As the supply chains and production processes of companies are significantly interrupted by the COVID-19 outbreak, which has been declared as a pandemic by the World Health Organization ("WHO") on March 11, 2020, companies try to find solutions in order to minimize the impacts of the pandemic on their businesses including cooperating with each other. Meanwhile, customers have been facing with price hikes particularly on pharmaceuticals, medical equipment and food.
Since the pandemic does not immunize entities from their obligations under the competition rules on its own, they are still - maybe even more - obliged to comply with such rules. At this point, competition authorities take some approaches in order to minimize the effects of the pandemic on the markets and customers. In this article, we will provide an overview of the responses of the competition authorities to the pandemic.
Price Increases Are Under the Close Scrutiny of Competition Watchdogs
Competition authorities are monitoring the price increase trends during the pandemic since there has been a dramatic increase in the prices of many products and customers are facing difficulties in getting access to such products. Several competition authorities1 established a special mailbox or other communication channels specifically allocated to the complaints about entities trying to exploit the pandemic.
Having observed unreasonable price increases on food markets, fresh fruits and vegetables markets in particular, Turkish Competition Authority ("TCA") made two announcements regarding such price increases and has warned the companies who kept marking up their prices during the pandemic.2 TCA has referred to its discretion on determining the amount of penalties by mentioning the highest applicable fine, i.e. 10% of annual turnover of companies, and stated that infringers will not only be fined to the highest extent possible, but also be exposed to the public.
In order to prevent price increases that are deemed "artificial" and other activities restricting competition (e.g. stockpiling), there are also some amendments brought into the Law on Regulation of Retail Trade. As per the amendments, entities excessively increasing prices or stockpiling will be subject to administrative fines up to TRY 500,000 (approx. EUR 65,000) and a newly established body, namely Unfair Price Assessment Board, will inspect such situations and impose the said administrative fines.
Similar actions of some of the competition authorities around the globe can be summarized as below:
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Austria |
Austrian Federal Competition Authority announced that it prioritises complaints about health products during the pandemic and will therefore look into each individual allegation of excessive prices, artificially induced scarcity of supply, cartel agreements or any other abuse of a dominant position in this regard.3 |
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Brazil |
Administrative Council for Economic Defence has launched an investigation in the medical-pharmaceutical market in order to determine whether entities are increasing prices and profits in an abusive way by exploiting the high demand during the pandemic.4 |
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China |
State Administration for Market Regulation ("SAMR") has provided guidelines on price raising conducts on February 1, 2020. As per the guidelines, the entities fabricating or distributing information on price increase, such as fictitious purchase costs, fictitious supply of goods in the region or a surge in market demand, fictitious other entities have raised or are preparing to raise prices, of epidemic prevention products and people's livelihood commodities,using an urgent or induced language such as "seriously out of stock" to push up price expectations or stockpiling shall be subjected to administrative fines.5 SAMR also stated that it aims at handling of illegal conducts related to the pandemic as soon as possible. |
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Czechia |
Czech Competition Authority emphasized that the pandemic does not constitute an apology for violating competition rules and stated that it continues monitoring markets particularly in terms of hard-core cartels and prohibited exclusionary practices of dominant undertakings connected with critically essential goods and services, such as groceries, drugs and is ready for possible enforcement and punishment action against illegal distortion of competition.6 |
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EU |
On March 23, 2020, European Competition Network ("ECN")7, issued a joint statement on application of competition law during the COVID-19 crisis.8 In this Joint Statement, the ECN underlined the importance of ensuring that products considered essential to protect the health of the consumers in the current situation remain available at competitive prices and stated that it would not hesitate to take action against companies taking advantage of the current situation by cartelising or abusing their dominant position. In addition, it also emphasized that the existing rules allow manufacturers to set maximum prices for their products so that the latter could prove useful to limit unjustified price increase at the distribution level. |
