Believe me – it’s not about the law, its ALL about the law.

We can all try our hardest to reduce our personal emissions but in the end there is one small law, that is the line between the mega companies collaborating to find brilliant new solutions… or being banned to do so. 

Grant Murray is an expert in competition law for Baker Mckinzie the largest global law firm. 

You see it is against the law for companies to collaborate to find incredible solutions to the climate crisis. Amazingly C-19 has forced Governments to suspend this law to allow the big pharmaceutical companies to collaborate to find a vaccine for us all. So

What is this law?

How can we change it?

And don’t switch off yet – it is really is interesting to know about 

Jeremy [00:00:05]1 You would think right now that finding a vacine for the Corona Virus would be relatively straightforward knowing there are some very big and very profitable pharmaceutucal drug companies that spend millions on research and developemnt and have thousands of scientists who could re direct their efforts to solving this problem. Well we could say the same about the efforts so far to solve the climate crisis by developing electric aeroplane engines or recyclable clothing or longer life lithium batteries were the big global multinationals could collaborate to crack these problems. Actually it is legally extremely risky for companies to work together like this due to a simple, not often discussed, commerical law that prohobits companies in most countries of the world talking to each other, about anything and everything with a few exceptions. It is called Competition law. This law, can be found in most trading blocs in one form or other seeks to protect consumers from companies collaborating and by so doing control consumer prices, supply and demand or the quality of goods and services. This is clearly a good thing and the penality fines for abuse are huge – often a share of the total sales of a company. That is a cost few companies are willing to risk and means managers are extremely cautious about contacting each other, without lawyers being present. This fear of fines and this law also means that the very companies who have the skiils, scale, money and infllience to solve some of our climate crisis do not collaborate to solve them. We are in a catch 22. I believe that solving the climate crisis is far less about banning plastic bags, good though that is, but far more about changing the financial, tax and regulatory rules that govern business and through these change our corporate and consumer behavioir. So today dont turn off the podcast when I tell you I am speaking today to an expert in competition law. Grant  Murray[0.0s]

Grant [00:00:06]So I’m a lawyer, Baker McKenzie in London. And my role is that I’m head of no knowledge for the firm’s global antitrust and competition group. So I’m a competition lawyer and I have the responsibility and you might say luxury as well of looking across the panorama of competition all across the world where we’re active. Joining the dots, looking at cutting edge issues and trying to make sure that we are up to speed both internally and externally with regard to those cutting edge topics. [35.0s]

Jeremy [00:00:44]3. So Baker McKenzie is the worlds largest international law firm and as such has clients across all industries across all the worlds major economies. Grant is therefore perfectly placed to give us an insight on the role of competition and antitrust law and its role in either helping or hindering environmental action by corporations and even governments for that matter? So how does Grant explain what competition law is to us non lawyers: [0.0s]

Grant [00:01:41]So competition law is an area of commercial law, which is about ensuring that companies compete against each other. So it’s about ensuring that process of rivalry between companies that is constantly forcing them to steal a march on each other, to drive down prices, to increase quality. So that, you know, I have got the best smartphones, we’ve got the fastest Internet speed. So it’s essentially fundamentally it’s about consumer welfare and making sure that consumers get the best deal. And the economics of it is that when companies are competing hard against each other, when they are always trying to gun each other out to each other, then you you get that rivalrous force and that leads to better outcomes for consumers. [51.2s]

Jeremy [00:02:43]4. Well that sounds a laudable goal to champion the rights and welfare of consumers as Grant puts it, but to test this I wandered what would happen if we did not have it  [0.0s]

Grant [00:02:45]If you have ever moved from one country to another country, maybe got off a plane and found that your internet speed is down or that maybe suddenly the transportation network is a lot better than it may well be because of the state of competition law, policy and enforcement in that [18.8s] [00:03:05]country. So it’s important because it. Reduces prices and it leads to innovation. Give it if it protects and drives innovation [15.5s] [00:03:23]between companies so that you get better outcomes, better products, faster Internet speed, more efficient outcomes. [7.6s]

jeremy [00:03:32]5. I like Grants story about arriving in a country and that the services and prices can be affected by the quality and application of competition law, which I know is pritty rigoursouly applied in Europe and the US for example so there are clearly differences between countries [0.0s] 

