Competition law no barrier to coronavirus cooperation in life sciences

Out-Law Analysis | 15 Apr 2020 | 2:51 pm | 5 min. read

Competition law is not a barrier to life sciences businesses working together to ensure the supply of vital equipment and medicines during the coronavirus pandemic.

However, while a range of initiatives have been announced by UK and EU policymakers to enable collaboration, there are limitations to the way life sciences companies can cooperative and a continued threat of regulatory action if they act beyond the restrictions.

The European Commission starts to issue comfort letters again

Background

The European Commission last week published a Communication for assessing current competition law issues. The Communication has re-introduced the ‘comfort letter’ system which was previously abolished in 2003. This will allow companies, who intend to cooperate with a competitor, but are unsure about complying with applicable competition law while doing so, to directly, and pre-emptively, approach the Commission for guidance, in order to attain greater legal certainty.

The Commission has already provided a comfort letter to Medicines for Europe, addressing a voluntary cooperation project among pharmaceutical producers which targets the potential shortage of critical hospital medicines for the treatment of coronavirus patients.

The Communication covers possible forms of cooperation between undertakings in order to ensure the supply, and adequate distribution, of scarce essential products and services during the Covid-19 outbreak. This is designed to address the shortage of products and services resulting from the recent rapid spike in demand. This includes medicines and medical equipment used to test and treat Covid-19 patients or which are necessary to slow the outbreak.

The Commission has made it clear that it is prepared to accept greater levels of cooperation between competitors where this will overcome or avoid a shortage. For example, businesses may discuss the conversion of their respective production lines so as to increase overall production of scarce products.

Overview of new rules

The Commission has agreed to provide comfort on the legality of specific cooperation initiatives to allow them to be swiftly implemented and tackle the Covid-19 outbreak. While companies may continue to self-assess, the ability to seek guidance will be helpful where it may be unclear if a specific initiative is compatible with EU competition law.

Vidal Robert

Robert Vidal

Partner

The decision to reissue comfort letters is a particularly helpful solution given the inherent legal uncertainty arising from different forms of collaboration between potential competitors

Certain types of collaboration that would normally be problematic will be deemed compliant if they are:

  • designed and objectively necessary to actually increase output in the most efficient way to address or avoid a shortage of supply of essential products or services, such as those that are used to treat Covid-19 patients;
  • 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; and
  • strictly necessary to achieve the objective of addressing or avoiding the shortage of supply.

Businesses should document all exchanges and agreements between them and make them available to the Commission on request.

The Commission has already set up a dedicated webpage and mailbox that can be used to seek informal guidance on specific initiatives.

Further guidance from the European Commission may also be forthcoming.

In a new roadmap towards lifting Covid-19 containment measures, published on 15 April, the Commission said: "Ensuring sufficient supplies of equipment and medicines for enabling the lifting of confinement measures may require a higher than normally allowed degree of cooperation between firms, including competitors, in some ecosystems. The Commission is and will be providing, as necessary, antitrust guidance and comfort for cooperation between firms in ecosystems to overcome shortages on goods and services required to enable the gradual de-escalation from containment measures. The Commission and the national competition authorities will, via the European Competition Network (ECN), also ensure a coherent application of this guidance in their respective enforcement actions."

National competition law authorities

Developments at European Competition Network (ECN) level

The ECN comprises of the national competition authorities of all EU member states. It has issued a joint statement accepting the current need for companies to cooperate to ensure the supply and fair distribution of scarce products. This means that the ECN will not actively intervene against necessary and temporary measures put in place to avoid a shortage of supply.

The ECN also recommends that businesses with doubts about the compatibility of such cooperation initiatives seek informal guidance from the Commission or the relevant national competition law authority.

Developments in the UK

The UK government has temporarily relaxed UK competition rules to enable cooperation among businesses in the healthcare sector. The change is embodied in new legislation – the healthcare Order – that came into force on 28 March 2020 with retrospective effect from 1 March 2020.

The Order is limited to the provision of healthcare services to the NHS and permits five ‘qualifying activities’ for the purpose of responding to coronavirus.

These ‘qualifying activities’ comprise agreements relating to:

  • sharing information about capacity to provide certain services;
  • coordination on deployment of staff;
  • sharing or loan of facilities;
  • joint purchasing of goods, facilities or services; and
  • division of activities, including agreement to limit or expand the scale or range of services supplied by one or more providers.

Agreements that have not yet been made and are intended to benefit from the Order must be notified to the Secretary of State in writing within 14 days of the date of the agreement. The notification must include a description and date of the agreement, and the names of the parties.

European Commission guidelines

The EU's commissioner for health and food safety, Stella Kyriakides, has also published guidelines addressed to countries within the EU and wider European Economic Area. The guidelines are designed to optimise supply and availability of medicines during the coronavirus outbreak.

The guidelines explain that protectionist measures such as export bans and national stockpiling, within, and outside of, the EU, can easily lead to inequitable shortages in the EU and worldwide.

The Commission has warned that total export bans for medicines are not in line with principles set out in the EU treaties and impede the functioning of the single market. Among the Commission's various recommendations, it has called on all EU member states to show solidarity and lift unjustified export bans for medicines within the internal market.

Consumer protection at both EU and national level

Both the Commission, and national competition regulators, have indicated that they will be carefully scrutinising any behaviour that could be harmful to consumers, such as unreasonable price increases, and will take action against businesses taking advantage of the current situation by cartelising or abusing a dominant position in their market.

The clearance systems that have been introduced are limited to agreements between businesses and do not extend to single-firm conduct which could breach the prohibition on abuse of a dominant position, such as excessive pricing.

On 20 March, the Competition and Markets Authority (CMA) in the UK published an open letter for businesses in the pharmaceutical and food and drink industries. It did so after it had "received reports that a minority of firms in [those sectors] are seeking to capitalise on the current situation by charging unjustifiably high prices for essential goods or making misleading claims around their efficacy". Businesses in those sectors that engage in that activity may have a defence under competition laws if they are forced to pass on increased costs they are seeing. The CMA's letter implied that firms should be proactive and report concerns to it.

Regulatory response offers some comfort to industry

It has been extremely impressive to see how quickly competition authorities have been willing to act in response to the urgent need for guidance and reassurance as pharmaceutical companies seek to collaborate to meet unprecedented spikes in demand. The European Commission has been particularly engaged in discussions with the industry and the decision to reissue comfort letters is a particularly helpful solution given the inherent legal uncertainty arising from different forms of collaboration between potential competitors.