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Hong Kong |
On March 27, 2020, Hong Kong Competition Commission issued a statement on application of the Competition Ordinance during the pandemic.9 Having revealed the ongoing challenges which the outbreak of COVID-19 poses to business operations and the supply of critical goods and services in Hong Kong, the Commission reinstated that the Competition Ordinance remains in full force and it will be vigilant in order to prevent any anti-competitive conduct. Most recently, the Commission has revised its Leniency Policy for Undertakings Engaged in Cartel Conduct and issued a new Leniency Policy for Individuals Involved in Cartel Conduct10, which one may argue that may be as a result of the aim of dealing with cartels more effectively, especially during this crisis time. |
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Norway |
Norwegian Competition Authority stated that there are indications that some businesses may exploit the situation by offering much needed and necessary products, e.g. face masks, at unreasonable prices and reminded that the Authority will use its powers under the Price Policy Act if necessary, although they are reluctant to do so for the sake of free competition.11 |
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Poland |
In response to the overpricing during the pandemic, Polish Competition Authority decided to appoint a special team within the Authority that will monitor prices as they have been notified some signals about the gross inflation of prices of certain food and hygiene products. The team will be monitoring prices in online shops as the Polish Trade Inspection Authority employees were assigned to monitor prices in physical stores, including retail chains.12 It is also important to note that the Authority stated that it would not preclude legal amendments to the special purpose act being drafted, which grants authority to penalise situations where the pandemic is exploited to inflate the prices of products. The Authority has also initiated proceedings against two wholesalers that terminated contracts with hospitals for supplying personal protective equipment allegedly in order to obtain significantly higher prices for products such as surgical masks.13 In the proceedings initiated, it will be examined whether the said wholesalers violated the competition law. The Authority also mentioned penal sanctions that may be imposed on the said entities under the Polish Penal Law due to causing a state of widespread danger to life or health. |
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Russian Federation |
Federal Antimonopoly Service ("FAS") stated that it pays special attention to highly important products during the crisis such as food and medical equipment and monitors prices for the said products on a daily basis, even including week-ends and established an operational headquarters to duly monitor the situation in the relevant product markets. In this regard, the FAS also carries out dawn raids in several regions, after one of which it revealed signs of a cartel among major suppliers of buckwheat (the cartel of the largest buckwheat producers.) It is worthy to note that the FAS has filed three cases on the grounds of cartel in the market of medical masks in various regions of the Russian Federation as a result of the said dawn raids.14 Having referred to the investigation launched by Udmurtia OFAS15 against some medical equipment suppliers on the allegation of price fixing for medical face masks, the FAS stated that if such conduct is caused by exploiting the crisis, there will not only be administrative fines for the entities but also criminal sanctions for their top-executives.16 Receiving complaints from retail chains and physical persons about the facts of reselling goods on e-commerce markets, the FAS sent a letter to the Association of Online Retailers advising to take into consideration factors that can create storage, panic buying, increase prices for the essential goods sold in e-commerce marketplaces.17 At the same time, it reveals that it cannot apply antimonopoly remedies to such economic entities, since the FAS intervention in price-setting by actors on unregulated markets is possible only if companies have the dominant position on the relevant markets and if market players enter into anticompetitive agreements or exercise anticompetitive actions, while recommending such e-commerce marketplace companies to come up with reasonable measures to prevent such conduct and adopt adequate measures that will not be qualified by the FAS as violating the norms of the antimonopoly law. In addition to the foregoing, the FAS is also closely studying cases of increasing prices for air tickets caused by air travel restrictions as a result of COVID-19 and monitoring the pricing of food delivery services in the where a regime of isolation of citizens has been introduced. Wholesale and retail prices for fuel and energy resources and the prices of construction materials are other prices that are regularly monitored by the FAS during the pandemic. |
