ON-TOPIC: COMPETITION POLICY - ECONOMIC ANALYSIS - HEALTH CRISIS - COVID-19 - STATE AID - MERGERS - COOPERATION

Competition law and health crisis

The unexpected shock provoked by the Covid-19 crisis and the measures taken to limit the spread of the pandemic have affected the functioning of many markets. Throughout the world, competition authorities which, in the last decade, had been enforcing their laws in the context of steady economic growth have had to adjust their enforcement practices not only to the difficulties of running their operations due to lockdowns but more importantly to adjust to collapsing markets or markets for essential goods characterized by severe shortages, in a context of deep economic depression with many firms facing severe liquidity constraints or even the threat of bankruptcy. Competition authorities have responded to these extraordinarily brutal circumstances by adjusting their enforcement priorities, exempting certain forms of cooperation, relaxing their standards for efficiency defence, adopting emergency procedures, allowing state aids under certain conditions, accepting mergers because the target had all of a sudden become a failing firm etc…. while at the same time insisting that these changes did not mean a weakening or an alteration of the competition law principles that they previously followed. This set of articles describes in detail the responses of a number of competition authorities, analyzes the differences in the responses of various governments and competition authorities to the Covid-19 crisis and discusses whether these responses imply a departure from the traditionally accepted goals and enforcement principles of competition.

The set of articles below is introduced by Frédéric Jenny (ESSEC Business School); other contributions have been ordered in alphabetical order of first contributor.




Introduction



Frédéric Jenny
Professor of Economics, ESSEC Business School, Cergy

1. The Covid-19 economic crisis is fundamentally different from the 2008 financial and economic crisis in various respects. As Marcel Boyer [1] reminds us: the financial crisis was caused by the gaming of poorly designed incentive mechanisms and a collapse of interbank confidence because of free riding and fraud. The current crisis is caused by a cataclysmic exogenous shock which has led, first, to brutal spikes in the demand for products needed to limit the expansion of the pandemic with the simultaneous collapse of supply channels because of our overreliance for a number of the relevant products on the production facilities of China, the first country to be hit by the pandemic. The current crisis is caused, second, by the adoption in most countries of general confinement measures which were deemed the only possibility to contain the pandemic given the lack of availability of the equipment or products required to block the spread of the disease. As a result, demand collapsed on a large number of markets both because of the physical impossibility for consumers to access stores and because of the worries of many about an uncertain future. The collapse of demand meant that many firms and stores could not continue to pay their employees. They were facing a severe liquidity crisis as their revenues collapsed (but not their fixed costs) and, barring governmental aid, they were forced to lay off their workers en masse (particularly in sectors such as construction, transportation, restaurants, etc.). To avoid a collapse of the economy, in many countries firms were encouraged to reorganize and adopt new working methods such as teleworking whenever possible and were granted various forms of financial support (tax deferment, credit facilities, capital injections (for example in the automobile sector or in airline transportation)). Governments were eager to ensure that firms could maintain their capacity to rebound when conditions would improve. Simultaneously, governments in a number of countries extended financial aid or stimulus packages to workers hit by the crisis in order to maintain demand. However, such financial assistance to consumption was not necessarily effective as consumers were physically prevented from accessing stores.

2. This is essentially where France is at the beginning of May 2020. There is talk about reopening on 11 May 2020 and future stimulus packages to revive the economy in the autumn.

3. What is clear, however, is that some of the consumption which did not take place during the eight weeks of confinement (such as having meals in restaurants or going to plays, concerts or soccer matches—which have been cancelled) are forever lost and that a large number of SMEs are facing extreme difficulties, that some industries with high fixed costs which saw a nearly total collapse of demand during the time of confinement (such as the automobile sector where demand in France decreased by up to 88% during the time of confinement) will need help to restructure. Also, some industries which catered to the demand for mobility (such as airline transportation and therefore aircraft manufacturing) will face long-term decline in demand. A number of countries will want to protect themselves against the risk of being caught again unprepared for catastrophic events, and will want to repatriate some of their delocalized production of essential goods (for example, in the pharmaceutical sector). The necessity to limit the interaction among people to avoid pandemics (combined with the development of digital technology, and environmental goals to limit pollution and a questioning of the safety risk of using public transportation) will push firms to change however possible their organization and to adopt teleworking much more massively than in the past (with an accompanying decline in the demand for commercial spaces and an increase in the demand for homes with adequate work space). Finally, there is no guarantee that in markets where both supply and demand were affected by the crisis that they both will be revived simultaneously and that therefore those markets will be able to return to their previous equilibrium anytime soon. Even if the demand for broadcasted sports events such as soccer remains stable, the activity of sports clubs and broadcasters has been deeply affected by confinement and the resulting cancellation of many sports events.

4. An interesting question is how this will affect market competition and competition law enforcement. This question may be broken into two sub-questions:

  •  The first one is what should or could be the role of competition authorities during the crisis. Should competition authorities show flexibility in enforcement in view of the extraordinarily disruptive situations on a number of markets or should they hold firm on their principles irrespective of the current circumstances? If adjustments are needed what should they entail? Pierre M. Horna [2] in his contribution shows that competition authorities throughout the world have had to face difficult choices.
  •  The second sub-question concerns the role of competition in the long term. From the economic standpoint, the Covid-19 crisis revealed the inability of competitive markets to adjust sufficiently rapidly during a period of stress and also revealed some of the dangers that the globalization of value chains has brought, leading to concern about the liberal economic policies of the 1990s and the first two decades of the 2000s. Does this mean that the promotion of free and competitive markets as a means to promote efficiency and consumer welfare has gone too far and ignored the fact that such markets can fail? Is it time to revive industrial policy, to accept that there may be legitimate reasons to control foreign investment and to find a less unfair framework for international competition? Is it also time to reset the goals and the procedures of competition law enforcement?

5. The articles presented in this issue proceed from different angles to provide answers to these questions.

6. With respect to the short-term sub-question of the role of competition authorities in a time of crisis, it may be useful to distinguish between the two functions of competition authorities: their advocacy function and their enforcement function.

I. Advocacy

7. The advocacy function of competition authorities is particularly important at a time of intense regulatory activity by governments seeking to solve short-term problems. Competition authorities are particularly well placed to help governments ensure that the new regulations they consider adopting do not unduly restrict competition. These authorities could also advocate for lifting regulatory obstacles when such obstacles actually prevent the smooth adjustment of supply and demand.

8. In her paper Maria Pilar Canedo Arrillaga [3] shows, for example, how the EU Commission guidance on public procurement in the emergency situation created by Covid-19 establishes a framework striking a balance between the goal of allowing competition among bidders and the need to implement emergency purchases in exceptional circumstances in cases where, given the time constraint, there may not be several firms in a position to fulfil the requirements set by the procurement agency. She observes that the Spanish government emergency procurement rules are much too lax compared to the EU guidance and should be revised to prevent the unnecessary use of non-competitive purchasing procedures. Masako Wakui, in her article, shows how in Japan the liberalization of the Covid-19 testing service market (which is in the hands of the Japanese government) would increase the level of testing and she calls on competition authorities to examine the situation and evaluate whether governmental intervention serves public welfare.

9. Above and beyond advice to governments on emergency regulations, competition authorities must send a clear message to the business community on how the principles of competition law enforcement will apply in the context of the crisis so that business firms can have a clear idea of what is allowed and prohibited in these troubled circumstances. Most competition authorities have published statements or guidelines on competition law enforcement since the beginning of the crisis period. At the more general level, all of these statements include a clear message that competition authorities will not tolerate the behaviour of firms strategically using the excuse of the economic crisis to implement anticompetitive practices such as price fixing, abuses of market power and pricing abuses by firms having a dominant position, market sharing, or exchanges of strategic commercial information. Thus the underlying principles of competition remain as relevant as ever.

10. On the enforcement front, in a period of crisis such as the current Covid-19 crisis, competition authorities may have to deal with two types of business practices which could be problematic: the attempt by some firms to benefit from shortages by charging very high prices for goods and services difficult to find and the coordination among firms to increase supply and ensure that the product or service is fairly distributed to alleviate the effect of the shortage. Other types of coordination among competitors may be aimed at facilitating and accelerating innovations to find treatments or vaccines which could help alleviate the health crisis which undermines the economy. Furthermore, in a situation of economic recession, the context in which mergers take place may require some procedural or substantive adjustments to the control procedure. Finally, in a period where governments are massively attempting to support firms faced with various difficulties resulting either from the health crisis or from the confinement period, competition authorities may, at least in some jurisdictions, have to ensure that State aids do not unduly restrict competition on markets.

II. Excessive prices and price gouging

11. With respect to the risk of pricing abuses not all competition authorities have the same means of intervention.

12. In some countries, such as the United States, competition authorities are notoriously reluctant to use antitrust laws to control the prices charged by firms having market power. A majority of states, however, do have price gouging laws which can be activated when there is a declared emergency and those laws usually prohibit “unconscionably excessive price” or unjustified price increases above a certain threshold.

13. What is noticeable in the United States is that even the Federal Trade Commission (FTC), which is in charge of both antitrust and consumer protection, has over the years taken a very strong stand against price gouging laws and has actively discouraged federal legislators who have repeatedly considered the adoption of a federal anti-gouging law. The “FTC has criticized proposals designed to address price gouging, explaining that—particularly in the case of natural disasters—price increases are a natural response to product shortages and can help to draw resources to the affected market” and that “if natural price signals are distorted by price controls, consumers ultimately might be worse off.” After hurricane Katrina in November 2005, then FTC Chairwoman Deborah Majoras echoed this sentiment when she stated that [4] “[c]onsumers understandably are upset when they face dramatic price increase within a short period of time, especially during a disaster.” “But price gouging laws that have the effect of controlling prices likely will do consumers more harm than good (…) While no consumers like price increases, in fact, price increases lower demand and help make the shortage shorter-lived than it otherwise would have been.”

14. There has been much more willingness to use competition law provisions against abuses of dominant position in Europe and there have been some cases of unfair and excessive prices brought against pharmaceutical firms in the recent past. Thus on 21 November 2016, EC Commissioner Vestager declared (in reference drug prices) that “as the recent action by the British and Italian competition authorities shows, there can be times when competition rules need to do their bit to deal with excessive prices.” The greater interest and willingness of European competition authorities to fight excessive prices in periods of crisis is also reflected in the contribution of Siún O’Keeffe, [5] which states: “Competition authorities in turn are wary of price hikes and the exploitation of scarcity by powerful producers.

15. The major problem faced by competition authorities is that in principle they can only use their competition law enforcement powers when the price gouging is implemented by a firm having a dominant position. But in a period such as the Covid-19 crisis it is clear that price gouging is tempting for firms (suppliers or retailers) which happen to secure a stock of an essential product (such as masks in case of a pandemic) which is all of a sudden urgently needed to protect hospital personnel (including doctors and nurses) and the general population in such large quantities that there is no way those products can be delivered fast enough to meet even a small proportion of the demand. In such situations the provisions of competition law prohibiting excessive and unfair prices may not be applicable if the price gouger cannot be considered to hold a dominant position on the market.

16. There has been at least one attempt to overcome the difficulty of applying Article 86 of the EC Treaty (now Article 102 TFEU) to situations in which suppliers were alleged to have abused their market power in a situation of acute shortage. This was the 1977 EC Commission decision relating to the oil market in the Netherlands. [6] In this case the alleged practice was a partial refusal to sell, at the end of 1973, by an oil refiner to ABG, a purchasing cooperative of the nineteen members of the Avia Group in the Netherlands, at a time when the Netherlands was hit by an OPEC embargo on shipments which brought imports of crude down by nearly 50% of their October level. According to the decision, the supply crisis in the Netherlands was mastered fairly quickly, but the fear of a scarcity of petroleum products led to a veritable shortage scare. The Commission states that “The general economic scene was set towards 1 November 1973 with the outbreak of the oil crisis, which was caused by a simultaneous reduction in the supply of oil offered on the world market combined with a substantial increase in the price demanded for it.” Such a situation is not unlike the situation we are experiencing during the current Covid-19 crisis, for example with the shortage of masks. During the oil crisis, ABG, the retailer, sought to buy supplies from BP but was sold much less than it had requested, as BP gave preference to its regular customers.

17. What is of note in this decision is the reasoning of the Commission which first considered that BP had a dominant position, in spite of the fact that there were at least seven refiners active in the Netherlands and that ABG had bought oil from at least six of them and, second, that BP had abused this dominant position during the period of shortage by reducing its supplies to ABG not only substantially but also proportionately to a much greater extent than in relation to its other clients without objective reasons. According to the Commission BP has thus applied dissimilar conditions to ABG in imposing on that company an obvious, immediate and substantial competitive disadvantage.

18. With respect to the characterization of the dominant position of BP, the Commission states the following: “Economic restrictions such as existed in the Netherlands during the oil crisis can substantially alter existing commercial relations between suppliers who have a substantial share of the market and quantities available and their customers. For reasons completely outside the control of the normal suppliers, their customers can become completely dependent on them for the supply of scarce products.

Thus, while the situation continues, the suppliers are placed in a dominant position in respect of their normal customers.

With the general shortage of supplies all the oil companies were faced with the same problem, that of maintaining supplies to their regular customers. Thus they were not able to make up the deficiencies of the other companies with substantial market shares and they were in no way in competition with each other to supply customers.

In the prevailing circumstances each of these companies found itself in a dominant position relative to its customers.

19. In other words, the Commission argued that short-term general disequilibrium characterized by a restriction of supply and a spike in demand can give a dominant position to a firm “over its customers,” irrespective of its market share before the shortage occurred, because the shortage makes switching suppliers impossible for the customers.

20. The Commission decision was overturned by the Court of Justice. [7] However the court did not examine the merits of the definition of a dominant position in a period of shortages. It stated: “The first question to be examined is whether, on the supposition that special market conditions such as those in this case did in fact ensure a dominant position in the Netherlands for the large oil companies established there as against their respective customers, the factual and legal circumstances on which the Commission relies to characterize in particular the individual conduct of BP during the crisis make it possible to consider that conduct as an abuse within the meaning of Article 86 of the Treaty.

21. Then the court found that the Commission’s reasoning was flawed because, “since ABG’s position in relation to BP had been, for several months before the crisis occurred, that of an occasional customer, BP cannot be accused of having applied to it during the crisis less favourable treatment than that which it reserved for its traditional customers.

22. By adopting the Commission’s reasoning on the definition of dominance in the ABG decision, provisions on pricing abuses of dominance could be widely used to fight price gouging in cases of shortages.

23. However, this decision seems to confuse economic dependence and market dominance and is contradictory with the established jurisprudence on the definition of dominance.

24. In paragraph 10 of its 2009 guidance on exclusionary practices, [8] the Commission summarizes the jurisprudence and emphasizes that for a firm to be in a dominant position it must have a position of economic strength on a relevant market (and not simply on its customers) and that it must enjoy substantial market power over a period of time (and not simply for a short period of time).

25. Thus most competition authorities in Europe, unless they have a consumer protection function, are fairly restricted in their ability to fight price gouging during periods of acute shortage. In addition, the definition of abusive prices, which requires a demonstration of the fact that the price charged was both excessive and unfair, places a heavy burden of proof on competition authorities. As a result, investigations by competition authorities on pricing abuses are particularly long and fraught with risks.

26. Nevertheless, Aymeric de Moncuit [9] reminds us that the difficulties of applying competition law provisions on abuses of dominance have not deterred a number of competition authorities throughout Europe from opening investigations into excessive pricing practices, for example, in Italy (relating to the marketing of hand sanitizers and disposable masks), in Poland (regarding the supply of personal protective equipment to hospitals), in Turkey (regarding the food sector), in Ukraine (regarding masks, airline tickets, disinfectants and consumption basket products), and in the Netherlands.

27. This observation leads to three comments. First, in some countries (such as the UK) the competition authority is also entrusted with a consumer protection function and therefore can use its consumer protection tools together with its competition enforcement tools to intervene against price gouging. This flexibility is reflected, for example, in the statement of Lord Tyrie (chairman of the CMA) on 20 March 2020, when he said: “We will do whatever we can to act against rip-offs and misleading claims, using any or all of our tools; and where we can’t act, we’ll advise government on further steps they could take, if necessary.” Besides the willingness to use the flexibility offered to by the combination of competition and consumer responsibilities, the CMA position on price gouging also offers a sharp contrast with the US FTC position on possible remedies. Indeed the statement published on its websites also states that: “In addition, the CMA will assess whether it should advise Government to consider taking direct action to regulate prices.

28. Second, as Anastasia Usova reminds us, [10] competition authorities can use their soft powers in combination with their investigatory powers to fight excessive pricing practices in a crisis situation. We are told, for example, that the Antimonopoly Committee of Ukraine (AMC) has been extremely active in issuing “recommendations in Kyiv and the Kyiv region (i) to pharmacies to refrain from imposing economically unjustified price increases for face masks, and (ii) to food retail chains to refrain from unreasonable price increases for face masks, disinfectants and long-life food.” Simultaneously the AMC has also launched investigations ’into parallel price increases in the same region (i) by pharmacies and the wholesale suppliers of healthcare products, including face masks, as well as (ii) by food retailers and their wholesale suppliers of vegetables and long-life foodstuffs.”

29. It could be the case that public recommendations, warnings or statements by competition authorities regarding excessive prices have an effective dissuasive effect on firms from engaging in price gouging, particularly if such soft warnings are complemented by investigations into collective price fixing.

30. The reason is that such public warnings increase both the alertness of consumers to the possibility of being exploited and the reputational risks for firms if they are found to have been engaged in excessive pricing practices. In addition, the fact that consumers are likely to decide to stay away from firms having been found to engage in excessive pricing or sudden price hikes in a time of shortages means that the sanction for a firm with a reputation of price gouging is likely to be an immediate decline in its sales.

31. An interesting example of the effectiveness of the reputational risk faced by firms engaging in price gouging was provided early on in the Covid-19 crisis in the US. As reported by the New York Times, while on a three-day shopping spree that began on March 1, the day after the first coronavirus death in the US was announced, two brothers driving around Tennessee bought all the hand sanitizers they could find in stores across the state. They ended up with a stock of 17,700 bottles of hand sanitizer liquid and thousands of packs of antibacterial wipes. They then started offering them for sale on Amazon for prices which were multiple times the price they had paid. They succeeded in selling 300 bottles of hand sanitizer on Amazon the first day of their offering before Amazon removed their listing and warned sellers they would be suspended for price gouging. On March 14, the New York Times ran the story on the attempt at price gouging by the two brothers, who, faced with a public backlash and an investigation for price gouging, eventually decided to give their remaining stock to charities on March 15. [11]

32. Third, a few countries have adopted more radical (but also less orthodox) solutions to facilitate the intervention of their competition authority against price abuses which could also be used to fight price gouging.

33. This is the case, for example, in Ukraine. In her paper, Anastasia Usova [12] refers to a provision regarding “anti-competitive parallel behaviour” in the Ukrainian competition law system. Non-dominant companies may be found liable for excessive pricing if they simultaneously or “almost simultaneously” increase their prices, and if these price increases cannot be explained by objective factors. In those cases, there is a (rebuttable) presumption that they entered into illegal concerted practices amongst competitors. Thus, in order to establish a violation, in addition to finding price correlation amongst competitors that increase their prices in parallel, the AMC is also required to examine all the objective factors which could cause such similarity in price increase.

34. Another example of unorthodox means of allowing the intervention of a competition authority in cases of price gouging is provided by South Africa. As Mark Griffiths [13] explains, in South Africa the Competition Commission (SACC) enforces the Competition Act and the National Consumer Commission (NCC) is in charge of consumer protection. Following the declaration by the South African government of a national disaster on 15 March 2020, it was felt that new rules should be introduced to address the specific competition concerns in the pricing and supply of essential products due to the coronavirus pandemic. The Consumer and Customer Protection and National Disaster Management Regulations and Directions were enacted on 19 March 2020. One of the goals of these regulations is to “protect consumers and customers from unconscionable, unfair, unreasonable, unjust or improper commercial practices during the national disaster.”

35. In determining whether a dominant firm has charged an excessive price to consumers or customers (which is a violation of Article 8 of the Competition Act), the regulations establish that during the period of the national disaster, a material price increase of a good or service which “does not correspond to or is not equivalent to the increase in the cost of providing that good or service,” or “increases the net margin or mark-up on that good or service above the average margin or mark-up for that good or service in the three month period prior to 1 March 2020,” is a relevant and critical factor for determining whether the price is excessive or unfair and indicates prima facie that the price is excessive or unfair. Furthermore, during the period of national disaster, such a price increase is also an unconscionable, unfair, unreasonable and unjust price increase and a supplier is prohibited from effecting such a price increase in accordance to Articles 40 and 48 of the Consumer Protection Act No. 68 of 2008.

36. According to a press release from the Competition Commission of South Africa, [14] as of 31 March 2020, the SACC had sent over 100 letters to national retailers, suppliers and independent retailers with respect to allegations of excessive prices.

III. Coordination among competitors

37. The second major concern of competition authorities in a time of crisis due to the Covid-19 pandemic concerns the possibility that firms may seek to or have to coordinate in order to alleviate the shortages of essential products or services necessary to limit the spread of the virus or to treat it or to discover a vaccine against it. Competition authorities are under some pressure to allow such horizontal coordination or cooperation, which seems desirable, at least from a public interest perspective. An example of such pressure is provided by an article co-authored by Klaus Schwab (founder of the World Economic Forum) and Guido Vanham (professor of virology at the University of Antwerp) and published on the WEF website on 13 April 2020 entitled “What we must do to prevent a global COVID-19 depression,” in which they state: “Of course, we could be lucky that an existing, already approved drug could also act against this virus, or that an efficacious COVID drug could prevent mortality and promote recovery of infected subjects. On the former, mass screening is happening today, so we will know soon. Also new schemes for rapid testing of candidate vaccines are set up and a suitable candidate could emerge within months. But even then, it will take time to produce and deliver it on a worldwide scale. Nevertheless, all global stakeholders should provide all their support, financially as well as through bureaucratic means, to get to this solution as fast as possible. This is a time for collaboration, not competition.

38. On the whole, competition authorities have stated that they would not prioritize such agreements in their enforcement activity. This reduces the risk that competition authorities will start ex officio proceedings against such cooperation agreements. However, this does not guarantee that such agreements are not going to be challenged in courts on their compatibility with competition law or that competition authorities are always going to be able to avoid investigating them since such agreements can be referred to them by third parties and since, at least in some countries, competition authorities cannot refuse to investigate in the case of a referral.

39. There are significant differences in the reasons given by competition authorities for not prioritizing horizontal agreements implemented to alleviate the effects of the health crisis.

40. On 23 March 2020, the European Competition Network (network of competition enforcement authorities in the European Union—ECN) issued a joint statement [15] in which it stated that it understood that this extraordinary situation may trigger the need for companies to cooperate in order to ensure the supply and fair distribution of scarce products to all consumers. It then suggested that it would not “in the current circumstances” “actively intervene against necessary and temporary measures put in place in order to avoid a shortage of supply.” The justification given by the members of the ECN not to intervene is that under the current circumstances “such measures are unlikely to be problematic, since they would either not amount to a restriction of competition under Article 101 TFEU/53 EEA or generate efficiencies that would most likely outweigh any such restriction.” Finally, ECN members called on companies having doubts about the compatibility of such cooperation initiatives with EU/EEA competition law to reach out to the Commission, the EFTA Surveillance Authority or the national competition authority concerned at any time for informal guidance.

41. The ECN joint statement raises a couple of interesting issues. It seems to indicate that besides the preoccupation with an adequate supply, ensuring the fairness of the distribution of goods or services may also be a justification for the cooperation of competitors. It further suggests that the reasons for which ECN members would not intervene against necessary and temporary measures to avoid a shortage of supply (or an unfairness of the distribution of the products or services) is that “in the current circumstances” cooperation among firms to reach those goals would in all likelihood not amount to a restriction of Article 101 TFEU/53 EEA or would “generate efficiencies that would most likely outweigh any such restriction.

42. The first issue is thus the recognition of the fact that the determination of what is anticompetitive or what contributes to economic progress depends on “the current circumstances.” Such a position is a welcome evolution with respect to the perceived principled (some would say “dogmatic” or “rigid”) approach followed by many ECN competition authorities when it comes to adopting infringement decisions in agreements, exchange of information or collusion cases. The tendency, at least in Europe over the last twenty years, has been to consider more and more horizontal practices as per se violations of competition law (in spite of some attempts by the CJEU to restrict the definition of per se violations) in order to alleviate the burden of proof for competition authorities (and to lessen the risk that their decisions may be overturned on appeal). Simultaneously competition authorities have generally been unconvinced by the efficiency arguments put forth by violators. Thus there was less and less scope to consider the circumstances in which those horizontal practices were implemented.

43. The second interesting issue is that of the efficiency defence of competition violations. The joint statement by the ECN members seems to imply that in the “current circumstances” efficiencies would most likely outweigh any of the competition restrictions associated with short-term collective efforts at avoiding supply shortages or at ensuring a fair distribution of the available supply.

44. It must be recalled, first, that the ECN members competition authorities cannot apply Article 101(3) TFEU since this is a prerogative of the European Commission. If they consider that in a case the conditions of Article 101(3) are met, they can only decide that there is no ground to pursue the case but they cannot positively state that Article 101(3) applies. Such decisions by national competition authorities do not prevent the EC Commission from finding differently. It is thus somewhat surprising that the ECN members state that the efficiencies generated by horizontal cooperation among firms trying to increase the supply of goods or the fair distribution of those goods in relation with the Covid-19 crisis would, in all likelihood, outweigh the restrictions of competition inherent to this cooperation.

45. In the past European national competition authorities have often considered that competition restrictions among the suppliers of medicine or among health service providers did not lead to the kind of efficiencies referred to in the ECN joint statement or that these efficiencies did not outweigh the negative impact of the competition restrictions.

46. For example, in July 2013, the Bundeskartellamt concluded a cartel administrative proceeding against the Brandenburg ophthalmologists cooperative “Augenärztegenossenschaft Brandenburg” and the health insurance fund AOK Nordost. [16] In this case, the participation in two selective contracts and membership in the Brandenburg ophthalmologists cooperative had only been allowed to ophthalmologists who had an accreditation in Brandenburg to provide health care services within the statutory health insurance scheme. The Bundeskartellamt found that these arrangements which excluded Berlin ophthalmologists, who were authorized to invoice their services in Brandenburg but were only active in a branch practice or as a member of a joint practice, restricted competition among ophthalmologists in Brandenburg.

47. The parties argued that these restrictive agreements were justified by the desire to attract a sufficient number of ophthalmologists to be permanently installed in Brandenburg and the desire to improve the distribution of ophthalmological services in this region by having a sufficient number of “close to home” practitioners. The Bundeskartellamt refused to give this agreement an exemption under § 2 of the Act against Restraints of Competition (the national equivalent to Article 101(3)), arguing that a restriction in competition among doctors was necessarily prejudicial to patients.

48. In another case, the Spanish Competition Authority found that an agreement between an association of pharmacists in the Castilla-La Mancha region and the regional health service was akin to an illegal market-sharing agreement to the extent that it introduced a rotation among pharmacists for the supply of medicine to health centres. [17] The decision of the Spanish Competition Authority was subsequently confirmed by the Appeal Court and the Supreme Court.

49. However, the circumstances surrounding the horizontal agreements in those cases were different from the circumstances which prevail in the current Covid-19 crisis. Those decisions dealt with anticompetitive issues at times when the markets for medical supplies or services were not affected by the kind of massive shortages experienced in many European countries since the beginning of the Covid-19 crisis. Thus, the claims by the authors of these practices that they were necessary to better balance supply and demand or to ensure a smoother or fairer distribution of the medical services did not seem to be sufficiently credible justifications to outweigh the competition restriction that they implied. In addition, those decisions dealt with practices which entailed a restriction in the ability of some market participants to expand output as opposed to the more common case in an acute shortage of agreements designed to allow an orderly expansion of the output of the participating firms.

50. Circumstances are quite different when the world is subject to a deadly pandemic and a massive short-term disequilibrium between supply and demand for a number of medicines, test kits, a vaccine, etc., necessary to face the pandemic. It is clear that, over time, private initiative and self-interest in the context of competitive markets will bring those markets back to equilibrium. But the relevant question is: how long will it take? There is no time to wait as the pandemic spreads throughout the world bringing with it massive negative externalities in the form of lost lives and the opportunity cost of confinement. Thus the short-term cost of not allowing agreements which may contribute to increasing supply of essential medicine and services and allowing for a smoother (and fairer) distribution of these goods and services may outweigh the benefits that protecting competition may entail in the long run. The flip side of this approach is, of course, that when the agreements do not limit the short-term costs of massive market disruptions, it is less likely that efficiency benefits will be considered to outweigh horizontal competition restrictions because there is an immediate benefit (rather than a cost) to preserving competition in the short run and the efficiency benefits usually take a number of years to manifest themselves.

51. On 8 April 2020, the Commission published a Communication on the establishment of a temporary framework for assessing antitrust issues related to the Covid-19 outbreak. [18] This communication is extensively discussed in the paper of Faustine Viala and David Kupka. [19] In its communication, the Commission suggests that different measures may contribute to bridging between demand and supply on markets. In that perspective, some cooperation among firms does not raise competition concerns under certain conditions. This is, for example, the case of:

  • entrusting to a third party the task of coordinating joint transport for input materials;
  • identifying those essential medicines for which, in view of forecasted production, there are risks of shortages;
  • gathering aggregate production and capacity information (without exchanging individual company information);
  • elaborating a model to predict demand on a Member State level, and identifying supply gaps;
  • sharing aggregate supply gap information, and requesting that participating undertakings, on an individual basis and without sharing that information with competitors, indicate whether they can fill the supply gap to meet demand (either through existing stocks or increase of production).

As long as no flow of individualized company information seeps back to competitors, such cooperation does not seem to be problematic from the point of view of European competition law.

52. But the Communication of the Commission goes further and acknowledges that there might be a need in the health sector for firms to go beyond the aforementioned uncontroversial types of cooperation and to coordinate the reorganization of production with a view to increasing and optimizing output so that not all firms focus on one or a few medicines, and other medicines remain in underproduction, where such reorganization would allow producers to satisfy demand for urgently needed medicines across Member States.

53. In other words, the Commission accepts the idea that there can be such a thing as a short-term failure of purely competitive markets to deliver in a timely manner the quantity and variety of medical products which is needed to satisfy demand for urgently needed medicine. In other words, the Commission recognizes implicitly that in a pandemic, long-run efficiency benefits may come at a high cost in the short run.

54. In such cases, according to the Commission, the measures to be taken to adapt production, stock management and distribution in the industry may require exchanges of commercially sensitive information and a certain coordination of which site produces which medicines. Such exchanges and coordination between undertakings are in normal circumstances problematic under EU competition rules. The Commission, however, states that such measures—in view of the emergency situation and their temporary nature—would not give rise to an enforcement priority for the Commission as long as (i) they would be 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; (ii) they would be 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 (iii) they would not exceed what is strictly necessary to achieve the objective of addressing or avoiding the shortage of supply.

55. The position of the EU Commission that such agreements are not a priority of the Commission is prima facie difficult to reconcile with the ECJ Judgement in the Irish beef case where the court held that anticompetitive agreements designed to remedy a crisis in a sector are per se violations of EU competition law: [20] “(…) even supposing it to be established that the parties to an agreement acted without any subjective intention of restricting competition, but with the object of remedying the effects of a crisis in their sector, such considerations are irrelevant for the purposes of applying that provision. Indeed, an agreement may be regarded as having a restrictive object even if it does not have the restriction of competition as its sole aim but also pursues other legitimate objectives (General Motors v Commission, paragraph 64 and the case-law cited). It is only in connection with Article 81(3) EC that matters such as those relied upon by BIDS may, if appropriate, be taken into consideration for the purposes of obtaining an exemption from the prohibition laid down in Article 81(1) EC.

56. Furthermore, the claim that anticompetitive agreements designed to increase supply of health products or services and ensure their fair distribution, if anticompetitive, would automatically be exempted under Article 101(3), which states that the prohibition on anticompetitive agreements may be inapplicable where an agreement contributes “to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit” (and therefore would not be worth pursuing), is a departure of the past practice of the Commission since, following the modernization of EC law in 2004, it has never accepted an Article 101(3) defence.

57. Finally, the Commission states that the fact that a cooperation is encouraged and/or coordinated by a public authority (or carried out within a framework set up by the latter) is also a relevant factor to be taken into account to conclude that such cooperation would not be problematic under EU competition law or would not be an enforcement priority for the Commission. This last consideration reverses the traditional approach that ministerial encouragements to an anticompetitive practice are no excuse under competition law. It must be recalled that in the Irish Beef case previously referred to, the Irish government had supported the agreement to reduce capacity in the Irish beef industry.

58. It thus appears that the Commission will not prioritize cases of horizontal cooperation between firms to alleviate the shortages of essential products or services in the context of the Covid-19 crisis for reasons other than the fact that it considers that such agreements do not raise a competition issue. On the one hand, it implicitly considers that horizontal cooperation among competitors designed to increase output in a situation of acute shortage (or to facilitate the optimal distribution of goods and services) should be treated differently than agreements which restrict output even if they have anticompetitive features; on the other hand, The Commission is willing to recognize (within limits) that when its enforcement might clash with the public interest objective of restoring as fast as possible the smooth supply of products and services necessary to the health of EU citizens, correcting the negative externalities created by the shortage should trump the goal of preserving competition at all costs.

59. In order to provide both guidance and legal predictability the Communication states that the Commission will “provide guidance to undertakings and trade associations with respect to specific cooperation initiatives with an EU dimension, that need to be swiftly implemented in order to effectively tackle the COVID-19 outbreak, especially where there is still uncertainty about whether such initiatives are compatible with EU competition law” and “stands ready, exceptionally and at its own discretion, to provide such guidance by means of an ad hoc ‘comfort’ letter.

60. On 8 April 2020, the EU Commission issued its first “comfort letter” to generics association Medicines for Europe (an association of generic pharmaceutical companies), giving it assurances that a specific voluntary cooperation project among generic pharmaceutical companies (which produce the largest part of critical hospital medicines) to develop a list of products needed in intensive care units and to identify the risks of shortages of critical hospital medicines for the treatment of Covid-19 patients would not fall foul of antitrust rules. Based on publicly available information, under exemption granted by the Commission in two days, the companies would be allowed to share active pharmaceutical ingredients (“APIs”) along with “intermediates,” which are semi-finished versions of medicines. They may also need to communicate when deciding whether to transfer production of a medicine from one site to another in order to increase production capacity. Distribution may also be coordinated on an ongoing basis. The Commission, however, required that only indispensable information should be exchanged (any discussion on prices or other non-essential matters is likely to result in an investigation by the Commission), that the project should be open to all companies that wish to participate and that all meetings should be reported. This cooperation should only last during the pandemic and the Commission will inform Medicines for Europe when it is necessary to end it.

61. On 24 March 2020, the Federal Trade Commission and the US Department of Justice Antitrust Division issued a joint statement also providing guidance for collaborations of businesses working to protect the health and safety of Americans during the Covid-19 pandemic that is discussed in Daniel A. Crane’s paper. [21]

62. The starting point of the US agencies is, as in the case of the European Commission, the recognition of the fact that health care facilities may need to work together in providing resources and services to assist patients, consumers, and communities affected by the pandemic and its aftermath and that other businesses may need to temporarily combine production, distribution, or service networks to facilitate production and distribution of Covid-19 related supplies.

63. The first object of the joint FTC–DOJ statement is pedagogical. The US agencies want to “make clear to the public that there are many ways firms, including competitors, can engage in procompetitive collaboration that does not violate the antitrust laws.” Basing themselves on the case law, the agencies point out that when firms collaborate on research and development this “efficiency-enhancing integration of economic activity” is typically procompetitive, “that sharing technical know-how, rather than company-specific data about prices, wages, outputs, or costs, may be ‘necessary to achieve the procompetitive benefits of certain collaborations’ (…) that most joint purchasing arrangements among healthcare providers, such as those designed to increase the efficiency of procurement and reduce transaction costs, do not raise antitrust concerns.

64. Over and beyond references to past elements of jurisprudence, the US agencies announce that they will account for “exigent circumstances” in evaluating efforts to address the spread of Covid-19 and its aftermath. For example, they acknowledge that health care facilities may need to work together in providing resources and services to communities without immediate access to personal protective equipment, medical supplies, or health care or that other businesses may need to temporarily combine production, distribution, or service networks to facilitate production and distribution of Covid-19 related supplies they may not have traditionally manufactured or distributed. The US agencies thus recognize that “[t]hese sorts of joint efforts, limited in duration and necessary to assist patients, consumers, and communities affected by Covid-19 and its aftermath, may be a necessary response to exigent circumstances that provide Americans with products or services that might not be available otherwise.” Additionally, where the government enlists help from private businesses in addressing Covid-19, the US agencies stand ready to assist, such as by working with the Department of Health.

65. Even though the EU Communication seems to be aligned with the joint statements of the US agencies, the latter is much less explicit than the former both on the possible conflicts between antitrust laws and the necessity to deliver rapidly and speedily the essential elements necessary to fight the pandemic and the use of their prosecutorial discretion.

66. Together with their statement, the US antitrust agencies also provide for an “expedited procedure” for Covid-19 public health projects. The agencies will respond to all Covid-19 related requests, and resolve those addressing public health and safety, within seven calendar days of receiving all information necessary to vet these proposals, thus offering a quicker review than existing FTC and DOJ programs that are designed to provide guidance to businesses concerned about the legality of proposed conduct under the antitrust laws.

67. Other national competition authorities outside the EU have also signalled their willingness to allow, at least temporarily, cooperation or coordination between competitors whenever such cooperation or coordination is necessary to avoid a shortage due to the Covid-19 crisis, or ensure security of supply.

68. This is, for example, the case of the United Kingdom’s Competition and Markets Authority, which on 25 March 2020 published its approach to business cooperation in response to the crisis. [22] The CMA makes clear that it will not “tolerate conduct which opportunistically seeks to exploit the crisis,” that its approach to business cooperation is limited to matters relating strictly to, or arising directly out of, the Covid-19 pandemic and that it will withdraw its guidance when it considers that it is no longer necessary.

69. The CMA approach is two-pronged.

70. First, the CMA explains how it will prioritize cases during the Covid-19 outbreak. One of the key strategic objectives for the CMA included in the CMA’s Annual Plan for 2020/2021 is that of “protecting consumers, including in particular those in vulnerable circumstances.” Further, according to the CMA’s Annual Plan for 2020/2021, it intended to “sharpen its focus on what matters to consumers” so that its “interventions deliver impact where it is most needed.” The CMA uses these high level objectives and intentions to delineate the area where it will refrain from taking action.

71. The CMA considers that providing a sufficient amount of product or services to slow the pandemic or to treat affected patients is what is most needed by consumers who are vulnerable to the coronavirus. It also acknowledges that cooperation among companies may be needed to achieve the goals of ensuring the supply and the fairness of the distribution of the scarce products and services to all consumers. Therefore the CMA will refrain from taking enforcement actions if the coordination measures (i) are appropriate and necessary in order to avoid a shortage, or ensure security of supply; (ii) are clearly in the public interest; (iii) contribute to the benefit or well-being of consumers; (iv) deal with critical issues that arise as a result of the Covid-19 pandemic; and (v) last no longer than is necessary to deal with these critical issues.

72. Thus the CMA, unlike the ECN members, does not cast its policy in terms of a balance between the cost of competition restrictions and the efficiency benefits that they entail. It is more concerned with public interest considerations, which in the pandemic period guide its prioritization of cases.

73. The second part of the CMA’s message deals with how, in the unprecedented context of the Covid-19 pandemic, it will apply the criteria for exemption from the competition law prohibition on agreements and arrangements restricting competition.

74. The CMA recalls that under Section 9 of the Competition Act 1998, an agreement that restricts competition is exempt from the prohibition on agreements and arrangements restricting competition if it meets four criteria. It must contribute to improving production or distribution, or promoting technical or economic progress. It must allow consumers a fair share of the resulting benefit. It must not impose on the undertakings concerned restrictions which are not indispensable to the attainment of those objectives. Finally, it must not afford the undertakings concerned the possibility of eliminating competition in respect of a substantial part of the products or services in question.

75. In its guidance the CMA then states that cooperation that ensures essential goods and services can be made available to the public or an important sub-set of the public such as key workers or vulnerable consumers will be considered efficiency-enhancing. It states that cooperation which avoids or mitigates shortages will be likely to be considered as giving consumers a fair share of the benefits. It goes on to state that to assess the indispensability of the cooperation, the key factor will be whether, in the circumstances and limited time available to consider alternatives, the cooperation could reasonably have been considered necessary. The extent to which the cooperation is temporary in nature will be an important consideration to assess the admissibility of the competition restriction as well as the fact that it is strictly limited to what is necessary to alleviate the shortage.

76. Thus the CMA considers that the definition of efficiencies should not be restricted to narrow economic considerations on price or quality and is willing to consider as efficiencies more qualitative aspects such as the relevance of the distribution to meet the needs of key workers. The CMA also considers that coordination to either increase output or improve the distribution of existing output is necessarily fair to consumers. Finally, it recognizes that the “indispensability” condition for exemptions very much depends on the hypothesis one makes about possible alternatives which themselves are dependent on the time frame one considers. For the purpose of exempting cooperation in the medical field to deal with the Covid-19 pandemic, the CMA is willing to restrict the analysis to the short term and to accept that the indispensability criterion is fulfilled even if alternative but longer-term solutions (such as a readjustment of supply and demand over time) to cooperation existed.

IV. Exemptions from competition law

77. Finally, in other countries, the Covid-19 crisis has elicited different reactions than a simple adjustment of competition authority practises. For example, in South Africa, as documented in the paper of Mark Griffiths, [23] the government, on the one hand, introduced new rules to deal abusively high prices of essential products and, on the other hand, temporarily suspended the application of the competition law in key sectors to facilitate the coordinated response of the private sector and to support the actions taken by the South African government in dealing with the pandemic. The Covid-19 Block Exemption for the Healthcare Sector exempts from the application of Sections 4 and 5 of the Act (prohibiting anticompetitive horizontal and vertical agreements) agreements undertaken at the request of, and in coordination with, the Department of Health for the sole purpose of responding to the Covid-19 pandemic national disaster. Two other block exemptions were granted: the “Banking Block Exemption allows cooperation between banks in the context of the Banking Association of South Africa (BASA), the industry trade association, and the Payments Association of South Africa (PASA) (…) for the sole purpose of responding to the Covid-19 pandemic,” and an exemption for the retail property sector (the Retail Block Exemption) was adopted on 24 March 2020. “This block exemption seeks to assist the provision of relief to retail tenants whose businesses fall within the following designated trading line: clothing, footwear and home textile retailers; personal care services; and restaurants.” Thus, unlike in previously mentioned countries, there is a clear concern in South Africa that competition law is inadequate or insufficiently flexible or adaptable to deal with collusion in a period of acute crisis.

78. Along the same lines, the United Kingdom government also announced on 19 March 2020 that it temporarily relaxed elements of competition law as part of a package of measures to allow supermarkets to work together to feed the nation. The move allows retailers to share data with each other on stock levels, cooperate to keep shops open, or share distribution depots and delivery vans. It would also allow retailers to pool staff with one another to help meet demand. Environment Secretary George Eustice said: “We’ve listened to the powerful arguments of our leading supermarkets and will do whatever it takes to help them feed the nation. By relaxing elements of competition laws temporarily, our retailers can work together on their contingency plans and share the resources they need with each other during these unprecedented circumstances. We welcome the measures supermarkets are already taking to keep shelves stocked and supply chains resilient, and will continue to support them with their response to coronavirus.

79. Business Secretary Alok Sharma said: “In these extraordinary and challenging times it is important that we remove barriers to our supermarkets working together to serve customers, particularly those who are elderly, ill or vulnerable in all parts of the UK. The temporary relaxation of competition law for the food sector will allow supermarkets to cooperate with each other to keep their shops staffed, their shelves stocked, and the nation fed. I am clear that we will continue to do whatever it takes to support business through this extremely difficult period. The press release of the UK government announced that legislation would be laid shortly to amend elements of the Competition Act 1998, which prevents certain types of anticompetitive behaviour, and that this relaxation would be temporary and limited to enabling retailers: to work together for the sole purpose of feeding the nation during these unprecedented circumstances.

80. This approach has also been followed in Germany to ensure the continuity of food supply.

V. Crisis cartels

81. Given the fact that many markets will be negatively impacted by the economic crisis which is looming, there is considerable interest in discussing whether crisis cartels will be treated more leniently in the future than they have been in the past. This issue is discussed at length in the paper of Christian Ritz [24] both in the European context and more specifically in the German context. In general, the conditions to benefit from a crisis cartel defence are quite strict. The firms must show that: (i) the overcapacity is structural and permanent and is unlikely to be resolved by individual decisions except at a very high social cost; (ii) the coordination will result in a reduction in capacity which will restore the competitiveness of the industry; (iii) the agreement is strictly limited in its scope and in its duration to the coordinated reduction in capacity; (iv) the consumers will not suffer in the short run and will benefit in the long run from the elimination of the overcapacity; and (v) firms will maintain competition among them during the time of the agreement.

82. It is very unlikely that competition authorities will modify their strict criteria for the admissibility of the crisis cartel defence. This means that only agreements which are clearly aimed at collectively reducing overcapacity to the exclusion of any other cooperation have a chance to benefit from this exemption. Furthermore, the possible candidates for a crisis cartel defence should be industries characterized by high fixed cost and comparatively low variable costs since in those industries firms can be tempted to wait longer to leave the market even if the depressed prices do not cover their average costs but allow them to cover their variable costs, thus contributing to make the overcapacity permanent and structural. Similarly markets where firms face high exit costs (for example because they have to clean up the pollution that they created or because their investments costs are sunk), individual firms, even in the presence of overcapacity, may not find it possible to exit the market, thus making the overcapacity structural.

83. However, one of the crucial questions is whether (and to what extent) the macroeconomic environment is going to make a difference in the assessment by competition authorities of the structural nature of the overcapacity and of the social and economic cost of letting firms adjust individually if the crisis cartel defence is rejected. In addition, uncertainties about the impact of the crisis on future demand for particular services (for example, aircraft manufacturing, air travel or demand for cruises and cruise ships) may complicate the analysis of competition authorities by raising their risk of costly errors in refusing the crisis cartel defence.

VI. Cartel sanctions

84. Finally, there is the question of the severity of sanctions of anticompetitive practices in a period of economic crisis. Aymeric de Moncuit reminds us of the fact that the Guidelines of the EC Commission on the method of setting fines [25] state in paragraph 35 that: “In exceptional cases, the Commission may, upon request, take account of the undertaking’s inability to pay in a specific social and economic context. It will not base any reduction granted for this reason in the fine on the mere finding of an adverse or loss-making financial situation. A reduction could be granted solely on the basis of objective evidence that imposition of the fine as provided for in these Guidelines would irretrievably jeopardise the economic viability of the undertaking concerned and cause its assets to lose all their value.” A number of European national competition regimes also allow competition authorities to take into consideration the competition law violators’ ability to pay in the determination of their sanction.

85. This offers only a fairly limited scope for firms guilty of an anticompetitive agreement to argue that they should be treated leniently.

86. But it should be noted that in some countries there has been (modest) consideration of the impact of the Covid-19 crisis on the ability of competition law violators to pay their fines. For example, in Germany, the Bundeskartellamt can delay the payment of antitrust fines. However, the deferred fines must be paid with interest. It was announced on 29 April 2020 that the German government had approved a draft law to be sent to Parliament according to which firms fined by the Bundeskartellamt for antitrust breaches would be temporarily relieved (until June 2021) from interest payments if they need to deal with the impact of the Covid-19 crisis. It was reported that the Bundeskartellamt had told the Economy Ministry that it had received several notifications from sanctioned companies that were unable to pay fines due to financial constraints caused by the coronavirus crisis.

VII. Merger control and control of foreign direct investment

87. With respect to the impact of the Covid-19 crisis on merger controls, several considerations are in order.

88. First, the confinement of competition officials has proved to be problematic for merger control because of the strict deadlines which characterize merger control procedures in most countries and because of the difficulty to access the information necessary to make a decision.

89. As a result, a number of European competition authorities have asked firms to defer new merger notifications; others have suspended the deadlines.

90. For example, the European Commission has encouraged companies to delay merger notifications originally planned until further notice, wherever possible. The Commission has stated that it expects delays in the collection of information from third parties, such as customers, competitors and suppliers. The Commission reportedly suspended three Phase II merger investigations due to companies failing to comply with information deadlines, including the EssilorLuxottica/GrandVision merger due to difficulties of collecting data from opticians in Italy and France that have been forced to close due to the pandemic.

91. Other competition authorities, such as the Belgian Competition Authority or the French Competition Authority, the German Bundeskartellamt, the Irish Competition Authority, the CMA in the UK and a few others also have encouraged companies to delay merger notifications.

92. A number of other competition authorities have suspended the review period for mergers. For example, in Austria the review period for mergers which were notified between 23 March and 30 April 2020 will only start running on 1 May 2020 (including applications to initiate Phase II); the Danish Competition and Consumer Authority has suspended deadlines for merger control until 10 May 2020, The Italian Competition Authority has suspended all deadlines from 23 February to 15 May 2020, the French Competition Authority has suspended merger control deadlines as of 12 March 2020 until one month after the expiration of the current state of emergency. Similarly, in Poland legislation was passed which suspended deadlines for mergers notified before 14 March 2020 and deadlines for mergers notified after that date will only start running after the state of emergency has ended. In Norway, merger deadlines have temporarily been extended due to the Covid-19 outbreak. The new deadlines apply until 31 October 2020.

93. Second, if there has been little merger control activity in Europe since the beginning of the crisis, we have nonetheless seen that the Covid-19 crisis could have a significant influence on the assessment of mergers in the case of the Amazon/Deliveroo merger in the UK. Indeed on 19 April 2020 the CMA announced that in light of the deterioration in Deliveroo’s financial position as a result of the Covid-19 crisis, it had provisionally cleared Amazon’s purchase of a minority stake in Deliveroo.

94. After completing an initial Phase I investigation, the CMA had been concerned that the deal could damage competition by discouraging Amazon from re-entering the online restaurant food market and further developing its presence within the online convenience grocery delivery market in the UK.

95. However, the CMA has also found that Deliveroo—a highly successful company which has grown strongly and accounts for a significant share of the online restaurant platform market in the UK—is, however, particularly reliant on continued investment to be able to support its operations. During the Phase II investigation it became clear that the crisis and the lockdown had resulted in the closure of a large number of the key restaurants available through Deliveroo, and a significant decline in its revenues.

96. As a result, Deliveroo informed the CMA that the impact of the coronavirus pandemic on its business meant that it would fail financially and exit the market without the Amazon investment. Deliveroo’s submission was supported by evidence from the company’s financial advisers.

97. On this basis, the CMA provisionally concluded that Deliveroo’s exit from the market would be inevitable without access to significant additional funding, which the CMA considers that only Amazon would be willing and able to provide at this time. “The CMA currently considers that the imminent exit of Deliveroo would be worse for competition than allowing the Amazon investment to proceed and (…) therefore provisionally found that the deal should be cleared.”

98. In its press release on the merger, the CMA explained that while securing additional funding from other sources may have been possible for Deliveroo before the coronavirus outbreak, the pandemic has severely limited the availability of finance for early-stage businesses.

99. This decision shows how rapidly a successful company can become a failing firm in a period of economic turmoil such as the Covid-19 crisis and how competition authorities can be led to accept transactions which in normal times would raise competition issues.

100. Third, the Amazon/Deliveroo case is an excellent introduction to the question of whether the failing firm defence may need to be revisited in an economic crisis, a question discussed at length by Jacques Buhart and David Henry in their paper. [26] They observe that the failing firm defence is rarely invoked, strictly applied and often unsuccessful. The reason for the lack of success of the failing firm defence is the very exacting standard of proof required to meet the three elements that are required for the defence to be accepted, that is: (i) the failing firm would be forced out; (ii) there is no less anticompetitive alternative than the merger; and (iii) the assets of the merging firm would leave the market. They propose the introduction of a truncated and simpler administrative procedure/test with respect to the application of the failing firm defence which would not require a change in the EU merger regulation but would simply require a lighter burden of proof on each of the three elements required for a successful defence.

101. Fourth, an opposite area of concern with respect to transnational mergers is the risk that foreign firms may take advantage of the undervaluation of European assets due to the precipitous decline in the stock market following the Covid-19 crisis to acquire strategic European firms with the risk of alienating our technological independence.

102. Mario Siragusa and Cesare Rizza [27] discuss the possible response to the exacerbated risk to the European Union strategic capabilities caused by the volatility or undervaluation of the stock markets and the fact that in some countries, China for example, firms are not bound by the same competition rules as European firms. They suggest that there could be a complement to the Communication of the EC Commission of 25 March 2020, Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, [28] following the December 2019 Dutch call for giving the European Commission the power to intervene by initiating an investigation if a third-country company restricts or threatens to distort competition in the internal market.

103. To a large extent this concern is consistent with the concerns of competition authorities, but restricting the possibilities of foreign takeovers of firms may also reduce the pressure under which they are to be as nimble and as efficient as possible with the result that the intensity of competition would be weakened on markets. In their paper Christian Ahlborn, Christoph Barth and David dos Santos-Goncalves address the issue and show how “the pandemic and the resulting global shortages of supply of medical equipment such as ventilators and protective clothing, coupled with opportunistic behaviour by certain governments [in Europe and elsewhere], acts as a catalyst for further tightening the existing foreign investment control regimes in many countries and the creation of new regimes in others.”

VIII. State aid control

104. Finally, the last area of concern associated with the Covid-19 crisis for competition authorities is the area of State aid. In their paper, Jacques Derenne [29] describes in great detail the European Commission new temporary framework for State aid.

105. Pursuant to Article 107(3)(b) TFEU the Commission may declare compatible with the internal market aid “to remedy a serious disturbance in the economy of a Member State.”

106. The State aid regime established to face the Covid-19 crisis is an area of great interest to business firms, governments and the European Commission as the lockdown in many economies has created a dramatic liquidity crisis for a very large number of firms deprived of any revenues for weeks or even months on end.

107. In order to minimize the social and economic cost of this disruption, governments are under pressure to keep firms alive so that they can restart their activity as soon as the confinement period ends. The types of State aid that they can provide to firms to help them weather the liquidity crisis they face and ensure that the disruptions caused by the Covid-19 outbreak do not undermine their viability must meet a number of conditions imposed by the Commission. The aid must not exceed €800,000 per undertaking in the form of direct grants, repayable advances, tax or payments advantages; the aid is granted on the basis of a scheme with an estimated budget; the aid may be granted to undertakings that were not in difficulty (within the meaning of the General Block Exemption Regulation) on 31 December 2019; the aid must be granted no later than 31 December 2020.

