Many EU and UK businesses want or need to cooperate with competitors or
potential competitors as part of their response to the COVID-19 crisis.
Antitrust/competition law limits companies’ ability to do this, however, so
there is understandable concern as to what is currently permitted.
To help alleviate confusion, the European Commission recently published
(a “Temporary Framework Communication”) on how it will apply EU competition
law to competitor cooperation during the crisis. This is also relevant in
the UK, where EU law will continue to apply during the Brexit transitional
period (which, unless extended, will end 31 December 2020).
(For background, see two previous McGuireWoods alerts: “EU, UK Governments and Antitrust Regulators Permit Limited Competitor
Cooperation Due to COVID-19” and “UK Guidance on Application of Competition Law to Business Cooperation
in Response to COVID-19.”)
The Commission’s new guidance focuses on cooperation intended to address
shortages of essential products and services arising from demand spikes:
“The present Communication covers possible forms of cooperation between
undertakings in order to ensure the supply and adequate distribution of
essential scarce products and services during the COVID-19 outbreak and
thus address the shortages of such essential products and services
resulting first and foremost from the rapid and exponential growth of
Measures to address shortages caused in other ways are also covered. These
could include: precautionary stockpiling throughout the distribution chain;
the lockdown in factories due to quarantine or confinement measures;
logistical issues caused by border closures; export bans; and lockdowns in
third countries supplying the EU. The Commission also indicates that the
guidance could be adapted in the future to cover cooperation dealing with
issues other than shortages.
A case-by-case analysis is needed, but the communication provides broad
guidance on the Commission’s treatment of the cooperation and information
exchange necessary to respond to these issues.
Various forms of cooperation in the health sector or in relation to other
essential goods and services organised via a trade association or similar
body are identified as benign, provided that they are subject to sufficient
safeguards (such as restricting the flow of individualised company
information back to competitors). These include the following:
- Coordinating joint transport for input materials.
- Contributing to identifying essential medicines (or other products) for
which, in view of forecasted production, there are risks of shortages.
- Sharing aggregate production and capacity information, without exchanging
individual company information.
- Working on a model to predict demand on an EU member state level, and
identifying supply gaps.
- Sharing aggregate supply gap information, and requesting participating
undertakings, on an individual basis and without sharing that information
with competitors, to indicate whether they can fill the supply gap to meet
demand (either through existing stocks or increase of production).
More involved measures to adapt production, stock management and,
potentially, distribution in the health sector (but also more widely in
relation to essential goods and services) are also identified as not likely
to be problematic under EU competition law, to the extent that such
measures meet these criteria:
- They are designed and objectively necessary to increase output in the
most efficient way to address or avoid a shortage of essential products or
services, such as those that are used to treat COVID-19 patients.
- They are temporary in nature (i.e., to be applied only as long there is a
risk of shortage or in any event during the COVID-19 outbreak).
- They do not exceed what is strictly necessary to achieve the objective of
addressing or avoiding the shortage of supply.
Whether a cooperation is encouraged and/or coordinated by a public
authority (or carried out within a framework set up by an authority) is
also identified as a relevant factor in determining that such cooperation
would not be problematic under EU competition law nor an enforcement
priority for the Commission.
The Commission also makes it clear that it has been engaging informally and
orally with companies and trade associations (and their legal advisers) to
help assess the legality of their cooperation plans and put in place
adequate safeguards against longer-term anti-competitive effects. It is
also ready to exceptionally provide companies with written “comfort
letters” concerning specific cooperation projects that need to be swiftly
implemented to effectively tackle the coronavirus outbreak, especially
where there is still uncertainty about whether such initiatives are
compatible with EU competition law.
The Commission issued the first of these letters to “Medicines for Europe,” formerly the “European Generics Medicines Association” (EGA). The letter
addresses a specific voluntary cooperation project among generic
pharmaceutical producers — both members and non-members of the association
— that targets the risk of shortage of critical hospital medicines for the
treatment of coronavirus patients.
The Commission’s guidance concludes with a warning that competition law
enforcement otherwise continues as normal. The Commission will continue to
closely and actively monitor relevant market developments to detect
undertakings that take advantage of the current situation to breach EU
competition law by engaging in anti-competitive agreements or abusing their
The Commission “will not tolerate” conduct that seeks to exploit
the crisis as a cover for anti-competitive collusion or abuses of their
dominant position (including dominant positions conferred by the particular
circumstances of the crisis) by, for example, exploiting customers and
consumers (e.g., by charging prices above normal competitive levels) or
limiting production to the ultimate prejudice of consumers (e.g., by
obstructing attempts to scale up production to alleviate shortages).
The overall practical message to businesses is clear. Each company is
responsible for assessing the legality of its agreements and practices.
While some additional cooperation with competitors may be acceptable during
the crisis, they still must proceed with care and heed legal advice. This
is not least since private third-party claims in the courts remain
possible. Even if the Commission or another regulator will not take action,
a competitor or customer might.
In all cases, companies should document all exchanges and agreements and
identify the underlying rationale and legal analysis undertaken in deciding
to cooperate. Many activities, such as unilateral price gouging/excessive
pricing, or cooperative agreements which are not a necessary response to
the crisis, remain unacceptable and at risk of regulatory investigation as
well as private claims.
For more information, please see McGuireWoods’ related alerts:
McGuireWoods 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.
McGuireWoods has published additional thought leadership analyzing how companies across industries can address crucial business and legal issues related to COVID-19.