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South Africa |
South African Competition Commission issued a media statement on April 23, 2020 regarding an investigation launched against a pharmaceutical wholesale distributor and retailer.18 The Commission stated that it established that the company rocketed its prices after the national state of disaster declared in South Africa and that it has asked the Competition Tribunal to impose a maximum penalty against the company. The Competition Commissioner also further announced that the Commission would spare no effort in protecting the consumer. |
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Spain |
On March 31, 2020, Spanish National Commission on Markets and Competition ("CNMC") introduced a special mailbox to centralize all complaints and queries related to the pandemic.19 As a result of the complaints, CNMC has launched several investigations into possible anti-competitive conducts in the markets for financial services, funeral services and the manufacture of products for health protection.20 |
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Sweden |
Swedish Competition Authority stated that it will prioritize the matters regarding overpricing during the pandemic.21 |
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Switzerland |
Swiss Competition Commission has warned companies that the pandemic would not justify the violation of the cartel law unless governments and authorities order measures that restrict competition to combat the pandemic.22 Having said that, it underlined that any intervention based on cartel law may only occur when illegal price agreements are concluded, or a company abuses its dominant position. |
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UK |
Competition and Markets Authority ("CMA") established a COVID-19 Taskforce which mainly scrutinizes market developments to identify harmful sales and pricing practices as they emerge, warn entities suspected of exploiting the pandemic and equip the CMA to advise government on emergency legislation if there are negative impacts for people which cannot be addressed through existing powers.23 The CMA further announced that it is considering any evidence that companies may have broken competition law during the pandemic and would take direct enforcement action in appropriate cases.24 In addition, the CMA stated that where it cannot act, it would advise government on further steps they could take, if necessary. It is also underlined that the CMA would assess whether it should advise government to consider taking direct action to regulate prices. Having received reports that some entities operating in pharmaceutical and food & beverage markets are seeking to capitalise on the pandemic, the CMA provided an open letter to such industries on March 20, 2020.25 In the said letter, the CMA particularly draws attention to the importance of these industries and warns the "bad apples" seeking to exploit the crisis. The CMA also urges the entities whose price rises may result from constraints further up the supply chain, which then may be unavoidable, to inform the CMA about any information relating to such price increases by wholesalers or suppliers, so that it could investigate these issues further up the supply chain. |
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US |
On March 24, 2020, Department of Justice ("DOJ") and Federal Trade Commission ("FTC") have jointly issued a statement regarding the pandemic.26 In this joint statement, it is underlined that the DOJ and the FTC are ready to pursue civil violations of the antitrust laws, which include agreements between individuals and business to restrain competition through increased prices, lower wages, decreased output, or reduced quality as well as efforts by monopolists to use their market power to engage in exclusionary conduct. Having revealed that it might be tempting, for example, for parties to urge the FTC to relax the rules in a time of crisis, the FTC noted that it would likely negatively affect the competition in long term and therefore it must stay the course during the pandemic.27 As the US has no federal law which directly prohibits price gouging, although many states in the US do so and federal law explicitly prohibits price fixing agreements, the FTC is also vigilant to false advertisement and consumer fraud. In this regard, FTC, solely and jointly with US Food and Drug Administration ("FDA")28, has sent more than 30 warning letters to entities allegedly violating federal law by making deceptive or scientifically unsupported claims about their products' ability to treat or cure coronavirus. |
How Do Competition Authorities Approach to Cooperation of Entities During the Pandemic?
