COVID-19: UK Competition Law Exemption for Dairy Industry Comes to an End

Morgan Lewis
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Morgan Lewis

The UK government’s Dairy Produce Order of May 1, 2020, which temporarily relaxed the application of UK competition law to certain types of cooperation in the dairy sector between dairy produce suppliers or dairy logistic service providers during the ongoing coronavirus (COVID-19) pandemic, expired on August 2, 2020. Accordingly, any relevant cooperation that may have briefly benefitted from the temporary exemption is once again subject to UK antitrust rules.

As we previously reported, the UK Parliament on May 1, 2020 adopted the Dairy Produce Order (Dairy Order), which temporarily excluded the application of the Chapter I prohibition of the UK Competition Act 1998 (CA98) against anticompetitive arrangements[1] to specific types of COVID-19-related cooperation in the dairy sector. As a result, dairy produce suppliers and dairy logistics service providers, respectively, were able to collaborate—for a limited period—by, for example, collecting and sharing information on limited matters, such as surplus milk quantities and stock levels, to address supply chain issues caused by COVID-19.

In order to benefit from the exemption, the relevant agreements first had to be notified to the Secretary of State. According to the UK Department for Business, Energy and Industrial Strategy’s register of agreements relating to competition exclusion orders related to COVID-19 (BEIS Register), only two agreements were notified in the period up to and including August 2, 2020. In both cases, the notification was submitted by Dairy UK, a UK trade association for operators in the dairy processing sector, and related to surveys on forecast milk disposals and spare capacity used to monitor industry progress and observe potential unused industry capacity to absorb milk from the “out of home” segment, where demand plummeted during the temporary closure of restaurants, cafes, and pubs.

The Dairy Order expired on August 2. As a result, any agreements or practices in the dairy sector that may have benefitted from the temporary relaxation of the prohibition against anticompetitive arrangements are once again subject to the Chapter I prohibition. This means that if any such cooperative practices continue beyond August 2, 2020 and are found to infringe Chapter I, the relevant parties (including, potentially, individuals) will be at risk of significant sanctions.

In particular, companies and/or trade associations found to have breached Chapter I may face fines of up to 10% of their worldwide group turnover, while individuals could face disqualification from serving as a director for a period of up to 15 years. It is also a criminal offense for an individual to participate in bid rigging, price fixing, market or customer sharing, or the limitation of output or supply. Participation in such cartel arrangements may give rise to the imposition of a five-year prison sentence, unlimited fines, or both, for an individual, and disqualification from serving as a director for a period of up to 15 years.

CONTINUED MEASURES TO SUPPORT DAIRY AND GROCERY SECTORS

Following the United Kingdom’s departure from the European Union on January 31, 2020 (Brexit), EU rules continue to apply in the United Kingdom until the end of the Brexit transition period on December 31, 2020 (unless extended). During the transition period, the expiration of the Dairy Order does not affect the measures adopted by the European Commission to support the dairy industry, by allowing EU producers to collectively plan milk production, which are currently set to remain in effect until November 2020. For further information on these measures, see our LawFlash, COVID-19: EU Relaxes Competition Rules for Cooperation in the Dairy, Potato, and Flower Sectors.

Similarly, the UK Groceries Order, which has applied in the grocery sector during the COVID-19 “groceries disruption period” as of March 1, 2020, will continue to remain in effect until it is suspended by the Secretary of State.

The Groceries Order has temporarily relaxed the application of the Chapter I prohibition in the grocery sector to allow UK retailers to cooperate in order to help meet demand during the COVID-19 pandemic. The BEIS Register indicates that, as of August 2, 2020, 18 agreements between UK retailers were notified for exemption. The last applications, submitted in May 2020, concerned the proposed coordination in Northern Ireland between four UK retailers, among others, with a view to prioritizing deliveries and providing specific store opening times for vulnerable groups and key workers. Similar measures had already been adopted on a UK-wide basis in April. For more information on the Groceries Order, see our LawFlash, COVID-19: UK Temporarily Relaxes Antitrust Rules to Allow Supermarkets to Collaborate.

KEY TAKEAWAYS

In these uncertain times, businesses are likely to have many question regarding the types, nature, and scope of potential cooperation that may be tolerated under EU and UK antitrust rules. For example, as a number of exclusion orders and measures affecting different industries, with varied scope and time limits, are adopted on a national and/or EU level, businesses should ensure that any potential cooperation they may consider entering into is strictly limited in scope and duration to what is permissible, and, where relevant, is pre-notified and authorized by the relevant authority(ies).[2]

It is important that businesses ensure that their arrangements intended to address the COVID-19 pandemic comply with competition law and that they are appropriately documented so that they can be properly defended to the European Commission, national authorities, and/or in private litigation if necessary. If in doubt, businesses are advised to seek specialist legal advice.

 

[1] Chapter I prohibits arrangements between businesses that have as their object or effect the restriction, distortion, or prevention of competition within the United Kingdom or a substantial part of it, unless they can be shown to give rise to benefits to consumers that outweigh any restrictions on competition.

[2] For example, as we previously reported in our LawFlash, COVID-19: EU Issues Temporary Business Cooperation Framework and First ‘Comfort Letter’ in Almost 20 Years, in addition to providing antitrust guidance to companies cooperating in response to urgent COVID-19-related matters, particularly in the health sector for critical hospital medicines and medical equipment, the European Commission has also exceptionally issued a “comfort letter” for the first time in almost 20 years on a cooperation project in the generic pharmaceuticals sector. A comfort letter provides individual exemption from the application of Article 101 of the Treaty on the Functioning of the European Union on anticompetitive arrangements. In its guidance, the European Commission also indicated that other ad hoc “comfort letters” may follow at its discretion. For more information on this, please refer to our LawFlash.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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