Does competition law apply during crises?

09 Jul 2020

The COVID-19 pandemic has disrupted businesses and the livelihoods of millions of people at a global level. Although global supply chains have been impacted, businesses are coming together to find solutions and ways to ensure uninterrupted supply of essentials. In these unprecedented times as companies come together to face the challenges, they must be cognizant of their continuing obligations under the governing laws.  

The Competition Commission of India (CCI) has issued an advisory to businesses which states that the Competition Act, 2002 (CA02) has in-built safeguards for protecting businesses from sanctions of coordinated conducts, provided it results in increased efficiencies. COVID-19 has created several challenges for businesses and information sharing and coordination might be required for fair distribution of products and services.

Against this backdrop, the Confederation of Indian Industry (CII) has released the Competition Act 2002 Compliance Manual: Covid 19. This includes a set of detailed guidelines which corporates may like to keep in mind when collaborating with others, especially since leveraging co-operation with competitors is considered a good way to deal with the challenges posed by the pandemic. However, companies must stay conscious of compliance with the Competition Law. 

Antitrust law applies during the global crises and offenders may face investigation and fines in case they violate them during this period. Information exchange that leads to coordination on prices, (surcharges, rebates, etc.), supply output planning, suspension of production, etc. is strictly prohibited.

CII recommends that enterprises may ramp up compliance measures and raise the level of awareness amongst the employees of relevant departments i.e. marketing, sales, distribution, and more. Co-operation between competing enterprises must safeguard the interests of the consumers. 

Co-operation that results in improved distribution, minimisation of supply chain disruptions, promotion of technical and economic development, etc. are permissible. Such collaborations are beneficial for businesses and consumers alike, as there are positive outcomes of the collaborative arrangement. Here are a few instances of such collaborations:

  • Collaboration for the improvement of distribution channels to ensure continuity of supply of essential goods (and services), especially of food and medicines.
  • Exchange of non-competitive, sensitive information that might help in better forecasting of over and undersupply.
  • Joint research and development (R&D), especially in the healthcare sector, if gains are demonstrable to overcome the pandemic.

When entering into any form of collaboration, enterprises may clearly define the scope of such collaborations. The collaborative effort should be limited to the products (or services) affected by the pandemic or for exigency measures.

Pharmaceutical companies must limit the collaboration on R&D to only anti-COVID-19 vaccines. Documentation should be exhaustive and carry details regarding the negotiations, internal discussions and purpose of collaboration along with the potential benefits of the collaborative outcome for society. Firewalling to prevent the exchange of competitively sensitive information (CSI) and ex-ante review by legal counsel are the other points that enterprises should be vigilant of when entering into any form of collaboration.

Competition law does not protect or exempt any anti-competitive agreements even if the co-operation is encouraged by the Government unless such a direction is issued by the Government. The co-operation between enterprises, when directed by the Government, may be limited to the Government’s objective and what is required to deal with the COVID-19 pandemic.

The demand for products in the personal hygiene category (e.g. sanitizers, hand washes), disposable category (wet wipes, tissues), and immunity-boosting category witnessed a huge surge amid the pandemic. A certain category of businesses may also gain a temporary position of dominance owing to a change in consumer demands. Entities in a dominant position must refrain from limiting production, excessive pricing, and bundling non-essential services (or products) with essential services. Under Section 4 of CA02, behaviour by enterprises capitalising on their dominant (or temporarily dominant) position is strictly prohibited. During the time of crises, dominant enterprises in the manufacture and sale of essential commodities must refrain from entering into any exclusive distribution/supply agreements.

Despite the unprecedented challenges posed by the ongoing COVID-19 crisis, enterprises must ensure that there is adherence to governing laws in all their business decisions.

Click to read CII Competition Act 2002 Compliance Manual: COVID-19

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