As one of the "most unwelcome" conducts under the competition rules, anti-competitive collaborations between entities face no tolerance from competition authorities unless the existence of exceptional situations, e.g. in case such collaborations would have positive effects on public wealth outweighing its anti-competitive effects. However, given the current exceptional circumstances, some competition authorities have taken a "flexible" approach on considering such collaborations, particularly in the markets where there is a shortage of supply, during the pandemic whereas some competition authorities still remain silent in this regard. Having said that, even such approach should not be interpreted as a "blank cheque" for collaborations and entities should ensure that they still comply with applicable competition rules and instructions of the competent authorities. Actions of some of the competition authorities on this matter can be summarized as follows:
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Canada |
On April 8, 2020, Canada Competition Bureau issued a statement on competitor collaborations during the pandemic recognizing the possible need for rapid establishment of business collaborations within limited duration and scope to ensure the supply of critical products and services.29 The Bureau has assured that it will likely refrain from scrutinizing such collaborations provided that there is a clear imperative for entities to be collaborating in the short-term to respond to the pandemic and where those collaborations are undertaken and executed in good faith and limited to the necessary extent. The Bureau has also created a special team to evaluate proposed collaborations and advise the Commissioner of Competition regarding what informal guidance might be provided. |
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Denmark |
Having revealed that there may be areas where the problems caused by the pandemic cannot be solved by any means other than by joint action, Danish Competition and Consumer Agency underlined that such collaborations would most often not be problematic in terms of competition rules either because they do not restrict competition at all, or because they imply efficiency gains for consumers, exceeding the negative effects of a possible restriction of competition.30 It further stated that it would take into account whether such protection considerations exist through cooperation and whether there has been no other way around it and would not actively pursue cases of necessary and temporary co-operation pursuing such purposes. |
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EU |
In the Joint Statement of the ECN dated March 23, 202031, it is stated that the ECN will not actively intervene against necessary and temporary measures taken to avoid a shortage of supply under current circumstances. The EU Commission has also issued a Temporary Framework32 for assessing antitrust issues related to business cooperation under the crisis on April 8, 2020 where the Commission is stated that it is ready to provide guidance and comfort to undertakings or associations of undertakings in order to facilitate initiatives that need to be quickly implemented to effectively overcome the pandemic, in cases particularly where there may still be uncertainty about whether such initiatives are compatible with EU competition law. In this regard, it is further stated that the Commission stands ready, exceptionally and at its own discretion, to provide such guidance through an ad hoc "comfort" letter. It is also important to note that whereas exchanges of commercially sensitive information and a certain coordination of which site produces which medicines, so that not all undertakings focus on one or a few medicines, while others remain in under-production aiming at tackling the pandemic are in normal circumstances be problematic under EU competition rules, it is stated that such conduct would not be problematic under EU competition law or they would not give rise to an enforcement priority for the Commission, to the extent that such measures would be (i) designed and objectively necessary to increase output in the most efficient way to address or avoid a shortage of supply of essential products or services, such as those that are used to treat COVID-19 patients; (ii) temporary in nature and (iii) not exceeding what is strictly necessary to achieve the objective of addressing or avoiding the shortage of supply. Coordination that is coordinated or encouraged by a public authority, or carried out within a framework set up by the latter, would also be a relevant factor to be taken into account in assessing of the above matters. Most recently, the Commission issued three Commission Implementing Regulations and adopted derogations related to potatoes33, milk and milk products34 and live plants and flowers35 sectors by revealing the financial difficulties and cash-flow problems in these sectors arising from the pandemic. As per the derogations, the operators in these sectors are allowed to self-organise and apply market measures at their level to stabilise their sector and ensure the proper function of the internal markets for a period of six months. For instance, farmers, relevant associations and recognised organisations are authorised to conclude agreements and take common decisions concerning potatoes for processing on market withdrawals and free distribution, transformation and processing, storage, joint promotion and temporary planning of production. |
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Finland |
Finnish Competition and Consumer Authority ("FCCA") issued a press release36 on March 23, 2020 regarding the effects of the pandemic on the application of the Competition Act. In this release, the FCCA stated that it would take into account the exceptional circumstances caused by the coronavirus when applying the Competition Act. Furthermore, it revealed that companies may need to work together to ensure adequate supply or the equal distribution of products to all consumers and it would not intervene in measures that are necessary to ensure the sufficient availability of products. |
