Concurrences REVUE DES DROITS DE LA CONCURRENCE | COMPETITION LAW REVIEW

Competition law and health crisis

On-Topic l Concurrences N° 2-2020 www.concurrences.com

Christian Ahlborn Valentine Delaloye David Kupka Partner Linklaters, London Teaching Assistant University Associate Willkie Farr & Gallagher, of Geneva Brussels Jeremy Bacharach PhD Candidate University of Jacques Derenne Siún O’Keeffe Geneva Partner Sheppard Mullin, Brussels Manager Academy Netherlands Professor University of Liège, Authority for Consumers and Christoph Barth Belgium & Brussels School Markets, The Hague Partner Linklaters, Düsseldorf of Competition Christian Ritz Christian Bovet David dos Santos-Goncalves Partner Hogan Lovells, Munich Professor University of Geneva Managing Associate Linklaters, Düsseldorf Cesare Rizza Marcel Boyer Counsel Cleary Gottlieb, Rome Emeritus Professor of David Gabathuler Economics University of Montréal Legal Consultant EU, Competition Matthias Schlau Associate Member Toulouse and Trade Law, Baker Botts, Associate Hogan Lovells, Munich School of Economics Brussels Mario Siragusa Jacques Buhart Mark Griffiths Senior Counsel Cleary Gottlieb, Partner McDermott, Will & Emery, Director Norton Rose Fulbright Rome Brussels and Paris Africa, Johannesburg Anastasia Usova María Pilar Canedo Leigh Hancher Partner Redcliffe Partners, Kyiv Arrillaga Senior Advisor Baker Botts, Professor of Law University Brussels Faustine Viala of Deusto, Bilbao Professor of European Law Partner Willkie Farr & Gallagher, Commissioner Competition Tilburg University Paris Chamber of CNMC, Madrid Professor of EU Energy Law Florence School of Regulation Masako Wakui Michele Carpagnano Professor of Law Kyoto University Partner Dentons, Rome David Henry Faculty of Law Professor Trento University Counsel McDermott, Will & Emery, Brussels Daniel A. Crane Dr. Pierre M. Horna Professor of Law University of Michigan, Ann Arbor Legal Affairs Official Competition and Consumer Policies Branch of Aymeric de Moncuit the UNCTAD Secretariat, Geneva Référendaire Frédéric Jenny Court of Justice of the European Professor of Economics ESSEC Union, Luxembourg Business School, Cergy Lecturer University Paris II Panthéon-Assas On-Topic Competition law and health crisis

ABSTRACT

The unexpected shock provoked by the Covid-19 crisis and the measures taken Le choc inattendu provoqué par la crise du Covid-19 et les mesures prises pour to limit the spread of the pandemic have affected the functioning of many limiter la propagation de la pandémie ont affecté le fonctionnement de nombreux markets. Throughout the world, competition authorities which, in the last decade, marchés. Partout dans le monde, les autorités de la concurrence qui, au cours had been enforcing their laws in the context of steady economic growth have had de la dernière décennie, avaient appliqué leurs lois dans le contexte to adjust their enforcement practices not only to the difficulties of running their d’une croissance économique régulière, ont dû adapter leurs pratiques non operations due to lockdowns but more importantly to adjust to collapsing seulement aux difficultés de gestion de leurs opérations résultant du confinement markets or markets for essential goods characterized by severe shortages, de leurs agents mais surtout à l’effondrement de la demande sur certains in a context of deep economic depression with many firms facing severe liquidity marchés et l’existence de graves pénuries de biens essentiels pour lutter contre constraints or even the threat of bankruptcy. Competition authorities have la pandémie sur d’autres marchés. Dans un contexte de profonde dépression responded to these extraordinarily brutal circumstances by adjusting their économique, de nombreuses entreprises sont confrontées à de graves enforcement priorities, exempting certain forms of cooperation, relaxing their contraintes de liquidité voire à la menace de faillite. Les autorités de la standards for efficiency defence, adopting emergency procedures, allowing state concurrence ont réagi à ces circonstances extraordinairement brutales en aids under certain conditions, accepting mergers because the target had all ajustant leurs priorités, en exemptant certaines formes de coopération, en of a sudden become a failing firm etc…. while at the same time insisting that assouplissant leurs standards en matière de gains d’efficience, en adoptant des these changes did not mean a weakening or an alteration of the competition law procédures d’urgence, en autorisant sous certaines formes des aides d’État, en principles that they previously followed. This set of articles describes in detail acceptant des concentrations au nom de la théorie de l’entreprise défaillante the responses of a number of competition authorities, analyzes the differences etc…. Simultanément, elles ont insisté sur le fait que ces changements ne in the responses of various governments and competition authorities signifiaient pas un affaiblissement ou une modification du droit de la to the Covid-19 crisis and discusses whether these responses imply a departure concurrence. Ce dossier décrit en détail les pratiques d’un certain nombre from the traditionally accepted goals and enforcement principles of competition. d’autorités de la concurrence, analyse les différences dans les réponses à la crise Covid-19 de divers gouvernements et autorités de la concurrence et examine si ces réponses impliquent une modification par rapport aux objectifs ou aux principes traditionnellement acceptés de mise en œuvre du droit de la concurrence

Introduction Competition, open social democracy, Frédéric Jenny and the Covid-19 pandemic Professor of Economics ESSEC Business School, Cergy Marcel Boyer Emeritus Professor of Economics University of Montréal Associate Member Toulouse School of Economics Foreign investment lockdown Christian Ahlborn Partner Linklaters, London Covid-19 and EU merger control: Time to loosen the FFD straitjacket? Christoph Barth Partner Linklaters, Düsseldorf Jacques Buhart Partner McDermott, Will & Emery, Brussels and Paris David dos Santos-Goncalves Managing Associate Linklaters, Düsseldorf David Henry Counsel McDermott Will & Emery, Brussels

Covid-19 and competition policy: A Swiss perspective Competition and Corona crisis: Some reflections from Spain Christian Bovet Professor University of Geneva with an advocacy perspective Jeremy Bacharach María Pilar Canedo Arrillaga PhD Candidate University of Geneva Professor of Law University of Deusto, Bilbao Commissioner Competition Chamber of CNMC, Madrid Valentine Delaloye Teaching Assistant University of Geneva Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

2 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis Foreign investment screening and Covid-19 Competition in a time of Corona: in Italy: Emergency room for new “Primum non nocere” protectionism? Siún O’Keeffe Manager ACM Academy Netherlands Authority for Consumers and Michele Carpagnano Markets, The Hague Partner Dentons, Rome Professor Trento University “Crisis Cartels” in times of Covid-19: Antitrust during (and especially after) Lessons from former crises teach a global pandemic a cautious approach Daniel A. Crane Christian Ritz Economics Frederick Paul Furth, Sr. Professor of Law University of Partner Hogan Lovells, Munich Michigan, Ann Arbor Matthias Schlau Associate Hogan Lovells, Munich How might the Covid-19 crisis change the dynamics of competition law? Two challenges posed by the economic Aymeric de Moncuit shock caused by Covid-19 to the level Référendaire Court of Justice of the European Union, Luxembourg playing field in the EU internal market: Lecturer University Paris II Panthéon-Assas The current State aid race and the risk of hostile takeovers by state-owned EU State aid control and Covid-19 companies from third countries outbreak: A first commentary Mario Siragusa Senior Counsel Cleary Gottlieb Steen & Hamilton, Rome Jacques Derenne Partner Sheppard Mullin, Brussels Cesare Rizza Professor University of Liège, Belgium & Brussels School of Competition Counsel Cleary Gottlieb Steen & Hamilton, Rome

South Africa: Comprehensive package Investigations into price hikes of antitrust measures adopted in response and other responses by the Ukrainian to Covid-19 pandemic competition authority to the Covid-19 crisis Mark Griffiths Anastasia Usova Director Norton Rose Fulbright Africa, Johannesburg Partner and Head of the Antitrust practice Redcliffe Partners, Kyiv

Avoiding the pitfalls: What companies Cooperation between companies in times need to know about EU State aid rules of health crisis and the Temporary Framework during Faustine Viala the coronavirus crisis Partner Antitrust & Competition, Willkie Farr & Gallagher, Paris Leigh Hancher David Kupka Senior Advisor Baker Botts, Brussels Associate Antitrust & Competition, Willkie Farr & Gallagher, Brussels Professor of European Law Tilburg University Professor of EU Energy Law Florence School of Regulation David Gabathuler Liberalisation of the Covid-19 testing Legal Consultant EU, Competition and Trade Law Baker Botts, Brussels service market to ensure individual access to testing and the role of competition laws and authorities: Lessons from Japan A global overview of the impact Masako Wakui of Covid-19 on competition policies Professor of Law Kyoto University Faculty of Law in key sectors Dr. Pierre M. Horna Legal Affairs Official, Competition and Consumer Policies Branch UNCTAD Secretariat, Geneva Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 3 Introduction

Frédéric Jenny [email protected] Professor of Economics ESSEC Business School, Cergy

1. The Covid-19 economic crisis is fundamentally diffe- 2. This is essentially where France is at the beginning of rent from the 2008 financial and economic crisis in May 2020. There is talk about reopening on 11 May 2020 various respects. As Marcel Boyer1 reminds us: the finan- and future stimulus packages to revive the economy in cial crisis was caused by the gaming of poorly designed the autumn. incentive mechanisms and a collapse of interbank confidence because of free riding and fraud. The current crisis 3. What is clear, however, is that some of the consump- is caused by a cataclysmic exogenous shock which has tion which did not take place during the eight weeks led, first, to brutal spikes in the demand for products of confinement (such as having meals in restaurants or needed to limit the expansion of the pandemic with the going to plays, concerts or soccer matches—which have simultaneous collapse of supply channels because of our been cancelled) are forever lost and that a large number overreliance for a number of the relevant products on the of SMEs are facing extreme difficulties, that some indus- production facilities of China, the first country to be hit tries with high fixed costs which saw a nearly total by the pandemic. The current crisis is caused, second, collapse of demand during the time of confinement by the adoption in most countries of general confine- (such as the automobile sector where demand in France ment measures which were deemed the only possibility decreased by up to 88% during the time of confinement) to contain the pandemic given the lack of availability of will need help to restructure. Also, some industries which the equipment or products required to block the spread catered to the demand for mobility (such as airline trans- of the disease. As a result, demand collapsed on a large portation and therefore aircraft manufacturing) will number of markets both because of the physical impos- face long-term decline in demand. A number of coun- sibility for consumers to access stores and because of the tries will want to protect themselves against the risk of worries of many about an uncertain future. The collapse being caught again unprepared for catastrophic events, of demand meant that many firms and stores could and will want to repatriate some of their delocalized not continue to pay their employees. They were facing production of essential goods (for example, in the phar- a severe liquidity crisis as their revenues collapsed (but maceutical sector). The necessity to limit the interaction not their fixed costs) and, barring governmental aid, they among people to avoid pandemics (combined with the were forced to lay off their workers en masse (particularly development of digital technology, and environmental in sectors such as construction, transportation, restau- goals to limit pollution and a questioning of the safety rants, etc.). To avoid a collapse of the economy, in many risk of using public transportation) will push firms to countries firms were encouraged to reorganize and adopt change however possible their organization and to adopt new working methods such as teleworking whenever teleworking much more massively than in the past (with possible and were granted various forms of financial an accompanying decline in the demand for commercial support (tax deferment, credit facilities, capital injections spaces and an increase in the demand for homes with (for example in the automobile sector or in airline trans- adequate work space). Finally, there is no guarantee that portation)). Governments were eager to ensure that firms in markets where both supply and demand were affected could maintain their capacity to rebound when condi- by the crisis that they both will be revived simultaneously tions would improve. Simultaneously, governments in a and that therefore those markets will be able to return number of countries extended financial aid or stimulus to their previous equilibrium anytime soon. Even if the packages to workers hit by the crisis in order to maintain demand for broadcasted sports events such as soccer demand. However, such financial assistance to consump- remains stable, the activity of sports clubs and broad- tion was not necessarily effective as consumers were phys- casters has been deeply affected by confinement and the ically prevented from accessing stores. resulting cancellation of many sports events.

1 M. Boyer, Competition, open social democracy, and the Covid-19 pandemic. Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

4 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 4. An interesting question is how this will affect 8. In her paper Maria Pilar Canedo Arrillaga3 shows, market competition and competition law enforcement. for example, how the EU Commission guidance on This question may be broken into two sub-questions: public procurement in the emergency situation created by Covid-19 establishes a framework striking a balance – The first oneis what should or could be the role of between the goal of allowing competition among bidders competition authorities during the crisis. Should and the need to implement emergency purchases in competition authorities show flexibility in enforce- exceptional circumstances in cases where, given the time ment in view of the extraordinarily disruptive situ- constraint, there may not be several firms in a position ations on a number of markets or should they hold to fulfil the requirements set by the procurement agency. firm on their principles irrespective of the current She observes that the Spanish government emergency circumstances? If adjustments are needed what procurement rules are much too lax compared to the EU should they entail? Pierre M. Horna2 in his contribu- guidance and should be revised to prevent the unnec- tion shows that competition authorities throughout essary use of non-competitive purchasing procedures. the world have had to face difficult choices. Masako Wakui, in her article, shows how in Japan the – The second sub-question concerns the role of liberalization of the Covid-19 testing service market competition in the long term. From the economic (which is in the hands of the Japanese government) would standpoint, the Covid-19 crisis revealed the increase the level of testing and she calls on competition inability of competitive markets to adjust suffi- authorities to examine the situation and evaluate whether ciently rapidly during a period of stress and also governmental intervention serves public welfare. revealed some of the dangers that the globalization of value chains has brought, leading to 9. Above and beyond advice to governments on emergency concern about the liberal economic policies of the regulations, competition authorities must send a clear 1990s and the first two decades of the 2000s. Does message to the business community on how the principles this mean that the promotion of free and compet- of competition law enforcement will apply in the context itive markets as a means to promote efficiency and of the crisis so that business firms can have a clear idea of consumer welfare has gone too far and ignored the what is allowed and prohibited in these troubled circums- fact that such markets can fail? Is it time to revive tances. Most competition authorities have published state- industrial policy, to accept that there may be legit- ments or guidelines on competition law enforcement since imate reasons to control foreign investment and the beginning of the crisis period. At the more general to find a less unfair framework for international level, all of these statements include a clear message that competition? Is it also time to reset the goals and competition authorities will not tolerate the behaviour of the procedures of competition law enforcement? firms strategically using the excuse of the economic crisis to implement anticompetitive practices such as price 5. The articles presented in this issue proceed from diffe- fixing, abuses of market power and pricing abuses by firms rent angles to provide answers to these questions. having a dominant position, market sharing, or exchanges of strategic commercial information. Thus the underlying 6. With respect to the short-term sub-question of the principles of competition remain as relevant as ever. role of competition authorities in a time of crisis, it 10. On the enforcement front, in a period of crisis such as may be useful to distinguish between the two functions the current Covid-19 crisis, competition authorities may of competition authorities: their advocacy function and have to deal with two types of business practices which their enforcement function. could be problematic: the attempt by some firms to benefit from shortages by charging very high prices for goods and services difficult to find and the coordination among firms to increase supply and ensure that the product or I. Advocacy service is fairly distributed to alleviate the effect of the 7. The advocacy function of competition authorities is shortage. Other types of coordination among competi- particularly important at a time of intense regulatory tors may be aimed at facilitating and accelerating inno- activity by governments seeking to solve short-term vations to find treatments or vaccines which could help problems. Competition authorities are particularly well alleviate the health crisis which undermines the economy. placed to help governments ensure that the new regu- Furthermore, in a situation of economic recession, the lations they consider adopting do not unduly restrict context in which mergers take place may require some competition. These authorities could also advocate for procedural or substantive adjustments to the control lifting regulatory obstacles when such obstacles actually procedure. Finally, in a period where governments are prevent the smooth adjustment of supply and demand. massively attempting to support firms faced with various difficulties resulting either from the health crisis or from the confinement period, competition authorities may, at least in some jurisdictions, have to ensure that State aids do not unduly restrict competition on markets.

2 P. M. Horna A global overview of the impact of Covid-19 on competition policies in key 3 M. P. Canedo Arrillaga, Competition and Corona crisis: Some reflections from Spain with

sectors. an advocacy perspective. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 5 15. The major problem faced by competition authori- II. Excessive prices ties is that in principle they can only use their competition law enforcement powers when the price gouging is implemented by a firm having a dominant position. and price gouging But in a period such as the Covid-19 crisis it is clear that 11. With respect to the risk of pricing abuses not price gouging is tempting for firms (suppliers or retailers) all competition authorities have the same means of which happen to secure a stock of an essential product intervention. (such as masks in case of a pandemic) which is all of a sudden urgently needed to protect hospital personnel 12. In some countries, such as the United States, competi- (including doctors and nurses) and the general population authorities are notoriously reluctant to use antitrust tion in such large quantities that there is no way those laws to control the prices charged by firms having products can be delivered fast enough to meet even a market power. A majority of states, however, do have small proportion of the demand. In such situations the price gouging laws which can be activated when there provisions of competition law prohibiting excessive and is a declared emergency and those laws usually prohibit unfair prices may not be applicable if the price gouger “unconscionably excessive price” or unjustified price cannot be considered to hold a dominant position on the increases above a certain threshold. market.

13. What is noticeable in the United States is that even 16. There has been at least one attempt to overcome the the Federal Trade Commission (FTC), which is in difficulty of applying Article 86 of the EC Treaty (now charge of both antitrust and consumer protection, has Article 102 TFEU) to situations in which suppliers were over the years taken a very strong stand against price alleged to have abused their market power in a situation gouging laws and has actively discouraged federal legis- of acute shortage. This was the 1977 EC Commission 6 lators who have repeatedly considered the adoption of decision relating to the oil market in the Netherlands. a federal anti-gouging law. The “FTC has criticized In this case the alleged practice was a partial refusal proposals designed to address price gouging, explaining to sell, at the end of 1973, by an oil refiner to ABG, a that—particularly in the case of natural disasters—price purchasing cooperative of the nineteen members of increases are a natural response to product shortages and the Avia Group in the Netherlands, at a time when the can help to draw resources to the affected market” and that Netherlands was hit by an OPEC embargo on shipments “if natural price signals are distorted by price controls, which brought imports of crude down by nearly 50% of consumers ultimately might be worse off.” After hurri- their October level. According to the decision, the supply cane Katrina in November 2005, then FTC Chairwoman crisis in the Netherlands was mastered fairly quickly, but Deborah Majoras echoed this sentiment when she stated the fear of a scarcity of petroleum products led to a veri- that4 “[c]onsumers understandably are upset when they face table shortage scare. The Commission states that “The dramatic price increase within a short period of time, espe- general economic scene was set towards 1 November 1973 cially during a disaster.” “But price gouging laws that have with the outbreak of the oil crisis, which was caused by a the effect of controlling prices likely will do consumers simultaneous reduction in the supply of oil offered on the more harm than good (…) While no consumers like price world market combined with a substantial increase in the increases, in fact, price increases lower demand and help price demanded for it.” Such a situation is not unlike the make the shortage shorter-lived than it otherwise would situation we are experiencing during the current Covid-19 have been.” crisis, for example with the shortage of masks. During the oil crisis, ABG, the retailer, sought to buy supplies 14. There has been much more willingness to use compe- from BP but was sold much less than it had requested, as tition law provisions against abuses of dominant position BP gave preference to its regular customers. in Europe and there have been some cases of unfair and excessive prices brought against pharmaceutical 17. What is of note in this decision is the reasoning of firms in the recent past. Thus on 21 November 2016, the Commission which first considered that BP had a EC Commissioner Vestager declared (in reference drug dominant position, in spite of the fact that there were prices) that “as the recent action by the British and Italian at least seven refiners active in the Netherlands and competition authorities shows, there can be times when that ABG had bought oil from at least six of them and, competition rules need to do their bit to deal with excessive second, that BP had abused this dominant position prices.” The greater interest and willingness of European during the period of shortage by reducing its supplies to competition authorities to fight excessive prices in ABG not only substantially but also proportionately to periods of crisis is also reflected in the contribution of a much greater extent than in relation to its other clients Siún O’Keeffe,5 which states: “Competition authorities in without objective reasons. According to the Commission turn are wary of price hikes and the exploitation of scarcity BP has thus applied dissimilar conditions to ABG in by powerful producers.” imposing on that company an obvious, immediate and substantial competitive disadvantage.

4 FTC Provides Joint Senate Committee Testimony on Gasoline Prices and Competition in the U.S. Petroleum Industry, Chairman: Federal Price Gouging Laws Would “Unnecessarily Hurt Consumers.”

5 S. O’Keeffe, Competition in a time of Corona: “Primum non nocere.” 6 EC, Commission decision IV/28.841 – ABG. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

6 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 18. With respect to the characterization of the dominant 23. However, this decision seems to confuse economic position of BP, the Commission states the following: dependence and market dominance and is contradictory “Economic restrictions such as existed in the Netherlands with the established jurisprudence on the definition of during the oil crisis can substantially alter existing commer- dominance. cial relations between suppliers who have a substantial share of the market and quantities available and their customers. 24. In paragraph 10 of its 2009 guidance on exclusionary For reasons completely outside the control of the normal practices,8 the Commission summarizes the jurispru- suppliers, their customers can become completely dependence and emphasizes that for a firm to be in a dominant dent on them for the supply of scarce products. position it must have a position of economic strength on a relevant market (and not simply on its customers) and Thus, while the situation continues, the suppliers are placed that it must enjoy substantial market power over a period in a dominant position in respect of their normal customers. of time (and not simply for a short period of time). With the general shortage of supplies all the oil compa- 25. Thus most competition authorities in Europe, unless nies were faced with the same problem, that of maintaining they have a consumer protection function, are fairly supplies to their regular customers. Thus they were not restricted in their ability to fight price gouging during able to make up the deficiencies of the other companies periods of acute shortage. In addition, the definition of with substantial market shares and they were in no way in competition with each other to supply customers. abusive prices, which requires a demonstration of the fact that the price charged was both excessive and unfair, In the prevailing circumstances each of these companies places a heavy burden of proof on competition authori- found itself in a dominant position relative to its customers.” ties. As a result, investigations by competition authorities on pricing abuses are particularly long and fraught 19. In other words, the Commission argued that short- with risks. term general disequilibrium characterized by a restriction of supply and a spike in demand can give a dominant 26. Nevertheless, Aymeric de Moncuit9 reminds us that position to a firm “over its customers,” irrespective of its the difficulties of applying competition law provisions market share before the shortage occurred, because the on abuses of dominance have not deterred a number shortage makes switching suppliers impossible for the of competition authorities throughout Europe from customers. opening investigations into excessive pricing practices, for example, in Italy (relating to the marketing of hand sani- 20. The Commission decision was overturned by the tizers and disposable masks), in Poland (regarding the Court of Justice.7 However the court did not examine supply of personal protective equipment to hospitals), in the merits of the definition of a dominant position in a Turkey (regarding the food sector), in Ukraine (regarding period of shortages. It stated: “The first question to be masks, airline tickets, disinfectants and consumption examined is whether, on the supposition that special market basket products), and in the Netherlands. conditions such as those in this case did in fact ensure a dominant position in the Netherlands for the large oil 27. This observation leads to three comments. First, in companies established there as against their respective some countries (such as the UK) the competition autho- customers, the factual and legal circumstances on which the rity is also entrusted with a consumer protection function Commission relies to characterize in particular the indi- and therefore can use its consumer protection tools vidual conduct of BP during the crisis make it possible to together with its competition enforcement tools to inter- consider that conduct as an abuse within the meaning of vene against price gouging. This flexibility is reflected, Article 86 of the Treaty.” for example, in the statement of Lord Tyrie (chairman 21. Then the court found that the Commission’s reaso- of the CMA) on 20 March 2020, when he said: “We will ning was flawed because, since“ ABG’s position in relation do whatever we can to act against rip-offs and misleading to BP had been, for several months before the crisis claims, using any or all of our tools; and where we can’t occurred, that of an occasional customer, BP cannot be act, we’ll advise government on further steps they could accused of having applied to it during the crisis less favour- take, if necessary.” Besides the willingness to use the flex- able treatment than that which it reserved for its traditional ibility offered to by the combination of competition and customers.” consumer responsibilities, the CMA position on price gouging also offers a sharp contrast with the US FTC 22. By adopting the Commission’s reasoning on the defi- position on possible remedies. Indeed the statement nition of dominance in the ABG decision, provisions on published on its websites also states that: “In addition, the pricing abuses of dominance could be widely used to CMA will assess whether it should advise Government to fight price gouging in cases of shortages. consider taking direct action to regulate prices.”

8 Communication from the Commission – Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive exclusionary conduct by dominant undertakings (Text with EEA relevance) (2009/C 45/02). 7 Judgement of 29 June 1978, Case 77/77 – Benzine en Petroleum Handelsmaatschappij BV

and others v. Commission of the European Communities. 9 A. de Moncuit, How might the Covid-19 crisis change the dynamics of competition law? délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 7 28. Second, as Anastasia Usova reminds us,10 competi- 32. Third, a few countries have adopted more radical (but tion authorities can use their soft powers in combination also less orthodox) solutions to facilitate the intervention with their investigatory powers to fight excessive pricing of their competition authority against price abuses which practices in a crisis situation. We are told, for example, could also be used to fight price gouging. that the Antimonopoly Committee of Ukraine (AMC) has been extremely active in issuing “recommendations 33. This is the case, for example, in Ukraine. In her in Kyiv and the Kyiv region (i) to pharmacies to refrain paper, Anastasia Usova12 refers to a provision regarding from imposing economically unjustified price increases for “anti-competitive parallel behaviour” in the Ukrainian face masks, and (ii) to food retail chains to refrain from competition law system. Non-dominant companies may unreasonable price increases for face masks, disinfec- be found liable for excessive pricing if they simultane- tants and long-life food.” Simultaneously the AMC has ously or “almost simultaneously” increase their prices, and also launched investigations “into parallel price increases if these price increases cannot be explained by objective in the same region (i) by pharmacies and the wholesale factors. In those cases, there is a (rebuttable) presumption suppliers of healthcare products, including face masks, as that they entered into illegal concerted practices amongst well as (ii) by food retailers and their wholesale suppliers competitors. Thus, in order to establish a violation, in of vegetables and long-life foodstuffs.” addition to finding price correlation amongst competitors that increase their prices in parallel, the AMC is also 29. It could be the case that public recommendations, required to examine all the objective factors which could warnings or statements by competition authorities regar- cause such similarity in price increase. ding excessive prices have an effective dissuasive effect on firms from engaging in price gouging, particularly if such 34. Another example of unorthodox means of allowing soft warnings are complemented by investigations into the intervention of a competition authority in cases of collective price fixing. price gouging is provided by South Africa. As Mark Griffiths13 explains, in South Africa the Competition 30. The reason is that such public warnings increase both Commission (SACC) enforces the Competition Act and the alertness of consumers to the possibility of being the National Consumer Commission (NCC) is in charge exploited and the reputational risks for firms if they are of consumer protection. Following the declaration by the found to have been engaged in excessive pricing practices. South African government of a national disaster on 15 In addition, the fact that consumers are likely to decide March 2020, it was felt that new rules should be intro- to stay away from firms having been found to engage in duced to address the specific competition concerns in excessive pricing or sudden price hikes in a time of shor- the pricing and supply of essential products due to the tages means that the sanction for a firm with a reputa- coronavirus pandemic. The Consumer and Customer tion of price gouging is likely to be an immediate decline Protection and National Disaster Management in its sales. Regulations and Directions were enacted on 19 March 2020. One of the goals of these regulations is to “protect 31. An interesting example of the effectiveness of the consumers and customers from unconscionable, unfair, reputational risk faced by firms engaging in price gouging unreasonable, unjust or improper commercial practices was provided early on in the Covid-19 crisis in the US. As during the national disaster.” reported by the New York Times, while on a three-day shopping spree that began on March 1, the day after the 35. In determining whether a dominant firm has charged first coronavirus death in the US was announced, two an excessive price to consumers or customers (which is a brothers driving around Tennessee bought all the hand violation of Article 8 of the Competition Act), the regu- sanitizers they could find in stores across the state. They lations establish that during the period of the national ended up with a stock of 17,700 bottles of hand sanitizer disaster, a material price increase of a good or service liquid and thousands of packs of antibacterial wipes. which “does not correspond to or is not equivalent to the They then started offering them for sale on Amazon for increase in the cost of providing that good or service,” prices which were multiple times the price they had paid. or “increases the net margin or mark-up on that good or They succeeded in selling 300 bottles of hand sanitizer service above the average margin or mark-up for that good on Amazon the first day of their offering before Amazon or service in the three month period prior to 1 March 2020,” removed their listing and warned sellers they would be is a relevant and critical factor for determining whether suspended for price gouging. On March 14, the New York the price is excessive or unfair and indicates prima facie Times ran the story on the attempt at price gouging by that the price is excessive or unfair. Furthermore, during the two brothers, who, faced with a public backlash and the period of national disaster, such a price increase is an investigation for price gouging, eventually decided to also an unconscionable, unfair, unreasonable and unjust give their remaining stock to charities on March 15.11 price increase and a supplier is prohibited from effecting such a price increase in accordance to Articles 40 and 48 of the Consumer Protection Act No. 68 of 2008.

10 A. Usova, Investigations into price hikes and other responses by the Ukrainian competi- 12 A. Usova, Investigations into price hikes and other responses by the Ukrainian competition authority to the Covid-19 crisis. tion authority to the Covid-19 crisis. supra note 10.

11 J. Nicas, The Man With 17,700 Bottles of Hand Sanitizer Just Donated Them, New York 13 M. Griffiths, South Africa: Comprehensive package of antitrust measures adopted in re-

Times, 15 March 2020. sponse to Covid-19 pandemic. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

8 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 36. According to a press release from the Competition 40. On 23 March 2020, the European Competition Commission of South Africa,14 as of 31 March 2020, Network (network of competition enforcement author- the SACC had sent over 100 letters to national retailers, ities in the European Union—ECN) issued a joint state- suppliers and independent retailers with respect to allega- ment15 in which it stated that it understood that this tions of excessive prices. 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. It then suggested that it would not “in the current circum- III. Coordination stances” “actively intervene against necessary and temporary measures put in place in order to avoid a shortage of among competitors supply.” The justification given by the members of the ECN not to intervene is that under the current circum- 37. The second major concern of competition autho- stances “such measures are unlikely to be problematic, since rities in a time of crisis due to the Covid-19 pandemic they would either not amount to a restriction of compe- concerns the possibility that firms may seek to or have tition under Article 101 TFEU/53 EEA or generate effi- to coordinate in order to alleviate the shortages of essen- ciencies that would most likely outweigh any such restric- tial products or services necessary to limit the spread of tion.” Finally, ECN members called on companies having the virus or to treat it or to discover a vaccine against doubts about the compatibility of such cooperation it. Competition authorities are under some pressure to initiatives with EU/EEA competition law to reach out allow such horizontal coordination or cooperation, to the Commission, the EFTA Surveillance Authority or which seems desirable, at least from a public interest the national competition authority concerned at any time perspective. An example of such pressure is provided by for informal guidance. an article co-authored by Klaus Schwab (founder of the World Economic Forum) and Guido Vanham (professor 41. The ECN joint statement raises a couple of interes- of virology at the University of Antwerp) and published ting issues. It seems to indicate that besides the preoccu- on the WEF website on 13 April 2020 entitled “What pation with an adequate supply, ensuring the fairness of we must do to prevent a global Covid-19 depression,” the distribution of goods or services may also be a justi- in which they state: “Of course, we could be lucky that fication for the cooperation of competitors. It further an existing, already approved drug could also act against suggests that the reasons for which ECN members would this virus, or that an efficacious Covid drug could prevent not intervene against necessary and temporary measures mortality and promote recovery of infected subjects. On to avoid a shortage of supply (or an unfairness of the the former, mass screening is happening today, so we will distribution of the products or services) is that “in the know soon. Also new schemes for rapid testing of candidate current circumstances” cooperation among firms to vaccines are set up and a suitable candidate could emerge reach those goals would in all likelihood not amount within months. But even then, it will take time to produce to a restriction of Article 101 TFEU/53 EEA or would and deliver it on a worldwide scale. Nevertheless, all global “generate efficiencies that would most likely outweigh any stakeholders should provide all their support, financially as such restriction.” well as through bureaucratic means, to get to this solution as fast as possible. This is a time for collaboration, not 42. The first issue is thus the recognition of the fact that competition.” the determination of what is anticompetitive or what contributes to economic progress depends on “the current 38. On the whole, competition authorities have stated circumstances.” Such a position is a welcome evolution that they would not prioritize such agreements in their with respect to the perceived principled (some would enforcement activity. This reduces the risk that compe- say “dogmatic” or “rigid”) approach followed by many tition authorities will start ex officio proceedings against ECN competition authorities when it comes to adopting such cooperation agreements. However, this does not infringement decisions in agreements, exchange of infor- guarantee that such agreements are not going to be chal- mation or collusion cases. The tendency, at least in lenged in courts on their compatibility with competition Europe over the last twenty years, has been to consider law or that competition authorities are always going to more and more horizontal practices as per se violations be able to avoid investigating them since such agreements of competition law (in spite of some attempts by the can be referred to them by third parties and since, at least CJEU to restrict the definition of per se violations) in in some countries, competition authorities cannot refuse order to alleviate the burden of proof for competition to investigate in the case of a referral. authorities (and to lessen the risk that their decisions may be overturned on appeal). Simultaneously competition 39. There are significant differences in the reasons given authorities have generally been unconvinced by the effi- by competition authorities for not prioritizing horizontal ciency arguments put forth by violators. Thus there was agreements implemented to alleviate the effects of the less and less scope to consider the circumstances in which health crisis. those horizontal practices were implemented.

14 Competition Commission of South Africa, Covid-19 update: Competition Commission 15 Antitrust: Joint statement by the European Competition Network (ECN) on application

flooded with over 500 complaints of excessive pricing, 31 March 2020. of competition law during the Corona crisis. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 9 43. The second interesting issue is that of the efficiency 48. In another case, the Spanish Competition Authority defence of competition violations. The joint statement by found that an agreement between an association of the ECN members seems to imply that in the “current pharmacists in the Castilla-La Mancha region and the circumstances” efficiencies would most likely outweigh regional health service was akin to an illegal market-sha- any of the competition restrictions associated with short- ring agreement to the extent that it introduced a rotation term collective efforts at avoiding supply shortages or at among pharmacists for the supply of medicine to health ensuring a fair distribution of the available supply. centres.17 The decision of the Spanish Competition Authority was subsequently confirmed by the Appeal 44. It must be recalled, first, that the ECN members Court and the Supreme Court. competition authorities cannot apply Article 101(3) TFEU since this is a prerogative of the European 49. However, the circumstances surrounding the hori- Commission. If they consider that in a case the condi- zontal agreements in those cases were different from tions of Article 101(3) are met, they can only decide that the circumstances which prevail in the current Covid-19 there is no ground to pursue the case but they cannot crisis. Those decisions dealt with anticompetitive issues positively state that Article 101(3) applies. Such deci- at times when the markets for medical supplies or services sions by national competition authorities do not prevent were not affected by the kind of massive shortages expe- the EC Commission from finding differently. It is thus rienced in many European countries since the beginning somewhat surprising that the ECN members state that the efficiencies generated by horizontal cooperation of the Covid-19 crisis. Thus, the claims by the authors of among firms trying to increase the supply of goods or these practices that they were necessary to better balance the fair distribution of those goods in relation with the supply and demand or to ensure a smoother or fairer Covid-19 crisis would, in all likelihood, outweigh the distribution of the medical services did not seem to be restrictions of competition inherent to this cooperation. sufficiently credible justifications to outweigh the competition restriction that they implied. In addition, those 45. In the past European national competition authorities decisions dealt with practices which entailed a restric- have often considered that competition restrictions among tion in the ability of some market participants to expand the suppliers of medicine or among health service providers output as opposed to the more common case in an acute did not lead to the kind of efficiencies referred to in the ECN shortage of agreements designed to allow an orderly joint statement or that these efficiencies did not outweigh expansion of the output of the participating firms. the negative impact of the competition restrictions. 50. Circumstances are quite different when the world is 46. For example, in July 2013, the Bundeskartellamt subject to a deadly pandemic and a massive short-term concluded a cartel administrative proceeding against disequilibrium between supply and demand for a number the Brandenburg ophthalmologists cooperative of medicines, test kits, a vaccine, etc., necessary to face the “Augenärztegenossenschaft Brandenburg” and the pandemic. It is clear that, over time, private initiative and health insurance fund AOK Nordost.16 In this case, the self-interest in the context of competitive markets will participation in two selective contracts and member- bring those markets back to equilibrium. But the relevant ship in the Brandenburg ophthalmologists cooperative question is: how long will it take? There is no time to wait had only been allowed to ophthalmologists who had as the pandemic spreads throughout the world bringing an accreditation in Brandenburg to provide health care with it massive negative externalities in the form of lost services within the statutory health insurance scheme. lives and the opportunity cost of confinement. Thus the The Bundeskartellamt found that these arrangements short-term cost of not allowing agreements which may which excluded Berlin ophthalmologists, who were contribute to increasing supply of essential medicine and authorized to invoice their services in Brandenburg but services and allowing for a smoother (and fairer) distri- were only active in a branch practice or as a member of a bution of these goods and services may outweigh the joint practice, restricted competition among ophthalmol- benefits that protecting competition may entail in the ogists in Brandenburg. long run. The flip side of this approach is, of course, that 47. The parties argued that these restrictive agreements when the agreements do not limit the short-term costs were justified by the desire to attract a sufficient number of massive market disruptions, it is less likely that effi- of ophthalmologists to be permanently installed in ciency benefits will be considered to outweigh horizontal Brandenburg and the desire to improve the distribution competition restrictions because there is an immediate of ophthalmological services in this region by having a benefit (rather than a cost) to preserving competition in sufficient number of “close to home” practitioners. The the short run and the efficiency benefits usually take a Bundeskartellamt refused to give this agreement an number of years to manifest themselves. exemption under § 2 of the Act against Restraints of Competition (the national equivalent to Article 101(3)), 51. On 8 April 2020, the Commission published a arguing that a restriction in competition among doctors Communication on the establishment of a tempo- was necessarily prejudicial to patients. rary framework for assessing antitrust issues related to

16 Bundeskartellamt, Bundeskartellamt opens up competition among ophthalmologists 17 Comisión Nacional de la Rompetencia, Resolución (Expte. 639/08 Colegio Farmacéuticos

from different federal states in Germany, 2 July 2013. Castilla-La Mancha) 14 de abril de 2009. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

10 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis the Covid-19 outbreak.18 This communication is exten- certain coordination of which site produces which medi- sively discussed in the paper of Faustine Viala and David cines. Such exchanges and coordination between under- Kupka.19 In its communication, the Commission suggests takings are in normal circumstances problematic under that different measures may contribute to bridging EU competition rules. The Commission, however, states between demand and supply on markets. In that perspec- that such measures—in view of the emergency situa- tive, some cooperation among firms does not raise tion and their temporary nature—would not give rise competition concerns under certain conditions. This is, to an enforcement priority for the Commission as long for example, the case of: as (i) they would be designed and objectively necessary to actually increase output in the most efficient – entrusting to a third party the task of coordi- way to address or avoid a shortage of supply of essen- nating joint transport for input materials; tial products or services, such as those that are used to treat Covid-19 patients; (ii) they would be temporary in – identifying those essential medicines for which, in nature (i.e., to be applied only as long there is a risk of view of forecasted production, there are risks of shortage or in any event during the Covid-19 outbreak); shortages; and (iii) they would not exceed what is strictly necessary – gathering aggregate production and capacity to achieve the objective of addressing or avoiding the information (without exchanging individual shortage of supply. company information); 55. The position of the EU Commission that such agree- – elaborating a model to predict demand on a ments are not a priority of the Commission is prima facie Member State level, and identifying supply gaps; difficult to reconcile with the ECJ Judgement in theIrish – sharing aggregate supply gap information, and beef case where the court held that anticompetitive agree- requesting that participating undertakings, on an ments designed to remedy a crisis in a sector are per se individual basis and without sharing that infor- violations of EU competition law:20 “(…) even supposing mation with competitors, indicate whether they it to be established that the parties to an agreement acted can fill the supply gap to meet demand (either without any subjective intention of restricting competi- through existing stocks or increase of production). tion, but with the object of remedying the effects of a crisis in their sector, such considerations are irrelevant for the As long as no flow of individualized company informa- purposes of applying that provision. Indeed, an agreement tion seeps back to competitors, such cooperation does may be regarded as having a restrictive object even if it does not seem to be problematic from the point of view of not have the restriction of competition as its sole aim but European competition law. also pursues other legitimate objectives (General Motors v Commission, paragraph 64 and the case-law cited). It is 52. But the Communication of the Commission goes only in connection with Article 81(3) EC that matters such further and acknowledges that there might be a need in as those relied upon by BIDS may, if appropriate, be taken the health sector for firms to go beyond the aforemen- into consideration for the purposes of obtaining an exemp- tioned uncontroversial types of cooperation and to coor- tion from the prohibition laid down in Article 81(1) EC.” dinate the reorganization of production with a view to increasing and optimizing output so that not all firms 56. Furthermore, the claim that anticompetitive agreements focus on one or a few medicines, and other medicines designed to increase supply of health products or services remain in underproduction, where such reorganization and ensure their fair distribution, if anticompetitive, would allow producers to satisfy demand for urgently would automatically be exempted under Article 101(3), needed medicines across Member States. which states that the prohibition on anticompetitive agreements may be inapplicable where an agreement contrib- 53. In other words, the Commission accepts the idea that utes “to improving the production or distribution of goods or there can be such a thing as a short-term failure of purely to promoting technical or economic progress, while allowing competitive markets to deliver in a timely manner the consumers a fair share of the resulting benefit” (and there- quantity and variety of medical products which is needed fore would not be worth pursuing), is a departure of the to satisfy demand for urgently needed medicine. In other past practice of the Commission since, following the words, the Commission recognizes implicitly that in a modernization of EC law in 2004, it has never accepted an pandemic, long-run efficiency benefits may come at a Article 101(3) defence. high cost in the short run. 57. Finally, the Commission states that the fact that 54. In such cases, according to the Commission, the a cooperation is encouraged and/or coordinated by a measures to be taken to adapt production, stock manage- public authority (or carried out within a framework set ment and distribution in the industry may require up by the latter) is also a relevant factor to be taken into exchanges of commercially sensitive information and a account to conclude that such cooperation would not be problematic under EU competition law or would not be an enforcement priority for the Commission. This last consideration reverses the traditional approach 18 Communication from the Commission – Temporary Framework for assessing antitrust issues related to business cooperation in response to situations of urgency stemming from the current Covid-19 outbreak.

19 F. Viala and D. Kupka, Cooperation between companies in times of health crisis. 20 Judgement of the Court (Third Chamber), 20 November 2008, Case C-209/07. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 11 that ministerial encouragements to an anticompetitive 61. On 24 March 2020, the Federal Trade Commission practice are no excuse under competition law. It must be and the US Department of Justice Antitrust Division recalled that in the Irish Beef case previously referred to, issued a joint statement also providing guidance for the Irish government had supported the agreement to collaborations of businesses working to protect the health reduce capacity in the Irish beef industry. and safety of Americans during the Covid-19 pandemic that is discussed in Daniel A. Crane’s paper.21 58. It thus appears that the Commission will not prioritize cases of horizontal cooperation between firms to alle- 62. The starting point of the US agencies is, as in the case viate the shortages of essential products or services in the of the European Commission, the recognition of the context of the Covid-19 crisis for reasons other than the fact that health care facilities may need to work together fact that it considers that such agreements do not raise a in providing resources and services to assist patients, competition issue. On the one hand, it implicitly considers consumers, and communities affected by the pandemic that horizontal cooperation among competitors designed and its aftermath and that other businesses may need to to increase output in a situation of acute shortage (or to temporarily combine production, distribution, or service facilitate the optimal distribution of goods and services) networks to facilitate production and distribution of should be treated differently than agreements which Covid-19 related supplies. restrict output even if they have anticompetitive features; on the other hand, The Commission is willing to recog- 63. The first object of the joint FTC–DOJ statement is nize (within limits) that when its enforcement might clash pedagogical. The US agencies want to “make clear to the with the public interest objective of restoring as fast as public that there are many ways firms, including competi- possible the smooth supply of products and services tors, can engage in procompetitive collaboration that does necessary to the health of EU citizens, correcting the not violate the antitrust laws.” Basing themselves on the negative externalities created by the shortage should case law, the agencies point out that when firms collab- trump the goal of preserving competition at all costs. orate on research and development this “efficiency-enhancing integration of economic activity” is typically 59. In order to provide both guidance and legal predic- procompetitive, “that sharing technical know-how, rather tability the Communication states that the Commission than company-specific data about prices, wages, outputs, will “provide guidance to undertakings and trade associa- or costs, may be ‘necessary to achieve the procompeti- tions with respect to specific cooperation initiatives with an tive benefits of certain collaborations’(…) that most joint EU dimension, that need to be swiftly implemented in order purchasing arrangements among healthcare providers, such to effectively tackle the Covid-19 outbreak, especially as those designed to increase the efficiency of procure- where there is still uncertainty about whether such initia- ment and reduce transaction costs, do not raise antitrust tives are compatible with EU competition law” and “stands concerns.” ready, exceptionally and at its own discretion, to provide such guidance by means of an ad hoc ‘comfort’ letter.” 64. Over and beyond references to past elements of jurisprudence, the US agencies announce that they will 60. On 8 April 2020, the EU Commission issued its account for “exigent circumstances” in evaluating efforts first “comfort letter” to generics association Medicines to address the spread of Covid-19 and its aftermath. For for Europe (an association of generic pharmaceutical example, they acknowledge that health care facilities may companies), giving it assurances that a specific volun- need to work together in providing resources and services tary cooperation project among generic pharmaceutical to communities without immediate access to personal companies (which produce the largest part of critical protective equipment, medical supplies, or health care or hospital medicines) to develop a list of products needed that other businesses may need to temporarily combine in intensive care units and to identify the risks of short- production, distribution, or service networks to facilitate ages of critical hospital medicines for the treatment of production and distribution of Covid-19 related supplies Covid-19 patients would not fall foul of antitrust rules. they may not have traditionally manufactured or distrib- Based on publicly available information, under exemp- uted. The US agencies thus recognize that “[t]hese sorts of tion granted by the Commission in two days, the compa- joint efforts, limited in duration and necessary to assist patients, nies would be allowed to share active pharmaceutical consumers, and communities affected by Covid-19 and its ingredients (“APIs”) along with “intermediates,” which aftermath, may be a necessary response to exigent circum- are semi-finished versions of medicines. They may also stances that provide Americans with products or services need to communicate when deciding whether to transfer that might not be available otherwise.” Additionally, production of a medicine from one site to another in order where the government enlists help from private busi- to increase production capacity. Distribution may also nesses in addressing Covid-19, the US agencies stand be coordinated on an ongoing basis. The Commission, ready to assist, such as by working with the Department however, required that only indispensable information of Health. should be exchanged (any discussion on prices or other non-essential matters is likely to result in an investigation 65. Even though the EU Communication seems to be by the Commission), that the project should be open to all aligned with the joint statements of the US agencies, the companies that wish to participate and that all meetings latter is much less explicit than the former both on the should be reported. This cooperation should only last during the pandemic and the Commission will inform

Medicines for Europe when it is necessary to end it. 21 D. A. Crane, Antitrust during (and especially after) a global pandemic. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

12 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis possible conflicts between antitrust laws and the neces- clearly in the public interest; (iii) contribute to the benefit sity to deliver rapidly and speedily the essential elements or well-being of consumers; (iv) deal with critical issues necessary to fight the pandemic and the use of their pros- that arise as a result of the Covid-19 pandemic; and (v) ecutorial discretion. last no longer than is necessary to deal with these critical issues. 66. Together with their statement, the US antitrust agencies also provide for an “expedited procedure” 72. Thus the CMA, unlike the ECN members, does not for Covid-19 public health projects. The agencies will cast its policy in terms of a balance between the cost of respond to all Covid-19 related requests, and resolve competition restrictions and the efficiency benefits that those addressing public health and safety, within seven they entail. It is more concerned with public interest calendar days of receiving all information necessary to considerations, which in the pandemic period guide its vet these proposals, thus offering a quicker review than prioritization of cases. existing FTC and DOJ programs that are designed to provide guidance to businesses concerned about the 73. The second part of the CMA’s message deals with how, legality of proposed conduct under the antitrust laws. in the unprecedented context of the Covid-19 pandemic, it will apply the criteria for exemption from the compe- 67. Other national competition authorities outside the tition law prohibition on agreements and arrangements EU have also signalled their willingness to allow, at restricting competition. least temporarily, cooperation or coordination between competitors whenever such cooperation or coordina- 74. The CMA recalls that under Section 9 of the tion is necessary to avoid a shortage due to the Covid-19 Competition Act 1998, an agreement that restricts crisis, or ensure security of supply. competition is exempt from the prohibition on agreements and arrangements restricting competition if it 68. This is, for example, the case of the United Kingdom’s meets four criteria. It must contribute to improving Competition and Markets Authority, which on 25 March production or distribution, or promoting technical or 2020 published its approach to business cooperation in economic progress. It must allow consumers a fair share response to the crisis.22 The CMA makes clear that it of the resulting benefit. It must not impose on the under- will not “tolerate conduct which opportunistically seeks to takings concerned restrictions which are not indispens- exploit the crisis,” that its approach to business cooper- able to the attainment of those objectives. Finally, it must ation is limited to matters relating strictly to, or arising not afford the undertakings concerned the possibility of directly out of, the Covid-19 pandemic and that it will eliminating competition in respect of a substantial part withdraw its guidance when it considers that it is no of the products or services in question. longer necessary. 75. In its guidance the CMA then states that cooperation 69. The CMA approach is two-pronged. that ensures essential goods and services can be made available to the public or an important sub-set of the 70. First, the CMA explains how it will prioritize cases public such as key workers or vulnerable consumers will during the Covid-19 outbreak. One of the key strategic be considered efficiency-enhancing. It states that coop- objectives for the CMA included in the CMA’s Annual eration which avoids or mitigates shortages will be likely Plan for 2020/2021 is that of “protecting consumers, to be considered as giving consumers a fair share of the including in particular those in vulnerable circum- benefits. It goes on to state that to assess the indispens- stances.” Further, according to the CMA’s Annual Plan ability of the cooperation, the key factor will be whether, for 2020/2021, it intended to “sharpen its focus on what in the circumstances and limited time available to matters to consumers” so that its “interventions deliver consider alternatives, the cooperation could reasonably impact where it is most needed.” The CMA uses these high have been considered necessary. The extent to which the level objectives and intentions to delineate the area where cooperation is temporary in nature will be an important it will refrain from taking action. consideration to assess the admissibility of the competition restriction as well as the fact that it is strictly limited 71. The CMA considers that providing a sufficient to what is necessary to alleviate the shortage. amount of product or services to slow the pandemic or to treat affected patients is what is most needed by 76. Thus the CMA considers that the definition of effi- consumers who are vulnerable to the coronavirus. It also ciencies should not be restricted to narrow economic acknowledges that cooperation among companies may considerations on price or quality and is willing to be needed to achieve the goals of ensuring the supply consider as efficiencies more qualitative aspects such as and the fairness of the distribution of the scarce products the relevance of the distribution to meet the needs of and services to all consumers. Therefore the CMA will key workers. The CMA also considers that coordina- refrain from taking enforcement actions if the coordination to either increase output or improve the distribution measures (i) are appropriate and necessary in order tion of existing output is necessarily fair to consumers. to avoid a shortage, or ensure security of supply; (ii) are Finally, it recognizes that the “indispensability” condition for exemptions very much depends on the hypothesis one makes about possible alternatives which themselves are dependent on the time frame one considers. For the 22 Guidance, CMA approach to business cooperation in response to Covid-19, 25 March

2020. purpose of exempting cooperation in the medical field to délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 13 deal with the Covid-19 pandemic, the CMA is willing to will do whatever it takes to help them feed the nation. By restrict the analysis to the short term and to accept that relaxing elements of competition laws temporarily, our the indispensability criterion is fulfilled even if alterna- retailers can work together on their contingency plans and tive but longer-term solutions (such as a readjustment of share the resources they need with each other during these supply and demand over time) to cooperation existed. unprecedented circumstances. We welcome the measures supermarkets are already taking to keep shelves stocked and supply chains resilient, and will continue to support IV. Exemptions them with their response to coronavirus.” 79. Business Secretary Alok Sharma said: “In these from competition extraordinary and challenging times it is important that we remove barriers to our supermarkets working together to serve customers, particularly those who are elderly, ill law or vulnerable in all parts of the UK. The temporary relax- 77. Finally, in other countries, the Covid-19 crisis has ation of competition law for the food sector will allow elicited different reactions than a simple adjustment of supermarkets to cooperate with each other to keep their competition authority practices. For example, in South shops staffed, their shelves stocked, and the nation fed. Africa, as documented in the paper of Mark Griffiths,23 I am clear that we will continue to do whatever it takes to the government, on the one hand, introduced new rules support business through this extremely difficult period.” to deal abusively high prices of essential products and, on The press release of the UK government announced that the other hand, temporarily suspended the application of legislation would be laid shortly to amend elements of the competition law in key sectors to facilitate the coor- the Competition Act 1998, which prevents certain types dinated response of the private sector and to support the of anticompetitive behaviour, and that this relaxation actions taken by the South African government in dealing would be temporary and limited to enabling retailers: “to with the pandemic. The Covid-19 Block Exemption work together for the sole purpose of feeding the nation for the Healthcare Sector exempts from the applica- during these unprecedented circumstances.” tion of Sections 4 and 5 of the Act (prohibiting anticompetitive horizontal and vertical agreements) agree- 80. This approach has also been followed in Germany to ments undertaken at the request of, and in coordination ensure the continuity of food supply. with, the Department of Health for the sole purpose of responding to the Covid-19 pandemic national disaster. Two other block exemptions were granted: the “Banking Block Exemption allows cooperation between banks in V. Crisis cartels the context of the Banking Association of South Africa (BASA), the industry trade association, and the Payments 81. Given the fact that many markets will be negatively Association of South Africa (PASA) (…) for the sole impacted by the economic crisis which is looming, there purpose of responding to the Covid-19 pandemic,” and an is considerable interest in discussing whether crisis cartels exemption for the retail property sector (the Retail Block will be treated more leniently in the future than they have Exemption) was adopted on 24 March 2020. “This block been in the past. This issue is discussed at length in the 24 exemption seeks to assist the provision of relief to retail paper of Christian Ritz both in the European context tenants whose businesses fall within the following desig- and more specifically in the German context. In general, nated trading line: clothing, footwear and home textile the conditions to benefit from a crisis cartel defence are retailers; personal care services; and restaurants.” Thus, quite strict. The firms must show that: (i) the overcapacity unlike in previously mentioned countries, there is a clear is structural and permanent and is unlikely to be resolved concern in South Africa that competition law is inade- by individual decisions except at a very high social cost; quate or insufficiently flexible or adaptable to deal with (ii) the coordination will result in a reduction in capacity collusion in a period of acute crisis. which will restore the competitiveness of the industry; (iii) the agreement is strictly limited in its scope and in 78. Along the same lines, the United Kingdom govern- its duration to the coordinated reduction in capacity; (iv) ment also announced on 19 March 2020 that it tempo- the consumers will not suffer in the short run and will rarily relaxed elements of competition law as part of benefit in the long run from the elimination of the over- a package of measures to allow supermarkets to work capacity; and (v) firms will maintain competition among together to feed the nation. The move allows retailers them during the time of the agreement. to share data with each other on stock levels, cooperate to keep shops open, or share distribution depots and 82. It is very unlikely that competition authorities will delivery vans. It would also allow retailers to pool staff modify their strict criteria for the admissibility of the with one another to help meet demand. Environment crisis cartel defence. This means that only agreements Secretary George Eustice said: “We’ve listened to the which are clearly aimed at collectively reducing overca- powerful arguments of our leading supermarkets and pacity to the exclusion of any other cooperation have a

23 M. Griffiths, South Africa: Comprehensive package of antitrust measures adopted in re- 24 C. Ritz, “Crisis Cartels” in times of Covid-19: Lessons from former crises teach a cautious

sponse to Covid-19 pandemic. supra note 13. approach. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

14 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis chance to benefit from this exemption. Furthermore, the delay the payment of antitrust fines. However, the deferred possible candidates for a crisis cartel defence should be fines must be paid with interest. It was announced on 29 industries characterized by high fixed cost and compar- April 2020 that the German government had approved a atively low variable costs since in those industries firms draft law to be sent to Parliament according to which firms can be tempted to wait longer to leave the market even fined by the Bundeskartellamt for antitrust breaches would if the depressed prices do not cover their average costs be temporarily relieved (until June 2021) from interest but allow them to cover their variable costs, thus contrib- payments if they need to deal with the impact of the uting to make the overcapacity permanent and struc- Covid-19 crisis. It was reported that the Bundeskartellamt tural. Similarly markets where firms face high exit costs had told the Economy Ministry that it had received (for example because they have to clean up the pollution several notifications from sanctioned companies that were that they created or because their investments costs are unable to pay fines due to financial constraints caused by sunk), individual firms, even in the presence of overca- the coronavirus crisis. pacity, may not find it possible to exit the market, thus making the overcapacity structural.

83. However, one of the crucial questions is whether (and VII. Merger control to what extent) the macroeconomic environment is going to make a difference in the assessment by competition and control of foreign authorities of the structural nature of the overcapacity and of the social and economic cost of letting firms adjust individually if the crisis cartel defence is rejected. direct investment In addition, uncertainties about the impact of the crisis 87. With respect to the impact of the Covid-19 crisis on on future demand for particular services (for example, merger controls, several considerations are in order. aircraft manufacturing, air travel or demand for cruises and cruise ships) may complicate the analysis of compe- 88. First, the confinement of competition officials has tition authorities by raising their risk of costly errors in proved to be problematic for merger control because of refusing the crisis cartel defence. the strict deadlines which characterize merger control procedures in most countries and because of the difficulty to access the information necessary to make a decision.

VI. Cartel sanctions 89. As a result, a number of European competition 84. Finally, there is the question of the severity of sanc- authorities have asked firms to defer new merger notifications of anticompetitive practices in a period of economic tions; others have suspended the deadlines. crisis. Aymeric de Moncuit reminds us of the fact that the Guidelines of the EC Commission on the method of 90. For example, the European Commission has encour- setting fines25 state in paragraph 35 that: “In exceptional aged companies to delay merger notifications originally cases, the Commission may, upon request, take account of planned until further notice, wherever possible. The the undertaking’s inability to pay in a specific social and Commission has stated that it expects delays in the collec- economic context. It will not base any reduction granted tion of information from third parties, such as customers, for this reason in the fine on the mere finding of an adverse competitors and suppliers. The Commission reportedly or loss-making financial situation. A reduction could suspended three Phase II merger investigations due to be granted solely on the basis of objective evidence that companies failing to comply with information deadlines, imposition of the fine as provided for in these Guidelines including the EssilorLuxottica/GrandVision merger due would irretrievably jeopardise the economic viability of to difficulties of collecting data from opticians in Italy the undertaking concerned and cause its assets to lose all and France that have been forced to close due to the their value.” A number of European national competi- pandemic. tion regimes also allow competition authorities to take into consideration the competition law violators’ ability 91. Other competition authorities, such as the Belgian to pay in the determination of their sanction. Competition Authority or the French Competition Authority, the German Bundeskartellamt, the Irish 85. This offers only a fairly limited scope for firms guilty Competition Authority, the CMA in the UK and a few of an anticompetitive agreement to argue that they others also have encouraged companies to delay merger should be treated leniently. notifications.

