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07 May 2020
On 11 March 2020 the government declared a state of emergency in Hungary in connection with the COVID-19 pandemic and issued a special legal order. COVID-19 and related precautionary measures have completely overturned the market in a number of ways: in some sectors (eg, aviation, events management, tourism-related services and automotives), the production of goods and provision of services has almost completely stopped, while in other areas the sudden and significant increase in consumer demand for certain products (eg, masks, hand sanitiser, durable foods, toilet paper, medicines and vitamins) is causing disruptions.
To date, only one provision has been adopted under the special legal order to allow exemptions from competition law, but it affects only the merger control notification obligation under special circumstances.(1) Undertakings must therefore continue to pay attention to competition compliance. This article aims to help companies meet these requirements in view of the European Competition Network's (ECN's) recommendations.(2)
The Hungarian Competition Authority (HCA) is an ECN member and therefore follows the network's recommendations.
Competition law prohibits agreements and concerted practices between undertakings that aim for or result in the restriction competition. Such conduct may be penalised with heavy fines (eg, up to 10% of the relevant undertaking's previous annual turnover).
During the COVID-19 crisis, companies may feel a stronger urge to coordinate their market strategy, align their prices or the quantity of products to be put on market, either in order to survive or simply take advantage of the increased demand and achieve higher profits. Such conduct remains prohibited and should be avoided.
At the same time, cooperation between companies can be driven by mere goodwill: for example, companies contact each other to ensure that products in short supply are properly replenished and distributed fairly. Such consultations and agreements in the interests of consumers may be exempted from antitrust prohibitions in the present circumstances if they are limited in time and limited to what is strictly necessary to ensure the continuity of supply.
Companies are responsible for assessing the legality of their intended agreements with competitors. However, if these cooperation projects have EU relevance and fall under EU competition law, companies may seek guidance of the European Commission in the following ways.
The European Commission recently published a Temporary Framework Communication(3) to provide antitrust guidance to companies relating to the COVID-19 pandemic. The European Commission has also set up a temporary process where it is willing to provide companies, where appropriate, with a written comfort letter on request. Such comfort letters ensure that a specific project aimed at ensuring the continuity of supply is compatible with EU competition law under the current special circumstances.
In connection with the COVID-19 pandemic, demand for certain products has increased dramatically, leading to explosive price increases. For example, face mask prices in Hungary have seen a 16-fold increase compared with pre-pandemic conditions.
Competition law prohibits the setting of unfair selling prices only for companies in a dominant market position, provided that the price increase is not the result of a cartel as discussed above. At the same time, the Act on Trade(4) establishes a presumption in respect of dominant market position: if a company's (consolidated) net sales from the retail sale of daily consumer goods exceeded HUF100 billion in the previous year, the company is presumed to be in dominant market position on this market. Due to this rule, most hypermarket chains are in a dominant market position in Hungary, so they must pay close attention to their pricing practices.
In the coming period, competition authorities across Europe will need to carefully check the pricing of products of strategic importance during the COVID-19 pandemic (eg, face masks and hand sanitisers). If such authorities find that an unjustified increase in price has been the result of an agreement between undertakings (ie, a cartel) or an abuse of a dominant market position, they will not hesitate to take action.
To prevent the overpricing of potentially non-dominant retailers, manufacturers can set maximum selling prices. This is not only a lawful measure in the present situation, but strongly recommended.
Businesses must also meet a number of requirements when advertising their products. There is a particularly high demand for products and services that play a role in the prevention and treatment of COVID-19. In addition to face masks and hand sanitisers, this includes medicinal products, vitamins and various disinfectant products and services.
According to the HCA, the authority is paying special attention to the following commercial practices:
The HCA has already launched an investigation against a company advertising a product that offers protection against viruses and bacteria.
If a company advertises through influencers, the company itself is also responsible for ensuring that influencers comply with the above rules.
As the COVID-19 pandemic continues to pose new legal challenges, businesses must remain vigilant of legislative changes and regulatory practices, particularly where competition law is concerned. Exercising caution and ensuring compliance are matters of common interest, especially during such an historic period.
For further information on this topic please contact Anna Turi or Márk Kovács at Schoenherr Attorneys at Law by telephone (+36 1 8700 700) or email (email@example.com or firstname.lastname@example.org). The Schoenherr Attorneys at Law website can be accessed at www.schoenherr.eu.
(1) As an exception from the general notification requirement to the HCA, there is no notification requirement for a majority state owned venture capital fund or private equity fund acquiring sole or joint control rights for investment protection purposes in relation to financing necessitated by COVID-19.
(2) Available here.
(3) Available here.
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