108. The Commission has been, by all accounts, extremely fast in establishing the temporary framework (no doubt thanks to its experience in the wake of the 2008 financial crisis) on 19 March 2020, extremely reactive in amending its framework on 3 April 2020 to enable Member States to accelerate the research, testing and production of coronavirus relevant products such as: medicines, vaccines and treatments, their intermediates, active pharmaceutical ingredients and raw materials; medical devices, hospital and medical equipment (including ventilators and protective clothing and equipment, and diagnostic tools), necessary raw materials; disinfectants and their intermediary products, raw chemical materials necessary for their production; and data collection and processing tools. The aid, which must be granted before 31 December 2020 in the form of direct grant, repayable or tax advantage, may cover 100% of all the costs necessary for the R&D project during its duration for fundamental research and 80% of these costs for industrial research and experimental development.

109. The EU Commission had approved, as of the last week of April 2020, €1.9 tn of State aid measures, via 95 decisions, covering 26 Member States plus the UK. Fifty-two per cent of the aid approved concerns Germany, raising questions about whether the disproportion between Member States in their ability to grant State aid would not unfairly advantage their economies and threaten the functioning of the internal market.

110. If the State aid framework established by the Commission has been extremely useful to help a number of firms overcome the liquidity crisis they were facing by getting loans, it remains that as the beneficiaries of State aid become more indebted, their risk of default increases and they have little possibilities to invest and grow. This means that the possibility to inject capital in firms affected by the Covid-19 crisis is a necessary complement to solving their liquidity crisis.

111. Since early April, the European Commission has been considering proposals that would allow EU Member States to provide further support in equity or hybrid capital instruments to those businesses directly affected by the pandemic. It is argued by some that a relaxation of the rules allowing States to subscribe for new equity without massive restructuring would make it easier for governments to help keep otherwise viable businesses afloat until the crisis has passed.

112. However, the conditions under which the EC framework on State aid could be relaxed to allow such capital injections are the object of difficult negotiations. Among the possible conditions are the fact that companies given equity injections by EU Member States as a result of the coronavirus would not be allowed to pay out dividends, buy back shares or provide bonuses or similar remuneration, according to an official document seen by the Financial Times. Bailed-out businesses could also be forbidden to take “excessive risks” or even engage in “aggressive commercial expansion.” They could be prevented from buying up rivals or other operators in the same sector while still repaying the State. Such conditions would be aimed at preventing “undue distortions of competition” and they would be reminiscent of similar restraints imposed on the banking sector in the aftermath of the 2008 financial crisis. Furthermore the speed and conditions under which the beneficiaries would have to pay back the aid are also being negotiated.

113. One of the reasons why the negotiations on this relaxation of the framework have not yet succeeded is associated with the fear that it may lead to an unfair competition on the internal market. As Elena Carletti, Marco Pagano, Loriana Pelizzon, and Marti G. Subrahmanyam argue, [30]recapitalization with government funding will be substantial in fiscally strong European countries, especially in Germany. There, the state, with its accounts in good order, and with the newly acquired exemption from the EU ban on state aid, will go ahead with robust capital injections into domestic companies, and with outright nationalizations in some industries. Post-crisis, the likely scenario is that many under-capitalized companies from fiscally stressed countries will face competition from stronger foreign rivals strengthened by massive state aid, so that markets will be very far from the ‘level-playing field’ pursued for decades by the EU competition authorities. This will be a further cause of weakness for the indebted nations, and will make their growth rate diverge from the EU average. In addition, European companies in fiscally strong countries will be able to use their newly acquired advantage, owing mainly to state aid, to compete more aggressively, or even to take over weaker European competitors, thus disrupting competition not only in Europe’s product markets, but also in its capital markets.

114. To alleviate those risks, the authors propose the creation of a pan-European equity fund, financed by the EIB, “which would underwrite the issue of new equity capital in companies across Europe, would also be open to participation from long-term investors such as global asset management firms, pension funds and sovereign wealth funds [and] could be accompanied by the issuance of very long-term bonds.” This proposal, however, has little chance of being accepted by Germany.

115. On 8 May 2020, the EU Commission published a second amendment to the Temporary Framework setting out the criteria under EU State aid rules, based on which Member States may provide public support in the form of equity and/or hybrid capital instruments to undertakings facing financial difficulties due to the COVID-19 outbreak [31].

IX. Competition in the long run

116. The competitive landscape will change compared to what it was before the Covid-19 crisis. Several forces will simultaneously lead to a decrease in the intensity of competition.

117. First, the importance of the economic shock due to the collapse of the economy during the confinement period and the fact that transportation in all of its forms was severely disrupted will have a massive impact on sectors like retail, air travel, aircraft manufacturing, travel services, cruise operators, hotels, restaurants, sports, entertainment, etc. In those sectors a large number of firms either will not be able to withstand the liquidity crisis that they are facing or to adapt to a durably reduced demand, which will require them to restructure, to shed extensive overcapacity or to leave the market altogether. One can thus expect that mergers and attrition are both going to increase concentration on a large number of markets.

118. Second, in a number of countries the need to kick start their weakened economies will require massive amounts of financial aid for consumers or for infrastructure projects. For each government, however, the risk will be that the money injected in its economy will be spent on imports rather than on domestically produced goods and services. One way to avoid this risk is to increase trade barriers to make imports more expensive and less competitive with domestic production. This movement will amplify the desire to restrict exports on strategic goods in order to avoid the possibilities of shortages which we experienced at the beginning of the crisis. We witnessed a great surge in protectionist measures following the 2008 financial crisis and we are very likely to see a new surge once recovery legislation is enacted in the economies hard hit by Covid-19. This means that import competition is likely to be weaker in the next few years than it was before the crisis erupted.

119. A third reason for a weakening of competition is likely to be observed in strategic industries (for example in the pharmaceutical sector). In those sectors, public policy will be driven by two sets of considerations. First to ensure that sufficient domestic production is available (for example by requiring that a certain proportion of supply should be domestically produced). To the extent that global value chains will be (partly) replaced by domestic value chains, it is likely that the cost of production of strategic goods and services will increase and that they will become less competitive compared to imported substitutes. After all, in many cases, the reason for which the production of those strategic products had been delocalized in low-wage countries was to reduce their cost. Thus the local production of those strategic products will have to be protected from foreign competition, which will involve some international trade and competition restrictions.

120. Antitrust was the object of intense debate both in the US and in Europe before the Covid-19 crisis. For the first time in a long time antitrust was heatedly discussed in the context of an upcoming US presidential election. Some critics were arguing that aggregate concentration and profit margins had significantly increased in the US and that this meant that competition was decreasing and that competition authorities had failed to protect competition because they were under-enforcing and adhering to very narrow interpretations of the goals of antitrust laws. The rise of the economic power of the GAFAM was attributed partly to a failure of competition authorities to stop anticompetitive mergers and a risk for competition, freedom of choice, privacy and individual freedoms.

121. In Europe, there was a partially different controversy. The critics of antitrust enforcement, as it was practiced in Europe, were denouncing what they considered to be the excessively narrow perspectives of the European and national competition authorities both geographically and from the time perspective. European competition authorities were thus accused of being unable to consider competition beyond the confines of European markets and to understand that European firms were competing, often unfairly, on world markets either against US giants or heavily subsidized Chinese state-owned enterprises. Furthermore, particularly with regard to merger policy, national competition authorities in Europe were considered to privilege a static analysis over a more dynamic understanding of markets, entry and competition. The (misguided) idea that competition law enforcement, and in particular merger control, was the main obstacle to a sensible and forward-looking European industrial policy gained in popularity and following the EU decision blocking the Alstom-Siemens merger, a number of European politicians were pushing the idea that the European Council should have the power to override the merger decisions of the European Commission on public interest grounds. Simultaneously, the idea that in the name of the protection of European sovereignty, the GAFAM should be both regulated and prohibited from acquiring small start-ups in order to prevent these start-ups from becoming their competitors has gained ground

122. So the Covid-19 crisis developed at a time when criticisms of the relevance and effectiveness of competition law agencies were gaining traction on both sides of the Atlantic.

123. It is therefore legitimate to ask how the added difficulties resulting from the Covid-19 crisis will, in the long run, affect the legitimacy of competition, competition law enforcement and competition policy. Christian Ahlborn [32] et al. warn of the incoming danger of a tightening of foreign investment regimes, the rise of industrial policy and the return of protectionism. Marcel Boyer [33] feels that the latent discourse against market competition, economic freedom and globalization will be amplified in the coming months and that the competition community will have to fight an uphill battle to ensure the prevalence of sound economic analysis and policy, which is necessary for the emergence of more efficient and effective ways and means by which public and social goods and services should be provided in the future. Daniel Crane, [34] speaking specifically about the US situation, has a more nuanced view and believes that the future of antitrust very much depends on whether the crisis will reinforce confidence in the establishment or not. Indeed according to Crane, the movement for radical antitrust reform was mostly (in the US) an anti-establishment movement rather than one grounded in ideology or theory.

X. Conclusion

124. Several lessons can be learned from this examination of the impact of the pandemic on competition law enforcement.

125. First, the unwillingness or the inability of competition authorities to deal with the price consequences of market disruptions is incomprehensible for non-specialists and led to questioning the credibility of competition authorities’ claims to promote or protect consumer welfare. If it is clear that competition law enforcement is not the best instrument to deal with price gouging or excessive prices, it may be wise to entrust competition authorities with a complementary consumer protection function to enlarge their ability to intervene against such abusive practices.

126. Second, in a period of less than fifteen years the Covid-19 crisis is the second time, after the 2008 crisis, that we are confronted with a massive failure of competitive markets to deliver what we expect them to provide (adequate supply to meet the demand at competitive prices). In 2008 the real estate market and the mortgage market were competitive but they collapsed because neither bankers nor prospective house owners had the right incentives. There is every reason to believe that the markets for masks or gloves, or respirators were also competitive but they failed to deliver what we needed when we wanted it. The reasons for these failures are different from the reasons for the failures in 2008. But, as competition specialists, we must admit that competitive markets may fail to deliver and that in those rare cases when they do, the enforcement of competition principles must be adjusted.

127. Third, one of the important features of the Covid-19 pandemic is that it has pushed competition authorities to consider the negative externality associated with the competitive functioning of the market for a number of products essential to preventing the spread of the pandemic.

128. In normal times, competition authorities consider that the long-run collective benefits of competitive markets are such that no short-term disruption or even threat of disruption of the competitive process is justified. Such a view is acceptable when demand and supply adjust reasonably flexibly on a market. In that case, if a group of consumers cannot find a product they desire at the going price because there has been an unexpected increase in demand, the only consequence, in the very short run, before supply has adjusted, will be that they will have turned to the next best good or service and will lose the difference in utility between what they would have got if they had been able to spend a certain amount of money on the unavailable good and the utility they get from spending this same amount of money on the next best goods or services. Very rapidly, though, suppliers will realize that there is excess demand and will increase output and price until the market clears again. The cost of the unavailability of one good is thus fairly limited and does not warrant tampering with competition mechanisms.

129. But the short-run cost to consumers of letting this adjustment play out in the case of a pandemic like the Covid-19 is quite different from the situation described previously. First, we are talking about markets where supply disappeared entirely (due to confinement in some countries) or where supply was nonexistent (such as the supply of a vaccine against Covid-19). Second, and equally important, if consumers are not able to protect themselves against the virus or to be tested in order to be isolated or to be treated, they will unwillingly facilitate the transmission of the virus by exposing others to the risk of becoming infected. In other words, there is a negative externality associated with the fact of letting the competitive market adjust spontaneously. This negative externality will be all the more costly to society if the adjustment of supply and demand takes a long time.

130. Given these circumstances, a number of governments and most consumers considered that the cost of letting the market adjust by itself was unacceptable (and not worth the benefit of preserving competition).

131. Thus, in some countries the government decided to exempt the markets affected by Covid-19 from competition laws. In other countries, competition authorities were under pressure to adapt their enforcement practice in such a way as to take into consideration the short-run cost of the negative externality of the natural competitive adjustment of these markets.

132. When the short-term cost of the negative externality of the competitive adjustment of the markets involved is factored into the analysis, an agreement among suppliers which speeds up the process of adjustment of supply and demand by increasing supply faster than the competitive process would have is seen in a different light. The long-term social cost of weakening competition has to be traded off against the short-term benefit of reducing the spread of the pandemic. The net balance of the agreement, which under normal circumstances would be considered to be detrimental to society, could become positive.

133. Thus competition authorities refrained from acting against short-term cooperating agreements to increase supply or to innovate, even when such agreements could reduce competition compared to what would have resulted from the process of individual adjustment of each supplier and consumer because such agreements delivered faster results. Competition authorities accepted (within limits) the granting of State aid thus preventing some firms from exiting markets, which is something they would have been unwilling to do in normal circumstances when the economy is not on the verge of total collapse because of the measures taken to fight the pandemic. To assess the conditions of efficiency defences, competition authorities took into consideration the fact that whenever there was a massive disequilibrium between demand and supply, speeding up the process of adjustment through an increase in the volume or the distribution of supply was welfare increasing. They took into consideration, whenever justified, the fact that successful firms could in a very short time see their business model becoming unadapted to the macroeconomic environment resulting from the health crisis and become failing firms. They have made it known that they will not soften the exacting criteria they apply to exempt crisis cartels from competition law. This pronouncement does not mean that they will not recognize that those exacting criteria apply in a larger number of cases than previously, given the fact that a number of sectors are likely to be permanently affected by a depressed demand.

134. Competition authorities are right to insist that these adjustments do not reflect in any way a compromise of their standards or a decrease in their determination to eliminate anticompetitive practices that are detrimental to consumer welfare.

135. These adjustments constitute an adaptation of competition law enforcement practices justified by the goal of maximizing consumer welfare in an unconventional situation where the spontaneous adjustment of some competitive markets entails, in the short run, a large negative externality on society.




Foreign investment lockdown



Christian Ahlborn
Partner, Linklaters, London

Christoph Barth
Partner, Linklaters, Düsseldorf

David dos Santos-Goncalves
Managing Associate, Linklaters, Düsseldorf

This On-Topic article provides an overview of the latest developments of foreign investment regimes globally and highlights some common trends and shows how the COVID-19 pandemic acts as a catalyst for more aggressive enforcement. [35]

I. COVID-19 as foreign investment control catalyst

1. Overall, we observe foreign investment regimes, industry policy considerations and more protectionism to be on the rise—a “race to the bottom” which started a few years prior to the pandemic and saw countries like Germany, France and the UK catching up with those with a history of foreign investment control, such as the US, Canada and Australia. The pandemic and the resulting global shortages of supply of medical equipment such as ventilators and protective clothing, coupled with opportunistic behaviour by certain governments, acts as a catalyst for further tightening the existing foreign investment control regimes in many countries and the creation of new regimes in others. The situation remains highly fluid and further developments are expected over the coming weeks.

2. Currently the wider healthcare sector is clearly in focus. However, the accelerated rise of foreign investment control goes much further. As financial markets tanked, governments quickly realised that many companies critical for their countries’ economies may now be significantly undervalued and could become vulnerable targets for foreign takeovers. Hence, protective measures extend to a wide range of important sectors and activities, such as key technologies, mechanical engineering and robotic companies.

II. The European perspective: Closing the borders

3. The COVID-19 outbreak is having a significant impact on the European economy, as most Member States have implemented strict containment measures to curtail the spread of the virus. As concerns have grown that the economic fallout from the pandemic may lead to opportunistic acquisitions by foreign investors of undervalued strategic assets, national governments, encouraged by the European Commission (EC), have recently emphasised that foreign takeovers of companies in the critical infrastructure sector will receive much greater scrutiny.

1. Measures by the European Commission

4. While the responsibility for foreign investment (FDI) screenings lies with EU Member States, the European Commission nevertheless plays a coordinating role. On 25 March 2020 the EC issued guidelines (the “Guidelines”) urging all Member States to be vigilant and to use all tools available or to introduce such tools to protect European companies struggling with the economic effects of the COVID-19 crisis from foreign takeovers. [36] The issuance of the Guidelines is the first EU measure taken after the adoption of the framework for a screening of investments from non-EU countries. [37] Both measures are aimed at establishing a new EU industrial policy. The Guidelines focus on healthcare-related businesses, but also consider the impact on other strategic industries. We expect that this increased scrutiny will also apply to potential target companies which are receiving EU funding via Horizon 2020, a new framework programme for research and innovation valued at EUR 80 billion. [38]

5. The Guidelines appeal to Member States to make full use of their respective FDI screening mechanisms to protect key healthcare and research businesses—the resilience of these industries and their capacity to continue to respond to the needs of EU citizens is considered crucial in this crisis. The Guidelines also urge those Member States that currently do not have a screening mechanism (or whose rules do not cover all relevant transactions) “to set up a full-fledged screening mechanism and in the meantime to use all other available options to address cases where the acquisition or control of a particular business, infrastructure or technology would create a risk to security or public order in the EU, including a risk to critical health infrastructures and supply of critical inputs.” [39] While the Guidelines do not specify what such “other available options” entail, recent history shows that Member States have been creative to devise alternative defensive measures where transactions were seen as harmful but fell outside the scope of their FDI regimes. An example is Germany, which requested that state-owned bank KfW take a stake in high-voltage network operator 50Hertz to prevent an acquisition of this stake by China’s State Grid. This deal could be a blueprint for further protective measures in the context of the pandemic. [40]

6. The Guidelines were issued in anticipation of the entry into force of the FDI Screening Regulation, which will be applicable from 11 October 2020. As part of the common commercial policy, the European Union has the competence to become active in relation to foreign investment. [41] The EU, however, acknowledges the responsibility of the Member States for safeguarding their national security and, thus, focuses on coordinative measures and harmonisation of foreign investment rules. The FDI Screening Regulation and the Guidelines suggest common standards for the review of investments by non-EU investors. That said, Member States retain the right to take individual measures to limit foreign investments and are responsible for the enforcement of the rules. In addition to investments by non-EU investors, Member States may also review foreign investment by investors from other EU Member States for public safety and security reasons. However, the scope of such regimes has to be more limited as otherwise Member States might infringe the principles of free movement of capital, [42] freedom of establishment, [43] equal treatment, [44] proportionality, and subsidiarity. Any derogation by national governments from these principles would be under scrutiny by the European courts and only justifiable for public policy or public security reasons. The ECJ has stipulated strict standards in particular for restrictions on the free movement of capital within the EU, i.e., as regards EU Member State investors. [45] Therefore, national foreign investment regimes within the EU generally do not distinguish between EU and non-EU investors with a narrower scope of foreign investment review for EU investors (mainly related to defence industry and security agency related activities). France is an exception to this rule. [46]

7. In this setting the FDI Screening Regulation does not establish a fully harmonised foreign investment regime in the EU, nor does it aim to replace the national foreign investment regimes of the different Member States. Instead, it seeks to promote best practices, cooperation and information sharing regarding foreign investment control between the EC and Member States. The EU Regulation includes a list of sectors which are likely to affect security or public order and may be considered as reviewable under national foreign investment rules, including critical infrastructures [47] and technologies, [48] critical inputs (e.g., energy or raw materials), sensitive information and media. [49]

2. Measures taken at Member State-level and in the UK

8. The success of Europe and many European countries was always linked to its openness for investment. Triggered by targeted Chinese investments in certain European companies, this approach started to change a few years ago and more and more European countries established their own industry policy principles towards investments from outside the EU.

9. Currently, almost half the EU Member States (13 countries [50]) have national screening mechanisms for FDI. However, a number of those regimes are rather limited in their scope and do not apply to many of the sectors which are now in focus as a result of the pandemic (e.g., Netherlands, Denmark, Sweden).

10. Soon after the COVID-19 crisis broke out and, in some cases, even before the Guidelines were issued, several Member States (including all large European economies) reacted to the new situation by expanding the scope of their regimes and strengthening their enforcement mechanisms. The situation in the largest European economies is as follows.

2.1 Germany

11. The regime of Europe’s largest economy underwent many changes over the past three years, including a lowering of the applicable thresholds down to acquisitions of 10% of voting rights and the introduction of mandatory filings in a wide range of sectors such as the defence and security sector and, for acquisitions by non-EEA investors, in critical infrastructures [51] (notably, including the health sector) where a target company’s activities exceed certain thresholds which are designed by reference to the demand of c. 500,000 people, a relatively low threshold when considering that this represents just 0.6% of the German population. Further, there is a voluntary regime for all transactions in other sectors which kicks in for participations of 25% of voting rights or more. This gives the government the power to initiate an ex officio review of non-notified transactions within five years after signing.

12. In light of the pandemic, the government quickly reacted to a rumoured offer by the US government for German healthcare company CureVac, a pioneer in mRNA therapeutics, an area which may be critical for the treatment for COVID-19. Government representatives stated that the government would take all required measures to prevent such transaction from happening. Germany already has the power to block acquisitions by non-EEA investors in the healthcare sector under the current regime and, as mentioned above, has been creative to effectively block transactions falling outside the scope of its regime. The Federal Ministry of Economics has made clear over the past weeks that it stands ready to use its toolkits again. We understand that a mechanism (in coordination with the state-owned development bank KfW) for state participations as a protective measure is currently being set up.

13. Considering the current low market value of many companies, we expect special protection of the so-called “German Mittelstand,” the backbone of the German industry, to be considered. The key area of focus is likely the protection against takeovers in technology sectors, including artificial intelligence, mechanical engineering, robotics, biotechnology, and quantum technology.

14. Even prior to COVID-19, Germany had started the process of further strengthening its foreign investment regime. A draft bill has been passed by the German government on 8 April 2020. The amendments will tighten the standard of review, with the threshold for the Federal Ministry for Economic Affairs and Energy to be able to intervene being lowered to encompass all transactions “likely to affect public order or security in Germany.” The scope of the standstill obligation has been extended very significantly and will apply to all transactions which trigger a mandatory filing, including acquisitions of companies active in critical technology, a term which is still to be defined. Gun jumping, which is defined very broadly and covers the exchange of certain confidential information, will become a criminal offence with fines or even imprisonment of up to five years. It would not come as a surprise if the entry into force of this bill, previously envisaged for August 2020, was now to be accelerated.

2.2 France

15. France has been a leading foreign investment regime in Europe for several years and has advocated strongly, alongside Germany, for further enhancement of existing rules as a common standard across Europe. The French regime already applies to investments in the health sector and has most recently (with effect of 1 April 2020) been further amended by expanding the scope of application to EU investors for all sectors which are considered sensitive.

16. Further, under the recast rules, a range of additional sectors are brought within scope of the regime, such as food safety, press (including online press), quantum technologies and energy storage. Moreover, the direct or indirect acquisition of more than 25% of the shares or voting rights in French companies by non-EU/EEA investors (compared to 33.3% previously) will now be subject to FDI screening.

17. While this amendment is not specifically driven by COVID-19, we expect the review of transactions to be applied more restrictive. In this context, the French Minister of Finance stated that “the French government is prepared to use all means to support big companies suffering in financial market turmoil, including nationalisation if necessary.

2.3 Spain

18. Spain was the first country among the EU Member States which reacted to the COVID-19 pandemic on 17 March 2020 by tightening its FDI rules, ahead of the EC Guidelines, to prevent certain foreign takeovers in light of the impact on stock prices.

19. While Spain generally operated a foreign investment regime of “general liberalisation,” [52] requiring pre-closing clearance only for foreign investment related to national defence, such as the manufacture or trade of weapons, ammunition, explosives and military equipment, the Spanish government has now enacted several emergency regulations to tackle the social and economic impact of the COVID-19 outbreak.

20. One of these measures relates to extending the pre-closing approval requirement to many strategic sectors, [53] notably including healthcare. The catalogue of strategic sectors is generally aligned with the FDI Screening Regulation. Consequently, critical infrastructures, [54] critical technologies and dual-use goods, [55] supply of critical inputs (including energy and raw materials, as well as food security) as well as sectors with access to sensitive information, including personal data or the ability to control such information as well as communication media, are within the scope of the amended rules. [56]

21. In parallel, Spain also introduced (in addition to the sector-related limitations) investor-related limitations, which apply irrespective of the sector affected by the transaction. The investor-related limitations apply when the foreign investor (i) is directly or indirectly controlled by the government of a non-EEA country, (ii) has made investments or participated in activities in sectors relevant for the security, public order and public health in another Member State or (iii) is subject to administrative or judicial proceedings in any country as regards criminal or other illegal activities. [57] Comparable to the German investment regime for critical infrastructures, the review kicks in for acquisitions of 10% or more of the voting rights. [58]

22. Since these measures are taken alongside the declaration of the state of emergency, it is currently expected that the restrictions will be lifted once the COVID-19 crisis has passed.

2.4 Italy

23. On 9 April  the Italian Government issued a new law decree strengthening its foreign investment rules, the so-called ’golden power’ rules as a result of the sanitary crisis. Already prior to COVID-19, Italy had a comparably active foreign investment regime and rules covered the review of investments in strategic activities (e.g., military, aerospace, radar technologies, broadband communication and 5G technology) and/or strategic assets (e.g., energy, transport, communication). The new decree further extended the scope to the other sensitive sectors outlined in the FDI Screening Regulation (i.e. critical infrastructures, critical technologies and dual use products security of supply of critical inputs, access to sensitive information and media freedom) as well as to the financial, credit and insurance sectors.

24. The amended foreign investment rules include additional notification obligations. New notification requirements evolve inter alia for EU investors acquiring control over companies in the abovementioned sectors (’Strategic Companies’) and non-EU investors acquiring 10% of the capital of Strategic Companies (additional value threshold of EUR 1 million). The new rules are immediately effective.

2.5 UK

25. The UK Government considers that the current rules which involve the Secretary of State being able to intervene in transactions which fall within the country’s merger control jurisdiction are ill-suited to deal with the national security risks that the UK faces.

26. A new regime was proposed in July 2018 which would lead to the UK being able to review all types of investments, in virtually any sector. In December 2019, the UK Government announced that it would be introducing a National Security and Investment Bill. While it is unclear what form such a reform would take, it is considered likely that any final legislation may be less comprehensive than the initial proposals (which anticipated reviewing up to 200 cases per year). However, in the interim, not only are we seeing a significant uptick in cases being called in for review under the current rules, but the Government has informally indicated it is already using the proposed reforms in relation to the nature of national security concerns as a template for its review of existing cases.

III. The US perspective: No change for now

27. Notably, the US has not announced any additional restrictions on the acquisitions of US businesses in light of the COVID-19 crisis. However, we nonetheless expect a similar heightened scrutiny of healthcare and pharmaceutical deals from the Committee on Foreign Investment in the United States (CFIUS) to what we have seen it in Europe.

28. We note, however, that the most recent amendments of the statutory provisions and implementing regulations do not provide a foundation for greater scrutiny as currently written. The Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), and its implementing regulations which came into force on 13 February 2020, shortly before the pandemic, expanded the scope of review by CFIUS, including mandatory pre-closing reviews, for certain qualifying investments in companies involved with critical technology, critical infrastructure or sensitive personal data of US citizens.

29. Critical technology businesses comprise, in particular, US businesses that develop or produce military and dual-use (military/civilian) technologies as well as emerging and foundational technologies as defined in various US export control regulations. Critical infrastructure includes, among obvious businesses and facilities relating to communications and information services, energy, water, transport, and financial services, but also strategic materials and certain industrial resources. A sensitive personal data business is one that “[m]aintains or collects, directly or indirectly, sensitive personal data of US citizens.”

30. In defining critical technology businesses, the CFIUS regulations refer to a variety of specific export control regulations for establishing jurisdiction over noncontrolling investments. The dual-use export control regulations applicable to personal protective equipment explicitly exclude items made for civil use in the medical and pharmaceutical industries. As a result, noncontrolling investments in US businesses that make most personal protective equipment (PPE) are not subject to CFIUS jurisdiction or mandatory pre-closing CFIUS filings. On 3 April 2020, President Trump issued a memorandum ordering PPE to be “allocated to domestic use.” This order may be functionally equivalent to an export control, but it does not qualify as a relevant export control under the CFIUS regulations. As new tests and treatments for COVID-19 are developed, it is possible that they will be subject to relevant export controls, but that remains to be seen.

31. CFIUS’s definition of critical infrastructure businesses includes certain industrial resources that have priority ratings under the Defense Priorities and Allocation System (DPAS), provided that the items are not commercial off-the-shelf (COTS) products. Production of these resources can be prioritised for national defence use. PPE is now a DPAS priority-rated industrial resource, but as noted above, the covered products are generally COTS products used in the medical or pharmaceutical industries. Therefore, most PPE will not qualify as critical infrastructure under the current CFIUS regulations.

32. Under FIRRMA, CFIUS can assert jurisdiction over certain noncontrolling investments in businesses that gather or maintain sensitive personal data of US citizens. CFIUS has already demonstrated an interest in foreign investments in businesses that have access to personal health data of US citizens. Foreign investments in US pharmaceutical or medical device businesses can therefore attract CFIUS scrutiny if the businesses have access to personal data collected from clinical trials or use of the products.

33. Ultimately, while CFIUS may be able to assert greater jurisdiction over noncontrolling investments in developers of COVID-19 tests and treatment, CFIUS still does not have jurisdiction over noncontrolling investments in most PPE businesses and cannot mandate filings for investments in them. CFIUS’s principal authority with respect to PPE businesses remains the one it had prior to FIRRMA—namely, the right to review foreign acquisitions of control. In the current environment, we expect CFIUS to aggressively interpret “control” of healthcare businesses as it has done in the past for investments in other industries. This approach will still limit CFIUS’s freedom of action absent changes to its regulations and/or an expansion of formal export control regulations to cover relevant technologies. CFIUS has the authority to put emergency regulations into effect on relatively short notice, so the former option should not be discounted.

IV. Developments in the rest of the world: Quid pro quo as a guiding principle

34. On a global scale, more than fifty dedicated foreign investment regimes exist. With industry policy being en vogue these days, we expect this number to grow and where regimes exist the application of rules to become stricter. In line with the developments seen in Europe, we expect many countries to evaluate their foreign investment rules, including whether they allow for a “quid pro quo” when other countries are becoming stricter in their FDI regimes and the application of rules.

35. A first drastic reaction came from Australia: Following a ministerial decree, implemented shortly after the outbreak of the pandemic, all proposed foreign investments into Australia are now subject to the Australian Foreign Acquisitions and Takeovers Act and will require approval, regardless of the transaction value or nationality of the investor. Until the COVID-19 crisis, there were monetary thresholds depending on the type of target activity and origin of investors. [59] These thresholds are now set to AUD 0, in other words, any investment will be caught by the thresholds. The reasons for the amendment are inter alia bulk purchases of medical supplies from non-Australian companies and the distressed market valuations of companies.

36. Further, the review period has been extended from a thirty-day review period to allow extensions up to six months. While the amended regime only applies to transactions notified after the amendment, ongoing proceedings are expected to be subject to prolongations. [60] However, we have observed such prolongations frequently already in the past.

V. Common trends and their impact on M&A process

37. We currently observe a situation which could accelerate the “race to the bottom” with industry policy becoming an even stronger feature in a “post-globalisation era.” [61]

38. Across many jurisdictions, the political climate has become more hostile to certain types of foreign investment over recent years. Alongside a stronger focus on national self-interest and a greater scepticism about the benefits of globalisation, we witness an increasing reluctance to accept foreign investment from jurisdictions which do not allow foreign investment on reciprocal terms.

39. Whilst governments are currently primarily concerned about FDI in the healthcare sector, they are also focussing on opportunistic takeovers of companies suffering from the rout across the stock markets. This aims to protect against hostile takeovers which could otherwise take advantage from the significant write down of company value due to COVID-19.

40. The common trends we currently observe as regards FDI regimes globally comprise:

  • thresholds for transactions which are subject to review are set at very low levels (e.g., Germany, France, Australia), which means that even mere financial participations without any specific governance rights attached are in scope of review;
  • a strong focus on the healthcare sector;
  •  an extension of the scope of FDI control to many other sectors, which means that national particularities and sensitivities need to be observed;
  • the application of regimes is becoming stricter and substantive tests are widened to give governments more discretion.

41. These trends, coupled with expected delays due to containment measures and restrictions which authorities face in terms of handling their growing workload, may have an impact on ongoing and upcoming M&A projects, which need to be factored in early on.

42. As a result, it is more important than ever that companies engaged in M&A should:

  •  consider the potential applicability of any FDI regimes early on and conduct a thorough risk assessment including understanding whether mitigation measures, if they were to be requested, interfere with the rationale for the transaction;
  • factor in the highly dynamic landscape and reforms which may be enacted and could have an impact on ongoing projects;
  • take care as regard information exchange, not only in a competition law context but also as regards restrictions Imposed by FDI rules;
  • allow for lengthier approval processes for transactions and assess how best to mitigate any potential risks and/or delays associated with increased uncertainty and complexity of the review process;
  • consider how best to manage any overlaps with any relevant merger control filings.


COVID-19 and competition policy: A Swiss perspective



Christian Bovet
Professor, University of Geneva

Jeremy Bacharach
PhD Candidate, University of Geneva

Valentine Delaloye
Teaching Assistant, University of Geneva

I. Legal framework

1. To understand the legal situation in Switzerland, it is necessary to briefly describe the legal framework within which the special regulations aimed at mitigating the effects of the COVID-19 crisis in our country are integrated. The factual background, for its part, is substantially the same as in most of the countries neighbouring Switzerland: a pandemic situation and confinement of the population.

2. During this very special period, the executive authority of the Swiss Confederation, the Federal Council, holds the prerogative to adopt emergency measures by ordinance, [62] based on Article 185(3) of the Federal Constitution. [63] According to this provision, the federal government “may (…) issue ordinances and rulings in order to counter existing or imminent threats of serious disruption to public order or internal or external security. Such ordinances must be limited in duration.” Thus, although this reference does not appear explicitly in all the ordinances, all the extraordinary measures adopted by the Federal Council in connection with the COVID-19 crisis are based on this provision. Article 7 of the Federal Act on Epidemics [64] provides an additional legal basis for enacting temporary ordinances in the case of extraordinary health situations. [65] Three general observations may be made about these texts: (i) They are only applicable in case of emergency, i.e., to counter existing or imminent threats of serious disruption to public order or internal or external security. [66] Given its repercussions, the COVID-19 crisis constitutes without any doubt a situation justifying these emergency measures. (ii) These ordinances must be limited in time. (iii) Indeed, the decrees become obsolete six months after their enactment, [67] unless they are submitted to the Federal Assembly for approval or if a draft act for their integration into ordinary law is presented [68] in accordance with the regular Swiss legislative process.

3. The Federal Council has used this prerogative to adopt a few essential measures in an initial decree entitled Ordinance on Measures to Combat the Coronavirus [69] enacted on 13 March 2020 and amended many times since then, as well as to adopt a series of other decrees introducing specific measures in various areas affected by the crisis.

II. Application of competition law

4. Several political and geographical factors may influence the economics of the current crisis in Switzerland: its geographical position in the middle of Europe, while not being a member of the European Union; its rather small size; the number of multinational groups having their general or their European headquarters in Switzerland; the strong pharmaceutical industry; the federal structure leading to an allocation of competences between the Confederation and the Cantons; and a political and economic consensus culture. Swiss competition law already addresses some of these issues, for instance through strict rules on vertical restraints [70] or abuses of dominant position. [71] The strong reminder issued by the Swiss Federal Competition Commission (COMCO/WEKO) should be situated in this broad political, economic and legal context. [72]

5. In addition, the Federal Council presented to the Parliament draft provisions pertaining to relative market power, [73] excluding, however, Swiss buyers holding such power. [74] A revised draft was adopted by the National Council and will now find its way to the Council of States. Although the concept of “relative market power” would be defined in a new Article 4(2a) CartA, a limitation of the possibility for the buyers to acquire products abroad at the prices and under the conditions practised in that country would be considered as abusive under Article 7 CartA, [75] if this behaviour stems from an undertaking holding relative market power. As a consequence, the field of application of the latter rule would be extended in order to encompass both abuses performed by undertakings holding a dominant position and those of undertakings holding relative market power. On the other hand, it seems that only the first category of abuses would be sanctioned under Article 49a CartA, but this might be corrected by the second council. The interest of these draft provisions is twofold: first, the debate took place only a few days before the Federal Council adopted the first ordinance on the COVID-19 crisis, but none of the representatives who expressed themselves at length on the draft law referred to this situation. [76] This is especially surprising because, second, several speakers mentioned explicitly in their statements the prices of medical and pharmaceutical goods. [77]

6. Finally, as implicitly indicated by the COMCO/WEKO in its statement, special measures constituting an exception to competition policy are allowed under the conditions of Article 3(1) CartA, which provides that statutory provisions exempting from competition markets pertaining to certain goods or services prevail over the CartA (e.g., provisions establishing prices or granting special rights to undertakings to enable them to fulfil public duties). Obviously, this is a key provision in the special COVID-19 regulatory regime set up by the Federal Council thus far. These rules will be analysed in a broad competition policy perspective, also taking into account for instance constitutional aspects such as equality among competitors.

III. Public procurement

7. The legal framework governing public procurement in Switzerland is rather complex: at the international level, rules are set forth by the WTO agreement on government procurement [78] and the bilateral agreement entered into with the EU; [79] at the national level, different regulations apply depending on whether the goods or services in question are being acquired by a federal [80] or a cantonal [81] entity.

8. With the full support of the Conférence des achats de la Confédération [Conference on the Procurement of the Confederation] (CA), [82] the Coordination Conference for Public Sector Construction and Property Services issued a set of recommendations in order to attenuate the negative economic effects of the COVID-19 crisis in Switzerland from a public procurement standpoint. [83] The Conference reminded the authorities of the special legal regime applying in emergency situations providing for exceptions relating to the protection of the health and life of persons, animals and plantations as well as the possibility to use a negotiated procedure derogating from the regulations pertaining to competitive tendering. [84] It also advised public entities, within the framework governing public procurement, to opt for procedures that would be adapted to small and medium-sized enterprises (SMEs), for instance by allocating the goods or services in batches or by requesting supporting documentation only from the successful tenderer. [85] Finally, several measures were suggested in order to facilitate the performance of current contracts (e.g., electronic invoicing and rapid payment of invoices and/or instalments). [86] Consistently with the rules governing emergency regulations, these recommendations are valid for a limited period of six months. [87]

IV. Health

9. Interestingly, public health has not been subject to as many special measures as might have been expected, at least at the federal level. Indeed, according to Article 1a of the COVID-19 Ordinance 2, aspects not covered by this text remain within the power of the cantons. The impact of this ordinance on competition may first be illustrated by its Article 4b, which governs the export of protective equipment and crucial medical goods defined in Appendices 3 and 4, such as mouth-nose protection equipment, protective garments, gloves but also specific drugs, COVID-19 tests, respirators, etc. Henceforth and with few exceptions, the export of these products must be requested from the State Secretariat for Economic Affairs (SECO). Exceptions include, for example, sales to EU members and other “close” countries such as Norway, Iceland, the United Kingdom or the Vatican, provided that reciprocity is ensured. The latter part of the exception will prove challenging in its application given the constantly evolving needs of the trading partners. Should the conditions of the exception clause not be fulfilled, then the SECO will grant an authorization only if Swiss needs are covered. [88]

According to Articles 4e and 10 of the Ordinance, the cantons and health professionals have the obligation to report current stocks of important medical goods and certain drugs (as defined in Appendices 3 and 4) to the competent federal authorities; the same principles apply to other goods and services, such as the occupancy of hospital beds. The authorities may also require similar information from companies that store these products. In addition, the Federal Council may compel manufacturers to produce important medical goods or to give priority to the production of such goods if the supply cannot be guaranteed otherwise. [89] To preserve the economy, the Confederation may compensate the financial losses resulting from changes in production or cancellation of private orders. It is difficult to predict what criteria will be applied to these measures which may create unequal treatment. Finally, according to Article 10a of the COVID-19 Ordinance 2, the cantons may require private hospitals and clinics to make their capacities available for the admission of patients.

10. In order to ensure rapid access to promising new therapies and urgently needed medical devices, a number of exceptions to the existing legislation on therapeutic products have also been adopted. For example, medicinal products manufactured with certain active substances and intended to treat COVID-19 patients can be marketed without authorization if an application for licensing has been submitted, in accordance with Article 4l of the Ordinance. On the other hand, the last decree directly dealing with health aspects [90] limits the sale of certain medicines useful against COVID-19 to one pack per purchase. Doctors and pharmacists may only provide chronically ill patients with the specified medicines in the prescribed quantity or in the quantity required to cover the needs for a maximum of two months per purchase.

11. Public or private events are prohibited and a number of specific businesses such as shops and restaurants shall stay closed. Quite obviously, exceptions are provided for healthcare facilities such as hospitals, “as well as practices and facilities operated by healthcare specialists under federal and cantonal law.” [91] However, depending on the canton, the following professions are or are not considered as health professionals: acupuncturists, opticians, dentists, homeopaths, naturopaths and other alternative medicine specialists. [92] This may create unequal treatment, since certain independent professionals may be banned from practising in some cantons but authorized in others.

12. Interestingly, there is no other significant change in regulations governing the health sector as of today. However, some specific problems related to the COVID-19 crisis have been reported these last weeks, which are closely related to the Swiss health system. Indeed, in Switzerland, every individual must join a basic health insurance scheme covering basic care. [93] One may add to this base a complementary component for care that is not covered by the basic insurance, for example for the refund of certain alternative medicine services. Furthermore, in order to qualify for reimbursement, the products and services covered by the basic health insurance have to be effective, appropriate and economical. [94] For example, that includes treatments by psychologists acting on behalf of a doctor (i.e., an employee of a medical centre). [95] As a result of confinement measures, most of them can no longer receive patients in their offices and work by phone or video conferencing from home. However, there is a billing limit imposed on patients who consult remotely and are covered only by basic insurance: unlike psychiatrists, psychologists cannot charge more than 360 minutes of consultation over a six-month period, or 6x60 minutes of sessions per semester. And this, despite of the current situation. The Swiss Federation of Psychologists has requested that this limit be removed and a petition to this effect has been filed with the government.

V. Credit market

1. Measures

1.1 Small and medium-sized enterprises (SMEs)

13. Soon after the COVID-19 outbreak in Switzerland, many observers began to warn that SMEs would be heavily affected by the oncoming crisis. This became all the more clear when the Federal Council enacted legislation that severely restricted gatherings and closed certain businesses such as shops, restaurants, fitness centres or hairdressers. [96] It was noted that bankruptcies of SMEs would seriously impact the Swiss economy, as they create two thirds of the jobs in the country. [97] As a response, the Federal Council issued an Ordinance on the provision of loans and guarantees following the coronavirus outbreak, [98] rolling out a system designed to keep SMEs afloat through the provision of emergency, guaranteed loans.

14. The Ordinance provides two types of loans:

  •  First, companies affected as a result of COVID-19 may obtain an emergency loan equal to 10% of their 2019 turnover, [99] but not exceeding CHF 500,000. [100] These interest-free [101] loans can be obtained from their current banks. [102] They are in turn fully guaranteed by the Swiss Confederation itself. [103] As timeliness is the priority, banks are not expected to assess the creditworthiness of the borrowers or to perform any other due diligence. [104] Practice shows that generally only a few days are needed for the money to be delivered to the borrower.
  •  Second, companies may file for a loan equal to 10% [105] of their revenue turnover but not exceeding CHF 20 million, [106] eligible to a guarantee of up to 85% of the sum borrowed by the Swiss Confederation. [107] In that case, however, banks must perform an ordinary due diligence on the borrower [108] and are allowed to charge up to 0.5% interest. [109]

15. In both cases, companies with a turnover of over CHF 500 million are excluded from the scheme. [110] In addition, borrowers are under a number of restrictions for the whole duration of the loan, including prohibitions on dividends, shareholder loans and intra-group repayments. [111]

16. As a result, the system implemented by the Federal Council allows SMEs to obtain quick and easy credit from their usual financial institutions, while allowing the latter to provide these credits without assuming any financial risk.

1.2 Aviation industry

17. Since the beginning of the crisis, air traffic in Switzerland has dropped by more than 95%. This is a matter of considerable concern, since the Swiss economy relies on the aviation industry—which also employs over 190,000 people—for its imports and exports. [112] On 8 April 2020, the Federal Council announced the drafting of a set of measures aimed at providing liquidity to the aviation industry, which should be focused on offering guarantees by the Swiss Confederation to borrowers. [113]

18. From a competition law perspective, such a scheme may qualify as State aid. However, Article 13(2) of the 1999 Agreement between the European Community and the Swiss Confederation on Air Transport [114] authorizes State aid to the aviation industry provided that such aid makes good the “damage caused by natural disasters or exceptional occurrences. [115] It is quite likely the current situation will fall within the scope of this provision. [116]

1.3 Culture

19. The closure of cinemas, discotheques, museums or concert halls [117] is liable to affect substantially the solvency of businesses active in the cultural sector. To protect them, the Federal Council created a dedicated system of interest-free loans, which can amount to up to 30% of the business’s turnover. [118] While funded by the Federal government, the loans are administered by the cantonal administrations. [119]

1.4 Financial institutions

20. A number of regulatory requirements, [120] most notably capital requirements, have been relaxed with regard to financial institutions. These measures are not aimed at helping the institutions themselves but mainly at encouraging them to provide credit to struggling businesses. By freeing up the capital ordinarily set aside to withstand financial crises, financial institutions are expected to be able to provide more credit to the economy, thereby allowing businesses to meet their liquidity needs.

21. On the one hand, the Swiss Financial Markets Supervisory Authority (FINMA) has already reduced some of the capital requirements it sets itself. [121] On the other hand, the Swiss National Bank and the Federal Council have taken a more drastic measure regarding a metric called the “countercyclical capital buffer.” Indeed, since 2014, in normal circumstances banks are required to set aside additional capital when providing credit in order to “save up” for future periods of stress in the financial system and to slow down the credit market. This additional capital is known as the countercyclical capital buffer (CCyB). On 27 March 2020, the Federal Council approved the recommendation of the Swiss National Bank to deactivate CCyB requirements for financial institutions. [122]

2. Effects on the market and observations

22. At a high level, the measures described above are an original attempt at answering a persisting unfairness in the credit market, i.e., the inability for SMEs to obtain credit easily, while larger corporations are able to access liquidity with little difficulty, whether through financial institutions or directly on the capital markets, through the issuance of bonds. Providing risk-free guarantees—those of a solvent state—to financial institutions but restricting them to small, less creditworthy borrowers is an adequate way to restore fair competition in a time of crisis.

23. The main shortcoming of the Federal Council’s SME credit scheme might be an overreliance on the turnover figures. As discussed, credits are only guaranteed by the Swiss Confederation up to 10% of the SME’s 2019 turnover. However, turnover may be a poor indicator of the company’s current liquidity needs. Companies with a large number of subcontractors—such as general contractors—may be favoured while start-ups that may have had little or no turnover in 2019 might be penalized.

24. We can also note a lack of measures directed at larger corporations. Did the Swiss government consider that they did not need additional support? It rather seems to us that the government considered that their liquidity needs should be left to the free market itself, provided that the banks’ ability to lend has been freed up as much as possible by easing capital requirements. Nevertheless, banks are still under no obligation to provide credit, and have no incentive to do so for larger corporations other than the “natural” incentives of the market. It remains to be seen whether this strategy will succeed, or whether larger corporations will face liquidity crises that will require government intervention.

25. A new phase in the government’s measures may have started with the announcement of liquidity provision for the aviation industry. The next step could consist in replacing the approach based on the size of enterprises to a “sectoral” approach, whereby sectors that have been particularly affected by the COVID-19 crisis will be provided with liquidity.

VI. Agriculture

26. Agriculture is subject to a substantial set of regulations at the international level, through treaties such as the WTO agreement [123] and the bilateral agreement with the EU. [124] The same phenomenon may be observed in national rules, some of them providing for limited exceptions to a fully competitive regime. [125]

27. The Ordinance on COVID-19 Agriculture [126] does not constitute a specific set of rules but is rather a series of amendments to existing texts. Their impact on competition is quite limited: typically, the subsidization of so-called “meat freezing campaigns” should be seen primarily as a safeguard measure aimed at limiting the waste of resources and accessorily as a supporting measure vis-à-vis a certain sector. [127] Second, the extension of payment deadlines relating to import tariff quotas allocated through an auction system is simply an adaptation of the current regime to the extraordinary situation we are facing. [128] Finally, the ordinance gives the possibility to increase partial import tariff quotas, should the internal market impose such a measure. [129]

VII. Conclusion

28. Nobody will ever contest that we are living an extraordinary situation implying exceptional measures. The interest of this brief and, to some extent, temporary study is to show that authorities addressing the consequences of the current crisis are reacting on a case-by-case basis and looking for the solution that seems the most appropriate at the precise moment they take their decision, with the information available at that time. With respect to competition policy, the difficulty lies in finding the right balance between mitigating the negative economic impact of the pandemic and maintaining the requirements of competition while guaranteeing legal certainty.

29. In Switzerland, the relief adopted is manifold: competition authorities are monitoring the market to avoid abuses; public procurement procedures are made more flexible in order to face urgent health needs; more generally, interventions in the health sector are characterized by a high level of centralization and a significant increase in federal powers. Supporting the economy has become one of the central components of political action, perhaps as important as health policy. Subsidization through cheap loans guaranteed by the public authorities has seemed less constraining on the Swiss liberal economy doctrine than giving free aid to enterprises. This was accompanied by waiving some procedures and form requirements as well as easing several financial ratios. However, while national regulations grant enough flexibility to implement these measures, Switzerland must carefully study the legal framework at the international level, especially because of its numerous bilateral agreements with the European Union. Finally, the authorities should pay special attention to issues pertaining to equality of treatment among competitors.


Competition, open social democracy, and the COVID-19 pandemic


Marcel Boyer
Emeritus Professor of Economics, University of Montréal
Associate Member, Toulouse School of Economics

1. In the March 21st edition of the magazine The Spectator, the British journalist Matt Ridley, who blogs on science, the environment, and the economy, wrote: “Never once in my six decades did I expect to be back in a 17th-century world of social and physical distancing as a matter of life and death. (…) Many people will die prematurely. Many will lose their jobs. Many businesses will go under. (…) The only question is how many in each case. We are about to find out how robust civilization is. The hardships ahead are like nothing we’ve known.” [130]

2. The ongoing medical crisis is particularly challenging for two reasons: first, it develops while we do not know the rules of the game to organize neither a proper defence (vaccine) against it nor a proper social protection through an impossible general distancing, and second it shakes the very foundational factors of our strong long-term socio-economic growth, indeed of our civilization. As for the developing economic crisis, which the medical crisis and our best response to it are generating, it has two prongs: first, the lost jobs and failing firms and supplier-business-customer networks and second the attacks against our economic institutions and organizations by sorcerers’ apprentices and fake intellectuals. The latent discourse against markets, competition, economic freedom, and globalization, will likely amplify in the coming months.

3. The ability to trade, especially with strangers, is a distinguishing characteristic of humans. This ability is unique to us and far exceeds the simple reciprocity observed in other animals, where it is typically limited to individuals of the same clan or family—frequently involving goods of the same undiversified kind received or consumed within a relatively short period of time.

The emergence of economics

4. The emergence of economics as a positive science, which studies the evolving incremental accumulation of trade, coordination, and incentivization mechanisms that has allowed a truly collective intelligence to flourish within mankind, has led to a normative science of ways and means, tools and instructions to foster the further development, improvement, and resilience of our collective intelligence.

5. The development of civilization follows a fundamental guiding principle: the ongoing quest—in a sometimes orderly and stepwise and sometimes random and haphazard progression—for mechanisms of exchange, trade and specialization, coordination, communication, and incentivization that are increasingly efficient and effective.

6. This quest relies on factors such as urban density, open and integrated transportation systems, specialization of tasks, reduced environmental footprint, and social institutions that generate mutual trust between strangers. Each one of us, focused on our specialized task, is literally depending on a vast number of strangers: simply counting the people who worked for my well-being this hour would take many days.

The collective intelligence

7. The collective intelligence that coordinates the work of billions of cells (all of us) within modern society seen as a social body, through competitive markets, market-like institutions, and competitive international trade, needs to, and does continuously, bolster this body’s resilience to the inevitable shocks and spells of chaos and dysfunction: pandemics, wars and military escapades, and economic crises. As a result, our world has become more cooperative, safer, more resilient, and more innovative. The marginal deviant behaviour reported in the news and to be eradicated remains mostly insignificant.

8. To paraphrase Matt Ridley, let’s just say that sometimes we have no choice but to play Russian roulette, remaining optimistic while venturing into the unknown. It takes time for Mother Nature to get the live round into the proper chamber, combining high contagion with asymptomatic carriers and a significant mortality rate, but sometimes she pulls it off, leaving us with the major pandemics and catastrophes of the past and today’s COVID-19—black swan events.

9. So far, we have made it through every one of them, though sometimes with considerable losses and scars that persist for decades.

10. There are those who complain that we should have seen it coming and been better prepared on the basis of the precautionary principle. However, when confronted with many risks, especially those that are unknown (the unknown unknowns, the ones we don’t know we don’t know) [131] or poorly understood and of very low probability, a surfeit of caution may result in needless and costly paralysis and stagnation. However, once the triggering event has been observed, it would be a serious error to allow the effects to unfold exponentially. That is where we are at with COVID-19.

The financial crisis and recession of 2007-2010

11. The financial crisis and recession of 2007–2010 was caused by the gaming of poorly designed incentive mechanisms and a collapse of interbank confidence because of free-riding and financial fraud. The solution was a massive injection of financial liquidity to prevent a total collapse and targeted investments of public funds in major financial and manufacturing institutions. This government largesse was offered on draconian and costly terms. Banks were charged high interest rates to motivate them to quickly restore their balance sheets by raising new equity. And failing private firms were acquired, once bankrupt, by the government and later resold. [132] This was strong medicine. [133]

The current situation is very different

12. The current situation is very different! At its core, the COVID-19 crisis does not find its roots in distorted incentives or a generalized loss of confidence, but rather in a lack of medical knowledge compounded by social proximity, which, having previously improved our public health and resilience, has now mutated into an engine of dissemination of the virus. We are living through a pandemic and a global economic stress that will be remembered for generations.

13. The actions taken by most governments thus seem appropriate, at least as of March 31: temporarily reduce social proximity to curb the spread of the virus, accept that this will induce an expected significant but temporary economic recession, cushion the harm to individuals and businesses resulting from this recession by public support programmes, invest massive resources as of immediately in the search for a vaccine, and accept an explosion of public debt way above the limits governments were trying to abide by.