86. But it should be noted that in some countries there has 92. A number of other competition authorities have been (modest) consideration of the impact of the Covid-19 suspended the review period for mergers. For example, crisis on the ability of competition law violators to pay their in Austria the review period for mergers which were fines. For example, in Germany, the Bundeskartellamt can notified between 23 March and 30 April 2020 will only start running on 1 May 2020 (including applications to initiate Phase II); the Danish Competition and Consumer Authority has suspended deadlines for merger 25 Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of

Regulation No 1/2003. control until 10 May 2020, The Italian Competition délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 15 Authority has suspended all deadlines from 23 February 99. This decision shows how rapidly a successful company to 15 May 2020, the French Competition Authority has can become a failing firm in a period of economic turmoil suspended merger control deadlines as of 12 March 2020 such as the Covid-19 crisis and how competition author- until one month after the expiration of the current state ities can be led to accept transactions which in normal of emergency. Similarly, in Poland legislation was passed times would raise competition issues. which suspended deadlines for mergers notified before 14 March 2020 and deadlines for mergers notified after 100. Third, the Amazon/Deliveroo case is an excellent that date will only start running after the state of emer- introduction to the question of whether the failing firm gency has ended. In Norway, merger deadlines have defence may need to be revisited in an economic crisis, temporarily been extended due to the Covid-19 outbreak. a question discussed at length by Jacques Buhart and The new deadlines apply until 31 October 2020. David Henry in their paper.26 They observe that the failing firm defence is rarely invoked, strictly applied and 93. Second, if there has been little merger control activity often unsuccessful. The reason for the lack of success in Europe since the beginning of the crisis, we have none- of the failing firm defence is the very exacting standard theless seen that the Covid-19 crisis could have a signif- of proof required to meet the three elements that are icant influence on the assessment of mergers in the case required for the defence to be accepted, that is: (i) the of the Amazon/Deliveroo merger in the UK. Indeed failing firm would be forced out; (ii) there is no less anti- on 19 April 2020 the CMA announced that in light of competitive alternative than the merger; and (iii) the the deterioration in Deliveroo’s financial position as a assets of the merging firm would leave the market. They result of the Covid-19 crisis, it had provisionally cleared propose the introduction of a truncated and simpler Amazon’s purchase of a minority stake in Deliveroo. administrative procedure/test with respect to the application of the failing firm defence which would not require 94. After completing an initial Phase I investigation, the a change in the EU merger regulation but would simply CMA had been concerned that the deal could damage require a lighter burden of proof on each of the three competition by discouraging Amazon from re-entering elements required for a successful defence. the online restaurant food market and further developing its presence within the online convenience grocery 101. Fourth, an opposite area of concern with respect to delivery market in the UK. transnational mergers is the risk that foreign firms may take advantage of the undervaluation of European assets due 95. However, the CMA has also found that Deliveroo—a to the precipitous decline in the stock market following highly successful company which has grown strongly and the Covid-19 crisis to acquire strategic European firms with the risk of alienating our technological independence. accounts for a significant share of the online restaurant platform market in the UK—is, however, particularly 102. Mario Siragusa and Cesare Rizza27 discuss the reliant on continued investment to be able to support its possible response to the exacerbated risk to the European operations. During the Phase II investigation it became Union strategic capabilities caused by the volatility or clear that the crisis and the lockdown had resulted in the undervaluation of the stock markets and the fact that closure of a large number of the key restaurants avail- in some countries, China for example, firms are not able through Deliveroo, and a significant decline in its bound by the same competition rules as European firms. revenues. They suggest that there could be a complement to the Communication of the EC Commission of 25 March 96. As a result, Deliveroo informed the CMA that the 2020, Guidance to the Member States concerning foreign impact of the coronavirus pandemic on its business direct investment and free movement of capital from meant that it would fail financially and exit the market third countries,28 following the December 2019 Dutch without the Amazon investment. Deliveroo’s submission call for giving the European Commission the power to was supported by evidence from the company’s financial intervene by initiating an investigation if a third-country advisers. company restricts or threatens to distort competition in the internal market. 97. On this basis, the CMA provisionally concluded that Deliveroo’s exit from the market would be inevitable 103. To a large extent this concern is consistent with the without access to significant additional funding, which concerns of competition authorities, but restricting the the CMA considers that only Amazon would be willing possibilities of foreign takeovers of firms may also reduce and able to provide at this time. “The CMA currently the pressure under which they are to be as nimble and considers that the imminent exit of Deliveroo would be worse for competition than allowing the Amazon investment to proceed and (…) therefore provisionally found that 26 J. Buhart and D. Henry, Covid-19 and EU merger control: Time to loosen the FFD the deal should be cleared.” straitjacket?

27 C. Rizza and M. Siragusa, Two challenges posed by the economic shock caused by Covid- 98. In its press release on the merger, the CMA explained 19 to the level playing field in the EU internal market: The current State aid race and the that while securing additional funding from other sources risk of hostile takeovers by state-owned companies from third countries. may have been possible for Deliveroo before the corona- 28 Communication from the Commission – Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, and the virus outbreak, the pandemic has severely limited the protection of Europe’s strategic assets, ahead of the application of Regulation (EU)

availability of finance for early-stage businesses. 2019/452 (FDI Screening Regulation), C(2020) 1981 final (25 March 2020). délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

16 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis as efficient as possible with the result that the intensity active pharmaceutical ingredients and raw materials; of competition would be weakened on markets. In their medical devices, hospital and medical equipment (inclu- paper Christian Ahlborn, Christoph Barth and David ding ventilators and protective clothing and equipment, dos Santos-Goncalves address the issue and show how and diagnostic tools), necessary raw materials; disin- “the pandemic and the resulting global shortages of supply fectants and their intermediary products, raw chemical of medical equipment such as ventilators and protective materials necessary for their production; and data collec- clothing, coupled with opportunistic behaviour by certain tion and processing tools. The aid, which must be granted governments [in Europe and elsewhere], acts as a catalyst before 31 December 2020 in the form of direct grant, for further tightening the existing foreign investment repayable or tax advantage, may cover 100% of all the control regimes in many countries and the creation of new costs necessary for the R&D project during its duration regimes in others.” for fundamental research and 80% of these costs for industrial research and experimental development.

109. The EU Commission had approved, as of the VIII. State aid control last week of April 2020, €1.9 tn of State aid measures, via 95 decisions, covering 26 Member States plus the 104. Finally, the last area of concern associated with the UK. Fifty-two per cent of the aid approved concerns Covid-19 crisis for competition authorities is the area of Germany, raising questions about whether the dispro- State aid. In their paper, Jacques Derenne29 describes in portion between Member States in their ability to grant great detail the European Commission new temporary State aid would not unfairly advantage their economies framework for State aid. and threaten the functioning of the internal market. 105. Pursuant to Article 107(3)(b) TFEU the Commission 110. If the State aid framework established by the may declare compatible with the internal market aid “to Commission has been extremely useful to help a number remedy a serious disturbance in the economy of a Member of firms overcome the liquidity crisis they were facing by State.” getting loans, it remains that as the beneficiaries of State aid become more indebted, their risk of default increases 106. The State aid regime established to face the Covid-19 and they have little possibilities to invest and grow. crisis is an area of great interest to business firms, govern- This means that the possibility to inject capital in firms ments and the European Commission as the lockdown in affected by the Covid-19 crisis is a necessary complement many economies has created a dramatic liquidity crisis to solving their liquidity crisis. for a very large number of firms deprived of any revenues for weeks or even months on end. 111. Since early April, the European Commission has been considering proposals that would allow EU 107. In order to minimize the social and economic cost Member States to provide further support in equity or of this disruption, governments are under pressure to hybrid capital instruments to those businesses directly keep firms alive so that they can restart their activity as affected by the pandemic. It is argued by some that a soon as the confinement period ends. The types of State relaxation of the rules allowing States to subscribe for aid that they can provide to firms to help them weather new equity without massive restructuring would make the liquidity crisis they face and ensure that the disruptions caused by the Covid-19 outbreak do not under- it easier for governments to help keep otherwise viable mine their viability must meet a number of conditions businesses afloat until the crisis has passed. imposed by the Commission. The aid must not exceed €800,000 per undertaking in the form of direct grants, 112. However, the conditions under which the EC repayable advances, tax or payments advantages; the aid framework on State aid could be relaxed to allow such is granted on the basis of a scheme with an estimated capital injections are the object of difficult negotiations. budget; the aid may be granted to undertakings that Among the possible conditions are the fact that compa- were not in difficulty (within the meaning of the General nies given equity injections by EU Member States as a Block Exemption Regulation) on 31 December 2019; the result of the coronavirus would not be allowed to pay aid must be granted no later than 31 December 2020. out dividends, buy back shares or provide bonuses or similar remuneration, according to an official document 108. The Commission has been, by all accounts, extre- seen by the Financial Times. Bailed-out businesses mely fast in establishing the temporary framework (no could also be forbidden to take “excessive risks” or doubt thanks to its experience in the wake of the 2008 even engage in “aggressive commercial expansion.” They financial crisis) on 19 March 2020, extremely reactive could be prevented from buying up rivals or other oper- in amending its framework on 3 April 2020 to enable ators in the same sector while still repaying the State. Member States to accelerate the research, testing and Such conditions would be aimed at preventing “undue production of coronavirus relevant products such as: distortions of competition” and they would be remi- medicines, vaccines and treatments, their intermediates, niscent of similar restraints imposed on the banking sector in the aftermath of the 2008 financial crisis. Furthermore the speed and conditions under which the beneficiaries would have to pay back the aid are also 29 J. Derenne, EU State aid control and Covid-19 outbreak: A first commentary (as of the sit-

uation on 5 May 2020). See also Concurrences No. 2-2020, art. No. 94390. being negotiated. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 17 113. One of the reasons why the negotiations on this 117. First, the importance of the economic shock due relaxation of the framework have not yet succeeded is asso- to the collapse of the economy during the confine- ciated with the fear that it may lead to an unfair compe- ment period and the fact that transportation in all of tition on the internal market. As Elena Carletti, Marco its forms was severely disrupted will have a massive Pagano, Loriana Pelizzon, and Marti G. Subrahmanyam impact on sectors like retail, air travel, aircraft manu- argue,30 “recapitalization with government funding will be facturing, travel services, cruise operators, hotels, restau- substantial in fiscally strong European countries, especially rants, sports, entertainment, etc. In those sectors a large in Germany. There, the state, with its accounts in good order, number of firms either will not be able to withstand and with the newly acquired exemption from the EU ban on the liquidity crisis that they are facing or to adapt to state aid, will go ahead with robust capital injections into a durably reduced demand, which will require them to domestic companies, and with outright nationalizations restructure, to shed extensive overcapacity or to leave the in some industries. Post-crisis, the likely scenario is that market altogether. One can thus expect that mergers and many under-capitalized companies from fiscally stressed attrition are both going to increase concentration on a countries will face competition from stronger foreign rivals large number of markets. strengthened by massive state aid, so that markets will be very far from the ‘level-playing field’ pursued for decades 118. Second, in a number of countries the need to kick by the EU competition authorities. This will be a further start their weakened economies will require massive cause of weakness for the indebted nations, and will make amounts of financial aid for consumers or for infrastruc- their growth rate diverge from the EU average. In addition, ture projects. For each government, however, the risk will European companies in fiscally strong countries will be be that the money injected in its economy will be spent able to use their newly acquired advantage, owing mainly on imports rather than on domestically produced goods to state aid, to compete more aggressively, or even to take and services. One way to avoid this risk is to increase over weaker European competitors, thus disrupting compe- trade barriers to make imports more expensive and less tition not only in Europe’s product markets, but also in its competitive with domestic production. This movement capital markets.” will amplify the desire to restrict exports on strategic goods in order to avoid the possibilities of shortages 114. To alleviate those risks, the authors propose the which we experienced at the beginning of the crisis. creation of a pan-European equity fund, financed by We witnessed a great surge in protectionist measures the EIB, “which would underwrite the issue of new equity following the 2008 financial crisis and we are very likely capital in companies across Europe, would also be open to to see a new surge once recovery legislation is enacted participation from long-term investors such as global asset in the economies hard hit by Covid-19. This means that management firms, pension funds and sovereign wealth import competition is likely to be weaker in the next few funds [and] could be accompanied by the issuance of very years than it was before the crisis erupted. long-term bonds.” This proposal, however, has little chance of being accepted by Germany. 119. A third reason for a weakening of competition is likely to be observed in strategic industries (for example 115. On 8 May 2020, the EU Commission published a in the pharmaceutical sector). In those sectors, public second amendment to the Temporary Framework setting policy will be driven by two sets of considerations. First out the criteria under EU State aid rules, based on which to ensure that sufficient domestic production is available Member States may provide public support in the form (for example by requiring that a certain proportion of of equity and/or hybrid capital instruments to undersupply should be domestically produced). To the extent that global value chains will be (partly) replaced by takings facing financial difficulties due to the Covid-19 domestic value chains, it is likely that the cost of produc- outbreak31. tion of strategic goods and services will increase and that they will become less competitive compared to imported substitutes. After all, in many cases, the reason for which the production of those strategic products had been delo- IX. Competition calized in low-wage countries was to reduce their cost. Thus the local production of those strategic products in the long run will have to be protected from foreign competition, which will involve some international trade and competition 116. The competitive landscape will change compared restrictions. to what it was before the Covid-19 crisis. Several forces will simultaneously lead to a decrease in the intensity of 120. Antitrust was the object of intense debate both in competition. the US and in Europe before the Covid-19 crisis. For the first time in a long time antitrust was heatedly discussed in the context of an upcoming US presidential election. Some critics were arguing that aggregate concentration and profit margins had significantly increased in the US 30 E. Carletti, M. Pagano, L. Pelizzon, and M. G. Subrahmanyam, Germany Will Be a Post- Coronavirus Winner, Bloomberg Opinion, 9 April 2020. and that this meant that competition was decreasing and that competition authorities had failed to protect compe- 31 Communication from the Commission, Amendment to the Temporary Framework for State aid measures to support the economy in the current Covid-19 outbreak, 8.5.2020 C(2020) tition because they were under-enforcing and adhering

3156 final to very narrow interpretations of the goals of antitrust délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

18 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis laws. The rise of the economic power of the GAFAM was nuanced view and believes that the future of antitrust attributed partly to a failure of competition authorities very much depends on whether the crisis will reinforce to stop anticompetitive mergers and a risk for competi- confidence in the establishment or not. Indeed according tion, freedom of choice, privacy and individual freedoms. to Crane, the movement for radical antitrust reform was mostly (in the US) an anti-establishment movement 121. In Europe, there was a partially different contro- rather than one grounded in ideology or theory. versy. The critics of antitrust enforcement, as it was prac- ticed in Europe, were denouncing what they considered to be the excessively narrow perspectives of the European and national competition authorities both geographically X. Conclusion and from the time perspective. European competition 124. Several lessons can be learned from this examina- authorities were thus accused of being unable to consider tion of the impact of the pandemic on competition law competition beyond the confines of European markets enforcement. and to understand that European firms were competing, often unfairly, on world markets either against US giants 125. First, the unwillingness or the inability of compe- or heavily subsidized Chinese state-owned enterprises. tition authorities to deal with the price consequences of Furthermore, particularly with regard to merger policy, market disruptions is incomprehensible for non-special- national competition authorities in Europe were consid- ists and led to questioning the credibility of competi- ered to privilege a static analysis over a more dynamic tion authorities’ claims to promote or protect consumer understanding of markets, entry and competition. welfare. If it is clear that competition law enforcement The (misguided) idea that competition law enforcement, is not the best instrument to deal with price gouging or and in particular merger control, was the main obstacle excessive prices, it may be wise to entrust competition to a sensible and forward-looking European indus- authorities with a complementary consumer protection trial policy gained in popularity and following the EU function to enlarge their ability to intervene against such decision blocking the Alstom-Siemens merger, a number abusive practices. of European politicians were pushing the idea that the European Council should have the power to override 126. Second, in a period of less than fifteen years the the merger decisions of the European Commission on Covid-19 crisis is the second time, after the 2008 crisis, public interest grounds. Simultaneously, the idea that that we are confronted with a massive failure of compet- in the name of the protection of European sovereignty, itive markets to deliver what we expect them to provide the GAFAM should be both regulated and prohibited (adequate supply to meet the demand at competitive from acquiring small start-ups in order to prevent these prices). In 2008 the real estate market and the mortgage start-ups from becoming their competitors has gained market were competitive but they collapsed because ground. neither bankers nor prospective house owners had the right incentives. There is every reason to believe that the 122. So the Covid-19 crisis developed at a time when crit- markets for masks or gloves, or respirators were also icisms of the relevance and effectiveness of competition competitive but they failed to deliver what we needed law agencies were gaining traction on both sides of the when we wanted it. The reasons for these failures are Atlantic. different from the reasons for the failures in 2008. But, as competition specialists, we must admit that competitive 123. It is therefore legitimate to ask how the added diffi- markets may fail to deliver and that in those rare cases culties resulting from the Covid-19 crisis will, in the when they do, the enforcement of competition principles long run, affect the legitimacy of competition, competi- must be adjusted. tion law enforcement and competition policy. Christian 32 Ahlborn et al. warn of the incoming danger of a tight- 127. Third, one of the important features of the Covid-19 ening of foreign investment regimes, the rise of industrial pandemic is that it has pushed competition authorities 33 policy and the return of protectionism. Marcel Boyer to consider the negative externality associated with the feels that the latent discourse against market competition, competitive functioning of the market for a number economic freedom and globalization will be amplified in of products essential to preventing the spread of the the coming months and that the competition community pandemic. will have to fight an uphill battle to ensure the prevalence of sound economic analysis and policy, which is neces- 128. In normal times, competition authorities consider sary for the emergence of more efficient and effective that the long-run collective benefits of competitive ways and means by which public and social goods and markets are such that no short-term disruption or even services should be provided in the future. Daniel Crane,34 threat of disruption of the competitive process is justi- speaking specifically about the US situation, has a more fied. Such a view is acceptable when demand and supply adjust reasonably flexibly on a market. In that case, if a group of consumers cannot find a product they desire 32 C. Ahlborn, C. Barth and D. dos Santos-Goncalves, Foreign investment lockdown. supra at the going price because there has been an unex- note 29. pected increase in demand, the only consequence, in the 33 M. Boyer, Competition, open social democracy, and the Covid-19 pandemic. supra note 1. very short run, before supply has adjusted, will be that

34 D. A. Crane, Antitrust during (and especially after) a global pandemic. they will have turned to the next best good or service délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 19 and will lose the difference in utility between what they traded off against the short-term benefit of reducing the would have got if they had been able to spend a certain spread of the pandemic. The net balance of the agree- amount of money on the unavailable good and the utility ment, which under normal circumstances would be they get from spending this same amount of money on considered to be detrimental to society, could become the next best goods or services. Very rapidly, though, positive. suppliers will realize that there is excess demand and will increase output and price until the market clears again. 133. Thus competition authorities refrained from acting The cost of the unavailability of one good is thus fairly against short-term cooperating agreements to increase limited and does not warrant tampering with competi- supply or to innovate, even when such agreements could tion mechanisms. reduce competition compared to what would have resulted from the process of individual adjustment of 129. But the short-run cost to consumers of letting this each supplier and consumer because such agreements adjustment play out in the case of a pandemic like the delivered faster results. Competition authorities accepted Covid-19 is quite different from the situation described (within limits) the granting of State aid thus preventing previously. First, we are talking about markets where some firms from exiting markets, which is something they supply disappeared entirely (due to confinement in some would have been unwilling to do in normal circumstances countries) or where supply was nonexistent (such as when the economy is not on the verge of total collapse the supply of a vaccine against Covid-19). Second, and because of the measures taken to fight the pandemic. equally important, if consumers are not able to protect To assess the conditions of efficiency defences, compe- themselves against the virus or to be tested in order to tition authorities took into consideration the fact that be isolated or to be treated, they will unwillingly facili- whenever there was a massive disequilibrium between tate the transmission of the virus by exposing others to demand and supply, speeding up the process of adjust- the risk of becoming infected. In other words, there is a ment through an increase in the volume or the distribu- negative externality associated with the fact of letting the tion of supply was welfare increasing. They took into competitive market adjust spontaneously. This negative consideration, whenever justified, the fact that successful externality will be all the more costly to society if the firms could in a very short time see their business model adjustment of supply and demand takes a long time. becoming unadapted to the macroeconomic environment resulting from the health crisis and become failing firms. 130. Given these circumstances, a number of govern- They have made it known that they will not soften the ments and most consumers considered that the cost of exacting criteria they apply to exempt crisis cartels from letting the market adjust by itself was unacceptable (and competition law. This pronouncement does not mean not worth the benefit of preserving competition). that they will not recognize that those exacting criteria apply in a larger number of cases than previously, given 131. Thus, in some countries the government decided to the fact that a number of sectors are likely to be perma- exempt the markets affected by Covid-19 from compe- nently affected by a depressed demand. tition laws. In other countries, competition authorities were under pressure to adapt their enforcement practice 134. Competition authorities are right to insist that these in such a way as to take into consideration the short-run adjustments do not reflect in any way a compromise of cost of the negative externality of the natural competitive their standards or a decrease in their determination to adjustment of these markets. eliminate anticompetitive practices that are detrimental to consumer welfare. 132. When the short-term cost of the negative externality of the competitive adjustment of the markets involved is 135. These adjustments constitute an adaptation of factored into the analysis, an agreement among suppliers competition law enforcement practices justified by the goal which speeds up the process of adjustment of supply and of maximizing consumer welfare in an unconventional demand by increasing supply faster than the competi- situation where the spontaneous adjustment of some tive process would have is seen in a different light. The competitive markets entails, in the short run, a large long-term social cost of weakening competition has to be negative externality on society. n Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

20 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis Foreign investment lockdown

Christian Ahlborn Christoph Barth [email protected] [email protected] Partner, Linklaters, London Partner, Linklaters, Düsseldorf David dos Santos-Goncalves [email protected] Managing Associate, Linklaters, Düsseldorf

This On-Topic article provides an overview of the latest developments of foreign investment regimes globally II. The European and highlights some common trends and shows how the Covid-19 pandemic acts as a catalyst for more aggressive enforcement.* perspective: Closing the borders I. Covid-19 as 3. The Covid-19 outbreak is having a significant impact on the European economy, as most Member States have implemented strict containment measures to curtail the foreign investment spread of the virus. As concerns have grown that the economic fallout from the pandemic may lead to oppor- control catalyst tunistic acquisitions by foreign investors of undervalued strategic assets, national governments, encouraged by 1. Overall, we observe foreign investment regimes, the European Commission (EC), have recently empha- industry policy considerations and more protectionism sised that foreign takeovers of companies in the critical to be on the rise—a “race to the bottom” which started infrastructure sector will receive much greater scrutiny. a few years prior to the pandemic and saw countries like Germany, France and the UK catching up with those with a history of foreign investment control, such as the US, Canada and Australia. The pandemic and the resul- 1. Measures by the European ting global shortages of supply of medical equipment Commission such as ventilators and protective clothing, coupled with opportunistic behaviour by certain governments, acts 4. While the responsibility for foreign investment (FDI) as a catalyst for further tightening the existing foreign screenings lies with EU Member States, the European investment control regimes in many countries and the Commission nevertheless plays a coordinating role. creation of new regimes in others. The situation remains On 25 March 2020 the EC issued guidelines (the highly fluid and further developments are expected over “Guidelines”) urging all Member States to be vigilant the coming weeks. and to use all tools available or to introduce such tools to protect European companies struggling with the 2. Currently the wider healthcare sector is clearly in economic effects of the Covid-19 crisis from foreign 1 focus. However, the accelerated rise of foreign investment takeovers. The issuance of the Guidelines is the first control goes much further. As financial markets tanked, EU measure taken after the adoption of the framework governments quickly realised that many companies critical for their countries’ economies may now be significantly undervalued and could become vulnerable targets for foreign takeovers. Hence, protective measures extend to a wide range of important sectors and activities, such as key technologies, mechanical engineering and robotic companies.

1 Communication from the European Commission: Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, * The authors would like to thank their colleagues Jonathan Gafni (US), Pierre Guillot (France), and the protection of Europe’s strategic assets, ahead of the application of Regulation Giorgio Valoti (Italy) and Mark Daniel (UK) of Linklaters LLP for their contributions to this (EU) 2019/452 (FDI Screening Regulation), 25 March 2020, C(2020) 1981 (“FDI

article. Communication”). délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 21 for a screening of investments from non-EU countries.2 However, the scope of such regimes has to be more limited Both measures are aimed at establishing a new EU indus- as otherwise Member States might infringe the principles trial policy. The Guidelines focus on healthcare-related of free movement of capital,7 freedom of establishment,8 businesses, but also consider the impact on other stra- equal treatment,9 proportionality, and subsidiarity. Any tegic industries. We expect that this increased scrutiny derogation by national governments from these prin- will also apply to potential target companies which are ciples would be under scrutiny by the European courts receiving EU funding via Horizon 2020, a new frame- and only justifiable for public policy or public security work programme for research and innovation valued at reasons. The ECJ has stipulated strict standards in partic- EUR 80 billion.3 ular for restrictions on the free movement of capital within the EU, i.e., as regards EU Member State inves- 5. The Guidelines appeal to Member States to make full tors.10 Therefore, national foreign investment regimes use of their respective FDI screening mechanisms to within the EU generally do not distinguish between EU protect key healthcare and research businesses—the resi- and non-EU investors with a narrower scope of foreign lience of these industries and their capacity to continue to investment review for EU investors (mainly related to respond to the needs of EU citizens is considered crucial defence industry and security agency related activities). in this crisis. The Guidelines also urge those Member France is an exception to this rule.11 States that currently do not have a screening mechanism (or whose rules do not cover all relevant transactions) 7. In this setting the FDI Screening Regulation does not “to set up a full-fledged screening mechanism and in the establish a fully harmonised foreign investment regime in meantime to use all other available options to address cases the EU, nor does it aim to replace the national foreign where the acquisition or control of a particular business, investment regimes of the different Member States. infrastructure or technology would create a risk to security Instead, it seeks to promote best practices, cooperation or public order in the EU, including a risk to critical health and information sharing regarding foreign investment infrastructures and supply of critical inputs.”4 While control between the EC and Member States. The EU the Guidelines do not specify what such “other avail- Regulation includes a list of sectors which are likely to able options” entail, recent history shows that Member affect security or public order and may be considered as States have been creative to devise alternative defensive reviewable under national foreign investment rules, inclu- measures where transactions were seen as harmful but ding critical infrastructures12 and technologies,13 critical fell outside the scope of their FDI regimes. An example inputs (e.g., energy or raw materials), sensitive informa- is Germany, which requested that state-owned bank KfW tion and media.14 take a stake in high-voltage network operator 50Hertz to prevent an acquisition of this stake by China’s State Grid. This deal could be a blueprint for further protective 2. Measures taken at Member measures in the context of the pandemic.5 State-level and in the UK 6. The Guidelines were issued in anticipation of the entry 8. The success of Europe and many European coun- into force of the FDI Screening Regulation, which will be tries was always linked to its openness for investment. applicable from 11 October 2020. As part of the common Triggered by targeted Chinese investments in certain commercial policy, the European Union has the compe- European companies, this approach started to change a 6 tence to become active in relation to foreign investment. few years ago and more and more European countries The EU, however, acknowledges the responsibility of the established their own industry policy principles towards Member States for safeguarding their national security investments from outside the EU. and, thus, focuses on coordinative measures and harmon- isation of foreign investment rules. The FDI Screening Regulation and the Guidelines suggest common standards for the review of investments by non-EU investors. That said, Member States retain the right to take individual measures to limit foreign investments and are responsible for the enforcement of the rules. In addition

to investments by non-EU investors, Member States may 7 Article 63 TFEU. also review foreign investment by investors from other 8 Article 49 TFEU. EU Member States for public safety and security reasons. 9 Article 18 TFEU.

10 Judgement of 14 March 2000, C-54/99 – Scientology, para. 17; Judgement of 18 December 2007, C-101/05 – Skatteverket. 2 Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the 11 France has recently expanded its regime by including additional sensitive sectors and by Union (“FDI Screening Regulation”). applying its foreign investment rules to both EU and non-EU investors equally. Energy, transport, water, health, communications, media, data processing or storage, 3 Horizon 2020 is the EU’s research and innovation programme to allocate increased 12 funding to research and innovation projects for Covid-19. aerospace, defence, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the use of such infrastructure. 4 FDI Communication of 25 March 2020, p. 1. 13 Including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, 5 Also see Javier Espinoza, « Vestager urges stakebuilding to block Chinese takeovers », defence, energy storage, quantum and nuclear technologies as well as nanotechnologies Financial Times of 12 April 2020. and biotechnologies.

6 Article 3(1) TFEU. 14 Article 4 FDI Screening Regulation. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

22 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 9. Currently, almost half the EU Member States (13 coun- the protection against takeovers in technology sectors, tries15) have national screening mechanisms for FDI. including artificial intelligence, mechanical engineering, However, a number of those regimes are rather limited robotics, biotechnology, and quantum technology. in their scope and do not apply to many of the sectors which are now in focus as a result of the pandemic (e.g., 14. Even prior to Covid-19, Germany had started the Netherlands, Denmark, Sweden). process of further strengthening its foreign investment regime. A draft bill has been passed by the German 10. Soon after the Covid-19 crisis broke out and, in some government on 8 April 2020. The amendments will cases, even before the Guidelines were issued, several tighten the standard of review, with the threshold for the Member States (including all large European econo- Federal Ministry for Economic Affairs and Energy to be mies) reacted to the new situation by expanding the able to intervene being lowered to encompass all transac- scope of their regimes and strengthening their enforce- tions “likely to affect public order or security in Germany.” ment mechanisms. The situation in the largest European The scope of the standstill obligation has been extended economies is as follows. very significantly and will apply to all transactions which trigger a mandatory filing, including acquisitions of 2.1 Germany companies active in critical technology, a term which is still to be defined. Gun jumping, which is defined very 11. The regime of Europe’s largest economy underwent broadly and covers the exchange of certain confidential many changes over the past three years, including a information, will become a criminal offence with fines or lowering of the applicable thresholds down to acquisi- even imprisonment of up to five years. It would not come tions of 10% of voting rights and the introduction of as a surprise if the entry into force of this bill, previously mandatory filings in a wide range of sectors such as envisaged for August 2020, was now to be accelerated. the defence and security sector and, for acquisitions by non-EEA investors, in critical infrastructures16 (notably, including the health sector) where a target company’s 2.2 France activities exceed certain thresholds which are designed by reference to the demand of c. 500,000 people, a rela- 15. France has been a leading foreign investment regime tively low threshold when considering that this represents in Europe for several years and has advocated strongly, just 0.6% of the German population. Further, there is alongside Germany, for further enhancement of existing a voluntary regime for all transactions in other sectors rules as a common standard across Europe. The French which kicks in for participations of 25% of voting rights regime already applies to investments in the health sector or more. This gives the government the power to initiate and has most recently (with effect of 1 April 2020) been an ex officio review of non-notified transactions within further amended by expanding the scope of applica- five years after signing. tion to EU investors for all sectors which are considered sensitive. 12. In light of the pandemic, the government quickly reacted to a rumoured offer by the US government for 16. Further, under the recast rules, a range of additional German healthcare company CureVac, a pioneer in sectors are brought within scope of the regime, such mRNA therapeutics, an area which may be critical for as food safety, press (including online press), quantum the treatment for Covid-19. Government representa- technologies and energy storage. Moreover, the direct tives stated that the government would take all required or indirect acquisition of more than 25% of the shares measures to prevent such transaction from happening. or voting rights in French companies by non-EU/EEA Germany already has the power to block acquisitions investors (compared to 33.3% previously) will now be by non-EEA investors in the healthcare sector under the subject to FDI screening. current regime and, as mentioned above, has been creative to effectively block transactions falling outside the scope 17. While this amendment is not specifically driven of its regime. The Federal Ministry of Economics has by Covid-19, we expect the review of transactions to made clear over the past weeks that it stands ready to be applied more restrictive. In this context, the French use its toolkits again. We understand that a mechanism Minister of Finance stated that “the French government (in coordination with the state-owned development bank is prepared to use all means to support big companies KfW) for state participations as a protective measure is suffering in financial market turmoil, including nationali- currently being set up. sation if necessary.”

13. Considering the current low market value of many companies, we expect special protection of the so-called 2.3 Spain “German Mittelstand,” the backbone of the German 18. Spain was the first country among the EU Member industry, to be considered. The key area of focus is likely States which reacted to the Covid-19 pandemic on 17 March 2020 by tightening its FDI rules, ahead of the EC Guidelines, to prevent certain foreign takeovers in 15 Austria, Denmark, Finland, France, Germany, Hungary, Italy, Netherlands, Poland, Portugal, Romania, Sweden, and Spain. light of the impact on stock prices.

16 Energy, water, food, information technology, financial services and insurances, health,

transport and traffic. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 23 19. While Spain generally operated a foreign investment covered the review of investments in strategic activities regime of “general liberalisation,”17 requiring pre-closing (e.g., military, aerospace, radar technologies, broadband clearance only for foreign investment related to national communication and 5G technology) and/or strategic defence, such as the manufacture or trade of weapons, assets (e.g., energy, transport, communication). The new ammunition, explosives and military equipment, the decree further extended the scope to the other sensitive Spanish government has now enacted several emergency sectors outlined in the FDI Screening Regulation (i.e. regulations to tackle the social and economic impact of critical infrastructures, critical technologies and dual use the Covid-19 outbreak. products security of supply of critical inputs, access to sensitive information and media freedom) as well as to 20. One of these measures relates to extending the the financial, credit and insurance sectors. pre-closing approval requirement to many strategic sectors,18 notably including healthcare. The catalogue 24. The amended foreign investment rules include addi- of strategic sectors is generally aligned with the FDI tional notification obligations. New notification requi- Screening Regulation. Consequently, critical infrastruc- rements evolve inter alia for EU investors acquiring tures,19 critical technologies and dual-use goods,20 supply control over companies in the abovementioned sectors of critical inputs (including energy and raw materials, (“Strategic Companies”) and non-EU investors acquiring as well as food security) as well as sectors with access 10% of the capital of Strategic Companies (additional to sensitive information, including personal data or the value threshold of EUR 1 million). The new rules are ability to control such information as well as communica- immediately effective. tion media, are within the scope of the amended rules.21

21. In parallel, Spain also introduced (in addition to the 2.5 UK sector-related limitations) investor-related limitations, 25. The UK Government considers that the current which apply irrespective of the sector affected by the rules which involve the Secretary of State being able to transaction. The investor-related limitations apply when intervene in transactions which fall within the country’s the foreign investor (i) is directly or indirectly controlled merger control jurisdiction are ill-suited to deal with the by the government of a non-EEA country, (ii) has national security risks that the UK faces. made investments or participated in activities in sectors relevant for the security, public order and public health in 26. A new regime was proposed in July 2018 which would another Member State or (iii) is subject to administrative lead to the UK being able to review all types of invest- or judicial proceedings in any country as regards criminal ments, in virtually any sector. In December 2019, the UK 22 or other illegal activities. Comparable to the German Government announced that it would be introducing a investment regime for critical infrastructures, the review National Security and Investment Bill. While it is unclear kicks in for acquisitions of 10% or more of the voting what form such a reform would take, it is considered 23 rights. likely that any final legislation may be less comprehensive than the initial proposals (which anticipated reviewing up 22. Since these measures are taken alongside the decla- to 200 cases per year). However, in the interim, not only ration of the state of emergency, it is currently expected are we seeing a significant uptick in cases being called in that the restrictions will be lifted once the Covid-19 crisis for review under the current rules, but the Government has passed. has informally indicated it is already using the proposed reforms in relation to the nature of national security 2.4 Italy concerns as a template for its review of existing cases. 23. On 9 April the Italian Government issued a new law decree strengthening its foreign investment rules, the so-called «golden power» rules as a result of the III. The US sanitary crisis. Already prior to Covid-19, Italy had a comparably active foreign investment regime and rules perspective:

17 Royal Decree 664/1999. No change for now 18 Strategic sectors are critical infrastructures, critical technologies and dual-use items, fundamental suppliers, sectors with access to sensitive information and communication 27. Notably, the US has not announced any additional media. restrictions on the acquisitions of US businesses in light

19 See footnote 10. of the Covid-19 crisis. However, we nonetheless expect a similar heightened scrutiny of healthcare and pharma- 20 As defined in point 1 of Article 2 of Council Regulation (EC) No 428/2009 of 5 May 2009 setting up a Community regime for the control of exports, transfer, brokering and ceutical deals from the Committee on Foreign Investment transit of dual-use items. in the United States (CFIUS) to what we have seen it in 21 The list equals Article 4(1) of the FDI Screening Regulation. Europe.

22 The list corresponds to the recommendations in Article 4(2) of the FDI Screening Regulation. 28. We note, however, that the most recent amendments of the statutory provisions and implementing regula- 23 Alternatively, investments which enable effective participation in the management or

control of a company trigger the foreign investment review. tions do not provide a foundation for greater scrutiny as délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

24 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis currently written. The Foreign Investment Risk Review 33. Ultimately, while CFIUS may be able to assert greater Modernization Act of 2018 (FIRRMA), and its imple- jurisdiction over noncontrolling investments in develo- menting regulations which came into force on 13 February pers of Covid-19 tests and treatment, CFIUS still does 2020, shortly before the pandemic, expanded the scope not have jurisdiction over noncontrolling investments of review by CFIUS, including mandatory pre-closing in most PPE businesses and cannot mandate filings for reviews, for certain qualifying investments in companies investments in them. CFIUS’s principal authority with involved with critical technology, critical infrastructure respect to PPE businesses remains the one it had prior to or sensitive personal data of US citizens. FIRRMA—namely, the right to review foreign acquisitions of control. In the current environment, we expect 29. Critical technology businesses comprise, in partic- CFIUS to aggressively interpret “control” of healthcare ular, US businesses that develop or produce military businesses as it has done in the past for investments in and dual-use (military/civilian) technologies as well as other industries. This approach will still limit CFIUS’s emerging and foundational technologies as defined in freedom of action absent changes to its regulations and/ various US export control regulations. Critical infra- or an expansion of formal export control regulations to structure includes, among obvious businesses and facili- cover relevant technologies. CFIUS has the authority to ties relating to communications and information services, put emergency regulations into effect on relatively short energy, water, transport, and financial services, but also notice, so the former option should not be discounted. strategic materials and certain industrial resources. A sensitive personal data business is one that “[m]aintains or collects, directly or indirectly, sensitive personal data of US citizens.” IV. Developments

30. In defining critical technology businesses, the CFIUS in the rest of the regulations refer to a variety of specific export control regulations for establishing jurisdiction over noncontrol- world: Quid pro ling investments. The dual-use export control regulations applicable to personal protective equipment explicitly exclude items made for civil use in the medical and phar- quo as a guiding maceutical industries. As a result, noncontrolling investments in US businesses that make most personal protec- principle tive equipment (PPE) are not subject to CFIUS jurisdiction or mandatory pre-closing CFIUS filings. On 3 April 34. On a global scale, more than fifty dedicated foreign 2020, President Trump issued a memorandum ordering investment regimes exist. With industry policy being en these days, we expect this number to grow and PPE to be “allocated to domestic use.” This order may be vogue where regimes exist the application of rules to become functionally equivalent to an export control, but it does stricter. In line with the developments seen in Europe, we not qualify as a relevant export control under the CFIUS expect many countries to evaluate their foreign invest- regulations. As new tests and treatments for Covid-19 ment rules, including whether they allow for a “quid pro are developed, it is possible that they will be subject to quo” when other countries are becoming stricter in their relevant export controls, but that remains to be seen. FDI regimes and the application of rules. 31. CFIUS’s definition of critical infrastructure businesses 35. A first drastic reaction came from Australia: Following includes certain industrial resources that have priority a ministerial decree, implemented shortly after the ratings under the Defense Priorities and Allocation outbreak of the pandemic, all proposed foreign invest- System (DPAS), provided that the items are not commer- ments into Australia are now subject to the Australian cial off-the-shelf (COTS) products. Production of these Foreign Acquisitions and Takeovers Act and will require resources can be prioritised for national defence use. PPE approval, regardless of the transaction value or nation- is now a DPAS priority-rated industrial resource, but as ality of the investor. Until the Covid-19 crisis, there were noted above, the covered products are generally COTS monetary thresholds depending on the type of target products used in the medical or pharmaceutical indus- activity and origin of investors.24 These thresholds are tries. Therefore, most PPE will not qualify as critical now set to AUD 0, in other words, any investment will be infrastructure under the current CFIUS regulations. caught by the thresholds. The reasons for the amendment are inter alia bulk purchases of medical supplies from 32. Under FIRRMA, CFIUS can assert jurisdiction over non-Australian companies and the distressed market certain noncontrolling investments in businesses that valuations of companies. gather or maintain sensitive personal data of US citizens. CFIUS has already demonstrated an interest in foreign 36. Further, the review period has been extended from investments in businesses that have access to personal a thirty-day review period to allow extensions up to health data of US citizens. Foreign investments in US six months. While the amended regime only applies to pharmaceutical or medical device businesses can therefore attract CFIUS scrutiny if the businesses have access to personal data collected from clinical trials or use of 24 For non-sensitive sectors there was a value threshold of AUD 1,154 million for FTA inves- the products. tors and AUD 266 million for other investors. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 25 transactions notified after the amendment, ongoing – a strong focus on the healthcare sector; proceedings are expected to be subject to prolonga- – an extension of the scope of FDI control to many tions.25 However, we have observed such prolongations other sectors, which means that national particu- frequently already in the past. larities and sensitivities need to be observed; – the application of regimes is becoming stricter and substantive tests are widened to give governments V. Common trends more discretion. and their impact 41. These trends, coupled with expected delays due to containment measures and restrictions which authorities face in terms of handling their growing workload, on M&A process may have an impact on ongoing and upcoming M&A 37. We currently observe a situation which could acce- projects, which need to be factored in early on. lerate the “race to the bottom” with industry policy becoming an even stronger feature in a “post-globalisa- 42. As a result, it is more important than ever that compa- tion era.”26 nies engaged in M&A should:

38. Across many jurisdictions, the political climate has – consider the potential applicability of any FDI become more hostile to certain types of foreign invest- regimes early on and conduct a thorough risk ment over recent years. Alongside a stronger focus on assessment including understanding whether national self-interest and a greater scepticism about the mitigation measures, if they were to be requested, benefits of globalisation, we witness an increasing reluc- interfere with the rationale for the transaction; tance to accept foreign investment from jurisdictions – factor in the highly dynamic landscape and which do not allow foreign investment on reciprocal reforms which may be enacted and could have an terms. impact on ongoing projects;

39. Whilst governments are currently primarily concerned – tak e care as regard information exchange, not only about FDI in the healthcare sector, they are also focussing in a competition law context but also as regards on opportunistic takeovers of companies suffering from restrictions Imposed by FDI rules; the rout across the stock markets. This aims to protect – allo w for lengthier approval processes for transac- against hostile takeovers which could otherwise take tions and assess how best to mitigate any poten- advantage from the significant write down of company tial risks and/or delays associated with increased value due to Covid-19. uncertainty and complexity of the review process;

40. The common trends we currently observe as regards – consider how best to manage any overlaps with FDI regimes globally comprise: any relevant merger control filings. n

– thresholds for transactions which are subject to review are set at very low levels (e.g., Germany, France, Australia), which means that even mere financial participations without any specific governance rights attached are in scope of review;

25 Statement of Josh Frydenberg, Changes to foreign investment framework, 29 March 2020.

26 Thierry Breton, EU Commissioner for Internal Market and Services, EU Industrial Policy

in times of coronavirus, Bruegel, Brussels, 19 March 2020. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

26 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis Covid-19 and competition policy: A Swiss perspective

Christian Bovet Valentine Delaloye [email protected] [email protected] Professor Teaching Assistant University of Geneva University of Geneva

Jeremy Bacharach [email protected] PhD Candidate University of Geneva

I. Legal framework extraordinary health situations.4 Three general observations may be made about these texts: (i) They are only 1. To understand the legal situation in Switzerland, it is applicable in case of emergency, i.e., to counter existing necessary to briefly describe the legal framework within or imminent threats of serious disruption to public order which the special regulations aimed at mitigating the or internal or external security.5 Given its repercussions, effects of the Covid-19 crisis in our country are inte- the Covid-19 crisis constitutes without any doubt a situa- grated. The factual background, for its part, is substan- tion justifying these emergency measures. (ii) These ordi- tially the same as in most of the countries neighbouring nances must be limited in time. (iii) Indeed, the decrees Switzerland: a pandemic situation and confinement of become obsolete six months after their enactment,6 unless the population. they are submitted to the Federal Assembly for approval or if a draft act for their integration into ordinary law is 2. During this very special period, the executive autho- presented7 in accordance with the regular Swiss legisla- rity of the Swiss Confederation, the Federal Council, tive process. holds the prerogative to adopt emergency measures 1 by ordinance, based on Article 185(3) of the Federal 3. The Federal Council has used this prerogative to adopt 2 Constitution. According to this provision, the federal a few essential measures in an initial decree entitled government “may (…) issue ordinances and rulings in Ordinance on Measures to Combat the Coronavirus8 order to counter existing or imminent threats of serious enacted on 13 March 2020 and amended many times disruption to public order or internal or external security. since then, as well as to adopt a series of other decrees Such ordinances must be limited in duration.” Thus, introducing specific measures in various areas affected by although this reference does not appear explicitly in all the crisis. the ordinances, all the extraordinary measures adopted by the Federal Council in connection with the Covid-19 crisis are based on this provision. Article 7 of the Federal Act on Epidemics3 provides an additional legal basis for enacting temporary ordinances in the case of

4 Article 185 Cst. is not mentioned in the preamble to this law. Instead, it refers to other constitutional provisions granting the Confederation the power to issue, on Swiss nation- als living abroad, health protection in the fight against serious diseases (Article 118[2] Cst.), medically assisted procreation and genetic engineering. The first paragraph of 1 Based on the terminology adopted in Switzerland, we opted for the term “ordinance” rather than “decree.” Article 118 Cst., which states that the Confederation may take measures to protect health within the limits of its powers, does not appear in the preamble, either. 2 Federal Constitution of the Swiss Confederation of 18 April 1999 (Cst.; Classified compilation [“RS”] 101). The Swiss federal administration provides English translations of im- 5 Article 7d of the Government and Administration Organisation Act of 21 March 1997 portant legal texts, although these translations are unofficial and therefore have no legal (GAOA; RS 172.010). force. Where an English translation has been provided, the text will be cited in English. If 6 Ibid. no English translation has been provided, the act will be cited in French with a free translation by the authors, in brackets. 7 Ibid.

3 Loi fédérale sur la lutte contre les maladies transmissibles de l’homme du 28 sep- 8 Ordinance on Measures to Combat the Coronavirus of 13 March 2020 (Covid-19

tembre 2012 [Federal Act on Epidemics of 28 September 2012] (LEp; RS 818.101). Ordinance 2; RS 818.101.24). délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 27 place only a few days before the Federal Council adopted II. Application the first ordinance on the Covid-19 crisis, but none of the representatives who expressed themselves at length on the draft law referred to this situation.15 This is especially of competition law surprising because, second, several speakers mentioned 4. Several political and geographical factors may explicitly in their statements the prices of medical and influence the economics of the current crisis in pharmaceutical goods.16 Switzerland: its geographical position in the middle of Europe, while not being a member of the European 6. Finally, as implicitly indicated by the COMCO/WEKO Union; its rather small size; the number of multinational in its statement, special measures constituting an exception groups having their general or their European headquar- to competition policy are allowed under the conditions of ters in Switzerland; the strong pharmaceutical industry; Article 3(1) CartA, which provides that statutory provi- the federal structure leading to an allocation of compe- sions exempting from competition markets pertaining tences between the Confederation and the Cantons; to certain goods or services prevail over the CartA (e.g., and a political and economic consensus culture. Swiss provisions establishing prices or granting special rights competition law already addresses some of these issues, to undertakings to enable them to fulfil public duties). for instance through strict rules on vertical restraints9 Obviously, this is a key provision in the special Covid-19 or abuses of dominant position.10 The strong reminder regulatory regime set up by the Federal Council thus far. issued by the Swiss Federal Competition Commission These rules will be analysed in a broad competition policy (COMCO/WEKO) should be situated in this broad polit- perspective, also taking into account for instance constitu- ical, economic and legal context.11 tional aspects such as equality among competitors.

5. In addition, the Federal Council presented to the Parliament draft provisions pertaining to relative market power,12 excluding, however, Swiss buyers holding such III. Public procurement 13 power. A revised draft was adopted by the National 7. The legal framework governing public procurement in Council and will now find its way to the Council of Switzerland is rather complex: at the international level, States. Although the concept of “relative market power” rules are set forth by the WTO agreement on government would be defined in a new Article 4(2a) CartA, a limita- procurement17 and the bilateral agreement entered into with tion of the possibility for the buyers to acquire products the EU;18 at the national level, different regulations apply abroad at the prices and under the conditions prac- depending on whether the goods or services in question are tised in that country would be considered as abusive being acquired by a federal19 or a cantonal20 entity. under Article 7 CartA,14 if this behaviour stems from an undertaking holding relative market power. As a conse- 8. With the full support of the Conférence des achats quence, the field of application of the latter rule would be de la Confédération [Conference on the Procurement of extended in order to encompass both abuses performed the Confederation] (CA),21 the Coordination Conference by undertakings holding a dominant position and those for Public Sector Construction and Property Services of undertakings holding relative market power. On the other hand, it seems that only the first category of abuses

would be sanctioned under Article 49a CartA, but this 15 The first version of the Covid-19 Ordinance 2 was adopted by the Federal Council on 13 might be corrected by the second council. The interest March 2020.

of these draft provisions is twofold: first, the debate took 16 Debates before the National Council on 9 March 2020 (parliamentary item 19.037; Official Bulletin [“BO”] 2020 p. 205): for instance, Birrer-Heimo, Ritter, Michaud Gigon or Fivaz.

Agreement of 15 April 1994 (RS 0.632.231.422), as revised on 30 March 2020 (parlia- 9 Articles 4(1) and 5(4) of the Federal Act on Cartels and other Restraints of Competition 17 of 6 October 1995 (CartA; RS 251), as well as Competition Commission, Communication mentary item 17.020; FF 2019 p. 4413). sur les accords verticaux du 28 juin 2010 [Communication on vertical restraints of 28 June 18 Agreement between the European Community and the Swiss Confederation on certain 2010], as revised on 22 May 2017 (Communication on vertical restraints). aspects of government procurement of 21 June 1999, OJ L 114, 30.4.2002, p. 430 (RS 0.172.052.68). 10 Article 4(2) and (7) CartA. In particular, Loi fédérale sur les marchés publics du 16 décembre 1994 [Federal Act on 11 Swiss Federal Competition Commission, Press release of 26 March 2020, “Le droit des 19 cartels s’applique durant la crise du coronavirus”, available on COMCO’s website at Public Procurement of 16 December 1994] (LMP; RS 172.056.1), to be replaced by a https://www.weko.admin.ch/weko/fr/home/actualites/communiques-de-presse/nsb-news. new law dated 21 June 2019, to enter into force on 1 January 2021 (Official Compilation msg-id-78586.html. [“RO”] 2020 p. 641). Also Ordonnance sur les marchés publics du 11 décembre 1995 [Ordinance on Public Procurement of 11 December 1995] (OMP; RS 172.056.11), to 12 Federal Council, Message relatif à l’initiative populaire “Stop à l’îlot de cherté –pour des be replaced by a new ordinance dated 12 February 2020, to enter into force on 1 January prix équitables (initiative pour des prix équitables)” et au contre-projet indirect (modifi- 2021 (RO 2020 p. 691). cation de la loi sur les cartels du 29 mai 2019) [Introductory Report regarding the federal popular initiative “Putting an end to the high-price island – in favour of fair prices” and 20 Accord intercantonal sur les marchés publics du 25 novembre 1994/15 mars 2001 the indirect counter-proposal (amendment of the Cartels Act of 29 May 2019)] (Federal [Agreement among Cantons on Public Procurement of 25 November 1994/15 March Gazette [“FF”] 2019 p. 4665) and draft law of the same date (FF 2019 p. 4743). 2001] (RS 172.056.5), to be replaced by a new agreement dated 15 November 2019 (Conférence suisse des directeurs cantonaux des travaux publics, de l’aménagement du ter- 13 Ibid., p. 4727. ritoire et de l’environnement [Swiss Conference of Cantonal Directors of Public Works, Urban Planning and Environment], AIMP révisé, https://www.dtap.ch/fr/dtap/concor- 14 Currently this provision is in substance the equivalent of Article 102 of the Treaty on the dats/aimp/aimp-2019). This agreement is then implemented by cantonal regulations. Functioning of the European Union (TFEU) and qualifies the behaviours of undertakings holding a dominant position to be considered as abusive. The National Council did 21 https://www.bkb.admin.ch/bkb/fr/home.html. These recommendations were also sup- not follow the Federal Council and deleted proposed Article 7a CartA from the draft law ported by the Communauté d’intérêts des maîtres d’ouvrage professionnels privés (IPB)

and “replaced” it by a new Article 7(2)(g) CartA. [Community of Interests of Professional Private Project Owners]. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

28 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis issued a set of recommendations in order to attenuate According to Articles 4e and 10 of the Ordinance, the the negative economic effects of the Covid-19 crisis in cantons and health professionals have the obligation to Switzerland from a public procurement standpoint.22 report current stocks of important medical goods and The Conference reminded the authorities of the special certain drugs (as defined in Appendices 3 and 4) to the legal regime applying in emergency situations providing competent federal authorities; the same principles apply for exceptions relating to the protection of the health to other goods and services, such as the occupancy of and life of persons, animals and plantations as well as hospital beds. The authorities may also require similar the possibility to use a negotiated procedure derogating information from companies that store these products. from the regulations pertaining to competitive tender- In addition, the Federal Council may compel manu- ing.23 It also advised public entities, within the frame- facturers to produce important medical goods or to work governing public procurement, to opt for proce- give priority to the production of such goods if the 28 dures that would be adapted to small and medium-sized supply cannot be guaranteed otherwise. To preserve enterprises (SMEs), for instance by allocating the goods the economy, the Confederation may compensate the or services in batches or by requesting supporting docu- financial losses resulting from changes in production or mentation only from the successful tenderer.24 Finally, cancellation of private orders. It is difficult to predict several measures were suggested in order to facilitate what criteria will be applied to these measures which may create unequal treatment. Finally, according to the performance of current contracts (e.g., electronic Article 10a of the Covid-19 Ordinance 2, the cantons invoicing and rapid payment of invoices and/or instal- may require private hospitals and clinics to make their ments).25 Consistently with the rules governing emer- capacities available for the admission of patients. gency regulations, these recommendations are valid for a limited period of six months.26 10. In order to ensure rapid access to promising new therapies and urgently needed medical devices, a number of exceptions to the existing legislation on therapeutic products have also been adopted. For example, medi- IV. Health cinal products manufactured with certain active subs- 9. Interestingly, public health has not been subject to as tances and intended to treat Covid-19 patients can many special measures as might have been expected, at be marketed without authorization if an application least at the federal level. Indeed, according to Article 1a for licensing has been submitted, in accordance with of the Covid-19 Ordinance 2, aspects not covered by this Article 4l of the Ordinance. On the other hand, the last 29 text remain within the power of the cantons. The impact decree directly dealing with health aspects limits the sale of this ordinance on competition may first be illustrated of certain medicines useful against Covid-19 to one pack by its Article 4b, which governs the export of protec- per purchase. Doctors and pharmacists may only provide chronically ill patients with the specified medicines in the tive equipment and crucial medical goods defined in prescribed quantity or in the quantity required to cover Appendices 3 and 4, such as mouth-nose protection the needs for a maximum of two months per purchase. equipment, protective garments, gloves but also specific drugs, Covid-19 tests, respirators, etc. Henceforth and 11. Public or private events are prohibited and a number with few exceptions, the export of these products must of specific businesses such as shops and restaurants shall be requested from the State Secretariat for Economic stay closed. Quite obviously, exceptions are provided for Affairs (SECO). Exceptions include, for example, sales healthcare facilities such as hospitals, “as well as prac- to EU members and other “close” countries such as tices and facilities operated by healthcare specialists under Norway, Iceland, the United Kingdom or the Vatican, federal and cantonal law.”30 However, depending on the provided that reciprocity is ensured. The latter part of the canton, the following professions are or are not consid- exception will prove challenging in its application given ered as health professionals: acupuncturists, opticians, the constantly evolving needs of the trading partners. dentists, homeopaths, naturopaths and other alternative Should the conditions of the exception clause not be medicine specialists.31 This may create unequal treatment, fulfilled, then the SECO will grant an authorization only since certain independent professionals may be banned if Swiss needs are covered.27 from practising in some cantons but authorized in others.

12. Interestingly, there is no other significant change in regulations governing the health sector as of today. However, some specific problems related to the Covid-19 22 Conférence de coordination des services de la construction et des immeubles des maîtres crisis have been reported these last weeks, which are d’ouvrage publics [Coordination Conference for Public Sector Construction and Property Services], Covid-19: Informations de la KBOB, https://www.kbob.admin.ch/kbob/fr/ home/themen-und-trends/coronavirus.html. Article 4k of Covid-19 Ordinance 2. 23 Section 3.3. 28 Ordonnance sur la restriction à la remise de médicaments du 18 mars 2020 [Ordinance on 24 Section 3.2. These measures might to some extent favour local providers. 29 the Restriction of Supply of Medicines of 18 March 2020] (RS 531.215.33). 25 Section 2.1. With respect to current public procurement proceedings, idem, Sections 3.1 and 3.2. 30 Article 6(3)(m) Covid-19 Ordinance 2. Rapport explicatif concernant l’ordonnance 2 du 13 mars 2020 sur les mesures destinées 26 Section 1. See above section I of the present article. 31 à lutter contre le coronavirus, version du 3 avril 2020 [Explanatory report on Covid-19

27 New amendment of April 3, 2020. Ordinance 2, updated as of 3 April 2020], p. 11. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 29 closely related to the Swiss health system. Indeed, in 14. The Ordinance provides two types of loans: Switzerland, every individual must join a basic health – First, companies affected as a result of Covid-19 insurance scheme covering basic care.32 One may add to may obtain an emergency loan equal to 10% of this base a complementary component for care that is not their 2019 turnover,38 but not exceeding CHF covered by the basic insurance, for example for the refund 500,000.39 These interest-free40 loans can be of certain alternative medicine services. Furthermore, in obtained from their current banks.41 They are order to qualify for reimbursement, the products and in turn fully guaranteed by the Swiss Confeder- services covered by the basic health insurance have to be ation itself.42 As timeliness is the priority, banks 33 For example, that effective, appropriate and economical. are not expected to assess the creditworthiness of includes treatments by psychologists acting on behalf of the borrowers or to perform any other due dili- 34 a doctor (i.e., an employee of a medical centre). As a gence.43 Practice shows that generally only a few result of confinement measures, most of them can no days are needed for the money to be delivered to longer receive patients in their offices and work by phone the borrower. or video conferencing from home. However, there is a billing limit imposed on patients who consult remotely – Second, companies may file for a loan equal to and are covered only by basic insurance: unlike psychi- 10%44 of their revenue turnover but not exceeding atrists, psychologists cannot charge more than 360 CHF 20 million,45 eligible to a guarantee of up to minutes of consultation over a six-month period, or 6x60 85% of the sum borrowed by the Swiss Confeder- 46 minutes of sessions per semester. And this, despite of the ation. In that case, however, banks must perform 47 current situation. The Swiss Federation of Psychologists an ordinary due diligence on the borrower and 48 has requested that this limit be removed and a petition to are allowed to charge up to 0.5% interest. this effect has been filed with the government. 15. In both cases, companies with a turnover of over CHF 500 million are excluded from the scheme.49 In addition, borrowers are under a number of restric- V. Credit market tions for the whole duration of the loan, including prohibitions on dividends, shareholder loans and intra-group repayments.50 1. Measures 16. As a result, the system implemented by the Federal 1.1 Small and medium-sized enterprises Council allows SMEs to obtain quick and easy credit from their usual financial institutions, while allowing (SMEs) the latter to provide these credits without assuming any 13. Soon after the Covid-19 outbreak in Switzerland, financial risk. many observers began to warn that SMEs would be heavily affected by the oncoming crisis. This became all the more clear when the Federal Council enacted legisla- 1.2 Aviation industry tion that severely restricted gatherings and closed certain 17. Since the beginning of the crisis, air traffic in businesses such as shops, restaurants, fitness centres or Switzerland has dropped by more than 95%. This is a hairdressers.35 It was noted that bankruptcies of SMEs matter of considerable concern, since the Swiss economy would seriously impact the Swiss economy, as they create two thirds of the jobs in the country.36 As a response, the Federal Council issued an Ordinance on the provi- 38 Article 7(1) Ordinance on Covid-19 Guarantees. sion of loans and guarantees following the coronavirus 39 Article 3(1) Ordinance on Covid-19 Guarantees. 37 outbreak, rolling out a system designed to keep SMEs 40 Article 13(2)(a) Ordinance on Covid-19 Guarantees. However, the 4th paragraph of this afloat through the provision of emergency, guaranteed rule grants the Federal Council the possibility to adapt the interest rates every year, the loans. first time on 31 March 2021. 41 Article 3 Ordinance on Covid-19 Guarantees.

