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published on 11 November 2020 | Reading time approx. 6 minutes
In antitrust law, the IT sector with its prominent proceedings (e.g. against Microsoft, Intel and Google) has dominated the headlines in recent times. However, national and European antitrust laws and the heavy fines that were issued in those cases also affect the pharmaceutical and healthcare industries as well as the food sector.
Infringements are closely monitored by the Commission and the national competition authorities. This is of fundamental importance in providing adequate public healthcare for all citizens who shall have access to innovative, safe and affordable medicines and food. Agreements restricting competition and coordinated practices by companies are therefore generally prohibited. This remains unchanged during the Corona pandemic.
The exceptional situation presented by Covid-19 is nevertheless not a protective shield against the enforcement of antitrust law, even though exemptions from the ban on cartels are still possible. In this respect, the competition authorities are now showing a certain flexibility in order to give companies greater legislative security during the crisis. The following article provides an overview of this complex topic.
Antitrust law essentially comprises three pillars – the prohibition of anticompetitive agreements, the prohibition of abuse of a dominant position, and merger control. European legislation regarding to antitrust law is formed in particular by Articles 101, 102 TFEU and the EC Merger Regulation (ECMR/EUMR). In the pharmaceutical and healthcare sector as well as in the food sector, a large number of antitrust issues arise at the various stages of the development, production and distribution of a product. Vertical agreements between non-competitors and horizontal agreements between competitors may be made, which need to be differentiated under antitrust law. In addition, specific problems may arise in these areas compared to general antitrust law (see also the “Antitrust law in the pharmaceutical and healthcare sector” and “Antitrust law in the food sector” articles). E.g., the prohibition of the export of the traded goods to countries other than the contracting countries in the pharmaceutical sector is particularly relevant from an antitrust law perspective, because it serves as a means of making so-called parallel imports more difficult. The issue of cooperation in the research and development (R&D) of new drugs and medical products is also a highly sensitive issue in the pharmaceutical sector. In the food sector, the special regulations on agricultural products must be observed. In addition, specific problems arise for example, in the context of information exchange, category management, and retail prices.
Antitrust law continues to apply during the corona virus pandemic, even though European antitrust authorities have promised to interpret it flexibly and in the light of the crisis (see Joint Statement by the European Competition Network (ECN) on application of Competition law during the corona crisis). In particular, the changed market conditions caused by the corona crisis must be taken into account in the application and interpretation of conventional antitrust law. This regards, for example, the possibility of exemptions from the ban on cartels in the context of cooperation between competitors. To this end, the European Commission has already published on 8 April 2020 the Communication “Temporary Framework for assessing antitrust issues related to business cooperation in response to situations of urgency stemming from the current Covid-19 outbreak” (2020/C 116 I/02). This Communication states that under certain conditions, forms of cooperation and information exchange may be permitted under antitrust law, in particular to safeguard the public healthcare system (“including e.g. pharmaceutical companies, medical equipment producers, and their distributors”), but also with regards to e.g. the supply of foodstuffs as “essential but scarce products and services” may be admissible under antitrust law.
This, however, is only permitted under the condition that the cooperation is limited in time and urgently necessary to overcome acute supply bottlenecks. In addition, there is the possibility of obtaining attestations for individual cooperation projects through informal enquiries in advance to the authorities, e.g. through a so-called “Chairman's Letter” (“Vorsitzendenschreiben”) from the Bundeskartellamt (Federal Department of Antitrust), or a so-called “Comfort Letter” from the European Commission. Within the framework of the 10th amendment-legislation to the German “Gesetz gegen Wettbewerbsbeschränkungen” (GWB – Competition Restraints Act) currently also provides for a direct legal entitlement of companies to such a “Chairman's Letter” in advance of a potential cooperation with competitors (cf. new Section 32c (4) GWB [Competition Restraints Act])In Germany, the Act on the Mitigation of the Consequences of the COVID-19 Pandemic in Competition Law has also led to a one-off and minor increase in the examination periods for merger control during the initial phase of the pandemic. From one to two months in accordance with Section 40 (1) GWB (notification of main examination proceedings) and from four to six months in accordance with Section 40 (2) GWB (main examination proceedings) for notifications made between 1 March 2020 and 31 May 2020. In addition, developments in foreign trade law must be taken into account for corporate transactions/mergers, especially in the healthcare sector).
Die However, the national and European antitrust authorities continue to be very vigilant with regard to classic cartels (e.g. price or area agreements) as well as abuse control, especially in the case of extraordinary price increases and/or the short-term termination of supply contracts (e.g. for respiratory protection masks or disinfectants).
