the former are not subsidising the latter. It is also worth considering whether a subsidiary company should be established which the university uses to carry out commercial research or to carry out other trading activities.
It is worth noting that even in the event of a British exit from the EU, State Aid rules are likely to apply for some time – at least for two years while exit terms are agreed, and most probably for long after that because of the continued need to comply with the principles or the letter of State Aid law when trading with EU member states.
When modelling projects, it will help to consider previous decisions made by the European Commission on State Aid. These decisions are published in the State Aid Register available at https://ec.europa.eu/competition/state_aid/register/
The recently-published report The Guide To State Aid includes a step-by-step checklist that universities can follow to assess how they need to proceed when beginning projects that may be covered by the regulations.
An understanding of the basic principles of State Aid is likely to facilitate improved decision-making by academic and senior managers who are active in innovation and commercialisation.
Emyr Lewis is a partner in the specialist education sector practice at Blake Morgan. Emyr, David Bembo, deputy director of research and innovation services at Cardiff University, and Christine Reid, of Northwood Reid, are co-authors of ‘The Guide to State Aid’. The guide was commissioned by AURIL and PraxisUnico with support from HEFCE. Download the guide here: https://bit.ly/1TFglrh