Collaboration among competitors & COVID-19: The impact on EU and national case laws

The first case of the Coronavirus (COVID-19) was confirmed in late 2019, and a pandemic was declared by the World Health Organisation in March 2020. Following this declaration, governments worldwide have taken extraordinary measures to combat the effects of the COVID-19 pandemic. Measures are being tested, introduced and revised daily to fight the effects on the global economy, including measures taken by competition authorities.

Since the previous Special Issue of e-Competitions on the impact of COVID-19 on competition law two weeks ago, over 100 contributions have been, addressing the whole spectrum of competition law. Most notably, competition authorities have provided significant guidance regarding collaboration amongst competitors to overcome the challenges raised by COVID-19 such as severe under- or overcapacity and the scarcity of goods. This significant evolution is addressed in detail below.

In addition, a number of contributions show important developments in merger control that deserve careful review. With over 100 competition authorities worldwide, at least half have announced changes to their merger control processes. These range from a complete shut-down, to encouraging companies to consider delaying merger notifications to minor delays in answering or returning phone calls whilst agency staff work on notifications from home. These measures can mean delays to timelines, as well as an increased shift to e-working. Merger control rules thus continue to apply, but companies will need to consider how changes to timelines and procedures impact their M&A process and key issues, such as long-stop dates.

Finally, given the need to inject liquidity into the real economy, significant action has been taken in State aid. Since the European Commission classified COVID-19 as an “exceptional occurrence” under Article 107(2)(b) and introduced a temporary framework, at least 30 aid measures have been approved, totalling more than EUR 325 billion.

Focus on Horizontal Collaboration, with a Warning

Amid the economic shocks caused by COVID-19, many industries are facing reduced demand for their products and services. Other industries, notably healthcare and food, are adjusting rapidly to expanding demand requirements and changing consumption patterns due to large-scale population confinement in several countries. Significant under- or overcapacity has created incentives, or even the necessity, to collaborate in ways that may push the limits of competition law.

On 30 March 2020, the European Commission commented that it “acknowledges that cooperation among businesses may be crucial in order to ensure the supply and fair distribution of essential goods and services, as well as to mitigate as much as possible the negative economic and social consequences of the crisis.” [1] These comments came as the Commission announced the launch of a dedicated website to help companies assess the compatibility of their cooperation agreements under EU competition law.

The Commission’s statement follows the unprecedented action of the European Competition Network (the ECN) on 23 March 2020. [2] The ECN, the network of competition enforcement authorities in the European Union, issued a joint statement announcing that its members will not actively intervene against “necessary and temporary” measures, including cooperation among competitors, in order to avoid a “shortage of supply.” At the same time, the ECN cautioned that its members would actively intervene against any measures taken by companies to limit the supply or charge excessive prices for critical products, such as masks or hand sanitising gel.

These actions go a step beyond the European Commission’s approach following the 2008 crisis. At that time, the European Commission’s view was that so-called “crisis cartels” do not benefit anyone, [3] although there was a recognition that certain market situations may not be remedied by market forces. [4] The Commission’s statement and ECN’s Joint Statement combined with the ad hoc activity of national regulators shows that EU/national competition law, while still applicable, may be subject of increasingly flexible interpretation and enforcement priorities to respond to severe economic shocks. The same pattern appears beyond Europe, as well.

In the days preceding and following the joint statement, numerous national competition authorities have taken similar steps, authorising temporary waivers or indicating flexibility in their approach to competition law enforcement in critical industries. This can be seen in the following few examples:

  • The Norwegian competition authority granted a temporary exemption from the competition rules to the transport sector for three months, from 18 March. This will allow, for example, SAS and Norwegian to collaborate on their flight route offerings. [5]
  • One day following, on the 19 March, the South African government introduced laws that grant block exemptions to the healthcare sector in order to combat COVID-19, which includes measures such as sharing information on capacity and utilization as well as procurement of essential goods. [6] However, the only agreements that are exempt, are those which are undertaken or in coordination with the South African department of health.
  • On 20 March, German Economy Minister Peter Altmaier suggested that it may be necessary for food retailers to cooperate more closely to ensure there are no shortages for citizens during the crisis. He told German weekly Der Spiegel that “if the food industry and retail sector cooperate to secure supply for citizens during the crisis … we will take up antitrust issues with the cartel authority in order to find a solution.”
  • In Iceland, on 22 March, the competition authority announced that it will, in some circumstances, grant exemptions from antitrust rules to travel agencies and distributors of pharmaceuticals. Further guidance would be available via an informal hotline. [7]
  • On 23 March, the Finnish Competition Authority indicated that it will take into account the circumstances of the COVID-19 crisis and understands that co-operation may be necessary to ensure the adequate supply and equal distribution of products to consumers. [8]
  • On 24 March, the United States FTC and DOJ issued a joint statement providing guidance for collaborations between competing businesses. In particular, the competition authorities committed to responding within seven days to queries on collaborations. [9]
  • On 27 March, the UK government passed emergency legislation in the form of three Orders, amending UK competition law to help healthcare, grocery, and ferry companies to maintain the provision of essential goods. [10] The amendment temporarily relaxes elements of competition law to allow collaboration, including information sharing, pooling staff, joint purchasing, sharing facilities, sharing data on stock levels and coordinating operating hours, sharing distribution depots and delivery vans, and pooling staff. Helpfully, the legislation is backdated to apply to agreements from 1 March onwards. Agreements must be notified to the Secretary of State within 14 days, and a register of such agreements will be maintained. The legislation follows an earlier statement issued on 19 March by the UK Competition and Markets Authority (CMA) outlining the intention not to intervene against co-operation among businesses, if necessary to protect consumers. [11]
  • Also on 27 March, the competition authority in the Czech Republic issued a press release noting that a cooperation between competitors may be permissible where the supply of essential goods and services are concerned and the parties are threatened by the impact of COVID-19. [12]

