Cooperation projects during the COVID-19 pandemic – a useful reminder that competition compliance rules still apply

Ahead of a recent matchmaking event created with the aim of supporting the acceleration and upscale of COVID-19 vaccine production, the European Commission stipulated certain safeguards in a comfort letter issued to the organisers. Our latest client alert serves as a useful reminder of the practical safeguards that should always be in place when companies, and in particular competing companies, meet to discuss legitimate cooperation projects.

When does sustainable collaboration become an anticompetitive agreement?

On 4 February 2021, the European Commission’s Directorate-General for Competition held a discussion about how EU competition policy can contribute to the Commission’s sustainability goals, embodied in the European Green Deal. In that context, it discussed, amongst others, how to assess the compatibility of sustainability agreements with article 101 of the Treaty on the Functioning of the European Union (TFEU).

It should be noted at the outset that a significant number of cooperation initiatives are likely to fall outside article 101 TFEU because they do not restrict competition in the first place (for example, sector-wide non-binding standards). Cooperation agreements may, under certain circumstances, also benefit from either the ancillary restraints and objective necessity doctrine as set out in Wouters,[1] or the Albany[2] case law, thereby escaping the application of article 101 TFEU.

However, competition authorities are likely to be reluctant to apply the Wouters or Albany approach widely. Many experts have also argued that that aspect of competition law is insufficiently clear, and have called for more guidance and clarity on the subject.

Where sustainability agreements do raise issues within the meaning of article 101(1) TFEU, the question arises as to whether the efficiencies created by the agreement within the meaning of article 101(3) TFEU are sufficient to outweigh the anticompetitive effects. However, the application of article 101(3) to sustainability agreements raises some thorny issues.

Academics, lawyers, economists and other stakeholders generally agree that the existing strict interpretation of both the indispensability, and the absence of elimination of competition criteria in, article 101(3) TFEU (the third and fourth conditions, respectively) needs to be maintained. Failure to do so would facilitate greenwashing or lead to cartel-like spill-over effects.

However, the application of the assessment of the efficiencies created by the proposed agreement, and the application of the “fair share” requirement (the first and second conditions, respectively, of article 101(3)) have been the subject of intense debate.

When assessing the efficiencies created by the proposed agreement (the first condition), it will be important to consider whether competition, rather than cooperation, would not lead to greater benefits for the consumer. Indeed, environmental considerations are now an important parameter of competition, and where consumers are willing to pay higher prices for more sustainable products, undertakings can be expected to engage in head-to-head competition rather than cooperation. However, while many consumers may be willing to buy more sustainable products, empirical evidence shows that many fewer actually buy them. Therefore, even where consumers have indicated their willingness to pay in principle, cooperation may still be the best way to obtain the benefits sought. In practice, this assessment will be very nuanced and depend on the facts of the case in hand.

In past cases, competition authorities have interpreted the second condition of article 101(3) TFEU, that consumers should recover “a fair share of the resulting benefit”, as requiring that consumers are fully compensated. While it is sound law that consumers directly affected by an anticompetitive agreement should obtain compensation, the question arises as to whether it is correct to consider that the share received by consumers is only fair if they are compensated fully. Some argue that a “fair share” does not require 100 per cent compensation when clear negative externalities are internalised. This leads to the question of out-of-market efficiencies and whether or not there is room to take them into account in article 101(3) TFEU assessments of green cooperation agreements between competitors.

Existing case-law already makes it clear that out-of-market efficiencies can be taken into account in certain circumstances (see Compagnie générale maritime[3] and, more recently, Mastercard[4]). In its recent draft guidance paper,[5] the Dutch Competition Authority has also examined how to take out-of-market efficiencies into account when conducting a competition law assessment of a proposed sustainability cooperation agreement. Others, however, have warned against an overly broad application of out-of-market efficiencies. They point out that, given that companies have the ultimate (entirely legitimate) aim to maximise profits, they have an incentive to minimise ‘green’ limitations to their business while seeking to extract the maximum level of price increase. The risk of an overly expansive acceptance of out-of-market efficiencies (reducing the requirement of appropriate compensation for the consumers directly negatively impacted by the price increase likely to result from the proposed sustainability agreement) is that the positive ‘green’ impact necessary to offset a given price increase would be less than would be the case if a more careful, restrictive approach to out-of-market efficiencies were used. This, in turn, would significantly undermine the objective to support sustainability objectives and, in certain limited cases, could even facilitate greenwashing.