14. These public policies come with significant costs and risks. Reducing social proximity risks to translate into national proximity rules against international trade and institutions, a major factor of economic development and growth, and civilization. Accepting that these policies will trigger a deep recession if not an outright depression is playing with the fire of inequalities as recessions are tilted against the poor, individuals and countries. Cushioning the harm to individuals and businesses through generous public programmes risks developing a sense of irresponsible dependence and reliance on pyromaniac firefighting governments. Investing massive resources in pharmaceutical research on COVID-19 may grasp resources from other important research, pharmaceutical or otherwise. Finally, accepting an explosion of public debt will require strong discipline to pay it back through either savings, taxation, and inflation or reduced lower-quality public services.

15. The ratchet effect of Leviathanesque governments and public sector bureaucracy is the direst possible consequence of the above policies. While hoping that the measures are adequate, we must not neglect to prepare for the economic recovery when the time is right. The first and foremost challenge will be to avoid throwing out the baby with the bathwater as fear may remain present. We must be careful not to damage the engines of growth and civilization that has generated enormous benefits to mankind over the last decades or centuries: the quest for efficiency and effectiveness through exchange, trade and specialization; and the capacity and willingness to identify and adopt inventions and innovations, whether technological, social or organizational. Such capacity and willingness are rooted in individual attitudes towards change, which itself depends on incentive mechanisms and financial and insurance instruments, which individuals, organizations, and firms can rely on to manage change and global risks as well as fears.

16. Shrinking reliance on competitive markets and competitive-like institutions and a general tendency to turn in upon ourselves and return to outmoded concepts of buying local or national represent the direst risks of current public policies. Insofar as the USA behaves in an irresponsible “Me First” way at the international level by forcing private firms to terminate contracts with foreign firms and governments under the Defense Production Act (1950), [134] other national governments are likely to follow in a movement toward a bad but stable Nash equilibrium, with disastrous effects for all.

17. More than ever, we must secure strong international health and agro-food clusters. These two clusters could be the first sectors to experience increasing government intervention, interference and regulation, under the flag of health and food sovereignty, for the benefit of some niche stakeholders and countries but at the expense of mankind as a whole. Stressing national clusters would impact negatively the situation in developing countries, thereby increasing the risk of new pandemics in developed countries. More than ever, we as humans are all in the same boat, but the boat is too big for some to see it as such.

18. The current fear-based policies will make further development of a one-world vision of globalization and international trade very difficult. One can expect that this development will be stopped and even recede. It is important to recall and stress that all countries can and will benefit from such trade, independently of their absolute competitiveness. This statement is arguably the most important finding in modern economic theory. It is the foundation of free-trade policies against protectionism, that is, the foundation of policies favouring social well-being, poverty eradication, wealth creation, and social and economic growth against the specific private interests of lobby groups, whatever the grandiloquence of such interest groups.

19. Paul A. Samuelson, the 1970 Nobel laureate in economic sciences, once answered a challenge from mathematician Stanislaw Ulam to name one proposition in all of the social sciences which is both true and non-trivial. [135] His answer: “Comparative advantage. That it is logically true need not be argued before a mathematician; that it is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them.”

The huge Increase in public debt

20. The huge increase in public debt may send the signal that debt is good and apparently cheap. If governments could implement such a recourse to debt to fight COVID-19, why not use debt also to overcome climate change, to invest more in our health and education sectors at all levels, to meet our significant needs in infrastructures, etc. Remember the warning of the dismal science: Needs are infinite, but resources are limited. The ensuing drop in fiscal discipline, rather than moving us towards a more cooperative world, is the seed of forthcoming aggressive political battles and social disruption.

21. This brings us a dangerous fallacy, which is often repeated both in the private and public sector. In its simplest form, the fallacy is as follows: since the private sector cost of capital (cost of borrowing or raising equity finance) is higher than the public sector cost of capital (cost of borrowing), then the cost of a public sector business must necessarily be less than the cost a private sector firm would incur for producing, distributing and delivering the same goods and services. Yes, governments can borrow at lower rates than private organizations but an important cost of government borrowing is hidden from the casual observation of published rates or yields.

22. A government can borrow at lower rates because it has the right and power to raise if necessary additional taxes to reimburse its debt holders, that is, if its activities and projects fail to deliver the expected returns. A private sector firm has no such right or power and this justifies the requirement by lenders of a higher interest rate. However, from the point of view of the citizens who are the ultimate risk bearers as customers and taxpayers, the right and power of the government to literally withdraw money from their bank accounts to cover financial distress situations does have a price: it is the option value today of the government right to require and obtain from them additional funds to cover what may turn out to be ex post socially non-profitable projects. The cost of the explosion of public debt is much higher than it looks, not for governments, not for lenders, but for citizens and taxpayers.

23. In other words, if the citizens were to grant a private organization the right and power to “tax” them if it ends up in financial distress, then this organization would be able to raise capital at the same conditions as the government. Hence, the claim that the governmental sector can produce at lower costs because the government can raise money at lower interest rates is a subtle but clear fallacy.

The reforms of social democratic societies

24. The reforms of social democratic societies’ “capitalism for the people.” [136] Pre-COVID-19, there was significant pressure being exerted on social democratic societies and their institutions to adapt to a more competitive environment in their political, economic, social and cultural spheres. To maintain their social security programme that has conditioned their economic performances and characterized their high quality of life, social democratic societies were under pressure to become more efficient and effective in delivering those programmes as well as other public and social goods and services, efficient in reaching the goals and objectives set and effective in doing it at the lowest possible cost.

25. There is a real danger that the COVID-19 crisis will obscure the urgent renewal of the legal, political and social interfaces between the public and private sectors in making democratic societies strong and innovative ones, societies in which justice, equity and entrepreneurship are valued principles.

26. The COVID-19 has in no way reduced the creeping inefficiency in the production, distribution and delivery of public and social goods and services. This inefficiency has many roots, but the most important ones find their sources in two subsets of factors. The first subset revolves around the omnipresent confusion between goals/objectives and ways/means. This confusion is the source of numerous fruitless debates. It is time to clarify the goals and objectives and to ensure that the most efficient, least costly and least risky ways and means are used and harnessed to reach the goals and objectives to be pursued.

27. The second subset proceeds from the capture of large segments and portions of the production, distribution and delivery processes of the public and social goods and services by well-organized, entrenched and highly protected interest groups and lobbies. Those groups have, over the years, become capable of imposing hurdles of many kinds, which have impaired sustainable performance and productivity gains. COVID-19 may have entrenched even more their power.

28. It is always time to reaffirm the preponderance of goals and objectives and give all citizens the right to displace inefficient providers of public and social goods and services. Many observers claim that our health, education, infrastructure, and environment systems are failing to provide citizens with the level of services that they could and should provide, in spite of increasingly important resources being invested. How could and did we end up with so many problems in the production and distribution of public and social goods and services, considering that we have become richer and richer almost every year over the last half-century and more?

29. If social democratic societies really aim to improve or simply maintain their broadly defined social protection and security programmes (including universal access to high-quality education, training and health services, unemployment benefits, environmental protection and restoration policies, extensive water and sanitation services, recreational and cultural activities, etc.), they will have to run those programmes and deliver the associated public and social goods and services they are supposed to provide in a much more efficient and effective way. Competition is key.

Competition is key

30. Competition is the key to the emergence of more efficient and effective ways and means by which the public and social goods and services will or should be provided in the future. The increasing economic pressures arising from both the globalization of markets and the internationalization of cultures will lead to a reduction, shrinkage or even abandonment of those publicly provided programmes one way or another—perhaps not officially, but certainly in practice with lower-quality goods and services and/or slower delivery, increased uncertainty, and lower dependability. This reduced quality of public and social goods and services will occur not because we cannot afford them anymore but because these goods and services are produced with increasing inefficiency and ineffectiveness.

31. The current political debate on the failure of the health system, education system, and infrastructure system to deliver the goods and services they are supposed to produce and distribute is centred on government budget allocation. Different groups call for more money, sometimes under the more acceptable pseudonym of “reinvestment,” for health, education, infrastructure, environment, etc. These calls will become louder, now that we have learned that we could increase debt through the ceiling.

32. The fundamental problem is one of organizational or systemic efficiency and effectiveness, not one of money or budget per se. Social democratic societies have become well-educated, highly skilled societies with significant entrepreneurial capabilities. They have also reached a high level of tolerance for diversity, not regarding fundamental principles and objectives (justice, equity, inclusion, efficiency, effectiveness), but regarding the different ways and means by which those principles and objectives may be achieved or met in practice in different contexts.

33. Misunderstanding the role of competition and the reality of uncertainty and risk can lead to years of suboptimal and even wasteful allocation of resources, human, natural and technological. Human behaviour can be explained from two major fears: the fear of competition and the fear of uncertainty, insecurity and risk. In the current fight against COVID-19, both fears may reinforce each other to move us toward a big brother nationalist society and be powerful engines of stagnation and negative growth.

34. But they can also be powerful engines of growth and opportunities to increase the well-being of all. Negating or misunderstanding the role of competition and improperly assessing the importance of uncertainty, insecurity and risk are the two most important roadblocks towards an improved social democratic society.

35. To (re)build an open social democratic model and project after the COVID-19 crisis is behind us, three principles should be relied on: the rationality of individuals; the efficiency of incentive mechanisms; the efficiency of competitive mechanisms.

36. Rational behaviour can be characterized as the pursuit of a coherent set of objectives and the use of appropriate means to reach them. Frank Hahn (1978) [137] proposes the following definition: “Given a set of possible actions, the agent chooses rationally if there is no other action leading to preferred consequences to those of the action chosen.” Rationality is an amoral concept that sees saints, criminals, and, of course, ordinary citizens, as rational people: rationality can serve the betterment of society as well as its enslavement. When properly understood, rationality presents the greatest advantage of allowing predictions of human behaviour and, in particular, changes in behaviour due to altered incentives.

37. No economist would pretend that everyone is rational in the above sense in all circumstances and at all times. The notion of rationality must be understood in a broad sense, including constrained and bounded rationality as well as imperfect and incomplete information rationality. Moreover, the oft-assumed selfishness of the individual incorporates interests and opinions of others insofar as they are part of the individual’s preferences.

38. Behaviour is a function of preferences and incentives. It is difficult to change preferences, but incentives can be used to lead individuals towards contributing not only to their own well-being but also to the well-being of all.

39. The rationality of the individuals leads quite naturally to the second postulate: incentives are a powerful tool that favours efficiency in reaching the objectives of the open social democratic model and project. The importance of properly understanding and designing incentive mechanisms can be illustrated by the agricultural crisis of 1959–1961 in continental China. Autonomous agricultural collectivization began around 1952 and was immediately a clear success: the agricultural production increased in an impressive way between 1952 and 1958. In contexts where information can be manipulated, production cooperatives can be extremely profitable if certain organizational requirements, mainly those that allow for the proper handling of coordination and motivation through adequate mechanisms, are met. It appears that the organizational structure of the Chinese agricultural cooperatives met these requirements in the first few years.

40. The number of cooperatives had grown to more than 735,000 in 1957 with 119 million households as members for an average 160 households per cooperative. Members of a cooperative had the option of withdrawing their labour or physical capital in order to join another cooperative project if they believed that the productivity or their share of the benefits was insufficient in the former cooperative.

41. Following the success of the first cooperatives, the Chinese government decided in 1958–1959 to extend the collectivization project to the whole agricultural production. The government cooperatives gathered an average 5,000 households and the right of withdrawal was abolished to simplify the administration of the system. Compensation was also changed from a distribution based on points of merit to a system primarily based on the members’ needs, independently of productivity. The mutual observation of the comrades’ effort provided was possible when there were 160 households in the cooperative but impossible with 5,000 households. Abolishing the right of withdrawal made the complementary threat from more productive members totally void. By 1961, grain production plummeted more than 30% below the levels reached in 1958.

42. Justin Yifu Lin (1990), [138] an economist of the University of Beijing at that time, attributes most of the fall in production to the modified organization of the cooperatives. The modification significantly reduced the possibility of effective coordination and efficient incentives for effort and resulted in a famine that caused an estimated 30 million deaths!

43. Such misunderstood role of asymmetric information leading to opportunism, free-riding and hold-up behaviour can have disastrous effects. Efficient contracting for the production or distribution of public and social goods and services must include incentive-compatible mechanisms that are intended to optimally reduce the impact of such potential sources of inefficiency.

44. The third basic principle is that competition generates efficiency, growth, and consequently well-being. This postulate is quite often subject to ill-informed and biased criticism. The following is a typical criticism: “Competition is not the way to create a strong community. If you compete with your neighbour, there will be a winner and a loser. We do not want losers.”

45. The absence of competition generates only losers, besides the bureaucratic central-planning illuminated leaders who claim to know better than the citizens themselves what is good for them. Proper, open and transparent competition pushes everyone upwards. Modern history hardly leaves any space for doubt regarding relevancy and truth in the statement that such proper competition generates a win-win society where markets and solidarity are reconciled for the benefit of all.

46. Complementary competitive mechanisms, such as benchmarking, competitive tendering, public-private partnerships, and competitive answers to NIMBY could be particularly efficient as needed transition mechanisms in the public sector.

47. Only proper, open and transparent competitive mechanisms, making an optimal use of new information and communication technologies, can guarantee the emergence of a society where the interests of the citizens prevail, where choices of production, consumption and investments, public and private, are made on the basis of the best information available, best competencies available, and best development prospects.

Conclusion

48. Let us hope that the march towards more cooperation and competition, more innovation, and more globalization, that is, the march towards a more civilized one-world vision survives the current handling of the COVID-19 crisis. There are significant risks that it will not, at least for a long time.



COVID-19 and EU merger control: Time to loosen the FFD straitjacket?



Jacques Buhart
Partner, McDermott, Will & Emery, Brussels and Paris

David Henry
Counsel, McDermott, Will & Emery, Brussels

I. Introduction

1. COVID-19 has brought vast swathes of the European economy to a grinding halt. Despite the deployment of various measures to mitigate its effects—liquidity injections, loosening of the EU State aid rules, etc.—bankruptcy for many companies may be imminent. Significant consolidation in various industries is therefore likely on the horizon, with large, healthy enterprises snapping up companies in financial distress. Facilitating such consolidation during this unprecedented time of crisis seems warranted: not to do so risks a colossal exit from the market of assets that are core to the European economy and an attendant (massive) increase in unemployment.

2. It is submitted that loosening the rigour with which the EU merger control rules are applied, and the failing firm defence (“FFD”) in particular, represents a further opportunity to ease the devastating economic impact of COVID-19. This short paper therefore looks at the extent to which the highly exacting standards of the FFD could be softened during these exceptional times. [139]

II. FFD: Applicable legal framework

3. The EU Merger Regulation (“EUMR”) prohibits concentrations which “significantly impede effective competition (…) in particular as a result of the creation or strengthening of a dominant position” (SIEC). [140] It is a fundamental premise, however, that there be a causal link between a concentration and the SIEC. [141] It is this requirement to establish a causal link that lies at the core of the FFD.

4. The EUMR is silent on the FFD. Enshrined in the European Commission (“EC”) Horizontal Merger Guidelines and in EU case law, however, is an explicit recognition that an otherwise problematic concentration is compatible with the internal market if a party to the concentration is deemed a “failing firm.” [142] In essence, the requirement of the FFD is that the deterioration of the competitive structure that follows a merger cannot be said to be caused by the merger in question, but by the irreparable financial situation of the acquired company. Such lack of causality is considered to arise where the competitive structure of the market would deteriorate to at least the same extent in the absence of the merger. [143] In other words, the effects of the merger must be at least neutral.

5. A three-pronged cumulative test is employed to establish whether an undertaking can be characterised as a failing firm within the meaning of the EUMR:

  •  Criterion 1: the allegedly failing firm would in the near future be forced out of the market because of financial difficulties if not taken over by another undertaking;
  • Criterion 2: there is no less anti-competitive alternative purchase than the merger in question; and
  • Criterion 3: in the absence of the merger, the assets of the failing firm would inevitably exit the market [144] (together “FFD Criteria”). [145]

6. A heavy evidential burden is placed on companies seeking to invoke the FFD. Indeed, there is a strictly applied requirement to “provide in due time all the relevant information necessary to demonstrate that the deterioration of the competitive structure that follows the merger is not caused by the merger. [146] In practice, if the FFD is invoked late in proceedings, the probative value of such claim will be considerably weakened in the eyes of the EC. [147]

7. The FFD extends to failing divisions—the “failing division” defence (“FDD”). Though not insuperable, the evidentiary bar set for satisfying the FFD Criteria in this context is arguably higher. According to the EC in Bertelsmann/Kirch/Premiere: “Where the ‘failing division defence’ and not the ‘failing company defence’ is invoked, particularly high standards must be set for establishing that the conditions for a defence on the grounds of lack of a causal link have been met. If this were not so, any concentration involving the disposal of an allegedly unprofitable area of a business could be justified for merger-control purposes by a declaration on the part of the seller that, without the merger, it would be necessary to close down the seller’s business in that area. [148]

8. Indeed, various arguments have been advanced in support of a strict stance vis-à-vis the FDD, another being to stymie attempts by parent companies to manipulate financial data so as to give the impression that a division is failing. [149]

III. FFD/FDD: Rarely invoked, strictly applied and often unsuccessful

9. The FFD was first invoked, albeit unsuccessfully, in Aerospatiale-Alenia/de Havilland in 1991. [150] Its rejection by the EC so shortly after the entry into force of the original EUMR in 1990 was an early portent of the difficulties that parties would face when seeking to rely on the FFD—not to mention the FDD.

10. Indeed, the EC’s unwavering adherence to a (very) strict application of the FFD/FDD has been borne out empirically. Since the promulgation of the EUMR, in only a handful of cases has the EC waved through an otherwise problematic transaction on the basis that the FFD Criteria had been met. Following the seminal 1993 Kali + Salz/MdK/Treuhand case where the FFD was accepted for the first time, [151] the only other cases in which the FFD has been accepted are (i) BASF/Eurodiol/Pantochim, [152] (ii) Nynas/Shell/Harburg Refinery [153] and (iii) Aegean/Olympic II. [154] In each of these cases, the EC carried out a full-fledged Phase II investigation involving the adduction of extensive (economic) evidence by the parties in support of their FFD claim, and copious requests for evidence and comments by third parties, including alternative purchasers. [155]

11. The dearth of successful FFD cases thus bears testimony to the formidable challenges faced when seeking to meet its highly exacting standards. The number of failed attempts even more so. [156] Indeed, even if one, or even two, of the FFD Criteria are met, companies will often stumble when it comes to satisfying all three. [157] In practice, therefore, the FFD is often only advanced in cases where prohibition or a requirement to offer (too) far-reaching remedies are on the horizon.

12. For all the difficulties surrounding its invocation, the FFD is not, however, an entirely elusive chimera. The following cases provide an instructive snapshot as to how the FFD Criteria are assessed/can be satisfied in practice—although each case will, of course, turn on its own particular facts.

1. Criterion 1

13. In BASF/Eurodiol/Pantochim, for example, the EC found that Eurodiol and Pantochim (“E” and “P”) would be forced out of the market if not acquired by BASF. Specifically, E and P were found to be heavily indebted and already subject to a pre-bankruptcy regime. The relevant judicial body responsible for the pre-bankruptcy proceedings had confirmed to the EC that both E and P would have to be declared bankrupt in the absence of a buyer for E and P being approved. [158]

14. In JCI/Fiamm, the EC found that the banks would not inject any new capital into the group were Fiamm not to show any prospect of being redressed. According to inter alia the creditor banks and Fiamm, this prospect depended entirely on the transaction at hand. Indeed, based on all the information at the EC’s disposal, it appeared likely that Fiamm would file for bankruptcy if the merger were not to proceed. In any event, even if the decision to file for bankruptcy were ultimately not taken by Fiamm, it was nevertheless found likely that the SBB division would not remain in the market as a going concern. It was therefore concluded that Fiamm SBB—if not taken over by another company—would be forced out of the relevant markets in the absence of the proposed transaction. [159]

15. At the heart of Criterion 1, therefore, is a need to show that the company in question is no longer economically viable. Imminent bankruptcy of the firm in question is clearly sufficiently probative in this regard.

2. Criterion 2

16. Under Criterion 2, the onus of proving that there is no credible alternative, less anti-competitive, potential buyer other than the acquiring firm lies with the party claiming it.

17. In BASF/Eurodiol/Pantochim, the burden of proof pertaining to Criterion 2 was found to be discharged. Since a restructuring plan could be excluded as a realistic option, the commercial court in question authorised those in charge of the administration of the plants to find a suitable buyer for E and P’s assets immediately after the decision to open pre-bankruptcy proceedings. Subsequently, a number of competitors were contacted. However, whilst some companies carried out due diligence with respect to E and P, apart from BASF, no other company approached was found to be in a position to submit a viable offer. In the eyes of the EC, this was sufficient for a finding that there was no alternative purchaser.

18. However, to fully rule out any doubt as to the existence of an alternative purchaser, the EC further inquired as to the possibility of an acquisition by an alternative purchaser. In fact, the EC found that the South African company Sasol Chemical Industries (“SCI”) had initially shown interest in acquiring E and P. However, after having carried out a full due diligence procedure, SCI informed the EC that it had decided not to pursue its plans. On the basis of the foregoing, the EC concluded that no less anti-competitive solution was available. [160]

19. In Aegean/Olympic II, the EC concluded that, absent the proposed merger, the emergence of an alternative purchaser for Olympic in the immediate future was unlikely. This was due to inter alia the fact that (i) the then current and foreseeable market conditions were unlikely to be more conducive to Olympic’s sale, (ii) the seller would have had an incentive to find an alternative purchaser given that Olympic’s first merger with Aegean was prohibited by the EC, [161] and (iii) the data gathered during the market investigation did not reveal the likelihood of any credible alternative purchaser of Olympic. [162]

20. In terms of practical upshot, therefore, Criterion 2 requires at a minimum a need to show serious and good faith attempts to find an alternative buyer early on in the merger notification process. In the absence of doing so the FFD will fail. [163]

3. Criterion 3 

21. In BASF/Eurodiol/Pantochim, the EC recognised that the relevant assets in this case would without doubt leave the market and that such exit would in all likelihood lead to a considerable deterioration of market conditions, to the disadvantage of customers.

22. In particular, the EC examined whether there would be any likelihood that E’s capacity for the relevant products might be kept on the market after bankruptcy. In this regard it was found that (i) an immediate takeover of E and P, after bankruptcy, by a third party seemed unlikely. This was inter alia because the operation of the two plants involved not only high costs but also considerable environmental risks, resulting from the sensitive production processes used at E and P, (ii) a restart of the plants at a later stage would be expensive compared with an immediate takeover, and (iii) it was not likely that a third party would buy specific assets of the two companies after their shutdown following a bankruptcy judgment. On the basis of the foregoing, it was concluded that it was very likely that the assets of E and P would exit the market.

23. Moreover, given inelastic demand and capacity constraints on the market, a very considerable price increase could be assumed as an immediate corollary of the disappearance of E’s production capacity and that, therefore, the market conditions would be more favourable for customers post-merger. Specifically, it was found that customers could expect more advantageous supply conditions and prices from the market post-merger than under a bankruptcy scenario where E’s assets would be taken off the market. Thus, the EC considered that “the deterioration of the competitive structure through the merger (…) [would be] less significant than in the absence of the merger. [164]

24. Criterion 3, therefore, hinges on the ability to show that absent the merger the assets of the failing firm would inevitably exit the market, such that the competitive structure thereof would deteriorate to at least the same extent in the absence of the merger. The reference to the notion of “inevitability” of the exit of the assets necessarily implies that there is no other player other than the acquirer in question who would be willing to acquire and operate the company (or indeed the relevant assets) in question. [165] Discharging the burden of proof underpinning Criterion 3 is therefore clearly onerous.

IV. COVID-19: Time to soften the rigour of the FFD?

25. As the nefarious effects of COVID-19 continue to ripple across the globe, it has become increasingly foreseeable that market conditions will spur an uptick in companies filing for bankruptcy. This is despite the EC’s commendable efforts to loosen the EU State aid rules in a bid to safeguard the continuity of economic activity by ensuring the availability of sufficient liquidity and access to finance for all types of businesses. [166] The question therefore arises whether the highly exacting standards of the FFD should be relaxed and, if so, how the softening thereof could be achieved.

26. Of course, the FFD only comes into play in the context of an otherwise problematic merger, i.e., where there is a risk that the merger could be prohibited or only approved on the basis of extensive remedies. In “normal” times, such mergers are arguably less prevalent. The FFD is then often advanced as a last roll of the dice. On the other hand, in times of crisis, such as that which we are currently witnessing, the FFD takes on an increased level of relevance. This is because of a likely proliferation of transactions involving financially healthy companies that can weather the storm in light of their size, deep pockets (and indeed positive credit rating), on the one hand, and financially distressed companies, on the other. With respect to the latter, a direct corollary of the exit from the market of their assets may be the loss of vast swathes of key infrastructure and intellectual property that is core to the European economy (e.g., in the tourism, transport and retail industries, which have been particularly hard-hit by COVID-19). Closely associated with the exit of these assets is an inevitable rise in unemployment.

27. While the strictness of the FFD has (arguably) been loosened in the past, albeit in very sui generis cases, [167] the EC’s prevailing stance in times of crisis has been to reject a more lenient approach towards the failing firm test. [168] This policy stance was taken following the 2008 financial crisis. But COVID-19 is a completely different situation, having brought entire industries to their knees, with no certainty of its near to mid-term abatement. Whilst recognising that the FFD Criteria have been drawn up and are applied with a view to minimising type II errors, i.e., erroneous merger clearances, COVID-19 comes as an exogenous and completely unexpected shock. Firms that have become distressed, often overnight, are in a highly precarious position, subject to very rapid deterioration and likely in (or on the brink of being in) receivership. Time is therefore very much of the essence. The introduction of a truncated and simpler administrative procedure/test with respect to the application of the FFD during COVID-19, and its (immediate) aftermath, may therefore be warranted. In this regard, the following could be considered:

  •  As a preliminary observation, there would be no need to amend the EUMR. A more expedient “processing” of an FFD claim would lie in the hands of the EC.
  •  Taking the fulfilment of Criterion 1 more or less as a given. In practical terms, this would imply the adduction of significantly less internal documentation/(economic) evidence showing that the economic viability of the company is irretrievably compromised. A simple statement to this effect by a bank or an auditing firm of reputable standing could suffice.
  •  Alleviating the lengths to which the allegedly failing firm and/or its advisors have to go to demonstrate that there is no less anti-competitive alternative purchaser. Simple reliance on the demonstration of reasonable (in the circumstances), good faith, attempts on the part of the allegedly failing firm should suffice. Efforts by the EC, as in BASF/Eurodiol/Pantochim, to make doubly sure that there is no alternative purchaser, despite already being in possession of sufficient evidence of the absence thereof would be excessive.
  •  A softening of the need to show that the assets in question would “inevitably” leave the market. Recognition that there is a good prospect thereof on the basis of more limited documentation may suffice.
  • Extensive information requests by the EC to notifying parties and potential purchasers and requests for comment by third parties, such as customers and competitors, could be dispensed with. Indeed, the EC has recently recognised the extreme difficulties it currently faces in eliciting such information given the disturbances caused by COVID-19. [169]

28. Recognition of cases meriting swift treatment of FFD claims should not, in the current environment, pose too much difficulty. Whilst recognising that FFD candidate cases are, by their nature, normally likely to go into Phase II, a drawn-out Phase II must be avoided. This is because, most of the time, national bankruptcy proceedings cannot wait for a “normal” Phase II decision to be rendered—liquidation of the assets in question would occur before the EC has issued its decision. Front-loading the FFD review to Phase I could, where possible, therefore also be considered. Granted, a less rigorous review process brings with it a greater risk of type II errors, but extraordinary times call for extraordinary measures.



Competition and Corona crisis: Some reflections from Spain with an advocacy perspective



María Pilar Canedo Arrillaga
Professor of Law, University of Deusto, Bilbao
Commissioner, Competition Chamber of CNMC

I. Introduction

1. Spain is one of the countries that has been the most seriously affected by COVID-19.

In order to protect the health of citizens, the Spanish government has adopted some rules that radically limit social and economic activity in Spain imposing the obligation to stay at home for citizens for more than one month (up to now) and ordering what has been called “the hibernation of the economic activity” for fifteen days in all the non-essential sectors (mostly health services, security and food). [170]

Those rules are having a dramatic effect on the economy especially on the labour market. This has implied the most relevant rise in the unemployment figures in Spain since the arrival of democracy in 1978. [171]

2. Those consequences have a more relevant impact on the weaker actors of society both from the social and economic perspective and therefore the Government has decided to take measures with the aim of reducing the impact of the crisis on the economy in general and, in particular to help those more harmed by the situation.

  • Royal Decree-Law 8/2020 introduces urgent measures to face the economic and social impact of COVID-19 in fields such as teleworking, postponement of mortgage payments, suspension of mobile portability, issues on consumer protection, tax law insolvency or employment protection. [173]
  • Royal Decree-Law 9/2020 deals mostly with the dire situation of residences for elderly people and labour law. [174] The statute defines the application of Temporary Files of Regulation of Employment (ERTE with the Spanish wording) that determines that in this case of force majeure the companies can temporarily stop the labour relation with some compromises (from the social security side, the company and the worker). [175]

3. It is evident that the most relevant overriding reason of general interest—which is human life—needs protection now. That implies limits in the rights of the people that we could not foresee just some months ago and those radical changes in social and economic behaviours will have an impact on our business and industrial economy not only in the short term.

In these circumstances we can hear more radical voices claiming for a change in our economic model towards one in which the public sector controls different aspects of society, including company’s ownership. [177] Others claim for public control of economic activity and/or business behaviour. [178] Others that claim for higher protection for companies so they can contribute to lowering the destruction of employment. [179]

Also, we can witness some (infrequent) business behaviours that profit the situation of need and legal exception and maximise their benefits in abusive ways that fall under different prohibitions of the law. Some of them, with criminal implications, others, with labour, tax, social security or competition law. [180]

Dealing with the latter, there is an increasingly relevant movement that asks for a more lenient application of the competition law rules and principles in reference both with the administrative and legislative measures adopted to tackle this situation and its application and with the enforcement activities conducted by the competition authorities.

4. It is relevant to remind society of the huge harm that competition infringements bring to social welfare and especially to the weakest. [181] It is evident though that the crisis implies a dramatic impact in the value chain of certain products not only because there has been a sudden change in the needs of citizens that entails shortages but also because the problems of distribution are inherent to confinement measures. [182]

Also, the crisis has implied that in several products and services the equation price/choice/quality is not so relevant to consumers. The access to some basic products becomes crucial.

This has pushed several agencies to remind that traditional antitrust tools that deal with business behaviours are crucial in these moments. [183] Especially relevant are the matters of cooperation among companies that can be analysed under Art. 101(3) of the TFEU. The agencies are underlying that the measures taken need to have a clear link to the declared aim, be specific, temporary and transparent in order to be accepted. [184]

Behaviours of increase in prices or undue imposition of commercial conditions (apart from the traditional agreements or abuses of dominance) have emerged in the crisis. [185] Also, lobbies asking the administration to fix prices or the competition agencies to allow certain behaviours. [186]

Some abusive conducts could require revisiting of concepts like the one of abuse of market power or other types of exploitation. Those situations do not always fall under the traditional competition rules but need efficient—sometimes imaginative—answers.

In the short (but regrettably not only) run the crisis will affect the economy with high risk of bankruptcies and the already mentioned increase in unemployment which already shows an impact in tax measures or other forms of State aid (which are not covered by this short article) in order to ensure economic growth and stimulate employment. [187]

5. Some agencies are underlying the existence of traditional limits in some commercial activities that now prove to create not only unjustifiable burdens to the market but also harm to economic welfare and an increase in health risks for citizens and workers. [188] For example, in Spain, the Catalonian Competition Agency has published a very short report that reminds that the ban to the on-line sale of certain products such as medicines (with or without prescription) or tobacco cannot be considered necessary and creates a special harm in this crisis for companies, workers and citizens. [189] The same could be said about other limits in competition such as bans in commercial hours or other commercial conditions that are included in several national and especially regional regulations or the several bureaucratic burdens in the economy such as the formalities to create companies. Some of those measures are being adopted by the administration opening the market by the reduction of burdens that could prove not to be necessary or proportionate. [190]

6. In this crisis (so different from the recently lived), we need to consider whether the traditional principles of competition law are still useful or need to be redefined or revisited both for enforcement and advocacy approaches.

This piece focuses just on the advocacy level and therefore on some of the legislative (some administrative) decisions taken during the crisis from the perspective of the principles of better regulation.

It is far from exhaustive. It just offers an analysis of a selection of measures in order to check whether the principles of better regulation are useful in this situation.

II. Analysis of some legislative measures adopted during the crisis

7. The principles of better regulation imply that the public power can (and should have to) intervene—and perhaps limit competition—if there is a market failure or an overriding reason of general interest that merits and requires protection (principle of necessity). In those cases, it is also relevant to guarantee that the measure does not create discrimination and that, among all the options that serve to the same interest, the one chosen is the less harmful for competition and the market.

An adequate motivation of the fulfilment of those principles is needed. Only this motivation makes it possible to control that there is a causal link between the protection of the general interest and the limitation imposed.

This motivation not only allows the ex post assessment of the measures adopted (in order to check if they were adequate to protect the general interest), but also permits a control by the third parties. This not only reduces arbitrary decisions but also increases the credibility of those taking the decisions in front of society.

Would it be possible to assess the decisions approved in this situation using these principles? I think not only that it would be possible, but also that it would be needed if we want to adequately protect public interest.

1. Public procurement rules

8. Let’s take into consideration the changes made to the application of public procurement rules.

The 1st of April the European Commission published a communication with guidelines for using public procurement in the emergency situation created by COVID-19. [191] They are based on the need of “agility in dealing with an immense increase of demand for similar goods and services while certain supply chains are disrupted.”

The guidelines underline the possibility of using the rules of public procurement already in force referring to open procedures even in cases of emergency adapting them by shortening deadlines if urgency so requires. Doing so implies complying with the principles of transparency and competition.

The guidelines assume nevertheless that there are cases of urgency that render impracticable the application of ordinary time limits and then contracting authorities are allowed to shorten them. Companies are also encouraged to procure jointly and to find innovative alternatives in the market.

Only in cases of extreme urgency, expressly defined as exceptional, the administration may award public contracts by a negotiated procedure without publication with two possibilities: negotiating with different undertakings or with just one company if it is the only one considered able to deliver within the technical and time constraints imposed by the aforementioned extreme urgency. The guidelines underline that the use of these procedures is an exception, because it implies that the principle of transparency is not respected and therefore competition cannot be guaranteed. The exceptional requirements need to be cumulatively fulfilled and the administration has to motivate them in a specific report. Those are the existence of events unforeseeable by the contracting authority in question; the extreme urgency making compliance with general deadlines impossible; the causal link between the unforeseen event and the extreme urgency and application only in order to cover the gap until more stable solutions can be found.

9. Far from the EU notice, Art. 16 of the Spanish RDL 7/2020 (modified by the RDL 9/2020) establishes an ex lege justification of the emergency implying that the administration does not need to motivate the application of the negotiated procedure prior to publication. [192] This creates a risk to an excessive use of the negotiated procedure. [193]

After the RDL, one could interpret the Spanish legal system as assuming the negotiated procedure as not exceptional (going therefore against the EU guidelines). The Spanish contracting authorities do not need to motivate the exceptional circumstances that avoid the application of open procedures. This implies an increase in the agility and flexibility that can be useful in the current circumstances but it also affects the principles of transparency and competition with harmful consequences (those that the guidelines of the EC try to avoid). [194]

It would be difficult to consider that there is a specific need in the Spanish situation that motivates the explained difference between the local legislation and EU guidelines. [195] On the contrary a possible abuse of the negotiated procedure could have negative effects for the protection of general interest and the guidelines themselves show possible alternatives. [196] If the new regulation implies going back to a more general application of procedures that do not guarantee competition, this would imply a step back in our system with a clear risk of abuse that was already proved in former times. [197]

10. We can reach the conclusion that in this case, the application of the principles of better regulation—including necessity and proportionality—could perfectly serve in the analysis and assessment of this measure adopted during the crisis. Their application should have to lead to reconsidering the new rule or at least should have to inspire its application if we want to protect public interest.

2. The limits in the portability of telephone lines

11. Art. 20 of the RDL 8/2020 limits during the state of alarm the possibilities of the companies for making extraordinary commercial campaigns for contracting telecommunication and electronic services that imply number portability “in so far” as the portability could require the users to move physically to the venue of the providers or some physical interventions in the client’s domiciles in order to guarantee the continuity of the service. Also, the RDL banned any portability operations for both land and mobile telephones when they were not in progress except in cases of force majeure.

The measure was expressly motivated as related to the health crisis as it could avoid “citizens moving physically to the venues of the companies or those moving to the domiciles of the clients” (see section II of the Explanatory Introduction to the Act).

Some weeks after, the Government changed the measure in the RDL 11/2020. The new wording of the law continues limiting the commercial campaigns but just bans portability of land and mobile numbers not in progress in cases where physical presence is needed. This would be more in compliance with the principles of better regulation because of the causal link of the limit with the aim that justifies it.

The new system contains two additional measures. The first one is a guarantee of non-interruption of the service in cases where the portability needs to be suspended after beginning it because a physical action is needed. The second one is a prohibition of increase in prices of those services that are affected by the suspension of the portability.

12. After this change the association of portability operators presented several complaints to the telecommunications regulator in Spain, claiming that after the initial total suspension of portability they were not flexible enough (considering the alarm circumstances) to resume the service without technical and personal risks. This is why the regulatory authority adopted some interim measures that foresee a transitory period in which each operator will have a limit of portability that will be based on an increasing percentage of their previous quotas for mobiles and in a specific figure (50 per day) in land lines. [198]

13. The principles of necessity and proportionality—inspired by general interest—will need to be used by the regulator in the ordinary procedure that will follow those interim measures.

Anyway, the analysis of the iter of the situation shows how limiting measures that go beyond their required scope—even when those are changed in a really short notice—imply negative consequences in the market and create unnecessary harm to society.

Therefore, again, the principles of better regulation show their efficiency in the current situation.

3. Funeral services

14. Another relevant legislative measure adopted during the crisis affects a sector dramatically linked to the pandemic, namely, the funeral services.

Complaints by families reached the social networks referring to supposed abuses in the services received during the crisis. The complaints dealt with several frauds related to the imposition of a particular company, the imposition of services, the billing of high prices for services that never existed or the imposition of expensive “health requirements” for the products that were not such.

15. As a consequence, the Government published in the Official Journal an Order creating some exceptional measures in relation with the conditions for wakes and burials in time of COVID-19. [199]

This decision contains a reference to the prices of the funeral services during the state of alarm and determines that they could not be higher to those established prior to 14 March 2020. It determines that the company needs to give the money back to the families if they charged a higher price. If they are not able to do it, they need to give an adequate explanation and keep records that prove the procedures followed. The client has six months after the end of the state of alarm to claim for the reimbursement.

Companies need to present a detailed budget to the client prior to the contracting of the service. It needs to include all the concepts and the list of prices prior to 14 March 2020 even in cases when specific actions have to be adopted as a consequence of COVID-19.

During the crisis, several services are not allowed (wakes or religious services for example). The rule determines that the amount budgeted for the services or products (mostly dealing with those covered by insurance) that cannot be used because of the crisis need to be given back to the client.

16. The funeral sector has specific legal requirements and there is a close link between funeral undertakings and insurance companies (which can create a very relevant conflict of interest in particular when there is vertical integration). This situation becomes more relevant for the personal circumstances in which the client receives the service.

The decision of the government to fix prices with the benchmark of the price prior to the crisis should be analysed from the perspective of the better regulation principles. One could accept that avoiding fraud in this crisis is a very respectable aim. Nevertheless, fixing prices in reference to the price established in a particular date does not take into consideration several relevant issues. It is pertinent to underline that in most of the cases the prices that are charged to the final client for each service are not public because they depend on the type of contract and insurance coverage. Also, the regulation should have considered that the prices that the different undertakings that participate in the final service charge inside the chain among each other are not public and therefore the measure could prove not to be efficient. Also, the order does not touch upon the link between insurance companies and funeral services and, most relevant, does not deal with the most relevant point (especially problematic perhaps during the crisis), which is the selection of the company (knowing all the conditions) by the client.

17. All those elements lead to the conclusion that the decision adopted should be reconsidered from the perspective of the principles of better regulation (as it would generally happen with a measure that implies fixing prices). If other measures could efficiently serve the same aim with a lower harm to competition, those should be preferred (principle of proportionality). [200]

III. Conclusion

18. Opening of the markets to competition generally brings advantages to society because it pushes in favour of innovation and increase in quality and choice. Competition is a fundamental mechanism of fair allocation of resources to citizens.

Times of crises create fear and it is easy to hear (and listen to) sirens’ song claiming for more protectionism in the macro and micro aspect, what would lead to a reduction in the level of competition. Former crises have proved that trying to come out of them by reducing the level of competition slows the procedure and benefits a reduced number of entities that unduly increase their profits because of the barriers and against the interest of other companies and especially against the interest of the citizens.

19. This does not imply that competition is an end in itself. Competition has to be considered as one of the tools to increase social welfare.

Certain contexts can imply that ex post mechanisms are not the most efficient tool to fight harmful behaviours. A health crisis can stress some markets in a way that requires ex ante responses and those can be adopted by the creation of regulation. It is relevant to underline that those rules need to respect the principle of minimum distortion and non-discrimination.

20. Therefore, it is clear that the traditional principles of competition need to inspire the creation of rules and their application. Principles of necessity, non-discrimination and proportionality with causal relation to a particular overriding reason of general interest duly motivated (what permits assessment and control) are still the most powerful tools to fight the very particular situation we are facing. The crisis should make us reconsider some of the previous legal burdens to some economic activities that do not contribute to increasing consumer welfare (limits to the distribution of medicines, limits to on-line sales, bureaucratic requirements for the entry in the markets of some products…). The situation of crisis is perhaps showing (we could say amplifying) that some of those limits are outdated or irrational and should be reconsidered.

The traditional tools of competition law (also those of enforcement) will also be crucial to get out of the economic crisis that we will foreseeably suffer after this health crisis.




Foreign investment screening and Covid-19 in Italy: Emergency room for new protectionism?


Michele Carpagnano
Partner, Head of Competition and Antitrust, Dentons, Rome
Professor, Trento University

I. The increasing relevance of FDI screening before the Covid-19 emergency

1. Well before Covid-19, FDI screening—the governmental scrutiny of foreign investments—has been increasing its relevance in Member States of the European Union as third-country investors have taken on an increasingly relevant role in the national economies.

2. In the EU, the overall foreign investment trend in terms of value increased in the 2010s and before the Covid-19 outbreak was still on the rise.

3. Companies controlled by third-country investors or by foreign states are having a significant economic impact in national economies because of their large size and their investment focus on strategic sectors like telecommunication networks, media, robotics, artificial intelligence and infrastructure (port, railways, etc.). [201]

4. On FDI screening the regulatory framework is still highly fragmented in the European Union. Indeed, in 2017, only twelve EU Member States had issued national screening mechanisms, often for reasons of national security and protection of strategic sectors. These mechanisms were different in terms of scope and procedure and implemented in scattered order.

5. As of today not all Member States had screening mechanisms put into place. In this fragmented context, on 19 March 2019, Regulation (EU) 452/2019 established a framework for the screening of foreign investments into the Union and determined strategic sectors, common criteria among Member States to assess FDI operations as well as cooperation procedures among Member States and the European Commission. Adoption of national regulations is not mandatory and may still differ in scope and procedure. However, national mechanisms, when implemented, need to meet certain key requirements: transparency of rules and procedures, non-discrimination among foreign investors, confidentiality of information exchanged between supervising authorities, the possibility of recourse against screening decisions, and measures to identify and prevent circumvention by foreign investors. The EU Regulation also introduced Union-wide coordination and cooperation mechanisms, which require the mutual exchange of notifications and opinions on the screening of foreign direct investments likely to affect security or public order.

II. The Covid-19 pandemic

6. The attention towards FDI screening mechanisms has further and rapidly increased in the EU due to the health emergency related to Covid-19.

7. Indeed, the health emergency has prompted national governments to issue urgency measures aimed at both strengthening the healthcare sector and preserving the socio-economic stability of the Member States.

8. Many companies in Europe are facing an unprecedented economic pressure caused by the health emergency and most of them are under actual or prospected financial vulnerability.

9. National governments in the EU have seen such vulnerability as an increased risk for foreign entities appetite and, consequently, a new wave of FDI regulatory interventions have been adopted often in association with Covid-19 urgency measures.

10. The European Commission issued on 25 March 2020 a Communication [202] related to the Covid-19 pandemic, calling upon Member States to set up screening mechanisms and declaring the need of appropriate screening tools for foreign investment, with particular regard to healthcare capacities and related industries.

III. The emergency measures carried out by the Italian government on FDI: Too vague to be effective (for now)

11. The Italian FDI screening mechanism dates back to 2012 when Decree-Law No. 21 was enacted. [203]

12. During the Covid-19 outbreak, the Italian government issued new provisions on FDI on 8 April 2020 (Decree-Law No. 23).

13. These measures amend the provisions of Decree-Law 21/2012 by:

  •  extending its application to new strategic sectors until 31 December 2020;
  •  introducing a new obligation to notify the acquisition of shares over certain thresholds by extra-EU operators;
  •  introducing a temporarily obligation to notify intra-EU transactions in case of change of control;
  •  establishing new procedural rules and, notably, the power for the government to act ex officio.

14. Pursuant to Decree-Law 21/2012, notification obligations arise for operations regarding strategic sectors and the Italian government may impose conditions or veto the operations if they threaten serious damage to the essential interests of the state. The government may only veto the transaction as extrema ratio, when it is not possible to protect national interests by other measures with less severe effects (e.g., imposing conditions).

15. The new transitional regime will apply to transactions occurring from April 9 to December 31, 2020. It broadens the scope of application of the previous regulation to the sectors considered by Regulation (EU) 452/2019 (whose provisions shall apply from 11 October 2020) — namely, critical infrastructure and technology, supply of critical inputs, access and control of sensitive information and media freedom and pluralism. [204] The decree specifies that the financial services mentioned among the critical infrastructure include banking and insurance services.

16. Under the previous regime, the screening of the Italian government applied only to operations regarding companies holding assets and relations in the sectors of defence, national security, 5G networks, high-end technologies, energy, transportation and communications.

17. New rules target critical infrastructure, technology and inputs and therefore special market conditions should apply for a transaction regarding a single (albeit highly specialised and strategic) company to have such a critical impact.

18. The broadness definition of the sectors, which are now caught within the scope of FDI rules, makes very difficult for market operators to safely assess if a certain transaction is subject to a duty of a prior notification under FDI rules and to the subsequent stand still obligation.

19. It is expected that the government will issue implementing decrees to clarify the scope of application of the legislation. For instance, by defining which assets and relationships are considered of strategic importance to the national interest when screening the operation, including possible prejudice to the security and operation of networks and installations and to the continuity of supplies.

20. In the meantime it is for the market operators to carry the burden to carry out a risky self-assessment since it is not always easy to pinpoint specific transactions subject to the notification requirement.

21. The risk of massive prudent notification of out-of-scope transactions is very high.

IV. The new target for FDI rules in Italy

22. The new FDI rules target both shareholding acquisitions and resolutions, acts and transactions that change the ownership, control, availability or change of destination of assets and relationships held by companies operating in strategic sectors.

23. Particularly, the decree establishes a notification obligation on entities of a non-EU country regarding shareholding acquisitions of at least 10% (considering shares or quotas already directly or indirectly owned) when the total operation is worth €1 million (or more).

24. Further notifications are required when the thresholds of 15%, 20% 25% and 50% are exceeded. In this regard, a question may arise as to the interpretation of the “10%” threshold, i.e., whether the legislator meant to target only the initial 10% or each shareholding acquisition of the 10%.

25. Notably, the decree introduces notification obligations regarding shareholding acquisitions by EU-based entities, which are only to be notified when the amount of shareholdings affect the permanent establishment of the acquirer.

26. The previous regulation exempted investments coming from other Member States from screening given the free movement of capital within the EU.

27. As known, free movement of capital is one of the four freedoms linked to the single market and has a number of functions such as reducing the risk of economic disruption, facilitating productive investment and capital accumulation and is a prerequisite for banking and monetary union. However, it may be derogated as provided for in point (b) of Article 65(1) TFEU on grounds of general interests (usually, public policy or public security), [205] as the derogation cannot serve purely economic ends. [206] In fact, Regulation (EU) 452/2019 specifies that it does not preclude Member States from derogating from the freedom of capital pursuant to point (b) of Article 65(1) TFEU.

28. It goes without saying that restrictions to the freedoms are subject to strict scrutiny and the jurisprudence has not been particularly lenient towards Article 65(1) TFEU point (b) derogations. However, the screening of intra-EU investment may be deemed appropriate and proportionate due to the temporary nature of the measure and the aim of countering possible threats to strategic sectors arising from the financial vulnerability of companies because of the Covid-19 emergency.

V. The new FDI procedures: A brand new ex officio power and extra time to close the assessment

29. The emergency decree also establishes new procedures for the FDI screening mechanism which are not temporary and strengthen the government’s procedural powers.

30. Most notably, the decree grants the government the power to institute the procedure ex officio when the notification is not made by the acquiring company.

31. Under new rules, the Italian government has to assess the transaction and possibly activate its special powers within forty-five days (thirty if the transaction regards 5G networks) since notification date. Only once the above terms have expired, the operation can be performed (standstill obligation).

32. Resolutions or acts adopted in the interim period are null and void and voting rights are suspended. Any resolutions adopted with the casting vote of such shares or quotas, as well as resolutions or acts adopted in violation with the conditions imposed, are null and void.

33. Moreover, the Italian government can require information or documents. In this case, the forty-five-day period is suspended for ten days (with regard to requests to the acquirer) or twenty days (with regard to requests to third parties). The Italian government is empowered to request for information and documents to investors, third parties and public administrations.

34. The special powers granted by the FDI regulation may be activated to the extent that the transaction involves a threat of serious prejudice to the essential interests of the state, or a danger to the protection of security and public order in cases where the protection of those interests is not adequately guaranteed by the existence of sector-specific regulations.

35. The threat of serious damage to public interests is assessed taking into account the principles of proportionality and reasonableness and on the basis of objective and non-discriminatory criteria.

VI. Conclusions

36. The new FDI rules present some critical issues which seem to be tempered in consideration of the temporary nature of the emergency decree.

37. The main issue regards the very broad scope of the screening, which would require a swift implementation.

38. Pending further clarification by the government, the number of transactions which may possibly be subject to notification seems to be high, especially if, in the interim period, a precautionary stance prevails due to the high fines in case of non-compliance with the notification requirements. A wide notification wave may also strain governmental resources by imposing a duty to examine a large number of notifications within a tight deadline (i.e., forty-five days).

39. In fact, if the notification requirements are not fulfilled with, the company is subject to a pecuniary administrative sanction up to twice the value of the transaction and not less than one per cent of the cumulative turnover achieved by the companies involved in the last financial year for which the financial statements have been approved.

40. In the meantime, the broad interpretation of the sectors defined by EU Regulation 452/2019 may place an unduly burden on acquiring companies.

41. Thus the measure, originally aimed at protecting strategic assets in a period of crisis, may aggravate the condition of Italian companies trying to attract foreign capitals in order to ease their economic vulnerability caused by the pandemic.

42. However, it is worth noting that the Italian government has only applied once between 2016 and 2018 its powers to veto an operation. Moreover, only in 10% of the notified operations the government imposed conditions on the transaction. [207]

43. Indeed, the government can only apply its special powers if, cumulatively, the company involved holds strategic assets and the operation may threaten essential interests of the state. Therefore, the burden of proof on the government scrutiny is quite high and these safeguards remain untouched under the new rules.

44. Thus, all considered, if the Italian government follows under new FDI rules its well-established practice of minimal interference (in accordance with the principle of necessity and proportionality), it will help in keeping the Italian markets open for business and in speeding up the recovery process.



Antitrust during (and especially after) a global pandemic



Daniel A. Crane
Economics Frederick Paul Furth, Sr. Professor of Law, University of Michigan

1. Eleven years ago, during the grips of the Great Recession of 2008–2009, I wrote about the dismal history of U.S. antitrust enforcement during wars and economic crises, finding that antitrust had almost invariably taken a back seat during national crises. [208] At the time, I remarked that it is perilous to write analytically about a phenomenon while still in the middle of it, and the same is surely true now. The truth is that, as of this writing, we simply do not know how the COVID-19 pandemic will unfold, what impact it will have on antitrust enforcement, or how, when, and if things will get back to normal. Keeping that in mind, I will limit my comments in this essay to brief remarks on antitrust and pandemics in the past, present, and future.

I. The past

2. The COVID-19 pandemic is not the first global pandemic to rock countries with modern antitrust laws. Just over a hundred years ago, the misnamed “Spanish flu” outbreak of 1918–1919 infected half a billion people—a quarter of the world’s population—and killed 50 million globally, including 675,000 in the United States alone. [209] Like COVID-19, the influenza pandemic’s effects were not distributed evenly geographically—it spread from east coast to west, weakening en route. [210]

3. The outbreak also wreaked economic havoc. A 2007 study by the St. Louis Federal Reserve found evidence that many businesses lost as much as half of their revenues, factories (already deprived of labor due to the First World War) struggled to find workers, and mines ran at half capacity or shut down entirely. [211] But the Spanish flu’s economic effects were also short-lived. [212] Many businesses suffered dramatic short-term losses, but quickly recovered after the pandemic passed, boosted by the end of the war and the return of the labor force. Wages may have actually increased due to short-term labor shortages. [213] By the roaring twenties, the post-War boom spurred the American economy to unprecedented heights (before, of course, crashing in 1929).

4. I have searched in vain for any evidence that the pandemic had any effect on antitrust enforcement. During the period of American belligerency in the war (April 1917–November 1918), the Wilson administration announced a less aggressive approach to enforcing the antitrust laws due to the government’s own participation in industrial production and controlling prices, and major cases were tolled until the end of the war. [214] Given that the pandemic coincided with the unraveling of the war, it is difficult to determine whether the pandemic, standing alone, had any appreciable effect on antitrust enforcement. However, given that the economic effects of the pandemic were relatively short-lived, it seems unlikely that the pandemic had any significant effect on antitrust enforcement in the United States.

