This is Part I of a two-part analysis and focuses on antitrust actions and guidance from the Department of Justice and Federal Trade Commission. Part II, which focuses on FTC consumer protection efforts regarding advertising and marketing as well as the likelihood of tagalong civil class actions, is also available.
Companies navigating through the unprecedented dynamics of the COVID-19 pandemic need to be aware of antitrust and consumer protection laws to avoid potential legal pitfalls and challenges. Many businesses are grappling with difficult questions that overlap with antitrust and consumer protection restrictions enforced by federal agencies, such as:
- How can businesses react to the logistical challenges caused by this crisis and coordinate activities, as well as assets, to ensure the continued supply of needed products and services to the consuming public—while avoiding a costly federal antitrust investigation or lawsuit?
- With respect to consumer protection regulations, how cautious do advertisers need to be when making COVID-19-related health claims for their products?
Recent statements and actions from federal agencies, including the Federal Trade Commission (FTC), Department of Justice (DOJ) and Food & Drug Administration (FDA), provide helpful guidance on their enforcement priorities. One positive development is DOJ and FTC’s (1) acknowledgment that companies may need to work together in providing resources and services to protect the health or safety of the country during the COVID-19 pandemic and (2) development of voluntary, expedited procedures for antitrust reviews of proposed public health collaborations. Additionally, businesses must prepare for the possibility that class action lawyers may file copycat or related class actions following notice of enforcement actions or other conduct by FTC or DOJ directed to specific companies or industries.
Continued Vigilance Among Antitrust Enforcers
Companies must keep in mind that the federal government will continue to enforce antitrust laws during this crisis. Early on, DOJ issued a statement warning businesses to maintain their compliance with antitrust laws, warning of a special focus on bad actors involved in the manufacture, sale and supply of public health products.
Risks of Illegal Conspiracies During the Pandemic
DOJ’s warning included the threat of criminal prosecution for participants in price-fixing or bid-rigging schemes for personal protective equipment (PPE) as well as market allocation schemes involving public health products. DOJ also took the opportunity to refer businesses and practitioners to the establishment and work of its Procurement Collusion Strike Force (PCSF). The PCSF, which consists of prosecutors from more than a dozen U.S. Attorney Offices, investigators from the FBI and inspectors general at various agencies, investigates and prosecutes antitrust crimes, include bid-rigging, occurring in government procurement and will be on the alert for illegal collusive activity in the sale of public health products to federal, state and local government agencies.
In another caution to business about continued vigilance in antitrust enforcement, FTC and DOJ issued a Joint Antitrust Statement Regarding COVID-19 and Competition in Labor Markets. Following a years-long trend of increased attention on anticompetitive activity in labor markets that may disadvantage workers, the agencies warn that they will remain on the lookout for wage-fixing agreements, no-poach agreements, anticompetitive non-compete agreements, and the sharing of competitively sensitive information such as compensation and benefits. Employers, staffing agencies, recruiters or others that restrict competition in labor markets during the public health crisis will be held accountable, and the statement specifically identifies and focuses on markets for “essential service providers” such as medical professionals, first responders, and grocery and warehouse workers. The agencies also warn businesses of the potential for criminal liability for naked wage-fixing and no-poach agreements, as well as civil enforcement actions against companies that simply “invite others to collude” and large companies that engage in “unilateral” conduct that harms competition in the labor market.
During this time, businesses may be tempted to coordinate with each other to address the resulting significant market disruptions in the supply and demand for goods as well as labor. While some collaborations are permitted under antitrust laws, companies should keep the following in mind to mitigate the risk of liability:
- Ensure that key personnel (especially in sales, pricing and human resources functions) are aware of the relevant antitrust laws and trained on any antitrust compliance policies;
- Avoid sharing competitively sensitive information on pricing, costs, sales or employee benefits and wages with competitors without a reasonable and legitimate pro-competitive purpose for doing so; and
- Consult with antitrust counsel on the above and especially before implementing any plan that involves coordinating with an actual or potential competitor.
Price-Gouging During the Pandemic
To help tackle opportunistic price-gouging of needed healthcare and medical supplies during the pandemic, DOJ has also established a Hoarding and Price Gouging Task Force led by a U.S. attorney with a representative from each U.S. attorney’s office and relevant DOJ component. The task force will tackle reported market manipulation, hoarding and price-gouging of health-care-related items designated as “scarce” by the secretary of the Department of Health & Human Services (HHS). The task force was created in response to President Trump’s Executive Order 13910 implementing section 102 of the Defense Production Act, which makes it a crime for a person to hoard or accumulate a designated item “either (1) in excess of his or her reasonable needs or (2) for the purpose of selling it in excess of prevailing market prices.” The president’s order delegated the authority to designate any material as scarce to the HHS secretary.
