COVID-19 and competition law: not just a groceries issue

27.03.20

There has been significant publicity around the UK Government's plan to loosen competition rules for supermarkets to allow them to co-ordinate their behaviour in ways that would otherwise be unlawful.

This is part of a wider strategy to mitigate the supply chain issues arising from the coronavirus outbreak, alongside regulatory adjustments to increase delivery capacity (such as loosening restrictions on driver hours and the hours that vehicles can operate) and measures in the UK Government's emergency Coronavirus Act requiring operators in the food supply chain to disclose information to governments that will help them identify and deal with supply chain problems.

Co-ordination between competitors is, under normal circumstances, prohibited because it tends to result in (and indeed is often meant to achieve) increased prices and a worse service for consumers, as well as reduced incentives to innovate and invest in improved processes and products.

However, these are not normal circumstances. Supermarkets will therefore be given a temporary exception from the usual rules in an attempt to minimise disruption to food supplies, so that agreements covered by the exception will not be a breach of competition law.

What has been less well-reported is that the Competition and Markets Authority has announced that it will not take enforcement action against cooperation between businesses or in relation to the rationing of products, even if it is a violation of competition law - if that cooperation or rationing is necessary to protect consumers.

 

On 25 March the CMA issued further guidance on the enforcement relaxation, which explained that the CMA will not take action against temporary coordination of activity that: 

•    is appropriate and necessary in order to avoid a shortage, or ensure security, of supply; 

•    is clearly in the public interest; 

•    contributes to the benefit or wellbeing of consumers; 

•    deals with critical issues that arise as a result of the pandemic; and 

•    lasts no longer than is necessary to deal with those issues.

 

The CMA's policy should by no means be regarded as a blank cheque for businesses to disregard competition law. In particular, it comes with two very significant caveats: 

•    the CMA has reserved its right to pursue retailers whose conduct is not necessary to respond to the crisis, including if the products affected are non-essential (and indeed it may well take a stricter line against any businesses that seek to use either the crisis itself or the CMA's reassurances as cover for non-essential unlawful activity); and"

•    the law will technically still apply to all businesses not covered by the legal exception to be given to supermarkets (i.e. the CMA does not have the power to disapply competition law, so can only give reassurance that it will not enforce it in certain circumstances). 

 

The first caveat means that, for example, businesses still cannot share longer term pricing or business strategies, as that is not necessary to meet the current needs. The second caveat means that customers or competitors who suffer a loss as a result of a competition law infringement can still bring damages actions in court, even if the breach in question was disregarded by the CMA because it helped respond to the crisis.

In addition, the CMA's policy does not bind the European Commission, which has jurisdiction over conduct that affects trade between EU Member States (including, during the Brexit transition period, the UK). 

 

The CMA's guidance also covers its approach to applying the general legal exemption that (broadly speaking) permits conduct where it benefits consumers and does not restrict competition any more than necessary. The guidance notes that co-ordinated actions will be most likely to benefit from that exemption if they:

•    avoid a shortage, or ensure security, of supply;

•    ensure a fair distribution of scarce products;

•    continue essential services; or

•    provide new services such as food delivery to vulnerable consumers,

as long as the co-ordination goes no further than can reasonably be considered necessary to achieve those outcomes.

 

The CMA has made clear that it will focus its attention on those sectors key to the crisis response, issuing an open letter to the pharmaceutical and food and drink industries warning firms against "seeking to capitalise on the current situation by charging unjustifiably high prices for essential goods or making misleading claims around their efficacy."

The letter also requested that businesses seeing price increases further up their own supply chains report those to a dedicated monitoring report line: covid.monitoring@cma.gov.uk. As well as its competition powers, the CMA can use its consumer protection powers to combat abuse.

Suspending or ignoring competition rules by definition runs against the CMA's raison d'etre, and it is eager to ensure the COVID-19 situation is not abused. It also has a difficult task in balancing the current emergency with medium term consequences for affected markets.

Once businesses have shared pricing information, commercial practices and market knowledge, they will not be able to 'unlearn' that information. Repeated interactions between competitors could also socialise bad habits that then continue post-crisis.

The CMA will therefore be very sensitive to any potential abuse of the current leniency, and is likely to want to make an example of any businesses who cross the line. It has announced the establishment of a task force to monitor market developments, and could itself seek emergency powers to combat abuse.

It may also take an even more aggressive line in its 'business as usual' enforcement activity once the immediate crisis has passed, to reaffirm the importance of compliance. 

The CMA has said it is willing to offer informal guidance about its enforcement priorities in genuinely uncertain cases, but it will expect parties to have taken their own advice first. Any businesses that are unclear on their competition law obligations and risks (either under these temporary policies or more generally) should therefore seek legal advice.