Competitor Collaboration During the COVID-19 Crisis: Practical Considerations to Avoid Antitrust Risk (Part 2)

Note: This Update expands on our March 23, 2020 Update on the same topic.

The COVID-19 pandemic is causing severe business and commercial disruptions, affecting all sectors. Coordinated industry responses have proven necessary to deal with issues such as demand or supply chain disruptions and shortages of essential products and services. Competition authorities have been faced with the challenging task of helping businesses in the implementation of collaboration projects to tackle the crisis while making sure companies do not take advantage of the situation by engaging in anticompetitive conduct.

This Update elaborates further on the initiatives taken to date by national governments and competition authorities in response to the pandemic and provides practical tips to avoid antitrust risk.

Government intervention

Governments across the globe have called for collaboration in different forms, ranging from the European Union (EU) asking streaming platforms to limit their services and offer only standard rather than high-definition programs, to the Norwegian, United Kingdom (UK) and Brazilian governments granting a temporary exemption from, or softening of, competition laws for specific sectors, such as the airline and retail sectors. A detailed overview of government interventions to date is available here (Table 1).

At the same time, governments are taking a tough stance against coronavirus profiteers. Price controls on personal protective equipment (PPE), such as hand gels and face masks, have been imposed in France and Argentina, while in South Africa the government extended price controls to some essential everyday products, including bottled water, cooking oils, wheat flour, rice, sugar and pasta (in addition to PPE).

Initiatives by national competition authorities

Competition authorities have acknowledged that certain practices that may be anticompetitive under normal circumstances could be allowed at least temporarily to enable a more flexible response to the crisis. Some authorities, including the European Commission (Commission) and the UK Competition and Markets Authority (CMA), have issued guidance setting out how they will assess cooperation among companies to manage the crisis. Others, like the Australian competition authority, have authorized coordination in specific sectors. However, these initiatives are not meant to give companies “carte blanche.” Coordination will be allowed only if certain criteria are fulfilled.

On April 8, the Commission published a communication establishing a Temporary Framework for assessing business cooperation in response to the current pandemic. The Commission provides guidance to companies wishing to temporarily coordinate their activities to optimize the supply of, in particular, urgently needed hospital medicines and avoid shortages of essential products and services. The Commission will not enforce competition laws against certain forms of business coordination provided such coordination is (i) objectively necessary to address or avoid a shortage of supply of essential products or services, (ii) temporary in nature and (iii) does not go beyond what is necessary to address or avoid such shortages. The Commission advises companies to document all exchanges and agreements and make them available to the Commission upon request. In addition, and in light of the exceptional circumstances, the Commission offers to provide ad hoc feedback or issue “comfort” letters to companies or trade associations requiring guidance for the implementation of specific cooperation projects. EU Competition Commissioner Margrethe Vestager stated that the Commission “will urgently provide businesses with sufficient guidance and comfort to facilitate cooperation initiatives boosting the production of products in high demand.” A dedicated website (https://ec.europa.eu/competition/antitrust/coronavirus.html) and a mailbox (COMP-COVID-ANTITRUST@ec.europa.eu) have been set up.

Example. Also on April 8, the Commission issued its first comfort letter to Medicines for Europe, a trade association for the European generic, biosimilar and value-added pharmaceutical industries. The letter concerns a voluntary cooperation project targeting the risk of shortages of medicines needed in intensive care units for the treatment of coronavirus patients. The Commission considered that this temporary cooperation is justifiable under EU competition law in view of its objective and the safeguards put in place to avoid anticompetitive concerns. The Commission, however, imposed a number of conditions: (i) The project must be open to any (member or non-member) pharmaceutical company willing to participate; (ii) meeting minutes must be kept and shared with the Commission; (iii) only essential business information may be shared; (iv) information will be collected either by the association or a third party; and (v) information collected may be shared with companies only in aggregate form.

