Coordination, not collusion—threading the COVID-19 needle

Coordination, not collusion—threading the COVID-19 needle

Law360, London: Antitrust authorities worldwide want to facilitate short-term, limited cooperation to ensure health care, grocery, transportation and other companies can get people and supplies where they’re needed, all while issuing strongly worded warnings against price collusion and other clear competitive abuses to pad the bottom line.

How can companies navigate the sometimes competing directives of the new pandemic paradigm? Law360 talked to antitrust professionals to find out.

‘It’s a really fine line that companies are going to have to toe,’ said Andrea L. Hamilton, a McDermott Will & Emery partner based in Brussels.

Most rules still apply

Despite relaxing antitrust rules in key industries, enforcers all over the world have been adamant that no one will get a free pass to ignore competition laws.

‘Core antitrust laws don’t get magically suspended during [a] time of pandemic or any other crisis,’ said Joseph Ostoyich, a Baker Botts LLP partner.

The US Department of Justice (DOJ) and the Federal Trade Commission (FTC) have emphasised a readiness to go after anyone who tries to take advantage of the coronavirus pandemic in a way that runs afoul of antitrust law. Among the potential conduct highlighted were agreements to hike prices, lower wages or reduce output or quality, in addition to attempted ‘exclusionary conduct’ by monopolists.

Federal enforcers have not addressed price-gouging, which is not illegal under US law, but some states and international jurisdictions that have laws against it have pledged to go after companies that use the pandemic as an excuse to dramatically raise prices.

During a recent Freshfields Bruckhaus Deringer LLP webinar, partner Michele Davis said enforcers will likely be very aggressive in going after anyone perceived to be taking advantage of the situation. Agencies, she said, ‘have shown very little sympathy to so-called crisis cartels.’

At the same time, agencies have tried to facilitate conduct that bolsters the economy and the health care response, with the DOJ and FTC, for instance, promoting a variety of types of collaboration that usually wouldn’t be considered anti-competitive in the US even under normal circumstances.

‘In many circumstances, we’re seeing this sort of cooperation actively encouraged,’ Davis said on the webinar.

European enforcers at EU and member state level have similarly said they wouldn't be going after companies who are taking the "necessary and temporary measures" they need to get supplies where they need to go.

Experts note that the agencies will likely treat collaboration differently depending on the industry.

Activities that are generally in the clear, according to the US agencies, include collaborative research and development, sharing of ‘technical know-how’ separate from any pricing data, collaborative efforts devising health care ‘practice parameters,’ health care joint purchasing agreements that are aimed at improving efficiency and reducing costs, and private lobbying of federal agencies to use their emergency authority.

EU competition law permits similar coordination, including on research and development, as well as joint production, purchasing and selling agreements between companies with small market shares, according to a client alert from Wilson Sonsini Goodrich & Rosati.

Collaboration does however come with certain lines experts say it’s important to watch for, with a particular importance during the pandemic in ensuring the conduct will benefit the public. Some of the lines drawn, according to Johannesburg-based Baker & McKenzie partner Lerisha Naidu, ‘are precarious.’

‘And one can overstep without knowing that one is doing it,’ she told Law360 in an interview.

Don’t show the money

Agencies in the United States and elsewhere continue to emphasise that they still will brook no ‘hardcore’ violations of antitrust law, with price-fixing often topping the list of conduct to avoid, along with market allocation and most limitations on output.

‘Those are still going to be considered egregious,’ Ostoyich told Law360 in an interview.

So when Australian airlines coordinate flight schedules and share revenue from those routes under an interim authorization from the Australian Competition & Consumer Commission, or when British grocers pool staff, share depots and delivery vans, and swap stock level data with UK government permission, there are still lines they cannot cross. In Australia, for example, the ACCC said the airlines can charge rates ‘no higher than those in place on 1 February 2020, meaning the airlines will not be able to coordinate to raise prices.’

Enforcers continue to announce other exemptions as well.

Avoiding even the appearance of price-fixing, experts say, requires careful in-house rules governing any interaction with competitors, along with strong compliance training. A clear idea of what coordinating companies are trying to accomplish is also important.

‘It’s important to start out by considering: What’s the need for the coordination or cooperation?’ Hamilton said.

