Choose Site

LawFlash

COVID-19: The Return of the ‘Comfort Letter’

May 01, 2020

The European Commission published its first comfort letter in nearly 20 years on April 29, in an effort to foster cooperation among businesses during the coronavirus (COVID-19) pandemic. Here is what companies should know about the specific practices permitted under the comfort letter, as well as the specific conditions and safeguards for cooperation.

As previously reported the European Commission (EC) recently adopted a Temporary Framework providing guidance on the application of antitrust rules to various forms of cooperation necessitated in response to the COVID-19 crisis (Temporary Framework). After almost 20 years, this has also resulted in the return of individual informal guidance by the EC for specific forms of collaboration, the so-called “comfort letter”.[1] Indeed, the Temporary Framework explicitly foresees this possibility.

On April 29, the EC published its first comfort letter in almost 20 years, issued on April 8, to Medicines for Europe (MfE), an association of generic pharmaceutical manufacturers, authorizing cooperation among them in order to respond to the shortage in essential medicines required for COVID-19 patients. Subject to certain conditions, the EC confirms that the cooperation envisaged between the members of MfE is compatible with EU antitrust rules applicable to cooperation agreements pursuant to Article 101 of the Treaty on the Functioning of the European Union (TFEU). The EC issued its comfort letter swiftly, within two days of formal application by MfE, and after consulting the EU National Competition Agencies forming the European Competition Network.

Albeit tailored for and applicable to the MfE cooperation, the comfort letter provides useful pointers for potentially permissible cooperation between businesses during the pandemic.

Specific practices allowed under the MfE comfort letter

The authorization aims to address the risk of shortages of supply of medicines to treat COVID-19 patients. However, the EC emphasizes that the comfort letter does not permit exchanges of pricing information and warns against price increases not justified by increased production costs. The comfort letter allows generic pharmaceutical companies that are members of MfE to coordinate their conduct with regard to the following:

  • model demand of relevant medicines;
  • identify production capacity and stocks of relevant medicines;
  • adapt or reallocate production and stocks as between them of relevant medicines, so that not all manufacturers focus on one or a few medicines;
  • switch production to a certain medicine and/or increase capacity as between them;
  • rebalance and adapt capacity utilization, production, and supply on an ongoing basis;
  • cross-supply active pharmaceutical ingredients (possibly including intermediates); and
  • the distribution of relevant medicines.

The above actions involve the exchange of sensitive information and the coordination on key parameters of competition, going potentially as far as market sharing, all of which would raise material concerns under Article 101 TFEU under normal circumstances.

Specific conditions under which the coordination takes place

According to the Temporary Framework, cooperation encouraged and/or coordinated by a public authority (or carried out within a framework set up by the latter) is a relevant factor in determining whether a cooperation would not be problematic under EU competition law or would not be an enforcement priority for the EC. The comfort letter granted to MfE is a perfect example of such an approach.

In this case, public authorities (EU Commissioner for Health and Food Safety) had requested joint efforts from the pharmaceutical industry to address the acute risk of shortages of the most critical medicines for COVID-19 patients. In addition, the EC and other authorities will be actively involved in the whole process (i.e., act as a forum for the data exchange, mobilize the expertise of DG SANTE, including the European Medicines Agency, and take on a steering role in the process).

Specific safeguards imposed for the cooperation

The comfort letter makes it clear that the cooperation cannot go beyond what is objectively necessary to fight the shortage of supply and it must be temporary.

In addition, the comfort letter imposes some specific safeguards on the cooperation:

  • any such data will be made available to the participating manufacturers only after it has first been aggregated by an external consultant;
  • cooperation will be open to any pharmaceutical manufacturer willing to participate; and
  • minutes of all meetings and exchanges of information will be recorded, so that they may be provided to the EC upon request, and any agreements will be disclosed to the EC.

Conclusion and Outlook

The comfort letter granted in the pharmaceutical sector is for a highly circumscribed type of cooperation, namely coordination within a trade association at the behest and with the continued involvement of public authorities. Nonetheless, the EC has made clear that the Temporary Framework is not limited to the pharmaceutical sector, but applicable to all sectors. In fact, the EC has received numerous other requests from businesses on various forms of cooperation, such as R&D cooperation, data gathering, coordination of supply, vertical agreements, or cooperation between different industries.

The EC appears to be pragmatic in its approach if the cooperation is strictly limited to what is necessary, limited in time, transparent, and open to participants. The more the cooperation can take place within the context of the interest or framework of a public authority or objective, the better. Engaging with the EC at an early stage is highly recommended; this secured a lightning speed turn around for MfE within two days of formal notification. However, a comfort letter is only as good as the information provided to the EC by the parties[2] or else they risk undermining the protection that said letter offers. Since a comfort letter is not binding, it does not offer protection against private litigants invoking Article 101 TFEU. Finally, caveat emptor to the extent the cooperation touches on pricing or final customer-facing sales strategy. The Commission has made it clear that it will not tolerate businesses using COVID-19 as a cover for anticompetitive behavior.

CORONAVIRUS COVID-19 TASK FORCE

For our clients, we have formed a multidisciplinary Coronavirus COVID-19 Task Force to help guide you through the broad scope of legal issues brought on by this public health challenge. We also have launched a resource page to help keep you on top of developments as they unfold. If you would like to receive a daily digest of all new updates to the page, please subscribe now to receive our COVID-19 alerts.

CONTACTS

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

London
Frances Murphy
Omar Shah
Joanna Christoforou

Brussels
Izzet Sinan
Christina Renner

Frankfurt
Michael Masling



[1] Comfort letters of this type are informal guidance, not a binding EC act (though they may inform the views of a national court or competition authority); a comfort letter may be reviewed and even withdrawn if the underlying facts change, or the information on which the EC relied turns out to be incomplete or incorrect. For example, the EC makes it explicitly clear in its comfort letter that it was issued after considering the matter on the basis of the information provided and the factual circumstances described to the EC by MfE.

[2] Parties must provide correct and complete information.