March 21, 2020
All companies are scrambling to respond to the challenges brought on by the COVID-19 pandemic and in various sectors cooperation between competitors is seen as part of the solution.
However, cooperation — or in some cases contact or information exchange — between competitors potentially raises significant issues under EU and UK antitrust/competition law. Fines and third-party damages claims against companies, and criminal penalties for individuals, can result.
Recognising that these limitations may be counterproductive in the exceptional circumstances brought about by the COVID-19 pandemic, governments and antitrust regulators in the EU and UK have responded over the past week by flexing antitrust law in ways seldom seen before. Companies that genuinely need to cooperate with competitors — in a manner beneficial to their customers — now have real possibilities to do so, althought they must still analyse their specific situation before going ahead and take advice. Risks remain.
In the UK, on 19 March 2020, the government announced that it will formally waive UK competition law (as contained in the Competition Act 1998) for a limited period so as to allow supermarket retailers to share data with each other on stock levels, cooperate to keep shops open, or share distribution depots and delivery vans. The waiver will also allow retailers to pool staff with one another to help meet demand. Further, retailers will be able to agree on common specifications for products to bolster food production.
The waiver will not allow any activity that does not meet this requirement, so supermarkets have been warned not to go too far and will still need to be careful.
This statutory change was backed-up by a remarkable announcement on the same day from the UK antitrust regulator – the Competition and Markets Authority (CMA). The CMA announced that where agreements are not covered by that formal legal relaxation (i.e., in all other sectors of the economy), it may turn a blind eye. According to its announcement:
“… [T]he CMA has no intention of taking competition law enforcement action against cooperation between businesses or rationing of products to the extent that this is necessary to protect consumers — for example, by ensuring security of supplies.
At the same time, the CMA will not tolerate unscrupulous businesses exploiting the crisis as a ‘cover’ for non-essential collusion. This includes exchanging information on longer-term pricing or business strategies, where this is not necessary to meet the needs of the current situation.…”
The CMA therefore effectively provided a further nonstatutory waiver in certain circumstances, while similarly warning that even where businesses can take advantage of it, they should not go too far.
The CMA has taken further steps to respond, in particular by setting up a dedicated COVID-19 taskforce. In part, the taskforce will:
“Advise government on how to ensure competition law does not stand in the way of legitimate measures that protect public health and support the supply of essential goods and services. It will also advise on further policy and legislative measures to ensure markets function as well as possible in the coming months.”
There is therefore clearly scope for more lobbying of the UK government for additional statutory waivers of competition law. The CMA is seeking submissions to the taskforce (firstname.lastname@example.org), but companies considering cooperation or contact with competitors should take advice before engaging with the CMA.
Similar provisions are being adopted in other countries. For example, on 18 March 2020, the Norwegian government announced that the transportation sector has been granted a three-month temporary waiver from the application of Norwegian competition law. The waiver makes it possible, in particular, to continue the transportation of passengers and goods in Norway to secure the population’s access to necessary goods and services. Norway is part of the EEA (not the EU), but its rules are effectively the same.
This waiver only allows what is strictly necessary to achieve this aim and agreements and practices covered by the exemption must, to the greatest extent possible, further the efficient use of resources and the interests of consumers. That will be a guiding principle in all similar situations in the EU and UK.
The German government and antitrust regulator are also reportedly prepared to allow extensive cooperation between supermarket retailers, between their suppliers, and between retailers and suppliers — if necessary to ensure supplies to consumers.
Other sectors may be able to justify similar cooperation, but — as the UK government and CMA have made clear — they will need to take care. Companies will not be permitted to use the current situation as cover for unjustified activity; that will remain illegal.
Therefore, straightforward cartel and similar anti-competitive activity, such as agreeing to price increases with no other benefit, will without doubt (save in the most exceptional circumstances) continue to be problematic. As an example, the Polish Competition Authority has announced that it is investigating two wholesalers that allegedly terminated contracts with hospitals to obtain significantly higher prices for certain products. One of the concerns is that the wholesalers effectively engaged in illegal price fixing through these actions.
The risk of regulatory enforcement remains. In addition, even where an antitrust regulator turns a blind eye, private third parties have the ability to challenge behaviour through the courts. Private antitrust litigation can stop cooperation and even give rise to damages awards. Only a formal statutory waiver gives rise to protection from third-party claims.
Antitrust law has therefore been relaxed in some circumstances, but risks remain and competitors need to tread carefully before cooperating or exchanging information in the EU or UK.
For more information, please see McGuireWoods’ related alerts:
We will provide more detail on these topics in future alerts.
For questions or additional guidance on these recommendations and other COVID-19 considerations, please contact any of the McGuireWoods COVID-19 Response Team members.