CORPORATIONS

sustainability =

undertakings* aimed at the (identification, prevention, restriction or mitigation) of the negative impact of economic activities on people (including working conditions, animals, the environment, or nature. egs: the protection of the environment, biodiversity, climate, public health, animal welfare, and fair trade.)

* ‘undertaking’ =

any natural or legal person [pb, co, ngo etc] whose [agreements or conduct = ua] involve ‘economic activity’, regardless of its legal form or how it is financed. Only uas are subject to cl/cp.

CL GROUNDS/POLICIES

• Ensure low prices • Ensure high output • Promote innovation (disruptive & sustained) • Promote consumer choice & variety competition

GROUNDS GREY AREA

• Fairness (no exploitative conduct) • Freedom to compete/freedom to trade •Limit abuse of economic dependence & superior bargaining power • Ensuring market access for small and medium undertakings •Privacy and informational selfdetermination

WPI GROUNDS/POLICIES

•Protection of the environment, biodiversity and sustainability •Media pluralism •Security of supply • Right to food • Competitiveness of the local industry • Geopolitical concerns & national security • Promotion of employment & social welfare •Promoting human happiness or capabilities

PRIVACY WPI GROUND <> CL GROUNDS

-whether merger control should take into account the fact that access to personal data may constitute an important source of market power.

-ec v microsoft, limited Microsoft’s ability to have access to and to process its users’ personal data in the future since the new rules would have strengthened the existing rights and would have empowered individuals with more control over their personal data. the Commission found that concentration of data could nevertheless have a potential impact on competition by marginalising or making difficult the entry of a competitor of Linkedin that offered a greater degree of privacy protection to its users than offered by LinkedIn, and thereby restricting, ‘consumer choice in relation to this important parameter of competition”’, privacy. In doing so the Commission conceptualised privacy as a parameter of competition that may eventually be subject to measurement.

-possibility of adp from privacy breaches, discrimination and exploitative contracts, facilitated by control of big data, companies interchanging individualized offers on the basis of the information they acquire through consumers’ past browsing history, enables them to charge different prices to various customers for homogeneous products (online personalised pricing).

A recent case brought by the German cma against Facebook (BKA) uses Article 102 TFEU to cover adpg from the exploitation of consumers by digital platforms when harvesting consumer (personal) data. Facebook collected the data of its users by merging the various sources of personal data generated by the use of other services owned by Facebook, such as WhatsApp or Instagram, or by the use of third party websites and apps, which ‘embedded’ Facebook products through the ‘like’ button and the use of Facebook analytics. Facebook was found to hold a dominant position in the German market for social networks. The BKA raised the possible existence of adp as Facebook made the use of its service conditional upon the user granting the company extensive permission to use his or her personal data, even those generated offFacebook. Users were, therefore, no longer able to control how their personal data was used. and the users were oblivious. Considering that Facebook’s merging of the data constituted a violation of the users’ constitutionally protected right to informational self-determination, the Court decided adp… also, competition was reduced by the ‘loss of control’ of the users as they were no longer able to control how their personal data were used.

In Astra Zenecca the CJEU found that misleading representations to the patent office, a possible regulatory offence, could constitute adp, if it was part of an overall strategy of a dominant undertaking seeking to unlawfully exclude rivals.

A patent can be revoked if the patentee’s prescribed declaration: “…contains a false statement or representation which is material and which the patentee knew or ought reasonably to have known was false at the time when the statement or representation was made”.

https://www.supremecourt.uk/cases/uksc-2019-0172.html

the ‘Chicken of Tomorrow’ :