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France |
French Competition Authority has revealed that the pandemic leads to temporary cooperation movements between entities, in particular to guarantee the production and equitable distribution of basic necessities to all consumers, and that it supports such initiatives.37 The Authority also stated that it is ready to provide informal advice to entities on the compatibility of a cooperation project under competition law. |
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Hong Kong |
Hong Kong Competition Authority has revealed that there could be a need for additional cooperation between businesses in certain industries on a temporary basis, particularly to maintain the supply of essential goods and services to consumers, and that it intends to take a pragmatic approach in this regard.38 |
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Norway |
Norwegian government has granted the transportation sector a three months temporary exception from the prohibition against anticompetitive agreements and practices under the Norwegian Competition Act as of March 19, 2020 in order to maintain the transportation of passengers and goods.39 |
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Netherlands |
The Netherlands Authority for Consumers and Markets ("ACM") allowed health insurers to make collective arrangements to provide financial support to health care providers during the pandemic by ruling that such cooperation among health insurers is needed for continuing health care during and after the crisis.40 It further stated that ACM does its part by ensuring that markets continue to work well for people and businesses and the businesses are given room and have ACM's trust. |
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UK |
On March 19, 2020, in response to the UK government's announcement to relax some elements of competition law to help supermarkets work together, the CMA provided a reassurance to entities and stated that where agreements are not covered by that legal relaxation, it has no intention of taking competition law enforcement action against cooperation between businesses or rationing of products to the extent that this is necessary to protect consumers.41 The CMA has further published a detailed guidance on its approach to business cooperation in response to the pandemic on March 25, 202042. According to the said guidance, the CMA will not take enforcement action against such cooperation provided that the measures taken by businesses in this regard (i) are appropriate and necessary in order to avoid a shortage, or ensure security, of supply, (ii) are clearly in the public interest, (iii) contribute to the benefit or wellbeing of consumers, (iv) deal with critical issues that arise as a result of the pandemic, and (v) last no longer than is necessary to deal with these critical issues. The said guideline also sheds light on how the CMA will apply the legal criteria for exemptions43 under the specific circumstances of the pandemic. In this regard, it is stated the types of collaborations which (i) avoid a shortage, or ensure security, of supply, (ii) ensure a fair distribution of scarce products, (iii) continue essential services, or (iv) provide new services such as food delivery to vulnerable consumers, are unlikely to be problematic in terms of competition rules based on the exemption criteria, provided that they do not go further than what can reasonably be considered necessary. The Secretary of State also launched four public policy exclusion orders regarding the groceries44, Solent maritime crossings45 and health services for patients in Wales46 and England47 which allow the entities operating in these markets to cooperate and exchange information to some extent. |
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US |
In the Joint Statement of the DOJ and the FTC ("Agencies") dated March 24, 202048, it is stated that the Agencies provide entities responding to the crisis with expeditious guidance on how to ensure their efforts comply with the federal antitrust laws and aim to quickly respond to all COVID-19-related requests, and to resolve those addressing public health and safety within seven days as of receiving all necessary information. Having revealed that joint ventures may be necessary for businesses to bring goods to communities in need, to expand existing capacity, or to develop new products or services, it is further stated that the Agencies will also work to expeditiously process filings under the National Cooperative Research and Production Act (as amended by the Standards Development Organization Advancement Act) and that the Agencies will also consider challenging circumstances while evaluating efforts to address the spread of the pandemic. |
Procedural Changes and Merger Filings During the Pandemic
As the pandemic has affected daily life around the globe and led governments to take some emergency measures and lockdowns, competition authorities have implemented some measures in order to minimize the effects of the pandemic while preventing any loss of rights of both consumers and entities. To that end,
- Many competition authorities, including the EU Directorate-General for Competition, are working remotely and encourage online communications with them particularly regarding merger notifications. In this regard, some of them, established a special online notification address for merger filings.
- Some of the competition authorities either extended procedural deadlines including those set out for merger controls or suspended them due to the pandemic. Some of the authorities, e.g. Philippines Competition Commission49, even stated that the reglementary periods of payment for fines are also be deemed interrupted within this time.
However, competition authorities ensure that investigations will not be impeded, and they still stay sharp against any anti-competitive conduct, in particular those exploiting the crisis.
