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COVID – 19 and Competition law.

Joint statement on the application of the antitrust rules during the current coronavirus crisis.

Petr MRAZEK - 20.04.20
Country expert - IDARB Arbitrator

The ongoing Corona crisis poses a number of problems and businesses are facing particular challenges including problems in distribution, or more generally in international trade, in all countries. The pandemic situation frequently affects the supply relationships between suppliers and customers. This leads to cooperation between companies and also to some unilateral actions that are particularly sensitive from the antitrust perspective while antitrust rules of the European Union still must be observed. Some companies already charge much higher price for certain hygiene products or protective means due to the enormous demand, others cooperate in order to secure the supply chain and avoid imminent supply bottlenecks of scarce products, agree on joint planning of production and at this occasion exchange information, which might be sensitive. Various discussions and agreements between competitors on how to deal with the current situation, e.g. with price increases for increased costs or concerted rejection of supplier/customer claims, are normally considered to restrict competition.

In response, the European Commission, the EFTA Surveillance Authority and the National Competition Authorities that together form the European Competition Network have issued a joint statement on the application of the antitrust rules during the current coronavirus crisis, explaining how competition authorities can help companies deal with these unprecedented times. The statement has been published also in the European Commission website at: https://ec.europa.eu/competition/ecn/202003_joint-statement_ecn_corona-crisis.pdf

The competition authorities confirmed in this statement that they are willing to accept certain justifications to overcome or reduce the negative impact of the crisis and that the application of competition rules to allow for suppliers and other businesses to work together to tackle this crisis can exceptionally be put aside. Particularly they confirmed:

their understanding that this extraordinary situation may trigger the need for companies to cooperate in order to ensure the supply and fair distribution of scarce products to all consumers and will not actively intervene against necessary and temporary measures put in place in order to avoid a shortage of supply.

that such cooperation is not likely to be problematic under antitrust rules, since they would either not amount to a restriction of competition under Article 101 TFEU/53 EEA or generate efficiencies that would most likely outweigh any such restriction.

the utmost importance to ensure that products considered essential to protect the health of consumers in the current situation (e.g. face masks and sanitising gel) remain available at competitive prices and will therefore not hesitate to take action against companies taking advantage of the current situation by creating a cartel or abusing their dominant position. 

and clarified that the existing rules allow manufacturers to set maximum prices for their products. The latter could prove useful to limit unjustified price increase at the distribution level.

The authorities also offered that companies which have doubts about the compatibility of such cooperation initiatives with EU/EEA competition law, can reach out to the Commission, the EFTA Surveillance Authority or the national competition authority concerned any time for informal guidance. For that purpose, on 30 March 2020 the European Commission launched a dedicated website to provide guidance to companies regarding the compatibility of certain actions with EU competition law. Also a dedicated mailbox COMP-COVID-ANTITRUST@ec.europa.eu has been set up.

Later on, the European Commission published a Temporary Framework for assessing antitrust issues related to business cooperation in response to situations of urgency stemming from the current COVID-19 outbreak (“Antitrust Framework”). The EU Commission recognizes the need of legal certainty for businesses with respect to cooperation initiatives aiming at ensuring efficient supply of scarce products. The aim of the Framework is to reduce shortages for essential products and services. The Antitrust Framework explains when and how companies can obtain guidance or written comfort on whether their envisaged cooperation is in line with EU competition law. As of 8 April, the EU Commission applies its Antitrust Framework and stands ready to provide guidance by means of an ad-hoc “comfort” letter to companies in exceptional situations and at the EU Commission’s discretion.  This is a change comparing to normal situation when companies cannot request the EU Commission to assess and approve a contemplated agreements and they must self-assess antitrust compliance without such support. 

It is clear from the approach of the competition authorities and their announcements that they wish to underline that under these exceptional circumstances, it is more important than ever that businesses and consumers receive protection under competition law and explicitly warn not to exploit the situation for charging excessive prices in the health care sector. At the same time it indicates possible loosening in some areas of competition law. In respect to distribution law particularly the principles relating to pricing are important.  The suppliers may limit prices to avoid exploitation situation by dealers in requesting “unjustified price increases”. On the other side the supplier is not allowed to prevent dealer from reduction the prices aiming to support the business. The non-binding price recommendation is allowed unless it leads to fixed prices.

It will be interested to follow how the approach of competition authorities will affect the distribution and franchise relations and contracts from the prospective of the competition law during the crisis.

 

Petr Mrazek, IDI country expert for agency & distribution in Czech Republic

 

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