42 Article 8 Ordinance on Covid-19 Guarantees. From a technical perspective, the federal guarantee is only indirect: the loans themselves are guaranteed by loan guarantee cooperatives—an existing system designed to guarantee ordinary credit to SMEs—who are in turn guaranteed by the federal government. 32 Definedin the Loi fédérale sur l’assurance-maladie du 18 mars 1994 [Federal Act on Health Insurance of 18 March 1994] (LAMal; RS 832.10). 43 U. Zulauf and L. Thévenoz, Pas d’obligation de diligence des banques? Centre for Banking and Financial Law, March 26, 2020, https://cdbf.ch/1119. 33 Article 32 LAMal. 44 Article 7(1) Ordinance on Covid-19 Guarantees. 34 Article 32 cum 25(2)(a), no. 3 LAMal. 45 Article 4(1) Ordinance on Covid-19 Guarantees. 35 See, for a complete list, Article 6 Covid-19 Ordinance 2. 46 Article 4(5) Ordinance on Covid-19 Guarantees. 36 Federal Department of Economic Affairs, Education and Research, SME Portal, Figures on SMEs: Essential Points in Brief, https://www.kmu.admin.ch/kmu/en/home/facts-and- 47 Article 4(1)(b) Ordinance on Covid-19 Guarantees. trends/facts-and-figures/figures-smes.html. 48 Article 13(3)(b) Ordinance on Covid-19 Guarantees. Ordonnance sur l’octroi de crédits et de cautionnements solidaires à la suite du coronavi- 37 49 Article 6(2)(a) Ordinance on Covid-19 Guarantees. rus du 25 mars 2020 [Ordinance on the Provision of Credits and Guarantees Following

the Coronavirus of 25 March 2020] (Ordinance on Covid-19 Guarantees; RS 951.261). 50 Article 6(3) Ordinance on Covid-19 Guarantees. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

30 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis relies on the aviation industry—which also employs over 21. On the one hand, the Swiss Financial Markets 190,000 people—for its imports and exports.51 On 8 April Supervisory Authority (FINMA) has already reduced 2020, the Federal Council announced the drafting of a set some of the capital requirements it sets itself.60 On the of measures aimed at providing liquidity to the aviation other hand, the Swiss National Bank and the Federal industry, which should be focused on offering guarantees Council have taken a more drastic measure regarding a by the Swiss Confederation to borrowers.52 metric called the “countercyclical capital buffer.” Indeed, since 2014, in normal circumstances banks are required 18. From a competition law perspective, such a scheme to set aside additional capital when providing credit in order to “save up” for future periods of stress in the may qualify as State aid. However, Article 13(2) of the financial system and to slow down the credit market. This 1999 Agreement between the European Community and additional capital is known as the countercyclical capital the Swiss Confederation on Air Transport53 authorizes buffer (CCyB). On 27 March 2020, the Federal Council State aid to the aviation industry provided that such aid approved the recommendation of the Swiss National makes good the “damage caused by natural disasters or Bank to deactivate CCyB requirements for financial 54 exceptional occurrences.” It is quite likely the current institutions.61 situation will fall within the scope of this provision.55

1.3 Culture 2. Effects on the market 19. The closure of cinemas, discotheques, museums or and observations 56 concert halls is liable to affect substantially the solvency 22. At a high level, the measures described above are an of businesses active in the cultural sector. To protect original attempt at answering a persisting unfairness in them, the Federal Council created a dedicated system of the credit market, i.e., the inability for SMEs to obtain interest-free loans, which can amount to up to 30% of credit easily, while larger corporations are able to access the business’s turnover.57 While funded by the Federal liquidity with little difficulty, whether through financial government, the loans are administered by the cantonal institutions or directly on the capital markets, through administrations.58 the issuance of bonds. Providing risk-free guarantees— those of a solvent state—to financial institutions but restricting them to small, less creditworthy borrowers is 1.4 Financial institutions an adequate way to restore fair competition in a time 20. A number of regulatory requirements,59 most notably of crisis. capital requirements, have been relaxed with regard to financial institutions. These measures are not aimed at 23. The main shortcoming of the Federal Council’s SME helping the institutions themselves but mainly at encour- credit scheme might be an overreliance on the turnover figures. As discussed, credits are only guaranteed by aging them to provide credit to struggling businesses. the Swiss Confederation up to 10% of the SME’s 2019 By freeing up the capital ordinarily set aside to with- turnover. However, turnover may be a poor indicator stand financial crises, financial institutions are expected of the company’s current liquidity needs. Companies to be able to provide more credit to the economy, thereby with a large number of subcontractors—such as general allowing businesses to meet their liquidity needs. contractors—may be favoured while start-ups that may have had little or no turnover in 2019 might be penalized.

51 Federal Council, Press release of 4 April 2020, Coronavirus: Federal Council examines 24. We can also note a lack of measures directed at larger bridging loans for aviation industry, https://www.admin.ch/gov/en/start/documentation/ media-releases.msg-id-78741.html. corporations. Did the Swiss government consider that they did not need additional support? It rather seems to 52 Ibid. us that the government considered that their liquidity 53 Agreement between the European Community and the Swiss Confederation on Air Transport of 21 June 1999, OJ L 114, 30.4.2002, p. 73 (RS 0.748.127.192.68). needs should be left to the free market itself, provided that the banks’ ability to lend has been freed up as much 54 Article 13(2)(b). as possible by easing capital requirements. Nevertheless, 55 See, in a similar vein, Communication from the Commission C/2020/1863, Temporary banks are still under no obligation to provide credit, and Framework for State aid measures to support the economy in the current Covid-19 outbreak (2020/C 91 I/01), OJ C 91I, 20.3.2020, p. 1, passim. have no incentive to do so for larger corporations other than the “natural” incentives of the market. It remains See Article 6 Covid-19 Ordinance 2. 56 to be seen whether this strategy will succeed, or whether 57 See Articles 4 and 5 of the Ordonnance sur l’atténuation des conséquences économiques larger corporations will face liquidity crises that will du coronavirus (Covid-19) dans le secteur de la culture du 20 mars 2020 [Ordinance on the Alleviation of the Economic Consequences of the Coronavirus on the Cultural Sector require government intervention. of 20 March 2020] (Covid-19 Culture Ordinance, RS 442.15). Individuals active in the cultural sector but without a corporate structure can also receive governmental aid in the form of indemnities closely resembling employment benefits (see Article 6 Covid-19 Culture Ordinance).

58 Article 5 Covid-19 Culture Ordinance. 60 Ibid. 59 For an exhaustive overview, see Swiss Financial Markets Supervisory Authority (FINMA), FINMA Guidance 03/2020: Exemptions for supervised institutions due to the Covid-19 61 Federal Council, Press release of 27 March 2020, Coronavirus: Federal Council approves crisis, 7 April 2020; FINMA Guidance 02/2020: Temporary exemptions for banks due to deactivation of the countercyclical capital buffer, https://www.admin.ch/gov/en/start/do-

the Covid-19 crisis, 31 March 2020. cumentation/media-releases.msg-id-78604.html. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 31 25. A new phase in the government’s measures may have started with the announcement of liquidity provision VII. Conclusion for the aviation industry. The next step could consist in replacing the approach based on the size of enterprises 28. Nobody will ever contest that we are living an to a “sectoral” approach, whereby sectors that have extraordinary situation implying exceptional measures. been particularly affected by the Covid-19 crisis will be The interest of this brief and, to some extent, temporary provided with liquidity. study is to show that authorities addressing the consequences of the current crisis are reacting on a case-by- case basis and looking for the solution that seems the most appropriate at the precise moment they take their VI. Agriculture decision, with the information available at that time. With respect to competition policy, the difficulty lies in 26. Agriculture is subject to a substantial set of regula- finding the right balance between mitigating the negative tions at the international level, through treaties such as economic impact of the pandemic and maintaining the the WTO agreement62 and the bilateral agreement with requirements of competition while guaranteeing legal the EU.63 The same phenomenon may be observed in certainty. national rules, some of them providing for limited exceptions to a fully competitive regime.64 29. In Switzerland, the relief adopted is manifold: competition authorities are monitoring the market to 27. The Ordinance on Covid-19 Agriculture65 does not avoid abuses; public procurement procedures are made constitute a specific set of rules but is rather a series of more flexible in order to face urgent health needs; amendments to existing texts. Their impact on compe- more generally, interventions in the health sector are tition is quite limited: typically, the subsidization of characterized by a high level of centralization and a so-called “meat freezing campaigns” should be seen significant increase in federal powers. Supporting the primarily as a safeguard measure aimed at limiting economy has become one of the central components the waste of resources and accessorily as a supporting of political action, perhaps as important as health measure vis-à-vis a certain sector.66 Second, the extension policy. Subsidization through cheap loans guaranteed of payment deadlines relating to import tariff quotas by the public authorities has seemed less constraining allocated through an auction system is simply an adapta- on the Swiss liberal economy doctrine than giving free tion of the current regime to the extraordinary situation aid to enterprises. This was accompanied by waiving we are facing.67 Finally, the ordinance gives the possi- some procedures and form requirements as well as bility to increase partial import tariff quotas, should the easing several financial ratios. However, while national internal market impose such a measure.68 regulations grant enough flexibility to implement these measures, Switzerland must carefully study the legal framework at the international level, especially because of its numerous bilateral agreements with the European Union. Finally, the authorities should pay special attention to issues pertaining to equality of treatment among competitors. n

62 Annex 1A.3 to the Agreement establishing the World Trade Organization of 15 April 1994 (RS 0.632.20). Also WTO International Dairy Agreement and Bovine Meat Agreement, re- spectively Annexes 4.c and 4.d to the Agreement establishing the World Trade Organization of 15 April 1994 (RS 0.632.20).

63 Agreement between the European Community and the Swiss Confederation on trade in agricultural products, OJ L 114, 30.4.2002, p. 132 (RS 0.916.026.81).

64 This is typically the case of Article 8a(1) of the Federal Law on Agriculture of 29 April 1998 (AgricA; RS 910.01), according to which: “[O]rganisations of producers of individual products or product groups or the corresponding branches may publish guideline prices at a national or regional level to which suppliers and buyers have agreed.” However, the law protects some elements of competition by providing that no undertaking may be forced to comply with guideline prices (Article 8a[3] AgricA) and that no guideline prices may be set for retail sales (Article 8a[4] AgricA).

65 Ordonnance sur les mesures visant à atténuer les conséquences économiques du coronavirus dans le domaine de l’agriculture du 1er avril 2020 [Ordinance on Measures to Mitigate to Economic Consequence of the Coronavirus in the Agricultural Sector of 1 April 2020] (Covid-19 Agriculture Ordinance; RO 2020 p. 1141).

66 Article 13(1) of the Ordonnance sur le bétail de boucherie du 26 novembre 2003 [Ordinance on the Market in Commercial Livestock and Meat of 26 November 2003] (OBB; RS 916.341; Section I,2 of the Covid-19 Agriculture Ordinance).

67 Amendments to Articles 19(2) and 54c of the Ordonnance sur les importations agri- coles du 26 octobre 2011 [Ordinance on the Importation of Agricultural Products of 26 October 2011] (OIAgr; RS 916.01; Section I,1 of the Covid-19 Agriculture Ordinance) and Article 19 and 35b OBB (Section I,2 of the Covid-19 Agriculture Ordinance).

68 Amendment to Article 36 OIAgr (Section I,1 of the Ordinance Covid-19 Agriculture) and

Article 16(4)(b) OBB (Section I,2 of the Covid-19 Agriculture Ordinance). délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

32 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis Competition, open social democracy, and the Covid-19 pandemic

Marcel Boyer [email protected] Emeritus Professor of Economics University of Montréal Associate Member Toulouse School of Economics

1. In the March 21st edition of the magazine The The emergence Spectator, the British journalist Matt Ridley, who blogs on science, the environment, and the economy, wrote: of economics “Never once in my six decades did I expect to be back in a 17th-century world of social and physical distancing 4. The emergence of economics as a positive science, as a matter of life and death. (…) Many people will die which studies the evolving incremental accumulation of trade, coordination, and incentivization mechanisms prematurely. Many will lose their jobs. Many businesses that has allowed a truly collective intelligence to flourish will go under. (…) The only question is how many in each within mankind, has led to a normative science of ways case. We are about to find out how robust civilization is. and means, tools and instructions to foster the further 1 The hardships ahead are like nothing we’ve known.” development, improvement, and resilience of our collective intelligence. 2. The ongoing medical crisis is particularly challen- 5. The development of civilization follows a fundamental ging for two reasons: first, it develops while we do not guiding principle: the ongoing quest—in a sometimes know the rules of the game to organize neither a proper orderly and stepwise and sometimes random and hapha- defence (vaccine) against it nor a proper social protection zard progression—for mechanisms of exchange, trade through an impossible general distancing, and second and specialization, coordination, communication, and it shakes the very foundational factors of our strong incentivization that are increasingly efficient and effective. long-term socio-economic growth, indeed of our civili- 6. This quest relies on factors such as urban density, open zation. As for the developing economic crisis, which the and integrated transportation systems, specialization of medical crisis and our best response to it are generating, tasks, reduced environmental footprint, and social insti- it has two prongs: first, the lost jobs and failing firms tutions that generate mutual trust between strangers. and supplier-business-customer networks and second Each one of us, focused on our specialized task, is lite- the attacks against our economic institutions and orga- rally depending on a vast number of strangers: simply nizations by sorcerers’ apprentices and fake intellec- counting the people who worked for my well-being this tuals. The latent discourse against markets, competition, hour would take many days. economic freedom, and globalization, will likely amplify in the coming months. The collective 3. The ability to trade, especially with strangers, is a distinguishing characteristic of humans. This ability is unique intelligence to us and far exceeds the simple reciprocity observed in 7. The collective intelligence that coordinates the work of other animals, where it is typically limited to individuals billions of cells (all of us) within modern society seen as of the same clan or family—frequently involving goods a social body, through competitive markets, market-like of the same undiversified kind received or consumed institutions, and competitive international trade, needs within a relatively short period of time. to, and does continuously, bolster this body’s resilience to the inevitable shocks and spells of chaos and dysfunc- tion: pandemics, wars and military escapades, and economic crises. As a result, our world has become more 1 M. Ridley, We are about to find out how robust civilisation is, The Spectator, March 21,

2020. cooperative, safer, more resilient, and more innovative. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 33 The marginal deviant behaviour reported in the news and to be eradicated remains mostly insignificant. The current situation 8. To paraphrase Matt Ridley, let’s just say that sometimes we have no choice but to play Russian roulette, is very different remaining optimistic while venturing into the unknown. 12. The current situation is very different! At its core, the It takes time for Mother Nature to get the live round Covid-19 crisis does not find its roots in distorted incen- into the proper chamber, combining high contagion with tives or a generalized loss of confidence, but rather in a lack asymptomatic carriers and a significant mortality rate, of medical knowledge compounded by social proximity, but sometimes she pulls it off, leaving us with the major which, having previously improved our public health and pandemics and catastrophes of the past and today’s resilience, has now mutated into an engine of dissemination Covid-19—black swan events. of the virus. We are living through a pandemic and a global 9. So far, we have made it through every one of them, economic stress that will be remembered for generations. though sometimes with considerable losses and scars that persist for decades. 13. The actions taken by most governments thus seem appropriate, at least as of March 31: temporarily reduce 10. There are those who complain that we should have social proximity to curb the spread of the virus, accept seen it coming and been better prepared on the basis of the that this will induce an expected significant but tempo- precautionary principle. However, when confronted with rary economic recession, cushion the harm to indivi- many risks, especially those that are unknown (the unknown duals and businesses resulting from this recession by unknowns, the ones we don’t know we don’t know)2 or poorly public support programmes, invest massive resources as understood and of very low probability, a surfeit of caution of immediately in the search for a vaccine, and accept may result in needless and costly paralysis and stagnation. an explosion of public debt way above the limits govern- However, once the triggering event has been observed, it ments were trying to abide by. would be a serious error to allow the effects to unfold expo- nentially. That is where we are at with Covid-19. 14. These public policies come with significant costs and risks. Reducing social proximity risks to translate into national proximity rules against international trade The financial crisis and institutions, a major factor of economic development and growth, and civilization. Accepting that these and recession policies will trigger a deep recession if not an outright depression is playing with the fire of inequalities as reces- of 2007-2010 sions are tilted against the poor, individuals and coun- 11. The financial crisis and recession of 2007–2010 was tries. Cushioning the harm to individuals and businesses caused by the gaming of poorly designed incentive mech- through generous public programmes risks developing anisms and a collapse of interbank confidence because a sense of irresponsible dependence and reliance on of free-riding and financial fraud. The solution was pyromaniac firefighting governments. Investing massive a massive injection of financial liquidity to prevent a resources in pharmaceutical research on Covid-19 may total collapse and targeted investments of public funds grasp resources from other important research, pharma- in major financial and manufacturing institutions. ceutical or otherwise. Finally, accepting an explosion of This government largesse was offered on draconian and public debt will require strong discipline to pay it back costly terms. Banks were charged high interest rates to through either savings, taxation, and inflation or reduced motivate them to quickly restore their balance sheets lower-quality public services. by raising new equity. And failing private firms were acquired, once bankrupt, by the government and later 15. The ratchet effect of Leviathanesque governments resold.3 This was strong medicine.4 and public sector bureaucracy is the direst possible consequence of the above policies. While hoping that the measures are adequate, we must not neglect to prepare for the economic recovery when the time is right. The 2 D. Rumsfeld (2002), the former US Secretary of Defense: “[T]here are known knowns; there first and foremost challenge will be to avoid throwing out are things we know we know. We also know there are known unknowns; that is to say we know the baby with the bathwater as fear may remain present. there are some things we do not know. But there are also unknown unknowns – the ones we don’t know we don’t know. And if one looks throughout the history of our country and other We must be careful not to damage the engines of growth free countries, it is the latter category that tend [sic] to be the difficult ones” (https://archive. and civilization that has generated enormous benefits defense.gov/Transcripts/Transcript.aspx?TranscriptID=2636) to mankind over the last decades or centuries: the quest 3 See M. Boyer (2015), Growing out of the Crisis and Recessions: Regulating Systemic for efficiency and effectiveness through exchange, trade Financial Institutions and Redefining Government Responsibilities, CIRANO Scientific and specialization; and the capacity and willingness to Series 2015s-01, 54 pages, https://www.cirano.qc.ca/files/publications/2015s-01.pdf, and http://cirano.qc.ca/files/publications/2017MO-04.pdf (Tome 2, chap. 24); See also identify and adopt inventions and innovations, whether P. Veronesi and L. Zingales (2010), Paulson’s gift, Journal of Financial Economics 97, technological, social or organizational. Such capacity 339–368 (note: the article predates most reimbursements by the banks). For disburse- and willingness are rooted in individual attitudes towards ment by and reimbursement to US Treasury over time for all TARP (Troubled Asset Relief Program) funds, see the TARP tracker at https://www.treasury.gov/initiatives/finan- change, which itself depends on incentive mechanisms cial-stability/reports/Pages/TARP-Tracker.aspx#All. and financial and insurance instruments, which indi- 4 In spite of the government heavy-handed interventions, the market discipline eventually viduals, organizations, and firms can rely on to manage prevailed and, contrary to entrenched popular beliefs, responsibilities and liabilities were change and global risks as well as fears.

broadly imposed and implemented. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

34 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 16. Shrinking reliance on competitive markets and competitive-like institutions and a general tendency to The huge Increase turn in upon ourselves and return to outmoded concepts of buying local or national represent the direst risks of current public policies. Insofar as the USA behaves in an in public debt irresponsible “Me First” way at the international level by 20. The huge increase in public debt may send the signal forcing private firms to terminate contracts with foreign that debt is good and apparently cheap. If governments firms and governments under the Defense Production could implement such a recourse to debt to fight Covid- Act (1950),5 other national governments are likely to 19, why not use debt also to overcome climate change, follow in a movement toward a bad but stable Nash equi- to invest more in our health and education sectors at all librium, with disastrous effects for all. levels, to meet our significant needs in infrastructures, etc. Remember the warning of the dismal science: Needs 17. More than ever, we must secure strong international are infinite, but resources are limited. The ensuing drop health and agro-food clusters. These two clusters could in fiscal discipline, rather than moving us towards a more be the first sectors to experience increasing government cooperative world, is the seed of forthcoming aggressive intervention, interference and regulation, under the flag political battles and social disruption. of health and food sovereignty, for the benefit of some niche stakeholders and countries but at the expense of 21. This brings us a dangerous fallacy, which is often mankind as a whole. Stressing national clusters would repeated both in the private and public sector. In its impact negatively the situation in developing countries, simplest form, the fallacy is as follows: since the private thereby increasing the risk of new pandemics in devel- sector cost of capital (cost of borrowing or raising equity oped countries. More than ever, we as humans are all in finance) is higher than the public sector cost of capital the same boat, but the boat is too big for some to see it (cost of borrowing), then the cost of a public sector as such. business must necessarily be less than the cost a private sector firm would incur for producing, distributing and 18. The current fear-based policies will make further delivering the same goods and services. Yes, governments development of a one-world vision of globalization and can borrow at lower rates than private organizations but international trade very difficult. One can expect that this an important cost of government borrowing is hidden development will be stopped and even recede. It is impor- from the casual observation of published rates or yields. tant to recall and stress that all countries can and will benefit from such trade, independently of their absolute 22. A government can borrow at lower rates because it competitiveness. This statement is arguably the most has the right and power to raise if necessary additional important finding in modern economic theory. It is the taxes to reimburse its debt holders, that is, if its activities foundation of free-trade policies against protectionism, and projects fail to deliver the expected returns. A private that is, the foundation of policies favouring social well- sector firm has no such right or power and this justi- being, poverty eradication, wealth creation, and social fies the requirement by lenders of a higher interest rate. and economic growth against the specific private inte- However, from the point of view of the citizens who are rests of lobby groups, whatever the grandiloquence of the ultimate risk bearers as customers and taxpayers, the such interest groups. right and power of the government to literally withdraw money from their bank accounts to cover financial 19. Paul A. Samuelson, the 1970 Nobel laureate in distress situations does have a price: it is the option value economic sciences, once answered a challenge from today of the government right to require and obtain from mathematician Stanislaw Ulam to name one proposi- them additional funds to cover what may turn out to be tion in all of the social sciences which is both true and ex post socially non-profitable projects. The cost of the non-trivial.6 His answer: “Comparative advantage. That it explosion of public debt is much higher than it looks, is logically true need not be argued before a mathemati- not for governments, not for lenders, but for citizens and cian; that it is not trivial is attested by the thousands of taxpayers. important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was 23. In other words, if the citizens were to grant a private explained to them.” organization the right and power to “tax” them if it ends up in financial distress, then this organization would be able to raise capital at the same conditions as the government. Hence, the claim that the governmental sector can produce at lower costs because the government can raise money at lower interest rates is a subtle but clear fallacy.

5 Such international trade restrictions could be termed “overreaching/illegal use of the Act.”

6 In Understanding the WTO, World Trade Organization (2007). https://www.wto.org/

english/thewto_e/whatis_e/tif_e/utw_chap1_e.pdf. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 35 29. If social democratic societies really aim to improve The reforms of social or simply maintain their broadly defined social protection and security programmes (including universal access to high-quality education, training and health democratic societies services, unemployment benefits, environmental protec- 24. The reforms of social democratic societies’ “capi- tion and restoration policies, extensive water and sani- talism for the people.”7 Pre-Covid-19, there was signifi- tation services, recreational and cultural activities, etc.), cant pressure being exerted on social democratic societies they will have to run those programmes and deliver the and their institutions to adapt to a more competitive envi- associated public and social goods and services they are ronment in their political, economic, social and cultural supposed to provide in a much more efficient and effec- spheres. To maintain their social security programme that tive way. Competition is key. has conditioned their economic performances and characterized their high quality of life, social democratic societies were under pressure to become more efficient and effective in delivering those programmes as well as other Competition is key public and social goods and services, efficient in reaching the goals and objectives set and effective in doing it at the 30. Competition is the key to the emergence of more lowest possible cost. efficient and effective ways and means by which the public and social goods and services will or should be 25. There is a real danger that the Covid-19 crisis will provided in the future. The increasing economic pres- obscure the urgent renewal of the legal, political and sures arising from both the globalization of markets and social interfaces between the public and private sectors in the internationalization of cultures will lead to a reduc- making democratic societies strong and innovative ones, tion, shrinkage or even abandonment of those publicly societies in which justice, equity and entrepreneurship are provided programmes one way or another—perhaps not valued principles. officially, but certainly in practice with lower-quality goods and services and/or slower delivery, increased 26. The Covid-19 has in no way reduced the creeping uncertainty, and lower dependability. This reduced inefficiency in the production, distribution and delivery quality of public and social goods and services will occur of public and social goods and services. This inefficiency not because we cannot afford them anymore but because has many roots, but the most important ones find their these goods and services are produced with increasing sources in two subsets of factors. The first subset revolves inefficiency and ineffectiveness. around the omnipresent confusion between goals/objectives and ways/means. This confusion is the source of 31. The current political debate on the failure of the health numerous fruitless debates. It is time to clarify the goals system, education system, and infrastructure system and objectives and to ensure that the most efficient, to deliver the goods and services they are supposed to least costly and least risky ways and means are used and produce and distribute is centred on government budget harnessed to reach the goals and objectives to be pursued. allocation. Different groups call for more money, sometimes under the more acceptable pseudonym of “reinvest- 27. The second subset proceeds from the capture of ment,” for health, education, infrastructure, environment, large segments and portions of the production, distri- etc. These calls will become louder, now that we have bution and delivery processes of the public and social learned that we could increase debt through the ceiling. goods and services by well-organized, entrenched and highly protected interest groups and lobbies. Those 32. The fundamental problem is one of organizational or groups have, over the years, become capable of imposing systemic efficiency and effectiveness, not one of money hurdles of many kinds, which have impaired sustainable or budget per se. Social democratic societies have become performance and productivity gains. Covid-19 may have well-educated, highly skilled societies with significant entrenched even more their power. entrepreneurial capabilities. They have also reached a high level of tolerance for diversity, not regarding funda- 28. It is always time to reaffirm the preponderance of mental principles and objectives (justice, equity, inclu- goals and objectives and give all citizens the right to sion, efficiency, effectiveness), but regarding the different displace inefficient providers of public and social goods ways and means by which those principles and objectives and services. Many observers claim that our health, may be achieved or met in practice in different contexts. education, infrastructure, and environment systems are failing to provide citizens with the level of services that 33. Misunderstanding the role of competition and the they could and should provide, in spite of increasingly reality of uncertainty and risk can lead to years of subop- important resources being invested. How could and did timal and even wasteful allocation of resources, human, we end up with so many problems in the production and natural and technological. Human behaviour can be distribution of public and social goods and services, explained from two major fears: the fear of competi- considering that we have become richer and richer almost tion and the fear of uncertainty, insecurity and risk. In every year over the last half-century and more? the current fight against Covid-19, both fears may reinforce each other to move us toward a big brother nationalist society and be powerful engines of stagnation and

7 To borrow the title from L. Zingales (2012), A Capitalism for the People, Basic Books. negative growth. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

36 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 34. But they can also be powerful engines of growth and 40. The number of cooperatives had grown to more than opportunities to increase the well-being of all. Negating 735,000 in 1957 with 119 million households as members or misunderstanding the role of competition and improp- for an average 160 households per cooperative. Members erly assessing the importance of uncertainty, insecurity of a cooperative had the option of withdrawing their and risk are the two most important roadblocks towards labour or physical capital in order to join another coope- an improved social democratic society. rative project if they believed that the productivity or their share of the benefits was insufficient in the former 35. To (re)build an open social democratic model and cooperative. project after the Covid-19 crisis is behind us, three principles should be relied on: the rationality of individuals; 41. Following the success of the first cooperatives, the the efficiency of incentive mechanisms; the efficiency of Chinese government decided in 1958–1959 to extend the competitive mechanisms. collectivization project to the whole agricultural production. The government cooperatives gathered an average 36. Rational behaviour can be characterized as the pursuit 5,000 households and the right of withdrawal was abol- of a coherent set of objectives and the use of appropriate ished to simplify the administration of the system. means to reach them. Frank Hahn (1978)8 proposes the Compensation was also changed from a distribution following definition: Given“ a set of possible actions, the based on points of merit to a system primarily based agent chooses rationally if there is no other action leading on the members’ needs, independently of productivity. to preferred consequences to those of the action chosen.” The mutual observation of the comrades’ effort provided Rationality is an amoral concept that sees saints, crimi- was possible when there were 160 households in the coop- nals, and, of course, ordinary citizens, as rational people: erative but impossible with 5,000 households. Abolishing rationality can serve the betterment of society as well the right of withdrawal made the complementary threat as its enslavement. When properly understood, ratio- from more productive members totally void. By 1961, nality presents the greatest advantage of allowing predic- grain production plummeted more than 30% below the tions of human behaviour and, in particular, changes in levels reached in 1958. behaviour due to altered incentives. 42. Justin Yifu Lin (1990),9 an economist of the 37. No economist would pretend that everyone is rational University of Beijing at that time, attributes most of the in the above sense in all circumstances and at all times. fall in production to the modified organization of the The notion of rationality must be understood in a broad cooperatives. The modification significantly reduced the sense, including constrained and bounded rationality as possibility of effective coordination and efficient incen- well as imperfect and incomplete information rationality. tives for effort and resulted in a famine that caused an Moreover, the oft-assumed selfishness of the individual estimated 30 million deaths! incorporates interests and opinions of others insofar as they are part of the individual’s preferences. 43. Such misunderstood role of asymmetric information leading to opportunism, free-riding and hold-up beha- 38. Behaviour is a function of preferences and incentives. viour can have disastrous effects. Efficient contracting for It is difficult to change preferences, but incentives can be the production or distribution of public and social goods used to lead individuals towards contributing not only and services must include incentive-compatible mecha- to their own well-being but also to the well-being of all. nisms that are intended to optimally reduce the impact of such potential sources of inefficiency. 39. The rationality of the individuals leads quite naturally to the second postulate: incentives are a powerful tool 44. The third basic principle is that competition gener- that favours efficiency in reaching the objectives of the ates efficiency, growth, and consequently well-being. open social democratic model and project. The impor- This postulate is quite often subject to ill-informed and tance of properly understanding and designing incen- biased criticism. The following is a typical criticism: tive mechanisms can be illustrated by the agricultural “Competition is not the way to create a strong commu- crisis of 1959–1961 in continental China. Autonomous nity. If you compete with your neighbour, there will be a agricultural collectivization began around 1952 and was winner and a loser. We do not want losers.” immediately a clear success: the agricultural production increased in an impressive way between 1952 and 45. The absence of competition generates only losers, 1958. In contexts where information can be manipulated, besides the bureaucratic central-planning illuminated production cooperatives can be extremely profitable if leaders who claim to know better than the citizens them- certain organizational requirements, mainly those that selves what is good for them. Proper, open and trans- allow for the proper handling of coordination and moti- parent competition pushes everyone upwards. Modern vation through adequate mechanisms, are met. It appears history hardly leaves any space for doubt regarding that the organizational structure of the Chinese agricul- relevancy and truth in the statement that such proper tural cooperatives met these requirements in the first few years. 9 J. Y. Lin (1990), Collectivization and China’s Agricultural Crisis in 1959–1961, Journal of Political Economy 98, 1228–1252. See also J. Y. Lin and D. T. Yang (2000), Food Availability, Entitlements and the Chinese Famine of 1959-61, The Economic

8 F. H. Hahn (1978), On Non-Walrasian Equilibria, Review of Economic Studies 45, 1–16. Journal 110, 136–158. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 37 competition generates a win-win society where markets investments, public and private, are made on the basis of and solidarity are reconciled for the benefit of all. the best information available, best competencies available, and best development prospects. 46. Complementary competitive mechanisms, such as benchmarking, competitive tendering, public-private partnerships, and competitive answers to NIMBY could be particularly efficient as needed transition mechanisms Conclusion in the public sector. 48. Let us hope that the march towards more 47. Only proper, open and transparent competitive cooperation and competition, more innovation, and mechanisms, making an optimal use of new informa- more globalization, that is, the march towards a more tion and communication technologies, can guarantee the civilized one-world vision survives the current handling emergence of a society where the interests of the citizens of the Covid-19 crisis. There are significant risks that it prevail, where choices of production, consumption and will not, at least for a long time. n Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

38 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis Covid-19 and EU merger control: Time to loosen the FFD straitjacket?

Jacques Buhart David Henry [email protected] [email protected] Partner Counsel McDermott, Will & Emery, Brussels and Paris McDermott, Will & Emery, Brussels

I. Introduction or strengthening of a dominant position” (SIEC).2 It is a fundamental premise, however, that there be a causal link 1. Covid-19 has brought vast swathes of the European between a concentration and the SIEC.3 It is this require- economy to a grinding halt. Despite the deployment ment to establish a causal link that lies at the core of the of various measures to mitigate its effects—liquidity FFD. injections, loosening of the EU State aid rules, etc.— bankruptcy for many companies may be imminent. 4. The EUMR is silent on the FFD. Enshrined in the Significant consolidation in various industries is there- European Commission (“EC”) Horizontal Merger fore likely on the horizon, with large, healthy enterprises Guidelines and in EU case law, however, is an explicit snapping up companies in financial distress. Facilitating recognition that an otherwise problematic concentration is compatible with the internal market if a party to the such consolidation during this unprecedented time of concentration is deemed a “failing firm.”4 In essence, the crisis seems warranted: not to do so risks a colossal exit requirement of the FFD is that the deterioration of the from the market of assets that are core to the European competitive structure that follows a merger cannot be said economy and an attendant (massive) increase in to be caused by the merger in question, but by the irrep- unemployment. arable financial situation of the acquired company. Such lack of causality is considered to arise where the compet- 2. It is submitted that loosening the rigour with which itive structure of the market would deteriorate to at least the EU merger control rules are applied, and the failing the same extent in the absence of the merger.5 In other firm defence (“FFD”) in particular, represents a further words, the effects of the merger must be at least neutral. opportunity to ease the devastating economic impact of Covid-19. This short paper therefore looks at the extent 5. A three-pronged cumulative test is employed to esta- to which the highly exacting standards of the FFD could blish whether an undertaking can be characterised as a be softened during these exceptional times.1 failing firm within the meaning of the EUMR:

– Criterion 1: the allegedly failing firm would in the near future be forced out of the market because of financial II. FFD: Applicable difficulties if not taken over by another undertaking; legal framework 2 Article 2(3) of Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (2004). 3. The EU Merger Regulation (“EUMR”) prohibits 3 Id., Article 2(2): “A concentration which [does] not significantly impede effective competition concentrations which “significantly impede effective (…) in particular as a result of the creation or strengthening of a dominant position, shall competition (…) in particular as a result of the creation be declared compatible with the common market.” 4 Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings (2004) (“Horizontal Merger Guidelines”) and Joined Cases C-68/94 and C-30/95, France and Société commerciale des 1 This paper does not discuss inter alia State aid measures that are being taken to alleviate potasses et de l’azote et Entreprise minière et chimique v. Commission [1998] ECR I-1375. the economic impact of Covid-19, potential measures to stave off the threat of (unfair) public takeovers of European companies and the like, nor does it discuss whether, and, if 5 Horizontal Merger Guidelines, para. 89. See also Opinion of Advocate General Tesauro so, the extent to which, industrial policy considerations should inform the application of of 6 February 1997 in Joined Cases C-68/94 and C-30/95 France v. Commission [1998]

the EU Merger Regulation. ECR I-1375, para. 49 et seq. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 39 – Criterion 2: there is no less anti-competitive alternative purchase than the merger in question; and III. FFD/FDD: – Criterion 3: in the absence of the merger, the assets of the failing firm would inevitably exit the Rarely invoked, market6 (together “FFD Criteria”).7 strictly applied and 6. A heavy evidential burden is placed on companies seeking to invoke the FFD. Indeed, there is a strictly applied requirement to “provide in due time all the relevant often unsuccessful information necessary to demonstrate that the deteriora- 9. The FFD was first invoked, albeit unsuccessfully, in tion of the competitive structure that follows the merger Aerospatiale-Alenia/de Havilland in 1991.12 Its rejection 8 is not caused by the merger.” In practice, if the FFD is by the EC so shortly after the entry into force of the invoked late in proceedings, the probative value of such original EUMR in 1990 was an early portent of the diffi- claim will be considerably weakened in the eyes of the culties that parties would face when seeking to rely on the 9 EC. FFD—not to mention the FDD.

7. The FFD extends to failing divisions—the “failing 10. Indeed, the EC’s unwavering adherence to a (very) division” defence (“FDD”). Though not insuperable, strict application of the FFD/FDD has been borne out the evidentiary bar set for satisfying the FFD Criteria in empirically. Since the promulgation of the EUMR, in this context is arguably higher. According to the EC in only a handful of cases has the EC waved through an Bertelsmann/Kirch/Premiere: “Where the ‘failing division otherwise problematic transaction on the basis that defence’ and not the ‘failing company defence’ is invoked, the FFD Criteria had been met. Following the seminal particularly high standards must be set for establishing 1993 Kali + Salz/MdK/Treuhand case where the FFD that the conditions for a defence on the grounds of lack was accepted for the first time,13 the only other cases in of a causal link have been met. If this were not so, any which the FFD has been accepted are (i) BASF/Eurodiol/ concentration involving the disposal of an allegedly unprof- Pantochim,14 (ii) Nynas/Shell/Harburg Refinery15 and itable area of a business could be justified for merger-con- (iii) Aegean/Olympic II.16 In each of these cases, the EC trol purposes by a declaration on the part of the seller that, carried out a full-fledged Phase II investigation involving without the merger, it would be necessary to close down the the adduction of extensive (economic) evidence by the 10 seller’s business in that area.” parties in support of their FFD claim, and copious requests for evidence and comments by third parties, 8. Indeed, various arguments have been advanced in including alternative purchasers.17 support of a strict stance vis-à-vis the FDD, another being to stymie attempts by parent companies to mani- 11. The dearth of successful FFD cases thus bears testi- pulate financial data so as to give the impression that a mony to the formidable challenges faced when seeking 11 division is failing. to meet its highly exacting standards. The number of failed attempts even more so.18 Indeed, even if one, or even two, of the FFD Criteria are met, companies will often stumble when it comes to satisfying all three.19 In practice, therefore, the FFD is often only advanced in cases where prohibition or a requirement to offer (too) far-reaching remedies are on the horizon.

6 Horizontal Merger Guidelines, para. 90. The underlying rationale of Criterion 3 is that the application of Criteria 1 and 2 does not address the possibility of a takeover by third parties of the production assets of the failing firm in the course of bankruptcy proceedings. Should these production assets stay on the market, the effects on competition may be similar to (or more beneficial than) the takeover of the entire failed business by an alternative purchaser, see OECD Competition Committee Meeting of 21 October 2009, 12 Case No IV/M.053 – Aerospatiale-Alenia/de Havilland of 2 October 1991. Roundtable on Failing Firm Defence, Note by the services of the European Commission 13 Case COMP/M.308 – Kali + Salz/MdK/Treuhand of 14 December 1993. Directorate-General for Competition, para. 7. 14 Case No COMP/M.2314 – BASF/Eurodiol/Pantochim of 11 July 2001. 7 The FFD Criteria are similar to the requirements of the U.S. antitrust rules: (i) the allegedly failing firm would be unable to meet its financial obligations in the near future, (ii) 15 Case No COMP/M.6360 – Nynas/Shell/Harburg Refinery of 2 September 2013. it would not be able to reorganize successfully under Chapter 11 of the Bankruptcy Act (11 U.S.C. §§ 1101–1174 (1988)), (iii) it has made unsuccessful good-faith efforts to elicit 16 Case No COMP/M.6796 – Aegean/Olympic II of 9 October 2013. reasonable alternative offers of acquisition of the assets of the failing firm that would 17 See for example id., where the EC sent out questionnaires to 24 European airlines to estab- both keep its tangible and intangible assets in the relevant market and pose a less severe lish whether there was any interest in acquiring Olympic—see para. 811. danger to competition than does the proposed merger, and (iv) absent the acquisition, the assets of the failing firm would exit the relevant market (U.S. DOJ and FTC Horizontal 18 Cases in which the FFD was unsuccessfully invoked include inter alia: Case No IV/M.774 – Merger Guidelines 1992, as revised). Saint-Gobain/Wacker-Chemie/NOM of 4 December 1996, Case No IV/M.890 – Blokker/ Toys “R” Us of 26 June 1997; Newscorp/Telepiù, supra note 9, Case No COMP/M.4381 – 8 Horizontal Merger Guidelines, para. 91. JCI/Fiamm of 10 May 2007 and Case No COMP/M.5830 – Olympic/Aegean Airlines of 26 January 2011. 9 See, e.g., Case No COMP/M.2876 – Newscorp/Telepiù of 2 April 2003 at para. 215. See, e.g., id. JCI/Fiamm where, while Criteria 1 and 2 were met, Criterion 3 was not as 10 Case COMP/M.993 – Bertelsmann/Kirch/Premiere of 27 May 1998 at para. 71. 19 competitors could acquire the relevant assets in the context of bankruptcy proceedings,

11 See OECD Policy Roundtables: the Failing Firm Defence (2009), p. 25. see paras. 749 and 750. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

40 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 12. For all the difficulties surrounding its invocation, company approached was found to be in a position to the FFD is not, however, an entirely elusive chimera. submit a viable offer. In the eyes of the EC, this was suffi- The following cases provide an instructive snapshot as cient for a finding that there was no alternative purchaser. to how the FFD Criteria are assessed/can be satisfied in practice—although each case will, of course, turn on its 18. However, to fully rule out any doubt as to the exis- own particular facts. tence of an alternative purchaser, the EC further inquired as to the possibility of an acquisition by an alternative purchaser. In fact, the EC found that the South African 1. Criterion 1 company Sasol Chemical Industries (“SCI”) had initially shown interest in acquiring E and P. However, after 13. In BASF/Eurodiol/Pantochim, for example, the EC having carried out a full due diligence procedure, SCI found that Eurodiol and Pantochim (“E” and “P”) informed the EC that it had decided not to pursue its would be forced out of the market if not acquired by plans. On the basis of the foregoing, the EC concluded BASF. Specifically, E and P were found to be heavily that no less anti-competitive solution was available.22 indebted and already subject to a pre-bankruptcy regime. The relevant judicial body responsible for the pre-bank- 19. In Aegean/Olympic II, the EC concluded that, absent ruptcy proceedings had confirmed to the EC that both E the proposed merger, the emergence of an alterna- and P would have to be declared bankrupt in the absence tive purchaser for Olympic in the immediate future was of a buyer for E and P being approved.20 unlikely. This was due to inter alia the fact that (i) the then current and foreseeable market conditions were 14. In JCI/Fiamm, the EC found that the banks would unlikely to be more conducive to Olympic’s sale, (ii) the not inject any new capital into the group were Fiamm seller would have had an incentive to find an alternative not to show any prospect of being redressed. According purchaser given that Olympic’s first merger with Aegean to inter alia the creditor banks and Fiamm, this prospect was prohibited by the EC,23 and (iii) the data gathered depended entirely on the transaction at hand. Indeed, during the market investigation did not reveal the likeli- based on all the information at the EC’s disposal, it hood of any credible alternative purchaser of Olympic.24 appeared likely that Fiamm would file for bankruptcy if the merger were not to proceed. In any event, even if the decision to file for bankruptcy were ultimately not 20. In terms of practical upshot, therefore, Criterion 2 taken by Fiamm, it was nevertheless found likely that requires at a minimum a need to show serious and good the SBB division would not remain in the market as a faith attempts to find an alternative buyer early on in the going concern. It was therefore concluded that Fiamm merger notification process. In the absence of doing so 25 SBB—if not taken over by another company—would be the FFD will fail. forced out of the relevant markets in the absence of the 21 proposed transaction. 3. Criterion 3 15. At the heart of Criterion 1, therefore, is a need to 21. In BASF/Eurodiol/Pantochim, the EC recognised that show that the company in question is no longer economi- the relevant assets in this case would without doubt leave cally viable. Imminent bankruptcy of the firm in question the market and that such exit would in all likelihood lead is clearly sufficiently probative in this regard. to a considerable deterioration of market conditions, to the disadvantage of customers.

2. Criterion 2 22. In particular, the EC examined whether there would 16. Under Criterion 2, the onus of proving that there is be any likelihood that E’s capacity for the relevant no credible alternative, less anti-competitive, potential products might be kept on the market after bankruptcy. buyer other than the acquiring firm lies with the party In this regard it was found that (i) an immediate takeover claiming it. of E and P, after bankruptcy, by a third party seemed

17. In BASF/Eurodiol/Pantochim, the burden of proof pertaining to Criterion 2 was found to be discharged. 22 Supra note 14, paras. 146–148. Since a restructuring plan could be excluded as a real- 23 See Olympic/Aegean Airlines, supra note 18. istic option, the commercial court in question autho- 24 Supra note 16, para. 816. As mentioned, the EC sent out questionnaires to 24 European rised those in charge of the administration of the plants airlines to establish whether there was any interest in acquiring Olympic. None of the 20 to find a suitable buyer for E and P’s assets immediately airlines which responded indicated any interest in purchasing the carrier. During the investigation, one third party, Chrysler Aviation, submitted to the EC that it had a potential after the decision to open pre-bankruptcy proceedings. interest in acquiring Olympic but the EC, for various reasons, harboured doubts as to the Subsequently, a number of competitors were contacted. seriousness of Chrysler Aviation’s intentions with regard to the acquisition of Olympic.

However, whilst some companies carried out due dili- 25 See, e.g., Blokker/Toys “R” Us, supra note 18, at para. 113: “Toys “R” Us has not shown that gence with respect to E and P, apart from BASF, no other there was no less anticompetitive purchaser. The claim of Toys “R” Us that only the Blokker group met its requirement of having sufficient knowledge of the Dutch toy retail market and the necessary infrastructure is not in itself an argument that there were no other potential buyers. On the contrary, it rather supports the assessment that Toys “R” Us selected the strongest player on the market. In its description of other potential buyers, Toys “R” Us said 20 Supra note 14, para. 144. that it rejected those parties which had no specific knowledge of the market conditions in the

21 Supra note 18, paras. 717–721. Benelux or operators which were potential competitors in other Member States.” délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 41 unlikely. This was inter alia because the operation of the to finance for all types of businesses.28 The question two plants involved not only high costs but also consid- therefore arises whether the highly exacting standards of erable environmental risks, resulting from the sensitive the FFD should be relaxed and, if so, how the softening production processes used at E and P, (ii) a restart of thereof could be achieved. the plants at a later stage would be expensive compared with an immediate takeover, and (iii) it was not likely 26. Of course, the FFD only comes into play in the that a third party would buy specific assets of the two context of an otherwise problematic merger, i.e., where companies after their shutdown following a bankruptcy there is a risk that the merger could be prohibited or only judgment. On the basis of the foregoing, it was concluded approved on the basis of extensive remedies. In “normal” that it was very likely that the assets of E and P would times, such mergers are arguably less prevalent. The FFD exit the market. is then often advanced as a last roll of the dice. On the other hand, in times of crisis, such as that which we are 23. Moreover, given inelastic demand and capacity currently witnessing, the FFD takes on an increased level constraints on the market, a very considerable price of relevance. This is because of a likely proliferation of increase could be assumed as an immediate corollary of transactions involving financially healthy companies that the disappearance of E’s production capacity and that, can weather the storm in light of their size, deep pockets therefore, the market conditions would be more favou- (and indeed positive credit rating), on the one hand, rable for customers post-merger. Specifically, it was found and financially distressed companies, on the other. With that customers could expect more advantageous supply respect to the latter, a direct corollary of the exit from the conditions and prices from the market post-merger than market of their assets may be the loss of vast swathes of under a bankruptcy scenario where E’s assets would key infrastructure and intellectual property that is core be taken off the market. Thus, the EC considered that to the European economy (e.g., in the tourism, trans- “the deterioration of the competitive structure through the port and retail industries, which have been particularly merger (…) [would be] less significant than in the absence hard-hit by Covid-19). Closely associated with the exit of of the merger.”26 these assets is an inevitable rise in unemployment.

24. Criterion 3, therefore, hinges on the ability to show 27. While the strictness of the FFD has (arguably) been that absent the merger the assets of the failing firm would loosened in the past, albeit in very sui generis cases,29 the inevitably exit the market, such that the competitive EC’s prevailing stance in times of crisis has been to reject structure thereof would deteriorate to at least the same a more lenient approach towards the failing firm test.30 extent in the absence of the merger. The reference to the This policy stance was taken following the 2008 finan- notion of “inevitability” of the exit of the assets neces- cial crisis. But Covid-19 is a completely different situa- sarily implies that there is no other player other than the tion, having brought entire industries to their knees, with acquirer in question who would be willing to acquire and no certainty of its near to mid-term abatement. Whilst operate the company (or indeed the relevant assets) in recognising that the FFD Criteria have been drawn up question.27 Discharging the burden of proof underpin- and are applied with a view to minimising type II errors, ning Criterion 3 is therefore clearly onerous. i.e., erroneous merger clearances, Covid-19 comes as an exogenous and completely unexpected shock. Firms that have become distressed, often overnight, are in a highly precarious position, subject to very rapid deterioration IV. Covid-19: and likely in (or on the brink of being in) receivership. Time is therefore very much of the essence. The introduction of a truncated and simpler administrative procedure/ Time to soften the test with respect to the application of the FFD during Covid-19, and its (immediate) aftermath, may there- rigour of the FFD? fore be warranted. In this regard, the following could be considered: 25. As the nefarious effects of Covid-19 continue to ripple across the globe, it has become increasingly foreseeable that market conditions will spur an uptick in – As a preliminary observation, there would be no companies filing for bankruptcy. This is despite the EC’s need to amend the EUMR. A more expedient commendable efforts to loosen the EU State aid rules in “processing” of an FFD claim would lie in the a bid to safeguard the continuity of economic activity by hands of the EC. ensuring the availability of sufficient liquidity and access

28 See, e.g., the Communication from the Commission: Temporary Framework for State aid measures to support the economy in the current Covid-19 outbreak, C(2020) 1863 final of 19 March 2020 as amended by Communication from the Commission: Amendment to the Temporary Framework for State aid measures to support the economy in the current Covid-19 outbreak, C(2020) 2215 final of 3 April 2020.

29 See, e.g., BASF/Eurodiol/Pantochim, supra note 14, where there was a shift away from a 26 Supra note 14, paras. 149–163. need to show that the entirety of the allegedly failing firm’s market share would accrue to the acquirer in order to satisfy Criterion 3. 27 See D. Gore, S. Lewis, A. Lofaro and F. Dethmers, The Economic Assessment of Mergers

under European Competition Law (Cambridge University Press, 2013), p. 312. 30 See OECD, supra note 6, para. 19. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

42 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis – Taking the fulfilment of Criterion 1 more or less – Extensive information requests by the EC to as a given. In practical terms, this would imply notifying parties and potential purchasers and the adduction of significantly less internal docu- requests for comment by third parties, such as mentation/(economic) evidence showing that the customers and competitors, could be dispensed economic viability of the company is irretrievably with. Indeed, the EC has recently recognised the compromised. A simple statement to this effect by extreme difficulties it currently faces in eliciting a bank or an auditing firm of reputable standing such information given the disturbances caused could suffice. by Covid-19.31 – Alleviating the lengths to which the allegedly 28. Recognition of cases meriting swift treatment of failing firm and/or its advisors have to go to FFD claims should not, in the current environment, pose demonstrate that there is no less anti-compet- too much difficulty. Whilst recognising that FFD candi- itive alternative purchaser. Simple reliance on date cases are, by their nature, normally likely to go into the demonstration of reasonable (in the circum- Phase II, a drawn-out Phase II must be avoided. This is stances), good faith, attempts on the part of the because, most of the time, national bankruptcy procee- allegedly failing firm should suffice. Efforts by dings cannot wait for a “normal” Phase II decision to the EC, as in BASF/Eurodiol/Pantochim, to make be rendered—liquidation of the assets in question would doubly sure that there is no alternative purchaser, occur before the EC has issued its decision. Front-loading despite already being in possession of sufficient the FFD review to Phase I could, where possible, there- evidence of the absence thereof would be excessive. fore also be considered. Granted, a less rigorous review – A softening of the need to show that the assets process brings with it a greater risk of type II errors, but in question would “inevitably” leave the market. extraordinary times call for extraordinary measures. n Recognition that there is a good prospect thereof on the basis of more limited documentation may suffice.

31 See, e.g., https://ec.europa.eu/competition/mergers/news.html. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 43 Competition and Corona crisis: Some reflections from Spain with an advocacy perspective

María Pilar Canedo Arrillaga [email protected] Professor of Law University of Deusto, Bilbao Commissioner Competition Chamber of CNMC, Madrid

I. Introduction children’s basic right to food, postponement of payment of credits, provisions dealing with 1. Spain is one of the countries that has been the most public procurement or support to the industry of seriously affected by Covid-19. tourism.3

In order to protect the health of citizens, the Spanish – Royal Decree-Law 8/2020 introduces urgent government has adopted some rules that radically limit measures to face the economic and social impact social and economic activity in Spain imposing the obli- of Covid-19 in fields such as teleworking, post- gation to stay at home for citizens for more than one ponement of mortgage payments, suspension of month (up to now) and ordering what has been called mobile portability, issues on consumer protection, 4 “the hibernation of the economic activity” for fifteen days tax law insolvency or employment protection. in all the non-essential sectors (mostly health services, – Royal Decree-Law 9/2020 deals mostly with the security and food).1 dire situation of residences for elderly people and labour law.5 The statute defines the application of Those rules are having a dramatic effect on the economy Temporary Files of Regulation of Employment especially on the labour market. This has implied the (ERTE with the Spanish wording) that deter- most relevant rise in the unemployment figures in Spain mines that in this case of force majeure the compa- since the arrival of democracy in 1978.2 nies can temporarily stop the labour relation with some compromises (from the social security side, 2. Those consequences have a more relevant impact on the company and the worker).6 the weaker actors of society both from the social and – Finally, Royal Decree-Law 11/2020 deals with economic perspective and therefore the Government has matters related to energy, independent workers, decided to take measures with the aim of reducing the industry, donations, housing for families or impact of the crisis on the economy in general and, in eviction.7 particular to help those more harmed by the situation. 3. It is evident that the most relevant overriding reason – R oyal Decree-Law 7/2020 is the first one that puts of general interest—which is human life—needs protec- in place urgent measures to face the economic tion now. That implies limits in the rights of the people impact of Covid-19. It deals with issues such as enabling the Government to fix prices of medicines and sanitary products, issues dealing with 3 Royal Decree-Law 7/2020 of 12 March 2020, which contains urgent measures to answer to the economic impact of Covid-19.

4 Royal Decree-Law 8/2020 of 17 March 2020 on urgent extraordinary measures to deal with the economic and social impact of Covid-19. 1 Royal Decree 463/2020 of 14 March 2020, which declares the state of alarm for the management of the health crisis situation caused by Covid-19, Royal Decree 476/2020 of 5 Royal Decree-Law 9/2020 of 27 March 2020, with complementary labour measures to 27 March 2020, which enlarges the state of alarm declared by the Royal Decree 463/2020. deal with the impact of Covid-19. Both can be found in Spanish at https://www.hacienda.gob.es/es-ES/RSC/Paginas/RSC. aspx. 6 This rule is complemented by another Royal Decree-Law that defines the system of determining payment in those cases. Royal Decree-Law 10/2020 of 29 March 2020. 2 Ministerio de Trabajo, Migraciones u Seguridad Social, La Seguridad Social regis- tra 18.445.436 afiliados en el último día de marzo (http://prensa.mitramiss.gob.es/ 7 Royal Decree-Law 11/2020 of 31 March 2020, with urgent measures in social and eco-

WebPrensa/noticias/seguridadsocial/detalle/3769). nomic fields. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

44 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis that we could not foresee just some months ago and those Also, the crisis has implied that in several products and radical changes in social and economic behaviours will services the equation price/choice/quality is not so relevant have an impact on our business and industrial economy to consumers. The access to some basic products becomes not only in the short term. crucial.

In these circumstances we can hear more radical voices This has pushed several agencies to remind that tradi- claiming for a change in our economic model towards tional antitrust tools that deal with business behaviours one in which the public sector controls different aspects are crucial in these moments.14 Especially relevant are the of society, including company’s ownership.8 Others claim matters of cooperation among companies that can be for public control of economic activity and/or business analysed under Art. 101(3) of the TFEU. The agencies behaviour.9 Others that claim for higher protection for are underlying that the measures taken need to have a companies so they can contribute to lowering the destruc- clear link to the declared aim, be specific, temporary and tion of employment.10 transparent in order to be accepted.15

Also, we can witness some (infrequent) business Behaviours of increase in prices or undue imposition behaviours that profit the situation of need and legal of commercial conditions (apart from the traditional exception and maximise their benefits in abusive ways agreements or abuses of dominance) have emerged in 16 that fall under different prohibitions of the law. Some of the crisis. Also, lobbies asking the administration to them, with criminal implications, others, with labour, tax, fix prices or the competition agencies to allow certain 17 social security or competition law.11 behaviours.

