Companies often agree to cooperate because they expect it to save costs. As a specialist lawyer for commercial and corporate law and international business law, I advise many companies on the advantages of a medium-sized business cartel. Through targeted collaboration, companies can reduce their costs. However, you must observe the legal framework. In the following, as a lawyer, I will explain antitrust law, especially a small and medium-sized business cartel, to you for your purposes.
middle class cartel
As part of a SME cartel, competitors are allowed to work together. The collaboration can include purchasing, logistics or sales. However, the prerequisite is that economic processes are rationalized through this cooperation. The SME cartel must create synergy effects and lead to cost savings for all companies. The companies' combined market share must not exceed 10-15%.
Important questions in a SME cartel
Collaboration in a SME cartel can be for a one-off project or permanent. The following questions are important for companies:
- Can we enter into a cooperation with another company?
- Can we combine the cooperation for sales, purchasing and logistics?
- Do we need a written contract?
- Can we also enter into a cooperation with a competitor?
- Does it help that we can only carry out a larger order together with a competitor?
- What do we have to consider in a SME cartel?
- Can we set up a GmbH for a medium-sized business cartel with other competitors?
Advantages of a medium-sized business cartel
Agreements between competitors regarding the trade and distribution of products in which they compete are prohibited. This includes in particular the exclusivity of sales via a joint company, the coordination and allocation of delivery quotas according to selection criteria, logistics, for example coordination of scheduling including vehicle control, non-competition clauses, as well as the exchange of information such as sales volumes and joint pricing. The legally secured implementation of a small and medium-sized business cartel eliminates these prohibitions.
Small and medium-sized companies can join forces to carry out orders together, for example in the context of tenders. Companies are often unable to take part in lucrative tenders due to their size. You will then be at a competitive disadvantage compared to large companies. If they prove that they can only carry out the work together with one or more companies, their cooperation, for example as a working group, will generally not represent a noticeable restriction of competition. Such collaborations then operate in an area free from antitrust law.
A small and medium-sized business cartel can also make sense outside of tenders and orders. In logistics, for example, companies can make existing, underutilized vehicles available to the SME cartel at short notice and without noticeable additional costs, for example when transporting special building materials. In terms of antitrust law, it must then also be examined whether further agreements would also be permissible within the framework of the SME cartel. One example is the awarding of contracts and the allocation of quotas to companies and members of the SME cartel. These are intended restrictions on competition that are fundamentally inadmissible under antitrust law. However, they may be permitted in exceptional cases within the framework of a permissible medium-sized business cartel.
A medium-sized business cartel can also be considered as a solution to unbundling proceedings. Joint ventures between competitors in particular are a thorn in the side of the antitrust authorities. If a joint venture also meets the requirements of a SME cartel or if these can be created subsequently, a joint venture can be maintained as a SME cartel. Read details here.
Feel free to take it by mail or contact me by phone if you need an initial assessment of these questions for your company.
Most important point: cost savings
The aim of a medium-sized business cartel must be the measurable rationalization of economic processes through inter-company cooperation. Rationalization of economic processes means an improvement in the economic cost-benefit ratio for all those involved as a result of inter-company cooperation within the framework of the SME cartel. This rationalization of economic processes is achieved when the ratio of the operational effort of the economic processes to the return is improved for each small and medium-sized company involved. This improvement is achieved through cooperative measures, in particular by merging the areas of sales, debt collection, financing, administration, advertising, logistics and purchasing. Costs must therefore be saved per unit produced. In this Contribution you can read more about this.
This improvement must occur for all companies in the SME cartel and must be proven separately. If such an improvement in the cost-benefit ratio fails for a company, the medium-sized business cartel is no longer permitted under antitrust law. It is therefore advisable to examine such an improvement in the cost-benefit ratio for every company. The medium-sized business cartel or cooperation should be planned and implemented in such a way that every company saves costs.
These rationalization effects and efficiency gains must be achieved through the agreements restricting competition. If they occur even without restrictions on competition, they are inadmissible. The improvement must not be achieved solely through price agreements or quota regulations. This must therefore be taken into account when planning collaboration. For all cooperation companies involved, the improvement in the cost-benefit ratio must be due to the joint activities. The extent to which the combination of sales, marketing, scheduling, logistics, debt collection and purchasing leads to rationalization for all companies must be examined separately in each individual case. I would be happy to explain to you in an initial telephone conversation how you can determine and prove cost savings for yourself and your company. Please feel free to contact me here by mail.
Medium-sized business cartel with competitors
Cooperations with competitors are in themselves legally critical. In particular, they can violate antitrust law. Cooperations with competitors must therefore not contain any restrictions on competition. However, there are exceptions when competitors save costs through the SME cartel. When cooperating with competitors and SME cartels, the following questions are important:
- Are the cooperation partners competitors?
- What cooperation is planned?
- Does cooperation limit competition?
- Will the cooperation save costs?
Only if companies are competitors do they have to comply with antitrust law. Companies are competitors when they compete for customers and suppliers. This is the case if they work in the same industry. In addition, they must operate in the same area. Competition only exists if these two conditions are met. If just one requirement is not met, antitrust law is not applicable.
However, antitrust law must also be taken into account if the companies are not currently competitors but could quickly become competitors. One then speaks of potential competition. Potential competition means that companies can expand their offerings at short notice and without noticeable additional costs or risks and thus transform from potential to real competitors. Such potential competitors must also observe antitrust law when cooperating. Potential competition does not exist if there is no flexibility to change offers due to high switching costs and lead times due to marketing, product testing or sales establishment.
