The COVID-19 outbreak continues to affect individuals and companies across the world. Amongst a whole host of issues presented by the pandemic, workforces are being told to self-isolate and travel restrictions are disrupting supply chains and challenging business models. Businesses (including the travel, leisure, conference and hospitality sectors) are facing major falls in revenue, which may lead to discussions amongst competitors on how to respond. For example, some UK retailers have reportedly called for a temporary relaxation of competition rules to allow for collaboration between competitors to overcome logistics and supply chain issues. Meanwhile, reports have emerged of large price rises for certain health-related products, such as hand gel, hand soap and face masks.
Despite the seriousness of the position, the current situation does not provide immunity to businesses from competition law, including unlawful collusion, information exchange and/or excessive pricing, even if the government encourages competitors to cooperate. However, EU state aid rules are being relaxed to allow exceptional support from national governments.
Coordination or isolation?
The UK's Competition and Markets Authority (CMA) has made clear that any companies that collude to exploit customers will be met with stiff opposition.
However, some UK retailers have been struggling to keep pace with demand for basic groceries and household items. This has been exacerbated by the disruption to logistics and supply chain networks due to travel restrictions.
Some businesses have called for a temporary exemption from competition rules to allow them to collaborate with competitors to circumnavigate supply chain and delivery issues.
Under UK and EU competition law, conduct that restricts competition may be justified so long as (i) the conduct produces efficiencies that outweigh the negative effect on competition and (ii) the restrictions on competition are the minimum necessary to achieve them. However, in practice, it is difficult to meet the necessary criteria, and therefore very hard to obtain sufficient certainty.
In the UK, the government can issue an order to relax competition law on exceptional public policy grounds. To date, this power has only been exercised four times, three of which concerned the defence sector. During the 2012 fuel shortage crisis, the government enacted the Competition Act 1998 (Public Policy Exclusion) Order 2012, allowing competing fuel companies to collaborate and share accurate information to allocate supplies and assets, to try to ensure widespread availability of fuel. If the current crisis requires collaboration between competitors, a similar order would provide the most certainty that the relevant conduct did not infringe competition law. In practice, however, the chances of such an order being made are probably low, unless the conduct has been instigated by government and those involved insist upon it.
On 5 March 2020, the CMA pledged to use "any and all tools" to scrutinise exploitative pricing and sales practices. It will consider direct enforcement action if it has evidence that businesses have infringed competition law (e.g. by charging excessive prices). The CMA is also assessing whether it should advise the government to consider taking direct action to regulate prices.
The CMA's Chief Executive, Andrea Coscelli, has urged retailers to "behave responsibly" during the outbreak and "not to make misleading claims or charge vastly inflated prices". This also applies to individuals who resell goods (e.g. on online marketplaces).
The CMA will come down hard on businesses implementing excessive pricing or exclusionary practices to exploit customers.
However, it may not be so easy for competition authorities to enforce directly against online sellers. Online platforms and marketplaces host vast numbers of sellers, many of whom may be located outside the UK and/or difficult to track down.
In practice, they may seek to take action against the online marketplaces. Several online marketplaces have taken proactive steps to limit their own exposure, e.g. by banning the sale of surgical face masks and other coronavirus-related products, and de-listing many seller accounts for charging excessive prices and making misleading claims in relation to coronavirus-related products.
State aid to the rescue?
The European Commission has taken quick action to support governments that want to provide financial aid to businesses suffering from the economic impact of COVID-19, by announcing a proposed new temporary framework for such aid, authorising direct grants (or tax advantages) of up to €500,000 per company, subsidised state guarantees on bank loans, public and private loans with subsidised interest rates, and safeguards for banks who support SMEs. This is intended to take effect within days. Denmark was recently given EC approval within 24 hours for aid to compensate event organisers having to cancel major events scheduled for March. Several national governments, including the UK's, have announced plans to support affected businesses.
Competition law sanitation tips
The message is clear: pandemic or not, UK and EU competition law applies as usual… for now. We may see further guidance and regulation from the CMA and UK government as we near the "peak" of the pandemic. Meanwhile, bear in mind that:
- contacts, collaboration or communication with competitors may infringe competition law, even when those contacts or arrangements are instigated by or involve government or other public authorities. In particular:
- exchanging or disclosing competitively sensitive information, such as business strategy and pricing intentions, is forbidden;
- fixing prices, or sharing markets, customers and/or territories between competitors, are prohibited and may also be a criminal offence;
- agreements not to do business with third parties, or to do so only on certain terms, may well be unlawful;
- refusals to supply can amount to an unlawful abuse of a dominant position, even if that dominant position is for a short period due to scarcity;
- before communicating with competitors, check the competition law position, including your competition compliance programme if your company has one in place. Take appropriate legal advice.
The CMA is keenly observing any exploitative or excessive pricing practices, and will consider direct enforcement in appropriate cases.
Our thanks to Sanam Shah, associate in Dentons' London office, for his contribution to this article.