Insights | April 24, 2020

Competition authorities encourage necessary cooperation between competitors, but warn against exploitation of the crisis

The COVID-19 pandemic has caused an unprecedented shock to the economy. Supply chains have been disrupted and, at the same time, demand, in particular, for products and services related to the health sector has skyrocketed, while demand for many other products or services has ground to a halt. This unprecedented situation has forced competition authorities to consider the need to bring some more flexibility to cooperation between competitors to combat the effects of the crisis. However, at the same time, competition authorities emphasize that they will not hesitate to take action against companies trying to exploit the situation.

Guidance on permissible cooperation

To facilitate the implementation of cooperation needed to overcome the crisis, the European Commission published on 8 April 2020 a guidance document setting out a temporary framework for assessing antitrust issues related to business cooperation in response to situations of urgency stemming from the current COVID-19 outbreak. The Temporary Framework covers cooperation between undertakings to ensure the supply and adequate distribution of medicines and medical equipment as well as other essential scarce products and services during the COVID-19 outbreak.

In the Temporary Framework, the Commission indicates that the following forms of cooperation implemented through a third party, such as a trade association or an external consultant, do no raise competition concerns provided that appropriate safeguards are put in place to avoid exchange of confidential information between competitors:

  • coordinating joint transport for input materials;
  • identifying essential products or services for which there are risks of shortages;
  • aggregating production and capacity information without exchanging individual company information;
  • modeling demand on a Member State level and identifying supply gaps;
  • sharing aggregated supply gap information and requesting participating companies, on an individual basis and without sharing that information with competitors, to indicate whether they can fill the supply gap.

The Commission also recognizes that necessary cooperation, in particular in the health sector, may need to go even further to overcome critical supply shortages, extending for example to coordinating the re-organization of production in order to increase and optimize output. Such cooperation may require exchange of commercially sensitive information and coordination that would normally be problematic under EU competition rules. However, the Commission indicates that such measures would not raise competition concerns or would not give rise to an enforcement priority to the extent that they are designed and objectively necessary to increase output, temporary in nature, and do not exceed what is strictly necessary to achieve the objective of avoiding the shortage of supply. Undertakings are, however, required to carefully document all exchanges and agreements between them and make them available to the Commission on request.

It should be stressed that even though the Temporary Framework focuses on the health sector, it is not limited to it, but applies to any product or service deemed essential during the COVID-19 outbreak. The Temporary Framework does not provide further guidance on which industries may be covered by it, but there are already several examples available from exemptions provided by national competition authorities across the globe that can shed light on the issue.

Exemptions have thus far been granted to, e.g., food, energy, transportation, telecommunications and financial industries. In addition, it should be noted that the Temporary Framework only applies to cooperation schemes aimed to avoiding shortage of supply. Thus, other forms of cooperation that may be needed to combat the effects of the crisis, such as R&D cooperation, is not covered by the Temporary Framework.

Finally, it should be noted that the Temporary Framework applies to cooperation projects with an EU dimension. However, national competition authorities of EU Member States stated already on 23 March 2020 in a joint statement of the European Competition Network that they will not actively intervene against necessary and temporary measures put in place in order to avoid a shortage of supply. After the publication of the Temporary Framework, for example the Finnish Competition and Consumer Authority confirmed that it will follow the policy set out in the Temporary Framework in applying the Finnish Competition Act and encouraged companies to seek guidance directly from it on whether planned cooperation would be permissible.

Commission exceptionally ready to provide comfort letters

To increase legal certainty, the Commission has signaled that it may, exceptionally and at its own discretion, provide guidance to companies in the form of ad hoc comfort letters on specific cooperation projects falling within the scope of the Temporary Framework. Further, to assist companies in the self-assessment of planned cooperation projects, the Commission has set up a dedicated mailbox for businesses to request informal guidance on specific initiatives both within and outside the scope of the Temporary Framework. The Commission has already provided oral guidance in several cases and has also issued one comfort letter.

The Commission’s first comfort letter was issued to Medicines for Europe (“MfE”) concerning cooperation to avoid shortages of intensive care unit medicines critical to treat COVID-19 patients. The comfort letter has not yet been published, but it has been reported that the comfort letter allows pharmaceutical companies to share active pharmaceutical ingredients or even intermediates (semi-finished versions of a medicine), to communicate to optimize production at different sites, and to coordinate distribution. The comfort letter also sets out that the cooperation must be open to any pharmaceutical manufacturer willing to participate and that minutes of all meetings must be kept and shared with the Commission. Further, only indispensable information is to be collected and the collection of such information is entrusted to MfE or a third party, which will share information with individual companies on an aggregated level only. Finally, the cooperation will last only as long as the pandemic does. The Commission showed that it is prepared to move fast to provide necessary guidance, as the comfort letter was issued in only two days after the Commission received the request from MfE.

Active monitoring to prevent exploitation of the crisis

On the other hand, both the Commission and national competition authorities have emphasized that the COVID-19 pandemic is not a carte blanche for companies to overstep the normal boundaries set by competition rules. Competition authorities will not tolerate cooperation or unilateral conduct by dominant companies aimed at exploiting the current crisis, for example, by charging prices above normal competitive levels or obstructing attempts to scale up production to face shortages of supply.

Several national competition authorities have already initiated investigations into potential excessive pricing or price-gouging under the pretext of the COVID-19 outbreak. In the EU, such investigations are ongoing at least in Greece, Italy and Spain. The pandemic has also spawned  investigations into other types of potential breaches of competition rules. For example, in Spain, the national competition authority is investigating the financial sector regarding a requirement on borrowers to take out life insurance to receive State guaranteed loans, and in the UK, the national competition authority is investigating unilateral contract changes made by two hotel booking platforms to booking conditions due to the COVID-19 pandemic.

Therefore, before embarking on cooperation between competitors during the COVID-19 pandemic or taking unilateral action, it is important to carefully consider whether the conduct meets the requirements of the Temporary Framework or otherwise would not be considered harmful to competition.