It remains to be seen what enforcement activity will grow out of this federal task force. No federal statute specifically prohibits price-gouging, and the task force’s enforcement mandate is based on a law addressing hoarding. However, most states have their own laws that prohibit price-gouging during a declared state of emergency. Many state attorneys general have warned that their respective offices will be on the lookout for price-gouging, and some have already initiated law enforcement activity in this area.
The statutory definitions of price gouging vary, with some states simply defining it as pricing that is unconscionably or unreasonably excessive, and others (such as California) tying it to a specific percentage increase in price, such as 10%, after an emergency declaration. Note that many statutes (e.g., New York’s statute) allow a defense for price increases tied to increases in cost caused by the state of emergency.
Businesses selling essential consumer goods or health care and medical supplies during this pandemic can mitigate the risks of being targeted in a federal, or more likely, state price-gouging investigation by doing the following:
- Be aware of the relevant price-gouging laws in the states in which they do business;
- Train key sales and distribution personnel on relevant price-gouging laws;
- Make sure that any price increases are based on cost increases created by this emergency and document such increases in expenses; and
- Consult with experienced antitrust counsel on all of the above.
Agency Antitrust Guidance on Competitor Collaborations
Even the most aggressive federal agency enforcers recognize that companies may need to work together to develop and provide needed products and services to protect the health and safety of Americans. FTC and DOJ have issued a joint statement on permissive health- and safety-related collaborations among competitors during the COVID-19 pandemic, providing guidance on how businesses can respond to the pandemic’s fallout in an antitrust-compliant fashion and how the agencies may even be of assistance. The statement points to joint ventures among health care facilities and providers offering medical services to certain communities and businesses temporarily combining production and distribution networks for COVID-19-related supplies as examples.
For companies contemplating COVID-19-related joint ventures or other forms of collaboration, the statement offers the opportunity to obtain an expedited advisory opinion from FTC or business review letter from DOJ evaluating their proposed joint conduct. This opportunity is particularly significant because either agency can often take months to respond to such requests. The agencies intend to provide responses to COVID-19-related collaboration requests within seven calendar days.
Some companies have already successfully utilized DOJ’s expedited business review letter process. In their request for a business review letter from the DOJ, certain medical product suppliers and distributors proposed to join efforts to expedite and increase the manufacturing, sourcing and distribution of PPE and other medical supplies for health care providers and first responders under the direction of government agencies, such as Federal Emergency Management Agency (FEMA) and HHS. The proposed joint activities include providing guidance to the agencies on competitive prices for supplies and negotiating competitive prices through bilateral communications with FEMA. The companies committed to not use the collaboration to increase prices, reduce output or otherwise “engage in COVID-19 profiteering” and agreed to limit the collaboration to the time period necessary to “to assist FEMA and other government agencies in responding to COVID-19 shortages.”
The DOJ business review letter encouragingly confirmed it does not intend to challenge the requesting parties’ collaboration given what it described as the “exigent circumstances” of the pandemic. In its reasoning, DOJ pointed out the proposed collaboration’s focus on assisting the federal government’s response to the pandemic and the parties’ promise to limit the time period of collaboration. Other contributing factors to DOJ’s opinion included (1) representatives from the government agencies likely being present and involved in the collaboration’s discussions and meetings and (2) the companies representing that they would not share competitively sensitive information in discussions not involving government representatives.
Further emphasizing the role joint ventures can play in expanding capacity and product innovation for needed items, FTC and DOJ also commit to expeditiously processing filings made under the National Cooperative Research and Production Act (NCRPA). The NCRPA clarifies that joint ventures can enjoy more flexible treatment under antitrust laws and limits a joint venture’s exposure to potential antitrust monetary damages if it files a notification of its existence with the agencies and a notice identifying the joint venture is published in the Federal Register.
The agencies’ statement also reminds businesses of prior general guidance on the benefits and legality of certain collaborative activities among competitors. Those guidance materials emphasize, however, that companies should avoid sharing company-specific data on price and output. Specifically for the health care sector, guidance indicates that agencies typically will not challenge the joint development of practice parameters or joint purchasing arrangements by health care providers (GPOs). Additionally, those guidance materials comment that antitrust laws “generally permit private lobbying” by private industry groups to the federal government in line with the Noerr-Pennington Doctrine.
Key Takeaways for Businesses Considering Collaborative Activity to Address the Pandemic’s Health and Safety Concerns
- Carefully keep in mind antitrust compliance during each step of the planning process.
- Avoid sharing recent sensitive company-specific data on price and output.
- Refer to agencies’ guidelines on collaborative activity.
- Seek guidance from counsel with specialized knowledge and experience regarding antitrust and emerging COVID-19 laws.
- Consider taking advantage of FTC’s expedited advisory opinion process and DOJ’s expedited business review letter process.
The analysis in this primer continues in Part II, which focuses on FTC consumer protection efforts regarding advertising and marketing, as well as the likelihood of tagalong civil class actions.