A joint initiative by organizations from the poultry sector and supermarkets to introduce a sector wide sustainability policy in favour of a minimum standard for breeding and growing chickens, such as providing them with more space, a better natural day-night rhythm, and lower use of antibiotics, all of which are aimed at improving, be it marginally, the conditions of chicken and their ‘animal welfare’. The agreement looked to replace the ‘regular’ chicken with the ‘Chicken of Tomorrow’,…. BUT The ACM (dutch compet.auth) concluded that the potential advantages of this initiative to animal welfare and sustainability did not outweigh the reduction in consumer choice and potential price increases…..The Dutch Ministry of Economic Affairs reacted, following calls from the civil society, and sent a draft instruction document to the ACM urging them not take into account the longterm interest of (future) users but also the WPI positive effects…. but, EC objected to such wpi effects, mentioning that ‘if certain policy goals are considered valuable for society as a whole, while not by the consumers in the relevant market, regulation is the right tool [to protect them] and not competition law.

short term monopolies are lawful and an important element of the free-market system. The opportunity to charge monopoly prices, at least for a short period, is what attracts business acumen in the first place. but not in the long term….Just as competition can stimulate innovation and data protection, so can it stimulate sustainability(wpi) too…However, in some cases, there is tension between sustainability and competition. When balancing, there are 2 opportunities:

Opportunity 1

agreements such as price-fixing, customer-sharing, distribution, collective distribution or production restraints, and collective refusals to buy or supply, fall under the

[cartel or cl prohibition = (uk competition act + EU TFEU):

anti-competitive agreements, including price-fixing, market-sharing or bid-rigging arrangements and, potentially, agreements involving exclusivity, restrictions of long duration or certain collaborative arrangements with competitors such as joint selling or purchasing
ADPs. eg, setting of unfair prices or trading conditions or the refusal to supply an existing customer without objective justification

Agreements which barely impact competition do not fall under the cartel proh. examples:

1/agreements that incentivize undertakings to make a sustainability contribution without being binding. eg. target to reduce CO2 emissions

2/codes of conduct promoting environmentally-conscious practices. These often involve joint standards and certification labels about the use of raw materials, production methods, etc.

3/agreements aimed at improving product quality, while products produced in a less sustainable manner are no longer sold. These agreements fall outside the cartel prohibition if they do not appreciably affect price and/or product diversity. One example is agreements that are aimed at a more efficient use of packaging materials or at no longer using a certain type of packaging.

4/initiatives where new products or markets are created, and where a joint initiative is needed for acquiring sufficient production resources, including know-how, or for achieving sufficient scale. joint actions are necessary in the start-up phase.

5/ agreements which sole purpose is to make respect the laws of the countries in which they do business. do our business partners comply with the rules?. These agreements allow them to perform such checks. eg. respecting labor laws (for example, banning child labor, paying a minimum wage, respecting the right to unionize), protecting the environment (such a ban on illegal logging), and respecting fair-trade rules (such as a ban on bribery).

Opportunity 2

Article 101, paragraph 3 of the TFEU exempts from the cartel prohibition, uas that:

a. offer efficiency and sustainability benefits:

undertakings to set up a production process so that the difference between operational costs and social costs is eliminated as much as possible. For example, to pay a ‘living wage’, or compensate for greenhouse gas emissions. In their marketing activities, they can use these to promote their product to consumers.

b. allow consumers a ‘fair share’ of those benefits; These can be current users as well as future ones. direct users or indirect ones. lower in the production chain, and end-user… benefits can even include others than consumers (general public = wpi). For example, if undertakings in a certain sector jointly decide to use carbon-neutral energy only, greenhouse gas emissions will decrease (wpi), and will also help realize the government’s policy objective of reducing CO2 emissions. ‘fair share’ = consumers should be compensated at least for the harm caused to them by the restriction of competition.

Egs of non environmental sustainability uas: eg. paying a fair wage in developing countries that do not have a minimum wage. eg. minimum requirements for animal welfare in the production of meat; eg. changing the recipes of food products for public-health reasons.

where a. and b. are not met, consumers have the right to be fully compensated for the harm caused by the restriction of competition. example, if a sustainability agreement leads to a quality improvement in production, but also leads to a price increase, consumers will have to attach sufficient value to those quality improvements to offset the price increase, ow, they have r. to compensation.

c. The restriction of competition is necessary for reaping the benefits, and does not go beyond necessary; example, where a ua is necessary because no undertaking can afford to be the first [to change its behavior]. Example: lack of expertise or scale.

d. Competition is not eliminated in respect of a substantial part of the products.

