The Commission understands that ValDeal's project aimed at ‘the development [of a] whole process, the creation of the model’. While ValDeal did use interaction with its customers to understand the Hungarian market and to adapt the acquired consultancy model to its specificities, the outcome of such an activity was the introduction on this market of an existing advisory model which integrated various services which were until then provided separately by different suppliers. In fact, ValDeal played the role of an integrator of services corresponding to the needs of its customers. Therefore, the claimed adjustments to the ‘socio-cultural differences and economic impacts.’ prevailing on the Hungarian market do not seem to be relevant to the question whether ValDeal's activities qualified as R & D projects.

The implemented model was meant to create and stimulate research and development and innovation within other entities, and not within ValDeal itself. The adaptation of the model to match the requirements of a specific market is not something specific to ValDeal, but ordinary economic behaviour on the part of any economic player looking to enter a market. The above-mentioned model seems to be a simple and usual customisation which is undertaken by any economic player aiming at performing on a specific market. The claimed ‘realistic picture of the market value of the results of innovative projects as well as their marketability’ that ValDeal was capable of providing to its beneficiaries was not in itself any different from the services rendered by similar consulting service providers, and in any case cannot be considered R & D.

While it could be true that at the time of granting the aid the Hungarian economic landscape was somewhat different from that of any other country, this argument is not sufficient to claim that the activities had R & D elements. Had ValDeal been active in a different country it would have had to adapt its value proposition anyway, similarly to any economic player. From this perspective, ValDeal did not act in a different way from any provider of services or goods. Its uniqueness stands in the capacity to integrate and coordinate several services the beneficiaries were looking for, or in the absence of the Project, services that they would not have contracted otherwise.

Although ValDeal refers to the Frascati Manual, the nature of its activity was not that of research aimed at the identification of an innovative product, but a form of customisation of an existing product, combined with systematic analytical work carried out within the framework of its service supply activities. In particular, ValDeal acquired know-how from third parties and confined itself to adapting it to the Hungarian market.

In the light of the above, the Commission concludes that, while fostering innovation by the final users of ValDeal's services, the activities at issue could not qualify as R & D projects within the meaning of the R & D&I Framework of 1996. Therefore, the Commission will assess whether the State aid can be considered compatible with the internal market under other policy objectives in accordance with Article 107 TFEU.

In order to carry out such an assessment, the Commission acknowledges the arguments invoked by the Hungarian authorities whereby the aid at issue should be analysed at two levels. Firstly, at the level of ValDeal, the Commission will analyse the aid designed to cover the costs of its investments in tangible and intangible assets, linked to the purchase and use (subject to adaptation) of the relevant model for the provision of innovation advisory and consultancy services to SMEs. Secondly, at the level of ValDeal customers, the analysis will focus on the aid granted to those companies and private individuals which benefited from innovation advisory and consultancy services provided by ValDeal free of charge.

1. (1)

   general conditions:

   1. (a)

      ‘filing a request for aid prior to the commencement of operation’: ValDeal filed its application for aid with the national authorities prior to the commencement of the investment project;

   2. (b)

      ‘the aid is granted in regions eligible for regional aid’: The aid was granted in a region eligible for regional aid, as the Central Hungarian Region, where the premises ValDeal are located, was at the time when the aid was granted a region eligible for aid under Article 107(3)(a) TFEU;

   3. (c)

      ‘the aid intensity in present gross grant equivalent does not exceed the regional aid ceiling which is in force at the time the aid is granted for the region in which the investment takes place. This can be increased by 20 % for small enterprises’: The ceiling of the aid was 40 % in the Central Hungarian Region, which, along with the increase allowed for small enterprises, reached 60 % aid intensity for ValDeal. In 2006, ValDeal was a micro-enterprise. Since 2007 it has been a small enterprise. The Hungarian authorities confirmed that at the time of granting the aid, ValDeal was a small or medium-sized enterprise. As demonstrated below (recitals 96-97), the aid intensity of the project implemented by ValDeal was below the ceiling provided for in the Regional Aid Block Exemption Regulation;

2. (2)

   specific conditions:

   1. (a)

