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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 European Commission prolonged and extended the scope of the state aid temporary framework adopted on 19 March 2020 to support the economy during the outbreak. All sections of the framework were prolonged for six months until 30 June 2021, except for the section to enable recapitalisation support, which was prolonged for an additional three months until 30 September 2021. A new measure enables EU member states to support companies facing significant turnover losses by contributing to part of their uncovered fixed costs. In addition, the framework includes new possibilities for the state to exit from recapitalised companies while maintaining its previous stake in those companies and limiting distortions to competition.
- On 7 October 2020, the existing parties to the WTO Government Procurement Agreement (GPA) invited the UK to join in its own right. The UK remains covered by the GPA until 31 December 2020 as a former EU state, while the UK’s independent membership will take effect on 1 January 2021. The GPA provides its signatories with access to public purchasing opportunities within each other’s markets. It ensures that businesses can compete in the covered foreign procurement markets on a level playing field with domestic businesses. The rules ensure transparency and fair treatment, as well as legal recourse, among the parties.
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.
UK Telecom Suppliers Accused of Illegal Information Exchange
On 23 October 2020, the UK communications regulator OFCOM issued a statement of objections (preliminary statement of case) alleging that two competing equipment suppliers had infringed EU and UK competition law by exchanging competitively sensitive information (CSI). The alleged exchange relates to a procurement exercise run by the Police ICT company for terrestrial trunked radio (TETRA) devices, accessories and related services for use on the Airwave radio communications network used by emergency services.
The potential sharing of CSI included details of intended future pricing — one of the most sensitive types of information. No further details are available about this particular case, but it is a long-established principle under EU and UK competition law that, even if there was no impact on the market, the mere sharing of CSI between competitors can give rise to an infringement. This is even if the information flow is one-way and even if it occurs on a one-off basis, for example, at a single meeting.
The statement of objections sets out OFCOM’s provisional view and the parties can now make representations to OFCOM before it takes a final decision.
EU Foreign Direct Investment Screening Regime Comes Into Force
In common with many other jurisdictions around the world, several EU member states recently introduced or strengthened measures designed to improve control of foreign direct investment (FDI). These measures operate in parallel to the standard merger control rules — which focus on competition/antitrust concerns — and are designed to protect strategic sectors and deal with security of supply issues. They usually, although not always, relate only to investment from outside the EU (i.e., “foreign” investment).
The EU does not have its own standalone law allowing it to control FDI — it relies on the member states for actual enforcement — but has instead put in place an FDI screening regulation (which relates only to non-EU investment). The regulation, which became fully operational on 11 October 2020, establishes an EU-wide framework in which the European Commission and the member states can coordinate their actions on foreign investments to protect EU and member state strategic interests.
The regulation, which does not apply to the UK despite the EU/UK transition period still running, puts in place a range of measures:
- A cooperation mechanism for member states and the Commission to exchange information and, if necessary, raise concerns related to specific investments
- The ability for the Commission to issue opinions when an investment poses a threat to the security or public order of more than one member state, or when an investment could undermine a project or programme of interest to the whole EU, such as Horizon 2020 or Galileo
- Deadlines for cooperation between the Commission and member states, and among member states, while observing nondiscrimination and strong confidentiality requirements
- Certain core requirements for member states that maintain or adopt a screening mechanism at the national level on the grounds of security or public order
Control of FDI remains with each member state, but the regime will — as it is intended to — increase the focus on FDI EU-wide and put pressure on each country to review transactions, share information and also amend and update its laws.
In addition to standard merger control, it’s clear that the potential application of FDI rules needs to be considered at the outset of every transaction. This adds a layer of complexity to the analysis, but is important so as to ensure that there are no timing or other surprises as a transaction proceeds.
UK Energy Regulator Alleges Abuse of Dominance Through Exclusivity Clauses
On 30 September 2020, the UK energy regulator OFGEM issued a statement of objections (preliminary statement of case) alleging an abuse of dominance in breach of EU and UK competition law by Paypoint, a provider of over-the-counter (OTC) payment services for energy.
OFGEM alleges that Paypoint held a dominant position in the market for OTC payment services for prepayment energy customers for at least the period running from April 2009 to October 2018. These services allow customers who pay for their energy in advance (“prepayment” customers) to add credit to their gas and electricity accounts with suppliers in cash in a local shop. PayPoint operates a network of around 27,000 outlets in the UK, typically in newsagents or local supermarket chains. These retailers are paid a commission for hosting a physical terminal or till software capable of receiving payments, as well as benefitting from increased footfall. PayPoint then manages the transfer of payments to energy suppliers, in exchange for a transaction fee.
PayPoint included exclusivity clauses in most of its contracts with energy suppliers and retailers, a practice that — according to OFGEM — limited their ability to use rival services, thus excluding its competitors from the market. PayPoint’s exclusivity clauses allegedly took the form of contractual provisions, often applying for several years at a time, which either directly restricted its customers from using rival OTC payment services providers, or imposed discounts that were conditional on whether those customers used rival providers in addition to PayPoint (with the same effect in practice).
The statement of objections sets out OFGEM’s provisional view and the parties can now make representations to OFGEM before it takes a final decision.
Exclusivity restrictions, if imposed by a dominant company, have on numerous occasions been found to breach competition law. Companies should start to consider dominance above around a 40 percent market share, and customers, competitors and suppliers of such companies need to be aware that they may have options under competition law to challenge activities such as the use of exclusivity arrangements.
European Commission Seeks Input on Interaction of Competition Policy and EU Green Deal
The European Commission published a call for contributions on questions about how competition rules and environmental sustainability policies work together and support the EU Green Deal. Submissions from any interested stakeholder are requested by 20 November 2020.
The EU Green Deal is the EU’s flagship environmental policy. It forms part of the EU’s ambition to be climate-neutral by 2050 (net-zero greenhouse gas emissions).
The Commission recognizes that competition policy is not in the lead when it comes to fighting climate change and protecting the environment. In its view, regulation and taxation will lead the way, but competition policy can complement regulation. The consultation on competition law and sustainability seeks to identify how EU competition law restricts (or does not support) efforts to implement the Green Deal.
The call for contributions requests input in the three main EU competition law areas: state aid control, antitrust rules and merger control. State aid is the area within competition law so far in the lead in terms of supporting climate policies (such as sustainable mobility and the circular economy). The Commission is interested in changes that should be made to improve this interaction.
Antitrust is the area most likely to be of daily relevance to companies, since in particular it regulates cooperation agreements between competitors (as well as abuse of dominance). The Commission is interested in whether there are barriers to desirable agreements supporting Green Deal objectives, and if so, how such barriers can best be addressed.
Merger control will usually be of limited relevance (and has been so to date), but the Commission is interested in whether it needs to take into account environmental issues to a greater degree than at present.
This is an important moment for the Commission’s policy in this area and anyone with an interest should consider making a submission. The Commission has been somewhat left behind in the last few months by national competition authorities in the EU in this area (particularly the Dutch and Greek authorities) and it is keen to make up lost ground. It’s also facing strong public and political pressure to react and is therefore likely open to persuasion.
Additional European competition law news coverage can be found in our news section.
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