GERMANY | ANTITRUST | Antitrust Law in the Corona Crisis

1. Cooperation with Competitors Cooperations with Competitors

Antitrust law also applies in times of crisis. But: Antitrust law allows companies the necessary flexibility to react to the challenges of the corona crisis.
One such reaction is cooperating with competitors.
The corona crisis does neither justify “crisis cartels” nor does it justify other hardcore restrictions of competition. The effects and risks of the corona crisis can, however, legitimise some forms of cooperation with competitors:

  • Formation of bidding and supplier consortia if the companies concerned are not (any longer) able to meet a specific market demand on their own, e.g. because personnel or financial risks are no longer calculable due to the corona crisis.
  • Joint purchasing to reduce and distribute risks in the supply chain.
  • Purchases from competitors to compensate for production losses and legal restrictions on production as a result of the coronavirus.
  • Joint production to save costs or generate efficiencies in the use of personnel and production resources, or through mutual specialisation.
  • Joint research and development which may also involve joint commercialization.
  • Exchange of information on stocks, cooperation in transport and storage logistics, in so far as they are aimed at counteracting coronavirus-induced threats to the supply chain.
  • Cooperation in personnel planning in order to mitigate the effects of the coronavirus on the health of the workforce.

Antitrust law provides companies with sufficient leeway for crisis-related cooperation, including with competitors. It recognises necessary restrictions of competition in situations in which market mechanisms no longer function properly as a result of the crisis without such measures. For example, restrictions of competition can be justified by demonstrating that they are necessary to maintain the security of supply. In many parts of the world, the antitrust authorities are currently willing to talk to companies about restrictions of competition that are necessary to deal with the effects of the coronavirus on the economy.
However, the corona crisis does not give a “carte blanche” for any restriction of competition. Even in times of crisis, companies must therefore conduct a self-assessment that reviews and documents the facts and objectives underlying the cooperation with the competitor.

2. Suppliers/ Distributors

Another important reaction is reaching bilateral agreements with suppliers and distributors.
The corona crisis is causing legislators and public authorities to intervene in market developments. Their measures may limit or even eliminate companies’ scope for competitive action. Manufacturers who are prohibited by law or by an administrative order from offering their goods outside Germany no longer have any scope for competitive action in this respect. If a manufacturer imposes corresponding contractual restrictions on its distributors, then these are of a declaratory nature, and are thus unlikely to give rise to antitrust concerns.
Crisis-related restrictions that manufacturers impose on their suppliers or distributors can also be exempted under antitrust law without such a strict legal requirement: For example, guaranteeing the security of supply may justify exclusive supply and purchase obligations. Temporary territorial exclusivity for the benefit of a customer is conceivable to the extent that it is necessary to open up or ensure the continued supply of a market. However, antitrust law demands to limit the scope of such restrictions on suppliers and distributors to the extent that is necessary to guarantee security of supply or to open up a market.
The prohibition of price fixing remains in force even in times of crisis. Anyone who fixes downstream prices for crisis-related scarce goods by imposing fixed or minimum resale prices on his distributors is violating the price fixing prohibition. Antitrust authorities have already announced that they will investigate price increases for goods in short supply due to the crisis. In such cases, hefty fines may be imposed. In contrast, maximum prices are still permissible. This allows the implementation of crisis-related sales promotions.
Since the corona crisis does not suspend any obligations under antitrust law, the following also applies to crisis-related measures in relation to suppliers and distributors: Review and document the admissibility of such measures under antitrust law in a self-assessment!

3. German Merger Control Risks

Merger control also applies in times of crisis. The changing economic environment may allow mergers that would have been prohibited in the past. More often, however, the corona crisis will delay merger control clearances.

Notification Requirements Remain in Place

Merger control notification requirements remain unchanged despite the corona crisis. No relief is to be expected in this respect, as politicians are already warning of a sell-out of the German economy in view of falling enterprise values.

