The implications of information exchange are not uniform across jurisdictions. What may be permissible in the United States may not be in Europe. U.S. companies engaged in commerce outside of the U.S. need to be cognizant of the rules in other jurisdictions regarding information exchanges and ensure that actions undertaken in the U.S. do not constitute an infraction abroad. U.S. companies engaged in trade associations that include foreign competitors should take extra caution.
Under U.S. antitrust laws, information exchanges are almost always analyzed under the Rule of Reason — a fulsome review of all the relevant facts and a weighing of the anti-competitive harms against the pro-competitive benefits. Under such scrutiny, companies are permitted to explain the business justifications for any information exchanges, as well as how such exchanges may enhance, rather than detract from, competition. For example, the sharing of market trend information often allows competitors to make more efficient capital investments, which in the end may benefit consumers.
The Federal Trade Commission’s (FTC) recent business review letter relating to a trade association’s proposed information exchange is illustrative. Responding to a request by The Money Services Round Table (TMSRT), the FTC stated that it did not intend to challenge TMSRT’s proposed information exchange because the exchange offered pro-competitive benefits: improved vetting of money transfer agents and increased ability to comply with U.S. money laundering laws. The FTC further opined that the exchange presented limited potential for anti-competitive harm.
In Europe, the analysis of information exchanges may be more draconian and less fulsome. Under the European Commission’s guidance on information sharing, any exchange of information relating to future price or output (or from which future price or output might be deduced) is considered an infraction by object (similar to a per se offense in the United States) and prosecuted regardless of a market analysis or pro-competitive rationale. Indeed, the analysis of information sharing under EC guidance may in many cases be no different than that applied to a cartel.
It is the application of the object standard to information from which future price or output may be deduced that presents compliance ambiguity for companies. Take the prosecution of the banana case in the EU as an example. Certain banana companies, prior to setting the prices of their bananas, exchanged information that could be factored into price determinations. Such information included market trends, weather conditions, import volumes, stocks of green and yellow bananas and where companies believed global supply and demand were trending (at the time, European regulations fixed the number of bananas that could be imported). The European Commission found such exchanges to be a violation by object, and the General Court affirmed that conclusion.
From the decisions of both bodies, the EC and the General Court, three important points arise under EU antitrust law: to violate the law (1) the information exchange does not have to actually affect price, (2) the parties’ subjective intentions in sharing the information are not relevant (that is, there does not have to be an agreement between the parties — a prerequisite to finding an antitrust violation under U.S. antitrust laws relevant in this context) and (3) the structure of the market (i.e., whether or not it is so fragmented as to make coordinated conduct impossible or unlikely) is irrelevant. Thus, under European law, two immaterial market participants may find themselves to have violated the antitrust laws by supplying a trade association with certain non-price information, even where the information exchange has not or could not lead to a market effect and/or where the parties had no intention of affecting fixing prices or output. The information exchange does not have to be mutual; a one-way exchange can trigger the antitrust laws in some EU member states. For many U.S. companies, this may be an alarming consequence.
So what is a U.S. company that plays in Europe to do? The most prudent action would be to not exchange information with competitors. But that is easier said than done. Your company may need to negotiate with competitors on products in which it does not compete. Trade associations may play a valuable pro-competitive role for your company. Perhaps your company is part of a group purchasing organization that requires your output information as an essential input to the purchasing decision. Your company may belong to an information exchange that is permissible in the U.S. and your company may be disadvantaged by not participating, or your company may be part of a syndication where an information exchange is necessary if the syndication is to happen at all.
Don’t panic. While the object standard employed in the EU seems inflexible, European Commission and member state enforcers often take a more practical view of such conduct. If exchanges must occur as a practical business matter, then your company should:
- Exchange aggregated, historical information. Such information is the least likely to be problematic under antitrust rules in either the U.S. or the EU.
- Avoid sharing raw future pricing or output intentions. Such information is especially problematic under EU law.
- Document any pro-competitive justifications behind any information exchange. Such documentation may be helpful in convincing regulators down the road that the exchange did not occur with ill intent.
- Limit the amount of information your company receives from other companies and, with regard to such information, employ document retention policies that are short in duration.
Some companies may be more exposed to information exchange risk than others. Companies in dynamic markets where future competition is hard to predict may be less likely to have information exchange concerns. Similarly, companies in fragmented markets – where even the combination of a few companies does not produce market power – are less likely to have information exchange issues. Market complexity reduces the risk of collusion and, as a result, information exchange risk. Variable supply and demand curves are also indicative of marketplaces where information exchange risks are lessened. If these characteristics are not present in the marketplaces where your company competes, your exposure to information exchange issues may be high.
If your company is in a high-risk marketplace and is concerned that it may have an information exchange issue based either on current or past practices, your company should undertake an antitrust audit that examines:
- What information the company has shared with competitors or third parties,
- What information from competitors or third parties is in the company’s possession,
- What the company has done with the information it received,
- Whether there are identifiable pro-competitive effects stemming from the information exchange and
- Whether the company belongs to trade associations where information sharing occurs.
With the answers to these questions in hand, the company and its outside counsel can assess the company’s exposure and evaluate the best course of action vis-à-vis the antitrust authorities.
Timothy Cornell, counsel in Clifford Chance's U.S. Antitrust Practice, advises clients on antitrust issues in government civil and criminal investigations, the regulatory review of mergers and acquisitions, intellectual property and technology licensing, supply and distribution agreements, joint venture formation, retail pricing issues, horizontal and vertical restraints, private party civil litigation, and the adoption of antitrust best practices.
Mr. Cornell has advocated on behalf of more than two dozen clients before the U.S. Federal Trade Commission and U.S. Department of Justice, representing transacting parties and parties opposing transactions between their competitors. Mr. Cornell brings significant experience in assisting clients through government antitrust investigations, representing targets of governmental investigations and non-parties cooperating with the government. He has litigated antitrust and other high profile cases before arbitration panels, and in federal and state courts across the U.S.
Mr. Cornell obtained his JD from Georgetown, cum laude, and his BS in political science from the United States Naval Academy.
Timothy J. Cornell
2001 K Street, NW
Washington, DC 20006
+1 202 912 5220
+1 201 519 7959