Grant [00:03:42]there’s so there’s no international law as such. So each country or grouping like the EU has its own law and there’s also competition law at the level of member states. There is a lot of commonality even between vastly different political systems. There is actually quite a lot of commonalities. It’s based on funding the fundamental economics, which is that companies compete against each other would deliver those low prices. So there is quite there’s quite a lot of similarity. There are some notable differences, though. In some countries the political will to enforce is is much greater. In some countries, getting it wrong can put you in jail, whereas in other countries that’s not the case. And in some countries more than others, there is a more more sophisticated economic approach to it. Other countries might be a bit more formalistic. [53.6s] 

Jeremy [00:05:01]6.T7 So when I worked for multinationals like  L’Oreal we would do an annual multipel choice test on competition law to ensure we were always very alert to the dangers of inadvertantly stepping on the wrong side of the competition law because we knew the penalties could be enormous as Grant explains? [0.0s]

Grant [00:05:03]So in the US, individuals can go to jail and the same in the UK is that they can go to jail for a pretty long time. Companies can be fined enormous amounts of money. We’re talking about in the hundreds of millions, if not billions, it’s up to 10 percent of group worldwide turnover. So in the EU that means that a big fine for a serious cartel like price fixing infringement could wipe out a year’s worth of profits quite easily. Plus the companies then exposed to follow on damages. So if you are not getting your multiple choice questions right, then you may be exposing yourself as individual in that company. As a director, you may be exposing the company to large fines. And the victims that have overpaid as a result of the price fixing, for example, are able to sue in court. And in the US you can get trouble damages. So massive, massive deterrents. [56.6s]

Jeremy [00:06:07]7. T8 We can see that price fixing is an area of focus for regulators and this would be an issue if high polluters could artifically keep prices low so that new environmentally cleaner solutions were not able to fairly compete,but there are other ways that competitors could collaborate to block new entrants [0.0s]

Grant [00:06:09]So we tend to think about the most serious types of infringements are those that can be entered into between competitors. So price fixing is the classic example. You think you’re getting a good deal, but actually the companies behind the scenes have fixed the price. So as a consumer, you don’t benefit from that. The other type is a little bit like drug dealers on the street market sharing. [26.9s]

[00:07:07]bid rigging where companies maybe take turns in terms of winning public tenders or collective boycotts where they decide as a group to not deal with a new entrant that might be shaking things up. And so they want to freeze them out of the market. [16.4s] 

Jeremy [00:09:30] 8.T9  Llistening to these other aspects of the law i can imagine that by promoting competition and ensuring that encumbant companies cannot collude to exclude new entrants is good – and i wander then if Grant believes that competition law can actually promote environmental solutions ? [0.0s]

Grant [00:09:35]competition law can certainly help because companies will compete in order to provide more environmentally friendly outcomes to consumers. I mean, there will be often situations where companies will want to disrupt individually and that process of competition is going to deliver more environmentally friendly outcomes to informed consumers. So that’s that’s clear. So competition can can really drive. That. [30.7s]

Jeremy [00:10:27]9. T10 My concern is that there are some areas where a collective action is needed by existing companies and it is not about waiting for a new entrant to come and disrupt, [0.0s]

Grant [00:10:28]But the reason the reason that I think I’ve got my most interested in this area is that actually there’s some things for which the market the market doesn’t provide the answer for, even for even the most efficient and consumer oriented company [19.4s] [00:10:52]not gonna be able to make wholesale and lasting change. [4.3s]

Grant [00:10:58]Let’s say to forests or to fisheries, [2.7s] 

Grant [00:11:38]and so that is where a type and degree of collaboration between companies may be necessary. And that is where sometimes it doesn’t sit well with competition law. And I I think that’s where we need to see some changes and some improvements. [15.9s]

Jeremy [00:12:49]10. T11 I can definitely see that change is needed if we are going to break out of the impasse we are in and I have an example to test with Grant. Imagine I run a company as a CEO and want to move to a more sustainable solution. I can see know in the short term this will increase my product costs, I therefore i will not be very motivated to do this, if the result is I lose sales to a cheaper competitor. However I would not lose sales if all the major leading competitors agreed to move to this same solution. This is like everyone moving to a new industry standard such as forty years ago having all cars sold with seatbelts. I would like to know if Grant feels this would be anticompetitiive if i tried to get all the competitors around a table to agree to this move.[0.0s]