In the United States, the Department of Justice (DOJ) and the Federal Trade Commission (FTC) issued joint antitrust guidance for COVID-19-related collaborations, listing procompetitive activities that would likely be consistent with U.S. antitrust laws, such as research and development (R&D) efforts, sharing technical know-how and clinical best practices, most joint purchasing arrangements and certain government petitioning. The guidance also offers an expedited antitrust review for businesses seeking to collaborate on initiatives aimed at addressing COVID-19. The expedited review commits the relevant agency to provide guidance within seven days of receipt of a request as to whether the agencies would challenge the proposed activity under the antitrust laws. Any request to either agency must provide a description of the nature and rationale of the proposal, how it relates to COVID-19 and any related documents that the parties can reasonably provide. The description must include a temporal and geographic scope of the arrangement and identify the parties to the proposed collaboration, the intended customers and other significant market participants. The agency’s issued response to each proposal will remain in effect for one year from the date of its issuance but allows for parties to make a subsequent request under the same procedures if further time is necessary.

Example. On March 30, U.S. healthcare distributors of medical supplies and medications submitted a proposal to the DOJ requesting expedited review of their proposed collective efforts, followed by a second proposal submitted on April 14 by another distributor. The distributors’ proposed conduct is in response to U.S. government requests that they use their industry expertise and contacts to expedite and increase manufacturing, sourcing and distribution of PPE to protect first responders and other members of the medical community against the virus and to acquire medication to treat COVID-19 patients. The distributors would work with and at the direction of the Federal Emergency Management Agency and the Department of Health and Human Services on a number of activities designed to address these supply issues. To the limited extent the distributors engage in activities outside of the direct supervision of the U.S. government, they agreed to institute safeguards to protect against any potential exchange of competitively sensitive information. Within seven days, the DOJ issued its business review letter detailing two key reasons why it did not plan to challenge the proposed collaboration: (i) The efforts compelled by the government and under its direct supervision offer immunity from the antitrust laws, and (ii) to the extent certain conduct is not immune, that conduct may still offer unique procompetitive benefits consistent with the U.S. antitrust laws. For example, the conduct is limited in scope, and duration and a number of the activities are also designed to expand existing capacity and bring goods to communities in need. The collaboration also includes a number of safeguards to protect against an increase in prices, reduction in output or quality, or other forms of profiteering from the crisis.

Canada’s Competition Bureau announced a process similar to the U.S. competition agencies, creating a team within the bureau dedicated to assessing proposed collaboration to facilitate the Commission’s rapid decisions to enable businesses to support the crisis response efforts.

A full overview of initiatives by competition authorities is available here (Table 2).

Investigations into alleged anticompetitive conduct

Despite a certain flexibility, antitrust laws still apply, even in times of crisis, and governments and competition authorities must balance the dueling objectives of ensuring quick and efficient responses to the crisis and maintaining antitrust discipline. Competition authorities have stated that they are closely monitoring businesses to prevent them from exploiting the situation.

EU Competition Commissioner Margrethe Vestager for example, warned companies not to take advantage of the crisis by raising prices or establishing cartels. She stated that the Commission “will stay even more vigilant than in normal times if there is a risk of virus-profiteering” and that “a crisis is not a shield against competition law enforcement.” The CMA set up a task force to identify harmful practices and addressed an open letter to the pharmaceutical and food and beverage industries informing them that it will keep a close eye on any potentially anticompetitive conduct. The U.S. DOJ announced its intention to “hold accountable anyone who violates the antitrust laws of the United States in connection with the manufacturing, distribution or sale of public health products such as face masks, respirators and diagnostics.” Canada’s Competition Bureau issued a similar reminder.

Several European competition authorities have already taken action by initiating investigations against companies, including for increasing prices for PPE, under competition or consumer protection laws. In the U.S., although there is no federal statute identifying price gouging as an antitrust violation, a number of states have price gouging laws triggered by the COVID-19 pandemic. These laws are often in place to protect excessive price increases on essential consumer goods and services. States have already been actively monitoring pricing conduct since the crisis arose, with a number of states redirecting resources to investigate price gouging complaints.

