The state of emergency announced by the Hungarian government due to the COVID-19 virus allows for the introduction of extraordinary legal measures, which could transform how competition law operates in practice, notes dr. András Horváth, from Baker McKenzie's Budapest office. Nonetheless, companies should not act arbitrarily.
In Norway two airlines will receive exemption from competition law for three months so air transport – an essential service for society – can be ensured at a minimum level. In the UK, food retailers have raised the need to be exempted from competition law in order to ensure food supply. These are just two examples of how competition law, which is generally applicable in times of crisis, can now change during a pandemic.
Can competitors coordinate their actions in a situation like this?
So-called crisis cartels, i.e. when competitors coordinate their market reaction to a crisis, are prohibited in general. Companies can undertake their own measures, however, they cannot take the problems of their industry in their own hands by restricting competition. For example, hand sanitizer selling companies can decide to limit the amount of products on the shelves, however, they cannot coordinate their decision with competitors. Cooperation for the development of vaccines or supply of healthcare products would likely not be prohibited, but it remains to be seen if competition authorities accept such public health considerations as a defense.
Competitors may lobby together at state bodies for certain industry measures or extraordinary rules. However, they should be careful not to share commercially sensitive information with each other. Using an industry association as an intermediary can be a viable solution.
The cooperation of competitors induced or proposed by the state does not exempt companies from their competition law liability. A good example is the recent request of the Central Bank of Hungary to commercial banks to suspend credit payments. If a bank would have complied individually and unilaterally, it would not have raised competition law concerns. However, if banks would have coordinated their reactions on the market, it could have been unlawful.
If a company were to coordinate its production or distribution with competitors on the basis of guidance by the Government's defense steering group, it would likely not infringe competition law. Similarly, if – as occurred in France – mandatory prices would be introduced for certain products, it would exclude the risk of collusion.
Is it abuse of dominance to increase prices significantly?
During an epidemic, the price of certain products - such as hand sanitizers, mouth masks or food - suddenly rise sharply. These may not always qualify as an unlawful - excessive, exploitative pricing is only prohibited for dominant companies. Not only big multinational companies may be considered dominant from a competition law viewpoint, but also local small enterprises offering indispensable products or services. Of course, a justified price increase is not prohibited even for dominant companies. However, in the present circumstances, an unjustified refusal to supply may qualify as an abuse of dominance. In Poland, an investigation was ordered recently following a company's refusal to supply hospitals when they wanted to sell their products through open market channels.
How are companies attempting to deceive consumers during the epidemic?
Companies must be careful not to mislead consumers with their advertising during the state of emergency – like the service provider who recently was investigated for providing car-disinfecting service that would protect against coronavirus. In addition, companies cannot advertise services in such a way that falsely suggests they are being provided due to the pandemic or falsely advertise pre-pandemic prices as discounts.
The HCA (Hungarian Competition Authority) specifically prohibits companies from unjustifiably promoting their products as protective, preventive or curative. Companies must ensure that the influencers used for advertising also adhere to the rules. Furthermore, advertising agencies must also refrain from the publication of unfair ads. In this situation, retailers should be particularly careful to ensure they have sufficient amounts of advertised products in stock.