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Coronavirus – Commission issues competition framework for co-ordination of essential scarce products - Europe

  • Europe
  • Competition, EU and Trade
  • Coronavirus - Competition issues
  • Other
  • Health and life sciences

09-04-2020

Executive summary

On 8 April 2020, the European Commission issued a Temporary Framework Communication enabling it to: issue “comfort letters” in respect of specific temporary competitor co-ordination projects; and explain the criteria it will apply when assessing whether or not temporary co-operation between competitors during the Coronavirus crisis can be exempted from, or falls foul of, EU competition rules. 

The Communication is in respect of co-operation to ensure the supply and adequate distribution of essential scarce products and services during the pandemic. Examples of the essential scarce products and services covered by the Communication include medicines and medical equipment that are used to test and treat COVID-19 patients or are necessary to mitigate and possibly overcome the outbreak.

The Commission has used the comfort letter procedure for the first time today, writing to the “Medicines for Europe” association in respect of a co-operation project among pharmaceutical producers that seeks to reduce the risk of shortage of critical hospital medicines for the treatment of coronavirus patients.

This follows a series of press releases by the Commission and a number of National Competition Authorities over the last few weeks (see for example here) in which they have explicitly recognised that the current crisis may trigger the need for companies to cooperate in order to ensure the fair supply and distribution of scarce products to all consumers, and have offered to provide guidance.

Guidance on co-operation

The Commission has explained that it is aware of ongoing co-operation in the health sector which does not raise antitrust concerns, and gives examples of where competitors are entrusting a third party (e.g. a trade association, independent advisor or public body) to:

  • coordinate joint transport for input materials;
  • contribute to identifying essential medicines for which there are risks of shortages;
  • aggregate production and capacity information, without exchanging individual company information;
  • work on a model to predict demand on a Member State level, and identifying supply gaps; and
  • share aggregate supply gap information, and request participating companies, on an individual basis and without sharing that information with competitors, to indicate whether they can fill the supply gap to meet demand (either through existing stocks or increase of production).

The Commission acknowledges that competitors may need to go further than the above examples to overcome critical supply shortages, including by coordinating to adapt production, stock management and, potentially, distribution in drug supply.  It is also acknowledged that this may require exchanges of commercially sensitive information and potentially co-ordination of which site produces which medicines, so that not all companies focus on one or a few medicines, while others remain in under-production. The Commission has stated that whilst this conduct would ordinarily be “problematic” under EU competition rules, in the current exceptional circumstances, they would either not be problematic or – in view of the emergency situation and temporary nature of the co-ordination –would not “give rise to an enforcement priority for the Commission”.  This would be the case where the co-ordination was:

(i) designed and objectively necessary to actually 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 (i.e. to be applied only as long there is a risk of shortage or in any event during the COVID-19 outbreak); and

(iii) not exceeding what is strictly necessary to achieve the objective of addressing or avoiding the shortage of supply.

Concluding Note

It is helpful that the Commission has provided examples of competitor co-ordination which, in its view does not (or in the case of the hypothetical examples it gives, would be unlikely to) raise antitrust concerns. These examples can help companies, and their advisers, assess the risk of any proposed collaboration and make adjustments to the scope of that co-operation as necessary before seeking informal guidance from the Commission.

It also helpful that it has now offered to provide written guidance to companies seeking to cooperate for the good of consumers in the current crisis. However, the Commission has made clear that it will only provide its guidance in writing in exceptional circumstances, and will generally prefer (where it has the resources to do so) to provide its informal guidance orally.  Additionally, given that any advice obtained through the mailbox is “informal”, and in any event applies only to EU, and not national competition law (which is enforced by the relevant Member State competition authorities) 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.

In this context it is important to note that whilst the Commission and various national competition authorities are offering informal guidance, and reassurance that they will not take enforcement action against certain measures during the crisis, this is not to say that third parties affected by the conduct would not bring claims in court for damages.  Accordingly, companies seeking to cooperate with competitors should seek legal advice to understand the full implications and risks of doing so.

In any event, care must be taken when approaching the Commission, or any other competition authority, for guidance in respect of how competition law may apply to a commercial initiative and it will be important for companies to seek legal advice from their external advisers as part of any such approach.

Finally, it is important to note that whilst various European competition authorities have offered to provide guidance, and/or have stated their intention not to actively enforce against necessary, temporary and proportionate co-operation measures in this context, the authorities have also strongly stated their intention to actively pursue companies taking advantage of the current crisis to engage in anticompetitive activity.  Indeed, some authorities have already initiated investigations (for example the Spanish authority which has opened investigations into the funeral and financial services sectors linked to conduct coming out of the corona virus crisis).  Again this underlines the importance of fully understanding the competition law risk before engaging in co-ordination with competitors.

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