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Competition Alert - Coronavirus Update

Last Updated 16:30, 3rd August 2020

Since the pandemic hit, we have seen formal relaxations of competition law and additional enforcement guidance issued by both the Competition and Markets Authority (CMA) and the European Commission. The recent guidance sets out an adapted enforcement approach during the crisis, allowing for limited competitor collaboration if certain conditions are met. However, it comes with a suitable health warning. There is no 'free pass' - or immunity certificate - as regards competition law during the COVID-19 crisis.

1. The UK position

Formal exclusions under the Competition Act 1998The Secretary of State has the power[1] to make an order to exclude competition law if, for example, there are exceptional and compelling public policy reasons to do so. Suspensions made in response to the pandemic include those relating to:

These suspensions are temporary measures to deal with the pandemic and only relate to the narrowly defined arrangements within scope. Cost or pricing information are expressly excluded. The orders comprise specific obligations that must be complied with in order to benefit from the exclusion. For instance, agreements must be notified to the Secretary of State. The orders also require the Secretary of State to maintain and publish a register of notified agreements.Enforcement PrioritisationBeyond the formal suspensions of competition law, there has been a change in approach regarding the CMA's enforcement policy.In March, the CMA issued guidance setting out its new approach to business cooperation in response to COVID-19. The guidance makes clear that the CMA will not permit the crisis to be used as a cover for non-essential collusion. It states that it will not tolerate unscrupulous businesses exploiting the crisis.However, it does clarify its enforcement priorities during the crisis. In brief, where temporary measures to coordinate action taken by businesses:

  • are appropriate and necessary in order to avoid a shortage, or ensure security, of supply;
  • are clearly in the public interest;
  • contribute to the benefit or wellbeing of consumers;
  • deal with critical issues that arise as a result of the COVID-19 pandemic; and
  • last no longer than is necessary to deal with these critical issues

the CMA will not take enforcement action.Exemption criteriaThe CMA document also provides some additional guidance for the purposes of assessing whether the exemption criteria under section 9 of the Competition Act 1998 might apply.[1] In short, coordinated actions to:

  • avoid a shortage, or ensure security, of supply;
  • ensure a fair distribution of scarce products;
  • continue essential services; or
  • provide new services such as food delivery to vulnerable consumers

are most likely to be unproblematic from a competition law perspective based on the exemption criteria - provided that they do not go further than what can reasonably be considered necessary.While the guidance may go some way in helping to clarify the CMA's enforcement approach during the crisis, the guidance itself makes clear that it does not preclude litigants bringing private claims based on breach of competition law. Further, the CMA's guidance does not bind the Commission.

2. The EU position

For its part, the Commission has published a Temporary Framework Communication which applies during the crisis. The Commission has indicated that it may issue comfort letters regarding competition compliance (indeed, it has now done so for Medicines for Europe). Again, the guidance is narrow in scope. The guidance also reiterates that the crisis should not be used as cover for anti-competitive collusion or abuse of a dominant position.Concluding remarksWhile there may be some limited changes to the current competition enforcement approach, authorities continue to keep a watchful eye on how businesses are behaving during the crisis. In addition to its competition law powers, the CMA also has its consumer law powers at the ready. The CMA has a dedicated COVID-19 Taskforce set up to monitor and respond to both consumer and competition problems arising from the pandemic. A new online form makes it quick and easy to report unfair commercial activity.The Taskforce first reported on its activities in April 2020. On 21 May 2020, the CMA issued a further update. Between 10 March and 17 May 2020, the CMA has been contacted more than 60,000 times about Coronavirus-related issues. As a result of the complaints received, the CMA is taking action against companies regarding refund and cancellation rights, excessive pricing and misleading claims about goods or services. It has written to hundreds of companies and has launched a programme of work. Three sectors were initially prioritised: holiday accommodation, weddings and events and nurseries. Package holidays have now been included in the scope of the CMA's investigations. The CMA has stated it will use its existing enforcement powers 'to their fullest extent' but it has also recommended legislative changes that would enable a faster and more robust response to unjustifiable price rises. It remains to be seen if the CMA will be given any new enforcement powers to help tackle excessive pricing practices. In addition, beyond public enforcement, recent reforms to competition litigation mechanisms mean that it is even easier for litigants to bring private actions to seek direct redress for competition law breach.In responding to a crisis, it is worth remembering that competition law can come back to bite. As an example, supermarkets sought to secure higher prices for dairy farmers following the outbreak of foot and mouth disease in 2001. Despite this action being widely reported at the time as a response to help farmers affected by that crisis, the Office of Fair Trading (the CMA's predecessor body) then took enforcement action.As always, it is important companies ensure continued competition compliance. Exemptions may apply - depending on the facts - but this needs very careful assessment and should always be documented appropriately (in case of subsequent challenge). [1] Under section 31(c) and paragraph 7, Schedule 3 Competition Act 1998). The exclusion order provision can be applied to an agreement, or to a description of agreements. Before the current pandemic, this power had been used four times. Mainly in relation to military matters (such as warships and nuclear submarines) and oil supply.  [2] The four cumulative criteria are: (a) it contributes to improving production or distribution, or promoting technical or economic progress (the first criterion); (b) it allows consumers a fair share of the resulting benefit (the second criterion); (c) it does not impose on the undertakings concerned restrictions which are not indispensable to the attainment of those objectives (the third criterion); and (d) it does not afford the undertakings concerned the possibility of eliminating competition in respect of a substantial part of the products or services in question (the fourth criterion).

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The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.