EU Level

1. Introduction

The European Commission, the EFTA Surveillance Authority and the National Competition Authorities that together form the European Competition Network (ECN) quickly reacted to the emerging COVID-19 crisis and issued on 23 March a joint statement with a clear message: while antitrust law should not be ignored during the crisis, the authorities understand the extraordinary situation and will not actively intervene against necessary and temporary measures put in place to avoid a shortage of supply. In April 2020, the Steering Committee of the ICN specified these principles in a statement on competition during and after the COVID-19 Pandemic and pointed out that:

  • Competition benefits consumers and economies by ensuring lower prices and new and better products and services. The application of competition law remains vital in a period when companies and the economy suffer from crisis conditions.
  • Joint efforts by companies to ensure the supply and distribution of scarce products and services may be a necessary response to protect consumers and provide products or services that might not be available otherwise. It can be appropriate for competition agencies to accommodate collaboration between competitors necessary to address the circumstances of the crisis to the extent that their laws permit. 

In line with this the European Commission made clear that it will not generally relax EU competition law principles and that breaches of the competition rules on the back of the crisis will not be accepted. However, DG Competition - the European Commission’s competition watchdog - acknowledged that businesses are facing particular challenges due to the COVID-19 crisis and at the same time can play a crucial role in overcoming the effects of this crises. Companies could, for example, cooperate in order to ensure the supply and fair distribution of essential scarce products and services to all consumers.

On 8 April 2020 DG Competition went one step further and explained that in the current crisis suppliers of essential and scarce products in the health sector may need to go beyond the normal boundaries of EU competition law and coordinate on production and distribution. This is conduct that is normally in clear conflict with EU competition law rules, but now declared as acceptable and even desired in the current crises.

DG Competition is committed to providing swift, constantly updated, antitrust guidance on cooperation initiatives with an EU dimension in view of COVID-19 crisis. At the same time, DG Competition has vowed to act against anti-competitive behavior relating to scarce products or products essential for consumers health. Merger control cases are continuing, but the Commission is holding off new merger control cases where possible.

2. Antitrust

Restrictions of competition necessary to achieve efficiencies such as improvements of supply can be exempted from the prohibition of anti-competitive agreements and practices. DG Competition underlines that current circumstances are “exceptional” and that cooperation between companies may be needed in order to ensure the supply and fair distribution of essential scarce products and services to all consumers.

As a general principle, each company or association must determine independently whether a specific form of cooperation (including information exchange) between competitors is compatible with EU competition law. As from 8 April 2020 though, DG Competition stands ready to provide specific guidance through ‘comfort letters’. This will only happen in exceptional circumstances (see below). 

The guidelines issued by the European Commission can help companies in their initial assessment on the compatibility of their business arrangements with EU competition law. Guidance can be found in the Commission’s Guidelines on Article 101(3) as well as the Horizontal and the Vertical Guidelines.

The following self-assessment test should be used:

  • Is the COVID 19 crisis the driver behind the proposed cooperation?
  • Does the cooperation create efficiencies, e.g. does it lead to an improvement of distribution of scarce goods, does it help to prevent price hikes?
  • Are the following conditions met?
    • The cooperation is time limited
    • It benefits consumers
    • It does not go beyond what is strictly necessary

If the answer to each of these questions is affirmative, the envisaged cooperation is permissible. 

A relevant factor that is taken into account to conclude whether or not a cooperation is problematic under EU competition law or should be an enforcement priority for the European Commission is the fact that a cooperation is encouraged and/or coordinated by a public authority (or carried out within a framework set up by the latter). This applies in particular to the health sector.

Companies and associations can ask DG Competition for guidance if they are uncertain whether their initiatives are compatible with EU competition law. DG Competition will provide informal guidance on

  1. specific cooperation initiatives
  2. that need to be swiftly implemented to effectively tackle the coronavirus pandemic and
  3. have an EU dimension (in particular: they do not only concern a single member state).

DG Competition can be contacted through mailbox [email protected]. Requests should include the following information:

  • Companies involved 
  • Products/services concerned 
  • Description of the cooperation
  • Possible restrictions of competition following from the cooperation
  • Benefits of the cooperation 
  • Explanation of why the cooperation is necessary and proportionate to achieve those benefits in the current circumstances.

On 8 April the European Commission has further published a "Temporary Framework Communication" for companies cooperating in response to urgent situations related to the current COVID-19 outbreak. The communication is aimed specifically at cooperation for the supply of critical hospital medicines and medical equipment to tackle shortages.

According to the Communication, cooperation in the health sector in some instances can be limited to entrusting third parties (trade associations, independent advisors / service provider, public bodies) with coordinating joint transport of input material, identifying risks of shortages and aggregating information. Such cooperation is generally also admissible under normal instances. 

However, the communication acknowledges that in the current crisis suppliers of essential and scarce products may need to go further and coordinate on production and also distribution – conduct which is normally in clear conflict with EU competition law rules, but acceptable and even desired in the current crises. 

DG Competition points out that it will not intervene against such far-reaching forms of cooperation if they are

  1. designed and objectively necessary to actually increase output in the most efficient way to address or avoid a shortage of supply of essential products or services, such as those that are used to treat COVID-19 patients 
  2. temporary in nature (i.e. to be applied only as long there is a risk of shortage or in any event during the COVID-19 outbreak) and 
  3. not exceeding what is strictly necessary to achieve the objective of addressing or avoiding the shortage of supply. 

Considering that coordination on production and distribution normally is considered a hardcore infringement of EU competition law rules and draws heavy fines, companies should document all exchanges, and agreements between them which prove that the above conditions are met. DG Competition has also offered - at its own discretion - to provide companies engaging in such co-operations with ad hoc “comfort letters". Companies should take advantage of this to increase legal certainty. 

3. Cartels / Abuse of market power

The European Commission has underlined that in the current situation it is more important than ever that businesses and consumers receive protection under competition law. DG Competition will therefore step-in if companies take advantage of the current situation and breach EU antitrust law. 

This first applies to companies that engage in fix pricing or agree on limiting the supply of scarce or essential products for consumers’ health such as face masks and other personal protective equipment, disinfectants or respirators.

Dominant companies will likely have to answer to DG Competition if they

  • Engage in excessive pricing in of scarce or essential products; 
  • Refuse to supply necessary input to produce products essential for consumers’ health; or
  • Abuse patents in the life sciences sector. 

With regard to supply-chain relationships (vertical agreements), the ECN mentions explicitly that existing rules allow manufacturers to set maximum prices for their products. This could be used to counter unjustified price increases (e.g. of scarce and/or essential goods) at the retail level.

4. Merger control

The Commission has introduced working from home policies, but DG Competition has implemented different measures to ensure business continuity for EU merger control proceedings as much as possible. In fact, the Commission’s website shows that DG Competition processed cases and has adopted a number of merger decisions. However, DG Competition acknowledges that it “faces difficulties in some cases in collecting information from the notifying parties and third parties, such as their customers, competitors and suppliers”.

Although ongoing EU merger control proceedings will continue as much as possible, companies are encouraged to delay complex new merger notifications until further notice, if possible. On 7 April DG Competition issued a statement asking companies to discuss any possible filing in advance with them and only to go forward with notifications where they can show “very compelling reasons” to proceed with the merger control process without delay.

On a technical level DG Competition encourages electronic submissions which will currently be accepted in cases even when the regulations prescribe delivery of paper originals.
 

Authors

Dr. Björn Herbers
Dr. Björn Herbers, M.B.L.
Rechtsanwalt
Roderick-Nieuwmeyer-CMS-NL
Roderick Nieuwmeyer
Attorney-at-law