PBs = [public or private-tender]: CL EXCEPTIONS

‘undertaking’ =

any natural or legal person [pb, co, ngo etc] whose [agreements or conduct = ua] involve ‘economic activity’ [eg ngo doing commercial advertising and sponsoring], regardless of its legal form or how it is financed. Only uas are subject to cl/cp…..the existence of an UA, does not nec.mean that is infringing CL, or that it needs to amend its conduct…In cases involving genuine uncertainty [on whether a proposed activity is ua [subject to clcp], and if so, whether, the ua would be anticomp, the CMA should be approached to provide a non-binding ‘Short-form Opinion’ on the application of the CA98 to a specific activity. contact the CMA’s Enquiries and Reporting Centre on 0845 7 22 44 99.

Identifying ‘economic activity’

A pb should ask itself, for each of its activities, separately:

1/Am I offering or supplying a good or service (on a given market), or exercising a public power?

2/is that offer or supply ‘commercial’, or exclusively ‘social’?

If the answer to both is yes, then – for the purposes of that activity (and any related upstream purchasing) – the PB is acting as an undertaking, thus subject to UK and EU competition law.

Exercise of ‘public powers’

where a body (public or private-tender) acts in a purely administrative capacity and merely regulates the provision of goods and services on a market, is not regarded as offering or supplying such goods or services…thus, is not ec.activity, thus there is no ua. That such administrative activity is for a fee will not necessarily render the activity ‘economic’. However, to the extent that the body also participates in the market, such participation may constitute an economic activity.

eg. provision of a national military or the administration of justice, is not regarded as offer or supply of goods or services… certain functions relating to air traffic control, environmental protection and tax collectionare also an exercise of ‘public powers’.

Purchase of gs [goods/services]

PB’s gs purchases are ua, only if there is a subsequent economic offer/supply of gs

gs purchasing PBs, even where not acting as an undertaking, are required to undertake an open competitive procurement

recent UK decision (Bettercare): the CAT found that a purchaser PB buys non-economic goods/services, it still may involve contracts commercial enough, to regard it an ua….this is good news for companies selling to PBs because it broadened the circumstances in which the purchasing PBs had to follow CL

A different view was taken by the Spanish Court of first instance, in appeal from ec, held that where a PB purchases non-economic goods/services (for instance, one which involves no remuneration and is PI) is not an ua(Case T-319/99, FENIN): the important fact is the purpose of the purchase.

david.marks@cms-cmck.com +44 (0) 20 7367 2136.

Diff

PB’s Offer/supply of a ‘commercial’ nature: is ua. eg pb activity for profit in direct competition with private sector companies. For example, Companies House is ua when competing with private sector information providers in the supply of online company data search tools….Similarly, a PB is engaging in ua, when it carries out ‘wider – non core- markets activities for profit…..But….an activity need not generate a profit– or even have a profit-making motive– to be an ‘economic’ activity (ua). Example: ECJ: a pb provided employment recruitment services free of charge , was an economic activity

PB’s Offer/supply of an exclusively ‘social’ nature: an activity exclusively social is not ua. an economic activity that also pursues some public service objectives will still be an economic activity….Activities where no market exists, becos they cannot be carried out for profit without State support….eg: pb activities under redistributive principles (= the principle of ‘solidarity’ ) to redistribute income between rich ad poor) is an exclusively social activity…. where private companies have carried out that activity in the past, this may indicate that if a pb carries it out, it would be an economic activity…..the fact that a pb decides not to allow private companies to provide a certain good or service does not mean that that activity is not ‘economic’…..-a public body’s operation of a pension fund/insurance scheme, was found by the EU court to be an economic activity as operated on the principle of ‘capitalisation’ (the level of benefit is based on the financial results) and in competition with insurance companies. That the fund also pursued some social objectives, principles of solidarity and was non-profit making, was not sufficient to render such activity ‘non- economic’…..EU courts : pb compulsory healthcare and insurance schemes are only ‘exclusively social’, if:

1. 1. provide members with the service (for example, insurance cover) regardless of their financial status and state of health
  2. do not take a member’s level of contributions into account when paying benefits, and
  3. are non-profit-making.

