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Coronavirus transforms how competition law operates, Baker McKenzie says

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 András Horváth, a competition law expert at Baker McKenzieʼs Budapest office. 

So-called crisis cartels, when competitors coordinate their market reaction to a crisis, are prohibited in general, Horváth says. 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. 

The expert notes that competitors may lobby together at state bodies for certain industry measures or extraordinary rules, but 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 request of the National Bank of Hungary (MNB) to commercial banks to suspend credit payments, Horváth says. 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 Governmentʼs 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.

Possible problems with price increases

During an epidemic, the price of certain products, such as hand sanitizers, masks, and food, can suddenly rise sharply. These may not always qualify as an unlawful - excessive, exploitative pricing is only prohibited for dominant companies, Baker McKenzieʼs expert argues.

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 companyʼs refusal to supply hospitals when they wanted to sell their products through open market channels.

Misleading consumers with advertising

Horváth stresses that companies must be careful not to mislead consumers with their advertising during the state of emergency. A recent example in Hungary is a service provider who recently was investigated for providing car-disinfecting services that would protect against coronavirus. In addition, companies cannot advertise services in a way that falsely suggests they are being provided due to the pandemic or falsely advertise pre-pandemic prices as discounts.

The 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, the expert notes.