The Competition and Markets Authority (CMA) has published helpful guidance on how it will apply competition law in light of COVID-19. Meanwhile, the government has taken the unprecedented step of relaxing competition law in certain sectors.
In the round, these developments offer welcome guidance and comfort – but they also serve as a timely reminder that, for most businesses, competition law continues to apply in the usual way.
The COVID-19 outbreak is creating unprecedented challenges for businesses and is forcing them to adapt to radically changing economic and logistical circumstances.
Businesses need to take care to ensure that their response to current circumstances does not expose them to competition law risk. For the most part, competition law continues to apply in the ordinary way regardless of the challenges presented by COVID-19.
It follows that any conduct that could ordinarily give rise to competition law considerations – perhaps collaborating with competitors to ensure continuity of supplies or possibly relaxing selective distribution criteria to support struggling dealers – needs to be appropriately risk assessed.
Managing competition law risk
So how can businesses sensibly manage competition law risk in the current environment? In our view:
- First and foremost, businesses must not ignore the possible competition law implications of their conduct. For most businesses, competition law continues to apply in the ordinary way. As the CMA says in its own words, COVID-19 does not create a ‘free pass’ for businesses to act anti-competitively. It is important this message is well understood by staff – a discussion with a competitor regarding its commercial response to COVID-19 may be just as likely to give rise to competition law concerns today as previously, no matter how well intended the conversation may be.
- Maintaining staff’s compliance awareness is therefore a must. Indeed, to the extent that businesses already use remote forms of compliance training, such as e-learning, the coming weeks may well be an opportune and convenient time to offer staff a refresher of the rules.
- Most forms of business conduct will not give rise to competition law concerns, but others may. Examples of conduct for which competition law needs to be considered include:
- contacts and cooperation with competitors;
- discussions with customers regarding how, to whom or on what terms they will resell a supplier’s product;
- changes to selective distribution systems; and
- conduct by potentially dominant businesses that might risk being regarded as exploitative or exclusionary.
- The CMA has issued new guidance clarifying its position with regard to COVID-19 related conduct. The CMA’s guidance offers, subject to conditions, considerable comfort that cooperation that is genuinely intended to tackle legitimate COVID-19 related concerns will not face enforcement action (and, indeed, may merit exemption from competition law such that it will be lawful). The guidance is helpful and reassuring but, as the CMA has made clear, it does not offer businesses a ‘free pass’. Businesses will therefore need to take care to ensure that they understand the CMA’s approach and that they apply it appropriately.
- In some sectors (currently groceries, independent healthcare providers and Solent ferries – although this list may expand in time) the government has excluded certain forms of cooperation between competitors from the competition law prohibition of anti-competitive agreements. This offers welcome certainty to operators in these sectors (including, with regard to groceries, not only supermarkets but also grocery suppliers and logistics services providers), albeit the exclusion applies only to certain specific agreements and is subject to various conditions (including an obligation to notify affected agreements to the government).
Expanding slightly on the above points, the key takeaways are:
- New (but limited and sector specific) exclusions to competition law. The Government is relaxing competition law for specific arrangements strictly relating to, and arising out of, COVID-19. So far, these have been introduced in relation to groceries, independent healthcare providers and Solent ferries.
The exclusion for groceries for example (contained in the Competition Act 1998 (Groceries) (Coronavirus) (Public Policy Exclusion) Order 2020 (SI 2020/369)) excludes from the Chapter I prohibition of anti-competitive agreements eight specified forms of cooperation by supermarkets, grocery suppliers and logistics service providers.
These include, for example:
- sharing labour or facilities;
- coordinating the range of groceries (which may include simplifying the supply chain and product specifications);
- sharing information on day to day stock positions and shortages; sharing information on services provided by logistics service providers.
To benefit from the exclusion, an agreement must be notified to the government.
- CMA reassurance as to circumstances in which it will not take enforcement action. The CMA’s guidance indicates that it will not take enforcement action in relation to temporary coordination by businesses that:
- is appropriate and necessary in order to avoid a shortage, or ensure security, of supply;
- is clearly in the public interest;
- contributes to the benefit or wellbeing of consumers;
- deals with critical issues that arise as a result of the COVID-19 pandemic; and
- lasts no longer than is necessary to deal with these critical issues.
- CMA guidance on when coordination will be exempted from the prohibition of anti-competitive agreements. Recognising that businesses may want enhanced legal certainty that their conduct is lawful (over and above comfort merely that the CMA will not take enforcement action), the CMA has provided guidance on when coordination will merit exemption. The legal test for exemption is relatively complex but, in broad terms, the CMA indicates that arrangements will merit exemption where:
- the cooperation ensures essential goods and services remain available;
- absent the cooperation, there would be significant shortages;
- in the circumstances and limited time available to consider alternatives, the cooperation can reasonably be considered necessary; and
- competition is allowed to continue wherever possible (meaning, for example, that cooperation on one aspect of businesses’ activities might not necessitate cooperation in other aspects).
- No specific guidance on the CMA’s approach to conduct that does not involve coordination, but there is a potential read-across from the CMA’s guidance. Whilst the CMA’s guidance specifically addresses coordination between competitors, in reality there may be many other forms of conduct that businesses might consider necessary and appropriate in the context of COVID-19 but which might ordinarily give rise to competition law considerations.
An example might be relaxing selective distribution criteria to ensure that authorised dealers remain viable or to ensure that there is sufficient capacity to provide services to customers. There appears to be scope for read-across from the CMA’s guidance, although the position will need to be considered carefully on a case-by-case basis.
- Importantly, there is no ‘free pass’ to act anti-competitively and the CMA will not tolerate businesses acting unscrupulously. The guidance provides a number of examples of conduct that the CMA will continue to find objectionable:
- businesses exchanging commercially sensitive information that is not necessary to meet the needs of the current situation;
- abusing a dominant market position to raise prices significantly above normal competitive levels; collusion that keeps prices artificially high to the detriment of customers;
- or retailers excluding smaller rivals from any efforts to cooperate in order to achieve security of supply.
The CMA also warns against unscrupulous businesses seeking to take advantage of the current situation by exploiting positions of market dominance.
As the impact of the COVID-19 pandemic continues to evolve, so will the response by businesses as they participate in efforts to mitigate the effects of the pandemic. The CMA says that it will continue to monitor the current situation and may update its guidance as and when it becomes necessary to do so in order to provide maximum clarity and certainty for businesses.
The CMA’s guidance can be found here.