Staying on the right side of ‘collaboration vs cartel’
In the light of the mounting pressure on businesses to address climate change risks, there is growing impetus to collaborate on effective ways to approach climate change management.
Although well intentioned, collaboration between businesses on sustainability standards and practices can raise competition law concerns and expose the corporation (and individuals involved) to significant criminal and/or civil penalties if not managed appropriately.
Coordinating on industry-wide standards or practices may contravene Australian competition law if it amounts to cartel conduct or an otherwise anti-competitive arrangement. Cartel conduct involves agreements to fix prices, restrict supply or acquisition, allocate markets or customers, or rig bids. It is prohibited regardless of the effect on competition or the purported beneficial goal. Examples of conduct that may pose competition law risks include agreements between competitors to:
- restrict the acquisition of products or services from companies based on their emissions profile or environmental track record;
- limit the supply of products or services that involve environmentally unsustainable practices; and
- implement common industry standards or a code of practice.
Australia has a process through which corporations can seek authorisation for conduct that would otherwise breach Australian competition laws. The ACCC will authorise conduct if it is satisfied the likely public benefit from the conduct outweighs the likely public detriment. Public benefit can include increased economic efficiency and environmental benefits (eg reduction of greenhouse gas emissions).
Examples of arrangements that have been authorised by the ACCC include:
- New Energy Tech Code (NETCC): In December 2019, the ACCC authorised the NETCC, which sets minimum standards that suppliers of 'New Energy Tech' products (eg solar panels, energy storage systems) must comply with when interacting with customers. The ACCC granted authorisation because it considered there to be a public benefit in providing higher standards of protection for consumers in their dealings with New Energy Tech vendors and finance providers.
- Joint tender of green energy: In March 2016, the ACCC authorised Melbourne City Council and 13 other entities, including three other local councils, two tertiary education institutions and two banks to establish a joint electricity purchasing group to pool their energy demand and jointly tender for green-electricity supply arrangements.
- Greenhouse gas emission limitation arrangements: In September 1998, the ACCC granted authorisation to the Association of Fluorocarbon Consumers and Manufacturers Inc to limit the importation of hydrochlorofluorocarbon gases and cease the importation or manufacture of disposable containers of hydrochlorofluorocarbon and hydrofluorocarbon gases.
There are examples of the ACCC taking cartel enforcement action in this area.
In 2013, the ACCC took action against laundry detergent suppliers and Woolworths for allegedly colluding to cease supplying standard concentrate detergent and simultaneously moving to the supply of ultra-concentrate detergent. Despite the environmental benefits of this action, the ACCC prosecuted the conduct due to concerns it would deny consumers a variety of choice. Some of the alleged participants admitted that their involvement amounted to cartel conduct. In relation to one of suppliers, PZ Cussons, the ACCC was ultimately unsuccessful in establishing a breach of the competition rules.
Corporations looking to cooperate with other businesses on sustainability issues should first seek legal advice before engaging in these discussions. If discussions with competing businesses take place, appropriate controls should be implemented. For example, the discussions should follow a written agenda, minutes of the discussions should be kept and competition law guidelines should be put in place.
Before engaging in these discussions, you should consider the following:
- Does the legal team have sufficient visibility over the sorts of engagements which your sustainability and technical teams may be having with other industry members or market participants?
- If no, do you have processes and procedures in place to inform your sustainability and technical teams of the risks that such engagement poses?
- Do any such discussions involve competitors or potential competitors?
- Will they involve discussions around pricing, restricting supply or acquisition of certain products or services, allocating markets or customers, or bid rigging?
- What is the intended outcome of these discussions? Could it lead to the alignment of commercial strategies?
- If so, has legal advice been sought? Have you considered whether ACCC authorisation is needed?