Canadian COMPETITION LAW

November 11, 2013

In one of the most interesting stories that caught my eye on my daily media sweep today, the Wall Street Journal is reporting that some of the U.S. big banks are considering blocking employees from computer chat rooms, based on growing market manipulation and collusion scrutiny from regulators (see: Big Banks May Block Traders From Chat Rooms).  According to the WSJ, J.P. Morgan Chase and Credit Suisse are weighing whether to disable computerized chat rooms that link traders across multiple competing banks and are used by thousands of employees globally.  Other banks, including RBS, Barclays and UBS, are reported to be reviewing chat room use and guidelines for controlling and monitoring communications.

The issue apparently turns on whether the potential business and efficiency benefits of multi-dealer chat rooms, which link competing banks and their clients, are outweighed by the potential antitrust and other legal risks – e.g., allegations that currency exchange rate, interest rate and other manipulation has been facilitated by chat room chit chat.  Curiously, one chat room, relating to allegations of foreign exchange rate coordination, is reportedly called “The Cartel” – hmm, there’s an antitrust lawyer’s “hot document” review nightmare!

From media reports (see e.g., here, here and here), banks appear potentially concerned about two main issues – the negative PR of potentially embarrassing chat room transcripts involving their traders and other personnel; and the potential for chat rooms to make illegal collusion easier.

A FEW INTERESTING RECENT
INFORMATION EXCHANGE CASES

While somewhat trite in the antitrust world to say that information exchanges between competitors can raise significant issues – for example in the context of trade associations, social events or electronic forums such as chat rooms, bulletin boards or social media – competitor information exchanges continue to continually pop up in cases, both as stand-alone information exchange issues and in the context of broader cartel challenges.

In Canada, the exchange of “competitively sensitive information” directly between competitors (typically price, cost, market or output information) can generally raise two concerns – first, that discussions of such information between competitors may lead to an agreement that violates the conspiracy offences of the Competition Act; and second, that evidence of such discussions or exchanges between direct competitors may make it easier for the Competition Bureau, private plaintiff or a court to conclude that an illegal agreement or arrangement exists.

Given that I find this topic (almost) endlessly fascinating, I generally have been keeping a lookout for some of the recent information exchange cases.  The following are a few interesting examples:

Drugstore Products (Germany)

In a cartel case brought by the German antitrust authority (the Bundeskartellamt), manufacturers of brand drugstore products and their trade association were fined a total of €63 million recently in relation to an anti-competitive information exchange arrangement.  The members of the cartel and association management met several times a year through a working group of the association.  At these meetings, company representatives regularly exchanged competitively sensitive information, including information on planned gross price increases, negotiations with particular customers and a variety of non-public sales data – including sales structures and costs and terms of payment to customers.  According to the Bundeskartellamt, these information exchanges gave the competing companies “a knowledge edge and helped them to minimize uncertainty about market developments”.  The enforcement agency also found that the information about planned price increases and negotiations on special demands from the retail trade and on annual talks with the other companies “allowed them to adjust their own price or negotiation strategies for their own annual talks and negotiations.”  See: Fine Proceedings Against Manufacturers of Drugstore Products.

Hair Replacement Companies Information Exchange Case (U.S.)

In another interesting recent information exchange case, this one in the U.S. involving competing men’s hair replacement companies, the FTC settled with Bosley, Inc. for allegedly illegal information exchanges with competitors.  According to the FTC, Bosley, Inc’s CEO participated in a reciprocal exchange of non-public competitively sensitive information with Hair Club, Inc. for four years (e.g., future product offerings, price floors, discounts, company performance and expansion plans), as well as other competitors.  The FTC brought a complaint against Bosley, Inc. arguing that the information exchanges facilitated coordination and endangered competition and was a violation of section 5 of the Federal Trade Commission Act (which prohibits unfair methods of competition – though I gather that this area is subject to hot debate just now).  In settling the case, Bosley was prohibited from exchanging competitively sensitive nonpublic information directly with competitors, required to implement a competition compliance program and undergo periodic monitoring reports and audits.  See: Bosley Inc. Settles FTC Charges That It Illegally Exchanged Competitively Sensitive Business Information WIth Rival Firm, Hair Club, Inc.

Money Transmitters Association Information Exchange (U.S.)

