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EU, UK Competition Law and State Aid During the COVID-19 Pandemic
While not the most important concern, it should be appreciated that EU and national antitrust/competition law, plus the State aid rules, continue to apply in the EU and UK during the coronavirus (COVID-19) crisis. So far as the UK is concerned, it is subject to EU law until at least 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.
Regulators are still actively enforcing the law. For example, the UK Competition and Markets Authority (CMA) has set up a COVID-19 taskforce, whose role includes “[taking] enforcement action if there is evidence that firms may have breached competition … law and fail to respond to warnings.” Private litigants affected by an infringement of the law also have the option of going to court.
There are several key aspects of antitrust/competition law which companies need to bear in mind to ensure continued compliance of their day-to-day activities and to avoid potential regulatory enforcement and private claims during and after the crisis. In particular, some additional cooperation between competitors may be allowed during the crisis, but this needs to be handled carefully.
Governments are providing extensive funding, and it’s also important to understand the State aid framework to avoid a potential repayment later (with interest). The European Commission, which monitors the application of State aid law for the EU and UK, is keen to ensure that the regime becomes part of the solution and is not seen as part of the problem, but risks remain.
McGuireWoods distributed four previous client alerts on these topics:
In the most recent developments in the UK, the CMA has published guidance on its approach to competitor cooperation during the crisis and the government has adopted two more formal COVID-19-related UK competition law waivers. One of these waivers addressed competitor cooperation on one minor internal ferry route. This shows that even in narrow local markets, a formal waiver may be available. The other allows cooperation between private health providers and between such providers and the government National Health Service (NHS), intended to assist the NHS in addressing the effects or likely effects of COVID-19 on the provision of health services to patients in England. It’s likely that more of these will be coming, but in any event, in many cases robust legal advice and a sensible risk attitude will allow necessary competitor cooperation in the current situation.
Please contact McGuireWoods if you would like to discuss these topics or any other legal issues arising out of the COVID-19 pandemic in the EU, UK or U.S. McGuireWoods has established a COVID-19 Response Team.
European Commission's Emergency Guidance on FDI During COVID-19
In response to the COVID-19 pandemic, the European Commission has published emergency guidance encouraging EU member states and the UK to be particularly vigilant in relation to foreign direct investment (FDI). The Commission sees an increased risk to strategic industries, in particular but not only healthcare-related industries, and does not want companies in those areas to fall prey to opportunistic acquisitions.
There is no EU-level FDI screening mechanism, although in 2019 the EU FDI Screening Regulation was adopted. Amongst other arrangements, that will eventually put in place a cooperation mechanism under which member states and the Commission will be able to exchange information and raise concerns related to specific investments.
The new guidance calls on EU member states and the UK to make full use of their existing FDI screening mechanisms to take into account the risks to critical health infrastructures, supply of critical inputs, and other critical sectors (including SMEs). It also recommends that screening mechanisms be improved (or adopted) where necessary to cover all relevant transactions and in the meantime, to use all other available options to address cases where the acquisition or control of a particular business, infrastructure or technology would create a risk to security or public order in the EU, including a risk to critical health infrastructures and supply of critical inputs.
The Commission points out that, if a foreign investment does not undergo a national screening process, the FDI Screening Regulation stipulates that member states and the Commission may provide comments and opinions within 15 months after the foreign investment has been completed. This can lead to the adoption of measures by the member state where the investment has taken place, including any necessary mitigating measures. In practice, a foreign investment completed now could be subject to ex post comments by member states or opinions by the Commission as from 11 October 2020 (the date of full application of the regulation) up to June 2021 (15 months after completion of the investment).
The new guidance further comments that the general EU treaty rules can be used in a number of ways to restrict FDI into any EU member state and the UK, including minority investments.
It is clear that FDI into the EU and UK, particularly in strategic sectors (which will be widely defined) will be very carefully reviewed during the period of the COVID-19 pandemic and for a period afterward. Early consideration of the potential issues will be essential.
UK Regulator Identifies Illegal Restrictions on Online Discounting
Despite the working-from-home limitations facing regulatory staff, competition law enforcement and decision-making continue in the EU and UK during the COVID-19 crisis.
On 24 March 2020, the UK CMA announced its provisional finding that two companies operated policies that illegally restricted online price competition by their distributors. This is resale price maintenance (RPM), a serious infringement of EU and UK competition law.
Roland allegedly required its electronic drum kits to be sold at or above a minimum price for more than seven years, while Korg allegedly did the same for its specialist equipment, such as synthesizers and DJ production tools, for nearly three years.
EU and UK regulators have been very active in addressing RPM recently. The European Commission fined four companies for RPM in July 2018: Philips, Pioneer, Asus and Denon. The CMA has so far fined companies for online RPM in the musical instrument sector in two cases: one in January 2020 in the guitar sector, and one in August 2019 in the digital pianos and digital keyboards sector. The CMA also fined three companies in other sectors for RPM: one in the light fittings sector in August 2016, and one in the bathroom fittings sector and one in the commercial refrigeration sector in May 2016.
This new case is particularly interesting since the CMA identified these manufacturers' use of software to monitor their distributors’/retailers’ online prices. The CMA commented:
“[Using such software], suppliers can use a ‘Big Brother’ approach to identify lower online prices and put pressure on retailers to bump them up. The use of this ‘all-seeing’ software is also likely to force more retailers to comply with pricing rules in the first place, for fear of being caught and sanctioned.”
This is a difficult area in which to ensure compliance. There will be an RPM concern only if there is an agreement or understanding between the manufacturer and its reseller. However, this can arise from “tacit acquiescence” and be deduced from the level of coercion a manufacturer exerts to impose its unilateral policy on the distributor in combination with the number of distributors who are actually implementing in practice the supplier's unilateral policy.
The European Commission’s guidance says a system of monitoring and penalties, set up by a supplier to penalise those distributors who do not comply with its unilateral policy, points to tacit acquiescence with the supplier's unilateral policy if this system allows the supplier to implement in practice its policy. It is clear that careful advice and analysis is needed when monitoring software is used.
Fines for Market Sharing, Information Exchange in the UK; Director Disqualified
On 4 March 2020, the UK CMA announced its findings that four pharmaceutical companies broke competition law in relation to the supply of an antidepressant. This gave rise to fines totaling more than £3.4 million, a payment of £1 million directly to the UK National Health Service (NHS) as compensation, and the disqualification of a company director.
The investigation exposed two breaches of competition law. The first was a simple market-sharing arrangement in relation to the supply of tablets to a large wholesaler. This concerned tablet sizes and quantities and prices. Market sharing is a serious breach of competition law in most circumstances.
The second infringement was the exchange of commercially sensitive information (CSI), particularly related to prices, volumes and market entry. In the EU and UK, competitors sharing CSI is also a serious concern and can be treated as a cartel.
The CMA is keen to use its powers against individuals to encourage competition law compliance. The sole director of a consultancy firm which was found to have participated in the cartel was disqualified from being involved in the management of any UK company for seven years under the director disqualification rules. That is the CMA's 13th director disqualification for competition law breaches. It’s certain that more will follow, showing the increased personal risk in the UK for individuals involved in competition law infringements.
Additional European competition law news coverage can be found in our news section.
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