Grant [00:12:50]Yeah, I can picture that scenario. [1.9s] [00:12:54]any to any time where an arrangement involves reducing quantity or increasing price can get you into that situation. [8.8s] [00:13:22]These are the sorts of things where they don’t necessarily sit that well with competition law because they are efforts which might result might not always and it’s hard to talk about in the abstract, but are situations which might result in the use of a more expensive method than would use the purchase of a more expensive input, and therefore agreeing to do that may increase the costs for consumers, [30.5s] 

Jeremy [00:13:57]11.T12  So if we take the EU for example which siged the Paris Climate accord. What is the potential course of action that I as a company can take if I am seeking to collaborate across industry to remove lets say plastic packaging and replace it with a new emerging bio degradable material which is presently more expensive. Yet I know that over time with scale and production efficiencies the costs will eventually come down, so yes the consumer will see an initital price increase, but the cost will decrease and return to the original cost or lower over time.. [0.0s] [00:13:57] [0.0s]

Grant [00:14:01]There can be some difficult competition law questions to answer, and the EU is one of those afraid because coming back to what you’re asking me about how the law applies. The European competition laws have developed quite a lot of presumptions and quite a broad approach to characterizing certain types of collaboration between competitors as inherently anti-competitive. And that broad approach is a problem because when you come to these sorts of initiatives that have laudable aims and societal goals, [35.9s] [00:14:40]they can sometimes fall within or be at risk of being overshadowed by these presumptions which have essentially been developed out of legal expedience. [9.8s]

Jeremy [00:14:50]12. T13 Now Charlie Simpson in our first podcast told us that battery technology is becoming so expensive that no one company has the resources to make affordable solutions and that only countries as large as China and the US can compete in production. Strategically for Europe this could be dangerous as Europe does not want to be excluded from supply so the line between collaborating in a joint venture versus anti competitive collaboration needs to be clarified [0.1s]

Grant [00:15:39]Well, I think that’s probably a bit different when it comes to a joint venture to develop technology to increase that that sort of wherewithal and infest infrastructure. I dont. I wouldn’t. Competition was certainly relevant in that context, but it isn’t. Thus does the sort of like pro-competitive activity that I don’t think would be in it. That’s that’s that’s a that’s quite a mainstream normal activity where you need to take competition or advice. But it’s it’s it’s a bit different to the environmental agreement I’m talking about. [40.8s]

Jeremy [00:16:38]13. T14 OK so it would appear that creating a joint venture structure allows competitors to get around anti competitive laws which seems too easy – though joint ventures are often very hard to make happen and even harder to sustain successfully. [0.0s]

Grant [00:16:40]Yeah, competition definitely looks through the legal form to what’s actually happening. So you certainly know I do not wanna give the impression that by giving it a certain name you can avoid the rules. But I think what you’re talking about with the R&D is like a pooling of resources and integration of activities and pooling of know and experience and assets and funds. And yes, there has to be structure in the right way and you have to make sure that you’re not bringing together enormous competitors that would exclude others from the market and that what you’re getting out of it is an efficient, consumer friendly product. And that that’s a that’s a sort of stand standard merger control. Joint venture analysis. [44.6s]

Grant [00:17:26]But in contrast, where you have competitors that are agreeing not to use something or to do something which might increase price, even though it leads to environmental benefits is a bit different because they are that kind of arrangement very often does what very often can lead to an increase in prices if you’re reducing the amount of fish that you can pull out of the sea, or if you’re switching to a more expensive input or production process, then you can see how that leads to an increase in could lead. Increase in price. [44.6s]

[00:18:11]14. T15 So listening to Grant I am getting the sense the competition law has probably been developed and written by academic economists who have applied the theroies of supply and demand with elasticities of price and perhaps it lacks a coomon sense view required to accomodate a global challenge bigger than any one company   . [0.0s]