In conclusion, the discussion regarding the role of environmental considerations in the enforcement of competition law is still in its early stages. In that context, the willingness expressed by the European Commission and a number of national authorities to engage in constructive dialogue with parties to a proposed agreement and issue comfort letters where appropriate, is welcome and will provide much needed insight in this complex area. However, while careful competition law enforcement can and will make an important contribution, the main tool to achieve the Commission’s Green Deal objectives will be through targeted regulation.

[1] ECJ, Wouters, 19 February 2002, C-309/99, paras. 107-109 (link), which is based on legitimate objectives, and only subject to a test of proportionality, namely the adequacy of the measure to the objective and not going beyond what is necessary.

[2] ECJ, Albany, 21 September 1999, C-67/96 (link).

[3] ECJ, Compagnie générale maritime, 28 February 2002, T-86/95 (link).

[4] ECJ, MasterCard, 11 September 2014, C‑382/12 P (link).

[5] Dutch ACM second draft version: Guidelines on Sustainability Agreements – Opportunities within competition law, published on 26 January 2021 (link).

Personal liability and competition law: a global view

Becoming a theme of increasing concern, competition regimes from across the globe have started to take new measures to sanction natural persons. To address these latest developments, we have provided a global analysis of the issue in our latest client alert – click here to read the full piece.

This update is the third in our series focusing on the significance of competition compliance, which previously discussed the importance of competition compliance programmes and discounts from fines if compliance programmes are in place.

What will post-Brexit competition law enforcement look like?

The EU and UK have very similar systems of competition law enforcement however Brexit has given the UK a degree of autonomy and the opportunity to apply its own rules and regulations independent of the European Commission.  We consider the likely practical impact of Brexit across three key areas of competition enforcement:

  • investigations into violations of competition law;
  • merger control; and
  • state aid.

Read more here

McCarran-Ferguson Act repeal heads to the president as part of the Competitive Health Insurance Reform Act

On December 22, 2020, the U.S. Senate unanimously approved the Competitive Health Insurance Reform Act (CHIRA), previously passed by the House on September 21. If signed by the president, CHIRA would repeal health insurers’ federal antitrust immunity under the McCarran-Ferguson Act for state regulated activity that constitutes the business of insurance. CHIRA preserves some protections for compiling historical loss data, determining loss development factors, and performing certain actuarial services, as well as for developing standard insurance policy forms.

Continue Reading

The COVID-19 pandemic and competition law challenges

The Competition and Markets Authority continues to assert that competition rules have and will continue to apply fully throughout the crisis, even though competition authorities have introduced certain changes in processes which enable flexibility in the approach in which their powers are exercised. But, the uncertainty that still exists around the pandemic makes it difficult to forecast the long-term impact of the crisis on competition law and enforcement. In our latest client alert, we look at the long-term effect of the pandemic on a number of key merger cases, and we also look to the future to consider what might be coming down the track.

The UK’s new National Security and Investment Bill – what do you need to know?

In our latest client alert, we provide a practical overview of the UK’s recently published National Security and Investment Bill, which forms part of a new regime that greatly extends the government’s power to intervene in takeovers of UK businesses if there is a threat to national security.

In addition to proving background on this latest move, we address the following areas which may be of particular interest:

  • Mandatory notification
  • Qualifying entities and assets
  • Voluntary notification
  • Trigger events
  • The Secretary of State’s “call-in” power
  • The call-in power is retrospective
  • Investment Security Unit
  • Penalties and remedies
  • Merger thresholds and the CMA.

Access the full piece here.

Recent cases highlight limitations in price-gouging enforcement

Since the start of the global pandemic, state attorneys general continue to actively pursue price-gouging investigations against individuals and entities, but courts seem to be taking a different, more business-friendly approach. Recent case developments and law amendments highlight the fact that price-gouging laws are subject to limitations. Our team explores these issues in our latest client alert.