Legal briefing | Competition |

COVID-19 & competition law - guidance from UK regulator

Overview

This briefing was updated on 23 April 2020.

Industry-wide responses to the pandemic – cooperation or collusion?

As COVID-19 continues to spread rapidly across the UK, competition law is being relaxed for supermarkets, allowing them to cooperate to a greater degree than would normally be possible. To what extent can other businesses do the same?

If you fall foul of competition law, the penalties can be severe. But in a bid to ensure competition law enforcement does not impede necessary cooperation between businesses to deal with the current crisis, the UK Competition and Markets Authority ("CMA") has now published guidance regarding its approach to such COVID-19 cooperation (the "Guidance"). 

The Financial Conduct Authority ("FCA") and Payment Systems Regulator ("PSR") – both of whom have competition law powers alongside the CMA – have announced their support for this Guidance, noting that they will take a consistent approach to their own competition law enforcement activity. 

To this end, all firms (both in financial services sector and otherwise) should equally heed the Guidance before engaging in discussions or cooperation to combat the fallout from the global pandemic.

Competition laws continue to apply - increased CMA scrutiny

The overriding message from the CMA's Guidance (and earlier press statements) is that competition law continues to apply regardless of the extraordinary challenges posed by COVID-19.  In fact, in line with a number of other authorities, the CMA has increased its surveillance of firms active in industries key to responding to the COVID-19 crisis, launching a dedicated taskforce and an intuitive online complaints system to make sure companies do not use the pandemic to exploit vulnerable consumers or as a cover for, e.g., non-essential collusion regarding longer-term pricing or business strategies. 

So while the CMA has suggested it may be more flexible in respect of certain temporary and limited industry-wide cooperation designed to deal with the crisis (see Section 2), firms must be careful before doing any of the following:

(a) colluding, or otherwise sharing information, with competitors on any plausible parameter of competition – including not only current or future prices, but also costs, service levels, and/or other key terms and conditions;

(b) refusing to supply or otherwise deal with certain customers or distributors;

(c) over-selling the benefits of goods/services in dealing with COVID-19; or

(d) significantly raising prices for in-demand services/goods or bundling them with other (less desirable) services/goods – particularly if they could be regarded as essential for consumers to cope with the COVID-19 crisis.

The overriding message from the CMA's Guidance is that competition law continues to apply regardless of the extraordinary challenges posed by COVID-19.

Otherwise, COVID-19 related competition law investigations have already been launched by a number of domestic authorities across Europe including in Italy, Greece and Poland.  While they may face difficulties in ultimately establishing certain infringements (e.g. regarding exploitative price rises against non-dominant companies), authorities may nonetheless launch investigations to prevent perceived consumer harm in the short term.

 

When will the CMA not take action against industry-wide cooperation?

Despite the CMA's clear warning that it will continue to pursue suspected cartel conduct, anticompetitive information sharing or abuse of dominant positions during the COVID-19 crisis, it has also stressed that it does not want competition law concerns to stymie urgent industry-wide cooperation required to ensure the supply and fair distribution of scarce goods/services to consumers affected by the COVID-19 crisis. 

In its Guidance, the CMA has therefore tried to balance the need to show flexibility and provide firms with certainty that legitimate, limited competitor cooperation will not face enforcement action or sanction, against its concern that the COVID-19 crisis should not provide firms a 'free pass' to ignore their competition law obligations.  There now appears to be three ways in which competitor cooperation may not fall foul of usual competition laws:

Route 1: CMA chooses not to prioritise the cooperation for investigation 

The CMA has sought to reassure firms that it that it "will not take enforcement action against" COVID-19 related cooperation provided that such "temporary measures" are, in summary, strictly limited to those absolutely necessary, and demonstrably and directly linked to securing supply of essential services and supplies.  In so doing, the CMA provides a list of cumulative criteria which will inform whether or not it will investigate COVID-19 cooperation, the key messages from which we have summarised in Section 3. 

The reassurance that the CMA will use its discretion and not open investigations into limited and temporary competitor coordination required to respond to the crisis is welcome.  However, the CMA's criteria also underline how competitors should still exercise caution before engaging with each other unless the coordination is temporary and clearly limited to matters of "public interest", addressing "critical issues" facing consumers as a result of COVID-19.

Any other cooperation outside the relatively narrow range of legitimate behaviours envisaged in the Guidance, e.g. related to managing the commercial fall-out from the COVID-19 crisis (e.g. to mitigate against the effects of a slump in demand), will not necessarily be covered by the CMA's reassurance, even if it is well-intentioned or designed to avert the collapse of the industry.  Such cooperation would continue to carry material competition law risk – at least absent further informal engagement with the CMA.

Route 2: the cooperation exempted from application of UK competition laws

The Guidance also highlights that, under existing competition laws, instances of ostensibly anticompetitive collusion can nevertheless be individually exempted from the application of competition laws where, in simple terms, the consumer benefits of the cooperation outweigh any restriction of competition.  In practice, this is usually a high threshold to overcome and exemptions are relatively rare.

The Guidance explains how the CMA envisages such individual exemptions to be applied to industry coordination "reasonably…considered necessary" to respond to the COVID-19 pandemic. This is helpful in so far as it makes clear the CMA will take into account the exceptional circumstances of the COVID-19 crisis when determining whether such an individual exemption might apply – e.g. by taking into account how industry participants will have little time to consider alternatives when deciding whether cooperation between competitors is urgently required. 

