Effectively mitigating both the novel public health and economic challenges unleashed by Covid-19 may impel companies up, down, and across the supply chain to collaborate and coordinate with one another in novel ways. But competitor collaboration is an area fraught with antitrust risk.
What are these risks, what are the antitrust agencies doing to help recalibrate them in light of the pandemic, and how can companies minimize them as they work to keep their businesses and industries viable?
Firms contemplating competitor collaborations must proceed cautiously. Even if they are well-intentioned, collaborations that increase the ability or incentive of participants to raise prices or restrict output, quality, service, or innovation, or that facilitate explicit or tacit collusion via the exchange of competitively sensitive information, can carry severe penalties under the antitrust laws.
Developed over decades, case law and industry guidance has built up a fairly well recognized set of rules of the road for businesses to follow to avoid antitrust problems. But this year many of those businesses find themselves in seemingly uncharted territory, with relatively little antitrust guidance for mitigating pandemic-related business disruptions.
FTC/DOJ Joint Statement
On March 24, the Federal Trade Commission and Department of Justice Antitrust Division issued a joint statement detailing an expedited antitrust procedure and updated guidance for collaborations of businesses working to protect the health and safety of Americans during the Covid-19 pandemic.
First, the agencies announced that they will “aim to” respond to all Covid-19-related requests for advisory opinions submitted via the DOJ’s business review letter program and the FTC’s advisory opinion program within seven days (in contrast to the several-month turnaround time they ordinarily practice).
Second, the agencies noted that there may be opportunities for competitors to collaborate to help address the Covid-19 pandemic without running afoul of the antitrust laws. The agencies’ guidance focuses primarily on collaborative activities that are directly related to efforts “to improve the health and safety response to the pandemic.”
Accordingly, the agencies mention research and development, sharing of “technical know-how,” and joint-purchasing arrangements as exemplary Covid-19-related competitor collaborations.
Further, the agencies note that they will account for “exigent circumstances in evaluating efforts to address the spread of COVID-19 and its aftermath”—for example, if businesses “temporarily combine production, distribution, or service networks to facilitate production and distribution of COVID-19-related supplies.”
But firms in the medical industry are not the only ones for whom the Covid-19 pandemic is presenting “exigent circumstances.” Firms across a diverse array of industries are having to adapt their operations and implement health and safety protocols to minimize contagion. They are also dealing with unprecedented supply and distribution disruptions, as critical links in the supply chain seize up and critical sales channels are curtailed.
For example, the indefinite shut-down of several meat processing plants due to Covid-19 outbreaks may dramatically reverberate both upstream and downstream—leaving farmers with excess livestock that cannot be slaughtered and grocery stores with empty meat counters.
In these circumstances, a number of industries may turn to intra-industry collaboration to help promote the widespread adoption of effective health and safety practices. For example, distributors may want to develop shared expertise regarding contagion-minimizing practices and procedures.
Such collaborations should be viewed as procompetitive, output-enhancing activities: a firm that ceases to operate because its workforce or customers contract Covid-19 ceases to function as a competitor.
Intra-industry collaboration geared to addressing more general supply and distribution disruptions requires a more nuanced analysis. For example, it may be procompetitive for competitors to coordinate with their customers, suppliers, and each another in order to re-warehouse and/or re-route products away from truncated distribution channels and minimize spoilage. Although “minimizing spoilage” may not be synonymous with “enhancing output,” there is little reason to view it as anything other than procompetitive in the present context.
However, firms must tread extremely carefully on this terrain. A discussion among competitors that strays from “how can we efficiently re-route products into the hands of customers and avoid massive industry-wide levels of spoilage?” to “how can we divvy up customers or territories to ensure we all stay profitable?” would quickly expose the participants to potentially severe antitrust liability.
Employees should be trained not to enter into any agreements or understandings with competitors regarding the terms of any dealings with suppliers or customers, marketing, sales, prices, or distribution. And employees should likewise generally refrain from disclosing or receiving any competitively sensitive information, including information revealing:
- Price and other sales terms;
- Output, sales volumes and market shares;
- Revenues, profits and margins;
- Inventory levels;
- Specific customer information; and
- Strategic plans related to pricing, product or service offerings, or marketing and advertising.
Finally, firms should bear in mind that many practices that may be permissible under the antitrust laws when undertaken unilaterally by a single firm can violate Section 1 of the Sherman Act when undertaken by two or more competitors acting in concert.
For example, it has been reported that farmers across the country are resorting to dumping milk, plowing under crops, and euthanizing poultry due to the drop in demand from schools, restaurants, and other food service providers. While a single farmer destroying their harvest is an economic tragedy, a hundred farmers doing so in concert could be an antitrust conspiracy.
Just as the antitrust laws forbid competitors from fixing prices, they also forbid competitors from engaging in coordinated practices to increase or stabilize prices. Firms should secure antitrust counsel—and potentially an expedited advisory opinion from the FTC or DOJ—before proceeding with any joint efforts to address Covid-19 that carry the appearance or effect of stabilizing prices.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Steve P. Safranski is a partner at Robins Kaplan whose practice focuses on antitrust, unfair competition and trade regulation, and consumer-protection litigation and appeals. Safranski counsels and represents a diverse group of food and beverage, grocery, manufacturing, health care, and hospitality clients.
Eric P. Barstad is an associate at Robins Kaplan specializing in antitrust counseling, litigation, and government investigations.