The rapid spread of COVID-19 across the world, and notably Europe, in recent weeks is placing increasing strain on our economies, in addition to the tragic human impact. Several implications for competition law have already emerged, as indicated (non-exhaustively) below.
Competition authorities are hot to respond to price gouging and exploitation allegations
Numerous competition authorities across the world have given robust responses to seemingly rocketing prices of products experiencing high demand due to the virus, chiefly face masks and hand sanitizer. For example, the Italian authority announced on 12 March that it was investigating Amazon and eBay for the excessive price rises of hand sanitizer and face masks. Similarly, the French authority has launched an investigation into price surges, and also announced price regulation.
In the UK, the Competition and Markets Authority (the “CMA“) issued a warning to traders earlier this month against the exploitation of consumers in relation to prices and misleading product statements. They urged traders to price protective goods responsibly, whilst also warning that they will take robust action against potential breaches of competition law; and that they could, if necessary, advise the UK government to regulate prices. Warnings have been issued by the competition authorities in Spain and in the USA amongst others.
In this vein, companies need to remember competition law and other consumer protections at this time. For example, pharma and medical device companies should be cautious about their pricing, especially against a backdrop of various recent findings of excessive pricing of products within this sector. They should also take care if imposing restrictions (e.g. around pricing) on resellers of their products; although in this context we note that restrictions on maximum pricing are often acceptable. Likewise if they are forming JVs or co-operating between competitors to develop or market new products, this should be done in a compliant manner.
Restrictions on horizontal collaboration could feasibly be lessened
In times of external events impacting particular sectors of the economy, we could see the formation of “crisis cartels”, wherein governments or authorities permit or sanction suppliers, such as of key food, cleaning and pharmaceutical products, to co-ordinate and level out their stock levels, and thereby mitigating against issues of panic buying, labour shortages and general supply chain disruption.
Such coordinating behaviour, which could in principle raise anticompetitive concerns, could (in theory) be captured by exceptions (e.g. Article 101(3) TFEU) or, if mandated by law/governmental decrees, be exempt under the state compulsion doctrine (this is to be interpreted strictly and in principle only action that is truly determined by the government without any freedom on the part of the participating undertakings would be captured). Alternatively, there could be a more general relaxation on rules forbidding horizontal co-operation within sectors more acutely affected by the outbreak. Under the UK Competition Act the Government can exempt certain agreements from competition law if there are exceptional and compelling reasons of public policy. This power was used in 2012 when panic buying of petrol led to fuel shortages, and an Order was published permitting communications between fuel companies to allocate supplies.
Iceland’s competition authority, for example, has granted a temporary exemption from anti-collusion rules to the Confederation of Tourism, enabling hotels, agencies etc., to co-ordinate their efforts to fight against the reduction of tourism.
In this regard, it will be important for competition regulators to co-ordinate and be consistent in their approach. If one state was to relax restrictions on horizontal co-operation, for example, but other states did not, this could result in confusion that could ultimately stifle the desired behaviour of each state. Countries within and outside the EU have networks that should facilitate this.
Companies should be mindful of the “abuse of economic dependence” provisions in various national jurisdictions
Several countries have pre-existing measures that prevent the abuse of relationships of economic dependence, including Austria, Belgium, Germany, France and Japan. The scope for such abuse could, in theory, be heightened in a more uncertain and difficult economic environment. Thus companies with others dependant on them must not exploit this advantage, e.g. by raising their prices or reducing their supply.
The Polish competition authority earlier this month launched an investigation into two wholesalers’ termination of contracts to supply medical equipment to doctors, which they did with the intention of re-signing the agreements at significantly higher prices. Whilst the authority is investigating an abuse of dominance, rather than economic dependence, it acts as a warning that the dominant parties in a commercial relationship must act fairly and not exploit the current situation.
EU State aid notifications will be assessed in a much quicker and more flexible manner
On 13 March 2020, the European Commission issued its Communication on the Coordinated economic response to the COVID-19 Outbreak. In the State aid section, the Commission reiterated that the existing State aid rules already allow Member States to design necessary support measures to address the economic difficulties caused by the COVID-19 outbreak.
In particular, the Commission referred to Article 107(2)(b) TFEU which provides for the possibility to approve State aid measures that are intended to compensate for damages incurred by an “exceptional occurrence”. The Commission, noted that it “stands ready” to provide assistance to Member States under this provision.
