April 3, 2020
Many UK businesses want or need to cooperate with competitors as part of their response to the COVID-19 crisis. Competition (or antitrust) law limits the ability of companies to do this, so there is understandable concern as to what is currently permitted.
A previous McGuireWoods alert — “EU, UK Governments and Antitrust Regulators Permit Limited Competitor Cooperation Due to COVID-19” — considered the EU and UK issues and now the UK Competition and Markets Authority (CMA) has published detailed guidance on how it will apply EU and UK competition law in the UK during the crisis.
The CMA’s overall message is reassuring, but in practice competitor cooperation — and even exchange of competitively sensitive information (CSI) — needs to be carefully managed. Competition law continues to apply and the existence of an economic crisis does not justify anti-competitive behaviour.
The CMA is watching and has the power to impose regulatory fines on companies. Private third parties can complain to the CMA and themselves challenge anti-competitive behaviour through the courts to seek damages and an injunction.
There also is potential personal liability for involvement in serious infringements. In the UK, it is a criminal offence for individuals to enter into prohibited cartel arrangements, namely price fixing, market sharing, bid-rigging and limiting output. Director disqualification can also take place.
The CMA’s guidance recognises that the current extraordinary situation may trigger the need for companies to cooperate to ensure the supply and fair distribution of scarce products and/or services affected by the crisis to all consumers in the UK. It will not take enforcement action against such temporary cooperation provided this:
(a) is appropriate and necessary to avoid a shortage, or ensure security, of supply;
(b) is clearly in the public interest;
(c) contributes to the benefit or well-being of consumers;
(d) deals with critical issues that arise as a result of the COVID-19 pandemic; and
(e) lasts no longer than necessary to deal with these critical issues.
These criteria are cumulative and judging whether they all apply in a particular case will often be difficult. Amongst the specific questions to consider are:
Overall, the types of coordinated actions that most likely will not be problematic from a competition law perspective in the exceptional circumstances of the COVID-19 pandemic are those that:
(a) avoid a shortage, or ensure security, of supply;
(b) ensure a fair distribution of scarce products;
(c) continue essential services; or
(d) provide new services, such as food delivery to vulnerable consumers.
This is provided that they go no further than what can reasonably be considered necessary.
There are many sectors that might be able to rely on these rules, including agriculture and food manufacturing, medical devices, pharmaceuticals, energy, transport, broadband and logistics. Activities covered could include, for example, joint production or R&D, joint distribution, sharing customers to ensure priority deliveries are made, sharing supplies of scarce raw materials and making cross-supplies of finished products.
The guidance expressly warns that it does not give a “free pass” to businesses to engage in conduct that could lead to harm to consumers in other ways. Amongst the cooperative practices that the CMA “will not tolerate” are:
(a) businesses exchanging CSI with their competitors on future pricing or business strategies, where this is not necessary to meet the needs of the current situation;
(b) retailers excluding smaller rivals from any efforts to cooperate or collaborate to achieve security of supply, or denying rivals access to supplies or services;
(c) collusion between businesses that seek to mitigate the commercial consequences of a fall in demand by artificially keeping prices high to the detriment of consumers; or
(d) coordination between businesses that is wider in scope than what is actually needed to address the critical issue in question (for example, if the coordination extends to the distribution or provision of goods or services that are not affected by the COVID-19 pandemic).
The guidance also takes the opportunity to comment on excessive pricing or “price gouging.” A company that has a dominant position in a market (typically a market share of >=40 percent or so) may infringe EU and UK competition law if it raises prices significantly above normal competitive levels. It is important to note that dominance might be temporary and conferred by the particular circumstances of this crisis.
Manufacturers/suppliers can themselves take steps to combat excessive pricing by imposing maximum resale prices on their customers/distributors. This is generally legal under EU and UK competition law and the guidance comments that manufacturers can therefore “directly address price gouging” by their customers.
These are difficult issues and the CMA guidance points out that it does not bind the European Commission in its application of EU competition law in the UK (the Commission retains the power to enforce EU competition law in the UK during the Brexit transitional period, which runs to 31 December 2020). In addition, as noted, private third-party claims also are possible. The guidance suggests that “businesses may wish to seek legal advice as to any potential exposure they might face in this regard.”
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, contact any of the McGuireWoods COVID-19 Response Team members.