Europe: Competition, co-operation and COVID-19

25th March 2020

Companies facing the challenges of dealing with the COVID-19 pandemic may be looking for solutions, including considering whether and how they could cooperate with their competitors.  But the competition rules prohibiting anti-competitive agreements continue to apply- unless governments make specific interventions. 

The UK government, and other European governments and competition authorities have begun to indicate their approach to companies cooperating in this time of crisis. In particular, the UK government has announced that they will shortly be introducing legislation which will relax elements of the UK Competition Act 1998 to allow competing retailers to work together to deal with the challenges posed by the pandemic.

Anti-competitive agreements

Anti-competitive agreements and practices are prohibited by Article 101 of the Treaty on the Functioning of the European Union (TFEU) which encompasses activities such as price fixing, market sharing and information exchange between competitors. These provisions are mirrored in the national legislation of EU Member States, and in the UK Competition Act 1998, section 2 (the “Chapter I Prohibition”).

Article 101(3) sets out the conditions for an exemption from the prohibition.  Restrictions of competition may be exempt if they are indispensable, allow customers a fair share of the benefits they produce, and do not eliminate competition. 

Breaches of the law can attract fines of up to 10% of worldwide turnover. Previous cases have shown that in more difficult economic situations these rules continue to apply and the increased pressure from an economic crisis is not considered a valid excuse for cartel conduct, nor is there an  automatic exemption because of a challenging economic climate. 

How have competition authorities previously acted in times of crisis and economic hardship?

It is clear from previous decisions of various competition authorities that there is no automatic exemption from competition law for a “good cause cartel”.

For example, in the 2011 decision of the Office of Fair Trading (“OFT”, the predecessor to the UK Competition and Markets Authority) in respect of Dairy Retail Price Initiatives, the OFT found that there had been coordinated retail price increases organised indirectly between retailers with their dairy processor suppliers acting as intermediaries.

The parties submitted, and the OFT accepted that these initiatives were motivated by a desire financially to assist UK dairy farmers and that the parties were being put under significant pressure to take action by farmer groups.  The parties also submitted that the Government positively encouraged the initiatives.  However, the OFT noted that the coordination of retail prices is anti-competitive regardless of the intention to pass the proceeds up the supply chain rather than retain them and that although the parties were under pressure they could have taken unilateral action to alleviate it, rather than coordinating in a way which restricted competition.

Similarly, in the European Commission’s French Meat Federations cartel decision from 2003 (upheld on appeal) the Commission found that six farmers’ federations and two slaughterers’ federations had entered into agreements jointly setting a minimum price for beef and undertaking to suspend or limit imports of all types of beef into France.  The agreement was found to be in breach of A101, although the French Minister of Agriculture supported the agreement and had pressured the slaughterers into signing it; the slaughterers had also entered the agreement under the threat of violence. However, the fines for the slaughterers were reduced because of this, and also reduced to reflect the specific economic context of the agreement and the problems in the agriculture sector (i.e. at that time, the problems caused by “mad cow” disease).

Unless there is legislative intervention from the government, any agreement between competitors reached during the coronavirus pandemic that restricts competition will still be subject to a strict application of competition law.

What are the competition authorities doing right now?

Although there is no automatic exemption from the rules, there is scope for the rules to be relaxed by specific interventions. 

The United Kingdom

In the UK, this has been done previously – for example, in response to the fuel crisis in 2000, the OFT granted an exemption from the Chapter I Prohibition for a memorandum of understanding drawn up by the government and signed by oil companies, haulage companies, police and trade unions to cover the continued supply of oil to essential users in times of emergency.  The exemption was granted subject to strict conditions and obligations. These included that co-operation “…shall be restricted to that necessary for dealing with an oil fuel emergency…” alongside strict reporting requirements. The exemption also noted how the MoU would improve the distribution of key goods (fuel) and overall the consumer would see the benefit of this agreement by virtue of fuel being available in the pumps.

In response to intensive lobbying by UK supermarkets, the UK government announced on 19 March 2020 that it would relax elements of competition law to allow retailers to cooperate with each other to ensure continued food supply.   The examples of cooperation envisaged by the announcement are: sharing data on stock levels; cooperating to keep shops open; sharing distribution depots or delivery vans; pooling staff to meet demand; agreeing on common specifications for products to bolster food production; and coordinating operations to ensure access locally. 

Both the government announcement and the Competition and Markets Authority (“CMA”) statement following it stressed that this will be a specific and temporary measure and will not allow activity that does not meet the specific requirement of feeding the nation in the current circumstances. 

The CMA added to the government announcement the additional assurance that where agreements are not covered by the proposed legal relaxation, the CMA has “no intention” of taking competition law enforcement action against cooperation between businesses or rationing of products to the extent that this is necessary to protect consumers – for example, by ensuring security of supplies.  This can be taken as reassurance to sectors other than food retailing that essential cooperation will be permitted.

At the same time, the CMA notes that it will not tolerate non-essential collusion, under “cover” of the crisis. This would include exchanging information on longer-term pricing or business strategies, where this is not necessary to meet the needs of the current situation. They say that they will produce more guidance on this in due course.

Other EU Member States

A number of other EU Member States have taken similar action to the UK, including Germany, the Netherlands and Norway.

The German government has announced its intention to loosen competition rules for the grocery sector, whilst the Norwegian government announced that they are giving the transport industry temporary exemptions from the competition prohibitions for the next 3 months, entering into force immediately. Specifically, this will mean that the airlines Norwegian and SAS will be able to cooperate more than usual, although such cooperation must not go beyond what is necessary, it must use resources as effectively as possible and be in the interest of consumers.

The Dutch competition authority has stated that the competition rules will be applied in a less stringent fashion compared to normal circumstances due to the exceptional times. However, again there is emphasis on companies keeping within the limits of necessity to solve the problems that the coronavirus crisis creates. For example, supermarkets may, according to this relaxation of the rules, exchange information regarding stock volumes; wholesalers of medicine may do so regarding the volumes of products sold; logistical service providers may collaborate to better the supply of grocery products to citizens; and trade associations can enter agreements to have a more lenient approach to debtors. 

The European Competition Network (made up of the European Commission and the competition authorities of the EU Member States) have also issued a joint statement acknowledging that the exceptional circumstances surrounding the coronavirus pandemic “may trigger the need for companies to cooperate in order to ensure the supply and fair distribution of scarce products” and confirming that they will not actively intervene against necessary and temporary measures put in place to avoid a shortage of supply.  The ECN have also offered to provide informal guidance to companies on the application of competition law to these types of measures. 

The European Commission has also asked the retail lobby group Eurocommerce (representing the European retail and wholesale sector) for further details on which regulators have granted exemptions and what guidance the sector requires. As per the announcement by the ECN, the Commission has said it is ready to provide informal guidance to companies that are unclear on their competition responsibilities and what the law already provides in terms of possibilities to proceed through disturbances to the economy.

Conclusions

Unless there is legislative intervention from the government, any agreement between competitors reached during the coronavirus pandemic that restricts competition will still be subject to a strict application of competition law.  

Without specific intervention, companies must show that their agreement meets the requirements of A101(3)- that it “…contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit”; and that it does not eliminate competition with regards to the product or service that is subject to the agreement or impose indispensable restrictions.   Agreements that restrict prices or go beyond what is essential are unlikely to be acceptable.

For more information please contact Ros Kellaway.

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