      ‘the investment must be maintained in the recipient region for at least three years in the case of SMEs’: A number of businesses have benefited from the results of the investment; the integrated Hungarian model of innovation management is available on an ongoing basis. ValDeal undertook to remain in operation until 30 November 2013;

   2. (b)

      ‘to be eligible, immaterial assets must:

      1. (i)

         be used exclusively in the establishment receiving the regional aid;

      2. (ii)

         be regarded as amortisable assets;

      3. (iii)

         be purchased from third parties under market conditions;

      4. (iv)

         be included in the assets of the firm and remain in the establishment receiving the regional aid for at least three years in the case of SMEs’;

      The know-how purchased by ValDeal met the criteria of intangible assets in the Regional Aid Block Exemption Regulation. The know-how was purchased from a third party and at market price. In addition, the know-how purchased and the capitalised experimental developments were used exclusively by ValDeal and exclusively in the facility established to implement the investment project;

   3. (c)

      ‘where the aid is calculated on the basis of material or immaterial investment costs, or of acquisition costs in case of takeovers, the beneficiary must provide a financial contribution of at least 25 % of the eligible costs, either through its own resources or by external financing, in a form which is free of any public support’: The calculations pertaining to aid intensity confirm that the requirement for own resources was also satisfied.

In particular, following the opening of the procedure, the information acquired has enabled the Commission to identify and calculate the relevant eligible costs and to verify whether the intensity of aid granted to ValDeal exceeded the allotted aid intensities.

Firstly, the Commission notes that Hungary recalculated the costs of the project on the basis of the provisions of the above-mentioned Regulation (i.e. by taking into account the material and immaterial investment costs) and concluded that the total costs of the project amounted to HUF 823 320 683. Although the assumption of the Hungarian authorities was that all the above costs were eligible, the Commission is of the opinion that some of these costs, namely those relating to ‘know-how adaption’, are of an operating nature, and hence not eligible. Consequently, the Commission has deducted the ‘know-how adaptation’ costs, representing HUF 531 300 170, from the total costs. As a result of this deduction, the eligible costs as established by the Commission amount to HUF 292 020 513 in nominal value, i.e. HUF 267 015 826 in discounted value.

Therefore, having regard to the above-mentioned arguments, the Commission concludes that the aid at the level of ValDeal fulfilled all the conditions set out in Commission Regulation (EC) No 1628/2006.

The Commission understands that, at the time of the grant, the lack of coordination between the suppliers of innovation advisory services hampered the supply of such services in an integrated form and prevented the development of demand.

In addition, the project was aimed at developing a number of methods of and tools for collecting, evaluating and screening projects which were not yet available in the toolkit of innovation services in Hungary. Thus, the project that ValDeal implemented contributed to fostering a market for integrated consulting services in a fragmented industry and to improving firms' capabilities to innovate in the medium and long term.

In addition, although not yet set up in the legislation at the time of the grant, the type of aid that ValDeal's customers benefited from corresponded to the category of innovation advisory services recognised and specifically regulated in point 5.6 of the R & D&I Framework 2006, which entered into force on 1 January 2007, i.e. a few days after the date of the grant at issue.

Therefore, given that the promotion of innovation is a major policy objective in order to foster sustainable growth within the EU, the aid at issue was designed to address an objective of common interest.

After the economic transition in the 1990s, Hungary's public research institutions network was disrupted and a number of institutes were closed. In addition, at the time of the privatisation and restructuring of the Hungarian industry, only multinational companies were able to finance the acquisition of relevant new knowledge from internal resources and to exploit the results of their R & D efforts on the market.

Among the causes for the low level of innovation by domestic undertakings, especially SMEs, the Hungarian authorities mentioned ‘innovation costs too high’ and ‘lack of own resources’. Moreover, the Hungarian authorities also refer to an insufficient working relationship and collaboration between Hungarian owners of innovative projects and investors. The latter problem was mainly related to the insufficient financing of early-stage technologies, as at that time venture capital investors targeted mainly mid and late-stage companies with a lower level of risk. For instance, in the period 2000-2005 there was a yearly average of only 35 investments targeting innovative companies.

