Covid-19 and Competition Law: Rapid Regulator Responses

Reports of hand sanitisers previously available for £3.49/€4 being sold for over £150/€170. Contracts for face masks to national health authorities being cancelled to divert supplies to the public at much higher prices. Unsurprisingly competition authorities have been quick to respond.

The overriding message is that competition laws continue to apply. The key points for companies are:

• price hikes on face masks, hand sanitisers and other goods in high demand will be met with robust opposition from authorities. Given the global nature of supply chains and the fact many direct-to-consumer sales take place over market places like Amazon (who do not sell their own products), it remains to be seen whether opposition will always be followed by enforcement
• other potentially exclusionary practices such as refusal to supply one channel of customers (e.g. the hospital segment) in priority to others; or exploitative practices such as bundling in demand products with other products are also high risk
• rules on collaboration with competitors may be relaxed (e.g. via invocation of health exemptions) to allow industries to respond to the crisis by, for instance, logistics collaboration to ensure continuity of supplies to those most in need. But in the absence of clear guidance, the normal rules will apply
• emergency regulations to prioritise supplies to hospitals and prevent consumer exploitation are likely. Companies will need to be agile to keep on top of a fast-changing environment

Higher prices for clean hands?

Investigations into excessive pricing practices have been opened in Italy and Poland. Other authorities, including the UK’s CMA, have made clear that exploitation of consumers will face robust action. In China, SAMR has identified specific practices that are prohibited including fabricating and disseminating information justifying vast price increases of certain medical protective equipment and foodstuffs, and unnecessary stockpiling of these products throughout the supply chain. So far, more than 4,500 companies have been investigated and fined.

But in practice it may not be straightforward for many competition authorities to enforce against price hikes and other exploitative behaviour.

First, if a price hike is genuinely unilateral (no collusion) and the company doesn’t hold a dominant position, it is not clear what competition laws would have been infringed. Many competition authorities have consumer protection powers, in which case these will be the first port of call to prevent customer exploitation. Where this is not possible, we may see less established competition law concepts being relied on such as tacit collusion and price signalling. Some jurisdictions such as France have side-stepped the issue by introducing price regulation on hydroalcoholic gels – a highly unusual step.

Secondly, authorities may struggle practically when they try to enforce competition or consumer protection rules against online sellers. Sellers on online platforms may be numerous, outside of the jurisdiction and hard to trace. This may lead to competition authorities looking to enforce against online platforms rather than individual sellers. Several online platforms have already taken steps to minimise their own exposure by banning sales of certain products and de-listing sellers.

Co-ordination to keep shelves stocked

Competition authorities have been clear that collusion to exploit customers will be met with severe consequences. But competition law is also important where there is a public interest in competitors cooperating to develop vaccines or on logistics and supply chain issues.

Most competition regimes generally make behaviour that restricts competition permissible where there is an efficiency justification. A benefit to public health has previously been recognised by the European Commission as an allowable efficiency and it seems likely that cooperation to secure essential supplies could also be justified. But there is substantial uncertainty around the availability of the efficiency defence given the lack of Commission decisions over the last two decades.

As yet no competition authority has indicated that ordinary competition rules may be relaxed to help businesses minimise the impact of Covid-19. UK supermarkets have called for an exemption from competition law. The mechanism to grant an exemption exists if there are exceptional and compelling public policy reasons to do so, but there are few examples in practice: only four in the UK over the past two decades, albeit these all related to crisis related issues.

More regulation and enforcement expected

We foresee more (emergency) regulation to ensure continuity of supply. As countries approach the projected peak of the virus and health services come under pressure, there will be a need to prioritise hospitals and medical services over direct-to-consumer sales.  Any regulation will be about the greatest good for the greatest number (with the inevitable unforeseen consequences such actions create, for example lack of supplies for some groups).

We also expect to see more regulation and enforcement action by competition authorities to prevent suppliers from exploiting the crisis. Although the challenges above will affect how authorities enforce, they will likely take the view that it’s better to act decisively to prevent market harms.

Some practical guidance for businesses in the meantime

• Consider competition law when being asked by government to collaborate with competitors or when approached by competitors to collaborate – even if these are to meet public health objectives
• Where collaboration involves direct competitors of yours; in relation to cooperation which would ordinarily form a parameter of competition (e.g. combined deliveries; manufacturing/logistics sharing); and/or involves all of the major suppliers of the product or service, consider getting in touch with the domestic competition authority to explain what is envisaged and why and to confirm there are no red flags
• Limit cooperation to what is strictly necessary to achieve government policy and public health objectives
• Apply competition law protocols to industry meetings and document the discussion

What about State aid? Watch this space…

Look out for our blog post next week covering Covid-19 and State aid issues. European governments are promising support to avoid serious repercussions on the economy and jobs. Are the EU State aid rules up to the task of dealing with the crisis? How is the European Commission preparing for the expected avalanche of requests for approval? And what are the risks for companies benefitting from such support?