Competition Authorities Across Europe and Across the World Move to Clarify Permissible Cooperation to Respond to the COVID-19 Crisis
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Over the past week, we have seen competition authorities in Europe, the US and Australia respond to growing demands by businesses for parameters of lawful cooperation among competitors seeking to address the challenges posed by the COVID-19 epidemic. The authorities' guidance is particularly relevant for food and drink suppliers who have seen both supply and distribution chains come under immense strain. It also applies to the pharmaceutical sector, where companies are rushing to develop vaccines, tests and therapies, and for those manufacturing and distributing medical devices, as governments across the world have asked businesses to start producing essential products that are desperately needed everywhere.
Competition laws generally restrict information exchange and supply chain optimisation agreements between competitors. However, a real crisis such as COVID-19, clearly creates an imperative to permit and even encourage such exchanges and agreements. Notwithstanding the reasonableness of that approach, businesses in industries that have previously received significant regulatory attention have been seeking more clarity and flexibility on the extent to which they may engage in such conduct in this hour of need.
On 23 March 2020, the European Competition Network (ECN)—the network comprising the European Commission and the EU's national competition authorities—issued a joint statement on the application of EU competition law during the Corona crisis. This was followed on 25 March 2020 by guidance from the UK's Competition and Markets Authority (CMA) consolidating previous, more informal communications from the CMA and the UK government. Similarly, the German government and the German competition authority have indicated that they will apply their laws flexibly during the crisis. Beyond Europe, the US agencies have introduced a fast-track process for reviewing proposed cooperation, and Australia's competition authority has issued two interim authorisations: one for medical technology companies and one for supermarkets.
The European Competition Network
The ECN was established as a forum for discussion and cooperation among European competition authorities in order to ensure an efficient division of work and an effective and consistent application of European competition rules. The European Commission and the competition authorities from the 27 EU Member States cooperate with each other through the ECN by informing each other of new cases and envisaged enforcement decisions, coordinating investigations where necessary, assisting each other with investigations, exchanging evidence and other information, and discussing various issues of common interest.
Joint Statement by the ECN
In response to the COVID-19 crisis in Europe, the members of the ECN issued the following joint statement:
- The ECN fully recognizes unprecedented social and economic consequences triggered by the COVID-19 outbreak in the European Union/European Economic Area (EU/EEA).
- The different EU/EEA competition instruments have mechanisms to take into account, where appropriate and necessary, market and economic developments. Competition rules ensure a level playing field between companies. This objective remains relevant also in a period when companies and the economy as a whole suffer from crisis conditions.
- The ECN understands that this extraordinary situation may trigger the need for companies to cooperate in order to ensure the supply and fair distribution of scarce products to all consumers. In the current circumstances, the ECN will not actively intervene against necessary and temporary measures put in place in order to avoid a shortage of supply.
- Considering the current circumstances, such measures are unlikely to be problematic, since they would either not amount to a restriction of competition under Article 101 Treaty on the Functioning of the European Union (TFEU)/53 Agreement on the European Economic Area (EEA) or generate efficiencies that would most likely outweigh any such restriction. If companies have doubts about the compatibility of such cooperation initiatives with EU/EEA competition law, they can reach out to the Commission, the European Free Trade Association (EFTA) Surveillance Authority, or the national competition authority concerned any time for informal guidance.
- At the same time, it is of utmost importance to ensure that products considered essential to protect the health of consumers in the current situation (e.g. face masks and sanitising gel) remain available at competitive prices. The ECN will therefore not hesitate to take action against companies taking advantage of the current situation by cartelising or abusing their dominant position.
- In this context, the ECN would like to point out that the existing rules allow manufacturers to set maximum prices for their products. The latter could prove useful to limit unjustified price increase at the distribution level.
The German government and the German Federal Cartel Office (Bundeskartellamt) are ready to temporarily adapt some competition restrictions to avoid potential supply shortages, without changing any laws. Andreas Mundt, head of the Bundeskartellamt, assured the Deutsche Presse-Agentur and other German media that there is no need for emergency antitrust regulations to adapt the competition rules because the Bundeskartellamt and other authorities already have the tools to take flexible temporary measures to cope with the coronavirus crisis: "Competition law permits extensive cooperation between companies if there are good reasons for this — which is the case in the current situation." Mr. Mundt told the German press. He also indicated that the Bundeskartellamt is always available for discussions with companies, associations. and policy makers to address certain needs and flexibility.
