DOJ Signs Off On First COVID-Related Competitor Collaboration Not Involving Medical Supplies
May 18, 2020
On May 15, 2020, the Antitrust Division of the Department of Justice announced its first approval of a COVID-19 competitor collaboration that does not involve equipment or medications directly related to fighting the pandemic. The Division’s business review letter (“BRL”) is only the second it has issued under the DOJ-FTC joint guidance relating to COVID-19. As with the first BRL, involving medical supplies, the government agency’s involvement in the collaboration appears to have once again been dispositive in the decision not to challenge the collaboration.
On May 8, 2020, the National Pork Producers Council (“NPPC”), a trade association representing some 60,000 hog farmers, sought DOJ approval of a “coordinated industry and governmental response” to a problem the pandemic has created: a 44% reduction in pork processing capacity due to outbreaks among plant employees and government restrictions on plant operations. As a result, farmers simply have too many hogs. According to the NPPC, the nation’s farmers need to euthanize as many as 700,000 hogs per week, but lack the knowledge or equipment necessary to carry out that unpleasant task at the scale required. A patchwork of state and local laws governing animal abuse and environmental considerations add another level of complexity.
The request comes in the wake of the United States Department of Agriculture’s (“USDA”) announcement of a plan to help farmers cull herds and an April 28 presidential executive order, which invoked the Defense Production Act and directed the USDA to help maintain the nation’s supply of meat and poultry. In its request for a BRL, the NPPC proposed to act “as an informational clearinghouse” to support the USDA’s efforts, including by sharing information with its members to assist with both the logistical and regulatory compliance issues they are facing. The trade association represented to the DOJ that the collaboration would operate under certain safeguards, such as requiring individual farmers to decide how many hogs to euthanize; prohibiting the exchange of price information or any attempts to profiteer off the situation; and promising to terminate the collaboration when the crisis ends.
On May 15—just seven days after the NPPC’s request, as required by the expedited review procedure detailed in the joint guidance—the DOJ issued a BRL announcing that it did not intend to challenge the proposed conduct. It cited two primary justifications. First and foremost, the DOJ relied on the NPPC’s representation that the conduct will occur “at the direction and under the supervision and coordination of the USDA.” The DOJ also found persuasive the NPPC’s representations that collaboration occurring outside of government involvement will not involve the exchange of competitively sensitive information. As with its prior BRL, the DOJ explained that its enforcement intentions will remain in effect for one year and it reserved its right to challenge the conduct in the future.
The pork producers BRL raises four questions regarding the enforcement agencies’ review of competitor collaborations in the midst of the COVID-19 pandemic.
First, the new BRL places the medical supply BRL in a new light. It now seems that the government’s involvement in that collaboration (there, FEMA and HHS) would have been sufficient, even without the fact that the products at issue were directly related to fighting the pandemic. If competitors are collaborating under the auspices of a government agency, that might be enough.
Second, unlike the supply shortages that led to the medical supply collaboration, the pork producer collaboration involves an excess of supply and a shortage of demand. The pork producers’ request even recognizes that it is “reduced foodservice and restaurant demand for pork products,” together with the limited processing capacity, that is resulting in oversupply and “severely decreasing the value of each hog.” Yet the request never goes so far as to ask to reduce supply in order to better align with demand; to the contrary, the request claims that the proposed conduct will “increas[e] marketable supply.” It is not clear how. (Nor is it not clear how the NPPC’s proposal would, as its letter claims, “provide Americans with products . . . that [will] not be available otherwise.”) The DOJ’s BRL does not address the supply or demand issues, except to acknowledge the “oversupply of live hogs” and that “hog farmers . . . are facing unprecedented hardships.” Query whether concern for the NPPC’s members may be animating the DOJ’s decision, even if it does not expressly factor into the analysis.
Third, one safeguard that the DOJ required in the medical supply BRL is oddly missing from the pork producers BRL. In the medical supply BRL, the DOJ prohibited the participants from sharing any competitively sensitive information with each other and required “sequestration” of any such information they did acquire. The pork producers BRL contains no such limitation; instead, the DOJ seems to have taken at face value that the collaboration does not involve any information that might be competitively sensitive.
Fourth, both the medical supply and the pork producer BRLs provide that the collaborations are acceptable, in part, because they will dissolve when the crisis ends. Of course that only begs the question (as people all over the world are asking), when will the crisis end? The NPPC states that it expects the proposed conduct to last only six months. But without a clear definition for the end of the crisis—A reduction in death rates? Withdrawal of the declaration of national emergency? Manufacture of a vaccine?—there remains the risk that limited collaborations like these may be less limited than we think.
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