BEIRA Corona Task Force Update

EU and Austrian Competition Law in Times of COVID-19 – An Overview (as per 09 April 2020)

Currently, there is hardly any area not affected by the COVID-19 pandemic. Competition law is no exception to this. The following overview provides a snapshot of selected competition law topics that may be relevant for undertakings in this time of crisis:

MERGER CONTROL

Procedural Timelines

At the European level, the European Commission's Directorate-General for Competition ("DG COMP") encourages undertakings, if possible, to postpone their submissions of merger control notifications. DG COMP assumes that it will be more difficult for case teams to obtain information from third parties (such as customers, competitors and suppliers). In addition, DG COMP's staff has worked increasingly from home since 16 March 2020. However, deadlines have so far not been suspended on a general level.

For Austria, the 2nd COVID-19 Act affects the deadlines for merger control proceedings: For notifications received by the Austrian Federal Competition Authority ("FCA") prior to 30 April 2020, the deadline for the FCA and the Federal Cartel Prosecutor to request an in-depth review pursuant to sec 11 of the Austrian Cartel Act (phase I) will only start to run from 1 May 2020. For merger control notifications submitted prior to 21 March 2020 (i.e., prior to the 2nd COVID-19 Act), the FCA stated that the phase I-deadlines remain unaffected by the 2nd COVID-19 Act. For notifications which were or will be filed after 21 March 2020 (for which the period for submitting a request for review to the Cartel Court will not end before 29 May 2020), obtaining early waivers of review from the FCA and the Federal Cartel Prosecutor is still possible.

However, for proceedings in phase II, which were pending before the Cartel Court at the time when the 2nd COVID-19 Act entered into force or which will be put on the Court's docket before 30 April 2020, the decision deadlines for the Cartel Court will only commence on 1 May 2020. This applies regardless of when the respective merger notification was filed with the FCA.

In Germany, the Federal Cartel Office has also called on representatives of companies to consider whether a project should be submitted to the Office at this stage or whether it could possibly be filed at a later stage. However, the deadlines have not yet been formally changed.

Obtaining all necessary merger control clearances will therefore, in many cases, take longer than usual during the COVID-19 crisis. This should be anticipated in ongoing M&A negotiations by adjusting the transaction schedule and affected SPA clauses (such as long stop dates) accordingly.

Personal Meetings and Digital Submissions

The FCA does currently not receive parties or their representatives in person and does not accept any submissions via its front desk. Since the latter is not staffed continuously, the FCA also discourages parties from submitting documents by mail. At least for the time being, merger filings can only be submitted to the FCA by means of the Austrian electronic legal communication system "ERV" (Z008239) during the FCA's office hours (Mon-Thurs 8am-4pm, Fri 8am-3pm). Filings submitted after the FCA's office hours will be considered as having been submitted on the following working day.

At DG COMP it is, in principle, still possible to submit merger notifications in person, but restrictions may occur. DG COMP also accepts notifications by e-mail (comp-merger-registry@ec.europa.eu) or via the eTrustEx system.

Scenarios of Insolvency; Failing Company Defence

The acquisition of companies or parts thereof is still subject to merger control rules, even if insolvency proceedings have been initiated by or are pending against the target company.

If a financially ailing company is to be taken over, the "failing company defence" can be of importance in the substantive assessment conducted during merger control proceedings. This line of argument suggests that the target company is financially so weak that it would exit the market without a takeover, and that the market shares of the target company would then transfer to other market participants. This is the hypothetical scenario to be used when calculating the increase in the acquirer's market share. Essential for arguing the "failing company defence" is that there are no other potential buyers for the target company who would experience a smaller increase in market share, eg because they had not been active on the relevant market so far.

Evidence that the target company would exit the market without a takeover has to be provided to the competition authority during the merger control proceedings. Pending or imminent insolvency proceedings are considered a meaningful indicator.

Temporary Modification of Commitments from Previous Proceedings

If clearances in past merger control proceedings were only granted subject to commitments or conditions, it may be possible to modify or suspend ongoing behavioural commitments during the COVID-19 crisis.

For example, the acquisition of the Austrian TV channel ATV+ by the ProSieben-Sat 1-Puls 4 Group in 2017 was cleared by the Austrian competition authorities subject to commitments, inter alia, to continue their news program "ATV Aktuell" under defined minimum requirements. These commitments also contained a "revision clause" on the basis of which the ProSieben-Sat 1-Puls 4 Group applied, in March 2020, for an amendment to the commitments regarding "News & Information" in order to be able to react to the changed news production situation during the COVID-19 crisis. As a result, the commitments were, until the end of the COVID-19 crisis or 30 April 2020 (whichever date is earlier), suspended in so far as necessary to maintain the operation of the newsroom.

If commitments or obligations were part of a clearance decision by the Cartel Court in Phase II, they can be modified even without an explicit "revision clause" in the commitments themselves: If the relevant circumstances change after such clearance, the Austrian Cartel Act empowers the Cartel Court to modify or withdraw restrictions or obligations at the request of an undertaking concerned.
 

ABUSE OF DOMINANCE

Controlling the unilateral behaviour of dominant undertakings is also of relevance in the COVID-19 crisis: Not only the above-mentioned acquisition of a failing company may lead to an increase in market shares of the acquirer during and after the crisis. Also, the market exit of undertakings may result in an increase in a competitor's market share to such an extent that the latter could be qualified as dominant for the first time. From this point on, stricter rules would apply to such competitor which rules seek to prevent abusive market behaviour by dominant undertaking. A shortage of certain products can also lead to a dominant position.