II. The present

5. A few weeks into the COVID-19 crisis in the United States, the Justice Department Antitrust Division and the Federal Trade Commission made it clear that the crisis would not dampen enforcement of the antitrust laws: [215]While many individuals and businesses have and will demonstrate extraordinary compassion and flexibility in responding to COVID-19, others may use it as an opportunity to subvert competition or prey on vulnerable Americans. The Division and the Bureau will not hesitate to seek to hold accountable those who do so.” [216] That said, the agencies assured the public that extraordinary crises require unprecedented levels of cooperation within civil society, and that many forms of cooperation, such as R&D collaboration, sharing technical know-how (as opposed to sharing prices, wages, outputs, or costs), standards for patient management, healthcare providers joint purchasing arrangements, and coordinated private lobbying to influence governmental strategies responsive to the sanitary crisis are generally not suspect under prevailing antitrust norms. [217]

6. The agencies also signaled that they might tolerate short-run collaborations that might otherwise raise eyebrows, if justified by exigent circumstances: “The Agencies will also account for exigent circumstances in evaluating efforts to address the spread of COVID-19 and its aftermath. For example, health care facilities may need to work together in providing resources and services to communities without immediate access to personal protective equipment, medical supplies, or health care. Other businesses may need to temporarily combine production, distribution, or service networks to facilitate production and distribution of COVID-19-related supplies they may not have traditionally manufactured or distributed. These sorts of joint efforts, limited in duration and necessary to assist patients, consumers, and communities affected by COVID-19 and its aftermath, may be a necessary response to exigent circumstances that provide Americans with products or services that might not be available otherwise.” [218]

7. The agencies general guidance has seen concrete expression in some cases already. On April 4, 2020, the Justice Department announced that it would not challenge the collaborative efforts of five medical supplies distributors—McKesson Corporation, Owens & Minor Inc., Cardinal Health Inc., Medline Industries Inc., and Henry Schein Inc.—to expedite and increase manufacturing, sourcing, and distribution of personal-protective equipment (PPE) and coronavirus-treatment-related medication. [219]

8. If the prevailing socio-political zeitgeist is collaboration and cooperation, businesses perceived as flouting the prevailing norm are likely to incur the wrath of political actors. On March 23, 2020, President Trump issued an Executive Order concerning price gouging of critical medical supplies pursuant to the Defense Production Act. [220] On March 25, 2020, 33 state attorneys general sent letters to Amazon, Walmart, eBay, Facebook, and Craigslist urging them to crack down on price gouging on their platforms. [221] Various state attorneys general have issue civil investigative demands to firms suspected of price gouging. For example, the attorney general of Missouri sent civil investigative demands to eight third-party sellers on Amazon concerning price gouging. [222] In the United States, price gouging is not an antitrust issue, but it may be actionable under various state laws. The Justice Department has also issued a stern warning against any violations of the antitrust laws with respect to the manufacture, distribution, or sale of public health products such as face masks, respirators, or ventilators. [223] Benign collaboration is in; underhanded manipulation is out.

9. It is unlikely that there will be much merger activity during the (hopefully short) acute phase of the pandemic. The FTC has put in place a temporary e-filing system for Hart-Scott-Rodino filings, [224] and there has been talk in Congress about extending the automatic 30-day waiting period for closing mergers until the crisis subsumes. Regardless, not many businesses will have the temerity or capacity to propose competitively questionable mergers while the agencies are running on vapors and the courts are open for emergency business only. In the event they do, the agencies could use second requests for information to place a further stay on closing the mergers, virtually ensuring that no substantive decisions on merger challenges need to be made during the acute phase of the pandemic. So merger policy does not seem to be much at issue while the crisis persists.

III. The future

10. God willing, at some point in the near future the COVID-19 crisis will end (with far less damage to human life than the Spanish flu) and we will be talking about its legacy rather than its threat. For antitrust enforcement, this will nominally mean a resumption of normality—ordinary Hart-Scott-Rodino filing rules, litigations that have been functionally stayed for weeks picking back up, the agencies resuming their usual business. The prophetic question is how, if at all, will the complexion of antitrust have changed for the longer term once the (hopefully) short-term crisis has abated. Reading my crystal ball, I will be keeping an eye on two potential medium to longer term trends, the first economic and the second political.

11. The economic effect is an inevitable increase in concentration in certain market sectors resulting from the failure of businesses as the result of a pandemic. Events that deal a blow to an economy—whether wars, terrorist attacks, financial crises, or pandemics—extend a coup de grâce to the weakest firms in the market. When a number of weak firms suddenly exit the market without an offsetting increase in new entrants, the market necessarily becomes more concentrated. For example, the years 2008–2011 saw a dramatic spike in bank failures, going from single digits in ordinary years to 140 in 2009, 157 in 2010, and 92 in 2011. [225] Through the sheer force of firm failure, the banking industry became modestly more concentrated as a result of the financial crisis. [226]

12. The culling of weak firms during crises is often amplified by political pressures to permit consolidation. During the same period that banks were leaving the market through failure, the Treasury Department was also pushing consolidation as a liquidity measure. Similarly, many airlines responded to the extreme economic pressure during or in the aftermath of the financial crisis by merging (Delta/Northwest, United/Continental, Southwest/AirTran, Republic/Midwest and Frontline and ultimately American/USAir) or reorganizing alliances, sometimes over the objection of the Antitrust Division. [227]

13. The COVID-19 pandemic is almost certain to result in the increasing concentration of certain market segments. Retail is a particularly likely candidate, with traditional bricks-and-mortar retailers like J.C. Penney, Neiman Marcus, Kohl’s, Macy’s, Dillard’s, and Nordstrom all potentially on the chopping block. [228] The pandemic may accelerate the demise of the great American mall and correspondingly increase the already increasing power of dominant online retailers like Amazon.com. Many other industries, including airlines, travel and leisure, restaurants, sports and entertainment, and mining are also under severe threat. [229]

14. How will the antitrust agencies respond to the simultaneous pressures of increasing market concentration due to firm failure and political pressure to permit consolidation to prevent further failures? There is nothing that they can do to prevent firm failures, but they could hold the line on voluntary consolidation, insisting that merging firms meet the very high standards of the failing firm defense in order to justify otherwise anticompetitive mergers on business failure grounds. [230] Whether or not the agencies hold fast to the failing firm defense as the pressures toward consolidation grow in COVID-19’s wake will be a key marker of antitrust response to the pandemic.

15. The second major trend that I will be following in the wake of the pandemic concerns whether and how the pre-pandemic political conversation about antitrust reform picks up as the economy begins to get back to normal. From about the 2018 mid-term electoral cycle up until right before the pandemic reached American shores, antitrust had soared into once-in-a-generation political saliency. [231] For the first time in many decades, political elites on both sides of the ideological spectrum had identified antitrust as a crucial political lever with respect to a wide swath of social ills, including income inequality, labor mobility and wages, corporate power, data security, technological stagnation, and the dominance of Big Tech. Several presidential candidates make antitrust reform a signature issue, congressional committees opened investigations on the state of antitrust, members of Congress introduced antitrust reform bills to strengthen antitrust enforcement, the antitrust agencies launched potentially ambitious new investigations, and state attorneys general announced high-profile antitrust investigations.

16. As of this writing, all of this momentum has come to a screeching halt as the politicians, like everyone else, largely hunker down in their living rooms, riding out the storm. What happens post-pandemic? Does the action pick up where it left off, or will the shock of the pandemic have so shifted priorities, political narratives, political alignments and antagonisms, and electoral politics that the antitrust agenda will have been entirely reset or eliminated?

17. Of course, I do not know the answer, but looking through my hazy crystal ball I will offer the following prediction: the effect of the pandemic on the politics of antitrust reform will track the degree to which the pandemic shifts popular political sentiment in a pro-establishment or anti-establishment direction. Here is what I mean: Although the recent antitrust reform movement was nominally directed against a villain called “the Chicago School,” in fact the movement was directed against a much broader set of actors roughly corresponding with the “antitrust establishment”—the agency leaders, judges, economists, lawyers, academics, and others whose largely bipartisan, technocratic consensus oriented around formal economic analysis and the consumer welfare standard had dominated the practice of antitrust law for the past three decades. The movement for radical antitrust reform was not primarily a movement of the anti-corporate political left against the pro-corporate political right, but of the anti-establishment left and right against the establishment center. In this anti-establishment movement, the antitrust enforcement records of George Bush and Barack Obama were equally circled with a red target, while establishment veterans from both sides of the political aisle circled the wagons.

18. So which way will the pandemic cut politically—in favor or against the establishment? Will popular political sentiment see conventional institutions—presidents and governors, the Centers for Disease Control, scientific and medical experts—as saviors who competently managed an existential threat and saved both lives and the economy, or will the political, scientific, and medical establishment receive failing marks from the populace at large? Will the net political effect of the pandemic be relief that we have the institutions that we do in place and a greater willingness to trust in their judgments, or a demand for replacement of those institutions and radical reform? Although these broader currents do not relate directly to antitrust, they are like to carry antitrust reform along with them.

IV. Conclusion

19. At some level, the COVID-19 pandemic shares patterns observed during any national or global crisis, but it also feels different than the experiences remembered by almost any living person. So humility and caution in discussing its effects on antitrust enforcement are in order. For the present, the U.S. antitrust agencies are sending the politically necessary but ultimately irreconcilable signals that antitrust enforcement will continue as usual but that exigent circumstances require understanding. Hopefully, the direct manifestation of the crisis—stay-at-home orders, social distancing, closed businesses, flooded hospitals—will be short enough in duration (a matter of a few weeks or months) that the collective pause will not register on the antitrust scale. It will be in the pandemic’s aftermath, measured not in months but in years, that any significant effect on antitrust enforcement will be felt. 



How might the Covid-19 crisis change the dynamics of competition law?



Aymeric de Moncuit [232]
Référendaire, Court of Justice of the European Union, Luxembourg
Lecturer, University Paris II Panthéon-Assas

1. An impressive number of papers or posts on social networks have been released in a very short time span as regards what I would call the “microeconomic impact” of Covid-19. These contributions describe with remarkable precision the legal arsenal of measures adopted by competition authorities to tackle the pandemic. However, it is worth noting that less attention has been devoted to the macroeconomic impact of the crisis: that is, the structural implications of Covid-19 for the dynamics of competition law. In this paper, I explore the impact Covid-19 may have on each of the branches of competition law, anticompetitive agreements, abuse of dominance, concentrations and, last but not least, State aid.

I. Anticompetitive agreements (Article 101 TFEU)

2. The first question of interest is what Covid-19 may change as regards the enforcement of Article 101 of the Treaty on the Functioning of the European Union (TFEU). The answer is, maybe, more cases in an array of antitrust laws facing a significant decline of case flow due to the combined effect of attractive leniency procedures and active competition advocacy.

3. In the aftermath of Covid-19, competition enforcers may witness a resurgence of practices related to cartels and exchanges of information, at a time when these practices—classically the main target of antitrust enforcement—have left the spotlight, overshadowed by more sensational cases of abuses of dominant positions in the new technology sector (Intel, [233] Google, [234] Qualcomm [235] or Broadcom [236] cases) in a polarised [EU, United States (US)] context. [237]

4. Why? Because experience shows that both cartels and exchanges of information practises generally appear after exogenous shocks enticing the main players to collude in order to restore a tacit equilibrium that allowed them to avoid the sometimes hard cost of competition.

5. In France, for instance, one may remember that the first genuine case of anticompetitive exchanges of information [238] occurred after the events of September 11, 2001 (“9/11”) when Parisian palaces decided to share sensitive commercial information to avoid, in the words of one of their directors, “dumping on the price.” [239] One may also remember that the steel crisis was at the root of the “steel cartel” for which the fine was annulled for not taking into account the crisis undergone by the sector. [240] Likewise, the yoghurt cartel took place against a backdrop of a dramatic increase in the price of milk. [241] The General Court itself acknowledges that cartels generally emerge in times of economic crisis. [242]

6. The second question is how competition authorities will factor the crisis into their analysis. At the EU level, enterprises will be well placed to invoke the application of paragraph 36 of the Guidelines on the method of setting fines, [243] according to which, in exceptional cases, the European Commission (the “Commission”) may, “upon request, take account of the undertaking’s inability to pay in a specific social and economic context.” In the bathroom fittings case, five out of nine of the undertakings involved had benefited from this exception. [244] National competition regimes also generally provide for this “crisis derogation,” as is the case in France. [245]

7. As regards, more specifically, exchange of information, it is likely that, in some industries, companies may wish to hold industry-wide discussions or discuss the implications of the crisis at trade association meetings/forums. Most of the issues may arise from an urgent need to establish how best to ration scarce goods and resources to meet exceptional customer demand and manage unanticipated costs or declining revenues to avoid business failure; or to deal with employees and business continuity concerns. A wide range of cooperation agreements may arise:

  • cooperation to reach an industry-wide solution to the impact of the crisis, and in particular to achieve public policy goals, for example by agreeing to prioritise certain classes of consumer, such as the elderly;
  •  collaborating over capacity reduction in industries hit by reduced demand;
  • collective negotiation to resolve commercial disputes;
  •  alignment regarding human resources or benefits programmes in relation to the crisis. [246]

8. The way the Commission treats this exchange of information or cooperation agreement may fundamentally evolve. Regulation 1/2003 put an end to the practice established by Regulation 17/62 whereby companies were able to seek EU exemption for cooperation deals or distribution arrangements by way of formal notification to the Commission. However, on 8 April 2020, the Commission published a Communication laying down a Temporary Framework for assessing antitrust issues related to business cooperation in response to situations of urgency stemming from the current Covid-19 outbreak [247]. It follows a previous announcement of 2 March 2020, in which Commissioner Vestager signaled a break with this tradition, saying her staff would be more willing to give guidance on certain kinds of cooperation deals [248]. The Communication covers possible form of cooperation between undertakings in order to ensure supply and adequate distribution of scarce products and services during the COVID-19 outbreak and thus address the shortages of such essential products and services resulting from the rapid and exponential growth of demand. This includes notably medicines and medical equipment without being limited to these products [249]. Importantly, the Commission states that with a view to increasing the degree of legal certainty as regards antitrust guidance within a timeframe that is compatible with the urgency of certain situations related to the current Covid-19 outbreak, it stands ready, exceptionally and at its own discretion, to provide such guidance by means of an ad hoc “comfort” letter [250].

9. Behind the revival of comfort letter almost twenty years after their demise is a new framework that sends stronger signals to industries beyond healthcare. Indeed, the communication targets “shortages of […] essential products and services,” covering ’notably’ medicine and medical equipment, mentions that it might be amended or supplemented to cover others forms of cooperation and is accompanied by a “lex specialis” specifically applicable to medicines [251]. Therefore, it is likely that the scope of the Communication extends beyond the pharmaceutical sector into, at least, areas such as food retail and some consumer goods [252].

10. In the same vein, in several national regimes  [253] and under EU law, [254] requests or direction from government bodies for businesses to cooperate with each other constitute a defence against an accusation of infringement of competition law, if competition law has been formally disapplied to such conduct. While procedures for granting such an exemption do exist, they require exceptional and compelling public policy reasons and have rarely been granted before now.

11. However, this may also change with the above-mentioned temporary framework which takes a flexible stance as regards cooperation agreements encouraged by public authorities [255] and recall that cooperation is allowed if imposed by public authorities [256]. Several Member States may adopt measures to ease cooperation as is exemplified by the United Kingdom (UK). On 19 March 2020, the UK government announced that it was “temporarily relaxing elements of competition law” as part of a package of measures to allow supermarkets to work together to reduce the risk of any food shortages, [257] as long, as recalled by the UK Competition and Markets Authority (CMA), as it is not a “cover” for nonessential collusion—for example exchanging information on longer-term pricing or business strategies, where this is not necessary to meet the needs of the current situation. [258]

12. This initiative was followed on 23 March 2020 by a much broader cross-sectoral joint statement from the European Competition Network (ECN—the network of all EU national enforcers). In this statement, members of the ECN confirmed that they would “not actively intervene against necessary and temporary measures put in place in order to avoid a shortage of supply” caused by the pandemic. [259]

13. Likewise, other exceptions to anticompetitive exchange of information could be construed more leniently by competition authorities. In particular, information sharing that allows suppliers to better forecast areas of oversupply and undersupply may be acceptable, provided it “does not go beyond what is necessary to correct the market failure.” [260] This provision could prove important in the current context, by allowing undertakings to exchange information in order to reallocate their supply to territories hit by shortages of food or medicine, for instance.

14. More globally, it is likely that competition authorities will increasingly distinguish, in their competition analysis, between cooperation to deal with undercapacity (shortage of supply) and cooperation to deal with overcapacity. What competition authorities have in mind is mutual support in critical sectors by way of upstream cooperation on logistics and production, to overcome shortages of supply, in order to avoid companies no longer being able to meet existing demand (i.e., undercapacity).

15. However, the more lenient approach to enforcement currently visible among competition authorities should not be seen as carte blanche to cooperate collectively to remedy situations of overcapacity. The Commission will not tolerate conduct by undertakings that opportunistically seek to exploit the crisis as a cover for anti-competitive collusion by, for example, limiting production to the ultimate prejudice of consumers (e.g. by obstructing attempts to scale up production to face shortages of supply) [261]. As warned by M. Vestager, the Covid-19 crisis is not a “shield against competition enforcement.” [262] In a severe recession, the competition authorities would normally consider that it is for market forces—and not a grouping of all major market participants—to deal with overcapacity. This emerges from the European Court of Justice Judgment in the 2008 Irish beef case [263] as well as a 2011 policy roundtable held by the Organisation for Economic Co-operation and Development (OECD) on crisis cartels, [264] even though, depending on the magnitude of the crisis, this approach could be relaxed in its application.

II. Abuse of dominance (Article 102 TFEU)

16. Covid-19 could result in increased market concentration due to the elimination of the most vulnerable operators, leading to more cases based on Article 102 of the TFEU. The chaos generated by Covid-19 may lead undertakings to adapt by changing their business practices to respond to the crisis. These changes may mostly involve pricing practices, excessive pricing (i.e., price increases which cannot be justified by increased costs) or discrimination (i.e., applying materially different pricing to similarly situated customers or making terms or conditions less generous without cause). Non-pricing practices could also flourish and, in particular, unilateral refusal to deal. In the context of the crisis, some of these refusals may not be considered to be anticompetitive (e.g., refusal to deal with firms that fail to adopt adequate measures to protect workers and customers, or that promote misinformation that may exacerbate public health risks).

17. Recently, a special focus has been put on excessive pricing practices. Investigations have been opened, at least, in Italy [265] (relating to the marketing of hand sanitisers and disposable masks), in Poland [266] (regarding the supply of personal protective equipment to hospitals), in Turkey (regarding the food sector), [267] in Ukraine (regarding masks, airline tickets, disinfectants and consumption basket products), [268] and in the Netherlands. [269] In the US, there is no federal law prohibiting excessive pricing. However, states such as Washington, New York and California have laws that restrict price gouging. On 4 March 2020, the Washington attorney general announced that his office was investigating cases of excessive pricing during the Covid-19 public health emergency. [270] On the same day, California declared a state of emergency, triggering the prohibition of price gouging of food, emergency supplies, medical supplies, gasoline, emergency clean-up services, hotel accommodation and transportation. [271] In China, in the wake of the Covid-19 outbreak, the State Administration for Market Regulation (SAMR) has extended its price supervision to cover not just masks, but the entire supply chain, including manufacturing equipment and raw materials. [272] Several e-commerce platforms are now voluntarily monitoring the prices of masks and protective gear on their platforms to ensure that they comply with China’s pricing regulations. [273]

18. A global trend seems to be emerging among competition authorities in and outside the European Union of regulating against excessive pricing. This is in line with the increased focus of the Vestager Commission on exploitative abuses and excessive pricing, notably in the pharmaceutical sector. [274] Clear instructions have been recently given by the Court of Justice on assessing excessive pricing, [275] which should help competition authorities.

III. Merger control

19. Even if the Covid-19 crisis were to last longer than is currently expected, it would clearly remain the preference of competition authorities for long-term structural changes to given markets to be brought about by way of concentration subject to proper merger control rather than cooperation. [276]

20. In this respect, the increased market concentration may give rise to a surge in mergers and acquisitions. Yet, the sanitary crisis and the corelative uncertainties on the evolution of the economic situation could also have a chilling effect leading to less transactions. We may see two adjustments in the relevant law. Firstly, as regards procedure, notifications may be delayed, and electronic filings encouraged. The Commission, the French Competition Authority and the German Federal Cartel Office have already made announcements about this, while in the US, the Federal Trade Commission and the Department of Justice have implemented a temporary e-filing system. [277] “Stop the clock” mechanisms may be extended to unproblematic situations, while fines for exceeding the statutory deadline will have to be assessed “in light of all circumstances of the case.”

21. Secondly, regarding the substance of cases, the increased market concentration may lead to a revival of the “failing firm” defence (notably in the aviation sector [278]). Moreover, we may see initiatives from the Commission and from Member States [279] to protect weakened companies from “predatory” foreign takeovers. In a policy paper issued 25 March 2020, [280] the EU executive called on the bloc’s national governments to deploy “fully fledged” screening systems for foreign investments, especially in key healthcare and research businesses. After years of rolling back restrictions and opening up trade flows—with the Commission famously neutral on company ownership—the paper marks a sharp change of direction for the EU executive. [281] Even if this change does not affect EU merger control as such, [282] the possibility that it may have an influence on the Commission’s assessment of foreign takeovers cannot be ruled out.

IV. State aid (Article 107 TFEU)

22. Last but not least, State aid will be granted on a massive scale [283] and many sectors will be placed on life support by the State. On 13 March 2020 the Commission published a communication which provides useful guidance on the application of EU State aid rules to national support measures aimed at tackling the Covid-19 outbreak.  [284] The Commission also adopted, on 19 March 2020, a State aid temporary framework, based on Article 107(3)(b) of the TFEU, to remedy a serious disturbance to the entire EU economy. [285] This temporary framework, which is similar to the one adopted during the 2008 financial crisis, enables all Member States to ensure that sufficient liquidity remains available to all companies and to preserve the continuity of the economic activity during and after the Covid-19 outbreak.

23. Provisions that will be key are, one the one hand, Article 107(2)(b), which provides that what constitutes compatible aid is “aid to make good the damage caused by (…) exceptional occurrences” (the Commission has acknowledged that the Covid-19 outbreak qualifies as an “exceptional occurrence” under Article 107(2)(b) of the TFEU [286]), and on the other hand, Article 107(3)(c) of the TFEU, which entitles Member States, subject to Commission approval, to meet acute liquidity needs and to support companies facing bankruptcy due to the Covid-19 outbreak. Given the unprecedented circumstances, it is reasonable to believe that these rules will be applied with flexibility. [287] A crucial question will be whether the new legal bases activated by the Commission under Articles 107(2)(b) and 107(3)(b) will be able to cover all such interventions, or if the Commission will need to fall back on the more stringent conditions of Article 107(3)(c) regarding rescue and restructuring aid. [288] Another question will lie in the role of competitors aggrieved by the grant of aids to others parties. State aid litigation may thrive if admissibility conditions are appreciated less stringently by EU Courts. This does not seem unlikely in light of the Montessori case [289].

V. Conclusion

24. To conclude, I see two three questions likely to arise. Firstly, how to factor the current crisis into competition law analysis? The crisis may well be taken into consideration as a reason for exemption (exchange of information, cooperation agreement); or, on the contrary, as an aggravating factor (in the case of excessive pricing or concerted limitation of the production). Secondly, this crisis poses the question of the role of competition authorities in this tense time. Should they act as proactive regulators or as mere “guardians of the temple” (i.e., watchdogs of entrenched competition rules)? Thirdly, what should be the priorities of competition authorities? We may assist to a rebalancing of their activities, from merger control and application of competition law in the digital sector to State aid and cooperation agreements. It may be necessary in a time of crisis to enter into a new era of competition policy, primarily protecting consumers and national champions. Admittedly, competition authorities may run the risk of straying from their traditional mission, which stems from the ordo-liberal school of thought—protecting the “competitive process” as a whole and not consumers directly. However, in time of crisis, “beggars can’t be choosers”….




EU State aid control and COVID-19 outbreak: A first commentary (as of the situation on 5 May 2020)



Jacques Derenne [290]
Partner, Sheppard Mullin, Brussels
Professor, University of Liège, Belgium & Brussels School of Competition

1. The European Commission has adopted a new Temporary Framework for State aid in the context of the COVID-19 pandemic implementing a flexible approach for approving emergency aid granted by Member States to businesses affected by the pandemic. [291]

2. The Commission’s DG Competition has organised itself in a similar way to its response to the 2008 crisis, setting up a specific email address and telephone number for Member States and listing all measures in a specific tab on its website. It has adopted a high rate of decisions approving the measures notified by Member States. [292]

3. Given the importance of the unprecedented issues and the exceptional situation facing the global economy in recent weeks, we felt it justified to take stock of the “COVID-19 aid” measures in some detail. The matter is evolving rapidly: it is sufficient to note a first decision on 12 March 2020 (Danmark) before the adoption by the Commission of a framework on 19 March, amended on 3 April, which led to the adoption of 107 other decisions (approving more than 130 different notified measures) from 21 March to 5 May, including 8 other decisions under Article 107(2)(b) TFEU.

I. Introduction

State aid control is part of the solution, not part of the problem.”

4. These were the words of Commissioner Neelie Kroes at the beginning of the financial crisis in October 2008, which would bring the heads of States and finance ministers of the Member States to their knees as they sought to “deactivate” competition law.

5. They also apply to the economic crisis resulting from the current health crisis. A comparative analysis of the two crises of 2008 and 2020 will not be ventured. However, from the point of view of State aid control, several analogies can be made, even if the important differences are already apparent: in 2008, a systemic financial crisis with a rather limited impact on the real economy and, in 2020, a global health crisis leading to an unprecedented economic crisis—of the real economy—whose exact extent is not yet measured but which will probably require a long convalescence and deep structural changes in some sectors.

6. In this context, State aid control coordinates and provides a framework for the public support responses of the different Member States. It allows the EU to act with discernment (see the etymology of the word “crisis” below), to make the necessary choices and to avoid destructive outbidding by the law of the strongest. In this sense, State aid control is truly one of the ultimate instruments for combating the nationalist reactions of Member States affected by the sovereignty virus. Without State aid control, there can be no European Union! Even if one considers the challenges of the global competition by other regions of the world which do not have any State aid/subsidy control.

7. The Temporary Framework of 19 March 2020 expresses it well: “(…) EU State aid control ensures that the EU Internal Market is not fragmented and that the level playing field stays intact. The integrity of the Internal Market will also lead to a faster recovery. It also avoids harmful subsidy races, where Member States with deeper pockets can outspend neighbours to the detriment of cohesion within the Union” (point 10). And this health crisis has already amply demonstrated that it is not less Europe that we need, but more Europe when the Member States have only been able to prove the regrettable error of their refusal to transfer sovereignty (and budget) to the EU in the health field!

8. It is here that I would like to appeal to the etymology (to classical, and especially Greek philology) to come back to the exact meaning of the word “crisis.” It is generally understood to have only the limited Latin origin of “serious manifestation of a disease.” It is instinctively the meaning of the word “crisis” with its negative aspects. However, the Latin “crisis” comes from the ancient Greek “κρίσις,” associated with the verb “κρίνεω, κρίνειν, krinéô, krinein” which covers, much more subtly, multiple meanings that can only guide action: (i) the action or the ability to distinguish, (ii) the action of choosing, (iii) the struggle, (iv) the action of deciding, hence the decision, the judgement and, finally, (v) the outcome, the decisive phase of an illness. By “κρίνεω,” ancient Greeks meant “I discern, I understand, I judge, I decide, I act, I find a cure…” Crisis, therefore, is the state of emergency that pushes us, through rational analysis, to discern the (right) decisions to be taken and the (right) actions to be taken and to implement them in order to get out of a difficult situation. In order to avoid “chaos,” which the ancient Greeks referred to as “κρᾶσις, krasis”, pun intended… That says it all.

9. As in 2008, we must analyse the sources of the crisis (health and economic), its development mechanism, its impact and then identify the proper measures to remedy it. As in 2008, State aid control must adapt to this exceptional situation and provide sufficiently flexible (and evolving) responses, while maintaining the essential principles that will prevent Member States from destructive drifts in their efforts to integrate Europe.

10. Since the beginning of March 2020, the Commission’s response seems to have been equal to the challenge. First of all, the Commission fairly quickly adopted a communication on 13 March 2020 on the analysis of the global situation of the “crisis” and its economic impact. Then, with regard to State aid, it showed a responsiveness comparable to the 2008 crisis (with the publication, in a few days, of the “banking” communication of October 2008—replaced in August 2013—which was to set the guidelines for State aid control in the financial crisis) by adopting very quickly, on 19 March 2020, a Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak. Then, in a second phase, just as quickly, the framework for the approval of support measures notified by Member States was developed, with a similar speed to the crisis of late 2008–early 2009, using the same exceptional procedural means: urgent notifications, exceptional use of the English language only through language waiver (except for France apparently), dedicated teams, transparency, very rapid adoption of compatibility decisions in 24 or 48 hours, compatibility decisions favouring guarantee schemes under the framework. Lastly, the Commission has already amended its Temporary Framework on 3 April and will do it again in early May.

11. Moreover, to date, only four Member States (Denmark, France, Sweden and Germany) have notified measures under Article 107(2)(b) TFEU. This may come as a surprise. We shall return to this subject in our initial comments following the description that follows.

II. Legal basis available and used

12. Among the urgent measures adopted by Member States, there is, first of all, a whole range of measures that do not constitute State aid within the meaning of Article 107(1) TFEU. These include general support measures aimed at all undertakings (without selectivity), such as wage subsidies, deferral or suspension of payment of corporate and value added tax or social contributions; temporary unemployment measures, or measures targeting consumers directly, such as individual financial support for cancelled services or tickets not reimbursed by the operators concerned.

13. For measures constituting State aid within the meaning of Article 107(1) TFEU, some may not need to be notified to the Commission if they benefit from the de minimis rule (to simplify, “transparent”—directly assessable—aid of less than €200,000 over three fiscal years) or from the General Block Exemption Regulation (GBER).

14. It should be noted at the outset that the Temporary Framework, as some have wrongly claimed, did not create new de minimis measures—the €800,000 threshold described below—nor did it extend the scope of the GBER. Most of the exceptional measures taken will not fall under these exemptions from prior notification and will have to be submitted to the Commission’s approval to be declared compatible with the internal market on the basis of three different legal bases: Article 107(2)(b) TFEU, Article 107(3)(b) TFEU and Article 107(3)(c) TFEU.

1. Article 107(2)(b) TFEU: Compensation for damage suffered as a result of the COVID-19 outbreak

15. Under this provision, Member States may grant aid “to make good the damage caused by natural disasters or exceptional occurrences.” This is an automatic exemption, by law, provided that the factual conditions of the provision are met.

16. The Commission must approve such aid measures, without any discretionary assessment of their compatibility, if there is indeed an “exceptional occurrence” causing economic damage.

2. Article 107(3)(b) TFEU: Remedy for serious disturbance in the economy of a Member State

17. These are State aid measures whose exemption depends on a discretionary assessment by the Commission of their compatibility with the internal market, where their objective is to “remedy a serious disturbance in the economy of a Member State.”

18. From 1958 to 2008, Article 107(3)(b) TFEU was used only three times (oil crisis of 1973–1974, crisis of the Greek economy in 1987 and 1991). Then, since October 2008, several hundred times in the context of the financial crisis.

19. On 19 March 2020, on the basis of the same provision, the Commission adopted a Temporary Framework (applicable until 31 December 2020) which clarifies the types of aid measures that Member States may put in place, after prior notification and approval by the Commission, to support businesses affected by the COVID-19 outbreak.

3. Article 107(3)(c) TFEU: Rescue and restructuring of undertakings in difficulty and other types of aid

20. Individual aid measures or aid schemes may also be made available, subject to prior approval by the Commission, to meet liquidity needs and support undertakings encountering financial difficulties as a result of, or exacerbated by, the COVID-19 outbreak. This may take the form of rescue aid covering operating needs for a period of six months, and up to eighteen months for SMEs or small public enterprises. It may also be restructuring aid for those companies in difficulty which can set up a long-term viability plan demonstrating that they will be able to free themselves within a reasonable amount of time (three to five years—the time it takes to implement an adjusted business plan) from any public support and return to operating under normal market conditions. These are the usual rules of the 2014 rescue and restructuring guidelines.

21. In its Temporary Framework, the Commission has provided that the “one time, last time” principle (one rescue or restructuring aid every ten years) will not apply to measures justified by COVID-19. In other words, a firm which has received restructuring aid and whose viability is threatened by the COVID-19 outbreak will be able to benefit again from one of the COVID-19 aid measures (provided that it was not “in difficulty” on 31 December 2019—however, a firm which implements a restructuring plan approved under restructuring aid will remain “in difficulty” in principle during the implementation period, often three to five years). Moreover, when necessary, a Member State implementing a State aid scheme approved by the Commission under Article 107(3)(c) TFEU may increase the approved budget by less than 20% without prior notification to the Commission. For a budget increase of more than 20%, a simplified assessment procedure shall be proposed by the Commission.

22. During the financial crisis, specific rescue and restructuring guidelines were adopted by the Commission in July 2009. They then influenced the new 2014 guidelines for this type of exemption. The Commission has not yet adopted specific COVID-19 guidelines for rescue or restructuring aid that might arise as a result of the difficulties resulting from the COVID-19 crisis.

III. Typology of approved aid measures

1. Article 107(2)(b) TFEU

23. The Commission confirmed that the COVID-19 pandemic constitutes the “extraordinary event” provided for in this provision, described as unforeseeable or difficult to predict, of significant and extraordinary economic magnitude or impact. Member States may therefore automatically grant aid to make good the damage directly caused by the pandemic provided that they demonstrate this causal link and the necessary and proportionate nature of the measure by prior notification. The Commission must therefore expressly approve the notified measure. The EU case law provides relevant guidance for the application of this provision.

24. Measures adopted under this provision could target specific sectors that have been particularly affected by the pandemic: tourism, transport (in particular air transport for the passenger sector), hotels, non-food retailing or “leisure events” such as concerts, exhibitions, trade fairs, sports competitions and other mass events cancelled because of COVID-19.

25. A direct causal link between the aid granted and the damage resulting from the COVID-19 outbreak must be proven and the aid must meet the criteria of necessity and avoid overcompensation. In addition, the Commission has indicated that it will require Member States to provide specific data related to the COVID-19 outbreak in order to approve these measures:

  •  the date of the first reported case in the country;
  •  the number of people infected at the time of notification;
  • the economic impact of the COVID-19 outbreak in the Member State;
  • the sequence of (main) events between the outbreak of COVID-19 and the adoption of the State aid scheme, including any official recommendations or bans decided by the competent authorities;
  • the detailed information that has been published for certain sectors; as regards the aviation sector, the Commission indicated in particular the information that would be required: additional costs, loss of revenue, loss of traffic, reduction in demand, variable costs, restoration not incurred, reference period, reconstruction of the damage caused by comparing the situation during the period of spread of the pandemic with the reference period.

26. Exceptionally, the Commission has issued guidelines to Member States for the formulation of notifications of such measures (see references above).

27. Surprisingly, only four Member States have so far (5 May 2020) notified eight measures under this provision: Denmark (events, self-employed workers and undertakings and one airline), France (aviation but limited to aviation tax deferrals), Sweden (events and one airline) and Germany (one airline).

Table 1. Available in the pdf version of this article.

2. Article 107(3)(b) TFEU

28. In its Temporary Framework, the Commission set out the aid measures concerned and also made recommendations to Member States for their notification (see reference above).

29. The following description of the ten types of measures provided for in the Temporary Framework takes account of the amendments made by the Temporary Framework on 3 April 2020, which added measures related to:

  •  promotion of RD&I related to products needed for the fight against COVID-19;
  •  investment in testing and development infrastructures;
  •  investment in the manufacture of COVID-19-related products;
  • deferrals of tax and/or of social security contributions;
  • wage subsidies for employees to avoid lay-offs.

30. Aid may be cumulated with each other, with the exception of:

  • aid granted under Sections 3.2 and 3.3 of the Temporary Framework, if the aid is granted for the same underlying loan and if the total amount of the loan per undertaking exceeds the thresholds laid down;
  • aid granted under Sections 3.6, 3.7 and 3.8 of the Temporary Framework, if the aid concerns the same eligible costs.

31. At the time of writing (5 May 2020), it already seems to be clear that the Commission will add another new category of aid: recapitalisation measures. The Commission consulted Member States on this issue as from 9 April 2020. It is expected that this second amendment to the Temporary Framework will contain strict conditions for the approval of such structural measures as a matter of urgency. These conditions will certainly be inspired by the lessons of the financial crisis since the Communication of December 2008, which clarified in particular the remuneration corridor of equity investments by Member States and the conditions for its exit.

32. In early May, the Commission was still discussing the conditions with Member States. If we consider the conditions developed during the financial crisis, we can imagine conditions such as:

  •  miscellaneous financial instruments, not limited to capital (subordinated loans, maximum 5% turnover, 40% of the annual wage bill);
  •  repayment terms with incentives to exit the State at the earliest (State remuneration increasing over time to reach the market price);
  • restrictions on the behaviour of beneficiaries (commercial restraint, prohibition or limitation of acquisitions, prohibition of the payment of dividends and bonuses, of buyback programmes);
  •  State remuneration in proportion to the size of the beneficiary company;
  •  specific structural and behavioural remedies (divestitures) and exit strategy from public participation according to the size of the companies and their market position;
  •  restructuring plan if the State shareholding is prolonged beyond a certain date (exit depending on the State’s concerned situation).

2.1 Aid in the form of direct grants, tax benefits and payment advantages or in other forms such as repayable advances, guarantees, loans and equity capital to meet urgent liquidity needs

33. Provided that the aid (other conditions apply to the agriculture, fisheries and aquaculture sectors):

  •  does not exceed €800,000 per undertaking (gross amounts, i.e., before taxes or other levies);
  •  is granted on the basis of a scheme with an estimated budget;
  •  is granted to undertakings that were not already in difficulty on 31 December 2019;
  •  is granted by 31 December 2020 at the latest (for tax advantages, this deadline does not apply and the aid is considered to be granted on the date on which the tax return for the financial year 2020 is due to be submitted).

34. Where an undertaking carries out activities in several sectors to which different maximum amounts apply, the Member State concerned must ensure, by appropriate means, such as separation of accounts, that the applicable ceiling is respected for each of those activities.

2.2 Aid in the form of loan guarantees, more targeted at large undertakings (as amended on 3 April 2020)

  • Guarantee premiums set at a minimum level which increases progressively as the duration of the guaranteed loan increases.

Table 2. Available in the pdf version of this article.

  •  Aid schemes based on the above table but with modulation of the duration, premium and guarantee coverage for each main underlying individual loan (e.g., lower guarantee coverage compensating for a longer duration or lower premium). This type of assistance will allow banks to continue to provide loans to business clients who need them to cover their immediate needs.
  •  The guarantee shall be granted by 31 December 2020 at the latest.
  •  For loans maturing after 31 December 2020, the aggregate amount of the loans per beneficiary shall not exceed:

(i) double the annual wage bill of the beneficiary (including social charges as well as the cost of personnel working on the undertaking’s site but formally in the payroll of subcontractors) for 2019, or for the last year available. In the case of undertakings created on or after 1 January 2019, the maximum loan must not exceed the estimated annual wage bill for the first two years in operation, or;

(ii) 25% of the beneficiary’s total turnover in 2019; or

(iii) with appropriate justification and based on self-certification by the beneficiary of its liquidity needs (working capital and investment costs) for eighteen months after the date of the grant in the case of SMEs and twelve months after the date of the grant in the case of large enterprises.

  •  For loans with a maturity until 31 December 2020, the principal amount of the loan may be higher than that fixed in that point, provided that this is duly justified and that the proportionality of the aid remains guaranteed.
  • The duration of the guarantee shall be limited to a maximum of six years and the public guarantee may not exceed:

(i) 90% of the loan principal where the losses are sustained proportionally and under the same conditions by the credit institution and by the State; or

(ii) 35% of the loan principal where losses are attributed first to the State and only secondarily to credit institutions (first-loss guarantee); and

(iii) in both of the above cases, when the size of the loan decreases over time, for example because the loan starts to be reimbursed, the guaranteed amount must decrease proportionally.

  •  The guarantee shall relate to both investment and working capital loans.
  •  The guarantee may not be granted to undertakings that were already in difficulty on 31 December 2019.

2.3 Aid in the form of subsidised interest rates for loans (no cumulation of this type of aid with the aid granted under the previous point)—amendments of 3 April 2020

  • Loans granted at reduced interest rates (at least equal to the base rate of the one-year IBOR rate or equivalent applicable on 1 January 2020) plus credit risk margins based on the beneficiary’s credit risk margin:

Table 3. Available in the pdf version of this article.

  • Aid schemes based on the above table but with modulation of the duration of the loan and the level of credit risk margins.
  •  Loan contracts shall be signed by 31 December 2020 at the latest and shall be limited to a maximum of six years (unless modulated in accordance with the previous point).
  • For loans with a maturity beyond 31 December 2020, the amount of the loan per beneficiary shall not exceed the same limits as mentioned under section 3.2 above.
  •  The loan shall relate to both investment and working capital needs.
  • The loan may not be granted to undertakings that were already in difficulty on 31 December 2019.

2.4 Aid in the form of guarantees and loans channelled through credit institutions or other financial institutions

35. These are measures which build on the existing lending capacity of banks and use it to support enterprises/small and medium-sized enterprises:

  •  such aid is considered to be direct aid to the customers of banks, and not to the banks themselves, as it does not aim at maintaining or restoring the viability, liquidity or solvency of credit institutions and should not be assessed under the State aid rules applicable to the banking sector;
  •  credit or other financial institutions should, as far as possible, pass on the benefits of State guarantees or subsidised loans to the final beneficiaries;
  •  the financial intermediary must be able to demonstrate that it uses a mechanism to ensure that the benefits are passed on to final beneficiaries as far as possible in the form of higher volumes of financing, riskier portfolios, lower collateral requirements, lower guarantee premiums or reduced interest rates.

2.5 Aid in the form of short-term export-credit insurance (including the amendment of 27 March 2020)

36. The Communication from the Commission on short-term export-credit insurance provides that marketable risks cannot be covered by export-credit insurance with the support of Member States.

37. Following COVID-19, the Commission has decided that all commercial and political risks associated with exports to the following countries are temporarily non-marketable until 31 December 2020: 27 Member States, the United Kingdom, Australia, Canada, Iceland, Japan, New Zealand, Norway, Switzerland and the United States of America.

2.6 Aid in the form of deferral of tax and/or of social security contributions

38. If deferrals of the payment of taxes and/or social security contributions are of general application and do not favour certain undertakings or the production of certain goods, they do not constitute State aid within the meaning of Article 107(1) TFEU.

39. Only if they are limited to certain sectors, regions or types of undertaking do they constitute aid which is considered compatible with the internal market on the basis of Article 107(3)(b) TFEU if they consist of:

  •  temporary deferrals or deferrals social security contributions and which apply to undertakings (including the self-employed) particularly affected by the COVID-19 outbreak, e.g., in specific sectors and regions or of a certain size;
  •  measures provided for in relation to fiscal and social security obligations intended to ease the liquidity constraints faced by the beneficiaries, including, but not limited to, the deferral of payments due in instalments, easier access to tax debt recovery, and expedited tax refunds;
  • measures granted before 31 December 2020 and the end date for the deferral shall not be later than 31 December 2022.

2.7 Aid in the form of measures to safeguard employment: Wage subsidies for employees to avoid lay-offs during the COVID-19 outbreak

40. If the State measures in question apply to the economy as a whole, they do not fall within the scope of State aid control. If they provide a selective advantage to undertakings, which may occur if they are limited to certain sectors, regions or types of undertakings, they constitute aid within the meaning of Article 107(1) TFEU.

41. The Commission will consider such aid to be compatible with the internal market on the basis of Article 107(3)(b) TFEU, provided that the following conditions are met:

  • the aid is aimed at avoiding lay-offs during the COVID-19 outbreak;
  •  aid is granted in the form of schemes to undertakings in specific sectors, regions or of a certain size that are particularly affected by the COVID-19 outbreak;
  •  the wage subsidy is granted over a period of not more than twelve months after the application for aid, for employees that would otherwise have been laid off as a consequence of the suspension or reduction of business activities due to the COVID-19 outbreak, and subject to the condition that the benefiting personnel is maintained in continuous employment for the entire period for which the aid is granted;
  • the monthly wage subsidy shall not exceed 80% of the monthly gross salary (including employers’ social security contributions) of the benefiting personnel. Member States may also notify, in particular in the interest of low-wage categories, alternative calculation methods of the aid intensity, such as using the national wage average or the minimum wage, provided the proportionality of the aid is maintained;
  •  the wage subsidy may be combined with other generally available or selective employment support measures, provided the combined support does not lead to overcompensation of the wage costs of the personnel concerned. Wage subsidies may further be combined with tax deferrals and deferrals of social security payments.

3. Article 107(3)(c) TFEU

42. Some of the aid measures described In the Temporary Framework will continue to be approved under the usual Article 107(3)(c) TFEU: the aid promoting certain Investment in COVID-19 products or servies.

3.1 Aid in the form of promotion of R&D relating to COVID-19

43. This concerns aid for research and development projects relating to COVID-19 and other elements related to the fight against the virus, including projects which have been awarded the seal of excellence in relation to COVID-19 under the Horizon 2020 SME instrument, provided that all the following conditions are met:

  • aid granted in the form of direct grants, repayable advances or tax advantages by 31 December 2020 at the latest;
  •  for R&D projects launched as of 1 February 2020 or for projects having obtained a COVID-19-specific Seal of Excellence, the aid is deemed to have an incentive effect; for projects started before 1 February 2020, the aid is deemed to have an incentive effect if it is necessary to accelerate or widen the scope of the project. In such cases, only the additional costs related to the acceleration efforts or widened scope shall be eligible for aid;
  •  eligible costs may refer to all the costs necessary for the R&D project during its duration, including amongst others, personnel costs, costs for digital and computing equipment, for diagnostic tools, for data collection and processing tools, for R&D services, for preclinical and clinical trials (trial phases I–IV), for obtaining, validating and defending patents and other intangible assets, for obtaining the conformity assessments and/or authorisations necessary for the marketing of new and improved vaccines and medicinal products, medical devices, hospital and medical equipment, disinfectants, and personal protective equipment; phase-IV trials are eligible as long as they allow further scientific or technological advance;
  • the aid intensity for each beneficiary may cover 100% of the eligible costs for fundamental research, but shall not exceed 80% of the eligible costs for industrial research or experimental development;
  •  the aid intensity for industrial research and experimental development project may be increased by 15%, if more than one Member State supports the research project, or it is carried out in the context of cross-border collaboration with research organisations or other undertakings;
  • aid under this measure may be combined with support from other sources for the same eligible costs, provided that the combined aid does not exceed the ceilings defined above;
  • the aid beneficiary shall commit to grant non-exclusive licences under non-discriminatory market conditions to third parties within the EEA;
  •  the aid may not be granted to undertakings that were already in difficulty on 31 December 2019.

3.2 Investment aid for testing and upscaling infrastructures

44. This concerns investment aid granted for the construction or upgrading of test and development infrastructures required to develop, test and upscale, up to first industrial deployment prior to mass production, COVID-19 relevant products (see section 3.8), provided that the following conditions are fulfilled:

  •  the aid is granted for the construction or upgrade of testing and upscaling infrastructures required to develop, test and upscale, up to first industrial deployment prior to mass production, COVID-19 relevant medicinal products (including vaccines) and treatments, their intermediates, active pharmaceutical ingredients and raw materials; medical devices, hospital and medical equipment (including ventilators and protective clothing and equipment as well as diagnostic tools) and necessary raw materials; disinfectants and their intermediary products and raw chemical materials necessary for their production; as well as data collection/processing tools;
  •  the aid shall be granted in the form of direct grants, tax advantages or repayable advances by 31 December 2020;
  •  for projects started as of 1 February 2020, the aid is deemed to have an incentive effect; for projects started before 1 February 2020, the aid is deemed to have an incentive effect, if it is necessary to accelerate or widen the scope of the project. In such cases, only the additional costs in relation to the acceleration efforts or the widened scope of the project shall be eligible for aid;
  • the investment project shall be completed within six months after the date of granting the aid. An investment project is considered completed when it is accepted by the national authorities. Where the six-month deadline is not met, per month of delay, 25% of the amount of aid awarded in the form of direct grants or tax advantages shall be reimbursed, unless the delay is due to factors outside the control of the aid beneficiary. Where the deadline is respected, aid in the form of repayable advances is transformed into grants; if not, the repayable advance is reimbursed in equal annual instalments within five years of the date of granting the aid;
  •  eligible costs are the investment costs necessary to set up the testing and upscaling infrastructures required to develop the products listed in the first point above. The aid intensity shall not exceed 75% of the eligible costs;
  • the maximum allowable aid intensity of the direct grant or tax advantage may be increased by 15%, either if the investment is concluded within two months of the date of aid granting or date of application of the tax advantage, or if the support comes from more than one Member State. If the aid is granted in the form of a repayable advance, and if the investment is completed within two months, or if the support comes from more than one Member State, an increase of 15% may be granted;
  • aid granted under this measure shall not be combined with other investment aid for the same eligible costs;
  •  a loss cover guarantee may be granted in addition to a direct grant, a tax advantage or a repayable advance, or as an independent aid measure; the amount of loss to be compensated is established five years after completion of the investment. The compensation amount is calculated as the difference between the sum of the investment costs, the reasonable profit of 10% p.a. on the investment cost over five years, and the operating cost, on the one hand, and the sum of the direct grant received, revenues over the five-year period, and the terminal value of the project;
  • the price charged for the services provided by the testing and upscaling infrastructure shall correspond to the market price;
  • the testing and upscaling infrastructures shall be open to several users on a transparent and non-discriminatory basis. Undertakings which have financed at least 10% of the investment costs may be granted preferential access under more favourable conditions;
  •  the aid may not be granted to undertakings that were already in difficulty on 31 December 2019.

3.3 Investment aid for the production of COVID-19 relevant products

45. This concerns aid for the following products: relevant medicinal products (including vaccines) and treatments, their intermediate, active pharmaceutical ingredients and raw materials; medical devices, hospital and medical equipment (including ventilators, protective clothing and equipment as well as diagnostic tools) and necessary raw materials; disinfectants and their intermediate as well as raw chemical materials necessary for their production; data collection/processing tools.

46. Investment aid for the production of these products is compatible with the internal market provided that the following conditions are met:

  •  aid granted in the form of direct grants, tax benefits or repayable advances by 31 December 2020;
  •  for projects started as of 1 February 2020, the aid is deemed to have an incentive effect; for projects started before 1 February 2020, the aid is deemed to have an incentive effect, if the aid is necessary to accelerate or widen the scope of the project. In such cases, only the additional costs in relation to the acceleration efforts or the widened scope shall be eligible for aid;
  •  the investment project is completed within six months after the date of granting the aid. An investment project is considered completed when it is accepted by the national authorities. Where the six-month deadline is not met, per month of delay, 25% of the amount awarded in form of direct grants or tax advantages is to be reimbursed, unless the delay is due to factors outside the control of the aid beneficiary. Where the deadline is respected, aid in the form of repayable advances is transformed into grants; if not, the repayable advance is reimbursed in equal annual instalments within five years after the date of granting the aid;
  • eligible costs related to all investment costs necessary for the production of the above-mentioned products and the costs of trial runs of the new production facilities are eligible. The aid intensity shall not exceed 80% of the eligible costs;
  • the maximum allowable aid intensity of the direct grant or tax advantage may be increased by an additional 15%, either if the investment is concluded within two months after the date of aid granting or date of application of the tax advantage, or if the support comes from more than one Member State. If the aid is granted in the form of a repayable advance and the investment is completed within two months, or if the aid comes from more than one Member State, an additional 15% may be granted;
  • aid under this measure shall not be combined with other investment aid for the same eligible costs;
  •  a loss coverage guarantee may be granted in addition to a direct grant, a tax advantage or a repayable advance, or as an independent aid measure. The loss cover guarantee shall be issued within one month after the undertaking applied for it; the amount of losses to be compensated is established five years after completion of the investment. The compensation amount is calculated as the difference between the sum of investment costs, reasonable profit of 10% p.a. on the investment cost over five years, and operating cost, on the one hand, and the sum of the direct grant received, revenues over the five-year period, and the terminal value of the project;
  • the aid may not be granted to undertakings that were already in difficulty on 31 December 2019.

IV. Synopsis of aid measures adopted under Article 107(3)(b) and (c) TFEU

47. In principle, the measures falling within the scope of this Temporary Framework may be combined with each other. The only exceptions concern (i) different types of aid relating to the same eligible costs and (ii) guarantees on loans and loans at subsidised interest rates which cannot be cumulated for the same underlying loan or if the overall amount exceeds the relevant thresholds.

48. Aid measures adopted by Member States on the basis of the Temporary Framework may be complemented by (and cumulated with) other support provisions, such as general measures not qualifying as State aid, measures benefiting from the de minimis rule, measures to compensate for direct damage adopted within the meaning of Article 107(2)(b) of the TFEU, or aid measures for rescuing or restructuring firms in financial difficulty under Article 107(3)(c) of the TFEU.

49. To date (5 May 2020), the Commission has already adopted 107 decisions under this Temporary Framework (one prior to the Temporary Framework, eight under Article 107(2)(b)) often within only 24 to 48 hours of notifications. They are all listed on DG Competition’s website.

50. As of 5 May 2020, they concern 26 Member States plus the United Kingdom (under the transitional provisions of the withdrawal agreement), ranked below in order of swiftness of response of the Member States concerned:

Table 4. Available in the pdf version of this article.

51. About €830 billion has therefore already been committed by Member States, mainly France, Italy and the UK, although the budget for the German measures is not indicated but could be very high as well (bringing the total amount to around €1.5 trillion according to some estimates). Of course, a very important part of these commitments are State guarantees which, as in the financial crisis, will not necessarily be activated.

52. Only one Member State is missing: Cyprus. Many States have taken general economic support measures that do not constitute State aid. In the case of France, the Ministry for the Economy and Finance has posted a special file on economic support measures which is regularly updated.

V. A few comments

53. It is still too early to draw lessons from this already impressive series of decisions since 21 March. The Commission seems to have wanted to provide as much guidance as possible to Member States’ reactions, as it did in October 2008 (general principles) and subsequently in December 2008 (remuneration of public shareholdings and Temporary Framework amended several times until 2011), February 2009 (toxic assets of banks) and July 2009 (restructuring).

