New guidance from UK Competition and Markets Authority allows coordination between businesses in certain circumstances, such as to avoid shortages, protect the public interest, and safeguard health, amid the coronavirus (COVID-19) pandemic. However, the guidance also underscores that the UK authority will not tolerate coordination between businesses or unilateral conduct by a business with significant market power that seeks to exploit the crisis.
The UK's Competition and Markets Authority (CMA) on March 25 issued new guidance on its approach to business cooperation in the unprecedented context of the COVID-19 pandemic. The CMA guidance follows the European Competition Network's (ECN's) joint statement on March 23 that, as the pandemic may trigger the need for companies to cooperate in order to ensure the supply and fair distribution of scarce products to all consumers, the ECN will not intervene against "necessary and temporary measures."
Chapter I of the UK Competition Act 1998 (CA98) prohibits arrangements between businesses that have as their object or effect the restriction, distortion or prevention of competition within the UK, unless they can be shown to give rise to benefits to consumers which outweigh any restrictions of competition. Such anticompetitive arrangements can arise directly or indirectly between competitors, and/or between companies at different levels of the supply chain, such as between a supplier and its customers. Companies and individuals found to have breached Chapter I are liable to fines of up to 10% of worldwide group turnover for companies, and disqualification from serving as a director for a period of up to 15 years for an individual.
Cartel arrangements are considered to be the most serious form of anti-competitive agreements. It is a criminal offense for an individual to participate in bid-rigging, price fixing, market or customer sharing, or limitation of output or supply. Participation in such cartel arrangements may lead to the imposition of a five-year prison sentence, unlimited fines or both for the individual, and disqualification from serving as a director for a period of up to 15 years.
Chapter II CA98 prohibits unilateral conduct by a business with significant market power that may affect trade. In general terms, a business may be considered to have such market dominance if it has a market share of ca. 40% or more. Abusive conduct may include refusals to supply, pricing with exclusionary effects, the conclusion of exclusive purchasing, supply or distribution arrangements so as to create a barrier to market entry, or making the supply of a product conditional on the purchase of another product in addition. Companies found to have infringed Chapter II are also liable to fines of up to 10% of worldwide group turnover.
Undertakings that have suffered loss as a result of a breach of Chapter I and/or Chapter II may invoke private litigation in the UK Courts to recover their loss.
In its new guidance, the CMA states that it understands that dealing with COVID-19 may involve coordination between competing businesses which in the ordinary course could be found to violate competition law. However, the CMA says that in placing its focus on what matters to consumers, the CMA will not take enforcement action in cases where businesses temporarily coordinate with each other solely to address concerns arising from the COVID-19 crisis, where the coordination is appropriate and necessary for certain specific reasons, and provided that it does not go further than what can reasonably be considered necessary. In this regard, the CMA says that in the exceptional circumstances of the COVID-19 pandemic, coordinated action to avoid a shortage, or ensure security of supply; to ensure a fair distribution of scarce products; to continue essential services; or to provide new services such as food delivery to vulnerable consumers, is unlikely to be problematic from a competition law perspective.
However, the CMA also underscores that it will not tolerate arrangements that “opportunistically seek to exploit the crisis,” such as arrangements that use the crisis as a “cover” for non-essential collusion, including arrangements for the exchange of commercially sensitive information on future pricing or business strategies; arrangements to artificially keep prices high; or arrangements to deny rivals access to supplies or services. The CMA also underscores that it will not tolerate conduct that abuses a dominant market position (including a dominant position conferred by the COVID-19 circumstances). This, for example, includes price increases above normal competitive levels.
The CMA says that it is of the utmost importance to ensure that the prices of products or services considered essential to protect the health of consumers in the current situation (for example, face masks and sanitising gel) are not artificially inflated by collusion between businesses to keep prices high or, if a business has a dominant position in a market, by unilaterally exploiting that position. The CMA suggests that manufacturers can also help to combat “price gouging” or excessive pricing, by setting maximum prices at which customers may resell their products.
While the CMA intends its guidance to provide some clarity on the way that it proposes to apply competition law during the COVID-19 pandemic, businesses are likely to have many questions on the nature and extent of any cooperation they may engage in with each other and how that should be documented, as well as on their own individual pricing policies. Moreover, as the CMA is keen to point out in its guidance, it is just that, a guidance. As such, it does not bind the European Commission in its application of EU competition law in the UK (which continues to apply until the UK’s withdrawal from the EU). The CMA also cannot offer protection against private litigants invoking Chapter I and/or Chapter II to issue an injunction against businesses where the litigant claims a company is violating UK competition law and/or to recover losses the litigant believes it has suffered as a result of the competition law violation.
The CMA guidance is also precarious in nature. The CMA has accompanied it by issuing an open letter to the pharmaceutical and food and drink industries in which it invites businesses to inform on each other if they think that firms in their sector are seeking to capitalize on the COVID-19 situation by “charging unjustifiably high prices for essential goods or making misleading claims around their efficacy.” The CMA provides an email hotline by which such ‘tip-offs’ can be given to the CMA. In its letter, the CMA does not describe what an unjustifiably high price is, what an essential good is or what would constitute a misleading claim.
The CMA’s invitation to businesses to inform on each other clearly puts businesses at risk of their competitors exploiting this for their own commercial gains. In this uncertain and emotionally charged time, it is very important that businesses ensure that their arrangements intended to address the COVID-19 situation comply with competition law and that they are documented appropriately in order that they can be properly defended to the CMA and/or in private litigation if need be.
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