The COVID-19 outbreak is causing severe disruptions, impacting all business sectors. Companies are facing unprecedented challenges. Coordinated industry responses may be necessary – and even called for by governments – to deal with issues, such as demand or supply chain disruptions, and to protect consumers.
Governments have already called for and enabled such collaboration. The EU asked streaming platforms to limit their services and offer only standard definition, rather than high-definition programs, to prevent broadband networks from crashing. Airlines in Norway have been given a three-month exemption from the country’s competition laws, allowing them to coordinate any activities that are notified to the competition authority. Many more initiatives can be expected across the globe to remove barriers and combine critical resources to address important public interests in an efficient manner.
Competition authorities have acknowledged that certain conduct that may, under normal circumstances, be anticompetitive could be allowed at least on a temporary basis. Such tailoring and softening of existing antitrust principles may allow for a more flexible response to the crisis. The UK Competition and Markets Authority (CMA), for example, announced that supermarkets will be allowed to cooperate on opening hours and share data on stock levels to meet food supply challenges. Retailers will also be allowed to share distribution depots and delivery vans, and to pool staff to help meet demand. The CMA more generally stated that it had no intention of acting against cooperation between businesses or rationing of products to the extent that this is necessary to protect consumers (e.g., by ensuring security of supplies). The Netherlands adopted similar measures, and the German Federal Cartel Office agreed to temporarily adapt antitrust laws to avoid potential food shortages.
However, antitrust laws still apply, even in times of crisis, and governments and competition authorities must balance the dueling objectives of ensuring such quick and efficient responses to the crisis and maintaining antitrust discipline. Several authorities, including Canada’s Competition Bureau, have issued reminders to companies. The U.S. Department of Justice announced its intention to “hold accountable anyone who violates the antitrust laws of the United States in connection with the manufacturing, distribution or sale of public health products such as face masks, respirators and diagnostics.
Other authorities have initiated investigations against companies for alleged anticompetitive conduct. For example, the Italian Competition Authority initiated two separate investigations against e-platforms for allegedly having spread misleading information regarding the effectiveness of products, including hand sanitizers and respiratory protection masks, in terms of protection against COVID-19 and imposing unjustified and significant increases in prices for these products. The Polish Office for Competition and Consumer Protection opened investigations against two wholesalers supplying personal protective equipment to hospitals for allegedly terminating contracts with these hospitals to sell the equipment, including surgical masks, at significantly higher prices. The UK CMA, while granting supermarkets reassurance, has set up a task force to monitor businesses and prevent them from exploiting the situation, and addressed an open letter to the pharmaceutical and food and drink industries.
Antitrust risks resulting from “crisis” collaboration
Collaboration between companies to deal with the current crisis may involve exchanges of information (e.g., on how companies are dealing with re-organizing their workforce), travel restrictions or forced closure of sites. Companies may try to ensure sufficient supplies and the safety of such supplies, and discuss best practices to reduce any supply chain disruptions or how to promote health and safety in the workforce. In particular in the hospitality sector, companies may want to coordinate their cancellation policies or the conditions for reimbursing customers. Such exchanges, which have the specific objective of dealing with the crisis, may be legitimate. However, in no circumstances should companies discuss current or future prices, costs, volumes/output or plans for allocating customers or markets without first seeking legal advice. Any exchanges of information that relate to a company’s longer-term business strategies and that go beyond what is strictly necessary to manage the crisis, will likely raise antitrust risk.
That the mere existence of a crisis does not give companies “carte blanche” for any type of collaboration is not new. The European Commission’s Guidelines on the applicability of Article 101 Treaty on the Functioning of the European Union to horizontal co-operation agreements state that information exchanges in times of crisis may be allowed, provided that they “[do] not go beyond what is necessary to correct the market failure.” While the Commission had previously recognized that certain collaboration agreements may be exempted under Article 101(3) (for example to manage issues of overcapacity; see also the Commission’s decisions Synthetic Fibres and Dutch Bricks (Stichting Baksteen) or the European Council of Manufacturers of Domestic Appliances case), during the financial crisis, the Commission took a clear stance that “crisis cartels” would not be tolerated. Then Competition Commissioner Neelie Kroes explained that allowing such cartels would lead to a situation where: “No-one wins — today’s softness is tomorrow’s nightmare.”
Moreover, although certain countries are taking initiatives to explicitly allow forms of collaboration (or on the contrary stop certain activities) in reaction to the crisis, such government encouragement to cooperate may not be a sufficient justification for a cartel (see for example, the Irish BIDS cartel case in the beef industry). In some jurisdictions, it may be a legitimate defense only if it is confirmed by national legislation or if the legal framework created is such that no independent competitive activity is allowed.
Companies, particularly in the life sciences sector, may also wish to share joint research and development (R&D) efforts and resources and data to develop a vaccine for COVID-19. Such efforts are clearly beneficial for patients, and society as a whole, but not all joint R&D will be lawful. Companies should seek legal advice in particular if they wish to jointly commercialize the results of their R&D activities or if they are developing products that may not solely be used to treat COVID-19. Such activities may fall outside the scope of efforts strictly necessary to respond to the crisis and could run afoul of antitrust laws.
A few tips…
In light of the above, some practical considerations to avoid violating antitrust laws:
- Companies should determine which antitrust laws apply to them and whether national governments or competition authorities have adopted specific measures or temporary exemptions. In some countries, such as Norway, relying on specific temporary exemptions may require notification to the competition authority.
- To the extent companies engage in R&D collaborations with the objective of treating COVID-19 patients, it is important to carefully review any R&D agreements concluded to avoid antitrust concerns even at a later stage.
- Companies should keep in mind that the mere fact that governments encourage industry-wide collaboration may not be sufficient to avoid antitrust scrutiny. In any event, the crisis should not become a “cover” for non-essential collusion and taking advantage of the situation to obtain unreasonable economic benefits.
- Companies may wish to benchmark their responses to the crisis against those of their competitors to minimize business disruptions. Such benchmarking activities may be allowed, provided there are legitimate, pro-competitive reasons. Benchmarking should not incentivize the mandatory adoption of standards between competitors.
- Companies should determine whether it may be in their interest to collaborate with other companies in their industry (or possibly across industries) in joint advocacy efforts at a national level. Legitimate efforts may encourage officials to take further measures and policy initiatives to address industry-specific issues caused by the crisis. However, not every petition of a governmental entity is protected, such as when anticompetitive conduct is used as a tool to obtain governmental action rather than a result of governmental action or when the petition constitutes a sham, is baseless or is without any genuine hope of influencing the governmental entity. As with other proposed forms of competitor collaboration, it is important to first seek legal advice.
- Companies should always carefully document the reasons for, and background to, such crisis collaboration. For example, for any discussions with competitors, preparing an agenda with topics to be discussed and preparing a short report is advisable. This is particularly important given the increasing trend of competition authorities to extensively rely on internal company documents to build their cases.
- Regardless of the type of coordination, collaborating with competitors always entails competition law risks so it is important to be vigilant. Companies should also ensure that they have updated compliance policies in place to help limit potential antitrust risks.
Sidley Austin LLP provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. Readers should not act upon this information without seeking advice from professional advisers.
Attorney Advertising—Sidley Austin LLP, One South Dearborn, Chicago, IL 60603. +1 312 853 7000. Sidley and Sidley Austin refer to Sidley Austin LLP and affiliated partnerships, as explained at www.sidley.com/disclaimer.
© Sidley Austin LLP