Coronavirus: competition law enforcement after lockdown

Out-Law Analysis | 06 May 2020 | 8:20 am | 6 min. read

Businesses are likely to face challenges in untangling themselves from temporary cooperation arrangements set up to ensure the manufacturing and supply of essential goods and services during the coronavirus crisis.

Closer cooperation between competitor businesses has been encouraged during the pandemic in areas such as food retail and pharmaceuticals to address coronavirus-related supply chain risks and an increase in demand. Competition authorities have shown flexibility in their approach to enforcement, recognising the necessity of cooperative measures that might ordinarily breach competition rules in this time of public health emergency.

As European countries begin to look beyond lockdown, however, businesses can expect competition authorities to require them to bring temporary cooperation practices to an end. The expectations on how quickly they will be obliged to do so when the crisis abates is likely to vary across different jurisdictions.

UK exemption orders

The UK government introduced a number of orders to provide exemptions from competition law to help certain critical sectors to respond to the challenges of the crisis. These orders relate to shoring up the groceries supply chain; ensuring the capacity of the NHS in England and Wales, and its ability to work with private operators in combatting Covid-19; the continuing operation of 'lifeline' ferry services across the Solent between the Isle of Wight and mainland UK; and an exemption to allow cooperation between dairy producers.

The orders all remain in force until such time as the Secretary of State considers that the disruption caused by Covid-19 has ceased, at which point a notice will be published and businesses will have 28 days to bring the arrangements to an end. Businesses relying on the exemptions should remain vigilant for the publication of such notices and have in place procedures and mechanisms to swiftly end the cooperation arrangements, given that the 28 day notice period is short.

From a practical point of view, withdrawal from some cooperation arrangements, such as production and specialisation agreements, at relatively short notice may require a longer period of time to achieve.

Davis Alan July_2019

Alan Davis

Partner, Head of Competition, EU & Trade

Businesses will also have to ensure that cooperation measures, such as information sharing, are properly and fully brought to an end where they are no longer necessary or justified

Since all activities exempted under the orders must be notified in writing to the Secretary of State, competitors that continue with their collaboration after the orders are withdrawn may be at higher risk of subsequent antitrust investigation.

The uncertainty about the likely duration of the current crisis and the end to the lockdown also creates uncertainty for businesses as to how long their cooperation agreements will be exempted. Vigilance and awareness of changes to the exemption regime are therefore critical.

CMA guidance for businesses

The UK's Competition and Markets Authority (CMA) has issued guidance on its general approach to enforcing competition law during the pandemic. In short, subject to certain criteria, the CMA will not take enforcement action where businesses take temporary, necessary measures to coordinate activities in order to ensure the supply of scarce or essential products and services affected by the crisis to all consumers.

The CMA is not providing guidance on specific initiatives; instead businesses must self-assess their compliance with UK competition law. Businesses therefore must continually ensure the cooperation arrangements they have entered into are compliant with UK competition law, particularly as the CMA's approach and guidance may be amended once Covid-19 related lockdown measures are phased out.

UK approach after Covid-19

Even once Covid-19-related lockdown measures begin to be relaxed, additional time may be required for existing cooperation measures to be wound down and there may be a need for continued competitor cooperation over a longer period in certain areas of the UK economy. It is also hoped that CMA guidance, and possibly UK legislative responses, will be adapted to account for this and help provide businesses with greater legal certainty. Businesses will also have to ensure that cooperation measures, such as information sharing, are properly and fully brought to an end where they are no longer necessary or justified.

While the CMA will seek to ensure that competitor cooperation implemented during the pandemic does not result in lasting changes to competition in UK markets, this may well need to be balanced with the need to implement measures over the medium-term to help rebuild the UK economy.

EU guidance

Unlike the CMA, the European Commission has adopted a more hands-on approach. Under a temporary framework, the Commission is prepared to provide individual guidance on temporary cooperation between businesses involved in the supply or distribution of "essential, scarce products and services", such as medical supplies. The Commission may also issue 'comfort letters' in some instances, such as to Medicines for Europe, the EU's largest 'generics' pharmaceutical trade association, over a scheme to address shortages of medicines critical to treating Covid-19 patients.

Businesses that have consulted with the Commission should pay particular attention to any time limits and/or the scope of the Commission's acquiescence to a specific scheme. For instance, the Medicines for Europe comfort letter states that the cooperation is only permitted until a possible second wave of the pandemic has passed, which may be determined by the Commission. It is likely that the Commission will adopt a stance that is unique to the scheme in question, and so businesses must take care to comply with any restrictions imposed.

The temporary framework is not time-limited, and will remain in place until the Commission withdraws it. Again, there is likely to be a notice period within which the cooperation must be brought to an end, and so it is essential that businesses remain alert to the fact that they could be required to trigger termination mechanisms at relatively short notice. The Commission is unlikely to look kindly on businesses that do not act responsibly and swiftly in response to its attempts to restore the normal regime.

The only sector-specific measure that the Commission intends to adopt is a relaxation of competition rules in respect of dairy, flowers and potatoes producers, who have suffered a severe collapse in demand. Unlike the UK's exemption orders, this measure will be strictly limited to a period of six months, and so businesses in these sectors should ensure that the cooperation only lasts for this length of time.

Wider European response

Whilst the UK government has been slower to release any details of how it proposes to shepherd the country out of lockdown, one of the early steps taken by the Commission and the European Council was the publish the joint European roadmap towards lifting Covid-19 containment measures.

The roadmap identifies the criteria to be used in determining when the restrictions should be relaxed; sets out steps to ensure coherent coordination across all member states; indicates a number of precautions that must be adopted concurrently with relaxing the restrictions, such as ensuring that healthcare services continue to be fully supported; and suggests specific, practical guidance on how to implement the relaxation – for example, that economic activity should be restarted in phases.

The roadmap allows for considerable divergence in approach between member states and, in particular, the criteria for relaxing restrictions are very broad. This scope for divergence limits the value of this document to companies looking for a more concrete route out of the current crisis. However, the roadmap provides valuable transparency in terms of the core foundations that will govern the decision to relax restrictions and how those measures might look.

The roadmap specifically states the Commission will continue to provide antitrust guidance and comfort to firms cooperating to tackle shortages so as to enable the gradual de-escalation from the restrictions. In a move to reassure businesses in light of the variation in approach that application of the roadmap might otherwise lead to, it also states that the Commission and European Competition Network (ECN) will ensure 'coherent application' of this guidance – the ECN being the body that brings together national competition authorities from across the EU states.

It is likely that the Commission will slowly begin to reintroduce the normal enforcement of competition rules over a period of time, rather than risk destabilising fragile businesses by calling for a hard stop to cooperation. This would mean that the period of justifiable cooperation may well extend for some time after the pandemic has been brought under control; however, the specifics of how this will work remain to be seen.

There are also signs from across the EU that the Covid-19 pandemic should not be allowed to undermine the bloc's priorities. For instance, Andreas Mundt, president of the Federal Cartel Office in Germany, has called for normal scrutiny of cooperation between businesses to resume once Covid-19 has passed.

Although not strictly related to competition, another sign that European governments do not intend to let Covid-19 derail existing priorities is that the French environment minister has told companies in strong terms that they should not expect a relaxation of their environmental responsibilities under existing regulations, a stance supported by the climate crisis conditions attached to some state aid arrangements granted in response to the pandemic, such as the Austrian Airlines bailout, and widespread calls for all such assistance to be linked to environmental conditions.