European Competition Law Newsletter – November 2023

November 7, 2023

Table of Contents

UK CMA Publishes “Green Agreements Guidance”

The UK Competition and Markets Authority (CMA) published on 12 October 2023 the final version of its guidance on the application of UK competition law to environmental sustainability agreements between actual or potential competitors. The CMA refers to this document as its “Green Agreements Guidance.” The principal purpose of the guidance is to assist companies and their advisers when self-assessing agreements for compliance with the law (although it is not binding on the courts).

The CMA guidance follows similar documents recently published by a range of EU and non-EU competition regulators. These other documents are often wider in scope because they cover environmental sustainability agreements as just one type of sustainability agreement. Examples include the Netherlands Authority for Consumers & Markets’ policy rule on sustainability agreements, and the European Commission’s guidelines on horizontal co-operation agreements, which contain a chapter on sustainability agreements.

The CMA’s Green Agreements Guidance explains how UK competition law applies to environmental sustainability agreements between firms operating at the same level of the supply chain, as actual or potential competitors, to help them act on climate change and environmental sustainability. It sets out the key principles that apply to such collaborations and explains that the CMA does not expect to take enforcement action against agreements that are in line with the guidance. One section deals specifically with how agreements that seek to tackle climate change will be considered.

The document includes examples of environmental sustainability agreements that are unlikely to infringe UK competition law. Those include agreements that do not affect the main parameters of competition between the companies concerned, agreements to do something jointly that none of the parties could do individually, and cooperation required by law (not simply encouraged).

In relation to climate change agreements, which are a subset of environmental sustainability agreements, the UK guidance takes an “exceptional” approach on one key issue. This is the technical issue of which consumers are relevant when considering whether an anti-competitive agreement can be exempted from competition law and is therefore legal and enforceable.

In the normal case (including environmental sustainability agreements other than climate change agreements), an exemption is available only if, amongst other criteria, the harm to consumers of the agreement’s products or services is offset by benefits to substantially the same set of consumers. In the case of climate change agreements, the CMA’s guidance states that it is appropriate to take into account the totality of the “climate change benefits” to all UK consumers arising from the agreement, provided certain other conditions are satisfied. This will make it easier in some cases to identify enough benefits to offset the harm from an anti-competitive agreement where it is a climate change agreement.

The CMA states that is is operating an “open-door policy” under which businesses and their advisers can approach it for informal guidance on proposed environmental sustainability initiatives. Any such approach would need to be undertaken only after careful consideration, taking into account any risks identified following self-assessment of a proposal and, in particular, the likelihood of CMA or third-party action in any event.

UK CMA Investigates More Labour Markets

The UK CMA’s 2023-2024 Annual Plan states that one of its areas of focus will be to “identify potential competition issues within UK labour markets.” This follows the CMA’s guidance for employers on how to avoid anti-competitive behaviour. Its Microeconomics Unit’s research strategy further includes work on labour market power — the extent to which employers are able to keep wages or working conditions below competitive levels.

Backing this up with real enforcement action, for the first time, the CMA has started cases concerning labour market issues. In July 2022, it announced an investigation into suspected infringements of UK competition law by companies involved in the production and broadcasting of sports content. This concerns their alleged activities in relation to the purchase of services from freelance providers, and the employment of staff, who support the production and broadcasting of sports content in the UK. The potential issue appears to be coordination between those companies.

A very similar case was announced in October 2023, which concerns alleged activities in relation to the purchase of services from freelance providers, and the employment of staff, who support the production, creation and/or broadcasting of television content in the UK, excluding sports content.

The CMA is known to consider that there are significant numbers of illegal no-poach and wage-fixing or similar arrangements in the UK, as well as illegal information exchanges concerning labour and employment issues. It seems that the CMA has a general concern that UK businesses’ understanding of the application of competition law in this area is limited. Part of the issue is probably that the CMA considers companies to be actual or potential competitors for labour — as buyers — even when they are not competitors in relation to their own products and services — for example, when employing IT, legal or other staff for which they may compete. Competition compliance programmes need to take this into account.

EU’s Highest Court Rules on Potential Competition, the Ancillary Concept and Object Infringements

On 26 October 2023, the EU’s highest court, European Court of Justice (ECJ), handed down its judgment in a case that considered when companies are potential competitors and how to identify when a restriction is an “object,” or automatic, restriction of EU competition law.

The former issue is important because the application of competition law to an agreement or arrangement between companies changes depending on whether they are competitors (whether actual or potential).

In this case, the ECJ considered a noncompete restriction in an association agreement between a consumer product retailer and a supplier of electricity and natural gas in Portugal. The agreement promoted the companies’ respective activities through a promotion and cross-discount scheme. The Portuguese competition authority had taken the view that the additional restriction amounted to market sharing on the Portuguese markets for the supply of electricity, the supply of natural gas and the retail distribution of food.

This finding was appealed and the Portuguese court asked the ECJ to consider whether the companies could be considered potential competitors so that the restriction could be treated as anti-competitive for the purposes of EU competition law. The ECJ found that this could be the case, provided there are “real and concrete possibilities” for the retailer to enter the electricity supply market, taking into account the structure of the market and the economic and legal context within which it operates. In particular, the existence of the noncompete provision itself provided a “strong indication” that there is potential competition, because otherwise the companies would “have no reason to [agree]” to the provision. The mere fact that the noncompete provision existed was therefore an important issue. This is quite a formalistic conclusion and it’s interesting that the judgment refers to other reasons the parties could be considered as potential competitors, which could have been relied on.

The ECJ also was asked to consider whether the noncompete clause should be treated as an “object,” or automatic, restriction of competition law, meaning it is not necessary to show that it has any actual effects on competition. The particular issue was whether this could be the case where it had been argued that consumers derive certain benefits from the agreement and the clause is limited in time. Following previous case law, the court held that where the parties to a restrictive clause rely on its alleged pro-competitive effects, they are relevant to the analysis only in certain circumstances. Those circumstances are that benefits are demonstrated, relevant, specifically related to the clause concerned, sufficiently significant, and give rise to a reasonable doubt as to whether the restriction caused a sufficient degree of harm to competition that characterisation as a restriction by object must be ruled out. That will always be a difficult analysis.

Even if a clause is anti-competitive, it is possible in some cases to bring in outside competition law on the basis that it is ancillary to a wider arrangement that is competitively neutral or has positive overall effects. A restriction will be ancillary if it is objectively necessary to the implementation of that arrangement and proportionate to its objectives. The ECJ also was asked to consider this issue and confirmed that such a noncompete clause as used in this case could be ancillary if those requirements were satisfied.

The analysis of this requires consideration of whether there was any solution less restrictive of competition that the parties could have used when that agreement was concluded in order to achieve those objectives. Relevant to that is the scope of the noncompete clause and, in particular, whether it corresponds to the purpose and the geographical and duration aspects of the scope of the association agreement.

Additional EU and UK competition law news coverage can be found in McGuireWoods’ news section.

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