Due to the costly and time-consuming effort involved in the development of new drugs and medical devices, collaboration in pharmaceutical research and development appears particularly attractive. However, such cooperation may in individual cases be suitable to restrict competition, for example by slowing down innovation or by coordinating behaviour, leading to higher prices. A restriction of competition in the individual case may exist if the cooperation does not truly concern joint R&D, but is used as a means of disguising a cartel conducting prohibited practices such as price fixing, output limitation or market sharing.If a noticeable restriction of competition results, an exemption under the Block Exemption Regulation (EU) No. 1217/2010 (BER Research & Development – BER R&D) is possible up to a joint market share threshold of 25 per cent, otherwise an individual exemption under Article 101 (3) TFEU (Section 2 (1) GWB) if the restriction is indispensable to the attainment of efficiency gains that are passed on to consumers to such an extent that they outweigh the restrictive effects of the agreement on competition. Even under the current rules, competition restrictions may therefore be permissible in the context of cooperation in research and development, especially in the pharmaceutical sector. There are good reasons for this, especially in the current Covid-19 crisis, when cooperation and information exchange can make the necessary medical knowledge available more quickly. After all, antitrust law is particularly keen to generate innovations. For example, a merger for the joint development of a vaccine or drugs against Covid-19. If such a cooperation for research and development relate to a completely new product, the cooperation is exempted irrespective of the market shares of the respective parties involved (Recital 14 BER Research & Development). In principle, however, the question of whether restrictions of competition are justified always requires a case-by-case assessment.
The issue of the admissibility of production agreements under antitrust law is another delicate issue during the Covid-19 crisis. In principle, these can lead to a direct restriction of competition between parties. They can also result in a coordination of the competitive behavior of the parties as suppliers and can result in higher prices or lower production volume, product quality, product variety or innovation, i.e. a collusive outcome, and can also lead to an anticompetitive foreclosure of the market. Here too, however, exceptions can be made, either through block exemptions (e.g. Technology Transfer Regulation, Specialisation Regulation) or through individual exemptions. This applies in particular in cases concerning directly the supply of the consumers, so in the context of the fight against losses of production as well as supply and supply bottlenecks.The European Commission has established special conditions in the so-called “Temporary Framework” for cooperation projects that increase the production of “pharmaceuticals and medical equipment necessary for testing and treating patients with Covid-19” or other “essential goods and services” in high demand (see Commission Communication (2020) 3200 Final of 8 April 2020). This is because an increase in production may require several companies to coordinate production, storage, distribution, and product range. Normally coordinating on any of these would represent an antitrust violation. However, in order to accommodate the changed market conditions during the Covid-19 crisis, the Commission has set out in the aforementioned Communication conditions that such cooperation is exceptionally permissible during a supply bottleneck, if necessary and appropriate to remedy or avoid such a bottleneck. Of course, these may only be temporary in nature.For example, the Commission has issued an ad hoc certificate (Comfort Letter) to the association of pharmaceutical manufacturers “Medicines for Europe” and participating companies on the antitrust law admissibility of a voluntary cooperation project to combat the shortage of essential drugs for the treatment of Covid-19 patients in hospitals, provided that certain conditions are met. Further examples are the formation of purchasing groups, which may be permitted by way of exception. For example, the Italian competition authority allowed a temporary cooperation between pharmacies and wholesalers in the purchase and distribution of disposable surgical masks.
During the Covid-19 crisis, however, the competition and antitrust authorities of Member States pay particular attention to compliance with the prohibition of market abuse, in particular the practice of imposing unjustified purchase or selling prices or other trading conditions. This is a form of exploitation within the meaning of Article 102 (2) (a) TFEU, which is prohibited under antitrust law. Exploitation includes conduct by which the holder of a dominant position has used the resulting opportunities to obtain commercial advantages which he would not have obtained if subject to normal and sufficiently effective competition (so-called price level abuse). Exploitation exists if the price is disproportionate to the economic value of the service provided. Against this background, price increases for scarce supply of goods in particular can come into the focus of antitrust law. Especially at the beginning of the pandemic, these included protective masks and disinfectants. However, a price increase does not always constitute exploitation. Retailers are in principle free to set their own selling prices. Only if there are no objective reasons, abuse control is called for. The “corona virus effect” was also caused by increased supply bottlenecks, reduced inventories, increased transport costs, and price increases of preliminary products. In such cases, higher sales prices for the goods concerned are usually objectively justified. Cases of (extraordinary) termination of existing contracts can also fall under the ban on exploitation if the objective is to sell scarce products (e.g. protective masks, disinfectants) to other interested parties at higher prices due to the Covid-19 crisis. Antitrust law aspects should therefore be examined in any case before turning your back on long-term business partners.
Antitrust law remains in force during the corona virus pandemic. Whether competition restrictions are permissible in an individual case due to Covid-19-related changes in market conditions depends on the circumstances of the individual case. Such decisions are usually legally very complex and require expert knowledge. However, it was precisely during the Covid-19 crisis that the possibility of informal coordination with the antitrust authorities and the European Commission (“Comfort Letter”) was made easier for specific projects. Companies should therefore also consider contacting the relevant authority in the event of legal uncertainties. This possibility is being presented just now by the “Bundeskartellamt” (Federal Department of Antitrust), which can inform companies by means of a so-called “Chairman's Letter” in regard to specific projects that may be relevant under antitrust law that it will not initiate antitrust law proceedings or will refrain from an in-depth investigation.
Dr. Barbara Klaus
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Ulrich Klaus
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