Sustainability and Aviation – Working Together (Within Existing US Antitrust Laws)

Introduction

The financial impact of the COVID-19 pandemic challenges the aviation industry and puts into question the viability of its sustainability commitments. Today, many are asking how to maintain sustainability commitments in light of existential financial challenges. One idea that has received increased attention, particularly in Europe, is competitor collaboration on sustainability. In response to the COVID-19 pandemic, the U.S. antitrust agencies (DOJ and FTC) published guidance on competitor collaboration. Are sustainability guidelines also needed? Maybe not. The aviation industry can rely on an established U.S. antitrust framework and existing agency guidelines to assess and structure lawful competitor collaboration. To avoid antitrust risks, however, the industry must articulate the potential consumer benefits of sustainability with reference to traditional metrics recognized in U.S. antitrust law.

Competitor Collaboration & Sustainability

Although agreements among competitors typically raise antitrust risks, certain types of competitor collaborations aimed at sustainability may be lawful and procompetitive under existing standards. The initial antitrust question is whether a competitor collaboration impacts some dimension of competition. Take, for example, an industry-wide carbon emissions commitment. In the absence of concrete regulatory requirements, an aspirational carbon commitment (even if made jointly among competitors) may not materially impact competition if collaborating firms do not compete with respect to carbon emissions, either directly or indirectly in terms of related prices or quality offerings.

Yet even if collaboration among competitors is likely to impact competition, the DOJ and FTC’s joint Antitrust Guidelines for Collaborations Among Competitors nevertheless allows for collaboration when doing so would, on balance, promote lower prices or higher quality products. According to the Guidelines, competitor collaborations may, for example, create “[e]fficiency gains” for collaborating competitors, such as “lower[ing] their cost of bringing their products to market, or reduc[ing] the time needed to develop and begin commercial sales of new products.” [1] “Consumers may benefit from these collaborations,” the Guidelines explain, “as the participants are able to lower prices, improve quality, or bring new products to market faster.” [2] Take, for example, a joint R&D initiative regarding sustainable biofuels. On its face, an agreement among competitors related to a significant input like fuel entails a risk to competition among the collaborators. The consumer benefit from a biofuels R&D initiative may be less clear. Indeed, even the most innovative biofuel may be more expensive than traditional fossil fuels, and potential consumer benefits, e.g. reduced greenhouse gases, may be difficult to attribute specifically to consumers of aviation services. When producer cost efficiencies are considered, however, such as future regulatory compliance costs, a biofuel R&D collaboration may have more clear-cut procompetitive effects, such as enabling cost-efficient introduction of alternative fuels or lowering regulatory compliance costs, which may in turn lead to lower prices for consumers. 

In other situations, competitor collaboration under the banner of sustainability presents more traditional antitrust risks. The DOJ’s recent investigation of automakers for competitor collaborations in the context of California’s vehicle emissions standards presents a case in point. In 2019, DOJ investigated several large automakers for potentially violating federal antitrust law by collaborating in the context of California’s efforts to set a vehicle emissions standard above the proposed federal minimum standard. [3] While political tides have since shifted in Washington, DOJ’s legal justification for the investigation reflects a more durable antitrust risk. Assistant Attorney General Makan Delrahim defended antitrust scrutiny under such circumstances, arguing that “the loftiest of purported motivations do not excuse anti-competitive collusion among rivals” and that “politically popular ends should not justify turning a blind eye to the competition laws.” [4] Delrahim’s comments reflect some skepticism about the presumptive consumer benefit of certain sustainability goals and a more fundamental and enduring antitrust concern that competitor collaboration, particularly joint conduct purportedly justified by politically popular goals, can lead to higher prices or reduced quality for consumers. DOJ’s high-profile investigation highlights the continued antitrust risks of competitor collaborations in which the claimed justification is something other than increased output or reduced prices for consumers.

The best approach for future competitor collaboration on sustainability may be to avoid reliance on general “sustainability” benefits. Working within the traditional consumer-welfare antitrust framework, which encourages competitor collaboration likely to benefit consumers, the aviation industry should strive to better articulate how sustainability can lead to lower prices and improved product quality. The DOJ and FTC’s Guidelines, published in 2000, have endured three presidential administrations and reflect a bipartisan consensus on the procompetitive potential of certain types of competitor collaborations. Looking forward to potential changes under a new US administration, the robust existing antitrust framework, which is capable of supporting competitor collaboration on sustainability, is likely to persist in significant part. What is most needed today is not special guidelines for sustainability, but better explanations for how corporate sustainability initiatives, whether joint R&D or general cost efficiencies, may benefit consumers in the form of lower prices or higher-quality products.

Recommendations

• Consider Whether and How Collaboration on Sustainability is Likely to Impact Competition:  Before collaborating with competitors, companies should consider whether sustainability is a direct or indirect element of competition. Evolving and diverse consumer preferences for sustainability mean that the competitive implications of joint-conduct regarding sustainability may be unclear.
  
  
• Follow Established Antitrust Law and Agency Guidelines:  Companies should continue to follow existing antitrust laws and DOJ and FTC guidelines regarding competitor collaborations. In particular, companies should be able to explain how sustainable business practices may reduce costs, increase output, or promote innovation, and thereby lead to lower prices or higher-quality products for consumers.
  
  
• Better Link Sustainability Benefits to Consumer Welfare: Given the challenges of demonstrating direct consumer benefits from sustainability, companies should strive to better articulate how producer cost and innovation efficiencies may indirectly benefit consumers. Companies should also strive to further develop quantifiable metrics with the potential to demonstrate direct sustainability benefits for consumers.

[1] See DOJ & FTC Guidelines, Antitrust Guidelines for Collaborations Among Competitors §2.1 (April 2000), https://www.ftc.gov/sites/default/files/documents/public_events/joint-venture-hearings-antitrust-guidelines-collaboration-among-competitors/ftcdojguidelines-2.pdf.

[2] Id.

[3] Timothy Puko and Ben Foldy, Justice Department Launches Antitrust Probe Into Four Auto Makers, Wall Street Journal (Sept. 6, 2019), https://www.wsj.com/articles/justice-department-launches-antitrust-probe-into-four-auto-makers-11567778958?mod=article_inline.

[4] Makan Delrahim, DOJ Antitrust Division: Popular ends should not justify anti-competitive collusion, USA Today (Sept. 12, 2019), https://www.usatoday.com/story/opinion/2019/09/12/doj-antitrust-division-popular-ends-dont-justify-collusion-editorials-debates/2306078001/.