The European Commission has published a Temporary Framework Communication to provide guidance to companies that are cooperating to ensure the supply and distribution of essential products – including medicines and medical equipment – during the COVID-19 outbreak. The Communication sets out the criteria that the Commission will apply in assessing the legality of cooperation during the COVID-19 pandemic and provides that the Commission is available to issue “comfort letters” for specific cooperation projects. This Framework is in force until further notice.
What is the Temporary Framework Communication about?
Coordination between competitors relating to production, stock management, distribution or other commercially sensitive aspects can be problematic from a competition law perspective in normal circumstances. These, however, are not normal circumstances; the Commission calls the COVID-19 outbreak a “severe public health emergency” and a “shock” to the economy. The Communication notes that there has been a steep rise in the demand for healthcare products affecting pharmaceutical companies, medical equipment producers and their distributors. The Commission also highlights that shortages in critical medicines and medical equipment may worsen as the pandemic evolves. Therefore, coordination between competitors, with appropriate safeguards, can bring important benefits to consumers.
The Communication covers cooperation between companies regarding the supply of essential products which includes medicines, medical equipment such as tests for COVID-19 and treatment of COVID-19 patients, as well as other medical products that may be necessary to mitigate or overcome the outbreak. The Communication explains the criteria that the Commission will follow when assessing cooperation efforts between companies and the temporary process that has been set up to provide guidance to companies.
What are the Commission’s criteria for assessing cooperation efforts relating to COVID-19?
The Commission has accepted that the response to COVID-19 may require different degrees of cooperation to bridge the gap between supply and demand. Cooperation may be necessary to avoid critical supply disruptions or to ensure that not all efforts of healthcare companies are dedicated to producing medicines or medical equipment to deal with COVID-19, and that the production of other medicines and medical equipment for other medical needs continues.
These cooperation efforts may entail the exchange of commercially sensitive information, such as stock levels, stock management, production sites and distribution. The Communication provides that in these exceptional circumstances such measures would either not be problematic under EU competition law or, because of the emergency situation and the temporary nature of the efforts, would not be an enforcement priority for the Commission provided that the cooperation is:
“(i) designed and objectively necessary to actually increase output in the most efficient way to address or avoid a shortage of supply of essential products or services, such as those that are used to treat COVID-19 patients;
(ii) temporary in nature (i.e. to be applied only as long as there is a risk of shortage or in any event during the COVID-19 outbreak); and
(iii) not exceeding what is strictly necessary to achieve the objective of addressing or avoiding the shortage of supply.”
The Commission also states it will not stand in the way of cooperation in the context of an imperative request from public authorities to companies in response to urgent situations relating to COVID-19 – for example, cooperation on production and delivery to keep up the functioning of health care for COVID-19 patients.
Companies are specifically asked to document the exchanges and agreements that are made between them and to provide such documentation to the Commission on request.
Is the Commission willing to give written guidance on specific cooperation efforts?
The Commission has already set up a dedicated mailbox where companies can seek informal guidance on whether specific cooperation initiatives are compatible with EU competition law. In seeking such guidance the parties need to explain upfront the EU competition law concerns that their agreement may raise and why the cooperation is necessary and proportionate to achieve its intended benefits. The Communication reports that the Commission has already received several requests from companies and trade associations asking for such guidance.
The Commission has now also confirmed that it may “exceptionally and at its own discretion” provide guidance by way of ad-hoc ‘comfort’ letters to companies in relation to specific cooperation proposals. These comfort letters, while likely to be only administrative in nature and not binding, will at least offer companies a level of certainty with regard to the Commission’s opinion of the proposal. The Communication is silent on the procedure for applying for a comfort letter but it is assumed that companies seeking such a letter will need to provide detailed information about the proposed cooperation and how benefits to consumers offset any anticompetitive effects.
The Commission has already given a comfort letter to an association for generic medicines in relation to a specific voluntary cooperation project among pharmaceutical producers that targets the risk of shortage of critical hospital medicines for the treatment of COVID-19 patients. Provided that the cooperation remains within the scope that was communicated to the Commission, the parties have the Commission’s assurance that their cooperation is justifiable under EU competition law.
The Commission’s approach of offering further guidance through the Temporary Framework Communication, the setting up of the dedicated Commission mailbox and the willingness to provide comfort letters indicates that it is very much aware of the challenges brought on by the COVID-19 pandemic and the uncertainty it brings to businesses. The Communication, however, does not have the same legal status as legislation to exempt formally certain forms of cooperation from the application of competition law altogether which, for example, has been done in some instances in the United Kingdom. Cooperation efforts can still be caught under EU competition law. What the Commission is asking companies to do is to continue to self-assess that their efforts are compliant and keep written records of their communications and agreements. If there is genuine doubt as to whether cooperation efforts are compliant with EU competition law, then informal guidance from the Commission is available.