An overview of investigations launched to date is available here (Table 3).

A few tips …

The following practical considerations will help companies avoid violating antitrust laws:

• Applicable antitrust laws: Companies should determine which antitrust laws apply to them and whether specific measures or temporary exemptions are in place. In some countries, such as Norway, relying on a specific temporary exemption may require notification to the competition authority. As stated above, the Commission also offered to provide feedback to companies or trade associations for specific collaboration projects.

• Information exchanges: Collaboration among companies to deal with the current crisis may require exchanges of information. Exchanges that have the specific objective of dealing with the crisis will generally be permitted. However, in no circumstances should companies discuss current or future prices, costs, volumes/output or plans for allocating customers or markets without first seeking legal advice. Any information exchanges that relate to a company’s longer-term business strategies and go beyond what is strictly necessary to manage the crisis will also likely raise antitrust risk. The same is true for collusion to artificially keep prices high to compensate for falls in demand as a result of the crisis. Company coordination should not involve goods or services not directly affected by the crisis.

• R&D collaboration: Companies, particularly in the life sciences sector, may wish to share joint R&D efforts, resources and data to develop a vaccine for COVID-19. Such efforts are clearly beneficial for patients and society as a whole, but not all joint R&D will be lawful. Companies should seek legal advice in particular if they wish to jointly commercialize the results of their R&D activities or if they are developing products that may not solely be used to treat the virus. Such activities may fall outside the scope of efforts deemed strictly necessary to respond to the crisis and could run afoul of antitrust laws. It is therefore important to carefully review any R&D agreements concluded to avoid antitrust concerns even at a later stage.

• Government encouragement: The Commission states in its communication of April 8 that cooperation will be allowed if it results from an imperative request from public authorities to companies to temporarily cooperate in response to the COVID-19 pandemic. Companies should, however, keep in mind that the mere fact that governments encourage industrywide collaboration may not be sufficient to avoid antitrust scrutiny. Although certain competition authorities will allow forms of collaboration as a result of government encouragement, this may not be sufficient justification for a cartel. In some jurisdictions, it may be a legitimate defense only if it is confirmed by national legislation or if the legal framework created is such that no independent competitive activity is allowed. In any event, the crisis should not become a cover for nonessential collusion that allows companies to take advantage of the situation to obtain unreasonable economic benefits.

• Industry benchmarking: Companies may wish to benchmark their responses to the crisis against those of their competitors to minimize business disruptions. Such benchmarking activities may be allowed provided there are legitimate, procompetitive reasons. Benchmarking should not incentivize the mandatory adoption of standards between competitors.

• Joint advocacy: Companies should determine whether it may be in their interest to collaborate with other companies in their industry (or possibly across industries) in joint advocacy efforts at a national level. Legitimate efforts may encourage officials to take further measures and policy initiatives to address specific issues caused by the crisis. However, not every petition of a governmental entity is protected, such as when anticompetitive conduct is used as a tool to obtain governmental action rather than a result of governmental action or when the petition constitutes a sham, is baseless or is without any genuine hope of influencing the governmental entity. As with other proposed forms of competitor collaboration, it is important to first seek legal advice.

• Careful documentation: Companies should always carefully document the reasons for, and background to, crisis collaboration. For example, for any discussions with competitors, preparing an agenda with topics to be discussed and preparing a short report is advisable. This is particularly important given the increasing trend of competition authorities to extensively rely on internal company documents to build their cases. The Commission issued the same recommendation in its Temporary Framework Communication.

• Compliance policy: Regardless of the type of coordination, collaborating with competitors always entails competition law risks, so it is important to be vigilant. The same applies to unilateral conduct by companies in a dominant position. Companies should therefore ensure that they have updated compliance policies in place to help limit potential antitrust risks.