Conclusion
Although competition authorities still have no tolerance for cartels and are vigilant to price hikers exploiting the crisis, most of them recognize that the pandemic may cause a need for collaboration between entities in order to ensure the continuity of supply chains and enable consumers to reach highly important products during the crisis such as pharmaceuticals and food. To that end, some of the competition authorities have taken a more flexible approach to such cooperation. However, even such approach should not be interpreted by entities as a blank check and they still should ensure that they comply with competition rules of their jurisdiction. In this regard, we recommend entities to closely follow the statements and actions of the competent competition authorities in order not to face any inconveniences.
Footnotes
1. These include but are not limited to competition authorities of France, Russia, Spain and the UK.
2.https://www.rekabet.gov.tr/tr/Guncel/kamuoyuna-duyuru-3b18d865266dea11811700505694b4c6, https://www.rekabet.gov.tr/tr/Guncel/rekabet-kurumu-baskani-birol-kule-nin-ya 19def560896eea11811700505694b4c6
3.https://www.bwb.gv.at/en/news/detail/news/coronavirus_covid_19_and_its_impact_on_competition_law_in_austria_joint_statement_by_the_europea/
4. http://en.cade.gov.br/cade-has-launched-an-investigation-into-the-sector-of-medical-pharmaceutical-products
6.https://www.uohs.cz/en/competition/news-competition/2758-competition-law-enforcement-during-the-crisis-caused-by-covid-19-disease.html
7. ECN is a network through which the European Commission and competition authorities of EU member states exchange useful information on implementing competition rules.
9.https://www.compcomm.hk/en/media/press/files/20200327_PR_CC_issues_statement_on_application_of_CO_during_COVID19_outbreak_EN.pdf
15. Department of The Russian Federal Antimonopoly Service in the Udmurt Republic.
18.http://www.compcom.co.za/wp-content/uploads/2020/04/A-NATIONAL-PHARMACEUTICAL-WHOLESALE-DISTRIBUTOR-AND-RETAILER-CHARGED-FOR-INFALTING-PRICES-DURING-COVID-19-DISASTER-.pdf
22. https://www.weko.admin.ch/weko/fr/home/actualites/communiques-de-presse/nsb-news.msg-id-78586.html
24. https://www.gov.uk/government/news/covid-19-sales-and-pricing-practices-during-coronavirus-outbreak
25.https://www.gov.uk/government/publications/covid-19-cma-open-letter-to-pharmaceutical-and-food-and-drink-industries
26. https://www.ftc.gov/public-statements/2020/03/joint-ftc-doj-antitrust-statement-regarding-covid-19
27.https://www.ftc.gov/news-events/blogs/competition-matters/2020/04/antitrust-review-ftc-staying-course-during-uncertain
28. https://www.consumer.ftc.gov/blog/2020/03/ftc-fda-warnings-sent-sellers-scam-coronavirus-treatments
29.https://www.canada.ca/en/competition-bureau/news/2020/04/competition-bureau-statement-on-competitor-collaborations-during-the-covid-19-pandemic.html
30.https://www.kfst.dk/nyheder/kfst/nyheder/fakta/2020/20200323-meddelelse-fra-konkurrenceraadet-om-konkurrencereglerne-og-covid-19/
31. see footnote 8.
36. https://www.kkv.fi/en/current-issues/press-releases/2020/23.3.2020-exceptional-circumstances-caused-by-the-coronavirus-to-affect-the-application-of-the-competition-act/
38. see footnote 9.
39.https://konkurransetilsynet.no/transportation-sector-is-granted-temporary-exception-from-the-competition-act/?lang=en
40.https://www.acm.nl/en/publications/acm-health-insurers-are-allowed-give-health-care-providers-financial-support-collectively-during-coronavirus-crisis
42.https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/875468/COVID-19_guidance_-.pdf
43. Such exemption shall not apply to infringements by abusing of a dominant position.
48. see footnote 26.
49.https://phcc.gov.ph/comm-reso-no-010-2020-guidelines-on-the-interruption-reglementary-periods-action-filing-judgments-fines/
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