Increased leeway for horizontal and vertical co-operation in the EU

By Morten Nissen

04-2020

Competition rules are aimed at safeguarding healthy competition between companies. For more than half a century the EU and its Member States have vigorously defended effective competition by pursuing and sanctioning anti-competitive agreements, abuses of dominant positions as well as by limiting distortive public subsidies (State aid). The rules are broad and mostly based on case law and interpretative guidelines. Application of the rules are, except for the State aid rules where the EU has exclusive jurisdiction, in most EU Member States entirely based on self-assessment where companies have to carry out their own analysis of the legality and risks involved when considering co-operation with competitors or business practices.

Luckily, the existing rules are broad enough to also cater for extraordinary times such as the COVID-19 crisis and both the EU as well as the network of European competition authorities (the European Competition Network – ECN) are now explicitly acknowledging that extraordinary times may require the types of co-operation normally caught and sanctioned by the competition rules. Depending on the exact circumstances, this could cover the following examples of co-operation:

  • retailers and food producers co-operate on how to manage stocks and/or distribution to ensure that food remains in shops and that vulnerable citizens can get supplies, including ensuring the supply and fair distribution of essential scarce products and services to all consumers.

  • logistics service providers cooperate in order to supply such essential scarce products.

  • co-operation to turn distributors' brick and mortar shops into online distribution centres.

  • joint utilisation of idle production capacity in the supply chain for the production of essential scarce products.

  • trade association members enter into agreements about flexible relationships with trade debtors.

The competition authorities are naturally also concerned about unjustified price increases and encourage manufacturers to impose maximum prices to curb unjustified price increases by their distributors.

To assist businesses, the EU and the ECN members have recently made it clear that they are prepared to, in practice, revert to the old clearance scheme for co-operation or practices abandoned 16 years ago to give companies legal certainty that they are not infringing competition rules when working together. This will allow companies worried about grey zones (for example going against the current guidelines on information exchange, agreeing on quotas or re-sale restrictions) to get speedy assessment of a contemplated cooperation or business practice. Many competition authorities have set up dedicated web-pages and email inboxes providing some (limited) guidance.

In order to facilitate a swift follow-up by the competition authorities, companies are asked to provide upfront as much detail as possible on the initiative, including: (i) the firm(s), product(s) or service(s) concerned; (ii) the scope and set-up of the cooperation; (iii) the aspects that may raise concerns under EU antitrust law; and (iv) the benefits that the co-operation seeks to achieve, and an explanation of why the co-operation is necessary and proportionate to achieve those benefits in the current circumstances.

In short, what the competition authorities are asking for is reminiscent of the notification system and it will be important that companies put together a solid dossier with sufficient information and analysis of possible competition issues, including an analysis of why the co-operation is either not caught by the competition rules or merits an exemption.

Should companies forge ahead and infringe the rules, the competition authorities have also made it clear that they will be particularly vigilant towards collaborations that exploit the current serious situation. For example, it may be companies that co-ordinate prices, agree production restrictions, share markets or exchange business strategies, thus putting consumers or other companies in a more difficult situation. The same applies if a dominant company exploits the crisis to abuse its power over others, for example, by setting the price of critical products unreasonably high.

Such cases will be given investigative priority and it must be expected that sanctions will be very severe as exploitation of the crisis will likely be deemed an aggravating factor.

Tips:
  • If you have a need to co-operate with competitors or organise your distributors differently to, for example, avoid shortages or switch production to goods in high demand, and feel that certain of the terms are in a grey zone, you can contact either your local competition authority or, if an EU-wide issue covering a number of EU Member States, the European Commission's Directorate-General for Competition to obtain legal certainty.

  • You need to prepare the request carefully, providing full facts and competition law analysis.

  • Time spent in preparation will lead to speedier responses and more favourable outcomes.

  • The case handlers will be under significant pressure to act quickly so well-crafted applications will be looked at favourably.

  • Keep co-operation limited in time and scope to what's necessary to solve the challenges.

  • Price gouging will be monitored
    • Try to avoid unjustified price increases on scarce essential products.
    • Create internal documentation for why a price increase is necessary.

Last reviewed: 1 April 2020