knowledge | 27 March 2020 |
COVID-19: Competition Law During the Crisis
Amid the outbreak of COVID-19, competition regulators worldwide have moved to assure traders that competition law will not inhibit co-operation deemed necessary to ensure continued supply of essential products and services to consumers.
On 18 March, the Norwegian Competition Authority announced a three-month exemption from competition law for two Norwegian airlines, allowing them to co-ordinate their schedules to maintain a minimum service during the crisis. The announcement was quickly followed by statements from regulators in Germany, the UK, and the Netherlands, stressing that enforcement action would not be taken against operators who cooperate to prevent a shortage of supply.
In the US, the Federal Trade Commission and Department of Justice issued a joint statement pledging to process requests for guidance on proposed COVID-19-related competitor collaborations within 7 days – a procedure that usually takes several months.
In Ireland, the Competition and Consumer Protection Commission (the “CCPC”) has not released its own statement on the issue, but has posted on its website a statement by the European Competition Network (the “ECN”), comprised of the national competition authorities of the EU27. In its statement, the ECN pledges that it “will not actively intervene against necessary and temporary measures put in place in order to avoid a shortage of supply.”
Have the Rules Changed?
In some jurisdictions, such as the UK and Norway, governments have decided to “relax” or “suspend” the application of competition rules to behaviour that would otherwise be unlawful. For example, the UK Government will temporarily suspend the application of the statutory rules to the food retail sector “to enable retailers to work together for the sole purpose of feeding the nation during these unprecedented circumstances.”
The ECN’s statement takes a different approach, stating that “measures in order to ensure the supply and fair distribution of scarce products to all consumers” 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.” In the same vein, head of the German Federal Cartel Office Andreas Mundt said that there was no reason for emergency legislation, since “competition law permits extensive cooperation between companies if there are good reasons for this — which is the case in the current situation.”
It appears therefore that a suspension or amendment of competition law in Ireland – or in any of the EU27 – is not envisaged at this time. Either way, the message from competition enforcers is clear: reasonable co-operation to ensure supply and fair distribution of products to consumers during the crisis is highly unlikely to be subject to public enforcement on competition law grounds.
In Ireland, co-operation between businesses will continue to be judged under Article 101(1) TFEU and the equivalent provision at national level, section 4(1) of the Competition Act 2002 (the “Competition Act”), which prohibit anti-competitive agreements, decisions and concerted practices between undertakings. An agreement that falls within Article 101(1) or section 4(1) may however be deemed lawful where it generates efficiencies outweighing its anti-competitive effects, subject to conditions set down in section 4(5) of the Competition Act/Article 101(3) TFEU. The CCPC has the power to declare in writing that certain categories of agreements are deemed to satisfy the conditions set down in section 4(5), something that it could do in respect of COVID-19 related co-operation.
What is Allowed?
It is likely that the ECN statement envisages co-operation in areas such as the supply of food, medical equipment, pharmaceutical products, as well as in the provision of transport services- though co-operation in other affected sectors may be permissible. Where businesses are unsure as to the legality of COVID-19-related co-operation, the ECN notes that they may seek guidance from the European Commission or their national competition authority.
Businesses should be aware that the crisis does not mean that competition law is suspended. Any co-operation should be required due to difficulties created by COVID-19, and should be limited to what is necessary to ensure the continued supply of scarce products or the provision of essential services. Further, co-operation should be halted when the constraints imposed by the crisis cease. Traders should bear in mind that while public enforcement of COVID-19-related co-operation is unlikely, there is nothing to prevent private actions in respect of breaches of competition law during the crisis.
Regulators have also recognised that businesses may seek to take advantage of the crisis by engaging in anti-competitive behaviour, such as charging excessive prices for essential products (e.g., face masks, hand sanitiser, or foodstuffs), or by cartelising. Both the ECN and the UK’s Competition and Markets Authority (“CMA”), among other regulators, have warned that they will not hesitate to take action against any such anti-competitive activity. The ECN has pointed out that in order to guard against “unjustified price increases” at the distribution level, manufacturers could set maximum prices for their products, something that is generally permissible under competition law.
The CMA has gone as far as setting up a dedicated COVID-19 taskforce to target such practices. In an open letter to the pharmaceutical and food and drink industries sent on 20 March 2020, the CMA referred to reports it had received of significant price increases and misleading claims about certain products in those sectors. The CMA warned that it “will use all of the powers available to us to ensure that markets continue to work well during the coronavirus outbreak” if such practices continue.
What is the Approach to Mergers During the Crisis?
On a procedural level, and as noted in our recent Briefing, COVID-19: Irish Merger Control During the Coronavirus Outbreak, the CCPC has issued guidance on how it will review transactions notified to it before and during the COVID-19 outbreak. Similar guidance has been issued by regulators across Europe and in the US.
On a substantive level, a change in approach to merger control has not been specifically addressed as of yet. However, it is possible that competition regulators, including the CCPC, could take a pragmatic view towards mergers in essential industries during the COVID-19 outbreak, for example, through wider use of the “failing firm” ground.
It is also possible that specific legislation could be enacted to facilitate mergers in essential industries, should the need arise. Ireland enacted similar legislation during the 2008 financial crisis in order to stabilise its banking sector through the Credit Institutions (Financial Support) Act, 2008. It remains to be seen whether such measures will again be required.
In any event, businesses should be aware that they must continue to notify relevant competition regulators in the event that a transaction satisfies notification thresholds.
Also contributed by Ciarán Donohue and Niall Fitzgerald
This briefing is for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.