54. However, the Temporary Framework of March 2020 seems to have the effect of making Member States’ action more rigid, in a similar way to the GBER. Member States are called upon to choose from the “toolbox” of the Temporary Framework those measures that more or less correspond to their needs and the Commission adopts its compatibility decisions “mechanically” by verifying compliance with the conditions imposed. The Temporary Framework system is somewhat similar to the GBER system, but with suspension condition and prior formal notification.

55. The measures taken also appear to be poorly targeted and it is difficult to identify the safeguard measures taken to avoid windfall effects altogether. On preliminary examination of the information resulting from the published decisions, it is not clear how Member States have been strictly controlled as to the need to target aid measures only to those beneficiaries who have actually suffered economic damage (precisely because this is outside the scope of Article 107(2)(b) TFEU). The Temporary Framework does contain some specific provisions, but it is questionable whether these are sufficient to avoid windfall effects, for example:

  • for loans with a maturity beyond 31 December 2020, the overall amount of loans per beneficiary must not exceed certain levels related either to the annual wage bill or to 25% of total turnover; however, where is the link to the exact reduction in turnover of the affected company?
  • in duly justified cases and on the basis of “self-certification” (no definition is provided however) by the beneficiary of its liquidity needs, the amount of the loan may be increased.

56. In this respect, measures based on Article 107(2)(b) TFEU are more naturally likely to avoid windfall effects since it is a matter of strictly demonstrating the loss of income, the damage to be compensated by the aid measure. Moreover, the very limited number of decisions adopted under this provision (eight by 5 May 2020) is surprising. As Vice-President Vestager stated recently the use of Article 107(2)(b): “the most obvious way to go”.

57. However, certain sectors particularly affected by the impact of COVID-19 should rather be the first beneficiaries of such measures since their activities have simply ceased (sometimes partially or sometimes gradually) as a result of the pandemic. We are thinking in particular of the following sectors whose turnover losses are impressive (Belgian sources: Economic Risk Management Group under the aegis of the National Bank of Belgium, with contributions from the business federations VBO-FEB, UWE, VOKA and the Brussels Chamber of Commerce, BECI):

  •  air transport, accommodation and food: –90%;
  •  arts, entertainment and recreation: –75%;
  •  wholesale and retail trade (non-food): –60%;
  • construction: –45%;
  • extractive industries: –40%;
  • administrative services: –40%;
  •  real estate activities: –35%;
  • agriculture, forestry and fisheries: –33%;
  • other transport and storage: –30%.

58. These data need to be refined, of course, but they provide some indications that might have justified targeting measures to provide direct compensation for loss of turnover rather than measures aimed mainly at supporting loans or investments (guarantees, interest subsidies, grants, etc.) for activities that have already ceased.

59. Of course, the application of Article 107(2)(b) TFEU requires financial (or economic) analyses that are much more developed and detailed than framework decisions based on Article 107(3)(b) TFEU. Indeed, for decisions on notifications of compensation for exceptional occurrences, it is in particular necessary to examine in detail the counterfactual, the causal link, the exact extent of the aid in relation to the damage. The Commission’s guide to notifying such measures illustrates the level of data requirements.

60. A final comment at this stage is the total absence of any new rescue or urgent restructuring cases. What is the reason for this? Would the aid measures be too broad and avoid these urgent cases in advance? It is doubtful. Would the Member States not wish to deal with individual cases? Whenever possible, as we have seen in the financial crisis, it is indeed better to deal with it generally and not on a case-by-case basis. That would be unmanageable. But sometimes it is unavoidable. However, one may wonder how the (many) companies that have seen their activities simply closed down and received very insufficient direct public support at this stage (lump sums of a few thousand euros here and there) survive under the current conditions before considering loan guarantees or new loans. Rescue and restructuring aid is there to support eligible companies and certainly those that were healthy before COVID-19 and which fall into difficulty simply because of the outbreak.

To be followed closely.


South Africa: Comprehensive package of antitrust measures adopted in response to Covid-19 pandemic


Mark Griffiths
Director, Norton Rose Fulbright Africa, Johannesburg

I. Introduction

1. The response of the South African government to the Covid-19 pandemic has been described as “ruthlessly efficient [293] with a range of stringent measures being imposed in South Africa even before their introduction in other countries with much higher infection rates at the time. As part of this robust approach, a range of far-reaching antitrust measures have been introduced in quick succession.

2. Similar to many jurisdictions across the world, these measures have focussed on “price gouging” of essential products as well as the facilitation of coordination either to support the government plan in fighting the pandemic or to mitigate the effects of the economic crisis.

3. In particular, new rules have been introduced to address competition concerns in the pricing and supply of essential products. In addition to these legislative measures, practical and procedural steps have been implemented to prioritise the investigation of related complaints by the South African Competition Commission (SACC) and to fast track their prosecution before the Competition Tribunal.

4. The efforts to facilitate coordination have taken the form of multiple block exemptions, which have conditionally and temporarily suspended the application of the Competition Act No. 98 of 1998 (the “Competition Act”) in key sectors. Block exemptions have been adopted to facilitate the coordinated response of the private sector to support the actions taken by the South African government in dealing with the pandemic. Further, block exemptions have been adopted in order to permit coordination between competitors to mitigate the economic crisis arising from the pandemic.

5. The South African antitrust response to the pandemic has displayed a level of pragmatism by the SACC with the adoption of an unprecedented number of block exemptions. While this responsiveness has been welcomed, it should not mask material questions as to the scope of the block exemptions themselves and, in particular, whether they provide the legal certainty to facilitate the coordination necessary to address the economic impact of the pandemic.

II. Pursuit of competition concerns in the supply of essential products

6. The SACC’s main focus during the Covid-19 pandemic has been the implementation of the Consumer and Customer Protection and National Disaster Management Regulations and Directions (the “Price Regulations”), which were adopted on 19 March 2020. [294]

7. The Price Regulations are premised on competition and consumer protection legislation and seek to strengthen the ability of the SACC and the National Consumer Commission (NCC), the consumer protection agency, to respond to incidences of exploitative pricing of basic food and consumer items, emergency products and services, medical and hygiene supplies, and emergency clean-up products and services.

8. In terms of the antitrust aspects, the Price Regulations seek to apply the existing prohibition of excessive pricing by dominant firms to issues arising during the pandemic. The Competition Act sets out a number of factors to be taken into account when evaluating whether a dominant firm is engaging in excessive pricing, such as its price-cost margin, internal rate of return, return on capital invested or profit history.

9. In adding to this list, the Price Regulations specify that a material price increase of a good or service by any party (e.g. manufacturer, distributor or retailer) during the period in which a national disaster has been declared will be prima facie evidence of excessive pricing when it:

  • does not correspond to or is not equivalent to the increase in the cost of providing that good or service; and
  •  increases the net margin or markup on that good or service above the average margin or markup for that good or service in the three months prior to 1 March 2020.

10. The Price Regulations also empower the NCC to use the same test to determine whether any price increases constitute unconscionable and unfair conduct for the purposes of the Consumer Protection Act No. 68 of 2008 (the “Consumer Protection Act”). [295] As the requirements of the Consumer Protection Act apply to all firms (whether dominant or not), it would appear that enforcement action by the NCC would be easier than for the SACC under the Competition Act.

11. Concurrent with the adoption of the Price Regulations, the SACC has set up a toll-free consumer helpline and assembled a dedicated team to investigate any complaints of excessive pricing and to fast track them for prosecution before the Competition Tribunal. [296] During the lockdown, which came into effect from midnight on 26 March 2020, the SACC has discouraged the filing of complaints unrelated to Covid-19 as well as any merger notifications except those involving failing firms or firms in distress. [297]

12. As at 31 March 2020, the SACC had received 559 complaints of excessive pricing of which approximately 250 cases have been dismissed as falling outside of the Competition Act and the Price Regulations. [298] On the remaining cases, the SACC has instituted a procedure whereby respondents have 24 hours to respond to written allegations. The SACC has sent over 100 letters to national retailers, suppliers and independent retailers.

13. In preparation for referrals to the Competition Tribunal, on 3 April 2020, the Regulations on Competition Tribunal Rules for Covid-19 Excessive Pricing Complaint Referrals (the “Tribunal Regulations”) were adopted. [299] The Tribunal Regulations set out an expedited procedure for the hearing of complaints before the Competition Tribunal. Once the applicant (ordinarily the SACC [300]) has filed a notice of motion and founding affidavit, the respondent has 72 hours of being served within which to oppose and file its answering affidavit. The applicant has a further 24 hours to serve a replying affidavit. The Competition Tribunal will determine whether there has been any infringement of the Competition Act (read in conjunction with the Price Regulations) on the basis of the written submissions save where there is a substantial dispute of fact which would be addressed in oral evidence by means of video or audio proceedings.

14. On 9 April 2020, the SACC referred its first case under the Price Regulations to the Competition Tribunal. [301] The SACC has alleged that a manufacturer of facial masks has engaged in excessive pricing by increasing prices and earning margins in excess of 500% in the period 31 January 2020 to 5 March 2020. In the material published to date, the SACC has not alleged that the manufacturer is dominant in the relevant market. Further, it would appear that the SACC is retrospectively applying the Price Regulations, which were only adopted on 19 March 2020. The Competition Tribunal is due to hear the matter on 24 April 2020. The hearing will also clarify whether the expedited procedure can adequately address not only the complexities of an excessive pricing case but also fundamental legal arguments.

15. In terms of the wider impact of the Price Regulations, the SACC has reported a material engagement with the retail chains and, in some cases, instances where retailers have lowered prices. It is not clear whether the engagement with retailers has been well-founded on competition law principles (including a finding of dominance). In this regard, if the SACC targets supermarkets, it will be mindful that, after an extensive inquiry into the grocery retail market in December 2019, it did not take the view that individual retail chains were dominant. [302] In any event, legal questions on the enforcement action may well be moot in the face of the reputational risk of being accused of price gouging at the time of a national crisis.

III. Coordination to support the government response to the pandemic

16. Two block exemptions have been adopted in South Africa with the specific intent of allowing a coordinated response by the private sector to support the government plan to address the coronavirus outbreak.

17. In contrast to authorities in other jurisdictions, the SACC’s practice is to issue block exemptions (as opposed to policy documents or guidelines) to address the potential relaxation in the enforcement of the Competition Act. Block exemptions provide a dispensation to entities within the relevant sector from complying with the requirements of the Competition Act due to overriding public interest considerations. In this regard, a block exemption permits a range of conduct that could otherwise attract fines amounting to 10% of the annual turnover for a first-time offender and 25% of annual turnover for a repeat offender.

18. On 19 March 2020, as the first of the Covid-19 related block exemptions, the Covid-19 Block Exemption for the Healthcare Sector, 2020 (the “Healthcare Block Exemption”) was adopted to facilitate cooperation between stakeholders at various levels of the private healthcare sector in order to ensure that there is adequate capacity and stocks at healthcare facilities throughout South Africa to respond to the Covid-19 national disaster. [303] The Healthcare Block Exemption covers hospitals and healthcare facilities, medical suppliers, medical specialists and radiologists, pathologists and laboratories, pharmacies and medical aid schemes.

19. While the envisaged cooperation varies across the categories of stakeholders, in the main, the Healthcare Block Exemption provides for coordination relating to stock availability and to procurement. For example, hospitals may coordinate on patient allocation based on their respective capacities, while medical aid schemes may cooperate to reduce the cost of diagnosis, tests and diagnostics, treatment and other preventative measures.

20. Cooperation is only permitted under the Healthcare Block Exemption if it is at the request of, and in coordination with, the Department of Health and is for the sole purpose of responding to the Covid-19 pandemic. The Healthcare Block Exemption does not allow any communication and agreements in respect of prices unless specifically authorised by the Minister of Health.

21. Subsequently, on 27 March 2020, the Covid-19 Block Exemption for the Hotel Industry, 2020 (the “Hotel Block Exemption”) was adopted to facilitate cooperation between stakeholders in the short-term accommodation sector in order to ensure sufficient facilities for persons placed under quarantine. [304]

22. The Hotel Block Exemption allows for these stakeholders to identify and provide appropriate facilities for accommodation of persons placed under quarantine as determined by the Department of Health and the Department of Tourism. It further allows these stakeholders to communicate their respective capacity and utilisation as determined by the Department of Health and the Department of Tourism. Stakeholders may agree on the reduction of the cost of providing facilities only if at the request of, and under supervision of, the Department of Health and the Department of Tourism.

23. The dispensation provided by the Hotel Block Exemption is only in respect of coordination requested by, and under the supervision of, the Department of Health and the Department of Tourism. The Hotel Block Exemption does not allow any communication and agreements in respect of prices unless specifically authorised by the Minister of Health and the Minister of Tourism.

24. The structure of the block exemptions does not unambiguously provide legal certainty to stakeholders in the relevant sectors, in particular, whether the specified conduct (in each block exemption) is automatically exempt (as seemingly is the popular view) or only if such conduct is specifically requested by the relevant minister.

25. In contrast to the block exemptions discussed in the next section, this uncertainty may not be significant in the case of the Healthcare Block Exemption and the Hotel Block Exemption due to the central role expected of the relevant ministers in the coordination. In addition, there is a credible view that the underlying coordination should not infringe the Competition Act as conduct specifically requested and overseen by a regulatory body (in the midst of a pandemic). In particular, in the context of the Hotel Block Exemption, the envisaged coordination is akin to a purchaser explicitly permitting suppliers to jointly provide services to meet its overall needs.

IV. Coordination to mitigate the economic crisis arising from the pandemic

26. In addition to the block exemptions supporting the government response to the outbreak, two block exemptions have been adopted in order to allow competitors to jointly mitigate the economic crisis arising from the pandemic.

27. On 23 March 2020, the Covid-19 Block Exemption for the Banking Sector, 2020 (the “Banking Block Exemption”) was adopted to permit banks to develop industry positions on a range of issues relating to business and personal indebtedness during the Covid-19 pandemic such as payment holidays and debt relief. [305] In addition, banks have been granted permission to coordinate on operational issues in order to maintain the payment system during the pandemic (such as the availability of bank notes and bank infrastructure).

28. The Banking Block Exemption allows cooperation between banks in the context of the Banking Association of South Africa (BASA), the industry trade association, and the Payments Association of South Africa (PASA), the payment system management body recognised by the South African Reserve Bank.

29. Cooperation is only permitted under the Banking Block Exemption if it is at the request of, and in coordination with, the Minister of Trade, Industry and Competition or the Minister of Finance and is for the sole purpose of responding to the Covid-19 pandemic. The Banking Block Exemption does not allow any communication and agreements in respect of prices unless specifically authorised by either minister.

30. In terms of addressing business and personal indebtedness during the Covid-19 pandemic, under the auspices of BASA, banks may develop and monitor industry policies on:

  •  payment holidays and debt relief for business and individual debtors subject to financial stress;
  • limitations set on asset repossessions of business and individual debtors subject to financial stress; and
  •  the extension of credit lines to businesses and individuals subject to financial stress.

31. In addition, the Banking Block Exemption allows banks to coordinate on a number of payment operational issues. Within the context of PASA, banks may coordinate to avoid disruption in:

  •  the availability of bank notes to ATMs, branches and businesses;
  •  the provision of essential ATM, branch and corporate banking services; and
  •  the provision of electronic payment systems.

32. In the second development to address the economic implications of the pandemic, the Covid-19 Block Exemption for the retail property sector, 2020 (the “Retail Block Exemption”) was adopted on 24 March 2020. [306] This block exemption seeks to assist the provision of relief to retail tenants whose businesses fall within the following designated trading lines:

  •  clothing, footwear and home textile retailers;
  •  personal care services; and
  •  restaurants.

33. The Retail Block Exemption aims to minimise the financial impact on designated retail tenants with a view of them being able to resume normal operations after the national disaster. Coordination is only permitted if undertaken at the request of, and in coordination with, the Minister of Trade, Industry and Competition and for the sole purpose of responding to the Covid-19 pandemic. The Retail Block Exemption permits designated retail tenants and retail property landlords to agree in respect of:

  •  payment holidays and/or rental discounts for tenants;
  •  limitations on the eviction of tenants; and
  •  the suspension of or adjustment to clauses in lease agreements that restrict the designated retail tenants from undertaking reasonable measures required to protect viability during the national disaster.

34. To qualify for an exemption, such agreements must extend to all South African retail tenants in the designated retail trading lines (including small and independent retailers), unless otherwise authorised by the Minister of Trade, Industry and Competition or the SACC.

35. As mentioned in the previous section, the structure of block exemptions is unclear as to whether they automatically exempt the specified conduct or only if such conduct is specifically requested by the relevant minister. The wording of the block exemptions supports the latter interpretation; however, this would easily undermine the much needed cooperation to tackle the pandemic. The need for an explicit request from the relevant minister would give rise to a range of practical considerations, for example, as to what form the requests would take (e.g., in writing) and to whom they would be addressed (e.g., trade associations or individual stakeholders).

36. The scope of the Retail Block Exemption is ambiguous in other ways, as potentially a range of conduct could fall within its remit. For example, this block exemption could cover the agreements between tenants of the same retail centres, tenants of the same landlords and/or associations of retailers and landlords. As the SACC has emphasised that any profiteering of the pandemic for anti-competitive purposes would be harshly addressed, it is clearly desirable to have certainty as to the scope of the block exemption.

V. Concluding remarks

37. The antitrust response to the pandemic in South Africa is comparable to the actions of many international regimes in going beyond issues of price gouging to also providing frameworks for collaboration to mitigate the health and economic aspects of the pandemic. In adopting a significant number of measures and implementing expedited procedures in the space of three weeks, the measures displayed a level of responsiveness that would have been unexpected by many stakeholders prior to the pandemic.

38. While the adoption of an unprecedented number of block exemptions is welcome, the pragmatism displayed by the SACC should not mask material areas of uncertainty as to the scope of the permitted conduct. It is, of course, understood that the block exemptions were hastily prepared under tight timetables in the midst of the pandemic. Areas of uncertainty should not, however, be ignored by stakeholders in the relevant sectors on the assumption that there will be a benevolent enforcement of the Competition Act. 




Avoiding the pitfalls: What companies need to know about EU State aid rules and the Temporary Framework during the coronavirus crisis



Leigh Hancher
Senior Advisor, Baker Botts, Brussels
Professor of European Law, Tilburg University
Professor of European Union Energy Law, FSR/RSCAS/EUI

David Gabathuler
Legal Consultant, EU, Competition and Trade Law, Baker Botts, Brussels

I. Introduction

1. The global economy has come to a standstill, and governments around the world have had to intervene massively to support their domestic economies during the coronavirus crisis. Government support to industry is only likely to increase as companies face ever-greater financial difficulties due to the continuing public health restrictions.

2. In the EU, government aid (State aid) to companies is in principle forbidden as it harms the integrity of the Single Market, but there are specific exceptions foreseen in the EU Treaty. The damage caused by the coronavirus pandemic clearly falls within these exceptions. [307] However, unless block exempted, aid measures (or aid schemes) falling within the EU State aid rules are subject to notification and prior approval by the European Commission (“Commission”) if the aid is not to be found illegal and subject to possible recovery.

3. The Commission adopted a Temporary Framework (“TF”) on 19 March 2020 (amended on 3 April 2020) to address Member State aid to domestic industries during the coronavirus crisis. [308] To date, the Commission has approved over 120 aid schemes worth hundreds of billions of euros under the TF.

4. Given the scope of the crisis, many companies will be receiving State aid in the EU for the first time or will consider applying for such aid, but they may have limited experience or insight into the complexity of the rules. This article is intended to clarify the application of the State aid rules and, in particular the operation of the TF.

5. The article (1) briefly outlines government support measures that do not constitute State aid and then (2) highlights existing EU State aid instruments and schemes that provide some means for Member States to channel aid to large numbers of companies. The article then provides (3) an overview of the TF before discussing in detail (4) some of the key points that should not be overlooked by beneficiaries/potential beneficiaries, in particular as regards the operation of the TF. The article also highlights the consequences and risks if EU State aid rules are not respected.

II. Aid measures that fall outside EU State aid rules

6. The EU State aid rules are extremely broad and apply to any support granted by a State through state resources, that provides a selective advantage to a company (or companies) and which distorts (or has the potential to distort) competition and affects trade between EU countries. [309]

7. Many government support measures, nonetheless, do not fall within the scope of the EU State aid rules as they apply to all sectors or concern the provision of essential public services that the market cannot provide. State intervention may also be deemed to be market conform if the state is acting as a normal market investor. If potential beneficiaries are in doubt as to whether a measure may be caught by the State aid rules, they can encourage their national authorities to notify the measure to the Commission for reasons of legal certainty. Obviously, this can be a time-consuming process and even though the Commission is currently assessing notifications at considerable speed, governments and beneficiaries may be reluctant to wait for a green light given the economic challenges that the coronavirus outbreak poses to most industries. [310]

8. Generally, non-State aid measures include the following government support:

  • Horizontal aid measures applicable to all companies: aid measures that apply to all companies across sectors and activities are not selective and do not fall within the definition of State aid. Examples include wage subsidies and the suspension of corporate tax and VAT payments or social security contributions. [311]
  • Financial support paid directly to consumers: the State aid rules only concern aid to companies or other actors that are engaged in an economic activity and thus direct payments to consumers are not caught. Examples include compensation paid to consumers for cancelled services that are not reimbursed by the operators themselves.

– Compensation for the provision of public services: aid that is granted to provide public services in the general interest (e.g., aid to hospitals or nursing homes) can fall outside the EU State aid rules provided certain specific conditions are met. [312]

  • Government intervention on market terms: the EU rules do not forbid EU governments from investing in private companies, but the terms must be acceptable to a private investor if such interventions are not to be considered State aid. [313]
  • Intermediaries: Banks and financial institutions may simply be intermediaries passing on the government aid to the ultimate beneficiary companies. As long as such institutions do not receive any of the aid themselves, there will be no State aid to those organisations. [314]
  • Support from EU funds: support which comes from EU funds such as the European Investment Bank (EIB) and which are granted directly to companies without coming under the control of national authorities will not constitute State aid. If the EU funds are channelled through national authorities, EU State aid rules may be applicable. [315]

III. Reliance on existing instruments

9. Member States can choose to continue to rely on existing schemes to channel aid to large numbers of companies, especially to small and medium-sized (“SMEs”) companies. The schemes are mainly intended to give incentives to undertake new or additional investments and are not meant to cover daily operating costs. However, the economic fallout of the coronavirus outbreak is so extensive that the Commission has introduced the TF to ensure that Member States can quickly provide unprecedented levels of liquidity—i.e., operating aid to their local industries.

10. There are also specific EU instruments (“block exemptions” or “safe harbours”) that allow European governments to provide aid to large numbers of companies without pre-approval. In particular, Member States may continue to rely on the following two instruments:

  •  General Block Exemption Regulation (GBER): [316] the GBER automatically declares specific categories of aid (e.g., aid for SMEs and aid for environmental protection) as compatible with EU State aid rules subject to the aid meeting the conditions of the GBER. The GBER is complex and due care is required to ensure compliance with its formal as well as its substantive conditions. Some informal guidance can be found in the FAQs issued by the Commission (and EFTA).
  •  de minimis Regulation: [317] subject to certain exceptions for a few sensitive sectors, [318] the Regulation allows a Member State to grant aid of up to a strict limit of €200,000 to a “single undertaking” over a three-year period without such grants constituting State aid. A single undertaking is defined in Article 2(2) of the Regulation (see note 42 below).

11. There are also numerous existing aid schemes that have been previously approved by the Commission and which provide the means for national governments to support their domestic companies. Governments can extend the scope of these aid schemes, especially to benefit from the additional flexibility provided by the TF. Nonetheless, they must notify and seek approval from the Commission prior to granting aid under the extended scheme. [319] Similarly, if the Member State extends the scope of emergency measures already notified under the TF, it must notify any updates to these authorised schemes. [320]

IV. Overview of the Temporary Framework

12. The Commission recognises that the entire EU economy is experiencing a serious disturbance due to the coronavirus and that Member States have to provide public support to ensure that there is sufficient liquidity to protect healthy undertakings and to preserve economic activity. The TF identifies specific State aid measures that the Commission considers compatible with Article 107(3)(b) TFEU and which can be quickly approved by the Commission following notification by the Member States. [321]

13. Each section of the TF sets out relevant conditions that apply to particular temporary State aid measures. [322], [323] These conditions must be properly observed on implementation at the national level.

1. Direct grants, repayable advances or tax advantages (Section 3.1)

14. Member States can provide aid—on the basis of a scheme—of up to €800,000 per undertaking (before deduction of tax or other charges). [324] The aid can be in the form of direct grants, tax and payment advantages, repayable advances, guarantees, loans and equity. Aid may not be granted under the TF to undertakings that were already in difficulty within the meaning of the GBER on 31 December 2019 (this condition applies to all relevant measures under the TF). [325]

2. Aid in the form of public guarantees on loans (Section 3.2)

15. Member States can provide beneficiaries with a public guarantee of up to 90% for loans for a period of up to six years subject to certain minimum premiums set out in the TF. [326] The public guarantee is capped at 35% where losses are first attributed to the State and only then to the credit institutions (i.e., the State providing a “first-loss guarantee”). The guarantee must relate to investment and working capital loans.

The premiums increase as the duration of the guaranteed loans increases. The guarantee coverage, duration and premiums can also be modulated (e.g., a lower guarantee coverage could allow lower guarantee premiums). [327]

For loans with a maturity beyond 31 December 2020, the overall amount of the loans per beneficiary is capped in accordance with specific criteria. [328] There are also specific rules on the cumulation of aid (see section V below).

The Commission has shown a willingness to be flexible when assessing loan guarantees. [329]

3. Aid in the form of subsidised interest rates for public loans (Section 3.3)

16. Member States can provide public loans at reduced interest rates for up to six years which are at least equal to the base rate (1 Year LIBOR or equivalent) plus the credit risk margins set out in the TF. The terms can be modulated and the amounts can be determined as set out above for loan guarantees. The loans must relate to investment and/or working capital needs. There are also specific rules on the cumulation of aid (see section V below).

4. Aid for COVID-19 relevant R&D (Section 3.6)

17. Member States can provide aid for R&D projects carrying out COVID-19 and other antiviral research. Aid may be granted in the form of direct grants, repayable advances or tax advantages. The aid can cover 100% of eligible costs [330] for fundamental research and up to 80% of eligible costs for industrial research and experimental development. There is a “bonus” of 15%-points if more than one Member State supports the project or there is cross-border collaboration. For R&D projects started after 1 February 2020, the aid is deemed to have incentive effect. If the project started before this date, the aid is deemed to have an inventive effect if it is necessary to accelerate or widen the scope of the project. The TF also requires the aid beneficiary to commit to grant non-exclusive licences under non-discriminatory market conditions to third parties in the EEA.

5. Investment aid for testing and upscaling infrastructures (Section 3.7)

18. The TF allows Member States to provide investment aid for the construction or upgrade of testing and upscaling of infrastructures required to develop, testing and and scale up COVID-19 relevant medicinal products (including vaccines) and treatments, medical devices and equipment, etc. The aid can cover up to 75% of eligible costs with a bonus of 15%-points if a project finishes within two months from the moment the aid is granted or if more than one Member State supports the project. [331] The aid can be granted in the form of direct grants, tax advantages or repayable advances. A loss cover guarantee can also be granted. The rules on incentive effect are the same as those for aid for COVID-19 relevant R&D. There are also specific rules on the cumulation of aid (see section V below). [332]

6. Investment aid for the production of COVID-19 relevant products (Section 3.8)

19. Member States can also provide investment aid to facilitate the production of COVID-19 relevant products such as medicinal products and treatments, medical devices and equipment, etc. [333] The aid can cover up to 80% of eligible costs. Many of the conditions that apply to the investment aid for testing and upscaling infrastructures also apply to aid for the production of COVID-19 relevant products. [334]

7. Selective tax and/or social security contribution deferrals (Section 3.9) and selective wage subsidies (Section 3.10)

20. The TF states that the Commission will also authorise aid schemes that consist in temporary deferrals of taxes or social security contributions which apply to undertakings that are particularly affected by the COVID-19 outbreak, for example undertakings in specific sectors, regions or of a certain size. Member States can also provide support schemes to undertakings in specific sectors, regions or of a certain size in the form of wage subsidies. There are a number of conditions that must be met if the Commission is to authorise such schemes. For example, the monthly wage subsidy must not exceed 80% of the monthly gross salary of the benefitting personnel (alternative calculation methods are possible).

21. The scope of the TF is expected to be extended further to enable Member States to provide recapitalisations to companies in need.

V. Key issues for beneficiaries/potential beneficiaries

22. The TF is intended to provide a framework to enable Member States to use the full flexibility foreseen under State aid rules to support the economy in the context of the coronavirus outbreak, but that flexibility must still be exercised with care. As the TF allows Member States to notify aid schemes and the Commission to clear them with minimum scrutiny, the main issue for companies applying for aid under these schemes is to ensure that the national authorities have complied with all the relevant formal and substantive conditions.

23. It must also be noted that the Court of Justice in its recent ruling in Eesti Pagar has placed a considerable burden on beneficiaries. [335] If a national authority grants aid based on a misapplication of the conditions in the TF, the company cannot claim that it has a legitimate right to retain the aid. Moreover, a national authority is obliged to recover any aid of its own initiative if it later discovers that the conditions for granting the aid were not met.

24. It should also be kept in mind that the State aid rules can be enforced in national courts as well as by way of complaint to the Commission. Aggrieved competitors may have the option to follow both routes.

25. It follows that aid beneficiaries must take care not to inadvertently receive unlawful aid, i.e., aid that has not been notified, or paid out before receiving Commission clearance, or paid out in breach of conditions under an approved scheme or the related transparency requirements.

1. Timeframe

26. The TF applies from 19 March 2020 to 31 December 2020, although the Commission can review its application before then. It should be noted that the Commission will apply the rules in the TF to non-notified (i.e., unlawful aid) if the aid was granted after 1 February 2020. Aid measures granted before this date will be assessed in the light of the pre-existing State aid rules.

27. If a Member State intends to prolong or otherwise amend a scheme as originally notified and approved by the Commission, it must notify it for further clearance unless the amendments are minor and do not change the scope of the scheme. An extension in the duration of the scheme would not usually be considered to be minor. [336]

28. A further complex question is whether a Member State can continue to provide liquidity support to individual companies in the period after 31 December 2020 if the TF is not extended. The TF is clear that in order to qualify as a compatible scheme “the aid must be granted no later than 31 December 2020,” [337] unless the aid is granted in form of tax advantages (the aid is then considered granted when the 2020 tax declaration is due). This means that the beneficiary must have a legally enforceable right to and must claim the aid on or prior to this date—it is not enough to just have lodged an application for support. [338] Moreover, if the approved scheme relates to guarantees, then any loans covered by the guarantee must be either payable before 31 December 2020 or if the loans expire after that date, the total due under the guarantee must not exceed the total budget as approved. [339]

29. Separately, it should also be noted that support schemes approved under Article 107(2)(b) TFEU may be subject to specific timeframes in order to establish (i) eligibility for compensation and (ii) payment of that compensation. [340]

2. Beneficiaries as undertakings

30. As a general rule, the TF provides that the overall aid granted should not exceed €800,000 per “undertaking” (section 3.1TF) The Commission does not make any distinction regarding partially or fully state-owned undertakings, which are equally eligible for different aid schemes. The aid may be granted in the form of direct grants, tax and payment advantages or other forms such as repayable advances, guarantees, loans and equity provided the total nominal value of such measures remains below the overall cap of €800,000 per undertaking.

31. It should also be noted that in case SA.57036 Ireland – Sustaining Enterprise Scheme supporting undertakings affected by the economic repercussions of the COVID-19 outbreak (a scheme to replace an earlier approved scheme [341]), the decision states that if the same “beneficiary” has received aid under the earlier scheme then the amount is taken into account as well for calculation of the limit of €800,000 under the later scheme. [342]

32. A critical question is, therefore, what is an “undertaking” for the purposes of EU law?

  •  An undertaking is a well-established concept in EU law and the classification of a particular entity as an undertaking depends entirely on the nature of its activities and whether such activities are of an economic nature.
  • Several separate legal entities may be considered to form one economic unit for the purposes of the application of EU State aid rules. That economic unit is then considered to be the relevant undertaking. The Commission’s Notice on the notion of State aid (2016) at paragraph 11 gives some informal guidance on the key concept of the “economic unit” developed in that case law and highlights that relevant factors are the existence of a controlling share and other functional, economic and organic links. [343]

33. If a group of companies can be considered to be one economic unit (i.e., a single “undertaking”), [344] aid by a Member State to any part of the group needs to be taken into account in checking that the €800,000 aid ceiling is not exceeded. Otherwise, a company with numerous legal entities in the same Member State could obtain multiple times the €800,000 aid ceiling, with a much greater risk that such aid could be substantial and thus distort competition.

34. Nonetheless, a group company can receive aid for its separate subsidiaries in other Member States as the relevant ceiling is generally assumed to apply per Member State. This also avoids the problem of Member States being in a race to give aid up to an EU-wide ceiling if a company has operations in different EU countries. [345] However, where different Member States support the same activities, such aid may be problematic. [346]

3. Carve out for undertakings in difficulty

35. Aid may not be granted under the TF to undertakings that were already in difficulty within the meaning of the GBER on 31 December 2019. An undertaking is generally considered to be in difficulty when, without intervention by the state, it will almost certainly be condemned to going out of business in the short or medium term. This will be the case if at least one of the five criteria listed in Article 2(18) of the GBER are satisfied (e.g., an undertaking is subject to collective insolvency proceedings).

36. A company belonging to or being taken over by a larger business group is not normally eligible for rescue or restructuring aid, except where it can be demonstrated that the company’s difficulties are intrinsic and are not the result of an arbitrary allocation of costs within the group, and that the difficulties are too serious to be dealt with by the group itself. Where a company in difficulty creates a subsidiary, the subsidiary, together with the company in difficulty controlling it, will be regarded as a group and may receive aid only under certain conditions. [347]

A Table is available in the pdf version of this article.

37. An undertaking in difficulty may still be entitled to de minimis aid. Note that here the calculations relate to the concept of a “single undertaking” as defined in Article 2(2) of the de minimis Regulation. [348] It may also have recourse to Member State schemes under the rescue and restructuring guidelines, especially with regard to aid to SMEs.

4. Calculating the amount of aid: Challenges

4.1 Higher limits for SMEs

38. The TF is more generous towards support schemes for SMEs. SMEs are generally companies which employ fewer than 250 persons and which have an annual turnover not exceeding €50 million and/or an annual balance sheet total not exceeding €43 million. [349]

39. The main factors determining whether an enterprise is an SME are (1) staff headcount and (2) either the turnover or balance sheet total.

A Table is available in the pdf version of this article.

40. A company that exceeds these thresholds is usually to be considered a large enterprise. However, certain “hybrid” cases—where only one threshold is exceeded—may still fall within the definition of an SME. [350]

41. Nevertheless, the EU’s SME definition is extremely complex and covers not only different types of firm (micro, small- and medium-sized), but also different categories. In order to determine whether a particular enterprise is a “genuine SME,” the Commission takes into account the economic relationships that this enterprise has with other companies. In simplified terms, this leads to distinguishing between three categories of companies: (i) autonomous, (ii) partner and (ii) linked enterprises. [351], [352]

42. The difference between partnership and linked enterprises has been, to some extent, clarified in recent General Court rulings, albeit that these rulings do not deal with the State aid field. A certain degree of legal uncertainty, therefore, remains. [353]

43. It is also important to emphasise that the Commission does not check ex ante if particular firms qualify. It is for beneficiaries to check that they do not fall into a category that would disqualify them from the SME categorisation. For example, companies backed by private equity funds may be excluded if they are treated as “linked enterprises.”

4.2 Cumulation of aid

44. Aid covered by the TF can be “cumulated” or added together and it can also be cumulated with aid falling within the GBER and de minimis Regulation provided the conditions for cumulation under those EU instruments are respected. The Commission has also confirmed that regional aid may be cumulated with ‘TF’ measures. However, the TF does not provide blanket approval.

45. There are specific exceptions to cumulation for aid in the form of loan guarantees and aid in the form of subsidised interest rate loans as well as aid for specific activities to fight the coronavirus outbreak (e.g., aid for coronavirus-related R&D). [354] If there are errors in applying the rules on cumulation, it is the beneficiary that bears the risk, including potentially repayment of incompatible aid.

4.3 Eligible costs

46. The amount of aid that a company can receive depends on a number of factors, including the type and level of costs that can be taken into account in the assessment. This will vary depending on the category of aid and the relevant EU aid instrument. For example, eligible costs relating to the production of coronavirus relevant products include all investment costs necessary for their production.

47. The TF provides that aid concerning the same eligible costs cannot be cumulated when granting aid for specific activities to fight the coronavirus outbreak, i.e., there should be no double counting.

5. Formalities: Transparency requirements: monitoring and reporting

48. There are clear EU rules on transparency in respect of aid granted by Member States. Subject to certain limited exceptions, a Member State must publish relevant information on each individual aid granted pursuant to the TF on a comprehensive State aid website or the Commission’s specific State aid transparency search page within 12 months from the moment of the grant of the aid.

49. The Court of Justice has taken a strict approach to the requirements of transparency: a failure to comply with the relevant EU rules would render aid measures that were otherwise fully compliant with the conditions for exemption to be illegal. [355] This means that the aid can be recovered with compound interest from the beneficiary even if it is the national authority that is at fault for failing to comply with the transparency requirements.

50. Finally, national authorities must confirm that they will respect the monitoring and reporting obligations laid down in Section 4 of the TF (e.g., by 31 December 2020, Member States must provide the Commission with a list of measures that they have put in place on the basis of the schemes approved by the TF). Detailed records regarding the granting of aid must also be maintained for ten years upon granting of the aid. This primarily allows the Commission to conduct ex post assessments of the effectiveness of the authorised aid schemes, but it should not be forgotten that the limitation period for recovery of illegal aid is also ten years.

VI. Conclusion

51. As we have explained in this article, the TF allows Member States to notify extensive schemes of financial support to their industries and for the Commission to clear them with minimum scrutiny. The main issue for companies applying for aid under these schemes it to ensure that the national authorities have complied with all the relevant formal and substantive conditions. Given the scope of the crisis, many companies will be receiving State aid in the EU for the first time, but they may have limited experience or insight into the complexity of the rules. Beneficiaries (or potential beneficiaries) need to familiarise themselves with the various elements of the State aid rules outlined in this article. This is not just a matter of formalities. Recent case law from the Union courts confirms that it is the aid beneficiaries and not the granting authorities that are exposed to significant economic risks if there are failings, including potentially recovery (i.e., clawback) of the aid with compound interest. The conditions attached to the different types of aid that can be approved under the TF need to be fulfilled. In addition, and as we have explained, there is an important body of precedent that governs the implementation of these conditions in granting aid to applicants at national level.

52. The case law also confirms that beneficiaries can rarely succeed in relying on a plea of legitimate expectations that the national authorities themselves should have known and complied with the rules. The fact that beneficiaries acted in good faith is irrelevant. As we have explained, two important categories of government failings to bear in mind are procedural failures and failure to observe relevant conditions when implementing aid schemes. Both types of failure may lead to an obligation to repay aid received in breach of these rules. Furthermore, that obligation can be enforced by the national authorities as well as by national courts. Complaints that the rules have not been respected can also be investigated by the Commission.




A global overview of the impact of COVID-19 on competition policies in key sectors



Dr. Pierre M. Horna [356]
Legal Affairs Official, Competition and Consumer Policies Branch of the UNCTAD Secretariat, Geneva

I. Introduction

1. The current pandemic creates serious implications for competition law and policy on a global scale. In developed and developing countries alike, companies and businesses attempt to respond to a total economic shutdown by finding alternative ways and means to survive this full-fledged crisis.

2. Affected industries worldwide, such as the airline industry and supermarkets prompt governments to consider relaxing competition laws and rules in order to maintain economic stability. However, such relaxation might result in price fixing and collusion, due to the possibility of an increase in the temptation for businesses to align prices with others in the industry, or substantially increase prices.

3. This note seeks to provide a broad overview of the impact of COVID-19 in different competition regimes, and how those regimes responded to the crisis, especially in the health care sector.

II. Competition issues in the production and distribution of health care products

4. Since COVID-19 is no exception to the fact that some companies take full advantage of a crisis to make short-term financial gains, monitoring, investigating and sanctioning of excessive pricing of health-related products is at the top of the agenda for most competition authorities. Competition authorities in Brazil, [357] Colombia, [358] Ecuador, [359] France, [360] Italy, [361] Mexico, [362] Russia, [363] and the UK [364] all announced active monitoring of excessive pricing claims for health and everyday goods as well as potential price controls over high-demand items (e.g., masks and hand sanitizers). China has restricted the online sales of health products. France regulated the price of hand sanitizers, so did El Salvador for essential goods (i.e.family basket). [365]

5. Among other examples, the Italian Competition Authority launched a probe into price increases from Amazon, eBay, and other online sellers. [366] Similarly, the Brazilian Competition Authority (i.e. CADE) is probing manufacturers and retailers of medical-pharmaceutical products for disproportionate and abusive price increases by more than 500% as well as limitations on the supply of face masks. France’s General Directorate for Competition Policy, Consumer Affairs and Fraud Control opened an investigation into the sudden surge of prices for alcohol-based hand gels. [367] So did the competitive regulatory agency (Superintendency of Industry and Commerce) in Colombia [368] with respect to non-compliance with fuel prices. [369]

6. Instant price surges bring a challenge to competition authorities. It is unclear whether instant price increases on affected products constitute excessive pricing behaviour by retailers or manufacturers or conduct violating consumer protection protocols. Rapid price increases among competitors might trigger investigations, as we have seen in past cases, for example for meat producers and hazelnut producers in Turkey. [370] Price surge can also be complex to respond to. CADE warned the government that the freezing of the price of medicines and establishing a ceiling on the price of essential items, could bear potential negative effects on the economy due to shortages. [371]

7. Enforcement in such a context is a challenging task for competition authorities. Authorities in Kenya and China have demonstrated strict enforcement and sanctioning of anti-competitive conducts taking advantage of the context. In Kenya, the competition authority (i.e. CAK) has ordered the main chain of supermarkets that “unconscionably” increased prices of hand sanitizer to refund its customers. [372] As of 24 February 2020, the Chinese competition body (i.e. SAMR) has investigated around 4,500 entities for the price gouging of masks and commenced investigations into around 11,000 companies for pricing violations concerning medical protective gear and other essential products. [373]

8. Cartelization is also an inherent risk resulting from this crisis. The Federal Antimonopoly Service of the Russian Federation (i.e. FAS) has launched three cartel probes relating to medical protective equipment (e.g. face masks) between December 2019 and February 2020. [374] The Costa Rican Competition has called for the elimination of alcohol cartel resulting from the crisis. Against this backdrop, it is important for governments to strengthen public procurement in order to prevent hard core cartels and cartelization of key sectors in the economy. Specific guidelines have been announced by the UK, [375] Russia [376] and Portugal. [377]

III. Exemptions to the application of competition rules in the health care sector and other key markets

9. Apart from the above-mentioned actions taken by the governments, some governments have enacted sector-specific legislation granting different levels of exemptions from anti-collusion rules to businesses. For instance, the Antitrust Division of the National Economic Prosecutor’s Office of Chile has reported that, according to the Chilean Competition Law, collaboration agreements between competitors may in some cases be lawful. [378] With those sectors-wide “concerted conducts,” governments aim to mitigate the ripple effects on economies. Main sectors which have been granted exemptions from anti-collusion rules include health, supermarkets and airlines. Others include retail, [379] banking, [380] drinks, [381] education [382] and tourism. [383]

10. The most important sector during this crisis and the sector in which far-reaching steps have been taken in terms of exemptions is the health sector. South Africa has approved a specific list-based block exemption to allow cooperation in the health sector. [384] It has also placed emergency price controls on everyday goods. [385]

11. Apart from health, other sectors of the economy also suffer the negative impact of the ongoing crisis. This prompted governments to grant sector specific and temporary exemption measures to alleviate the burden on the economy. For instance, Japan implemented a special loan for hotels and restaurant operators whose businesses have been affected. Governments around the world have enacted or are in the process of granting relief measures to businesses to provide an economic safety net through financial aid packages (France [386]) and cash aid to SMEs (Belgian [387]/USA [388]), but also to vulnerable tranches of the population (Spain). [389]

12. On 19 March 2020, the European Commission (i.e. EC) adopted a new Temporary Framework to complement the existing State aid Toolbox in order to assist Member States mitigate the socioeconomic impact of the Coronavirus outbreakPrompt State aid schemes have already been cleared by the EC for requests from Denmark [390] and Germany. [391]

13. In the case of supermarkets, several competition authorities like Canada and Germany have allowed pro-competitive collaborations between companies to support the delivery of affordable goods and services. Similarly, in the UK, the Competitions and Markets Authority has allowed temporary exemptions on competition rules [392] for retailers to collaborate in order to ensure continuity of food supplies. [393]

14. The airline industry is one of the most affected sectors. Norway has recently granted a three-month exemption from national antitrust laws to the airline transport industry. [394] This came after announcement of major airlines requesting bail outs (i.e., American Airlines/Alitalia). [395] The airline industry is likely to witness market consolidation and mergers, which would in turn reduce competition and put upward pressure on prices, thus creating a negative ripple effect on the market structure as well as foronsumers.

IV. Exceptions to the application of competition rules: Horizontal cooperation agreements of pharmaceutical companies

15. Research and development agreements, which are often considered pro-competitive and prohibited under US and EU competition rules, can be exempted as an exception, and thus permitted in certain circumstances such as global pandemics (i.e., swine flu in 2009, influenza in 2019). For instance, the Republic of South Korea, capitalized on the regulatory framework it implemented post Middle East Respiratory Syndrome in 2015 to encourage twenty pharmaceutical companies to collaborate on a vaccine allowed through emergency use authorization. [396] Horizontal cooperation agreements between pharmaceutical companies should be allowed as exceptions to competition rules, only if these agreements fall under specific legal frameworks.

16. The EC allows in its regulations for such exceptions, but with agreement safeguards such as firewalls and limitations on the exchange of competitively sensitive information. [397] The Commission is cautious about the fact that (i) R&D agreements may turn into a disguised cartel, [398] and (ii) that R&D cooperation resulting from horizontal agreements may affect competition not only in existing markets, but also in innovation and new product markets. The Commission has already allowed cooperation for joint R&D projects in a context of pandemic (i.e. influenzas 2019).,. [399]

17. In the USthe Department of Justice (i.e. DOJ) and the Federal Trade Commission (i.e. FTC) strictly apply antitrust laws to prevent cooperation and collaboration between competitors. [400] During emergencies such as COVID-19, the DOJ and the FTC advocate strict adherence to competition rule. [401]

18. Nevertheless, in the aftermath of hurricanes Harvey and Irma, the DOJ issued antitrust guidance noting that following a disaster, hospitals or other health care facilities may need to temporarily combine certain resources or services to better treat communities. [402] Similarly, the DOJ and FTC have allowed firms collaboration on R&D, sharing technical know-how and most joint purchasing arrangements among health care providers in the current context. An example of such collaboration is the case of Eli Lilly and AbCellera, which have entered into an agreement to co-develop antibody products for the treatment and prevention of COVID-19. [403]

19. In China, while the Antimonopoly Law Enforcement Agency prohibits horizontal agreements, it allows exemptions to improve technology, researching and developing new products [404] as exemplified by the British–Chinese collaboration (GSK/CB) on a vaccine against COVID-19. [405]

V. Competition challenges

20. This crisis brings a range of challenges to competition authorities. Developing countries face the challenge of striking a difficult balance between relaxing competition rules while potentially allowing anti-competitive conducts, which cannot be monitored properly due to the lack of available resources to implement firewalls. This in turn results in harming consumers and the economy even more.

21. Concerns of developing countries differ from those of developed countries on the basis that they often do not benefit from a financial safety net to cushion their economy. The consequences of choosing economic againstsocial trade-offs to mitigate the impact of the crisis on the economy comes as a matter of survival for developing countries. This crisis questions about the trade-offs between static efficiency, reallocation of resources through industrial policies, dynamic efficiencies and economic resilience on a backdrop mixing development, politics, and socioeconomic welfare. [406]



Competition in a time of Corona: “Primum non nocere



Siún O’Keeffe [407]
Manager Academy, Netherlands Authority for Consumers and Markets, The Hague

I. Introduction

1. The Netherlands Authority for Consumers and Markets (ACM), like many other authorities, has received many questions and requests for advice concerning the Corona crisis. We have openly tried to facilitate companies with their plans to fight the crisis without losing sight of the interests of their customers and consumers. ACM is a multifunctional authority, with powers in competition enforcement, consumer protection, telecommunications and energy regulation. It is not surprising that many of these questions are multifunctional in nature.

2. We have endeavoured to engage actively as an authority, accepting invitations from the media, to inform people of their rights as consumers during the crisis, and of the possibilities open to companies to cooperate where necessary. [408] Our aim is to strike the right balance between protecting competition and consumer rights and the long-term interests of the economy. The competition rules allow cooperation, provided it benefits customers and consumers. Proportionality and transparency are crucial when adopting temporary measures. It would be unfortunate if the competition authority were unintentionally to facilitate anyone in taking advantage of panicked consumers to hike up prices or abuse dominance by exploiting scarcity and consumer uncertainty.

3. The role of public interests in the enforcement of competition law is not a new issue for competition authorities. This topic has been the subject of increased attention in the broader context of discussions on sustainability and climate change, as well as on the effects of globalisation and digitisation on industrial policy and labour markets. Europe had already been expecting economic fallout, resulting from Brexit, and increasing global protectionism. Any such slump will now be engulfed by the consequences of the Corona crisis. As a responsive authority, we see it as important to acknowledge these developments in our actions and interventions.

4. In this submission, I set out the factual and legal framework showing examples from ACM’s current practice relating to public interest issues, with illustrations from our recent experiences since the onset of the Corona virus in Europe. This is followed by some more general comments on the challenges faced by competition authorities in times of crisis. The conclusion stresses that the abiding principle for competition authorities should be to facilitate companies in their fight to confront the crisis and, to coin a phrase used in the medical profession, to ensure our interventions do no harm to the economy and its citizens.

II. Factual and legal framework

5. On 30 January 2020, the WHO declared the coronavirus pandemic a public health emergency of international concern. By Easter 2020, there were almost 1 million cases reported in over 200 countries with deaths approaching the 100,000 mark. States’ responses have included monitoring, self-isolation, quarantine, travel and work restrictions, school closure, cancellation of public events and partial or total lockdowns. The socio-economic consequences are severe and expected to lead to recession if not depression across the world’s economy.

6. At local level, fear of quarantine and shortages have resulted in panic buying. Fear of contagion and social isolation have led to increased incidents of xenophobia and societal anxiety. Many companies fear liquidation, the self-employed are in danger of bankruptcy. Unemployment has increased and many are facing economic hardship. Unfortunately, reports of scams, both on and offline, have also increased, as unscrupulous undertakings attempt to profit from the fear and uncertainty which is prevalent because of the virus and its socio-economic consequences.

7. Competition authorities have reacted swiftly. The European Competition Network (ECN) issued a joint statement on the application of competition law during the Corona crisis. [409] EU companies have access to COVID-19 advice via a dedicated website. Member States have been urged by the European Commission to make use of the EU framework for the co-ordination of foreign investment to beware of predatory takeovers at this time of vulnerability. The European Commission has made it clear where state aid will be allowed in the circumstances. Authorities have warned companies against charging excessive prices for essential products. Now, as the economic shock grows broader and deeper, there will likely be a call on authorities to loosen the competition rules, to allow companies to cooperate in order to ensure supplies and to extend a lifeline to struggling companies. The next three sections illustrate how the provisions of competition law apply at this time.

1. Abuse of a dominant position

8. The prohibition of abuse of a dominant position in Article 102 TFEU is mirrored by Section 24 of the Dutch Competition Act. In a health crisis, shortages or even fear of shortages can trigger panic buying, supply disruptions and trade restrictions, which in turn can trigger shortages and fear of shortages. Medical supplies and drugs are particularly vulnerable. States become very aware of their dependency on suppliers, which in the pharmaceutical sector are often large multinationals. Trade restrictions can lead to smaller markets, exacerbating such dependency.

9. In March, the multinational healthcare company Roche was the subject of media attention in the Netherlands, amid claims that there could be a shortage of a solution needed in the testing process. [410] As Roche holds a high market share for testing machines in the Netherlands, there were fears that a bottleneck could arise if the company would not share the exact instructions for the manufacture of this solution. On 27 March 2020, Roche agreed to share the formula with the Dutch government. The company emphasised that there was no shortage of the solution in question, but shown its willingness to facilitate government in ensuring no shortages would ensue in a situation of increasing demand. The mutual dependence in the relationship between innovative research-based multinationals and government health departments means that contracts and prices can come under strain at times of scarcity. Companies are wary of damage to their reputation should the safety and reliability of their product be affected by third-party manufacturing. Competition authorities in turn are wary of price hikes and the exploitation of scarcity by powerful producers.

10. It may happen that dominant firms will respond to a crisis scenario by offering favourable terms to their customers. Here too the competition authority may play a role. This could involve ensuring that allowances made by a dominant player in agreeing temporarily not to increase prices or in agreeing to postpone payments should be offered to all customers on a non-discriminatory basis, in open dialogue with all parties.

2. Cartels

11. In its joint statement, the ECN makes it clear that the crisis may trigger the need for companies to cooperate in order to ensure the supply and fair distribution of scarce products to all consumers. In the words of the statement, considering the current circumstances, such measures are unlikely to be problematic, since they would either not amount to an illegal restriction of competition or generate efficiencies that would most likely outweigh any such restriction. In the current circumstances, the competition authority will not actively intervene against necessary and temporary measures put in place in order to avoid a shortage of supply.

12. This means that the authority takes steps to reassure companies about the legality of cooperation, where by adopting a temporary measure they can assist in averting economic hardship for customers and consumers. Such cooperation could be in the form of an agreement between financial institutions to allow a certain minimum of mortgage or other debt payment relief. It should be temporary, should not go further than necessary or involve fixing a maximum of such relief. Nor could it be used as a front for illegal price agreements.

13. The authority could support cooperation between, for example, tour operators via a branch organisation, in offering vouchers to out-of-pocket consumers. This achieves a balance between respecting their rights and offering a window for companies wishing to postpone repayment. [411] It could allow supermarkets to cooperate in ensuring the supply of certain essential products, by exchanging information about supplies or sharing scarce foodstuffs. Most obviously, hospitals can be permitted to cooperate in the purchase of essential medical equipment, to share information on available supplies, cooperate to prevent fraud and avoid stockpiling in so far as is necessary to ensure distribution of the relevant goods, during the crisis.

