United Kingdom

1. Introduction

In the UK, as across the globe, COVID-19 has presented extraordinary difficulties for businesses and consumers alike. Supply chains focused on daily essentials (e.g. food and medical supplies) are battling to keep up with unprecedented increases in demand, partly as a result of “panic buying”.  Non-essential supply chains are witnessing reduced demand and significant losses.  Unsurprisingly, this has resulted in capacity issues and solvency threats for key sectors (e.g. airlines).  

In such a rapidly evolving situation authorities have already started relaxing regulation to allow key sectors to continue to function.  In the competition sphere, the UK Competition and Markets Authority (“CMA”) has not been slow to react. It has provided guidance on the application of UK competition law to the challenging circumstances posed by COVID-19 (discussed below) and is setting-up a taskforce, which, among other things, will:

  •  scrutinise market developments to identify harmful sales and pricing practices;
  • warn businesses suspected of exploiting these exceptional circumstances, e.g.  through unjustifiable prices or misleading claims; and
  • take enforcement action if there is evidence that businesses may have breached com-petition or consumer law and they fail to respond to the CMA’s warnings.

Below we set-out the CMA’s approach to dealing with competition law enforcement and merger control review in the COVID-19 emergency context. 

2. Antitrust

On 25 March, the CMA issued extensive guidance on its approach to co-operation initiatives taken by competitors in response to the current crisis.  The guidance generally underlines that the CMA's focus will be consumer protection and that its main aim is to reassure businesses that proportionate measures which are clearly targeted at concerns arising from the current crisis and which do not go further than what is necessary will not be subject to competition law enforcement action.

The guidance addresses two questions: how the CMA will prioritise cases and choose to investigate in the first place; and, how it will apply exemption criteria to situations that would otherwise be anti-competitive absent the unprecedented COVID-19 context. 

Prioritisation criteria 

On the first question, the CMA states that it will not take enforcement action against measures to coordinate action where all of five criteria are satisfied:

  • the measures are appropriate and necessary to avoid a supply shortage or ensure security of supply; 
  • they are clearly in the public interest; 
  • they contribute to consumer welfare; 
  • they deal with critical issues that arise as a result of the pandemic; and 
  • they are temporary, meaning that they must last no longer than is necessary to deal with the critical issues in question.

Whilst helpful, the CMA will apply a high threshold when considering the application of these factors.  The CMA has expressly stated that these factors should not be taken as providing a “free pass” to businesses to engage in conduct that could harm consumers in other ways, and that the CMA will not tolerate businesses exploiting the crisis as “cover” for non-essential collusion.

Exemption criteria 

On the second question, the CMA provides additional guidance to businesses to allow them to self-assess whether and how the legal criteria for exemption will apply in the context of the COVID-19 crisis. 

To be exemptible, cooperation must (i) address the critical issue directly and must be in the interests of consumers (i.e. the cooperation is necessary to prevent a shortage or allows for continuity or essential services or the introduction of a new essential service); (ii) be proportionate to the nature of the critical issue by not going further than what is reasonably necessary to achieve the COVID-19-related objective. In particular, the CMA notes that competition must remain wherever possible. For example if two firms collaborate on sharing capacity information, they should continue to compete in other respects, i.e. on price.  

The CMA has also commented that in contrast to its usual approach, where the application of its prioritisation and exemption criteria is unclear in relation to a critically important matter, it may accept to offer informal guidance about its enforcement priorities “…on a case-by-case basis, to the extent that this is possible given current CMA staffing constraints”.  

The guidance however makes clear that the CMA intends to remain on the alert for measures which opportunistically seek to exploit the crisis, for example manufacturers colluding to keep prices high of in-demand or essential products (such as face masks and other medical equipment).

3. Abuse of market power

Despite the UK government’s stated more tolerant approach to enforcing the rules on anti-competitive agreements in certain limited circumstances (as noted above), the same approach has not been taken in relation to competition and consumer law rules which protect against excessive pricing and misleading practices.  The CMA announced as early as 5 March that it would seek to enforce these rules against COVID-19-related price hikes and misleading claims. In particular: 

  • companies with a dominant market position must not exploit customers by charging an excessive price, i.e. a price which is clearly over the market value of their products; and
  • if a business makes misleading claims e.g. about the efficacy of protective equipment (e.g. hand sanitiser or face masks) and a consumer goes on to buy the product as a result of that information, the business is likely to breach UK consumer law.  The CMA has made it clear that it will prioritise enforcement action in these cases.

The CMA has already contacted businesses and online platforms regarding excessive pricing of hand sanitiser.  The CMA is not alone in this effort to clamp down on excessive pricing, and there are already global precedents where the Chinese and South Korean authorities have intervened against the high pricing of face masks. 

4. Merger control

Neither the European Commission nor the UK’s CMA have put in place any provisions for special ‘fast track’ or simplified reviews of mergers in distressed circumstances. In fact, it is likely that merger control reviews will take even longer than usual over the next few weeks. 

A number of regulators including the European Commission have cited similar reasons for the expected delays including difficulties obtaining views on proposed transactions from customers and competitors who are understandably focussed on the day-to-day challenges of keeping their businesses afloat and the pressures of dealing with the COVID-19 emergency.  

As a result, the usual jurisdictional thresholds continue to apply in the UK and a voluntary merger control notification may be advisable if either of the following thresholds are met:

  •  the target derived turnover in the UK of £70m or more in the last financial year; or
  • the transaction would lead to the creation of, or increase to, a share of 25% or more of the supply of goods or services of a particular description in the UK, or a substantial part of it.

Similar to the position at EU level, we understand that the CMA has asked parties who are currently in pre-notification discussions to voluntarily delay the formal notification of their transactions, wherever possible, to avoid the CMA’s statutory clock (40 working days in Phase 1) starting to run. The result is that parties will be required to spend longer in pre-notification discussions with the CMA. Therefore in order to help accelerate the process as much as possible, parties should: 

  1. engage with the CMA as early as possible;
  2. be clear and direct if there is urgency to get a business-critical deal cleared quickly;
  3. ask the regulator to commence informal market testing in pre-notification phase;
  4. plan the longest possible timetable to manage expected delays; and 
  5. be prepared to respond quickly to any additional information requests. 

For deals which need to happen very quickly in the current environment, the voluntary nature of UK merger control makes it possible to complete without notifying and receiving CMA clearance. However, once the CMA discovers the transaction, it could order the acquired business to be ‘held separate’ i.e. it should continue to be run as a standalone business pending CMA review, under the CMA’s system of Initial Enforcement Orders (IEOs). 

Authors

Picture of Caroline Hobson
Caroline Hobson
Co-head of Competition
Picture of Graeme Young
Graeme Young
Brian Sher
Brian Sher
Co-head of Competition