April 10, 2020
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 detailed guidance (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 demand.”
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:
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:
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 dominant position.
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.