Of course, not all cooperation between competitors raises antitrust concerns.  In another interesting recent case that illustrates this, the U.S. FTC recently issued an advisory opinion showing some of the key factors that competition/antitrust enforcement agencies look at in deciding whether to challenge information exchanges between competitors.  In September, 2013, the FTC issued its opinion clearing a proposed information exchange database between members of The Money Services Round Table (“TMSRT”), a trade association comprised of six licensed national money transmitters.  The TMSRT had proposed to establish an information exchange database to collect information from and disseminate information to licensed U.S. money transmitters regarding terminated U.S. agents.  The database was proposed to include information relating to former U.S. sending and receiving agents whose contractual relationships were terminated due to a failure to comply with federal and/or state law or money transmitter contract terms and policies.  The overall purpose of the database was to allow members to evaluate money transfer agents’ compliance with federal and state money laundering and other laws.  The FTC concluded that the information exchange proposal was unlikely to harm competition and said they had no present intention of commencing enforcement action.  In coming to this conclusion, the FTC pointed to several key factors.  First, the purpose of the information exchange was not intended to facilitate coordination between money transmitters regarding competitive topics (e.g., price, cost or output).  The database, in fact, included no competitively sensitive information as between the TMSRT members.  Second, the information exchange included safeguards to reduce the risk of competitive harm, including administration by a third party vendor, voluntary participation and the freedom for each TMSRT member to decide whether or not to appoint a terminated agent.  Third, the FTC concluded that the proposed information exchange could generate efficiencies for members and enhance consumer welfare (e.g., permitting members to conduct thorough background checks on prospective agents, identifying potential money launderers or other criminal offenders, etc.).  The FTC also generally described several factors that can be relevant in assessing the legality of information exchanges between competitors, including the nature and quantity of information shared; parties’ intent in sharing the information; and how an information exchange is structured and controlled.  See: Information Exchange Program Unlikely to Harm Competition and May Enhance Consumer Protection Goals.

COMPETITOR INFORMATION EXCHANGES:
GUIDELINES TO REDUCE COMPETITION/ANTITRUST RISK

There can be a variety of legitimate rationales for information exchanges involving competitors (illustrated by the money transmitters case above).  These can include legitimate joint ventures or strategic alliances, legitimate trade association activities (e.g., industry research or studying trends) and discussions and diligence before a merger.  Having said that, competitor-competitor information exchanges continue to be a “top-of-the list” category of potential antitrust risk for companies, associations and their personnel, as today’s stories on trader chat rooms shows.  While the burden of challenging information exchanges between competitors varies between jurisdictions – for example requiring an agreement in Canada (e.g., to fix prices, an agreement that prevents or lessens competition substantially, etc.) but merely a concerted practice in the EU – competitor contacts nevertheless can be a high risk area.

As such, it makes sense for companies, associations and other organizations to understand how their personnel interact with competitors, both in traditional (e.g., trade associations) and more non-traditional fora (e.g., online chat rooms).  It also often makes sense to adopt basic precautions to reduce risk and to periodically review and assess competitor-competitor contacts and dealings that may lead to liability.

Some common-sense precautions companies and associations can take in relation to competitor-competitor interactions include:

1.  Conduct of meeting guidelines for meetings and other meeting/discussion type interactions with competitors.

2.  A requirement for internal approval to participate in trade associations or other fora involving competitors (e.g., social media groups, chat rooms, bulletin boards, etc.).

3.  Ensuring that associations and other competitor-attended groups (whether traditional or virtual) have appropriate compliance programs or guidelines for compliance with the competition laws.

4.  Training personnel on what is and is not appropriate when dealing with competitors (and what to do in the event an issue arises – e.g., discussion of competitively sensitive topics, apparent competitor coordination on price, markets, output or key trading terms, etc.).

5.  Reporting, discipline and review mechanisms in the event of a violation.

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SERVICES AND CONTACT

I am a Toronto competition and advertising lawyer offering business and individual clients efficient and strategic advice in relation to competition/antitrust, advertising, Internet and new media law and contest law.  I also offer competition and regulatory law compliance, education and policy services to companies, trade and professional associations and government agencies.

My experience includes advising clients in Toronto, Canada and the US on the application of Canadian competition and regulatory laws and I have worked on hundreds of domestic and cross-border competition, advertising and marketing, promotional contest (sweepstakes), conspiracy (cartel), abuse of dominance, compliance, refusal to deal, pricing and distribution, Investment Canada Act and merger matters. For more information about my competition and advertising law services see: competition law services.

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