EU relaxes the rules on horizontal cooperation during COVID-19 crisis

Following the joint statement of 23 March 2020 by the European Competition Network (ECN), consisting of the European Commission, the European Surveillance Authority and the national competition authorities of each EU/EEA Member States on the joint approach to the application of competition law during the coronavirus crisis, the European Commission (“Commission“) issued on 8 April 2020 a Temporary Framework Communication (“Communication“) providing a more comprehensive antitrust guidance to companies cooperating in response to the crisis.

The Communication is primarily intended for the health sector, as the Commission’s objective is to help the companies ensure stable supply of the critical hospital medicines used to treat coronavirus patients. However, the principles set out in the Communication may be applied to cooperation established to address supply emergencies resulting from the coronavirus outbreak with respect to other scarce essential goods and services outside the health sector. Therefore, the objective of the Communication is to set out the criteria which the Commission will use when assessing horizontal cooperation aimed at addressing these concerns, in order to facilitate such cooperation initiatives.

Criteria for assessment of horizontal cooperation

The Commission clarified what types of cooperation will receive the relaxed treatment during the crisis, by setting out a non-exhaustive list of examples of the activities which would, under normal circumstances, constitute prohibited restrictive agreement, while in these exceptional circumstances may be necessary in order to ensure the stability of supply. Such cooperation may include coordination on stock management and distribution, to prevent that all undertakings focus on one or few medicines, while others remain in under-production; a significant and rapid increase of production of the products that are in short supply followed by a reduction in the production of other products; exchange of information on sales and stocks needed for urgent reallocation of stocks; switching of production lines for some non-essential/non-shortage medicines (or other products) to medicines (or other products) necessary to address the outbreak, in order to increase production; or production of only one medicine at a certain site in order to further increase output more efficiently.

The Commission has apparently drawn inspiration on the type of cooperation that might be needed from the many requests from undertakings and trade associations asking for guidance.

Some types of cooperation that might be employed in order to reach the objectives set out in the Communication will not raise antitrust concerns if the conditions in the Commission’s Guidelines on the applicability of Article 101 of TFEU to horizontal co-operation agreements are met. Such cooperation may be established for instance through a trade association or another independent third party. Examples provided in the Communication include: (i) coordination of joint transport for input materials; (ii) identifying essential medicines for which a shortage is forecasted; (iii) aggregate production and capacity information; (iv) work on a model to predict demand on a national level and identify supply gaps; (v) share aggregate supply gap information and request from undertakings, on an individual basis and without sharing that information with competitors, to indicate whether they can fill the supply gap to meet demand. The independent party facilitating such coordination would need to ensure that no individualised company information flows to competitors.

However, some critical supply shortages may require a closer cooperation between competitors, such as coordination of production with a view to increasing and optimising output, as well measures to adapt production, stock management and, potentially, distribution. All these activities may require exchange of commercially sensitive information and a certain level of coordination and task-sharing. To make sure that such cooperation does not go any further than necessary to achieve the desired result, the Commission clarified that such measures would not be problematic under the EU competition law or pose an enforcement priority for the Commission, to the extent that they:

  1. are 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;
  2. are 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
  3. do not exceed what is strictly necessary to achieve the objective of addressing or avoiding the shortage of supply.

An additional plus for cooperating undertakings would be if the cooperation is encouraged and/or coordinated by a public authority. Furthermore, any cooperation undertaken at the imperative request of a public authority in relation to the current outbreak is always allowed.

Guidance and comfort letters from the Commission

Even though self-assessment remains the main tool for undertakings wishing to engage in horizontal cooperation, the Commission has stepped up in order to provide assurance when necessary, taking into account the urgency of the situation. To that end, the Commission is willing to provide oral guidance to undertakings, but also, in exceptional circumstances related to “specific and well-defined cooperation projects”, to issue a comfort letter concerning a cooperation project aimed at avoiding situations of shortages of critical hospital medicines. DG Comp has already set up a dedicated webpage and a dedicated mailbox that can be used to seek informal guidance on specific initiatives.

Moreover, the Commission has already issued one comfort letter to “Medicines for Europe”, related to a specific voluntary cooperation project among pharmaceutical producers that addresses the risk of shortage of critical hospital medicines for the treatment of coronavirus patients.

Serbia, Montenegro, Bosnia and Herzegovina?

The national competition authorities have not yet issued any similar COVID-19-related guidance. However, given they closely follow the EU acquis in the competition area, it is believed that their view of horizontal cooperation during the COVID-19 crisis will not be different from the one expressed in the Commission’s guidance.

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