Enter to open, tab to navigate, enter to select
COVID-19: CMA publishes approach to business co-operation in response to COVID-19
Practical Law UK Legal Update w-024-6563 (Approx. 6 pages)
COVID-19: CMA publishes approach to business co-operation in response to COVID-19
| Published on 25 Mar 2020 • United Kingdom |
On 25 March 2020, the CMA published its approach to business co-operation in response to COVID-19.
Speedread
On 25 March 2020, the Competition and Markets Authority (CMA) published guidance on its approach to business co-operation in response to COVID-19.
Throughout the UK, businesses are assisting in national and local efforts to tackle the consequences of the COVID-19 pandemic, from providing essential goods and services to consumers, to ensuring key workers can carry out their important tasks in getting the country through this crisis. The CMA understands that this may involve co-ordination between competing businesses. Its guidance gives reassurance that, provided that any such co-ordination is undertaken solely to address concerns arising from the current crisis and does not go further or last longer than what is necessary, the CMA will not take action against it.
This guidance sets out details of the CMA’s approach to the prioritisation of its work and the CMA’s views on how, in the unprecedented context of the COVID-19 pandemic, it will apply the criteria for exemption from the competition law prohibition on agreements and arrangements restricting competition.
Background
On 19 March 2020, the government announced that, as part of a package of measures to allow supermarkets to work together to feed the nation during the 2019 novel coronavirus disease outbreak (COVID-19), elements of competition law will be temporarily relaxed for the food sector. The CMA issued a statement welcoming this announcement and offering reassurance that, where agreements are not covered by that legal relaxation, the CMA "has no intention of taking competition law enforcement action against co-operation between businesses or rationing of products to the extent that this is necessary to protect consumers - for example, by ensuring security of supplies" (see Legal update, COVID-19: temporary relaxation of competition law to allow supermarkets to work together and CMA statement on approach to essential business co-operation).
The CMA also stated that it will not tolerate unscrupulous businesses exploiting the crisis as a "cover" for non-essential collusion (for example, exchanging information on longer-term pricing or business strategies, where this is not necessary to meet the needs of the current situation). It stated that it would issue more guidance on this in due course.
The CMA has now published a document setting out its approach to business co-operation in response to COVID-19.
CMA guidance
The CMA states that its focus in the next few months will be to protect UK consumers from the adverse consequences of the COVID-19 pandemic to the greatest extent possible.
The CMA is conscious of concerns that competition law enforcement could impede necessary co-operation between businesses to deal with the current crisis and ensure security of supplies of essential products and services.
There is a prohibition in competition law on agreements and arrangements between businesses that restrict competition. This prohibits businesses from colluding or co-operating to limit competition – for example by agreeing to increase prices or to divide up markets or customers amongst themselves.
Throughout the UK, businesses are assisting in national and local efforts to tackle the consequences of the COVID-19 pandemic, from providing essential goods and services to consumers, to ensuring key workers can carry out their important tasks in getting the country through this crisis.
The CMA understands that this may involve co-ordination between competing businesses. It wants to provide reassurance that, provided that any such co-ordination is undertaken solely to address concerns arising from the current crisis and does not go further or last longer than what is necessary, the CMA will not take action against it.
The guidance sets out details of the CMA’s approach to the prioritisation of its work and the CMA's views on how, in the unprecedented context of the COVID-19 pandemic, it will apply the criteria for exemption from the competition law prohibition on agreements and arrangements restricting competition.
At the same time, the CMA will not tolerate conduct which opportunistically seeks to exploit the crisis. Therefore, the guidance also explains when the CMA will take enforcement action to prevent consumer detriment.
The CMA stresses that the guidance should not be interpreted as applying to any matter other than those relating strictly to, or arising directly out of, the COVID-19 pandemic. It will keep the guidance under review and may update it if it becomes necessary to provide clarity and certainty for businesses. The CMA will give notice on its webpage withdrawing the guidance when it considers that it is no longer necessary.
Prioritisation of cases during the COVID19 outbreak
The CMA’s Annual Plan for 2020 / 2021 is clear that the CMA intends to sharpen its focus on what matters to consumers so that its interventions deliver impact where it is most needed. The CMA has also pledged to improve how it chooses which problems to take on with protecting consumers, including in particular those in vulnerable circumstances a key strategic objective for the organisation.
These principles apply equally in a crisis such as the present one: the CMA’s work should be focussed on what matters most to consumers.
The current extraordinary situation may trigger the need for companies to co-operate in order to ensure the supply and fair distribution of scarce products and/or services affected by the crisis to all consumers. Where temporary measures to co-ordinate action taken by businesses, the CMA will not take enforcement action so long as they:
- Are appropriate and necessary in order to avoid a shortage, or ensure security, of supply.
- Are 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 pandemic.
