Competitor Collaborations During the COVID-19 Pandemic: Issues Under the Competition Act

April 13, 2020

Written By Beth Riley and Adam Kalbfleisch

The Competition Act is federal legislation that governs most business conduct in Canada. The role of the Competition Bureau is to prevent and deter anti-competitive behaviour and deceptive marketing practices, review mergers to ensure they do not lessen or prevent competition substantially in any market, empower Canadian consumers and businesses, and promote competitive markets across Canada.

The COVID-19 pandemic has up-ended markets worldwide, leading to massive shifts in supply and demand, information asymmetry and other disconnects in markets, and significant market uncertainty, all of which has changed, and will continue in the near future to change, the competitive dynamics of affected markets. These changes may trigger conduct by market participants that may raise concerns under the Competition Act, including in particular, conspiracies between competitors to fix prices for the supply of a product, allocate markets or restrict the supply of a product (e.g., agreements to increase to the price of critical products) and bid-rigging (e.g., agreements to not submit a bid or to make a bid in response to a call for bids for critical products), among other provisions, including those related to deceptive marketing practices (e.g., misleading advertising regarding the efficacy of treatments for the coronavirus) and anti-competitive conduct by dominant firms (e.g., dominant suppliers of critical materials refusing to make materials available to downstream competitors or tying the sale of its critical materials with other products).

There are no exemptions to the application of the Competition Act to conduct arising from the COVID-19 pandemic.  However, the Competition Bureau recognizes the benefits of cooperation between competitors in certain circumstances, especially where such conduct leads to the development of new products, increased production or increased efficiencies, among other legitimate objectives. In this regard, on April 8, 2020, the Competition Bureau released the "Competition Bureau statement on competitor collaborations during the COVID-19 pandemic" to provide guidelines to market participants seeking to engage in business collaborations in light of the COVID-19 pandemic. The Bureau specifically highlights buying groups and arrangements to share supply chain resources, such as distribution facilities, as possible collaborations that should not be discouraged.

While the Bureau's position set forth in the COVID-19 guidelines are not legally binding and do not insulate a firm's conduct from any private action, they do provide an indication of the Bureau's enforcement priorities in light of the COVID-19 crisis. The Bureau states that it recognizes that the exceptional circumstances surrounding the COVID-19 pandemic may call for the "rapid establishment of business collaborations" and the Bureau does not wish its enforcement of certain elements of the Competition Act to "potentially chill what may be required to help Canadians" where (i) firms are acting in good faith, and motivated by a desire to contribute to the crisis response rather than achieve competitive advantage, and (ii) the particular competitor collaboration is of limited duration and scope to ensure the supply of products and services that are critical to Canadians."

Firms engaged in the supply of products that are important to the response to the COVID-19 crisis should be especially vigilant to ensure compliance with the Competition Act and, in particular, the Bureau's COVID-19 guidelines, as the Bureau may pay particular attention to markets affected by the COVID-19 crisis during this pandemic. The Bureau affirms in the COVID-19 guidelines that "[c]ompetition law enforcement remains vital in a period when the availability and affordability of critical goods and services are vital to the wellbeing of Canadians", and the Bureau has "zero tolerance for any attempts to abuse this flexibility or the guidance … as cover for unnecessary conduct that would violate the Competition Act."

The analysis as to whether or not a proposed collaboration or other conduct may raise concerns under the Competition Act, including the Bureau's COVID-19 guidelines, is complex and depends upon the business objectives of the parties, the terms of the arrangements between the parties, and the likely effect on competition on the relevant markets. Recognizing this complexity, the Bureau has established a new team to assess proposed collaborations and advise the Commissioner on what informal guidance he might provide to firms in respect of specific collaborations. The information that would be required by the Bureau to assess such collaborations is set out in the COVID-19 guidelines.

To minimize risks of an investigation and subsequent challenge under the Competition Act of any competitor collaborations, we recommend that each firm:

• review its code of conduct and other compliance policies to ensure that the proposed conduct does not contravene any firm policy;
• consider the business objective of the proposed collaboration, which must be a clearly identified COVID-19 related objective in the public interest: the firm must be acting in good faith with a desire to contribute to resolution of the crisis;
• ensure the proposed collaboration is limited to what is strictly necessary to achieve the legitimate objective(s);
• ensure the proposed collaboration is limited to the short term (i.e., the time necessary to respond to the crisis);
• consider the likely impact on competition from the proposed collaboration;
• not enter into an agreement with any competitor regarding prices, limiting the supply of a product or allocating customers or markets, and not agree to submit a bid, to not submit a bid, or to withdraw a bid without prior notice to the party issuing the tender;
• not exchange any "competitively sensitive information" with any competitor (i.e., non-public information that relates to business plans, capacity, production, pricing or other terms of purchase and sale, profit margins, cost information, customer or supplier information, bids or market share data); and
• ensure that all business decisions that may have an impact on competition (pricing, markets, service levels, customers, business plans, etc.) are determined independently.

If your business or organization has questions respecting compliance with the Competition Act or the Bureau's COVID-19 guidelines or would like assistance to structure a proposed collaboration in compliance with the Competition Act or the Bureau's COVID-19 guidelines, please contact a member of the Bennett Jones Competition/Antitrust group.

In addition, please visit our COVID-19 Resource Centre for other COVID-19-related materials.

Authors