Dealing with the latter, there is an increasingly relevant Some abusive conducts could require revisiting of movement that asks for a more lenient application of the concepts like the one of abuse of market power or other competition law rules and principles in reference both types of exploitation. Those situations do not always fall under the traditional competition rules but need effi- with the administrative and legislative measures adopted cient—sometimes imaginative—answers. to tackle this situation and its application and with the enforcement activities conducted by the competition In the short (but regrettably not only) run the crisis will authorities. affect the economy with high risk of bankruptcies and the already mentioned increase in unemployment which already 4. It is relevant to remind society of the huge harm that shows an impact in tax measures or other forms of State competition infringements bring to social welfare and aid (which are not covered by this short article) in order to especially to the weakest.12 It is evident though that ensure economic growth and stimulate employment.18 the crisis implies a dramatic impact in the value chain of certain products not only because there has been a 5. Some agencies are underlying the existence of traditional sudden change in the needs of citizens that entails short- limits in some commercial activities that now prove to create ages but also because the problems of distribution are not only unjustifiable burdens to the market but also harm 13 inherent to confinement measures. to economic welfare and an increase in health risks for

14 An overview of those answers can be found in Centro Competencia, Universidad Adolfo Ibáñez, https://centrocompetencia.com/reacciones-comparadas-de-agencias-de-competencia-a-raiz-de-la-crisis-del-coronavirus (in Spanish); another one (in English) is 8 See, for example, J. Becnach’s interview, Sin Permiso, 28 March 2020 (https://www.sinper- miso.info/textos/hay-que-aprovechar-esta-pandemia-para-hacer-un-cambio-social-radi- available here: https://www.clearygottlieb.com/news-and-insights/publication-listing/ cal-entrevista-a-joan-benach) or A. Semprún and I. Acosta, Iglesias quiere nacionalizar covid-19-status-of-antitrust-and-competition-agencies. y socializar ahorros, El Economista, 1 April 2020 (https://www.eleconomista.es/empre- 15 See the Temporary framework communication of the EC for Covid-19 period (https:// sas-finanzas/noticias/10454485/03/20/Iglesias-quiere-nacionalizaciones-y-socializar- ec.europa.eu/info/sites/info/files/framework_communication_antitrust_issues_related_ ahorros-como-Venezuela.html). to_cooperation_between_competitors_in_covid-19.pdf). See R. Villaécija, El Gobierno vigila ya posibles subidas de precios en el súper, 9 16 A reference to the cases that are being investigated during this crisis, referring to funeral El Mundo, 16 March 2020 (https://www.elmundo.es/economia/ahorro-y-consu- services, sanitary products and financial practices, can be found here: https://www.cnmc. mo/2020/03/16/5e6a337f21efa0aa138b45fd.html). es/sites/default/files/editor_contenidos/Notas%20de%20prensa/2020/20200407%20 NP%20Balance%20Buz%C3%B3n%20Covid_20200407_eng.pdf. 10 M. Vega, Los economistas ante la hibernación: es necesaria pero hay que ayudar a las empresas, El Español, 1 April 2020 (https://www.elespanol.com/invertia/econo- 17 J. Ruiz-Tagle, La farmacia pide al Ejecutivo que fije el precio de las mascarillas, mia/20200401/economistas-hibernacion-necesaria-ayudar-empresas/478953535_0. El Economista, 4 April 2020, where the professional association of pharmacy offices claims html). that some sellers “that do not usually operate in this market are abusing with high prices” or J.-M. Jiménez-Laiglesia, Competencia en tiempos del coronavirus, El País, 6 April 2020 11 Detenido un empresario por el robo de casi 2 millones de mascarillas en Santiago La Vanguardia, 6 April 2020 (https://www.lavanguardia.com/sucesos/20200406/48338088725/deteni- (https://cincodias.elpais.com/cincodias/2020/04/03/legal/1585911638_526094.html), do-empresario-santiago-robo-mascarillas-coronavirus.html) or T. Domínguez, Alerta: asking the Competition Authority to publicly accept certain types of agreements. Falsos test de coronavirus a domicilio para entrar en casa a robar o violar, Levante-EMV, 18 Spain is planning to offer a program of State aid considering differences depending on 26 March 2020 (https://www.levante-emv.com/sucesos/2020/03/26/estafa-coronavirus-ro- the origin of the funds (European or others) and the recipients (SMEs or autonomous bo-falso-test/1994293.html). workers). Commission Press Release IP/20/581 of 2 April 2020, State aid: Commission approves Spanish “umbrella” scheme to support economy in coronavirus outbreak (https:// 12 Competition agencies like the Russian, Italian, Peruvian, Canadian, American, South African, Dutch or Brazilian have made it public that they will prioritise cases in the ec.europa.eu/commission/presscorner/detail/en/IP_20_581), or Commission approves markets more closely affected by the health crisis. Maltese, Swedish, Spanish, and German State aid schemes to support the economy in the context of Covid-19 outbreak (https://eulawlive.com/commission-approves-maltese- 13 See ECN Antitrust: Joint statement by the European Competition Network (ECN) on ap- swedish-spanish-and-german-state-aid-schemes-to-support-the-economy-in-the-context- plication of competition law during the Corona crisis (https://ec.europa.eu/competition/ of-covid-19-outbreak). See also EC, State aid rules and Covid-19 (https://ec.europa.

ecn/202003_joint-statement_ecn_corona-crisis.pdf). eu/competition/state_aid/what_is_new/news.html). délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 45 citizens and workers.19 For example, in Spain, the Catalonian An adequate motivation of the fulfilment of those princi- Competition Agency has published a very short report that ples is needed. Only this motivation makes it possible to reminds that the ban to the on-line sale of certain products control that there is a causal link between the protection such as medicines (with or without prescription) or tobacco of the general interest and the limitation imposed. cannot be considered necessary and creates a special harm in this crisis for companies, workers and citizens.20 The same This motivation not only allows the ex post assessment could be said about other limits in competition such as bans of the measures adopted (in order to check if they were in commercial hours or other commercial conditions that adequate to protect the general interest), but also permits are included in several national and especially regional regu- a control by the third parties. This not only reduces arbi- lations or the several bureaucratic burdens in the economy trary decisions but also increases the credibility of those such as the formalities to create companies. Some of those taking the decisions in front of society. measures are being adopted by the administration opening the market by the reduction of burdens that could prove not Would it be possible to assess the decisions approved in to be necessary or proportionate.21 this situation using these principles? I think not only that it would be possible, but also that it would be needed if 6. In this crisis (so different from the recently lived), we we want to adequately protect public interest. need to consider whether the traditional principles of competition law are still useful or need to be redefined or revisited both for enforcement and advocacy approaches. 1. Public procurement rules

This piece focuses just on the advocacy level and there- 8. Let’s take into consideration the changes made to the fore on some of the legislative (some administrative) deci- application of public procurement rules. sions taken during the crisis from the perspective of the principles of better regulation. The 1st of April the European Commission published a communication with guidelines for using public procure- 22 It is far from exhaustive. It just offers an analysis of a ment in the emergency situation created by Covid-19. selection of measures in order to check whether the prin- They are based on the need of “agility in dealing with an ciples of better regulation are useful in this situation. immense increase of demand for similar goods and services while certain supply chains are disrupted.”

The guidelines underline the possibility of using the rules II. Analysis of some of public procurement already in force referring to open procedures even in cases of emergency adapting them by shortening deadlines if urgency so requires. Doing so legislative measures implies complying with the principles of transparency adopted during and competition. The guidelines assume nevertheless that there are cases of urgency that render impracticable the application of the crisis ordinary time limits and then contracting authorities are 7. The principles of better regulation imply that the allowed to shorten them. Companies are also encouraged public power can (and should have to) intervene—and to procure jointly and to find innovative alternatives in perhaps limit competition—if there is a market failure the market. or an overriding reason of general interest that merits and requires protection (principle of necessity). In those Only in cases of extreme urgency, expressly defined cases, it is also relevant to guarantee that the measure as exceptional, the administration may award public does not create discrimination and that, among all the contracts by a negotiated procedure without publication options that serve to the same interest, the one chosen is with two possibilities: negotiating with different under- the less harmful for competition and the market. takings or with just one company if it is the only one considered able to deliver within the technical and time constraints imposed by the aforementioned extreme 19 CNMC, Study on the retail medicine distribution market in Spain E/CNMC/003/15 urgency. The guidelines underline that the use of these Madrid, 15 October 2015 (https://www.cnmc.es/sites/default/files/1185462_8.pdf). procedures is an exception, because it implies that the 20 Catalan Competition Agency (ACCO), La ACCO destaca que en la actual situación de principle of transparency is not respected and there- crisis de la Covidien-19 la prohibición de la venta ‘on-line’ de medicamentos con receta fore competition cannot be guaranteed. The exceptional limita el bienestar de farmacéuticos y consumidores (http://acco.gencat.cat/ca/detall/ article/20200330_posicionament_acco_farmacies_covid_19-00001). requirements need to be cumulatively fulfilled and the administration has to motivate them in a specific report. 21 Order SND/326/2020, 6 April 2020, that reduces the requirements to obtain licences for producing sanitary products due to Covid-19. The same about accelerating proce- Those are the existence of events unforeseeable by the dures of recognition of foreign degrees: Acelerón para agilizar la homologación de títulos a sanitarios extranjeros (https://www.consalud.es/profesionales/aceleron-para-agilizar-la-homologacion-de-titulos-a-sanitarios-extranjeros_60676_102.html), or P. Mosquera et D. Silva, España acelera contratación de personal sanitario de otros 22 Communication from the Commission, Guidance from the European Commission on países, CNN en Español , 27 Match 2020 (https://cnnespanol.cnn.com/2020/03/27/ using the public procurement framework in the emergency situation related to the Covid-

alerta-espana-200-nuevos-medics-extranjeros-para-combatir-covid19). 19 crisis, C/2020/2078, OJ C 108I, 1.4.2020, pp. 1–5. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

46 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis contracting authority in question; the extreme urgency 10. We can reach the conclusion that in this case, the appli- making compliance with general deadlines impossible; cation of the principles of better regulation—including the causal link between the unforeseen event and the necessity and proportionality—could perfectly serve extreme urgency and application only in order to cover in the analysis and assessment of this measure adopted the gap until more stable solutions can be found. during the crisis. Their application should have to lead to reconsidering the new rule or at least should have to 9. Far from the EU notice, Art. 16 of the Spanish RDL inspire its application if we want to protect public interest. 7/2020 (modified by the RDL 9/2020) establishes anex lege justification of the emergency implying that the administration does not need to motivate the applica- 2. The limits in the portability tion of the negotiated procedure prior to publication.23 of telephone lines This creates a risk to an excessive use of the negotiated procedure.24 11. Art. 20 of the RDL 8/2020 limits during the state of alarm the possibilities of the companies for making After the RDL, one could interpret the Spanish legal extraordinary commercial campaigns for contracting system as assuming the negotiated procedure as not telecommunication and electronic services that imply exceptional (going therefore against the EU guide- number portability “in so far” as the portability could lines). The Spanish contracting authorities do not need require the users to move physically to the venue of the to motivate the exceptional circumstances that avoid providers or some physical interventions in the client’s the application of open procedures. This implies an domiciles in order to guarantee the continuity of the increase in the agility and flexibility that can be useful service. Also, the RDL banned any portability operations in the current circumstances but it also affects the prin- for both land and mobile telephones when they were not ciples of transparency and competition with harmful in progress except in cases of force majeure. consequences (those that the guidelines of the EC try to avoid).25 The measure was expressly motivated as related to the health crisis as it could avoid “citizens moving physi- It would be difficult to consider that there is a specific cally to the venues of the companies or those moving to the need in the Spanish situation that motivates the explained domiciles of the clients” (see section II of the Explanatory difference between the local legislation and EU guide- Introduction to the Act). lines.26 On the contrary a possible abuse of the negoti- Some weeks after, the Government changed the ated procedure could have negative effects for the protec- measure in the RDL 11/2020. The new wording of the tion of general interest and the guidelines themselves law continues limiting the commercial campaigns but show possible alternatives.27 If the new regulation implies just bans portability of land and mobile numbers not going back to a more general application of procedures in progress in cases where physical presence is needed. that do not guarantee competition, this would imply a This would be more in compliance with the principles of step back in our system with a clear risk of abuse that better regulation because of the causal link of the limit was already proved in former times.28 with the aim that justifies it.

The new system contains two additional measures. The first one is a guarantee of non-interruption of the service in cases where the portability needs to be suspended after begin- 23 J. M. Gimeno Feliu, La crisis sanitaria Covid-19 y su incidencia en la contratación pública, El Cronista, No. 86–87, March–April 2020, p. 44 (http://www.elcronista.es/El-Cronista- ning it because a physical action is needed. The second n%C3%BAmero-86-87-Coronavirus.pdf). one is a prohibition of increase in prices of those services

24 There was perhaps a problem in the transposition of the Directive into the Spanish legal that are affected by the suspension of the portability. system that could be behind this difference. It is linked to the existence of two different emergency procedures in the Spanish legal system one of which implies an excessive for- mality that makes it perhaps too inflexible. 12. After this change the association of portability operators presented several complaints to the telecommuni- 25 A deep and detailed analysis of the implications of Covid-19 in the Spanish rules of public procurement both at the state and regional level can be found on the OIReScon cations regulator in Spain, claiming that after the initial website, the Independent Office for Regulation and Supervision Procurement in Spain, total suspension of portability they were not flexible Contratación pública-Covid 19, https://www.hacienda.gob.es/es-ES/RSC/Paginas/RSC. enough (considering the alarm circumstances) to resume aspx. the service without technical and personal risks. This is 26 Similar measures seem to have been adopted in Portugal as it is analysed by P. Telles, Portugal establishes exceptional procurement regime due to Covid-19 (http://www.telles.eu/ why the regulatory authority adopted some interim blog/2020/3/17/portugal-establishes-exceptional-procurement-regime-due-to-covid-19). measures that foresee a transitory period in which each

27 See for example the decision taken by the Catalonian administration to consider that the operator will have a limit of portability that will be based development of optic fibre is a question of emergency and therefore implies the applica- on an increasing percentage of their previous quotas for tion of the procedures of emergency. See Decree Law 11/2020, 7th April, that adopts eco- 29 nomic, social and administrative measures to reduce the effects of Covid19 and other com- mobiles and in a specific figure (50 per day) in land lines. plementary measures, Diari Oficial de la Generalitat de Catalunya N. 8107 – 9.4.2020

28 I. Gallego Córcoles, De las orientaciones de la Comisión Europea sobre contratación pública en la crisis del Covid-19 y de sus implicaciones en el caso español, Observatorio 29 This decision PORT/DTSA/001/20 GESTIÓN DE PORTABILIDADES ESTADO DE de Contratación Pública (http://obcp.es/opiniones/de-las-orientaciones-de-la-comision- ALARMA issued Sunday the 5th of April 2020 can be found on the website of CNMC

europea-sobre-contratacion-publica-en-la-crisis-del#once). (https://www.cnmc.es/prensa/cnmc-portabilidad-Covid_20200406I). délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 47 13. The principles of necessity and proportionality— 16. The funeral sector has specific legal requirements and inspired by general interest—will need to be used by the there is a close link between funeral undertakings and regulator in the ordinary procedure that will follow those insurance companies (which can create a very relevant interim measures. conflict of interest in particular when there is vertical integration). This situation becomes more relevant for Anyway, the analysis of the iter of the situation shows the personal circumstances in which the client receives how limiting measures that go beyond their required the service. scope—even when those are changed in a really short notice—imply negative consequences in the market and The decision of the government to fix prices with the create unnecessary harm to society. benchmark of the price prior to the crisis should be analysed from the perspective of the better regulation Therefore, again, the principles of better regulation show principles. One could accept that avoiding fraud in this their efficiency in the current situation. crisis is a very respectable aim. Nevertheless, fixing prices in reference to the price established in a particular date does not take into consideration several relevant issues. It is pertinent to underline that in most of the cases the 3. Funeral services prices that are charged to the final client for each service 14. Another relevant legislative measure adopted during are not public because they depend on the type of contract the crisis affects a sector dramatically linked to the and insurance coverage. Also, the regulation should have pandemic, namely, the funeral services. considered that the prices that the different undertakings that participate in the final service charge inside the Complaints by families reached the social networks refer- chain among each other are not public and therefore the measure could prove not to be efficient. Also, the order ring to supposed abuses in the services received during does not touch upon the link between insurance compa- the crisis. The complaints dealt with several frauds related nies and funeral services and, most relevant, does not to the imposition of a particular company, the impo- deal with the most relevant point (especially problematic sition of services, the billing of high prices for services perhaps during the crisis), which is the selection of the that never existed or the imposition of expensive “health company (knowing all the conditions) by the client. requirements” for the products that were not such. 17. All those elements lead to the conclusion that the 15. As a consequence, the Government published in decision adopted should be reconsidered from the the Official Journal an Order creating some exceptional perspective of the principles of better regulation (as measures in relation with the conditions for wakes and it would generally happen with a measure that implies 30 burials in time of Covid-19. fixing prices). If other measures could efficiently serve the same aim with a lower harm to competition, those should This decision contains a reference to the prices of the be preferred (principle of proportionality).31 funeral services during the state of alarm and determines that they could not be higher to those established prior to 14 March 2020. It determines that the company needs to give the money back to the families if they charged a III. Conclusion higher price. If they are not able to do it, they need to give an adequate explanation and keep records that prove the 18. Opening of the markets to competition gener- procedures followed. The client has six months after the ally brings advantages to society because it pushes in end of the state of alarm to claim for the reimbursement. favour of innovation and increase in quality and choice. Competition is a fundamental mechanism of fair alloca- Companies need to present a detailed budget to the tion of resources to citizens. client prior to the contracting of the service. It needs to Times of crises create fear and it is easy to hear (and include all the concepts and the list of prices prior to 14 listen to) sirens’ song claiming for more protectionism March 2020 even in cases when specific actions have to be in the macro and micro aspect, what would lead to a adopted as a consequence of Covid-19. reduction in the level of competition. Former crises have proved that trying to come out of them by reducing the During the crisis, several services are not allowed (wakes level of competition slows the procedure and benefits a or religious services for example). The rule determines reduced number of entities that unduly increase their that the amount budgeted for the services or products profits because of the barriers and against the interest of (mostly dealing with those covered by insurance) that other companies and especially against the interest of the cannot be used because of the crisis need to be given back citizens. to the client.

31 These considerations refer to the analysis of the administrative measure that would be in- 30 Order SND/298/2020, 29th March that establishes exceptional measures for wakes and fu- dependent of an analysis of the behaviour of the companies from the perspective of com-

nerals in order to limit the spread and contagion of Covid19. petition enforcement (or others in the legal system). délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

48 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 19. This does not imply that competition is an end in (what permits assessment and control) are still the most itself. Competition has to be considered as one of the powerful tools to fight the very particular situation we tools to increase social welfare. are facing. The crisis should make us reconsider some of the previous legal burdens to some economic activ- Certain contexts can imply that ex post mechanisms are ities that do not contribute to increasing consumer not the most efficient tool to fight harmful behaviours. welfare (limits to the distribution of medicines, limits to A health crisis can stress some markets in a way that on-line sales, bureaucratic requirements for the entry in requires ex ante responses and those can be adopted by the markets of some products…). The situation of crisis the creation of regulation. It is relevant to underline that is perhaps showing (we could say amplifying) that some those rules need to respect the principle of minimum of those limits are outdated or irrational and should be distortion and non-discrimination. reconsidered.

20. Therefore, it is clear that the traditional principles The traditional tools of competition law (also those of competition need to inspire the creation of rules and of enforcement) will also be crucial to get out of the their application. Principles of necessity, non-discrimina- economic crisis that we will foreseeably suffer after this tion and proportionality with causal relation to a partic- health crisis. n ular overriding reason of general interest duly motivated Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 49 Foreign investment screening and Covid-19 in Italy: Emergency room for new protectionism?

Michele Carpagnano [email protected] Partner Head of Competition and Antitrust, Dentons, Rome Professor Trento University

I. The increasing security and protection of strategic sectors. These mechanisms were different in terms of scope and procedure and relevance of FDI implemented in scattered order. 5. As of today not all Member States had screening screening before the mechanisms put into place. In this fragmented context, on 19 March 2019, Regulation (EU) 452/2019 established Covid-19 emergency a framework for the screening of foreign investments into the Union and determined strategic sectors, common 1. Well before Covid-19, FDI screening—the govern- criteria among Member States to assess FDI operations mental scrutiny of foreign investments—has been increa- as well as cooperation procedures among Member States sing its relevance in Member States of the European and the European Commission. Adoption of national Union as third-country investors have taken on an increa- regulations is not mandatory and may still differ in singly relevant role in the national economies. scope and procedure. However, national mechanisms, when implemented, need to meet certain key require- 2. In the EU, the overall foreign investment trend in terms ments: transparency of rules and procedures, non-dis- of value increased in the 2010s and before the Covid-19 crimination among foreign investors, confidentiality of outbreak was still on the rise. information exchanged between supervising authorities, the possibility of recourse against screening decisions, 3. Companies controlled by third-country investors or by and measures to identify and prevent circumvention by foreign states are having a significant economic impact in foreign investors. The EU Regulation also introduced national economies because of their large size and their Union-wide coordination and cooperation mechanisms, investment focus on strategic sectors like telecommunica- which require the mutual exchange of notifications and tion networks, media, robotics, artificial intelligence and opinions on the screening of foreign direct investments infrastructure (port, railways, etc.).1 likely to affect security or public order.

4. On FDI screening the regulatory framework is still highly fragmented in the European Union. Indeed, in 2017, only twelve EU Member States had issued national II. The Covid-19 screening mechanisms, often for reasons of national pandemic

1 Commission Staff Working Document Accompanying the document Proposal for a 6. The attention towards FDI screening mechanisms has Regulation of the European Parliament and of the Council establishing a framework for screening of foreign direct investments into the European Union, Brussels, 13.9.2017 further and rapidly increased in the EU due to the health

SWD(2017) 297 final, p. 6. emergency related to Covid-19. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

50 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 7. Indeed, the health emergency has prompted national – introducing a new obligation to notify the acquisi- governments to issue urgency measures aimed at both tion of shares over certain thresholds by extra-EU strengthening the healthcare sector and preserving the operators; socio-economic stability of the Member States. – introducing a temporarily obligation to notify intra-EU transactions in case of change of control; 8. Many companies in Europe are facing an unprecedented economic pressure caused by the health emer- – establishing new procedural rules and, notably, the gency and most of them are under actual or prospected power for the government to act ex officio. financial vulnerability. 14. Pursuant to Decree-Law 21/2012, notification obli- 9. National governments in the EU have seen such vulne- gations arise for operations regarding strategic sectors rability as an increased risk for foreign entities appetite and the Italian government may impose conditions or and, consequently, a new wave of FDI regulatory inter- veto the operations if they threaten serious damage to ventions have been adopted often in association with the essential interests of the state. The government may Covid-19 urgency measures. only veto the transaction as extrema ratio, when it is not possible to protect national interests by other measures 10. The European Commission issued on 25 March 2020 with less severe effects (e.g., imposing conditions). a Communication2 related to the Covid-19 pandemic, calling upon Member States to set up screening mech- 15. The new transitional regime will apply to transactions anisms and declaring the need of appropriate screening occurring from April 9 to December 31, 2020. It broadens tools for foreign investment, with particular regard to the scope of application of the previous regulation to the healthcare capacities and related industries. sectors considered by Regulation (EU) 452/2019 (whose provisions shall apply from 11 October 2020) — namely, critical infrastructure and technology, supply of critical inputs, access and control of sensitive information and III. The emergency media freedom and pluralism.4 The decree specifies that the financial services mentioned among the critical infra- measures carried structure include banking and insurance services. 16. Under the previous regime, the screening of the out by the Italian Italian government applied only to operations regarding companies holding assets and relations in the sectors of government on FDI: defence, national security, 5G networks, high-end technologies, energy, transportation and communications.

Too vague to be 17. New rules target critical infrastructure, technology and inputs and therefore special market conditions effective (for now) should apply for a transaction regarding a single (albeit highly specialised and strategic) company to have such a 11. The Italian FDI screening mechanism dates back to critical impact. 2012 when Decree-Law No. 21 was enacted.3 18. The broadness definition of the sectors, which are now 12. During the Covid-19 outbreak, the Italian govern- caught within the scope of FDI rules, makes very difficult ment issued new provisions on FDI on 8 April 2020 for market operators to safely assess if a certain transac- (Decree-Law No. 23). tion is subject to a duty of a prior notification under FDI rules and to the subsequent stand still obligation. 13. These measures amend the provisions of Decree-Law 21/2012 by: 19. It is expected that the government will issue implementing decrees to clarify the scope of application of the – extending its application to new strategic sectors legislation. For instance, by defining which assets and until 31 December 2020; relationships are considered of strategic importance to

2 Communication from the Commission, Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, and the protection 4 Regulation (EU) 2019/452 of 19 March 2019, OJ L 79 I, Article 4(1): of Europe’s strategic assets, ahead of the application of Regulation (EU) 2019/452 (FDI “(a) critical infrastructure, whether physical or virtual, including energy, transport, water, Screening Regulation), Brussels, 25.3.2020 C(2020) 1981 final. health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate crucial for the 3 The Decree-Law No. 21 of 2012 was issued after the Court of Justice ruled against Italy use of such infrastructure; in an infringement proceeding (other Member States such as Portugal, France, the United (b) critical technologies and dual use items as defined in point 1 of Article 2 of Council Kingdom, Belgium, Spain and Germany faced similar infringement proceedings) due to Regulation (EC) No 428/2009, including artificial intelligence, robotics, semiconductors, the practice of maintaining golden shares of public enterprises placed on the market. In cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies as well fact, pursuant to Decree-Law No. 332 of 1994, the Italian state held certain sharehold- as nanotechnologies and biotechnologies; ings with special powers enabling it to exercise special prerogatives capable of influencing (c) supply of critical inputs, including energy or raw materials, as well as food security; the decisions of the undertakings concerned. The provisions of the decree were considered (d) access to sensitive information, including personal data, or the ability to control such in- conflicting with the freedom of movement of people and capital. formation; or

(e) the freedom and pluralism of the media.” délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 51 the national interest when screening the operation, inclu- interests (usually, public policy or public security),5 as ding possible prejudice to the security and operation the derogation cannot serve purely economic ends.6 of networks and installations and to the continuity of In fact, Regulation (EU) 452/2019 specifies that it does supplies. not preclude Member States from derogating from the freedom of capital pursuant to point (b) of Article 65(1) 20. In the meantime it is for the market operators to carry TFEU. the burden to carry out a risky self-assessment since it is not always easy to pinpoint specific transactions subject 28. It goes without saying that restrictions to the to the notification requirement. freedoms are subject to strict scrutiny and the jurisprudence has not been particularly lenient towards 21. The risk of massive prudent notification of out-of- Article 65(1) TFEU point (b) derogations. However, the scope transactions is very high. screening of intra-EU investment may be deemed appropriate and proportionate due to the temporary nature of the measure and the aim of countering possible threats to strategic sectors arising from the financial vulnerability IV. The new target of companies because of the Covid-19 emergency. for FDI rules in Italy V. The new FDI 22. The new FDI rules target both shareholding acquisi- procedures: A brand tions and resolutions, acts and transactions that change the ownership, control, availability or change of destina- new ex officio power tion of assets and relationships held by companies operating in strategic sectors. and extra time to 23. Particularly, the decree establishes a notification obligation on entities of a non-EU country regarding close the assessment shareholding acquisitions of at least 10% (considering shares or quotas already directly or indirectly owned) 29. The emergency decree also establishes new procedures when the total operation is worth €1 million (or more). for the FDI screening mechanism which are not temporary and strengthen the government’s procedural powers. 24. Further notifications are required when the thresholds of 15%, 20% 25% and 50% are exceeded. In this regard, a 30. Most notably, the decree grants the government the question may arise as to the interpretation of the “10%” power to institute the procedure ex officio when the noti- threshold, i.e., whether the legislator meant to target only fication is not made by the acquiring company. the initial 10% or each shareholding acquisition of the 10%. 31. Under new rules, the Italian government has to assess the transaction and possibly activate its special 25. Notably, the decree introduces notification obliga- powers within forty-five days (thirty if the transactions regarding shareholding acquisitions by EU-based tion regards 5G networks) since notification date. Only entities, which are only to be notified when the amount once the above terms have expired, the operation can be of shareholdings affect the permanent establishment of performed (standstill obligation). the acquirer. 32. Resolutions or acts adopted in the interim period are 26. The previous regulation exempted investments null and void and voting rights are suspended. Any reso- coming from other Member States from screening given lutions adopted with the casting vote of such shares or the free movement of capital within the EU. quotas, as well as resolutions or acts adopted in violation with the conditions imposed, are null and void. 27. As known, free movement of capital is one of the four freedoms linked to the single market and has a number of functions such as reducing the risk of economic disruption, facilitating productive investment and capital accumulation and is a prerequisite for banking and monetary 5 Judgement C-54/99 of 14 March 2000, Association Église de Scientologie, pt. 20 “In the union. However, it may be derogated as provided for in case of direct foreign investments, the difficulty in identifying and blocking capital once it has entered a Member State may make it necessary to prevent, at the outset, transactions which point (b) of Article 65(1) TFEU on grounds of general would adversely affect public policy or public security. It follows that, in the case of direct foreign investments which constitute a genuine and sufficiently serious threat to public policy and public security, a system of prior declaration may prove to be inadequate to counter such a threat.”

6 See Communication of the Commission on certain legal aspects concerning intra-EU investment, 97/C 220/06, p. 16 and Proposal for a Regulation of the European Parliament and of the Council establishing a framework for screening of foreign direct investments

into the European Union, Brussels, 13.9.2017 COM(2017) 487 final, p. 4. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

52 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 33. Moreover, the Italian government can require infor- 39. In fact, if the notification requirements are not mation or documents. In this case, the forty-five-day fulfilled with, the company is subject to a pecuniary period is suspended for ten days (with regard to requests administrative sanction up to twice the value of the tran- to the acquirer) or twenty days (with regard to requests saction and not less than one per cent of the cumulative to third parties). The Italian government is empowered to turnover achieved by the companies involved in the last request for information and documents to investors, third financial year for which the financial statements have parties and public administrations. been approved.

34. The special powers granted by the FDI regulation may 40. In the meantime, the broad interpretation of the be activated to the extent that the transaction involves a sectors defined by EU Regulation 452/2019 may place an threat of serious prejudice to the essential interests of the unduly burden on acquiring companies. state, or a danger to the protection of security and public order in cases where the protection of those interests is 41. Thus the measure, originally aimed at protecting not adequately guaranteed by the existence of sector-spe- strategic assets in a period of crisis, may aggravate the cific regulations. condition of Italian companies trying to attract foreign capitals in order to ease their economic vulnerability 35. The threat of serious damage to public interests is caused by the pandemic. assessed taking into account the principles of proportionality and reasonableness and on the basis of objec- 42. However, it is worth noting that the Italian govern- tive and non-discriminatory criteria. ment has only applied once between 2016 and 2018 its powers to veto an operation. Moreover, only in 10% of the notified operations the government imposed condi- VI. Conclusions tions on the transaction.7 43. Indeed, the government can only apply its special 36. The new FDI rules present some critical issues which powers if, cumulatively, the company involved holds seem to be tempered in consideration of the temporary strategic assets and the operation may threaten essen- nature of the emergency decree. tial interests of the state. Therefore, the burden of proof on the government scrutiny is quite high and these safe- 37. The main issue regards the very broad scope of the guards remain untouched under the new rules. screening, which would require a swift implementation. 44. Thus, all considered, if the Italian government 38. Pending further clarification by the government, the follows under new FDI rules its well-established practice number of transactions which may possibly be subject to of minimal interference (in accordance with the principle notification seems to be high, especially if, in the interim of necessity and proportionality), it will help in keeping period, a precautionary stance prevails due to the high the Italian markets open for business and in speeding up fines in case of non-compliance with the notification the recovery process. n requirements. A wide notification wave may also strain governmental resources by imposing a duty to examine a large number of notifications within a tight deadline (i.e., forty-five days).

7 Source: 2018 Annual Report issued by the Italian government to the Italian Parliament on

FDI. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 53 Antitrust during (and especially after) a global pandemic

Daniel A. Crane [email protected] Professor of Law University of Michigan, Ann Arbor

1. Eleven years ago, during the grips of the Great revenues, factories (already deprived of labor due to Recession of 2008–2009, I wrote about the dismal history the First World War) struggled to find workers, and of U.S. antitrust enforcement during wars and economic mines ran at half capacity or shut down entirely.4 But crises, finding that antitrust had almost invariably taken a the Spanish flu’s economic effects were also short-lived.5 1 back seat during national crises. At the time, I remarked Many businesses suffered dramatic short-term losses, but that it is perilous to write analytically about a phenom- quickly recovered after the pandemic passed, boosted enon while still in the middle of it, and the same is surely by the end of the war and the return of the labor force. true now. The truth is that, as of this writing, we simply Wages may have actually increased due to short-term do not know how the Covid-19 pandemic will unfold, labor shortages.6 By the roaring twenties, the post-War what impact it will have on antitrust enforcement, or how, boom spurred the American economy to unprecedented when, and if things will get back to normal. Keeping that in mind, I will limit my comments in this essay to brief heights (before, of course, crashing in 1929). remarks on antitrust and pandemics in the past, present, and future. 4. I have searched in vain for any evidence that the pandemic had any effect on antitrust enforcement. During the period of American belligerency in the war (April 1917–November 1918), the Wilson administra- I. The past tion announced a less aggressive approach to enforcing the antitrust laws due to the government’s own participa- 2. The Covid-19 pandemic is not the first global pandemic tion in industrial production and controlling prices, and to rock countries with modern antitrust laws. Just over a major cases were tolled until the end of the war.7 Given hundred years ago, the misnamed “Spanish flu” outbreak of 1918–1919 infected half a billion people—a quarter of that the pandemic coincided with the unraveling of the the world’s population—and killed 50 million globally, war, it is difficult to determine whether the pandemic, including 675,000 in the United States alone.2 Like Covid- standing alone, had any appreciable effect on antitrust 19, the influenza pandemic’s effects were not distributed enforcement. However, given that the economic effects of evenly geographically—it spread from east coast to west, the pandemic were relatively short-lived, it seems unlikely weakening en route.3 that the pandemic had any significant effect on antitrust enforcement in the United States. 3. The outbreak also wreaked economic havoc. A 2007 study by the St. Louis Federal Reserve found evidence that many businesses lost as much as half of their

1 D. A. Crane, Antitrust Enforcement During National Crises: An Unhappy History, Global Competition Pol’y, Autumn 2008 (Vol. 12, No. 1), https://www.competitionpolicyinter- 4 T. A. Garrett, Economic Effects of the 1918 Influenza Pandemic: Implications for a national.com/antitrust-enforcement-during-national-crises-an-unhappy-history; see also Modern-day Pandemic, https://www.stlouisfed.org/~/media/files/pdfs/community-devel- D. A. Crane, Did We Avoid Historical Failures of Antitrust During the 2008-09 Financial opment/research-reports/pandemic_flu_report.pdf. Crisis?, 77 Antitrust L. J. 219 (2010). 5 Id. 2 History of the 1918 Flu Pandemic, https://www.cdc.gov/flu/pandemic-resources/1918-commemoration/1918-pandemic-history.htm. 6 Id.

3 A. W. Crosby, America’s Forgotten Pandemic: The Influenza of 1918 (2d ed., Cambridge 7 T. K. Fisher, Antitrust During National Emergencies, 40 Mich. L. Rev. 969, 996 (1942).

University Press, 2003). délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

54 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis Henry Schein Inc.—to expedite and increase manufac- II. The present turing, sourcing, and distribution of personal-protective equipment (PPE) and coronavirus-treatment-related 5. A few weeks into the Covid-19 crisis in the United medication.12 States, the Justice Department Antitrust Division and the Federal Trade Commission made it clear that the 8. If the prevailing socio-political zeitgeist is collabora- crisis would not dampen enforcement of the antitrust tion and cooperation, businesses perceived as flouting laws:8 “While many individuals and businesses have and the prevailing norm are likely to incur the wrath of poli- will demonstrate extraordinary compassion and flexi- tical actors. On March 23, 2020, President Trump issued bility in responding to Covid-19, others may use it as an an Executive Order concerning price gouging of critical opportunity to subvert competition or prey on vulnerable medical supplies pursuant to the Defense Production Americans. The Division and the Bureau will not hesitate Act.13 On March 25, 2020, 33 state attorneys general to seek to hold accountable those who do so.”9 That said, sent letters to Amazon, Walmart, eBay, Facebook, and the agencies assured the public that extraordinary crises Craigslist urging them to crack down on price gouging require unprecedented levels of cooperation within civil on their platforms.14 Various state attorneys general society, and that many forms of cooperation, such as have issue civil investigative demands to firms suspected R&D collaboration, sharing technical know-how (as of price gouging. For example, the attorney general of opposed to sharing prices, wages, outputs, or costs), Missouri sent civil investigative demands to eight third- standards for patient management, healthcare providers party sellers on Amazon concerning price gouging.15 joint purchasing arrangements, and coordinated private In the United States, price gouging is not an antitrust lobbying to influence governmental strategies respon- issue, but it may be actionable under various state laws. sive to the sanitary crisis are generally not suspect under The Justice Department has also issued a stern warning prevailing antitrust norms.10 against any violations of the antitrust laws with respect to the manufacture, distribution, or sale of public health 6. The agencies also signaled that they might tolerate products such as face masks, respirators, or ventilators.16 short-run collaborations that might otherwise raise Benign collaboration is in; underhanded manipulation is eyebrows, if justified by exigent circumstances: out. “The Agencies will also account for exigent circumstances in evaluating efforts to address the spread of Covid-19 and 9. It is unlikely that there will be much merger activity its aftermath. For example, health care facilities may need during the (hopefully short) acute phase of the pandemic. to work together in providing resources and services to The FTC has put in place a temporary e-filing system for communities without immediate access to personal protec- Hart-Scott-Rodino filings,17 and there has been talk in tive equipment, medical supplies, or health care. Other Congress about extending the automatic 30-day waiting businesses may need to temporarily combine production, period for closing mergers until the crisis subsumes. distribution, or service networks to facilitate production Regardless, not many businesses will have the temerity or and distribution of Covid-19-related supplies they may not capacity to propose competitively questionable mergers have traditionally manufactured or distributed. These sorts while the agencies are running on vapors and the courts of joint efforts, limited in duration and necessary to assist are open for emergency business only. In the event they patients, consumers, and communities affected by Covid-19 do, the agencies could use second requests for informa- and its aftermath, may be a necessary response to exigent tion to place a further stay on closing the mergers, virtu- circumstances that provide Americans with products or ally ensuring that no substantive decisions on merger services that might not be available otherwise.”11 challenges need to be made during the acute phase of the pandemic. So merger policy does not seem to be much at 7. The agencies general guidance has seen concrete expres- issue while the crisis persists. sion in some cases already. On April 4, 2020, the Justice Department announced that it would not challenge the collaborative efforts of five medical supplies distributors—McKesson Corporation, Owens & Minor Inc., Cardinal Health Inc., Medline Industries Inc., and

12 Department of Justice Issues Business Review Letter to Medical Supplies Distributors Supporting Project Airbridge Under Expedited Procedure for Covid-19 Pandemic Response, https://www.justice.gov/opa/pr/department-justice-issues-business-review-letter-medical-supplies-distributors-supporting.

13 https://www.whitehouse.gov/briefings-statements/president-don- ald-j-trump-will-not-tolerate-price-gouging-hoarding-critical-supplies-needed-combat-coronavirus.

8 Joint Statement Regarding Covid-19, https://www.justice.gov/atr/ 14 https://ago.vermont.gov/wp-content/uploads/2020/03/Price-Gouging-Letters-3.25.20. joint-antitrust-statement-regarding-covid-19. pdf.

9 Id. 15 https://ago.mo.gov/home/news/2020/03/30/ ag-schmitt-issues-civil-investigative-demands-to-eight-third-party-amazon-sellers. 10 President Trump has also invoked executive authority under the Defense Production Act, 50 U.S. Code § 4558 (j), which creates antitrust immunity for persons acting pursuant to 16 https://www.justice.gov/opa/pr/justice-department-cautions-business-communi- a Presidential plan of action initiated under the Act. ty-against-violating-antitrust-laws-manufacturing.

17 https://www.ftc.gov/enforcement/premerger-notification-program/

11 Id. guidance-filing-parties. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 55 industries, including airlines, travel and leisure, restau- III. The future rants, sports and entertainment, and mining are also under severe threat.22 10. God willing, at some point in the near future the Covid-19 crisis will end (with far less damage to human 14. How will the antitrust agencies respond to the simul- life than the Spanish flu) and we will be talking about its taneous pressures of increasing market concentration legacy rather than its threat. For antitrust enforcement, due to firm failure and political pressure to permit conso- this will nominally mean a resumption of normality— lidation to prevent further failures? There is nothing ordinary Hart-Scott-Rodino filing rules, litigations that that they can do to prevent firm failures, but they could have been functionally stayed for weeks picking back up, hold the line on voluntary consolidation, insisting that the agencies resuming their usual business. The prophetic merging firms meet the very high standards of the failing question is how, if at all, will the complexion of antitrust firm defense in order to justify otherwise anticompetitive have changed for the longer term once the (hopefully) mergers on business failure grounds.23 Whether or not the short-term crisis has abated. Reading my crystal ball, I agencies hold fast to the failing firm defense as the pres- will be keeping an eye on two potential medium to longer sures toward consolidation grow in Covid-19’s wake will term trends, the first economic and the second political. be a key marker of antitrust response to the pandemic.

11. The economic effect is an inevitable increase in 15. The second major trend that I will be following in concentration in certain market sectors resulting from the wake of the pandemic concerns whether and how the failure of businesses as the result of a pandemic. the pre-pandemic political conversation about antitrust Events that deal a blow to an economy—whether wars, reform picks up as the economy begins to get back to terrorist attacks, financial crises, or pandemics—extend a normal. From about the 2018 mid-term electoral cycle up coup de grâce to the weakest firms in the market. When a until right before the pandemic reached American shores, number of weak firms suddenly exit the market without antitrust had soared into once-in-a-generation political an offsetting increase in new entrants, the market neces- saliency.24 For the first time in many decades, political sarily becomes more concentrated. For example, the elites on both sides of the ideological spectrum had iden- years 2008–2011 saw a dramatic spike in bank failures, tified antitrust as a crucial political lever with respect to going from single digits in ordinary years to 140 in 2009, a wide swath of social ills, including income inequality, 18 157 in 2010, and 92 in 2011. Through the sheer force of labor mobility and wages, corporate power, data security, firm failure, the banking industry became modestly more technological stagnation, and the dominance of Big Tech. 19 concentrated as a result of the financial crisis. Several presidential candidates make antitrust reform a signature issue, congressional committees opened inves- 12. The culling of weak firms during crises is often tigations on the state of antitrust, members of Congress amplified by political pressures to permit consolida- introduced antitrust reform bills to strengthen antitrust tion. During the same period that banks were leaving enforcement, the antitrust agencies launched potentially the market through failure, the Treasury Department ambitious new investigations, and state attorneys general was also pushing consolidation as a liquidity measure. announced high-profile antitrust investigations. Similarly, many airlines responded to the extreme economic pressure during or in the aftermath of the 16. As of this writing, all of this momentum has come financial crisis by merging (Delta/Northwest, United/ to a screeching halt as the politicians, like everyone else, Continental, Southwest/AirTran, Republic/Midwest largely hunker down in their living rooms, riding out the and Frontline and ultimately American/USAir) or reor- storm. What happens post-pandemic? Does the action ganizing alliances, sometimes over the objection of the pick up where it left off, or will the shock of the pandemic 20 Antitrust Division. have so shifted priorities, political narratives, political alignments and antagonisms, and electoral politics that 13. The Covid-19 pandemic is almost certain to result in the antitrust agenda will have been entirely reset or the increasing concentration of certain market segments. eliminated? Retail is a particularly likely candidate, with traditional bricks-and-mortar retailers like J.C. Penney, Neiman 17. Of course, I do not know the answer, but looking Marcus, Kohl’s, Macy’s, Dillard’s, and Nordstrom all through my hazy crystal ball I will offer the following 21 potentially on the chopping block. The pandemic may prediction: the effect of the pandemic on the politics accelerate the demise of the great American mall and of antitrust reform will track the degree to which the correspondingly increase the already increasing power of dominant online retailers like Amazon.com. Many other

22 https://www.brookings.edu/blog/the-avenue/2020/03/17/ the-places-a-covid-19-recession-will-likely-hit-hardest. https://www.fdic.gov/bank/historical/bank. 18 23 To qualify for the failing firm defense under Section 11 of the FTC/DOJ Horizontal Merger Guidelines, the merging parties must show: “(1) the allegedly failing firm would be 19 D. A. Crane, M. Kitzmuller & G. Miralles, Integrating Micro and Macro Policy Levers in Response to Financial Crises, 7 Mich. Bus. & Entrepreneurial L. Rev. 191, 217 (2018). unable to meet its financial obligations in the near future; (2) it would not be able to reorganize successfully under Chapter 11 of the Bankruptcy Act; and (3) it has made unsuccessful 20 Crane, Did We Avoid Historical Failures, supra n. 1 at 226–227. good-faith efforts to elicit reasonable alternative offers that would keep its tangible and intangible assets in the relevant market and pose a less severe danger to competition than does the 21 https://www.forbes.com/sites/pamdanziger/2020/04/03/retail-companies-on-death- proposed merger.” watch-is-growing-fast-as-covid-19-puts-non-essential-retailers-on-life-support/#78c-

6991d25ea. 24 See D. A. Crane, Antitrust’s Unconventional Politics, 104 Va. L. Rev. Online 118 (2018). délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

56 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis pandemic shifts popular political sentiment in a pro-es- relief that we have the institutions that we do in place tablishment or anti-establishment direction. Here is what and a greater willingness to trust in their judgments, I mean: Although the recent antitrust reform movement or a demand for replacement of those institutions and was nominally directed against a villain called “the radical reform? Although these broader currents do not Chicago School,” in fact the movement was directed relate directly to antitrust, they are like to carry antitrust against a much broader set of actors roughly corres- reform along with them. ponding with the “antitrust establishment”—the agency leaders, judges, economists, lawyers, academics, and others whose largely bipartisan, technocratic consensus oriented around formal economic analysis and the IV. Conclusion consumer welfare standard had dominated the practice of antitrust law for the past three decades. The movement 19. At some level, the Covid-19 pandemic shares patterns for radical antitrust reform was not primarily a movement observed during any national or global crisis, but it also of the anti-corporate political left against the pro-corpo- feels different than the experiences remembered by almost rate political right, but of the anti-establishment left and any living person. So humility and caution in discus- right against the establishment center. In this anti-esta- sing its effects on antitrust enforcement are in order. blishment movement, the antitrust enforcement records For the present, the U.S. antitrust agencies are sending of George Bush and Barack Obama were equally circled the politically necessary but ultimately irreconcilable with a red target, while establishment veterans from both signals that antitrust enforcement will continue as usual sides of the political aisle circled the wagons. but that exigent circumstances require understanding. Hopefully, the direct manifestation of the crisis—stay-at- 18. So which way will the pandemic cut politically—in home orders, social distancing, closed businesses, flooded favor or against the establishment? Will popular poli- hospitals—will be short enough in duration (a matter of tical sentiment see conventional institutions—presidents a few weeks or months) that the collective pause will not and governors, the Centers for Disease Control, scien- register on the antitrust scale. It will be in the pandemic’s tific and medical experts—as saviors who competently aftermath, measured not in months but in years, that any managed an existential threat and saved both lives and significant effect on antitrust enforcement will be felt. n the economy, or will the political, scientific, and medical establishment receive failing marks from the populace at large? Will the net political effect of the pandemic be Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 57 How might the Covid-19 crisis change the dynamics of competition law?

Aymeric de Moncuit* [email protected] Référendaire Court of Justice of the European Union, Luxembourg Lecturer University Paris II Panthéon-Assas

1. An impressive number of papers or posts on social new technology sector (Intel,1 Google,2 Qualcomm3 or networks have been released in a very short time span as Broadcom4 cases) in a polarised [EU, United States (US)] regards what I would call the “microeconomic impact” context.5 of Covid-19. These contributions describe with remark- able precision the legal arsenal of measures adopted by 4. Why? Because experience shows that both cartels and competition authorities to tackle the pandemic. However, exchanges of information practices generally appear after it is worth noting that less attention has been devoted exogenous shocks enticing the main players to collude in to the macroeconomic impact of the crisis: that is, the order to restore a tacit equilibrium that allowed them to structural implications of Covid-19 for the dynamics avoid the sometimes hard cost of competition. of competition law. In this paper, I explore the impact Covid-19 may have on each of the branches of compe- 5. In France, for instance, one may remember that the tition law, anticompetitive agreements, abuse of domi- first genuine case of anticompetitive exchanges of infor- nance, concentrations and, last but not least, State aid. mation6 occurred after the events of September 11, 2001 (“9/11”) when Parisian palaces decided to share sensitive commercial information to avoid, in the words of one of their directors, “dumping on the price.”7 One may also I. Anticompetitive remember that the steel crisis was at the root of the “steel cartel” for which the fine was annulled for not taking into agreements account the crisis undergone by the sector.8 Likewise, the yoghurt cartel took place against a backdrop of a dramatic increase in the price of milk.9 The General (Article 101 TFEU) Court itself acknowledges that cartels generally emerge 2. The first question of interest is what Covid-19 may in times of economic crisis.10 change as regards the enforcement of Article 101 of the Treaty on the Functioning of the European Union (TFEU). The answer is, maybe, more cases in an array of 1 Judgment of 6 September 2017, Intel v. Commission, C‑413/14 P, EU:C:2017:632.

antitrust laws facing a significant decline of case flow due 2 Among others, case T-612/17, Google and Alphabet v. Commission. to the combined effect of attractive leniency procedures 3 Case T-671/19, Qualcomm v. Commission. and active competition advocacy. 4 Case T-876/19, Broadcom v. Commission. 3. In the aftermath of Covid-19, competition enforcers 5 See conference of 20 September 2018 organised by Concurrences, Global Antitrust Hot Topics: EU, US and Global Perspectives, https://www.concurrences.com/fr/conferences/ may witness a resurgence of practices related to cartels global-antitrust-hot-topics-eu-us-global-perspectives-87293. and exchanges of information, at a time when these prac- 6 Inasmuch as the test laid down in the judgment of 27 October 1994, John Deere v. tices—classically the main target of antitrust enforce- Commission (T‑35/92, EU:T:1994:259), was applied. ment—have left the spotlight, overshadowed by more Decision 05-D-64 of 25 November 2005, para. 275. sensational cases of abuses of dominant positions in the 7 8 Decision 08-D-32 of 16 December 2008. The Paris Court of Appeal, in a judgment of 19 January 2020, partially annulled this decision for failing to take the crisis situation into account.

* The views expressed in this paper are exclusively the author’s own. This 9 Decision 15-D-03 of 11 March 2015. On the milk crisis, see para. 19–22. paper elaborates on the thoughts submitted in a previous paper for Compe-

tition Law Insight. 10 Judgment of 16 September 2013, Roca v. Commission, T‑412/10, EU:T:2013:444, para. 163. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

58 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 6. The second question is how competition authorities outbreak15. It follows a previous announcement of will factor the crisis into their analysis. At the EU level, 2 March 2020, in which Commissioner Vestager signaled enterprises will be well placed to invoke the application a break with this tradition, saying her staff would be of paragraph 36 of the Guidelines on the method of more willing to give guidance on certain kinds of coop- 16 setting fines,11 according to which, in exceptional cases, eration deals . The Communication covers possible form the European Commission (the “Commission”) may, of cooperation between undertakings in order to ensure “upon request, take account of the undertaking’s inability supply and adequate distribution of scarce products and services during the Covid-19 outbreak and thus address to pay in a specific social and economic context.” In the the shortages of such essential products and services bathroom fittings case, five out of nine of the under- resulting from the rapid and exponential growth of takings involved had benefited from this exception.12 demand. This includes notably medicines and medical National competition regimes also generally provide for equipment without being limited to these products17. 13 this “crisis derogation,” as is the case in France. Importantly, the Commission states that with a view to increasing the degree of legal certainty as regards anti- 7. As regards, more specifically, exchange of information, trust guidance within a timeframe that is compatible with it is likely that, in some industries, companies may wish the urgency of certain situations related to the current to hold industry-wide discussions or discuss the implica- Covid-19 outbreak, it stands ready, exceptionally and at tions of the crisis at trade association meetings/forums. its own discretion, to provide such guidance by means of Most of the issues may arise from an urgent need to esta- an ad hoc “comfort” letter18. blish how best to ration scarce goods and resources to meet exceptional customer demand and manage unan- 9. Behind the revival of comfort letter almost twenty ticipated costs or declining revenues to avoid business years after their demise is a new framework that sends failure; or to deal with employees and business conti- stronger signals to industries beyond healthcare. Indeed, nuity concerns. A wide range of cooperation agreements the communication targets “shortages of […] essential products and services,” covering “notably” medicine and may arise: medical equipment, mentions that it might be amended – cooperation to reach an industry-wide solution or supplemented to cover others forms of cooperation to the impact of the crisis, and in particular and is accompanied by a “lex specialis” specifically appli- to achieve public policy goals, for example by cable to medicines19. Therefore, it is likely that the scope agreeing to prioritise certain classes of consumer, of the Communication extends beyond the pharmaceu- such as the elderly; tical sector into, at least, areas such as food retail and some consumer goods20. – collaborating over capacity reduction in industries hit by reduced demand; 10. In the same vein, in several national regimes21 and under EU law,22 requests or direction from govern- – collective negotiation to resolve commercial ment bodies for businesses to cooperate with each other disputes; constitute a defence against an accusation of infringe- – alignment regarding human resources or benefits ment of competition law, if competition law has been programmes in relation to the crisis.14 formally disapplied to such conduct. While procedures for granting such an exemption do exist, they require 8. The way the Commission treats this exchange of infor- exceptional and compelling public policy reasons and mation or cooperation agreement may fundamentally have rarely been granted before now. evolve. Regulation 1/2003 put an end to the practice 11. However, this may also change with the above-men- established by Regulation 17/62 whereby companies tioned temporary framework which takes a flexible stance were able to seek EU exemption for cooperation deals as regards cooperation agreements encouraged by public or distribution arrangements by way of formal notification to the Commission. However, on 8 April 2020, the Commission published a Communication laying down 16 Mlex, Comfort letters’ return as business gets EU nod to cooperate against Covid-19, 8 April a Temporary Framework for assessing antitrust issues 2020. related to business cooperation in response to situa- 17 Recital 4. tions of urgency stemming from the current Covid-19 18 Recital 18.

19 See recital 4.and Guidelines on the optimal and rational supply of medicines to avoid shortages during the Covid-19 outbreak, published the same day:8 April 2020, https://eur-lex. 11 Guidelines on the method of setting fines imposed pursuant to Article 23(2) europa.eu/legal-content/EN/TXT/HTML/?uri=OJ:JOC_2020_116_I_0001&from=FR (a) of Regulation No 1/2003, https://eur-lex.europa.eu/LexUriServ/LexUriServ. do?uri=OJ:C:2006:210:0002:0005:EN:PDF. 20 See also recitals 8 and 9 of the Communication and the use of the term « notably ». In France: Article L. 420-1(1) of the Commercial Code and paragraph 45 of the 12 Supra, note 10, Roca v. Commission, para. 165. 21 Guidelines of 16 May 2011 concerning the method for setting the fines. In the UK: see 13 However, the crisis of the sector, in itself, is not taken into consideration; the exception Ashurst, The impact of Covid-19: Key competition and consumer protection law consid- relates to the “contributing capacities” of the undertaking subject to the sanction. See erations in the EU and the UK, 30 March 2020, https://www.ashurst.com/en/news-and- Guidelines of 16 May 2011 concerning the method of setting fines, para. 61–65. insights/legal-updates/the-impact-of-covid-19---key-competition-and-consumer-protection-law-considerations-in-the-eu. 14 Freshfields, Navigating the impact of Covid-19: How to manage antitrust risk, no date, https://www.freshfields.com/en-gb/our-thinking/campaigns/coronavirus-alert-hub/ 22 Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of

manage-antitrust-risk. Regulation No 1/2003 of 1 September 2006, para. 29. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 59 authorities23 and recall that cooperation is allowed if not be seen as carte blanche to cooperate collectively to imposed by public authorities24. Several Member States remedy situations of overcapacity. The Commission will may adopt measures to ease cooperation as is exempli- not tolerate conduct by undertakings that opportunisti- fied by the United Kingdom (UK). On 19 March 2020, cally seek to exploit the crisis as a cover for anti-com- the UK government announced that it was “tempo- petitive collusion by, for example, limiting production rarily relaxing elements of competition law” as part of to the ultimate prejudice of consumers (e.g. by obstruc- a package of measures to allow supermarkets to work ting attempts to scale up production to face shortages of together to reduce the risk of any food shortages,25 as supply)29. As warned by M. Vestager, the Covid-19 crisis is long, as recalled by the UK Competition and Markets not a “shield against competition enforcement.”30 In a severe Authority (CMA), as it is not a “cover” for nonessen- recession, the competition authorities would normally tial collusion—for example exchanging information on consider that it is for market forces—and not a grouping longer-term pricing or business strategies, where this is of all major market participants—to deal with overca- not necessary to meet the needs of the current situation.26 pacity. This emerges from the European Court of Justice Judgment in the 2008 Irish beef case31 as well as a 2011 12. This initiative was followed on 23 March 2020 by a policy roundtable held by the Organisation for Economic much broader cross-sectoral joint statement from the Co-operation and Development (OECD) on crisis European Competition Network (ECN—the network of cartels,32 even though, depending on the magnitude of the all EU national enforcers). In this statement, members of crisis, this approach could be relaxed in its application. the ECN confirmed that they would not“ actively intervene against necessary and temporary measures put in place in order to avoid a shortage of supply” caused by the pandemic.27 II. Abuse of

13. Likewise, other exceptions to anticompetitive dominance exchange of information could be construed more leniently by competition authorities. In particular, infor- (Article 102 TFEU) mation sharing that allows suppliers to better forecast areas of oversupply and undersupply may be accept- 16. Covid-19 could result in increased market concen- able, provided it “does not go beyond what is necessary to tration due to the elimination of the most vulnerable correct the market failure.”28 This provision could prove operators, leading to more cases based on Article 102 of important in the current context, by allowing undertak- the TFEU. The chaos generated by Covid-19 may lead ings to exchange information in order to reallocate their undertakings to adapt by changing their business prac- supply to territories hit by shortages of food or medicine, tices to respond to the crisis. These changes may mostly for instance. involve pricing practices, excessive pricing (i.e., price increases which cannot be justified by increased costs) or 14. More globally, it is likely that competition autho- discrimination (i.e., applying materially different pricing rities will increasingly distinguish, in their competi- to similarly situated customers or making terms or condition analysis, between cooperation to deal with under- tions less generous without cause). Non-pricing practices capacity (shortage of supply) and cooperation to deal could also flourish and, in particular, unilateral refusal to with overcapacity. What competition authorities have deal. In the context of the crisis, some of these refusals in mind is mutual support in critical sectors by way of may not be considered to be anticompetitive (e.g., refusal upstream cooperation on logistics and production, to to deal with firms that fail to adopt adequate measures to overcome shortages of supply, in order to avoid compa- protect workers and customers, or that promote misin- nies no longer being able to meet existing demand (i.e., formation that may exacerbate public health risks). undercapacity).

15. However, the more lenient approach to enforcement currently visible among competition authorities should

23 Supra, note 15, recital 15.

24 Supra, note 15, recital 16.

25 UK Government press release, 19 March 2020, Supermarkets to join forces to feed the nation, https://www.gov.uk/government/news/supermarkets-to-join-forces-to-feed-the-nation.

26 CMA press release, 19 March 2020, Covid-19: CMA approach to essential business cooperation, https://www.gov.uk/government/news/covid-19-cma-approach-to-essential-business-cooperation?utm_source=64a0c8cf-3303-43b5-bac3-de3b83b8fb7d&utm_medi- um=email&utm_campaign=govuk-notifications&utm_content=immediate.

27 Joint statement by the ECN on application of competition law during the Corona crisis, https://ec.europa.eu/competition/ecn/202003_joint-statement_ecn_corona-crisis.pdf.

