Sustainability – No “Carte Blanche” for cooperation between competitors under the European Commission’s new Horizontal Guidelines

The Commission deals with sustainability agreements in Chapter 9 of its Horizontal Guidelines. Strictly speaking, the fact that the Commission devotes a separate chapter to the topic of "sustainability" is nothing new: the Horizontal Guidelines of 2001 already contained a chapter on "environmental agreements". This chapter was lacking in the 2011 Horizontal Guidelines.

In the new Horizontal Guidelines, the Commission goes beyond "environmental agreements". It now defines sustainability agreements as all forms of cooperation between competitors with which they pursue a sustainability objective; sustainability goes beyond environmental and climate protection and is based on the sustainability concept of the UN SDG (cf. on the UN's 17 SDG also at https://sdgs.un.org/goals). Sustainability agreements within the meaning of the Horizontal Guidelines can thus also address, for example, worker protection or human rights.

The Commission explicitly emphasises in the Horizontal Guidelines that sustainability agreements in principle do not constitute a separate category of horizontal cooperation for the application of Article 101 TFEU. If sustainability agreements correspond to one of the forms of cooperation dealt with in previous chapters of the Horizontal Guidelines, the cooperation must be examined in the light of the relevant previous chapters as well as the chapter on sustainability agreements; in the event of contradictions, the parties to the agreement may invoke the chapter that is more favourable to them.

Furthermore, the Horizontal Guidelines make it unambiguously clear that horizontal agreements that restrict competition cannot escape the ban on cartels merely because they are necessary for the pursuit of a sustainability objective. The Commission clearly opposes a general exclusion of sustainability agreements from the ban on cartels. It considers the case law of the ECJ, according to which legitimate objectives recognised by EU law can justify restrictions of competition, provided that the principle of proportionality is observed, not to be applicable to sustainability objectives. The ECJ has assumed such a justification e.g. for legal services (C-309/99, "Wouters") or in sport (C-519/04, "Meca-Medina").

The chapter on sustainability agreements is structured as follows: First, examples of sustainability agreements are given where a restriction of competition is unlikely (2.1.). Subsequently, certain aspects of the assessment under Article 101 (1) TFEU are dealt with, in particular in the context of those agreements that set sustainability standards (2.2.). In addition, the chapter addresses aspects of the efficiency test under Article 101 (3) TFEU (2.3.). The chapter also discusses the consequences of public authority involvement in the conclusion of sustainability agreements and concludes by listing hypothetical examples; we do not address the latter aspects below.
 

2.1. Sustainability agreements, which are generally not caught by Art. 101 (1) TFEU

A sustainability agreement that does not have a negative impact on competition parameters such as price, quantity, quality, innovation or product variety, does not violate Article 101 TFEU. Agreements that, for example, only aim to ensure compliance with requirements of legally binding international agreements that are not fully implemented or enforced by a signatory state do not fall within the scope of Article 101 (1) TFEU; however, a prerequisite for the exclusion from the ban on cartels is that the parties comply with the respective requirements or prohibitions. Agreements which, for example, have as their object the establishment of a database containing general information, e.g. on non-sustainable value chains, may also fall outside the scope of Art. 101 (1) TFEU. However, the prerequisite for this is that the cooperation partners are permitted to buy from certain suppliers or to sell to distributors of their choice. As long as the cooperation does not amount to joint advertising and marketing of certain products, a joint awareness campaign of competitors for more sustainability is generally considered to be unproblematic.
 

2.2 Sustainability standards

Cooperations on common “sustainability standardisation agreements” or “sustainability standards” are dealt with in a separate section of the Horizontal Guidelines. Such cooperations can, for example, regulate the phasing out, withdrawal or replacement of non-sustainable products or production methods or the harmonisation of sustainability standards. In certain circumstances, common sustainability standards restrict competition, for example by fixing prices, excluding alternative standards or because of the exclusion or discrimination of competitors.

In particular, agreements which provide for the passing on to consumers increased costs resulting from the adaptation of and compliance with sustainability standards are by object restrictions of competition. Similarly, a cooperation that puts competitors under pressure to refrain from marketing a product that does not comply with the standard is a by object restriction. A restriction of competition by object is also, for example, the limitation of technological development to minimum standards.

In the event that cooperation on sustainability standards is not by object a restriction of competition but by effect, the Horizontal Guidelines provide for a so-called “soft safe harbour”. Accordingly, it is unlikely that a cooperation will cause appreciable negative effects on competition if six conditions are fulfilled cumulatively:

• First, the development of the standard must be transparent and all interested competitors must have the opportunity to participate in the development process of the standard.
• Second, a cooperation must not impose a direct or indirect obligation to comply with a standard on undertakings that do not wish to participate in it.
• Third, the cooperation partners must be free to develop and apply higher standards than those agreed.
• Fourth, the cooperation partners must not exchange competitively sensitive information or information that is not objectively necessary for the development and implementation of the standard.
• Fifth, non-discriminatory access to the standard – for example, to use a logo if the requirements of the standard are met – must be guaranteed.
• Sixth, the sustainability standard must meet at least one of the following conditions: The standard must either not lead to a significant price increase or quality reduction, or the combined market share of the parties to the cooperation must not exceed 20 % in a relevant market affected by the standard.
   

2.3 Exemption under Article 101 (3) TFEU

A sustainability agreement restricting competition can, like any other agreement, benefit from the exemption under Article 101 (3) TFEU if the cooperation partners prove four cumulative conditions:

• The agreement must contribute to improve the production or distribution of goods or promote technical or economic progress.
• Consumers must receive a fair share of the claimed benefits of the sustainability agreement.
• The sustainability agreement must not contain any restrictions of competition that are not indispensable.
• The Sustainability agreement must not eliminate competition for a substantial part of the products or services concerned.

In applying the competition rules, the Commission pursues a so-called "more economic approach" at the latest since the entry into force of Regulation (EC) 1/2003, an approach which formulates consumer welfare as the primary objective of antitrust law. This means, among other things, that efficiency gains must be quantified and must benefit those consumers who are directly affected by an agreement restricting competition. Otherwise, there is no room for an exemption under Article 101 (3) TFEU. Basically, the new Horizontal Guidelines do not challenge this approach. Overall societal and legitimate non-competitive objectives such as sustainability are recognised as relevant in principle, but the consumer benefit must continue to accrue to those who are directly affected by the sustainability agreement. For this, efficiencies and consumer benefits must be quantified; "out-of-the-market efficiencies”, benefits for future generations and stakeholders not directly affected as well as benefits to society as a whole do not suffice in themselves for an exemption under Article 101 (3) TFEU.

By including a chapter on sustainability agreements in the Horizontal Guidelines, there is more clarity on how the Commission assesses such cooperation under Article 101 TFEU. However, it is clear that the Commission does not give a free ride or a “carte blanche” for agreements between competitors. Undertakings are advised to continue to act cautiously. The mere fact that sustainability goals are pursued by an agreement does not protect against the application of Article 101 TFEU. Hard-core cartels such as price-fixing cannot be justified at all on the grounds of sustainability. Especially, the Commission does not deviate from its economically influenced approach to Article 101 (3) TFEU. Competitors who are considering concluding cooperation agreements with each other should therefore quantify efficiencies for the consumers concerned in order to be able to demonstrate such efficiencies, if that is required. It is to be welcomed that the Horizontal Guidelines explicitly emphasise the Commission's willingness to informally discuss new or unresolved questions regarding individual sustainability agreements with the parties.