On 1 March 2022, the European Commission published for consultation two revised (draft) block exemption regulations (R&D and Specialisation) and draft revised horizontal guidelines to help companies self-assess whether agreements with competitors are restrictive of competition and, if so, whether they could satisfy the strict criteria for exemption. Interested parties are invited to submit views by 26 April 2022. The Commission will then finalise the new regulations and guidelines to enter into force on 1 January 2023.
On 28 February 2022, the Commission launched a separate consultation on sustainability agreements in agriculture. This is also relevant to market participants which do not fall within the strict ambit of the rules governing the common agricultural policy – it extends to the entire agri-food supply chain including retail. Further details are below.
New guidelines for sustainability agreements
The Commission has taken stock of views expressed in earlier rounds of consultation by dedicating a new chapter to agreements that pursue one or more sustainability objectives (sustainability agreements). This reflects growing concerns that:
- competitor collaborations will often be the most effective way of driving through ambitious targets; but
- the lack of clear guidance, generally cautious attitude of authorities historically and significant penalties for antitrust infringements are leading companies to adopt a risk-averse approach which results in potential initiatives being dropped.
The Commission has helpfully set out the criteria companies should apply when self-assessing sustainability agreements. Key points to note include:
- The wide scope of “sustainability”: in contrast to some other authorities, the Commission has not distinguished between agreements which address climate change goals and agreements which address broader sustainability objectives, such as human rights, healthy food and animal welfare. The new guidelines will therefore apply to a potentially wide class of agreements across multiple sectors.
- Agreements considered not to raise concerns: with regard to increasing legislative efforts obliging companies to vet their supply chains, the draft guidelines recognise that information pooling on suppliers’ sustainability credentials can be permissible, provided this does not entail requirements to purchase from, or sell to, specific companies.
- A soft safe harbour for some sustainability standards: the draft guidelines pay particular attention to agreements that set sustainability standards as the Commission expects this to be the most frequent form of cooperation. They set out a number of cumulative conditions which, if met, would mean that a sustainability standardisation agreement is unlikely to raise concerns: transparency, open and non-discriminatory access, voluntary participation, freedom to adopt a higher standard and no exchange of commercially sensitive information. However, participants are also likely to have to prove that the standard will not lead to a significant increase in price or reduction in choice – which may be challenging in practice. If this is not possible, they may need to prove that consumers are being fully compensated for any such effects (see below).
- Compensating consumers for a restrictive effect: a key issue in the debate has been how competition law can contribute to delivery of sustainability goals without compromising on long-established principles of consumer welfare. The Commission has not shifted from this standard – consumers must be fully compensated for any price increase or loss of choice, quality or innovation – but it does appear to be open to interpreting consumer benefits more broadly, provided certain conditions are met.
- Relevant benefits: the Commission outlines three categories of benefit which may be relevant to the assessment: (i) individual use value (e.g. improved product quality or variety); (ii) individual non-use value (where consumers value the impact of their sustainable consumption on others); and (iii) collective benefits (where a larger group of consumers outside the relevant market benefit as well). In each case, the parties must provide cogent evidence of those benefits and how consumers will be compensated for any restrictive effects.
- Evidence: companies wanting to claim sustainability benefits have a high bar to cross:
- customer surveys are likely to play a critical role in evidence of consumers’ willingness to pay more for sustainable products. However, surveys will need to be designed carefully in order to provide a meaningful quantification recognised by authorities, and to mitigate the risk of consumer biases when estimating their preferences for hypothetical sustainable choices;
- collective benefits will only be taken into account if the parties can demonstrate that the consumers in the relevant market substantially overlap with the group of consumers outside the market who are also benefitting. On this basis, the Commission recognises that in practice, collective benefits are only likely to arise if the market coverage of the agreement is significant;
- in the absence of data allowing for quantitative analysis of benefits, parties will need to demonstrate a clearly identifiable positive impact on consumers, not a marginal one. Recognising a lack of experience with quantifying benefits to date, the Commission expects to publish further guidance as its experience with cases grows.
Updated draft block exemption regulations and more changes to the guidelines
The consultation launched on 1 March 2022 extends to two draft block exemption regulations (R&D and Specialisation) as well as the many other chapters of the draft horizontal guidelines.
The key proposed changes to the regulations are set out in a helpful “Background Note” which was published by the Commission along with the other consultation documents. This also explains the proposed (many) changes to the horizontal guidelines which include a new section explaining the distinction between joint purchasing and a buyer cartel (paras 316-320, 349), the restrictions relevant to information exchange between competitors not only in the context of horizontal cooperation but also in the context of a merger (para 410) and the role of algorithms in information exchange (paras 418, 432-436). The proposed changes are plentiful and are found throughout the documents.
Agriculture sector sustainability agreements
Companies should also note that the separate consultation launched on 28 February 2022 regarding the special rules on sustainability agreements in agriculture is relevant not only to companies falling within the rules of the common agricultural policy but also to other market participants in the agri-food supply chain, including processors, manufacturers, wholesalers, retailers and input providers. This is due to a new rule introduced in 2021 into Regulation No 1308/2013 (Article 210(a)) which deals with “vertical and horizontal initiatives for sustainability” in the agricultural sector and which may also cover agreements to which not only agricultural producers but other “operators at different levels of the production, processing, and trade in the food supply chain, including distribution, are party”.
Many companies will welcome the Commission’s initiatives in this area and the new guidance produced. Whether the updated horizontal guidelines help achieve the Commission’s objectives of improving legal certainty, facilitating more legitimate cooperation arrangements and driving a more consistent pan-EU approach to these issues remains to be seen. Some will argue that they should go further: in fact, the Netherlands Authority for Consumers and Markets (ACM), a leading authority in the debate, has already noted that more leeway is needed for companies having to enter into meaningful initiatives, although the draft guidelines provide sufficient comfort for the cases it is aware of.
As the rules and guidelines are finalised over the next few months, now is an important time to provide your views. The Commission is particularly keen to hear from companies with real examples of sustainability agreements to help them develop guidance which is as progressive as possible for the challenges facing companies today.
Please get in touch with us for more details. For further information about these issues globally, please visit our Global antitrust in 2022 report - here.