Publications

06/05/2020

[COVID-19] Publication of a Communication from the European Commission setting out a “temporary framework” in regard to competition

Updated information, as of the date of publication of this article

Considering that the COVID-19 epidemic represents a “major and unprecedented shock to the world and EU economies“, the European Commission published on 8 April 2020 a Communication defining a “temporary framework” in regard to competition.

This document is applicable from 8 April 2020 and until further notice, the Commission indicating that it reserves the right to review it in light of the evolution of the epidemic.

The Commission states that there is “a general supply shockresulting from the disruption of supply chains, accompanied by an “asymmetric demand shock resulting either from a sharp fall in consumer demand for certain products and services or a sharp rise in demand for other products and services, in particular those in the health sector“.

In this context, the European Commission considers that companies may need to make use of different forms of cooperation.

The Communication states that “different forms of cooperation between companies” are likely to be “covered” in order to ensure the adequate supply and distribution of essential products and services whose availability is limited during the COVID-19 pandemic.

The European Commission specifically targets “medicines and medical equipment that are used to test and treat patients with COVID-19, or that are needed to mitigate or even overcome the pandemic“, and cooperation between “companies in the relevant sector to address this shortage“.

The European Commission also targets companies “from different sectors, without identifying these sectors. As an example, it cites the case in which some companies have to convert part of their production lines in order to start producing products with limited availability.

The main criteria used temporarily to (i) assess cooperation projects aimed at halting or avoiding shortages of essential products in the context of the COVID-19 epidemic and (ii) define its competition law enforcement priorities during this crisis

The Commission announces that in recent weeks it has received several requests for guidance from companies, in particular in the health sector, and indicates that the response to emergency situations related to COVID-19 may require different degrees of cooperation between companies, which could be potentially problematic under the law on anti-competitive practices.

The European Commission considers that certain approaches would not a priori be problematic under competition law rules: for example, entrusting a third party, such as a trade association, with the task of coordinating the common transport of raw materials or aggregating information on production and capacities, without exchanging individual company information.

However, it states that “cooperation in the health sector may need to be more extensive, in order to address critical supply shortages: for example, it aims at coordination for the reorganisation of production, stock management and distribution, including the exchange of commercially sensitive information. However, such exchanges and coordination are generally problematic under EU competition rules.

In these circumstances, the Commission announces that the measures would not be problematic under European competition law, or would not “constitute a priority for the Commission in its enforcement policy“:

  1. Conceived and objectively necessary to stop or avoid a shortage of essential products, such as those used to treat COVID-19 patients;
  2. Temporary, i.e. they would only apply as long as there is a risk of shortage or, in any case, during the COVID-19 pandemic. The Commission is of the opinion that the measures should be temporary, i.e. they would only apply as long as there is a risk of shortage or, in any case, during the COVID-19 pandemic. The Commission is of the opinion that the measures should be temporary;
  3. Limited to what is strictly necessary to stop the supply shortage or avoid it.

Furthermore, the Commission states that the position of the public authorities will also be taken into account in its analysis:

  • – The fact that cooperation is encouraged and/or coordinated by a public authority is identified as a “relevant factor” for the avoidance of competition law issues;
  • – Cooperation between companies in response to a mandatory government request in response to emergencies related to COVID-19 is announced as “authorized”.

Thus, the Commission informs companies of the criteria it uses in its analysis of the practices implemented during the crisis, without absolutely excluding the application of competition law. Operators therefore remain responsible for assessing the legality of their agreements and practices.

The temporary procedure set up on an exceptional basis to request written validation of ad hoc cooperation projects

In these circumstances, the Commission announces that it “stands ready” to provide guidance to companies on their ad hoc cooperation projects, exceptionally and at its discretion, by means of “administrative letters of ‘compatibility’ specially provided for this purpose“.

Businesses can thus contact the Commission to seek guidance on specific initiatives.

The Commission concludes by saying that it will “continue to closely and actively monitor” relevant market developments in order to identify cases where companies would take advantage of the current situation, either by infringing European antitrust law or by abusing their dominant position.

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As early as 8 April 2020, the Commission issued, within two days of receiving the case, a first comfort letter to Medicines for Europe concerning a cooperation project between pharmaceutical producers.

Under the terms of this administrative letter, which was posted online on 28 April 2020, the Commission states in particular that:

  • – The request was made by Medicines for Europe on behalf of its members, but also on behalf of other pharmaceutical manufacturers who are or may be in the future likely to participate in the cooperation.
  • – The application identified the need to increase very significantly the production capacity for the pharmaceuticals needed to treat patients with COVID-19, such as deep sedatives, neuromuscular blockers, potent analgesics, vasopressors, antibiotics and adjuvants.
  • – The cooperation described by Medicines of Europe concerns the implementation of cooperation by the manufacturers of these products to “model demand”, including identifying existing production capacity and stocks, adapting or reallocating production and stocks according to expected or actual demand.

Co-operation would involve coordinating the use of the industry’s production capacity throughout Europe and identifying ways of optimizing available resources.

Such coordination could involve the cross supply of active pharmaceutical ingredients and the joint identification of needs for production changes at certain sites to promote the production of certain medicines and/or increase capacity, so that not all companies would focus on one or certain medicines, while others would remain in under-production.

The cooperation described also provides for a continuous rebalancing and adjustment of capacity utilization, production and supply (including possibly distribution) in the event of under- or oversupply of medicines.

  • – The European Commission considers that the envisaged cooperation is not problematic under European competition law, in particular since Medicines for Europe has agreed to put in place the following safeguards:
  1. The cooperation will be open to any pharmaceutical manufacturer willing to participate.
  2. Minutes of all meetings will be drawn up and kept, and copies of any agreements concluded between companies in the framework of such cooperation will be forwarded to the Commission.
  3. Exchanges of confidential business information between manufacturers will be limited to what is necessary to achieve the objectives effectively. The Commission will make available to industry a forum for the exchange of sensitive information in so far as it is necessary to achieve these objectives. The Commission will also contribute to the work, with the participation of the European Agency for Medicines and Health Systems. Information from the companies will be collected either by the association itself or by a third party appointed by it and will be returned to the participating companies in aggregate form only.
  4. Cooperation will be limited in time, until the risk of shortages, including in the context of a possible second wave of the COVID-19 epidemic, is ruled out.

The European Commission clarifies that its comfort letter does not cover any price discussions or other coordination on issues that are not strictly necessary to effectively achieve the objectives set.

The participating companies will not have to increase their prices beyond what is justified by possible cost increases, this condition having been accepted by Medicines for Europe.

Finally, the Commission recalls that it will not tolerate any behavior consisting in seeking “opportunistically” to exploit the crisis to “cover up” non-essential collusion or any other anti-competitive behavior.

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In France, the Competition Authority has also indicated that it is prepared to “respond to requests for clarification in the current period” and to “provide as quickly as possible informal advice on the compatibility with competition law of any cooperation project submitted to it“.

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In this unprecedented context, companies may usefully turn to the competition authorities in order to assess a priori the lawfulness of the ad hoc approaches they are considering, given that the authorities remain vigilant with regard to companies that intend to take advantage of the situation in disregard of the competition rules.