28 European Commission, Guidelines on the applicability of Article 101 of the TFEU to horizontal co-operation agreements, para. 110, https://eur-lex.europa.eu/legal-content/

EN/ALL/?uri=CELEX%3A52011XC0114%2804%29. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

60 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 17. Recently, a special focus has been put on excessive circumstances of the case.” pricing practices. Investigations have been opened, at least, in Italy33 (relating to the marketing of hand sani- 21. Secondly, regarding the substance of cases, the tisers and disposable masks), in Poland34 (regarding increased market concentration may lead to a revival of the supply of personal protective equipment to hospi- the “failing firm” defence (notably in the aviation sector46). tals), in Turkey (regarding the food sector),35 in Ukraine Moreover, we may see initiatives from the Commission (regarding masks, airline tickets, disinfectants and and from Member States47 to protect weakened compa- consumption basket products),36 and in the Netherlands.37 nies from “predatory” foreign takeovers. In a policy In the US, there is no federal law prohibiting exces- paper issued 25 March 2020,48 the EU executive called on sive pricing. However, states such as Washington, the bloc’s national governments to deploy “fully fledged” New York and California have laws that restrict price screening systems for foreign investments, especially in gouging. On 4 March 2020, the Washington attorney key healthcare and research businesses. After years of general announced that his office was investigating cases rolling back restrictions and opening up trade flows— of excessive pricing during the Covid-19 public health with the Commission famously neutral on company emergency.38 On the same day, California declared a ownership—the paper marks a sharp change of direc- state of emergency, triggering the prohibition of price tion for the EU executive.49 Even if this change does not gouging of food, emergency supplies, medical supplies, affect EU merger control as such,50 the possibility that it gasoline, emergency clean-up services, hotel accommoda- may have an influence on the Commission’s assessment tion and transportation.39 In China, in the wake of the of foreign takeovers cannot be ruled out. Covid-19 outbreak, the State Administration for Market Regulation (SAMR) has extended its price supervision to cover not just masks, but the entire supply chain, including manufacturing equipment and raw materi- IV. State aid als.40 Several e-commerce platforms are now voluntarily monitoring the prices of masks and protective gear on their platforms to ensure that they comply with China’s (Article 107 TFEU) pricing regulations.41 22. Last but not least, State aid will be granted on a massive scale51 and many sectors will be placed on life support by 18. A global trend seems to be emerging among compe- the State. On 13 March 2020 the Commission published tition authorities in and outside the European Union a communication which provides useful guidance on the of regulating against excessive pricing. This is in line application of EU State aid rules to national support with the increased focus of the Vestager Commission measures aimed at tackling the Covid-19 outbreak.52 on exploitative abuses and excessive pricing, notably in The Commission also adopted, on 19 March 2020, a the pharmaceutical sector.42 Clear instructions have been State aid temporary framework, based on Article 107(3) recently given by the Court of Justice on assessing exces- (b) of the TFEU, to remedy a serious disturbance to the sive pricing,43 which should help competition authorities. entire EU economy.53 This temporary framework, which is similar to the one adopted during the 2008 financial crisis, enables all Member States to ensure that sufficient liquidity remains available to all companies and to III. Merger control preserve the continuity of the economic activity during and after the Covid-19 outbreak. 19. Even if the Covid-19 crisis were to last longer than is currently expected, it would clearly remain the prefe- 23. Provisions that will be key are, one the one hand, rence of competition authorities for long-term structural Article 107(2)(b), which provides that what constitutes changes to given markets to be brought about by way of compatible aid is “aid to make good the damage caused concentration subject to proper merger control rather by (…) exceptional occurrences” (the Commission has 44 than cooperation. acknowledged that the Covid-19 outbreak qualifies as an “exceptional occurrence” under Article 107(2)(b) 20. In this respect, the increased market concentration of the TFEU54), and on the other hand, Article 107(3) may give rise to a surge in mergers and acquisitions. (c) of the TFEU, which entitles Member States, subject Yet, the sanitary crisis and the corelative uncertainties on to Commission approval, to meet acute liquidity needs the evolution of the economic situation could also have a and to support companies facing bankruptcy due to the chilling effect leading to less transactions. We may see two Covid-19 outbreak. Given the unprecedented circum- adjustments in the relevant law. Firstly, as regards proce- stances, it is reasonable to believe that these rules will dure, notifications may be delayed, and electronic filings encouraged. The Commission, the French Competition Authority and the German Federal Cartel Office have already made announcements about this, while in the US, the Federal Trade Commission and the Department of Communication from the Commission to the European Parliament, the 45 52 Justice have implemented a temporary e-filing system. European Council, the Council, the European Central Bank, the European “Stop the clock” mechanisms may be extended to Investment Bank and the Eurogroup, Coordinated economic response to the Covid-19 Outbreak, 13 March 2020, https://ec.europa.eu/info/sites/info/files/ unproblematic situations, while fines for exceeding the communication-coordinated-economic-response-covid19-march-2020_en.pdf. statutory deadline will have to be assessed “in light of all

54 Ibid., see also note 43 above. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 61 be applied with flexibility.55 A crucial question will be cooperation agreement); or, on the contrary, as an aggra- whether the new legal bases activated by the Commission vating factor (in the case of excessive pricing or concerted under Articles 107(2)(b) and 107(3)(b) will be able to limitation of the production). Secondly, this crisis poses cover all such interventions, or if the Commission will the question of the role of competition authorities in need to fall back on the more stringent conditions of this tense time. Should they act as proactive regulators Article 107(3)(c) regarding rescue and restructuring or as mere “guardians of the temple” (i.e., watchdogs of aid.56 Another question will lie in the role of competi- entrenched competition rules)? Thirdly, what should be tors aggrieved by the grant of aids to others parties. State the priorities of competition authorities? We may assist aid litigation may thrive if admissibility conditions are to a rebalancing of their activities, from merger control appreciated less stringently by EU Courts. This does not and application of competition law in the digital sector seem unlikely in light of the Montessori case57. to State aid and cooperation agreements. It may be necessary in a time of crisis to enter into a new era of competition policy, primarily protecting consumers and national champions. Admittedly, competition authorities may V. Conclusion run the risk of straying from their traditional mission, which stems from the ordo-liberal school of thought— 24. To conclude, I see two three questions likely to arise. protecting the “competitive process” as a whole and not Firstly, how to factor the current crisis into competition consumers directly. However, in time of crisis, “beggars law analysis? The crisis may well be taken into considera- can’t be choosers”… n tion as a reason for exemption (exchange of information,

55 In this respect, it may be noted that, in February 2019, the Commission approved a EUR 400 million support scheme in Ireland to cover acute liquidity as well as rescue and restructuring needs of SMEs as a Brexit preparedness measure. See State aid SA.53350 (2019/N) – Ireland – Budget increase of R&R aid scheme (SA.49040 as amended to cover temporary restructuring support by SA.50651), 8 February 2019, https://ec.europa.eu/ competition/state_aid/cases/278484/278484_2052272_102_2.pdf.

56 F.-C. Laprévote, R. Pepper, Competition policy & Covid-19: An overview of antitrust agencies’ responses, 26 March 2020, e-Competitions Competition Law & Covid-19, Art. No. 93888.

57 A. de Moncuit, V. Noël, Admissibility of appeals lodged by competitors after the Montessori judgment – La possibilité d’une île, November 2019, Concurrences N° 4-2019, Art. N° 92111, pp. 222-230, https://www.concurrences.com/en/review/issues/no-4-2019/ legal-practice/aymeric-de-moncuit Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

62 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis EU State aid control and COVID-19 outbreak: A first commentary*

Jacques Derenne** [email protected] Partner Sheppard Mullin, Brussels Professor University of Liège, Belgium & Brussels School of Competition

1. The European Commission has adopted a new 3. Given the importance of the unprecedented issues Temporary Framework for State aid in the context of the and the exceptional situation facing the global Covid-19 pandemic implementing a flexible approach for economy in recent weeks, we felt it justified to take approving emergency aid granted by Member States to stock of the “Covid-19 aid” measures in some detail. businesses affected by the pandemic.1 The matter is evolving rapidly: it is sufficient to note a first decision on 12 March 2020 (Danmark) before the 2. The Commission’s DG Competition has organised adoption by the Commission of a framework on 19 itself in a similar way to its response to the 2008 crisis, March, amended on 3 April, which led to the adoption setting up a specific email address and telephone number of 107 other decisions (approving more than 130 for Member States and listing all measures in a specific different notified measures) from 21 March to 5 May, tab on its website. It has adopted a high rate of decisions including 8 other decisions under Article 107(2)(b) approving the measures notified by Member States.2 TFEU. I. Introduction * As of the situation on 5 May 2020. * * The present article is an updated version of the article published in French in the State aid “State aid control is part of the solution, Quarterly Chronicles of Concurrences No. 2-2020. I am greatly indebted to Catalina Chilaru (trainee) and Alice Malaise (student) for their assistance and to Ciara Barbu-O’Connor not part of the problem.” (associate) for her language revision. 4. These were the words of Commissioner Neelie Kroes 1 General texts adopted since 13 March 2020 (as of 30 April 2020): - 13 March 2020: Communication from the European Commission at the beginning of the financial crisis in October 2008, on a coordinated economic response to the Covid-19 outbreak, which would bring the heads of States and finance minis- COM(2020) 112 final: https://ec.europa.eu/info/sites/info/files/ communication-coordinated-economic-response-covid19-march-2020_en.pdf ters of the Member States to their knees as they sought - 19 March 2020: Temporary Framework for State aid measures to support the economy to “deactivate” competition law. in the current Covid-19 outbreak, OJ C 91 I, 20.03.2020, pp. 1–9; - 3 April 2020: Amendment to the Temporary Framework for State aid measures to support the economy in the current Covid-19 outbreak, OJ C 112 I, 04.4.2020, pp. 5. They also apply to the economic crisis resulting from 1–9; informal consolidation of the Temporary Framework: https://ec.europa.eu/ the current health crisis. A comparative analysis of competition/state_aid/what_is_new/TF_consolidated_version_as_amended_3_ the two crises of 2008 and 2020 will not be ventured. april_2020.pdf - 27 March 2020: Communication from the Commission amending the Annex to the However, from the point of view of State aid control, Communication from the Commission to the Member States on the application of several analogies can be made, even if the important diffe- Articles 107 and 108 of the Treaty on the Functioning of the European Union to short-term export-credit insurance, OJ C 101 I, 28.3.2020, pp. 1–3; rences are already apparent: in 2008, a systemic financial - Amended notification template for aid measures under Temporary Framework for State crisis with a rather limited impact on the real economy aid measures to support the economy in the current coronavirus outbreak—available and, in 2020, a global health crisis leading to an unpre- only in English; https://ec.europa.eu/competition/state_aid/what_is_new/amended_ notification_template_TF_coronavirus.pdf cedented economic crisis—of the real economy—whose - Notification template for aid measures under Article 107(2)(b) TFEU (exceptional oc- exact extent is not yet measured but which will probably currence)—available only in English; (https://ec.europa.eu/competition/state_aid/ require a long convalescence and deep structural changes what_is_new/Notification_template_107_2_b_PUBLICATION.pdf). in some sectors. 2 https://ec.europa.eu/competition/state_aid/what_is_new/covid_19.html +32 2 296 52 00; [email protected]. All decisions adopted by the Commission since 12 March 2020 (updated daily): https://ec.europa.eu/competition/state_aid/what_is_new/State_aid_decisions_TF_

and_107_2_b_and_107_3_b.pdf. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 63 6. In this context, State aid control coordinates and global situation of the “crisis” and its economic impact. provides a framework for the public support responses Then, with regard to State aid, it showed a responsive- of the different Member States. It allows the EU to act ness comparable to the 2008 crisis (with the publica- with discernment (see the etymology of the word “crisis” tion, in a few days, of the “banking” communication below), to make the necessary choices and to avoid of October 2008—replaced in August 2013—which was destructive outbidding by the law of the strongest. In this to set the guidelines for State aid control in the finan- sense, State aid control is truly one of the ultimate instru- cial crisis) by adopting very quickly, on 19 March 2020, a ments for combating the nationalist reactions of Member Temporary Framework for State aid measures to support States affected by the sovereignty virus. Without State aid the economy in the current Covid-19 outbreak. Then, control, there can be no European Union! Even if one in a second phase, just as quickly, the framework for considers the challenges of the global competition by the approval of support measures notified by Member other regions of the world which do not have any State States was developed, with a similar speed to the crisis of aid/subsidy control. late 2008–early 2009, using the same exceptional procedural means: urgent notifications, exceptional use of the 7. The Temporary Framework of 19 March 2020 English language only through language waiver (except expresses it well: “(…) EU State aid control ensures for France apparently), dedicated teams, transparency, that the EU Internal Market is not fragmented and that very rapid adoption of compatibility decisions in 24 or the level playing field stays intact. The integrity of the 48 hours, compatibility decisions favouring guarantee Internal Market will also lead to a faster recovery. It also schemes under the framework. Lastly, the Commission avoids harmful subsidy races, where Member States with has already amended its Temporary Framework on deeper pockets can outspend neighbours to the detriment 3 April and will do it again in early May. of cohesion within the Union” (point 10). And this health crisis has already amply demonstrated that it is not less 11. Moreover, to date, only four Member States Europe that we need, but more Europe when the Member (Denmark, France, Sweden and Germany) have notified States have only been able to prove the regrettable error measures under Article 107(2)(b) TFEU. This may come of their refusal to transfer sovereignty (and budget) to as a surprise. We shall return to this subject in our initial the EU in the health field! comments following the description that follows.

8. It is here that I would like to appeal to the etymology (to classical, and especially Greek philology) to come back to the exact meaning of the word “crisis.” It is generally II. Legal basis understood to have only the limited Latin origin of “serious manifestation of a disease.” It is instinctively the meaning available and used of the word “crisis” with its negative aspects. However, the Latin “crisis” comes from the ancient Greek “κρίσις,” 12. Among the urgent measures adopted by Member associated with the verb “κρίνεω, κρίνειν, krinéô, krinein” States, there is, first of all, a whole range of measures which covers, much more subtly, multiple meanings that that do not constitute State aid within the meaning of can only guide action: (i) the action or the ability to distin- Article 107(1) TFEU. These include general support guish, (ii) the action of choosing, (iii) the struggle, (iv) the measures aimed at all undertakings (without selectivity), action of deciding, hence the decision, the judgement and, such as wage subsidies, deferral or suspension of payment finally, (v) the outcome, the decisive phase of an illness. By of corporate and value added tax or social contributions; “κρίνεω,” ancient Greeks meant “I discern, I understand, temporary unemployment measures, or measures I judge, I decide, I act, I find a cure…” Crisis, therefore, targeting consumers directly, such as individual financial is the state of emergency that pushes us, through rational support for cancelled services or tickets not reimbursed analysis, to discern the (right) decisions to be taken and the by the operators concerned. (right) actions to be taken and to implement them in order to get out of a difficult situation. In order to avoid “chaos,” 13. For measures constituting State aid within the which the ancient Greeks referred to as “κρᾶσις, krasis”, meaning of Article 107(1) TFEU, some may not need to pun intended… That says it all. be notified to the Commission if they benefit from the de minimis rule (to simplify, “transparent”—directly assess- 9. As in 2008, we must analyse the sources of the crisis able—aid of less than €200,000 over three fiscal years) or (health and economic), its development mechanism, its from the General Block Exemption Regulation (GBER). impact and then identify the proper measures to remedy it. As in 2008, State aid control must adapt to this excep- 14. It should be noted at the outset that the Temporary tional situation and provide sufficiently flexible (and Framework, as some have wrongly claimed, did not evolving) responses, while maintaining the essential prin- create new de minimis measures—the €800,000 threshold ciples that will prevent Member States from destructive described below—nor did it extend the scope of the drifts in their efforts to integrate Europe. GBER. Most of the exceptional measures taken will not fall under these exemptions from prior notification and will 10. Since the beginning of March 2020, the Commission’s have to be submitted to the Commission’s approval to be response seems to have been equal to the challenge. declared compatible with the internal market on the basis First of all, the Commission fairly quickly adopted a of three different legal bases: Article 107(2)(b) TFEU,

communication on 13 March 2020 on the analysis of the Article 107(3)(b) TFEU and Article 107(3)(c) TFEU. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

64 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 1. Article 107(2)(b) TFEU: free themselves within a reasonable amount of time (three to five years—the time it takes to implement an adjusted Compensation for damage business plan) from any public support and return to operating under normal market conditions. These are the usual suffered as a result of the rules of the 2014 rescue and restructuring guidelines. Covid-19 outbreak 21. In its Temporary Framework, the Commission has 15. Under this provision, Member States may grant provided that the “one time, last time” principle (one aid “to make good the damage caused by natural disasters rescue or restructuring aid every ten years) will not apply or exceptional occurrences.” This is an automatic exemp- to measures justified by Covid-19. In other words, a firm tion, by law, provided that the factual conditions of the which has received restructuring aid and whose viability provision are met. is threatened by the Covid-19 outbreak will be able to benefit again from one of the Covid-19 aid measures 16. The Commission must approve such aid (provided that it was not “in difficulty” on 31 December measures, without any discretionary assessment of 2019—however, a firm which implements a restruc- their compatibility, if there is indeed an “exceptional turing plan approved under restructuring aid will remain occurrence” causing economic damage. “in difficulty” in principle during the implementation period, often three to five years). Moreover, when necessary, a Member State implementing a State aid scheme 2. Article 107(3)(b) TFEU: approved by the Commission under Article 107(3)(c) Remedy for serious TFEU may increase the approved budget by less than 20% without prior notification to the Commission. For disturbance in the economy a budget increase of more than 20%, a simplified assess- of a Member State ment procedure shall be proposed by the Commission.

17. These are State aid measures whose exemption 22. During the financial crisis, specific rescue and depends on a discretionary assessment by the Commission restructuring guidelines were adopted by the Commission of their compatibility with the internal market, where in July 2009. They then influenced the new 2014 their objective is to “remedy a serious disturbance in the guidelines for this type of exemption. The Commission economy of a Member State.” has not yet adopted specific Covid-19 guidelines for rescue or restructuring aid that might arise as a result of 18. From 1958 to 2008, Article 107(3)(b) TFEU was the difficulties resulting from the Covid-19 crisis. used only three times (oil crisis of 1973–1974, crisis of the Greek economy in 1987 and 1991). Then, since October 2008, several hundred times in the context of the financial crisis. III. Typology of 19. On 19 March 2020, on the basis of the same provision, the Commission adopted a Temporary approved aid measures Framework (applicable until 31 December 2020) which clarifies the types of aid measures that Member States 1. Article 107(2)(b) TFEU may put in place, after prior notification and approval by the Commission, to support businesses affected by the 23. The Commission confirmed that the Covid-19 Covid-19 outbreak. pandemic constitutes the “extraordinary event” provided for in this provision, described as unforeseeable or difficult to predict, of significant and extraordinary 3. Article 107(3)(c) TFEU: economic magnitude or impact. Member States may Rescue and restructuring of therefore automatically grant aid to make good the damage directly caused by the pandemic provided that undertakings in difficulty and they demonstrate this causal link and the necessary other types of aid and proportionate nature of the measure by prior notification. The Commission must therefore expressly 20. Individual aid measures or aid schemes may also approve the notified measure. The EU case law provides be made available, subject to prior approval by the relevant guidance for the application of this provision. Commission, to meet liquidity needs and support undertakings encountering financial difficulties as a result of, or 24. Measures adopted under this provision could target exacerbated by, the Covid-19 outbreak. This may take the specific sectors that have been particularly affected by the form of rescue aid covering operating needs for a period pandemic: tourism, transport (in particular air transport of six months, and up to eighteen months for SMEs or for the passenger sector), hotels, non-food retailing or small public enterprises. It may also be restructuring aid “leisure events” such as concerts, exhibitions, trade fairs, for those companies in difficulty which can set up a long- sports competitions and other mass events cancelled

term viability plan demonstrating that they will be able to because of Covid-19. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 65 25. A direct causal link between the aid granted and the 26. Exceptionally, the Commission has issued guidelines damage resulting from the Covid-19 outbreak must be to Member States for the formulation of notifications of proven and the aid must meet the criteria of necessity and such measures (see references above). avoid overcompensation. In addition, the Commission has indicated that it will require Member States to 27. Surprisingly, only four Member States have so far provide specific data related to the Covid-19 outbreak in (5 May 2020) notified eight measures under this provi- order to approve these measures: sion: Denmark (events, self-employed workers and undertakings and one airline), France (aviation but limited to – the date of the first reported case in the country; aviation tax deferrals), Sweden (events and one airline) and Germany (one airline). – the number of people infected at the time of notification; – the economic impact of the Covid-19 outbreak in the Member State; 2. Article 107(3)(b) TFEU – the sequence of (main) events between the 28. In its Temporary Framework, the Commission outbreak of Covid-19 and the adoption of the set out the aid measures concerned and also made State aid scheme, including any official recom- recommendations to Member States for their notification mendations or bans decided by the competent (see reference above). authorities; – the detailed information that has been published 29. The following description of the ten types of measures for certain sectors; as regards the aviation sector, provided for in the Temporary Framework takes account the Commission indicated in particular the infor- of the amendments made by the Temporary Framework mation that would be required: additional costs, on 3 April 2020, which added measures related to: loss of revenue, loss of traffic, reduction in demand, variable costs, restoration not incurred, – promotion of RD&I related to products needed reference period, reconstruction of the damage for the fight against Covid-19; caused by comparing the situation during the – investment in testing and development period of spread of the pandemic with the refer- infrastructures; ence period.

Table 1

Member State Date Decision Type of measure Budget

Denmark

Grants to compensate organisers of events >1,000 participants or for 1 Denmark 12 March SA.56685 designated at-risk groups (seniors or vulnerable persons), regardless of €12 m the number of participants, cancelled or postponed

Subsidies to compensate self-employed workers, covering 75% of the ex- 2 Denmark 25 March SA.56791 pected loss of turnover for a three-month period, compared to the monthly €1.3 bn average for 2019. Max. €3,000 (DKK 23,000) per month per person

Compensation for a significant drop in revenue related to Covid-19. Max. 3 Denmark 8 April SA.56774 €5.4 m €8 million (DKK 60 million) per company

4 Denmark 15 April SA.56795 Revolving credit facility guarantee for Scandinavian airline SAS €137 m

France

Scheme to defer to January 2021 the payment by airlines of certain aero- 5 France 31 March SA.56765 nautical taxes for March–December 2020. The taxes could be paid over a N/A period of up to 24 months

Sweden

Direct grants scheme that compensates companies for the loss of revenue 6 Sweden 22 April SA.57501 or additional costs related to the cancellation or postponement of cultural €38 m events

State guarantee on a revolving credit facility in favour of the Scandinavian 7 Sweden 24 April SA.57061 €137 m airline SAS

Germany

State-guaranteed loan to compensate airline Condor for damage caused 8 Germany 27 April SA.56867 €550 m by Covid-19 outbreak Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

66 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis – investment in the manufacture of Covid-19-re- 2.1 Aid in the form of direct grants, lated products; tax benefits and payment advantages – deferr als of tax and/or of social security or in other forms such as repayable contributions; advances, guarantees, loans and equity – wage subsidies for employees to avoid lay-offs. capital to meet urgent liquidity needs 30. Aid may be cumulated with each other, with the 33. Provided that the aid (other conditions apply to the exception of: agriculture, fisheries and aquaculture sectors):

– aid granted under Sections 3.2 and 3.3 of the – does not exceed €800,000 per undertaking (gross Temporary Framework, if the aid is granted for amounts, i.e., before taxes or other levies); the same underlying loan and if the total amount – is granted on the basis of a scheme with an esti- of the loan per undertaking exceeds the thresh- mated budget; olds laid down; – is granted to undertakings that were not already in – aid granted under Sections 3.6, 3.7 and 3.8 of the difficulty on 31 December 2019; Temporary Framwork, if the aid concerns the same eligible costs. – is granted by 31 December 2020 at the latest (for tax advantages, this deadline does not apply and 31. At the time of writing (5 May 2020), it already the aid is considered to be granted on the date on seems to be clear that the Commission will add another which the tax return for the financial year 2020 is new category of aid: recapitalisation measures. The due to be submitted). Commission consulted Member States on this issue as from 9 April 2020. It is expected that this second amend- 34. Where an undertaking carries out activities in several ment to the Temporary Framework will contain strict sectors to which different maximum amounts apply, the conditions for the approval of such structural measures Member State concerned must ensure, by appropriate as a matter of urgency. These conditions will certainly means, such as separation of accounts, that the appli- be inspired by the lessons of the financial crisis since the cable ceiling is respected for each of those activities. Communication of December 2008, which clarified in particular the remuneration corridor of equity invest- 2.2 Aid in the form of loan guarantees, ments by Member States and the conditions for its exit. more targeted at large undertakings 32. In early May, the Commission was still discussing (as amended on 3 April 2020) the conditions with Member States. If we consider the – Guarantee premiums set at a minimum level which conditions developed during the financial crisis, we can increases progressively as the duration of the guar- imagine conditions such as: anteed loan increases. Table 2 – miscellaneous financial instruments, not limited Beneficiaries 1st year 2nd and 4th to 6th years to capital (subordinated loans, maximum 5% rd 3 years turnover, 40% of the annual wage bill); SMEs 25 basis 50 basis points 100 basis points – repayment terms with incentives to exit the State points Large 50 basis 100 basis 200 basis points at the earliest (State remuneration increasing over companies points points time to reach the market price); – Aid schemes based on the above table but with – restrictions on the behaviour of beneficiaries modulation of the duration, premium and guar- (commercial restraint, prohibition or limitation of antee coverage for each main underlying individual acquisitions, prohibition of the payment of divi- loan (e.g., lower guarantee coverage compensating dends and bonuses, of buyback programmes); for a longer duration or lower premium). This – State remuneration in proportion to the size of the type of assistance will allow banks to continue to beneficiary company; provide loans to business clients who need them to cover their immediate needs. – specific structural and behavioural remedies (divestitures) and exit strategy from public partici- – The guarantee shall be granted by 31 December pation according to the size of the companies and 2020 at the latest. their market position; – For loans maturing after 31 December 2020, the – restructuring plan if the State shareholding is aggregate amount of the loans per beneficiary prolonged beyond a certain date (exit depending shall not exceed: on the State’s concerned situation). (i) double the annual wage bill of the beneficiary (including social charges as well as the cost

of personnel working on the undertaking’s site délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 67 but formally in the payroll of subcontractors) for – Aid schemes based on the above table but with 2019, or for the last year available. In the case of modulation of the duration of the loan and the undertakings created on or after 1 January 2019, level of credit risk margins. the maximum loan must not exceed the estimated – Loan contracts shall be signed by 31 December annual wage bill for the first two years in operation, 2020 at the latest and shall be limited to a or; maximum of six years (unless modulated in accor- (ii) 25% of the beneficiary’s total turnover in 2019; dance with the previous point). or – For loans with a maturity beyond 31 December (iii) with appropriate justification and based on 2020, the amount of the loan per beneficiary shall self-certification by the beneficiary of its liquidity not exceed the same limits as mentioned under needs (working capital and investment costs) for section 3.2 above. eighteen months after the date of the grant in the – The loan shall relate to both investment and case of SMEs and twelve months after the date of working capital needs. the grant in the case of large enterprises. – The loan may not be granted to undertakings that – F or loans with a maturity until 31 December 2020, were already in difficulty on 31 December 2019. the principal amount of the loan may be higher than that fixed in that point, provided that this is duly justified and that the proportionality of the 2.4 Aid in the form of guarantees aid remains guaranteed. and loans channelled through credit – The duration of the guarantee shall be limited to institutions or other financial institutions a maximum of six years and the public guarantee 35. These are measures which build on the existing may not exceed: lending capacity of banks and use it to support enter- (i) 90% of the loan principal where the losses are prises/small and medium-sized enterprises: sustained proportionally and under the same conditions by the credit institution and by the State; or – such aid is considered to be direct aid to the customers of banks, and not to the banks them- (ii) 35% of the loan principal where losses are selves, as it does not aim at maintaining or restoring attributed first to the State and only secondarily to the viability, liquidity or solvency of credit institu- credit institutions (first-loss guarantee); and tions and should not be assessed under the State (iii) in both of the above cases, when the size of aid rules applicable to the banking sector; the loan decreases over time, for example because – credit or other financial institutions should, as far the loan starts to be reimbursed, the guaranteed as possible, pass on the benefits of State guaran- amount must decrease proportionally. tees or subsidised loans to the final beneficiaries; – The guarantee shall relate to both investment and – the financial intermediary must be able to demon- working capital loans. strate that it uses a mechanism to ensure that the – The guarantee may not be granted to undertak- benefits are passed on to final beneficiaries as far as ings that were already in difficulty on 31 December possible in the form of higher volumes of financing, 2019. riskier portfolios, lower collateral requirements, lower guarantee premiums or reduced interest rates. 2.3 Aid in the form of subsidised interest rates for loans (no cumulation of this 2.5 Aid in the form of short-term type of aid with the aid granted under export-credit insurance (including the previous point)—amendments the amendment of 27 March 2020) 36. The Communication from the Commission on short- of 3 April 2020 term export-credit insurance provides that marketable – Loans granted at reduced interest rates (at least risks cannot be covered by export-credit insurance with equal to the base rate of the one-year IBOR rate the support of Member States. or equivalent applicable on 1 January 2020) plus credit risk margins based on the beneficiary’s 37. Following Covid-19, the Commission has decided that credit risk margin: all commercial and political risks associated with exports to Table 3 the following countries are temporarily non-marketable until 31 December 2020: 27 Member States, the United Kingdom, Beneficiaries Credit ris²k Credit risk Credit risk margin 1st y margin 2nd-3rd y margin Australia, Canada, Iceland, Japan, New Zealand, Norway, 4th‑6th y Switzerland and the United States of America. SMEs 25 basis 50 basis points 100 basis points points Large 50 basis 100 basis points 200 basis companies points points Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

68 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis – the monthly wage subsidy shall not exceed 80% 2.6 Aid in the form of deferral of tax of the monthly gross salary (including employers’ and/or of social security contributions social security contributions) of the benefiting 38. If deferrals of the payment of taxes and/or social personnel. Member States may also notify, in security contributions are of general application and do particular in the interest of low-wage categories, not favour certain undertakings or the production of alternative calculation methods of the aid inten- certain goods, they do not constitute State aid within the sity, such as using the national wage average or the meaning of Article 107(1) TFEU. minimum wage, provided the proportionality of the aid is maintained; 39. Only if they are limited to certain sectors, regions – the wage subsidy may be combined with other or types of undertaking do they constitute aid which is generally available or selective employment considered compatible with the internal market on the support measures, provided the combined support basis of Article 107(3)(b) TFEU if they consist of: does not lead to overcompensation of the wage costs of the personnel concerned. Wage subsidies – temporary deferrals or deferrals social security may further be combined with tax deferrals and contributions and which apply to undertakings deferrals of social security payments. (including the self-employed) particularly affected by the Covid-19 outbreak, e.g., in specific sectors and regions or of a certain size; 3. Article 107(3)(c) TFEU – measures provided for in relation to fiscal and 42. Some of the aid measures described In the Temporary social security obligations intended to ease the Framework will continue to be approved under the usual liquidity constraints faced by the beneficiaries, Article 107(3)(c) TFEU: the aid promoting certain including, but not limited to, the deferral of Investment in Covid-19 products or servies. payments due in instalments, easier access to tax debt recovery, and expedited tax refunds; – measures granted before 31 December 2020 and 3.1 Aid in the form of promotion the end date for the deferral shall not be later than of R&D relating to Covid-19 31 December 2022. 43. This concerns aid for research and development projects relating to Covid-19 and other elements related 2.7 Aid in the form of measures to to the fight against the virus, including projects which safeguard employment: Wage subsidies have been awarded the seal of excellence in relation to Covid-19 under the Horizon 2020 SME instrument, for employees to avoid lay-offs during provided that all the following conditions are met: the Covid-19 outbreak 40. If the State measures in question apply to the economy – aid granted in the form of direct grants, repayable advances as a whole, they do not fall within the scope of State aid or tax advantages by 31 December 2020 at the latest; control. If they provide a selective advantage to under- – for R&D projects launched as of 1 February takings, which may occur if they are limited to certain 2020 or for projects having obtained a Covid-19- sectors, regions or types of undertakings, they constitute specific Seal of Excellence, the aid is deemed to aid within the meaning of Article 107(1) TFEU. have an incentive effect; for projects started before 1 February 2020, the aid is deemed to have an 41. The Commission will consider such aid to be compa- incentive effect if it is necessary to accelerate or tible with the internal market on the basis of Article 107(3) widen the scope of the project. In such cases, only (b) TFEU, provided that the following conditions are met: the additional costs related to the acceleration efforts or widened scope shall be eligible for aid; – the aid is aimed at avoiding lay-offs during the Covid-19 outbreak; – eligible costs may refer to all the costs necessary for the R&D project during its duration, including – aid is granted in the form of schemes to under- amongst others, personnel costs, costs for digital takings in specific sectors, regions or of a certain and computing equipment, for diagnostic tools, size that are particularly affected by the Covid-19 for data collection and processing tools, for outbreak; R&D services, for preclinical and clinical trials – the wage subsidy is granted over a period of not (trial phases I–IV), for obtaining, validating and more than twelve months after the application defending patents and other intangible assets, for aid, for employees that would otherwise have for obtaining the conformity assessments and/or been laid off as a consequence of the suspen- authorisations necessary for the marketing of new sion or reduction of business activities due to and improved vaccines and medicinal products, the Covid-19 outbreak, and subject to the condi- medical devices, hospital and medical equipment, tion that the benefiting personnel is maintained in disinfectants, and personal protective equipment; continuous employment for the entire period for phase-IV trials are eligible as long as they allow

which the aid is granted; further scientific or technological advance; délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 69 – the aid intensity for each beneficiary may cover it is accepted by the national authorities. Where 100% of the eligible costs for fundamental the six-month deadline is not met, per month research, but shall not exceed 80% of the eligible of delay, 25% of the amount of aid awarded in costs for industrial research or experimental the form of direct grants or tax advantages shall development; be reimbursed, unless the delay is due to factors outside the control of the aid beneficiary. Where – the aid intensity for industrial research and exper- the deadline is respected, aid in the form of repay- imental development project may be increased by able advances is transformed into grants; if not, 15%, if more than one Member State supports the the repayable advance is reimbursed in equal research project, or it is carried out in the context annual instalments within five years of the date of of cross-border collaboration with research granting the aid; organisations or other undertakings; – eligible costs are the investment costs necessary – aid under this measure may be combined with to set up the testing and upscaling infrastructures support from other sources for the same eligible required to develop the products listed in the first costs, provided that the combined aid does not point above. The aid intensity shall not exceed exceed the ceilings defined above; 75% of the eligible costs; – the aid beneficiary shall committo grant non-ex- – the maximum allowable aid intensity of the direct clusive licences under non-discriminatory market grant or tax advantage may be increased by 15%, conditions to third parties within the EEA; either if the investment is concluded within two – the aid may not be granted to undertakings that months of the date of aid granting or date of appli- were already in difficulty on 31 December 2019. cation of the tax advantage, or if the support comes from more than one Member State. If the aid is 3.2 Investment aid for testing granted in the form of a repayable advance, and if the investment is completed within two months, or and upscaling infrastructures if the support comes from more than one Member 44. This concerns investment aid granted for the construc- State, an increase of 15% may be granted; tion or upgrading of test and development infrastructures – aid granted under this measure shall not be required to develop, test and upscale, up to first industrial combined with other investment aid for the same deployment prior to mass production, Covid-19 relevant eligible costs; products (see section 3.8), provided that the following conditions are fulfilled: – a loss cover guarantee may be granted in addition to a direct grant, a tax advantage or a repay- – the aid is granted for the construction or upgrade able advance, or as an independent aid measure; of testing and upscaling infrastructures required the amount of loss to be compensated is estab- to develop, test and upscale, up to first industrial lished five years after completion of the invest- deployment prior to mass production, Covid-19 ment. The compensation amount is calculated as relevant medicinal products (including vaccines) the difference between the sum of the investment and treatments, their intermediates, active phar- costs, the reasonable profit of 10% p.a. on the maceutical ingredients and raw materials; investment cost over five years, and the operating medical devices, hospital and medical equipment cost, on the one hand, and the sum of the direct (including ventilators and protective clothing and grant received, revenues over the five-year period, equipment as well as diagnostic tools) and neces- and the terminal value of the project; sary raw materials; disinfectants and their inter- – the price charged for the services provided by the mediary products and raw chemical materials testing and upscaling infrastructure shall corre- necessary for their production; as well as data spond to the market price; collection/processing tools; – the testing and upscaling infrastructures shall – the aid shall be granted in the form of direct be open to several users on a transparent and grants, tax advantages or repayable advances by non-discriminatory basis. Undertakings which 31 December 2020; have financed at least 10% of the investment costs – for projects started as of 1 February 2020, the aid may be granted preferential access under more is deemed to have an incentive effect; for projects favourable conditions; started before 1 February 2020, the aid is deemed – the aid may not be granted to undertakings that to have an incentive effect, if it is necessary to were already in difficulty on 31 December 2019. accelerate or widen the scope of the project. In such cases, only the additional costs in relation to the acceleration efforts or the widened scope of 3.3 Investment aid for the production the project shall be eligible for aid; of Covid-19 relevant products – the investment project shall be completed within 45. This concerns aid for the following products: relevant six months after the date of granting the aid. An medicinal products (including vaccines) and treatments,

investment project is considered completed when their intermediate, active pharmaceutical ingredients délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

70 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis and raw materials; medical devices, hospital and medical investment. The compensation amount is calcu- equipment (including ventilators, protective clothing and lated as the difference between the sum of invest- equipment as well as diagnostic tools) and necessary raw ment costs, reasonable profit of 10% p.a. on the materials; disinfectants and their intermediate as well as investment cost over five years, and operating raw chemical materials necessary for their production; cost, on the one hand, and the sum of the direct data collection/processing tools. grant received, revenues over the five-year period, and the terminal value of the project; 46. Investment aid for the production of these products – the aid may not be granted to undertakings that is compatible with the internal market provided that the were already in difficulty on 31 December 2019. following conditions are met:

– aid granted in the form of direct grants, tax benefits or repayable advances by 31 December 2020; IV. Synopsis of aid – for projects started as of 1 February 2020, the aid is deemed to have an incentive effect; for projects measures adopted started before 1 February 2020, the aid is deemed to have an incentive effect, if the aid is necessary to accelerate or widen the scope of the project. In under Article 107(3) such cases, only the additional costs in relation to the acceleration efforts or the widened scope shall (b) and (c) TFEU be eligible for aid; 47. In principle, the measures falling within the scope of – the investment project is completed within six this Temporary Framework may be combined with each months after the date of granting the aid. An other. The only exceptions concern (i) different types of investment project is considered completed when it aid relating to the same eligible costs and (ii) guarantees is accepted by the national authorities. Where the on loans and loans at subsidised interest rates which six-month deadline is not met, per month of delay, cannot be cumulated for the same underlying loan or if 25% of the amount awarded in form of direct the overall amount exceeds the relevant thresholds. grants or tax advantages is to be reimbursed, unless the delay is due to factors outside the 48. Aid measures adopted by Member States on the basis control of the aid beneficiary. Where the deadline of the Temporary Framework may be complemented by is respected, aid in the form of repayable advances (and cumulated with) other support provisions, such as is transformed into grants; if not, the repayable general measures not qualifying as State aid, measures advance is reimbursed in equal annual instalments benefiting from thede minimis rule, measures to compen- within five years after the date of granting the aid; sate for direct damage adopted within the meaning – eligib le costs related to all investment costs neces- of Article 107(2)(b) of the TFEU, or aid measures for sary for the production of the above-mentioned rescuing or restructuring firms in financial difficulty products and the costs of trial runs of the new under Article 107(3)(c) of the TFEU. production facilities are eligible. The aid intensity shall not exceed 80% of the eligible costs; 49. To date (5 May 2020), the Commission has already adopted 107 decisions under this Temporary Framework – the maximum allowable aid intensity of the (one prior to the Temporary Framework, eight under direct grant or tax advantage may be increased Article 107(2)(b)) often within only 24 to 48 hours of by an additional 15%, either if the investment is notifications. They are all listed on DG Competition’s concluded within two months after the date of aid website. granting or date of application of the tax advantage, or if the support comes from more than one 50. As of 5 May 2020, they concern 26 Member States Member State. If the aid is granted in the form plus the United Kingdom (under the transitional provi- of a repayable advance and the investment is sions of the withdrawal agreement), ranked below in completed within two months, or if the aid comes order of swiftness of response of the Member States from more than one Member State, an additional concerned: 15% may be granted; – aid under this measure shall not be combined with See the document annexed to this article (Table 4). other investment aid for the same eligible costs; 51. About €830 billion has therefore already been – a loss coverage guarantee may be granted in committed by Member States, mainly France, Italy and addition to a direct grant, a tax advantage or a the UK, although the budget for the German measures is repayable advance, or as an independent aid not indicated but could be very high as well (bringing the measure. The loss cover guarantee shall be issued total amount to around €1.5 trillion according to some within one month after the undertaking applied estimates). Of course, a very important part of these for it; the amount of losses to be compensated commitments are State guarantees which, as in the finan-

is established five years after completion of the cial crisis, will not necessarily be activated. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 71 52. Only one Member State is missing: Cyprus. Many loss of income, the damage to be compensated by the aid States have taken general economic support measures measure. Moreover, the very limited number of decisions that do not constitute State aid. In the case of France, adopted under this provision (eight by 5 May 2020) is the Ministry for the Economy and Finance has posted a surprising. As Vice-President Vestager stated recently the special file on economic support measures which is regu- use of Article 107(2)(b): “the most obvious way to go”. larly updated: 57. However, certain sectors particularly affected https://www.economie.gouv.fr/files/files/PDF/2020/ by the impact of Covid-19 should rather be the first Coronavirus-MINEFI-10032020.pdf. beneficiaries of such measures since their activities have simply ceased (sometimes partially or sometimes gradually) as a result of the pandemic. We are thinking in particular of the following sectors whose turnover V. A few comments losses are impressive (Belgian sources: Economic Risk Management Group under the aegis of the National 53. It is still too early to draw lessons from this already Bank of Belgium, with contributions from the business impressive series of decisions since 21 March. The federations VBO-FEB, UWE, VOKA and the Brussels Commission seems to have wanted to provide as much Chamber of Commerce, BECI): guidance as possible to Member States’ reactions, as it did in October 2008 (general principles) and subsequently – air transport, accommodation and food: –90%; in December 2008 (remuneration of public shareholdings – arts, entertainment and recreation: –75%; and Temporary Framework amended several times until 2011), February 2009 (toxic assets of banks) and July – wholesale and retail trade (non-food): –60%; 2009 (restructuring). – construction: –45%;

54. However, the Temporary Framework of March 2020 – extractive industries: –40%; seems to have the effect of making Member States’ action – administrative services: –40%; more rigid, in a similar way to the GBER. Member States are called upon to choose from the “toolbox” of the – real estate activities: –35%; Temporary Framework those measures that more or less – agriculture, forestry and fisheries: –33%; correspond to their needs and the Commission adopts its compatibility decisions “mechanically” by verifying – other transport and storage: –30%. compliance with the conditions imposed. The Temporary 58. These data need to be refined, of course, but they Framework system is somewhat similar to the GBER provide some indications that might have justified system, but with suspension condition and prior formal targeting measures to provide direct compensation for notification. loss of turnover rather than measures aimed mainly at supporting loans or investments (guarantees, interest 55. The measures taken also appear to be poorly targeted subsidies, grants, etc.) for activities that have already and it is difficult to identify the safeguard measures ceased. taken to avoid windfall effects altogether. On preliminary examination of the information resulting from the 59. Of course, the application of Article 107(2)(b) TFEU published decisions, it is not clear how Member States requires financial (or economic) analyses that are much have been strictly controlled as to the need to target aid more developed and detailed than framework decisions measures only to those beneficiaries who have actually based on Article 107(3)(b) TFEU. Indeed, for decisions suffered economic damage (precisely because this is on notifications of compensation for exceptional occur- outside the scope of Article 107(2)(b) TFEU). The rences, it is in particular necessary to examine in detail Temporary Framework does contain some specific provi- the counterfactual, the causal link, the exact extent of the sions, but it is questionable whether these are sufficient to aid in relation to the damage. The Commission’s guide avoid windfall effects, for example: to notifying such measures illustrates the level of data requirements. – for loans with a maturity beyond 31 December 2020, the overall amount of loans per beneficiary 60. A final comment at this stage is the total absence of must not exceed certain levels related either to any new rescue or urgent restructuring cases. What is the the annual wage bill or to 25% of total turnover; reason for this? Would the aid measures be too broad however, where is the link to the exact reduction in and avoid these urgent cases in advance? It is doubtful. turnover of the affected company? Would the Member States not wish to deal with individual cases? Whenever possible, as we have seen in the – in duly justified cases and on the basis of “self-cer- financial crisis, it is indeed better to deal with it generally tification” (no definition is provided however) by and not on a case-by-case basis. That would be unman- the beneficiary of its liquidity needs, the amount ageable. But sometimes it is unavoidable. However, one of the loan may be increased. may wonder how the (many) companies that have seen 56. In this respect, measures based on Article 107(2) their activities simply closed down and received very (b) TFEU are more naturally likely to avoid windfall insufficient direct public support at this stage (lump sums

effects since it is a matter of strictly demonstrating the of a few thousand euros here and there) survive under délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

72 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis the current conditions before considering loan guaran- healthy before Covid-19 and which fall into difficulty tees or new loans. Rescue and restructuring aid is there to simply because of the outbreak. To be followed closely. n support eligible companies and certainly those that were

Table 4

Member State Date Decision Type of measure Budget

France

Two guarantee schemes via Bpifrance for loans and credit lines for 1 France 21 March SA.56709 companies <5,000 employees. A guarantee scheme to banks on new loans €300 bn for all types of companies

Subsidies to VSEs for operating costs (<10 employees and <1 million € if 2 France 30 March SA.56823 €1.2 bn activity suspended or turnover March 2020 minus 70%) Amendment to SA.56823. Eligibility for the subsidy of €1,500 in favour €0.5 bn 3 France 2 April SA.56887 of beneficiaries with a loss of turnover of > 50% during the same period (second (instead of 70%). Budget increased to €1.7 bn from the €1.2 bn scheme) State guarantee scheme supporting domestic trade insurance–trade credit 4 France 12 April SA.56903 €10 bn insurance Extension and modification of the Solidarity Fund. 5 France 15 April SA.57010 Beneficiaries: natural and legal persons under private law started before €4.65bn 1 February 2020 and not in compulsory liquidation on 1 March 2020

“Régime cadre temporaire”: scheme to support non-financial companies: i) Direct grants, equity injections, repayable advances and subsidised loans 6 France 20 April SA.56985 €7 bn ii) State guarantees for loans; and/or iii) Public loans to companies with favourable interest rates

Scheme in form of State guarantees on loans open to all French exporting 7 France 24 April SA.56868 €150 m companies with an annual turnover below €1.5 billion

SA.57134 8 France 29 April Loan guarantee scheme for the Renault group with a loan coverage of 90% €5 bn

Loans guarantee and shareholder loan to Air France. 9 France 4 May SA.57082 €7 bn Guarantee larger (90%) than under SA.56709 (70%).

Denmark

SME Guarantee Fund: guarantees for operating loans of limited duration 10 Denmark 21 March SA.56708 €130 m and amount (max. 70% of the risk assumed by the State) SME Export Guarantee Fund: guarantees for loans and credits where 11 Denmark 30 March SA.56808 exports >10% of annual revenues and decline (actual or expected) in €130 m revenues >30% Travel Guarantee Fund Loan (cancellations): Package tours cancelled as a 12 Denmark 1 April SA.56856 €200 m result of imposed travel bans €130 m SA.57027 Tax deferrals and similar measures in relation to VAT and payroll tax liabili- 13 Denmark 30 April (DKK 970 ties (SMEs) m) Two loan schemes with subsidised interest rates (start-up companies, €296 m SA.57164 14 Denmark 5 May companies in their early stages, companies having already received venture (DKK 2.2 capital) bn) Germany State and regional guarantee of loans on preferential terms to all enterprises 15 Germany 24 March SA.56787 (except banks) to cover their immediate working capital and investment N/A needs Direct grants, repayable advances, tax benefits and payment advantages <€120,000 per enterprise (fisheries and aquaculture) and €100,000 per 16 Germany 24 March SA.56790 N/A enterprise (primary production of agricultural products), <€800,000 for all other affected enterprises Extension of the scheme approved on March 22 to measures taken by 17 Germany 2 April SA.56863 N/A regional authorities and development banks Amendments to the plans approved on March 24 and April 2. Extension to loans, guarantees and equity. Authorisation of subsidised interest rates for 18 Germany 11 April SA.56974 loans granted to beneficiaries (directly by an authority with private banks in N/A consortium or indirectly through risk sub-participation for investments and working capital needs of beneficiaries) State guarantee scheme supporting the insurance of trade between 19 Germany 14 April SA.56941 undertakings supplying goods and services against the risk of non-payment N/A by their customers “Umbrella” scheme to support R&D, testing and production of coronavirus 20 Germany 29 April SA.57100 relevant products (Bundesregelung Forschung, Entwicklungs- und N/A Investitionsbeihilfen) délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 73 Italy Aid scheme for the production and supply of medical devices and personal 21 Italy 22 March SA.56786 €50 m protective equipment State guarantee with moratorium on SME debt (deferral of repayment of overdraft 22 Italy 25 March SA.56690 €50 m facilities, bank advances, loans, mortgages and leasing operations) Guarantee scheme for new working capital and investment loans granted by 23 Italy 13 April SA.56963 €200 bn banks State guarantees on investment and working capital loans, and direct grants in 24 Italy 13 April SA.56966 the form of fee waivers for guarantees given to the self-employed, SMEs and €1.,7 bn mid-cap companies Scheme to support SMEs in the agricultural, forestry, fishery and aquaculture sectors: 25 Italy 21 April SA.57068 (i) State guarantees on investment and working capital loans; €100 m (ii) Direct grants, in the form of waiving of the applicable fee on guarantees awarded Subsidised interest rates loan; and/or direct grants scheme to support agriculture, 26 Italy 21 April SA.57005 €50 m forestry and fishery sectors in Friuli Venezia Giulia region SA.57185 27 Italy 4 May Zero-interest rate loans scheme to SMEs in the agricultural and fishery sectors €30 m

Portugal Four guarantee schemes for SMEs and mid-cap companies for: tourism, catering, €3 bn 28 Portugal 22 March SA.56755 extractive and manufacturing industries, travel agencies, tourist entertainment, event organisation Direct grant scheme and State guarantee scheme for investment and working 29 Portugal 4 April SA.56873 €13 bn capital credits granted by commercial banks 30 Portugal 8 April SA.56886 Subsidised interest rate line of credit (fisheries and aquaculture) €20 m Direct grants scheme to support investment in R&D, testing and production of 31 Portugal 17 April SA.57035 products that are relevant to the coronavirus outbreak, open to all enterprises €140 m capable to carry out such activities in all sectors Latvia 32 Latvia 23 March SA.56722 Subsidised loan scheme and loan guarantee €250 m SA.56932 Direct grants scheme to support agriculture, fishery, food and school catering 33 Latvia 17 April €35.5 m sectors Luxembourg 34 Luxembourg 24 March SA.56742 Refundable advance scheme up to €500,000 per company €300 m Loan guarantees on preferential terms for all companies (except real estate 35 Luxembourg 27 March SA.56805 €2.5 bn development, rental and sale and acquisition of financial holdings) Loan guarantees on preferential terms for all enterprises (except for real estate 36 Luxembourg 8 April SA.56954 €30 m development, rental and sale and acquisition of financial participations) Spain Two guarantee schemes for new loans and refinancing operations for (i) self- 37 Spain 24 March SA.56803 €20 bn employed persons and SMEs and (ii) larger enterprises National framework scheme authorising treasury support for the self-employed, 38 Spain 2 April SA.56851 SMEs and large enterprises (direct grants, repayable advances, tax and payment N/A advantages, loan guarantees and subsidised interest rates) “Umbrella” scheme in form of (i) aid for coronavirus-related R&D; (ii) investment aid for testing and upscaling infrastructures; (iii) investment aid for the production 39 Spain 24 April SA.57019 of coronavirus relevant products; (iv) aid in the form of deferrals of tax and/ N/A or of social security contributions; and (v) aid in the form of wage subsidies for employees to avoid lay-offs during the coronavirus outbreak United Kingdom 40 SA.56792 Two separate aid schemes supporting SMEs in all sectors until 30.9.2020: €654 m – UK 25 March and (i) guarantees up to 80% of loans for SMEs with a turnover of <£45m; (second 41 SA.56794 (ii) direct grants <€800,000 scheme) Temporary National Framework for the full range of measures under the €57 bn 42 UK 6 April SA.56841 Temporary Framework. SMEs and large enterprises, either directly or through financial intermediaries (guarantees) Amendment to SA.56841: Replaces a flat fee structure and provides for the 43 UK 23 April SA.57078 pricing of guarantees on loans to be charged on a N/A stepped basis Estonia Two public guarantee schemes for new and existing loans, and for soft loans 44 Estonia 30 March SA.56804 via the KredEx Public Foundation and the Estonian Public Foundation for Rural €1.75 bn Development Direct grants and payment advantages to provide liquidity in form of direct grants, 45 Estonia 21 April SA.57014 waiver of penalties, reduced leases and usage fees to lessees of municipal €75.5 m property for companies from different sectors Share and S1) Public guarantees, loans and subsidised interest rates for loans for all financed 46 Estonia 28 April SA.57028 companies. S2) Public guarantees and loans for agriculture, fishery and food with the processing sectors €1.75 bn of SA.56804 Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

74 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis Ireland Repayable advances to companies >10 employees with a decrease (realised or 47 Ireland 31 March SA.56845 expected) in turnover of at least 15% compared to their income prior to Covid-19 €200 m (manufacturing sectors and sectors involved in international trade) “Sustaining Enterprise Scheme”: direct grants, repayable advances, equity 48 Ireland 22 April SA.57036 injections, and subsidised loans scheme to support undertakings operating in the €200 m manufacturing and internationally traded services sectors in Ireland Malta 49 Malta 2 April SA.56843 Scheme for guarantees of working capital loans by commercial banks €350 m Direct grants scheme to support investment in R&D (relevant medicinal products and treatments, medical devices, hospital and medical equipment, disinfectants, 50 Malta 22 April SA.57075 €5.3 m data collection and processing tools, and applications supporting a better dissemination of recommendations by health authorities) Employment aid scheme open to companies of all sizes and also self-employed 51 Malta 24 April SA.57076 €215 m individuals operating in sectors Sweden 52 Sweden 2 April SA.56860 Guarantee scheme for new loans granted by commercial banks to SMEs in particular €9.1 bn Guarantee scheme to support Swedish licensed airlines at least from 1 January 53 Sweden 11 April SA.56812 €455 m 2020 (exclusion of the main activity of non-scheduled air transport of passengers) Rent rebate scheme to support tenants operating in the hotel, restaurant, retail 54 Sweden 15 April SA.56972 €453 m and certain other sectors Netherlands Direct grant scheme for Dutch providers of social assistance and home health 55 Netherlands 3 April SA.56915 €23 m care services (max. €100,000 per company) Loan guarantee scheme for working capital and investment loans granted by 56 Netherlands 22 April SA.56914 €10 bn banks, to help Dutch companies meet their liquidity needs Scheme in form of subsidised interest rates on loans, open to SMEs whose main 57 Netherlands 24 April SA.57107 €100 m source of financing derives from external equity, venture capital or microcredit Poland Scheme of guarantees by the National Development Bank of Poland for new and 58 Poland 3 April SA.56876 existing loans (investment credits and working capital loans). Medium and large €22 bn enterprises in all sectors 59 Poland 8 April SA.56896 Loans and guarantees from EU funds open to SMEs and large companies €0.7 bn Direct grant schemes to cover part of the interest on loans, which should normally 60 Poland 10 April SA.56979 €115 m be borne by the borrower. SMEs and large enterprises 61 Poland 22 April SA.57065 Guarantees on loans and subsidised interest rates for loans scheme €110 m Eleven support schemes, in form of (i) direct grants, (ii) repayable advances, (iii) tax and payments advantages, (iv) deferrals of tax payments and (vi) wage 62 Poland 23 April SA.56922 €7.8 bn subsidies, open to micro (including self-employed workers), SMEs and large companies Scheme in form of grants and repayable advances, co-financed by the European 63 Poland 24 April SA.57015 structural funds, open to companies in all sectors, including the agricultural and €700 m fishery and aquaculture sectors 64 Poland 28 April SA.56996 Scheme in form of repayable advances open to SMEs €16.6 bn Greece Scheme of guarantees by the Greek Development Bank in favour of financial intermediaries covering eligible working capital loans from the financial 65 Greece 2 April SA.56857 €2 bn intermediaries. All Greek companies, except financial intermediaries, banks, aquaculture and agriculture and sectors not eligible for ERDF support Refundable advance scheme for firms in all sectors with a reduction in activity of at least 30% compared with the average for the corresponding period over the 66 Greece 7 April SA.56815 €1 bn previous three years or another equivalent period (firm set up less than three years ago) Grant scheme open to SMEs active in sectors affected by the epidemic and 67 Greece 8 April SA.56839 €1.2 bn operating throughout Greece Modification of SA.56857: Add SA.57048 – accessible to the SE and to aquaculture and agriculture companies; €250 m 68 Greece 30 April – subsidisation of the guarantee premiums for loans from the Covid-19 (total: Guarantee Fund €2.25bn) SA.57194 69 Greece 5 May Direct grant scheme in the primary production of floricultural products €10 m

Croatia Interest-free and subsidised loan schemes for all types of businesses, regardless 70 Croatia 9 April SA.56957 of their sector of activity (with the exception of sectors generally excluded by €1 bn HBOR policy) Direct grants scheme to support companies in the Croatian fishery and 70 Croatia 17 April SA.56998 €4 m aquaculture sector Bulgaria Guarantee scheme of the Bulgarian Development Bank for SMEs (excluding 72 Bulgaria 8 April SA.56933 medium-sized and large enterprises). All sectors and the whole territory of €255 m Bulgaria Aid in the form of wage subsidies to companies active in the sectors most 73 Bulgaria 15 April SA.56905 €770 m affected by the health crisis Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété Scheme in form of equity and quasi-equity investments open to SMEs active in all 74 Bulgaria 23 April SA.57052 €150 m sectors with certain exceptions defined by Bulgaria

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 75 Hungary 75 Hungary 8 April SA.56926 Support measures to increase business competitiveness €140 m Scheme in form of direct grants, loans and equity measures financed by the 76 Hungary 17 April SA.56994 European structural funds open to all companies, which have access to European €1 bn structural funds Wage subsidies support scheme aiming to finance the wage costs of 77 Hungary 17 April SA.57007 €88 m undertakings for R&D active in all sectors affected Scheme to support companies M1) State guarantees on new and existing 78 Hungary 28 April SA.57121 investment and working capital loans. M2) State guarantees on new investment €1.55 bn and working capital loans Direct grants, guarantees on loans, and subsidised interest rates for loans for 79 Hungary 29 April SA.57064 €900 m companies Belgium 80 Belgium 9 April SA.56919 Working capital and investment credit guarantee scheme (Flemish Region) €3 bn Loan guarantee scheme (independent traders, SMEs and large businesses in all 81 Belgium April 11 SA.56819 €50 bn sectors except financial sector and government entities) Scheme for deferring payment by Walloon airports (Charleroi and Liège) of the 82 Belgium 11 April SA.56807 N/A concession fees due for the year 2020 Scheme in form of direct grants open to companies active in the primary 83 Belgium 24 April SA.57056 €200,000 production of agricultural products and in aquaculture for the food sector Scheme in form of direct grants for R&D projects in the Brussels-Capital region, 84 Belgium 27 April SA.57057 €4 m open to SMEs and large enterprises from all sectors SA.57083 85 Belgium 30 April Walloon region guarantee scheme €530 m

SA.57132 Flemish region subordinated loan scheme (start-ups, scale-ups and SMEs in 86 Belgium 5 May €250 m Flanders Lithuania Subsidised interest rate loan scheme for SMEs in all sectors and subsidised 87 Lithuania 9 April SA.56980 €150 m interest rate loan scheme for SMEs and large enterprises in 3 specific categories Loan guarantee scheme for all companies operating in Lithuania. All sectors, except (i) purely financial activities for investment purposes, (ii) acquisition or improvement of residential apartments, (iii) production, processing and marketing 88 Lithuania 11 April SA.56927 of arms and ammunition, tobacco and tobacco products and distilled alcoholic €110 m beverages, (iv) gambling, or (v) enterprises intending to pay dividends, repay or grant loans to shareholders or to pay part of their equity capital by reducing the nominal value of shares or by other methods of reducing share capital 89 Lithuania 24 April SA.57066 Scheme in form of direct grants open to SMEs active in road freight transport €5 m Direct grants scheme to support tenants operating in certain sectors (retail, ho- SA.57135 90 Lithuania 30 April tels, restaurants, culture and sports) and whose annual turnover in the previous €101.5 m year does not exceed €50 million. Austria Liquidity scheme in the form of grants and guarantees on loans granted by 91 Austria 9 April SA.56840 COFAG (Covid-19 Finanzierungsagentur des Bundes GmbH), accessible to all €15 bn undertakings in all sectors 92 Austria 17 April SA.56981 Guarantees for underlying loans scheme to support SMEs N/A Romania Scheme of direct grants and loan guarantees to SMEs active in all sectors (except gambling and betting, production or sale of arms or ammunition, 93 Romania 10 April SA.56895 €3.3 bn explosives, tobacco, alcohol, substances under national control, plants, narcotic drugs and psychotropic substances, investigation and protection activities) Czech Republic Czech Scheme in the form of direct grants for investments in the production of 94 14 April SA.56961 €37 m Republic coronavirus-related products (SMEs and 50% of eligible costs) €5.2 bn Czech Re- Loan guarantee scheme (EGAP) for large companies with export activities 95 5 May SA.57094 (CZK142 public (20% yearly sales) bn) Employment aid scheme allowing the Slovak authorities to finance a part of the 96 Slovakia 21 April SA.56986 wage costs (including employer’s social security contributions) of undertakings €2 bn that, due to the coronavirus outbreak, would otherwise have laid off personnel Finland State guarantees on new investment and working capital loans and subsidised 97 Finland 21 April SA.57059 €2 bn investment and working capital loans with favourable interest rates Aid in form of direct grants, equity injections, selective tax advantages and advance payments, as well as repayable advances, State guarantees and loans, 98 Finland 24 April SA.56995 €3 bn open to all companies, with the exception of companies active in the primary agricultural, fishery and aquacultural sectors Slovenia “Umbrella” scheme in form of direct grants, wage subsidies, exemption from paying social security contributions, reduction of certain taxes and water fees, 99 Slovenia 24 April SA.56999 €2 bn bank guarantees, deferred payment of certain credits and compensatory payments - €500,000 rent rebates and rent exemptions for tenants of commercial real estate 100 Slovenia 30 April SA.57143 managed by Slovenian public bodies; €2 bn

- €2 b guarantees on investment and working capital loans. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

76 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis South Africa: Comprehensive package of antitrust measures adopted in response to Covid-19 pandemic

Mark Griffiths [email protected] Director, Norton Rose Fulbright Africa, Johannesburg

I. Introduction exemptions have been adopted in order to permit coordination between competitors to mitigate the economic 1. The response of the South African government to the crisis arising from the pandemic. Covid-19 pandemic has been described as “ruthlessly efficient”1 with a range of stringent measures being imposed 5. The South African antitrust response to the pandemic in South Africa even before their introduction in other has displayed a level of pragmatism by the SACC with the countries with much higher infection rates at the time. As part of this robust approach, a range of far-reaching adoption of an unprecedented number of block exemp- antitrust measures have been introduced in quick tions. While this responsiveness has been welcomed, it succession. should not mask material questions as to the scope of the block exemptions themselves and, in particular, whether 2. Similar to many jurisdictions across the world, these they provide the legal certainty to facilitate the coordi- measures have focussed on “price gouging” of essential nation necessary to address the economic impact of the products as well as the facilitation of coordination either pandemic. to support the government plan in fighting the pandemic or to mitigate the effects of the economic crisis. 3. In particular, new rules have been introduced to address II. Pursuit of competition concerns in the pricing and supply of essential products. In addition to these legislative measures, practical and procedural steps have been implemented to competition prioritise the investigation of related complaints by the South African Competition Commission (SACC) and concerns in to fast track their prosecution before the Competition Tribunal. the supply of 4. The efforts to facilitate coordination have taken the form of multiple block exemptions, which have condi- essential products tionally and temporarily suspended the application of the Competition Act No. 98 of 1998 (the “Competition 6. The SACC’s main focus during the Covid-19 pandemic Act”) in key sectors. Block exemptions have been adopted has been the implementation of the Consumer and to facilitate the coordinated response of the private Customer Protection and National Disaster Management sector to support the actions taken by the South African Regulations and Directions (the “Price Regulations”), government in dealing with the pandemic. Further, block which were adopted on 19 March 2020.2

1 A. Harding, South Africa’s ruthlessly efficient fight against coronavirus, BBC News, 3 2 Competition Act No. 89 of 1998 Regulation 2020 Government Gazette 43116 19 March

April 2020 (available at: https://www.bbc.com/news/world-africa-52125713). Government notice no. R350. Pretoria: Government Printer. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 77 7. The Price Regulations are premised on competi- 12. As at 31 March 2020, the SACC had received tion and consumer protection legislation and seek to 559 complaints of excessive pricing of which approxi- strengthen the ability of the SACC and the National mately 250 cases have been dismissed as falling outside Consumer Commission (NCC), the consumer protection of the Competition Act and the Price Regulations.6 On agency, to respond to incidences of exploitative pricing the remaining cases, the SACC has instituted a proce- of basic food and consumer items, emergency products dure whereby respondents have 24 hours to respond to and services, medical and hygiene supplies, and emer- written allegations. The SACC has sent over 100 letters gency clean-up products and services. to national retailers, suppliers and independent retailers.

