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Coronavirus - CMA guidance on company cooperation - UK

  • United Kingdom
  • Coronavirus - Competition issues
  • Coronavirus - Country overview

30-03-2020

Executive summary

On 25 March 2020 the UK’s Competition & Markets Authority (“CMA”) published a 12 page guidance note on its approach to business cooperation in response to COVID-19.  This followed a series of shorter announcements by the CMA and other European authorities (see our briefings here and here) that they do not intend to intervene against companies cooperating to avoid support shortages, and will allow retailers to cooperate with each other to ensure continued food supply.

What does the guidance cover?

The CMA acknowledges upfront that businesses are assisting efforts to tackle the consequences of the pandemic and that this may involve coordination between competing businesses. The CMA has said it wants to reassure businesses that, provided that any such coordination 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.

The guidance then goes how to explain how the CMA intends to prioritise its work, before  providing its views on how it will apply the existing criteria for exemption from the rule on anticompetitive agreements.  Finally, the CMA makes clear that its acceptance that certain coordination is necessary does not mean that it will tolerate conduct which opportunistically seeks to exploit the crisis – guidance on when they will take enforcement action is given. 

Prioritisation of cases during the outbreak

The CMA’s 2020/2021 annual plan states that the CMA will focus on what matters to consumers so that its interventions deliver where most needed.  The CMA considers these principles to apply equally in the current crisis.

The CMA has confirmed that it will not take action where:

companies coordinate on a temporary basis to ensure the supply and fair distribution of scarce products and/or services affected by the crisis to all consumers; and those measures:

  • 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; and
  • last no longer than is necessary to deal with these critical issues.

The CMA also makes clear that businesses should not use these assurances from the CMA as a “free pass” to behave anticompetitively and the CMA “will not tolerate”  businesses exploiting the crisis to engage in “non-essential” collusion (for example: exchanging more sensitive information than is necessary to deal with the crisis; retailers excluding smaller competitors from cooperation initiatives; or abusing a dominant position to charge excessive prices).

The key factor for the CMA on whether enforcement is needed will be whether the coordination has the potential to harm consumers or the wider economy. Where the coordination is necessary, consumer harm is very unlikely, even if the coordination leads to a reduction in the range of products (this might be needed to avoid shortages for example).

Pricing of products/services essential for consumer health

Pricing is also a key issue, with the CMA stating that it is of the utmost importance that  products/services essential for consumer health in the current context (e.g. face masks) are not being priced above normal competitive levels, either through collusion between companies or, where a company has a dominant position, by unilaterally exploiting its dominance to charge excessive prices.  Once again the CMA reminded manufacturers that it is lawful for them set maximum prices at which retailers may resell their products, which may help avoid price-gouging.

Additional guidance on applying the criteria for exemption to the rule against anti-competitive agreements during the crisis

Under EU and UK competition law, agreements which meet all of the criteria set out below are exempt from the EU/UK rule prohibiting anticompetitive agreements:

(i) contribute to improving production/distribution, or promoting technical/economic progress (i.e. the agreement is efficiency enhancing);

(ii) allow consumers a fair share of the resulting benefit;

(iii) do not impose restrictions which are not indispensable to the attainment of these objectives; and

(iv) do not provide the possibility of eliminating competition in respect of a substantial part of the products/services in question.

However, it is not possible to obtain formal clearance from the CMA that an agreement has met the exemption criteria and companies must therefore undertake a “self-assessment” exercise (although, see below on the possibility of obtaining informal guidance from the CMA during the crisis).

To help companies self-assess their cooperation initiatives during the crisis, the CMA has offered the following specific guidance:

  • Cooperation that ensures essential goods and services can be made available to the public, or an important sub-set of the public (e.g. key workers) will be considered efficiency-enhancing;
  • If the cooperation avoids or reduces a significant shortage of a product, consumers will be likely to get a fair share of the benefits;
  • When considering if the coordination is indispensable, the key factor will be whether, in the circumstances and limited time available to consider alternatives, the cooperation can reasonably be considered necessary. The cooperation must also be temporary and must not go further than is needed to achieve the efficiencies;
  • Competition should remain between the cooperating companies to the greatest extent possible. For example, cooperation can be limited to specific products or geographic areas, or companies can share capacity information but still compete on price.

Another way of considering the criteria is that if the coordination achieves any of the following during the COVID-19 pandemic, and does not go further than what can reasonably be considered necessary, then it is unlikely to be problematic:

  • avoids a shortage, or ensures security, of supply;
  • ensures a fair distribution of scarce products;
  • continues essential services; or
  • provides new services such as food delivery to vulnerable consumers.

