Guidance document for competition law compliance
Ingredients For Food Innovators
This Guidance Document is made for members (company or association representatives) of the Ingredients For Food Innovators network (IFFI) to help them adopt appropriate behaviour compatible with competition law.
1. REMINDER OF THE LEGAL FRAMEWORK
Article 101(1) of the Treaty on the Functioning of the European Union, formerly Article 81(1) of the EC Treaty, prohibits agreements between undertakings, decisions by associations of undertakings or concerted practices which have as their object or effect the prevention, restriction or distortion of competition.
The fact that members of an association of undertakings are acting through the association does not affect the way in which Article 101 applies to their decisions, rules, recommendations or other activities; their position is no better and no worse than if they were acting in the same manner outside the forum of such an association. In each case, Article 101(1) will only apply if the relevant activity has an appreciable effect on competition in the relevant market.
Agreements and/or concerted practices that fall under the prohibition of Article 101(1) may nevertheless be permitted if the conditions of Article 101(3) of the Treaty on the Functioning of the EU (“Article 101(3)”) are satisfied.
Article 101(3) stipulates that agreements caught by the prohibition of Article 101 can be exempted from its application if they:
- contribute to improving the production of goods, or promote technical or economic progress;
- allow consumers a fair share of the benefits;
- involve only restrictions which are indispensable to the objectives; and
- do not eliminate competition entirely.
These four conditions have to be fulfilled cumulatively; they are applied restrictively.
Article 102, formerly Article 82 of the EC Treaty, seeks to control the abuse of a dominant position in a market. A dominant position is a position of economic strength which enables a firm to hinder effective competition on a market by allowing it to behave to an appreciable extent independently of its competitors and customers, and ultimately of consumers.
The mere holding of a dominant position is not unlawful; it is the abuse of the dominant position that results in an infringement of Article 102. In practice, most of the Article 102 cases have involved pricing abuses (including excessively high pricing, predatory pricing and discriminatory pricing), refusal to supply and tying.
Articles 101 and 102 are not mutually exclusive and this is particularly so in the case of the concept of joint or collective dominance (where two or more firms together are found to be dominant, even though they would not be dominant individually). This is of particular importance to the members of IFFI, as in common with many trade associations, they have the potential to be collectively dominant.
2. REMINDER ABOUT THE APPLICATION OF THE LEGAL FRAMEWORK
Competition authorities commonly presume that any decision including a recommendation as to prices, is likely to have an appreciable effect on competition. More specifically authorities presume the exchange of information on prices may lead to price co-ordination and therefore diminish competition which would otherwise be present between the undertakings. As a matter of prudence, we should presume the authorities will believe this to be true whether the information exchanged relates directly to the prices charged or to the elements of a pricing policy, for example charges, discounts and allowances, costs, terms of trade and rates and dates of change.
The broad prohibition under Article 101(1) is qualified under Article 101(3) which, together with implementing legislation, authorises the EU Commission to exempt certain agreements on the basis that the restrictive provisions they contain are outweighed by the economic benefits they create, including the benefits for the ultimate consumers.
Since 2003, the Commission no longer grants individual exemptions, but it continues to issue so-called ‘block exemptions’ which lay down criteria under which specific categories of agreements can be considered exempt from the application of Article 101(1). National competition laws across the EU apply the same rules at the national level (including, typically, the protection of the block exemptions issued by the Commission).
Agreements that do not meet the criteria of the block exemptions must be independently assessed by the parties against the general principles laid down in Articles 101(1) and 101(3). The guidelines issued by the Commission can provide much needed assistance in this difficult assessment and they assist in the interpretation of the block exemption regulations themselves.
With regard to Article 102 (dominance), it is not illegal to be collectively dominant, but in this position care must be taken with regard to any collective decision so that it does not constitute an abuse.
3. STANDARD TERMS – Commission Guidelines on the Applicability of Article 101 (September 2010)
When IFFI considers defining, for inclusion in contracts, quality reference levels and the standardisation of quality requirements as a support for a better understanding and implementation of the EU legislation, the following points should be given appropriate consideration.
- As explained in the above paragraphs 1 and 2, contract clauses/specifications should be non-binding, unless the following can be clearly demonstrated on the facts:
- there is a genuine health, safety, environment or similar concern;
- the imposition of a binding provision is indispensible to addressing this concern; and
- it is IFFI’s role to address this concern i.e. that it would be inappropriate to
leave this to the relevant public authority.
- A specific ad hoc assessment of the clause will be undertaken should there be an intention to render the clause mandatory for IFFI members.
As indicated in the Commission guidelines, “Standardisation agreements which do not restrict competition by object must be analysed in their legal and economic context with regard to their actual and likely effect on competition. It will necessitate a selfassessment to establish whether the agreement falls under Article 101(1) and, if so, if the conditions of Article 101(3) are fulfilled.” And, “Where participation in standardsetting is unrestricted and the procedure for adopting the standard in question is transparent, standardisation agreements which contain no obligation to comply with the standard and provide access to the standard on fair, reasonable and nondiscriminatory terms will normally not restrict competition within the meaning of Article 101(1).”
