Collaborating with your competitors: six steps to minimise the challenges of competition law in the aerospace, defence and security sector

07 February 2018

Victoria Moorcroft, Peter Willis, Elizabeth Reid, Mark Leach, Paul Briggs

Under increasing pressure to collaborate with competitors, or feeling they must do so to innovate at the rate needed to compete, the Aerospace, Defence and Security (ADS) industries find themselves faced with a competition law compliance headache. When lines are blurred between competitor and collaborator, extra care is needed to ensure that you are not falling foul of competition law. In this article we highlight some of the key ways to mitigate that risk:

1. Carefully consider whether collaboration is actually necessary

The starting point for competition law is that competitors should act independently. Generally, competitors should only collaborate with each other where it is necessary for them to do so. Joint bids in public sector tenders are a good example - the competition authorities in Europe have on a number of recent occasions examined whether two companies that submitted a joint bid could actually have bid separately, and have fined the companies when they concluded that they could. Before bringing on board an actual or potential competitor for a bid, ask yourself whether you could in fact meet the requirement yourself? If so, there is unlikely to be sufficient justification for a joint bid.

2. Define the relationship and the extent of the collaboration carefully and before properly engaging

What is the purpose of the collaboration? Do you really need to collaborate to achieve that purpose? What are the limits of the collaboration in terms of scope, time and geography?

These are all important questions to help define the boundaries of the beneficial collaboration. Whilst competition law should not prevent arrangements between competitors that are truly beneficial to customers, it will bite if the extent of the collaboration goes beyond what is needed to achieve those benefits. A good example is the geographic scope of collaboration. Collaboration might be necessary in the UK to fulfil the requirements of a customer, such as the MOD, requirements for a particular procurement, but extending it into other jurisdictions may not be necessary and may therefore fall foul of competition law. In the private sector, a French customer may require you to work with a particular subcontractor in France, but that does not mean you need to do so elsewhere.

It is also important to limit the activities that are covered by any collaboration to the greatest extent possible. It may be necessary to collaborate to carry out R&D, but actually jointly selling the results of that R&D may not be necessary.

Thinking about these issues up front will prevent unwitting 'scope creep' that brings competition law risks.

3. Understand the no-go areas and ensure everyone understands the importance of avoiding them

Having defined what the collaboration will look like, the next step is to identify those areas into which discussions must never stray. Obvious areas include pricing and strategy for areas that are unaffected by the collaboration, but there are other areas that may need more careful consideration – information identifying customers; discussions regarding production costs, planned R&D programmes etc. Where some element of pricing discussions are necessary as part of the collaboration, they should be limited to specific pricing for the specific project(s), with all discussions carefully minuted.

Having identified the no-go areas, attendees at meetings should be carefully briefed on those areas and be given the tools to end discussions comfortably if concerned. Examples include a reminder being repeated before each meeting, and an agreement on a cautious approach to competition law compliance, with an upfront agreement that if anyone is concerned about what is discussed they can raise those concerns and the topic will be put to one side until advice can be sought from legal teams.

4. Limit the information shared to only that which is essential and those who need to know

Defining the relationship as described under 1. above, will help everyone understand what information-sharing is necessary to achieve that aim. Information should also be shared on a need to know basis and under the protection of an NDA. Ideally 'clean teams' should be established to segregate the project team from those making day-to-day commercial decisions. That is particularly the case if the information that needs to be shared will be particularly sensitive.

5. Continue to reassess the relationship

Over time, legitimate relationships can organically move into areas that they shouldn't do. If you are collaborating with direct competitors then it is important to check regularly that the scope of the project has not moved, that the information being shared remains necessary and that all those on the project have been briefed on competition law risks (as personnel changes can often undermine the good intentions at the start of the project).  

6. Assess carefully any exemptions, which do not provide a complete defence

In the ADS sectors a number of projects are carried out on the basis of an Article 346 treaty exemption. That unfortunately does not change parties' obligations under competition law and full compliance is still required in such circumstances. More unusually, a small number of defence projects are undertaking under a public policy exemption. Such an exemption does give cover for breaches of UK competition law, but no defence to competition law infringements to the extent that a collaboration has wider effects outside the UK. It's vital to work out in such cases what cover the exemption provides, and that the scope of the collaboration is sufficiently narrow that it has no effects outside the UK.

Our ADS team combines deep knowledge of the aerospace, defence and security sectors with legal expertise to help you develop commercial, legally compliant solutions that make long-term business sense.

If you would like to discuss any of the issues raised in this article, please speak to Victoria Moorcroft, in our competition team, or your usual Bird & Bird contact.