Our team’s recent blog on the impact of COVID-19 on competition law in the UK pharma sector referred to the temporary framework issued by the European Commission by which it intends to assess antitrust issues related to business cooperation in responding to COVID-19.
The framework explained that the Commission, exceptionally, was setting up a process to provide (where appropriate) ad hoc written comfort to undertakings engaged in cooperation projects aimed at addressing the shortage of essential products and services. The publication of the framework was accompanied by an announcement that the Commission had issued a comfort letter to Medicines for Europe (formerly the European Generic Medicines Association).
As readers may recall, prior to the introduction of Regulation 1/2003, undertakings had to notify agreements to the Commission in order to benefit from the exemption in Article 81(3) (now Article 101(3) TFEU). Undertakings needed a Commission statement (either a formal exemption or, more commonly, a ‘comfort letter’) to be able to invoke Article 81(3) before a national court or national competition authority. Accordingly, it was common for undertakings to ask for, and the Commission to issue, comfort letters confirming that a proposed agreement did fall within the Article 81(3) criteria.
That all changed following the modernisation package introduced via Regulation 1/2003, which provided for the direct application of Article 81(3) and removed the need for the Commission’s involvement in any assessment of whether Article 81(3) applied. After Regulation 1/2003 came into force, the Commission confirmed that “there is no place any more” for comfort letters and stated that new ones would not be issued (see here).
The Commission’s decision to resume the issuance of comfort letters (if only temporarily) reflects the severity of the COVID-19 crisis and recognises the importance of enabling cooperation between companies to the full extent permitted by competition law.
On 29 April 2020 the Commission published the text of the comfort letter it had sent to Medicines for Europe (MfE) on 8 April.
MfE is a trade association representing pharmaceutical companies that supply over 67% of all medicines in Europe (see here). It had written to the Commission noting that in order to meet the healthcare needs of COVID-19 patients across Europe, the production capacity for medicines (including sedatives, nueuromuscular blockers, strong analgesics, vasopressors, antibiotics and adjuvants) would need to increase very significantly. MfE explained that in order to do so, pharmaceutical manufacturers would need to coordinate to identify production capacity and existing stocks, to work together to allocate production and stocks based on projected or actual demand, and potentially to cross-supply active pharmaceutical ingredients. This would be necessary to ensure for example that not all firms focus on one or a few medicines while others are not produced in sufficient quantities.
In its letter, the Commission confirmed that “in the present exceptional circumstances” this kind of cooperation would not raise concerns under Article 101 TFEU. The Commission noted that the cooperation “has the overall purpose to expeditiously and effectively increase supply and production of urgently needed COVID-19 medicines” and was necessary to achieve the increases in production efficiently. It also referred approvingly to the safeguards proposed by MfE, that:
- the cooperation is open to any pharmaceutical manufacturer willing to participate;
- that minutes of all meetings would be kept, and any agreements entered into by the undertakings would be shared with the Commission;
- the exchange of confidential information will be limited to what is indispensable for effectively achieving the aims of the cooperation, and that the Commission will make available a controlled forum for exchanging information for this purpose; and
- the cooperation is limited in time until the risk of shortages is over (the Commission may inform MfE when this is the case).
The Commission also issued a stern warning that the comfort letter does not cover any discussion of price or coordination that is not strictly necessary to achieve the aims of the cooperation. It warned that participating undertakings cannot unduly increase prices beyond what is justified by possible increases in cost.
The Commission is seeking to strike a balance between giving pharmaceutical companies the leeway and guidance they need to deal with the legitimate issues raised by COVID-19, while ensuring that nobody seeks to take advantage of the crisis. It is interesting how limited the ‘comfort’ being given by the Commission actually is, especially since it seems to be reserving the right to unilaterally decide the point in time that the cooperation must end, and will be supervising the exchange of confidential information. This is by no means a carte blanche for pharmaceutical companies to act as they see fit to resolve the problems posed by COVID-19. Instead, the Commission’s approach requires it to be heavily involved in the cooperation between the companies.
It seems unlikely given the resource-intensive nature of that approach that the Commission intends to offer many more comfort letters along similar lines. That said, there may other examples of legitimate cooperation between companies that are more limited in scope and which could be offered less restrictive comfort letters. Other approaches are also being used in other sectors – for example, the EU has temporarily exempted the milk, potatoes and flowers sectors from the full application of competition law, for a maximum period of six months (see here).
From our perspective, we welcome the Commission taking this responsible, pro-active approach to helping companies respond to the pandemic. While it is currently difficult to look beyond the present crisis, the measures presently being adopted could signal a welcome return to a most positive approach to offering competition law certainty, of a kind that could also be warranted for pro-competitive developments in more ‘normal’ times