Businesses in the manufacturing, food retail and life sciences sectors will feel more confident coordinating their efforts to help tackle the challenges posed by the coronavirus outbreak in light of new guidance prepared by the UK's Competition and Markets Authority (CMA), a competition law expert has said.

Alan Davis of Pinsent Masons, the law firm behind Out-Law, was commenting after a new guide setting out the CMA's approach to business cooperation in response to the coronavirus, officially Covid-19, was published on Wednesday.

The guidance follows on from an earlier CMA statement in which it confirmed it would relax its approach to enforcement in light of the public health emergency, but only where "cooperation between businesses or rationing of products to the extent that this is necessary to protect consumers". That statement was issued to coincide with a UK government announcement that it would update the UK's Competition Act 1998 to relax rules relating to anti-competitive behaviour for the sole purpose of enabling "retailers to work together for the sole purpose of feeding the nation during these unprecedented circumstances".

The CMA's guidance has broader application than to just the food retail sector, but it confirmed that its relaxations on enforcement will only apply in restricted cases.

Coordinated action would need to be appropriate and necessary in order to avoid a shortage, or ensure security, of supply; clearly in the public interest; contribute to the benefit or wellbeing of consumers; deal with critical issues that arise as a result of the Covid-19 pandemic; and last no longer than is necessary to deal with these critical issues, according to the regulator.

Davis Alan July_2019

Alan Davis

Partner, Head of Competition, EU & Trade

Cooperation must be necessary to achieve the objectives and be temporary in nature

Davis said: "The CMA’s guidance provides important pointers on the authority’s approach to assessing cooperation between businesses to address certain critical challenges arising from the Covid-19 pandemic. It makes clear that any such cooperation must be necessary to achieve the objectives and be temporary in nature. It also highlights that the CMA will not tolerate anti-competitive practices that are unjustified because they do not result in consumer benefits that outweigh a restriction of competition."

Examples of coordinated conduct that the CMA said it will not tolerate are set out in its guide. This includes the exchange of commercially sensitive information on future pricing or business strategies between competitors, where this is not necessary to meet the needs of the current situation.

The present circumstances also do not permit retailers to exclude smaller rivals from any efforts to cooperate or collaborate in order to achieve security of supply, or to deny rivals access to supplies or services, the CMA confirmed.

Businesses dominant in their market will also continue to be considered in breach of competition rules if they "raise prices significantly above normal competitive levels".

Other practices that businesses can expect the CMA to clampdown on include collusion that artificially keeps prices high to the detriment of consumers in response to a fall in demand, and other forms of coordination that go beyond "what is actually needed to address the critical issue in question" during the period of Covid-19 crisis response.

Davis said: "The CMA notes that its guidance cannot offer protection against private third party litigation claims for perceived competition law breaches. However, conduct falling within parameters of this guidance is in practice unlikely to attract such claims given the extraordinary circumstances."

"While the obligation is on companies to self-assess compliance with competition law it is welcome that the CMA has indicated a preparedness to engage with businesses and industries by providing informal guidance in cases of genuine uncertainty about the legality of their proposed actions, subject to the CMA having sufficient resources to do so," he said.

The CMA previously wrote an open letter to the pharmaceuticals and food and drink industries urging companies to report cases of unjustifiably high price rises, and said it will use its powers "to tackle bad behaviour".