On March 11, 2020, the Government of Hungary declared a state of emergency for the entire territory of Hungary in connection with the COVID-19 coronavirus epidemic, and at the same time a special legal order. The new type of coronavirus and some related precautionary measures have completely overturned the market in a number of markets: in some sectors (e.g. aviation, event management, other tourism-related services, automotive, etc.) production of goods/provision of services has almost completely stopped, while in other areas, the sudden and extreme increase in consumer demand is causing disruptions (e.g. mouth masks, hand sanitizers, durable foods, toilet paper, medicines / vitamins).
To date, no provision has been adopted under the special legal order allowing for a special exemption from the rules of competition law, thus the undertakings concerned must continue to pay attention to compliance. The following brief summary aims to help companies in this task, taking into account the recommendations of the European Competition Network (ECN). The Hungarian Competition Authority ("HCA") is a member of the ECN, therefore it will take into account the recommendations of the network.
Competition law prohibits agreements and concerted practices between undertakings that aim for or result in the restriction competition, and threatens such conducts with heavy fines (up to 10% of the previous year's turnover of the undertaking concerned).
During the coronavirus, companies may feel a stronger urge to coordinate their market strategy, align their prices or the amount of products to be put on market, either in order to survive or simply to take advantage of the increased demand and achieve higher profits. Such conducts remain 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, in so far as they are limited in time and limited to what is strictly necessary to ensure the continuity of supply, may be exempted from antitrust prohibitions in the present circumstances.
It is for the companies to assess 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 ("EC") in the following ways: The EC has recently published a Temporary Framework Communication to provide antitrust guidance to companies related to the current coronavirus outbreak. The EC has also set up a temporary process where it is willing to provide companies, where appropriate, with written a comfort letter upon request. Such comfort letter would ensure that the specific project aimed at ensuring the continuity of supply is compatible with EU Competition Law under the current special circumstances.
Overpricing of goods in short supply
In connection with the coronavirus epidemic, demand for certain products has increased dramatically, leading to an explosive increase of prices. The prices of face masks, for example, show a sixteen times increase in Hungary compared to pre-epidemic conditions.
Competition law prohibits the setting of unfair selling prices only for companies in a dominant market position - provided the price increase is not the result of a cartel as discussed above. At the same time, the Hungarian Act on Trade establishes a presumption in respect of dominant market position: if the company's (consolidated) net sales from the retail sale of daily consumer goods exceed HUF 100 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 dominant market position in Hungary, so they need to pay close attention to their pricing practices.
In the coming period, competition authorities across Europe will check thoroughly the pricing of products of strategic importance in relation to the coronavirus epidemic (e.g. face masks, hand sanitizers). If they find that an unjustified increase in prices has been the result of an agreement between undertakings (a cartel) or an abuse of a dominant market position, they will not hesitate to take action.
In order to prevent the overpricing of potentially non-dominant retailers, manufacturers have the possibility to set maximum selling prices. This is not only a lawful measure in the present situation, but a strongly recommended one.
Misleading of consumers
Businesses also have to meet a number of requirements when advertising their products. Currently, there is a particularly high demand for products and services that play a role in the prevention and treatment of the coronavirus epidemic. In addition to the face masks and hand sanitizers mentioned above, this includes medicinal products, vitamins and various disinfectant products and services.
According to the HCA, the authority is paying special attention to commercial practices in which
- a medicinal/therapeutic effect is unjustifiably attributed to a product. It is prohibited to attribute a medicinal effect to a product not only by making a direct claim the advertisements, but also if the advertisement provides information about the active substances or ingredients in such a way that the message of the advertisement as a whole suggests that the product has a medicinal/therapeutic effect;
- a medicinal effect is attributed to food, which is prohibited in all cases;
- a particularly sought-after product is advertised for sale when there is no sufficient stock of the product and no replacement of the stock is expected in the future;
- a product is listed on a discounted price while the product has never been sold at the price indicated as “original”.
The HCA has already launched an investigation against a company advertising a product that offers protection against viruses and bacteria.
It is important that if a company advertises through influencers, the company itself is also responsible for ensuring that influencers comply with the above rules.
The coronavirus epidemic has posed new challenges to businesses in many areas of law. Continuous monitoring of legislative changes and relevant regulatory practices is currently essential, of which competition law is no exception. Careful, law-abiding behavior is in the common interest of all of us even in this historic time.
By Anna Turi, Counsel, and Mark Kovacs, Associate, Schoenherr