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EU, UK Competition, State Aid and Public Procurement Law During COVID-19
While not the most important concern, it should be appreciated that antitrust/competition law, plus the state aid (subsidy) and public procurement rules, continue to apply in the EU and UK during the crisis. So far as the UK is concerned, it is subject to EU law until 31 December 2020 while the post-Brexit transition period is running. In any event, the UK has its own national competition law, which remains in force.
McGuireWoods has distributed seven client alerts on these topics:
The most recent major COVID-19-related developments in the UK and EU are as follows:
- The European Commission continued to approve under the state aid rules a range of EU member state and UK measures providing funding and other support to businesses.
- The UK Competition and Markets Authority (CMA) dropped the last of four investigations in relation to potential excessive pricing (price gouging) of hand sanitizer by retail outlets. The CMA had decided on 13 July 2020 to close three investigations as it considered that the retailers’ prices did not, or were unlikely to, infringe UK competition law. In relation to the last investigation, having looked at evidence of the retailer’s wholesale costs, the CMA took the view that at the point it stopped its investigation it was unlikely that the prices the retailer was charging infringed competition law. In addition, regarding the limited volumes sold, it decided that further investigation to reach a definitive view on whether the retailer’s prices had infringed competition law would deliver limited, if any, consumer benefits.
- The pandemic caused the CMA to pause its investigation into the Atlantic Joint Business Agreement (AJBA) between British Airways, Iberia, Aer Lingus, American Airlines and Finnair. These airlines have agreed not to compete on routes between the UK and the United States and in 2010 gave commitments to the European Commission which required them to release slots to competitors and provide other measures supportive of competition on certain routes. During its investigation (instigated due to the UK’s exit from the EU), the CMA found that there is considerable uncertainty about the extent and duration of the impact of the pandemic on the transatlantic aviation sector and this has increased materially since its start. The CMA decided it could not be confident that its assessment of competition concerns, and any remedies that might address them, would adequately reflect the post-pandemic state of competition in the longer term. It therefore decided to keep its investigation open and imposed “interim measures,” effectively extending the terms of the 2010 commitments for an additional three years until March 2024, by which time the CMA expects that the airline sector should be in a more stable position.
Please contact McGuireWoods’ COVID-19 Response Team if you would like to discuss these topics or any other legal issues arising out of COVID-19 in the EU, UK or United States.
Public Price Signaling by Insurers Alleged in Ireland
On 17 September 2020, the Irish Competition and Consumer Protection Commission (CCPC) announced preliminary findings alleging illegal cooperation in the form of “price signaling” by five insurers, an insurance industry trade association and an insurance broker.
The alleged anti-competitive cooperation consisted of public announcements of future private motor insurance premium increases, as well as other contacts between competitors. The CCPC suspects that this has given rise to price signaling, which occurs when businesses make their competitors aware that they intend to increase prices, in turn causing further price increases across the sector.
Price signaling can happen in public through announcements or comments on prices, or in private through direct contacts between companies. If a business knows that its competitor is increasing prices, then it may be encouraged also to increase prices, since its customers are less likely to move to the competitor.
McGuireWoods is not aware of a case in the EU or UK in which an investigation of price signaling has resulted in a formal finding of a competition law infringement. However, the issue is live in many industries and a common competition law concern, so the investigation will be watched with interest.
European Commission Publishes Initial Results of Vertical Agreement Rule Review
Now is the time to comment.
Usually the most important day-to-day competition law issue for a business is its application to “vertical agreements.” These are the commercial agreements between companies operating at different levels of a supply chain — whether for goods or services — such as distribution, supply, agency and franchising arrangements
On 8 September 2020, the European Commission published the initial results of its review of the “block exemption” (automatic exemption from EU competition law) and related guidelines for vertical agreements. Several stages in this review still remain, but for any business with an interest in this issue (which should be most), now is the time to engage with it.
The 232-page document produced by the Commission mainly pulls together the views submitted so far, but it also includes some broad conclusions and an indication of the Commission’s likely priorities for updating the regime. The main point is that the block exemption and guidelines will be retained but in amended form to take into account, in particular, developments in online sales, including platform sales, since the current versions were adopted.