Notification requirements are formalistically determined based on the participating companies’ turnover figures in the last financial year. Interim sales declines are ignored just as much as red figures or even imminent insolvency of the target company. However, if the notification obligation is only triggered by the transaction value threshold, then a downward adjustment of the purchase price due to the crisis can eliminate the notification Obligation.
Anyone who is turning to minority shareholdings or co-investments in the current situation in order to minimize the capital investment should pay particular attention to a potential notification obligation: Even where a full acquisition would not be notifiable, such a transaction structure can trigger a notification obligation. This counter-intuitive result is due to the other shareholders or the co-investor also being taken into account in determining the notification obligation.

Advantages in the Competitive Assessment

While the notification obligation is based on the past, the competition authority’s assessment is based on a prognosis for the future. A mere snapshot of the current situation is thus not decisive. Merging parties must therefore demonstrate why they will emerge particularly weakened from the crisis. Example: Competitors have significantly better online or take-away offers, are therefore currently gaining considerable market shares and will retain these after the current crisis due to consumers getting accustomed. In such cases, the corona crisis may facilitate mergers that would have been prohibited in the past.
The so-called failing firm defense could also become more relevant. Exceptionally, it allows even the creation of a dominant market position. However, it only applies if the prognosis for the continued existence of the target company is negative and if there is no potential purchaser that would pose less competition concerns (e.g. a financial investor). In addition, the exception does not apply to the sale of a mere company division.

Timing is a Challenge

The corona virus also affects the operating capacity of competition authorities. While the statutory review deadlines still apply in Germany, the Federal Cartel Office asks companies to submit notifications later where possible. The EU Commission, the French competition authority and other international competition authorities have adopted a similar approach. More drastic measures were taken in Austria: For new filings, the review period does not start before 1 May 2020. The time schedules of transactions must be adjusted accordingly.

In practice, too, the competition authorities will make greater use of their tools to gain time, for example by making full use of deadlines, by objecting to incomplete information or by initiating an in-depth investigation. For more complex deals, the reasons for this will mostly not be attributable to the authority itself but rather to the delays in market investigations, e.g. when interviewing market participants.
This is all the more precarious in the current situation, as sellers depend on the purchase price flowing quickly and target companies depend on the acquirer being allowed to swiftly take over inoperable corporate functions.
Against this background, it is advisable to involve merger control experts at an early transaction stage, in particular, for deals that need to be closed swiftly due to the current crisis. These experts can then informally contact the authorities in advance in order to gain time. While theoretically possible, an application for an exception to the suspension obligation can only be a last resort, if at all.

4. Market Power

Antitrust law imposes a special responsibility on companies with market power. In times of crisis, their market behaviour and commercial practices can quickly come into the focus of the antitrust authorities.
The closing of national borders for the movement of goods can narrow the relevant markets under competition law and thus create market dominance, which did not exist when borders where still open. A company’s market position can also be strengthened by the crisis as a result of competitors no longer being able to maintain their production or withdrawing from the market altogether. In addition, dependence due to scarcity, e.g. on one supplier, may lead to special responsibilities under the German rules for companies with so-called relative market power even where they lack market dominance.

Intervention by authorities

Anyone with such market power must not abuse it. If, despite this, a company still e.g. charges excessive prices, it risks an intervention by the antitrust authorities. Many antitrust authorities have already announced that they will critically examine price increases as a result of the crisis, in particular, for scarce goods, health care services and basic supplies. However, even in times of crisis not every price increase is an abuse of market power: Increased production costs, particularly as a result of the crisis, can legitimise corresponding price increases even by a company with market power.
Other prominent examples of abusing market power are refusals to supply and discrimina-tions against suppliers or customers. However, crisis-related bottleneck problems can be an objective reason to justify a partial or complete refusal to supply or unequal treatment of business partners under antitrust law. This applies, for instance, to a preferential supply of regular customers compared to new customers. However, a dominant supplier of goods or services that are in short supply as a result of the crisis may still be obliged under antitrust law to scale selling, i.e. to supplying its customers according to their importance (e.g. according to the volume purchased in the last financial year). A preference for regular customers remains possible in this context, too.
Since the corona crisis does not suspend any obligations under antitrust law, the following applies in particular to crisis-related measures taken by companies with a strong market position in relation to suppliers and distributors: Review and document the admissibility of such measures under antitrust law in a self-assessment!


Dr Christian Heinichen 
Christoph Heinrich

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