Antitrust rules allow closer business cooperation in health sector amid COVID-19 crisis, but within limits

The COVID-19 health crisis poses substantial challenges for businesses and consumers and has had a significant impact on competition law governing the health sector.

One of the effects of the COVID-19 emergency has been the surge in demand for health sector products and other essential items. In these exceptional circumstances, the European Commission (“the Commission”) and national competition authorities have acknowledged that cooperation between companies and trade associations can play a crucial role in overcoming these challenges more efficiently and ensuring the supply and adequate distribution of essential and scarce products.

At the same time, competition authorities have emphasised that it is vital to ensure that products considered essential to protect the health of consumers in the current situation remain available at competitive prices. Competition authorities will therefore not hesitate to take action against companies taking advantage of the current situation by cartelising or abusing their dominant position.

The antitrust authorities’ response to the crisis

On 23 March 2020, the competition authorities in the European Competition Network (ECN, consisting of the European Commission, the EFTA Surveillance Authority, and the national competition authorities of the EU/EEA) issued a Joint Statement on the application of competition law during the COVID-19 crisis. The Joint Statement notes that the ECN “understands that this extraordinary situation may trigger the need for companies to cooperate in order to ensure the supply and fair distribution of scarce products to all consumers” and that “it will not actively intervene against necessary and temporary measures put in place in order to avoid a shortage of supply”. The ECN also encouraged manufacturers to use the option of imposing maximum resale prices to avoid situations that could be challenged by competition authorities as excessive pricing. In addition, the ECN has stated its intention to take action against companies taking advantage of the current situation through cartels or by abusing a dominant position.

On 8 April 2020, the European Commission published a Temporary Framework Communication to provide antitrust guidance to companies cooperating in response to urgent situations related to the coronavirus outbreak concerning the supply of “essential products and services”, notably medicines and medical equipment. European Commissioner for Health and Food Safety Stella Kyriakides has also put forward Guidelines to optimise supply and availability of medicines during the coronavirus pandemic.

In order to increase output as quickly as possible, the Guidelines acknowledge that it might be necessary to reorganise supply chains and production lines and tap existing stocks. Where such temporary measures by pharmaceutical companies require cooperation or coordination with other companies to ensure continued care for COVID-19 patients, the Commission is ready to provide guidance and legal certainty to these companies on their compliance with EU competition rules.

On 15 April 2020, the European Commission published a Joint European Roadmap towards lifting COVID-19 containment measures. The European Commission envisages that competitor cooperation related to the supply of equipment and medicines may be necessary to lift confinement measures. It states: “Ensuring sufficient supplies of equipment and medicines for enabling the lifting of confinement measures may require a higher than normally allowed degree of cooperation between firms, including competitors, in some ecosystems. The Commission is and will be providing, as necessary, antitrust guidance and comfort for cooperation between firms in ecosystems to overcome shortages on goods and services required to enable the gradual de-escalation from containment measures. The Commission and the National Competition Authorities will, via the European Competition Network (ECN), also ensure a coherent application of this guidance in their respective enforcement actions”.

Antitrust guidance: the Commission’s Temporary Framework Communication

Criteria for assessment of horizontal cooperation

This type of cooperation among businesses, encouraged by the authorities in order to ensure sufficient supplies of equipment and medicines, would normally be against   European Union and national antitrust rules. This is why the Commission has drawn up a Temporary Framework outlining guidance on how to achieve cooperation while still complying with competition law during the crisis.

In its Temporary Framework, the Commission indicates that in the health sector the following cooperation through trade associations is generally not problematic as long as sufficient safeguards against anticompetitive exchanges of information are put in place:

• Coordinating joint transport for input materials;
• Contributing to identifying those essential medicines that, in view of forecast production, face risks of shortages;
• Aggregating production and capacity information, without exchanging individual company information;
• Working on a model to predict demand at member state level, and identifying supply gaps; and
• Sharing aggregate supply gap information, and asking participating undertakings, individually and without sharing the information with competitors, to indicate whether they can fill the supply gap to meet demand (either through existing stocks or by increasing production).

Furthermore, the Commission acknowledges that cooperation might even go further, including coordinating the reorganisation of production to increase and optimise output. While such cooperation may require the exchange of information that would normally be problematic from a competition law point of view, the Commission indicates that such measures may be acceptable as long as they are: (i) designed and objectively necessary to actually increase output in the most efficient way; (ii) temporary in nature; and (iii) proportional.

Businesses are, however, required to document all exchanges and agreements between them and make them available to the European Commission upon request.

Cooperation encouraged by public authorities

In addition, the Commission notes that the fact that cooperation is encouraged/coordinated by a public authority would be taken into account for antitrust assessment and that such cooperation would not be an enforcement priority for  the Commission. Moreover, if such cooperation were to result from an imperative request from public authorities, it would in any event not constitute an antitrust infringement.

This is a substantial temporary relaxation of antitrust rules. Usually, agreement or conduct that is not required by law may breach the competition rules, even if it is undertaken following consultation with national authorities or with their encouragement or approval. The critical question, under normal circumstances, is whether or not the individual businessesundertakings enjoyed commercial autonomy.

Guidance and comfort letters from the Commission

Finally, the European Commission indicates that businesses may obtain prior guidance at the European Commission’s own discretion (whereas businesses are normally required to make an antitrust assessment at their own risk).

In this respect, the European Commission has already provided such a comfort letter to Medicines for Europe, formerly the European Generic Medicines Association. It concerns a voluntary cooperation project among pharmaceutical producers – both members and non-members of the association –targeting the risk of shortages of critical hospital medicines for the treatment of coronavirus patients.

No “free pass” for businesses taking advantage of the crisis

Notwithstanding the unprecedented challenges facing business and the economy, the Commission and national competition authorities have warned “unscrupulous” businesses that this relaxation of rules does not give them a “free pass” to engage in conduct that could result in harm to consumers, such as colluding to keep prices artificially high or shutting out smaller rivals from accessing supply chains.

As mentioned above, the national competition authorities state in the ECN Joint Statement their intention to take action against companies taking advantage of the current situation through cartels or by abusing a dominant position. 

The Commission’s Temporary Framework Communication underlines that in these exceptional circumstances it is more important than ever that businesses and consumers receive protection under competition law. The Commission will therefore continue to closely and actively monitor relevant market developments to detect instances of businesses taking advantage of the current situation to breach EU antitrust law by engaging in anticompetitive agreements or abusing their dominant position. Notably, the Commission will not tolerate conduct by businesses that opportunistically seek to exploit the crisis as cover for anticompetitive collusion or abuses of their dominant position (including dominant positions conferred by the particular circumstances of this crisis). This may be by exploiting customers and consumers (e.g. by charging prices above normal competitive levels) or limiting production to the ultimate prejudice of consumers (e.g. by obstructing attempts to scale up production to meet supply shortages). The Commission is therefore encouraging businesses and citizens to continue reporting any cartels and other antitrust violations, including abuses of dominant positions that may come to their attention through the usual tools at their disposal.