The "European Competition Network" ("ECN") published a joint statement by all national competition authorities on 23 March 2020. According to this statement the competition authorities will not hesitate to act against dominant undertakings in relation to products considered essential at this time (eg face masks or sanitiser gel), if they exploit the crisis by unjustifiably increasing prices. Additionally, the FCA announced that it would give priority to investigating any suspicion of excessive prices, artificial supply shortages or other abusive behaviour in the area of health protection products.
 

AGREEMENTS BETWEEN UNDERTAKINGS

General

In the EU Member States, including Austria, European and national competition laws continue to apply to agreements between undertakings. However, in its statement of 23 March 2020, the ECN recognised that the current crisis might require extraordinary measures, including cooperation agreements between competitors or between undertakings at different market levels. Taking these circumstances into account does not require any special legislation, but can be accomplished with the existing mechanisms of national and EU competition law. The ECN states that, under the present circumstances, competition authorities will not actively intervene in necessary and temporary measures taken by undertakings to avoid supply shortages.

Also DG COMP acknowledges that businesses are currently facing particular challenges which may call for specific cooperation initiatives in order to overcome the crisis to the ultimate benefit of consumers. In order to swiftly receive informal guidance from DG COMP on the compatibility of such cooperation initiatives with EU antitrust law, undertakings can contact DG COMP via a dedicated email inbox which was newly established on 30 March 2020 (COMP-COVID-ANTITRUST@ec.europa.eu). On 8 April 2020, the Commission issued a "Temporary Framework for assessing antitrust issues related to business cooperation in response to situations of urgency stemming from the current COVID-19 outbreak". The Temporary Framework sets out an exceptional guidance procedure which may result in the Commission issuing even an ad hoc "comfort" letter in relation to "specific and well-defined cooperation projects" with an EU dimension. However, the Temporary Framework does not leave any doubt that providing such guidance due to the exceptional circumstances is subject to DG COMP's own discretion, as undertakings are normally required to make an antitrust assessment at their own risk.

If a cooperation initiative primarily concerns one specific Member State, the national competition authority of the respective Member State would still be the best point of contact.

Futhermore, there might be agreements which are concluded by undertakings only in order to fulfil statutory obligations. Such agreements do not violate competition law. Eg, if the legislator decides that certain products (such as sanitiser gels) may only be sold through certain channels or to certain end customers, an agreement between a supplier and its distributor that reflects this restriction does not contravene applicable competition law. However, such an agreement must not be excessive or stay in effect for longer than the statutory laws it intends to implement.

Vertical Agreements

The crisis may also justify agreements of a different nature, such as exclusive purchase and supply obligations, in particular if they guarantee security of supply. It is important that these agreements are limited to subject matters indispensable to the achievement of such objectives, and that they are terminated immediately once their justification ceases to apply.

Fixing resale prices by imposing either minimum or fixed prices, though, still amounts to a hardcore restriction and cannot be justified by the crisis. However, competition law does give producers the possibility to set maximum prices for their products in order to put a stop to unjustified price increases at downstream market levels – the ECN expressly refers to this possibility in its statement from 23 March 2020.

Horizontal Agreements

In the case of agreements between competitors, the crisis may justify measures that would otherwise violate competition law. Necessary and temporary measures may be allowed if they (i) either do not amount to restrictions of competition at all or (ii) produce efficiencies that outweigh the negative effects of the restriction.

An example of such an exception to the ban on anti-competitive agreements are short-term deliveries to a competitor who, without any fault on his part, suffers from a supply bottleneck regarding an input product. This might happen, for example, when borders are suddenly closed. Other possibilities to protect against a supply interruption, such as forming purchasing groups, are also conceivable. However, as the competition law rules remain fully applicable, a careful assessment should be made in each case, weighing the necessity of the envisaged measure against its restrictive effects on competition. Restrictions of competition must be minimised, and the benefits gained from the cooperation must be passed on to the customers.

The Commission's Temporary Framework of 8 April 2020 explains how the Commission will assess cooperation agreements between competitors aimed at addressing the shortage of essential products and services, notably in the health care sector. While such cooperation may require exchange of information that would under non-crisis circumstances be problematic, the Commission indicates that such measures may be acceptable to the extent that they are (i) designed and objectively necessary to actually increase output in the most efficient way, (ii) temporary in nature and (iii) proportional. The fact that cooperation is encouraged/coordinated or even requested by a public authority will also be taken into account. 

In this context, howver, it should be noted again that various European national competition authorities, including the Commission, announced that they are focusing on certain areas that are currently prone to prohibited horizontal agreements, such as price fixing for goods in particularly high demand. The Austrian FCA has announced that it will investigate any suspicion of cartel agreements in the area of health protection products (such as face masks or sanitiser gels) and give top priority to such complaints.
 

CONCLUSION

Austrian and EU competition law remain fully applicable in this time of crisis.
Competition authorities in Austria and elsewhere have declared that they will focus their market monitoring efforts on certain goods which are currently in particularly high demand (e.g. protective masks or sanitiser gels) and that they will give priority to prosecuting competition law violations affecting these areas. At the same time, applicable competition rules give undertakings a room for manoeuvre to react to the crisis with special measures – even if this requires agreements with competitors.

With regard to merger control, delays must be expected throughout, notwithstanding that the FCA and other competition authorities switched to digital communication channels for the purpose of submitting merger control notifications. In insolvency scenarios the merger control rules remain applicable, but the "Failing Company Defence" may lead to (fast) clearance by the authorities.

Regardless of whether measures could qualify as restrictive agreements, abuse of a dominant position or require merger control: even during the COVID-19 crisis, undertakings should carefully examine every action that might infringe applicable competition law.
 

Contact: Isabella Hartung, E: hartung@beira.at