On March 24, 2020, the Antitrust Division of the Justice Department and the Bureau of Competition of the Federal Trade Commission announced that they are adopting expedited processes for reviewing potential collaborations or other activities for antitrust issues in response to the COVID-19 pandemic. The Agencies recognized the urgency of the coronavirus event and stated that they will respond to all COVID-19-related requests “within seven (7) calendar days of receiving all necessary information.” The Agencies then provided a few examples of types of activities that it would likely bless.

The normal process for review of these types of agreements takes months, so the 7-day time frame is important. The process, however, does not, and has never, conferred immunity. If the activity is not problematic, the process will offer comfort that the federal antitrust agencies will likely not sue you for a particular activity. Care should be taken when considering using one of these processes, however. In some instances, these letters have resulted in investigations and lawsuits. While the Justice Department has never pursued a criminal investigation as a result of a filing, there is nothing preventing them from doing so. If you are considering pursuing a review, you should consult with antitrust counsel and thoroughly discuss the activity, the process and alternatives.

Legal Background
Generally, activities that constitute per se violations of the Sherman Act are still per se violations of the Sherman Act. These include price fixing, bid rigging, and market and customer allocation. Moreover, the Division’s Business Review Letter and the FTC’s Advisory Opinion processes still remain advisory. Under those processes, the Agencies will tell you their present enforcement intent with regard to the particular activity that you have described, and only to the extent you’ve described it. It is important to note, however, that a “clean bill of health” from the Agencies, both under the “normal” process and the expedited COVID-19 process, does not immunize the activity from suit. Private parties and States can still pursue actions. Indeed, there is nothing that would legally prevent the Agencies themselves from prosecuting the described behavior even if they had previously blessed it. There is also the possibility that a rationale this administration finds compelling another might not. And when the coronavirus threat ends, the rationale that supported the activity during the event may no longer exist. Parties contemplating pursuing an advisory opinion from the agencies under the expedited COVID-19 process need competent antitrust counsel to evaluate the proposed activity before going to the Agencies, and to insure that it is narrowly tailored to accomplish the goal given the circumstances and that there are mechanisms in place to end the activity in the event the circumstances change.

The safest route to pursue activities that may violate the antitrust laws is to seek State Action immunity and not through the Agencies’ processes. Under the State Action Immunity doctrine, States may pass laws that expressly exempt activities from the State and federal antitrust laws. To qualify for that immunity, the State legislature must clearly articulate that they wish to displace competition, and the State must actively supervise the activities. It is not enough for the State, for example, to create a COVID response team consisting of the major pharmaceutical manufacturers, and tell them that they can collectively set price on COVID medications. To pass muster and be eligible for immunity, the State must supervise these activities. While there are a number of ways to accomplish this, one might see a COVID board consisting of State Board of Health professionals, who allow pharmaceutical manufacturers, as well as hospitals and other care givers, to submit petitions to the board to allocate scarce supplies like medicines, and the board decides. Of course, while this is the safest route, it is not the most expeditious.

There is also a petitioning immunity. Consortiums of pharmaceutical manufacturers could, for example, petition the CDC as well as State boards to use their police and health and safety powers to allocate medicines, for example. The petitioning is protected speech, and the anticompetitive action was affected by the State rather than a private party.

The Agencies Advice and Analysis
The Agencies give the following examples in their announcement. The bold is our commentary.

• As a general matter, the Agencies have stated that when firms collaborate on research and development this “efficiency-enhancing integration of economic activity” is typically procompetitive. These would include joint activities to research a vaccine.
• The Agencies have expressed that sharing technical know-how, rather than company-specific data about prices, wages, outputs, or costs, may be “necessary to achieve the procompetitive benefits of certain collaborations.” Sharing such know-how allows the parties to get their product to market quicker. Agreeing on the price, for example, would not be necessary to achieve the benefits of the information sharing. The parties could also contemplate R&D joint ventures that would own, collectively, the intellectual property that comes out of the joint efforts. The joint venture could set price of the product in that situation.
• The Agencies have explained that they will not challenge, absent extraordinary circumstances, providers’ development of suggested practice parameters – standards for patient management developed to assist providers in clinical decision making – that also may provide useful information to patients, providers, and purchasers.
• The Agencies have also explained that most joint purchasing arrangements among healthcare providers, such as those designed to increase the efficiency of procurement and reduce transaction costs, do not raise antitrust concerns.
• The antitrust laws would generally permit private lobbying addressed to the use of federal emergency authority, including private industry meetings with the federal government to discuss strategies on responding to COVID-19, “insofar as those activities comprise[] mere solicitation of governmental action with respect to the passage and enforcement of laws.”

