“Information exchange” issues can arise in a variety of situations involving competitors including trade and professional association activities (e.g., board and association meetings), joint ventures and related negotiations, merger negotiations, joint activities involving competitors (e.g., buying groups and some joint trade association activities), industry benchmarking, research and lobbying activities. I offer compliance and commercial advice in relation to these types of activities including:
- Conduct of meeting guidelines for trade and professional associations
- Guidelines for industry events and conferences
- Advice for joint association activities (e.g., buying groups and benchmarking)
- Structuring joint venture and merger negotiations
- “Gun-jumping” (i.e., pre-merger conduct) memoranda for mergers
- Vetting board and committee meetings for compliance
- Compliance for other types of competitor-competitor arrangements
“Cartel agreements often involve the exchange of competitively sensitive information between competitors. Indeed, activities that assist competitors in monitoring one another’s prices or conduct otherwise consistent with the existence of an agreement may be sufficient to prove that an agreement was concluded between the parties for the purpose of subsection 45(1) of the [Competition Act]. Accordingly, information sharing agreements between competitors should be structured carefully to ensure that they do not raise concerns under the criminal prohibitions in subsection 45(1) of the Act.”
(Competition Bureau, Competitor Collaboration Guidelines)
“… certain information exchanges among competitors may violate Section 1 of the Sherman Act, which prohibits a ‘contract, combination…or conspiracy’ that unreasonably restrains trade. The antitrust concern is that information exchanges may facilitate anticompetitive harm by advancing competing sellers’ ability either to collude or to tacitly coordinate in a manner that lessens competition. Thus, for example, exchanges on price may lead to illegal price coordination. In addition, information exchanges may raise anticompetitive concern by facilitating group behavior of downstream entities against upstream ones.”
(OECD, Roundtable on Information Exchanges Between
Competitors Under Competition Law, Note by the United States (2010))
Information Exchanges and Canadian Competition Law
Companies and other organizations, such as trade and professional associations, may exchange information for a wide range of legitimate and pro-competitive purposes. These may include industry research, benchmarking, joint ventures or other business or strategic alliances or in the context of merger negotiations.
Indeed, the exchange of information between companies or association members can have many pro-competitive purposes and effects – for example, facilitating research or production initiatives that would be impossible without cooperation, increasing market transparency and consumer knowledge, leading to enhanced products and services or supporting lobbying and industry advocacy efforts. In this regard, competition enforcement officials, both in Canada and other major jurisdictions, generally acknowledge that markets operate more efficiently when information is relatively free and openly available to industry members.
Having said that, information exchanges – that is the exchange of certain types of competitively sensitive information between competitors, such as price, cost, market, market share, customer, supplier or business or strategic plan information – can represent a significant risk for companies, trade or professional association members (as well as their management and boards) and merging or joint venture partners.
Generally speaking, the exchange of competitively sensitive information between competitors can dampen competitive rivalry by reducing competitors’ uncertainty about their rivals’ competitive and commercial responses. More specifically, the exchange of competitively sensitive information between competitors can raise significant competition law risk under the Competition Act (the “Act”).
In Canada, the principal risk of information exchanges between competitors is that they can lead to agreements that violate section 45 of the Act, which makes it a criminal offence for competitors (or potential competitors) to enter into agreements to fix prices, divide markets or restrict output. Potential penalites under section 45 include criminal fines of up to $25 million (per count), imprisonment or up to 14 years and damages arising from civil actions.
While section 45 does not criminalize information exchanges themselves, the risk of such exchanges between competitors, without appropriate safeguards, is two-fold: first, exchanging (or discussing) competitively sensitive information may result in an agreement that contravenes section 45 (e.g., a price-fixing agreement); and second, an information exchange may be used by a court, the Competition Bureau or a private plaintiff to infer the existence of an agreement that violates section 45 (i.e., be used as “circumstantial” evidence of the existence of an agreement).
Canadian courts have relied on evidence of information exchanges as one basis to conclude that an illegal conspiracy existed and such exchanges are commonly relied on in criminal and civil proceedings in Canada under section 45. Information exchanges have sometimes involved conduct as seemingly straightforward as the discussion of prices at association meetings and in one older, but noteworthy, case, an attempt by industry members to adopt an “open pricing” policy (by exchanging price information with no express agreement to follow the exchanged rates) without contravening section 45.
Agreements to exchange competitively sensitive information may also raise issues under section 90.1 of the Act, the civil agreements provision that was introduced in 2010, where they prevent or lessen competition substantially (although there have not yet been any decided information exchange cases under section 90.1).
Some of the relevant factors for assessing whether an information exchange between competing companies (or members of a trade association) may raise competition law concerns include: (i) the type of information (price, cost, market, capacity/production, customer and supplier information is generally considered to be some of the higher risk categories), (ii) the currency of the information (i.e., whether current/future or historic), (iii) the frequency of exchange (frequent and systematic exchanges being more likely to raise competition concerns), (iv) the level of detail and aggregation (exchanging sufficiently aggregated information is generally safer than company-specific information), (v) whether the information is public or private, (vi) who has access (e.g., competitors or 3rd parties aggregating the information) and (vii) in some cases market characteristics (e.g., in considering whether an information exchange arrangement could raise issues under section 90.1 of the Act, which includes a market effects test).
Based on the potential risk of information exchanges between competitors – including in the context of trade or professional association activities, merger negotiations, joint ventures or benchmarking or industry research exercises – it is prudent to both assess the possible level of risk and, if necessary, adopt commonsense safeguards.
These may include using a 3rd party to collect and aggregate information, adopting conduct of meeting or other guidelines to govern discussions or data exchanges, ensuring that merger negotiations implement “gun-jumping” memoranda or to structure joint venture negotiations or operations to minimize the potential competition risk (e.g., by adopting “clean team” or “black box” mechanisms to limit who has access to information and control its use and distribution).
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