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COVID-19: The Dairy Sector and Welsh health services granted temporary UK competition law exemptions and the European Commission issues first 'Comfort Letter' to Pharmaceutical Manufacturers

01 June 2020. Published by Lambros Kilaniotis, Partner and Melanie Musgrave, Senior Associate

The UK Government has granted a temporary competition law exemption for certain collaboration within the dairy sector and Welsh health services and the European Commission has published its first 'comfort letter' to allow co-operation to ensure supplies of medicines for COVID-19 patients.

Exclusion Orders

The Government has followed up with two further, temporary legislative exemptions from the Chapter I prohibition under the Competition Act 1998, one being for health services in Wales (following a similar exemption for England) and the second for the dairy sector. 

The dairy industry's specific Covid-19 challenges have been well-documented, particularly the impact of decreased demand from the hospitality sector with farmers having to pour milk away. The purpose of the three-month exemption is to enable collaboration between dairy farmers and producers in order to avoid/minimise surplus milk being wasted and the consequent environmental harm of disposing of large volumes of milk and also to maintain milk production capacity for the future. Collective efforts to identify processing opportunities to produce storable milk products, such as butter, cheese and skimmed milk powder will be permitted, along with the sharing of labour and facilities.  Any co-ordination regarding a temporary reduction of milk products will also be permitted, provided that the object is not to exclude a dairy produce supplier from the market. However, in common with the other Covid-19 related Chapter I exemptions, it is made clear that the exemption does not apply to any arrangement involving the sharing of pricing or costs information.

One of the conditions for exemption under the various Exemption Orders is that the relevant agreement is duly notified to the Secretary of State. On 21 May 2020, the Government published its register of such agreements for the first time. Although it was too soon to cover agreements in the dairy sector, the register lists three notifications in relation to health services for patients in England and Wales, two in respect of Solent maritime crossings and thirteen in the groceries sector.

CMA's Covid-19 Task Force

The CMA has published its second Covid-19 Task Force update. It has received 60,000 contacts since it was set up. Whilst the majority of the complaints received initially related to price increases (with the price of hand sanitiser and paracetamol topping these complaints), since mid-April the majority of complaints have been about unfair practices relating to cancellations and refunds. The Task Force has now added package holidays to its initial priority sectors for investigation about possible breaches of the law, namely: holiday accommodation; weddings and events; and nursery/childcare providers. About a fifth of cancellation/refund complaints have related to airlines and these have been passed to the CAA.  The Task Force has also written to 264 businesses, which combined represent approximately a third of the actionable complaints about unjustifiable price rises.

European Commission's First Comfort Letter

In addition to highlighting its general guidance, publishing its Temporary Framework providing guidance on the competition law compliance assessment of  business cooperation in response to "situations of urgency" due to the COVID-19 pandemic and offering ad hoc guidance to businesses and trade associations,  the European Commission had stated that, in exceptional circumstances, it would consider providing a more formal 'comfort letter'.

It has published its first such letter confirming to Medicines for Europe ("MFE") that the proposed co-operation in relation to COVID-19 medicines does not raise competition concerns under Article 101 of the TFEU. The European Commission was satisfied that the purpose of the co-operation was "to expeditiously and effectively increase supply and production of urgently needed COVID-19 medicines" and that the co-operation was necessary to achieve this. MFE has accepted certain conditions, namely:

  • the co-operation is open to any pharmaceutical manufacturer whether or not it is a member of MFE;
  • all meetings will be minuted and copies of any agreements entered into as part of the co-operation will be provided to the European Commission;
  • the exchange of confidential information will be limited to what is indispensable for achieving the objectives and will be collated by the MFE or third party appointed by it and shared on an aggregated basis; and
  • the co-operation will be of limited duration, i.e. only whilst the risk of shortages remains.

In addition, the European Commission has made very clear that the comfort letter does not cover any pricing discussions and is also subject to the co-operation participants not increasing their prices beyond what is justified due to any increases in their costs.