Application of competition law during the COVID-19 crisis

SÉRVULO PUBLICATIONS 31 Mar 2020

Large-scale quarantines, travel restrictions, and social-distancing measures following COVID-19 are driving serious social and economic consequences. How is COVID-19 impacting at the level of antitrust, state aid and merger control (M&A) proceedings?

Antitrust

Competition law has seemingly not been suspended. The objective of ensuring a level playing field between companies remains. However, the occasion calls for a “rule of reason”. The Portuguese Competition Authority endorsed the Joint statement by the European Competition Network (ECN) on application of competition law during the Corona crisis, which introduces some degree of flexibility:

• "The ECN understands that this extraordinary situation may trigger the need for companies to cooperate in order to ensure the supply and fair distribution of scarce products to all consumers. In the current circumstances, the ECN will not actively intervene against necessary and temporary measures put in place in order to avoid a shortage of supply.

• Considering the current circumstances, such measures are unlikely to be problematic, since they would either not amount to a restriction of competition under Article 101 TFEU/53 EEA or generate efficiencies that would most likely outweigh any such restriction. If companies have doubts about the compatibility of such cooperation initiatives with EU/EEA competition law, they can reach out to the Commission (…) or the national competition authority concerned any time for informal guidance.

• At the same time, it is of utmost importance to ensure that products considered essential to protect the health of consumers in the current situation (e.g. face masks and sanitising gel) remain available at competitive prices. The ECN will therefore not hesitate to take action against companies taking advantage of the current situation by cartelising or abusing their dominant position.

• In this context, the ECN would like to point out that the existing rules allow manufacturers to set maximum prices for their products. The latter could prove useful to limit unjustified price increase at the distribution level”.

The breach of competition laws entails severe risks, such as high fines, invalidity of the agreements, actions for damages, etc. In this sense, it is advisable that companies reach out to the European Commission or to the Portuguese Competition Authority for informal guidance before implementing such cooperation agreements with their respective competitors or suppliers. Accordingly, the Portuguese Competition Authority has warned that “it remains particularly vigilant in its mission. This includes the detection of possible anticompetitive practices that exploit the current situation to the detriment of people and the economy, through price fixing or market sharing” (press release available here).

State aid

State aid rules foresee flexibility to support the economy in the context of the COVID-19 outbreak. The European Commission has found four Portuguese guarantee schemes for small and medium-sized enterprises (SMEs) and midcaps affected by the Coronavirus outbreak to be in line with EU State aid rules. The schemes, with a total budget of €3 billion, were approved under the State aid Temporary Framework to support the economy in the context of the COVID-19 outbreak adopted by the Commission on 19 March 2020. The Commission approved the four Portuguese schemes ((i) tourism; (ii) restaurants; (iii) extractive and manufacturing industry; and (iv) travel agency activities and event organisation), which were transposed into national legislation.

Furthermore, all countries were removed from the list of “marketable risk" countries under the Short-term export-credit insurance Communication. The amendment further expands on the flexibility introduced by the referred Commission's “State aid Temporary Framework” with respect to the possibility by State insurers to provide insurance for short-term export-credit. The European Commission is regularly publishing information on the matter, such as the new COVID-19 notification form, several policy papers and other notified schemes which have been approved for other member States. More information is available here.

Mergers and Acquisitions

The Portuguese Competition Authority encourages all interested parties to use the available electronic channels, such as Sistema de Notificação Eletrónica (SNEOC), among others available on the website, stating that its staff is working remotely (press release). Although the Authority has put in place measures to ensure business continuity in the enforcement of the merger rules, it is expected that companies will delay merger notifications originally planned due to the crisis and the expected economic slowdown.

      Alberto Saavedra | as@servulo.com