Indeed, the Commission’s first approval concerning COVID-19-related State aid was issued just the day before – on 12 March – and within 24 hours of notification, indicating the Commission’s desire to ensure that these measures can be implemented in a timely manner. The case concerned Denmark’s €12m aid scheme intended to compensate organisers of large events which have been/will be cancelled or postponed due to the virus. The Commission deemed the pandemic to be an “exceptional occurrence” within the meaning of Article 107(2)(b) TFEU due to it being an “extraordinary and unforeseeable event having a significant economic impact” and approved the aid scheme accordingly.
The Commission’s Communication also stated that Article 107(3)(b) TFEU, under which aid can be provided to “remedy a serious disturbance in the economy of a Member State”, is now available for Italy given the severity of the economic climate there. The Commission’s assessment was based on various factors, including the predicted contraction of Italy’s GDP, the stringent public measures imposed there (including school closures and restrictions on the movements of people within Italy) and travel restrictions to Italy imposed by other countries. The Commission further noted that it continues to assess “the live and developing situation” in other Member States to see if this would also fall within the scope of Article 107(3)(b). The Commission are separately working on a tailored legal instrument under Article 107(3)(b) for Member States “to adopt in case of need” (the only precedent in this area being the Temporary Framework of 2009 adopted in the context of the financial crisis).
Separately, the Commission, in the Annex to their Communication, addressed Article 107(3)(c) TFEU, under which Member States can grant urgent and temporary assistance in the form of loans or guarantees to businesses facing bankruptcy or liquidation. Ordinarily, businesses are only eligible to receive such aid one time within 10 years. However, the Commission is open to granting exceptions to the “one time, last time” principle on the basis that COVID-19 is an “exceptional and unforeseeable circumstance”. Moreover, the Commission is willing to help Member States implement dedicated support schemes for SMEs and small state owned companies, whilst any proposed increases of up to 20% in the budgets of pre-existing schemes need not be notified to the Commission.
Finally, to facilitate an efficient and rapid approval process, the Directorate General for Competition (“DG COMP”) has established a hotline and mailbox dedicated to responding to state aid queries from Member States – these are available on the Commission website here.
This overarching rhetoric of flexible State aid was reiterated by Ursula von der Leyen, President of the Commission who on 13 March encouraged Member States to take necessary measures to support affected sectors, citing tourism, retail and transport as examples. Indeed, the overall Commission approach to COVID-19-related aid seems to bear much resemblance to the way the Commission approached State aid during the financial crisis when it turned over a wave of urgent approvals very quickly (often in only a matter of days).
Competition procedures at the Commission could slow down in light of teleworking arrangements – DG COMP has encouraged companies to delay merger notifications
Many authorities have decided that employees in non-critical functions will telework. For example, this is the case with the European Commission as of 16 March, with most people teleworking and those in critical functions in the office, but in shifts. Meetings or events involving employees travelling between countries will be held via video-conference or postponed. In their press conference on Friday 13 March, the Commission emphasised, however, that it will continue its business as usual.
In terms of merger review, in the Commission’s press conference Executive Vice-President and Commissioner for Competition, Margrethe Vestager, did not actually announce any emergency changes to merger control or the statutory merger review timetable. However, DG COMP has stated that it is encouraging companies to delay the filing of merger notifications, citing the impact of home working and the anticipated difficulties in collecting information over the coming weeks as reasons for this. Any in-person meetings, including State of Play meetings, will likely have to be postponed or held via video-conference. A reduction in merger notifications may also enable the Commission to focus more resources on reviewing and approving emergency state aid measures.
The EU courts in Luxembourg have also suspended hearings for at least two weeks (as of 13 March), urging all staff to work from home, although it is as of yet unclear whether judgments will still be issued.
Impact on important international competition conferences
The occurrence of major conferences could be jeopardised by the cancelling of gatherings of large numbers of people, whilst travel restrictions mean that delegates can often not attend in any event. It is not clear what will happen with the annual International Competition Network conference of competition regulators which is to take place in Los Angeles from 12-14 May 2020. These events are important for competition authorities to exchange know-how and conduct advocacy to promote particular initiatives to the legal and business community. Authorities will increasingly need to continue those activities via virtual means. For example on 3 March the CMA’s “Understanding Digital Markets” conference was successfully live-streamed and we can expect to see more such initiatives by competition regulators going forward.
And in the long term?
Governments are trying to contain the impact and the situation is continuously evolving. The impact on competition law and procedure is perhaps not high on the agenda but competition law remains of importance to business activity including in particular M&A. Longer-term competition implications could include:
- Continuation of a more permissive (and faster) state aid regime to enable aid to undertakings hit by the economic fall-out in the EU; or
- A possible increase in cartel investigations if the economic situation results in increased cartel activity which is not exempt or government mandated.
If you would like further information on any of the above, please do get in touch with your usual contact in the HSF competition team.