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COVID-19: help for supermarkets and other retailers with competition law compliance in challenging times

24 March 2020. Published by Lambros Kilaniotis, Partner and Melanie Musgrave, Senior Associate

The Government is providing the supermarkets with the necessary comfort, so that they can co-operate with each other in order to keep the shelves stocked and deliveries continuing during the course of the COVID-19 crisis.

Competition law compliance is important for all businesses and this still remains the case during these challenging times. However, there is also an acknowledgment that these are exceptional circumstances and neither the Government nor the Competition and Markets Authority (the "CMA") want competition law enforcement concerns to impede co-operation between businesses where this co-operation is temporary and necessary in order to ensure the security of supply of essential products and services.

The Government is, therefore, providing the supermarkets with the necessary comfort, which they have been seeking, so that they can co-operate with each other in order to keep the shelves stocked and deliveries continuing. Similarly, the CMA has sought to give reassurance to businesses that it will not take enforcement action against them where co-operation is necessary to ensure security of supply. Nevertheless, the message is also very clear that businesses should not use the current crisis as a cover for illegal cartel activities, nor should they be profiteering from it.

What is the situation with the supermarkets?

The Government announced on Friday 20th March that, amongst a range of measures, it will temporarily relax elements of competition law so that supermarkets will be able to work together 'to feed the nation'.

For this purpose, the supermarkets will be able to:

  • share data with each other on stock levels;
  • co-operate with each other to keep stores open;
  • share distribution depots and delivery vans; and
  • pool staff with one another to help to meet demand.

How will this work in terms of the existing legislation?

Where there are 'exceptional and compelling reasons of public policy', the Government has the power to exclude agreements/arrangements from the application of the Competition Act's Chapter I prohibition (which prohibits agreements, decisions and concerted practices which may affect trade within the UK and which have as their object or effect the prevention, restriction or distortion of competition within the UK).

Such arrangements for the sole purpose of 'feeding the nation' are likely to satisfy the general competition law exemption criteria in any event, but it does mean that the supermarkets will not have to rely on their own self-assessment of the competition law position, thereby avoiding potential delay and/or legal uncertainty.

The required secondary legislation to exclude relevant activities in the food sector will be brought in shortly.

This is not the first time that this power has been used as the Government has previously excluded from the Chapter I prohibition the protocol agreed by the petroleum supply industry in order to ensure fuel supplies in the event of significant fuel disruption. 

What about enforcement action in relation to arrangements not covered by the exclusion?  

The CMA has provided an assurance that it has no intention of taking competition law enforcement action in relation to arrangements, which will not fall within the proposed exclusion, but which are necessary during the current crisis to ensure security of supply of essential products and services. Thus, if co-operation between businesses or the rationing of products are needed to protect consumers, then the CMA will not take action. 

However, it has made very clear that it "will not tolerate unscrupulous businesses exploiting the crisis as a ‘cover’ for non-essential collusion", such as exchanging unnecessary longer-term pricing or business strategy information. The CMA has promised further guidance in due course.

What action is the CMA taking against businesses apparently exploiting consumers?

Two weeks ago, the CMA confirmed that it was monitoring reports of businesses exploiting the current crisis by charging excessive prices and making misleading claims, for example, about the protection offered by their products, and urged retailers to behave responsibly.

The CMA has already contacted 'traders and platforms' regarding excessive prices for hand sanitiser.

The CMA has subsequently announced the launch of a task force to scrutinise market developments in order to identify harmful sales and pricing practices, to warn businesses suspected of exploiting the current situation and to take enforcement action against businesses where there is evidence of competition and/or consumer law breaches in the event that its warnings have been ignored.

The task force will also advise the Government on how to ensure that competition law does not stand in the way of legitimate measures to protect public health and support the supply of essential goods and services. In addition, it will provide advice on further policy and legislative measures required to ensure markets work as well as possible going forward.

Encouragement to report harmful behaviour

The CMA has also sent an open letter to the pharmaceutical and food and drink industries indicating that it has received reports that a minority of companies in these important sectors are charging unjustifiably high prices for essential goods or making misleading claims about their efficacy.

The CMA is looking to ensure that any such harmful behaviour is "nipped in the bud now" and that markets continue to work well in the months ahead with consumers being treated fairly and public trust being maintained.

It is urging firms "to read and act on this letter to help ensure that the harmful practices by a minority of bad apples are identified and stamped out quickly so that consumers can rely on these vital markets when they need them most."

To this end, it is asking businesses, that face price increases from their wholesalers or suppliers, to provide information in writing to a dedicated email address (covid.monitoring@cma.gov.uk) so that the CMA can then investigate these issues further up the supply chain.

In conclusion

It is to be welcomed that the supermarkets will be able to take steps necessary 'to feed the nation' whilst the current crisis persists and that businesses are being given some reassurance by the CMA that genuine co-operation to ensure security of essential supplies and services will not face competition law enforcement action by it. 

However, this does not mean that businesses, including the supermarkets, are being given carte blanche to ignore competition law. Any proposed arrangement or agreement between businesses which does not fall within the Government's specific exclusion, needs to be carefully considered from a competition law perspective. It should be limited to what is absolutely necessary in order to achieve the required consumer benefit. 

It is also clear that the CMA will take strong action against any business using the current crisis as cover for illegal, anti-competitive behaviour. The CMA's new task force is going to be proactively monitoring pricing behaviour and will be clamping down on excessive prices exploiting consumers.