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Publication

Federal Cartel Office publishes extensive guidelines on cooperatives and associations

Locations

Germany

Introduction

The Federal Cartel Office (BKartA) recently published draft guidelines on the conformity of cooperatives with competition law. As part of a public consultation, interested parties have been invited to comment on the 60-page document. The information is mainly directed at cooperatives although according to the BKartA, the extensive guidelines also apply to non-cooperatives and other associations such as purchasing cooperatives, distribution platforms and market information systems. In particular, the BKartA focuses on legal surrounding the increasing digitalisation of economic processes. According to the BKartA, such advancements require cooperatives to adapt and raise new questions for cooperative forms of collaboration.

 

Background

Germany's cooperative landscape is considerably varied. Some major housing cooperatives and many smaller and micro cooperatives in the social sector are in contrast with the cooperatives represented by the central cooperative associations which include:

  • banking (Cooperative Financial Network);
  • agriculture, divided into production (eg, fruit) processing (eg, dairies), and trading cooperatives (eg, main cooperatives such as Agravis);
  • trade/craft/service (commercial goods and services cooperatives); and
  • consumer and other services sectors.

According to the BKartA, cooperatives are "not privileged in competition law simply due to their legal form". Furthermore, they are "not exempted in principle from the ban on cartels", and there is "no cooperative privilege in competition law". This is evidenced by the numerous cooperatives involved in cartel investigations in the recent past.

 

Guidance on cooperative-member relationships

In its assessment, the BKartA differentiates between the market behaviour of the individual cooperative, ie, how it acts towards and on behalf of its members, and the behaviour between cooperatives themselves. The BKartA's guidelines mainly address the following topics:

Periods of notice/exclusivity
The BKartA is less critical of long periods of notice for cooperatives. However, if an exclusive relationship, such as procurement or supply, is linked to a membership, long-lasting relationships should be scrutinised, especially those in excess of five years. The market power of the parties is also relevant, particularly if their market shares are below 30%.

Price fixing
Competition law prohibits both horizontal price fixing between competitors and vertical price fixing by companies at different levels of the supply chain. It should be noted that regionally active companies may only be competitors in online retail, but not in the traditional business sector. According to the BKartA, cooperatives can recommend prices to their members and prescribe maximum prices, provided these do not have the same effect as fixed price specifications (so-called non-binding price recommendation – UVP).

Options for designing joint distribution platforms
In principle, the BKartA welcomes digital platform cooperatives and other forms of cooperative, such as purchasing cooperations, insofar as they lead to efficiency advantages, eg, better distribution of goods, but takes a critical view of uniform pricing. According to the BKartA, drop shipments could be a legal alternative under competition law. In this case, the purchase contract is not concluded between the retailer and the end customer. Instead, the platform acts as the seller towards the end customer. In this arrangement, the platform sets the retail price autonomously in competition with other online retailers. Furthermore, the separation of contractual relationships enables uniform pricing on the joint sales platform.

Exchange of information in market information systems
In the case of market information systems, the BKartA points out the need to sufficiently aggregate the data. The guidelines state a minimum five companies is generally needed. This applies in particular to produce a permissable average pricing under competition law, which becomes more robust as more companies become active on the platform.

In addition, market information systems, especially prominent ones, should be designed in a non-discriminatory manner. In fact, they may contribute to anti-competitive foreclosure effects if access to their information is essential for market entry and actual or potential competitors are denied access. A critical view is taken of excessively high costs for participation or certain minimum trading volumes as a prerequisite for participation.

Exchange of information in purchasing cooperatives
According to the BKartA, competition law takes into account that an essential purpose of many cooperatives is to combine the procurement volumes of their often small and medium-sized member companies and thereby negotiate attractive purchasing conditions. The exchange of information on the procurement side usually associated with this is regarded as less problematic under competition law if the joint market share of the participating companies is less than 15%. If the joint market share exceeds the 15% threshold, the effects on the market must be examined in detail, considering factors such as market concentration and possible countervailing power of strong suppliers. Provided certain information is essential for the joint negotiation of conditions, its exchange may also be permitted under competition law if the joint market shares of the members of the purchasing cooperation on a market exceed 15%. In principle, however, the BKartA takes a critical view of member access to entire data sets in the case of market shares of more than 15%.

Guidance on the relationship between cooperatives
The BKartA is generally critical towards territorial restrictions – the so-called regional principle. The ban on cartels also applies to the relationship between the main cooperatives. According to the regional principle, a cooperative is limited to one region, often historically to the area of activity of its members. The BKartA is more relaxed towards cooperation between cooperatives such as B2B Internet platforms and cooperations in production and distribution because digital trading platforms, for example, can provide easier access to information on product availability and delivery. The guidelines refer to assessments of the steel trading platform XOM, the cement trading platform ECEMENT and the agricultural platform Unamera as recent examples of such cooperation.
 

Comment

This is the first time that the BKartA has provided guidance of this nature. Following numerous proceedings against them, cooperatives are well advised to take these standards into account. Prior to the publication of a finalised version, cooperatives can try to obtain even more specific assistance by submitting comments and proposals to the BKartA. Therefore, it is important that the BKartA emphasises that not only cooperatives in the formal sense are addressed. Other cooperative groups, such as purchasing associations and other cooperations, should also consider the above standards.

For further information on this topic please contact Sascha Dethof.
 

Link

Guidelines on the conformity of cooperatives with competition law – public consultation
 

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