Covid-19 and relaxing competition law

• CA 1998 prohibits certain types of anti-competitive behaviour, including agreements between businesses that prevent, restrict or distort competition. This can, for example, include price-fixing, sharing pricing information and sharing markets.
• Paragraph 7 of schedule 3 of the CA 1998 provides a mechanism to allow the Secretary of State to exclude the Chapter 1 Prohibition (relating to agreements between businesses) for particular agreements or agreements of a certain description where there are exceptional and compelling reasons of public policy to do so.
• For instance, the COVID-19 outbreak has placed significant strain on the groceries supply chain in the UK and the government has announced that supermarkets will be able to work together in a variety of ways to maintain that supply. Similarly, the government has announced that it is temporarily suspending competition law to allow ferry operators in the Isle of Wight to work together and maintain a crucial lifeline between the island and the mainland during the COVID-19 outbreak.
• To date, these Orders have been rare and the Secretary of State has only made four such Orders in the last 20 years relating to warships, weapons and their supporting technology, nuclear submarines and the petroleum supply industry. It is therefore unusual to see this mechanism used widely. The Orders that have been published in light of the COVID-19 outbreak apply to critical industries such as healthcare and the cooperation that they are permitting are far reaching to an extent that they would in normal circumstances be viewed as hard-core infringements of competition law, such as market sharing.
• However, the CMA is conscious of concerns that competition law enforcement could hinder necessary co-operation between businesses to deal with the current crisis and ensure security of supplies of essential products and services and has acted swiftly.
• In many ways, the problems that the new arrangements are trying to address arise in normal times. Companies have, for some time now, argued that cooperation is essential to respond to climate change, or achieve step changes in sustainability, but the full application of competition law makes this difficult to achieve. Post crisis, it will be worth watching how far current experiences will inform government and regulatory responses to these longer term challenges.

• Each Order is specific and limited covering particular agreements, or types of agreements between particular parties in relation to a particular activity and goes no further than the permitted activity or purpose.
• Further, each Order is:
  • time limited; and
  • requires notification to the Secretary of State, so that use of the exclusion can be monitored.  

Scope of the exclusions to the Chapter I prohibition – who, what and why

For an agreement to be excluded from the prohibition, it needs to be:

• between two or more *parties (*as specified in each Order) 
• relate to a qualifying activity (as defined in each Order); and
• meet conditions (as defined in each Order).

Specified parties

Each SI specifies the category of parties to which it applies (e.g. two or more Solent crossing maritime operators).

Qualifying Activity

The SIs are specific to particular kinds of "qualifying activities" (as defined in each specific Order).  In the Orders to date, Government has sought to permit information sharing, market sharing, stock allocation and sharing of employees to ensure that crucial services can continue uninterrupted. 

The "qualifying activities" defined by Government for the Orders published in response to COVID-19 are detailed in the table below.

However, each Order states that a qualifying activity does not apply to the sharing of information regarding costs or pricing.

Conditions – setting out permitted purpose

The conditions require parties to operate within the permitted purpose of the Order. For example:

• the purpose of the agreement is to prevent or mitigate disruption to the provision of services caused by a reason relating to the coronavirus; and
• the agreement does not have as its object or effect the prevention, restriction or distortion of competition within the United Kingdom, except in relation to qualifying activities in a market for the provision of services affected by a disruption caused by a reason relating to coronavirus.

Time Limited

The SIs are time limited and apply only to the disruption period stated in each Order. 

The Orders state the date on which the disruption period commences and further, state that the disruption period ends on a date specified by the Secretary of State which must not be less than 28 days after the date the notice is published. In practice, the Order will be ended once it is clear that it is no longer needed to respond to the crisis.

Reporting Requirements

The Orders require notification of an agreement to be made to the Secretary of State within 14 days of the date on which the Order comes into force, or, if the agreement is made after the date of the Order, notification is to be made on the date on which the agreement is made.

The notification to the Secretary of State also requires details of:

• the names of the undertakings which are parties to the agreement;
• a description of the nature of the agreement; 
• the date the agreement was made; and,

if the agreement relates to the "Groceries" order, the "Health Services for Patients in England" order, the "Health Services for Patients in Wales" order or the "Dairy Produce" order, an additional reporting requirement is necessary:

• the "groceries" or "health services" or "dairy produce" to which it relates.

• The CMA published guidance on 25 March 2020 on its response to business cooperation in response to COVID-19[2]. The CMA set out the circumstances in which the CMA will not enforce competition law (at paragraph 2.3):

"The current extraordinary situation may trigger the need for companies to cooperate in order to ensure the supply and fair distribution of scarce products and/or services affected by the crisis to all consumers. Where temporary measures to coordinate action taken by businesses: 

(a) are appropriate and necessary in order to avoid a shortage, or ensure security, of supply; 

(b) are clearly in the public interest; 

(c) contribute to the benefit or wellbeing of consumers; 

(d) deal with critical issues that arise as a result of the COVID-19 pandemic; and 

(e) last no longer than is necessary to deal with these critical issues, the CMA will not take enforcement action."

• Businesses with any proposed arrangement or agreement should try to fit within this guidance and should be limited to only what is absolutely necessary to achieve consumer benefit. Essential businesses might consider an exemption from competition law when they are providing a key strategic product or service and where there is no option other than to do something which would otherwise be perceived a hardcore breach of competition law, such as market sharing.
• The CMA stated that the guidance only extends to the CMA's own decisions of what action to prioritise and "in applying this approach to enforcement during the current crisis, the key factor for the CMA will be the potential for the coordination to cause harm to consumers or to the wider economy"[3].

Click here to view the table in PDF >