PBs : CL EXCLUSIONS

Where pbs do act as undertakings, thus subject to cl, there are cl exclusions:

Schedule 3 par 4 of the CA98 and Article 106(2) TFEU, exclude from CL:

-The ‘services of general economic interest’ exclusion: applies to pbs that have a universal service obligation [uso], such as core postal services or ambulance

-The CA98 also excludes agreements that an undertaking is by law, forced to enter, eg: undertakings mandated by a regularor; eg where a party is required by law to disclose publicly price sensitive information

THE CONSEQUENCES FOR PBs ENGAGING IN ECONOMIC ACTIVITY

if pb’s CL compliance impedes the efficient exercise of their functions, they need to determine whether any amendments are required.
pbs economic activities in mixed markets* only breach cl, if cause anticomps

(* markets where pbs, private firms and third sector organisations (for example, charities)) compete between them)

consequences of pbs failure to comply with cl :

- - An agreement will be void and unenforceable.
  - Third parties (including injured competitors, customers and consumer groups) that have suffered loss, can bring a civil damages claim.
  - CMA may impose substantial penalties: up to 10 per cent of their annual worldwide turnover, and be directed to change their behaviour.
  - Individuals who dishonestly engage in cartel activity can be prosecuted under the criminal cartel offence and sentenced to up to five years in prison and/or a fine.
  - co directors can be disqualified from managing a company for up to 15 years.

UN: CPCL EXCEPTIONS AND EXEMPTIONS

Diff: exemptions tend to be broader in scope, as is the case with sectoral or industry examples, whereas exceptions are on a case-by-case basis, applying a rule-of-reason, such as in selected M&A transactions and specialization agreements if the WPI outweighs the anticomps

cpcl exemptions and exceptions are usually needed to further the objectives of cpcl.

For example, cl strictly prohibit horizontal price agreements between competitors, as they tend to lessen competition. However, various forms of non-price horizontal agreements may be in the public interest, if inter-firm cooperation results in standardization of products, improved quality and increased information, so that consumers have better choices.

However, cpcl exemptions/exceptions may induce distortions in other sectors…thus, various industries and markets are “seamlessly” interconnected, even when the linkages are not obvious, as distortions in one market “ripple” through to other sectors of the economy.

For example, insulating the domestic steel producer from competitive pressures may result in higher steel prices, which result in higher costs for the automobile and construction industries, and other industries that use steel. Because of the artificially higher profits earned in the steel industry, the firms can pay higher wage rates, and bid away labour from other industries creating labour shortages or resulting in higher costs of production for other goods and services.Moreover, steel companies will have fewer incentives to be innovative…

Whether the costs of such exemptions and exceptions or policies are outweighed by the benefits needs to be carefully balanced.

Interface between cpcl and other government economic policies :

In some countries, such as usa, Canada and New Zealand, the cl primary objective is the promotion of economic efficiency (ew). In uk, emphasis is placed on “public interest” ..In the Eu, priority is given to economic or market integration and prevention of dominance by large firms. In Germany, preserving or ensuring freedom of individual action and economic freedom is crucial.

In several countries, Governments have privatized State-owned enterprises with exclusive or monopoly rights so as to obtain a higher sale price and/or attract foreign investment. And import controls or investment restrictions are to protect domestic firms, deterring new entrants and foreign investment.

cpcl exemptions

< > cocoo.uk will identify where exemptions are violated/abused

– Collective bargaining, which permits employees to form unions or groups to negotiate wages, and other conditions of employment

– Associations of fishermen to negotiate terms regarding buying and processing of fish; and travel agents to negotiate prices and commissions paid for domestic flights (to counter the monopoly or near-monopoly position of the domestic airline)

– Underwriting of insurance and securities

– Amateur sport to form leagues, teams

-tas and business firms may exchange statistics, develop product standards, define terminology, engage in cooperative research and development (R&D), restrict advertising expenditures, adopt common weights and measures, packaging, etc.