The Commission flags that it may change the block exemption or provide amended guidance in relation to a number of particular issues. These include: the operation of selective and exclusive distribution models, dual distribution, restrictions on a distributor selling through online marketplaces, differential pricing between distributors selling on and offline, active and passive sales, online advertising restrictions, resale price maintenance, retail parity (most-favored-nation clauses), and agency.
The Commission now has to decide what specific changes to propose, bearing in mind existing EU court case law. That is not an easy task, but important given the ubiquity of these agreements and that the revised block exemption and guidelines will likely last for 10 years.
While the new regime will likely not apply directly to the UK (as a non-EU state), it will naturally apply to UK companies trading in the EU and will in any event have an important influence on how UK competition law develops in this area. UK companies should therefore also keep a close eye on developments.
EU Top Court Rules on Dawn Raid Procedure, Successor Liability in Competition Law
In an important judgment, the EU’s highest court, the European Court of Justice (ECJ), has confirmed the legality of a longstanding practice of the European Commission at competition law dawn raids. It also considered the issue of “successor liability,” a company’s liability for competition law fines following a corporate reorganisation.
The ECJ held that Commission officials, when attending a dawn raid at a company, are entitled to copy images of the hard drives of the firm’s computers without first examining the nature of the documents contained on those hard drives. Commission officials may then review the images at its premises in Brussels (in the presence of legal counsel to the company) to identify relevant documents. Irrelevant documents and documents protected by legal professional privilege must be deleted.
This procedure, the court held, will be justified only where the Commission can legitimately take the view that it is in the interests of the effectiveness of the inspection or to avoid excessive interference in the operations of the business concerned. This will usually be the case due to the volume of data and documents held by a company which is the subject of a dawn raid.
On the issue of successor liability, the court confirmed previous case law. When a legal entity that has infringed EU competition law is subject to a legal or organisational change, this change does not necessarily create a new entity free of liability for the unlawful conduct attributable to its predecessor in law. This is provided that, at the least, from an economic point of view, the two entities are identical.
Further, the fact that the infringing entity still exists does not necessarily preclude imposing a fine on the entity to which its economic activities were transferred. This is in particular the case where those entities have been under the same control (i.e., part of a group) and have, given the close economic and organisational links between them, carried out, in all material respects, the same commercial instructions.
The rationale for this position is clear. If companies could escape fines by simply changing their identity through restructurings, sales or other legal or organisational changes, the objective of suppressing conduct that infringes EU competition law and preventing its reoccurrence by means of deterrent fines would be jeopardised. It is difficult to avoid EU competition law fines by carrying out a corporate reorganisation.
UK Court Orders Repayment of State Aid
On 4 September 2020, a UK court ordered recovery of illegal state aid from the beneficiary of that aid. This little-noticed but important judgment illustrates the real-world risk to companies which benefit from selective government aid measures of any nature in the EU.
The court rejected an appeal by John Gunn and Sons Ltd to overturn a previous finding which had ordered repayment of £1,064,869 plus interest to the government. That amount related to the aggregates levy John Gunn had not paid as a result of two UK statutory exemptions found by the European Commission to constitute unlawful state aid as a matter of EU law (when the UK was still a member of the EU). The Commission had ordered the UK to recover the unlawful aid from its beneficiaries.
The court rejected an argument that only the amount representing the actual advantage the exemption had given to the beneficiaries should be repaid (this was nothing, as John Gunn had passed on the benefit in full to its customers). John Gunn as a beneficiary of the aid must repay a sum equivalent to the amount of the aggregates levy that it would have had to pay if it had not been for the exemptions.
It seems very likely that from 1 January 2021 the UK will no longer operate the EU state aid regime, save — pursuant to the EU/UK withdrawal agreement — in relation to measures which affect trade in goods between Northern Ireland (UK) and Ireland (EU). Instead, current UK government policy is to put in place a system similar to the World Trade Organization subsidy rules, which do not include provision for recovery of illegal subsidies from individual companies.
Nevertheless, any UK company with operations in the EU will after that date continue to be impacted by the EU state aid rules and, not least given the potential impact of the withdrawal agreement, still needs to consider the potential impact of subsidy rules on benefits received in the UK itself.
Additional European competition law news coverage can be found in our news section.
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