This blog post explores whether collaboration among competitors to manufacture and/or distribute critical products and services in specific sectors such as logistics, medical supplies, and groceries and supermarkets, etc. can be justified under European competition law during a crisis even when the collaboration would not be defensible in the absence of the crisis.
European competition law rules prohibit cooperation and coordination between competitors where this leads to a restriction of competition (Article 101 (1) Treaty of Functioning of the European Union (TFEU) as well as similar national provisions in the EU Member States). However, such collaboration can be justified if 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”, provided that the restrictions to competition are indispensable and do not eliminate competition for a substantial part of the pertinent relevant market (Article 101 (3) TFEU).
With the Covid-19 situation, many industries are suffering from a dramatic and often sudden drop in demand, not the least resulting from shutdowns and confinement restrictions. Those restrictions, aimed at preventing the spread of the virus, impact whole parts of the economy.
Competition rules can be flexible in times of crisis
The extraordinary and rapidly deteriorating situation could in some carefully identified instances justify that companies may qualify for the exemption under Article 101 (3) TFEU for those products and services that can help fight the pandemic and support consumers and governments to weather the storm, and which would otherwise not be provided, or be provided at much higher costs. Therefore competition agencies might be willing to provide guidance or even to grant waivers from competition rules, e.g. on a project-by-project basis. Examples could be the logistics sector, the production and delivery of medicines, medical supplies and the healthcare sector generally (e.g. coordination between hospitals, retirement homes etc.), the supply of groceries and supermarkets regarding their level of supplies to avoid shortages or joint home delivery services or even remedies to the disruption of the supply of critical products through sharing production lines and the like.
Companies cannot just rely on a generic invocation of “Covid-19” or “doing something good for society” argumentation to justify a collaboration. However, in light of the exceptional Covid-19 situation, some governments and competition authorities are sending signals that competition laws can be interpreted to allow closer than normal cooperation and coordination where there is a clear and well-defined economic welfare rationale. To illustrate:
- The European Competition Network (“ECN” – which includes the EU Commission and the EU national competition authorities) released a joint statement on March 23 explaining the application of competition law during the Covid-19 crisis. In this joint statement the ECN announces that it will not take enforcement action against “necessary and temporary measures” designed to avoid a shortage of supply because of their temporary nature and the likely significant consumer benefit;
- On 18 March 2020, the Norwegian industry ministry provided a temporary exemption from the cartel prohibition to the two domestic airlines, SAS and Norwegian, allowing them to coordinate their schedules to maintain minimum services for citizens for a period of three months;
- On 19 March 2020, the UK Government announced that it will relax some elements of competition law to help supermarkets work together, a move that the CMA backed up with a reminder that businesses should not take this as a cover for exploiting the crisis through non-essential collusion; and
- The German Federal Ministry of Economic Affairs and Energy announced that it will work closely with the German Competition Authority (Bundeskartellamt) regarding cooperation between the food industry and food retailers to ensure the supply of key goods such as food. On 20 March 2020, the president of the Bundeskartellamt confirmed that the authority is willing to enter into discussions with companies and associations.
But that flexibility has limits
In the unsettling times of the Covid-19 crisis, incentives may arise for companies to align with their rivals to sustain prices or contain the business downturn. However, the competition laws continue to apply, and competition authorities across the globe have issued statements to remind companies of the full application of the competition laws. For example, in the joint statement referenced above, the ECN also clarified that it stands ready to take action against companies colluding or using their leading market position to hike prices of essential products such as masks and other healthcare products. In fact, a number of competition authorities have already demonstrated their vigilance in particular with respect to such unilateral conduct:
- In the UK, the CMA has warned that it will closely monitor “firms suspected of exploiting these exceptional circumstances – and people’s vulnerability – through unjustifiable prices or misleading claims.” In fact, the CMA has already contacted traders and platforms over concerns of excessive pricing of hand sanitizers.
- The Italian Antitrust Authority did the same at the end of February over concerns linked to hikes in the prices of hand sanitizers and disposable respiratory protection masks.
- The Latvian competition authority warned businesses that they should “act in good faith” and reminded them that “the principles of fair competition are not cancelled during the emergency situation”.
- In the week starting 16 March, the Greek competition authority sent requests for information to a number of manufacturers and importers of medical devices (including masks and gloves) to investigate alleged significant price increases for these products.
The Covington competition team will continue to monitor the situation and will provide regular updates on new developments.