10.12.2020

COVID-19 still causes turmoil in competition (law)

We have already reported on how antitrust law and practice in Germany – and globally – adapted to the current extraordinary situation caused by the COVID pandemic. ‘Crisis law’ still dominates daily life. However, it can be observed that the focus in antitrust law has now slightly changed. While the loosening of the ban on cartels, a stricter enforcement of antitrust law and the granting of state aid were predominant issues at the beginning of the crisis, there has recently been an increased focus on the compliance of state measures with competition (law).

Current developments

It can be observed that current developments in the economy have different effects on competition (law) and market players. These developments are based mostly on specific state measures and concern selling bans, state aid and certain forms of cooperation between firms. State measures in these three areas have in common that they (i) were implemented by the authorities to deal with the coronavirus (prevention of further spreading; mitigation of the economic effects), but (ii) still have an impact on competition and/or other market participants. Thus, in some cases, the authorities have been criticised – or even sued before the courts – for unilaterally favouring individual competitors. Last but not least, the transaction sector is also (still) affected by the pandemic.

Selling bans and restrictions

Against the background of increasing infections, governments are looking for ways to slow down the spread of the coronavirus. In some countries (e.g. France and Belgium), certain types of shops which sell so-called ‘non-essential’ goods (e.g. books; although one can already argue about the classification as ‘non-essential’ in general) are temporarily closed by order of the authorities. Although the owners of closed shops are partially compensated for their loss of profit, they are at risk of losing market shares and customers to competitors, which are not subject to the ‘lockdown‘.

After criticism from French bookstores and small shops that were forced to close temporarily, the French Ministry of Solidarity and Health prohibited supermarkets from selling such ‘non-essential’ goods (e.g. books, electronic devices and flowers) as well. In the UK, in turn, the British Retail Consortium, an association which represents the retail industry, has criticised the British government's ‘lockdown‘ rules as ‘arbitrary’ in this regard. A major critical point is that according to the government’s guidelines ‘a supermarket that sells food is not required to close off or cordon off aisles selling homeware’. On the other hand, supermarkets are not allowed to sell ‘non-essential’ homeware, if they have a special area dedicated to them (e.g. separate floor).

At present, like during the first ‘lockdown‘ period in many European countries earlier this year, even restaurants often have to close and are only allowed to offer a delivery service or to sell for take-away. After the first ‘lockdown‘, some restaurants already had to declare insolvency (e.g. restaurant chains like Jamie’s Italian or Maredo, not to mention many small gastronomic businesses). In these times, the use of digital platforms (e.g. Deliveroo, Grubhub, Lieferando, etc.) is vital to restaurants. Hence, the conditions of access to such platforms for restaurants (e.g. fees) can also affect competition and has been therefore under dispute. For instance, in the UK some smaller restaurants accused Deliveroo of unfair commission rates and lodged a complaint with the CMA, as they would have to pay a fee double the amount charged to large chains.

State aid under scrutiny

Under European law, state aid within the meaning of Article 107 (1) of the Treaty on the Functioning of the European Union (TFEU) has to be approved by the European Commission before an EU Member State may grant it. Such financial help is only permitted under certain conditions, Article 107 (2), (3) TFEU. As we already reported (see here), the European Commission facilitated the granting of state aid by implementing a Temporary Framework to mitigate the economic consequences of the coronavirus crisis. On the basis of the TFEU and the Temporary Framework, the Commission has approved a large number of national state aid programmes for companies (e.g. airlines). Ryanair has now lodged several appeals in the EU courts against the Commission’s approvals for state aid granted to its competitors by the governments of Sweden (T-238/20), France (T-259/20), Spain (T-628/20), the Netherlands (T-643/20) and Finland (T-657/20). The Irish airline considers that the state aid would favour national champions at the expense of competitors.

Cooperation in the automotive sector

The coronavirus pandemic has affected not only the aviation sector but also the automotive industry, which had to deal with considerable production losses in recent months. The European Automobile Manufacturers Association (ACEA) has been in discussions with the EU for some time now to discuss possible cooperation with struggling suppliers. According to press reports, ACEA has received informal suggestions from the European Commission on how its members can cooperate with struggling suppliers without crossing the line to anti-competitive behaviour. These suggestions contain, inter alia, four rules on how to limit the risk of antitrust law infringements by the parties involved. The parties (i) should be open to any company that wishes to participate and (ii) the companies should be free to accept or reject any outcome from the discussions. Access to data of struggling suppliers should (iii) be limited to ‘clean teams‘ and (iv) the data should also be aggregated by a third party (e.g. law firm) and the type of the shared data (e.g. no prices or volumes) should be restricted.

It appears that the EU Commission has followed the pathway of the Federal Cartel Office which has issued informal guidance along the same lines in June upon a respective request of the VDA (see our report here).

Merger control

The review of transactions now appears to be continued at a ‘new normal level’. Since the employees of companies as well as the case handlers of the competition authorities often continue to work from home, longer review periods until clearance need to be expected. In addition, competition authorities could have difficulties obtaining reliable information to review the transaction, resulting also from the economic uncertainty market players are facing at the moment.

In this context it should also be noted that under certain circumstances authority decisions may be challenged if they do not take sufficient account of the effects of the coronavirus pandemic. For example, the UK’s Competition Appeal Tribunal has overturned the CMA’s decision to block JD Sport’s takeover of Footasylum. The court argued that the CMA had failed to properly assess the likely effects of the coronavirus in the retail sector.

Conclusion

Current developments demonstrate that ‘crisis law’ still applies in many jurisdictions. This indicates that we will probably have to deal with the ‘new normal’ for some time.

On the other hand, the examples above also show that state measures can or must be considered with a critical eye. Now more than ever companies should carefully assess whether state measures directly or indirectly favour competitors unilaterally and are still proportional. Companies are well advised to seek legal help in order to prevent unilateral preferential measures and avoid long-term economic disadvantages, such as the loss of market shares and customers.

See also our last report here.

Author
Dr Sebastian Felix Janka, LL.M. (Stellenbosch)

Dr Sebastian Felix Janka, LL.M. (Stellenbosch)
Partner
Munich
sebastian.janka@luther-lawfirm.com
+49 89 23714 10915

Anne Caroline Wegner, LL.M. (European University Institute)

Anne Caroline Wegner, LL.M. (European University Institute)
Partner
Dusseldorf
anne.wegner@luther-lawfirm.com
+49 211 5660 18742

Roland Schiller

Roland Schiller
Associate
Munich
roland.schiller@luther-lawfirm.com
+49 89 23714 20967

David Wölting

David Wölting
Associate
Dusseldorf
david.woelting@luther-lawfirm.com
+49 211 5660 24990