It is important to remember that as businesses struggle in these times to cope with issues like distribution, sourcing ingredients, components and other resources, they may look to collaborate with rivals. In fact, many businesses have been doing exactly that. Collaboration between competitors can be perfectly benign and may no anti-competitive effects (for example, in setting standards, lobbying efforts). However, competition rules do apply and coordination of prices, market sharing, cost allocation, coordinated output reductions or sharing competitive sensitive information, would be prohibited. Some restrictions are regarded as ‘hard core’ and rarely worthy of exemption (price fixing, customer and market allocations and quantity restrictions). Penalties for infringement could lead to significant fines and possible private damages litigation.
In the EEA, agreements where the pro-competitive benefits outweigh the restrictive effects, are exempt from the prohibition in the competition rules. But collaboration between competitors is not generally subject to individual clearance by the European Commission or by national competition authorities: companies must self-assess their arrangements to see if they meet the criteria for exemption and this carries significant risk.
In these COVID-19 times, what practical steps can a company take to ensure so far as possible that its activities comply with the competition rules? The sorts of issues which we have seen emerging in these times of crisis which are steering rivals towards collaboration with each other include:
- Steeply falling demand and revenues, with escalating costs which threaten the very existence of the business
- Systemic supply chain disruption with access to ingredients and components becoming severely constrained or cut off
- Threats to business continuity, employee issues.
Issues can be seen to arise in pharma as companies seek to cooperate in finding a vaccine for the virus; seeking approval to extend ‘Sell By’ dates and in collaboration to switch manufacture to the manufacture of ventilators. This can prompt a number of collaborative behaviours, many of which would be regarded in normal times as in breach of competition laws: capacity reductions, agreeing on the prioritisation of certain customer groups (e.g. healthcare customers or the aged), rationing of components, coordination of distribution.
There are several steps which can be taken:
- Guidance from public authorities: there are mechanisms which are not often used, through which guidance may be sought. Reviewing the criteria and circumstances of relaxations in other sectors, can be informative parties. For example:
- The UK’s CMA has issued a statement to the effect that it does not intend to take action against cooperation which is necessary to protect consumers (e.g. ensuring security of supplies);
- In the UK, supermarkets have been given permission to work together to share stock data, distribution depots, deliveries. The circumstances were exceptional and compelling in the interests of public policy;
- Norway, Germany, the Netherlands and Iceland, to name a few, have relaxed the competition rules for collaboration in various sectors. Parties may review the rationale for these individual decisions;
- The European Commission has indicated that it will issue guidance.
- Be narrow in focus: concentrate only on those collaborative activities which are
- Focussed only on solving the COVID-19 emergency being faced;
- Narrowly defined and go no further than necessary to deal with the emergency;
- Temporary in nature: such collaboration must come to an end as soon as practicable after the end of the crisis;
- Clear and specific;
- Do not cloud such emergency collaboration with other extraneous items;
- Never include any terms relating to price or markets.
- Document it: record discussions, meetings, and outcomes. Consider having counsel participate in the meetings.
- Be public: do not engage in emergency collaboration activities in secret.
- Consider carefully how you communicate with the market and ensure messaging is in line with competition rules, checked by counsel.
It is important to bear in mind that risks are not just short term ones associated with the time of the COVID-19 virus. Risks can be longer term, as an investigation might not be started for many years after the end of the pandemic.
The European Competition Network has issued a joint statement on 23rd March 2020, which may be found here.
The European Commission stated: “Companies that need further guidance are encouraged to contact either the national competition authorities, the Commission or the EFTA Surveillance Authority for further guidance in individual cases,” In the absence of specific dispensation from a competition authority, there are risks, but these steps should help minimise them. Even with permissive guidance from a competition authority, there is still a risk of private litigation but one would hope that complying with official guidance would put off such claims from being brought.
Even if it may look too early now to look ahead, it is important to safeguard the current collaboration in a defined framework to ensure that when the situation normalises, any temporary arrangements can be untangled in a clear way, and an external audit is conducted to confirm the companies have not, inadvisably, set out on a path for collusion.
In addition, it is worth bearing in mind that the Commission has embarked on a broad examination of collaboration between competitors in its Horizontal Guidelines review, which includes a review of the R&D and Specialisation Block Exemptions. After the pandemic is over, we will likely see the Commission’s experience of dealing with the pandemic informs its approach to the drafting of updated guidelines. It will be an opportunity for businesses and trade associations to provide input from practical experiences. We have made submissions to the Commission and these may be found here.