Reshaping Your Supply Chains to Mitigate Antitrust Risks and Leverage Opportunities

With trade wars, changing patterns of trade, technological innovation and increased stakeholder scrutiny on the environmental and social impact of supply chains, it is no wonder that supply chain management continues to attract high levels of attention.

Sittinan Adobe Stocks Imports
sittinan - Adobe Stocks

With trade wars, changing patterns of trade, technological innovation and increased stakeholder scrutiny on the environmental and social impact of supply chains, it is no wonder that supply chain management continues to attract high levels of attention. Add to this the security of supply concerns that have arisen globally during the Coronavirus disease (COVID-19) pandemic and it is evident that many businesses have faced, and continue to face, strong headwinds in 2020 and beyond in relation to optimizing and improving the resilience of their supply chains.

Antitrust issues in the supply chain

New approaches and commercial models are emerging, but this is one of those areas where there remains quite some divergence among antitrust agencies globally, so what works in one place may need to be adapted elsewhere, especially when you have actual or potential competitors in your supply chain.

  • Joint ventures, strategic alliances and other arrangements with (actual or potential) competitors need careful design. Joint purchasing in the presence of market power can be problematic, as can arrangements for access to IP and know-how and data collection and exchange. Information exchange between competitors always attracts scrutiny and is attracting increasing attention where platforms compete downstream with their own business users.
  • Some vertical arrangements, made between companies at different levels, can also raise antitrust scrutiny. With suppliers increasing the volume of direct online sales they make, many of the contractual provisions they may wish to use with their independent distributors can be void or attract fines. Pricing restrictions – not only traditional re-sale price maintenance (RPM), but also newer types of arrangements prevalent in online commercial relationships such as restrictions on selling through particular types of online platforms such as marketplaces, bans on brand bidding, most favored nation clauses (MFNs) both "wide" and "narrow" – continue to be a key enforcement focus for many agencies globally.
  • Firms that are dominant or hold a strong market position need to be particularly careful that measures intended to secure supply, such as exclusive or long-term contracts, do not foreclose competitors from obtaining supplies. Similarly, if they amass large amounts of data, questions may arise as to whether they have an obligation to grant competitors access.

Around the globe: similar but different

While many of these concerns are relevant in most jurisdictions, there are also significant differences around the world – and some changes on the way – that will affect business in 2021:

  • While U.S. enforcement remains overall relatively relaxed toward vertical restraints, it does have certain unique features such as the law prohibiting price discrimination as between retailers (the Robinson-Patman Act), which may make per se illegal the privileging of certain types of distribution outlets over others. U.S. courts and authorities also treat vertical practices leading to horizontal collusion ("hub-and-spoke" arrangements) as severely as those anywhere else.

·      In China, new guidelines on the automobile sector and proposed guidelines for the platform economy make it clear that not only RPM, but other vertical restrictions such as parity clauses and exclusive dealing previously dealt with largely in the context of dominance, are of increasing interest to the Substitution Augmentation Modification Redefinition (SAMR). Its enforcement activity has been developing very rapidly in the last few years and looks set in 2021 to cover an increasingly broad range of conduct and practices not only in the digital sphere but also much more widely.

·       The EU has been reviewing its rules on supply and distribution agreements, and there are now the first indications of where a change of approach is likely, particularly for agreements that are common in relation to platforms and other digital businesses. But, the traditional focus on RPM, in particular in many EU national authorities, continues unabated.

·       When it comes to Brexit, in the immediate term, most conduct previously illegal will remain so in 2021, and the EU block exemption for distribution agreements will be retained in UK law until its expiry on May 31, 2022. While the medium term could well bring gradual divergence between EU and UK competition law, the certified management accountants’ traditionally rigorous enforcement in this area is unlikely to diminish.

New EU distribution rules will take shape in 2021

Some distribution practices are treated differently in different EU member states. An overarching concern behind the current EU review is therefore to ensure consistency across national authorities and avoid divergent approaches. In particular, there are important differences in the context of online sales, for example, in the treatment of bans on sales on online platforms, the United States of price comparison websites, parity clauses and online advertising restrictions.

Possible features of the revised rules discussed in the latest public consultation include:

  • Increased generosity for non-compete clauses, different prices and terms for supply of goods for online sale and efficiencies generated by RPM;
  • The removal of the benefit of block exemption from (some) price parity clauses;
  • Removal or narrowing of the exemption for dual distribution (when a manufacturer competes with its retailers), or else extension of the exemption to cover also wholesalers/importers who compete with their retailers; and
  • Exempting certain active sales restrictions to give more protection to selective distribution systems.

Other issues have also been raised by stakeholders:

  • When can a platform benefit from the rules that take agency arrangements outside the scope of antitrust prohibitions;
  • Selective distribution, or the legality of online sales and advertising restrictions, including those on U.S. third-party platforms and price comparison sites and on bidding for search terms;
  • The implications of information flows in dual distribution situations; and
  • The distinction between active and passive sales.