The Agencies also offer some specificity:

For example, health care facilities may need to work together in providing resources and services to communities without immediate access to personal protective equipment, medical supplies, or health care. Other businesses may need to temporarily combine production, distribution, or service networks to facilitate production and distribution of COVID-19-related supplies they may not have traditionally manufactured or distributed. These sorts of joint efforts, limited in duration and necessary to assist patients, consumers, and communities affected by COVID-19 and its aftermath, may be a necessary response to exigent circumstances that provide Americans with products or services that might not be available otherwise.

A Hypothetical Illustration
Suppose there is a shortage of surgical masks on the East Coast. Company A, which normally serves the East Coast, is receiving orders that far exceed its capacity to fulfill them. Company B, which normally serves the Mountain States, has significant excess capacity. Company B doesn’t sell into Company A’s territory because the shipping costs are prohibitively expensive. In this hypothetical, you would expect Company A to raise price until the price increase equals the cost of shipping into Company A’s territory by entities like Company B. It is also possible that Company A would find it profitable to buy masks from Company B and resell them.

Company A realizes that it can profitably sustain a price increase of 15% while increasing supply by 100,000 masks. If it increased supply by 200,000 masks, it would only be able to sustain a 7% price increase. Company A knows Company B would start shipping to customers on the East Coast at a 7% price increase. The CEO of Company A, Bob, reads the Agencies’ COVID statement and decides that it’s an opportunity for Company A and Company B to “collaborate.” The urgent need for masks on the East Coast is the rationale.

• Bob calls Company B’s CEO, Jane, and asks to buy 100,000 masks at wholesale. This purchase is perfectly acceptable under standard and COVID antitrust. It doesn’t matter under the antitrust laws that he could sell 200,000 more masks but chooses to sell only 100,000. If the market were competitive, and there was that demand, it is likely a competitor of Company A would solicit Company B for the remaining 100,000 masks and defeat Bob’s attempted price increase.
• Realizing that Jane may start shipping directly, Bob tells Jane that he will pay 10% more than wholesale for the masks. He knows he will still make a profit by selling at 15% more than market. If Jane remains free to sell to the East Coast, there is nothing wrong with paying her more for the masks. It doesn’t matter that Bob has selected a price that would allow Jane to make more money by not selling additional product into the market. Bob says, however, that to get the additional price concession, Jane must agree not to sell to the East Coast. This is not justified under the circumstances because it’s limiting her ability to compete on the East Coast and would likely constitute a per se violation of the Sherman Act if Jane agrees.
• Instead of asking her not to sell to the East Coast, Bob asks Jane to raise price to match his 15% price increase if she does sell into the market. This is also a problem. It’s price fixing and not justified.
• Instead of asking her to raise price, Bob suggests that they agree that they won’t raise price at all, and that he will offer her wholesale services for free if she wants to ship in bulk. This is harder. There is significant caselaw that says agreeing to a price ceiling is just as much price fixing as price floors. However, the price they’ve picked is significantly less than what Company A could get on the market and the deal is increasing the supply of masks to the East Coast. This approach is carries high risk, however, and would likely result in a statement by the Agencies that it is anticompetitive.
• A less-riskier approach might be a short-term manufacturing joint venture, where Company A contributes by contract access to its wholesale facilities at cost and Company B contributes its excess capacity at cost, and the joint venture sells the masks. This venture seems more palatable under the antitrust laws. It’s getting a product to market quicker than would otherwise, there is shared risk and reward, and it eliminates double marginalization so consumers benefit. The short duration should also be a positive element as it is designed to address the immediate mask needs on the East Coast. An expedited BRL would likely bless the arrangement, and limit exposure at least with regard to an investigation or suit by the federal government during the short to medium term. The parties would want to make sure the venture dissolves when the need dissolves, or seek an opinion from counsel that the venture is on balance procompetitive.
  • As an aside, a significant portion of the analysis is whether the parties have market power. If they controlled most of the market, it would be harder but not necessarily impossible to justify the joint venture. If the market was competitive, the agreement would likely have less effect on competition. Company A would also not be able to sustain any price increase except at the margins.

Conclusion
Situations like COVID-19 and the potential collapse of the economy may lead many to think that “self-help” is the only way businesses can protect themselves and the people they employ. Naked agreements to fix price, particularly of COVID-19-sensitive medical supplies, will not be blessed by the agencies, courts or private parties, and may, in some situations, constitute a crime. The same applies to market or customer allocation agreements, where suppliers of, say, masks, decides who gets what customers. Getting needed supplies, including a vaccine, to market quicker carries real value today, however, so if a collaboration can achieve those ends, and can be narrowly tailored to limit the adverse effect on competition, it will likely pass muster. The area of the law is complex and not susceptible to easy answers, however, and care should be taken before leaping into anything, and in particular the antitrust review processes described above.