Competition Law and Trade Associations

Tags: Guidance Notes

Trade associations provide a forum for organisations working in the same industry to meet and to discuss common issues. Trade associations carry out many valuable and lawful functions which provide a public benefit: setting common technical standards for products or interfaces; setting the standards for admission to membership of a profession; arranging education and training for those wishing to join the industry; paying for and encouraging research into new techniques or developing a common response to changing government policy.

Activities conducted within such trade settings are, however, also subject to the competition rules and those taking part need to guard against the risk that such activities may breach competition law. As indicated by the present Chairman of the Office of Fair Trading, Philip Collins, at the Trade Association Forum annual conference in March 2010, trade associations should take an active role in making sure that they comply with competition rules. Indeed, potential members of trade associations will often want to be satisfied as to its association’s approach to competition law compliance before becoming a member. This article seeks to give some, hopefully useful, tips on how to stay on the right side of the competition law line.

The Law

In short, the UK Competition Act 1998 prohibits:-

“Agreements between undertakings, decisions by associations of undertakings or concerted practices which may affect trade within the United Kingdom and have as their object or effect the prevention, restriction or distortion of competition within the United Kingdom.”

Article 101 of the EU Treaty, which is in almost identical terms, prohibits such arrangements where they affect trade between EU member states.

In practice, the UK Act prohibits: competitors setting fixed or minimum prices at which they sell their goods or services; sharing customers; allocating geographic areas or customer types amongst themselves; agreeing to discriminate against certain types of customer (collective boycotts, for example) and agreeing common terms on which they supply.

The Act also prohibits some so-called “vertical” agreements, for example where a manufacturer seeks to set the resale price at which its dealer can sell (i.e. it prohibits resale price maintenance). The Act extends to exchange of confidential information between competitors as well as to agreements themselves, especially where the information exchanged relates to prices charged, particular customers to whom sales have been made and the terms of such sales. Exchange of information as to costs can also be caught. The Act also catches non-binding, “gentlemen’s” agreements. The term “agreement” also includes a trade association’s governing documents and extends to recommendations made by a trade association to its members.

Companies found to be in breach can be fined very heavily. In the recent tobacco retailing case the OFT imposed fines of £225 million on Imperial Tobacco and Gallaher and ten retailers, including Sainsbury, Asda and Morrisons.

Under a separate law, “hardcore” cartels practices, such as price fixing or collusive tendering (bid rigging) also expose individual directors and senior executives of companies involved to the risk of serious criminal sanctions which will not just be fines (Enterprise Act 2002). Three directors of companies party to the marine hoses cartel are serving sentences of between two and three years for involvement in a cartel which operated both here and in the United States.

Some Tips for Competition Law Compliance

Pricing

  • Members must not agree, or even discuss, their company prices, pricing policies, discounts or rebates; any exchange of such confidential price information which could lead to price co-ordination is prohibited.

Customer allocation/quotas

  • Similarly members of trade associations must not be involved in any discussion as to the allocation of particular customers to particular members or the imposition of quotas or caps on production.

Admission to membership of the Association

  • Membership criteria must be transparent, proportionate, non-discriminatory and objective; no competitor should be put at a disadvantage by being refused admission to the grouping;

  • not to accept applications should be properly documented with the reasoning behind the decision;

  • Note that membership criteria in a trade association’s constitution may themselves be in breach of the competition rules.

Exchange of statistical data/market trends

  • Trade associations must not be a forum for the systematic exchange of confidential information, which enable members to see each party’s share of sales, output, or the territories or customers to whom sales have been made;

  • It is, however, permissible to collect statistical information which provides an industry wide general overview of a sector and market trends – production, sales, exports, etc. However, it must not be possible to identify the prices or volumes of an individual competitor.

Technical standards

  • In principle, the development and recommendation of technical standards which set a high standard of consumer protection (for example, in furniture safety) will fall outside the Competition Act;

  • Similarly moves by an industry to set common standards, for example for interfaces, so that members’ products can fit or work together are normally pro-competitive. The important point is that such standards must be free and open to all to use (so called FRAND terms). There are some good precedents which show detailed rules and guidelines to follow where an industry sets common standards for its members products or services, so as to avoid infringing the competition rules.

Tips for the Conduct of Meetings

  • Competition authorities – the EU Commission, the OFT and national authorities of other EU member states – have very wide powers to collect information – whether electronic or on paper. It is therefore essential for a trade association and its members to observe basic rules of good housekeeping in its record keeping;

  • Set an Agenda which limits the possibility of sharing information which is commercially confidential to any member;

  • Try and stick to the agenda!

  • Take careful minutes, so there is a complete record of what was discussed at the meeting;

  • Make someone responsible for the conduct of meetings (in some cases it may be right to have a legal advisor present).

Adopt a Trade Association Policy

It is recommended that trade associations have a written competition law compliance policy. Indeed some members may ask to see such a policy document before deciding to become a member.

Policies should make it clear that members cannot discuss pricing or other commercially sensitive issues. They could also include guidelines on how meetings will be conducted, what topics can and cannot be discussed and how decisions regarding membership will be made. Copies should be given to all new members.

Some trade associations have short, regular, training sessions, at least once a year so that those who attend, especially newcomers to the meetings, are told of, or brought up to date on, the scope of the competition rules.

Conclusion

Competition law has always had an impact on how trade associations conduct their meetings. The increasing focus of both the EU Commission and of the OFT on breaking cartels, when heavy sanctions are imposed, increases the risk that a trade association is drawn into the investigation. However, the existence of competition law and of the risk of being drawn into a particular investigation does not mean that industry members should steer clear of membership. Trade associations do much very valuable work of public benefit: improving standards; help in education and encouraging research; acting as a counterpoint for evolving such government policies. These are all legitimate and valuable roles. Competition law simply means that members, and their representatives at trade association meetings, need to be very clear as to what they can and cannot do.

Edward Pitt and Philippa Hart

Bates Wells & Braithwaite London LLP

20 September 2010

Further information about competition law please contact any of the competition law team (Julian Blake, Edward Pitt, Selman Ansari and Philippa Hart) at Bates Wells & Braithwaite or any other lawyer with whom you normally deal at BWB.

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editor