Easing the competition law mine field - COVID-19 makes it easier for competing food & beverage companies to cooperate and obtain government subsidies
As a general rule, companies are required to self-assess whether any cooperation they enter into is antitrust compliant. This is particularly true when it comes to cooperation with competitors which finds itself in the cross-hairs of antitrust enforcement around the world. The rules are strict and assessment can sometimes be difficult, often requiring specialist knowledge to avoid the pitfalls.
The COVID-19 outbreak has, in certain cases, made more cooperation possible and getting legal certainty easier.
The European Commission has adopted Temporary Frameworks for antitrust cooperation as well as State aid (government subsidies), setting out the main criteria that the EU Commission will follow when assessing cooperation projects aimed at addressing a shortage of supply of essential products and services during the COVID-19 outbreak as well as support schemes from EU Member States.
To assist businesses in such difficult times, the EU Commission and the EU National Competition Authorities ("NCAs") have made it clear that they are ready to assist companies and, in certain cases, even confirm that they are not infringing competition rules when working together (see more here). Likewise, they have enacted a speedy clearance system for EU Member State schemes for providing State aid.
For more information on the application of Competition law rules in this exceptional period please see our recent briefings here.
From e-commerce to government subsidies - Examples of issues where the new relaxed COVID-19 rules may play a role
To help companies active in the Food and Beverage sector, we have prepared short Q&As on the most common business situations.
I. I am a producer of consumer food products. The crisis situation impacts my supply chain and I wish to cooperate with new distributors and logistics services which also provide services to my competitors. What should I be aware of from a competition law perspective?
As put in the EU Commission-NCAs joint-statement, competition authorities will as a rule not actively seek to intervene against necessary and temporary distribution measures put in place in order to avoid a shortage of supply.
Accordingly, for the duration of the COVID-19 crisis, competitors can use and to much larger extent coordinate with the same distributors, including, by way of example:
Obviously, this cooperation should not be used to fix prices or obtain unjustified price increases. So, producers cannot use joint distributors to collude over their marketing strategies (e.g., to increase pricing or share markets); but can impose that distributors apply maximum resale prices to avoid price gorging at retail level.
II. I am an agricultural produce supplier and I expect that the crisis will have an adverse financial impact on my business. Are there aid schemes in place and how do they work?
Government subsidy schemes are administered at national level. Under EU Law, public support schemes must be authorized by the EU Commission under the EU State aid rules before being put in place. The EU Commission has been acting very swiftly to clear Member State aid schemes since the COVID-19 outbreak.
For example, by adopting a specific Temporary Framework for State aid in March, the EU Commission acknowledged that “State aid is justified and can be declared compatible with the internal market on the basis of Article 107(3)(b) TFEU, for a limited period, to remedy the liquidity shortage faced by undertakings and ensure that the disruptions caused by the COVID-19 outbreak do not undermine their viability, especially of SMEs”.
Catering services and producers of agricultural foods can obtain goverment subsidies to aid their businesses
With specific reference to support provided to the catering service sector and to undertakings processing and marketing agricultural products, the Temporary Framework sets out that the following types of aid can be allowed without a specific authorization from the EU Commission:
“a) The overall aid does not exceed EUR 800 000 per undertaking. The aid may be granted in the form of direct grants, tax and payment advantages or other forms such as repayable advances, guarantees, loans and equity provided the total nominal value of such measures remains below the overall cap of EUR 800 000 per undertaking; all figures used must be gross, that is, before any deduction of tax or other charge;
b) The aid is granted on the basis of a scheme with an estimated budget;
c) Aid may not be granted to undertakings that were already in difficulty […] on 31 December 2019;
d) The aid is granted no later than 31 December 2020;
e) The aid granted to undertakings active in the processing and marketing of agricultural products is conditional on not being partly or entirely passed on to primary producers and is not fixed on the basis of the price or quantity of products purchased from primary producers or put on the market by the undertakings concerned.”
Government subsidies and grants for the agricultural and fisheries sectors
As far as support to undertakings active in the primary agricultural production and in the fishery sector, the following applies by way of derogation from the first condition above and in addition to the conditions (b) to (e) above:
“a) the overall aid does not exceed EUR 120 000 per undertaking active in the fishery and aquaculture sector or EUR 100 000 per undertaking active in the primary production of agricultural products; the aid may be granted in the form of direct grants, tax and payment advantages or other forms such as repayable advances, guarantees, loans and equity provided the total nominal value of such measures does not exceed the overall cap of EUR 120 000 or EUR 100 000 per undertaking; all figures used must be gross, that is, before any deduction of tax or other charge;
b) aid to undertakings active in the primary production of agricultural products must not be fixed on the basis of the price or quantity of products put on the market;
c) aid to undertakings active in the fishery and aquaculture sector does not concern any of the categories of aid referred to in Article 1, paragraph (1) (a) to (k), of Commission Regulation (EU) No 717/2014.”
As an example of how the EU Commission applies such rules please see the EU Commission decision of April 16th which cleared the Latvian direct grants schemes.
III. Are there any rules in place in relation to maximum price fixing for food products in the context of the crisis?
No, general rules apply according to which a producer can impose a maximum resale price to its distributors.
This kind of arrangements is even more of value today because it constrains the distributors' ability to raise prices to the customers' detriment, thus avoiding price gorging.
On the contrary, EU Commission has explicitly stated that it "will not tolerate conduct by undertakings that opportunistically seek to exploit the crisis as a cover for anti-competitive collusion […] by, for example, exploiting customers and consumers (e.g. by charging prices above normal competitive levels) or limiting production to the ultimate prejudice of consumers (e.g. by obstructing attempts to scale up production to face shortages of supply)".
Accordingly, clauses imposing minimum resale prices remain unlawful.
IV. I have established an e-commerce platform and am now also selling directly to consumers, whereas I previously operated as a B2B operator only via distributors. Is there a difference between B2B operations and B2C operations that I should be aware of from a competition law perspective?
Normal antitrust rules apply to distribution through e-commerce platforms.
Your new activity fundamentally changes the way you interact with your network of distributors as you start to compete with them at the retail level.
Accordingly, your commercial relationship with your distributors has changed from a traditional vertical distribution set up to a horizontal one where you are actively competing with your distributors.
This is always more delicate from an antitrust perspective and will need more scrutiny to ensure compliance. For starters, you may no longer be covered by the automatic exemption/safe harbour rules contained in the EU Vertical Block Exemption Regulation, which means that you will have to self-assess most if not all of your distribution contracts.
For example, you will particularly have to review, by way of example, that:
Consequently, you will need to carry out a sanity check of your pre-existing agreements with your current distribution partners to see if there are any arrangements that may not be lawful in your new set-up.
Again, the Temporary Framework for antitrust agreements may facilitate some of the cooperation as explained above but this will be limited to the duration of the COVID-19 outbreak.