Competitor Collaboration during COVID-19
The lockdown imposed as a containment measure by various governments has severely impacted global economic activity. Such uncertain, volatile times amplify the possibility of collaboration among companies that could be competitors. Such collaboration could be an effective risk mitigation strategy to ensure revenues.
The COVID-19 outbreak has shifted governments’ focus worldwide from promoting economic growth to preserving public health and ensuring a continued supply of health care and essential goods/services by allowing joint use of infrastructure and certain information exchange between competitors. The lockdown imposed as a containment measure by various governments has severely impacted global economic activity. Such uncertain, volatile times amplify the possibility of collaboration among companies that could be competitors. Such collaboration could be an effective risk mitigation strategy to ensure revenues. In competition law parlance, collaboration among competitors to combat adverse market conditions is commonly called a ‘crisis cartel.’ As the term implies, it broadly describes collaborations or joint actions by competitors during, and as a result of, an economic crisis. The collaborations can be formed with or without the prior permission of government authorities.
Collaborating companies may argue the motive behind the crisis cartel is not the desire to reap supra-normal profits, but to merely survive the crisis, and the government should relax provisions of competition law for competitor collaboration during an economic crisis such as the one caused by the COVID-19. While this reasoning of collaborating companies may seem compelling, generally competitor collaborations/cartels are seen as a conspiracy to defraud the general public by fixing prices, controlling output, allocating markets or bid-rigging, and are considered to be in violation of competition law. The question remains whether an economic crisis can grant legitimacy to such anti-competitive conduct.
Since certain competitor collaborations, otherwise considered anti-competitive, are in the public interest during an economic crisis, a compelling case can be made to break from the norm in order to ensure an uninterrupted supply of health care and essential goods/services for the public welfare. Such collaborations may comprise information exchange about logistics, delivery quantities, quality standards, risk management strategies, joint use of infrastructure (warehousing, distribution, transport facilities), human resources, technology transfers, research, and development, etc.
The recent statement issued by the Steering Group of the International Competition Network (ICN) also promotes this ideology. The ICN has urged competition law regulators to accommodate collaboration between competitors to provide goods and services that may otherwise not be available during the COVID-19 pandemic, to the extent that the law permits. The European Competition Network has also issued a joint statement that its members (European national competition authorities) will not actively intervene against “necessary and temporary” measures involving cooperation among competitors aimed at avoiding a shortage in supply of goods. However, this step would not preclude intervention against companies seeking to limit the supply of essential goods, such as masks and hand sanitizers.
Various governments and foreign competition law authorities/regulators have also granted temporary waivers, indicating flexibility in their competition law enforcement in essential industries. The UK government announced a temporary relaxation of competition law rules to allow food retailers to collaborate, including data-sharing on stock levels and operating hours, sharing distribution depots and delivery vans, and staff-pooling. The UK Competition and Markets Authority clarified its intention not to intervene in cases of cooperation among businesses, if necessary, to protect consumers. In the United States, the Federal Trade Commission and Department of Justice issued a joint statement to exempt certain types of collaboration, namely, research and development, sharing technical know-how, and joint procurement by healthcare providers due to their pro-competitive effects of such collaboration. The Australian Competition & Consumer Commission has exempted collaboration, to a limited, specified extent, between pharmaceutical manufacturers, oil companies, shopping centres, hospitals, etc., to cope with the economic fallout from the pandemic.
While Indian competition law prohibits anti-competitive agreements among competitors that cause, or are likely to cause, an appreciable adverse effect on competition (AAEC), the Central Government is empowered to exempt any company/class of companies from the applicability of competition laws if it is considered necessary in the public interest. So far, the Central Government has not granted any blanket exemption to a particular sector or class of companies. Instead, the Competition Commission of India (CCI) has issued an advisory to all companies, which acknowledges that due to significant disruption in the supply of essential goods/services caused by the present crisis, a collaboration between competitors may be necessary to overcome such disruption and ensure continued supply and fair distribution. Such collaboration may include the exchange of information on stock levels, timing of the operation, joint use of distribution network and infrastructure, transport logistics, and research and development.