The Guidelines also provide specific guidance to trade associations, “It is generally not justified to make standard terms binding and obligatory for the industry or the members of the trade association that established them. The possibility cannot, however, be ruled out that making standard terms binding may, in a specific case, be indispensable to the attainment of the efficiency gains generated by them.” (see 320 below).
Further information is available in the excerpt of the Commission guideline on the applicability of Article 101 with regard to horizontal agreements published in January 2011.
4. IFFI’S DAY-TO-DAY ACTIVITY: MEETINGS, DOCUMENTS AND CORRESPONDENCE
The following recommendations should be implemented in IFFI’s day-to-day activities:
- Ensure that IFFI staff and Working Group Chairs are conscious of competition law requirements and follow them.
- Inform new group members of the IFFI compliance policy by handing out the
Guidance Document for Competition Law Compliance.
- Working Group members must take appropriate steps to avoid conversations or actions in breach of the IFFI compliance policy. Where a Group member attends a meeting or a discussion at which Competition sensitive issues are discussed, he/she should refuse to contribute and request that it be terminated immediately. If the discussion continues the member should register his objection and leave the room.
- Each attendant should sign a document confirming that they are aware of competition rules and that they undertake to comply with the said rules.
- A clear agenda must be provided for a meeting and the agenda must be followed or changes to the agenda must be agreed and noted.
- All participants present at the meeting, even through telephone connection, must be reminded of the importance of competition law rules.
- Minutes of the discussions must be taken, circulated and retained so that they reflect the debates in a correct and accurate way.
- Information exchange on market developments should be limited to historic and aggregated data; when looking at trends, it should only encompass publicly available market or trade information (official quotations) and aggregate data.
- Information exchange should not provide any insights into current or future company strategy, prices, price changes, differentials, change in production capacities, production or market behaviour.
- Technical or scientific information compiled for regulatory purposes, must be treated confidentially by IFFI or subcontracted staff and presented anonymously, without possible identification of the source.
- When writing, composing or editing any document including a memo or a a set of guidelines, specific attention must be paid to the language used. The language must be in line with the non-commercial objective of the association and reflect the principles of transparency and non-discrimination.
- The same care must be used when sending emails, to avoid the casual feel of such correspondence giving rise to ill-considered statements, which could be objected by a regulatory or competition authority.
The Commission Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements (OJ C 11 of 14.01.2011) provides orientations as to the main competition concerns and to assessment according to the Treaty articles. Excerpts:
89. Exchanges of genuinely aggregated data, that is to say, where the recognition of individualised company level information is sufficiently difficult, are much less likely to lead to restrictive effects on competition than exchanges of company level data….
92. In general, exchanges of genuinely public information are unlikely to constitute an infringement of Article 101 ( 5 ). Genuinely public information is information that is generally equally accessible (in terms of costs of access) to all competitors and customers. For information to be genuinely public, obtaining it should not be more costly for customers and companies unaffiliated to the exchange system than for the
companies exchanging the information. For this reason, competitors would normally not choose to exchange data that they can collect from the market at equal ease, and hence in practice. exchanges of genuinely public data are unlikely. In contrast, even if the data exchanged between competitors is what is often referred to as being ‘in the public domain’, it is not genuinely public if the costs involved in collecting the data deter
other companies and customers from doing so. A possibility to gather the information in the market, for example to collect it from customers, does not necessarily mean that such information constitutes market data readily accessible to competitors.
259. In certain industries companies use standard terms and conditions of sale or purchase elaborated by a trade association or directly by the competing companies (“standard terms”). Such standard terms are covered by these guidelines to the extent that they establish standard conditions of sale or purchase between competitors and consumers (and not the conditions of sale or purchase between competitors) for substitute products. When such standard terms are widely used within an industry, the conditions of purchase or sale used in the industry may become de facto aligned. Examples of industries in which standard terms play an important role are the banking (for example, bank account terms) and insurance sectors.
263. Standardisation agreements usually produce significant positive economic effects ( 7 ), for example by promoting economic interpenetration on the internal market and encouraging the development of new and improved products or markets and improved supply conditions. Standards thus normally increase competition and lower output and sales costs, benefiting economies as a whole. Standards may maintain and
enhance quality, provide information and ensure interoperability and compatibility (thus increasing value for consumers).
264. Standard-setting can, however, in specific circumstances, also give rise to restrictive effects on competition by potentially restricting price competition and limiting or controlling production, markets, innovation or technical development. This can occur through three main channels, namely reduction in price competition, foreclosure of innovative technologies and exclusion of, or discrimination against, certain companies by prevention of effective access to the standard.