8. In terms of the antitrust aspects, the Price Regulations seek to 13. In preparation for referrals to the Competition apply the existing prohibition of excessive pricing by dominant Tribunal, on 3 April 2020, the Regulations on Competition firms to issues arising during the pandemic. The Competition Tribunal Rules for Covid-19 Excessive Pricing Complaint Act sets out a number of factors to be taken into account Referrals (the “Tribunal Regulations”) were adopted.7 when evaluating whether a dominant firm is engaging in The Tribunal Regulations set out an expedited procedure excessive pricing, such as its price-cost margin, internal for the hearing of complaints before the Competition rate of return, return on capital invested or profit history. Tribunal. Once the applicant (ordinarily the SACC8) has filed a notice of motion and founding affidavit, the 9. In adding to this list, the Price Regulations specify respondent has 72 hours of being served within which that a material price increase of a good or service by any to oppose and file its answering affidavit. The applicant party (e.g. manufacturer, distributor or retailer) during has a further 24 hours to serve a replying affidavit. The the period in which a national disaster has been declared Competition Tribunal will determine whether there has will be prima facie evidence of excessive pricing when it: been any infringement of the Competition Act (read in conjunction with the Price Regulations) on the basis of – does not correspond to or is not equivalent to the the written submissions save where there is a substantial increase in the cost of providing that good or service; and dispute of fact which would be addressed in oral evidence by means of video or audio proceedings. – incr eases the net margin or markup on that good or service above the average margin or markup for 14. On 9 April 2020, the SACC referred its first case under that good or service in the three months prior to the Price Regulations to the Competition Tribunal.9 The 1 March 2020. SACC has alleged that a manufacturer of facial masks has engaged in excessive pricing by increasing prices 10. The Price Regulations also empower the NCC to use and earning margins in excess of 500% in the period 31 the same test to determine whether any price increases January 2020 to 5 March 2020. In the material published constitute unconscionable and unfair conduct for the to date, the SACC has not alleged that the manufacturer purposes of the Consumer Protection Act No. 68 of is dominant in the relevant market. Further, it would 3 2008 (the “Consumer Protection Act”). As the require- appear that the SACC is retrospectively applying the ments of the Consumer Protection Act apply to all firms Price Regulations, which were only adopted on 19 March (whether dominant or not), it would appear that enforce- 2020. The Competition Tribunal is due to hear the matter ment action by the NCC would be easier than for the on 24 April 2020. The hearing will also clarify whether SACC under the Competition Act. the expedited procedure can adequately address not only the complexities of an excessive pricing case but also 11. Concurrent with the adoption of the Price fundamental legal arguments. Regulations, the SACC has set up a toll-free consumer helpline and assembled a dedicated team to investigate 15. In terms of the wider impact of the Price Regulations, any complaints of excessive pricing and to fast track the SACC has reported a material engagement with the 4 them for prosecution before the Competition Tribunal. retail chains and, in some cases, instances where retai- During the lockdown, which came into effect from lers have lowered prices. It is not clear whether the enga- midnight on 26 March 2020, the SACC has discouraged gement with retailers has been well-founded on compe- the filing of complaints unrelated to Covid-19 as well as tition law principles (including a finding of dominance). any merger notifications except those involving failing In this regard, if the SACC targets supermarkets, it firms or firms in distress.5 will be mindful that, after an extensive inquiry into the

In addition, the Price Regulations require suppliers to develop and implement measures 3 6 See Covid-19 Update: Competition Commission flooded with over 500 complaints of ex- to ensure the equitable distribution to consumers or customers and to maintain adequate cessive pricing, SACC press release, 31 March 2020 (available at: http://www.compcom. stocks of goods. These measures may include limiting the number of items of specified co.za/wp-content/uploads/2020/03/CCSA-Covid-19-statement-31-March-2020-Final-1. products (including basic food items, household products and personal hygiene prod- pdf). ucts) that can be purchased by consumers. As these requirements are not premised on the Competition Act, they will not be further discussed. 7 Competition Act No. 89 of 1998 Regulation 2020 Government Gazette 43205 3 April Government notice no. R448. Pretoria: Government Printer. 4 See Covid-19: Immediate response to anti-competitive conduct during the State of National Disaster, SACC press release, 20 March 2020 (available at: http://www.compcom. 8 A third party may also refer a complaint to the Competition Tribunal if the SACC has co.za/wp-content/uploads/2020/03/CCSA-Covid-19-statement-20-March-updated.pdf). issued a notice of non-referral.

5 See Covid-19: Measures during state of National Disaster and Nationwide Lockdown, 9 See Commission cracks down on excessive pricing, SACC press release, 15 April 2020 SACC press release, 24 March 2020 (available at: http://www.compcom.co.za/wp-content/ (available at: http://www.compcom.co.za/wp-content/uploads/2020/04/Media-

uploads/2020/03/CCSA-Covid-19-statement-24-March-202024497.pdf). Statement-COMMISSION-CRACKS-DOWN-ON-EXCESSIVE-PRICING.pdf). délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

78 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis grocery retail market in December 2019, it did not take may cooperate to reduce the cost of diagnosis, tests and the view that individual retail chains were dominant.10 In diagnostics, treatment and other preventative measures. any event, legal questions on the enforcement action may well be moot in the face of the reputational risk of being 20. Cooperation is only permitted under the Healthcare accused of price gouging at the time of a national crisis. Block Exemption if it is at the request of, and in coordination with, the Department of Health and is for the sole purpose of responding to the Covid-19 pandemic. The Healthcare Block Exemption does not allow any commu- III. Coordination nication and agreements in respect of prices unless speci- to support fically authorised by the Minister of Health. 21. Subsequently, on 27 March 2020, the Covid-19 Block Exemption for the Hotel Industry, 2020 (the “Hotel the government Block Exemption”) was adopted to facilitate cooperation between stakeholders in the short-term accommodation response to sector in order to ensure sufficient facilities for persons the pandemic placed under quarantine.12 22. The Hotel Block Exemption allows for these 16. Two block exemptions have been adopted in South stakeholders to identify and provide appropriate facili- Africa with the specific intent of allowing a coordinated ties for accommodation of persons placed under quaran- response by the private sector to support the government tine as determined by the Department of Health and the plan to address the coronavirus outbreak. Department of Tourism. It further allows these stakeholders to communicate their respective capacity and utilisa- 17. In contrast to authorities in other jurisdictions, the tion as determined by the Department of Health and the SACC’s practice is to issue block exemptions (as opposed Department of Tourism. Stakeholders may agree on the to policy documents or guidelines) to address the poten- reduction of the cost of providing facilities only if at the tial relaxation in the enforcement of the Competition request of, and under supervision of, the Department of Act. Block exemptions provide a dispensation to entities Health and the Department of Tourism. within the relevant sector from complying with the requirements of the Competition Act due to overriding public 23. The dispensation provided by the Hotel Block interest considerations. In this regard, a block exemption Exemption is only in respect of coordination requested permits a range of conduct that could otherwise attract by, and under the supervision of, the Department of fines amounting to 10% of the annual turnover for a first- Health and the Department of Tourism. The Hotel time offender and 25% of annual turnover for a repeat Block Exemption does not allow any communication offender. and agreements in respect of prices unless specifically authorised by the Minister of Health and the Minister 18. On 19 March 2020, as the first of the Covid-19 of Tourism. related block exemptions, the Covid-19 Block Exemption for the Healthcare Sector, 2020 (the “Healthcare Block 24. The structure of the block exemptions does not Exemption”) was adopted to facilitate cooperation unambiguously provide legal certainty to stakeholders between stakeholders at various levels of the private in the relevant sectors, in particular, whether the speci- healthcare sector in order to ensure that there is adequate fied conduct (in each block exemption) is automatically capacity and stocks at healthcare facilities throughout exempt (as seemingly is the popular view) or only if such South Africa to respond to the Covid-19 national disas- conduct is specifically requested by the relevant minister. ter.11 The Healthcare Block Exemption covers hospitals and healthcare facilities, medical suppliers, medical 25. In contrast to the block exemptions discussed in the specialists and radiologists, pathologists and laborato- next section, this uncertainty may not be significant in ries, pharmacies and medical aid schemes. the case of the Healthcare Block Exemption and the Hotel Block Exemption due to the central role expected 19. While the envisaged cooperation varies across the of the relevant ministers in the coordination. In addition, categories of stakeholders, in the main, the Healthcare there is a credible view that the underlying coordina- Block Exemption provides for coordination relating to stock availability and to procurement. For example, tion should not infringe the Competition Act as conduct hospitals may coordinate on patient allocation based specifically requested and overseen by a regulatory body on their respective capacities, while medical aid schemes (in the midst of a pandemic). In particular, in the context of the Hotel Block Exemption, the envisaged coordination is akin to a purchaser explicitly permitting suppliers to jointly provide services to meet its overall needs. 10 See The Grocery Retail Market Inquiry, Final Report, Summary of the Findings and Recommendations, 25 November 2019 (available at: http://www.compcom.co.za/wp-content/uploads/2019/12/Grocery-Retail-Market-Inquiry-SUMMARY_.pdf).

11 Competition Act No. 89 of 1998 Regulation 2020 Government Gazette 43215 8 April 12 Competition Act No. 89 of 1998 Regulation 2020 Government Gazette 43175 27 March

Government notice no. R456. Pretoria: Government Printer. Government notice no. R422. Pretoria: Government Printer. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 79 31. In addition, the Banking Block Exemption allows IV. Coordination banks to coordinate on a number of payment operational issues. Within the context of PASA, banks may coordi- to mitigate nate to avoid disruption in: – the availability of bank notes to ATMs, branches the economic and businesses; – the provision of essential ATM, branch and crisis arising from corporate banking services; and the pandemic – the provision of electronic payment systems. 32. In the second development to address the economic 26. In addition to the block exemptions supporting the implications of the pandemic, the Covid-19 Block government response to the outbreak, two block exemp- Exemption for the retail property sector, 2020 (the tions have been adopted in order to allow competitors “Retail Block Exemption”) was adopted on 24 March to jointly mitigate the economic crisis arising from the 2020.14 This block exemption seeks to assist the provision pandemic. of relief to retail tenants whose businesses fall within the following designated trading lines: 27. On 23 March 2020, the Covid-19 Block Exemption for the Banking Sector, 2020 (the “Banking Block – clothing, footwear and home textile retailers; Exemption”) was adopted to permit banks to develop industry positions on a range of issues relating to – personal care services; and business and personal indebtedness during the Covid-19 – restaurants. pandemic such as payment holidays and debt relief.13 In addition, banks have been granted permission to coor- 33. The Retail Block Exemption aims to minimise the dinate on operational issues in order to maintain the financial impact on designated retail tenants with a view payment system during the pandemic (such as the avail- of them being able to resume normal operations after ability of bank notes and bank infrastructure). the national disaster. Coordination is only permitted if undertaken at the request of, and in coordination 28. The Banking Block Exemption allows cooperation with, the Minister of Trade, Industry and Competition between banks in the context of the Banking Association and for the sole purpose of responding to the Covid-19 of South Africa (BASA), the industry trade association, pandemic. The Retail Block Exemption permits desi- and the Payments Association of South Africa (PASA), gnated retail tenants and retail property landlords to the payment system management body recognised by the agree in respect of: South African Reserve Bank. – payment holidays and/or rental discounts for 29. Cooperation is only permitted under the Banking tenants; Block Exemption if it is at the request of, and in coor- – limitations on the eviction of tenants; and dination with, the Minister of Trade, Industry and Competition or the Minister of Finance and is for the sole – the suspension of or adjustment to clauses in purpose of responding to the Covid-19 pandemic. The lease agreements that restrict the designated retail Banking Block Exemption does not allow any communi- tenants from undertaking reasonable measures cation and agreements in respect of prices unless specifi- required to protect viability during the national cally authorised by either minister. disaster. 34. To qualify for an exemption, such agreements must 30. In terms of addressing business and personal indebte- extend to all South African retail tenants in the desi- dness during the Covid-19 pandemic, under the auspices gnated retail trading lines (including small and inde- of BASA, banks may develop and monitor industry pendent retailers), unless otherwise authorised by the policies on: Minister of Trade, Industry and Competition or the SACC. – pa yment holidays and debt relief for business and individual debtors subject to financial stress; 35. As mentioned in the previous section, the structure of block exemptions is unclear as to whether they auto- – limita tions set on asset repossessions of business matically exempt the specified conduct or only if such and individual debtors subject to financial stress; conduct is specifically requested by the relevant minister. and The wording of the block exemptions supports the latter – the extension of credit lines to businesses and indi- interpretation; however, this would easily undermine viduals subject to financial stress. the much needed cooperation to tackle the pandemic.

13 Competition Act No. 89 of 1998 Regulation 2020 Government Gazette 43127 23 March 14 Competition Act No. 89 of 1998 Regulation 2020 Government Gazette 43134 24 March

Government notice no. R355. Pretoria: Government Printer. Government notice no. R358. Pretoria: Government Printer. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

80 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis The need for an explicit request from the relevant minister would give rise to a range of practical considerations, for V. Concluding example, as to what form the requests would take (e.g., in writing) and to whom they would be addressed (e.g., trade associations or individual stakeholders). remarks 37. The antitrust response to the pandemic in South 36. The scope of the Retail Block Exemption is ambi- Africa is comparable to the actions of many interna- guous in other ways, as potentially a range of conduct tional regimes in going beyond issues of price gouging to could fall within its remit. For example, this block exemp- also providing frameworks for collaboration to mitigate tion could cover the agreements between tenants of the the health and economic aspects of the pandemic. same retail centres, tenants of the same landlords and/ In adopting a significant number of measures and imple- or associations of retailers and landlords. As the SACC menting expedited procedures in the space of three has emphasised that any profiteering of the pandemic for weeks, the measures displayed a level of responsiveness anti-competitive purposes would be harshly addressed, it that would have been unexpected by many stakeholders is clearly desirable to have certainty as to the scope of the prior to the pandemic. block exemption. 38. While the adoption of an unprecedented number of block exemptions is welcome, the pragmatism displayed by the SACC should not mask material areas of uncertainty as to the scope of the permitted conduct. It is, of course, understood that the block exemptions were hastily prepared under tight timetables in the midst of the pandemic. Areas of uncertainty should not, however, be ignored by stakeholders in the relevant sectors on the assumption that there will be a benevolent enforcement of the Competition Act. n Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 81 Avoiding the pitfalls: What companies need to know about EU State aid rules and the Temporary Framework during the coronavirus crisis

Leigh Hancher David Gabathuler [email protected] [email protected] Senior Advisor Legal Consultant Baker Botts, Brussels EU, Competition and Trade Law, Baker Botts, Brussels Professor of European Law Tilburg University Professor of European Union Energy Law FSR/RSCAS/EUI

I. Introduction during the coronavirus crisis.2 To date, the Commission has approved over 120 aid schemes worth hundreds of 1. The global economy has come to a standstill, and billions of euros under the TF. governments around the world have had to intervene massively to support their domestic economies during 4. Given the scope of the crisis, many companies will the coronavirus crisis. Government support to industry be receiving State aid in the EU for the first time or will is only likely to increase as companies face ever-greater consider applying for such aid, but they may have limited financial difficulties due to the continuing public health experience or insight into the complexity of the rules. restrictions. This article is intended to clarify the application of the State aid rules and, in particular the operation of the TF. 2. In the EU, government aid (State aid) to companies is in principle forbidden as it harms the integrity of the 5. The article (1) briefly outlines government support Single Market, but there are specific exceptions foreseen measures that do not constitute State aid and then (2) in the EU Treaty. The damage caused by the coronavirus highlights existing EU State aid instruments and schemes 1 pandemic clearly falls within these exceptions. However, that provide some means for Member States to channel unless block exempted, aid measures (or aid schemes) aid to large numbers of companies. The article then falling within the EU State aid rules are subject to notifi- provides (3) an overview of the TF before discussing in cation and prior approval by the European Commission detail (4) some of the key points that should not be over- (“Commission”) if the aid is not to be found illegal and looked by beneficiaries/potential beneficiaries, in parti- subject to possible recovery. cular as regards the operation of the TF. The article also highlights the consequences and risks if EU State aid 3. The Commission adopted a Temporary Framework rules are not respected. (“TF”) on 19 March 2020 (amended on 3 April 2020) to address Member State aid to domestic industries

1 The exceptions include aid to compensate companies for the damage caused by natural disasters or exceptional occurrences (Article 107(2)(b) TFEU) and aid to remedy a serious 2 Communication from the Commission, Temporary Framework for State aid mea- disturbance in the economy of a Member State (Article 107(3)(b) TFEU). The Treaty also sures to support the economy in the current Covid-19 outbreak, adopted on 19 March allows aid to facilitate the development of certain economic activities or of certain eco- 2020 and amended on 3 April 2020. A consolidated version of the text is available at: nomic areas, where such aid does not adversely affect trading conditions to an extent con- https://ec.europa.eu/competition/state_aid/what_is_new/TF_consolidated_version_as_

trary to the common interest (Article 107(3)(c) TFEU). amended_3_april_2020.pdf. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

82 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis – Compensation for the provision of public services: II. Aid measures aid that is granted to provide public services in the general interest (e.g., aid to hospitals or nursing homes) can fall outside the EU State aid rules that fall outside EU provided certain specific conditions are met.6 – Government intervention on market terms: the State aid rules EU rules do not forbid EU governments from 6. The EU State aid rules are extremely broad and apply investing in private companies, but the terms must to any support granted by a State through state resources, be acceptable to a private investor if such inter- that provides a selective advantage to a company (or ventions are not to be considered State aid.7 companies) and which distorts (or has the potential – Intermediaries: Banks and financial institu- to distort) competition and affects trade between EU tions may simply be intermediaries passing on countries.3 the government aid to the ultimate beneficiary companies. As long as such institutions do not 7. Many government support measures, nonetheless, do receive any of the aid themselves, there will be no not fall within the scope of the EU State aid rules as they State aid to those organisations.8 apply to all sectors or concern the provision of essential public services that the market cannot provide. State – Support from EU funds: support which comes intervention may also be deemed to be market conform if from EU funds such as the European Investment the state is acting as a normal market investor. If poten- Bank (EIB) and which are granted directly to tial beneficiaries are in doubt as to whether a measure companies without coming under the control of may be caught by the State aid rules, they can encou- national authorities will not constitute State aid. rage their national authorities to notify the measure to If the EU funds are channelled through national the Commission for reasons of legal certainty. Obviously, authorities, EU State aid rules may be applicable.9 this can be a time-consuming process and even though the Commission is currently assessing notifications at considerable speed, governments and beneficiaries may be reluctant to wait for a green light given the economic III. Reliance on challenges that the coronavirus outbreak poses to most industries.4 existing instruments 9. Member States can choose to continue to rely on 8. Generally, non-State aid measures include the following existing schemes to channel aid to large numbers of government support: companies, especially to small and medium-sized – Horizontal aid measures applicable to all compa- (“SMEs”) companies. The schemes are mainly intended nies: aid measures that apply to all companies to give incentives to undertake new or additional invest- across sectors and activities are not selective and ments and are not meant to cover daily operating costs. do not fall within the definition of State aid. However, the economic fallout of the coronavirus Examples include wage subsidies and the suspen- outbreak is so extensive that the Commission has intro- sion of corporate tax and VAT payments or social duced the TF to ensure that Member States can quickly security contributions.5 provide unprecedented levels of liquidity—i.e., operating aid to their local industries. – Financial support paid directly to consumers: the State aid rules only concern aid to companies or other actors that are engaged in an economic activity and thus direct payments to consumers are not caught. Examples include compensation paid to consumers for cancelled services that are not reimbursed by the operators themselves. 6 Under EU law, economic activities that public authorities identify as being of particular importance to citizens and that would not be supplied (or would be supplied under different conditions) if there were no public intervention are identified as services of general economic interest (SGEI). Examples are transport networks, postal services and social ser- 3 The concept of State aid is very broad in scope. In particular, it is not limited to subsi- vices. Under certain conditions, compensation paid to companies for the provision of such dies, but may encompass any form of support that mitigates costs normally included in public services does not constitute State aid or is automatically permitted below a certain the budget of a company, including for example tax exemptions. Moreover, it captures not revenue threshold. only measures adopted at national level, but also regional or even local measures. 7 See for example, the Danish government will implement the following extraordinary pro- 4 Even if the measure is notified as “non-aid,” the standstill obligation can only be over- curement measures: (i) advance payment for deliveries agreed to take place in the period looked at the risk of potential recovery. until 1 July 2020 (or possibly extended to 31 October 2020) and (ii) flexible application of remedies for breach of contract caused by Covid-19, including waiving payment of pen- 5 Wage subsidies for particular activities even if available across all sectors are considered selective. See State Aid SA.57007 (2020/N) of 17 April 2020 – Hungary – Covid-19 – alties for delay effective until 31 October 2020. Source: Presentation of Preben Sandberg Employment scheme for supporting the employment of researchers and developers in Pettersson at the Lexxion Live Webinar: Follow-up on Main Features of Covid-19 and all sectors affected by coronavirus outbreak. Available at: https://ec.europa.eu/competi- State Aid Law, 20 April 2020. tion/state_aid/cases1/202017/285509_2149572_60_2.pdf. See also State Aid SA.56994 8 See for example, SA.56985 (2020/N) of 20 April 2020 – France – Covid-19: Regime (2020/N) of 17 April 2020 – Hungary – Aid from Structural Funds aiming at support- cadre temporaire pour le soutien aux entreprises, at section 4. Available at: https://ec.eu- ing undertakings affected by the economic repercussions of the Covid-19, at recital 28. ropa.eu/competition/state_aid/cases1/202017/285598_2149988_102_2.pdf. Available at: https://ec.europa.eu/competition/state_aid/cases1/202017/285491_21495

70_32_2.pdf. 9 See State Aid SA.56994 (2020/N) of 17 April 2020. supra note 5. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 83 10. There are also specific EU instruments (“block exemptions” or “safe harbours”) that allow European IV. Overview of governments to provide aid to large numbers of companies without pre-approval. In particular, Member States may continue to rely on the following two instruments: the Temporary

– General Block Exemption Regulation (GBER):10 Framework the GBER automatically declares specific catego- 12. The Commission recognises that the entire EU ries of aid (e.g., aid for SMEs and aid for environ- economy is experiencing a serious disturbance due mental protection) as compatible with EU State to the coronavirus and that Member States have to aid rules subject to the aid meeting the conditions provide public support to ensure that there is sufficient of the GBER. The GBER is complex and due care liquidity to protect healthy undertakings and to preserve is required to ensure compliance with its formal as economic activity. The TF identifies specific State aid well as its substantive conditions. Some informal measures that the Commission considers compatible guidance can be found in the FAQs issued by the with Article 107(3)(b) TFEU and which can be quickly Commission (and EFTA). approved by the Commission following notification by – de minimis Regulation:11 subject to certain excep- the Member States.15 tions for a few sensitive sectors,12 the Regulation allows a Member State to grant aid of up to a 13. Each section of the TF sets out relevant conditions strict limit of €200,000 to a “single undertaking” that apply to particular temporary State aid measures.16,17 over a three-year period without such grants These conditions must be properly observed on imple- constituting State aid. A single undertaking is mentation at the national level. defined in Article 2(2) of the Regulation (see note 42 below). 11. There are also numerous existing aid schemes that 1. Direct grants, repayable have been previously approved by the Commission and advances or tax advantages which provide the means for national governments to support their domestic companies. Governments can (Section 3.1) extend the scope of these aid schemes, especially to 14. Member States can provide aid—on the basis of a benefit from the additional flexibility provided by the TF. scheme—of up to €800,000 per undertaking (before Nonetheless, they must notify and seek approval from deduction of tax or other charges).18 The aid can be the Commission prior to granting aid under the extended in the form of direct grants, tax and payment advan- scheme.13 Similarly, if the Member State extends the scope tages, repayable advances, guarantees, loans and equity. of emergency measures already notified under the TF, it Aid may not be granted under the TF to undertakings must notify any updates to these authorised schemes.14 that were already in difficulty within the meaning of the GBER on 31 December 2019 (this condition applies to all relevant measures under the TF).19

10 Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid compatible with the internal market in application of Articles 107 and 108 of the Treaty. Available at: https://eur-lex.europa.eu/legal-content/EN/ TXT/?uri=CELEX:02014R0651-20170710. 15 It is understood that the Commission is working on a short FAQ on the TF.

11 Commission Regulation (EU) No 1407/2013 of 18 December 2013 on the applica- 16 The TF also clarifies that credit and other financial institutions who act as financial inter- tion of Articles 107 and 108 of the Treaty on the Functioning of the European Union mediaries should not be the recipients of indirect aid, but identifies certain safeguards that to de minimis aid. Available at: https://eur-lex.europa.eu/legal-content/EN/TXT/ can be introduced to limit undue distortions of competition between financial institutions PDF/?uri=CELEX:32013R1407&from=EN. (Section 3.4). For an example, see State Aid SA.57068 (2020/N) of 21 April 2020 – Italy – Loan guarantees and grants under the ISMEA Guarantee Fund. Available at: https:// 12 There are lower thresholds for the road freight sector and the agriculture and fisheries ec.europa.eu/competition/state_aid/cases1/202017/285610_2150492_134_2.pdf. sectors. 17 The TF also references the Commission’s Communication addressing short-term export 13 The German government amended two aid schemes to support companies affected by the credit insurance C(2020)244 final of 27 March 2020 and clarifies that Member States coronavirus outbreak to benefit from the additional flexibility provided by the TF. The can provide short-term export credit insurance for all countries without the need for Commission approved the notified amendments. See Commission press release IP/20/651 the Member State in question to demonstrate that the respective country is temporarily of 11 April 2020, State aid: Commission approves amendments to previously approved “non-marketable” (Section 3.5). German schemes to further support economy in coronavirus outbreak. Available at: https://ec.europa.eu/commission/presscorner/detail/en/ip_20_651. 18 For an example of an aid scheme granting undertakings up to €800,000, see State Aid SA.56790 (2020/N) of 24 March 2020 – Germany – Federal Framework “Small 14 See, for example, State Aid SA.56804 of 30 March 2020 – Republic of Estonia – State amounts of aid 2020” (“Bundesregelung Kleinbeihilfen 2020”). Available at: https:// Loan Guarantees and subsidised loan scheme under the Temporary Framework for State ec.europa.eu/competition/state_aid/cases1/202013/285205_2142884_55_2.pdf. aid measures to support the economy in the current Covid-19 outbreak as updated by State Aid SA.57014 (2020/N) of 21 April 2020 – Republic of Estonia – Estonian aid 19 The TF contains specific rules for aid to the agriculture, fisheries and aquaculture sector. schemes in the form of grants and payment advantages under Section 3.1 of Temporary For an example of its application to fisheries, see State Aid SA.56998 (2020/N) of 17 Framework for State aid measures to support the economy in the current Covid-19 out- April 2020 – Croatia – State aid in fisheries and aquaculture supporting the economy break. Available at: https://ec.europa.eu/competition/state_aid/cases1/202017/285592_ under the Temporary Framework. Available at: https://ec.europa.eu/competition/state_

2149989_52_2.pdf. aid/cases1/202017/285495_2150432_42_4.pdf. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

84 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 2. Aid in the form of public 4. Aid for Covid-19 relevant guarantees on loans R&D (Section 3.6) (Section 3.2) 17. Member States can provide aid for R&D projects carrying out Covid-19 and other antiviral research. Aid 15. Member States can provide beneficiaries with a public may be granted in the form of direct grants, repayable guarantee of up to 90% for loans for a period of up to six advances or tax advantages. The aid can cover 100% of years subject to certain minimum premiums set out in the eligible costs24 for fundamental research and up to 80% T F. 20 The public guarantee is capped at 35% where losses of eligible costs for industrial research and experimental are first attributed to the State and only then to the credit development. There is a “bonus” of 15%-points if more institutions (i.e., the State providing a “first-loss guar- than one Member State supports the project or there is antee”). The guarantee must relate to investment and cross-border collaboration. For R&D projects started working capital loans. after 1 February 2020, the aid is deemed to have incentive effect. If the project started before this date, the aid The premiums increase as the duration of the guaran- is deemed to have an inventive effect if it is necessary to teed loans increases. The guarantee coverage, duration accelerate or widen the scope of the project. The TF also and premiums can also be modulated (e.g., a lower guar- requires the aid beneficiary to commit to grant non-ex- 21 antee coverage could allow lower guarantee premiums). clusive licences under non-discriminatory market conditions to third parties in the EEA. For loans with a maturity beyond 31 December 2020, the overall amount of the loans per beneficiary is capped in accordance with specific criteria.22 There are also specific 5. Investment aid for testing rules on the cumulation of aid (see section V below). and upscaling infrastructures The Commission has shown a willingness to be flexible (Section 3.7) when assessing loan guarantees.23 18. The TF allows Member States to provide investment aid for the construction or upgrade of testing and 3. Aid in the form of subsidised upscaling of infrastructures required to develop, testing and and scale up Covid-19 relevant medicinal products interest rates for public loans (including vaccines) and treatments, medical devices and (Section 3.3) equipment, etc. The aid can cover up to 75% of eligible costs with a bonus of 15%-points if a project finishes 16. Member States can provide public loans at reduced within two months from the moment the aid is granted interest rates for up to six years which are at least equal to or if more than one Member State supports the project.25 the base rate (1 Year LIBOR or equivalent) plus the credit The aid can be granted in the form of direct grants, tax risk margins set out in the TF. The terms can be modu- advantages or repayable advances. A loss cover guar- lated and the amounts can be determined as set out above antee can also be granted. The rules on incentive effect for loan guarantees. The loans must relate to investment are the same as those for aid for Covid-19 relevant R&D. and/or working capital needs. There are also specific rules There are also specific rules on the cumulation of aid (see on the cumulation of aid (see section V below). section V below).26

6. Investment aid for the production of Covid-19 20 For an example of a liquidity guarantee scheme, see State Aid SA.56808 (2020/N) relevant products (Section 3.8) of 30 March 2020 – Denmark – Liquidity guarantee scheme under the Temporary Framework. Available at: https://ec.europa.eu/competition/state_aid/cases1/202014/28 5239_2143817_59_2.pdf. 19. Member States can also provide investment aid to facilitate the production of Covid-19 relevant products 21 In State Aid SA.57068 (2020/N) – Italy – Loan guarantees and grants, the guarantee premiums were to be calculated according to the calculation method approved by a prior such as medicinal products and treatments, medical Commission decision. See recital 19(c). supra note 16.

For loans with a maturity beyond 31 December 2020, the overall amount of the loans per 22 24 The eligible costs concern all the costs necessary for the R&D project during its duration, beneficiary shall not exceed (i) double the annual wage bill of the beneficiary for 2019, (ii) including amongst others, personnel costs, costs for digital and computing equipment, for 25% of the beneficiary’s total turnover, or (iii) with appropriate justification, the liquidi- diagnostic tools, for data collection and processing tools, etc. See point 35(c) of the TF. ty needs for the coming 18 months for SMEs and 12 months for large enterprises. 25 The eligible costs are all investment costs necessary for setting up the testing and upscaling 23 In State Aid SA. 56966 (2020/N) of 13 April 2020 – Italy – Covid-19: Loan guarantee infrastructures required to develop the relevant medicinal products and treatments, etc. schemes under the Fondo di garanzia per le PMI, the Commission stated at recital 45 that See point 37(e) of the TF. “given that the cases where the overall amount of loans per beneficiary exceeds the ceilings of point 25(d), i. and ii. of the [TF] are properly justified, the Commission considers the corre- 26 The TF further also requires that prices charged for the services provided by the testing sponding aid to be proportionate, since it includes a maximum ceiling linked to the actual li- and upscaling infrastructure correspond to the market price and that the infrastructures quidity needs of the beneficiary, which the aid granting authority are able to verify.” Available must be open to several users and must be granted on a transparent and non-discriminato- at: https://ec.europa.eu/competition/state_aid/cases1/202016/285511_2148349_27_2. ry basis (subject to the possibility of granting preferential access for undertakings which

pdf. have financed at least 10% of the investment costs). délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 85 devices and equipment, etc.27 The aid can cover up to 23. It must also be noted that the Court of Justice in its 80% of eligible costs. Many of the conditions that apply recent ruling in Eesti Pagar has placed a considerable to the investment aid for testing and upscaling infrastruc- burden on beneficiaries.29 If a national authority grants tures also apply to aid for the production of Covid-19 aid based on a misapplication of the conditions in the relevant products.28 TF, the company cannot claim that it has a legitimate right to retain the aid. Moreover, a national authority is obliged to recover any aid of its own initiative if it later 7. Selective tax and/or social discovers that the conditions for granting the aid were security contribution deferrals not met. (Section 3.9) and selective wage 24. It should also be kept in mind that the State aid rules can be enforced in national courts as well as by way of subsidies (Section 3.10) complaint to the Commission. Aggrieved competitors may have the option to follow both routes. 20. The TF states that the Commission will also authorise aid schemes that consist in temporary deferrals 25. It follows that aid beneficiaries must take care not to of taxes or social security contributions which apply inadvertently receive unlawful aid, i.e., aid that has not to undertakings that are particularly affected by the been notified, or paid out before receiving Commission Covid-19 outbreak, for example undertakings in specific clearance, or paid out in breach of conditions under sectors, regions or of a certain size. Member States can an approved scheme or the related transparency also provide support schemes to undertakings in specific requirements. sectors, regions or of a certain size in the form of wage subsidies. There are a number of conditions that must be met if the Commission is to authorise such schemes. For 1. Timeframe example, the monthly wage subsidy must not exceed 80% of the monthly gross salary of the benefitting personnel 26. The TF applies from 19 March 2020 to 31 December (alternative calculation methods are possible). 2020, although the Commission can review its application before then. It should be noted that the Commission will 21. The scope of the TF is expected to be extended apply the rules in the TF to non-notified (i.e., unlawful further to enable Member States to provide recapitalisa- aid) if the aid was granted after 1 February 2020. Aid tions to companies in need. measures granted before this date will be assessed in the light of the pre-existing State aid rules.

27. If a Member State intends to prolong or otherwise V. Key issues for amend a scheme as originally notified and approved by the Commission, it must notify it for further clearance beneficiaries/ unless the amendments are minor and do not change the scope of the scheme. An extension in the duration of the scheme would not usually be considered to be potential beneficiaries minor.30 22. The TF is intended to provide a framework to enable 28. A further complex question is whether a Member Member States to use the full flexibility foreseen under State can continue to provide liquidity support to indi- State aid rules to support the economy in the context of vidual companies in the period after 31 December the coronavirus outbreak, but that flexibility must still 2020 if the TF is not extended. The TF is clear that in be exercised with care. As the TF allows Member States order to qualify as a compatible scheme “the aid must to notify aid schemes and the Commission to clear them be granted no later than 31 December 2020,”31 unless with minimum scrutiny, the main issue for companies the aid is granted in form of tax advantages (the aid is applying for aid under these schemes is to ensure that the then considered granted when the 2020 tax declara- national authorities have complied with all the relevant tion is due). This means that the beneficiary must have formal and substantive conditions. a legally enforceable right to and must claim the aid on or prior to this date—it is not enough to just have lodged an application for support.32 Moreover, if the approved 27 For example, see State Aid SA.57035 (2020/N) of 17 April 2020 – Portugal – Covid-19 scheme relates to guarantees, then any loans covered by – Support to R&D projects, testing infrastructures and production of Covid-19 related products. Available at: https://ec.europa.eu/competition/state_aid/cases1/202017/28555 6_2150148_79_2.pdf. The Commission noted that the measure is made available for projects that have started as of 1 February 2020. Where the aid is necessary to accelerate works or to widen the scope of a project, which started before 1 February 2020, only the addi- 29 Judgment of the Court of Justice of 5 March 2019, Eesti Pagar v. Ettevõtluse Arendamise tional costs in relation to the acceleration efforts or the widened scope are eligible, as re- Sihtasutus, Case C‑ 349/17, EU:C:2019:172. quired by point 39(c) of the TF. Eligible investment projects have to be completed within 30 Judgment of the Court of Justice of 20 September 2018, Carrefour Hypermarchés and six months after the investment aid was granted. If this deadline is not respected, the aid Others, Case C-510/16, EU:C:2018:751. amount is reduced by 25% per month of delay for aid in the form of direct grants in conformity with point 39(d) of the TF. 31 Point 22(d) of the TF.

28 The type of aid, the bonus of 15%-points for the aid intensity, the incentive effect, the 32 Judgment of the Court of Justice of 14 January 2004, Fleuren Compost, Case T-109/01,

penalty and the cumulation of aid rules. EU:T:2004:4, at para. 75 et seq. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

86 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis the guarantee must be either payable before 31 December of State aid (2016) at paragraph 11 gives some 2020 or if the loans expire after that date, the total due informal guidance on the key concept of the under the guarantee must not exceed the total budget as “economic unit” developed in that case law and approved.33 highlights that relevant factors are the existence of a controlling share and other functional, 29. Separately, it should also be noted that support economic and organic links.37 schemes approved under Article 107(2)(b) TFEU may 33. If a group of companies can be considered to be one be subject to specific timeframes in order to establish economic unit (i.e., a single “undertaking”),38 aid by a (i) eligibility for compensation and (ii) payment of that Member State to any part of the group needs to be taken compensation.34 into account in checking that the €800,000 aid ceiling is not exceeded. Otherwise, a company with numerous legal entities in the same Member State could obtain multiple 2. Beneficiaries as undertakings times the €800,000 aid ceiling, with a much greater risk that such aid could be substantial and thus distort 30. As a general rule, the TF provides that the overall competition. aid granted should not exceed €800,000 per “undertaking” (section 3.1TF) The Commission does not make 34. Nonetheless, a group company can receive aid for any distinction regarding partially or fully state-owned its separate subsidiaries in other Member States as undertakings, which are equally eligible for different the relevant ceiling is generally assumed to apply per aid schemes. The aid may be granted in the form of Member State. This also avoids the problem of Member direct grants, tax and payment advantages or other States being in a race to give aid up to an EU-wide ceiling forms such as repayable advances, guarantees, loans if a company has operations in different EU countries.39 and equity provided the total nominal value of such However, where different Member States support the measures remains below the overall cap of €800,000 per same activities, such aid may be problematic.40 undertaking.

31. It should also be noted that in case SA.57036 Ireland – Sustaining Enterprise Scheme supporting undertakings 3. Carve out for undertakings affected by the economic repercussions of the Covid-19 in difficulty outbreak (a scheme to replace an earlier approved scheme35), the decision states that if the same “benefi- 35. Aid may not be granted under the TF to underta- ciary” has received aid under the earlier scheme then the kings that were already in difficulty within the meaning amount is taken into account as well for calculation of of the GBER on 31 December 2019. An underta- the limit of €800,000 under the later scheme.36 king is generally considered to be in difficulty when, without intervention by the state, it will almost certainly 32. A critical question is, therefore, what is an “under- be condemned to going out of business in the short or taking” for the purposes of EU law? medium term. This will be the case if at least one of the five criteria listed in Article 2(18) of the GBER are satis- – An undertaking is a well-established concept in fied (e.g., an undertaking is subject to collective insol- EU law and the classification of a particular entity vency proceedings). as an undertaking depends entirely on the nature of its activities and whether such activities are of 36. A company belonging to or being taken over by a an economic nature. larger business group is not normally eligible for rescue or restructuring aid, except where it can be demonstrated – Several separate legal entities may be considered that the company’s difficulties are intrinsic and are not to form one economic unit for the purposes of the the result of an arbitrary allocation of costs within the application of EU State aid rules. That economic unit is then considered to be the relevant under-

taking. The Commission’s Notice on the notion 37 See Commission Notice on the notion of State aid (2016), C/2016/2946, OJ C 262, 19.7.2016, pp. 1–50, para. 11 referring to judgment of the Court of Justice of 16 December 2010, AceaElectrabel Produzione SpA v. Commission, C-480/09 P, EU:C:2010:787, paras. 47 to 55. The Notice states at para. 11 that “[s]everal separate legal 33 SA.56985 (2020/N) of 17 April 2020 – France – Covid-19: Regime cadre temporaire entities may be considered to form one economic unit for the purposes of the application of pour le soutien aux entreprises, at 57–58. supra note 8. State aid rules. That economic unit is then considered to be the relevant undertaking. In this respect, the Court of Justice considers the existence of a controlling share and other function- 34 See for example State Aid SA.57051 (2020/N) of 22 April 2020 – Sweden – Covid-19 Aid al, economic and organic links to be relevant.” for cancelled or postponed cultural events. Available at: https://ec.europa.eu/competition/ state_aid/cases1/202017/285609_2150593_42_2.pdf. 38 The EFTA Surveillance Authority’s FAQ on the GBER notes at point 15 that “[t]he concept of an undertaking applies and all conditions of the GBER need to be met at the level of the 35 The Repayable Advance Scheme of Ireland for which the Commission had adopted a no group. Aid awards could, for example, be identified either through the consolidated accounts objection decision on 30 March 2020 under case SA.56845 (2020/N) of 31 March 2020 of the group or with the use of declarations.” Available at: http://www.eftasurv.int/media/ – Ireland – Irish scheme to support the economy in the current coronavirus outbreak. esa-docs/physical/Revised-document-FQA_GBER.pdf. Available at: https://ec.europa.eu/competition/state_aid/cases1/202016/285288_21481 18_55_2.pdf. 39 It should be noted that national authorities may request information from a potential beneficiary to understand whether the company may be receiving aid in other EU countries. 36 State Aid SA.57036 (2020/N) of 21 April 2020 – Ireland – Sustaining Enterprise Scheme supporting undertakings affected by the economic repercussions of the Covid-19 out- 40 See for example the Commission decision to open a formal investigation in State aid to break. Available at: https://ec.europa.eu/competition/state_aid/cases1/202017/285558_ DAF Trucks in Belgium and the Netherlands (NN 27/93, NN 43/93 and NN 58/93),

2150261_31_2.pdf. OJ 1994 C31/4 (Belgium) and C31/9 (the Netherlands). délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 87 group, and that the difficulties are too serious to be dealt with by the group itself. Where a company in difficulty 4. Calculating the amount creates a subsidiary, the subsidiary, together with the of aid: Challenges company in difficulty controlling it, will be regarded as a group and may receive aid only under certain conditions. 41 4.1 Higher limits for SMEs 38. The TF is more generous towards support schemes Box for SMEs. SMEs are generally companies which employ fewer than 250 persons and which have an annual turnover not exceeding €50 million and/or an annual balance sheet total not exceeding €43 million.43

39. The main factors determining whether an enterprise is an SME are (1) staff headcount and (2) either the turnover or balance sheet total.

Table Company Staff Turnover or Balance category headcount sheet total Medium-sized <250 ≤ €50 m ≤ €43 m Small <50 ≤ €10 m ≤ €10 m Micro <10 ≤ €2 m ≤ €2 m

40. A company that exceeds these thresholds is usually to be considered a large enterprise. However, certain “hybrid” cases—where only one threshold is exceeded— may still fall within the definition of an SME.44

41. Nevertheless, the EU’s SME definition is extremely complex and covers not only different types of firm (micro, small- and medium-sized), but also different categories. In order to determine whether a particular enterprise is a “genuine SME,” the Commission takes into account the economic relationships that this enterprise 37. An undertaking in difficulty may still be entitled to has with other companies. In simplified terms, this leads de minimis aid. Note that here the calculations relate to distinguishing between three categories of companies: to the concept of a “single undertaking” as defined in (i) autonomous, (ii) partner and (ii) linked enterprises.45,46 Article 2(2) of the de minimis Regulation.42 It may also have recourse to Member State schemes under the rescue and restructuring guidelines, especially with regard to aid 42. The difference between partnership and linked enter- to SMEs. prises has been, to some extent, clarified in recent General Court rulings, albeit that these rulings do not deal with the State aid field. A certain degree of legal uncertainty, therefore, remains.47

43 See Commission Recommendation on definition of micro, small and medium-sized enterprises, 2003/361/EC, OJ L 124, 20.5.2013, pp. 36–41.

Full details as well as the conditions of application are to be found in the User Guide to 41 The criteria laid down in Annex I to Commission Recommendation 2003/361/EC will be 44 taken into account to determine whether the company is part of a group. the SME Definition from the Commission. Commission User guide to the SME Definition and GBER 2014, annex 1. User Guide available at: https://ec.europa.eu/regional_policy/ 42 Article 2(2) of the de minimis Regulation provides: sources/conferences/state-aid/sme/smedefinitionguide_en.pdf. “‘Single undertaking’ includes, for the purposes of this Regulation, all enterprises having at least one of the following relationships with each other: 45 An enterprise is “autonomous” if the enterprise is either completely independent or has (a) one enterprise has a majority of the shareholders’ or members’ voting rights in another one or more minority partnerships (each less than 25%) with other enterprises. If hold- enterprise; ings with other enterprises rise to at least 25% but no more than 50%, the relationship is (b) one enterprise has the right to appoint or remove a majority of the members of the admin- deemed to be between “partner enterprises.” If holdings with other enterprises exceed the istrative, management or supervisory body of another enterprise; 50% threshold, these are considered “linked enterprises.” (c) one enterprise has the right to exercise a dominant influence over another enterprise pur- 46 For checking if a company [A] is an SME, the Commission Services have developed a meth- suant to a contract entered into with that enterprise or to a provision in its memorandum or odology requiring (in simplified terms) to sum up: (i) the relevant figures for company [A]; articles of association; (ii) the proportion of the share of the partner companies (equal to the level of participa- (d) one enterprise, which is a shareholder in or member of another enterprise, controls alone, tion in the partner companies); and (iii) 100% of the shares of the linked companies. See pursuant to an agreement with other shareholders in or members of that enterprise, a major- the Annex to Recommendation 2003/361. ity of shareholders’ or members’ voting rights in that enterprise. Enterprises having any of the relationships referred to in points (a) to (d) of the first sub- 47 Judgment of the General Court of 15 September 2016, K-Chemica, Case T-675/13, paragraph through one or more other enterprises shall also be considered to be a single EU:T:2016:480, at paras. 35–37 and judgment of the General Court of 15 September

undertaking.” 2016, Crosfield, Case T-587/14, EU:T:2016:475 at paras. 34–37. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

88 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 43. It is also important to emphasise that the Commission that were otherwise fully compliant with the conditions does not check ex ante if particular firms qualify. It is for for exemption to be illegal.49 This means that the aid can beneficiaries to check that they do not fall into a category be recovered with compound interest from the benefi- that would disqualify them from the SME categorisation. ciary even if it is the national authority that is at fault For example, companies backed by private equity funds for failing to comply with the transparency requirements. may be excluded if they are treated as “linked enterprises.” 50. Finally, national authorities must confirm that they will respect the monitoring and reporting obligations laid down 4.2 Cumulation of aid in Section 4 of the TF (e.g., by 31 December 2020, Member 44. Aid covered by the TF can be “cumulated” or added States must provide the Commission with a list of measures together and it can also be cumulated with aid falling that they have put in place on the basis of the schemes within the GBER and de minimis Regulation provided approved by the TF). Detailed records regarding the granting the conditions for cumulation under those EU instru- of aid must also be maintained for ten years upon granting ments are respected. The Commission has also confirmed of the aid. This primarily allows the Commission to conduct that regional aid may be cumulated with ‘TF’ measures. ex post assessments of the effectiveness of the authorised However, the TF does not provide blanket approval. aid schemes, but it should not be forgotten that the limitation period for recovery of illegal aid is also ten years. 45. There are specific exceptions to cumulation for aid in the form of loan guarantees and aid in the form of subsidised interest rate loans as well as aid for specific activi- VI. Conclusion ties to fight the coronavirus outbreak (e.g., aid for coronavirus-related R&D).48 If there are errors in applying the 51. As we have explained in this article, the TF allows rules on cumulation, it is the beneficiary that bears the Member States to notify extensive schemes of financial risk, including potentially repayment of incompatible aid. support to their industries and for the Commission to clear them with minimum scrutiny. The main issue for companies applying for aid under these schemes it to ensure that 4.3 Eligible costs the national authorities have complied with all the relevant 46. The amount of aid that a company can receive depends formal and substantive conditions. Given the scope of the on a number of factors, including the type and level of crisis, many companies will be receiving State aid in the costs that can be taken into account in the assessment. This EU for the first time, but they may have limited experience will vary depending on the category of aid and the relevant or insight into the complexity of the rules. Beneficiaries EU aid instrument. For example, eligible costs relating to (or potential beneficiaries) need to familiarise themselves the production of coronavirus relevant products include with the various elements of the State aid rules outlined in all investment costs necessary for their production. this article. This is not just a matter of formalities. Recent case law from the Union courts confirms that it is the aid 47. The TF provides that aid concerning the same eligible beneficiaries and not the granting authorities that are costs cannot be cumulated when granting aid for specific exposed to significant economic risks if there are failings, activities to fight the coronavirus outbreak, i.e., there including potentially recovery (i.e., clawback) of the aid should be no double counting. with compound interest. The conditions attached to the different types of aid that can be approved under the TF need to be fulfilled. In addition, and as we have explained, 5. Formalities: Transparency there is an important body of precedent that governs the requirements: monitoring and implementation of these conditions in granting aid to reporting applicants at national level. 52. The case law also confirms that beneficiaries can rarely 48. There are clear EU rules on transparency in respect of succeed in relying on a plea of legitimate expectations that aid granted by Member States. Subject to certain limited the national authorities themselves should have known exceptions, a Member State must publish relevant infor- and complied with the rules. The fact that beneficiaries mation on each individual aid granted pursuant to the TF acted in good faith is irrelevant. As we have explained, on a comprehensive State aid website or the Commission’s two important categories of government failings to bear in specific State aid transparency search page within mind are procedural failures and failure to observe relevant 12 months from the moment of the grant of the aid. conditions when implementing aid schemes. Both types of 49. The Court of Justice has taken a strict approach to failure may lead to an obligation to repay aid received in the requirements of transparency: a failure to comply breach of these rules. Furthermore, that obligation can be with the relevant EU rules would render aid measures enforced by the national authorities as well as by national courts. Complaints that the rules have not been respected can also be investigated by the Commission. n

48 Aid in the form of loan guarantees and aid in the form of subsidised interest rate loans cannot be cumulated if the aid is granted for the same underlying loan and the loan amount per undertaking exceeds certain thresholds. See, for example, State 49 See Court of Justice judgment of 14 November 2019, Dilly’s Wellnesshotel, Case C-585/17, Aid SA.56873(2020/N) of 4 April 2020 – Portugal – Covid-19: Direct grant scheme and EU:C:2019:969. See also D. Gabathuler, L. Hancher et al., The EU Court of Justice re- loan guarantee scheme. Available at: https://ec.europa.eu/competition/state_aid/cases1/ inforces its strict approach and holds that alterations to an approved aid scheme are to be 202015/285326_2145493_24_2.pdf. For aid concerning specific activities to fight the cleared by the Commission (Dilly’s Wellnesshotel), e-Competitions News Issue November

coronavirus outbreak, the aid cannot be cumulated if it concerns the same eligible costs. 2019, Art. No 92616, www.concurrences.com. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 89 A global overview of the impact of Covid-19 on competition policies in key sectors

Dr. Pierre M. Horna* [email protected] Legal Affairs Official Competition and Consumer Policies Branch of the UNCTAD Secretariat, Geneva

I. Introduction at the top of the agenda for most competition authorities. Competition authorities in Brazil,1 Colombia,2 Ecuador,3 1. The current pandemic creates serious implications France,4 Italy,5 Mexico,6 Russia,7 and the UK8 all for competition law and policy on a global scale. In announced active monitoring of excessive pricing claims developed and developing countries alike, companies for health and everyday goods as well as potential price and businesses attempt to respond to a total economic shutdown by finding alternative ways and means to controls over high-demand items (e.g., masks and hand survive this full-fledged crisis. sanitizers). China has restricted the online sales of health products. France regulated the price of hand sanitizers, 2. Affected industries worldwide, such as the airline so did El Salvador for essential goods (i.e.family basket).9 industry and supermarkets prompt governments to consider relaxing competition laws and rules in order to maintain economic stability. However, such relaxa- * Some information on which this note is based has been gathered by the author as well as some colleagues of the UNCTAD Competition and Consumer Policies branch and used pre- tion might result in price fixing and collusion, due to the viously in an UNCTAD news item (Defending competition in the markets during Covid-19, possibility of an increase in the temptation for businesses published on 8 April 2020, https://unctad.org/en/pages/newsdetails.aspx?OriginalVer- to align prices with others in the industry, or substan- sionID=2325). The author wishes to thank them for their contributions as well as Sophie Hunter for her valuable research work towards this paper. tially increase prices. 1 CADE (Sei.cade.gov.br, 2020), https://sei.cade.gov.br/sei/modulos/pesquisa/md_pesq_ documento_consulta_externa.php?DZ2uWeaYicbuRZEFhBt-n3BfPLlu9u7akQAh- 3. This note seeks to provide a broad overview of the 8mpB9yMxIgnfLNW90T0QxxMRhUkjpDiWuJ-0o1Epo3ADXrVeh-JgZuY9GFDVR- impact of Covid-19 in different competition regimes, and zWrQQiClI5RPz160NvXgm2Imfxv52sa (Accessed: 22 March 2020).

how those regimes responded to the crisis, especially in 2 https://www.bullardabogados.pe/boletines/2020/Regulacion/Latinoamerica/ the health care sector. Boletin_209/contenido.html#chile1. 3 Ibid

4 Encadrement des prix pour les gels hydroalcooliques (Economie.gouv.fr, 2020), https:// www.economie.gouv.fr/dgccrf/encadrement-des-prix-pour-les-gels-hydroalcooliques- II. Competition issues voir-la-faq (Accessed: 22 March 2020). 5 Autorità Garante della Concorrenza e del Mercato (AGCM) (En.agcm.it, 2020), https:// en.agcm.it/en/media/press-releases/2020/3/ICA-Coronavirus-the-Authority-intervenes- in the production and in-the-sale-of-sanitizing-products-and-masks (Accessed: 22 March 2020). 6 N.3 distribution of health 7 ФАС России | Предельные Размеры Оптовых Надбавок И Предельные Размеры Розничных Надбавок К Ценам На Жизненно Необходимые И Важнейшие Лекарственные Препараты, Установленные В Субъектах care products Российской Федерации (Данные По Состоянию На 03.03.2020 Г.) (Fas. gov.ru, 2020), https://fas.gov.ru/documents/686453 (Accessed: 22 March 4. Since Covid-19 is no exception to the fact that some 2020). companies take full advantage of a crisis to make short- 8 https://www.gov.uk/government/news/ term financial gains, monitoring, investigating and sanc- covid-19-cma-approach-to-essential-business-cooperation.

tioning of excessive pricing of health-related products is 9 n. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

90 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 5. Among other examples, the Italian Competition 8. Cartelization is also an inherent risk resulting from this Authority launched a probe into price increases from crisis. The Federal Antimonopoly Service of the Russian Amazon, eBay, and other online sellers.10 Similarly, the Federation (i.e. FAS) has launched three cartel probes Brazilian Competition Authority (i.e. CADE) is probing relating to medical protective equipment (e.g. face masks) manufacturers and retailers of medical-pharmaceu- between December 2019 and February 2020.18 The tical products for disproportionate and abusive price Costa Rican Competition has called for the elimination increases by more than 500% as well as limitations on of alcohol cartel resulting from the crisis. Against this the supply of face masks. France’s General Directorate backdrop, it is important for governments to strengthen for Competition Policy, Consumer Affairs and Fraud public procurement in order to prevent hard core cartels Control opened an investigation into the sudden surge of and cartelization of key sectors in the economy. Specific prices for alcohol-based hand gels.11 So did the competi- guidelines have been announced by the UK,19 Russia20 tive regulatory agency (Superintendency of Industry and and Portugal.21 Commerce) in Colombia12 with respect to non-compliance with fuel prices.13

6. Instant price surges bring a challenge to competition III. Exemptions authorities. It is unclear whether instant price increases on affected products constitute excessive pricing behaviour by retailers or manufacturers or conduct to the application violating consumer protection protocols. Rapid price increases among competitors might trigger investiga- of competition rules tions, as we have seen in past cases, for example for meat producers and hazelnut producers in Turkey.14 Price surge in the health care can also be complex to respond to. CADE warned the government that the freezing of the price of medicines and establishing a ceiling on the price of essential items, sector and other could bear potential negative effects on the economy due to shortages.15 key markets 9. Apart from the above-mentioned actions taken by 7. Enforcement in such a context is a challenging task for the governments, some governments have enacted competition authorities. Authorities in Kenya and China sector-specific legislation granting different levels of have demonstrated strict enforcement and sanctioning exemptions from anti-collusion rules to businesses. of anti-competitive conducts taking advantage of the For instance, the Antitrust Division of the National context. In Kenya, the competition authority (i.e. CAK) Economic Prosecutor’s Office of Chile has reported that, has ordered the main chain of supermarkets that “uncon- according to the Chilean Competition Law, collaboration scionably” increased prices of hand sanitizer to refund its agreements between competitors may in some cases be customers.16 As of 24 February 2020, the Chinese compe- lawful.22 With those sectors-wide “concerted conducts,” tition body (i.e. SAMR) has investigated around 4,500 governments aim to mitigate the ripple effects on econo- entities for the price gouging of masks and commenced mies. Main sectors which have been granted exemptions investigations into around 11,000 companies for pricing from anti-collusion rules include health, supermarkets violations concerning medical protective gear and other essential products.17

10 n.

