Whilst more and more competitors work together to tackle COVID-19, the European Commission provides guidance on the limits of such collaboration.
Around the world, countries are grappling with how to respond to the health and economic crises brought about by the COVID-19 pandemic. There was an immediate and unprecedented impact on supply chains for all sorts of goods including medicines and a scramble to find ways of making sure these were kept moving. While governments address issues concerned with containing the spread of the virus, the European Commission’s DG Competition, Europe’s antitrust watchdog, has stepped in by relaxing state aid rules through a Temporary Framework and providing guidance to companies collaborating together to beat the virus.
A time for extraordinary collaboration
Industry has been on the front line to mitigate the effect of the crisis. Some companies have changed their production lines to help ramp up production of the necessary equipment to fight COVID-19. Louis Vuitton, for instance, is now using its production lines of perfume and cosmetics brands to produce hand sanitizing hydroalcoholic gels, delivered free of charge to health authorities. Other companies are working together to find solutions to shortages of goods and services. For example, in the UK, several companies formed a consortium (Ventilator Challenge UK) to manufacture additional ventilators.
The economy needs to respond to the disruption of supply chains, combined with a demand shock caused by either an abrupt decline in consumer demand for certain products and services or a surge in demand for others, notably those related to the health sector. However, business collaboration, even in times of pandemic, puts companies at risk of violating the EU’s competition rules and could result in heavy fines.
Before 2003, companies could ask the Commission, informally, whether a certain business activity would be lawful and to receive a ‘comfort letter’ – a green light to go ahead. However, since then, companies have to carry out their own assessment as to whether or not they comply with the rules. The Commission’s Temporary Framework Communication published on 8 April provides welcomed antitrust guidance on the cooperation of companies in response to urgent situations related to the coronavirus crisis.
Ad hoc guidance by the EU competition watchdog
The Commission recognises that consumers should continue to receive protection under competition law, and the authorities should remain vigilant about any opportunistic exploitation of the crisis (by, for example charging higher than normal prices). However, it also recognises that temporary business cooperation could be beneficial in ensuring the supply and distribution of much needed scarce products and services.
The Temporary Framework explains when and how firms can obtain guidance or written comfort in line with the EU competition rules. For instance, a trade association in the health sector could coordinate joint transport for input materials or contribute to identify essential medicines for which shortages are forecast. Although its focus is primarily on the health sector, the Commission points out that supply emergencies resulting from the pandemic may also occur for other essential goods and services outside the health sector. Companies still have to self-assess their draft agreements. However, oral and informal assistance may now be provided by the Commission and by way of exception, it can provide comfort letters for specific draft cooperation agreements that have to be implemented swiftly in order to counter the outbreak.
With the response to the pandemic gathering strength, small, larger scale and worldwide collaborations will develop between competitors. As competition law breaches can be sanctioned after the event, seeking the comfort of the Commission’s guidance can only be advised for these extraordinary collaborations to avoid any later allegations of cartel behavior.