COVID-19-Related Competitor Collaborations: Proceed with Caution

| 16 minutes

By The Competition/Antitrust & Foreign Investment Group of McCarthy Tétrault LLP

Since this article was written, the Competition Bureau has issued more guidance on COVID-19-related competitor collaborations. For details, please see our follow-up article.

Even under normal circumstances, there may be pro-competitive reasons for competitors to work together, such as to develop new products more efficiently or create joint ventures to meet shifting market demand. As industries try to mitigate the impact of COVID-19, there are a host of new reasons to collaborate, such as trying to protect supply chains, meet demand spikes for certain products (e.g., medical supplies) and offer relief to customers in financial distress. Nonetheless, it is important to remember the potential criminal consequences that may arise from competitor collaborations.

The Commissioner of Competition, the head of the Canadian Competition Bureau, has acknowledged this tension in a recent statement on COVID-19:

The Bureau will scrutinize any evidence that companies or individuals have violated Canada’s competition laws, including […] Collusion by competing businesses, such as illegal agreements about what price to charge for products or services […] I would also like to assure businesses that Canada’s competition laws accommodate pro-competitive collaborations between companies to support the delivery of affordable goods and services to meet the needs of Canadians.[1]

Given the potential risks, if considering any competitor collaborations, it is important to keep a few ground rules in mind:

  • It is a per se illegal criminal offence to agree with competitors to fix prices, restrict supply or output, or to allocate markets or customers. However, there is an ancillary restraints defence that may be available to the extent that such collaboration furthers a legitimate objective.
    • “Price” is broadly defined to include discounts, rebates, allowances, price concessions or any other advantage given to a customer in relation to the supply of a product.
  • There should be an efficiency-enhancing or otherwise pro-competitive rationale for any contemplated competitor collaboration (e.g., ensuring no supply disruption of N95 face masks to hospitals).
  • In order for an otherwise criminal competitor collaboration to be defensible as an ancillary restraint it must be directly related to, and reasonably necessary for, giving effect to the pro-competitive rationale (e.g., without collaboration, the customer’s need for weekly shipments could not be fulfilled). If the broader objective can be met without collaboration, it is safer to act independently.
  • The sharing of competitively-sensitive information (e.g., non-public pricing and customer information) should only be done on a need-to-know basis and, again, only as necessary for achieving the pro-competitive rationale.
  • In the current climate, there are many legitimate topics of common interest among competitors, such as navigating regulatory changes and adapting product standards, or distribution channels, to deal with the crisis. Still, it is recommended to take precautions when interacting with competitors (e.g., at trade association meetings), such as preparing an agenda, taking minutes, reminding attendees of the competition laws at the outset of any discussion and having a lawyer participate to advise if competitively-sensitive topics are raised.
  • It is permissible to collaborate with competitors in order to purchase inputs (i.e., buying groups are generally legal), but beware that such discussions do not expand into impermissible topics.  

Because of the criminal law risks, it is important to consult with competition counsel before engaging in any competitor collaboration. Counsel can advise:

  • Whether the proposed collaboration could be a violation of the criminal provisions of the Competition Act.
  • If the collaboration may constitute a criminal violation, whether the ancillary restraints defence, or other more fact-specific defences, may apply.
  • Remedial steps that may be taken to reduce the risk of the proposed conduct violating the law, or to improve the parties’ ability to claim a defence, in order to improve the risk assessment for engaging in the conduct.

Where doubts remain following advice from counsel, parties may consider seeking an advisory opinion from the Competition Bureau.  This process requires the payment of a C$15,000 fee and, typically, the provision of confidential business records and data to the Bureau.  There are practical limitations to this option, as the Bureau can elect not to provide an opinion and, even where it does issue an opinion, the service standard for doing so is 6-10 weeks. There is no indication that the Bureau will shorten its service standard in light of COVID-19, as the U.S. antitrust agencies have done (to seven days).[2] Further, the Bureau is unlikely to provide an opinion on whether it would exercise enforcement discretion to commence an inquiry or pursue other enforcement activity with respect to the proposed conduct. Indeed, the Bureau retains the discretion to launch an investigation based on the information provided by the parties.

Nevertheless, the Commissioner of Competition has also said that “we will work closely with our partners in federal, provincial and municipal governments, along with the business and legal communities, to navigate these exceptional circumstances for the benefit of all Canadians.”[3] As such, there may be latitude to get more timely and informal comfort from the Bureau that would not exist absent the current pandemic. There may also be the possibility to benefit from executive or legislative powers to address a pressing need. (For example, the Governor-in-Council can make an order suspending the application of competition law to the national transportation industry under the Canada Transportation Act.)

In sum, even if parties’ intentions are noble, it is possible to run afoul of competition law when engaging in competitor collaborations. We therefore suggest reminding employees of their competition compliance obligations and keeping competition law in mind when considering any competitor collaboration.

 

[1] Competition Bureau Canada, Statement from the Commissioner of Competition regarding enforcement during the COVID-19 coronavirus situation, March 20, 2020.

[2] U.S. DOJ and FTC, JOINT ANTITRUST STATEMENT REGARDING COVID-19, March 24, 2020.

[3] Supra note 1.