11 n. 4.

12 n. 18 Federal Antimonopoly Service of the Russian Federation, The Third 13 Ibid Case Upon Signs of a Cartel on the Market of Medical Face Masks Sale | Федеральная Антимонопольная Служба - ФАС России (20 March 2020), 14 M. Bozoğlu, U. Başer, B. Kılıç Topuz & N. Alhas Eroğlu (2019), An Overview http://en.fas.gov.ru/press-center/news/detail.html?id=54830 (Accessed: of Hazelnut Markets and Policy in Turkey, KSÜ Tarım ve Doğa Derg 22(5): 23 March 2020). 733–743. DOI: 10.18016/ksutarimdoga.v22i45606.532645. 19 Cabinet Office, UK Government, Procurement Policy Note 01/20: Responding to Covid- 15 n. 3 19 (GOV.UK, 18 March 2020), https://www.gov.uk/government/publications/procurement-policy-note-0120-responding-to-covid-19 (Accessed: 22 March 2020). 16 ‘Press Releases | Competition Authority Of Kenya’ (Cak.go.ke, 2020) accessed 22 March 2020. 20 Federal Antimonopoly Service of the Russian Federation (n. 18). Central People’s Government, “SAMR’s Urgent Notice Concerning the SAMR’s 17 21 Diário da República Eletrónico (Portugal), Decreto-Lei 10-A/2020, 2020-03-13 Crackdown on Pricing Violations in the Production of Masks and Other Products (Diário da República Eletrónico, 13 March 2020), https://dre.pt/web/guest/home/-/ Relating to Epidemic Prevention and Control During the Period of Epidemic Prevention dre/130243053/details/maximized (Accessed: 22 March 2020). and Control” (February 5, 2020), available at http://www.gov.cn/zhengce/zhengce-

ku/2020-02/06/content_5475223.htm. 22 n. 3 délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 91 and airlines. Others include retail,23 banking,24 drinks,25 have already been cleared by the EC for requests from education26 and tourism.27 Denmark34 and Germany.35

10. The most important sector during this crisis and the 13. In the case of supermarkets, several competition sector in which far-reaching steps have been taken in authorities like Canada and Germany have allowed terms of exemptions is the health sector. South Africa pro-competitive collaborations between companies to has approved a specific list-based block exemption to support the delivery of affordable goods and services. allow cooperation in the health sector.28 It has also placed Similarly, in the UK, the Competitions and Markets emergency price controls on everyday goods.29 Authority has allowed temporary exemptions on competition rules36 for retailers to collaborate in order to ensure 11. Apart from health, other sectors of the economy continuity of food supplies.37 also suffer the negative impact of the ongoing crisis. This prompted governments to grant sector specific and 14. The airline industry is one of the most affected sectors. temporary exemption measures to alleviate the burden Norway has recently granted a three-month exemption on the economy. For instance, Japan implemented a from national antitrust laws to the airline transport indus- special loan for hotels and restaurant operators whose try.38 This came after announcement of major airlines businesses have been affected. Governments around the requesting bail outs (i.e., American Airlines/Alitalia).39 world have enacted or are in the process of granting relief The airline industry is likely to witness market consoli- measures to businesses to provide an economic safety net dation and mergers, which would in turn reduce compe- through financial aid packages (France30) and cash aid to tition and put upward pressure on prices, thus creating a SMEs (Belgian31/USA32), but also to vulnerable tranches negative ripple effect on the market structure as well as of the population (Spain).33 foronsumers. 12. On 19 March 2020, the European Commission (i.e. EC) adopted a new Temporary Framework to complement the existing State aid Toolbox in order to assist Member States mitigate the socioeconomic impact of IV. Exceptions the Coronavirus outbreakPrompt State aid schemes to the application

23 The German Economy Minister Peter Altmaier announced relaxation of “an- of competition ti-trust laws to allow greater cooperation between retail businesses in the fight against coronavirus,” Reuters (20 March 2020), https://www.reuters.com/article/ us-health-coronavirus-germany-altmaier-idUSKBN2170NA. rules: Horizontal 24 C. McConnell, ACCC grants urgent authorisation for banks to collaborate on relief, GRC (20 March 2020): “Australia’s competition authority has granted urgent interim authorisation to allow the country’s banks to work together in providing relief for small business- cooperation es hit by the Covid-19 pandemic” (https://globalcompetitionreview.com/article/1216438/ accc-grants-urgent-authorisation-for-banks-to-collaborate-on-relief).

25 The US “Acting Administrator of the Alcohol and Tobacco Tax and Trade Bureau (TTB) agreements of has found that it is [necessary or] desirable to waive provisions of internal revenue law with regard to distilled spirits, and therefore is providing certain exemptions and authorizations to distilled spirits permittees who wish to produce ethanol-based hand sanitizers to address pharmaceutical the demand for such products during this emergency.” Statement Covid-19 Hand Sanitizer (TTB, 2020), https://www.ttb.gov/news/covid-19-hand-sanitizer?fbclid=IwAR0GDV- vzgosH9hzZApGHc7CQdtz4fUcWCRltrCcw9b3Rci3g47pf5-t0-Yk. companies 26 https://www.wsgr.com/en/insights/competitor-collaboration-in-response-to-covid-19-how-to-stay-antitrust-compliant-in-europe.html. 15. Research and development agreements, which are

27 Iceland’s competition authority “has granted a temporary exemption from anti-collusion often considered pro-competitive and prohibited under rules to the Confederation of Tourism, enabling hotels, agencies etc., to co-ordinate their US and EU competition rules, can be exempted as an efforts to fight against the reduction of tourism”:(https://hsfnotes.com/crt/2020/03/16/ covid-19-and-the-impact-on-competition-law And Kazakhstan is looking into granting exception, and thus permitted in certain circumstances tax exemption and other measures to the tourist industry, https://inbusiness.kz/ru/news/ chp-i-turizm-mozhno-li-schitat-problemu-covid-19-fors-mazhorom.

28 Section 3, Covid-19 Block Exemption for the Healthcare Sector, 2020. 34 https://www.mwe.com/insights/covid-19-and-eu-competition-proceedings-extraordinary-times-call-for-extraordinary-measures. 29 South African Government, Regulations and Guidelines – Coronavirus Covid-19 (23 March 2020), https://www.gov.za/coronavirus/guidelines (Accessed: 23 March 2020). 35 European Commission, Press Release IP/20/504 of 22 March 2020, State aid: Coronavirus: Commission approves German measures to support economy in Coronavirus 30 . Mesures d’accompganement des entrepreises impactees par le coronvarius covid 19 outbreak, https://ec.europa.eu/commission/presscorner/detail/en/IP_20_504. (Economie.gouv.fr, 2020), https://www.economie.gouv.fr/dgccrf/mesures-daccompagne- ment-des-entreprises-impactees-par-le-coronavirus-covid-19 (Accessed: 22 March 2020). 36 In accordance with Schedule 3 of the Competition Act 1998.

31 https://www.info-coronavirus.be/fr/faq/ 37 UK Government (n. 8)

32 Press Release 3/17/20, https://www.sba.gov/about-sba/sba-newsroom/press-re- 38 Konkurransetilsynet, Press Release, Transportation sector is granted temporary exception leases-media-advisories/sba-updates-criteria-states-requesting-disaster-assis- from the Competition Act (19 March 2020), https://konkurransetilsynet.no/transporta- tance-loans-small-businesses-impacted. tion-sector-is-granted-temporary-exception-from-the-competition-act/?lang=en.

33 https://blog.cnmc.es/2020/03/19/covid-19-prohibido-el-corte-de-suminis- 39 A. Tomer and J. Kane, We should bail out airlines during the coronavirus pandemic—but tro-de-agua-electricidad-y-gas-a-consumidores-vulnerables/?utm_source=rss&utm_me- on taxpayers’ terms, Brookings (18 March 2020), https://www.brookings.edu/research/ dium=rss&utm_campaign=covid-19-prohibido-el-corte-de-suministro-de-agua-electri- we-should-bail-out-airlines-during-the-coronavirus-pandemic-but-on-taxpayers-terms

cidad-y-gas-a-consumidores-vulnerables. (Accessed: 22 March 2020). délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

92 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis such as global pandemics (i.e., swine flu in 2009, influ- context. An example of such collaboration is the case enza in 2019). For instance, the Republic of South Korea, of Eli Lilly and AbCellera, which have entered into an capitalized on the regulatory framework it implemented agreement to co-develop antibody products for the treat- post Middle East Respiratory Syndrome in 2015 to ment and prevention of Covid-19.47 encourage twenty pharmaceutical companies to collaborate on a vaccine allowed through emergency use autho- 19. In China, while the Antimonopoly Law Enforcement rization.40 Horizontal cooperation agreements between Agency prohibits horizontal agreements, it allows exemp- pharmaceutical companies should be allowed as exceptions to improve technology, researching and developing tions to competition rules, only if these agreements fall new products48 as exemplified by the British–Chinese under specific legal frameworks. collaboration (GSK/CB) on a vaccine against Covid-19.49

16. The EC allows in its regulations for such exceptions, but with agreement safeguards such as firewalls and limitations on the exchange of competitively sensi- V. Competition tive information.41 The Commission is cautious about the fact that (i) R&D agreements may turn into a disguised cartel,42 and (ii) that R&D cooperation resulting from challenges horizontal agreements may affect competition not only in 20. This crisis brings a range of challenges to competi- existing markets, but also in innovation and new product tion authorities. Developing countries face the challenge markets. The Commission has already allowed coopera- of striking a difficult balance between relaxing compe- tion for joint R&D projects in a context of pandemic (i.e. tition rules while potentially allowing anti-competitive influenzas 2019).,.43 conducts, which cannot be monitored properly due to the lack of available resources to implement firewalls. This 17. In the USthe Department of Justice (i.e. DOJ) and in turn results in harming consumers and the economy the Federal Trade Commission (i.e. FTC) strictly apply even more. antitrust laws to prevent cooperation and collaboration between competitors.44 During emergencies such as 21. Concerns of developing countries differ from those Covid-19, the DOJ and the FTC advocate strict adher- of developed countries on the basis that they often do ence to competition rule.45 not benefit from a financial safety net to cushion their economy. The consequences of choosing economic 18. Nevertheless, in the aftermath of hurricanes Harvey against social trade-offs to mitigate the impact of the and Irma, the DOJ issued antitrust guidance noting that crisis on the economy comes as a matter of survival following a disaster, hospitals or other health care facil- for developing countries. This crisis questions about ities may need to temporarily combine certain resources the trade-offs between static efficiency, reallocation of or services to better treat communities.46 Similarly, the resources through industrial policies, dynamic efficien- DOJ and FTC have allowed firms collaboration on R&D, cies and economic resilience on a backdrop mixing devel- sharing technical know-how and most joint purchasing opment, politics, and socioeconomic welfare. 50 n arrangements among health care providers in the current

40 https://www.reuters.com/article/us-health-coronavirus-testing-specialrep/special-report-how-korea-trounced-u-s-in-race-to-test-people-for-coronavirus-idUSKBN- 2153BW.

41 . The European Commission’s R&D Block Exemption Regulation (2011).

42 European Commission, Communication from the Commission – Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements Text with EEA Relevance,72. OJ C 11, 14.1.2011, pp. 1–72. p.29 https://eur-lex.europa.eu/legal-content/EN/TXT/ PDF/?uri=CELEX:52011XC0114(04)&from=EN

43 European Commission, Framework contracts for pandemic influenza vaccines - MEMO 20190328 (28 March 2019) https://ec.europa.eu/health/sites/health/files/preparedness_ response/docs/ev_20190328_memo_en.pdf (Accessed: 22 March 2020).

The legal framework was set out in the FTC Antitrust Guidelines for collaborations 44 47 https://www.abpi.org.uk/medicine-discovery/covid-19/ among competitors published in April 2000. It outlines the legal framework to analyse what-are-pharmaceutical-companies-doing-to-tackle-the-disease. collaboration based on the rule of reason with specific time frames and antitrust safety zones. Antitrust Guidelines for Collaborations Among Competitors (2000) and 48 See Articles 13 and 15 AML; King & Wood Mallesons – S. Ning and C. Zhifeng, Statement of Antitrust Enforcement Policy in Health Care (1996), https://www.ftc.gov/ Pharmaceutical Antitrust in China, Lexology (16 April 2019), https://www.lexology.com/ public-statements/2020/03/joint-ftc-doj-antitrust-statement-regarding-covid-19. library/detail.aspx?g=514ef361-a1d3-4b14-b2b8-8b70183a2a5d (Accessed: 23 March 2020). 45 https://www.justice.gov/opa/pr/justice-department-cautions-business-community-against-violating-antitrust-laws-manufacturing 49 https://www.barrons.com/articles/ big-pharma-progress-coronavirus-vaccine-drugs-51582554473. 46 https://www.winston.com/en/competition-corner/episode-5-beware-of-carona-cartels.

html. 50 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3563076 délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 93 Competition in a time of Corona: “Primum non nocere”

Siún O’Keeffe* [email protected] Manager Academy Netherlands Authority for Consumers and Markets, The Hague

I. Introduction the consequences of the Corona crisis. As a responsive authority, we see it as important to acknowledge these 1. The Netherlands Authority for Consumers and developments in our actions and interventions. Markets (ACM), like many other authorities, has received many questions and requests for advice concerning the 4. In this submission, I set out the factual and legal Corona crisis. We have openly tried to facilitate compa- framework showing examples from ACM’s current nies with their plans to fight the crisis without losing sight practice relating to public interest issues, with illustrations of the interests of their customers and consumers. ACM from our recent experiences since the onset of the Corona is a multifunctional authority, with powers in competi- virus in Europe. This is followed by some more general tion enforcement, consumer protection, telecommuni- comments on the challenges faced by competition autho- cations and energy regulation. It is not surprising that rities in times of crisis. The conclusion stresses that the many of these questions are multifunctional in nature. abiding principle for competition authorities should be to facilitate companies in their fight to confront the crisis 2. We have endeavoured to engage actively as an autho- and, to coin a phrase used in the medical profession, to rity, accepting invitations from the media, to inform ensure our interventions do no harm to the economy and people of their rights as consumers during the crisis, its citizens. and of the possibilities open to companies to cooperate where necessary.1 Our aim is to strike the right balance between protecting competition and consumer rights and the long-term interests of the economy. The competition II. Factual and legal rules allow cooperation, provided it benefits customers and consumers. Proportionality and transparency are crucial when adopting temporary measures. It would framework be unfortunate if the competition authority were unin- 5. On 30 January 2020, the WHO declared the coro- tentionally to facilitate anyone in taking advantage of navirus pandemic a public health emergency of inter- panicked consumers to hike up prices or abuse domi- national concern. By Easter 2020, there were almost nance by exploiting scarcity and consumer uncertainty. 1 million cases reported in over 200 countries with deaths approaching the 100,000 mark. States’ responses 3. The role of public interests in the enforcement of compe- have included monitoring, self-isolation, quarantine, tition law is not a new issue for competition authorities. travel and work restrictions, school closure, cancella- This topic has been the subject of increased attention tion of public events and partial or total lockdowns. The in the broader context of discussions on sustainability socio-economic consequences are severe and expected and climate change, as well as on the effects of global- to lead to recession if not depression across the world’s isation and digitisation on industrial policy and labour economy. markets. Europe had already been expecting economic fallout, resulting from Brexit, and increasing global 6. At local level, fear of quarantine and shortages have protectionism. Any such slump will now be engulfed by resulted in panic buying. Fear of contagion and social isolation have led to increased incidents of xenophobia and societal anxiety. Many companies fear liquidation, the self-employed are in danger of bankruptcy. * With thanks to colleagues for their helpful comments, responsibility for the views expressed Unemployment has increased and many are facing as well as for any errors or omissions remain with the author. economic hardship. Unfortunately, reports of scams,

1 ACM Press release, ACM’s oversight during the Coronavirus crisis, 18 March 2020. both on and offline, have also increased, as unscrupulous délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

94 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis undertakings attempt to profit from the fear and uncer- wary of damage to their reputation should the safety tainty which is prevalent because of the virus and its and reliability of their product be affected by third-party socio-economic consequences. manufacturing. Competition authorities in turn are wary of price hikes and the exploitation of scarcity by 7. Competition authorities have reacted swiftly. powerful producers. The European Competition Network (ECN) issued a joint statement on the application of competition law 10. It may happen that dominant firms will respond to during the Corona crisis.2 EU companies have access to a crisis scenario by offering favourable terms to their Covid-19 advice via a dedicated website. Member States customers. Here too the competition authority may have been urged by the European Commission to make play a role. This could involve ensuring that allowances use of the EU framework for the co-ordination of foreign made by a dominant player in agreeing temporarily not investment to beware of predatory takeovers at this time to increase prices or in agreeing to postpone payments of vulnerability. The European Commission has made should be offered to all customers on a non-discrimina- it clear where state aid will be allowed in the circum- tory basis, in open dialogue with all parties. stances. Authorities have warned companies against charging excessive prices for essential products. Now, as the economic shock grows broader and deeper, there will 2. Cartels likely be a call on authorities to loosen the competition rules, to allow companies to cooperate in order to ensure 11. In its joint statement, the ECN makes it clear that supplies and to extend a lifeline to struggling companies. the crisis may trigger the need for companies to coop- The next three sections illustrate how the provisions of erate in order to ensure the supply and fair distribution competition law apply at this time. of scarce products to all consumers. In the words of the statement, considering the current circumstances, such measures are unlikely to be problematic, since they would 1. Abuse of a dominant either not amount to an illegal restriction of competition or generate efficiencies that would most likely outweigh position any such restriction. In the current circumstances, the competition authority will not actively intervene against 8. The prohibition of abuse of a dominant position in necessary and temporary measures put in place in order Article 102 TFEU is mirrored by Section 24 of the Dutch to avoid a shortage of supply. Competition Act. In a health crisis, shortages or even fear of shortages can trigger panic buying, supply disruptions 12. This means that the authority takes steps to reassure and trade restrictions, which in turn can trigger shor- companies about the legality of cooperation, where by tages and fear of shortages. Medical supplies and drugs adopting a temporary measure they can assist in averting are particularly vulnerable. States become very aware of economic hardship for customers and consumers. Such their dependency on suppliers, which in the pharmaceu- cooperation could be in the form of an agreement tical sector are often large multinationals. Trade restric- between financial institutions to allow a certain minimum tions can lead to smaller markets, exacerbating such of mortgage or other debt payment relief. It should dependency. be temporary, should not go further than necessary or involve fixing a maximum of such relief. Nor could it be 9. In March, the multinational healthcare company used as a front for illegal price agreements. Roche was the subject of media attention in the Netherlands, amid claims that there could be a shortage 13. The authority could support cooperation between, 3 of a solution needed in the testing process. As Roche for example, tour operators via a branch organisa- holds a high market share for testing machines in the tion, in offering vouchers to out-of-pocket consumers. Netherlands, there were fears that a bottleneck could This achieves a balance between respecting their rights arise if the company would not share the exact instruc- and offering a window for companies wishing to postpone tions for the manufacture of this solution. On 27 March repayment.4 It could allow supermarkets to cooperate 2020, Roche agreed to share the formula with the Dutch in ensuring the supply of certain essential products, by government. The company emphasised that there was no exchanging information about supplies or sharing scarce shortage of the solution in question, but shown its will- foodstuffs. Most obviously, hospitals can be permitted ingness to facilitate government in ensuring no short- to cooperate in the purchase of essential medical equip- ages would ensue in a situation of increasing demand. ment, to share information on available supplies, coop- The mutual dependence in the relationship between inno- erate to prevent fraud and avoid stockpiling in so far as vative research-based multinationals and government is necessary to ensure distribution of the relevant goods, health departments means that contracts and prices can during the crisis. come under strain at times of scarcity. Companies are

2 Joint statement by the European Competition Network (ECN) on application of competition law during the Corona crisis, 23 March 2020. 4 ACM Press Release, ACM offers guidance to sectors that wish to set up voucher schemes, 3 MLex, Roche’s Covid-19 testing formula draws Dutch antitrust scrutiny, 27 March 2020; 2 April 2020; ACM Press Release, More room for bespoke solutions between hotels and ACM Press Release, ACM has confidence in commitments made by Roche to help solve pro- travelers in case of cancellations of bookings made through hotel booking websites,

blems with test materials, 3 April 2020. 6 April 2020. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 95 14. The prohibition on cartels in Dutch law allows no express exception for so-called “crisis cartels.” In 2001, 3. Merger control the Dutch Competition Authority (NMa) granted parties 18. The merger control provisions in the Dutch an exemption from the cartel prohibition under the Competition Act largely mirror those applicable at EU Dutch equivalent of Article 101(3), for a limited ratio- level. The examples below relate to the use of the failing nalisation programme in the pig-slaughtering sector. firm defence, the possibility of requesting an exemption The case was upheld on appeal, with the Dutch court from the standstill clause in order to speed up a merger in emphasising that agreeing prices between competitors a crisis situation, and the use of efficiency defences. is not an appropriate response to difficult market situations. Overcapacity and responding to dumping are also 19. The provisions on the possibility of taking public rejected as justifications for breaching the cartel prohibi- interests into consideration are different from their EU tion. The only possible exception would seem to be where equivalents. Dutch legislation states that the decision of a restructuring is the primary reason for the adoption of ACM on a merger case should be based on arguments the restrictive agreement by which capacity in the sector related to effective competition. Under Section 47 of is reduced and the measure is reasonable, non-discrimi- the Dutch Competition Act, in a situation where ACM natory, objective and proportionate to its goal.5 blocks a merger, the legislation provides merging parties with the option to file a formal request with the Minister 15. A relaxation of the prohibition of cartels to allow of Economic Affairs to clear the merger. This should be room for crisis cartels in times of economic retrenchment done within four weeks of ACM’s decision to block the could be more harmful to competition than other forms of merger. The minister can clear the merger and grant a government intervention, such as subsidisation. Firstly, licence based on his/her assessment that certain public cartels are a very blunt instrument and it is difficult to interests benefitted by the merger outweigh the imped- curtail or even to measure their impact on the market. iment to competition. While such requests have been Subsidies, however, can be targeted and their compliance made on occasion, the minister has only recently, for the with competition law can be tested. Secondly, the cultural impact of allowing cartels is dangerous. It is difficult to first time, applied Section 47 in order to reverse a merger 7 prohibit cartels once they have been sanctioned. Such decision of the authority. This case is currently on appeal prohibition may merely result in driving the cartel under- in Dutch courts. ground. Also, permitting cartels even in seemingly small 8 local markets can have effects at macro level. 20. The failing firm defence may be useful in times of crisis. A merger may be permitted where it can be shown by the 16. In this regard, agreements to maintain prices at a merging parties that the merger does not lead to a signif- certain level between producers could only be permitted icant impediment of competition on the relevant market. in specific temporary situations. For example, if the One of the factors which may be taken into account is producers could show that border restrictions introduced where parties can show that due to a failing firm, which in response to the Corona crisis created a direct problem will not be taken over by any other party, there will be of excessive supply which would otherwise not exist. Such a more significant impact on competition than would a scenario would be unlikely to arise except in relation to be the case if the merger were permitted. The merging a small local market. In any event, a de minimis exemp- parties must show that there is a clear probability that the tion applies under Section 7 of the Dutch Competition failing firm would be forced out of the market, leading to Act; agreements between eight companies, or fewer, with its market share being assumed by the acquirer, and that a combined annual turnover of less than €1.1 million (or there is no alternative acquirer available. €5.5 million where the companies are active mainly in the supply of goods) or where the combined market share 21. In 2018, ACM approved a merger between two health- does not exceed 10% of the relevant market. With regard care providers specialised in elderly care.9 The authority to vertical restraints, where a producer is concerned that concluded that there were concerns on the relevant retailers under financial pressure may engage in price- markets, but that Warmande would imminently disap- gouging, fixing the maximum price may be an option. pear from the market (as it was in financial difficulties). ACM considered that without the merger all Warmande’s 17. ACM has rules relating to the imposition of fines on personnel and patients would move to ZorgSaam. No companies which are suffering financial hardship. In line other operators had any interest in acquiring Warmande with Dutch administrative law, the ACM may deviate or becoming active in the region. Therefore, the authority from the Fining Code in the event that the application of concluded that there were no alternatives to the concen- the rules in the code would lead to evident inequity. The tration and accepted the failing firm defence. application of the fine may not be such as to render bankruptcy likely.6 7 ACM Press Release, ACM does not grant a license for the acquisition of postal operator Sandd by PostNL, 5 September 2019; Mlex, PostNL’s bid for Sandd approved by Dutch government overruling antitrust veto, 27 September 2019. 5 Decision of the Rotterdam Court, Stichting Saneringsfonds Varkensslachterijen, 4 December 2001, in which the Dutch court upheld the NMa’s partial rejection of a “crisis 8 See the failing firm analysis in Commission Decision of 9 October 2013, COMP/M.6796 cartel” defence, referring to European Cases T-197/97 and T-198/97 Weyl, 2001 Jur. – Aegean/Olympic II, in which it sets out the requirements relating to the concept of the II-303. See, for rejection of crisis cartel defence, Decision of the Netherlands Competition “rescue merger.” Authority No. 2269, Shrimps, 14 January 2003. 9 ACM Press Release, Concentration of two regional care providers ensures continuity of

6 Kamerstukken II 1995/96, 24 707, No. 3, p. 88. elderly care, 21 June 2018. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

96 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 22. Under Section 40 of the Dutch Competition Act, equivalent to Section 7(3) of the EU Merger Regulation, III. Challenges merging parties may file a request for an exemption from the obligation to refrain from gaining any form of control for competition over the target until ACM has decided on the merger. A full assessment will still take place including the optional outcome of a refusal to clear the merger even after the authorities in times request has been granted. Parties have to demonstrate that the period it takes for ACM to reach its decision will of crisis result in irreparable damage, rendering the whole trans- 27. As is evident from the above examples, taking issues action redundant. In general, the starting point for such of general public interest into consideration in compe- a request is that the target has filed for liquidation or has tition law is not straightforward. Public interests can be already been liquidated. However, this is not enough to closely related to political interests. This raises concerns satisfy the test of irreparable damage. of political influence on an authority’s decision-making process. There can also be a strong public opinion on 23. Arguments that have been accepted for an exemp- certain public interests putting even more stress on the tion include the loss of particular intellectual property decision-making process of an authority. rights, or the inability to restock a retailer on time for a new season or the loss of key personnel. ACM has 28. In a situation such as the Corona crisis, where the entire not yet needed to answer the question whether it should economic fabric of society is at stake, and there is no economic take public interests into account in its assessment of a cause for the crisis, it is evident that it is in consumers’ Section 40 request as the arguments relating to effective interest to ensure the availability of essential goods and competition have been sufficiently convincing.10 medical supplies, as well as ensuring that normally viable companies survive to provide goods and services post-crisis. It is very important to find a good balance in such situa- 24. Similarly, when considering remedies during this tions in considering the most appropriate forms of govern- crisis, the Authority may be willing to allow an extended ment intervention. The ACM is actively seeking new and divestiture period. For instance, in a merger between care creative solutions with the parties rather than taking a homes, this would allow the merger to proceed without traditional self-assessment based approach. the need for the usual upfront buyer commitments. 29. As stated above, government intervention by way 25. Efficiency defences are rare in the Netherlands, but of temporary, transparent subsidisation is generally to this is an area where ACM could expect an increase in be preferred over government tolerance or encourage- public interest arguments. These would go beyond the ment of cartelisation or an anti-competitive mergers. normal efficiency claims, such as a reduction in produc- Temporary and targeted subsidisation is less damaging tion costs as a result of an increase in scale. A hypo- in the long term to competition. Where such subsidisa- thetical example of such a public interest argument is tion takes place in a commercial market, government that the merger allows the possibility to achieve certain should ensure that the subsidisation is proportionate, sustainability objectives or, as discussed above, allows an transparent and does not unfairly exclude other market industry to counteract otherwise destructive effects of players competing on the merits. the Corona crisis. 30. Looking back at the lessons learned from the 2008 12 26. For an efficiency claim to be taken into account, financial crisis, we realise the following. Firstly, the importance for authorities of establishing good contact consumers should benefit from it, the efficiencies should relationships with the European Commission and with be merger-specific and they should be verifiable.11 The ministries in order to facilitate speedy and good quality merging parties must demonstrate that the competition interaction at times of high pressure. A second lesson concerns can be mitigated by the claimed efficiencies. relates to the speed of decision-making in times of crisis. These criteria are not easy to satisfy. The evaluation of Where important decisions are being made in a weekend, the claimed benefit of the merger on the public interest or even overnight, it is helpful to have a crisis team involved can prove especially difficult. ACM’s experi- waiting in the wings. A third lesson is the need to look ence is that parties find it difficult to substantiate public at the issue holistically and not only from the perspective interest claims. However, that may be a reflection of the of a competition authority. This means communicating types of claims that have been received in the past. It clearly and openly. Independent authorities are seen as could be that evaluation and substantiation in the current part of government and are expected to communicate a crisis will present less of a challenge. coherent, comprehensive and understandable message. Finally, the importance of having an exit strategy for whatever measures are implemented. 10 Recent examples include Mirage/Intertoys (see ACM Press Release, 20 September 2019) and Trimenzo/Servire (see ACM Press Release, 14 October 2019).

11 Guidelines on the assessment of horizontal mergers under the Council Regulation on the 12 Competition and the Financial Crisis, OECD Roundtable, Competition Committee,

control of concentrations between undertakings, [2004] OJ C 31/03. 17–18 February 2009. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 97 31. The hardship provisions, advocacy strategies and 33. It is entirely justified in this type of crisis for govern- inter-agency contacts which are built into the Competition ment to intervene for the common good and to protect Authority’s set of available instruments should obviate jobs and industry. It is vital that government acts trans- any need for the adoption of reactive legislation which parently and proportionately in doing so. In the after- may, in the aftermath of the crisis, restrict the Authority math of the Corona crisis, the Competition Authority in its application of competition law to make markets can advise on forms of cooperation that may help compa- work for business and citizens. nies in crisis, in facilitating crisis mergers and in watching for potential harm to panicked and vulnerable citizens. Proportionality and transparency are key to avoiding the risk of harming long-term economic development IV. Conclusion by protective measures intended to help firms in distress consequently pushing up prices for vulnerable consumers 32. It can feel surreal to spend hours every day analysing and putting other healthier firms at a disadvantage. evidence, stopping occasionally to indulge in the delights of home-schooling, while aware that not so far away, a 34. Competition law is not static. It is quite possible nightmare scenario of suffering and even death is playing that the current crises (health, economic, democratic, out for hundreds of our fellow citizens. At times of crisis, societal) may give rise to a phenomenal consciousness it is important for ACM to maintain “business as usual” that gives impetus to new economic developments and in so far as this is possible—ensuring stability and predict- new socio-economic norms, and maybe even new inter- ability is a crucial factor in competition law. Nevertheless, pretations of competition rules in the long term. In the we must also guarantee that crisis measures are in place short term, we need to focus on help and advice for those that can be used in a timely and effective manner. who need it, and on minimising harm. n Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

98 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis “Crisis Cartels” in times of Covid-19: Lessons from former crises teach a cautious approach

Christian Ritz* Matthias Schlau [email protected] [email protected] Partner Associate Hogan Lovells, Munich Hogan Lovells, Munich

I. Introduction 3. Against this background, statements indicating some sort of flexibility, e.g., by the European Competition 1. Covid-19 has led to significant disruptions in all Network (“ECN”), in which the European competition areas of private, public and economic life. Companies authorities are organised, not to actively intervene against are facing unprecedented economic and structural necessary and temporary measures put in place to avoid a challenges while lockdowns of social life and economic shortage of supply and to be available for informal consul- activity in most parts of Europe are significantly impac- tations, come as an uplifting read. The Communication ting our economy. Yet, if the crisis continues, the extent from the Commission on a «Temporary Framework for of the difficulties faced by companies remains to be seen. assessing antitrust issues related to business coopera- For instance, an extended crisis might cause consumption in response to situations of urgency stemming from tion rates to plummet, thereby, forcing companies to cut the current Covid-19 outbreak» clearly sets the tone: down production rates to avoid overcapacity. The Commission “stands ready, exceptionally and at its own discretion, to provide guidance by means of an ad hoc 2. Former economic crises have shown that in the context “comfort” letter.”2 However, in its recently published joint of an economic downturn, undertakings in various indus- statement the ECN also emphasises that even in times tries across Europe have been seeking to justify agree- of crisis the cartel authorities in the EU will pursue the ments restricting competition by invoking issues such as objective of ensuring a level playing field for companies overcapacity problems or economic crises in their respec- and will not hesitate to take action against companies tive sectors. In its contribution on “Crisis Cartels” to the taking advantage of the current situation in an anti-com- OECD Global Forum on Competition, the European petitive way.3 The same is true for the Commission which Commission defined schemes falling under the notion of stresses the importance of ensuring competition even “industrial restructuring agreements” as usually involving in times of Covid-19 and “encourages undertakings and “scenarios where a significant number of industry players citizens to continue reporting any cartels and other anti- get together to find a joint solution to their common diffi- trust violations”.4 It remains to be seen how EU compe- culties in times of crisis” (“Crisis Cartels”).1 “This may be tition authorities will respond to “Crisis Cartels,” but it achieved by, for example, reducing overcapacity and/or by is likely that the response will be based on an individual agreeing on a ‘fair’ price level to avoid that some compa- case-by-case assessment. nies would go bankrupt and leave the market.”

2 See Communication from the Commission on a “Temporary Framework for assessing antitrust issues related to business cooperation in response to situations of urgency stemming * The authors thank Benedikt Weiß and Maria Sowinska for their valuable from the current Covid-19 outbreak” of 8 April 2020, para. 18 (available here: https:// contributions to this article. ec.europa.eu/info/sites/info/files/framework_communication_antitrust_issues_related_ to_cooperation_between_competitors_in_covid-19.pdf). 1 According to the EU Contribution on “Crisis Cartels” to the OECD Global Forum on Competition of 27 January 2011, the term “Crisis Cartels” is misleading as it may create 3 See Joint statement by the European Competition Network (ECN) on application of com- expectations that competition authorities might allow cartels in order to protect industry petition law during the Corona crisis of 23 March 2020. from an economic crisis in general. However, the discussion of industrial restructuring agreements should not be related to the current, or any other, cyclical economic crisis and 4 See Communication from the Commission, Temporary Framework of 8 April 2020 (n. 2),

the recession-induced fall in demand. para. 20. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 99 4. The following analysis focusses on the existing case law and practical guidance provided by the European III. Possible Commission (the “Commission”), the European Court of Justice (“ECJ”), and the German Federal Cartel Office (the “German FCO”) on “Crisis Cartels” in an attempt exemption: to deduce some sort of practical guidance for companies on the application of Art. 101(3) of the Treaty on the Restricting Functioning of the European Union (“TFEU”) in the current Covid-19 crisis. competition in order to reduce structural II. In principle: overcapacity Competition law 8. When competitors agree to reduce capacity this will ordinarily restrict competition and, thus, may lead to remains applicable, a violation of competition law. At the same time, any reduction of overcapacity may also allow companies to operate more profitably and thus help to restore the even in times balance in the market between demand and supply, thereby, stabilising markets in turbulent times, in parti- of crisis cular (but not only) in the interests of consumers. 5. As a general rule, companies must comply with compe- 9. As Covid-19 is not the first economic crisis faced by tition law even in times of crisis, as it remains to be a undertakings in Europe, former decisions and guidance violation of Art. 101(1) TFEU or Sec. 1 of the German of the Commission and the German FCO can assist to Act Against Restraints of Competition (“ARC”) to enter better understand potential scenarios in which exemp- into agreements that have as their object or effect the tions from competition law rules might be applied in restriction of competition. times of Covid-19 when it comes to “Crisis Cartels.” 6. While Art. 101(3) TFEU and Sec. 2 ARC provide for an exception to this rule, exempting agreements that provide for real efficiency gains for consumers, the Comission, the ECN as well as several national compe- IV. European tition authorities across Europe have made it clear that they will “not hesitate to take action against companies Commission taking advantage of the current situation by cartelising or abusing their dominant position.”5 decision practice 7. Our analysis shows that, although it is mainly in line with the decision practice of both the Commission and and guidance the German FCO with regard to “Crisis Cartels,” the 10. Dealing with “Crisis Cartels” has been a revolving most recent statements seem to already acknowledge the theme of the Commission’s cartel enforcement in the past severity of the current Covid-19 crisis, and thus, at least forty years, although such events have occurred rather on an abstract level, recognise the need for more flexibi- rarely. lity in the competition law response to the crisis. 11. In 1982 the Commission declared that “in order to combat the structural problems of individual sectors, [it] may be able to condone agreements in restraint of competition which relate to a sector as a whole, provided they are aimed solely at achieving a coordinated reduction of overcapacity and do not otherwise restrict free decision-making by the firms involved.”6

12. The Commission laid out conditions for an exemption which would later on become the foundation for a “Crisis Cartel” defence under Art. 101(3) TFEU. In order for it to apply, the following conditions need to be met:

6 See Commission of the European Communities, Twelfth Report on Competition Policy

5 See Joint statement by the ECN of 23 March 2020. (1982), para. 39. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

100 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis – Reductions in capacity can be expected to increase profitability arising from the elimination of over- profitability and restore competitiveness in the capacity and the possibility to return to normal long run, and respective social impacts can be competitiveness. mitigated, spread and staggered over time through 14. In the aftermath of the global financial debt crisis, coordinated closures of unprofitable production the Commission emphasised that it was reluctant to give plants; its blessing to agreements aiming at reducing capacity in – While the agreement is in force, consumers are not times of cyclical economic crises and recessions unless deprived of any benefits generally arising from additional special market conditions require a diffe- competition, and upon conclusion of the agree- rent approach. Accordingly, undertakings would have to ment consumers are going to enjoy an improved demonstrate that competitive forces, which do normally and healthy supply structure; exist, or any other market mechanisms for that matter will not suffice to appropriately deal with excess capacity.13 – The agreement is concerned solely with reducing surplus capacity and is limited from the outset to 15. In its contribution on “Crisis Cartels” to the OECD the period necessary for the technical implementa- Global Forum on Competition in January 2011, the tion of the envisaged programme of cutbacks; and Commission relied on the ECJ’s Irish Beef decision of – The undertakings concerned refrain from fully 200814 in which the ECJ held that industrial restructuring waiving their freedom of action in the market- agreements will in principle constitute a restriction of place, so that a certain degree of internal competi- competition by object within the meaning of Art. 101(1) tion will be maintained.7 TFEU as they, by their very nature, have the potential of 13. In applying these principles, the Commission has restricting competition. approved agreements aimed at reducing structural overcapacity with reference to the current Art. 101(3) TFEU: 16. Following a detailed assessment under Art. 101(3) TFEU, the Commission concluded that it will be very – In its Synthetic Fibres decision of 1984,8 the difficult for undertakings—even in times of crisis—to Commission accepted a temporary agreement show that a “Crisis Cartel” agreement leads to pro-com- between synthetic fibres manufacturers to provide petitive benefits which offset the restriction of competi- for a reduction in production capacity and contrac- tion and meets the other conditions mentioned in Art. tual penalties for any breach of that agreement. 101(3) TFEU, arguing that there is generally no need for The Commission pointed out that, in an industrial this type of coordinated action between competitors as sector which was characterised by serious overca- normally the competitive process alone would remove 15 pacity (around 30%),9 the manufacturers could excess capacity from the market. not decide to reduce capacity independently. As a result of the agreement, the Commission expected 17. According to the Commission’s position taken in that, “by reducing its capacity, the industry will shed 2011, a “Crisis Cartel” defence on efficiency grounds the financial burden of keeping underutilized excess required undertakings: capacity open without incurring any loss of output, since the remaining capacity would then be operated – to establish that the industry concerned in fact more intensively.”10 The Commission believed that suffers from a structural overcapacity problem, this would ultimately benefit consumers. which means that market forces alone cannot remove that excess overcapacity which, according 11 – In its Stichting Baksteen decision of 1994, the to the Commission, could occur in particular Commission cleared an agreement between brick situations of stable, transparent and symmetric manufacturers that did not only oblige them to market structures and where giving up capacity is close down production sites and provided for costly for the firms;16 a system of fines in order to prevent any failure to comply with this obligation, but also required – to substantiate the nature and magnitude of the them to set up a compensation fund to obtain pro-competitive benefits resulting from reducing financial resources to help those being most capacity and demonstrate that those pro-competi- affected by the closures.12 Again, the Commis- tive benefits will be passed on to consumers in the sion assessed potential gains in productivity and affected relevant market;17 and

See EU Contribution on “Crisis Cartels” to the OECD Global Forum on Competition of 7 See ibid. 13 27 January 2011. 8 See Commission decision of 4 July 1984, Synthetic Fibres (Case IV/30.810), 84/380/EEC [1984], OJ L 207/17. 14 See ECJ, decision of 20 November 2008, Competition Authority v. Beef Industry Development Society Ltd and Barry Brothers (Carrigmore) Meats Ltd (“Irish Beef”), 9 See ibid, para. 28. Case C-209/07, ECLI:EU:C:2008:643.

10 See ibid., para. 34. 15 See EU Contribution on “Crisis Cartels” to the OECD Global Forum on Competition of 27 January 2011, para. 57 et seq. 11 See Commission decision of 29 April 1994, Stichting Baksteen (Case IV/34.456), 94/296/ EC [1994], OJ L 131/15. 16 See ibid., para. 60.

12 See ibid, para. 11. 17 See ibid., para. 61. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 101 – to prove the causal link between the agreement and the pro-competitive benefits, the likely “pass VI. Conclusion on” of the claimed pro-competitive benefits to consumers and of the indispensability of the agree- 20. Previous case law and guidance from previous ment for obtaining those pro-competitive benefits, economic crises make it clear that companies are gene- saying that industrial restructuring agreements rally left with a quite narrow scope of competition law imposing restrictions on output or entry barriers arguments when it comes to the justification of “Crisis are very unlikely to fulfil these conditions.18 Cartels.” From a competition law enforcement point of view, this strict approach is important to guarantee competition law compliance and the assessment of V. German FCO exemptions on an individual basis. decision practice 21. However, recent statements by the Commission, the ECN and national competition authorities indicate some and guidance degree of flexible competition law response, which has certainly been triggered by warnings that Covid-19 has 18. In Germany, “Crisis Cartels” have been discussed under already plunged the economy into a recession, leaving the English term “structural crises cartels” (in German no doubt that the economy could be facing an unprece- “Strukturkrisenkartelle”), which has been mainly used dented form of crisis the longer-term consequences of in the context of agreements which tried to better align which can hardly be predicted. capacity with demand. Until the 7th reform of the ARC in 2005, Sec. 6 ARC (former version) even set out a standard 22. It can be expected that competition authorities will that allowed the German FCO to exempt such agreements keep a close look at collaboration and coordination from the strict general cartel prohibition in Sec. 1 ARC. between competitors in the current Covid-19 crisis, especially when it comes to jointly dealing with overcapa- 19. Even though that specific provision has been aboli- city in the context of economic downturn. However, for 19 shed since 2005, general principles, as laid down in Sec. a solid “Crisis Cartel” defence under EU competition 2(1) ARC and Art. 101(3) TFEU, do still allow for “Crisis law it will be key for companies suffering from overcapa- Cartels” to be examined and potentially exempted under city to understand that agreements which are capable of strict conditions. The German FCO’s previous decision reducing such overcapacity to the benefit of consumers 20 practice provides some useful guidance in this regard could benefit from an exemption under Art. 101(3) which can be summarised as follows: TFEU.

– Similarly to the Commission’s practice, the 23. Given that such exemptions will, however, only be German FCO has always been rather reluctant accepted under exceptional circumstances on a case- to accept a “Crisis Cartel” defence and has only by-case assessment, it will be particularly important shown a certain willingness to make an exception for companies to carefully consider the pro-competitive when required by exceptional circumstances. In the effects which might offset the restriction of competition past, only two out of ten published applications under Art. 101(3) TFEU. Initial guidelines for this for “Crisis Cartel” exemption made under Sec. 6 assessment can certainly be drawn from the available ARC (former version) were actually successful.21 case law and competition law guidance from earlier crises. However, each case and crisis is different, and – The German FCO has clearly stated that “Crisis leads to diverging effects in different industry sectors. Cartels” can only be justified where undertakings can For the avoidance of doubt, companies should consider demonstrate that structural overcapacity is permanent approaching the Commission or respective national com- and that there is a high risk of substantial financial petition authority to seek informal consultation in order losses in the long run. Undoubtedly, vague statements to avoid future questioning and competition law investi- referring to temporary economic crises will not be suffi- gations of the measures taken in times of crisis. n cient to meet this burden. Additionally, all or at least the majority of companies in an affected sector generally need to take part in a structural crisis cartel in order to meet the German FCO’s special requirements.22

18 See ibid., para. 62.

19 See T. Lübbig in Wiedemann, Kartellrecht (4th ed., 2020), Sec. 9, para. 213.

20 See J. Herrlinger and H. Kahlert, Strukturkrisenkartelle als zulässige Reaktion auf die Wirtschafts- und Finanzkrise?, BB 2009, 1930, 1931.

21 See German Federal Cartel Office, decision of 31 May 1983, WuW/E BKartA 2049 – Betonstahlmatten; German Federal Cartel Office, decision of 22 July 1987, WuW/E BKartA 2271 – Leichtbauplatten.

22 See German Federal Cartel Office, decision of 14 December 1959, WuW/E BKartA 114, 115 – Schuhbeschlag; T. Lübbig in Wiedemann, Kartellrecht (4th ed., 2020), Sec. 9, para.

215. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

102 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis Two challenges posed by the economic shock caused by Covid-19 to the level playing field in the EU internal market: The current State aid race and the risk of hostile takeovers by state-owned companies from third countries

Mario Siragusa Cesare Rizza [email protected] [email protected] Senior Counsel Counsel Cleary Gottlieb, Rome Cleary Gottlieb, Rome

1. “Europe is open for business, but it shouldn’t mean that in mind mainly Chinese companies, in particular state- we leave European countries open for takeovers by others owned companies, to which this type of criticism is often who do not have to play by the same rules”: this comment addressed. made by the European Commissioner for Competition, Margrethe Vestager, during the recent ABA Spring 4. The reasons why acquisitions of EU targets by Chinese Meeting’s (virtual) Enforcers Roundtable with the heads state-owned companies—particularly in sensitive sectors, of the Canadian and US competition authorities,1 such as those related to health care products, including has drawn general attention to an issue which already research, or otherwise strategically essential ones (such emerged a long time ago and which the current economic as the automotive, aerospace, pharmaceutical, infrastruc- crisis has fatally made even more thorny. ture and transport sectors)—risk generating protectionist responses by EU national governments, and by competi- 2. Needless to say, at a time when the risks to the Union’s tion authorities, are well known. strategic capabilities may be exacerbated by the volatility or undervaluation of the stock markets, the commis- 5. In its most common formulation, the accusation of sioner’s call to protect European companies from hostile making direct investments in Europe without being takeovers by non-EU companies “not playing by the subject to the same rules is based on the observation same rules” can only be welcomed. that a Chinese acquirer, in its legal system of origin, is to some extent free from the rules of competition; is not 3. A separate issue, however, is how her warning should subject to the risk of being the target of acquisitions by be best interpreted: even if it cannot be completely non-Chinese companies; can exploit to its own advantage excluded that it was also referred to investors from other the system of national control of concentrations, perhaps third countries, it is very likely that the commissioner had to extract from foreign parties commitments and conces- sions concerning the licensing of European technology to Chinese companies; is free from the pervasive monitoring and reporting obligations to which EU companies 1 Held on April 24, 2020 (https://ourcuriousamalgam.com/

livestream-enforcers-roundtable). are subject. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 103 6. Above all, Chinese investors are allowed access and a small player in the EU. To sum up, the merger was without any form of control or limitation to State aid, cleared purely on competition law grounds, such as the which distorts competition to the detriment of European decreasing technological edge of Vossloh (which still held investors, which, in contrast, as a result of the EU system in the EA and Switzerland a 40–50% market share in of State aid control, may have to finance their acquisi- 2014–2018), the existence of intense competitive pressure tions with less readily available, and in any case more from new entrants offering innovative traction technolo- expensive, private resources. It is well known that similar gies, and the uncertainty of future market developments allegations are often made against US companies, too— following the target’s integration with CRRC. In addition occasionally even against the US Federal government to analysing different counterfactual scenarios, the BKA itself, which, for instance, according to rumours circu- discussed extensively certain problematic features of lated in mid-March, attempted to induce CureVac AG, a acquisitions by State-owned companies originating from promising German biopharmaceutical manufacturer, to a centrally planned economy. It referred to the following move its research activities to the US to develop a vaccine elements as relevant in the merger control assessment against Covid-19—and failed due to the timely and firm of such acquisitions: the size of the acquirer’s corpo- intervention of the German government.2 rate group, its industrial strategy, possible conglomerate effects, deep pocket advantages, and its readiness and 7. What, then, is the possible solution to this problem, incentives to engage in predatory pricing or the infamous particularly at a time when the negotiations between the dumping practices. However, the BKA’s decision was EU and China to conclude a bilateral investment treaty, unanimously praised by antitrust observers as being which were scheduled to be completed by the end of based solely on technical and legal grounds: even where 2020, are progressing at a very slow pace, due, among state ownership translates into significant economic other things, to China’s reluctance to review the system of power, this does not necessarily pose a threat to effective explicit or implicit subsidies for state-owned enterprises?3 competition when a non-EU player enters a European market. Therefore, industrial policy considerations, albeit 8. Let us come back to Commissioner Vestager’s very popular in the current lively public debate, have been comment, as quoted at the beginning of this article. largely irrelevant in the BKA’s assessment. According to some, she alluded to a possible new approach to the enforcement of merger control rules 10. This does not, however, rule out the existence of a by the European Commission (EC), by expanding its strong EC focus on the drive for profound changes in assessment to include industrial policy considerations, EU competition law: nor can it come as a surprise that which as such are not strictly relevant to the preserva- such drives were strongly felt in the Member States even tion of effective competition in the internal market. This before the outbreak of the pandemic. At the beginning reading, however, is unrealistic in our view: although the of December 2019, the Dutch government drew up a EC enjoys a wide margin of discretion in merger control, position paper calling for the establishment of a new its decisions are subject to the Court of Justice’s review of pillar of EU competition law, giving the EC the power legality, so that any unorthodox application of the rules to intervene, either ex officio or upon a complaint by based on the pursuit of protectionist objectives would be competitors or a Member State, by initiating an investi- of short duration. All the more so since in many cases gation if a third-country company restricts or threatens “cheap” hostile acquisitions of strategic European assets to distort competition in the internal market.5 This would by Chinese investors might not raise significant risks of be the case of a foreign company operating in the EU distortion of competition in the market(s) concerned, so by leveraging the economic support it receives from that a prohibition decision could easily be denounced as its state of establishment, either in the form of subsi- based on impermissible “political” grounds. dies (including implicit ones, such as the supply of raw or semi-finished materials or know-how at non-market 9. A recent decision of the Bundeskartellamt (BKA) conditions) or by making excessive profits by virtue of confirms that this cannot be the correct perspective to an unregulated dominant position held in one or more ensure the level playing field in EU markets through markets in its home country. In appropriate cases, the merger control where the acquirer is a Chinese state- EC could prohibit the conduct under investigation, such owned company.4 The German competition authority as artificially low prices in the EU or the completion of cleared the acquisition of a German shunting locomo- high-priced acquisitions without a real business case. tive manufacturer, Vossloh, by CRRC, the Chinese state- It could even impose ex ante measures, before a breach owned largest rolling stock manufacturer in the world, of the rules has occurred, ordering the foreign company to adopt accounting separation for its activities in the EU, to adapt the governance of an EU subsidiary, or to 2 See J. Hackenbroich, CureVac, covid-19, and economic statecraft: amend the standard contracts used by the latter. Non-EU Lessons for Europe, ECFR (Mar. 24, 2020) (https://www.ecfr.eu/article/ commentary_curevac_covid_19_and_economic_statecraft_lessons_for_europe).

3 See J. Sopinska, EU-China investment talks might drag into next year as roadblocks remain, MLex (Apr. 29, 2020). 5 See Non-paper – Strengthening the level playing field on the internal market (Dec. 9, 2019; https://www.permanentrepresentations.nl/documents/publications/2019/12/09/ 4 See Case B4-115/19 (decision to clear the acquisition of Vossloh Locomotives GmbH non-paper-on-level-playing-field). See also J. Espinoza, Vestager urges stakebuilding to by the Chinese company CRRC Zhuzhou Locomotive Co. after an in-depth investiga- block Chinese takeovers, Financial Times (Apr. 12, 2020); J. Espinoza and S. Fleming, tion; https://www.bundeskartellamt.de/SharedDocs/Entscheidung/DE/Fallberichte/ Margrethe Vestager examines curbs on non-EU state-backed companies, Financial Times Fusionskontrolle/2020/B4-115-19.html?nn=3591568); and E. Craig, CRRC/Vossloh (Dec. 16, 2019); S. Fleming and J. Espinoza, Brussels urged to rein in state-backed foreign

cleared in Germany, Global Competition Review (Apr. 27, 2020). rivals, Financial Times (Dec. 4, 2019). délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

104 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis players would still be allowed to ask the EC for guidance in the current Covid-19 outbreak adopted last March,11 on the lawfulness of the trade policies and operations with a view to covering also Member States’ schemes they plan to implement in Europe. It is no secret that and individual measures for providing public support in Commissioner Vestager welcomed the Dutch proposal, the form of equity and/or hybrid capital instruments to which may have inspired to some extent the formal non-financial companies facing financial difficulties due proposal for a new regulation on a level playing field in to the Covid-19 outbreak. Although the powers of inter- the internal market, which the EC is expected to submit vention of the Member States will thus be limited by the to the Council and the Parliament next June. conditions that the EC is preparing to introduce, even tighter constraints will result from the relative magni- 11. Assuming that this new front of action will culmi- tude of the resources available in their respective budgets. nate, within a timeframe that is difficult to predict, in Under the circumstances, a subsidy race has started, as the adoption of a legislative instrument implementing rightly decried by many observers—the most authorita- the EC’s competition policy, such instrument would knit tive voice being that of the EC President, Ursula von der together with the one already existing in the framework Leyen. The predestined winners of this race are, inevi- of the common commercial policy, so as to fill a gap in tably, the players from the richest Member States, some the Union’s regulatory arsenal. At the end of March, of which have recently, not surprisingly, even strongly 6 the EC adopted a Communication to provide Member advocated the suspension (Austria) or the adoption of States—which are responsible for the control of Foreign less stringent standards (Germany) in the enforcement of Direct Investments (FDI) under Council Regulation EU State aid control rules. No 2019/452 (which will become applicable in October 2020)—with guidance on the protection of European 14. According to recent EC figures, Germany has granted strategic assets, in order to address cases where the as much as 52% of all aid approved so far, which is about hostile takeover or control of a particular undertaking, twice as much as its percentage weight in the whole infrastructure or technology in the EU may pose risks economy of the Union.12 As a result of this highly asym- to security or public order, including health security. metric situation in spending power, the gap between the The EC thus invited the 14 Member States where national Union economies is expected to further widen along the control mechanisms are already in place to make full use ideal North–South border, leading to an equally asym- of them, taking into account in particular the risks to metric recovery thereafter. Not only will the values of critical health infrastructure and critical inputs supply. cohesion and solidarity in the Union be undermined, but also the level playing field in the internal market will be 12. Accordingly, Italy recently extended the list of exposed to the serious risk of disruption, given that the strategic sectors and strengthened the government’s distortions of competition caused by this unequal race special powers in this area.7 In addition, as it was also for subsidies will most likely hurt also healthy compa- reported in the past weeks, Germany,8 France9 and nies, adequately capitalised and well managed until the Poland10 have amended (or are about to amend) their day before the pandemic broke out, perhaps in favour of domestic legislations in order to tighten their existing less efficient competitors established in richer States. FDI screening systems. Therefore, a response at Member State level, although one that is strongly encouraged and endorsed by the EU executive, has become crucial 15. The current economic crisis has been generated in protecting European businesses from hostile foreign by an external symmetric shock, for which no one is takeovers in the current Covid-19 outbreak. responsible, but whose negative effects affect everyone, albeit asymmetrically, given the different degrees of 13. Finally, there exists a further reason why the issue of vulnerability of Member States’ budgets. In a pers- predatory buying in the EU markets—for which Chinese pective of genuine solidarity and cohesion within the investors and, in general, those of third countries without Union, but not only (unsustainable future debt levels for a State aid control system, are very likely preparing, like the most indebted and vulnerable countries could create in the days of the economic crisis of 2008–2009—acquires serious risks for the resilience of Europe’s common even greater sensitivity and relevance today. The EC is currency), the symmetrical and exogenous nature of expected to amend (for the second time) its Temporary the pandemic would therefore require a fair response Framework for State aid measures to support the economy for all Member States, i.e., the possibility of financing the economic recovery by using new debt instruments at equal interest rates for all. Therefore, a proposal

6 Communication from the Commission – Guidance to the Member States concerning fully adequate to the present circumstances, while still foreign direct investment and free movement of capital from third countries, and the based on a sound conceptual rationale, would be for an protection of Europe’s strategic assets, ahead of the application of Regulation (EU) 2019/452 (FDI Screening Regulation), C(2020) 1981 final (Mar. 25, 2020). EU institution to issue bonds guaranteed with the EU

7 PaRR, Italian government extends scope of foreign takeover ‘golden power’ (Apr. 7, 2020).

8 PaRR, German government sends FDI screening update proposal to parliament (Apr. 9, 2020). 11 C(2020)1863 (Mar. 19, 2020), OJ C 091 I/1. The informal consolidated version of the Temporary Framework as amended on April 3, 2020, is available online (https://ec.euro- 9 A. Yaïche, France to boost merger-veto powers to block hostile takeovers during Covid- pa.eu/competition/state_aid/what_is_new/TF_consolidated_version_as_amended_3_ 19, Le Maire says, MLex (Apr. 29, 2020). april_2020.pdf).

