Crisis & Compliance: EU Competition Law During COVID-19
Amid the economic shocks caused by the Coronavirus (COVID-19) crisis, many industries are facing reduced demand for their products and services. Other industries—notably healthcare and food—are adjusting rapidly to expanding demand requirements and changing consumption patterns due to large-scale population confinement in several countries. Significant over- or under-capacity can create incentives, or even the necessity, to collaborate in ways that may push the limits of antitrust and competition rules.
On 23 March 2020, the European Competition Network (ECN) took unprecedented action. ECN, the network of competition enforcement authorities in the European Union, issued a joint statement announcing that its members will not actively intervene against “necessary and temporary” measures, including cooperation among competitors, in order to avoid a “shortage of supply.” At the same time, the ECN cautioned that its members would actively intervene against any measures taken by companies to limit the supply or charge excessive prices for critical products, such as masks or hand sanitising gel. This joint statement followed steps taken by several competition authorities in Europe to signal relaxed antitrust treatment of certain types of collaboration.
This article provides an overview of how companies can navigate these rapidly evolving developments in line with EU competition law. In brief, competition rules still apply, but are sufficiently flexible to allow critical industry adjustments during economic shocks that cannot be addressed in the short term by market forces, which are currently in turmoil.
Competition Law During Times of Crisis
Competition laws worldwide, including in the European Union, impose rules regarding collaboration among competing companies. These rules do not automatically change during times of crisis and have not changed in the European Union. However, authorities can prioritise and adjust how they enforce the rules.
The ECN’s joint statement is significant in that it indicates an attempt to use the tools of competition law to help mitigate the effects of extreme economic shocks that will not be addressed by normal market forces in the short term. The joint statement makes clear that collaboration designed to benefit consumers (by preventing scarcity, for example) will likely be permissible, as it would not likely fall within Article 101 TFEU, or would qualify for an exemption under Article 101(3)TFEU. At the same time, the joint statement indicates that ECN members will intervene where companies’ conduct would reduce the supply of critical products or impose excessive prices. Moreover, as the ECN joint statement makes clear, even conduct designed to benefit consumers may not be without risk, and in the event of questions, companies should reach out to the European Commission, the European Free Trade Association Surveillance Authority or national competition regulators for informal advice.
In the days preceding the joint statement, several national competition authorities went further, authorising temporary waivers or indicating flexibility in their approach to competition law enforcement in critical industries. For example:
The Norwegian competition authority granted a temporary exemption from the competition rules to the transport sector for three months, from 18 March 2020. This will allow, for example, SAS and Norwegian to collaborate on their flight route offerings.
On 19 March, the UK government announced that it is temporarily relaxing elements of competition law to allow food retailers to collaborate, including sharing data on stock levels and operating hours, sharing distribution depots and delivery vans, and pooling staff. In a separate statement issued the same day, the UK Competition and Markets Authority stated that it does not intend to intervene against cooperation among businesses or rationing of products, if necessary to protect consumers. It also warned against conduct that could harm consumers, in particular addressing the issue of excessive prices in sensitive industries, such as food and pharmaceuticals.
On 20 March 2020, German Economy Minister Peter Altmaier suggested that it may be necessary for food retailers to cooperate more closely to ensure there are no shortages for citizens during the crisis. He told German weekly Der Spiegel that “if the food industry and retail sector cooperate to secure supply for citizens during the crisis…we will take up anti-trust issues with the cartel authority in order to find a solution.”
In Iceland, on 22 March 2020, the competition authority announced that it will, in some circumstances, grant exemptions from antitrust rules to travel agencies and distributors of pharmaceuticals.
On 23 March 2020, the Finnish Competition Authority indicated that it will take into account the circumstances of the COVID-19 crisis and understands that cooperation may be necessary to ensure the adequate supply and equal distribution of products to consumers. At the same time, the agency vowed to be “resolute” in intervening against cartel activity.
The actions by the ECN and national regulators appear to go significantly farther than the European Commission’s approach to “crisis cartels” following the 2008 financial crisis. At that time, the Commission held the stringent view that so-called crisis cartels do not benefit anyone, although there was a recognition that certain market situations may not be remedied by market forces. The ECN’s joint statement combined with the ad hoc activity of national regulators shows that EU and national competition law, while still applicable, might be subject to increasingly flexible interpretation and enforcement priorities to respond to severe economic shocks.
In the longer term, questions undoubtedly will arise as to whether this flexibility is temporary or instead represents a “new normal,” which would be a significant change in the overall approach to antitrust policy and enforcement in Europe.