14. The prohibition on cartels in Dutch law allows no express exception for so-called “crisis cartels.” In 2001, the Dutch Competition Authority (NMa) granted parties an exemption from the cartel prohibition under the Dutch equivalent of Article 101(3), for a limited rationalisation programme in the pig-slaughtering sector. The case was upheld on appeal, with the Dutch court emphasising that agreeing prices between competitors is not an appropriate response to difficult market situations. Overcapacity and responding to dumping are also rejected as justifications for breaching the cartel prohibition. The only possible exception would seem to be where a restructuring is the primary reason for the adoption of the restrictive agreement by which capacity in the sector is reduced and the measure is reasonable, non-discriminatory, objective and proportionate to its goal. [412]

15. A relaxation of the prohibition of cartels to allow room for crisis cartels in times of economic retrenchment could be more harmful to competition than other forms of government intervention, such as subsidisation. Firstly, cartels are a very blunt instrument and it is difficult to curtail or even to measure their impact on the market. Subsidies, however, can be targeted and their compliance with competition law can be tested. Secondly, the cultural impact of allowing cartels is dangerous. It is difficult to prohibit cartels once they have been sanctioned. Such prohibition may merely result in driving the cartel underground. Also, permitting cartels even in seemingly small local markets can have effects at macro level.

16. In this regard, agreements to maintain prices at a certain level between producers could only be permitted in specific temporary situations. For example, if the producers could show that border restrictions introduced in response to the Corona crisis created a direct problem of excessive supply which would otherwise not exist. Such a scenario would be unlikely to arise except in relation to a small local market. In any event, a de minimis exemption applies under Section 7 of the Dutch Competition Act; agreements between eight companies, or fewer, with a combined annual turnover of less than €1.1 million (or €5.5 million where the companies are active mainly in the supply of goods) or where the combined market share does not exceed 10% of the relevant market. With regard to vertical restraints, where a producer is concerned that retailers under financial pressure may engage in price-gouging, fixing the maximum price may be an option.

17. ACM has rules relating to the imposition of fines on companies which are suffering financial hardship. In line with Dutch administrative law, the ACM may deviate from the Fining Code in the event that the application of the rules in the code would lead to evident inequity. The application of the fine may not be such as to render bankruptcy likely. [413]

3. Merger control

18. The merger control provisions in the Dutch Competition Act largely mirror those applicable at EU level. The examples below relate to the use of the failing firm defence, the possibility of requesting an exemption from the standstill clause in order to speed up a merger in a crisis situation, and the use of efficiency defences.

19. The provisions on the possibility of taking public interests into consideration are different from their EU equivalents. Dutch legislation states that the decision of ACM on a merger case should be based on arguments related to effective competition. Under Section 47 of the Dutch Competition Act, in a situation where ACM blocks a merger, the legislation provides merging parties with the option to file a formal request with the Minister of Economic Affairs to clear the merger. This should be done within four weeks of ACM’s decision to block the merger. The minister can clear the merger and grant a licence based on his/her assessment that certain public interests benefitted by the merger outweigh the impediment to competition. While such requests have been made on occasion, the minister has only recently, for the first time, applied Section 47 in order to reverse a merger decision of the authority. [414] This case is currently on appeal in Dutch courts.

20. The failing firm defence may be useful in times of crisis. [415] A merger may be permitted where it can be shown by the merging parties that the merger does not lead to a significant impediment of competition on the relevant market. One of the factors which may be taken into account is where parties can show that due to a failing firm, which will not be taken over by any other party, there will be a more significant impact on competition than would be the case if the merger were permitted. The merging parties must show that there is a clear probability that the failing firm would be forced out of the market, leading to its market share being assumed by the acquirer, and that there is no alternative acquirer available.

21. In 2018, ACM approved a merger between two healthcare providers specialised in elderly care. [416] The authority concluded that there were concerns on the relevant markets, but that Warmande would imminently disappear from the market (as it was in financial difficulties). ACM considered that without the merger all Warmande’s personnel and patients would move to ZorgSaam. No other operators had any interest in acquiring Warmande or becoming active in the region. Therefore, the authority concluded that there were no alternatives to the concentration and accepted the failing firm defence.

22. Under Section 40 of the Dutch Competition Act, equivalent to Section 7(3) of the EU Merger Regulation, merging parties may file a request for an exemption from the obligation to refrain from gaining any form of control over the target until ACM has decided on the merger. A full assessment will still take place including the optional outcome of a refusal to clear the merger even after the request has been granted. Parties have to demonstrate that the period it takes for ACM to reach its decision will result in irreparable damage, rendering the whole transaction redundant. In general, the starting point for such a request is that the target has filed for liquidation or has already been liquidated. However, this is not enough to satisfy the test of irreparable damage.

23. Arguments that have been accepted for an exemption include the loss of particular intellectual property rights, or the inability to restock a retailer on time for a new season or the loss of key personnel. ACM has not yet needed to answer the question whether it should take public interests into account in its assessment of a Section 40 request as the arguments relating to effective competition have been sufficiently convincing. [417]

24. Similarly, when considering remedies during this crisis, the Authority may be willing to allow an extended divestiture period. For instance, in a merger between care homes, this would allow the merger to proceed without the need for the usual upfront buyer commitments.

25. Efficiency defences are rare in the Netherlands, but this is an area where ACM could expect an increase in public interest arguments. These would go beyond the normal efficiency claims, such as a reduction in production costs as a result of an increase in scale. A hypothetical example of such a public interest argument is that the merger allows the possibility to achieve certain sustainability objectives or, as discussed above, allows an industry to counteract otherwise destructive effects of the Corona crisis.

26. For an efficiency claim to be taken into account, consumers should benefit from it, the efficiencies should be merger-specific and they should be verifiable. [418] The merging parties must demonstrate that the competition concerns can be mitigated by the claimed efficiencies. These criteria are not easy to satisfy. The evaluation of the claimed benefit of the merger on the public interest involved can prove especially difficult. ACM’s experience is that parties find it difficult to substantiate public interest claims. However, that may be a reflection of the types of claims that have been received in the past. It could be that evaluation and substantiation in the current crisis will present less of a challenge.

III. Challenges for competition authorities in times of crisis

27. As is evident from the above examples, taking issues of general public interest into consideration in competition law is not straightforward. Public interests can be closely related to political interests. This raises concerns of political influence on an authority’s decision-making process. There can also be a strong public opinion on certain public interests putting even more stress on the decision-making process of an authority.

28. In a situation such as the Corona crisis, where the entire economic fabric of society is at stake, and there is no economic cause for the crisis, it is evident that it is in consumers’ interest to ensure the availability of essential goods and medical supplies, as well as ensuring that normally viable companies survive to provide goods and services post-crisis. It is very important to find a good balance in such situations in considering the most appropriate forms of government intervention. The ACM is actively seeking new and creative solutions with the parties rather than taking a traditional self-assessment based approach.

29. As stated above, government intervention by way of temporary, transparent subsidisation is generally to be preferred over government tolerance or encouragement of cartelisation or an anti-competitive mergers. Temporary and targeted subsidisation is less damaging in the long term to competition. Where such subsidisation takes place in a commercial market, government should ensure that the subsidisation is proportionate, transparent and does not unfairly exclude other market players competing on the merits.

30. Looking back at the lessons learned from the 2008 financial crisis, we realise the following. [419] Firstly, the importance for authorities of establishing good contact relationships with the European Commission and with ministries in order to facilitate speedy and good quality interaction at times of high pressure. A second lesson relates to the speed of decision-making in times of crisis. Where important decisions are being made in a weekend, or even overnight, it is helpful to have a crisis team waiting in the wings. A third lesson is the need to look at the issue holistically and not only from the perspective of a competition authority. This means communicating clearly and openly. Independent authorities are seen as part of government and are expected to communicate a coherent, comprehensive and understandable message. Finally, the importance of having an exit strategy for whatever measures are implemented.

31. The hardship provisions, advocacy strategies and inter-agency contacts which are built into the Competition Authority’s set of available instruments should obviate any need for the adoption of reactive legislation which may, in the aftermath of the crisis, restrict the Authority in its application of competition law to make markets work for business and citizens.

IV. Conclusion

32. It can feel surreal to spend hours every day analysing evidence, stopping occasionally to indulge in the delights of home-schooling, while aware that not so far away, a nightmare scenario of suffering and even death is playing out for hundreds of our fellow citizens. At times of crisis, it is important for ACM to maintain “business as usual” in so far as this is possible—ensuring stability and predictability is a crucial factor in competition law. Nevertheless, we must also guarantee that crisis measures are in place that can be used in a timely and effective manner.

33. It is entirely justified in this type of crisis for government to intervene for the common good and to protect jobs and industry. It is vital that government acts transparently and proportionately in doing so. In the aftermath of the Corona crisis, the Competition Authority can advise on forms of cooperation that may help companies in crisis, in facilitating crisis mergers and in watching for potential harm to panicked and vulnerable citizens. Proportionality and transparency are key to avoiding the risk of harming long-term economic development by protective measures intended to help firms in distress consequently pushing up prices for vulnerable consumers and putting other healthier firms at a disadvantage.

34. Competition law is not static. It is quite possible that the current crises (health, economic, democratic, societal) may give rise to a phenomenal consciousness that gives impetus to new economic developments and new socio-economic norms, and maybe even new interpretations of competition rules in the long term. In the short term, we need to focus on help and advice for those who need it, and on minimising harm.



“Crisis Cartels” in times of COVID-19: Lessons from former crises teach a cautious approach



Christian Ritz [420]
Partner, Antitrust & Competition, Hogan Lovells, Munich

Matthias Schlau
Associate, Antitrust & Competition, Hogan Lovells, Munich

I. Introduction

1. COVID-19 has led to significant disruptions in all areas of private, public and economic life. Companies are facing unprecedented economic and structural challenges while lockdowns of social life and economic activity in most parts of Europe are significantly impacting our economy. Yet, if the crisis continues, the extent of the difficulties faced by companies remains to be seen. For instance, an extended crisis might cause consumption rates to plummet, thereby, forcing companies to cut down production rates to avoid overcapacity.

2. Former economic crises have shown that in the context of an economic downturn, undertakings in various industries across Europe have been seeking to justify agreements restricting competition by invoking issues such as overcapacity problems or economic crises in their respective sectors. In its contribution on “Crisis Cartels” to the OECD Global Forum on Competition, the European Commission defined schemes falling under the notion of “industrial restructuring agreements” as usually involving “scenarios where a significant number of industry players get together to find a joint solution to their common difficulties in times of crisis” (“Crisis Cartels”). [421]This may be achieved by, for example, reducing overcapacity and/or by agreeing on a ‘fair’ price level to avoid that some companies would go bankrupt and leave the market.”

3. Against this background, statements indicating some sort of flexibility, e.g., by the European Competition Network (“ECN”), in which the European competition authorities are organised, not to actively intervene against necessary and temporary measures put in place to avoid a shortage of supply and to be available for informal consultations, come as an uplifting read. The Communication from the Commission on a ’Temporary Framework for assessing antitrust issues related to business cooperation in response to situations of urgency stemming from the current COVID-19 outbreak’ clearly sets the tone: The Commission ’stands ready, exceptionally and at its own discretion, to provide guidance by means of an ad hoc “comfort” letter.’ [422] However, in its recently published joint statement the ECN also emphasises that even in times of crisis the cartel authorities in the EU will pursue the objective of ensuring a level playing field for companies and will not hesitate to take action against companies taking advantage of the current situation in an anti-competitive way. [423] The same is true for the Commission which stresses the importance of ensuring competition even in times of COVID-19 and ’encourages undertakings and citizens to continue reporting any cartels and other antitrust violations’. [424] It remains to be seen how EU competition authorities will respond to “Crisis Cartels,” but it is likely that the response will be based on an individual case-by-case assessment.

4. The following analysis focusses on the existing case law and practical guidance provided by the European Commission (the “Commission”), the European Court of Justice (“ECJ”), and the German Federal Cartel Office (the “German FCO”) on “Crisis Cartels” in an attempt to deduce some sort of practical guidance for companies on the application of Art. 101(3) of the Treaty on the Functioning of the European Union (“TFEU”) in the current COVID-19 crisis.

II. In principle: Competition law remains applicable, even in times of crisis

5. As a general rule, companies must comply with competition law even in times of crisis, as it remains to be a violation of Art. 101(1) TFEU or Sec. 1 of the German Act Against Restraints of Competition (“ARC”) to enter into agreements that have as their object or effect the restriction of competition.

6. While Art. 101(3) TFEU and Sec. 2 ARC provide for an exception to this rule, exempting agreements that provide for real efficiency gains for consumers, the Comission, the ECN as well as several national competition authorities across Europe have made it clear that they will “not hesitate to take action against companies taking advantage of the current situation by cartelising or abusing their dominant position. [425]

7. Our analysis shows that, although it is mainly in line with the decision practice of both the Commission and the German FCO with regard to “Crisis Cartels,” the most recent statements seem to already acknowledge the severity of the current COVID-19 crisis, and thus, at least on an abstract level, recognise the need for more flexibility in the competition law response to the crisis.

III. Possible exemption: Restricting competition in order to reduce structural overcapacity

8. When competitors agree to reduce capacity this will ordinarily restrict competition and, thus, may lead to a violation of competition law. At the same time, any reduction of overcapacity may also allow companies to operate more profitably and thus help to restore the balance in the market between demand and supply, thereby, stabilising markets in turbulent times, in particular (but not only) in the interests of consumers.

9. As COVID-19 is not the first economic crisis faced by undertakings in Europe, former decisions and guidance of the Commission and the German FCO can assist to better understand potential scenarios in which exemptions from competition law rules might be applied in times of COVID-19 when it comes to “Crisis Cartels.”

IV. European Commission decision practice and guidance

10. Dealing with “Crisis Cartels” has been a revolving theme of the Commission’s cartel enforcement in the past forty years, although such events have occurred rather rarely.

11. In 1982 the Commission declared that “in order to combat the structural problems of individual sectors, [it] may be able to condone agreements in restraint of competition which relate to a sector as a whole, provided they are aimed solely at achieving a coordinated reduction of overcapacity and do not otherwise restrict free decision-making by the firms involved.” [426]

12. The Commission laid out conditions for an exemption which would later on become the foundation for a “Crisis Cartel” defence under Art. 101(3) TFEU. In order for it to apply, the following conditions need to be met:

  •  Reductions in capacity can be expected to increase profitability and restore competitiveness in the long run, and respective social impacts can be mitigated, spread and staggered over time through coordinated closures of unprofitable production plants;
  • While the agreement is in force, consumers are not deprived of any benefits generally arising from competition, and upon conclusion of the agreement consumers are going to enjoy an improved and healthy supply structure;
  •  The agreement is concerned solely with reducing surplus capacity and is limited from the outset to the period necessary for the technical implementation of the envisaged programme of cutbacks; and
  •  The undertakings concerned refrain from fully waiving their freedom of action in the marketplace, so that a certain degree of internal competition will be maintained. [427]

13. In applying these principles, the Commission has approved agreements aimed at reducing structural overcapacity with reference to the current Art. 101(3) TFEU:

  •  In its Synthetic Fibres decision of 1984, [428] the Commission accepted a temporary agreement between synthetic fibres manufacturers to provide for a reduction in production capacity and contractual penalties for any breach of that agreement. The Commission pointed out that, in an industrial sector which was characterised by serious overcapacity (around 30%), [429] the manufacturers could not decide to reduce capacity independently. As a result of the agreement, the Commission expected that, “by reducing its capacity, the industry will shed the financial burden of keeping underutilized excess capacity open without incurring any loss of output, since the remaining capacity would then be operated more intensively.” [430] The Commission believed that this would ultimately benefit consumers.
  • In its Stichting Baksteen decision of 1994, [431] the Commission cleared an agreement between brick manufacturers that did not only oblige them to close down production sites and provided for a system of fines in order to prevent any failure to comply with this obligation, but also required them to set up a compensation fund to obtain financial resources to help those being most affected by the closures. [432] Again, the Commission assessed potential gains in productivity and profitability arising from the elimination of overcapacity and the possibility to return to normal competitiveness.

14. In the aftermath of the global financial debt crisis, the Commission emphasised that it was reluctant to give its blessing to agreements aiming at reducing capacity in times of cyclical economic crises and recessions unless additional special market conditions require a different approach. Accordingly, undertakings would have to demonstrate that competitive forces, which do normally exist, or any other market mechanisms for that matter will not suffice to appropriately deal with excess capacity. [433]

15. In its contribution on “Crisis Cartels” to the OECD Global Forum on Competition in January 2011, the Commission relied on the ECJ’s Irish Beef decision of 2008 [434] in which the ECJ held that industrial restructuring agreements will in principle constitute a restriction of competition by object within the meaning of Art. 101(1) TFEU as they, by their very nature, have the potential of restricting competition.

16. Following a detailed assessment under Art. 101(3) TFEU, the Commission concluded that it will be very difficult for undertakings—even in times of crisis—to show that a “Crisis Cartel” agreement leads to pro-competitive benefits which offset the restriction of competition and meets the other conditions mentioned in Art. 101(3) TFEU, arguing that there is generally no need for this type of coordinated action between competitors as normally the competitive process alone would remove excess capacity from the market. [435]

17. According to the Commission’s position taken in 2011, a “Crisis Cartel” defence on efficiency grounds required undertakings:

  •  to establish that the industry concerned in fact suffers from a structural overcapacity problem, which means that market forces alone cannot remove that excess overcapacity which, according to the Commission, could occur in particular situations of stable, transparent and symmetric market structures and where giving up capacity is costly for the firms; [436]
  •  to substantiate the nature and magnitude of the pro-competitive benefits resulting from reducing capacity and demonstrate that those pro-competitive benefits will be passed on to consumers in the affected relevant market; [437] and
  • to prove the causal link between the agreement and the pro-competitive benefits, the likely “pass on” of the claimed pro-competitive benefits to consumers and of the indispensability of the agreement for obtaining those pro-competitive benefits, saying that industrial restructuring agreements imposing restrictions on output or entry barriers are very unlikely to fulfil these conditions. [438]

V. German FCO decision practice and guidance

18. In Germany, “Crisis Cartels” have been discussed under the English term “structural crises cartels” (in German “Strukturkrisenkartelle”), which has been mainly used in the context of agreements which tried to better align capacity with demand. Until the 7th reform of the ARC in 2005, Sec. 6 ARC (former version) even set out a standard that allowed the German FCO to exempt such agreements from the strict general cartel prohibition in Sec. 1 ARC.

19. Even though that specific provision has been abolished since 2005, [439] general principles, as laid down in Sec. 2(1) ARC and Art. 101(3) TFEU, do still allow for “Crisis Cartels” to be examined and potentially exempted under strict conditions. The German FCO’s previous decision practice provides some useful guidance in this regard [440] which can be summarised as follows:

  •  Similarly to the Commission’s practice, the German FCO has always been rather reluctant to accept a “Crisis Cartel” defence and has only shown a certain willingness to make an exception when required by exceptional circumstances. In the past, only two out of ten published applications for “Crisis Cartel” exemption made under Sec. 6 ARC (former version) were actually successful. [441]
  • The German FCO has clearly stated that “Crisis Cartels” can only be justified where undertakings can demonstrate that structural overcapacity is permanent and that there is a high risk of substantial financial losses in the long run. Undoubtedly, vague statements referring to temporary economic crises will not be sufficient to meet this burden. Additionally, all or at least the majority of companies in an affected sector generally need to take part in a structural crisis cartel in order to meet the German FCO’s special requirements. [442]

VI. Conclusion

20. Previous case law and guidance from previous economic crises make it clear that companies are generally left with a quite narrow scope of competition law arguments when it comes to the justification of “Crisis Cartels.” From a competition law enforcement point of view, this strict approach is important to guarantee competition law compliance and the assessment of exemptions on an individual basis.

21. However, recent statements by the Commission, the ECN and national competition authorities indicate some degree of flexible competition law response, which has certainly been triggered by warnings that COVID-19 has already plunged the economy into a recession, leaving no doubt that the economy could be facing an unprecedented form of crisis the longer-term consequences of which can hardly be predicted.

22. It can be expected that competition authorities will keep a close look at collaboration and coordination between competitors in the current COVID-19 crisis, especially when it comes to jointly dealing with overcapacity in the context of economic downturn. However, for a solid “Crisis Cartel” defence under EU competition law it will be key for companies suffering from overcapacity to understand that agreements which are capable of reducing such overcapacity to the benefit of consumers could benefit from an exemption under Art. 101(3) TFEU.

23. Given that such exemptions will, however, only be accepted under exceptional circumstances on a case-by-case assessment, it will be particularly important for companies to carefully consider the pro-competitive effects which might offset the restriction of competition under Art. 101(3) TFEU. Initial guidelines for this assessment can certainly be drawn from the available case law and competition law guidance from earlier crises. However, each case and crisis is different, and leads to diverging effects in different industry sectors. For the avoidance of doubt, companies should consider approaching the Commission or respective national competition authority to seek informal consultation in order to avoid future questioning and competition law investigations of the measures taken in times of crisis. 




Two challenges posed by the economic shock caused by COVID-19 to the level playing field in the EU internal market: The current State aid race and the risk of hostile takeovers by state-owned companies from third countries



Mario Siragusa
Senior Counsel, Cleary Gottlieb, Rome

Cesare Rizza
Counsel, Cleary Gottlieb, Rome

1. “Europe is open for business, but it shouldn’t mean that we leave European countries open for takeovers by others who do not have to play by the same rules”: this comment made by the European Commissioner for Competition, Margrethe Vestager, during the recent ABA Spring Meeting’s (virtual) Enforcers Roundtable with the heads of the Canadian and US competition authorities, [443] has drawn general attention to an issue which already emerged a long time ago and which the current economic crisis has fatally made even more thorny.

2. Needless to say, at a time when the risks to the Union’s strategic capabilities may be exacerbated by the volatility or undervaluation of the stock markets, the commissioner’s call to protect European companies from hostile takeovers by non-EU companies “not playing by the same rules” can only be welcomed.

3. A separate issue, however, is how her warning should be best interpreted: even if it cannot be completely excluded that it was also referred to investors from other third countries, it is very likely that the commissioner had in mind mainly Chinese companies, in particular state-owned companies, to which this type of criticism is often addressed.

4. The reasons why acquisitions of EU targets by Chinese state-owned companies—particularly in sensitive sectors, such as those related to health care products, including research, or otherwise strategically essential ones (such as the automotive, aerospace, pharmaceutical, infrastructure and transport sectors)—risk generating protectionist responses by EU national governments, and by competition authorities, are well known.

5. In its most common formulation, the accusation of making direct investments in Europe without being subject to the same rules is based on the observation that a Chinese acquirer, in its legal system of origin, is to some extent free from the rules of competition; is not subject to the risk of being the target of acquisitions by non-Chinese companies; can exploit to its own advantage the system of national control of concentrations, perhaps to extract from foreign parties commitments and concessions concerning the licensing of European technology to Chinese companies; is free from the pervasive monitoring and reporting obligations to which EU companies are subject.

6. Above all, Chinese investors are allowed access without any form of control or limitation to State aid, which distorts competition to the detriment of European investors, which, in contrast, as a result of the EU system of State aid control, may have to finance their acquisitions with less readily available, and in any case more expensive, private resources. It is well known that similar allegations are often made against US companies, too—occasionally even against the US Federal government itself, which, for instance, according to rumours circulated in mid-March, attempted to induce CureVac AG, a promising German biopharmaceutical manufacturer, to move its research activities to the US to develop a vaccine against COVID-19—and failed due to the timely and firm intervention of the German government. [444]

7. What, then, is the possible solution to this problem, particularly at a time when the negotiations between the EU and China to conclude a bilateral investment treaty, which were scheduled to be completed by the end of 2020, are progressing at a very slow pace, due, among other things, to China’s reluctance to review the system of explicit or implicit subsidies for state-owned enterprises? [445]

8. Let us come back to Commissioner Vestager’s comment, as quoted at the beginning of this article. According to some, she alluded to a possible new approach to the enforcement of merger control rules by the European Commission (EC), by expanding its assessment to include industrial policy considerations, which as such are not strictly relevant to the preservation of effective competition in the internal market. This reading, however, is unrealistic in our view: although the EC enjoys a wide margin of discretion in merger control, its decisions are subject to the Court of Justice’s review of legality, so that any unorthodox application of the rules based on the pursuit of protectionist objectives would be of short duration. All the more so since in many cases “cheap” hostile acquisitions of strategic European assets by Chinese investors might not raise significant risks of distortion of competition in the market(s) concerned, so that a prohibition decision could easily be denounced as based on impermissible “political” grounds.

9. A recent decision of the Bundeskartellamt (BKA) confirms that this cannot be the correct perspective to ensure the level playing field in EU markets through merger control where the acquirer is a Chinese state-owned company. [446] The German competition authority cleared the acquisition of a German shunting locomotive manufacturer, Vossloh, by CRRC, the Chinese state-owned largest rolling stock manufacturer in the world, and a small player in the EU. To sum up, the merger was cleared purely on competition law grounds, such as the decreasing technological edge of Vossloh (which still held in the EA and Switzerland a 40–50% market share in 2014–2018), the existence of intense competitive pressure from new entrants offering innovative traction technologies, and the uncertainty of future market developments following the target’s integration with CRRC. In addition to analysing different counterfactual scenarios, the BKA discussed extensively certain problematic features of acquisitions by State-owned companies originating from a centrally planned economy. It referred to the following elements as relevant in the merger control assessment of such acquisitions: the size of the acquirer’s corporate group, its industrial strategy, possible conglomerate effects, deep pocket advantages, and its readiness and incentives to engage in predatory pricing or the infamous dumping practices. However, the BKA’s decision was unanimously praised by antitrust observers as being based solely on technical and legal grounds: even where state ownership translates into significant economic power, this does not necessarily pose a threat to effective competition when a non-EU player enters a European market. Therefore, industrial policy considerations, albeit very popular in the current lively public debate, have been largely irrelevant in the BKA’s assessment.

10. This does not, however, rule out the existence of a strong EC focus on the drive for profound changes in EU competition law: nor can it come as a surprise that such drives were strongly felt in the Member States even before the outbreak of the pandemic. At the beginning of December 2019, the Dutch government drew up a position paper calling for the establishment of a new pillar of EU competition law, giving the EC the power to intervene, either ex officio or upon a complaint by competitors or a Member State, by initiating an investigation if a third-country company restricts or threatens to distort competition in the internal market. [447] This would be the case of a foreign company operating in the EU by leveraging the economic support it receives from its state of establishment, either in the form of subsidies (including implicit ones, such as the supply of raw or semi-finished materials or know-how at non-market conditions) or by making excessive profits by virtue of an unregulated dominant position held in one or more markets in its home country. In appropriate cases, the EC could prohibit the conduct under investigation, such as artificially low prices in the EU or the completion of high-priced acquisitions without a real business case. It could even impose ex ante measures, before a breach of the rules has occurred, ordering the foreign company to adopt accounting separation for its activities in the EU, to adapt the governance of an EU subsidiary, or to amend the standard contracts used by the latter. Non-EU players would still be allowed to ask the EC for guidance on the lawfulness of the trade policies and operations they plan to implement in Europe. It is no secret that Commissioner Vestager welcomed the Dutch proposal, which may have inspired to some extent the formal proposal for a new regulation on a level playing field in the internal market, which the EC is expected to submit to the Council and the Parliament next June.

11. Assuming that this new front of action will culminate, within a timeframe that is difficult to predict, in the adoption of a legislative instrument implementing the EC’s competition policy, such instrument would knit together with the one already existing in the framework of the common commercial policy, so as to fill a gap in the Union’s regulatory arsenal. At the end of March, the EC adopted a Communication [448] to provide Member States—which are responsible for the control of Foreign Direct Investments (FDI) under Council Regulation No 2019/452 (which will become applicable in October 2020)—with guidance on the protection of European strategic assets, in order to address cases where the hostile takeover or control of a particular undertaking, infrastructure or technology in the EU may pose risks to security or public order, including health security. The EC thus invited the 14 Member States where national control mechanisms are already in place to make full use of them, taking into account in particular the risks to critical health infrastructure and critical inputs supply.

12. Accordingly, Italy recently extended the list of strategic sectors and strengthened the government’s special powers in this area. [449] In addition, as it was also reported in the past weeks, Germany, [450] France [451] and Poland [452] have amended (or are about to amend) their domestic legislations in order to tighten their existing FDI screening systems. Therefore, a response at Member State level, although one that is strongly encouraged and endorsed by the EU executive, has become crucial in protecting European businesses from hostile foreign takeovers in the current COVID-19 outbreak.

13. Finally, there exists a further reason why the issue of predatory buying in the EU markets—for which Chinese investors and, in general, those of third countries without a State aid control system, are very likely preparing, like in the days of the economic crisis of 2008–2009—acquires even greater sensitivity and relevance today. The EC is expected to amend (for the second time) its Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak adopted last March, [453] with a view to covering also Member States’ schemes and individual measures for providing public support in the form of equity and/or hybrid capital instruments to non-financial companies facing financial difficulties due to the COVID-19 outbreak. Although the powers of intervention of the Member States will thus be limited by the conditions that the EC is preparing to introduce, even tighter constraints will result from the relative magnitude of the resources available in their respective budgets. Under the circumstances, a subsidy race has started, as rightly decried by many observers—the most authoritative voice being that of the EC President, Ursula von der Leyen. The predestined winners of this race are, inevitably, the players from the richest Member States, some of which have recently, not surprisingly, even strongly advocated the suspension (Austria) or the adoption of less stringent standards (Germany) in the enforcement of EU State aid control rules.

14. According to recent EC figures, Germany has granted as much as 52% of all aid approved so far, which is about twice as much as its percentage weight in the whole economy of the Union. [454] As a result of this highly asymmetric situation in spending power, the gap between the Union economies is expected to further widen along the ideal North–South border, leading to an equally asymmetric recovery thereafter. Not only will the values of cohesion and solidarity in the Union be undermined, but also the level playing field in the internal market will be exposed to the serious risk of disruption, given that the distortions of competition caused by this unequal race for subsidies will most likely hurt also healthy companies, adequately capitalised and well managed until the day before the pandemic broke out, perhaps in favour of less efficient competitors established in richer States.

15. The current economic crisis has been generated by an external symmetric shock, for which no one is responsible, but whose negative effects affect everyone, albeit asymmetrically, given the different degrees of vulnerability of Member States’ budgets. In a perspective of genuine solidarity and cohesion within the Union, but not only (unsustainable future debt levels for the most indebted and vulnerable countries could create serious risks for the resilience of Europe’s common currency), the symmetrical and exogenous nature of the pandemic would therefore require a fair response for all Member States, i.e., the possibility of financing the economic recovery by using new debt instruments at equal interest rates for all. Therefore, a proposal fully adequate to the present circumstances, while still based on a sound conceptual rationale, would be for an EU institution to issue bonds guaranteed with the EU budget’s resources, to raise funds on the capital markets at very favourable rates of return (thanks to the EU’s AAA credit rating), on the same terms and for the benefit of all Member States.

16. However, the common response that prevailed at the European Council of April 23 was an agreement in principle for the creation of a new Recovery Fund, amounting to €1,000–1,500 billion, able to offer loans and guarantees to the regions and economic sectors most affected by the economic shock of the COVID-19. Although the details of the new instrument are still being defined in the technical proposal to be presented by the EC by May 6, 2020, this fund should be financed by Member States with new resources to be placed in the 2021–2027 budget under negotiation, possibly to be supplemented with the subsequent issue of common debt, again by the EC. It is quite intuitive, in our view, that in order for the Recovery Fund to make a real difference through a partial redistribution of resources, it will have to consist, at least in part, in grants or non-repayable transfers rather than simply in loans to States or guarantees for investment projects, so as not to increase their individual debt levels and to help correct at least in part the serious and long-lasting distortions of competition in the internal market that will inevitably follow.


Investigations into price hikes and other responses by the Ukrainian competition authority to the COVID-19 crisis


Anastasia Usova
Partner and Head of the Antitrust practice, Redcliffe Partners, Kyiv

The Ukrainian Competition Authority investigates price hikes for face masks, health protection products and long-life foodstuffs amidst COVID-19 outbreak. Airline tickets, telecoms and misleading claims about fake coronavirus treatments are also in focus.

1. The Antimonopoly Committee of Ukraine (the “AMC”) has been extremely active since the beginning of the coronavirus outbreak. Starting from the end of February, the AMC has issued recommendations in Kyiv and the Kyiv region (i) to pharmacies to refrain from imposing economically unjustified price increases for face masks, and (ii) to food retail chains to refrain from unreasonable price increases for face masks, disinfectants and long-life food. The AMC has also launched investigations into parallel price increases in the same region (i) by pharmacies and the wholesale suppliers of healthcare products, including face masks, as well as (ii) by food retailers and their wholesale suppliers of vegetables and long-life foodstuffs.

2. One of the most hotly debated COVID-19-related cases concerns the spike in prices for airline tickets by Ukraine International Airlines (“UIA”). [455] The competition authority has received numerous complaints from consumers against UIA. According to complaints, the price of an economy flight from London to Kyiv increased to EUR 830 during the last days before suspension of air travel to and from Ukraine, although previously it was less than EUR 350. In mid-March, the AMC announced that it will examine the price increases for UIA airline tickets. The public is keeping a keen eye out for the results of the AMC’s study.

3. On 26 March 2020, the AMC issued so-called “preventive” recommendations to the three largest mobile phone operators in Ukraine to prevent simultaneous or co-ordinated price increases for tariff plans and/or deterioration in the quality of mobile phone services.

4. The AMC also conducts day-to-day monitoring of the information and advertisements on TV, in the press and social media to counteract the spread of misleading claims for fake coronavirus treatments or vaccines. On 27 March 2020, the AMC opened the first related case against a Ukrainian pharmaceutical company which made TV advertisements claiming that its antiseptic agent “has an effect on all complex viruses, including coronaviruses.” In this article, more light will be shed on competition cases in Ukraine initiated by the AMC in response to the COVID-19 crisis as well on how the authority operates during these unprecedented quarantine measures.

I. Implications on timeframes and merger control reviews

5. So far, there are no changes to the existing merger control requirements of the AMC and merger review timeframes. The AMC is working as usual and accepting merger filings, which have to be delivered in hard copy during normal working hours. The AMC has not made any statements encouraging parties to postpone notifications and is clearing transactions within its statutory timelines.

6. No disruptions or delays in merger control reviews have been seen so far. However, since a large part of its staff is working remotely or is absent, there is a potential risk that if the AMC begins to face difficulties in meeting statutory deadlines due to limited human resources, the rejection of merger filings on formalistic grounds, or shifts from the fast-track to the standard procedure, cannot be excluded.

II. Investigations into excessive pricing and parallel price increases

1. Pharmacies, wholesale suppliers and manufacturers: Face masks and antivirals in focus

7. At the end of February 2020, the AMC’s regional office in Kyiv issued recommendations to 34 pharmacies urging them to refrain from setting economically unjustified prices for face masks. [456] Seven pharmacies have already reported their fulfilment of the recommendations. Information requests were also sent by the AMC to more than 50 pharmacies to provide data on their purchase and resale prices for antivirals, painkillers, anti-fever drugs and face masks. The AMC is also monitoring the pricing of face masks by manufacturers and wholesalers.

8. On 31 March 2020, the AMC’s regional office in Kyiv launched an investigation into parallel price increases by pharmacies in Kyiv and the Kyiv region, as well as wholesale suppliers/manufacturers, of healthcare products, including face masks. According to the AMC, during February–March 2020 a sharp price increase for face masks was seen in pharmacies in Kyiv and Kyiv region. Certain pharmacies reported to the AMC that such retail price increases were caused by an increase in the prices set by their wholesale suppliers, so causing them to increase their retail prices accordingly. However, in the AMC’s view, there were no objective factors that could cause an increase in the costs of production or distribution of such products. The AMC continues to investigate this issue.

9. In parallel with the above investigation, on 31 March 2020, the AMC issued recommendations to pharmaceutical companies, importers, distributors and pharmacies to prevent competition law violations on the markets for antiviral drugs and personal health protection products. [457] In particular, the AMC recommended “to refrain from any actions that may lead to price increases for imported medicines and for locally produced medicines containing imported compounds that outpace the growth of the foreign currency exchange rate against the Ukrainian currency.” Starting from 1 January 2020, the value of Ukraine’s currency has been falling, which has resulted in price increases for imported products for end consumers.

2. Food retailers and wholesale suppliers: Face masks, disinfectants and long-life food in focus

10. On 13 March 2020, ten retail chains in Kyiv and the Kyiv region received the AMC’s recommendations against unjustified price increases for face masks, disinfectants and long-life food. [458] In its statement the AMC reminded the retailers about a special provision of the Ukrainian competition laws under which a simultaneous price increase for certain products may constitute anti-competitive concerted practices if (і) several companies simultaneously raise prices for certain products which may lead to the prevention, elimination or restriction of competition, and (ii) analysis of the market situation shows that there are no objective reasons for such similar price increases.

11. This is unlike many European countries, where excessive pricing may be illegal only if either (a) it results from a price-fixing agreement amongst undertakings or (b) it constitutes exploitative abuse by a dominant undertaking, in which case it should be proved that (i) the firm charging the prices holds a dominant market position, and (ii) the prices charged are excessive. In Ukraine, a third scenario for a pricing violation is possible, so-called “anti-competitive parallel behaviour”.

12. Under the above-mentioned concept of “anti-competitive parallel behaviour,” non-dominant companies may be found liable for excessive pricing by way of anti-competitive concerted practices even in the absence of agreement/co-ordination amongst them. If the companies simultaneously or “almost simultaneously” increase their prices, and such similarities in price increases cannot be explained by objective factors, it can be assumed that the only plausible explanation for such parallel behaviour is concerted practices amongst competitors. Thus, in order to establish a violation, in addition to finding price correlation amongst competitors which increase their prices in parallel, the AMC is also required to examine all the objective factors which could cause such similarity.

13. The AMC traditionally applies such approach to the retail markets for fuel and liquefied petroleum gas when simultaneous or “almost simultaneous” price increases by gas stations are observed. However, in the previous AMC’s practice, the analysis was often limited to selected factors such as comparison of purchasing prices vs resale prices, inflation and cost structure analysis. However, many other important factors, such as fiscal changes and logistics costs, were often ignored, as was the economic analysis of relevant competition models explaining the similarity in price increases by gas stations. It remains to be seen whether a proper standard of proof will be applied in this case, and whether all the external factors that could cause parallel price rises will be taken into account by the AMC.

14. The AMC continues regular price monitoring of products in everyday consumption, and requests retail chains to provide information on purchasing prices and resale prices for bread, grains, sugar, flour, most popular types of meat, and vegetables.

15. On 26 March 2020, the AMC’s Kyiv Regional Office launched an investigation into parallel price increases by food retailers in Kyiv and the Kyiv region and their wholesale suppliers. According to the AMC, during March 2020, a sharp price spike was seen in the retail prices for long-life foodstuffs, such as sugar, buckwheat and rice, and vegetables such as potatoes, onions, carrots, beetroot and cabbage. The recent analysis of the AMC shows that in certain regions the price hikes have been seen in buckwheat (50%), potatoes (60%), and onions and carrots (100%).

16. According to the food retailers, retail price increases were caused by increases in the prices set by wholesalers supplying food to retailers. Based on the increases in purchase prices, the retailers had to increase their retail prices accordingly. However, according to the AMC’s regional office in Kyiv there are no objective factors that could cause price increases for these products.

17. Less than a week after publicising the opening of the case on retail price increases for foodstuffs, the head of the AMC’s regional office in Kyiv announced that certain prices have stabilised or even fallen in response to the imminent investigation. The investigation will continue to establish whether the wholesale suppliers, the retailers, or both, were guilty of unjustified and simultaneous price hikes during the first part of March.

III. Preventive recommendations to mobile phone operators

18. On 26 March 2020, the AMC issued so-called preventive recommendations to the three largest mobile phone operators to prevent concerted practices/parallel behaviour which may lead to the prevention, elimination or restriction of competition by way of simultaneous or co-ordinated:

  •  price increases for tariff plans;
  •  closing of social or cheap tariff plans;
  • automatic transfer of subscribers to more expensive tariff plans;
  • deterioration in the quality of telecommunication services. [459]

19. Unlike the majority of the above-mentioned recommendations issued by the AMC in the pharmaceutical and food retail sectors, which were based on the facts of price hikes and aimed to discourage price increases, the recommendations for mobile phone operators are of a purely preventive nature. The AMC has not established any facts in the conduct of mobile phone operators which could violate competition laws. Nevertheless, the three largest mobile phone operators in Ukraine are obliged to consider the recommendations and inform the AMC of the results of their deliberations of them and how these will be fulfilled.

20. The AMC’s recommendations to mobile operators appear to be very broadly worded and ignore certain objective challenges that mobile phone operators may face due to switching to remote working by the majority of businesses, so increasing network congestion. In particular, if too many users try to connect simultaneously to the same mobile phone base station, that station becomes overwhelmed, causing calls to drop and data-transfer speeds to slow. As the demands on networks rise, so the more complicated it may become for mobile operators to ensure a proper routine and emergency maintenance of the network, particularly if engineers report sick or are forced to self-isolate due to mandatory stay-at-home orders. [460] While the AMC recommends “not to reduce the quality of mobile services,” it is important to take into account these objective constraints throughout the period of COVID-19 quarantine measures.

21. Many countries have already taken steps to mitigate such network congestion challenges. The USA has granted its networks additional radio spectrum on a temporary basis, and several other countries are in the process of doing the same; European and other regulators have also asked the big streaming services—Netflix, Amazon, YouTube—to reduce the quality of their videos to free up capacity. [461] Thus, instead of shifting the blame onto mobile phone providers, a better solution to address the new challenges facing network congestion could be by involving other private and government stakeholders as well.

IV. Misleading claims about fake coronavirus treatments

22. With public anxiety increasing, the first television advertisements claiming that a drug “has an effect on all complex viruses, including coronaviruses” have already appeared on Ukrainian television, while the World Health Organization and the Ministry of Health of Ukraine officially state that no approved drugs against COVID-19 exist as of today.

23. The above-mentioned TV commercials concerned Decasanum antiseptic agent (active ingredient—decamethoxin) manufactured by the Ukrainian pharmaceutical company Yuria-Pharm LLC. On 27 March 2020, the AMC opened a case against Yuria-Pharm regarding its misleading claims. [462] Yuria-Pharm subsequently made a statement that it admits liability for incorrect claims made in the commercials, and emphasised that Decasanum does not cure COVID-19 and is only an antiseptic and disinfectant agent.

24. In Ukraine, unproven claims that certain medicines may prevent or treat coronaviruses in the absence of laboratory/scientific evidence constitute misleading information, a violation of the Law on Protection from Unfair Competition. Such actions may cost the violator a fine of an amount up to 5% of the turnover of the undertaking for the previous financial year. Furthermore, it does not matter where such information is displayed—on packaging, in advertising materials, on websites, in the media or via social networks.

25. The AMC has issued recommendations to pharmaceutical companies, advertising agencies and TV channels to refrain from advertisements claiming that certain medicines treat and/or prevent coronaviruses, without any confirming evidence, in particular without official recommendations issued by the Ministry of Health of Ukraine. [463] In other words, the pharmaceutical companies, advertising agencies and TV channels are required by the AMC neither to create nor to disseminate advertising that can mislead consumers by claiming that it may prevent or cure COVID-19.

26. The AMC has also warned manufacturers against communicating misleading, incomplete or inaccurate information about the antiseptic or disinfectant properties of sprays, solutions, gels, wipes and other products, as well as their ability to kill viruses, including COVID-19, in order to attract consumers.

27. According to the AMC, in particular, the following cases may constitute illegal misleading information:

  •  inducing consumers to buy products by placing the information using coronavirus/COVID-19-related words and/or visual images of viruses without sufficient grounds;
  • spreading unproven claims about certain effects of the product on viruses, including COVID-19, or on improving immunity;
  • indicating information about the effects of a drug that does not correspond to its technical documentation;
  • insufficient quantity of the active ingredient in a drug;
  • spreading misleading information about the time course of a drug effect, minimum dose of drug, etc.;
  • disseminating unproved information about the drug’s ability to eradicate a certain percentage of bacteria (95%, 99%, 99.9%, etc.); and
  • lack of approvals required from and issued by the authorised state bodies.

28. The AMC conducts day-to-day monitoring of the information and advertisements on TV, in the press and social media to prevent the spread of misleading claims of fake coronavirus treatments or vaccines. 


Cooperation between companies in times of health crisis


Faustine Viala
Partner, Antitrust & Competition, Willkie Farr & Gallagher, Paris

David Kupka
Associate, Antitrust & Competition, Willkie Farr & Gallagher, Brussels

1. In this time of health crisis, companies are heavily involved in increasing the production of masks, disinfectant gel, or more broadly in research. Manufacturers and distributors of consumer goods are managing to avoid shortages of scarce products. While this wave of solidarity and cooperation is applauded by public authorities, it remains subject to antitrust rules. Authorities in the United States and the United Kingdom emphasised that they will not tolerate price gouging or abusive exploitation. What impact may be expected on the EU antitrust rules regarding crisis cooperation: are companies allowed to share information in the pursuit of improving crisis management or progress in research & development, or to adjust their relations with suppliers and distributors?

2. It is important to recall from the outset that there is widespread acceptance that cooperation between companies does not fall under an absolute prohibition by EU antitrust rules, even if it takes place between competitors. Therefore, even in “normal” times, behaviour having a restrictive effect on competition may under certain conditions comply with Article 101 TFEU. We should, thus, unambiguously reject from the outset the expectation that the context of the health crisis will fundamentally change the European competition authorities’ views. A more appropriate assumption when considering a possible adjustment in the implementation of EU and national antitrust rules is that the review of the interaction between companies may result in a more lenient and individualised evaluation.

3. To date, European authorities globally responded in this manner, whether by the declaration of the European Competition Network (“ECN”) of 23 March 2020 ensuring companies that it will not intervene against certain measures aiming to prevent shortages of scarce products, [464] or by the creation of a dedicated mailbox by the Commission (comp-covid-antitrust@ec.europa.eu) to streamline individualised informal guidance to companies, consolidated in the Temporary Framework for assessing antitrust issues related to business cooperation in response to situations of urgency stemming from the current COVID-19 outbreak adopted on 8 April 2020 (’Temporary Framework’).

4. Providing companies with timely responses to legitimate concerns is a step in the right direction. While the Temporary Framework provides some guidance, it paves the way to further informal and confidential ’comfort’ letters. It will be interesting to observe whether, at a later stage, the Commission makes accessible to the public a compilation of such further advice provided. This would be desirable especially if the crisis persists, or to provide guidance for future health crises in Europe or in other jurisdictions with similar competition rules.

5. Today, the cooperation between companies in the context of a health crisis still remains a live issue from the competition law perspective. This article therefore does not attempt to provide definitive responses, but rather intends to present a short overview of the analytical framework with regard to some key concerns companies may face.

I. Health crisis, a legitimate reason justifying the exchange of some information

6. The general principles on the assessment of information exchange are detailed in the Commission’s Horizontal Guidelines, inviting consideration of both the context and the content of the exchange because “[t]he competitive outcome of information exchange depends on the characteristics of the market in which it takes place (…) as well as on the type of information that is exchanged” (para. 58).

7. The existing analytical framework therefore provides in theory enough space to adjust the assessment in the context of a crisis. In practice, the European authorities indeed seem to use their discretionary powers to signal a more lenient assessment if the exchange ultimately benefits consumers. For example, when the ECN indicates that it will not intervene against measures put in place to avoid a supply shortage, it is reasonable to consider that an exchange of information shall not be prosecuted as anticompetitive if it pursues that objective.

8. It appears possible to extrapolate from the ECN statement, combined with the Temporary Framework, a broader guidance to companies considering that an information exchange may be necessary in the context of the crisis. The assessment should consider the nature of both the information and the exchange. Indeed, at least three key criteria should be considered with regard to the information:

  •  the nature of the goods concerned: the authorities seem to be more open to the exchange of information relating to scarce products, but there is no obvious reason why other goods genuinely critical to overcoming the crisis should not benefit from a favourable treatment;
  •  the geographical scope: information should be limited to the geographic area concerned by the crisis and more specifically to the objective of the exchange; and
  • the content of the data: the exact scope of the information and its adequacy to the pursued objective are a main concern; for instance, the avoidance of a food shortage may require the exchange of data on the level of stock or the scheduling and means of supplying food, however, it does not seem to entail sharing prices or marketing strategy.

9. With regard to the nature of the exchange, the assessment is essentially based on the appreciation of:

  •  the necessary and temporary nature of the exchange: data must be needed to attain the objective while limited in time. The ECN showed strong willingness to return to standard implementation of competition rules as soon as the extraordinary circumstances come to an end; and
  • the intention and good faith of the companies in pursuing their objective: in line with Article 101(3) TFEU, companies should aim to contribute through the information exchange to the production or distribution of goods in the interest of consumers and should not do so by disproportionately restrictive means.

II. Pragmatic approach to enhanced cooperation between competitors made necessary by the crisis

10. Similarly to the assessment of information exchange, broader cooperation between competitors during a crisis requires the analysis of its material and geographical scope in conjunction with the necessity of such cooperation, its temporal limit and the intention of the parties. The ECN provides some comfort with regard to “necessary and temporary measures put in place in order to avoid a shortage of supply [of scarce products]”, as more broadly confirmed by the Temporary Framework.

11. Intuitively, in the context of the current health crisis, joint supply or purchasing agreements seem most eminently concerned with the risk of shortages in the supply of scarce products. However, as provided In the Temporary Framework, there is no reason why other types of cooperation agreements should be excluded from the temporary non-intervention policy if, after examination, all criteria are fulfilled (e.g., joint temporary production of protection masks). Article 101(3) TFEU indeed provides sufficient grounds for agreements necessary to genuinely alleviate the crisis to benefit from an individual exemption.

12. From a practical standpoint, the main concern in the competitive assessment of cooperation agreements may become the construction of a counterfactual scenario. A crisis is by definition unpredictable and requires swift implementation of cooperation initiatives to result in the desired outcome. Competition authorities should thus be compelled to show a certain degree of open-mindedness in considering what would have happened in the absence of the implementation of the proposed cooperation between companies and, in particular, whether a less restrictive option was available. Given the time sensitivity, it appears excessive to require the establishment of more than a prima facie evidence of the counterfactual situation.

13. On the other hand, a health crisis does not give the companies a blank check permitting practices which are not necessary or proportionate to what is required to overcome the crisis. A “crisis cartel” will likely remain an illegal cartel: this would be the case of a supply agreement which goes beyond what is necessary to ensure the avoidance of a shortage or fixes higher prices for consumers.

14. The Temporary Framework and the ECN made it clear that increased enforcement can be expected “against companies taking advantage of the current situation by cartelising or abusing their dominant position.” In this regard, it will be interesting to observe whether the authorities will use their discretion to take action also against non-European companies applying abusive or profiteering practices on European consumers.

III. Innovation: How to manage the encouragements to cooperate

15. The Horizontal Guidelines indicate that an agreement may have restrictive effects on competition if it has, or is likely to have, an appreciable adverse impact on “one of the parameters of competition on the market, such as (…) product variety or innovation” (para. 27), while the R&D Block Exemption Regulation provides comfort to joint R&D programs under certain conditions. During a health crisis, increased pressure is exercised on certain companies, especially in the pharmaceutical sector, to cooperate with a view to develop a treatment, or improve means of sanitary protection. While cooperation with research centres does not seem to trigger specific crisis-related difficulties from a competition law perspective, enhanced cooperation between competitors may be more challenging, especially in markets where innovation is an important competitive force.

16. Health services constitute a practical example of this setup, where innovation is a key parameter of competition. In the context of a health crisis, public authorities globally encourage pharmaceutical companies to cooperate. While such cooperation should be broadly covered by the R&D Block Exemption Regulation, it may potentially involve the exchange of competitively sensitive data on a wider range of research subjects. The fundamental question is therefore whether companies may translate the encouragements to cooperate with regard to COVID-19 into a wider cooperation in R&D.

17. In normal circumstances, it is uncertain whether authorities would adopt a favourable view on such cooperation requiring inter alia access to pre-existing know-how of the parties, especially if such know-how is key to competition in the market. While a paradigm shift should not be expected during the crisis, the Commission’s acknowledgment that “[t]he exceptional circumstances of this time (…) may trigger the need for companies to cooperate with each other in order to overcome the crisis to the ultimate benefit of consumers [465] suggests that a more lenient view is possible on a case-by-case basis, rather on the basis of Article 101(3) TFEU than by adjusting the rules of the R&D Block Exemption Regulation.

18. Indeed, the reference to (i) the necessity of the cooperation in overcoming the crisis and (ii) the resulting benefit to consumers refers directly to the first two prongs of the individual exemption test. The two remaining conditions of Article 101(3) TFEU are, however, not excluded and any crisis-related cooperation will continue to be assessed also with regard to (iii) the indispensability of the restriction of competition induced by the cooperation, and (iv) the absence of elimination of all competition.

19. The Temporary Framework confirms this approach when it indicates that exceptional cooperation measures would not be prosecuted if they are (i) designed and objectively necessary to achieve the objective, (ii) temporary in nature, and (iii) not exceed what is strictly necessary. The Commission also states that the fact that a cooperation is encouraged and/or coordinated by a public authority is also a relevant factor.

20. From a practical standpoint, the cooperation in R&D or in any other field should thus be as specific to the crisis-related objective as possible and less restrictive ways to attain such objective should be considered. In the pharmaceutical industry, it appears that the European Medicines Agency has already engaged with companies to monitor the medical developments underway. [466] The involvement of a public body overseeing the cooperation with appropriate firewalls indeed appears as one of the possible ways to limit the competitive risk, as confirmed by the Temporary Framework.

IV. Adjustments to relations with distributors during a health crisis

21. While cooperation between competitors involves a higher level of antitrust risk, the assessment of vertical relations may also be affected by the health crisis. In an attempt to limit the application of unjustified price increases at the distribution level, the ECN rightly highlighted that manufacturers can set maximum resale prices for their products. The Temporary Framework does not consider vertical relations.

22. In practice, however, other concerns may also arise, such as the need to temporarily implement hardcore restrictions, or temporarily remove permitted restrictions. The Vertical Guidelines foresee the possibility to apply hardcore restrictions in exceptional circumstances (paras. 60–64) and the Guidance on the application of Article 81(3) also constitutes a useful tool.

