Collaborate to protect: How changes to Competition Law are helping the supply chain

Phil McDonnell | Associate Partner | Law | PMcDonnell@uk.ey.com

Background

The Government has moved swiftly to ensure that suppliers can cooperate to protect the delivery of food and non-food essentials and health services without fear of breaching competition law.  It has done this by excluding, temporarily, the application of the Chapter 1 prohibition to certain forms of cooperation.

There are two exclusion orders and they are to be welcomed as they will provide relevant suppliers with a considerable measure of comfort. Naturally, they come with a warning – neither the Government nor the Competition and Markets Authority (CMA) will tolerate businesses (in these key sectors or elsewhere) exploiting the crisis as a cover for non-essential collusion (e.g., exchanging information on longer-term pricing or business strategies) where this is not necessary to meet the needs of the current crisis.

So, what is the scope of the exclusions?

The exclusions suspend certain “qualifying activities” from the normal competition law rules relating to anti-competitive agreements (but not the dominance rules). The exclusions apply to qualifying activities between the following types of business, in each case where such activity is solely for the purpose of responding to the coronavirus crisis (either by maintaining the supply chain or by assisting the NHS):

  • Groceries suppliers
  • Logistics service providers
  • Health service providers

What activities are covered – grocery retailers

The following qualifying activities between groceries suppliers are covered:

Coordination on:

  • Quantities of certain groceries to be supplied
  • The deployment of staff
  • The range of groceries to be supplied
  • Supply to particularly critical or vulnerable consumers
  • Store opening hours
  • Supply to consumers in geographically vulnerable areas

Sharing information about:

  • Stock levels
  • The services of logistic service providers.

What activities are covered – logistic service providers

The following qualifying activities between logistic service providers are covered:

Sharing information about:

  • Staff availability
  • Storage and warehouse capacity
  • Potential storage or warehouse capacity
  • Vehicles

Coordination on the deployment of staff.

What activities are covered – health service providers

The following qualifying activities between health service providers are covered:

  • Sharing information about capacity to provide certain services
  • Coordination on deployment of staff
  • Sharing or loan of facilities
  • Joint purchasing of goods, facilities or services and
  • Division of activities, including agreement to limit or expand the scale or range of services supplied by one or more providers.

Who is covered?

In terms of the grocery supply chain, retailers and any upstream suppliers (in the UK or worldwide) are covered together with, separately, logistics providers (including those actively seeking to enter the grocery supply chain). Coordination and information sharing between grocery suppliers and logistics providers are not covered but such discussions (to the extent they are necessary) may not of themselves breach competition law and would have to be assessed separately.

In terms of health service providers, arrangements between independent providers and between independent providers and NHS bodies are covered.

What is not included?

The direct sharing of information relating to costs or prices is not included in the scope of these exclusions.  Such activities continue to be serious breaches of competition law.

The exclusion for groceries (in terms of suppliers, retailers and logistics providers) only covers food, pharmaceuticals (other than prescription only medicines), pet-food, drinks (alcoholic and non-alcoholic), cleaning products, toiletries and household goods.  “Groceries” does not include petrol, clothing, DIY products, financial services, newspapers, magazines, greeting cards, CDs, DVDs, videos and audio tapes, toys, plants, flowers, perfumes, cosmetics, electrical appliances, kitchen hardware, gardening equipment, books, tobacco and tobacco products.  This definition will be familiar to those who work with the Groceries Supply Code of Practice (GSCOP).

Notification to the Government

Agreements intended to benefit from the exclusion must be notified to the Government, who will compile, maintain and publish a public register of agreements.

Period of application

This exclusion will last until the end of the coronavirus crisis at which point the Government issues a notice which must include a minimum of 28 days’ notice before the exclusion expires (this period is intended only to enable the orderly winding down of arrangements). The exclusion also applies retrospectively to agreements relating to qualifying activities from 1 March 2020.

Practical steps to consider

The biggest practical risk is that legitimate cooperation and discussions spill-over into discussions and collusion on non-excluded matters. Consequently, clear agendas and notes of all discussions should be kept and businesses should be vigilant to ensure that legitimate cooperation is notified to the Government and that discussions do not stray into unlawful activities.

What about cooperation outside these sectors?

Outside of these sectors, businesses will have to self-assess in the normal way.  Helpfully, the CMA has issued guidance (mirrored by that of competition authorities across the European Economic Area (EEA) and supported by both the Financial Conduct Authority and Payment Systems Regulator) that it has no intention of taking enforcement action against temporary cooperation between businesses or the rationing of products to the extent that such cooperation is necessary to provide essential goods and services to consumers or ensuring key workers can carry out their roles. The European Commission has also launched a dedicated website to provide guidance to businesses where there is uncertainty about the lawfulness of concrete cooperation initiatives with an EU dimension. More about this in Part 2 of this series of blogs.

Further information

If you have any questions in relation to this note, please do get in touch with us. This note is not intended to provide an exhaustive list of issues. Nor should it be relied upon as legal advice. Please do contact us if you require legal advice on any specific issues.