276. Any standard terms containing provisions which directly influence the prices charged to customers (that is to say, recommended prices, rebates, etc.) would constitute a restriction of competition by object.
277. Standardisation agreements which do not restrict competition by object must be analysed in their legal and economic context with regard to their actual and likely effect on competition. In the absence of market power, a standardisation agreement is not capable of producing restrictive effects on competition. Therefore, restrictive effects are most unlikely in a situation where there is effective competition between a number of
280. Where participation in standard-setting is unrestricted and the procedure for adopting the standard in question is transparent, standardisation agreements which contain no obligation to comply with the standard and provide access to the standard on fair, reasonable and non-discriminatory terms will normally not restrict competition Within the meaning of Article 101(1).
281. In particular, to ensure unrestricted participation the rules of the standard-setting organisation would need to guarantee that all competitors in the market or markets affected by the standard can participate in the process leading to the selection of the standard. The standard-setting organisations would also need to have objective and non-discriminatory procedures for allocating voting rights as well as, if relevant,
objective criteria for selecting the technology to be included in the standard.
282. With respect to transparency, the relevant standard-setting organisation would need to have procedures which allow stakeholders to effectively inform themselves of upcoming, on-going and finalised standardisation work in good time at each stage of the development of the standard.
295. If participation in the standard-setting process is open in the sense that it allows all competitors (and/or stakeholders) in the market affected by the standard to take part in choosing and elaborating the standard, this will lower the risks of a likely restrictive effect on competition by not excluding certain companies from the ability to influence the choice and elaboration of the standard. The greater the likely market impact of the
standard and the wider its potential fields of application, the more important it is to allow equal access to the standard-setting process. However, if the facts at hand show that there is competition between several such standards and standard-setting organisations (and it is not necessary that the whole industry applies the same standards) there may be no restrictive effects on competition. Also, if in the absence of a limitation on the number of participants it would not have been possible to adopt the standard, the agreement would not be likely to lead to any restrictive effect on competition under Article 101(1). In certain situations the potential negative effects of restricted participation may be removed or at least lessened by ensuring that
stakeholders are kept informed and consulted on the work in progress . The more transparent the procedure for adopting the standard, the more likely it is that the adopted standard will take into account the interests of all stakeholders.
300. The establishment and use of standard terms must be assessed in the appropriate economic context and in the light of the situation on the relevant market in order to determine whether the standard terms at issue are likely to give rise to restrictive effects on competition.
301. As long as participation in the actual establishment of standard terms is unrestricted for the competitors in the relevant market (either by participation in the trade association or directly), and the established standard terms are non-binding and effectively accessible for anyone, such agreements are not likely to give rise to restrictive effects on competition (subject to the caveats set out in paragraphs 303, 304, 305 and 307).
302. Effectively accessible and non-binding standard terms for the sale of consumer goods or services (on the presumption that they have no effect on price) thus generally do not have any restrictive effect on competition since they are unlikely to lead to any negative effect on product quality, product variety or innovation. (…)
306. If the use of standard terms is binding, there is a need to assess their impact on product quality, product variety and innovation (in particular if the standard terms are binding on the entire market).
312. The use of standard terms can entail economic benefits such as making it easier for customers to compare the conditions offered and thus facilitate switching between companies. Standard terms might also lead to efficiency gains in the form of savings in transaction costs and, in certain sectors (in particular where the contracts are of a complex legal structure), facilitate entry. Standard terms may also increase legal certainty for the contract parties.
320. It is generally not justified to make standard terms binding and obligatory for the industry or the members of the trade association that established them. The possibility cannot, however, be ruled out that making standard terms binding may, in a specific case, be indispensable to the attainment of the efficiency gains generated by them.
330. Government encouraged standardisation – Example 6
Situation: In response to the findings of research into the recommended levels of fat in certain processed food conducted by a government-funded think tank in one Member State, several major manufacturers of the processed foods in the same Member State
agree, through formal discussions at an industry trade association, to set recommended fat levels for the products. Together, the parties represent 70 % of sales of the products within the Member State. The parties’ initiative will be supported by a national advertising campaign funded by the think tank highlighting the dangers of a high fat content in processed foods.
Analysis: Although the fat levels are recommendations and therefore voluntary, as a result of the wide publicity resulting from the national advertising campaign, the recommended fat levels are likely to be implemented by all manufacturers of the processed foods in the Member State. It is therefore likely to become a de facto maximum fat level in the processed foods. Consumer choice across the product
markets could therefore be reduced. However, the parties will be able to continue to compete with regard to a number of other characteristics of the products, such as price, product size, quality, taste, other nutritional and salt content, balance of ingredients, and branding. Moreover, competition regarding the fat levels in the product offering may increase where parties seek to offer products with the lowest levels. The agreement is therefore unlikely to give rise to restrictive effects on competition within the meaning of Article 101(1).