Antitrust regulators start taking actions
Following earlier announcements in Asia1 and the United States2, competition authorities in Europe have now also started addressing COVID-19 related antitrust issues. The main antitrust concerns raised so far focus on allegations that dominant suppliers of medical equipment or personal health products (which can be either producers or wholesalers) charge excessively high prices; or that competitors collude on prices, customers and/or markets.
- In Poland, the Office of Competition and Consumer Protection is currently investigating whether medical equipment wholesale suppliers abused their dominance by restricting doctors’ access to personal health protection equipment (e.g. surgical masks) or fixing related prices.
- In the UK, the Competition and Markets Authority (CMA) is monitoring changes to sales and pricing practices during the COVID-19 outbreak. In its recent public statement of 5 March 2020, it reminded businesses that it will use its powers under competition (and consumer protection) rules to ensure that traders do not exploit the current situation to take advantage of people by charging excessive prices. In addition, the CMA is assessing whether it should advise the UK government to consider taking action to regulate prices.
- In Greece, the Hellenic Competition Commission (HCC) is currently investigating price increases and output restrictions in healthcare materials (including surgical masks and disposable gloves) and other products (including antiseptic wipes and solutions) and sent out information requests to a large number of producers, importers and marketers of these products. The HCC had previously also announced on 16 March 2020 that it would continue investigating the fixing of minimum resale prices (so-called resale price maintenance (RPM)) in distribution arrangements, which is generally prohibited. In turn, it had announced that it would be prepared to show some flexibility relating to maximum resale prices or recommended resale prices (as long as they do not de facto lead to fixed resale prices) even where the parties’ market shares exceed 30 per cent.
In Norway, the government has granted the transport sector an exemption from the application of the strict competition rules applicable to cooperation between competitors to ensure access to necessary goods and services.3 The exemption initially applies for three months and requires that the cooperation does not go beyond what is necessary to ensure efficient use of resources and takes into account the interests of consumers. Parties that wish to benefit from the exemption must notify the competition authority about the cooperation.
- On 4 March 2020, the Icelandic competition authority responded to the disruptive effects of the COVID-19 crisis on the tourism sector by granting the Confederation of Tourism a temporary exemption from the competition rules until 30 April 2020 (subject to possible extension).4 The exemption allows trade association members, including travel agents, hotels and tour operators, to collaborate on ways to reduce customer cancellations and increase demand for Icelandic tourism provided that the companies do not discuss pricing or business terms, and their discussions do not ‘reduce the scope’ for independent business decisions.
Certain competition authorities in Europe, for instance, in the UK, Italy and Poland, also have powers to investigate violations of consumer protection laws and are using these in the COVID-19 crisis. The issues raised so far relate to wholesalers’ termination of contracts to raise prices (Poland) and the charging of excessive prices or giving misleading information about the efficacy of protective equipment and personal health products by retailers (UK) and online platforms5.
Antitrust rules at stake
Horizontal cooperation between competitors
The COVID-19 outbreak is likely to increase the need for cooperation between companies and competitors in particular, often with the objective to react to the decreasing demand and to minimise losses through concerted behaviour. EU and national competition laws generally prohibit competitors to align prices (including price components), limit output, share customers/markets, organise boycotts or exchange competitively sensitive information. Violations can lead to high fines and damages. The COVID-19 outbreak does not change or automatically suspend these rules. Despite the COVID-19 outbreak any cooperation between competitors, even if it occurs in the context of, or results from, the COVID-19 outbreak, requires careful analysis to avoid restrictive effects on competition. In the most recent days, competition authorities throughout Europe have increasingly become active and started to intervene in cases of anticompetitive behaviour caused by or related to the COVID-19 outbreak. Often, these interventions have been triggered by market complaints.
Importantly, the affected sectors do not only include the products and services most obviously related to COVID-19, such as medical equipment and personal healthcare products, but also all other products and services and industry sectors indirectly affected by the COVID-19. This can range from companies (such as hotel operators) seeking to stop price collapse, manufacturers (such as bakeries) seeking to gain bargaining power and to jointly oppose to price increases imposed by suppliers of raw materials, or companies seeking to jointly reduce costs.