-with notification and prior clearance, firms are permitted to form export cartels with the objective of increasing exports, or enter into specialization and rationalization agreements in order to achieve economic efficiency.

– for professional sports, financial institutions’ activities, and IP (patents, copyrights and trademarks).

– regulated economic activities are also generally exempt from cpcl.

canada: If the M&A results in higher prices for consumers, and higher profits for producers, it will be cleared, so long as there are real efficiency gains, or , increased real value of exports. However, the transacting parties must demonstrate that the efficiencies cannot be realized by less anticompetitive alternative means such as a joint venture or specialization agreement.

the United States uses the “consumer welfare or surplus” test (as this is their priority). As a result of a historic Supreme Court decision in the 1920s, it was ruled that professional baseball did not fall within the scope of the federal antitrust laws as it was not a “trade or commerce”, other than incidentally. Other professional sports such as football and basketball are similarly exempted: football, baseball, basketball and hockey leagues concerning the selling of rights for the telecasting of their games.

Critics have questioned these exemptions, for which no arguments or evidence are presented. In recent years, the congressional authorities have raised the issue of removing these exemptions, especially during the strike by baseball players over salaries (which tend to be very high by any comparative standard), share of stadium gate and broadcasting revenues, and when local team games are “blacked out” from television.

< > cocoo.uk will identify where exemptions are violated/abused, specially players that strike or get high revenues

In addition, USA allow for a “defence” (exceptions) to be made for horizontal mergers and acquisitions, which while resulting in SLC (substantial lessening of competition), have significant efficiency gains that cannot be realized otherwise, eg via a joint venture. the efficiency gains must be passed on to the consumer in the form of lower prices and/or improved quality and choices. To date, there has been no case where the efficiency defence in a M&A transaction has been accepted.

The ec under Article 81(3) of the Treaty of Rome can grant exemptions to uas and practices if they have significant countervailing benefits, either on their individual merit, or through the application of a “block exemption”= uas in specified sectors. Only the European Commission can issue exemptions, which must be notified for clearance (except for block exemptions).

If an ua or practice is not notified and authorized, it is subject to investigation and prosecution by the Treaty.

< > cocoo.uk will identify unnotified anticomp uas/practices

to get Individual exemptions, the ua/practice must:

– Contribute to improving the production or distribution of goods or to promoting technical or economic progress;

– Allow consumers a fair share of the resulting benefits.

– Not impose restrictions on firms that are not indispensable to the attainment of the above-listed objectives;

– Not give rise to the possible elimination of competition in a substantial part of the market of the products in question.

Block exemptions:

ec has issued block exemptions for exclusive distribution and purchasing arrangements, R&D cooperatives, patent and know-how licensing, and specialization agreements. In each of the exempt areas, clauses are listed that define what may be legally incorporated or prohibited in the agreements.

<> cocoo will look into those clauses

For example, a joint-venture agreement between firms may contain a “non-competition clause” if it is “indispensable” to the success of the venture

<> cocoo: is it really indispensable?

Similarly, a block exemption may permit only territorial restrictions of sales by firms for a period of time

other ec exemptions cover transportation (road, inland waterways, air and marine), insurance, and agricultural sectors, and also computer reservation systems and motor vehicle distribution and licensing. Export cartels are also exempted in so far as they do not restrict exports and/or competition in the common market.

but ec does not grant exceptions to M&As that may result in dominance on the grounds of economic efficiencies.

The UK exceptions are the same as contained in Article 85(3) of the Treaty of Rome.

