On 8 April 2020, the European Commission ("Commission") published a Temporary Framework Communication ("Communication") to provide antitrust guidance to companies cooperating in response to urgent situations related to the Covid-19 outbreak. The Commission also announced that it issued a "comfort letter" concerning a specific cooperation project aimed at avoiding situations of shortages of critical hospital medicines. In the same announcement, it confirmed that competition laws are still very much in force and that it will continue to closely and actively monitor relevant market developments for breaches of competition law. It follows similar guidance issued by the UK’s Competition and Markets Authority (summary here).
Temporary Framework Communication
The Communication states that the exceptional circumstances and challenges brought about by Covid-19 may trigger the need for undertakings to cooperate with each other in order to overcome or at least to mitigate the effects of the crisis to the ultimate benefit of citizens. It covers possible forms of coordination in order to ensure the supply and adequate distribution of essential scarce products and services during the Covid-19 outbreak and thus address the shortages of such essential products and services resulting from factors such as rapid growth of demand, stockpiling, factory lockdowns, logistical issues, export bans or import shortages. The Commission has since clarified that it is not aimed at alleviating over capacity issues.
Main antitrust assessment criteria
Companies remain responsible for assessing themselves the legality of their agreements and practices. To assist with this, using the supply of critical hospital medicines as an example, and based on existing guidance (including the Commission’s Guidelines on Article 101(3), and the Horizontal and the Vertical Guidelines), the Communication sets out the following types of coordination which might be adopted to alleviate shortages, namely coordination to:
- significantly and rapidly increase production for certain products in short supply by reducing production of other products;
- reallocate stocks, requiring business to exchange information on sales and stocks;
- increase production by switching production lines for non-essential/non-shortage products to other necessary products;
- increase output, or efficiency, by only producing one product (as opposed to switching production between different products) (i.e. a form of specialisation).
- entrust a trade association (or an independent advisor, service provider, or public body) to:
- contribute to identifying essential products which might suffer from shortage risks;
- aggregate production and capacity information, without exchanging individual company information;
- work on a model to predict demand on a Member State level, and identifying supply gaps;
- share aggregate supply gap information, and request participating undertakings, on an individual basis and without sharing that information with competitors, to indicate whether they can fill the supply gap to meet demand (either through existing stocks or increase of production).
The Communication provides that such conduct would not give rise to an enforcement priority to the extent that such measures 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;
- 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
- not exceeding what is strictly necessary to achieve the objective of addressing or avoiding the shortage of supply.
Other guidance in the Communication
- Undertakings should document all exchanges, and agreements to record their compatibly with competition law and the criteria set out in the Communication, and make them available to the Commission on request.
- Cooperation encouraged and/or coordinated by a public authority is also a relevant to whether conduct would be an enforcement priority for the Commission.
- "Cooperation would be allowed" if in the context of an "imperative request" ( (i.e. a mandatory requirement) from public authorities to temporarily cooperate in response to an urgent Covid-19 situation (e.g. to keep up the functioning of health care for Covid-19 patients).
- Seeking guidance and the comfort letter
The Communication states that the Commission may also provide written comfort (comfort letter) for projects that need to be swiftly implemented and has set up set up a dedicated webpage and mailbox that can be used to seek informal guidance on specific initiatives.
On 8 April, the Commission also used the procedure described in the Communication for the first time and provided a comfort letter to "Medicines for Europe" (MfE). The comfort letter addresses a specific voluntary cooperation project among pharmaceutical producers that targets the risk of shortage of critical hospital medicines for the treatment of coronavirus patients. Generic pharmaceutical companies produce the largest part of the critical hospital medicines that are now urgently needed in large scale volumes to avoid shortages.
In the comfort letter the Commission states that, in order to increase capacity and alleviate shortages, the following coordination between pharmaceutical producers’ would "not raise concerns" under Article 101 TFEU in relation to certain medicines as they achieve this aim in the "most efficient way", i.e. cooperation to:
- model demand for these medicines;
- identify production capacity and existing stocks; and
- adapt or to reallocate, based on projected or actual demand, production and stocks and to potentially also address the distribution of Covid-19 medicines;
- coordinate available industry production capacity throughout Europe and identify means to optimise the use of resources available in the industry, possibly including intermediates, and to jointly identifying where to best switch production of a certain production site to a certain medicine and/or to increase capacity, so that not all firms focus on one or a few medicines, whilst others remain in under-production; and
- where medicines are being under-supplied or where over-supply exists, to rebalance and adapt capacity utilisation, production and supply (including possibly distribution), on an ongoing basis.
The comfort letter also notes that:
- the Commissioner for Health and Food Safety and the Commission’s Directorate General for Health and Food Safety (’DG SANTE’) requested pharmaceutical undertakings in relation to shortages of Covid-19 hospital medicines to engage in exchanges about the above-mentioned cooperation. The Commission is providing a forum for these exchanges and will have a steering role in the process;
- the Commission is providing a forum for these exchanges and will have a steering role in the process;
- MfE must put safeguards in place, including:
- ensuring the cooperation is open to any pharmaceutical manufacturer willing to participate;
- minutes of all meetings will be created and kept, and copies of any agreements regarding this cooperation shared with the Commission;
- the exchange of confidential business information among manufacturers will be: limited to what is indispensable for effectively achieving the aims set out above; gathered by MfE or by an external third party; and made available to the participating undertakings in aggregated form only;
- the cooperation will be limited in time until the risk of shortages, including in a possible second wave of the Covid-19 epidemic, is overcome. The Commission may inform MfE, when this is the cases.-* it does not extend to any discussion of prices or any other possible coordination on issues which are not strictly necessary for effectively achieving the aims set out above; and
- is also subject to participating undertakings not unduly increasing prices beyond what is justified by possible increases in costs.