Corporate Coronavirus Cooperation Raises Prospect of Collusion

March 26, 2020, 7:10 PM

Corporate competitors suddenly collaborating to fight the new coronavirus to make everything from masks to vaccines could leave themselves vulnerable to collusion charges.

Antitrust enforcers at the Justice Department and Federal Trade Commission have signaled that they are open to some forms of corporate coordination that seeks to fight the pandemic, such as joint pharmaceutical research efforts.

But companies operating under government sanctioned collaboration ventures can still run afoul of the law by sharing too much sensitive data with one another.

“The mistake companies have made is that they get together and try to figure out how to deal with new significant costs by making agreements with each other,” said Lisa Phelan, a partner at Morrison & Foerster LLP who served as chief of the DOJ’s antitrust criminal enforcement section.

Collusion that results in the suppression of market competition is a risk factor nearly all companies will have to contend with during the coronavirus outbreak, even if they are operating under a joint venture agreement.

These new government sanctioned collaborations aren’t an attempt for regulators “to be more liberal” with respect to enforcing allegations of corporate collusion, said Peter Guryan, co-chair of Simpson, Thacher & Bartlett LLP’s antitrust group.

Approved Coordination

Coordination among direct competitors is lawful during times of crisis but under very narrow circumstances which usually require approval and ongoing government oversight.

The DOJ and FTC, which together police anti-competitive corporate conduct, will grant joint collaboration ventures between competitors that aim to tackle Covid19, the disease caused by the new coronavirus.

Such antitrust joint ventures, which include the need for businesses to temporarily combine production and distribution services, will be reviewed via an expedited process, the agencies said March 23.

President Trump couldinvoke powers under the Defense Production Act, which allows the federal government to enlist private companies to assist in combating a national crisis.

Companies operating under the act’s orders are exempt from antitrust liabilities. However, the DOJ and FTC are tasked with monitoring corporate collaborations formed under the act’s provisions.

Unintended Consequences

Agreements between companies to fix prices, rig bids, divide up specific markets or customers, or enact some sort of joint collaboration that would restrict output for a product or service would still violate antitrust laws even during the coronavirus pandemic.

All of these types of coordination are illegal “because they decrease supply in some fashion, which necessarily raises prices,” Joseph Ostoyich, a partner at Baker Botts LLP, said during a March 23 presentation hosted by the firm.

Companies also can’t get together and put a floor on prices, especially as tickets for airfare and travel continue to rapidly decline, Phelan said.

Corporations engaged in joint ventures are allowed to share information about industry best practices and they can also work together to lobby the government. Joint purchasing arrangements among health care providers is also permissible if they are designed to help increase output, the government has said.

“You can gather market intelligence and use it to make your own independent decisions, but not for a decision made jointly with a competitor,” Ostoyich said.

Contract Risk

Companies that team up to collaborate during the pandemic are likely to put in place contracts and other restraints to protect propriety information and personnel.

Pharmaceutical companies, for example, may draft a non-solicitation agreement that ensures the two entities don’t hire away each others’ staff or poach clients from one another.

But such provisions, if excessively broad, can also trigger antitrust liabilities if they suppress market competition.

Such contractual restrictions should be for a small window of time and shouldn’t be a blanket provision that impacts nearly all aspects of a company and its employees, Ostoyich said.

If there is some sort of contractual restraint that is necessary to achieve a procompetitive benefit during the pandemic, it must be “narrowly tailored to achieve those goals,” he said.

To contact the reporter on this story: Victoria Graham in Washington at vgraham@bloomberglaw.com

To contact the editor responsible for this story: Seth Stern at sstern@bloomberglaw.com

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