The UK's Competition and Markets Authority (CMA) has published guidance for businesses to help them understand how to avoid participation in sustainability agreements raising competition law issues that can have serious consequences for those businesses. Recognising that many sustainability agreements are entered into in order to set new standards, the CMA has laid out the "do's and don'ts" for businesses that are participating in such standard-setting agreements.
What you need to know - key takeaways
- The CMA recognises that collaboration can help achieve sustainability goals, but sustainability agreements cannot be used as a cover for anticompetitive behaviour.
- If a sustainability agreement is found to breach UK competition law, this can have very serious consequences for the businesses involved.
- It is recommended that businesses seeking to cooperate to achieve sustainability goals read the CMA's guidance on sustainability agreements and consider seeking independent legal advice before entering into an agreement, to ensure that their actions do not breach UK competition law.
Considerations when entering into sustainability agreements
It is recognised by the CMA that collaboration can be effective in helping to achieve sustainability goals. However, where businesses (on an industry-wide basis or decisions of trade associations or standardisation organisations) cooperate to achieve these goals, this can create competition law issues. In particular, the CMA has warned that sustainability agreements cannot be used as a cover for anticompetitive behaviour. There are serious consequences for businesses found to have breached UK competition law, including fines of up to 10% of worldwide turnover, reputational damage, and third party claims for damages.
In its guidance, the CMA sets out that "[c]ompetition law issues are most likely to arise where cooperation significantly restricts competition. However, even then an agreement must be assessed in its economic context and, in some cases, sustainability agreements may deliver benefits that outweigh the potential consequence of restricting competition."
The CMA confirms that beneficial forms of cooperation, for example, grouping together to purchase common inputs or for research and development, are unlikely to harm competition, providing the businesses do not have market power. It also verifies that where such benefits arise, exemptions from competition law might be possible, either on an individual basis or under an existing block exemption.
Standard-setting agreements
The purpose of many sustainability agreements is to set new standards, by which businesses, often through trade associations or standardisation organisations, set standards on the environmental performance of products, production processes, or the resources used in production. In order to help ensure that such agreements do not hamper competition, the CMA has set out "do's and don'ts" for businesses making such standard-setting agreements.
In particular, it is important that businesses, trade associations and/or standardisation organisations:
- keep stakeholders aware of developments to standardisation work;
- ensure that all competitors in the markets affected by the standard are able to participate in the standard-setting process and join the agreement;
- ensure access to the standard is on fair, reasonable and non-discriminatory terms for all businesses which comply with it;
- disclose in good faith any intellectual property rights (IPRs) that might be essential to the implementation of the standard and offer to licence these IPRs to all third parties on fair, reasonable and non-discriminatory terms; and
- ensure that all members of a standard setting organisation remain free to develop alternative standards (including higher standards) or products that do not comply with the agreed standard.
Conversely, businesses, trade associations and/or standardisation organisations should avoid:
- exchanging commercially sensitive information beyond what is necessary to set a standard;
- imposing obligations (either directly or indirectly) to comply with a standard on businesses that do not wish to participate;
- making it difficult (by creating barriers) for businesses to develop alternative standards (including higher standards) or products that are not in compliance with the agreed standard; and
- using quality standards to prevent a technology or a competitor from entering the market.
With thanks to Danica Barley and Victoria Beswick of Ashurst for their contribution.
