0.test.scala

class covariant extends scala.annotation.StaticAnnotation with scala.annotation.TypeConstraint

object SetFactory {
  def empty[K]: Set[K @covariant] = Set.empty[K @covariant]
}

class Client {
  val x = if (true) Set("") else SetFactory.empty
}

1.scalac.diff

diff --git a/src/reflect/scala/reflect/internal/Types.scala b/src/reflect/scala/reflect/internal/Types.scala
index d1c46db78d..7cdce5159f 100644
--- a/src/reflect/scala/reflect/internal/Types.scala
+++ b/src/reflect/scala/reflect/internal/Types.scala
@@ -5117,7 +5117,9 @@ trait Types
                   else if (tparam.variance == variance.flip) glb(asKinded, depth.decr)
                   else {
                     val l = lub(asKinded, depth.decr)
-                    val g = glb(asKinded, depth.decr)
+                    def isCovariantNothing(tp: Type) =
+                      tp =:= NothingTpe && tp.annotations.exists(_.symbol.name.string_==("covariant"))
+                    val g = glb(asKinded.filterNot(isCovariantNothing), depth.decr)
                     if (l <:< g) l
                     else {
                       // @M this has issues with f-bounds, see #2251
                      

2.standard.log

scalac -Xprint:typer ~/code/scratch/test.scala
[[syntax trees at end of                     typer]] // test.scala
package <empty> {
  class covariant extends scala.annotation.Annotation with scala.annotation.StaticAnnotation with scala.annotation.TypeConstraint {
    def <init>(): covariant = {
      covariant.super.<init>();
      ()
    }
  };
  object SetFactory extends scala.AnyRef {
    def <init>(): SetFactory.type = {
      SetFactory.super.<init>();
      ()
    };
    def empty[K]: Set[K @covariant] = scala.Predef.Set.empty[K @covariant]
  };
  class Client extends scala.AnyRef {
    def <init>(): Client = {
      Client.super.<init>();
      ()
    };
    private[this] val x: scala.collection.immutable.Set[_ >: Nothing @covariant <: String] = if (true)
      scala.Predef.Set.apply[String]("")
    else
      SetFactory.empty[Nothing];
    <stable> <accessor> def x: scala.collection.immutable.Set[_ >: Nothing @covariant <: String] = Client.this.x
  }
}

3.patched.log

 ./build/quick/bin/scalac -Xprint:typer ~/code/scratch/test.scala
[[syntax trees at end of                     typer]] // test.scala
package <empty> {
  class covariant extends scala.annotation.Annotation with scala.annotation.StaticAnnotation with scala.annotation.TypeConstraint {
    def <init>(): covariant = {
      covariant.super.<init>();
      ()
    }
  };
  object SetFactory extends scala.AnyRef {
    def <init>(): SetFactory.type = {
      SetFactory.super.<init>();
      ()
    };
    def empty[K]: Set[K @covariant] = scala.Predef.Set.empty[K @covariant]
  };
  class Client extends scala.AnyRef {
    def <init>(): Client = {
      Client.super.<init>();
      ()
    };
    private[this] val x: scala.collection.immutable.Set[String] = if (true)
      scala.Predef.Set.apply[String]("")
    else
      SetFactory.empty[Nothing];
    <stable> <accessor> def x: scala.collection.immutable.Set[String] = Client.this.x
  }
}