Agreement on a medium-sized business cartel
Antitrust law only applies if competition between companies is restricted by an agreement or concerted practice between companies or resolutions by company associations. Agreements between non-competitors, on the other hand, are fundamentally harmless under antitrust law because then there is no competition that could be restricted. Agreements and concerted practices between competitors that have the purpose or effect of preventing, restricting or distorting competition are prohibited. This includes, in particular, price agreements, quota agreements, customer or area allocations. An exchange of information that makes a competitor's competitive behavior predictable is also prohibited.
Companies that want to enter into a SME cartel as competitors must plan exactly how closely they want to cooperate. You must decide on specific business areas that should be carried out by the SME cartel in the future. For example, competitors may agree to cooperate in selling their products. You must then plan how the joint distribution will be carried out and should record this in writing. You must stick to this agreement in the future. It would be legally dangerous without checking if they were to tacitly combine purchasing. Only when it is clear in which business areas such as purchasing, sales, debt collection or logistics the cooperation or the SME cartel should exist can I, as an antitrust lawyer, check how the planned cooperation needs to be structured.
The merger of business areas, such as sales or purchasing, regularly means that the companies are no longer in competition. In the context of a medium-sized business cartel, this is permissible and often necessary. However, further measures, such as the allocation of customers, must be examined separately under antitrust law. This also applies, for example, to order quotas between companies. Coordination of resale prices between companies will always be inadmissible.
Middle class cartel and its requirements
In Germany, small and medium-sized businesses cartels are expressly permitted. Competitors are therefore allowed to work together as long as all companies save costs and competition is not restricted more than necessary. In the EU, however, small and medium-sized business cartels are not permitted per se. A SME cartel in which companies from several EU member states are involved is therefore legally much more complex to examine. Companies need to pay attention to this. What is crucial is whether the SME cartel noticeably affects cross-border trade. This is generally not the case if the combined market share is below 5% and the combined turnover of the goods that are supposed to be covered by the SME cartel is below 40 million euros. If the spatial or geographical area of the SME cartel is limited to a regional market within the Federal Republic of Germany, the companies only have to comply with the requirements of German antitrust law.
It can be stated: SME cartels between competitors are permissible under antitrust law if they ensure the rationalization of economic processes through cooperation, thereby not significantly impairing competition and thereby improving the competitiveness of small and medium-sized companies. “Smaller companies” are all companies with up to 49 employees and a turnover or a balance sheet total of up to ten million euros. “Medium-sized companies” are all companies with up to 249 employees and a turnover of up to 50 million euros or a balance sheet total of up to 43 million euros. The participation of larger companies in the SME cartel is not excluded per se, but requires careful examination. Please feel free to talk to me about this.
Market shares in the SME cartel
The combined market share of the companies in the medium-sized cartel must not exceed 10-15%. The entire group of companies in the medium-sized cartel must be included. This is particularly true if price and quota agreements are made as part of the SME cartel. If the combined market share is below 10%, the Federal Cartel Office will not regularly prosecute SME cartels based on the minor notice. A common market share in all markets affected by the SME cartel under 10% creates legal certainty.
As explained, it is crucial to improve the cost-benefit ratio for each company involved. In addition, the competitiveness of individual companies must also be improved, for example by expanding the product or service range, reducing logistics costs, improving marketing or saving employees. It must also be ensured that the SME cartel does not displace companies in the market through its own services and thereby restrict competition to the detriment of the companies. This means: The SME cartel is allowed to bundle business areas. However, it is critical when competing with its entrepreneurs.
Legal certainty in the SME cartel
One special feature should also be pointed out: There is no office, no court and no state body that gives a medium-sized cartel a kind of seal of approval that is “permissible under antitrust law”. Companies must check for themselves whether their cooperation or their SME cartel meets antitrust requirements. Agreements that violate antitrust law are contrary to antitrust law and are void and have no effect, so they do not bind the companies. As your specialist lawyer for commercial and corporate law and international business law, I would be happy to prepare and examine your planned SME cartel for you. Contact Me therefore happy for an initial assessment. To do this, I need a description of your project, the companies with which you are planning the SME cartel, the industry and your market shares and the planned cost savings. The efficiency gains are crucial when examining the SME cartel. These demonstrable efficiency gains must be proven for each individual shareholder and must be causally attributable to the SME cartel. This is a particularly important test point in the context of self-assessment. Rationalization effects for the respective shareholder, which they would achieve even without the SME cartel, for example through capacity closures, are therefore not taken into account. This improvement must not be achieved solely through price agreements or quota regulations.
Founding of a GmbH for a medium-sized business cartel
SME cartels can only be entered into for a single case, such as a tender, or permanently for essential business areas. There is one option for a permanent middle class cartel GmbH foundation or the establishment of a GmbH & Co. KG. To this end, it is important that companies clearly regulate the areas for which a small and medium-sized business cartel should be formed. This must then also be stated in the partnership agreement of the GmbH or GmbH & Co. KG. The medium-sized company cartel carries out all necessary entrepreneurial and administrative tasks in the form of a GmbH. Before founding the GmbH or GmbH & Co. KG, the companies examined what these tasks were, such as the marketing and distribution of the products, under antitrust law. Companies should also consider concluding an additional cooperation agreement that regulates further rights and obligations.
the next steps
A medium-sized cartel is an option for small and medium-sized companies that want to work together to compensate for competitive disadvantages. Competitors may also join forces for this purpose. The prerequisite is that their combined market share does not exceed 10% in all affected markets and that cost efficiencies can be proven for all companies. If the SME cartel is limited to a regional market in Germany, companies are on the safe side. If cross-border trade is affected, the admissibility under antitrust law must be particularly examined. A SME cartel can be entered into for a single order or permanently. In the latter case, this is possible Founding of a GmbH or a GmbH & Co KG.