Grant [00:18:13]This is the point where I say that competition or has developed quite a narrow economic focus over the years and it’s quite focussed on economic efficiencies and so the environmental benefits that come from it. They avoided CO2 emissions, the cleaner air. Reduce traffic in these. These are things which aren’t always easy to to sort of shoehorn into the analysis. Whereas when it comes to a joint venture for producing a battery come producing function, then you may be able to see very clearly that there are benefits there. [40.9s]

Jeremy [00:22:25]15. T16 Now I hope I am not losing you on this podcast because we are really getting into the symantics of competition law and you may feel that this is either not very interesting, not exciting or not your thing. But I would ask you to stick with it, because I can see that this little spoken- about law can be the difference between us solving the environmental crisis or not. So just consider this as i probe Grant further to get to the bottom of this laws impact. Of course as consumers we want to get the best quality at the lowest price, but the best quality can now mean that we dont have palm oil that has destroyed the jungle, or use child labour being paid 6 pence per hour or things being made in factories pouring out pollution in India while we live in clean air cities in the west. These are harder to quantify but if a company seeks to collaborate to remove these issues at the start of the supply chain that will benefit consumers at end of the supply chain at the point of purchase, these are not necessarily recogonised by the law which mainly looks protecting the buying consumer  and not the producing person.[0.0s]

Grant [00:22:50]You can imagine a situation where there is an arrangement. It’s produces some qualitative benefits, environmental benefits, maybe cleaner air. But actually, maybe those benefits are felt by a different set of consumers to those that are actually paying a bit more for the product. [16.7s]

[00:23:23]But when it comes to something like the clean air, we all breathe it. We all benefit. And so what we’re lobbying for is to take a broader approach to the kind of benefits that can be taken into consideration and a broader still compliant with the caseload being radical here. But take a broader view of which consumers can benefit. [21.1s]

Jeremy [00:23:44]16. T 17 this is really really important – because we can now see that in a global economy where production is lets say in smog filled China and the products are purchased in the UK where facotry emission laws are tougher and so production costs are higher – competition law somehow needs to take into account the cost to the environment of achieving lower prices for the consumer – because these can be achieved at a very high cost to the enviroment that in the end will indirectly but absolutly impact the end user  [0.0s]

Grant [00:25:02]you’re absolutely right. So it’s this there is the fear of competition or there’s the fear of the perception that competition may apply. And that is why we would like the European Commission to take the lead and producing clearer guidelines that explain when certain objectives and initiatives will not fall within competition law. So that so that the CEO that you that you described would not feel that there is a risk or that that or would find him or herself in a situation where the lawyers can give less conservative or or stronger advice and say, well, actually, what you’re doing is a discussion with a competitor, but it does not fall within competition law because it is a loose commitment. It does not affect a key parameter of competition. The any increase in cost would be competed away in a certain market or going beyond conversation and thinking a bit more about the details. [68.1s]

[00:26:11]If if if there were ways and means of identifying and quantifying environmental benefits, avoided CO2 submission emissions to give example again, then you can begin to see how the the the legal advice can be. That can be a bit better. But it is that perception is it is is real. There have been cases in the past where companies have got into trouble often because they have begun to talk about legitimate things, but then conversations have strayed off course. [37.2s]

Jeremy [00:26:48]17. T18 It has not taken us long to see that this is an important subject to address and I want to understand where the authorities are on updating the law to accomodate all we have discussed.. [0.0s]

Grant [00:26:52]So I meant a nongovernmental advisor to the International Competition Network, which is a grouping of the world’s antitrust authorities. And I know that they are talking about this this subject in their next meeting. But it is it comes up within the context of cartels and greenwashing, which which shows a degree of scepticism about this. And, you know, to them, that’s well-placed because they’ve seen the cases. [26.6s]

Jeremy [00:27:19]18. T19 Well it is frustrating to hear that Grant knows of cases where companies are using greenwashing as an excuse to get around competition law, not to improve the environment but to make more profits, but I am sure there are more honest companies too. [0.1s]

Grant [00:27:25]I also know that there are many companies that are wanting to do the right thing. And so better, better go clearer guidance on what falls outside the law about what benefits are in scope, how to quantify them. And actually authorities like the European Commission acting as leaders in the global field on this,. [19.7s]

Jeremy [00:27:46]19.T20 It is good to hear that the EU is taking a lead, but since we have discovered this is about the end to end supply chain, companies need to know that the law will be applied in the same way in the countries they make products as well as those they sell them in. [0.0s]

