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EU, UK Competition, State Aid and Public Procurement Law During COVID-19
While not the most important concern, it should be appreciated that antitrust/competition law, plus the state aid and public procurement rules, continue to apply in the EU and UK during the crisis. So far as the UK is concerned, it is subject to EU law until 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.
McGuireWoods has distributed seven client alerts on these topics:
The most recent major COVID-19-related developments in the UK and EU are as follows:
- The European Commission continued to approve under the state aid rules a range of EU member state and UK measures providing funding and other support to businesses.
- The Commission prolonged the validity of certain state aid rules which would otherwise expire at the end of 2020. It also made certain targeted adjustments to the existing rules to mitigate the economic and financial impact of the coronavirus outbreak on companies. To this end, the Commission adopted a new regulation amending the General Block Exemption Regulation and the de minimis regulation, and a communication amending seven sets of state aid guidelines and prolonging those which would otherwise expire on 31 December 2020.
- The Commission adopted an additional package of exceptional measures to support the wine sector. The new measures include the temporary authorisation for operators to self-organise market measures, an increase in the EU's contribution for wine national support programmes and the introduction of advance payments for crisis distillation and storage.
- The UK Competition and Markets Authority (CMA) closed three of its four investigations into suspected excessive pricing (price gouging) of hand sanitizer by local retailers. One investigation closed following a finding that there were no grounds for action with respect to the outlet's pricing of hand sanitizer; the price was not excessive under competition law. The other two investigations closed following collection of evidence concerning the retailers' wholesale costs and the volume of hand sanitizer they have sold. The CMA considered that it is unlikely that the retailers' prices infringed competition law and that further investigation to reach a definitive view would deliver limited, if any, consumer benefits.
- The UK Department for Business, Energy and Industrial Strategy published an updated list of the agreements notified to it under the statutory competition law exclusion orders which currently apply in the UK due to the pandemic. The list now includes agreements in the grocery sector relating to the delivery of emergency food boxes to vulnerable consumers and coordination between Asda, Sainsbury's, Tesco and Iceland on assistance for particular groups of consumers, including critical workers and the most clinically vulnerable and socially isolated groups of consumers, such as prioritising deliveries or opening stores at specific times to these groups or otherwise providing assistance to them. In addition, the list now includes arrangements by Dairy UK to conduct surveys of forecast milk disposals and spare capacity to see if there is under-utilised capacity available to absorb milk from the out-of-home market, which therefore involves the collecting and sharing of information.
- The CMA published a third update from its COVID-19 Taskforce. Among other issues, this considers the CMA’s work tackling harmful competition and consumer law practices. On the competition side, the work has focussed on “unjustifiable price rises” (i.e., price gouging or excessive pricing). The CMA’s work on price gouging has covered: investigations into pricing by local retailers of hand sanitizer; working with trade associations, regulators and other bodies to clarify expectations of businesses and warn about the potential consequences of charging unjustifiably high prices; requesting information from individual businesses where the CMA has concerns; and engagement with online retail platforms (in particular, Amazon and eBay). The update also considers the CMA’s general approach to complaints of price hikes during the pandemic and its work providing guidance to businesses and advice to the UK government.
- The CMA published a joint statement to warn about price gouging with various trade bodies: the Association of Convenience Stores, Association of Independent Multiple Pharmacies, British Retail Consortium, Chartered Trading Standards Institute, Federation of Independent Retailers, Federation of Wholesale Distributors and Scottish Wholesale Association.
Please contact McGuireWoods’ COVID-19 Response Team if you would like to discuss these topics or any other legal issues arising out of COVID-19 in the EU, UK or United States.
European Commission Imposes Fines on Purchasing Cartel
On 14 July 2020, the European Commission announced fines totaling €260 million on Orbia, Clariant and Celanese for engaging in a purchasing cartel concerning merchant ethylene. A fourth company — Westlake — was found to have participated but was not fined since it revealed the cartel to the Commission.
Ethylene supply agreements refer to a pricing formula, which often includes a “monthly contract price” (MCP), an industry price reference resulting from individual negotiations between ethylene buyers and sellers. During the process of establishing the MCP, the companies coordinated their price negotiation strategy vis-à-vis the ethylene sellers to push the MCP down. They also exchanged price-related information during the negotiations.
The case shows that EU (as well as UK) competition law rules prohibit not only cartels related to coordination of selling prices, but also cartels related to coordination of purchasing prices. It also demonstrates the benefit of identifying an infringment and reporting it to the regulator. By revealing the cartel, Westlake avoided a fine of c. €190 million.
It’s not known how Westlake identified the infringement, but it is likely that the company had a good competition compliance programme in place, which may have included regular internal audits. If the cartel was identified as a result of operating such a programme, it will now have paid for itself many times over.