10 PaRR, Polish government committee reviewing foreign investment legislation – report 12 S. Fleming and J. Espinoza, EU members clash over state aid as richer countries inject

(Apr. 30, 2020). more cash, Financial Times (May 1, 2020). délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 105 budget’s resources, to raise funds on the capital markets 6, 2020, this fund should be financed by Member States at very favourable rates of return (thanks to the EU’s with new resources to be placed in the 2021–2027 budget AAA credit rating), on the same terms and for the under negotiation, possibly to be supplemented with the benefit of all Member States. subsequent issue of common debt, again by the EC. It is quite intuitive, in our view, that in order for the Recovery 16. However, the common response that prevailed at Fund to make a real difference through a partial redistri- the European Council of April 23 was an agreement bution of resources, it will have to consist, at least in part, in principle for the creation of a new Recovery Fund, in grants or non-repayable transfers rather than simply in amounting to €1,000–1,500 billion, able to offer loans loans to States or guarantees for investment projects, so and guarantees to the regions and economic sectors most as not to increase their individual debt levels and to help affected by the economic shock of the Covid-19. Although correct at least in part the serious and long-lasting distor- the details of the new instrument are still being defined in tions of competition in the internal market that will inev- the technical proposal to be presented by the EC by May itably follow. n Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

106 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis Investigations into price hikes and other responses by the Ukrainian competition authority to the Covid-19 crisis

Anastasia Usova [email protected] Partner Redcliffe Partners, Kyiv

The Ukrainian Competition Authority investigates price co-ordinated price increases for tariff plans and/or dete- hikes for face masks, health protection products and rioration in the quality of mobile phone services. long-life foodstuffs amidst Covid-19 outbreak. Airline tickets, telecoms and misleading claims about fake coro- 4. The AMC also conducts day-to-day monitoring of navirus treatments are also in focus. the information and advertisements on TV, in the press and social media to counteract the spread of mislea- 1. The Antimonopoly Committee of Ukraine (the “AMC”) ding claims for fake coronavirus treatments or vaccines. has been extremely active since the beginning of the coro- On 27 March 2020, the AMC opened the first related navirus outbreak. Starting from the end of February, the case against a Ukrainian pharmaceutical company which AMC has issued recommendations in Kyiv and the Kyiv made TV advertisements claiming that its antiseptic agent region (i) to pharmacies to refrain from imposing econo- “has an effect on all complex viruses, including coronavi- mically unjustified price increases for face masks, and (ii) ruses.” In this article, more light will be shed on competi- to food retail chains to refrain from unreasonable price tion cases in Ukraine initiated by the AMC in response to increases for face masks, disinfectants and long-life food. the Covid-19 crisis as well on how the authority operates The AMC has also launched investigations into parallel during these unprecedented quarantine measures. price increases in the same region (i) by pharmacies and the wholesale suppliers of healthcare products, including face masks, as well as (ii) by food retailers and their wholesale suppliers of vegetables and long-life foodstuffs. I. Implications 2. One of the most hotly debated Covid-19-related cases concerns the spike in prices for airline tickets by on timeframes Ukraine International Airlines (“UIA”).1 The competition authority has received numerous complaints from and merger control consumers against UIA. According to complaints, the price of an economy flight from London to Kyiv reviews increased to EUR 830 during the last days before suspension of air travel to and from Ukraine, although previ- 5. So far, there are no changes to the existing merger ously it was less than EUR 350. In mid-March, the AMC control requirements of the AMC and merger review announced that it will examine the price increases for timeframes. The AMC is working as usual and accepting UIA airline tickets. The public is keeping a keen eye out merger filings, which have to be delivered in hard copy for the results of the AMC’s study. during normal working hours. The AMC has not made any statements encouraging parties to postpone notifi- 3. On 26 March 2020, the AMC issued so-called “preven- cations and is clearing transactions within its statutory tive” recommendations to the three largest mobile timelines. phone operators in Ukraine to prevent simultaneous or 6. No disruptions or delays in merger control reviews have been seen so far. However, since a large part of its

1 See: http://www.amc.gov.ua/amku/control/kyivr/uk/publish/article/91556. staff is working remotely or is absent, there is a potential délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 107 risk that if the AMC begins to face difficulties in meeting any actions that may lead to price increases for imported statutory deadlines due to limited human resources, medicines and for locally produced medicines containing the rejection of merger filings on formalistic grounds, imported compounds that outpace the growth of the foreign or shifts from the fast-track to the standard procedure, currency exchange rate against the Ukrainian currency.” cannot be excluded. Starting from 1 January 2020, the value of Ukraine’s currency has been falling, which has resulted in price increases for imported products for end consumers. II. Investigations 2. Food retailers and wholesale into excessive suppliers: Face masks, pricing and parallel disinfectants and long-life food in focus price increases 10. On 13 March 2020, ten retail chains in Kyiv and the Kyiv region received the AMC’s recommendations 1. Pharmacies, wholesale against unjustified price increases for face masks, disinfectants and long-life food.4 In its statement the AMC suppliers and manufacturers: reminded the retailers about a special provision of the Ukrainian competition laws under which a simulta- Face masks and antivirals neous price increase for certain products may constitute in focus anti-competitive concerted practices if (і) several companies simultaneously raise prices for certain products 7. At the end of February 2020, the AMC’s regional which may lead to the prevention, elimination or restric- office in Kyiv issued recommendations to 34 phar- tion of competition, and (ii) analysis of the market situ- macies urging them to refrain from setting economi- ation shows that there are no objective reasons for such cally unjustified prices for face masks.2 Seven pharma- similar price increases. cies have already reported their fulfilment of the recommendations. Information requests were also sent by the 11. This is unlike many European countries, where exces- AMC to more than 50 pharmacies to provide data on sive pricing may be illegal only if either (a) it results from their purchase and resale prices for antivirals, painkillers, a price-fixing agreement amongst undertakings or (b) it anti-fever drugs and face masks. The AMC is also moni- constitutes exploitative abuse by a dominant underta- toring the pricing of face masks by manufacturers and king, in which case it should be proved that (i) the firm wholesalers. charging the prices holds a dominant market position, and (ii) the prices charged are excessive. In Ukraine, a 8. On 31 March 2020, the AMC’s regional office in Kyiv third scenario for a pricing violation is possible, so-called launched an investigation into parallel price increases by “anti-competitive parallel behaviour”. pharmacies in Kyiv and the Kyiv region, as well as wholesale suppliers/manufacturers, of healthcare products, 12. Under the above-mentioned concept of “anti-compe- including face masks. According to the AMC, during titive parallel behaviour,” non-dominant companies may February–March 2020 a sharp price increase for face be found liable for excessive pricing by way of anti-com- masks was seen in pharmacies in Kyiv and Kyiv region. petitive concerted practices even in the absence of agree- Certain pharmacies reported to the AMC that such retail ment/co-ordination amongst them. If the companies price increases were caused by an increase in the prices set simultaneously or “almost simultaneously” increase their by their wholesale suppliers, so causing them to increase prices, and such similarities in price increases cannot be their retail prices accordingly. However, in the AMC’s explained by objective factors, it can be assumed that the view, there were no objective factors that could cause an only plausible explanation for such parallel behaviour is increase in the costs of production or distribution of such concerted practices amongst competitors. Thus, in order products. The AMC continues to investigate this issue. to establish a violation, in addition to finding price correlation amongst competitors which increase their prices 9. In parallel with the above investigation, on 31 March in parallel, the AMC is also required to examine all the 2020, the AMC issued recommendations to pharmaceu- objective factors which could cause such similarity. tical companies, importers, distributors and pharmacies to prevent competition law violations on the markets for 13. The AMC traditionally applies such approach to the antiviral drugs and personal health protection products.3 retail markets for fuel and liquefied petroleum gas when In particular, the AMC recommended “to refrain from simultaneous or “almost simultaneous” price increases by gas stations are observed. However, in the previous AMC’s practice, the analysis was often limited to selected 2 See: http://www.amc.gov.ua/amku/control/kyivr/uk/publish/article/91548.

3 See: https://amcu.gov.ua/npas/pro-zdijsnennya-zahodiv-spryamovanih-na-zapobigann-

ya-porushennyam-zakonodavstva-pro-zahist-ekonomichnoyi-konkurenciyi-4. 4 See: http://www.amc.gov.ua/amku/control/kyivr/uk/publish/article/91550. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

108 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis factors such as comparison of purchasing prices vs resale – price increases for tariff plans; prices, inflation and cost structure analysis. However, – closing of social or cheap tariff plans; many other important factors, such as fiscal changes and logistics costs, were often ignored, as was the economic – automa tic transfer of subscribers to more expen- analysis of relevant competition models explaining the sive tariff plans; similarity in price increases by gas stations. It remains – deterioration in the quality of telecommunication to be seen whether a proper standard of proof will be services.5 applied in this case, and whether all the external factors that could cause parallel price rises will be taken into account by the AMC. 19. Unlike the majority of the above-mentioned recommendations issued by the AMC in the pharmaceutical 14. The AMC continues regular price monitoring of and food retail sectors, which were based on the facts products in everyday consumption, and requests retail of price hikes and aimed to discourage price increases, chains to provide information on purchasing prices and the recommendations for mobile phone operators are resale prices for bread, grains, sugar, flour, most popular of a purely preventive nature. The AMC has not esta- types of meat, and vegetables. blished any facts in the conduct of mobile phone operators which could violate competition laws. Nevertheless, 15. On 26 March 2020, the AMC’s Kyiv Regional Office the three largest mobile phone operators in Ukraine are launched an investigation into parallel price increases obliged to consider the recommendations and inform the by food retailers in Kyiv and the Kyiv region and their AMC of the results of their deliberations of them and wholesale suppliers. According to the AMC, during how these will be fulfilled. March 2020, a sharp price spike was seen in the retail prices for long-life foodstuffs, such as sugar, buckwheat 20. The AMC’s recommendations to mobile operators and rice, and vegetables such as potatoes, onions, carrots, appear to be very broadly worded and ignore certain beetroot and cabbage. The recent analysis of the AMC objective challenges that mobile phone operators may shows that in certain regions the price hikes have been face due to switching to remote working by the majority seen in buckwheat (50%), potatoes (60%), and onions of businesses, so increasing network congestion. In parti- and carrots (100%). cular, if too many users try to connect simultaneously to the same mobile phone base station, that station 16. According to the food retailers, retail price increases becomes overwhelmed, causing calls to drop and data- were caused by increases in the prices set by wholesa- transfer speeds to slow. As the demands on networks rise, lers supplying food to retailers. Based on the increases in so the more complicated it may become for mobile opera- purchase prices, the retailers had to increase their retail tors to ensure a proper routine and emergency mainte- prices accordingly. However, according to the AMC’s nance of the network, particularly if engineers report regional office in Kyiv there are no objective factors that sick or are forced to self-isolate due to mandatory stay- 6 could cause price increases for these products. at-home orders. While the AMC recommends “not to reduce the quality of mobile services,” it is important to 17. Less than a week after publicising the opening of the take into account these objective constraints throughout case on retail price increases for foodstuffs, the head of the period of Covid-19 quarantine measures. the AMC’s regional office in Kyiv announced that certain prices have stabilised or even fallen in response to the 21. Many countries have already taken steps to mitigate imminent investigation. The investigation will continue such network congestion challenges. The USA has to establish whether the wholesale suppliers, the retailers, granted its networks additional radio spectrum on a or both, were guilty of unjustified and simultaneous price temporary basis, and several other countries are in the hikes during the first part of March. process of doing the same; European and other regulators have also asked the big streaming services—Netflix, Amazon, YouTube—to reduce the quality of their videos to free up capacity.7 Thus, instead of shifting the blame III. Preventive onto mobile phone providers, a better solution to address the new challenges facing network congestion could be by involving other private and government stakeholders recommendations as well. to mobile phone operators 18. On 26 March 2020, the AMC issued so-called preventive recommendations to the three largest mobile phone 5 See: https://amcu.gov.ua/news/ operators to prevent concerted practices/parallel beha- amku-pro-zahist-prav-spozhivachiv-poslug-mobilnogo-zvyazku. viour which may lead to the prevention, elimination or 6 See: https://www.economist.com/science-and-technology/2020/04/03/ restriction of competition by way of simultaneous or can-mobile-networks-handle-becoming-stay-at-home-networks.

co-ordinated: 7 Ibid. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 109 Ukraine.9 In other words, the pharmaceutical compa- IV. Misleading nies, advertising agencies and TV channels are required by the AMC neither to create nor to disseminate advertising that can mislead consumers by claiming that it may claims about prevent or cure Covid-19.

fake coronavirus 26. The AMC has also warned manufacturers against communicating misleading, incomplete or inaccurate treatments information about the antiseptic or disinfectant proper- ties of sprays, solutions, gels, wipes and other products, 22. With public anxiety increasing, the first television as well as their ability to kill viruses, including Covid-19, advertisements claiming that a drug “has an effect on all in order to attract consumers. complex viruses, including coronaviruses” have already appeared on Ukrainian television, while the World 27. According to the AMC, in particular, the following Health Organization and the Ministry of Health of cases may constitute illegal misleading information: Ukraine officially state that no approved drugs against Covid-19 exist as of today. – inducing consumers to buy products by placing the information using coronavirus/Covid-19- 23. The above-mentioned TV commercials concerned related words and/or visual images of viruses Decasanum antiseptic agent (active ingredient—deca- without sufficient grounds; methoxin) manufactured by the Ukrainian pharmaceutical company Yuria-Pharm LLC. On 27 March 2020, – spreading unproven claims about certain effects of the AMC opened a case against Yuria-Pharm regarding the product on viruses, including Covid-19, or on its misleading claims.8 Yuria-Pharm subsequently made a improving immunity; statement that it admits liability for incorrect claims made – indica ting information about the effects of a in the commercials, and emphasised that Decasanum drug that does not correspond to its technical does not cure Covid-19 and is only an antiseptic and documentation; disinfectant agent. – insufficient quantity of the active ingredient in a 24. In Ukraine, unproven claims that certain medicines drug; may prevent or treat coronaviruses in the absence of labo- – spreading misleading information about the time ratory/scientific evidence constitute misleading informa- course of a drug effect, minimum dose of drug, tion, a violation of the Law on Protection from Unfair etc.; Competition. Such actions may cost the violator a fine of an amount up to 5% of the turnover of the undertaking – disseminating unproved information about the for the previous financial year. Furthermore, it does not drug’s ability to eradicate a certain percentage of matter where such information is displayed—on pack- bacteria (95%, 99%, 99.9%, etc.); and aging, in advertising materials, on websites, in the media – lack of approvals required from and issued by the or via social networks. authorised state bodies.

25. The AMC has issued recommendations to pharma- 28. The AMC conducts day-to-day monitoring of the ceutical companies, advertising agencies and TV channels information and advertisements on TV, in the press and to refrain from advertisements claiming that certain social media to prevent the spread of misleading claims medicines treat and/or prevent coronaviruses, without of fake coronavirus treatments or vaccines. n any confirming evidence, in particular without official recommendations issued by the Ministry of Health of

8 See: https://suspilne. 9 See: https://amcu.gov.ua/news/koronavirus-i-nedobrosovisna-reklama-rekomendaci-

media/25121-amku-vzavsa-za-kompaniu-aka-reklamuvala-liki-vid-koronavirusu. yi-amku-farmkompaniyam-ta-reklamnomu-rinku. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

110 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis Cooperation between companies in times of health crisis

Faustine Viala David Kupka [email protected] [email protected] Partner Associate Willkie Farr & Gallagher, Paris Willkie Farr & Gallagher, Brussels

1. In this time of health crisis, companies are heavily eu) to streamline individualised informal guidance to involved in increasing the production of masks, disinfec- companies, consolidated in the Temporary Framework tant gel, or more broadly in research. Manufacturers and for assessing antitrust issues related to business coopera- distributors of consumer goods are managing to avoid tion in response to situations of urgency stemming from shortages of scarce products. While this wave of soli- the current Covid-19 outbreak adopted on 8 April 2020 darity and cooperation is applauded by public authori- (“Temporary Framework”). ties, it remains subject to antitrust rules. Authorities in the United States and the United Kingdom emphasised that 4. Providing companies with timely responses to legiti- they will not tolerate price gouging or abusive exploita- mate concerns is a step in the right direction. While the tion. What impact may be expected on the EU antitrust Temporary Framework provides some guidance, it paves rules regarding crisis cooperation: are companies allowed the way to further informal and confidential «comfort» to share information in the pursuit of improving crisis letters. It will be interesting to observe whether, at a later management or progress in research & development, or stage, the Commission makes accessible to the public a to adjust their relations with suppliers and distributors? compilation of such further advice provided. This would be desirable especially if the crisis persists, or to provide 2. It is important to recall from the outset that there is guidance for future health crises in Europe or in other widespread acceptance that cooperation between compa- jurisdictions with similar competition rules. nies does not fall under an absolute prohibition by EU antitrust rules, even if it takes place between competi- 5. Today, the cooperation between companies in the tors. Therefore, even in “normal” times, behaviour having context of a health crisis still remains a live issue from the a restrictive effect on competition may under certain competition law perspective. This article therefore does conditions comply with Article 101 TFEU. We should, not attempt to provide definitive responses, but rather thus, unambiguously reject from the outset the expec- intends to present a short overview of the analytical tation that the context of the health crisis will funda- framework with regard to some key concerns companies mentally change the European competition authorities’ may face. views. A more appropriate assumption when considering a possible adjustment in the implementation of EU and national antitrust rules is that the review of the interaction between companies may result in a more lenient and I. Health crisis, individualised evaluation. a legitimate reason 3. To date, European authorities globally responded in this manner, whether by the declaration of the European Competition Network (“ECN”) of 23 March 2020 justifying the ensuring companies that it will not intervene against certain measures aiming to prevent shortages of scarce exchange of some products,1 or by the creation of a dedicated mailbox by the Commission ([email protected]. information 6. The general principles on the assessment of information exchange are detailed in the Commission’s Horizontal 1 See https://ec.europa.eu/competition/ecn/202003_joint-statement_ecn_corona-crisis.

pdf. Guidelines, inviting consideration of both the context délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 111 and the content of the exchange because “[t]he competitive outcome of information exchange depends on the char- II. Pragmatic acteristics of the market in which it takes place (…) as well as on the type of information that is exchanged” (para. 58). approach 7. The existing analytical framework therefore provides in theory enough space to adjust the assessment in the to enhanced context of a crisis. In practice, the European authorities indeed seem to use their discretionary powers to cooperation signal a more lenient assessment if the exchange ultimately benefits consumers. For example, when the ECN between competitors indicates that it will not intervene against measures put in place to avoid a supply shortage, it is reasonable to consider that an exchange of information shall not be made necessary prosecuted as anticompetitive if it pursues that objective. by the crisis 8. It appears possible to extrapolate from the ECN 10. Similarly to the assessment of information exchange, statement, combined with the Temporary Framework, broader cooperation between competitors during a crisis a broader guidance to companies considering that an requires the analysis of its material and geographical information exchange may be necessary in the context of scope in conjunction with the necessity of such coope- the crisis. The assessment should consider the nature of ration, its temporal limit and the intention of the parties. both the information and the exchange. Indeed, at least The ECN provides some comfort with regard to “neces- three key criteria should be considered with regard to the sary and temporary measures put in place in order to information: avoid a shortage of supply [of scarce products]”, as more broadly confirmed by the Temporary Framework. – the nature of the goods concerned: the authorities seem to be more open to the exchange of infor- 11. Intuitively, in the context of the current health mation relating to scarce products, but there is no crisis, joint supply or purchasing agreements seem most obvious reason why other goods genuinely critical eminently concerned with the risk of shortages in the to overcoming the crisis should not benefit from a supply of scarce products. However, as provided In the favourable treatment; Temporary Framework, there is no reason why other types of cooperation agreements should be excluded – the geographical scope: information should be from the temporary non-intervention policy if, after limited to the geographic area concerned by the examination, all criteria are fulfilled (e.g., joint tempo- crisis and more specifically to the objective of the rary production of protection masks). Article 101(3) exchange; and TFEU indeed provides sufficient grounds for agreements – the content of the data: the exact scope of the infor- necessary to genuinely alleviate the crisis to benefit from mation and its adequacy to the pursued objective an individual exemption. are a main concern; for instance, the avoidance of a food shortage may require the exchange of data 12. From a practical standpoint, the main concern in the on the level of stock or the scheduling and means competitive assessment of cooperation agreements may of supplying food, however, it does not seem to become the construction of a counterfactual scenario. entail sharing prices or marketing strategy. A crisis is by definition unpredictable and requires swift implementation of cooperation initiatives to result in the 9. With regard to the nature of the exchange, the assess- desired outcome. Competition authorities should thus ment is essentially based on the appreciation of: be compelled to show a certain degree of open-minde- dness in considering what would have happened in the – the necessary and temporary nature of the absence of the implementation of the proposed coope- exchange: data must be needed to attain the objec- ration between companies and, in particular, whether a tive while limited in time. The ECN showed strong less restrictive option was available. Given the time sensi- willingness to return to standard implementation tivity, it appears excessive to require the establishment of of competition rules as soon as the extraordinary more than a prima facie evidence of the counterfactual circumstances come to an end; and situation.

– the intention and good faith of the companies in 13. On the other hand, a health crisis does not give the pursuing their objective: in line with Article 101(3) companies a blank check permitting practices which are TFEU, companies should aim to contribute not necessary or proportionate to what is required to through the information exchange to the produc- overcome the crisis. A “crisis cartel” will likely remain an tion or distribution of goods in the interest of illegal cartel: this would be the case of a supply agreement consumers and should not do so by dispropor- which goes beyond what is necessary to ensure the avoi-

tionately restrictive means. dance of a shortage or fixes higher prices for consumers. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

112 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 14. The Temporary Framework and the ECN made is possible on a case-by-case basis, rather on the basis of it clear that increased enforcement can be expected Article 101(3) TFEU than by adjusting the rules of the “against companies taking advantage of the current situ- R&D Block Exemption Regulation. ation by cartelising or abusing their dominant position.” In this regard, it will be interesting to observe whether 18. Indeed, the reference to (i) the necessity of the coope- the authorities will use their discretion to take action also ration in overcoming the crisis and (ii) the resulting benefit against non-European companies applying abusive or to consumers refers directly to the first two prongs of the profiteering practices on European consumers. individual exemption test. The two remaining conditions of Article 101(3) TFEU are, however, not excluded and any crisis-related cooperation will continue to be assessed also with regard to (iii) the indispensability of the restric- III. Innovation: tion of competition induced by the cooperation, and How to manage (iv) the absence of elimination of all competition. 19. The Temporary Framework confirms this approach when it indicates that exceptional cooperation measures the encouragements would not be prosecuted if they are (i) designed and objectively necessary to achieve the objective, (ii) tempo- to cooperate rary in nature, and (iii) not exceed what is strictly necessary. The Commission also states that the fact that a 15. The Horizontal Guidelines indicate that an agree- cooperation is encouraged and/or coordinated by a ment may have restrictive effects on competition if it has, public authority is also a relevant factor. or is likely to have, an appreciable adverse impact on “one of the parameters of competition on the market, such as 20. From a practical standpoint, the cooperation in (…) product variety or innovation” (para. 27), while the R&D or in any other field should thus be as specific to R&D Block Exemption Regulation provides comfort to the crisis-related objective as possible and less restrictive joint R&D programs under certain conditions. During ways to attain such objective should be considered. In the a health crisis, increased pressure is exercised on certain pharmaceutical industry, it appears that the European companies, especially in the pharmaceutical sector, to Medicines Agency has already engaged with compa- cooperate with a view to develop a treatment, or improve nies to monitor the medical developments underway.3 means of sanitary protection. While cooperation with The involvement of a public body overseeing the coop- research centres does not seem to trigger specific crisis-re- eration with appropriate firewalls indeed appears as one lated difficulties from a competition law perspective, of the possible ways to limit the competitive risk, as enhanced cooperation between competitors may be more confirmed by the Temporary Framework. challenging, especially in markets where innovation is an important competitive force.

16. Health services constitute a practical example of this setup, where innovation is a key parameter of competi- IV. Adjustments tion. In the context of a health crisis, public authorities globally encourage pharmaceutical companies to coope- to relations with rate. While such cooperation should be broadly covered by the R&D Block Exemption Regulation, it may poten- distributors during tially involve the exchange of competitively sensitive data on a wider range of research subjects. The fundamental question is therefore whether companies may a health crisis translate the encouragements to cooperate with regard to 21. While cooperation between competitors involves a Covid-19 into a wider cooperation in R&D. higher level of antitrust risk, the assessment of vertical relations may also be affected by the health crisis. In an 17. In normal circumstances, it is uncertain whether autho- attempt to limit the application of unjustified price rities would adopt a favourable view on such cooperation increases at the distribution level, the ECN rightly requiring inter alia access to pre-existing know-how of highlighted that manufacturers can set maximum resale the parties, especially if such know-how is key to compe- prices for their products. The Temporary Framework tition in the market. While a paradigm shift should not does not consider vertical relations. be expected during the crisis, the Commission’s acknowl- edgment that “[t]he exceptional circumstances of this time 22. In practice, however, other concerns may also arise, (…) may trigger the need for companies to cooperate with such as the need to temporarily implement hardcore each other in order to overcome the crisis to the ultimate restrictions, or temporarily remove permitted restrictions. benefit of consumers”2 suggests that a more lenient view

3 See EMA update on treatments and vaccines against Covid- 2 Commission website dedicated to antitrust rules and coronavirus, https://ec.europa.eu/ 19 under development, https://www.ema.europa.eu/en/news/

competition/antitrust/coronavirus.html. update-treatments-vaccines-against-covid-19-under-development. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 113 The Vertical Guidelines foresee the possibility to apply non-authorised distributors because this is necessary to hardcore restrictions in exceptional circumstances overcome the crisis (e.g., to increase the capacity and pace (paras. 60–64) and the Guidance on the application of of distribution of critical products), it appears unreaso- Article 81(3) also constitutes a useful tool. nable to hold the company responsible for the temporary failure to protect the integrity of its selective distribution 23. Concerning the loosening of permitted restrictions, network. Similarly, while a restriction on procurement such as the prohibition of sales to non-authorised distrib- of components from third parties may be justified under utors in the context of a selective distribution network, Article 101(3) TFEU if the supplier has made a substan- or the restriction of purchases of components from tial relationship-specific investment, it may appear neces- third parties, the appreciation by national courts will be sary to temporarily set aside such restriction if compo- interesting to observe both under antitrust and contrac- nents are necessary to operate critical equipment (e.g., tual laws. For instance, should a company allow sales to medical ventilators). n Ce document est protégé au titre du droit d'auteur par les conventions internationales en vigueur et le Code de la propriété intellectuelle du 1er juillet 1992. Toute utilisation non autorisée constitue une contrefaçon, délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

114 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis Liberalisation of the Covid-19 testing service market to ensure individual access to testing and the role of competition laws and authorities: Lessons from Japan

Masako Wakui [email protected] Professor of Law Kyoto University Faculty of Law

1. The Covid-19 virus is highly transmissible. Patients 3. Negative externality exists in relation to infectious with few symptoms, and even those who are asymptom- diseases, which the free market alone cannot control, atic, can spread the virus. Although the fatality rate is yet the government can also fail. In the following article, less than 10%, the virus is killing tens of thousands of I review Covid-19 testing regimes in Japan based on data people each day across the world. At the time of writing, from April 7, 2020 (one must note that the situation with no vaccine or treatment available, the only way to changes from day to day). I then argue that the Covid-19 protect society from collapsing is to test individuals, testing market should be liberalised in Japan, outlining identify those who are positive and isolate them to stop the roles that competition law and authority should play the spread of the virus. in the liberalisation process as well as after the market has been liberalised. 2. In the majority of countries, the government plays a crucial role in testing for Covid-19. By virtually monop- olising testing services or setting a national policy of testing, governments decide who should be tested as I. Testing well as how and by whom. Private parties are also involved; testing kits and services are supplied by both for Covid-19 public bodies and institutions such as pharmaceutical companies and laboratories. Covid-19 testing typically 4. Two tests can be used to determine whether an indi- entails taking a swab sample, which is also done at both vidual has an infectious disease: one for the virus itself public and private hospitals. However, individuals and and another for its antibodies. However, although the test their doctors are often not in a position to access these to detect antibodies exists and several countries use it, services; they must visit institutes run by governments or particularly to test front-line health care workers, such as meet the standards set by their governments to be tested. doctors and nurses, most governments, including Japan, Meanwhile, large number of people have asked to be acknowledge that only a virus detection test is reliable. tested but have been refused.1 The most widely used test is the reverse transcriptase polymerase chain reaction (RT-PCR) test.

1 M. Apuzzo and S. Gebrekidan, Can’t Get Tested? Maybe You’re in the Wrong Country, New

York Times (20 March 2020). délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 115 contact.5 Although this may appear to be a kind social 1. Two approaches to combat distancing, the three Cs’ criteria are easier to meet, as a Covid-19 distance of two metres between people need not be maintained as long as they are not in an enclosed environ- 5. Since the Covid-19 outbreak began, governments ment, for instance. The government has recommended around the globe have taken different approaches to that people stay at home, but compliance is voluntary. combat the pandemic. The first successful model to The state of emergency declared on April 7, 2020, did not emerge was that adopted by the Taiwanese and South change this.6 Although one may argue that this approach Korean governments, in which aggressive testing is balances the need to continue economic activities with conducted by national public health programmes and is the need to control the spread of the virus, the success of complemented by the rigorous identification of possible such laissez-faire strategies in the midst of a pandemic is 2 infection, tracking, and isolation. Despite their prox- currently unknown. imity to China, the original Covid-19 epicentre, Taiwan and South Korea managed to contain their numbers of 8. Whatever the likelihood of its success may be, testing infections and keep their death tolls low without insti- is as crucial under the Japanese approach as it is in other tuting lockdowns. Testing is central to their strategies. countries, if not more so. The likelihood that infected In particular, South Korea increased its RT-PCR testing patients will come into contact with others is greater than capacity so rapidly and implemented forward-looking under other models, and individuals, once infected, must proactive testing scheme when signs of the outbreak be hospitalised and quarantined promptly. The greater 3 began to emerge in other countries. likelihood of becoming infected also means that the need to test key sector workers—particularly doctors and 6. The model embraced by the original epicentre, Wuhan, nurses—is greater, to determine whether they are infected China, as well as most European countries, Australia, or may infect others. Furthermore, policymakers and Canada, India, New Zealand, and several US states, citizens must be able to verify whether such an approach involves mandatory social distancing and lockdowns. is effective to counter Covid-19. To make a sound judge- Under this model, the government takes measures ment, they need to know the state of the spread of the to reduce opportunities for individuals to come into virus. physical contact with each other and transmit the virus. The government might order all citizens to stay at home 9. The Japanese government, however, has kept the and work remotely. Businesses that cannot function in number of tests low.7 When it reported the first case this way are required to close unless they are considered of infection on the 16th of January 2020,8 Covid-19 to provide “essential services,” such as hospitals and testing was monopolised by the government;9 those who police stations. Several countries have reported that the suspected they were infected had to first call the Covid-19 increase in confirmed cases has been slow, or is slowing, helpline set up by the national and local governments and, 4 which may be signs of success of the strategy. Under this if invited, visit designated national or local institutes and model, business activities are suspended at large, which get tested.10 Although the government repeatedly stated entails significant economic loss. Thus, testing is essen- that it had increased its testing capacity,11 the number did tial not only to determine whether an individual must be quarantined but also to allow policymakers to establish how strictly the lockdown should be implemented. 5 The Cabinet, 27th Meeting of the Novel Coronavirus Response Headquarters, 7 April 2020 (https://japan.kantei.go.jp/98_abe/actions/202004/_00010.html); The Minister of Health, Labor and Welfare (MHLW), Basic policies for novel coronavirus disease control 2. Japanese approach by the government of Japan (28 March 2020) 3(3). 6 Abe naikaku sori daijin kisha kaiken [Press conference by the Prime Minister], 7 April and testing 2020 (https://www.kantei.go.jp/jp/98_abe/statement/2020/0407kaiken.html). 7 I. Reynolds and others (Bloomberg), Limited Virus Testing in Japan Masks True Scale of 7. Japan is an example of a country that has elected to Infection, Japan Times (2 March 2020); F. Regalado, Coronavirus testing gaps put Asian adopt neither of the aforementioned strategies. In Japan, governments under microscope, Nikkei Asian Review (13 March 2020); J. Arai, Germany tests coronavirus 17-times more than Japan, Nikkei Asian Review (2 April 2020). See also once an infection is confirmed, the patient is quaran- Japanese Society for Infection Prevention and Control, Iryokikan ni okeru shingata coro- tined. However, the number of tests is limited, and a large navirus kansensho heno taiou gaido [Guide to respond to novel coronavirus infectious diseases at medical institutions] (ver. 2.1 10 March 2020); Japan Primary Care Association, proportion of the population has no way of knowing Covid-19 Shinryojo / Byoin on puraimari care shoki shinryo no tebiki [Covid19 Guide whether they are infected. The government has ordered to primary care at clinics and hospitals] (ver. 1.0 11 March 2020) (https://www.prima- neither a lockdown nor social distancing. Instead, the ry-care.or.jp/imp_news/pdf/20200311.pdf); Japanese Association for Infectious Diseases, Shingata coronavirus kansensho ni taisuru rinsho taiou no kangaekata (2 April 2020) central and local governments have urged people to avoid (http://www.kansensho.or.jp/uploads/files/topics/2019ncov/covid19_rinsho_200402. the “three Cs,” which are closed air, crowds, and close pdf). 8 MHLW, Shingata coronavirus ni kanren shita hanen no kanja no hassei ni tsuite (1 reime) [On first case] (16 January 2020).

2 T. Jiawei and others, In Depth: Why South Korea is winning the coronavirus battle, Caixin 9 MHLW, Chuka jinmin kyowakoku kohoku sho bukan shi ni okeru shingata coronavirus (1 April 2020); C. Chiou, How Taiwan Battles the Coronavirus, Diplomat (6 April 2020). kanren haien ni tsuite (27 February 2020) (https://www.mhlw.go.jp/stf/newpage_09120. html). 3 Jiawei and others (n. 2); J. Hasell and others, Data on Covid-19 testing (https://ourworldindata.org/covid-testing). 10 MHLW, Shingata coronavirus kansen sho ni taio shita iryo taisei ni tsuite, 1 Febuary 2020 (https://www.mhlw.go.jp/content/10900000/000591991.pdf). 4 Audrey Wilson, ‘The countries that are succeeding at flattening the curve’ Foreign Policy (2 April 2020); L. Kelly, Australia upbeat over slowing coronavirus spread, urges vigilance, 11 Shingata coronavirus kansensho daijin kaiken [Press conference by the minister of health

Reuters (4 April 2020). on 17 February 2020] (https://h-crisis.niph.go.jp/?p=134584). délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

116 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis not increase significantly.12 The governments demanded of patients with Covid-19, which means that the occupa- that the citizens call Covid-19 helplines first and not visit tion of beds has resulted in the crowding out of patients uncertified hospitals;13 yet, in most cases, the callers were with other illnesses requiring acute care.21 These make the advised to see their doctors or to stay at home and wait designated hospitals cautious with testing. until the illness resolved spontaneously.14 Furthermore, even when doctors (who were not certified to conduct 12. At the time of writing, most tests are still performed by Covid-19 testing) referred individuals suspected of being local health centres and governmental testing institutes.22 infected to the health centres, the health centres did not They adopt the “active epidemiological investigation,” or always test them.15 targeted testing, which focuses on tracking close contacts and eliminating cluster, declining citizens’ request for 10. The Japanese changed its position on March 4, testing where they have not been in contact with patients 2020, to allow doctors to directly refer suspicious cases with confirmed infection. This approach does not allow to special hospitals and other institutes that the local testing to be conducted for a large number of population.23 governments denoted as qualified to perform the test.16 However, this change did not alter the situation.17 Although the doctors are now allowed to refer patients 3. The outcomes directly, doctors lack both the protective equipment and facility to stop the spread of the virus within their general of targeted testing hospitals, discouraging those who are concerned about 13. Despite the Japanese government’s claim that its Covid-19 infection from visiting them. Instead, doctors approach to testing is “targeted” and scientifically sound, request patients to call Covid-19 helplines set by govern- the need to test more has gradually become obvious to ments. Meanwhile, the Japan Medical Association issued many.24 “Targeted testing” is based on the assumption that the notice advising that non-certified front-line doctors the infection route and Covid-19 clusters can be detected, should cease to examining patients’ throats where the and thus, a large-scale Covid-19 spread may be effectively 18 risk of being infected exists, which further narrows the curtailed by tracking and eliminating such clusters. Over 19 chance for citizens to reach testing through doctors. The time, however, the government has reported an increasing national and local governments remain the gatekeeper number of cases for which the infection route could not for the testing for citizens. be identified. This indicates a need for more testing.

11. Furthermore, most newly qualified testing bodies 14. The number of confirmed cases in Japan is low.25 were designated hospitals that had facilities to accommo- However, it is possible that the low number only reflects date patients infected with Covid-19. Under the Japanese the small number of tests conducted in the country.26 government’s current approach, patients must be quaran- Governments are not always transparent. The Japanese tined in such hospitals once they have tested positive for government may be attempting to manipulate the number the virus, even if they have no symptoms.20 The number of confirmed cases so that the Tokyo Olympics, originally of facilities at these designated hospitals is limited, and planned for summer 2020, may proceed, or to avoid incon- the designated hospitals do not specialise in the treatment venience to businesses. However, in controlling Covid- 19, a lack of public trust in government may be fatal, as this can deepen anxiety among citizens, trigger panic 12 JIJI, Hospitals in Japan refusing to test many who suspect they have Covid-19, Japan Times and result in citizens’ non-compliance with government (26 February 2020). instructions and requests. Particularly, where compli- 13 MHLW, Kokumin no minasama-e (https://www.mhlw.go.jp/stf/seisakunitsuite/ ance with government recommendation is voluntary, bunya/0000164708_00001.html#kokumin). the government must be able to persuade its citizens to 14 MHLW, Kikokusha sesshokusha sodan senta- no sodan kensu tou (https://www.mhlw. change their behaviours. Polls conducted from February go.jp/content/10906000/000619807.pdf).

15 E. Misono, Japan Medical Assoc. to probe public health centers’ refusal to conduct coronavirus tests, Mainichi (27 February 2020). 21 See, e.g., Japanese Association for Infectious Diseases (n. 7). 16 MHLW, Chiiki ni oite hitsuyo na kanja ni PCR kensa wo tekisetsu ni jissi surutame no taisei seibi ni tsuite (4 February 2020) (https://www.mhlw.go.jp/content/000604467. 22 MHLW, Kokunai ni okeru shingata coronavirusu ni kakaru PCR kensa no jissji jokyo (as pdf). of 6 April 2020), (https://www.mhlw.go.jp/content/10906000/000619396.pdf).

17 H. Yano, Coronavirus: Why Japan tested so few people, Nikkei Asian Review (12 March 23 MHLW, Sekkyokuteki ekigaku chosa jissi yorho ni tsuite (12 March 2020) (https:// 2020). www.mhlw.go.jp/content/000607861.pdf). See also Yano (n. 17); JMA (Nichii online), Shingata coronavirus kansensho ni kakaru PCR kensa wo meguru hutekisetsu jirei no 18 JMA, Shingata coronavirus kansensho ga utagawareru mono no shinryo ni kansuru chosa kekka to (18 March 2020) (https://www.med.or.jp/nichiionline/article/009205. ryui ten ni tsuite (11 March 2020) (http://dl.med.or.jp/dl-med/kansen/novel_corona/ html). 2019chi_461.pdf). 24 W. Ripley and others, Japan’s coronavirus infection rate could be “tip of the iceberg” as 19 The government also expect citizens to call helpline first. See MHLW, Shingata coronavirus experts call for more testing, CNN (5 March 2020); Y. Taniguchi, Shingata corona sekai kakusan kenshutsu no hoken tekiyo ni tomonau shingata coronavirus kansensho ni taio no nagare ni okureta kensa seigen [The way Japan tests - lagging behind the global stan- shita iryo taisei ni tsuite (4 March 2020) (https://www.mhlw.go.jp/content/000604472. dard], Mainichi Shimbun (19 March 2020); R. Kaneko and Y. Naoko, Experts sound alarm pdf); MHLW, Shingata coronavirus ni kansuru Q&A (Ippan no kata muke) (7 April over Japan’s coronavirus testing, Japan Times (22 March 2020); S. Yamanaka, Itsutsu no 2020) (https://www.mhlw.go.jp/stf/seisakunitsuite/bunya/kenkou_iryou/dengue_fever_ teigen [Five recommendations] (accessed on 7 April 2020) (http://www.covid19-yamana- qa_00001.html) (Flowchart showing that patients should call helpline. The designated ka.com/cont6/main.html). hospitals with testing capacities are kept unlisted to prevent patients from visiting them directly.). 25 M. Roser and others, Coronavirus Disease (Covid-19) – Statistics and Research (https:// ourworldindata.org/coronavirus#deaths-from-covid-19). 20 Arai (n. 7); Regalado (n. 7). The government changed the position to allow them to stay at

home and other accommodation on the 2nd of April 2020. 26 Hasell (n. 3). délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 117 to early April showed that over 40–70% of Japanese citizens had negative views of the government’s approach II. The rationale to Covid-19.27 A survey conducted in mid-March indicated that 60% of respondents feared that they could not be tested even if they desired to be.28 for government

15. On the other hand, citizens do not take measures control of testing to prevent further spread of the virus.29 Where there is 18. Controlling infectious disease is one of the key func- neither a government order to stay at home nor wide- tions of governments, as an infectious disease produces spread access to testing, the only viable option available negative externalities. Asymptomatic infected people to most of the population is to continue going to work. or those who have few symptoms are likely to continue This must be beneficial for businesses; given the long- working and socialising, spreading the virus, which in standing Japanese business culture, which emphasises turn results in widespread illness and potentially death. physical presence in the office and face-to-face meetings, The government must either force such individuals to Japanese businesses expect their employees to be phys- remain in isolation in their homes or accommodate ically present.30 Indeed, the 31 March–1 April survey them in segregated hospital wings. A coordinated effort showed that only 5.6% of workers telework.31 to procure and allocate hospital beds may also be necessary, which typically requires governmental involvement. Depending on the nature of the disease, govern- 4. The Japanese government ments may take more drastic actions, such as instituting as a bottleneck of testing a lockdown. To implement these measures properly, the government must require individuals and health care 16. The state of testing described above will neither workers to report cases so that policymakers can unders- help to combat Covid-19 nor serve citizens’ interests. tand the nature and spread of the disease. The problems with the Japanese government’s approach to testing are threefold. Firstly, the health centres run by local governments have been slow in increasing testing 1. Covid-19 testing: capacity. Secondly, the designated hospitals provide three services: testing, quarantine, and acute care for Covid-19 Necessary conditions patients. This model does not incentivise the designated 19. Covid-19 testing helps the individuals to deter- hospitals to perform testing. Thirdly, the Japanese govern- mine their state of health, but crucially, the testing also ment is unwilling to have its citizens tested. If the govern- constitutes a part of a national disease control strategy. ment does not correct its policies to resolve these problems, As such, a testing scheme must have three features: it the last resort could be to liberalise the Covid-19 testing must be performed on anyone who is likely to be infected; market. In Japan, the media has reported that private if people test positive, this fact must be made known to laboratories have increased their testing capacity and have the institute that is in charge of quarantine; and finally, started to offer effective and convenient testing kits and testing must be reliable and safe. systems. Japanese citizens should be able to obtain these products and services directly. 20. If a government plays a central role in testing, the second and third conditions can be easily met. However, 17. Although the private sector alone may not be able a country’s government may be unable to test all indivi- to combat Covid-19 given its infectious nature, liberali- duals if the infection rate is high. Worse, the government sing testing services and establishing a private-public mix may be unwilling to test. Bureaucracy, political concerns, might better serve society at large. In the next section, and other inefficiencies may prevent the government I explore such an approach, further taking into account from establishing an optimal level of testing. In addition, the nature of Covid-19. the government may be primarily occupied with limiting economic impact and societal effects of the virus and countering measures and, therefore, be unable to focus fully on testing. 27 Asahi Shimbun (17 February 2020) (https://digital.asahi.com/articles/ ASN2K6CV8N2KUZPS009.html); FNN (25 February 2020) (https://www.fnn.jp/articles/-/23025); NHK (10 March 2020) (https://www3.nhk.or.jp/nhkworld/en/news/back- 21. In contrast, in the liberalised market, a different set stories/965); Mainichi Shimbun (15 March 2020) (https://mainichi.jp/articles/20200315/ k00/00m/010/112000c); TBS News (4–5 April 2020) (https://news.tbs.co.jp/newsi_sp/ of concerns would arise. Ensuring the third condition yoron/backnumber/20200404/q2-1.html); LeadingTech (7 April 2020) (https://prtimes. would be straightforward, as the government could set jp/main/html/rd/p/000000005.000042900.html). mandatory standards for Covid-19 tests and ensure that 28 Survey Research Center (6–9 March 2020) (https://www.surece.co.jp/research/3282). testing facilities comply. The first and second conditions,

29 A. Okutsu and M. Obe, Is Japan listening? Stay-home request heeded, but not by all, however, require thorough examination. Nikkei Asian Review (31 March 2020); JIJI, Only 30 percent in Japan practice social distancing while talking, Japan Times (6 April 2020).

30 T. Osaki, For many in Japan, remote work during coronavirus outbreak is not an option, Japan Times (22 March 2020); E. Jozuka, Even in the coronavirus pandemic, the Japanese won’t work from home until Shinzo Abe makes them, CNN (3 April 2020); S. Denyer, Work from home, they said. In Japan, it’s not so easy, Washington Post (6 April 2020).

31 JIJI (n. 29). délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

118 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis saw a significant increase in anxiety-driven purchases, 2. The liberalisation of despite a low number of confirmed cases.32 In addition, if the Covid-19 testing market the government remains the gatekeeper of the tests, panic will only increase, as many will be unable to be tested and to establish a public-private mix the population will know that the government’s estimate 22. The amount of testing may increase once the market of the infection rate is unreliable. has been liberalised, as such markets are often quicker than the government to respond to increases in demand. 26. Many also fear that a sudden increase in the need Currently, the demand exceeds the supply, yet it is possible for hospital beds, staff, and equipment may cause the that those who should be tested are not incentivised to do collapse of national health care systems, yet if a govern- so. A non-negligible percentage of the population may ment overlooks potential Covid-19 cases due to concerns avoid testing due to potentially negative outcomes, such about space and staff in its health care system, that as isolation, hospitalisation, or being unable to work system is already broken. Instead, governments should or maintain their businesses. Testing and the potential focus on fighting the pandemic by hiring more staff and resulting hospital stays may be prohibitively expensive obtaining more equipment for their hospitals. Beds can for low-income households. be rationed; those with no symptoms or mild ones can simply be told to self-isolate. 23. However, there are ways to alleviate these issues. In the case of individuals who should clearly be tested, 27. Those who are against increasing the amount of such as those who have been in close contact with infected testing have indicated that RT-PCR tests are inaccu- people, the government can order them to get tested. rate and that false-negative results will spread the virus, In addition, those who are experiencing severe symptoms while false-positive ones will result in hospital beds being are likely to voluntarily ask for testing. The issue of misa- occupied unnecessarily. This is a ridiculous claim which lignment between private willingness and public need cannot be justify low number of test. The percentage of can be serious in the case of patients without symptoms false-negative RT-PCR results is considered to be 30% in or those with mild to moderate symptoms. Economic Japan. In the current situation, large numbers of poten- concerns might outweigh these patients’ urge to know tial patients, as well as doctors, nurses, and policymakers, their health condition. To address this, the government are acting almost blindly without knowing, or even esti- can provide financial assistance to mitigate such concern. mating, the true scale of spread. Test would provide these Japan and most countries in Europe have already made parties with a clearer estimate of the likelihood of illness hospital stays and the accompanying medications asso- and the spread of the infection, which would help them ciated with Covid-19 free. In case of employees, sick leave to respond to Covid-19 more effectively. is also being granted during the period of mandatory quarantine. However, the self-employed and freelance 28. Finally, liberalisation could lead to inequality in workers may still suffer economic losses by not being able testing. Those who need to be tested the most—health to run their businesses, which must also be addressed by care workers—might not have access to testing. Key the government through financial support. Furthermore, workers should be prioritised not only to protect their to incentivise them adequately, those who have tested own lives but to stop the spread of the virus. Yet rather negative must also be helped, as otherwise, potential than dismiss private testing due to health care workers’ patients are unlikely to have adequate incentive to self-re- greater needs, the government could become involved, port and be tested. paying for their tests or purchasing a sufficient number of test kits to accommodate these employees. 24. In relation to the second condition—namely, the need for the government to know who are tested positive as 29. The liberalisation of testing may not be as efficient as well as how widely virus is likely to spread—governments governmental leadership, as the government can buy in can mandate that testing entities report the outcome of bulk at a lower price. In addition, adding another layer testing. While private entities may be unwilling to do so of regulations and enforcement to ensure that private when they expect economic losses and inconvenience, entities comply with quality standards and their obli- guaranteeing them financial support will likely ease such gation to report to the government will likely be costly. concerns. Such considerations, however, do not apply in the context of the Japanese government’s current response, which 25. One may be concerned about the negative societal will be unable to achieve such efficiency. and economic impact of increasing the amount of testing, yet such a concern is groundless. Firstly, the government’s control over testing is unable to suppress the population’s panic over the pandemic. Japan indeed

32 N. Shibata, Coronavirus rumors fuel panic buying of toilet paper in Japan, Nikkei Asian Review (2 March 2020); R. Inaba, Mask and Toilet paper fusoku ni, [Shortage of masks

and toilet rolls] Travel Watch (3 March 2020). délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

Concurrences N° 2-2020 I On-Topic I Competition law and health crisis 119 be ready to act should this occur. In jurisdictions in III. The role which exploitative practices are regulated under competition laws, exploitative unfair pricing, discriminatory treatment, and forced purchasing or tying of different of competition law products are also subject to regulation under competition and authority laws.36 Consumers must be neither misled nor coerced. 30. The liberalisation of Covid-19 testing services is possible if it is accompanied by government oversight and regulation. Competition authorities not only enforce IV. Conclusions competition laws but also assess regulatory measures. 32. Covid-19 has already changed the world. The argu- In countries where the Covid-19 testing regime is not ments presented in this article may appear to be novel functioning, competition authorities should examine the and thus unrealistic, but this pandemic makes it clear situation and evaluate whether the government’s inter- that it is time for every institute to consider creative solu- vention serves the public welfare. In so doing, the autho- tions to problems. The liberalisation of testing services is rities might also uncover factors that inhibit citizens from far from new, and most other tests have been liberalised accessing Covid-19 tests. There is no reason for the Japan in Japan as well as in Europe and the United States. Fair Trade Commission not to engage in such a venture, as the Commission is assured the independence to act to 33. In the face of this unprecedented crisis, the citizens’ ensure consumer welfare.33 expectation is that governments would act promptly and efficiently to protect their citizens’ lives. Tragically, 31. In liberalised Covid-19 testing markets, the proac- governments are failing to meet this expectation in many tive enforcement of competition laws is vital. Hospitals, places. When the market fails, the government is expected testing bodies and pharmaceutical companies must not to intervene. In cases where the government fails, the last be permitted to collude in a way that limits output and resort may be the competitive free market. n inflates prices.34 Exclusionary practices must be prohibited.35 Standard-setting and regulatory processes may result in anti-competitive practices; authorities should

33 On JFTC’s such activities, see, e.g., JFTC, Report on the Medical Equipment Distribution (27 December 2005); JFTC, Report on Distribution of Pharmaceuticals (27 September 2006).

34 As illustrative cases, see, SRL, JFTC, 4 August 2004; Yoshikawa Matsubushi Medical Association, JFTC Cease and Desist Order, 27 February 2014; Torii Pharmaceutical, JFTC, 5 March 2020. 36 JFTC recently requested the retailers not to tie facial masks with other products. JFTC, Shingata coronavirus ni kanren shita kansensho no hassei ni tomonau masuku to no daki-

35 Japan Medical Foods Association, JFTC, 8 May 1996. awase hanbai ni kakaru yosei ni tsuite, 27 February 2020. délit pénalement sanctionné jusqu'à 3 ans d'emprisonnement et 300 000 € d'amende (art. utilisation non autorisée constitue une contrefaçon, intellectuelle du 1er juillet 1992. Toute d'auteur par les conventions internationales en vigueur et le Code de la propriété du droit au titre Ce document est protégé by copyright laws and internationalNon-authorised use of this document pouvant accompagner ce document. This document is protected copyright treaties. techniques de protection personnelle est strictement autorisée dans les limites de l’article L. 122 5 CPI et des mesures L. 335-2 CPI). L’utilisation Intellectuelle and DRM protection. Intellectuelle). Personal use of this document is authorised within the limits Art.constitutes a violation of the publisher's rights and may be punished by up to 3 years imprisonment € 300 000 fine ( Art. L 122-5 Code de la Propriété L. 335-2 Code de la Propriété

120 Concurrences N° 2-2020 I On-Topic I Competition law and health crisis Concurrences

Editoriaux Droit & économie Jacques Attali, Elie Cohen, Claus‑Dieter Emmanuel Combe, Philippe Choné, Ehlermann, Jean Pisani Ferry, Ian Forrester, Laurent Flochel, Frédéric Jenny, Eleanor Fox, Douglas H. Ginsburg, Gildas de Muizon, Jorge Padilla, Laurence Idot, Frédéric Jenny, Arnaud Penelope Papandropoulos, Anne Perrot, Montebourg, Mario Monti, Gilbert Parleani, Nicolas Petit, Etienne Pfister, Francesco Rosati, Jacques Steenbergen, Margrethe Vestager, David Sevy, David Spector... Bo Vesterdorf, Denis Waelbroeck, Marc van der Woude... Chroniques Concurrences est une revue Interviews Ententes trimestrielle couvrant l’ensemble Sir Christopher Bellamy, Lord David Currie, Ludovic Bernardeau, Anne-Sophie Choné des questions de droits de Thierry Dahan, Jean-Louis Debré, Isabelle Grimaldi, Michel Debroux, Etienne Thomas l’Union européenne et interne de Silva, François Fillon, John Fingleton, Pratiques unilatérales de la concurrence. Les analyses Renata B. Hesse, François Hollande, William Kovacic, Neelie Kroes, Laurent Binet, Frédéric Marty, de fond sont effectuées sous Anne Wachsmann forme d’articles doctrinaux, Christine Lagarde, Johannes Laitenberger, de notes de synthèse ou Emmanuel Macron, Robert Mahnke, Pratiques commerciales Ségolène Royal, Nicolas Sarkozy, de tableaux jurisprudentiels. déloyales Marie‑Laure Sauty de Chalon, L’actualité jurisprudentielle Tommaso Valletti, Christine Varney... Frédéric Buy, Valérie Durand, et législative est couverte par Jean‑Louis Fourgoux, Rodolphe Mesa, onze chroniques thématiques. Marie‑Claude Mitchell Distribution Dossiers Nicolas Ereseo, Dominique Ferré, Jacques Barrot, Jean-François Bellis, Didier Ferrier, Anne-Cécile Martin David Bosco, Murielle Chagny, John Connor, Damien Géradin, Assimakis Komninos, Concentrations Christophe Lemaire, Ioannis Lianos, Jean-François Bellis, Olivier Billard, Pierre Moscovici, Jorge Padilla, Emil Paulis, Jean‑Mathieu Cot, Ianis Girgenson, Robert Saint-Esteben, Jacques Steenbergen, Sergio Sorinas, David Tayar Florian Wagner-von Papp, Richard Whish... Aides d’État Jacques Derenne, Bruno Stromsky, Raphaël Vuitton Articles Procédures Guy Canivet, Emmanuelle Claudel, Pascal Cardonnel, Alexandre Lacresse, Emmanuel Combe, Thierry Dahan, Luc Gyselen, Christophe Lemaire Daniel Fasquelle, Barry Hawk, Nathalie Homobono, Laurence Idot, Frédéric Jenny, Régulations Bruno Lasserre, Luc Peeperkorn, Anne Perrot, Orion Berg, Hubert Delzangles, Nicolas Petit, Catherine Prieto, Patrick Rey, Emmanuel Guillaume Joseph Vogel, Wouter Wils... Mise en concurrence Bertrand du Marais, Arnaud Sée Pratiques Actions publiques Tableaux jurisprudentiels : Actualité Jean-Philippe Kovar, Francesco Martucci, des enquêtes de concurrence, Stéphane Rodrigues Contentieux indemnitaire des pratiques Droits européens et anticoncurrencielles, Bilan de la pratique étrangers des engagements, Droit pénal et concurrence, Legal privilege, Cartel Profiles in the EU... Walid Chaiehloudj, Sophie‑Anne Descoubes, Marianne Faessel, Pierre Kobel, Silvia Pietrini, Jean‑Christophe Roda, François Souty, Stéphanie Yon-Courtin International Belgium, Brésil, Canada, China, Germany, Hong‑Kong, India, Japan, Luxembourg, Switzerland, Sweden, USA... Livres Sous la direction de Stéphane Rodrigues

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