Principles of Competitor Collaboration
Amid the COVID-19 pandemic, EU competition law enforcers are clearly willing to permit certain types of collaboration that, under “normal” circumstances, could potentially raise concern. However, this does not mean that companies may freely collaborate with their competitors. Companies must still comply with competition law, and the latitude accorded to certain otherwise high-risk cooperative activities should be undertaken with caution.
It is therefore important to distinguish between low- and high-risk conduct as well as conduct that still requires assessment on a case-by-case basis.
As a starting point, a collaboration between companies that do not compete in the relevant field is generally considered low-risk. Similarly, a collaboration that does not involve competitively sensitive information (such as prices, capacity or customers) generally does not entail significant risk.
For example, the sharing of best practices to mitigate the impact of COVID-19 on the workforce does not present a competition law risk, as long as participation in the discussions and implementation of any recommendations is voluntary. This may also apply to discussions among competing food manufacturers that address increased hygiene standards, as well as practical safety measures for employees of other companies where the workforce faces huge numbers of end customers every day, such as food retailers, airlines and security personnel.
Similarly, companies active nationally may seek to coordinate their purchasing with other European companies in an effort to ensure continued comprehensive coverage of necessary consumer products, such as toilet rolls or hand sanitizer, to mitigate the impact of COVID-19. EU competition law has precedent for such cooperations in the form of the pan-European supermarket purchasing alliances that competition authorities have previously accepted under certain conditions.
In contrast, certain types of conduct have a particularly high risk of being considered objectively anticompetitive and not justifiable, regardless of the circumstance. Such conduct would expose companies to significant fines. This includes conduct which, for example, aims at:
Price fixing or coordinating price fixing
Limiting or coordinating capacity
Agreeing to or refusing to deal with a particular customer(s) or suppliers(s)
Exchanging competitively sensitive information among competitors, in particular pricing strategies, or an agreement to exchange information. As a general matter, competitively sensitive information also includes information regarding costs, customers, rebates/discounts and general commercial strategy.
In addition, companies that hold significant market power or have a “dominant” position may face antitrust risk under Article 102 TFEU or even stricter national rules if they unilaterally impose excessive prices, refuse to supply certain customers or discriminate between customers without justification.
Conduct that May Be Permitted but Still Requires Careful Consideration
The ECN joint statement makes clear that certain cooperation, potentially even including cooperation that normally entails significant antitrust risk, may be effectively permitted if it benefits consumers, in particular by preventing scarcity. Examples of such cooperation may include collaborating on:
Logistics for effectively and expeditiously distributing goods or people, such as the coordination of scheduled travel
Storage and warehousing of critical products such as food and pharmaceuticals
Shared use of assets, such as telecommunication or energy networks, hospitals, distribution depots and means of distribution (g., delivery vans), or staff
Exchange of information on, for example, stock levels, distribution patterns or stock shortfall (not prices), or standardising research and development projects relating to mitigating the impact of COVID-19
Joint purchase or production, even above the European Commission’s “safe harbour” 15–20% market share thresholds, where capacity restraints may slow the input or manufacture of critical products
Cooperation between suppliers at different levels of the distribution chain, for example, between the wholesale and retail levels of food distribution to enable wholesale sales to end customers.
While these examples of cooperation appear feasible in light of current enforcement statements and the extraordinary circumstances, they are still not without risk and should be undertaken only after careful consideration and, possibly, notification to the relevant authorities.
Against this background, the following general principles may be a helpful starting point in evaluating potential competitor cooperation:
Collaboration between competitors must always have an efficiency or pro-competitive purpose which one party would not be able to achieve alone. Therefore, companies must first consider whether there are alternative, effective means to the proposed collaboration that could be achieved alone.
Collaboration between competitors must be limited in scope and reasonably necessary to achieve the efficiency purpose.
Collaboration must be limited in time and in geography.
It is important to check regularly that the scope of the collaboration has not changed and that the collaboration remains necessary, particularly when economic conditions are rapidly changing in response to the COVID-19 health crisis.
The company should document the beneficial reasons for cooperation and not use the cooperation as a means to circumvent antitrust and competition rules. This is particularly important because enforcers have stated that they will target cooperation aimed at limiting output or increasing prices, especially for critical products such as food, pharmaceuticals, masks and hand sanitising products.
It is clear that EU and national competition laws apply during times of crisis, just as they do in times of prosperity and economic growth. However, it is also clear that these laws provide sufficient flexibility to enable collaboration in response to compelling public needs, where normal market forces either fail or do not apply. In order to overcome this time of crisis, companies must take care in determining what types of collaboration are necessary, ensure that such measures remain compliant, and—if necessary—discuss their plans with the relevant competition authorities.