The COVID-19 pandemic has threatened not only public health, but also economies around the world.
Many companies are exploring ways to cope, including considering whether to collaborate with competitors to introduce products and services addressing the pandemic.
However, even during times of crisis, competition laws remain in effect and can limit the strategies that companies can permissibly pursue. Multinational companies face particularly difficult challenges in ensuring compliance with the competition regimes of multiple jurisdictions while retaining the flexibility needed to address the pandemic’s impacts on their businesses.
To clarify their current approaches to antitrust enforcement, the US and the EU – among other jurisdictions – have recently ramped up their efforts to provide guidance to companies seeking to develop pro-competitive collaborations in the face of the unprecedented public health crisis.
On March 24, 2020, the United States’ two antitrust enforcement agencies, the Department of Justice (DOJ) and Federal Trade Commission (FTC), released a joint statement (PDF) announcing expedited procedures for companies seeking guidance about whether activities relating to the COVID-19 pandemic comply with federal antitrust laws.
In their statement, the US agencies recognized the need for “unprecedented cooperation” among private companies to respond to the pandemic. They also reminded companies of two existing principles relating to collaboration among competitors—namely, some collaborations may proceed without the specific guidance from the agencies, and others are unlawful regardless of the COVID-19 crisis.
The DOJ and the FTC have long followed similar processes for providing guidance to companies about whether proposed conduct would comply with US antitrust law. Those processes result in issuance of a business review letter from the DOJ or an advisory opinion from the FTC, typically several months after companies have submitted all information requested by the agencies.
With their joint statement, the DOJ and FTC have now announced their intention to significantly accelerate their review of requests related to COVID-19, aiming to respond within just seven calendar days of receiving the necessary information.
Each agency has laid out its procedures for accepting and responding to requests for expedited guidance as addenda to their joint statement. The DOJ’s procedures can be found on the DOJ website, and the FTC’s procedures can be found on the FTC website (PDF).
Notably, the procedures are substantially the same, and to qualify for expedited treatment, companies must submit the following information:
- an explanation of how the proposed collaboration is related to COVID-19;
- the product(s) and/or service(s) concerned;
- the temporal and geographic scope of the collaboration;
- the proposed contractual or other arrangements among the parties;
- the names of major expected customers; and
- available information regarding the competitive significance of other providers of the product(s) and/or service(s) concerned.
The agencies’ responses will be effective for one year but can be reiterated under the expedited procedures if additional time is needed to respond to the pandemic and its aftermath.
The DOJ issued its first business review letter under the new procedures (PDF) on April 4, 2020. That letter states that the DOJ has no present intention of challenging collaborative activities of medical supply distributors working together and with the US government to address shortages of personal protective equipment (PPE), laboratory supplies, and medication.
Among other things, the collaboration includes Project Airbridge, an initiative already underway to organize a series of flights to bring large quantities of medical supplies to the US to help fight COVID-19.
In analyzing the collaboration, the DOJ emphasized that “[a]ddressing potential disruptions to global PPE supply is central to the U.S. Government’s effort to save American lives and livelihoods from the destructive effects of COVID-19.”
The DOJ concluded that some aspects of the collaboration would not be subject to antitrust scrutiny because they were conducted pursuant to agreements with federal agencies that directed and supervised the conduct. Other aspects would not be challenged because they were undertaken at the request of a federal agency, directed by that agency, and in furtherance of the agency’s defined policy goals to address a national emergency.
Still other aspects of the collaboration did not involve the federal government, but the DOJ nevertheless determined that their pro-competitive aspects “far outweigh any potential harm” because the proposed conduct was limited in scope and duration, necessary to address COVID-19-related scarcity, and would not extend beyond what is required to facilitate the availability of needed supplies.
In addition to announcing procedures for obtaining expedited guidance, the agencies’ joint statement also highlighted prior policy statements recognizing that many types of collaborative activities to improve the health and safety response to the pandemic would be consistent with US antitrust laws.
Examples include research and development collaborations, the sharing of technical know-how, health practitioners’ development of suggested practice parameters, joint purchasing arrangements among health care providers, and private lobbying addressed to the use of federal emergency authority.
More generally, the joint statement signaled that the DOJ and the FTC may be open to relaxing strict application of usual antitrust rules to account for exigent circumstances in responding to COVID-19. However, their flexibility may extend only to collaborations that are limited in duration and necessary to provide products or services that might not otherwise be available.
Finally, the joint statement recognized that, although crises bring out the best in many, there are others who may use them as an opportunity to subvert competition and that the DOJ and the FTC stand ready to pursue both civil and criminal violations of the antitrust laws.
The DOJ also has separately indicated that it will be especially vigilant in detecting and prosecuting collusion among companies that provide COVID-19-related products to federal, state, and local government agencies. Additionally, both agencies committed to use the full range of their enforcement authority to investigate fraudulent and deceptive activity that does not violate antitrust law.
While greater transparency is always welcome, it is important to note that the DOJ and the FTC are not the only antitrust enforcers in the US. State attorneys general and private litigants can also bring cases, including class actions, challenging competitor collaborations.
Companies should remain attentive to these potential risks even when federal enforcers indicate that they have no intention of challenging a particular collaboration.
On April 8, 2020, the European Commission published its Temporary Framework communication (PDF) to provide further guidance to companies seeking to co-operate as a result of the COVID-19 crisis.
