Should You Co-operate? Competition Law and Life Sciences Sector Companies During COVID-19 Pandemic
21 September 2020
More than eight months into the on-going COVID-19 pandemic, the demand for pharmaceutical companies and medical device manufacturers to produce and bring to market a range of virus-related treatments, products and devices persists. The life sciences industry continues to grapple with unprecedented demand for PPE and certain drugs, while at the same time racing to develop and manufacture vaccines, testing kits and trial drugs. The most effective means for businesses to meet these demands in some instances is to collaborate with third parties. To enable such collaboration, the European Commission (the Commission) relaxed the competition rules as they apply to certain businesses, in particular to life sciences businesses, at the beginning of the pandemic. The guidance relaxing the rules remains in place, and continues to be relevant for the health sector.
Response to the COVID-19 pandemic
Generally speaking, competition law requires actual and potential competitors, ie businesses that are active (or could, within a short period of time, become active) on the same relevant market and at the same levels of the supply chain, to act independently of one another. Co-operation between competitors is permitted in certain circumstances where the resulting efficiencies and consumer benefits arising from that co-operation outweigh any actual or potential restriction of competition.
The initial economic impact of COVID-19 was an unprecedented supply and demand shock to the market, which, in particular, resulted in a shortage of certain medicines and medical equipment. As a result of these shortages and calls from businesses seeking to collaborate with competitors to offset the shortages, the Commission issued guidance on how it would assess cooperation initiatives aimed at addressing the shortage of essential products and services during the outbreak, with a particular emphasis on the health sector. This guidance recognises that a greater degree of cooperation between competitors in the life sciences industry may be required during the pandemic. The guidance is not time limited and will remain in place until it is withdrawn by the Commission. However, businesses that are involved in co-operation projects should remain alert to any revision or disapplication of the Commission’s guidelines, which could occur as Europe emerges from the crisis.
1.The Commission’s Communication on the Temporary Framework for assessing issues related to business cooperation in response to COVID-19
The Commission published a Communication on the Temporary Framework for assessing issues related to business cooperation in response to the pandemic (the Communication) on 8 April 2020. The Communication covers possible forms of co-operation between undertakings to ensure the supply and adequate distribution of essential scarce products and services during the outbreak. In particular, the Communication applies to “medicines and medical equipment that are used to test and treat COVID-19 patients...”.
The Communication notes that different degrees of cooperation may be required depending on the measure being employed to reduce supply shortages, which could include:
A significant, rapid increase of production for required products that are in short supply
Reallocating stocks, which would require that undertakings agree to exchange/communicate information on sales and stock
Switching production lines for some non-essential/non-shortage medicines to medicines necessary to address the outbreak, and
Increasing output at a site by producing only one medicine at that site
The Communication also provides a non-exhaustive list of activities related to the health sector that will not give rise to competition law concerns, provided that they are subject to certain safeguards (e.g. no flow of individualised company information back to competitors, etc.). These activities include entrusting a trade association, an independent advisor, an independent service provider or a public body to:
Co-ordinate joint transport for input materials;
Contribute to identifying those essential medicines for which, in view of forecasted production, there are risks of shortages
Aggregate production and capacity information, without exchanging individual company information
Work on a model to predict demand on a Member State level, and identifying supply gaps, and
Share aggregate supply gap information, and request participating undertakings, on an individual basis and without sharing that information with competitors, to indicate whether they can fill the supply gap to meet demand - either through existing stocks or an increase of production
The Communication notes that exchanges of commercially sensitive information and co-ordination as to which sites produce medicines may be required to implement measures to adapt production, stock management and, potentially, distribution in the industry. Such communications and coordination would normally be problematic under EU competition law. However, the Communication clarifies that, in light of the exceptional circumstances, they will not be problematic provided they meet certain criteria; namely that they are (1) necessary to increase output / avoid a shortage of supply, (2) temporary in nature and (3) go no further than is strictly necessary.
For any schemes being envisaged under the Communication, the Commission asks businesses in the health sector to document exchanges and agreements and be able to provide this information to the Commission upon request.
In its Communication, the Commission also indicated that it was willing to exceptionally issue ad hoc ‘comfort letters’ to businesses concerning specific co-operation projects that need to be implemented expeditiously in order to effectively tackle the pandemic, particularly where there is uncertainty about whether the schemes are compatible with EU competition law.
Comfort letters have not been issued by the Commission since they were abolished in 2003, and their re-introduction is a useful resource for life sciences businesses considering co-operation projects. Comfort letters provide businesses with legal certainty and tailored guidance from the Commission in relation to proposed schemes. Comfort letters are not, however, legally binding however. Furthermore, businesses should ensure that they adhere to any time limits set out in any letter of comfort.
3.European Competition Network (ECN) Joint Statement and the International Competition Network (ICN) Steering Group Statement
On 23 March 2020, the ECN (a forum for discussion and co-operation between the EU Member States competition authorities) issued a joint statement on the application of competition law during the pandemic. This was endorsed by the Irish competition authority, the Competition and Consumer Protection Commission (the CCPC), on 25 March 2020 when the CCPC published it on its website. The ICN, a global body made up of national competition authorities, also issued a statement in April 2020.
Both the ECN Joint Statement and the ICN Steering Group Statement mirrored the position adopted by the Commission in the Communication.
A word of caution…
Notwithstanding the leeway the international guidance outlined above affords to businesses in the life sciences sector, the competition laws remain applicable and relevant during the pandemic.
Businesses in the health sector should not view the guidance as suspending their competition law compliance responsibilities. In its Communication, the Commission explicitly stated that it “will not tolerate conduct by undertakings that opportunistically seek to exploit the crisis as a cover for anti-competitive collusion or abuses of their dominant position (including dominant positions conferred by the particular circumstances of this crisis) by, for example, exploiting customers and consumers … or limiting production to the ultimate prejudice of consumers…”. Furthermore, competition authorities will not hesitate to take action against those who breach the competition rules while seeking to take advantage of the pandemic.
The competition law guidance contained in the Communication is specific to the current extenuating circumstances and will, in time, become redundant. Businesses should be prepared for this and should have mechanisms in place which enable them to promptly cease co-operation practices once they are no longer strictly required. The Commission’s roadmap towards lifting Covid-19 containment measures stipulates that action for lifting containment measures should be gradual, so it can be expected that businesses will be provided with adequate notice of any revision or disapplication of the existing guidelines.
The European Commission’s clarification on the application of the competition rules during the pandemic is helpful to life sciences sector companies that genuinely wish to co-ordinate and collaborate with their competitors in order to respond to shortages of products arising from the pandemic and to mitigate and overcome the Covid-19 outbreak. However, the Commission will not tolerate any attempt by undertakings to exploit the crisis as a way of circumventing the competition law rules. Life sciences sector businesses currently engaging in co-operation arrangements with their competitors to respond to supply shortages must be prepared to wind down those arrangements as we emerge from the crisis.
The content of this article is provided for information purposes only and does not constitute legal or other advice.