Concluding Note

The CMA has provided some practical and results-orientated guidance which will be a helpful tool for businesses when considering how best to coordinate with competitors for the good of consumers in the current crisis. However, the onus remains very much on the companies themselves when undertaking the analysis as to whether conduct that would ordinarily be a serious breach of competition law could be exempted in the current circumstances. The CMA has said that it may be able to offer informal guidance on a case-to-case basis but obviously this is resource dependant, which may be difficult in the pandemic context.

It is also important to note that whilst the CMA is offering reassurance that it will not take enforcement action against certain measures during the crisis, this is not to say that other competition authorities (such as the European Commission) would refrain from enforcement activity or that third parties affected by the conduct (e.g. competitors not party to the cooperation) would not bring claims in court for damages.  Accordingly, as the CMA itself acknowledges in the guidance, companies seeking to cooperate with competitors should seek legal advice to understand the full implications and risks of doing so.

Finally, the current crisis obviously presents a fast moving set of challenges to businesses and the CMA’s responses will necessarily evolve over time.  There is certainly the possibility of further guidance or sector specific relaxations of the rules (for example, the suspension of the competition rules for Isle of Wight ferry services operators).  Companies will need to keep a close eye on announcements and updates for the latest position.

<!--[if !supportLists]-->1.               <!--[endif]-->Executive summary

<!--[if !supportLists]-->1.1             <!--[endif]-->On 25 March 2020 the UK’s Competition & Markets Authority (“CMA”) published a 12 page guidance note on its approach to business cooperation in response to COVID-19.  This followed a series of shorter announcements by the CMA and other European authorities (see our briefings here and here) that they do not intend to intervene against companies cooperating to avoid support shortages, and will allow retailers to cooperate with each other to ensure continued food supply.

<!--[if !supportLists]-->2.               <!--[endif]-->What does the guidance cover?

<!--[if !supportLists]-->2.1             <!--[endif]-->The CMA acknowledges upfront that businesses are assisting efforts to tackle the consequences of the pandemic and that this may involve coordination between competing businesses. The CMA has said it wants to reassure businesses that, provided that any such coordination 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.

<!--[if !supportLists]-->2.2             <!--[endif]-->The guidance then goes how to explain how the CMA intends to prioritise its work, before  providing its views on how it will apply the existing criteria for exemption from the rule on anticompetitive agreements.  Finally, the CMA makes clear that its acceptance that certain coordination is necessary does not mean that it will tolerate conduct which opportunistically seeks to exploit the crisis – guidance on when they will take enforcement action is given. 

<!--[if !supportLists]-->3.               <!--[endif]-->Prioritisation of cases during the outbreak

<!--[if !supportLists]-->3.1             <!--[endif]-->The CMA’s 2020/2021 annual plan states that the CMA will focus on what matters to consumers so that its interventions deliver where most needed.  The CMA considers these principles to apply equally in the current crisis.

<!--[if !supportLists]-->3.2             <!--[endif]-->The CMA has confirmed that it will not take action where:

<!--[if !supportLists]-->3.2.1            <!--[endif]-->companies coordinate on a temporary basis to ensure the supply and fair distribution of scarce products and/or services affected by the crisis to all consumers; and those measures:

<!--[if !supportLists]-->3.2.1.1              <!--[endif]-->are appropriate and necessary in order to avoid a shortage, or ensure security, of supply;

<!--[if !supportLists]-->3.2.1.2              <!--[endif]-->are clearly in the public interest;

<!--[if !supportLists]-->3.2.1.3              <!--[endif]-->contribute to the benefit or wellbeing of consumers;

<!--[if !supportLists]-->3.2.1.4              <!--[endif]-->deal with critical issues that arise as a result of the COVID-19 pandemic; and

<!--[if !supportLists]-->3.2.1.5              <!--[endif]-->last no longer than is necessary to deal with these critical issues.

<!--[if !supportLists]-->3.3             <!--[endif]-->The CMA also makes clear that businesses should not use these assurances from the CMA as a “free pass” to behave anticompetitively and the CMA “will not tolerate  businesses exploiting the crisis to engage in “non-essential” collusion (for example: exchanging more sensitive information than is necessary to deal with the crisis; retailers excluding smaller competitors from cooperation initiatives; or abusing a dominant position to charge excessive prices).

<!--[if !supportLists]-->3.4             <!--[endif]-->The key factor for the CMA on whether enforcement is needed will be whether the coordination has the potential to harm consumers or the wider economy. Where the coordination is necessary, consumer harm is very unlikely, even if the coordination leads to a reduction in the range of products (this might be needed to avoid shortages for example).

<!--[if !supportLists]-->4.               <!--[endif]-->Pricing of products/services essential for consumer health

<!--[if !supportLists]-->4.1             <!--[endif]-->Pricing is also a key issue, with the CMA stating that it is of the utmost importance that  products/services essential for consumer health in the current context (e.g. face masks) are not being priced above normal competitive levels, either through collusion between companies or, where a company has a dominant position, by unilaterally exploiting its dominance to charge excessive prices.  Once again the CMA reminded manufacturers that it is lawful for them set maximum prices at which retailers may resell their products, which may help avoid price-gouging.

