Doing good well

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Antitrust law seeks to promote efficiency and economic welfare. But companies may want to collaborate to advance other social objectives. I recently spoke at a program entitled “Antitrust Law and Corporate Social Responsibility,” hosted by the Council for International Business. The purpose of the program was to discuss whether and how companies can work together to achieve social welfare goals—such as environmental objectives, health and safety objectives, or labor objectives—without running afoul of the antitrust laws. I made two key points.

My first point was that although there are many laudable social welfare objectives, the pursuit of those objectives through joint action by competitors violates U.S. antitrust laws if the joint action involves per se violations of those laws—that is, if the conduct is of a kind that almost always restricts output or increases prices—or if, on balance, the collective action harms competition under a rule of reason analysis. But my second point was that antitrust law nevertheless leave plenty of room for well-structured joint efforts to advance social welfare goals.

In general, collaboration among competitors does not raise antitrust concerns unless it constitutes or facilitates output reductions or price increases, or reduces competition along one of its other dimensions, such as quality or innovation. Many activities of trade and professional organizations are competitively benign or competition-enhancing, and benefit consumers. But not all. For example, the FTC has challenged trade association conduct that it concluded restrained price or other competition among competitor-members without providing countervailing economic welfare benefits to consumers. Courts—and the FTC—have rejected social welfare and public safety concerns as justifications for restraints on competition. See In re North Carolina Board of Dental Examiners, Dkt. 9343 (Commission Opinion at 24-25).

To help navigate these issues, FTC staff has provided guidance to businesses on the antitrust implications of specific proposals in the form of staff advisory opinions. For example, in 2007, a non-profit group of coffee growers, roasters, trade unions, NGOs and others, proposed to adopt a Common Code for the Coffee Community “to foster sustainability in the mainstream green coffee chain and to increase the quantities of coffee meeting basic sustainability criteria” by, among other things, promulgating best agricultural practices, decent and humane working conditions, and reduced use of harmful chemicals. In a staff advisory opinion, staff of the Bureau of Competition indicated that we would not recommend an enforcement action if the group adopted its proposed plan of action, making four main points.

  1. Although we ultimately assess the effects, not the intent, of an agreement, the goals of the Code did not appear to be either directly or indirectly anticompetitive. Under those circumstances, identifying and sharing best practices was not likely to create substantial risk of competitive harm. Indeed, we observed that sharing best practices among industry members might increase productive efficiency, and sharing information about green coffee with consumers could provide useful information that might inform their choices.
  2. Industry members would participate in the Code but each member would continue to make competitive decisions—such as buying more green coffee—on its own. At the same time, we cautioned that if U.S. coffee roasters and distributors later agreed to purchase specific quantities of more expensive coffee beans than they otherwise would have purchased, that might create antitrust law exposure.
  3. Information collected and exchanged would be aggregated so as to prevent industry members from discerning information about their competitors, which might facilitate an anticompetitive price or output consensus.
  4. Other aspects of the Code, such as advancing humane living and working conditions, did not directly relate to price competition, and industry members’ adherence to those objectives appeared unlikely to inflate the prices U.S. consumers paid for coffee.

Joint development and sharing of information among competitors was central to a 2010 request for a staff advisory opinion by a consortium of pharmaceutical manufacturers. In a staff advisory opinion to the Rx-360 International Pharmaceutical Supply Chain Consortium, we assessed the Consortium’s plan to implement a shared audit program to promote pharmaceutical ingredient quality and safety and permit pharmaceutical manufacturers to share the costs of quality and safety audits of common suppliers. To begin, we cautioned that, the sharing of competitively sensitive information among competitors can facilitate the development of a competition-limiting consensus. On the other hand, information exchanges also can reduce producer costs and enhance competition. Therefore in evaluating the Rx-360 proposal, we weighed the capacity of the proposed conduct to facilitate anticompetitive outcomes against its tendency to further procompetitive ends. Ultimately, the staff advisory opinion concluded that the Bureau would not recommend that the Commission challenge the proposal if implemented.

The Rx-360 Consortium proposal contained a number of safeguards, such as the use of independent auditors, redaction of competitively sensitive information, voluntary participation by audit sponsors and auditees, and independent decision making by firms in receipt of audit findings. We found that these features cabined the audit programs in ways that limited members’ ability to use the programs for anticompetitive ends. In addition, the proposed audit programs seemed likely to generate cognizable cost-savings, such as reducing the costs of duplicative audits at common supplier—savings that might be passed through the pharmaceutical supply chain to consumers.

Proposed collective actions by competitors, even for the purpose of promoting laudable social welfare goals, are proper matters of antitrust concern. But the antitrust laws do not necessarily preclude collective action in pursuit of social welfare objectives, either because the programs do not threaten competition among the participants or because, on balance, any potential harm to competition is outweighed by enhanced competition and economic welfare benefits to consumers. Any group considering a social action plan that is concerned about potential antitrust exposure can ask for guidance from FTC staff in the form of a staff advisory opinion or the Department of Justice’s Antitrust Division, which has a similar business review program.

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