Big-name fashion entities garnered industry attention in the spring of 2020 when they announced a collaborative effort aimed at revamping the fashion industry by increasing “sustainability throughout the supply chain and sales calendar.” Proposals included adjusting the seasonal runway show and product delivery schedules in order “to encourage more full price sales” and fewer discounted wares in the wake of the COVID-19 pandemic. One effort on this front, called the Forum Letter, was signed by an international group of designers, executives, retailers, and other industry figures, including individuals from Chloé, Missoni Group, Mytheresa, Nordstrom, Selfridges, Carolina Herrera, PUIG, Proenza Schouler, and Tory Burch. A similar initiative, called Rewiring Fashion, was introduced shortly thereafter by industry outlet Business of Fashion.
These environmental, social, and governance (“ESG”)-centric endeavors were met with industry enthusiasm, with the Forum Letter – and its call for industry occupants to revisit their pricing (or more specifically, their discounting) practices – being signed-off on by one-hundred-plus notable names. At the same time, at least one of these initiatives caught the eyes of market regulators.
This spring, it was reported that the European Commission had launched an anti-competition probe, which a specific focus on an alleged attempt by the sizable group of well-established fashion brands to fix prices. In a release announcing the probe in May, the Commission stated that it has “concerns that the companies concerned may have violated Article 101 of the Treaty on the Functioning of the European Union (‘TFEU‘) and Article 53 of the European Economic Area Agreement, which prohibit “illegal contacts and agreements, price fixing and market sharing.” (More about that here.)
The Commission has not provided any additional information about the probe since then. However, “people at several of the companies, speaking on condition of anonymity because of the potential litigation, confirmed that they had been contacted” by the regulator, the New York Times reported early this month.
What About the U.S.?
To date, it appears that publicly known probes into fashion/retail’s ESG-focused collaborative initiatives are limited to that of the European Commission, but that does not mean that lawmakers and regulators in the U.S. are not paying attention. “As companies’ ESG efforts have begun to have more market impact, and especially as firms collaborate to implement ESG principles, antitrust/competition authorities are asking whether ESG efforts could violate the antitrust laws,” Vinson & Elkins LLP’s Hill Wellford and Ryan Sun stated in a note.
In November, five U.S. Senators – including the Ranking Members of the Senate Judiciary Committee (Charles Grassley) and of the Subcommittee on Competition Policy, Antitrust and Consumer Rights (Mike Lee) – announced that they had sent letters to 51 U.S. law firms detailing “the possible antitrust violations the firms’ clients may commit if they pursue [certain] ESG initiatives.” Among other things, the Senators pointed to recent comments from Federal Trade Commission (“FTC”) Commissioner Lina Khan, who stated that while the agency has seen firms trying to claim an ESG exemption from antitrust laws, no such exemption exists “for agreements relating to ESG.”
As for how seemingly well-meaning efforts could potentially set companies up for antitrust actions, Cadwalader Wickersham & Taft LLP partner Joel Mitnick states that there are two relevant provisions of antitrust law: Sections 1 and 2 of the Sherman Act. The former prohibits “agreements that unreasonably restrain trade. Given that a Section 1 violation “requires an agreement among two or more actors, businesses that enter into collaboration agreements, even if under the banner of good faith ESG reform, run the risk of Section 1 scrutiny,” he says.
Even if an ESG collaboration does not involve “an explicit agreement relating to price or output,” Thompson Hine’s Joshua Shapiro asserts that “a competitor collaboration could be deemed unlawful if it increases the ability or incentive of firms to raise prices or reduce output, quality, service, or innovation.”
The New Reality for ESG Collabs
While industry efforts, such as fashion’s burgeoning ESG collaborations, do not necessarily violate antitrust laws, such activity should, nonetheless, “be carried out in conformity with antitrust risk mitigating safeguards, such as filtering the kinds of information that may be shared among competitors or relying on benchmarking protocols that conform to FTC and Department of Justice guidelines,” Mitnick asserts. In particular, parties to these collaborations should “avoid sharing competitively sensitive nonpublic information, including information on current or future pricing and marketing or sales plans.”
And although competitor collaborations on ESG remain subject to the antitrust laws, “companies still have a number of ways to collaborate on ESG without raising significant antitrust risk,” according to Hogan Lovells’s Logan Breed and Ilana Kattan. For example (and subject to implementing sufficient safeguards), they claim that companies can collaborate on ESG by: (1) Entering into voluntary, non-binding codes of conduct on ESG; (2) Adopting ESG certification standards and awarding certifications or seals to companies that meet certain ESG requirements; or (3) Petitioning the government to adopt certain ESG standards (joint petitioning is immune from antitrust scrutiny under the Noerr-Pennington doctrine).
Ultimately, “whether or not meritorious,” Mitnick maintains that the “new reality is that legislators and antitrust enforcement agencies have begun to claim that anticompetitive harm can flow from ESG-focused industry collaborations,” thereby, putting brands on alert for current and future endeavors.