There may also be situations, where in the given circumstances companies feel that they must cooperate with each other to uphold services in the currently disruptive business environment caused by COVID-19. In case such cooperation leads to efficiencies, which are sufficient to outweigh the negative effects of the cooperation, there is scope for such cooperation to be exempted from the prohibition to engage in anti-competitive behaviour. Indeed, on 23 March 2020, EU antitrust authorities have issued a joint statement reassuring companies that they will not actively intervene against necessary and temporary measures put in place in order to avoid a shortage of supply. This could apply, for example, to competing transport businesses that seek to align their frequency or departure schedules in order to guarantee the upholding of a minimum service to customers, or companies that need to cooperate to ensure security of supply which otherwise would be endangered by disruptions in the international supply chain. Any such exemption is, however, only available under the narrow criteria available under the relevant antitrust laws. These criteria are not COVID-19 specific. They are always available and the COVID-19 crisis as such does not change the legal framework. It is therefore of utmost importance that companies do not consider that the COVID-19 crisis as such provides an exemption to the prohibition to engage in anticompetitive behaviour. Antitrust laws continue to apply and any infringement might be heavily sanctioned.
A special area of concern is information exchange between competitors. While COVID-19 is likely to reduce face-to-face meetings between representatives of competing companies at trade fairs and other social gatherings in the coming weeks, the disruptive effects of the COVID-19 crisis on businesses are being discussed within many industry sectors and will therefore likely increase both communications between competitors (via calls, emails or social media) and in parallel, the related antitrust risks. In particular, in critical business environments (with heavy disruptions in demand and/or supply chain, shut-downs of manufacturing sites, difficulties in transport and deliveries), companies have an increased interest to better understand how competitors are doing (e.g. how production capacity has changed, or whether they still have stocks) and/or how they seek to (re)act (e.g. whether they will reduce production, dismiss employees, etc.) in order to respond to this rapidly changing market situation.
While joint lobbying activities vis-à-vis governments and regulators are generally legitimate, company representatives must not disclose competitively sensitive information (including detailed information on prices, customers and marketing/business strategy). This applies to direct information exchanges as well as to an increased information flow through industry associations. In some cases, for instance, information exchange might simply occur through competitors jointly complaining about the difficulties they are currently facing. According to EU courts, even a situation where only one company discloses strategic information to its competitors, whether through contacts via mail, emails, phone calls or meetings, could be sufficient to trigger a violation of EU competition law.
Businesses must therefore continue to be careful when dealing with competitors to avoid illegal information exchanges and should include an antitrust review of all proposed cooperation with competitors.
Practical takeaways for the COVID-19 crisis:
- The COVID-19 outbreak does not change or automatically suspend antitrust law rules.
- Do not engage in any activity with competitors having the object or effect to align prices (including price components), limit output, share customers/markets or organise boycotts.
- Do not exchange any competitively sensitive information with competitors (neither directly nor indirectly through an association).
- Do not engage in any activity that – absent the COVID-19 crisis – you would consider to be anticompetitive.
- Do not assume that the COVID-19 crisis as such grants an exemption to the prohibition to engage in anticompetitive behaviour – in fact, it does not!
- In case you believe that the COVID-19 crisis leads to a necessity to cooperate (e.g. to uphold a business), seek legal advice on whether or how such cooperation could be structured.
- In case of doubt, seek legal advice.
In turn, cooperation agreements, which are the result of a government order, may be exempt from the application of competition laws if certain strict requirements are met.
Similarly, antitrust regulators may, either formally or informally, provide the green light for truly necessary cooperation (for instance, in the context of ensuring continued security of food supply in remote areas or other goods more generally). However, make sure that any actions remain within the precise scope and duration of the exceptional measures adopted by the authorities in order to avoid that regulators and/or courts take a different view once the crisis is over. For instance, as mentioned above, on 23 March 2020, EU antitrust authorities have issued a joint statement reassuring companies that they will not actively intervene against necessary and temporary measures put in place in order to avoid a shortage of supply. Similarly, on 18 March 2020, the Norwegian government decided to exempt the transport industry from the application of strict competition rules applying to cooperation between competitors to ensure access to necessary goods and services.