In addition to fines, the participants are now open to follow-on private damages claims from the sellers based upon the Commission’s decision. Broadly, the sellers are likely to claim the difference between the value of the sales they would have made and the actual value of the sales into the countries covered by the cartel ( Belgium, France, Germany and the Netherlands), which value was reduced by the purchasing cartel.
Dutch Competition Authority Publishes Groundbreaking Guidance on Competition Law and Environmental Sustainability Agreements
The Dutch Competition Authority (ACM) published new draft guidelines on the application of competition law to environmental and other types of sustainability agreements between competitors. The guidelines are groundbreaking and push the ACM right to the forefront of thinking on the issue. They are a must-read for any company considering how it should respond to climate change and other sustainability concerns.
The idea behind the guidelines is to increase the opportunities for competing businesses to collaborate in pursuit of sustainability objectives. They will have more scope to enter into agreements, particularly to achieve climate objectives such as reduction of greenhouse gases.
The principal innovation is that the ACM proposes to allow this in cases where the benefits for society as a whole outweigh the disadvantages of any restriction of competition impacting direct users. If the benefits for all of society are taken into account, they will more easily outweigh the disadvantages of an agreement. This makes it easier for agreements which are otherwise anti-competitive to be exempted and therefore lawful to implement.
In principle, the guidelines would apply only to agreements impacting competition in the Netherlands. Nevertheless, they will inevitably influence regulators and courts EU-wide and elsewhere, including the EU’s lead competition regulator, the European Commission.
The Commission published a statement noting the consultation and stating that it “fully supports the need for clear guidance on agreements aiming at reducing greenhouse gas emissions that would be compatible with competition law.” However, in a warning shot, it also said it is currently looking into the same issues as part of the review of the two Horizontal Block Exemption Regulations and the Horizontal Co-operation Guidelines and that it will “continue its reflections on these issues … to provide further clarity and arrive at a uniform approach [EU-wide].”
The ACM’s consultation on the draft guidelines is open until 1 October 2020 and comments can be sent to it at firstname.lastname@example.org.
Private Hospital and Individuals Fined in the UK for Fixing Initial Consultation Fees
In a matter which provides an excellent compliance case study, on 1 July 2020, the UK Competition and Markets Authority (CMA) fined a private hospital chain and six medical professionals for agreeing fee rates.
Spire Healthcare admitted that one of its hospitals instigated and facilitated an illegal arrangement with seven consultant ophthalmologists. This concerned the fixing of the fee — at £200 — for an initial private consultation for self-pay patients. The CMA imposed total fines of £1.2 million, with the highest fine imposed on an individual consultant being around £3,800.
According to the CMA, the cartel started after a dinner organised by the hospital’s management and attended by five of the seven ophthalmologists, during which the topic of fees was raised. After the dinner, a hospital employee sent an email to all seven consultants to suggest that the agreed price for a consultation be set at £200 going forward.
All of the ophthalmologists confirmed they would charge this fee, with four raising their prices from £180 to £200 and the other three continuing to charge £200. Spire then liaised with its customer service team to facilitate the arrangement over a nearly two-year period.
It’s remarkable that the hospital’s compliance programme did not stop or identify this behaviour. By contrast, one of the individuals subsequently realised that the arrangement was illegal and brought the cartel to the CMA’s attention, thereby avoiding a fine.
In addition to the fines, all of the participants — including the whistleblower — are now potentially at risk of follow-on private damages claims in the UK courts, which would likely be a collective (class action) claim on behalf of individual patients.
UK Court Orders Director Disqualification for Cartel Participation
For the first time, a UK court has handed down a director disqualification order after a UK competition law investigation. The ruling on 3 July 2020 by the High Court stops Michael Martin for seven years from acting as a director or being concerned in the management of a company in the UK.
There have been several previous director disqualifications after CMA investigations, but in each of those cases, the CMA accepted a disqualification undertaking instead of bringing court proceedings. In this case, Martin refused to give an undertaking so the CMA sought the court order.
The case against Martin followed a CMA investigation which found that six estate agents in one small UK town, with an estimated combined market share of up to 95 percent, had agreed to fix a minimum commission rate of 1.5 percent for residential estate agency services. The illegal cartel agreement lasted for a little over a year.
Martin was not concerned with day-to-day sales at the agency of which he had been a director, nor did he attend any of the meetings with the other estate agents who had made the fee fixing agreement. Nevertheless, he was aware of the cartel agreement and took no steps to prevent or end the agency’s participation, so contributing to the breach of competition law.
The court therefore concluded his conduct fell below the standards of probity and competence appropriate for persons fit to be directors of companies, making him unfit to be involved in the management of a company.
The case is a warning that even small companies — and their directors — are subject to UK competition law and must have a suitable compliance programme in place. Even a company director not directly involved in a competition law breach can be held accountable for it. A director who has information about a breach must take all reasonable steps to prevent it or risk disqualification.
Additional European competition law news coverage can be found in our news section.
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