While doctors fight COVID-19 authorities battle fraud, price hikes and unfair competition

International

In every country hit by COVID-19, the disease linked to the Coronavirus, competition and consumer protection authorities have been confronted with the virus's implications.

Governments, authorities and regulators have taken action against shortages, price increases, fraud and other issues that crop up in times of crisis. Like the virus itself, measures that appeared in China and other Asian countries a few weeks ago are now at work in Europe and elsewhere.

These measures are often aimed at producers and wholesalers of pharmaceutical and medical products needed to fight the virus. Other measures are aimed at protecting fair competition.

On a global level, the World Health Organisation (WHO) warned on 3 March 2020 that market disruptions of personal protective equipment (PPE) may threaten lives, partly due to panic buying and unnecessary use of certain products such as face masks, gloves and goggles. The WHO called on industry and governments to boost supply, ease export restrictions and put measures in place to stop speculation and hoarding. Not every country seems to have listened to this call. Last week European solidarity came under pressure as tensions rose after German authorities blocked PPE shipments to Switzerland and Austria.

Under scrutiny: China

Chinese authorities faced the impact of COVID-19 and the availability of medical products and other essential goods earlier than the rest of the world. China took action through consumer protection rather than antitrust rules. News of such enforcement started to reach the public on 10 February 2020 when reports emerged that China’s State Administration for Market Regulation (SAMR) deployed 1.7 million enforcers across the country and issued fines of up to RMB 3 million (EUR 395,000) in more than 720 price-manipulation cases relating to medical supplies, but also in 100 cases involving essential goods such as vegetables.

On 3 March 2020, reports stated that although Chinese investigations had started by applying antitrust rules, consumer protection rules remained much more effective.

This makes sense: if quick action is needed, competition law enforcement is usually not the way to go. Antitrust investigations take time whether it concerns abuse of market dominance, cartels or vertical restrictions such as resale price maintenance. A high standard of proof applies. Evidence gathering is usually time consuming, as is the legal analysis by authorities. In the past, competition authorities have been criticised more than once that bad behaviour resulting in fines is quickly forgotten and markets move on, especially the Fast Moving Consumer Goods (FCMG) markets.

To prove that a company has abused its dominant position in a certain market through excessive price increases, a competition authority needs to determine among other things the relevant market (product and geographical market); the dominance of such a company in that market; and the fact that the behaviour of the company constituted abuse. All of these elements can be complicated.

COVID-19 caused not only a shift in priorities of competition and consumer protection authorities, but also had other implications on competition law enforcement as well. Although China has applied more strict antitrust enforcement in some sectors, calls for less strict enforcement have been made. At end of February, various Chinese companies requested that authorities take into account the financial and operational difficulties they were facing, such as labour shortages and logistical problems.

Chinese merger control could not be isolated from COVID-19 either. On 15 February 2020, SAMR announced they would improve efficiency in the review of mergers filed under the simplified procedure, suggesting that such mergers would get approval quicker than usual to boost economic recovery. Three weeks later, it appeared that every crisis has a silver lining: measures that were taken to minimise human contact, including allowing parties to make notifications and submissions via e-mail, have led to such increased efficiency at SAMR that attorneys want to retain the measure even after anti-viral measures are no longer needed. However, the suspension of physical meetings (and the use of conference calls) has led to inconvenient delays in organising direct contact with the authorities.

Under scrutiny: Other Asian countries

Authorities in other Asian countries have also taken action in relation to current developments.

In South Korea, not only pharmaceutical companies, but also consumer good and e-commerce companies were faced with dawn raids by the Korean Fair Trade Commission (KFTC) on suspicion of illegal product bundling of face masks. In Japan, the same practice drew scrutiny from the Japanese Fair Trade Commission (KFTC). This week, the KFTC also asked companies active in the travel and hospitality sector to be flexible in their cancellation policies, since many Korean consumers were forced to cancel travel plans due to entry bans applied by other countries.

Under scrutiny: US

In the US, COVID-19 also left its mark on competition and consumer protection enforcement from the second week of February. In the same period that Chinese enforcement became global news, the US Federal Trade Commission (FTC) began warning consumers about fraudsters taking advantage of fears surrounding the virus (e.g. fake medical breakthroughs, calls for donations, and promotion of investment opportunities). After one month, the FTC and the Food and Drug Administration (FDA) issued warnings to seven companies with instructions to revoke their false claims. The same day, the US Department of Justice (DoJ) announced a crack down on any antitrust violation in relation to PPEs, including price fixing, bid-rigging and market-sharing arrangements. It also announced that its new ‘Procurement Collusion Strike Force’ is on high alert.

