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            COVID-19: Competition law issues from the coronavirus crisis

            Government announcements to facilitate cooperation between competitors at a time of crisis and other Competition law issues emerging from COVID-19

            Date: 20/03/2020

            The UK Government has announced that measures to facilitate cooperation between companies in order to deal with the current crisis are being enacted by way of temporary relaxation of Competition Laws for very specific circumstances.  The Competition & Markets Authority has issued a statement in support.  There are exceptional things that would ordinarily run into legal difficulties but which may be facilitated now in the name of effective response to the crisis and in particular in the name of the preservation of health and safety and public order. 

            In particular there are a number of areas within competition law that may be affected by the coronavirus pandemic, with important implications to businesses. These include (a) cooperation between competitors; (b) excessive pricing strategies by businesses; and (c) delay in merger control cases.

            Cooperation between competitors: The UK Government and the Competition and Markets Authority (CMA) has been under pressure from businesses to consider whether to relax competition rules in relation to the coordination between competitors as a result of the coronavirus outbreak.  The Government announcement (with specific regard to supermarkets) on this, followed by the CMA supporting statement should offer sufficient comfort to those involved in the most serious cases.  The Government has stated that legislation is to be laid shortly to create temporary amends to the Competition Act in order to facilitate this.

            This follows the pressure on companies in various industries and levels of the supply chain to collaborate in order to deal in particular with supplies shortages in critical products such as medicines and pharmaceuticals and to counter consumers' panic-buying. This may require companies sharing what might otherwise be commercially-sensitive information, make joint logistics arrangements to distribute goods around the country, agree to divide customers and/or geographic areas, or perhaps agree limits on supply per customer etc.  

            Normally any such cooperation between competitors would be prohibited.  It would be scrutinised under competition law and there are only very limited exceptions to the rule that each company should take its strategic decisions independently.  The coronavirus outbreak might provide a justification for some limited forms of cooperation however, especially if critically urgent and limited to that which is strictly necessary to the public interest.  

            Such cooperation is normally legitimate only by exception.  The CMA statement supports the temporary relaxation but has cautioned thus: 

            Where agreements are not covered by that legal relaxation, the CMA can offer the following reassurance: 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.


            At the same time, the CMA will not tolerate unscrupulous businesses exploiting the crisis as a ‘cover’ for non-essential collusion. This includes exchanging information on longer-term pricing or business strategies, where this is not necessary to meet the needs of the current situation. More guidance on this will follow from the CMA in due course.

            This area therefore remains something to undertake lightly but could become very important for the economy and many large companies, especially in critical sectors, depending on how the crisis evolves. 

            Excessive pricing: The CMA has also been monitoring reports of changes to sales and pricing practices during the coronavirus outbreak. The CMA wants to ensure that traders do not exploit the current situation to make short term financial gains by taking advantage of people. The UK regulator is considering evidence that could show that companies breach competition law by charging excessive prices to protective equipment and other products.  It has also sent a warning that it will take direct enforcement action in appropriate cases and will consider advising Government whether to take direct action to regulate prices. Similar actions have been taken in other countries: in Italy the antitrust regulator has opened an investigation for an allegedly excessive rise in the price of products such as hand sanitiser during the coronavirus crisis. From a competition law perspective, normally only companies in a dominant position can be found in breach of competition law as a result of excessive pricing of their products, while companies who do not have market power can increase their prices all they want for their products as customers have enough choice in the market to buy from another supplier if they wish. It is still unclear whether the CMA will take any action under competition law against companies with no dominant position, who, as a result of the coronavirus outbreak, carry out these pricing strategies to the detriment of consumers. Having said that, all companies, irrespective of whether they have a dominant position or not, will still be subject to consumer protection rules and the CMA can use its consumer enforcement powers to stop companies from trading unfairly with consumers or from using unfair contract terms.  

            Mergers: As a result of the coronavirus crisis and the measures imposed by the UK Government, companies should be aware that there may be delays in merger control cases at the CMA as the regulator could extend its statutory deadline to take a decision. This could have an impact on the timing of a deal closing, which is subject to regulatory clearance by the CMA, and on subsequent integration planning. 

            The latest CMA update on this clarifies that its binding statutory deadlines apply to a significant proportion of the CMA’s work and it intends to continue progressing its cases, making decisions and meeting deadlines. At the same time, the CMA will continue to monitor timetables including, as permitted, extending statutory timeframes where necessary. Any updates will be communicated to businesses involved in investigations and made public on the CMA website. It is therefore essential for companies to take into account these potential changes and delays when considering a merger or a deal that could be subject to a CMA investigation. 

            In addition, companies should also take into consideration the European Commission's recent announcement asking companies to delay filing merger notifications until further notice in response to the coronavirus outbreak, as this remains relevant in the UK while still in the Brexit transition period (currently until 31 December 2020).   

            Conclusion

            The UK government has consulted with the CMA for a short-term 'waiver' of competition law rules regarding cooperation between companies as a result of the coronavirus crisis. However, the Government and CMA's announcements should be interpreted as guidance on exceptional circumstances justifying certain actions.  Depending on the detail yet to be seen, it is likely that cooperating parties will still need to self-assess the legality of their conduct.  The law already contains the flexibility to claim an exemption from the usual prohibition on cooperation with competitors when (in simplest terms) the positives outweigh the negatives, but the onus is on the parties taking such actions to self-assess and form their own conclusions as to any risks they are taking.  However the guiding statement from the CMA as to what exceptional circumstances may justify a limited departure from the usual norms would  give companies confidence to undertake such cooperations when plainly in the public interest during the potentially difficult times ahead.

            Either way, the CMA will be expected to closely monitor any such arrangements to ensure that any relaxation does not lead to unnecessary and disproportionate collusion, and especially not exploitative behaviour. 


            Related people

            Jonathan Branton

            • Partner // Head of Public Sector // Head of EU Competition

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