<!--[if !supportLists]-->5.               <!--[endif]-->Additional guidance on applying the criteria for exemption to the rule against anti-competitive agreements during the crisis

<!--[if !supportLists]-->5.1             <!--[endif]-->Under EU and UK competition law, agreements which meet all of the criteria set out below are exempt from the EU/UK rule prohibiting anticompetitive agreements:

<!--[if !supportLists]-->(i)            <!--[endif]-->contribute to improving production/distribution, or promoting technical/economic progress (i.e. the agreement is efficiency enhancing);

<!--[if !supportLists]-->(ii)           <!--[endif]-->allow consumers a fair share of the resulting benefit;

<!--[if !supportLists]-->(iii)         <!--[endif]-->do not impose restrictions which are not indispensable to the attainment of these objectives; and

<!--[if !supportLists]-->(iv)         <!--[endif]-->do not provide the possibility of eliminating competition in respect of a substantial part of the products/services in question.

<!--[if !supportLists]-->5.2             <!--[endif]-->However, it is not possible to obtain formal clearance from the CMA that an agreement has met the exemption criteria and companies must therefore undertake a “self-assessment” exercise (although, see below on the possibility of obtaining informal guidance from the CMA during the crisis).

<!--[if !supportLists]-->5.3             <!--[endif]-->To help companies self-assess their cooperation initiatives during the crisis, the CMA has offered the following specific guidance:

<!--[if !supportLists]-->5.3.1            <!--[endif]-->Cooperation that ensures essential goods and services can be made available to the public, or an important sub-set of the public (e.g. key workers) will be considered efficiency-enhancing;

<!--[if !supportLists]-->5.3.2            <!--[endif]-->If the cooperation avoids or reduces a significant shortage of a product, consumers will be likely to get a fair share of the benefits;

<!--[if !supportLists]-->5.3.3            <!--[endif]-->When considering if the coordination is indispensable, the key factor will be whether, in the circumstances and limited time available to consider alternatives, the cooperation can reasonably be considered necessary. The cooperation must also be temporary and must not go further than is needed to achieve the efficiencies;

<!--[if !supportLists]-->5.3.4            <!--[endif]-->Competition should remain between the cooperating companies to the greatest extent possible. For example, cooperation can be limited to specific products or geographic areas, or companies can share capacity information but still compete on price.

<!--[if !supportLists]-->5.4             <!--[endif]-->Another way of considering the criteria is that if the coordination achieves any of the following during the COVID-19 pandemic, and does not go further than what can reasonably be considered necessary, then it is unlikely to be problematic:

<!--[if !supportLists]-->5.4.1            <!--[endif]-->avoids a shortage, or ensures security, of supply;

<!--[if !supportLists]-->5.4.2            <!--[endif]-->ensures a fair distribution of scarce products;

<!--[if !supportLists]-->5.4.3            <!--[endif]-->continues essential services; or

<!--[if !supportLists]-->5.4.4            <!--[endif]-->provides new services such as food delivery to vulnerable consumers.

<!--[if !supportLists]-->6.               <!--[endif]-->Concluding Note

<!--[if !supportLists]-->6.1             <!--[endif]-->The CMA has provided some practical and results-orientated guidance which will be a helpful tool for businesses when considering how best to coordinate with competitors for the good of consumers in the current crisis. However, the onus remains very much on the companies themselves when undertaking the analysis as to whether conduct that would ordinarily be a serious breach of competition law could be exempted in the current circumstances. The CMA has said that it may be able to offer informal guidance on a case-to-case basis but obviously this is resource dependant, which may be difficult in the pandemic context.

<!--[if !supportLists]-->6.2             <!--[endif]-->It is also important to note that whilst the CMA is offering reassurance that it will not take enforcement action against certain measures during the crisis, this is not to say that other competition authorities (such as the European Commission) would refrain from enforcement activity or that third parties affected by the conduct (e.g. competitors not party to the cooperation) would not bring claims in court for damages.  Accordingly, as the CMA itself acknowledges in the guidance, companies seeking to cooperate with competitors should seek legal advice to understand the full implications and risks of doing so.

<!--[if !supportLists]-->6.3             <!--[endif]-->Finally, the current crisis obviously presents a fast moving set of challenges to businesses and the CMA’s responses will necessarily evolve over time.  There is certainly the possibility of further guidance or sector specific relaxations of the rules (for example, the suspension of the competition rules for Isle of Wight ferry services operators).  Companies will need to keep a close eye on announcements and updates for the latest position.