Any meetings should have clear agendas, experts say, with express terms for the coordination that will be discussed and express boundaries for the kinds of sensitive price-related details that will be off-limits.

‘You’ve got to know what the topics are that you can discuss and collaborate on,’ Naidu said.

Documenting what’s discussed is also important. When in doubt, consult antitrust counsel and have them present during conversations.

‘You should ask yourself: Would this information, in the hands of a competitor, help them to anticipate my actions?’ Davis said on the Freshfields webinar.

Other concerns

Working with competitors to petition the government for relief can also come with risks, according to antitrust professionals who say it’s important to ensure those talks don’t involve competitively sensitive information and don’t open a door to unprotected activities.

‘You’ve got to make sure that there aren’t these spillover effects,’ said Colin Kass, a Proskauer Rose LLP partner who co-chairs the firm’s antitrust practice.

Unilateral price increases can also come with risks, according to Naidu, who noted aggressive signals from South Africa’s Competition Commission in clamping down on rate hikes. On 31 March 2020, the agency announced that it had received hundreds of complaints ‘against retailers and suppliers for charging excessive prices for products related to COVID-19 essentials,’ mainly masks and hand sanitizer, as well as flu medication and toilet paper.

‘The complaints are under expedited preliminary investigations, with respondent firms given 48 hours to confirm or rebut the allegations. The commission has issued over 100 such letters to national retailers, suppliers and independent retailers,’ the agency said at the time.

According to the South African enforcer, some companies have offered satisfactory explanations for rate hike while other increases ‘are not justified and the commission will pursue enforcement.’

Naidu said price hikes in jurisdictions with prohibitions against gouging and similar conduct can be justified, for instance, if a supply contract calls for increases or by carefully documenting higher production and procurement costs. Nevertheless, caution is especially important for essential goods,where Naidu suggests companies explore alternatives to price increases.

Price gouging in Europe can be considered an abuse of a dominant position, according to John Roberti, an Allen & Overy LLP partner in charge of the firm’s Washington, DC antitrust practice, who similarly stressed the importance of documenting the costs that justify price hikes.

Consider talking to enforcers

Antitrust agencies have opened the door to inquiries about specific conduct.

The DOJ and FTC jointly said they would expedite requests for advisory opinions on coronavirus-related conduct ‘addressing public health and safety,’ promising a response within seven calendar days of the agencies getting ‘all necessary information.’

‘Normally that process takes months. So having a quicker answer is a big help,’ said Roberti.

According to the FTC and DOJ, their guidance on specific conduct will be good at least initially for a year.

Roberti says he generally tells clients to exercise caution when seeking an advisory opinion from the FTC or a business review letter from the DOJ Antitrust Division. The reason, according to Roberti, is that agency responses are often ‘very conservative,’ and give companies little comfort.

In the new pandemic environment however, Roberti said the agencies may be willing to give more ‘candid advice’ on where the lines are. Parties interested in running a coronavirus-related coordination past enforcers, according to Roberti, need to be prepared with ‘a really, really good story’ about how it will help combat the pandemic.

‘If that process seems like it’s working well, I think it will generate more confidence,’ said Roberti.

And even if the agencies are more open with their answers, Roberti still urges caution for relying on their opinions that conduct is safe.

‘It’s not a free pass from everyone,’ Roberti said, noting that business review letters and advisory opinions offer no protection against state enforcers and private plaintiffs. ‘It’s not complete relief.’

Limitations also come with the form of government encouragement, said Roberti, who noted that a mayor’s urging will not hold up.

‘If it’s more of a suggestion than a compulsion,’ he said, it’s not enough.

European enforcers at EU and member state level also have their phone lines open to questions about cooperation, according to a statement from the European Competition Network.

‘That is something which should be hugely welcomed,’ Davis said on the webinar.

Keeping collaboration temporary is likely an important point of planning, with professionals noting that justifications for certain conduct may no longer hold up once the pandemic abates.

‘Things might look necessary and essential today but in hindsight they might not,’ Kass said.

This content is based on an article first published by Law360, a LexisNexis® company, on 7 April 2020 (subscription required) and is published with permission.

Further information can be found at: www.law360.com/corporate-crime-uk (subscription required).

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