To cope with the concern that supply chains could be interrupted, the German Federal Minister of Economics Peter Altmaier (CDU) indicated that the government would work towards a relaxation of antitrust regulations so that retail chains, for instance, could cooperate more easily.
The United Kingdom
Following earlier informal comments on government policy, the CMA issued formal guidance on 25 March 2020 outlining how it will view business cooperation responding to COVID-19. Similar to the ECN, the CMA will not take enforcement action where temporary cooperation between businesses:
- is appropriate and necessary in order to avoid a shortage, or ensure security, of supply;
- is clearly in the public interest;
- contributes to the benefit or wellbeing of consumers;
- deals with critical issues that arise as a result of the COVID-19 pandemic; and
- lasts no longer than is necessary to deal with these critical issues.
Generally, the CMA will balance any cooperation among businesses against the benefit such cooperation provides to consumers. However, the CMA warned against construing its guidance as a "free pass" for businesses to engage in conduct that could be harmful to consumers. In particular, the CMA is adamant that prices of essential products, such as masks and sanitising gel, are not artificially inflated in the current situation. To that effect, the CMA addressed an open letter specifically to the pharmaceutical and food and drinks industries on 20 March 2020, in which it reiterated its competition and consumer protection powers to tackle problematic behaviour. Like the ECN, the CMA has reminded businesses that the existing rules allow manufacturers to set maximum prices and thereby prevent price gouging.
The CMA also offered further guidance on how it will apply the exemption on the prohibition against restrictive agreements pursuant to section 9 of the Competition Act 1998 in the current situation. In order to benefit from the exemption, cooperation among businesses must fulfil four criteria:
- it must contribute to improving production or distribution, or promoting technical or economic progress;
- it must allow consumers a fair share of the resulting benefit;
- it must only impose restrictions which are indispensable to the objectives of that cooperation (e.g. ensuring supplies to the vulnerable or developing a therapy); and
- it must not afford the businesses the opportunity to eliminate competition regarding a substantial part of the products or services in question.
Generally speaking, the CMA will likely consider cooperation permissible if it helps to:
- avoid a shortage, or ensure security, of supply;
- ensure a fair distribution of scarce products;
- continue essential services; or
- provide new services such as food delivery to vulnerable consumers.
However, such cooperation can go no further than reasonably necessary to achieve those objectives.
The US Antitrust Agencies
Following an approach similar to the ECN's, on March 24, 2020, the US Federal Trade Commission and the U.S. Department of Justice Antitrust Division issued a joint statement outlining an expedited antitrust review procedure and providing guidance for businesses seeking to collaborate on projects related to protecting the health and safety of Americans during the COVID-19 pandemic (For more information, see our Advisory dated 27 March 2020).
The Australian Competition and Consumer Commission (ACCC) issued an interim authorisation that allows medical technology companies to coordinate the supply and potential manufacture of ventilators, testing kits, personal protective equipment, and other medical equipment needed for the COVID-19 pandemic. In particular, this allows suppliers or distributors of medical equipment to share information, coordinate orders and supply requests, prioritize requests, and jointly tender to supply medical equipment.
Earlier in the week the ACCC issued a similar authorization that allows supermarket operators to coordinate when working with manufacturers, suppliers, and transportation and logistics providers to ensure the supply and the fair and equitable distribution of fresh food, groceries, and other household items to Australian consumers, including those who are vulnerable or live in rural and remote areas.
While the message is clear across the world that companies can cooperate where doing so is essential to respond to the pandemic, it is equally clear that authorities will permit such cooperation only where necessary to achieve procompetitive goals. Those authorities have reiterated that they will pursue cases where the pandemic is used as an excuse or a cover for wider agreements.
Authorities are also reaffirming continued vigilance and likely activity against high prices. This is complex area as price increases typically reflect a normal market reaction to shortages that will facilitate entry or expansion. Authorities in Europe, in particular, were showing a greater willingness even before the pandemic to use their powers under the dominance regime against significant price rises. It would not be surprising to see more enforcement action in this space going forward.
In due course, when the emergency is over, antitrust authorities may—on their own initiative or following complaints from affected business partners, competitors or customers—evaluate coordinated conduct that they have not previously examined. Companies, therefore, need to take great care when navigating their business decisions. Excessive cooperation and a closer exchange of sensitive information due to the crisis should be accompanied and reviewed by antitrust experts and, in case of doubt, also be coordinated with the responsible antitrust authorities.
© Arnold & Porter Kaye Scholer LLP 2020 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.