In addition, on 19 March 2020, the UK government announced that it will temporarily relax the UK competition law rules to allow supermarkets to ensure security of food supply to consumers.6 This short-term measure will allow retailers to share data with each other on stock levels, cooperate to keep shops open, share distribution depots and delivery vans, and pool staff with one another to help meet demand. Legislation is currently being prepared.
Both the EC and member states (such as Germany) have previously been reluctant to give formal, sector-specific exemptions from the competition rules.
Risk areas in supply-distribution relationships
In the ongoing crisis, certain suppliers may seek to actively influence the final destination of their products and maximize profits across the supply chain. This may raise significant antitrust risk in the EU, which has stricter rules on the degree of control a supplier can exert over its distribution network.
EU and national competition laws generally prohibit suppliers from fixing the resale price that its distributor must charge (so-called resale price maintenance) or restricting territories or customers to whom the reseller can resell the contract goods, and antitrust regulators in the EU regularly impose fines for this type of violation.7
Exceptions are only available in limited, narrow circumstances, and subject to prior legal review. In the context of resale pricing, for instance, setting maximum resale prices or recommended prices is generally low risk (unless the parties involved have market power).
Excessive pricing and other potential abuses of market dominance
Another antitrust concern raised in the context of the COVID-19 crisis is that dominant companies (whether producer or wholesaler) charge excessively high prices. EU and national competition laws generally prohibit dominant companies (rule of thumb: market share of 40 per cent or more) to abuse their strong market position.
While it may be difficult for antitrust regulators to determine whether a price is excessive, taking into account the nature of the price increase and the market characteristics at stake, both the EC and national competition authorities have pursued several excessive pricing cases in recent years, in particular in the pharmaceutical and energy sectors. Given the significant impact the COVID-19 crisis has and will continue to have on consumers, dominant companies will therefore need to be vigilant and be careful when re-adopting their pricing strategy in the context of COVID-19 (and its aftermath).
Other possible abuses by dominant companies seeking to use the COVID-19 crisis, including supply shortages, as a pretext to exclude or prevent expansion of competing suppliers from/in the market could include product bundling, refusals to supply, discriminatory practices or even below-cost pricing (predatory pricing) (particularly in end-consumer markets).
Impact on businesses
The fact that antitrust regulators (as well as businesses) are currently working on emergency contingency plans to stop the spread of COVID-19 does not limit the risk of competition law violations. EU and national competition laws continue to apply and violations can lead to significant fines and damages, and are subject to a long statute of limitations (five years under EU law), which does generally not run until the violation has been discovered and is interrupted by investigations. Antitrust compliance continues to be relevant to businesses during the COVID-19 crisis, whether in dealings between competitors or in supply-distributor relationships. Businesses with strong market positions (rule of thumb: market share of 40 per cent or more) need to be vigilant when re-adopting their pricing and business strategy in the context of COVID-19 (and its aftermath) to avoid the risk of potential excessive pricing or other practices using the COVID-19 crisis as a pretext to exclude competitors from the market.
Our Reed Smith Coronavirus team includes multidisciplinary lawyers from Asia, EME and the United States who stand ready to advise you on the issues above or others you many face related to COVID-19.
For more information on the legal and business implications of COVID-19, visit the Reed Smith Coronavirus (COVID-19) Resource Center or contact us at COVIDemail@example.com.
- Newswire company MLex reported on 3 March 2020 that the Chinese antitrust regulator is looking into alleged antitrust violations in COVID-19-related drugs, face masks and thermometers.
- On 9 March 2020, the Department of Justice (DOJ) announced that it used its competition law enforcement powers to go after offenders taking advantage of the concerns triggered by the COVID-19 outbreak. It will focus on ‘hard-core’ section 1 antitrust violations, including price fixing, bid rigging and customer allocation agreements in connection with the manufacture, distribution, or sale of public health products, such as face masks, respirators and diagnostics and sterile gloves.
- See MLex reports of 18 March 2020.
- Global Competition Law Review (GCR), “Competition enforcers tackle coronavirus” (6 March 2020).
- MLex report, “<...> probed in Italy over coronavirus-related products” (12 March 2020).
- See Mlex reports of 19 March 2020.
- The Swiss competition authority has regularly investigated (and fined) companies for restricting EU imports into Switzerland in recent years.
Client Alert 2020-125