This communication follows the European Competition Network’s (ECN's) statement (PDF) that regulators forming part of the ECN “will not actively intervene against necessary and temporary measures put in place in order to avoid a shortage of supply” (see our previous blog entry) and the Commission’s roll out of a dedicated antitrust rules and coronavirus website.
The communication and the coronavirus website both emphasize that the Commission will approach the turbulence caused by COVID-19 not by amending the existing antitrust framework, but rather by using its discretion under existing law. The communication addresses co-operation between companies that aim to ensure the adequate supply and distribution of essential products and services that have become scarce due to the crisis, in particular, medication and medical equipment, such as PPE.
To address critical supply shortages, the Commission has acknowledged that it may be necessary for companies to exchange commercially sensitive information. Those exchanges could include discussion of sales, inventories, and production increases, as well as allocation of production capacity at certain sites to particular medications.
Such co-ordination and information exchange could be problematic under ordinary circumstances. However, the Commission has committed to assessing carefully whether such measures to address the unique challenges triggered by COVID-19 are compatible with antitrust laws, such that limited exceptions to the laws are appropriate under the circumstances.
The Commission has explained that it will assess whether competitor collaborations are:
- 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;
- temporary in nature; and
- do not extend beyond the scope of what is strictly necessary to achieve the objective of addressing or avoiding the shortage of supply.
Companies uncertain about the antitrust compatibility of envisaged collaboration but requiring swift implementation “in order to effectively tackle the coronavirus pandemic” are invited to seek guidance from the Commission.
The Commission has not committed to a specific time frame for providing guidance but asks companies “in order to facilitate a swift follow-up” to provide as much information as possible about:
- the parties;
- the product(s) and/or service(s) concerned;
- the scope / set-up of the co-operation;
- the aspects that may raise concerns under EU antitrust law;
- 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 under the current circumstances.
Furthermore, the Commission has indicated that entrusting a trade association (or an independent third party) with, for example, the co-ordination of joint transportation of materials or the prediction of supply gaps, does not raise concerns, provided that there is no exchange of company-level information among competitors.
In order to provide companies with certainty as to the legality of specific proposed collaborations, the Commission has resuscitated the “comfort letter” (which had been put to rest in 2003). The Commission “stands ready” to issue a comfort letter – the European analog to the US business review letter or advisory opinion – to companies under these exceptional circumstances and at its own discretion.
In fact, the Commission indicated in its announcement that it will issue a comfort letter to generic drug makers seeking to collaborate in the supply of medication to hospitals for patients with COVID-19.
This additional guidance is certainly a welcome signal to companies in these challenging times, but it should not be mistaken for a carte blanche for all kinds of competitor collaborations. Indeed, Commissioner Vestager recently said that “a crisis is not a shield against competition law enforcement.”
While collaboration to ensure sufficient supply of medication and food may be legal, the Commission would be even more vigilant than usual if companies – from small cartels in one member state to big tech – looked to profit illegally under cover of the COVID-19 crisis.
Harmonizing the US and EU approaches
There are a number of significant similarities between the approaches taken by the US agencies and the Commission.
They have all indicated that the analytical framework governing permissible collaboration has not changed, while also recognizing that the shocks to supply and demand caused by an unprecedented crisis cannot be ignored when assessing how any particular collaborative activity affects competition. This is reflected in their emphasis that exigent circumstances may suggest certain collaborations deserve what appears to be more lenient treatment in order to address pandemic-related supply shortages.
In addition, the US agencies and the Commission have all demonstrated that they are acutely aware that certain collaborations may be designed to subvert competition. The Commission explicitly stated that it will “continue to closely and actively monitor relevant market developments to detect instances of undertakings taking advantage of the current situation,” and the ECN statement further suggests that longer-term collaborative measures to address over-capacity caused by COVID-19 may well receive even closer scrutiny from regulators than in ordinary times. The DOJ and the FTC likewise emphasized that they remain committed to using the full scope of their enforcement powers to address attempts to restrain competition and harm consumers.
Between allowing the COVID-19 crisis to justify all types of competitor collaboration on the one hand and ignoring the need for some types of collaboration to combat the crisis on the other, it remains to be seen how, in practice, US and EU regulators will strike an appropriate balance. For example, they may take a more lenient view of collaboration in certain sectors with the greatest potential to directly address public health issues, such as those involving health care (e.g. joint production or distribution efforts) or transportation (e.g. exchange of information about capacities, fleet size, route utilization and timetables).
Indeed, the DOJ’s favorable business review of Project Airbridge and the Commission's favorable comfort letter for generic drug makers suggest that companies operating in sectors with obvious life-saving potential have the highest prospect of securing approval for their collaborations. Uncertainty remains for industries that are less closely connected to protecting public health.
In any case, if considering whether to collaborate with competitors to meet the challenges of the COVID-19 crisis, companies should think carefully about new avenues for obtaining guidance from antitrust agencies wherever they operate.
We will continue to keep you informed on how authorities are responding to the COVID-19 crisis. In the meantime, please visit Freshfields’ coronavirus alert hub, which contains resources relating to issues that may arise in numerous legal areas, including antitrust.
For further advice relating to any antitrust-related legal concerns you may have, please reach out to your usual Freshfields contact or one of the lawyers listed on the hub’s antitrust page.