The cartelization of innovation – a new emissions scandal?

Consider the following hypothetical scenarios:

A group of suppliers of medical device equipment meet to draw up minimum clinical standards for intravenous devices.  

Competing media platforms meet under the auspices of an industry group to compare privacy policies and decide on best practice in tackling online copyright infringements.  

And a group of car manufacturers discuss clean emissions technologies and car safety features and – perhaps – decide on a common approach.  

These scenarios have in common that they may involve competing companies, and that they focus on conditions of competition other than price. 

Two of them are (to the best of the author’s knowledge) fictional examples.  (The author has, however, previously considered the potential impact of treating privacy as a parameter of competition.)  

The third scenario resembles – at least superficially, based on recent announcements – an ongoing cartel investigation by the European Commission.  It may be that the evidence gathered by the European Commission overwhelmingly suggests that the likes of BMW, VW and Daimler deliberately and jointly elected to use less effective emissions technologies than were potentially available, and might have been adopted by some of the companies if they had been acting separately (the Commission is focussing in particular on selective catalytic reduction systems and on a specific form of particulate filter used in petrol cars).  But it may be the case that the discussion was more subtle.  Perhaps the companies’ discussion led to the adoption of technologies which resulted in improved emissions cuts for some of the members compared to those which could have been achieved by some of the individual manufacturers, but did not match the most advanced emissions technologies which others were considering.  And perhaps overall emissions were reduced, compared to a counterfactual in which each company acted alone.  

Of course, it may not be the case that every pricing cartel results in all participants pricing above the levels they would have done in a truly competitive market.  It may even be that some result in lower prices for some participants – the key point under competition law is the coordination, and the resulting harm to consumers who cannot shop around.  But is it appropriate to treat non-price parameters of competition in the same way?  Innovation can often be fostered by competitors working together, with appropriate safeguards – see the success of mobile telecommunications developments, under the auspices of standards bodies such as ETSI (although as frequent posts on this blog make clear, that coordination gives rise indirectly to many areas of dispute).  Indeed, it is clear from the Commission’s press release that the investigation does not currently address all of the issues on which the car manufacturers worked together. Listed in the Commission’s press release are a number of other safety and quality issues, such as specifications for car parts and testing procedures, maximum speeds at which convertible car roofs will open or at which cruise control will work.  The press release specifically states: “EU antitrust rules leave room for technical cooperation aimed at improving product quality”, which is firmly in line with the Commission’s Guidelines on Horizontal Cooperation.  Nevertheless, it is already evident from recent abuse of dominance cases that innovation may not be immune from antitrust scrutiny (cases currently progressing through the EU Courts in which this question arises include Qualcomm and Google Shopping; see also our earlier commentary on ‘predatory innovation’).  The role of innovation in competitive processes now looks set to make a significant appearance in an Article 101 case.

The boundaries of object restrictions have been significantly tested in both the European courts (for example, in Cartes Bancaires) and in the UK (for example, last week’s Ping judgment) in recent years (see our commentary on these cases here, and here).  The emissions case, if it proceeds, is likely to test those boundaries once again.  It is also foreseeable that the case may provide a testing ground for the viability of efficiency defences under Article 101(3) – and, given the rarity of such defences, may afford a valuable insight as to the approach of the Commission and European Courts to such defences, in particular where non-price competition is concerned.

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