The Director General of Fair Trading may impose conditions on a ec parallel exemption

United Kingdom’s Competition Act does not contain an exception for mergers on efficiency grounds. However, the Minister of Trade and Industry may override the decision of the cma, if the M&A is in wpi

Intellectual property rights: The exemption to (IPRs)

a careful balance has to be struck. Since exemptions in this area grant statutory monopoly ipr rights, firms can potentially adp

<> cocoo : which patents etc are adp? if so the exemptions must be withdrawn or limited

professions:

eg lawyers, physicians and accountants are granted exemptions on the grounds of ensuring qualified and ethical services. However, professional bodies limit competition by erecting barriers to entry: qualifications, prevent even informational advertising and fix fees.

except for qualifications and standards of services, exemptions for professional bodies are not justifiable on economic grounds.

<> cocoo will find prof.body exemptions, except for qualifications and standards of services, and destroy them.

Exemptions that reduce risk and uncertainty Insurance, investment brokerage and banking services:

they are granted only to reduce risk and uncertainty.

<> cocoo will find exemptions other than to reduce risk and uncertainty, [eg exemptions for pricing of insurance or security brokerage services, or to setting of interest rates and service charges by banks], and destroy them !

Exemptions for R&D activities :

are justifiable. Cooperation and competition between firms are not in conflict.

<> cocoo identifies where coop. becomes anticomps.

eg in pharmaceuticals and electronics, firms cooperate in R&D but compete in the pricing and sale

in some jurisdictions, exemptions are granted for “special” sectors such as energy, liner shipping, air, trucking, professional sports, small business and government enterprises. In most of these cases there are no credible economic bases for exempting these sectors or types of economic activities from competitive pressures. This view also holds for many “natural monopolies”, which while being regulated by separate bodies are insulated from the application of competition law principles…..all evidence suggests that alternative pro-competition approaches to these sectors are feasible. For example, privatization, deregulation, structural changes and the introduction of competition in the airline, power and telecommunication sectors have increased productivity, lowered prices and improved services.

<> cocoo identifies where coop. becomes anticomps.

Conclusions and recommendations

we need to adopt basic procedures and principles in the granting of exemptions:

(i) Exemptions should be granted on a limited-time basis with a “sunset” clause and provisions for periodic review.

(ii) The review of exemptions should include analysis of their impact on economic efficiency and consumer welfare, and in a cost-benefit framework identify the “winners” and “losers”, and whether indeed there are overriding benefits that serve the consumer or broader economic interests.

(iii) The exemptions should be granted after public hearings with the participation of the interested and affected parties

(iv) The exemptions should be as least restrictive of competition as possible. In many areas, particular exemptions and/or exceptions dealing with infrastructure industry such as power, telecommunications and transportation, alternative less anticompetitive approaches are feasible.

(v) Exemptions should be generic in nature, relating to types of economic activities or arrangements, and be less industry- or sector-specific. With such principles, the number, nature and scope of the exemptions and exceptions will tend to be more limited, and the procedures more accountable and transparent. There will also tend to be greater policy and economic coherence.

Restrictive Agreements and Practices – Article 85 of the ec Treaty

The prohibition of Article 85 (1) applies both to horizontal agreements between competitors, and to vertical agreements, such as agreements between manufacturers and the distributors of their goods.

agreements falling under Article 85(1) are null and void under civil law.

Article 85(3) of the Treaty lists four conditions (economic advantages, consumers’ fair share of the benefits, indispensability of the restrictions, non-elimination of competition) which must all be met before an agreement/practice can be “exempted”.

adp

Article 85: IF there is restraint upon competition and an effect on interstate trade, such agreements are prohibited, regardless of the size of the undertakings concerned.

Article 86: UNLIKE ART 85, Article 86 only attacks the abuse (not the existence) of a dominant position, when an effect on interstate trade is involved.

Merger Control – Council Regulation 4064/892 sets up a system of merger control at EU level for EU-scale mergers

UN : WPI EXCEPTIONS AND EXEMPTIONS