Under scrutiny: Europe

In Europe, Italy seems to have been the first country to take COVID-19 related action in the field of competition and consumer protection enforcement. Its Autorità Garante della Concorrenza e del Mercato (AGCM) announced on 27 February 2020 that it had sent multiple requests for information (RFIs) to online platforms and websites in relation to charges that their marketing of hand gels and face masks involved misleading claims and excessive price increases. This was followed up by investigations into profiles on Amazon and E-Bay on 12 March 2020.

Subsequently, the Italian Competition Authority – like China's SAMR – was confronted with requests to take the financial and operational difficulties of companies into account in their fining practices. On 6 March 2020, it issued a press release that “in view of the serious difficulties that the Italian production system is facing, as a result of the extraordinary COVID-19 epidemic emergency, as well as its high amount of the fine”, the AGCM allowed telecom incumbent Telecom Italia Mobile (TIM) an extended deadline for payment of its EUR 116 million fine until 1 October 2020.

France followed with a public statement on 3 March 2020 that its Minister of Economic Affairs had asked the ministry’s anti-fraud department – the Direction générale de la concurrence, de la consommation et de la répression des fraudes (DGCCRF) – to investigate the price increase of hand gels and expressed a willingness to regulate the prices of these products. It did this two days later after checking more than 3000 physical and online selling points, such as pharmacies, in the first week of March.

Around the same time, Poland's Urząd Ochrony Konkurencji i Konsumentów (UOKiK) signalled that Polish wholesalers were terminating PPE supply contracts with hospitals in order to obtain significantly higher prices for these products. These cases were not only investigated as potential competition law infringements, but also from 4 March 2020 the UOKiK announced that it would start naming and shaming any company that in their view acted irresponsibly by withdrawing from contracts concluded with hospitals.

On the other side of the Channel, the UK Competition and Markets Authority (CMA) followed the example of other European countries on 5 March 2020 by warning that it would use all means necessary to prevent companies from abusing the situation. A similar statement was made in Spain by the Comisión Nacional de los Mercados y la Competencia (CNMC) and in Luxembourg by the Conseil de la concurrence. The CMA left open the question whether it would proceed using competition or consumer protection law. It also announced that it would assess whether it should advise the UK government to regulate prices like in France.

In Austria, the Bundeswettbewerbsbehörde (BWB) took precautions on merger control procedures similar to China's SAMR, among other things making it impossible to hand in a merger filing in paper form. It remains to be seen whether this measure will have the same positive impact on the efficiency of the BWB as it apparently had on the efficiency of SAMR.

Unlike the Austrian BWB, the European Commission still makes it possible to hand in merger filings in paper, but if possible delay merger notifications originally planned until further notice. Any submissions are encouraged to be made digitally

Finally, on 3 March 2020 in Iceland a tourism industry organisation petitioned for and received a exception to anti-collusion rules until April 30 from the Icelandic Competition Authority (Samkeppniseftirlitið.

Conclusion

Despite the fact that the world is dealing with an exceptional situation, companies should not expect authorities to turn a blind eye to those unlawfully taking advantage of it.

Chinese authorities were the first to be confronted with the need to use competition and consumer protection law compliance and enforcement to counter undesired outcomes for consumers of the COVID-19 outbreak. We have observed that actions taken by authorities in other infected countries are more or less similar to those taken earlier by Chinese authorities. In fact, depending on national law, supervisory and regulatory policies have followed a similar trajectory as the spread of the virus. Like China and other Asian countries, European authorities are first and foremost using consumer protection to stabilise access to PPEs and other essential products. Next to these consumer protection measures, the complexity of competition law appears to make it less effective in quickly stabilising markets. Pursuing excessive pricing as infringements on consumer protection law does not require extensive analysis, and facilitates more effective and faster enforcement as we have seen in China and France.

This is, however, not to say that competition law has been sidelined. In various countries, competition authorities have already started in-depth investigations into the market behaviour of companies. In those markets severely hit by the virus where economic consequences are under scrutiny, authorities consider fair competition to be a prerequisite for proper access to personal protective equipment and other basic needs. Similar actions can also be expected in other markets. Diligence is all the more necessary.

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The author thanks Ricardo Kooman for his support in the information gathering for this article.