July 11, 2014
Well summer is here and I have to admit that my blog output has slowed a bit (and likely will through the summer). Nevertheless, on my daily media and competition authorities sweep earlier I read what I thought was a rather interesting note by the Irish Competition Authority on collective action by voluntary trade associations: What’s the story … with the IMO representing their members?.
This plain language note, in the context of a settlement with the Irish Medical Organisation, set out I thought very well an issue that commonly arises in voluntary trade associations – namely, when can an association and its members collectively refuse to supply goods or services?
When voluntary trade associations step into the competitive aspects of their members’ businesses (that is to say organizations that do not have legislative authority to, for example, set fees, regulate the competitive aspects of their members’ businesses), there is a real risk that competition law issues may arise.
One of commonest potential competition issue that can arise being “boycott” or “concerted refusal to deal” issues where association members decide by agreement or arrangement to collectively refuse to supply services, engage in temporary supply terminations, etc.
This is because in many countries, including Canada, boycotts or concerted refusals to deal can challenged as a “per se” or “naked” type of cartel agreement in some cases (for example, under section 45 of the Canadian Competition Act – as a criminal output restriction agreement – or in the U.S. under section 1 of the Sherman Act).
In other cases, collective refusals by competitors to supply or deal can also raise competition issues that may require a closer look (e.g., in the U.S. under a more detailed “rule of reason” examination or in Canada under section 90.1 of the Competition Act, which prohibits certain types of competitor-competitor agreements that prevent or lessen competition substantially).
Why? As the Irish Competition Authority’s note I thought sets out very clearly, members of associations are not insulated from competition laws merely because they are professionals, are in a certain category of supplier (e.g., doctors, dentists, etc.) or simply regard themselves as “part of a regulatory scheme” or consider themselves “regulators”.
The threshold question, at least in Canada, is whether collective efforts by members of a trade association to refuse to supply goods/services, set fees, allocate markets or service offerings, etc. is required or authorized by validly enacted legislation. If the answer is “there is no legislation” that gives members the power to collectively refuse to supply, set fees, etc. then voluntary associations and their members need to tread carefully in the competitive aspects of members’ business dealings. In other words, there is an important distinction between “self-regulation” and having legislative power to regulate (including with respect to potential competition/antitrust liability/exposure).
On the other hand, however, with respect to collective refusals to deal, in Canada and other key jurisdictions (including the U.S.) not all collective or concerted refusals to deal will attract competition/antitrust law risk. For example, a “bare” or “naked” agreement among trade or professional association members to refuse to deal or supply services in order to obtain a price concession from a major customer, government purchaser, etc. may well raise serious criminal competition law concerns (i.e., criminal “boycott” conspiracy/cartel risk). In contrast, a decision by an association to refuse membership (i.e., to supply association services, grant access to association facilities, etc.) that is based on legitimate non-competitive grounds (e.g., objective and uniform ethical criteria, accreditation requirements, etc.) and is unlikely to significantly impact the relevant market may be considerably less likely to raise competition concerns.
In other words, whether a collective refusal to deal/supply by a voluntary trade association’s’ members is likely to raise any genuine competition law issues depends in large degree for the purpose of the refusal and, in some cases, its competitive effects or likely competitive effects.
Determining where “the line is” in boycott or concerted refusal to deal cases can be a wee bit tricky. But, based on the potential risk including criminal liability it is prudent for associations, their management and members to think carefully and get some advice if considering a collective refusal to supply some type of goods or services. Also, if a collective refusal to supply is based on a key competitive element, such as price, likely high risk indeed – i.e., associations and their members are well advised to get some criminal competition law advice.
Note on “boycotts” v. “strikes”: Finally, a short word about “boycotts” v. “strikes”. I sometimes see non-union companies or individuals “stand with” their union brothers in collective work stoppages. It is important to note that unless individuals or companies have the protection of the specific, fairly narrow and qualified collective bargaining exemptions under the Competition Act (which are generally limited to workmen/labourers that are members of trade unions or certified employer associations), collective work stoppages are generally still subject to the criminal and civil provisions of the Competition Act. In other words, merely referring to a collective work stoppage by competing companies as a “strike” or “solidarity” with unionized labourers/workmen will not mean the Competition Act does not apply. So again, if non-union individuals or companies are considering a collective refusal to supply or work stoppage, it is very important to consider whether the collective bargaining exemptions of the Competition Act even have any application.
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