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COVID-19 and the application of EU/UK competition law

Posted on 24 March 2020

This article was last updated on 25 March

The difficult and uncertain times facing most businesses as a result of the COVID-19 pandemic bring serious challenges to many companies.

The Competition Authorities in the UK and EU are reacting to these unprecedented times and recognising that the strict application of competition law rules will, in some cases, need to be relaxed. However, the Authorities are also recognising that due to increases in consumer demand for certain products and services, there is a risk that consumers (particularly vulnerable consumers) and businesses could be exploited.

Businesses should be aware of the changes to competition authorities' focus as a result of the pandemic, and consider whether this may have any impact on their current strategy and/or they can apply for Government support.

State aid

Companies facing difficult circumstances should consider whether it may be possible to secure Government support to help see them through.

Both the UK and the EU have recognised that significant Government assistance will be required to protect both the population and the economy during this period. As a result, state aid rules are being relaxed significantly.

The grants of aid are still subject to conditions and requirements as to both eligibility and how the recipient uses any state support. It will therefore be vital that any business that receives such support keeps clear and detailed records of what they have received, and how they have complied. This is likely to be particularly important for any aid obtained from the UK Government, as although the UK is acting independently of the EU, during the transition period the UK remains subject to EU state aid rules. As a result, there is a risk that the EU may later deem the UK to have overstepped the limitations of the EU rules (even where they may have also been relaxed), and require it to recover some portion of the aid provided. If this is the case, aid is recoverable from the recipient beneficiary. We highlight below some of the latest measures to have recently been adopted in the EU and UK. 

EU Adjustments to State Aid Rules

In recognition of the global shock to the economy that the COVID-19 pandemic has created, the European Commission has adopted a Temporary Framework to enable Member States to grant aid to businesses to support the economy. In summary Commission's Framework will permit Member States to grant the following types of aid (subject to specific additional rules):

  • Direct grants and selective tax advantages.
  • State guarantees for loans taken by companies from banks.
  • Subsidised interest rates for loans to companies.
  • Safeguards for banks that channel support to the real economy.

Within 48 hours of the announcement of the Temporary Framework, the Commission has already approved a number of aid packages proposed by countries including Denmark, France, Germany and Italy.

UK specific State Aid measures

At the time of writing, the UK has announced an unprecedented package of aid measures for all businesses.

A key element of the package is that the UK Government will pay 80% of wages for employees unable to work due to the coronavirus pandemic, up to £2,500 a month. It is unclear as to whether the UK government is providing this measure as a loan or grant, although business will be hoping it is the latter. In addition, the UK is operating an interest free Business Loan Scheme (available from 23 March), for 12 months, rather than the 6 months announced initially and a Tax Holiday for Businesses, where the UK Chancellor is deferring the next quarter of VAT payments for businesses.

However, as set out above, it should be noted that during the Transition Period the UK remains subject to the EU's rules on State Aid. The breadth and scope of the package unveiled by the UK appears to go well-beyond the Commission's proposals for lawful aid measures, giving rise to a risk that the EU may later challenge some of the measures put in place by the UK and require the UK to recover aid from its recipients.

Crisis cartels and anti-competitive agreements and conduct

In normal conditions, agreements between competitors in a market to coordinate their conduct, such as price fixing and customer or market sharing, are anathema to competition law and the regulators that enforce it. Such agreements are almost by definition likely to reduce competition within a market, and thus almost invariably fall foul of EU and UK competition law restrictions.

In extreme circumstances such as these even competition authorities recognise that it can be necessary for competitors to work together. Businesses can therefore expect a more permissive approach to cooperation, particular where they provide important goods or services that they would otherwise be unable to provide.

Equally, however, governments and competition authorities are live to the risk that businesses may seek to take advantage of the current disruption, and will be looking closely at how businesses are behaving when it comes to their sales practices and pricing.

As a result, businesses will need to be alive to the changing focus of competition authorities. Thought should be given both to ways in which businesses may be able to cooperate to limit the impact of the current pandemic, and to ensuring that any changes to pricing or sales practices can be readily justified.

Relaxation of competition regimes

On 19 March the UK Government announced a temporary relaxation of the competition rules as part of a package of measures to allow supermarkets to work together to feed the nation. The derogation is limited and only allows retailers to share data with each other on stock levels, cooperate to keep shops open, or share distribution depots and delivery vans. It would also allow retailers to pool staff with one another to help meet demand.

Similar positions are being adopted across the EU, for example, the Norwegian Government recently announced that two airlines will be permitted to coordinate their schedules in order to ensure a minimum service level for consumers

Increased focus on pricing and sales practices

On 20 March the CMA announced that it had launched a taskforce to scrutinise market developments and identify harmful sales and pricing practices as they emerge. The taskforce will:

  • Take enforcement action if there is evidence that firms may have breached competition or consumer protection law and they fail to respond to warnings.
  • Equip the CMA to advise the Government on emergency legislation if there are negative impacts which cannot be addressed through existing powers.
  • Enable the CMA to advise the Government on how to ensure competition law does not stand in the way of legitimate measures that protect public health and support the supply of essential goods and services.

The CMA also sent an open letter to the pharmaceutical and food and drink industries reminding them of the importance of compliance with competition and consumer protection law and the importance of maintaining consumer trust at this time.

Update from 25 March: On 25 March during Prime Minister's Question Time, Boris Johnson suggested that further legislation may be needed to tackle profiteering. Given the emphasis by the CMA and the Prime Minister it is clear that there are likely to be further developments around pricing of products which will perhaps also cover issues relating to individuals/small businesses re-selling consumer goods on platforms such as eBay and Amazon, who are also coming under scrutiny to do more to curtail profiteering on their platforms.

With some conflicting messaging around competition and consumer protection law compliance during this COVID-19 crisis, it is essential that businesses wishing to react to the crisis in a way which might ordinarily be likely to infringe competition law, seek further legal guidance.  It is clear that the current difficulties facing the global economy will undoubtedly lead to novel circumstances and challenges arising across a range of markets, and it is likely that the Authorities will need to take a more permissive approach to analysing the conduct of businesses as a result – particularly where such conduct ultimately benefits consumers/society. However, for businesses that get it wrong at this time they are likely to face swift (and public) sanctions from the CMA and other competition authorities, which could have a significant impact on reputation.

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