The CCI also explained that the scheme of the Indian competition law recognizes certain collaborations between competitors may be pro-competitive as they accrue benefits to consumers, provide improvement in production or distribution of goods and provision of services. As such, the collaborating companies can rebut the AAEC’s presumption by demonstrating that efficiency gains following from their collaboration are sufficient to outweigh any restriction of competition. Even the Supreme Court of India in Rajasthan Cylinders v. Competition Commission of India recognized that the onus is on the collaborating companies to demonstrate the efficiencies accruing to consumers from the respective collaboration. Thus, safeguards under Indian competition law already protect such pro-competitive, efficiency-enhancing collaborations from sanctions.
The CCI advisory also clarifies that collaboration between competitors will be tested on its pro-competitive effects only if the CCI deems such collaborations necessary and proportionate to address the concerns arising out of the COVID-19 crisis.
The pandemic-induced economic crisis has put unprecedented pressure on businesses; so the CCI advisory is a welcome move as it provides much-needed clarity and comfort to the companies. To ensure compliance with Indian competition law and the CCI advisory, companies contemplating collaboration during the COVID-19 crisis must carefully assess whether the collaboration (i) increases the efficiency of operations that benefit the consumer; (ii) is limited in scope; (iii) is limited to the time period of the crisis; and (iv) is indispensable for realizing the said efficiencies. Additionally, the companies should ascertain and maintain detailed records to demonstrate the (i) precise nature of the claimed efficiencies; (ii) link between their collaboration and claimed efficiencies; and (iii) realistic likelihood and magnitude of the claimed efficiencies, in case they need to rebut any future cartelization allegation. However, it must be remembered that, as the advisory does not provide a blanket exemption to any sector or class of companies collaborating during COVID-19, it is safe to assume the CCI will continue to be vigilant in preventing anti-competitive practices that seek to merely abuse the COVID-19 crisis as an excuse for indulging in unlawful practices.
Unnati Agrawal, Principal Associate, J. Sagar Associates -
Unnati is an experienced competition / antitrust lawyer with more than seven years of experience as a qualified lawyer. She has advised various major corporates, banks and financial institutions in relation to a broad range of competition law matters.
She has represented clients in several complex and high profile antitrust litigations before the Competition Commission of India (including Director General (Investigation)), appellate tribunal, High Courts and the Supreme Court of India. She has also advised and represented companies in cartel leniency cases and market abuse investigations including competition concerns in various types of commercial agreements. She routinely advises on M&A transactions from competition law perspective by devising company’s merger control strategy and obtaining approval from the Competition Commission of India.
Further, she has advised multinational corporations in relation to formulation of their competition law compliance policies and conducted compliance audits. She also advises multinational corporations in relation to a whole range of competition issues (contentious as well as advisory) in a variety of sectors.
Unnati holds a master’s degree in Competition law from Kings College, London, where she has had the good fortune of receiving tutelage from Prof. Richard Whish in EU and UK Competition Law. Before joining JSA, she was with Cyril Amarchand Mangaldas (erstwhile Amarchand & Mangaldas & Suresh A Shroff & Co.).
Parth specialises in Competition/Antitrust matters pertaining to cartels and market abuse investigations including competition concerns in various types of commercial agreements. He has advised and represented clients before the Competition Commission of India (CCI), Office of the Director General (investigative arm of the CCI), National Company Law Appellate Tribunal and the Supreme Court of India.
In addition, he has advised clients on predatory pricing issues, refusal to deal issues, allegations of imposition of unfair and discriminatory conditions by dominant enterprises, cartel allegations, exclusivity arrangements and interplay between intellectual property rights and competition laws. Before joining JSA, he has gained prior experience in antitrust and dispute resolution matters, whilst working at P&A Law Offices and Wadia Ghandy & Co.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house
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