Collaborate to protect Part 2: Beyond the immediate crisis?

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

Background

As signs start to emerge that the Government and industry are looking to when and how the country may come out of the current lockdown, it is time to remind ourselves that the relaxation we have seen in the enforcement of competition law is only a temporary phenomenon.  Businesses need to be vigilant to ensure that any permitted cooperation during the crisis is kept under close review so that it can be ended once the reason for the collaboration has gone.

Equally, rebuilding markets and supply chains may require or lead to new forms of cooperation. None of the current relaxations deal with plans for collaboration beyond the immediate crisis.

In our earlier blog, we discussed the ways in which the Government has given statutory protection to certain suppliers so that they can cooperate to protect the delivery of food and non-food essentials and health services during the COVID-19 crisis without fear of breaching competition law.  Such protection (the statutory exclusions) has now been extended, to a limited extent, to the dairy sector and Isle of Wight ferry operators. The European Commission (‘the Commission’) has also taken similar steps to protect cooperation in certain parts of the agricultural sector.

The statutory exclusions will last until the Government rescinds the exclusion.  There will be a winding-down period of 28 days to allow collaborating businesses to unwind the cooperation in an orderly manner.

Outside of these areas, businesses that wish or need to cooperate during (or indeed beyond) the immediate period of the COVID-19 crisis remain subject to the full rigour of competition law.  Pro-competitive collaboration will, of course, be lawful but parties need to be mindful of where the boundaries are and will have to self-assess in the usual way. 

So, is there any guidance outside the statutory exclusions?

The normal rules apply: does the collaboration prevent, restrict or distort competition to an appreciable extent and, if it does, does the collaboration merit exemption under the usual exemption criteria.  Collaboration between non-competitors may not affect competition at all (subject to any restrictive terms in the collaboration agreement); even collaboration between competitors, where each competitor cannot carry out on their own the activity in question, can fall outside the competition rules (subject again to the actual terms of the collaboration agreement).

Helpfully, competition authorities, including the Competition & Markets Authority (‘the CMA’) and the Commission, have issued guidance to help businesses understand the permissible limits of collaboration in response to the COVID-19 crisis. 

In summary, in the guidance issued by the CMA, proposed collaboration measures must:

  • Be temporary
  • Be appropriate and necessary to avoid a shortage or ensure security of supply
  • Be clearly in the public interest
  • Contribute to the benefit or wellbeing of consumers
  • Deal with critical issues that arise as a result of the COVID-19 crisis
  • Last no longer than is necessary to deal with those critical issues

Some examples of collaboration that are likely to be lawful include:

  • Avoiding a shortage, or ensuring security, of supply
  • Avoiding a shortage, or ensuring, of supply
  • Ensuring a fair distribution of scarce products
  • Providing for the continuity of essential services
  • Provision of new services (e.g., food delivery to the vulnerable)

How long can you collaborate?

The CMA’s guidance is not sector specific but is limited to measures which deal with critical issues that arise as a result of the COVID-19 crisis. Of itself, that is self-limiting. 

The guidance is clear – collaboration should be temporary and last no longer than is necessary to deal with critical issues arising from the COVID-19 crisis. That period may well be shorter than the pandemic.

As we come out of the shutdown it is possible that current permitted collaboration addressing short term priorities is replaced by new and different forms of collaboration as businesses move into rebuilding markets and supply chains. None of the statutory exclusions or guidance address these future forms of collaboration.

Remember the block exemptions

When considering future collaboration then, whether or not further guidance is forthcoming, businesses can rely on existing block exemptions for specialisation (including outsourcing style arrangements) and joint research and development (R&D) which may assist in structuring certain types of joint cooperation between rivals. 

The Commission is currently consulting on both block exemptions which are due to expire at the end of 2022 and it will be interesting to see how medium and longer-term reactions of industry to the challenges of the pandemic affect future business models and collaborations and how that is reflected in the Commission’s review of horizontal cooperation. 

What is not included

Neither the Government nor the CMA will tolerate businesses (in key sectors or elsewhere) exploiting the crisis as a cover for non-essential collusion where this is not necessary to meet the needs of the current crisis. Such activities continue to be serious breaches of competition law and would include:

  • Cartels, particularly price fixing in response to the crisis (e.g., as a possible reaction to a massive drop in demand across a sector)
  • Vertical resale price maintenance (particularly seeking to control online resellers)
  • Exchanges of commercially sensitive information outside what is strictly necessary for COVID-19 responses
  • Continuation of excluded activities or collaboration beyond what is necessary to deal with the crisis
  • Coordinated exclusion of rivals from participating in legitimate collaboration
  • Abuse of dominance (particularly in areas such as profiteering i.e. excessive pricing)

Practical steps to consider

The biggest practical risk is that any current, legitimate cooperation and discussions spill-over into discussions and collusion on non-excluded matters or that such legitimate activity lasts beyond the period when it is necessary. Consequently, businesses should be:

  • Checking what is allowed (either under a statutory exclusion or based on CMA guidance)
  • Self-assessing in advance if operating under CMA guidance
  • Documenting such an assessment
  • Documenting all meetings, calls and contacts with competitors
    • Consider including a lawyer in such settings
    • Considering whether to involve the CMA / Commission
    • Both have established hotlines and may give informal guidance
  • Keeping any collaboration under weekly review
    • Remember it is only permitted for the duration of the issue / crisis
  • Ensuring collaboration is clearly ended when it has to be
    • Tell your own staff
    • Tell third parties

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.

Phil McDonnell – PMcDonnell@uk.ey.com