Competition rules apply also during a crisis – be aware of pricing and discussions with competitors
It is important for all companies to remember that a crisis, such as the current economic crisis that has arisen as a result of the Covid-19 pandemic, cannot be used as an excuse for companies to act as they please. EU and Swedish competition law, both the cartel prohibition and the prohibition on abuse of a dominant position, applies during a crisis as well. However, as a result of the crisis, various types of limited relaxations of the competition rules have been introduced in various Member States, for example by the UK Government regarding cooperation between supermarkets and most recently by the ECN, the European Competition Network, for the whole of the EU/EEA. Furthermore, the current Covid-19 crisis will affect the timeline for mergers and acquisitions or the creation of joint ventures, which must be notified to the Commission, since the Commission has now in practice issued a temporary stop for such notifications, other than in exceptional cases.
The cartel prohibition applies to so-called crisis cartels as well
The EU competition rules, as well as national competition rules around Europe, prohibits cartels – i.e. when competitors coordinate prices, discounts etc. or share markets – geographically or between customers. Alternatively, a cartel may restrict supply or innovation and thereby lead to increased prices or limit the supply of new innovative products and services. This means that in times of crisis, even during the current Covid-19 outbreak which has severe economic impact on many companies, it is not permissible to cooperate with competitors in order to try to raise prices or divide customers.
According to case law from the Commission and several national competition authorities, a crisis is not a reason for permitting companies to coordinate e.g. prices. This question has been tried inter alia in connection with the “mad cow” disease crisis.
It should also be noted that companies do not have to go as far as agreeing on e.g. price fixing, the mere disclosure of confidential information, about e.g. prices, to a competitor can be considered as a violation of the competition rules.
However, in certain exceptional cases, it may be permissible for competitors to cooperate in accordance with the exemption rules that exist both in the EU Treaty and in the Swedish Competition Act, but it is important for the companies to be able to prove that the cooperation leads to lower prices or better products or services for consumers. The burden of proof that such conditions are fulfilled lies with the cooperating companies.
Temporary relaxation of the cartel prohibition for supermarkets in the UK
On 19 March 2020, the UK Government announced that a temporary relaxation of the competition rules will be introduced in order to allow food retailers to work together to ensure that consumers have access to food and other essential goods. The UK Government announced that the UK Competition Act will be changed temporarily. The changes will enable retailers to share data with each other on stock levels, cooperate to keep stores open, or share distribution warehouses and delivery trucks. It should also be possible for retailers to pool staff with one another to help meet demand. The UK Competition Act allows for a relaxation of the competition rules under exceptional circumstances. However, in a press release on the same day, the British Competition and Markets Authority announced that it will not tolerate companies taking advantage of the situation and using the crisis to cooperate in an unauthorized manner regarding unnecessary measures such as long-term pricing or other business strategies that have nothing to do with the current crisis.
The prohibition on abuse of a dominant position – which covers e.g. excessive pricing – still applies
The media has reported abnormally high prices for some products during the current crisis, where there is a shortage of health care products and protective equipment. In this context, it should be borne in mind that a company that has a so-called dominant position (a market share of more than 40% is an indication that a company has such a position, but a complex assessment must be made) may not apply unreasonably high prices. What constitutes such an excessive pricing is complex to assess. In recent years, several cases have been tried in various industries by different national competition authorities – especially in cases where the price on pharmaceuticals have been increased by several thousand percent. Companies shall thus ensure to not abuse a dominant position by applying unreasonably high prices.
Several competition authorities, including the British, have in recent weeks announced that they will monitor companies’ pricing practices during the crisis. Authorities that have not actively communicated such a message can also be expected to investigate possible complaints, which has been confirmed by the European Competition Network (ECN).
Joint statement by the European Competition Network
The European Competition Network (ECN), which consists of the Commission, the European Surveillance Authority, and the national competition authorities of the EU/EEA, issued a joint statement on 23 March 2020 regarding the application of competition law during the corona crisis.
The ECN stated that the current situation may trigger the need for companies to cooperate in order to ensure the supply of scarce products to all consumer. The ECN will not actively intervene against necessary and temporary measures put in place in order to avoid a shortage of supply. The ECN stated that such measures will likely not result in a violation of the competition rules:
“Considering the current circumstances, such measures are unlikely to be problematic, since they would either not amount to a restriction of competition or generate efficiencies that would most likely outweigh any such restriction. If companies have doubts about the compatibility of such cooperation initiatives with EU/EEA competition law, they can reach out to the Commission, the EFTA Surveillance Authority or the national competition authority concerned any time for informal guidance.”
Furthermore, the ECN stated that it is of utmost importance to ensure that products considered essential to protect the health of consumers (e.g. face masks and sanitizing gel) remain available at competitive prices. The ECN will therefore not hesitate to take action against companies taking advantage of the current situation by cartelizing or abusing their dominant position.
Further, the ECN points out that the existing rules allow manufacturers to set maximum prices for their products and that his could prove useful to limit unjustified price increase at the distribution level.
Although there is a possibility to consult with the authorities, we would encourage any company considering taking such contacts to seek advice from a competition lawyer beforehand.
Violations of the competition rules can lead to severe sanctions in the form of high fines of up to 10% of the company group’s annual sales, claims for damages from those that have suffered damage from an anti-competitive measure, exclusion from public procurements, trading prohibitions for company representatives, extensive bad will etc. In some countries, such as the UK and Denmark, certain company representatives that take part in a cartel can be sentenced to imprisonment. Thus, it is always important to carefully analyze a proposed measure to ensure that it is compatible with the competition rules.
The Commission encourages companies to delay merger notifications
The Commission has announced that measures have been taken to ensure business continuity in the review of concentrations, i.e. mergers and acquisition or the creation of so-called self-functioning joint ventures (JVs), which must be notified and approved by the Commission if certain turnover thresholds are met. The Commission has encouraged companies that have not yet notified planned concentrations to delay the notification, if possible. In practice, this means that it is currently not possible to obtain such a review other than in exceptional cases. As a general rule, the processing time for merger control is 25 working days, after a complete notification has been submitted, in a so-called Phase I investigation and an additional 90 working days in case of a so-called Phase II investigation, i.e. a more in-depth investigation.
During the merger control procedure, the Commission contacts various market players – e.g. the merging companies’ customers, suppliers and competitors – to obtain more information about the market and how this is affected by the acquisition. Due to the difficult situation that has arisen as a result of the Covid-19 outbreak, the Commission expects that it will be difficult to collect information from these market players. Furthermore, the Commission services may face limitations in terms of access to information and databases and in terms of information exchanges following the remote working measures taken as of 16 March 2020.
Furthermore, the Commission has announced that electronic submissions of merger notifications will be temporarily accepted and are in fact encouraged under current circumstances. Normally, a merger notification must be submitted in physical form.
Due to the above companies are encouraged to take into account that this may have an important aspect on their timelines for mergers at present.
It shall also be stressed that implementation of a notifiable concentration without the Commission’s approval can result in substantial fines and bad will.