Taken together, a clear message is emerging: the exigencies of the COVID-19 crisis are resulting in competition regulators taking a more flexible and permissive approach to the enforcement in respect of certain types of coordination among competitors – or (apparently) even waiving or amending competition laws altogether. Critically, this is likely only to apply to conduct the object of which is to address shocks to key industries and is beneficial to consumers, such as cooperation to address scarcity, inequitable distribution of essential products, or severe under- or overcapacity in critical industries. Moreover, competition regulators are equally clear that companies that opportunistically cartelise, or engage in anticompetitive behaviour such as price gouging will be dealt with harshly.

To that end, a stark warning has been issued by virtually all competition authorities that have taken recent action: abuses of the flexible approach will meet a resolute response with market places being monitored very closely, for example, through the creation of task forces and a call for whistle blowers.

Broadly, therefore, companies must still comply with competition law, and the latitude accorded to certain otherwise high-risk cooperative activity should still be undertaken with caution. It is important to distinguish between low and high-risk conduct, and also conduct that may be permissible in the current circumstances, after careful consideration. Examples of this latter category, which may be permissible in the current circumstances, may include collaboration regarding:

  • The logistics of effectively and expeditiously distributing goods or people, such as the coordination of scheduled travel;
  • The storage and warehousing of critical products such as food and pharmaceuticals;
  • The shared use of assets, such as telecommunication or energy networks, hospitals, distribution depots and means of distribution (e.g., delivery vans), or staff;
  • The exchange of information, including for example:
    • Stock levels, distribution patterns or stock shortfall; or
    • Standardising R&D projects relating to mitigating the impact of Covid-19;
  • The joint purchase or production, where capacity restraints may slow the manufacture, of critical products; and
  • The cooperation between suppliers at different levels of the distribution chain, for example, between the wholesale and retail levels of food distribution to enable wholesale sales to end customers;

While these examples of cooperation appear feasible in light of current enforcement statements, they are not without risk and should not be undertaken except after careful consideration and possibly notifying the relevant authorities, as the contributions of competition authorities make clear.

Against this background, the following general principles may be a helpful starting point in evaluating potential competitor cooperation:

  • Collaboration between competitors must always have an efficiency or pro-competitive purpose which one party would not be able to achieve alone. Therefore, companies must first consider whether there are alternative, effective means to the proposed collaboration that could be achieved alone.
  • Collaboration between competitors must be limited in scope and reasonably necessary to achieve the efficiency purpose.
  • Collaboration must be limited in time and in geography, for example, for the duration to be defined by the COVID-19 pandemic.
  • It is important to check regularly that the scope of the collaboration has not changed and that the collaboration remains necessary, particularly when economic conditions are rapidly changing in response to the COVID-19 health crisis.
  • The reasons that the collaboration is necessary, and its beneficial objectives, should be documented in advance.

As the COVID-19 crisis evolves, companies must be aware of, and adjust to, changes in how competition authorities are likely to view competitor collaboration. In the longer term, questions undoubtedly will arise as to whether this is temporary, or instead represents a “new normal,” which would represent a significant change in the approach to competition law policy and enforcement.

Ultimately, no one can predict how long COVID-19 will continue to plague the global economy, and as such, whether competition authorities will consider further amendments to their competition laws. However, it is also clear that such interference may cause damage to the respective markets, and – as the contributions make clear – competition authorities will continue to monitor the situation and take appropriate measures across the spectrum of competition law. Therefore, in order to overcome this time of crisis, companies must take care in determining and implementing strategies in a compliant fashion.

Note from the Editors: although the e-Competitions editors are doing their best to build a comprehensive set of the leading EU and national antitrust cases, the completeness of the database cannot be guaranteed. The present foreword seeks to provide readers with a view of the existing trends based primarily on cases reported in e-Competitions. Readers are welcome to bring any other relevant cases to the attention of the editors.

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Authors

  • McDermott Will & Emery (Düsseldorf)
  • McDermott Will & Emery (Brussels)
  • McDermott Will & Emery (Düsseldorf)

Quotation

Christian Krohs, Andrea L. Hamilton, Max Küttner, Collaboration among competitors & COVID-19: The impact on EU and national case laws, 9 April 2020, e-Competitions Competition Law & Covid-19, Art. N° 94139

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