Grant [00:27:46]Because there’s also a risk of forum shopping where you might be tempted to go to one authority rather than another. [6.3s]

Grant [00:27:54]there’s also a horrible possibility that while one authority might take one view, another authority perhaps with a political overlay might take a different view. So coming back to your earlier question about is there a global law or is it. No, we are in a fragmented world and leadership and clarity in this area, I think is really key so that that the CEO that you mentioned, he wants to do the right thing is not put off for the wrong reasons. [30.1s]

Jeremy [00:29:20]20. T21 What I can imagine from drilling into this as we are, is that there needs to be a new clear policy that is articulated and ringfenced in competition law around conversations between companies concerning environmental and emissions activities. These should not be in conflict of course to normal competition law, but clearly and separately articulated to remove ambiguity and accelerate action[0.0s]

Grant [00:29:22]Well, I guess I’ll give the classic legal answer, which is yes and no, which is how I know where you’re coming from, which is that we need to see some kind of change in and current clarity. [11.5s] 

Grant [00:31:01]Just because you’re trying to do something for societal benefit doesn’t give you a carte blanche to do whatever you want. I mean, that’s when you could get into the I think the the danger of the greenwashing argument. But rather what I’m talking about is actually going back to the case law and updating guidelines to take a more worldly approach, which is actually consistent with the law. So in my mind, I think about it. First of all, being clear about what does not fall within competition law, which is really very helpful because you don’t have to go to lawyers and spend lots of money on that. [39.7s]

Jeremy [00:31:41]21T22 .I can see that this is getting really quite complicated and legal, in the sense that it is hard to change and write new law and it will take a long time to get governments to endorce these. I can also see that the definition of what is a true environmental action that justifies competitive collaborations can be difficult to define and open to abuse. Grant then raised another issue around when the benefits of an action linked to reducing the impact on the environment can be legally measured and tested within the rules of these laws [0.1s]

grant [00:33:53]there’s also the question of [1.0s] [00:33:57]when people benefit. And this is where I think the the you know, the timeframe is really important. We are used to wanting to see good evidence of efficiencies happening soon. We need you know, it’s understandable that competition authorities cannot base their very important decisions on highly speculative events. But I think that sometimes companies will need to change consumer behaviour. And that may only happen over time when consumers have in time realise that actually there is a value to what they’re buying. And also, some of these benefits that we’re talking about may be benefits that are conferred on the next generation. And so thinking in those terms, thinking more broadly and thinking and more longer term, but without without being radical, without suggesting a departure or exemptions from the law or without trying to make it sound as though we’re trying to trying to exempt greenwashing initiatives from the law, I think that I think there is a middle ground there. [68.4s]

Jeremy [00:35:23]22.T23  It is true that we need to take actions now that might in some cases only have a measurable impact in years to come. But the Corona Virsus has occured since this interview was done and we can all see that blue clear skies have appeared much quicker than expected over the likes of Dehli, Vennice and Beigjing so perhaps cleaning the environment wont take so very long. But as a listener you are probably feeling a slight sense of dispair that the urgency we need to stop global warming is not where the regulators are and that amending competition law to accomodate this new reality is just not going to happen any time soon . [0.0s]

