While certain, limited, forms of competition may be necessary to address critical supply challenges, getting such cooperation ‘right’ from a competition perspective can be complex. Firms should be aware that competition law continues to remain in force and that regulators have resolved to act against those who take advantage of the current crisis by breaching competition rules.
Part I – Institutional and Procedural Changes
On 20 March, the CMA announced the launch of its COVID-19 taskforce, with the aim of managing the negative impacts of the pandemic within the scope of the CMA’s remit. The duties of the taskforce include scrutinising market developments to identify harmful sales and pricing practices, warning firms suspected of exploiting the current situation (e.g. charging unjustifiable prices or making misleading claims), and taking enforcement action if it finds firms have failed to respond to these warnings or are in breach of competition or consumer protection law. The taskforce will also prepare and position the CMA to advise the Government on emergency legislation where necessary and on how to ensure that competition law does not stand in the way of measures taken to protect public health and support the supply of essential goods and services.
The CMA has announced a number of changes to its working arrangements: its offices across the UK are closed and not accepting delivery of documents or correspondence, staff are now working from home, all hearings are being conducted remotely and resources will be allocated to prioritise the “most urgent and the most critical” work. For any ongoing mergers, the CMA seems to be progressing under existing timetables. However, there may be delays to some merger deals, as the current crisis makes it difficult for the CMA to obtain third-party input as part of market testing. The CMA is also facing delays to some of its matters – for example, it has decided to press pause on the Digital Taskforce’s formal consultation (which had only been announced by the Government on 11 March). The regulator has also extended the statutory deadline for the funeral market investigation by six months and suspended the deadline for responding to the related working papers published in late February.
Part II – Approach to Substantive Competition Enforcement
Targeted relaxation of certain competition rules
The CMA and the UK Government have relaxed competition rules for certain “essential businesses”.
In particular, the UK Government announced the partial and temporary relaxation of competition laws to allow supermarkets to “join together to feed the nation” by sharing data on stock levels, cooperating to keep shops open, and sharing distribution depots, delivery vans and staff. The Government also announced temporary waiving of competition law rules with regards to certain ferry operators, allowing coordination between them to keep certain routes open and ensure delivery of essential goods. A series of statutory instruments came into effect last week to implement these temporary changes, including a healthcare-focused regulation allowing healthcare providers to work together during the pandemic (e.g. sharing information about staff and facilities; coordinating the deployment of staff; or the joint purchasing of equipment).
Guidance on CMA approach to enforcement in the COVID-19 context
In addition to the sector-specific provisions outlined above, the CMA has acknowledged concerns across the wider economy that “competition law enforcement could impede necessary cooperation between businesses to deal with the current crisis and ensure security of supplies of essential products and services”. Consequently, it has provided guidance on its approach to competition enforcement in respect of any cooperation between businesses that may be necessary in tackling the Coronavirus crisis. This guidance sets out the CMA’s approach to (a) prioritisation of cases (i.e. when the CMA will take enforcement action); and (b) application of the competition exemption for certain agreements under the Competition Act 1998 (which is equivalent to the so-called ‘efficiencies exemption’ under Article 101(3) of the Treaty on the Functioning of the European Union).
A. Guidance on CMA enforcement priorities
The CMA “understands that COVID-19 responses may involve coordination between competing businesses. It wants to provide reassurance that, provided that any such coordination is undertaken solely to address concerns arising from the current crisis and does not go further or last longer than what is necessary, the CMA will not take action against it”. In determining what type of cooperation is likely to be permissible, the CMA guidance provides that the measures taken must:
- be appropriate and necessary to avoid a shortage or ensure security of supply;
- clearly be in the public interest;
- contribute to the benefit or wellbeing of consumers;
- deal with critical issues arising from the COVID-19 pandemic; and
- last no longer than is necessary to deal with the critical issues.
The CMA will not provide forward-looking comfort on whether or not a proposed course of conduct is permissible — businesses will have to make this assessment themselves and act where they are confident that the cooperative behaviour will be compliant with these principles.
B. Guidance on CMA approach to application of the exemption criteria to COVID-19 cooperation
In line with the CMA’s approach to prioritisation of cases, the CMA confirms that, for any cooperation between competitors to benefit from an exemption from the competition rules, that cooperation would need to be “efficiency-enhancing”, likely to benefit the consumer, reasonably necessary given the circumstances and limited time available to consider alternatives, and temporary. Firms would have to narrow the extent of the cooperation in terms of geographical scope or product range to ensure that competition remains wherever possible.
As a general point, the CMA notes that coordinated actions between competitors that result in the avoidance of a shortage or ensure security of supply, ensure a fair distribution of scarce products, continue essential services, or provide new services (e.g. food delivery to vulnerable members of the public) are likely to be allowed.
No ‘free pass’ for businesses flouting the rules
Notwithstanding the unprecedented challenges facing business and the economy, the CMA guidance warns “unscrupulous” businesses that this relaxation does not give them a “free pass” to engage in conduct that could result in harm to consumers, such as colluding to keep prices artificially high or shutting out smaller rivals from accessing supply chains. The COVID-19 taskforce reiterated this message in its open letter to the pharmaceutical and food and drink industries, sending a warning shot across the bows of firms, noting that reports have been received of instances of unjustifiably high prices for essential goods or misleading claims about their efficacy, that this “poor behaviour” would need to be “nipped in the bud now”, and that the agency would use all of its powers to ensure markets function properly during the outbreak.
Other UK regulators’ COVID-19 approaches and measures
In addition, several other key regulators – most of whom have concurrent competition enforcement powers within their sectors – are clarifying and / or amending their approach to enforcement as a result of the crisis. For example:
- the Office of Communications (Ofcom) and the Office of Gas and Electricity Markets (Ofgem) have both signalled that they will take a “pragmatic approach” to enforcement (e.g. if companies can demonstrate that any compliance issues that arise have done so as a result of prioritising customer protection and security of supply, Ofgem will take this into account in its decision-making);
- the Water Services Regulation Authority (Ofwat) has written to the firms it regulates to applaud and encourage a sector-wide response and moreover, has suspended the financial penalty regime for wholesalers and retailers that breach industry level service standards; and
- Ofcom, Ofgem and the Financial Conduct Authority (FCA) have suspended or delayed consultation deadlines and/or policy publications, instead prioritising activity that is critical to protecting consumers and market integrity (e.g., Ofcom will be expediting any standards enforcement cases involving potentially harmful broadcast content relating to the coronavirus).
Should you have any questions or require further information, please get in touch with James Marshall (firstname.lastname@example.org).
You can also stay up-to-date with Covington’s Competition & Antitrust blog, where we are providing regular updates on developments taking place across the US and Europe.