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How membership of collective organisations can attract scrutiny

Pola Karolczyk, associate and competition specialist at law firm Sidley Austin, explains how businesses can avoid infringements of competition law in the recycling sector

Collective waste management organisations may be particularly vulnerable to competition concerns. Within their framework, competitors get together to cooperate, and such collective action is likely to fall under the radar of competition law watchdogs. Potentially problematic practices include agreements on prices, market sharing arrangements or the exchange of market sensitive information.

Due to the substantial risk of scrutiny, companies need to understand fully the nature of their involvement in collective waste management organisations and the obligations and rights arising from their membership. In particular, companies should keep in mind the following dos and don’ts:

  • DO fully understand the internal governance structure of the waste management organisation, its decision making process and your company’s role in it – decisions could be taken in your name without your knowledge, potentially leaving you liable;
  • DON’T give blanket consent for any collective initiatives;
  • DO closely monitor communication with the organisation, keep records of any exchanges, always refuse to provide competitively sensitive information where it could become known to your competitors;
  • DON’T assume that the waste management organisation conducted a competition compliance check of a collective initiative, when in doubt always ask for independent legal advice;
  • DO scrutinize mechanisms of cost sharing proposed by the organisation; some might inadvertently lead to price fixing or market sharing.

Businesses are free to belong to waste management organisations and cannot be held liable for a competition law infringement solely on the basis of their membership. They are also free in principle to set up a system which allows them to share and reduce waste management costs in the most efficient manner. In order to make such a system workable, companies can communicate with each other and exchange necessary information as long as it is not competitively sensitive.

Businesses however need to be aware that this form of cooperation carries risks and, if not conducted correctly, could amount to a serious competition law violation. It is their own responsibility to ensure that their actions stay within legal boundaries.

Companies can be held individually accountable for the collective decisions of the waste management organisations they belong to if they agreed to them, even implicitly. Consequences of a collective action gone wrong can be very severe, including heavy fines of up to 10% of global group turnover, possible criminal penalties, ruined reputations, director disqualifications, and private law suits.

Case study: Recolight

In November 2012 Mercury Recycling, which operates in the UK lamp recycling market, complained to the Office of Fair Trading (OFT) that the four founding members of UK WEEE compliance scheme Recolight had created a cartel. According to Mercury Recycling this market should be growing and only the existence of a manufacturers’ cartel explains the lack of such growth. The case is currently pending before the OFT.

This is the second case involving Recolight in the past three years. In 2010 a lamp wholesaler and recycler brought a court action against Recolight and its four members alleging anticompetitive behavior and breaches of the WEEE regulations. The case was settled before a UK court in 2012.

Concerns raised about recycling compliance scheme Recolight demonstrate that waste management organisations are likely to be scrutinised by both competition regulators and interested private parties. Members need to be prepared to defend the legality of collective actions in which they participate.  

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