Grant [00:35:23]Well, I think there is I mean, there is a sense of urgency. And one argument that you can hear from some authorities and agencies and individuals is that this is better left for regulation, which is just, I think probably better in many ways. But can we wait for the world’s democracies to achieve consensus? I’m not sure if we can the what can be done at the moment. The European Commission is consulting in this area is just on some guidelines, not a you know, not not a major change to the law, but it is looking for and it’s very open to hearing about the frustrations from companies. What what has put off that CEO from making a phone call from from engaging in these laudable things? Why? What can. So are looking for the European Commission to to provide ways, you know, with our input and the input of companies provide provide more guidance on what falls outside law. That’s the first thing there is that consultation going on right now. And the other thing that’s happening is that, I mean, people are going to speak to competition authorities and governments about this sorts of thing. But very often it doesn’t come to light. [9.9s] [00:36:44]So shedding light on what is happening behind closed doors would be great, happens in all sorts of other areas of competition law where the authorities will publish something every few months and say, look, we’ve had these issues and this is the outcome. So hearing about some of the positive but not necessarily positive, maybe in some situations they would have said, you know, we’ve got issues with this for the following reasons, but that information is really not out there at the moment. So that would that’s an immediate thing. And I think it’s up to the competition authorities as well to help work with economists and the legal industry to find these non-radical ways of quantifying qualitative benefits. So move beyond just thinking about the price and those efficiencies. But how do we and how can we as advisers and companies put a number on avoided emissions or other non-economic, if you put it that way, benefits in these? So there are some tangible things that we can do to give us the levers to do the right things for the competition. What doesn’t? Well, the perception of competition law doesn’t stand in in the way. And then working together. So this international competition network I mentioned, it’s on the agenda that OEC deals will have a hearing on this where an extremely passionate and persuasive speaker, Simon Holmes, will be speaking on this event at that event in Paris later this year. So there is a sort of a culmination coming together, coalescing off of government and and regulatory bodies. And I think taking that more worldly. Roache to the kind of benefits that can be taken into consideration. Who can benefit from them and and the timeframe. I think these are levers that will help now. [94.3s]

Jeremy [00:40:39]23.T24  So if we imagine CEO’s or other Corporate leaders are listening to this podcast. We always want to offer some tips and tricks that they can put into practice straight away. So what ideas does Grant have to offer for them to reach out to competitors to reduce their impact on the planet together but not fall foul of competition law [0.0s]

Grant [00:40:41]Yeah. No. So really, it’s a really good question. And I would really hope that people are not put off by competition because I don’t think any competition lawyer or any competition agency wants to feel that they are an obstacle to doing the kind of positive thing that you have in mind there. There are there are things that can be done and clearly it’s hard to say in the abstract. But as long as companies are keeping away from discussions with competitors about really the most sensitive things, which would be, you know, the stuff that’s intuitively commercially sensitive and strategic prices quantities. Future commercial strategy, then, you know, that’s the that’s the first point. And then in terms of wanting to achieve change collaboratively, I mean, there are the voluntary standards can be very effective. If they are structured in a certain way, then it is possible to develop a voluntary standard which can be massively influential and bring change. And there can be competition, remaining competition between companies in terms of how they promote and meet that standard. [29.5s]

Jeremy [00:41:56]24. T25 it is clearer now that companies within an industry can leverage their industry associations and other external agencies to create a new industry standards for operations that are less harmful to the planet. Of course companies can then comply voluntarily, be mandated or find that consumers migrate to the common standard [0.0s]

Grant [00:41:57]The information exchange between competitors is the other pitfall. But there again, there are always ways of managing that because one of the things that I think you’ll want to do is show the markets, show stakeholders. So investors show consumers that you’re making the changes so you may want to benchmark against competitors or the industry. And there are ways of doing that that would be compliant with competition law. So I would not be put off. I think that when competitors are talking to each other, it needs to be done with legal advice because there are if even with laudable and legitimate aims, we know that human nature can kick in and that people can become desensitized to the risk. So there’s a there’s an absolute compliance risk, but beginning with legal advice to talk about and there’s not an advert beginning with legal advice to talk to competitors about what can be done. I mean it. There are certainly ways of achieving this and staying on the right side of the law. [19.0s]

Jeremy [00:44:14]25. T26 To finish, competition law fits within a number of other initiatives such as the Paris accord and I wander if these other enviromental initiatives will ensure that change is on the way that will overcome some of the competition law challanges we have discussed [0.0s]

Grant [00:44:16]Yeah, there is. And it is it is fantastic that the consultation that I mentioned earlier about the competition rules as they apply to competitive collaboration comes at almost the same time that the commissions announced the European Green Deal, which is incredibly ambitious, seeking to make Europe the first climate neutral Concerta continent by 2050. And there are many aspects to that very brave and ambitious aspects. And it is fantastic to see that competition policy is specifically called out as something which could help in that regard. So I think that we have the right backdrop to to make some to make some important changes in the short term. I want to thank Grant for his very informative and knowledgable insights and I want to thank you for sticking to this podcast right to the end. I really hope you leave today feeling much better informed and may even discuss it with your employers, shareholders and lawyers.