COVID-19: Competition law considerations for businesses

We take a look at some of the key competition law risks and protections for businesses during this rapidly-evolving and unprecedented time

02 April 2020

As the COVID-19 crisis continues to evolve, the UK government is introducing measures that seek to protect public health and support the supply of essential goods and services. During times of economic volatility, the risk of businesses committing competition law infringements tends to increase, and the Competition and Markets Authority ('CMA') monitors any anti-competitive conduct by businesses. In response to the crisis, the CMA has recently announced that it has launched a taskforce to scrutinise market developments to identify harmful sales and pricing practices.

Other competition authorities around the globe are also on high alert and have started investigating anti-competitive conduct connected to the pandemic. For example, the Italian Antitrust Authority has started to investigate online sales platforms in response to complaints about price increases for hand sanitisers and disposable respiratory protection masks. The Polish Competition Authority has initiated proceedings against personal protective equipment wholesalers that allegedly terminated contracts with hospitals in order to obtain significantly higher prices for surgical masks and other protective equipment.

The clear view is that competition law will continue to apply during the crisis. However, as the situation continues to evolve, is there a justification for businesses to collaborate with their competitors in ways that would not normally be permissible? How will the crisis impact businesses seeking merger control approval? In order to remain economically viable, can businesses receive aid from the government during the crisis?

We take a look at the application of competition law during the COVID-19 pandemic and answer these questions below.

Antitrust: anti-competitive agreements and abuse of dominance

An exclusion for retailers

Chapter I of the Competition Act 1998 (“the Act”) and Article 101 of the Treaty on the Functioning of the European Union ('TFEU') prohibit anti-competitive agreements. These include agreements between businesses to directly or indirectly fix prices, share markets or customers, limit or control production, as well as exchanging competitively sensitive information.

However, as part of a series of measures the UK government has introduced support to the food sector - on 19 March 2020 it announced that it was temporarily relaxing elements of competition law to allow supermarkets to work together. Supermarkets have been affected significantly by unprecedented demand during the pandemic. As such, the government has introduced measures which will amend the Act. This will essentially allow retailers to share data with each other on stock levels, cooperate to keep shops open, share distribution depots and delivery vans and pool staff with one another to help meet demand. Therefore, conduct which would otherwise normally infringe Chapter I of the Act will be permitted, in so far as it relates to food retailers.

An exclusion for Isle of Wight ferry operators

On 27 March 2020, the government announced that it is also temporarily suspending competition law to allow ferry operators in the Isle of Wight to work together and maintain a crucial lifeline between the island and the mainland during the COVID-19 pandemic. The pandemic has significantly reduced demand for the day-to-day services provided by the 3 main operators on the route and the relaxation will essentially allow the ferry operators to coordinate to keep routes open and essential goods flowing.

The UK government rarely uses its powers to temporarily relax the application of competition law and it is likely that the exclusions for food retailers and Isle of Wight ferry operators will be tightly monitored.

Other businesses

For all other businesses that do not fall within the scope of the exclusions, Chapter I of the Act and Article 101 TFEU will continue to apply as normal.

In addition, Chapter II of the Act and Article 102 of the TFEU which prohibit abusive conduct by dominant firms will also continue to apply.

The CMA’s guidance on business cooperation during the pandemic states that it will not take enforcement action where temporary measures to coordinate action taken by businesses:

  1. are appropriate and necessary in order to avoid a shortage, or ensure security, of supply;
  2. are clearly in the public interest;
  3. contribute to the benefit or wellbeing of consumers;
  4. deal with critical issues that arise as a result of the COVID-19 pandemic; and
  5. last no longer than is necessary to deal with these critical issues.

The CMA has also provided some further guidance on the application of the exemption criteria under the Act where an agreement, which would otherwise be prohibited, is exempted from Chapter I of the Act. However, the CMA has advised that it will not tolerate unscrupulous businesses exploiting the crisis as a ‘cover’ for non-essential collusion. In addition, on 20 March 2020, the CMA issued an open letter to the pharmaceutical and food and drink industries warning them against seeking to capitalise by charging unjustifiably high prices for essential goods or making misleading claims around their efficacy. It warned that it will use all of the powers available to it to ensure that markets continue to work well during the COVID-19 pandemic.

Where businesses do not fall within the limited exclusions that relate to supermarkets and Isle of Wight ferry operators, they should be particularly cautious to ensure that they do not infringe competition law given the clear indication from the CMA that the current situation does not justify anti-competitive behaviour.

Merger Control

There is likely to be a delay in merger investigations by the CMA and European Commission. The CMA has stated that, whilst it will continue investigating ongoing UK merger cases, it will monitor statutory deadlines and timetables and will extend these where appropriate. As the CMA has switched to remote working, all external meetings and hearings before the CMA are being conducted remotely.

In addition, the European Commission has advised businesses to delay merger notifications until further notice due to the complexities and disruptions caused by the COVID-19 pandemic. In particular it has stated that it will likely face difficulties in collecting information from third parties, such as customers, competitors and suppliers and its services may be limited due to the remote working measures it has implemented. The European Commission is also temporarily accepting electronic merger notifications, with the paper copies being submitted at a later date. Whilst the CMA already accepts electronic submissions, it is likely that ongoing UK merger investigations will be delayed for similar reasons.

As the crisis continues to impact the global economy, some businesses may consider acquiring competitors facing financial difficulties. UK merger control rules provide for a ‘failing firm defence’ where a firm is considered to be failing financially. Parties wishing to rely on the defence need to satisfy certain criteria, including demonstrating that the failing firm would have exited the market in the absence of the transaction for financial reasons (for example, it is unable to meet its financial obligations in the near future and it is unable to restructure itself successfully) and there are no alternative purchasers. The criteria is strictly applied by the CMA, and it is yet to be seen whether the CMA may relax the way in which the criteria is applied during the COVID-19 pandemic.

State aid

Countries across the EU, as well as the UK, are deploying measures to mitigate the economic impact on businesses of all sizes as far as possible. While these measures are undoubtedly important, and arguably essential, they must nevertheless not fall foul of State aid rules. Essentially, any measures that constitute State aid, e.g. selective grants as opposed to universal tax reductions applying across all industries, must be notified to the European Commission and approved before being implemented.

In recognition of this pivotal role that governments can have in ensuring the economic viability of businesses in times of economic turmoil, the European Commission issued a State aid Temporary Framework (the 'Framework') on 19 March 2020. The Framework gives guidance on countries subject to EU State aid rules (including the UK until the end of the transition period) on measures the European Commission will treat as compatible State aid. As such, this allows for a first port of call for compatible aid to be granted in response to the COVID-19 crisis, with a quick turnaround between notification and approval. To date the European Commission has approved several such measures under the Framework which can include:

  1. Schemes issuing direct grants, repayable advances, tax advantages of up to €800,000 per undertaking;
  2. Loans with subsidised interest or public guarantees on loans, subject to certain interest and premium requirements respectively; or
  3. Support for short term export credit insurance.

Most importantly, the measures above can be cumulated, save for guarantees and loans with subsidised interest (which cannot be cumulated in respect of the same loan principal). At the same time, both guarantees and such loans can be granted through financial or credit intermediaries provided that no indirect aid remains with the intermediaries.

Burges Salmon is continuing to track COVID-19 developments and advises on a range of EU and UK competition law and State aid matters. If you have any questions in relation to the issues raised in this article, please contact Chris Worrall, John Houlden or your usual Burges Salmon contact.

Written by Sandra Mapara and Noel Beale

Key contact

Chris Worrall

Chris Worrall Partner

  • Head of Competition
  • Mergers and Acquisitions
  • Financial Services

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