- Last no longer than is necessary to deal with these critical issues.
However, the CMA will not tolerate unscrupulous businesses exploiting the crisis as a cover for non-essential collusion, by, for example:
- Competitors exchanging commercially sensitive information on future pricing or business strategies, where this is not necessary to meet the needs of the current situation.
- Retailers excluding smaller rivals from any efforts to co-operate or collaborate in order to achieve security of supply, or denying rivals access to supplies or services.
- A business abusing its dominant position in a market (which might be a dominant position conferred by the particular circumstances of this crisis) to raise prices significantly above normal competitive levels.
- Collusion between businesses that seeks to mitigate the commercial consequences of a fall in demand by artificially keeping prices high to the detriment of consumers.
- Co-ordination between businesses that is wider in scope than what is actually needed to address the critical issue in question (for example, if the co-ordination extends to the distribution or provision of goods or services that are not affected by the COVID-19 pandemic).
In applying this approach to enforcement during the current crisis, the key factor for the CMA will be the potential for the co-ordination to cause harm to consumers or to the wider economy. Where the co-ordination is necessary, for example, to ensure that essential supplies find their way to consumers or that key workers can travel safely to their place of work it is highly unlikely that it would cause harm to consumers. This applies even if the co-ordination leads to a reduction in the range of products available to consumers, provided that reduction is necessary to avoid supply shortages of the relevant product in the first place.
The CMA comments on the importance to ensure that prices of products or services considered essential to protect the health of consumers in the current situation (for example, face masks and sanitising gel) are not artificially inflated by unscrupulous businesses seeking to take advantage of the current situation by colluding to keep prices high or, if they have a dominant position in a market, by unilaterally exploiting that position. Manufacturers can take steps themselves to help combat price gouging or excessive pricing, for example, by setting maximum prices for the retail of their products. The setting of maximum prices at which retailers may sell their products is not unlawful.
The CMA's approach to the exemption criteria during the COVID-19 outbreak
The CMA provides guidance about how the CMA will apply the legal criteria for exemption from the prohibition on agreements and arrangements restrictive of competition in the specific circumstances of the COVID-19 crisis.
Under section 9 of the Competition Act 1998, an agreement that restricts competition is exempt from the prohibition on agreements and arrangements restricting competition if it:
- Contributes to improving production or distribution, or promoting technical or economic progress (the first criterion);
- Allows consumers a fair share of the resulting benefit (the second criterion);
- Does not impose on the undertakings concerned restrictions which are not indispensable to the attainment of those objectives (the third criterion); and
- Does not afford the undertakings concerned the possibility of eliminating competition in respect of a substantial part of the products or services in question (the fourth criterion).
Agreements are automatically exempt from the prohibition on agreements and arrangements between businesses restricting competition if all these criteria are fulfilled. Businesses must self-assess whether these exemption criteria apply.
To assist businesses in more confidently making their own assessment in the specific circumstances of the COVID-19 pandemic, the CMA offers the following guidance:
- Co-operation that ensures essential goods and services can be made available to the public or an important sub-set of the public such as key workers or vulnerable consumers will be considered efficiency-enhancing (i.e. meeting the first criterion).
- If without the co-operation there would have been significant shortages of a product, the co-operation will be likely to give consumers a fair share of the benefits if it avoids or mitigates those shortages (i.e. the second criterion).
- In determining whether the co-operation is indispensable to achieve the efficiency, the key factor will be whether in the circumstances and limited time available to consider alternatives, the co-operation can reasonably be considered necessary (i.e. the third criterion). A further factor that will be important is the extent to which the co-operation is temporary in nature. Businesses should not restrict competition in any area where such a restriction would be unnecessary for the achievement of the benefits or efficiencies for which the agreement is entered into in the first place.
- In applying the fourth criterion, the CMA considers that it is important that competition remains wherever possible. For example, if it is necessary to share capacity information there may still be room for competition on price. Similarly, where the scope of a restriction can be limited to particular goods or geographical areas in order to address a particular issue, businesses should make efforts to limit the restriction in this way.
Overall, the types of co-ordinated actions that, in the exceptional circumstances of the COVID-19 pandemic are most likely to be unproblematic from a competition law perspective based on the exemption criteria, provided that they do not go further than what can reasonably be considered necessary are ones that:
- Avoid a shortage, or ensure security, of supply.
- Ensure a fair distribution of scarce products.
- Continue essential services.
- Provide new services such as food delivery to vulnerable consumers.
Comment
The guidance covers only the approach the CMA intends to adopt to public competition law enforcement during the COVID-19 pandemic. It does not bind the European Commission in its application of EU competition law in the UK.
The CMA cannot offer protection against private litigation brought by third party litigants for perceived breaches of UK competition law. Businesses may wish to seek legal advice as to any potential exposure they might face in this regard.