23. Concerning the loosening of permitted restrictions, such as the prohibition of sales to non-authorised distributors in the context of a selective distribution network, or the restriction of purchases of components from third parties, the appreciation by national courts will be interesting to observe both under antitrust and contractual laws. For instance, should a company allow sales to non-authorised distributors because this is necessary to overcome the crisis (e.g., to increase the capacity and pace of distribution of critical products), it appears unreasonable to hold the company responsible for the temporary failure to protect the integrity of its selective distribution network. Similarly, while a restriction on procurement of components from third parties may be justified under Article 101(3) TFEU if the supplier has made a substantial relationship-specific investment, it may appear necessary to temporarily set aside such restriction if components are necessary to operate critical equipment (e.g., medical ventilators). 



Liberalisation of the COVID-19 testing service market to ensure individual access to testing and the role of competition laws and authorities: Lessons from Japan



Masako Wakui
Professor of Law, Kyoto University Faculty of Law

1. The COVID-19 virus is highly transmissible. Patients with few symptoms, and even those who are asymptomatic, can spread the virus. Although the fatality rate is less than 10%, the virus is killing tens of thousands of people each day across the world. At the time of writing, with no vaccine or treatment available, the only way to protect society from collapsing is to test individuals, identify those who are positive and isolate them to stop the spread of the virus.

2. In the majority of countries, the government plays a crucial role in testing for COVID-19. By virtually monopolising testing services or setting a national policy of testing, governments decide who should be tested as well as how and by whom. Private parties are also involved; testing kits and services are supplied by both public bodies and institutions such as pharmaceutical companies and laboratories. COVID-19 testing typically entails taking a swab sample, which is also done at both public and private hospitals. However, individuals and their doctors are often not in a position to access these services; they must visit institutes run by governments or meet the standards set by their governments to be tested. Meanwhile, large number of people have asked to be tested but have been refused. [467]

3. Negative externality exists in relation to infectious diseases, which the free market alone cannot control, yet the government can also fail. In the following article, I review COVID-19 testing regimes in Japan based on data from April 7, 2020 (one must note that the situation changes from day to day). I then argue that the COVID-19 testing market should be liberalised in Japan, outlining the roles that competition law and authority should play in the liberalisation process as well as after the market has been liberalised.

I. Testing for COVID-19

4. Two tests can be used to determine whether an individual has an infectious disease: one for the virus itself and another for its antibodies. However, although the test to detect antibodies exists and several countries use it, particularly to test front-line health care workers, such as doctors and nurses, most governments, including Japan, acknowledge that only a virus detection test is reliable. The most widely used test is the reverse transcriptase polymerase chain reaction (RT-PCR) test.

1. Two approaches to combat COVID-19

5. Since the COVID-19 outbreak began, governments around the globe have taken different approaches to combat the pandemic. The first successful model to emerge was that adopted by the Taiwanese and South Korean governments, in which aggressive testing is conducted by national public health programmes and is complemented by the rigorous identification of possible infection, tracking, and isolation. [468] Despite their proximity to China, the original COVID-19 epicentre, Taiwan and South Korea managed to contain their numbers of infections and keep their death tolls low without instituting lockdowns. Testing is central to their strategies. In particular, South Korea increased its RT-PCR testing capacity so rapidly and implemented forward-looking proactive testing scheme when signs of the outbreak began to emerge in other countries. [469]

6. The model embraced by the original epicentre, Wuhan, China, as well as most European countries, Australia, Canada, India, New Zealand, and several US states, involves mandatory social distancing and lockdowns. Under this model, the government takes measures to reduce opportunities for individuals to come into physical contact with each other and transmit the virus. The government might order all citizens to stay at home and work remotely. Businesses that cannot function in this way are required to close unless they are considered to provide “essential services,” such as hospitals and police stations. Several countries have reported that the increase in confirmed cases has been slow, or is slowing, which may be signs of success of the strategy. [470] Under this model, business activities are suspended at large, which entails significant economic loss. Thus, testing is essential not only to determine whether an individual must be quarantined but also to allow policymakers to establish how strictly the lockdown should be implemented.

2. Japanese approach and testing

7. Japan is an example of a country that has elected to adopt neither of the aforementioned strategies. In Japan, once an infection is confirmed, the patient is quarantined. However, the number of tests is limited, and a large proportion of the population has no way of knowing whether they are infected. The government has ordered neither a lockdown nor social distancing. Instead, the central and local governments have urged people to avoid the “three Cs,” which are closed air, crowds, and close contact. [471] Although this may appear to be a kind social distancing, the three Cs’ criteria are easier to meet, as a distance of two metres between people need not be maintained as long as they are not in an enclosed environment, for instance. The government has recommended that people stay at home, but compliance is voluntary. The state of emergency declared on April 7, 2020, did not change this. [472] Although one may argue that this approach balances the need to continue economic activities with the need to control the spread of the virus, the success of such laissez-faire strategies in the midst of a pandemic is currently unknown.

8. Whatever the likelihood of its success may be, testing is as crucial under the Japanese approach as it is in other countries, if not more so. The likelihood that infected patients will come into contact with others is greater than under other models, and individuals, once infected, must be hospitalised and quarantined promptly. The greater likelihood of becoming infected also means that the need to test key sector workers—particularly doctors and nurses—is greater, to determine whether they are infected or may infect others. Furthermore, policymakers and citizens must be able to verify whether such an approach is effective to counter COVID-19. To make a sound judgement, they need to know the state of the spread of the virus.

9. The Japanese government, however, has kept the number of tests low. [473] When it reported the first case of infection on the 16th of January 2020, [474] COVID-19 testing was monopolised by the government; [475] those who suspected they were infected had to first call the COVID-19 helpline set up by the national and local governments and, if invited, visit designated national or local institutes and get tested. [476] Although the government repeatedly stated that it had increased its testing capacity, [477] the number did not increase significantly. [478] The governments demanded that the citizens call COVID-19 helplines first and not visit uncertified hospitals; [479] yet, in most cases, the callers were advised to see their doctors or to stay at home and wait until the illness resolved spontaneously. [480] Furthermore, even when doctors (who were not certified to conduct COVID-19 testing) referred individuals suspected of being infected to the health centres, the health centres did not always test them. [481]

10. The Japanese changed its position on March 4, 2020, to allow doctors to directly refer suspicious cases to special hospitals and other institutes that the local governments denoted as qualified to perform the test. [482] However, this change did not alter the situation. [483] Although the doctors are now allowed to refer patients directly, doctors lack both the protective equipment and facility to stop the spread of the virus within their general hospitals, discouraging those who are concerned about COVID-19 infection from visiting them. Instead, doctors request patients to call COVID-19 helplines set by governments. Meanwhile, the Japan Medical Association issued the notice advising that non-certified front-line doctors should cease to examining patients’ throats where the risk of being infected exists, [484] which further narrows the chance for citizens to reach testing through doctors. [485] The national and local governments remain the gatekeeper for the testing for citizens.

11. Furthermore, most newly qualified testing bodies were designated hospitals that had facilities to accommodate patients infected with COVID-19. Under the Japanese government’s current approach, patients must be quarantined in such hospitals once they have tested positive for the virus, even if they have no symptoms. [486] The number of facilities at these designated hospitals is limited, and the designated hospitals do not specialise in the treatment of patients with COVID-19, which means that the occupation of beds has resulted in the crowding out of patients with other illnesses requiring acute care. [487] These make the designated hospitals cautious with testing.

12. At the time of writing, most tests are still performed by local health centres and governmental testing institutes. [488] They adopt the “active epidemiological investigation,” or targeted testing, which focuses on tracking close contacts and eliminating cluster, declining citizens’ request for testing where they have not been in contact with patients with confirmed infection. This approach does not allow testing to be conducted for a large number of population. [489]

3. The outcomes of targeted testing

13. Despite the Japanese government’s claim that its approach to testing is “targeted” and scientifically sound, the need to test more has gradually become obvious to many. [490] “Targeted testing” is based on the assumption that the infection route and COVID-19 clusters can be detected, and thus, a large-scale COVID-19 spread may be effectively curtailed by tracking and eliminating such clusters. Over time, however, the government has reported an increasing number of cases for which the infection route could not be identified. This indicates a need for more testing.

14. The number of confirmed cases in Japan is low. [491] However, it is possible that the low number only reflects the small number of tests conducted in the country. [492] Governments are not always transparent. The Japanese government may be attempting to manipulate the number of confirmed cases so that the Tokyo Olympics, originally planned for summer 2020, may proceed, or to avoid inconvenience to businesses. However, in controlling COVID-19, a lack of public trust in government may be fatal, as this can deepen anxiety among citizens, trigger panic and result in citizens’ non-compliance with government instructions and requests. Particularly, where compliance with government recommendation is voluntary, the government must be able to persuade its citizens to change their behaviours. Polls conducted from February to early April showed that over 40–70% of Japanese citizens had negative views of the government’s approach to COVID-19. [493] A survey conducted in mid-March indicated that 60% of respondents feared that they could not be tested even if they desired to be. [494]

15. On the other hand, citizens do not take measures to prevent further spread of the virus. [495] Where there is neither a government order to stay at home nor widespread access to testing, the only viable option available to most of the population is to continue going to work. This must be beneficial for businesses; given the long-standing Japanese business culture, which emphasises physical presence in the office and face-to-face meetings, Japanese businesses expect their employees to be physically present. [496] Indeed, the 31 March–1 April survey showed that only 5.6% of workers telework. [497]

4. The Japanese government as a bottleneck of testing

16. The state of testing described above will neither help to combat COVID-19 nor serve citizens’ interests. The problems with the Japanese government’s approach to testing are threefold. Firstly, the health centres run by local governments have been slow in increasing testing capacity. Secondly, the designated hospitals provide three services: testing, quarantine, and acute care for COVID-19 patients. This model does not incentivise the designated hospitals to perform testing. Thirdly, the Japanese government is unwilling to have its citizens tested. If the government does not correct its policies to resolve these problems, the last resort could be to liberalise the COVID-19 testing market. In Japan, the media has reported that private laboratories have increased their testing capacity and have started to offer effective and convenient testing kits and systems. Japanese citizens should be able to obtain these products and services directly.

17. Although the private sector alone may not be able to combat COVID-19 given its infectious nature, liberalising testing services and establishing a private-public mix might better serve society at large. In the next section, I explore such an approach, further taking into account the nature of COVID-19.

II. The rationale for government control of testing

18. Controlling infectious disease is one of the key functions of governments, as an infectious disease produces negative externalities. Asymptomatic infected people or those who have few symptoms are likely to continue working and socialising, spreading the virus, which in turn results in widespread illness and potentially death. The government must either force such individuals to remain in isolation in their homes or accommodate them in segregated hospital wings. A coordinated effort to procure and allocate hospital beds may also be necessary, which typically requires governmental involvement. Depending on the nature of the disease, governments may take more drastic actions, such as instituting a lockdown. To implement these measures properly, the government must require individuals and health care workers to report cases so that policymakers can understand the nature and spread of the disease.

1. COVID-19 testing: Necessary conditions

19. COVID-19 testing helps the individuals to determine their state of health, but crucially, the testing also constitutes a part of a national disease control strategy. As such, a testing scheme must have three features: it must be performed on anyone who is likely to be infected; if people test positive, this fact must be made known to the institute that is in charge of quarantine; and finally, testing must be reliable and safe.

20. If a government plays a central role in testing, the second and third conditions can be easily met. However, a country’s government may be unable to test all individuals if the infection rate is high. Worse, the government may be unwilling to test. Bureaucracy, political concerns, and other inefficiencies may prevent the government from establishing an optimal level of testing. In addition, the government may be primarily occupied with limiting economic impact and societal effects of the virus and countering measures and, therefore, be unable to focus fully on testing.

21. In contrast, in the liberalised market, a different set of concerns would arise. Ensuring the third condition would be straightforward, as the government could set mandatory standards for COVID-19 tests and ensure that testing facilities comply. The first and second conditions, however, require thorough examination.

2. The liberalisation of the COVID-19 testing market to establish a public-private mix

22. The amount of testing may increase once the market has been liberalised, as such markets are often quicker than the government to respond to increases in demand. Currently, the demand exceeds the supply, yet it is possible that those who should be tested are not incentivised to do so. A non-negligible percentage of the population may avoid testing due to potentially negative outcomes, such as isolation, hospitalisation, or being unable to work or maintain their businesses. Testing and the potential resulting hospital stays may be prohibitively expensive for low-income households.

23. However, there are ways to alleviate these issues. In the case of individuals who should clearly be tested, such as those who have been in close contact with infected people, the government can order them to get tested. In addition, those who are experiencing severe symptoms are likely to voluntarily ask for testing. The issue of misalignment between private willingness and public need can be serious in the case of patients without symptoms or those with mild to moderate symptoms. Economic concerns might outweigh these patients’ urge to know their health condition. To address this, the government can provide financial assistance to mitigate such concern. Japan and most countries in Europe have already made hospital stays and the accompanying medications associated with COVID-19 free. In case of employees, sick leave is also being granted during the period of mandatory quarantine. However, the self-employed and freelance workers may still suffer economic losses by not being able to run their businesses, which must also be addressed by the government through financial support. Furthermore, to incentivise them adequately, those who have tested negative must also be helped, as otherwise, potential patients are unlikely to have adequate incentive to self-report and be tested.

24. In relation to the second condition—namely, the need for the government to know who are tested positive as well as how widely virus is likely to spread—governments can mandate that testing entities report the outcome of testing. While private entities may be unwilling to do so when they expect economic losses and inconvenience, guaranteeing them financial support will likely ease such concerns.

25. One may be concerned about the negative societal and economic impact of increasing the amount of testing, yet such a concern is groundless. Firstly, the government’s control over testing is unable to suppress the population’s panic over the pandemic. Japan indeed saw a significant increase in anxiety-driven purchases, despite a low number of confirmed cases. [498] In addition, if the government remains the gatekeeper of the tests, panic will only increase, as many will be unable to be tested and the population will know that the government’s estimate of the infection rate is unreliable.

26. Many also fear that a sudden increase in the need for hospital beds, staff, and equipment may cause the collapse of national health care systems, yet if a government overlooks potential COVID-19 cases due to concerns about space and staff in its health care system, that system is already broken. Instead, governments should focus on fighting the pandemic by hiring more staff and obtaining more equipment for their hospitals. Beds can be rationed; those with no symptoms or mild ones can simply be told to self-isolate.

27. Those who are against increasing the amount of testing have indicated that RT-PCR tests are inaccurate and that false-negative results will spread the virus, while false-positive ones will result in hospital beds being occupied unnecessarily. This is a ridiculous claim which cannot be justify low number of test. The percentage of false-negative RT-PCR results is considered to be 30% in Japan. In the current situation, large numbers of potential patients, as well as doctors, nurses, and policymakers, are acting almost blindly without knowing, or even estimating, the true scale of spread. Test would provide these parties with a clearer estimate of the likelihood of illness and the spread of the infection, which would help them to respond to COVID-19 more effectively.

28. Finally, liberalisation could lead to inequality in testing. Those who need to be tested the most—health care workers—might not have access to testing. Key workers should be prioritised not only to protect their own lives but to stop the spread of the virus. Yet rather than dismiss private testing due to health care workers’ greater needs, the government could become involved, paying for their tests or purchasing a sufficient number of test kits to accommodate these employees.

29. The liberalisation of testing may not be as efficient as governmental leadership, as the government can buy in bulk at a lower price. In addition, adding another layer of regulations and enforcement to ensure that private entities comply with quality standards and their obligation to report to the government will likely be costly. Such considerations, however, do not apply in the context of the Japanese government’s current response, which will be unable to achieve such efficiency.

III. The role of competition law and authority

30. The liberalisation of COVID-19 testing services is possible if it is accompanied by government oversight and regulation. Competition authorities not only enforce competition laws but also assess regulatory measures. In countries where the COVID-19 testing regime is not functioning, competition authorities should examine the situation and evaluate whether the government’s intervention serves the public welfare. In so doing, the authorities might also uncover factors that inhibit citizens from accessing COVID-19 tests. There is no reason for the Japan Fair Trade Commission not to engage in such a venture, as the Commission is assured the independence to act to ensure consumer welfare. [499]

31. In liberalised COVID-19 testing markets, the proactive enforcement of competition laws is vital. Hospitals, testing bodies and pharmaceutical companies must not be permitted to collude in a way that limits output and inflates prices. [500] Exclusionary practices must be prohibited. [501] Standard-setting and regulatory processes may result in anti-competitive practices; authorities should be ready to act should this occur. In jurisdictions in which exploitative practices are regulated under competition laws, exploitative unfair pricing, discriminatory treatment, and forced purchasing or tying of different products are also subject to regulation under competition laws. [502] Consumers must be neither misled nor coerced.

IV. Conclusions

32. COVID-19 has already changed the world. The arguments presented in this article may appear to be novel and thus unrealistic, but this pandemic makes it clear that it is time for every institute to consider creative solutions to problems. The liberalisation of testing services is far from new, and most other tests have been liberalised in Japan as well as in Europe and the United States.

33. In the face of this unprecedented crisis, the citizens’ expectation is that governments would act promptly and efficiently to protect their citizens’ lives. Tragically, governments are failing to meet this expectation in many places. When the market fails, the government is expected to intervene. In cases where the government fails, the last resort may be the competitive free market.

Footnotes

[1M. Boyer, Competition, open social democracy, and the COVID-19 pandemic.

[2P. M. Horna A global overview of the impact of COVID-19 on competition policies in key sectors.

[3M. P. Canedo Arrillaga, Competition and Corona crisis: Some reflections from Spain with an advocacy perspective.

[4FTC Provides Joint Senate Committee Testimony on Gasoline Prices and Competition in the U.S. Petroleum Industry, Chairman: Federal Price Gouging Laws Would “Unnecessarily Hurt Consumers.”

[5S. O’Keeffe, Competition in a time of Corona: “Primum non nocere.

[6EC, Commission decision IV/28.841 – ABG.

[7Judgement of 29 June 1978, Case 77/77 – Benzine en Petroleum Handelsmaatschappij BV and others v. Commission of the European Communities.

[8Communication from the Commission – Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings (Text with EEA relevance) (2009/C 45/02).

[9A. de Moncuit, How might the Covid-19 crisis change the dynamics of competition law?

[10A. Usova, Investigations into price hikes and other responses by the Ukrainian competition authority to the COVID-19 crisis.

[11J. Nicas, The Man With 17,700 Bottles of Hand Sanitizer Just Donated Them, New York Times, 15 March 2020.

[12A. Usova, Investigations into price hikes and other responses by the Ukrainian competition authority to the COVID-19 crisis. supra note 10.

[13M. Griffiths, South Africa: Comprehensive package of antitrust measures adopted in response to Covid-19 pandemic.

[14Competition Commission of South Africa, COVID-19 update: Competition Commission flooded with over 500 complaints of excessive pricing, 31 March 2020.

[15Antitrust: Joint statement by the European Competition Network (ECN) on application of competition law during the Corona crisis.

[16Bundeskartellamt, Bundeskartellamt opens up competition among ophthalmologists from different federal states in Germany, 2 July 2013.

[17Comisión Nacional de la Rompetencia, Resolución (Expte. 639/08 Colegio Farmacéuticos Castilla-La Mancha) 14 de abril de 2009.

[18Communication from the Commission – Temporary Framework for assessing antitrust issues related to business cooperation in response to situations of urgency stemming from the current COVID-19 outbreak.

[19F. Viala and D. Kupka, Cooperation between companies in times of health crisis.

[20Judgement of the Court (Third Chamber), 20 November 2008, Case C-209/07.

[21D. A. Crane, Antitrust during (and especially after) a global pandemic.

[22Guidance, CMA approach to business cooperation in response to COVID-19, 25 March 2020.

[23M. Griffiths, South Africa: Comprehensive package of antitrust measures adopted in response to Covid-19 pandemic. supra note 13.

[24C. Ritz, “Crisis Cartels” in times of COVID-19: Lessons from former crises teach a cautious approach.

[25Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation No 1/2003.

[26J. Buhart and D. Henry, COVID-19 and EU merger control: Time to loosen the FFD straitjacket?

[27C. Rizza and M. Siragusa, Two challenges posed by the economic shock caused by COVID-19 to the level playing field in the EU internal market: The current State aid race and the risk of hostile takeovers by state-owned companies from third countries.

[28Communication from the Commission – Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, and the protection of Europe’s strategic assets, ahead of the application of Regulation (EU) 2019/452 (FDI Screening Regulation), C(2020) 1981 final (25 March 2020).

[29J. Derenne, EU State aid control and COVID-19 outbreak: A first commentary (as of the situation on 5 May 2020). See also Concurrences No. 2-2020, art. No. 94390.

[30E. Carletti, M. Pagano, L. Pelizzon, and M. G. Subrahmanyam, Germany Will Be a Post-Coronavirus Winner, Bloomberg Opinion, 9 April 2020.

[31Communication from the Commission, Amendment to the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak, 8.5.2020 C(2020) 3156 final

[32C. Ahlborn, C. Barth and D. dos Santos-Goncalves, Foreign investment lockdown. supra note 29.

[33M. Boyer, Competition, open social democracy, and the COVID-19 pandemic. supra note 1.

[34D. A. Crane, Antitrust during (and especially after) a global pandemic.

[35The authors would like to thank their colleagues Jonathan Gafni (US), Pierre Guillot (France), Giorgio Valoti (Italy) and Mark Daniel (UK) of Linklaters LLP for their contributions to this article.

[36Communication from the European Commission: Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, and the protection of Europe’s strategic assets, ahead of the application of Regulation (EU) 2019/452 (FDI Screening Regulation), 25 March 2020, C(2020) 1981 (“FDI Communication”).

[37Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union (“FDI Screening Regulation”).

[38Horizon 2020 is the EU’s research and innovation programme to allocate increased funding to research and innovation projects for COVID-19.

[39FDI Communication of 25 March 2020, p. 1.

[40Also see Javier Espinoza, « Vestager urges stakebuilding to block Chinese takeovers », Financial Times of 12 April 2020.

[41Article 3(1) TFEU.

[42Article 63 TFEU.

[43Article 49 TFEU.

[44Article 18 TFEU.

[45Judgement of 14 March 2000, C-54/99 – Scientology, para. 17; Judgement of 18 December 2007, C-101/05 – Skatteverket.

[46France has recently expanded its regime by including additional sensitive sectors and by applying its foreign investment rules to both EU and non-EU investors equally.

[47Energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure.

[48Including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies as well as nanotechnologies and biotechnologies.

[49Article 4 FDI Screening Regulation.

[50Austria, Denmark, Finland, France, Germany, Hungary, Italy, Netherlands, Poland, Portugal, Romania, Sweden, and Spain.

[51Energy, water, food, information technology, financial services and insurances, health, transport and traffic.

[52Royal Decree 664/1999.

[53Strategic sectors are critical infrastructures, critical technologies and dual-use items, fundamental suppliers, sectors with access to sensitive information and communication media.

[54See footnote 10.

[55As defined in point 1 of Article 2 of Council Regulation (EC) No 428/2009 of 5 May 2009 setting up a Community regime for the control of exports, transfer, brokering and transit of dual-use items.

[56The list equals Article 4(1) of the FDI Screening Regulation.

[57The list corresponds to the recommendations in Article 4(2) of the FDI Screening Regulation.

[58Alternatively, investments which enable effective participation in the management or control of a company trigger the foreign investment review.

[59For non-sensitive sectors there was a value threshold of AUD 1,154 million for FTA investors and AUD 266 million for other investors.

[60Statement of Josh Frydenberg, Changes to foreign investment framework, 29 March 2020.

[61Thierry Breton, EU Commissioner for Internal Market and Services, EU Industrial Policy in times of coronavirus, Bruegel, Brussels, 19 March 2020.

[62Based on the terminology adopted in Switzerland, we opted for the term “ordinance” rather than “decree.”

[63Federal Constitution of the Swiss Confederation of 18 April 1999 (Cst.; Classified compilation [“RS”] 101). The Swiss federal administration provides English translations of important legal texts, although these translations are unofficial and therefore have no legal force. Where an English translation has been provided, the text will be cited in English. If no English translation has been provided, the act will be cited in French with a free translation by the authors, in brackets.

[64Loi fédérale sur la lutte contre les maladies transmissibles de l’homme du 28 septembre 2012 [Federal Act on Epidemics of 28 September 2012] (LEp; RS 818.101).

[65Article 185 Cst. is not mentioned in the preamble to this law. Instead, it refers to other constitutional provisions granting the Confederation the power to issue, on Swiss nationals living abroad, health protection in the fight against serious diseases (Article 118[2] Cst.), medically assisted procreation and genetic engineering. The first paragraph of Article 118 Cst., which states that the Confederation may take measures to protect health within the limits of its powers, does not appear in the preamble, either.

[66Article 7d of the Government and Administration Organisation Act of 21 March 1997 (GAOA; RS 172.010).

[67Ibid.

[68Ibid.

[69Ordinance on Measures to Combat the Coronavirus of 13 March 2020 (COVID-19 Ordinance 2; RS 818.101.24).

[70Articles 4(1) and 5(4) of the Federal Act on Cartels and other Restraints of Competition of 6 October 1995 (CartA; RS 251), as well as Competition Commission, Communication sur les accords verticaux du 28 juin 2010 [Communication on vertical restraints of 28 June 2010], as revised on 22 May 2017 (Communication on vertical restraints).

[71Article 4(2) and (7) CartA.

[72Swiss Federal Competition Commission, Press release of 26 March 2020, “Le droit des cartels s’applique durant la crise du coronavirus”, available on COMCO’s website at https://www.weko.admin.ch/weko/fr/home/actualites/communiques-de-presse/nsb-news.msg-id-78586.html.

[73Federal Council, Message relatif à l’initiative populaire “Stop à l’îlot de cherté –pour des prix équitables (initiative pour des prix équitables)” et au contre-projet indirect (modification de la loi sur les cartels du 29 mai 2019) [Introductory Report regarding the federal popular initiative “Putting an end to the high-price island – in favour of fair prices” and the indirect counter-proposal (amendment of the Cartels Act of 29 May 2019)] (Federal Gazette [“FF”] 2019 p. 4665) and draft law of the same date (FF 2019 p. 4743).

[74Ibid., p. 4727.

[75Currently this provision is in substance the equivalent of Article 102 of the Treaty on the Functioning of the European Union (TFEU) and qualifies the behaviours of undertakings holding a dominant position to be considered as abusive. The National Council did not follow the Federal Council and deleted proposed Article 7a CartA from the draft law and “replaced” it by a new Article 7(2)(g) CartA.

[76The first version of the COVID-19 Ordinance 2 was adopted by the Federal Council on 13 March 2020.

[77Debates before the National Council on 9 March 2020 (parliamentary item 19.037; Official Bulletin [“BO”] 2020 p. 205): for instance, Birrer-Heimo, Ritter, Michaud Gigon or Fivaz.

[78Agreement of 15 April 1994 (RS 0.632.231.422), as revised on 30 March 2020 (parliamentary item 17.020; FF 2019 p. 4413).

[79Agreement between the European Community and the Swiss Confederation on certain aspects of government procurement of 21 June 1999, OJ L 114, 30.4.2002, p. 430 (RS 0.172.052.68).

[80In particular, Loi fédérale sur les marchés publics du 16 décembre 1994 [Federal Act on Public Procurement of 16 December 1994] (LMP; RS 172.056.1), to be replaced by a new law dated 21 June 2019, to enter into force on 1 January 2021 (Official Compilation [“RO”] 2020 p. 641). Also Ordonnance sur les marchés publics du 11 décembre 1995 [Ordinance on Public Procurement of 11 December 1995] (OMP; RS 172.056.11), to be replaced by a new ordinance dated 12 February 2020, to enter into force on 1 January 2021 (RO 2020 p. 691).

[81Accord intercantonal sur les marchés publics du 25 novembre 1994/15 mars 2001 [Agreement among Cantons on Public Procurement of 25 November 1994/15 March 2001] (RS 172.056.5), to be replaced by a new agreement dated 15 November 2019 (Conférence suisse des directeurs cantonaux des travaux publics, de l’aménagement du territoire et de l’environnement [Swiss Conference of Cantonal Directors of Public Works, Urban Planning and Environment], AIMP révisé, https://www.dtap.ch/fr/dtap/concordats/aimp/aimp-2019). This agreement is then implemented by cantonal regulations.

[82https://www.bkb.admin.ch/bkb/fr/home.html. These recommendations were also supported by the Communauté d’intérêts des maîtres d’ouvrage professionnels privés (IPB) [Community of Interests of Professional Private Project Owners].

[83Conférence de coordination des services de la construction et des immeubles des maîtres d’ouvrage publics [Coordination Conference for Public Sector Construction and Property Services], COVID-19: Informations de la KBOB, https://www.kbob.admin.ch/kbob/fr/home/themen-und-trends/coronavirus.html.

[84Section 3.3.

[85Section 3.2. These measures might to some extent favour local providers.

[86Section 2.1. With respect to current public procurement proceedings, idem, Sections 3.1 and 3.2.

[87Section 1. See above section I of the present article.

[88New amendment of April 3, 2020.

[89Article 4k of COVID-19 Ordinance 2.

[90Ordonnance sur la restriction à la remise de médicaments du 18 mars 2020 [Ordinance on the Restriction of Supply of Medicines of 18 March 2020] (RS 531.215.33).

[91Article 6(3)(m) COVID-19 Ordinance 2.

[92Rapport explicatif concernant l’ordonnance 2 du 13 mars 2020 sur les mesures destinées à lutter contre le coronavirus, version du 3 avril 2020 [Explanatory report on COVID-19 Ordinance 2, updated as of 3 April 2020], p. 11.

[93Defined in the Loi fédérale sur l’assurance-maladie du 18 mars 1994 [Federal Act on Health Insurance of 18 March 1994] (LAMal; RS 832.10).

[94Article 32 LAMal.

[95Article 32 cum 25(2)(a), no. 3 LAMal.

[96See, for a complete list, Article 6 COVID-19 Ordinance 2.

[97Federal Department of Economic Affairs, Education and Research, SME Portal, Figures on SMEs: Essential Points in Brief, https://www.kmu.admin.ch/kmu/en/home/facts-and-trends/facts-and-figures/figures-smes.html.

[98Ordonnance sur l’octroi de crédits et de cautionnements solidaires à la suite du coronavirus du 25 mars 2020 [Ordinance on the Provision of Credits and Guarantees Following the Coronavirus of 25 March 2020] (Ordinance on COVID-19 Guarantees; RS 951.261).

[99Article 7(1) Ordinance on COVID-19 Guarantees.

[100Article 3(1) Ordinance on COVID-19 Guarantees.

[101Article 13(2)(a) Ordinance on COVID-19 Guarantees. However, the 4th paragraph of this rule grants the Federal Council the possibility to adapt the interest rates every year, the first time on 31 March 2021.

[102Article 3 Ordinance on COVID-19 Guarantees.

[103Article 8 Ordinance on COVID-19 Guarantees. From a technical perspective, the federal guarantee is only indirect: the loans themselves are guaranteed by loan guarantee cooperatives—an existing system designed to guarantee ordinary credit to SMEs—who are in turn guaranteed by the federal government.

[104U. Zulauf and L. Thévenoz, Pas d’obligation de diligence des banques? Centre for Banking and Financial Law, March 26, 2020, https://cdbf.ch/1119.

[105Article 7(1) Ordinance on COVID-19 Guarantees.

[106Article 4(1) Ordinance on COVID-19 Guarantees.

[107Article 4(5) Ordinance on COVID-19 Guarantees.

[108Article 4(1)(b) Ordinance on COVID-19 Guarantees.

[109Article 13(3)(b) Ordinance on COVID-19 Guarantees.

[110Article 6(2)(a) Ordinance on COVID-19 Guarantees.

[111Article 6(3) Ordinance on COVID-19 Guarantees.

[112Federal Council, Press release of 4 April 2020, Coronavirus: Federal Council examines bridging loans for aviation industry, https://www.admin.ch/gov/en/start/documentation/media-releases.msg-id-78741.html.

[113Ibid.

[114Agreement between the European Community and the Swiss Confederation on Air Transport of 21 June 1999, OJ L 114, 30.4.2002, p. 73 (RS 0.748.127.192.68).

[115Article 13(2)(b).

[116See, in a similar vein, Communication from the Commission C/2020/1863, Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak (2020/C 91 I/01), OJ C 91I, 20.3.2020, p. 1, passim.

[117See Article 6 COVID-19 Ordinance 2.

[118See Articles 4 and 5 of the Ordonnance sur l’atténuation des conséquences économiques du coronavirus (COVID-19) dans le secteur de la culture du 20 mars 2020 [Ordinance on the Alleviation of the Economic Consequences of the Coronavirus on the Cultural Sector of 20 March 2020] (COVID-19 Culture Ordinance, RS 442.15). Individuals active in the cultural sector but without a corporate structure can also receive governmental aid in the form of indemnities closely resembling employment benefits (see Article 6 COVID-19 Culture Ordinance).

[119Article 5 COVID-19 Culture Ordinance.

[120For an exhaustive overview, see Swiss Financial Markets Supervisory Authority (FINMA), FINMA Guidance 03/2020: Exemptions for supervised institutions due to the COVID-19 crisis, 7 April 2020; FINMA Guidance 02/2020: Temporary exemptions for banks due to the COVID-19 crisis, 31 March 2020.

[121Ibid.

[122Federal Council, Press release of 27 March 2020, Coronavirus: Federal Council approves deactivation of the countercyclical capital buffer, https://www.admin.ch/gov/en/start/documentation/media-releases.msg-id-78604.html.

[123Annex 1A.3 to the Agreement establishing the World Trade Organization of 15 April 1994 (RS 0.632.20). Also WTO International Dairy Agreement and Bovine Meat Agreement, respectively Annexes 4.c and 4.d to the Agreement establishing the World Trade Organization of 15 April 1994 (RS 0.632.20).

[124Agreement between the European Community and the Swiss Confederation on trade in agricultural products, OJ L 114, 30.4.2002, p. 132 (RS 0.916.026.81).

[125This is typically the case of Article 8a(1) of the Federal Law on Agriculture of 29 April 1998 (AgricA; RS 910.01), according to which: “[O]rganisations of producers of individual products or product groups or the corresponding branches may publish guideline prices at a national or regional level to which suppliers and buyers have agreed.” However, the law protects some elements of competition by providing that no undertaking may be forced to comply with guideline prices (Article 8a[3] AgricA) and that no guideline prices may be set for retail sales (Article 8a[4] AgricA).

[126Ordonnance sur les mesures visant à atténuer les conséquences économiques du coronavirus dans le domaine de l’agriculture du 1er avril 2020 [Ordinance on Measures to Mitigate to Economic Consequence of the Coronavirus in the Agricultural Sector of 1 April 2020] (COVID-19 Agriculture Ordinance; RO 2020 p. 1141).

[127Article 13(1) of the Ordonnance sur le bétail de boucherie du 26 novembre 2003 [Ordinance on the Market in Commercial Livestock and Meat of 26 November 2003] (OBB; RS 916.341; Section I,2 of the COVID-19 Agriculture Ordinance).

[128Amendments to Articles 19(2) and 54c of the Ordonnance sur les importations agricoles du 26 octobre 2011 [Ordinance on the Importation of Agricultural Products of 26 October 2011] (OIAgr; RS 916.01; Section I,1 of the COVID-19 Agriculture Ordinance) and Article 19 and 35b OBB (Section I,2 of the COVID-19 Agriculture Ordinance).

[129Amendment to Article 36 OIAgr (Section I,1 of the Ordinance COVID-19 Agriculture) and Article 16(4)(b) OBB (Section I,2 of the COVID-19 Agriculture Ordinance).

[130M. Ridley, We are about to find out how robust civilisation is, The Spectator, March 21, 2020.

[131D. Rumsfeld (2002), the former US Secretary of Defense: “[T]here are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we dont know we dont know. And if one looks throughout the history of our country and other free countries, it is the latter category that tend [sic] to be the difficult ones” (https://archive.defense.gov/Transcripts/Transcript.aspx?TranscriptID=2636)

[132See M. Boyer (2015), Growing out of the Crisis and Recessions: Regulating Systemic Financial Institutions and Redefining Government Responsibilities, CIRANO Scientific Series 2015s-01, 54 pages, https://www.cirano.qc.ca/files/publications/2015s-01.pdf, and http://cirano.qc.ca/files/publications/2017MO-04.pdf (Tome 2, chap. 24); See also P. Veronesi and L. Zingales (2010), Paulson’s gift, Journal of Financial Economics 97, 339–368 (note: the article predates most reimbursements by the banks). For disbursement by and reimbursement to US Treasury over time for all TARP (Troubled Asset Relief Program) funds, see the TARP tracker at https://www.treasury.gov/initiatives/financial-stability/reports/Pages/TARP-Tracker.aspx#All.

[133In spite of the government heavy-handed interventions, the market discipline eventually prevailed and, contrary to entrenched popular beliefs, responsibilities and liabilities were broadly imposed and implemented.

[134Such international trade restrictions could be termed “overreaching/illegal use of the Act.”

[135In Understanding the WTO, World Trade Organization (2007). https://www.wto.org/english/thewto_e/whatis_e/tif_e/utw_chap1_e.pdf.

[136To borrow the title from L. Zingales (2012), A Capitalism for the People, Basic Books.

[137F. H. Hahn (1978), On Non-Walrasian Equilibria, Review of Economic Studies 45, 1–16.

[138J. Y. Lin (1990), Collectivization and China’s Agricultural Crisis in 1959–1961, Journal of Political Economy 98, 1228–1252. See also J. Y. Lin and D. T. Yang (2000), Food Availability, Entitlements and the Chinese Famine of 1959-61, The Economic Journal 110, 136–158.

[139This paper does not discuss inter alia State aid measures that are being taken to alleviate the economic impact of COVID-19, potential measures to stave off the threat of (unfair) public takeovers of European companies and the like, nor does it discuss whether, and, if so, the extent to which, industrial policy considerations should inform the application of the EU Merger Regulation.

[140Article 2(3) of Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (2004).

[141Id., Article 2(2): “A concentration which [does] not significantly impede effective competition (…) in particular as a result of the creation or strengthening of a dominant position, shall be declared compatible with the common market.”

[142Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings (2004) (“Horizontal Merger Guidelines”) and Joined Cases C-68/94 and C-30/95, France and Société commerciale des potasses et de l’azote et Entreprise minière et chimique v. Commission [1998] ECR I-1375.

[143Horizontal Merger Guidelines, para. 89. See also Opinion of Advocate General Tesauro of 6 February 1997 in Joined Cases C-68/94 and C-30/95 France v. Commission [1998] ECR I-1375, para. 49 et seq.

[144Horizontal Merger Guidelines, para. 90. The underlying rationale of Criterion 3 is that the application of Criteria 1 and 2 does not address the possibility of a takeover by third parties of the production assets of the failing firm in the course of bankruptcy proceedings. Should these production assets stay on the market, the effects on competition may be similar to (or more beneficial than) the takeover of the entire failed business by an alternative purchaser, see OECD Competition Committee Meeting of 21 October 2009, Roundtable on Failing Firm Defence, Note by the services of the European Commission Directorate-General for Competition, para. 7.

[145The FFD Criteria are similar to the requirements of the U.S. antitrust rules: (i) the allegedly failing firm would be unable to meet its financial obligations in the near future, (ii) it would not be able to reorganize successfully under Chapter 11 of the Bankruptcy Act (11 U.S.C. §§ 1101–1174 (1988)), (iii) it has made unsuccessful good-faith efforts to elicit reasonable alternative offers of acquisition of the assets of the failing firm that would both keep its tangible and intangible assets in the relevant market and pose a less severe danger to competition than does the proposed merger, and (iv) absent the acquisition, the assets of the failing firm would exit the relevant market (U.S. DOJ and FTC Horizontal Merger Guidelines 1992, as revised).

[146Horizontal Merger Guidelines, para. 91.

[147See, e.g., Case No COMP/M.2876 – Newscorp/Telepiù of 2 April 2003 at para. 215.

[148Case COMP/M.993 – Bertelsmann/Kirch/Premiere of 27 May 1998 at para. 71.

[149See OECD Policy Roundtables: the Failing Firm Defence (2009), p. 25.

[150Case No IV/M.053 – Aerospatiale-Alenia/de Havilland of 2 October 1991.

[151Case COMP/M.308 – Kali + Salz/MdK/Treuhand of 14 December 1993.

[152Case No COMP/M.2314 – BASF/Eurodiol/Pantochim of 11 July 2001.

[153Case No COMP/M.6360 – Nynas/Shell/Harburg Refinery of 2 September 2013.

[154Case No COMP/M.6796 – Aegean/Olympic II of 9 October 2013.

[155See for example id., where the EC sent out questionnaires to 24 European airlines to establish whether there was any interest in acquiring Olympic—see para. 811.

[156Cases in which the FFD was unsuccessfully invoked include inter alia: Case No IV/M.774 – Saint-Gobain/Wacker-Chemie/NOM of 4 December 1996, Case No IV/M.890 – Blokker/Toys “R” Us of 26 June 1997; Newscorp/Telepiù, supra note 9, Case No COMP/M.4381 – JCI/Fiamm of 10 May 2007 and Case No COMP/M.5830 – Olympic/Aegean Airlines of 26 January 2011.

[157See, e.g., id. JCI/Fiamm where, while Criteria 1 and 2 were met, Criterion 3 was not as competitors could acquire the relevant assets in the context of bankruptcy proceedings, see paras. 749 and 750.

[158Supra note 14, para. 144.

[159Supra note 18, paras. 717–721.

[160Supra note 14, paras. 146–148.

[161See Olympic/Aegean Airlines, supra note 18.

[162Supra note 16, para. 816. As mentioned, the EC sent out questionnaires to 24 European airlines to establish whether there was any interest in acquiring Olympic. None of the 20 airlines which responded indicated any interest in purchasing the carrier. During the investigation, one third party, Chrysler Aviation, submitted to the EC that it had a potential interest in acquiring Olympic but the EC, for various reasons, harboured doubts as to the seriousness of Chrysler Aviation’s intentions with regard to the acquisition of Olympic.

[163See, e.g., Blokker/Toys “R” Us, supra note 18, at para. 113: “Toys “R” Us has not shown that there was no less anticompetitive purchaser. The claim of Toys “R” Us that only the Blokker group met its requirement of having sufficient knowledge of the Dutch toy retail market and the necessary infrastructure is not in itself an argument that there were no other potential buyers. On the contrary, it rather supports the assessment that Toys “R” Us selected the strongest player on the market. In its description of other potential buyers, Toys “R” Us said that it rejected those parties which had no specific knowledge of the market conditions in the Benelux or operators which were potential competitors in other Member States.

[164Supra note 14, paras. 149–163.

[165See D. Gore, S. Lewis, A. Lofaro and F. Dethmers, The Economic Assessment of Mergers under European Competition Law (Cambridge University Press, 2013), p. 312.

[166See, e.g., the Communication from the Commission: Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak, C(2020) 1863 final of 19 March 2020 as amended by Communication from the Commission: Amendment to the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak, C(2020) 2215 final of 3 April 2020.

[167See, e.g., BASF/Eurodiol/Pantochim, supra note 14, where there was a shift away from a need to show that the entirety of the allegedly failing firm’s market share would accrue to the acquirer in order to satisfy Criterion 3.

[168See OECD, supra note 6, para. 19.

[170Royal Decree 463/2020 of 14 March 2020, which declares the state of alarm for the management of the health crisis situation caused by COVID-19, Royal Decree 476/2020 of 27 March 2020, which enlarges the state of alarm declared by the Royal Decree 463/2020. Both can be found in Spanish at https://www.hacienda.gob.es/es-ES/RSC/Paginas/RSC.aspx.

[171Ministerio de Trabajo, Migraciones u Seguridad Social, La Seguridad Social registra 18.445.436 afiliados en el último día de marzo (http://prensa.mitramiss.gob.es/WebPrensa/noticias/seguridadsocial/detalle/3769).

[172Royal Decree-Law 7/2020 of 12 March 2020, which contains urgent measures to answer to the economic impact of COVID-19.

[173Royal Decree-Law 8/2020 of 17 March 2020 on urgent extraordinary measures to deal with the economic and social impact of COVID-19.

[174Royal Decree-Law 9/2020 of 27 March 2020, with complementary labour measures to deal with the impact of COVID-19.

[175This rule is complemented by another Royal Decree-Law that defines the system of determining payment in those cases. Royal Decree-Law 10/2020 of 29 March 2020.

[176[Royal Decree-Law 11/2020 of 31 March 2020, with urgent measures in social and economic fields.

[177See, for example, J. Becnach’s interview, Sin Permiso, 28 March 2020 (https://www.sinpermiso.info/textos/hay-que-aprovechar-esta-pandemia-para-hacer-un-cambio-social-radical-entrevista-a-joan-benach) or A. Semprún and I. Acosta, Iglesias quiere nacionalizar y socializar ahorros, El Economista, 1 April 2020 (https://www.eleconomista.es/empresas-finanzas/noticias/10454485/03/20/Iglesias-quiere-nacionalizaciones-y-socializar-ahorros-como-Venezuela.html).

[178See R. Villaécija, El Gobierno vigila ya posibles subidas de precios en el súper, El Mundo, 16 March 2020 (https://www.elmundo.es/economia/ahorro-y-consumo/2020/03/16/5e6a337f21efa0aa138b45fd.html).

[179M. Vega, Los economistas ante la hibernación: es necesaria pero hay que ayudar a las empresas, El Español, 1 April 2020 (https://www.elespanol.com/invertia/economia/20200401/economistas-hibernacion-necesaria-ayudar-empresas/478953535_0.html).

[180Detenido un empresario por el robo de casi 2 millones de mascarillas en Santiago La Vanguardia, 6 April 2020 (https://www.lavanguardia.com/sucesos/20200406/48338088725/detenido-empresario-santiago-robo-mascarillas-coronavirus.html) or T. Domínguez, Alerta: Falsos test de coronavirus a domicilio para entrar en casa a robar o violar, Levante-EMV, 26 March 2020 (https://www.levante-emv.com/sucesos/2020/03/26/estafa-coronavirus-robo-falso-test/1994293.html).

[181Competition agencies like the Russian, Italian, Peruvian, Canadian, American, South African, Dutch or Brazilian have made it public that they will prioritise cases in the markets more closely affected by the health crisis.

[182See ECN Antitrust: Joint statement by the European Competition Network (ECN) on application of competition law during the Corona crisis (https://ec.europa.eu/competition/ecn/202003_joint-statement_ecn_corona-crisis.pdf).

[183An overview of those answers can be found in Centro Competencia, Universidad Adolfo Ibáñez, https://centrocompetencia.com/reacciones-comparadas-de-agencias-de-competencia-a-raiz-de-la-crisis-del-coronavirus (in Spanish); another one (in English) is available here: https://www.clearygottlieb.com/news-and-insights/publication-listing/covid-19-status-of-antitrust-and-competition-agencies.

[185A reference to the cases that are being investigated during this crisis, referring to funeral services, sanitary products and financial practices, can be found here: https://www.cnmc.es/sites/default/files/editor_contenidos/Notas%20de%20prensa/2020/20200407%20NP%20Balance%20Buz%C3%B3n%20Covid_20200407_eng.pdf.

[186J. Ruiz-Tagle, La farmacia pide al Ejecutivo que fije el precio de las mascarillas, El Economista, 4 April 2020, where the professional association of pharmacy offices claims that some sellers “that do not usually operate in this market are abusing with high prices” or J.-M. Jiménez-Laiglesia, Competencia en tiempos del coronavirus, El País, 6 April 2020 (https://cincodias.elpais.com/cincodias/2020/04/03/legal/1585911638_526094.html), asking the Competition Authority to publicly accept certain types of agreements.

[187Spain is planning to offer a program of State aid considering differences depending on the origin of the funds (European or others) and the recipients (SMEs or autonomous workers). Commission Press Release IP/20/581 of 2 April 2020, State aid: Commission approves Spanish “umbrella” scheme to support economy in coronavirus outbreak (https://ec.europa.eu/commission/presscorner/detail/en/IP_20_581), or Commission approves Maltese, Swedish, Spanish, and German State aid schemes to support the economy in the context of COVID-19 outbreak (https://eulawlive.com/commission-approves-maltese-swedish-spanish-and-german-state-aid-schemes-to-support-the-economy-in-the-context-of-covid-19-outbreak).See also EC, State aid rules and COVID-19 (https://ec.europa.eu/competition/state_aid/what_is_new/news.html).

[188CNMC, Study on the retail medicine distribution market in Spain E/CNMC/003/15 Madrid, 15 October 2015 (https://www.cnmc.es/sites/default/files/1185462_8.pdf).

[189Catalan Competition Agency (ACCO), La ACCO destaca que en la actual situación de crisis de la Covidien-19 la prohibición de la venta ‘on-line’ de medicamentos con receta limita el bienestar de farmacéuticos y consumidores (http://acco.gencat.cat/ca/detall/article/20200330_posicionament_acco_farmacies_covid_19-00001).

[190Order SND/326/2020, 6 April 2020, that reduces the requirements to obtain licences for producing sanitary products due to COVID-19. The same about accelerating procedures of recognition of foreign degrees: Acelerón para agilizar la homologación de títulos a sanitarios extranjeros (https://www.consalud.es/profesionales/aceleron-para-agilizar-la-homologacion-de-titulos-a-sanitarios-extranjeros_60676_102.html), or P. Mosquera et D. Silva, España acelera contratación de personal sanitario de otros países, CNN en Español , 27 Match 2020 (https://cnnespanol.cnn.com/2020/03/27/alerta-espana-200-nuevos-medics-extranjeros-para-combatir-covid19).

[191Communication from the Commission, Guidance from the European Commission on using the public procurement framework in the emergency situation related to the COVID-19 crisis, C/2020/2078, OJ C 108I, 1.4.2020, pp. 1–5.

[192J. M. Gimeno Feliu, La crisis sanitaria COVID-19 y su incidencia en la contratación pública, El Cronista, No. 86–87, March–April 2020, p. 44 (http://www.elcronista.es/El-Cronista-n%C3%BAmero-86-87-Coronavirus.pdf).

[193There was perhaps a problem in the transposition of the Directive into the Spanish legal system that could be behind this difference. It is linked to the existence of two different emergency procedures in the Spanish legal system one of which implies an excessive formality that makes it perhaps too inflexible.

[194A deep and detailed analysis of the implications of COVID-19 in the Spanish rules of public procurement both at the state and regional level can be found on the OIReScon website, the Independent Office for Regulation and Supervision Procurement in Spain, Contratación pública-COVID 19, https://www.hacienda.gob.es/es-ES/RSC/Paginas/RSC.aspx.

[196See for example the decision taken by the Catalonian administration to consider that the development of optic fibre is a question of emergency and therefore implies the application of the procedures of emergency. See Decree Law 11/2020, 7th April, that adopts economic, social and administrative measures to reduce the effects of COVID19 and other complementary measures, Diari Oficial de la Generalitat de Catalunya N. 8107 – 9.4.2020

[197I. Gallego Córcoles, De las orientaciones de la Comisión Europea sobre contratación pública en la crisis del Covid-19 y de sus implicaciones en el caso español, Observatorio de Contratación Pública (http://obcp.es/opiniones/de-las-orientaciones-de-la-comision-europea-sobre-contratacion-publica-en-la-crisis-del#once).

[198This decision PORT/DTSA/001/20 GESTIÓN DE PORTABILIDADES ESTADO DE ALARMA issued Sunday the 5th of April 2020 can be found on the website of CNMC (https://www.cnmc.es/prensa/cnmc-portabilidad-COVID_20200406I).

[199Order SND/298/2020, 29th March that establishes exceptional measures for wakes and funerals in order to limit the spread and contagion of COVID19.

[200These considerations refer to the analysis of the administrative measure that would be independent of an analysis of the behaviour of the companies from the perspective of competition enforcement (or others in the legal system).

[201Commission Staff Working Document Accompanying the document Proposal for a Regulation of the European Parliament and of the Council establishing a framework for screening of foreign direct investments into the European Union, Brussels, 13.9.2017 SWD(2017) 297 final, p. 6.

[202Communication from the Commission, Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, and the protection of Europe’s strategic assets, ahead of the application of Regulation (EU) 2019/452 (FDI Screening Regulation), Brussels, 25.3.2020 C(2020) 1981 final.

[203The Decree-Law No. 21 of 2012 was issued after the Court of Justice ruled against Italy in an infringement proceeding (other Member States such as Portugal, France, the United Kingdom, Belgium, Spain and Germany faced similar infringement proceedings) due to the practice of maintaining golden shares of public enterprises placed on the market. In fact, pursuant to Decree-Law No. 332 of 1994, the Italian state held certain shareholdings with special powers enabling it to exercise special prerogatives capable of influencing the decisions of the undertakings concerned. The provisions of the decree were considered conflicting with the freedom of movement of people and capital.

[204Regulation (EU) 2019/452 of 19 March 2019, OJ L 79 I, Article 4(1):

{}“(a) critical infrastructure, whether physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure;

(b) critical technologies and dual use items as defined in point 1 of Article 2 of Council Regulation (EC) No 428/2009, including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies as well as nanotechnologies and biotechnologies;

(c) supply of critical inputs, including energy or raw materials, as well as food security;

(d) access to sensitive information, including personal data, or the ability to control such information; or

{}(e) the freedom and pluralism of the media.

[205Judgement C-54/99 of 14 March 2000, Association Église de Scientologie, pt. 20 “In the case of direct foreign investments, the difficulty in identifying and blocking capital once it has entered a Member State may make it necessary to prevent, at the outset, transactions which would adversely affect public policy or public security. It follows that, in the case of direct foreign investments which constitute a genuine and sufficiently serious threat to public policy and public security, a system of prior declaration may prove to be inadequate to counter such a threat.

[206See Communication of the Commission on certain legal aspects concerning intra-EU investment, 97/C 220/06, p. 16 and Proposal for a Regulation of the European Parliament and of the Council establishing a framework for screening of foreign direct investments into the European Union, Brussels, 13.9.2017 COM(2017) 487 final, p. 4.

[207Source: 2018 Annual Report issued by the Italian government to the Italian Parliament on FDI.

[208D. A. Crane, Antitrust Enforcement During National Crises: An Unhappy History, Global Competition Pol’y, Autumn 2008 (Vol. 12, No. 1), https://www.competitionpolicyinternational.com/antitrust-enforcement-during-national-crises-an-unhappy-history; see also D. A. Crane, Did We Avoid Historical Failures of Antitrust During the 2008-09 Financial Crisis?, 77 Antitrust L. J. 219 (2010).

[210A. W. Crosby, America’s Forgotten Pandemic: The Influenza of 1918 (2d ed., Cambridge University Press, 2003).

