A question commonly posed to competition counsel, including me, when talking about the risks of meetings between competitors and information exchanges (for example in the trade association context) is whether it is illegal to merely talk about competitively sensitive information – for example, prices, costs, markets, customers, suppliers, strategic or business plans and so on.
In an interesting speech issued a little while back (Antitrust Issues Related to Benchmarking and Other Information Exchanges), Thomas Rosch, a Commissioner of the U.S. Federal Trade Commission, addresses a number of current and historical issues related to information exchanges and benchmarking. Given that many of the same issues can arise regardless of jurisdiction (though enforcement agencies in Europe tend to approach the issue more strictly), I thought I would post some of the highlights of his remarks.
The Commissioner begins by describing some of the potential (and well-established) fundamental concerns associated with information exchanges between competitors:
“That exchanges of price and other information among competitors can raise antitrust concerns has long been recognized. At least as far back as 1925, the Supreme Court has examined the competitive implications of firms sharing price information with each other. These exchanges raise two principal antitrust concerns. The first is that they may lead to or be part of a price-fixing conspiracy. The second concern is that such exchanges, even if unaccompanied by any express or tacit agreement to fix prices, may tend to stabilize prices and facilitate coordinated behavior.”
The Commissioner points to the 2000 joint DoJ/FTC Antitrust Guidelines for Collaborations Among Competitors, which describe exchanges of price, cost and other “competitively sensitive” information between competitors as inherently risky given that they can facilitate explicit or tacit collusion on price or output.
In Canada, like the U.S., the principal risk of information exchanges between competitors is that they can lead to agreements that violate the criminal conspiracy offences under section 45 of the Competition Act. Information exchanges between competitors can also make it easier for the Competition Bureau (the “Bureau”), a court or a private plaintiff to infer the existence of an agreement that violates section 45. Following the amendment of the Competition Act in 2009, agreements to exchange competitively sensitive information may also raise issues under section 90.1 of the Competition Act (the civil reviewable practice section for agreements among competitors) if their effect is to “prevent or lessen competition substantially.”
The Commissioner also contrasts the position of U.S. and European courts regarding the legality of information exchanges alone, emphasizing that while U.S. courts (including the U.S. Supreme Court) have repeatedly held that exchanges of price information alone between competitors is not per se illegal under Section 1 of the Sherman Act, they are treated as a type of horizontal cooperation agreement in the EU, the legality of which depends heavily on the structural characteristics of the relevant market and type of information exchanged.
(See for example, the recently issued European Union Guidelines on horizontal cooperation agreements: European Commission Communication: Guidelines on the Applicability of Article 101 of the Treaty on the Functioning of the European Union to Horizontal Co-operation Agreements.)
For example, the Commissioner cites United States v. United States Gypsum Company 438 U.S. 422 (1978), in which the U.S. Supreme Court held:
“The exchange of price data and other information among competitors does not invariably have anticompetitive effects; indeed such practices can in certain circumstances increase economic efficiency and render markets more, rather than less, competitive. For this reason, we have held that such exchanges of information do not constitute a per se violation of the Sherman Act.”
Interestingly, the Commissioner also discusses an important conceptual distinction in the U.S. between standalone information exchanges and exchanges that are part of a wider agreement, citing DRAMS related litigation (United States v. Swanson, No. 4:06-cr-00692 (N.D. Cal. Filed Oct. 18, 2006), ECF No. 1), in which the defense asked the District Judge to instruct the jury about the legality of exchanging price information:
“Judge Hamilton … gave this sentence as part of her instructions: ‘It is not unlawful for a person to obtain information about a competitor’s prices or even to exchange information about prices unless done pursuant to an agreement or mutual understanding between two or more persons as charged in the indictment.’”
Also interesting in this recent Commissioner’s speech were his remarks regarding current enforcement priorities. In this regard, the Commissioner indicated a relative dearth of “low-hanging-fruit” for cartel investigations and as a result an appetite by U.S. enforcement officials to pursue more “gray zone” cases:
“Although cartel enforcement remains the highest priority at the Antitrust Division (as it should), in my view there is little “low-hanging fruit” — that is, the pure price-fixing conspiracies that take place in smoke-filled rooms — left in the stable of cases under investigation and prosecution. As a result, the Antitrust Division has been bringing more cases involving conduct in the “gray zone,” such as exchanges of price information. The basic working theory, as seen in Gypsum, is that these exchanges are being made as part of an alleged agreement to fix prices.”
Finally, the Commissioner described some of the factors that U.S. courts have considered in evaluating the effects of information exchanges between competitors, including benchmarking exercises, which have included the level of industry concentration, product characteristics (i.e., whether fungible or homogenous products are involved), demand characteristics (i.e., the level of elasticity), aggregation of data, whether data is publicly available, frequency of meetings among participants and any agreements among parties relating to the use of the information or survey results.
Similar factors are generally relevant in Canada for evaluating information exchanges between competitors. For example, in assessing whether an information sharing agreement will diminish or eliminate competitive rivalry, the Bureau will consider the following factors, among others: the nature of the information to be exchanged, the timing of the information exchange, the position of the parties in the relevant market, the manner in which the information is collected and disseminated, whether parties were coerced to participate in the information exchange, and whether the information sharing generates any efficiencies that offset potential anti-competitive effects (see: Competitor Collaboration Guidelines).
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