However, similar to the reassurance regarding which cases the CMA will prioritise for investigation, the Guidance on individual exemptions is likely only to provide certainty and clear comfort in a relatively narrow range of circumstances.  It is notable that there is existing case law which suggests that industry-wide responses to health crises, e.g. designed to arrest the collapse of the relevant industry, will not necessarily be regarded as worthy of exemption.  Further, the CMA notes in the Guidance that it will not provide prospective 'clearance' decisions to businesses considering COVID-19 cooperation (and query whether it would provide informal guidance in this regard).  Rather, businesses intending to cooperate will have to 'self-assess' whether they meet the relevant criteria.

Route 3: UK Government grants sector-specific, temporary exclusion

The most certain way of ensuring any competitor cooperation does not fall foul of UK competition laws is to lobby Government (e.g. engaging both the Department for Business, Energy and Industrial Strategy, the relevant sectoral regulator, and/or the CMA) to introduce legislation which temporarily relaxes the application of UK competition laws to specific industry-wide cooperation.

The Government has already shown itself willing to quickly introduce such emergency legislation. It has passed/announced legislation to temporarily relax the application of certain UK competition laws to allow:

(a) supermarkets to share information and collaborate on stock levels, logistics and staffing to secure the supply of essential goods across the UK;

(b) independent healthcare providers to share/allocate (amongst themselves and the NHS) certain procedures, staff, facilities and purchasing of goods/services in order to meet the NHS's demand for surge capacity;

(c) Isle of Wight ferry operators to cooperate on service levels (in the face reduced service demand) to ensure essential food, freight and medical supplies reach the island; and

(d) dairy farmers to work together (with the industry trade association and statutory levy board) to avoid waste and maintain capacity to meet future demand, including by sharing labour and facilities, cooperating to temporarily reduce production and/or identifying where there is hidden, additional capacity in the supply chain for processing milk into other dairy products.

However, notably, the legislation above which has been passed specifically does not cover (i.e. does not exempt) the direct sharing of (confidential) information relating to costs or prices.  Further, given the resource constraints posed by COVID-19, such Government legislation requires lobbying and time that firms may not have, and/or may be difficult to obtain save for those firms operating in industries providing essential consumer goods/services.

Practical implications

Still exercise caution with any competitor-to-competitor discussions/cooperation

In the absence of legislative changes to competition law introduced by Government, all discussions and coordination between competitors will be analysed in the same way as before (i.e. absent COVID-19).   Going forward, firms must remain vigilant that any industry-wide collaboration they engage in does not fall foul of UK competition laws. Remember, even just sharing information on any plausible parameter of competition, e.g. regarding prices, costs, capacity, service levels or other key terms and conditions with suppliers and distributor, could potentially amount to a competition law infringement in its own right.

KEY MESSAGE

Absent obtaining further comfort from the CMA or Government, any COVID-19 cooperation or information sharing between competitors should be:

(a) short-term and temporary, ideally with a clearly defined end-date;

(b) demonstrably and directly linked to securing supply of essential services and supplies in response to COVID-19;

(c) be disclosed to all customers and open to all industry participants; and

(d) strictly limited to that required to deal with the difficulties posed by the COVID-19 pandemic, ideally dealing with practical/operational issues only.

While the Guidance does provide some comfort regarding the CMA's approach and possible exemptions for necessary COVID-19 cooperation, it still requires businesses to self-assess and will not necessarily provide certainty save for in a narrow range of circumstances.   Even where competitor discussions and cooperation are strictly limited to the operational issues posed by COVID-19 and/or what is required to meet Government policy, all meetings should be subject to a clear agenda, and carefully moderated and minuted to ensure discussions do not stray into problematic territory. 

Further informal engagement of the CMA may be advisable

If industry-wide discussions or cooperation are likely to involve competitor-to-competitor collaboration or information sharing regarding potentially sensitive commercial arrangements, consider whether it would be worthwhile pre-emptively engaging the CMA on an informal basis to explain why such discussions/cooperation do not pose any competition law concerns and are necessary in light of the challenges posed by COVID-19.   The Guidance indicates that the CMA may be able to provide additional informal guidance regarding its enforcement priorities in "certain cases" of "critical importance".

Further enforcement action & emergency regulation to be expected

Firms in key consumer-facing industries (e.g. food and drink, and pharmaceuticals manufacturers) can expect to be subject to increased CMA scrutiny.   Further enforcement action should be expected.  Equally, as Government policy and public health objectives continue to evolve in the face of the COVID-19 pandemic, further emergency regulation/legislation may be put in place to secure supply of key services/goods.

Is there anything else I should be thinking about?

This note provides a summary of the key takeaways from the Guidance to help ensure you stay on the right side of UK competition laws as firms continue to face difficult and urgent choices regarding how to respond to the COVID-19. 

However, while this note focusses on the application of UK competition laws to industry cooperation and discussions, authorities across Europe and beyond have made COVID-19 related statements and taken enforcement action.   The COVID-19 pandemic has also had, for example, an impact on how merger control authorities will review transactions.  If you would like further details about any of these developments, please do not hesitate in contacting a member of our Competition team or your usual Travers Smith contact.

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