[211T. A. Garrett, Economic Effects of the 1918 Influenza Pandemic: Implications for a Modern-day Pandemic, https://www.stlouisfed.org/~/media/files/pdfs/community-development/research-reports/pandemic_flu_report.pdf.

[212Id.

[213Id.

[214T. K. Fisher, Antitrust During National Emergencies, 40 Mich. L. Rev. 969, 996 (1942).

[216Id.

[217President Trump has also invoked executive authority under the Defense Production Act, 50 U.S. Code § 4558 (j), which creates antitrust immunity for persons acting pursuant to a Presidential plan of action initiated under the Act.

[218Id.

[219Department of Justice Issues Business Review Letter to Medical Supplies Distributors Supporting Project Airbridge Under Expedited Procedure for COVID-19 Pandemic Response, https://www.justice.gov/opa/pr/department-justice-issues-business-review-letter-medical-supplies-distributors-supporting.

[226D. A. Crane, M. Kitzmuller & G. Miralles, Integrating Micro and Macro Policy Levers in Response to Financial Crises, 7 Mich. Bus. & Entrepreneurial L. Rev. 191, 217 (2018).

[227Crane, Did We Avoid Historical Failures, supra n. 1 at 226–227.

[230To qualify for the failing firm defense under Section 11 of the FTC/DOJ Horizontal Merger Guidelines, the merging parties must show: “(1) the allegedly failing firm would be unable to meet its financial obligations in the near future; (2) it would not be able to reorganize successfully under Chapter 11 of the Bankruptcy Act; and (3) it has made unsuccessful good-faith efforts to elicit reasonable alternative offers that would keep its tangible and intangible assets in the relevant market and pose a less severe danger to competition than does the proposed merger.

[231See D. A. Crane, Antitrust’s Unconventional Politics, 104 Va. L. Rev. Online 118 (2018).

[232The views expressed in this paper are exclusively the author’s own. This paper elaborates on the thoughts submitted in a previous paper for Competition Law Insight.

[233Judgment of 6 September 2017, Intel v. Commission, C‑413/14 P, EU:C:2017:632.

[234Among others, case T-612/17, Google and Alphabet v. Commission.

[235Case T-671/19, Qualcomm v. Commission.

[236Case T-876/19, Broadcom v. Commission.

[238Inasmuch as the test laid down in the judgment of 27 October 1994, John Deere v. Commission (T‑35/92, EU:T:1994:259), was applied.

[239Decision 05-D-64 of 25 November 2005, para. 275.

[240Decision 08-D-32 of 16 December 2008. The Paris Court of Appeal, in a judgment of 19 January 2020, partially annulled this decision for failing to take the crisis situation into account.

[241Decision 15-D-03 of 11 March 2015. On the milk crisis, see para. 19–22.

[242Judgment of 16 September 2013, Roca v. Commission, T‑412/10, EU:T:2013:444, para. 163.

[243Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation No 1/2003, https://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2006:210:0002:0005:EN:PDF.

[244Supra, note 10, Roca v. Commission, para. 165.

[245However, the crisis of the sector, in itself, is not taken into consideration; the exception relates to the “contributing capacities” of the undertaking subject to the sanction. See Guidelines of 16 May 2011 concerning the method of setting fines, para. 61–65.

[246Freshfields, Navigating the impact of COVID-19: How to manage antitrust risk, no date, https://www.freshfields.com/en-gb/our-thinking/campaigns/coronavirus-alert-hub/manage-antitrust-risk.

[247Communication form the Commission : Temporary Framework for assessing antitrust issues related to business cooperation in response to situations of urgency stemming from the current Covid-19 outbreak, 8 April 2020, https://ec.europa.eu/info/sites/info/files/framework_communication_antitrust_issues_related_to_cooperation_between_competitors_in_covid-19.pdf

[248Mlex, Comfort letters’ return as business gets EU nod to cooperate against Covid-19, 8 April 2020.

[249Recital 4.

[250Recital 18.

[251See recital 4.and Guidelines on the optimal and rational supply of medicines to avoid shortages during the COVID-19 outbreak, published the same day:8 April 2020, https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=OJ:JOC_2020_116_I_0001&from=FR

[252See also recitals 8 and 9 of the Communication and the use of the term « notably ».

[253In France: Article L. 420-1(1) of the Commercial Code and paragraph 45 of the Guidelines of 16 May 2011 concerning the method for setting the fines. In the UK: see Ashurst, The impact of Covid-19: Key competition and consumer protection law considerations in the EU and the UK, 30 March 2020, https://www.ashurst.com/en/news-and-insights/legal-updates/the-impact-of-covid-19---key-competition-and-consumer-protection-law-considerations-in-the-eu.

[254Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation No 1/2003 of 1 September 2006, para. 29.

[255Supra, note 15, recital 15.

[256Supra, note 15, recital 16.

[257UK Government press release, 19 March 2020, Supermarkets to join forces to feed the nation, https://www.gov.uk/government/news/supermarkets-to-join-forces-to-feed-the-nation.

[259Joint statement by the ECN on application of competition law during the Corona crisis, https://ec.europa.eu/competition/ecn/202003_joint-statement_ecn_corona-crisis.pdf.

[260European Commission, Guidelines on the applicability of Article 101 of the TFEU to horizontal co-operation agreements, para. 110, https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX%3A52011XC0114%2804%29.

[261Supra, note 15, point 20.

[262MLex, Covid-19 crisis “not a shield against competition enforcement,” Vestager warns, 27 March 2020.

[263Judgment of 20 November 2008, Beef Industry Development Society and Barry Brothers, C‑209/07, EU:C:2008:643.

[264OECD, Policy Roundtables – Crisis Cartels, 18 October 2011, http://www.oecd.org/daf/competition/cartels/48948847.pdf.

[265Italian Competition Authority (ICA) press release, 27 February 2020, ICA: Coronavirus, the Authority intervenes in the sale of sanitizing products and masks, https://en.agcm.it/en/media/press-releases/2020/3/ICA-Coronavirus-the-Authority-intervenes-in-the-sale-of-sanitizing-products-and-masks.

[266Polish Office of Competition and Consumer Protection (UOKiK) press release, 4 March 2020, UOKiK’s proceedings on wholesalers’ unfair conduct towards hospitals, https://www.uokik.gov.pl/news.php?news_id=16277.

[267G. Gürkaynak, Ö. İnanılır, E. Ergül, The Turkish Competition Authority announces zero tolerance policy against excessive price increases in the food sector during the COVID-19 outbreak, 23 March 2020, e-Competitions Preview, Art. No. 93904.

[268A. Usova, The Ukrainian Competition Authority issues recommendations to pharmacies and retailers against excessive prices for masks, examines price hikes for airline tickets, and monitors prices for disinfectants and consumption basket products, 13 March 2020, e-Competitions Preview, Art. No. 93914.

[269Netherlands Competition Authority, The Dutch Competition Authority reminds businesses to maintain compliance during the COVID-19 outbreak, including dominant companies avoiding excessive prices and all companies avoiding price fixing, 18 March 2020, e-Competitions Preview, Art. No. 93817.

[270Washington State Office of the Attorney General press release, 4 March 2020, AG Ferguson Statement on Price Gouging in Public-Health Emergency, https://www.atg.wa.gov/news/news-releases/ag-ferguson-statement-price-gouging-public-health-emergency.

[271State of California Proclamation of a State of Emergency, 12 March 2020, https://www.gov.ca.gov/wp-content/uploads/2020/03/3.4.20-Coronavirus-SOE-Proclamation.pdf.

[272SAMR press release, 5 February 2020, Central People’s Government, SAMR’s Urgent Notice Concerning the SAMR’s Crackdown on Pricing Violations in the Production of Masks and Other Products Relating to Epidemic Prevention and Control During the Period of Epidemic Prevention and Control, http://www.gov.cn/zhengce/zhengceku/2020-02/06/content_5475223.htm.

[273Gibson Dunn, Antitrust Implications of COVID-19 Response, 12 March 2020, https://www.gibsondunn.com/coronavirus-antitrust-implications-of-covid-19-response/#_ftn3.

[274In a speech about excessive pricing the European Commissioner for Competition, Margrethe Vestager, mentioned the pharmaceutical industry specifically: “There can be times when prices get so high that they just can’t be justified. After all, people rely on these medicines for their health, even their lives. (…) [In those situations,] competition rules need to do their bit to deal with excessive prices.” Vestager, Protecting consumers from exploitation, Speech at the Chillin’ Competition Conference, Brussels, 21 November 2016, https://wayback.archive-it.org/12090/20191129221154/https://ec.europa.eu/commission/commissioners/2014-2019/vestager/announcements/protecting-consumers-exploitation_en.

[275Judgment of 14 September 2017, Autortiesību un komunicēšanās konsultāciju aģentūra/Latvijas Autoru apvienība, C‑177/16, EU:C:2017:689.

[276T. Lübbig, J. Mellott, J. Goyder, K. Yamada, Cartels in the COVID-19 crisis – any flexibility?, Freshfields, 24 March 2020, https://riskandcompliance.freshfields.com/post/102g2rs/cartels-in-the-covid-19-crisis-any-flexibility.

[277Supra, note 21.

[278On this defence, see A. Komninos, J. Jeram, Changing Mind in Changed Circumstances: Aegean/Olympic II and the Failing Firm Defence, Journal of European Competition Law & Practice, Vol. 5, Issue 9, November 2014, pp. 605–615, https://doi.org/10.1093/jeclap/lpu040.

[279C.-A. Guelluy, S. Bayar Eren, Contrôle des investissements étrangers : vers un protectionnisme renforcé, Les Échos, 19 March 2020, https://business.lesechos.fr/directions-juridiques/droit-des-affaires/contrats-et-clauses/0602886385700-controle-des-investissements-etrangers-vers-un-protectionnisme-national-renforce-335903.php.

[280Communication from the Commission, Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, and the protection of Europe’s strategic assets, ahead of the application of Regulation (EU) 2019/452 (FDI Screening Regulation), https://trade.ec.europa.eu/doclib/docs/2020/march/tradoc_158676.pdf.

[281MLex, EU urges protection of weakened companies from “predatory” foreign investment, 25 March 2020.

[282EU merger control is based on Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union, https://eur-lex.europa.eu/eli/reg/2019/452/oj.

[283For an overview of State aid granted these last days, see e-Competitions Competition Law & Covid-19 of 26 March 2020, State aid section.

[284Communication from the Commission to the European Parliament, the European Council, the Council, the European Central Bank, the European Investment Bank and the Eurogroup, Coordinated economic response to the COVID-19 Outbreak, 13 March 2020, https://ec.europa.eu/info/sites/info/files/communication-coordinated-economic-response-covid19-march-2020_en.pdf.

[285Communication from the Commission, Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak, 19 March 2020, https://eur-lex.europa.eu/legal-content/FR/TXT/HTML/?uri=CELEX:52020XC0320(03)&from=EN

[286Ibid., see also note 43 above.

[287In this respect, it may be noted that, in February 2019, the Commission approved a EUR 400 million support scheme in Ireland to cover acute liquidity as well as rescue and restructuring needs of SMEs as a Brexit preparedness measure. See State aid SA.53350 (2019/N) – Ireland – Budget increase of R&R aid scheme (SA.49040 as amended to cover temporary restructuring support by SA.50651), 8 February 2019, https://ec.europa.eu/competition/state_aid/cases/278484/278484_2052272_102_2.pdf.

[288F.-C. Laprévote, R. Pepper, Competition policy & COVID-19: An overview of antitrust agencies’ responses, 26 March 2020, e-Competitions Competition Law & Covid-19, Art. No. 93888.

[290The present article is an updated version of the article published in French in the State aid Quarterly Chronicles of Concurrences No. 2-2020. I am greatly indebted to Catalina Chilaru (trainee) and Alice Malaise (student) for their assistance and to Ciara Barbu-O’Connor (associate) for her language revision.

[291General texts adopted since 13 March 2020 (as of 30 April 2020):

  • 19 March 2020: Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak, OJ C 91 I, 20.03.2020, pp. 1–9;
  • 27 March 2020: Communication from the Commission amending the Annex to the Communication from the Commission to the Member States on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to short-term export-credit insurance, OJ C 101 I, 28.3.2020, pp. 1–3;

[292https://ec.europa.eu/competition/state_aid/what_is_new/covid_19.html

+32 2 296 52 00; COMP-COVID@ec.europa.eu.

All decisions adopted by the Commission since 12 March 2020 (updated daily): https://ec.europa.eu/competition/state_aid/what_is_new/State_aid_decisions_TF_and_107_2_b_and_107_3_b.pdf.

[293A. Harding, South Africa’s ruthlessly efficient fight against coronavirus, BBC News, 3 April 2020 (available at: https://www.bbc.com/news/world-africa-52125713).

[294Competition Act No. 89 of 1998 Regulation 2020 Government Gazette 43116 19 March Government notice no. R350. Pretoria: Government Printer.

[295In addition, the Price Regulations require suppliers to develop and implement measures to ensure the equitable distribution to consumers or customers and to maintain adequate stocks of goods. These measures may include limiting the number of items of specified products (including basic food items, household products and personal hygiene products) that can be purchased by consumers. As these requirements are not premised on the Competition Act, they will not be further discussed.

[296See Covid-19: Immediate response to anti-competitive conduct during the State of National Disaster, SACC press release, 20 March 2020 (available at: http://www.compcom.co.za/wp-content/uploads/2020/03/CCSA-COVID-19-statement-20-March-updated.pdf).

[297See Covid-19: Measures during state of National Disaster and Nationwide Lockdown, SACC press release, 24 March 2020 (available at: http://www.compcom.co.za/wp-content/uploads/2020/03/CCSA-COVID-19-statement-24-March-202024497.pdf).

[298See Covid-19 Update: Competition Commission flooded with over 500 complaints of excessive pricing, SACC press release, 31 March 2020 (available at: http://www.compcom.co.za/wp-content/uploads/2020/03/CCSA-COVID-19-statement-31-March-2020-Final-1.pdf).

[299Competition Act No. 89 of 1998 Regulation 2020 Government Gazette 43205 3 April Government notice no. R448. Pretoria: Government Printer.

[300A third party may also refer a complaint to the Competition Tribunal if the SACC has issued a notice of non-referral.

[301See Commission cracks down on excessive pricing, SACC press release, 15 April 2020 (available at: http://www.compcom.co.za/wp-content/uploads/2020/04/Media-Statement-COMMISSION-CRACKS-DOWN-ON-EXCESSIVE-PRICING.pdf).

[302See The Grocery Retail Market Inquiry, Final Report, Summary of the Findings and Recommendations, 25 November 2019 (available at: http://www.compcom.co.za/wp-content/uploads/2019/12/Grocery-Retail-Market-Inquiry-SUMMARY_.pdf).

[303Competition Act No. 89 of 1998 Regulation 2020 Government Gazette 43215 8 April Government notice no. R456. Pretoria: Government Printer.

[304Competition Act No. 89 of 1998 Regulation 2020 Government Gazette 43175 27 March Government notice no. R422. Pretoria: Government Printer.

[305Competition Act No. 89 of 1998 Regulation 2020 Government Gazette 43127 23 March Government notice no. R355. Pretoria: Government Printer.

[306Competition Act No. 89 of 1998 Regulation 2020 Government Gazette 43134 24 March Government notice no. R358. Pretoria: Government Printer.

[307The exceptions include aid to compensate companies for the damage caused by natural disasters or exceptional occurrences (Article 107(2)(b) TFEU) and aid to remedy a serious disturbance in the economy of a Member State (Article 107(3)(b) TFEU). The Treaty also allows aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest (Article 107(3)(c) TFEU).

[308Communication from the Commission, Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak, adopted on 19 March 2020 and amended on 3 April 2020. A consolidated version of the text is available at: https://ec.europa.eu/competition/state_aid/what_is_new/TF_consolidated_version_as_amended_3_april_2020.pdf.

[309The concept of State aid is very broad in scope. In particular, it is not limited to subsidies, but may encompass any form of support that mitigates costs normally included in the budget of a company, including for example tax exemptions. Moreover, it captures not only measures adopted at national level, but also regional or even local measures.

[310Even if the measure is notified as “non-aid,” the standstill obligation can only be overlooked at the risk of potential recovery.

[311Wage subsidies for particular activities even if available across all sectors are considered selective. Se e State Aid SA.57007 (2020/N) of 17 April 2020 – Hungary – COVID-19 – Employment scheme for supporting the employment of researchers and developers in all sectors affected by coronavirus outbreak. Available at: https://ec.europa.eu/competition/state_aid/cases1/202017/285509_2149572_60_2.pdf. See also State Aid SA.56994 (2020/N) of 17 April 2020 – Hungary – Aid from Structural Funds aiming at supporting undertakings affected by the economic repercussions of the COVID-19, at recital 28. Available at: https://ec.europa.eu/competition/state_aid/cases1/202017/285491_2149570_32_2.pdf.

[312Under EU law, economic activities that public authorities identify as being of particular importance to citizens and that would not be supplied (or would be supplied under different conditions) if there were no public intervention are identified as services of general economic interest (SGEI). Examples are transport networks, postal services and social services. Under certain conditions, compensation paid to companies for the provision of such public services does not constitute State aid or is automatically permitted below a certain revenue threshold.

[313See for example, the Danish government will implement the following extraordinary procurement measures: (i) advance payment for deliveries agreed to take place in the period until 1 July 2020 (or possibly extended to 31 October 2020) and (ii) flexible application of remedies for breach of contract caused by COVID-19, including waiving payment of penalties for delay effective until 31 October 2020. Source: Presentation of Preben Sandberg Pettersson at the Lexxion Live Webinar: Follow-up on Main Features of Covid-19 and State Aid Law, 20 April 2020.

[314See for example, SA.56985 (2020/N) of 20 April 2020 – France – COVID-19: Régime cadre temporaire pour le soutien aux entreprises, at section 4. Available at: https://ec.europa.eu/competition/state_aid/cases1/202017/285598_2149988_102_2.pdf.

[315See State Aid SA.56994 (2020/N) of 17 April 2020. supra note 5.

[316Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty. Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:02014R0651-20170710.

[317Commission Regulation (EU) No 1407/2013 of 18 December 2013 on the application of Articles 107 and 108 of the Treaty on the Functioning of the European Union to de minimis aid. Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32013R1407&from=EN.

[318There are lower thresholds for the road freight sector and the agriculture and fisheries sectors.

[319The German government amended two aid schemes to support companies affected by the coronavirus outbreak to benefit from the additional flexibility provided by the TF. The Commission approved the notified amendments. See Commission press release IP/20/651 of 11 April 2020, State aid: Commission approves amendments to previously approved German schemes to further support economy in coronavirus outbreak. Available at: https://ec.europa.eu/commission/presscorner/detail/en/ip_20_651.

[320See, for example, State Aid SA.56804 of 30 March 2020 – Republic of Estonia – State Loan Guarantees and subsidised loan scheme under the Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak as updated by State Aid SA.57014 (2020/N) of 21 April 2020 – Republic of Estonia – Estonian aid schemes in the form of grants and payment advantages under Section 3.1 of Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak. Available at: https://ec.europa.eu/competition/state_aid/cases1/202017/285592_2149989_52_2.pdf.

[321It is understood that the Commission is working on a short FAQ on the TF.

[322The TF also clarifies that credit and other financial institutions who act as financial intermediaries should not be the recipients of indirect aid, but identifies certain safeguards that can be introduced to limit undue distortions of competition between financial institutions (Section 3.4). For an example, see State Aid SA.57068 (2020/N) of 21 April 2020 – Italy – Loan guarantees and grants under the ISMEA Guarantee Fund. Available at: https://ec.europa.eu/competition/state_aid/cases1/202017/285610_2150492_134_2.pdf.

[323The TF also references the Commission’s Communication addressing short-term export credit insurance C(2020)244 final of 27 March 2020 and clarifies that Member States can provide short-term export credit insurance for all countries without the need for the Member State in question to demonstrate that the respective country is temporarily “non-marketable” (Section 3.5).

[324For an example of an aid scheme granting undertakings up to €800,000, see State Aid SA.56790 (2020/N) of 24 March 2020 – Germany – Federal Framework “Small amounts of aid 2020” (“Bundesregelung Kleinbeihilfen 2020”). Available at: https://ec.europa.eu/competition/state_aid/cases1/202013/285205_2142884_55_2.pdf.

[325The TF contains specific rules for aid to the agriculture, fisheries and aquaculture sector. For an example of its application to fisheries, see State Aid SA.56998 (2020/N) of 17 April 2020 – Croatia – State aid in fisheries and aquaculture supporting the economy under the Temporary Framework. Available at: https://ec.europa.eu/competition/state_aid/cases1/202017/285495_2150432_42_4.pdf.

[326For an example of a liquidity guarantee scheme, see State Aid SA.56808 (2020/N) of 30 March 2020 – Denmark – Liquidity guarantee scheme under the Temporary Framework. Available at: https://ec.europa.eu/competition/state_aid/cases1/202014/285239_2143817_59_2.pdf.

[327In State Aid SA.57068 (2020/N) – Italy – Loan guarantees and grants, the guarantee premiums were to be calculated according to the calculation method approved by a prior Commission decision. See recital 19(c). supra note 16.

[328For loans with a maturity beyond 31 December 2020, the overall amount of the loans per beneficiary shall not exceed (i) double the annual wage bill of the beneficiary for 2019, (ii) 25% of the beneficiary’s total turnover, or (iii) with appropriate justification, the liquidity needs for the coming 18 months for SMEs and 12 months for large enterprises.

[329In State Aid SA. 56966 (2020/N) of 13 April 2020 – Italy – COVID-19: Loan guarantee schemes under the Fondo di garanzia per le PMI, the Commission stated at recital 45 that “given that the cases where the overall amount of loans per beneficiary exceeds the ceilings of point 25(d), i. and ii. of the [TF] are properly justified, the Commission considers the corresponding aid to be proportionate, since it includes a maximum ceiling linked to the actual liquidity needs of the beneficiary, which the aid granting authority are able to verify.” Available at: https://ec.europa.eu/competition/state_aid/cases1/202016/285511_2148349_27_2.pdf.

[330The eligible costs concern all the costs necessary for the R&D project during its duration, including amongst others, personnel costs, costs for digital and computing equipment, for diagnostic tools, for data collection and processing tools, etc. See point 35(c) of the TF.

[331The eligible costs are all investment costs necessary for setting up the testing and upscaling infrastructures required to develop the relevant medicinal products and treatments, etc. See point 37(e) of the TF.

[332The TF further also requires that prices charged for the services provided by the testing and upscaling infrastructure correspond to the market price and that the infrastructures must be open to several users and must be granted on a transparent and non-discriminatory basis (subject to the possibility of granting preferential access for undertakings which have financed at least 10% of the investment costs).

[333For example, see State Aid SA.57035 (2020/N) of 17 April 2020 ­– Portugal – COVID-19 – Support to R&D projects, testing infrastructures and production of COVID-19 related products. Available at: https://ec.europa.eu/competition/state_aid/cases1/202017/285556_2150148_79_2.pdf. The Commission noted that the measure is made available for projects that have started as of 1 February 2020. Where the aid is necessary to accelerate works or to widen the scope of a project, which started before 1 February 2020, only the additional costs in relation to the acceleration efforts or the widened scope are eligible, as required by point 39(c) of the TF. Eligible investment projects have to be completed within six months after the investment aid was granted. If this deadline is not respected, the aid amount is reduced by 25% per month of delay for aid in the form of direct grants in conformity with point 39(d) of the TF.

[334The type of aid, the bonus of 15%-points for the aid intensity, the incentive effect, the penalty and the cumulation of aid rules.

[335Judgment of the Court of Justice of 5 March 2019, Eesti Pagar v. Ettevõtluse Arendamise Sihtasutus, Case C‑ 349/17, EU:C:2019:172.

[336Judgment of the Court of Justice of 20 September 2018, Carrefour Hypermarchés and Others, Case C-510/16, EU:C:2018:751.

[337Point 22(d) of the TF.

[338Judgment of the Court of Justice of 14 January 2004, Fleuren Compost, Case T-109/01, EU:T:2004:4, at para. 75 et seq.

[339SA.56985 (2020/N) of 17 April 2020 – France – COVID-19: Régime cadre temporaire pour le soutien aux entreprises, at 57–58. supra note 8.

[340See for example State Aid SA.57051 (2020/N) of 22 April 2020 – Sweden – COVID-19 Aid for cancelled or postponed cultural events. Available at: https://ec.europa.eu/competition/state_aid/cases1/202017/285609_2150593_42_2.pdf.

[341The Repayable Advance Scheme of Ireland for which the Commission had adopted a no objection decision on 30 March 2020 under case SA.56845 (2020/N) of 31 March 2020 – Ireland – Irish scheme to support the economy in the current coronavirus outbreak. Available at: https://ec.europa.eu/competition/state_aid/cases1/202016/285288_2148118_55_2.pdf.

[342State Aid SA.57036 (2020/N) of 21 April 2020 – Ireland – Sustaining Enterprise Scheme supporting undertakings affected by the economic repercussions of the COVID-19 outbreak. Available at: https://ec.europa.eu/competition/state_aid/cases1/202017/285558_2150261_31_2.pdf.

[343See Commission Notice on the notion of State aid (2016), C/2016/2946, OJ C 262, 19.7.2016, pp. 1–50, para. 11 referring to judgment of the Court of Justice of 16 December 2010, AceaElectrabel Produzione SpA v. Commission, C-480/09 P, EU:C:2010:787, paras. 47 to 55. The Notice states at para. 11 that “[s]everal separate legal entities may be considered to form one economic unit for the purposes of the application of State aid rules. That economic unit is then considered to be the relevant undertaking. In this respect, the Court of Justice considers the existence of a controlling share and other functional, economic and organic links to be relevant.”

[344The EFTA Surveillance Authority’s FAQ on the GBER notes at point 15 that “[t]he concept of an undertaking applies and all conditions of the GBER need to be met at the level of the group. Aid awards could, for example, be identified either through the consolidated accounts of the group or with the use of declarations.” Available at: http://www.eftasurv.int/media/esa-docs/physical/Revised-document-FQA_GBER.pdf.

[345It should be noted that national authorities may request information from a potential beneficiary to understand whether the company may be receiving aid in other EU countries.

[346See for example the Commission decision to open a formal investigation in State aid to DAF Trucks in Belgium and the Netherlands (NN 27/93, NN 43/93 and NN 58/93), OJ 1994 C31/4 (Belgium) and C31/9 (the Netherlands).

[347The criteria laid down in Annex I to Commission Recommendation 2003/361/EC will be taken into account to determine whether the company is part of a group.

[348Article 2(2) of the de minimis Regulation provides:

{}“‘Single undertaking’ includes, for the purposes of this Regulation, all enterprises having at least one of the following relationships with each other:

(a) one enterprise has a majority of the shareholders’ or members’ voting rights in another enterprise;

(b) one enterprise has the right to appoint or remove a majority of the members of the administrative, management or supervisory body of another enterprise;

(c) one enterprise has the right to exercise a dominant influence over another enterprise pursuant to a contract entered into with that enterprise or to a provision in its memorandum or articles of association;

(d) one enterprise, which is a shareholder in or member of another enterprise, controls alone, pursuant to an agreement with other shareholders in or members of that enterprise, a majority of shareholders’ or members’ voting rights in that enterprise.

Enterprises having any of the relationships referred to in points (a) to (d) of the first subparagraph through one or more other enterprises shall also be considered to be a single undertaking.”

[349See Commission Recommendation on definition of micro, small and medium-sized enterprises, 2003/361/EC, OJ L 124, 20.5.2013, pp. 36–41.

[350Full details as well as the conditions of application are to be found in the User Guide to the SME Definition from the Commission. Commission User guide to the SME Definition and GBER 2014, annex 1. User Guide available at: https://ec.europa.eu/regional_policy/sources/conferences/state-aid/sme/smedefinitionguide_en.pdf.

[351An enterprise is “autonomous” if the enterprise is either completely independent or has one or more minority partnerships (each less than 25%) with other enterprises. If holdings with other enterprises rise to at least 25% but no more than 50%, the relationship is deemed to be between “partner enterprises.” If holdings with other enterprises exceed the 50% threshold, these are considered “linked enterprises.”

[352For checking if a company [A] is an SME, the Commission Services have developed a methodology requiring (in simplified terms) to sum up: (i) the relevant figures for company [A]; (ii) the proportion of the share of the partner companies (equal to the level of participation in the partner companies); and (iii) 100% of the shares of the linked companies. See the Annex to Recommendation 2003/361.

[353Judgment of the General Court of 15 September 2016, K-Chemica, Case T-675/13, EU:T:2016:480, at paras. 35–37 and judgment of the General Court of 15 September 2016, Crosfield, Case T-587/14, EU:T:2016:475 at paras. 34–37.

[354Aid in the form of loan guarantees and aid in the form of subsidised interest rate loans cannot be cumulated if the aid is granted for the same underlying loan and the loan amount per undertaking exceeds certain thresholds. See, for example, State Aid SA.56873(2020/N) of 4 April 2020 – Portugal – COVID-19: Direct grant scheme and loan guarantee scheme. Available at: https://ec.europa.eu/competition/state_aid/cases1/202015/285326_2145493_24_2.pdf. For aid concerning specific activities to fight the coronavirus outbreak, the aid cannot be cumulated if it concerns the same eligible costs.

[356Some information on which this note is based has been gathered by the author as well as some colleagues of the UNCTAD Competition and Consumer Policies branch and used previously in an UNCTAD news item (Defending competition in the markets during COVID-19, published on 8 April 2020, https://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=2325). The author wishes to thank them for their contributions as well as Sophie Hunter for her valuable research work towards this paper.

[359Ibid

[360Encadrement des prix pour les gels hydroalcooliques (Economie.gouv.fr, 2020), https://www.economie.gouv.fr/dgccrf/encadrement-des-prix-pour-les-gels-hydroalcooliques-voir-la-faq (Accessed: 22 March 2020).

[361Autorità Garante della Concorrenza e del Mercato (AGCM) (En.agcm.it, 2020), https://en.agcm.it/en/media/press-releases/2020/3/ICA-Coronavirus-the-Authority-intervenes-in-the-sale-of-sanitizing-products-and-masks (Accessed: 22 March 2020).

[362N.3

[363ФАС России | Предельные Размеры Оптовых Надбавок И Предельные Размеры Розничных Надбавок К Ценам На Жизненно Необходимые И Важнейшие Лекарственные Препараты, Установленные В Субъектах Российской Федерации (Данные По Состоянию На 03.03.2020 Г.) (Fas.gov.ru, 2020), https://fas.gov.ru/documents/686453 (Accessed: 22 March 2020).

[365n.

[366n.

[367n. 4.

[368n.

[369Ibid

[370M. Bozoğlu, U. Başer, B. Kılıç Topuz & N. Alhas Eroğlu (2019), An Overview of Hazelnut Markets and Policy in Turkey, KSÜ Tarım ve Doğa Derg 22(5): 733–743. DOI: 10.18016/ksutarimdoga.v22i45606.532645.

[371n. 3

[372’Press Releases | Competition Authority Of Kenya’ (Cak.go.ke, 2020) <http://www.cak.go.ke/node/197> accessed 22 March 2020.

[373Central People’s Government, “SAMR’s Urgent Notice Concerning the SAMR’s Crackdown on Pricing Violations in the Production of Masks and Other Products Relating to Epidemic Prevention and Control During the Period of Epidemic Prevention and Control” (February 5, 2020), available at http://www.gov.cn/zhengce/zhengceku/2020-02/06/content_5475223.htm.

[374Federal Antimonopoly Service of the Russian Federation, The Third Case Upon Signs of a Cartel on the Market of Medical Face Masks Sale | Федеральная Антимонопольная Служба - ФАС России (20 March 2020), http://en.fas.gov.ru/press-center/news/detail.html?id=54830 (Accessed: 23 March 2020).

[375Cabinet Office, UK Government, Procurement Policy Note 01/20: Responding to COVID-19 (GOV.UK, 18 March 2020), https://www.gov.uk/government/publications/procurement-policy-note-0120-responding-to-covid-19 (Accessed: 22 March 2020).

[376Federal Antimonopoly Service of the Russian Federation (n. 18).

[377Diário da República Eletrónico (Portugal), Decreto-Lei 10-A/2020, 2020-03-13 (Diário da República Eletrónico, 13 March 2020), https://dre.pt/web/guest/home/-/dre/130243053/details/maximized (Accessed: 22 March 2020).

[378n. 3

[379The German Economy Minister Peter Altmaier announced relaxation of “anti-trust laws to allow greater cooperation between retail businesses in the fight against coronavirus,” Reuters (20 March 2020), https://www.reuters.com/article/us-health-coronavirus-germany-altmaier-idUSKBN2170NA.

[380C. McConnell, ACCC grants urgent authorisation for banks to collaborate on relief, GRC (20 March 2020): “Australia’s competition authority has granted urgent interim authorisation to allow the country’s banks to work together in providing relief for small businesses hit by the COVID-19 pandemic” (https://globalcompetitionreview.com/article/1216438/accc-grants-urgent-authorisation-for-banks-to-collaborate-on-relief).

[381The US “Acting Administrator of the Alcohol and Tobacco Tax and Trade Bureau (TTB) has found that it is [necessary or] desirable to waive provisions of internal revenue law with regard to distilled spirits, and therefore is providing certain exemptions and authorizations to distilled spirits permittees who wish to produce ethanol-based hand sanitizers to address the demand for such products during this emergency.” Statement COVID-19 Hand Sanitizer (TTB, 2020), https://www.ttb.gov/news/covid-19-hand-sanitizer?fbclid=IwAR0GDVvzgosH9hzZApGHc7CQdtz4fUcWCRltrCcw9b3Rci3g47pf5-t0-Yk.

[383Iceland’s competition authority “has granted a temporary exemption from anti-collusion rules to the Confederation of Tourism, enabling hotels, agencies etc., to co-ordinate their efforts to fight against the reduction of tourism”:(https://hsfnotes.com/crt/2020/03/16/covid-19-and-the-impact-on-competition-law And Kazakhstan is looking into granting tax exemption and other measures to the tourist industry, https://inbusiness.kz/ru/news/chp-i-turizm-mozhno-li-schitat-problemu-covid-19-fors-mazhorom.

[384Section 3, COVID-19 Block Exemption for the Healthcare Sector, 2020.

[385South African Government, Regulations and Guidelines – Coronavirus Covid-19 (23 March 2020), https://www.gov.za/coronavirus/guidelines (Accessed: 23 March 2020).

[386. Mesures d’accompganement des entrepreises impactees par le coronvarius covid 19 (Economie.gouv.fr, 2020), https://www.economie.gouv.fr/dgccrf/mesures-daccompagnement-des-entreprises-impactees-par-le-coronavirus-covid-19 (Accessed: 22 March 2020).

[391European Commission, Press Release IP/20/504 of 22 March 2020, State aid: Coronavirus: Commission approves German measures to support economy in Coronavirus outbreak, https://ec.europa.eu/commission/presscorner/detail/en/IP_20_504.

[392In accordance with Schedule 3 of the Competition Act 1998.

[393UK Government (n. 8)

[394Konkurransetilsynet, Press Release, Transportation sector is granted temporary exception from the Competition Act (19 March 2020), https://konkurransetilsynet.no/transportation-sector-is-granted-temporary-exception-from-the-competition-act/?lang=en.

[395A. Tomer and J. Kane, We should bail out airlines during the coronavirus pandemic—but on taxpayers’ terms, Brookings (18 March 2020), https://www.brookings.edu/research/we-should-bail-out-airlines-during-the-coronavirus-pandemic-but-on-taxpayers-terms (Accessed: 22 March 2020).

[397. The European Commission’s R&D Block Exemption Regulation (2011).

[398European Commission, Communication from the Commission – Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements Text with EEA Relevance,72. OJ C 11, 14.1.2011, pp. 1–72. p.29 https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:52011XC0114(04)&from=EN

[399European Commission, Framework contracts for pandemic influenza vaccines - MEMO 20190328 (28 March 2019) https://ec.europa.eu/health/sites/health/files/preparedness_response/docs/ev_20190328_memo_en.pdf (Accessed: 22 March 2020).

[400The legal framework was set out in the FTC Antitrust Guidelines for collaborations among competitors published in April 2000. It outlines the legal framework to analyse collaboration based on the rule of reason with specific time frames and antitrust safety zones. Antitrust Guidelines for Collaborations Among Competitors (2000) and Statement of Antitrust Enforcement Policy in Health Care (1996), https://www.ftc.gov/public-statements/2020/03/joint-ftc-doj-antitrust-statement-regarding-covid-19.

[404See Articles 13 and 15 AML; King & Wood Mallesons – S. Ning and C. Zhifeng, Pharmaceutical Antitrust in China, Lexology (16 April 2019), https://www.lexology.com/library/detail.aspx?g=514ef361-a1d3-4b14-b2b8-8b70183a2a5d (Accessed: 23 March 2020).

[407With thanks to colleagues for their helpful comments, responsibility for the views expressed as well as for any errors or omissions remain with the author.

[408ACM Press release, ACM’s oversight during the Coronavirus crisis, 18 March 2020.

[409Joint statement by the European Competition Network (ECN) on application of competition law during the Corona crisis, 23 March 2020.

[410MLex, Roche’s COVID-19 testing formula draws Dutch antitrust scrutiny, 27 March 2020; ACM Press Release, ACM has confidence in commitments made by Roche to help solve problems with test materials, 3 April 2020.

[411ACM Press Release, ACM offers guidance to sectors that wish to set up voucher schemes, 2 April 2020; ACM Press Release, More room for bespoke solutions between hotels and travelers in case of cancellations of bookings made through hotel booking websites, 6 April 2020.

[412Decision of the Rotterdam Court, Stichting Saneringsfonds Varkensslachterijen, 4 December 2001, in which the Dutch court upheld the NMa’s partial rejection of a “crisis cartel” defence, referring to European Cases T-197/97 and T-198/97 Weyl, 2001 Jur. II-303. See, for rejection of crisis cartel defence, Decision of the Netherlands Competition Authority No. 2269, Shrimps, 14 January 2003.

[413Kamerstukken II 1995/96, 24 707, No. 3, p. 88.

[414ACM Press Release, ACM does not grant a license for the acquisition of postal operator Sandd by PostNL, 5 September 2019; Mlex, PostNL’s bid for Sandd approved by Dutch government overruling antitrust veto, 27 September 2019.

[415See the failing firm analysis in Commission Decision of 9 October 2013, COMP/M.6796 – Aegean/Olympic II, in which it sets out the requirements relating to the concept of the “rescue merger.”

[416ACM Press Release, Concentration of two regional care providers ensures continuity of elderly care, 21 June 2018.

[417Recent examples include Mirage/Intertoys (see ACM Press Release, 20 September 2019) and Trimenzo/Servire (see ACM Press Release, 14 October 2019).

[418Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings, [2004] OJ C 31/03.

[419Competition and the Financial Crisis, OECD Roundtable, Competition Committee, 17–18 February 2009.

[420The authors thank Benedikt Weiß and Maria Sowinska for their valuable contributions to this article.

[421 According to the EU Contribution on “Crisis Cartels” to the OECD Global Forum on Competition of 27 January 2011, the term “Crisis Cartels” is misleading as it may create expectations that competition authorities might allow cartels in order to protect industry from an economic crisis in general. However, the discussion of industrial restructuring agreements should not be related to the current, or any other, cyclical economic crisis and the recession-induced fall in demand.

[422 See Communication from the Commission on a ’Temporary Framework for assessing antitrust issues related to business cooperation in response to situations of urgency stemming from the current COVID-19 outbreak’ of 8 April 2020, para. 18 (available here: https://ec.europa.eu/info/sites/info/files/framework_communication_antitrust_issues_related_to_cooperation_between_competitors_in_covid-19.pdf).

[423 See Joint statement by the European Competition Network (ECN) on application of competition law during the Corona crisis of 23 March 2020.

[424 See Communication from the Commission, Temporary Framework of 8 April 2020 (n. 2), para. 20.

[425 See Joint statement by the ECN of 23 March 2020.

[426See Commission of the European Communities, Twelfth Report on Competition Policy (1982), para. 39.

[427 See ibid.

[428 See Commission decision of 4 July 1984, Synthetic Fibres (Case IV/30.810), 84/380/EEC [1984], OJ L 207/17.

[429 See ibid, para. 28.

[430 See ibid., para. 34.

[431 See Commission decision of 29 April 1994, Stichting Baksteen (Case IV/34.456), 94/296/EC [1994], OJ L 131/15.

[432 See ibid, para. 11.

[433 See EU Contribution on “Crisis Cartels” to the OECD Global Forum on Competition of 27 January 2011.

[434 See ECJ, decision of 20 November 2008, Competition Authority v. Beef Industry Development Society Ltd and Barry Brothers (Carrigmore) Meats Ltd (“Irish Beef”), Case C-209/07, ECLI:EU:C:2008:643.

[435 See EU Contribution on “Crisis Cartels” to the OECD Global Forum on Competition of 27 January 2011, para. 57 et seq.

[436 See ibid., para. 60.

[437 See ibid., para. 61.

[438 See ibid., para. 62.

[439 See T. Lübbig in Wiedemann, Kartellrecht (4th ed., 2020), Sec. 9, para. 213.

[440 See J. Herrlinger and H. Kahlert, Strukturkrisenkartelle als zulässige Reaktion auf die Wirtschafts- und Finanzkrise?, BB 2009, 1930, 1931.

[441 See German Federal Cartel Office, decision of 31 May 1983, WuW/E BKartA 2049 – Betonstahlmatten; German Federal Cartel Office, decision of 22 July 1987, WuW/E BKartA 2271 – Leichtbauplatten.

[442 See German Federal Cartel Office, decision of 14 December 1959, WuW/E BKartA 114, 115 – Schuhbeschlag; T. Lübbig in Wiedemann, Kartellrecht (4th ed., 2020), Sec. 9, para. 215.

[444See J. Hackenbroich, CureVac, covid-19, and economic statecraft: Lessons for Europe, ECFR (Mar. 24, 2020) (https://www.ecfr.eu/article/commentary_curevac_covid_19_and_economic_statecraft_lessons_for_europe).

[445See J. Sopinska, EU-China investment talks might drag into next year as roadblocks remain, MLex (Apr. 29, 2020).

[446See Case B4-115/19 (decision to clear the acquisition of Vossloh Locomotives GmbH by the Chinese company CRRC Zhuzhou Locomotive Co. after an in-depth investigation; https://www.bundeskartellamt.de/SharedDocs/Entscheidung/DE/Fallberichte/Fusionskontrolle/2020/B4-115-19.html?nn=3591568); and E. Craig, CRRC/Vossloh cleared in Germany, Global Competition Review (Apr. 27, 2020).

[447See Non-paper – Strengthening the level playing field on the internal market (Dec. 9, 2019; https://www.permanentrepresentations.nl/documents/publications/2019/12/09/non-paper-on-level-playing-field). See also J. Espinoza, Vestager urges stakebuilding to block Chinese takeovers, Financial Times (Apr. 12, 2020); J. Espinoza and S. Fleming, Margrethe Vestager examines curbs on non-EU state-backed companies, Financial Times (Dec. 16, 2019); S. Fleming and J. Espinoza, Brussels urged to rein in state-backed foreign rivals, Financial Times (Dec. 4, 2019).

[448Communication from the Commission – Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, and the protection of Europe’s strategic assets, ahead of the application of Regulation (EU) 2019/452 (FDI Screening Regulation), C(2020) 1981 final (Mar. 25, 2020).

[449PaRR, Italian government extends scope of foreign takeover ‘golden power’ (Apr. 7, 2020).

[450PaRR, German government sends FDI screening update proposal to parliament (Apr. 9, 2020).

[451A. Yaïche, France to boost merger-veto powers to block hostile takeovers during Covid-19, Le Maire says, MLex (Apr. 29, 2020).

[452PaRR, Polish government committee reviewing foreign investment legislation – report (Apr. 30, 2020).

[453C(2020)1863 (Mar. 19, 2020), OJ C 091 I/1. The informal consolidated version of the Temporary Framework as amended on April 3, 2020, is available online (https://ec.europa.eu/competition/state_aid/what_is_new/TF_consolidated_version_as_amended_3_april_2020.pdf).

[454S. Fleming and J. Espinoza, EU members clash over state aid as richer countries inject more cash, Financial Times (May 1, 2020).

[461Ibid.

[465Commission website dedicated to antitrust rules and coronavirus, https://ec.europa.eu/competition/antitrust/coronavirus.html.

[466See EMA update on treatments and vaccines against COVID-19 under development, https://www.ema.europa.eu/en/news/update-treatments-vaccines-against-covid-19-under-development.

[467M. Apuzzo and S. Gebrekidan, Can’t Get Tested? Maybe You’re in the Wrong Country, New York Times (20 March 2020).

[468T. Jiawei and others, In Depth: Why South Korea is winning the coronavirus battle, Caixin (1 April 2020); C. Chiou, How Taiwan Battles the Coronavirus, Diplomat (6 April 2020).

[469Jiawei and others (n. 2); J. Hasell and others, Data on COVID-19 testing (https://ourworldindata.org/covid-testing).

[470Audrey Wilson, ‘The countries that are succeeding at flattening the curve’ Foreign Policy (2 April 2020); L. Kelly, Australia upbeat over slowing coronavirus spread, urges vigilance, Reuters (4 April 2020).

[471The Cabinet, 27th Meeting of the Novel Coronavirus Response Headquarters, 7 April 2020 (https://japan.kantei.go.jp/98_abe/actions/202004/_00010.html); The Minister of Health, Labor and Welfare (MHLW), Basic policies for novel coronavirus disease control by the government of Japan (28 March 2020) 3(3).

[472Abe naikaku sori daijin kisha kaiken [Press conference by the Prime Minister], 7 April 2020 (https://www.kantei.go.jp/jp/98_abe/statement/2020/0407kaiken.html).

[473I. Reynolds and others (Bloomberg), Limited Virus Testing in Japan Masks True Scale of Infection, Japan Times (2 March 2020); F. Regalado, Coronavirus testing gaps put Asian governments under microscope, Nikkei Asian Review (13 March 2020); J. Arai, Germany tests coronavirus 17-times more than Japan, Nikkei Asian Review (2 April 2020). See also Japanese Society for Infection Prevention and Control, Iryokikan ni okeru shingata coronavirus kansensho heno taiou gaido [Guide to respond to novel coronavirus infectious diseases at medical institutions] (ver. 2.1 10 March 2020); Japan Primary Care Association, COVID-19 Shinryojo / Byoin on puraimari care shoki shinryo no tebiki [COVID19 Guide to primary care at clinics and hospitals] (ver. 1.0 11 March 2020) (https://www.primary-care.or.jp/imp_news/pdf/20200311.pdf); Japanese Association for Infectious Diseases, Shingata coronavirus kansensho ni taisuru rinsho taiou no kangaekata (2 April 2020) (http://www.kansensho.or.jp/uploads/files/topics/2019ncov/covid19_rinsho_200402.pdf).

[474MHLW, Shingata coronavirus ni kanren shita hanen no kanja no hassei ni tsuite (1 reime) [On first case] (16 January 2020).

[475MHLW, Chuka jinmin kyowakoku kohoku sho bukan shi ni okeru shingata coronavirus kanren haien ni tsuite (27 February 2020) (https://www.mhlw.go.jp/stf/newpage_09120.html).

[476MHLW, Shingata coronavirus kansen sho ni taio shita iryo taisei ni tsuite, 1 Febuary 2020 (https://www.mhlw.go.jp/content/10900000/000591991.pdf).

[477Shingata coronavirus kansensho daijin kaiken [Press conference by the minister of health on 17 February 2020] (https://h-crisis.niph.go.jp/?p=134584).

[478JIJI, Hospitals in Japan refusing to test many who suspect they have COVID-19, Japan Times (26 February 2020).

[480MHLW, Kikokusha sesshokusha sodan senta- no sodan kensu tou (https://www.mhlw.go.jp/content/10906000/000619807.pdf).

[481E. Misono, Japan Medical Assoc. to probe public health centers’ refusal to conduct coronavirus tests, Mainichi (27 February 2020).

[482MHLW, Chiiki ni oite hitsuyo na kanja ni PCR kensa wo tekisetsu ni jissi surutame no taisei seibi ni tsuite (4 February 2020) (https://www.mhlw.go.jp/content/000604467.pdf).

[483H. Yano, Coronavirus: Why Japan tested so few people, Nikkei Asian Review (12 March 2020).

[484JMA, Shingata coronavirus kansensho ga utagawareru mono no shinryo ni kansuru ryui ten ni tsuite (11 March 2020) (http://dl.med.or.jp/dl-med/kansen/novel_corona/2019chi_461.pdf).

[485The government also expect citizens to call helpline first. See MHLW, Shingata coronavirus kakusan kenshutsu no hoken tekiyo ni tomonau shingata coronavirus kansensho ni taio shita iryo taisei ni tsuite (4 March 2020) (https://www.mhlw.go.jp/content/000604472.pdf); MHLW, Shingata coronavirus ni kansuru Q&A (Ippan no kata muke) (7 April 2020) (https://www.mhlw.go.jp/stf/seisakunitsuite/bunya/kenkou_iryou/dengue_fever_qa_00001.html) (Flowchart showing that patients should call helpline. The designated hospitals with testing capacities are kept unlisted to prevent patients from visiting them directly.).

[486Arai (n. 7); Regalado (n. 7). The government changed the position to allow them to stay at home and other accommodation on the 2nd of April 2020.

[487See, e.g., Japanese Association for Infectious Diseases (n. 7).

[488MHLW, Kokunai ni okeru shingata coronavirusu ni kakaru PCR kensa no jissji jokyo (as of 6 April 2020), (https://www.mhlw.go.jp/content/10906000/000619396.pdf).

[489MHLW, Sekkyokuteki ekigaku chosa jissi yorho ni tsuite (12 March 2020) (https://www.mhlw.go.jp/content/000607861.pdf). See also Yano (n. 17); JMA (Nichii online), Shingata coronavirus kansensho ni kakaru PCR kensa wo meguru hutekisetsu jirei no chosa kekka to (18 March 2020) (https://www.med.or.jp/nichiionline/article/009205.html).

[490W. Ripley and others, Japan’s coronavirus infection rate could be “tip of the iceberg” as experts call for more testing, CNN (5 March 2020); Y. Taniguchi, Shingata corona sekai no nagare ni okureta kensa seigen [The way Japan tests - lagging behind the global standard], Mainichi Shimbun (19 March 2020); R. Kaneko and Y. Naoko, Experts sound alarm over Japan’s coronavirus testing, Japan Times (22 March 2020); S. Yamanaka, Itsutsu no teigen [Five recommendations] (accessed on 7 April 2020) (http://www.covid19-yamanaka.com/cont6/main.html).

[491M. Roser and others, Coronavirus Disease (COVID-19) – Statistics and Research (https://ourworldindata.org/coronavirus#deaths-from-covid-19).

[492Hasell (n. 3).

[494Survey Research Center (6–9 March 2020) (https://www.surece.co.jp/research/3282).

[495A. Okutsu and M. Obe, Is Japan listening? Stay-home request heeded, but not by all, Nikkei Asian Review (31 March 2020); JIJI, Only 30 percent in Japan practice social distancing while talking, Japan Times (6 April 2020).

[496T. Osaki, For many in Japan, remote work during coronavirus outbreak is not an option, Japan Times (22 March 2020); E. Jozuka, Even in the coronavirus pandemic, the Japanese won’t work from home until Shinzo Abe makes them, CNN (3 April 2020); S. Denyer, Work from home, they said. In Japan, it’s not so easy, Washington Post (6 April 2020).

[497JIJI (n. 29).

[498N. Shibata, Coronavirus rumors fuel panic buying of toilet paper in Japan, Nikkei Asian Review (2 March 2020); R. Inaba, Mask and Toilet paper fusoku ni, [Shortage of masks and toilet rolls] Travel Watch (3 March 2020).

[499On JFTC’s such activities, see, e.g., JFTC, Report on the Medical Equipment Distribution (27 December 2005); JFTC, Report on Distribution of Pharmaceuticals (27 September 2006).

[500As illustrative cases, see, SRL, JFTC, 4 August 2004; Yoshikawa Matsubushi Medical Association, JFTC Cease and Desist Order, 27 February 2014; Torii Pharmaceutical, JFTC, 5 March 2020.

[501Japan Medical Foods Association, JFTC, 8 May 1996.

[502JFTC recently requested the retailers not to tie facial masks with other products. JFTC, Shingata coronavirus ni kanren shita kansensho no hassei ni tomonau masuku to no dakiawase hanbai ni kakaru yosei ni tsuite, 27 February 2020.

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Authors

  • ESSEC Business School (Cergy)
  • Linklaters (London)
  • University of Geneva
  • Linklaters (Düsseldorf)
  • Geneva Law School
  • University of Montreal
  • McDermott Will & Emery (Paris)
  • National Commission for Markets and Competition (CNMC)
  • Dentons (Milan) (Studio Legale Tributario)
  • University of Michigan
  • General Court of the European Union (Luxembourg)
  • University of Geneva
  • Sheppard, Mullin, Richter & Hampton (Brussels)
  • Linklaters (Düsseldorf)
  • Baker Botts (Brussels)
  • Norton Rose Fulbright (Johannesburg)
  • Baker Botts (Brussels)
  • McDermott Will & Emery (Brussels)
  • UNCTAD (Geneva)
  • Willkie Farr & Gallagher (Paris)
  • Netherlands Authority for Consumers & Markets (The Hague)
  • Hogan Lovells (Munich)
  • Cleary Gottlieb Steen & Hamilton (Rome)
  • Hogan Lovells (Munich)
  • Cleary Gottlieb Steen & Hamilton (Brussels)
  • Redcliffe Partners (Kyiv)
  • Willkie Farr & Gallagher (Paris)
  • Kyoto University

Quotation

Frédéric Jenny, Christian Ahlborn, Jeremy Bacharach, Christoph Barth, Christian Bovet, Marcel Boyer, Jacques Buhart, Maria Pilar Canedo Arrillaga, Michèle Carpagnano, Daniel Crane, Aymeric de Moncuit, Valentine Delaloye, Jacques Derenne, David-Julien dos Santos Goncalves, David Gabathuler, Mark Griffiths, Leigh Hancher, David Henry, Pierre Horna, David Kupka, Siún O'Keeffe, Christian Ritz, Giulio Cesare Rizza, Matthias Schlau, Mario Siragusa, Anastasia Usova, Faustine Viala, Masako Wakui, Competition law and health crisis, May 2020, Concurrences N° 2-2020, Art. N° 94262, www.concurrences.com

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