A National Innovation System (NIS) was implemented in order to tackle the above-mentioned limitations. Although most of the components of the system did exist and individually worked generally well, the system's performance as a whole was far from satisfactory. A number of the components did not work properly and the cooperation between them was rather poor. The overall performance being dependent on the quality of linkages and cooperation between those components, the outcome of the system was far from adequate.

In 2006, there were 14 companies that provided innovation management services in Hungary. The services they provided covered the following areas: screening, monitoring and evaluation of inventions, identification of innovative projects, services to attract venture capital funding, management of grants, setting up business plans, implementation of spin-off companies, licencing and intellectual properly, management consulting, process and project management, mediation between business partners, training and education, organisation of innovation networks, provision of office space, and performance of research and studies.

While each of ValDeal's competitors was active in at least one of the above-mentioned activities, ValDeal's project was aimed at covering all of them in an integrated form. Thus, it seems that the efforts and costs inherent in the development of an integrated service provisions model were too high as, due to a lack of effective coordination amongst the existing players, the model was unable to fill the gap in the market. For example, in order to cover all the services provided on an integrated basis by ValDeal, a firm had to win over at least four of ValDeal's competitors as partners.

Therefore, the Commission understands that, due to a coordination problem, there was no company or bridging institution in Hungary which could systematically evaluate the commercial potential of innovative products and/or technologies through a one-stop-shop type of service. It seems therefore that there was a major coordination problem in the market for innovation management services in Hungary.

In light of the above, the Commission concludes that the aid at issue was necessary as, at the time of the grant, there was a market failure in the form of a coordination problem affecting both the supply of and the demand for integrated innovation advisory services in Hungary.

The Hungarian authorities tried to overcome the limitations preventing Hungarian start-up companies from having access to integrated innovation advisory services through the creation of the National Innovation System (NIS). Although the system was supposed to improve companies' innovativeness and competitiveness more generally, the regulatory approach did not lead to the expected outcome (see recital 110). Hence, the aid granted to ValDeal's customers in the form of free-of-charge integrated advisory services could be regarded as an appropriate means to address the above-mentioned market failure. It is also to be noted that the process of selection of the final beneficiaries implemented by ValDeal assured that the most deserving and promising companies were to be chosen.

Firstly, the project ValDeal implemented was supported by both the government and ValDeal's resources, the latter participating with HUF 528 626 021.

Secondly, the Commission also notes that ValDeal did not misuse the aid, as it carried out the same activities as those described in its tender documents.

The evidence provided by the Hungarian authorities demonstrates that, without the aid, ValDeal would not have been able to provide free-of-charge innovation services based on an integrated model and stimulate the demand for such services, because the fragmentation of the Hungarian market prevented the development of the demand side and did not allow economies of scale. Therefore, the Commission concludes that the involvement of public resources in the project was meant to change ValDeal's behaviour, as well as the behaviour of its customers.

The project allowed ValDeal to implement a more efficient model integrating various components of innovation management services and helped ValDeal's customers to improve their commercial and management skills.

The Hungarian authorities submitted evidence demonstrating that in no case did the amount of aid corresponding to the services provided free of charge by ValDeal exceed EUR 200 000. They have verified and confirmed that the cumulation rules at company level were respected.

The Commission finds that the advantage to ValDeal customers that received aid corresponds to the maximum aid amounts applicable to innovation advisory services under the 2006 R & D&I Framework, which entered into force on 1 January 2007, i.e. only 10 days after the start of the project. Therefore, the Commission concludes that the assessment of the above-mentioned aid directly under the Treaty leads to the conclusion that the aid amounts granted to ValDeal's customers were proportionate in the light of the criteria that the Commission laid down in the 2006 R & D&I Framework.

The Commission also notes that, at the moment of the implementation of the project, ValDeal's competitors offered only specific components of the innovation advisory services supported under the measure. The fragmentation of the supply side and the lack of coordination between players means that ValDeal provided its integrated services in a market where no other competitor was able to provide fully fungible services. Therefore, the project implemented by ValDeal had only a limited impact on competition.