January 15, 2013

In my inbox this morning, from one of the services I subscribe to, was a very good note on buying groups and U.S. antitrust law (Ten Practical Counseling Tips for Joint Purchasing Without Violating the Antitrust Laws) by Venable LLP.

This rather good and practical note discusses a recent DoJ business review letter for STARS Alliance LLC (an association of nuclear utility operators) and the application of U.S. antitrust law to joint purchasing activities by competitors.  In addition to an overview of the potential application of section 1 of the Sherman Act to concerted purchasing activities, this note also includes a number of best practices for joint purchasing activities to mitigate potential competition/antitrust law risk.

In reading the note, I thought that many of these best practices were also good counsel for joint purchasing activities under Canadian competition law including: (1) consult with antitrust counsel prior to establishing a joint purchasing program and periodically throughout the process to ensure compliance with the antitrust laws; (2) for trade associations, participation in the joint purchasing arrangement should be available to all association members and should not be limited by the size, type, or location of a member; (3) the program should not impose minimum purchasing requirements on members; (4) joint purchasing should not be used to raise, lower, or stabilize prices (or boycott suppliers); (5) any meetings of a joint purchasing group should have an agenda and minutes; (6) all discussions should be limited to the purposes of the joint purchasing group; (7) antitrust counsel should be present at meetings where competitively sensitive information is discussed; and (8) members should not share competitively sensitive information or enter any agreement or understanding on prices or other competitive conduct in the downstream market.

In Canada, since the Competition Act was amended in 2009, section 45 of the Competition Act (Canada’s equivalent to section 1 of the Sherman Act which deals with hard-core conspiracy agreements among competitors) is now focused on price-fixing, market allocation and output restriction agreements among competing suppliers.  As such, the principal competition law risks associated with buying groups in Canada are generally speaking three-fold:

1.  That a buying group may possess sufficient buying power (i.e., monopsony power) to substantially lessen competition in the relevant upstream purchasing market (see e.g., the Competition Bureau’s discussion of buying groups in its Competitor Collaboration Guidelines), thereby raising issues under section 90.1 of the Competition Act (the civil agreements provision).

2.  That the formation or operation of a buying group comprised of competing suppliers may raise issues or lead to the formation of an illegal agreement under section 45 of the Competition Act – for example, the exchange of competitively sensitive information during buying group activities results in a price-fixing or other prohibited agreement in the downstream market in which buying group members compete.

3.  That the structure of a buying group raises barriers for some competitors or association members to compete or makes it more difficult for them to do so, which could raise potential section 78/79 abuse of dominance concerns.

Based on the above, some practical tips for buying groups and their members in Canada to avoid competition law risk, in addition to those above, include:

1.  Consider the collective market share of the parties to the buying group arrangement to evaluate if any significant issues may arise in the relevant purchasing market.

2.  Evaluate the potential effects on upstream suppliers – for example, whether a buying group arrangement may have the effect of forcing suppliers to reduce the range/quality of products supplied.

3.  Establish guidelines to prevent discussions or exchanges of competitively sensitive information, which could lead to section 45 Competition Act issues.

4.  Use an independent 3rd party to negotiate with suppliers on behalf of buying group members.

5.  Establish objective and transparent criteria for buying group membership.


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