Exchanges of information

 

Author Definition

 

Definition

Exchanges of information occur when undertakings reciprocally provide or receive fact reports or details about business valuable information. It may be considered an antitrust infringement when it facilitates coordination among competitors, violates ex ante merger control rules or reinforces the effectiveness of anticompetitive agreements in cartel schemes.

 

Commentary

According to OECD, information exchange among competitors falls into three different scenarios under competition rules: (i) as part of a wider price-fixing or market sharing agreement whereby the exchange of information functions as a facilitating factor; (ii) in the context of broader efficiency-enhancing co-operation agreements such as joint venture, standardisation or R&D agreements; or (iii) as a standalone practice, whereby the exchange of information is the only co-operation among competitors. It is possible to envision a fourth scenario: the information sharing as an executive act of merger before the antitrust agency approval (gun jumping infringement).

In the first scenario, information exchange enables companies to implement or monitor cartels, being a facilitating factor or an ancillary behaviour to a more egregious anticompetitive conduct. To organise a cartel, companies usually share some strategic information such as prices, output, product quality, clients or other commercial variables that otherwise should be independently defined.

The second scenario may occur in the context of a legitimate horizontal co-operation agreement. In these cases, information exchange between firms may lead to economic benefits derived from costs saving, sharing risks and investing in better quality and variety of products and services. The Guidelines on the applicability of Article 101 of the TFEU to horizontal co-operation agreements provide the general principles on the competitive assessment of information exchange. They also establish an analytical framework for the most common types of horizontal co-operation agreements such as R&D agreements, production agreements, joint purchasing arrangements and commercialisation agreements in a way to provide some guidance on cases which tend to constitute a genuine transaction and those which may impose some potential adverse effects to competition.

The third scenario, the standalone infringement, admits variation of treatment according to jurisdiction. Information exchange is assessed under Article 101 of the TFEU generally as a concerted practice. This conduct is characterised by a form of coordination between undertakings that, without having reached the stage of an agreement, they knowingly substitute practical co-operation between them for the risks of competition (see Case C-8/08 T-Mobile Netherlands BV [2009], parag. 26).

There are circumstances in which an exchange of information is more likely to be considered anticompetitive, notably when the disclosure or exchange of strategic information reduces uncertainty about how companies will operate in a market. Generally, sharing private, disaggregated and confidential information about future prices or output is considered restrictive by object (see Case C-286/13 P - Dole Food Company [2015], para. 128-133, in which companies in the banana sector discussed their own quotation prices and price trends in some meetings).

In the US, Section 1 of the Sherman Act outlaws every contract, combination, or conspiracy that restrains trade in interstate commerce or with foreign nations, if it is unreasonable. Agreements with the sole objective of reducing output, fixing prices, allocating markets or rigging bids are always regarded as illegal. These schemes often use information sharing frameworks as an enforcement tool of the conspiracy. In these cases, proof of data exchange will be a surrounding element of the naked agreement and serve as indirect evidence.

For information sharing with no proof of anticompetitive intent (for instance in a standalone exchange of information), the US federal approach assesses the conduct under the rule of reason, with no criminal effects. According to Supreme Court decision in U. S. v. U. S. Gypsum Co., 438 U.S. 422 (1978): “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.”

Standalone information exchanges usually raise civil concerns when the private data is about current or future information related to prices, wages, costs, revenues, market-shares, sales volume, output, idle capacity, customers, profit margins and businesses plans (for some of the items, FTC-DoJ Antitrust Guidelines for Collaborations Among Competitors). This information is sensitive because it can dampen rivalry or lead to price uniformity once known by competitors. Under the rule of reason, it tends to be anticompetitive unless shown, by the defendant, to have superior compensatory effects. “Exchanges of current price information, of course, have the greatest potential for generating anticompetitive effects and, although not per se unlawful, have consistently been held to violate the Sherman Act. See American Column & Lumber Co. v. United States, 257 U. S. 377 (1921); United States v. American Linseed Oil Co., 262 U. S. 371 (1923); United States v. Container Corp.” (U. S. v. U. S. Gypsum Co., 438 U.S. 422 (1978).

Publicly available information, aggregated and historical information are not generally a matter of concern. The concept of historical data is linked to the time cycles of transactions in a market. Markets with long-run cycles tend to have a succession of contracts with long duration and fewer opportunities for negotiation. Markets with short-run cycles tend to have numerous short term contracts. A piece of information is historical when it is irrelevant to current decisions.

Adopting explicit caution is essential to avoid the anticompetitive effects of standalone information sharing, such as by: (i) using an independent third party to collect the data, (ii) distribution of exclusively historical data in aggregate form. For instance, the FTC/DoJ Statements of Antitrust Enforcement Policy in Healthcare indicates that the third-party must gather the information from a group of at least five players of about the same importance to qualify for be considered aggregate.

The fourth scenario is derived from the prior notification merger control system. To ensure effective antitrust review, applicants are prohibited from integrating assets prior to the approval of mergers. Communicating competitive sensitive information is a violation of this rule. Businesses dealing in this type of information must do so through specially designated people (clean team) and observing precaution protocols for the dissemination of information between the parties.

 

Bibliography

Canada Competition Bureau Competitor Collaboration Guidelines.

OECD, Information Exchanges Between Competitors under Competition Law, 2010.

Mexican COFECE, Guidelines on information Exchange between Competitors.

Netherlands Authority for Consumers and Markets, Guidelines on Collaborations between competitors.

United States FTC-DoJ, Antitrust Guidelines for Collaborations Among Competitors.

This article is being reviewed by the Editors of the Dictionary.

Authors

Quotation

Alden Caribé de Sousa, Fernanda Garcia Machado, Alexandre Cordeiro Macedo, Exchanges of information, Global Dictionary of Competition Law, Concurrences, Art. N° 86027

Visites 5295

Publisher Concurrences

Date 1 January 1900

Number of pages 500

 

Institution Definition

Exchanges of information are interactions among competitors that, from a competition law perspective, fall between the universally condemned hard-core “naked” cartels and tacit collusion arising from oligopolistic interdependence, generally considered legal. In the course of doing business, companies can - and often do - exchange various types of information through different channels, which leads to increased transparency in the market which can both bolster allocative and productive efficiencies as well as facilitate collusive outcomes among competitors. Generally, information exchanges among competitors may fall into three different scenarios under competition rules: (i) as a part of a wider price fixing or market sharing agreement whereby the exchange of information functions as a facilitating factor; (ii) in the context of broader efficiency enhancing cooperation agreements such as joint venture, standardization or R&D agreements; or (iii) as a stand-alone practice, whereby the exchange of information is the only cooperation among competitors. © OECD

 
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