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Avoiding the dangers of information exchange: new Guidance from the Commission

July 2010

At the beginning of May the European Commission published draft Regulations[1] and Guidelines[2] for the assessment of co-operation agreements between competitors, or “horizontal co-operation agreements”. Although the proposals are still subject to public consultation and stakeholder input, this article examines a new chapter of the Guidelines on information exchange between competitors, looking at different types of information exchange, competition concerns about information exchange and the circumstances in which the exchange of information is less likely to restrict competition.

Regulatory Context

Article 101(1) of the Treaty on the Functioning of the European Union (TFEU)[3] prohibits:

agreements between undertakings, decisions by associations of undertakings and concerted practices,
which may affect trade between Member States; and
which have as their object or effect the prevention, restriction or distortion of competition within the internal market.

Article 101(2) provides that any such agreements or decisions will automatically be void.

However, by virtue of Article 101(3), Article 101(1) may not apply where any agreements between undertakings, decisions by associations of undertakings and any concerted practices:

contribute to improving the production or distribution of goods or to promoting technical or economic progress,
while allowing consumers a fair share of the resulting benefit, and
which do not (a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives; (b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.

It is in this context that information exchanges between competitors will be assessed for anti-competitiveness.

What are the key concerns with information sharing between competitors?

The Guidelines set out two key concerns about information exchanges between competitors, namely that they may enable (i) a collusive outcome arising from the alignment of companies’ competitive behaviour; and (ii) anti-competitive foreclosure on the market where the exchange takes place.

For example, information exchange may:

enable companies to reach a common understanding on the terms of coordination of their competitive behaviour, e.g. about intentions on future conduct;
increase the internal stability of a collusive outcome on the market, i.e. by sharing information the market may become sufficiently transparent to enable colluding companies to monitor whether other companies are deviating from the collusive outcome, which could result in retaliation;
increase the external stability of a collusive outcome on the market, e.g. by sharing information the market may become sufficiently transparent to enable colluding companies to monitor where and when new entrants are trying to join the market, which could result in the new entrant being targeted;
place competitors who are not exchanging information at a disadvantage as compared to the companies exchanging information, thereby leading to market foreclosure; and
enable parties exchanging information in an upstream market to raise the price of a key component for a downstream market. Increasing the costs of rivals downstream could result in anti-competitive foreclosure.

What sort of information sharing arrangements will be caught?

A stated above, Article 101 focuses on agreements between undertakings, decisions by associations of undertakings and concerted practices. A concerted practice refers to the situation where practical cooperation is knowingly substituted for the risks of competition without a “proper” agreement having been reached. If there is no agreement on information exchange, analysis of the information exchange practices will be undertaken on a case by case basis. Information sharing may or may not be the main object of the agreement between competitors.

Restrictions on competition

To be caught by Article 101, the information exchange must have as its object or effect the prevention, restriction or distortion of competition within the internal market.

Restriction of competition by object

The Guidelines provide that information exchanges between competitors of individualised data regarding intended future prices or quantities (including intended future sales, market shares, territories or customer lists) will comprise a restriction of competition by object within the meaning of Article 101(1). As the Guidelines explain, this is because where competitors inform each other about their future intentions they may be able to determine a common higher price level without incurring the risk of losing market share or triggering a price war during the period of adjustment to new prices. Information on current conduct that reveals intentions on future conduct or information which allows competitors to deduce future prices or quantities will be regarded similarly.

Restrictive effects on competition

For an information exchange to have restrictive effects on competition within the meaning of Article 101(1), it must be likely to have an appreciable adverse effect on one or more aspects of competition, such as price, output, product quality, product variety or innovation. Whether or not an exchange of information will have restrictive effects will depend on both the economic conditions on the relevant market(s) and the characteristics of the information exchanged. In particular, the Guidelines indicate that it will be necessary to examine:

the scope of the market(s) covered by the companies participating in the information exchange (which will depend on the facts of each case and the type of information exchange in question). Market share thresholds in the Guidelines, the Block Exemption Regulations[4] or the De Minimis Notice[5] relating to the type of agreement in question may provide a general guide here.
the initial characteristics of the market(s) in which the information exchange takes place (such as concentration, transparency, stability, complexity) and how the type of information exchanged might alter those characteristics. For instance, information exchange can increase transparency and thereby limit uncertainties about the strategic variables of competition (e.g. prices, output, demand and costs).
the characteristics of the information exchanged, including:
- to what extent the exchanged information is commercially sensitive (i.e. strategically useful[6]). Information relating to prices and quantities will be the most strategic, followed by information about costs and demand, although if companies compete with regard to R&D, technology data may be the most strategic for competition. The usefulness of the data will also depend on the way it is presented and its age.
- whether the data is public/non public. Exchanges of public information are unlikely to infringe Article 101, although in order to be deemed genuinely public the costs in collecting the data should not be so high as to discourage other companies and buyers from doing so. An information exchange will be public if the exchanged data is made equally accessible to all competitors and buyers.
- whether the data is aggregated or individualised. Aggregated data is less likely to lead to restrictive effects on competition than exchanges of data from which companies are identifiable.
- the age of the data. Historic data is unlikely to show competitors’ future conduct or provide a common understanding of the market.
- the frequency of the information exchange. Generally (although this will depend on the structure of the market) the more frequent the exchange, the more likely that competitors are able to develop a better understanding of the market and monitor deviations.

Could the information exchange be subject to an exemption?

If an information exchange meets the criteria under Article 101(3), it will not be prohibited under Article 101(1). An assessment under Article 101(3) will examine:

whether the information exchange leads to significant efficiency gains. The Guidelines set out the following examples of circumstances which may lead to efficiency gains:
- competitors may become more efficient if, as a result of information about each other’s costs, they benchmark their performance against industry best practice and develop internal incentive schemes accordingly;
- exchange of demand information may enable companies to allocate production towards high demand markets; and
- exchanging public information can benefit consumers by helping them to make a more informed choice by reducing their search costs.
whether the type of data, amount of information, aggregation, age, confidentiality and frequency of the exchange are indispensable for creating the efficiency gains. Restrictions which go beyond what is necessary to achieve efficiency gains do not fulfil the requirements of Article 101(3).
whether the efficiency gains obtained by the indispensable restrictions are passed on to consumers to an extent that outweighs the restrictive effects on competition caused by an information exchange. The lower the market power of the companies exchanging information, the more likely it is that efficiency gains passed on to consumers outweigh the restrictive effects on competition.
whether competition is eliminated or could potentially be eliminated in respect of a substantial part of the products concerned as a result of the information exchange (in which case, the conditions of Article 101(3) will not be met).

Conclusions

The revised draft Guidelines provide a useful outline of the factors that will need to be taken into account where competitors participate in information exchange. From an in-house counsel’s perspective, a good starting point for any assessment would involve examining the intention behind the information exchange and looking at the types of data that are exchanged.

Generally speaking, exchanges of sensitive non-public information between competitors, particularly if it relates to current or future practices, needs to be assessed carefully, with a view to understanding the purpose of the exchange and whether it is likely to give rise to collusion or for market foreclosure.

If you have any questions about or comments on this note or would like definition or advice on competition law measures, please contact:

Susannah Sheppard and Rachel Iley

[1] Draft R&D Block Exemption: http://ec.europa.eu/competition/consultations/2010_horizontals/draft_rd_ber_en.pdf
Draft Specialisation Block Exemption: http://ec.europa.eu/competition/consultations/2010_horizontals/draft_specialisation_ber_en.pdf

[2] Draft Communication from the Commission of 4 May 2010 - Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements: http://ec.europa.eu/competition/consultations/2010_horizontals/guidelines_en.pdf

[3] Previously Article 81 of the Treaty of the European Union

[4] In the area of horizontal co-operation agreements there are block exemption regulations based on Article 101(3) for R&D and for specialisation (including joint production) agreements:
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32000R2659:EN:NOT and http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32000R2658:EN:NOT

[5] Commission Notice on agreements of minor importance which do not appreciably restrict competition under Article 101: http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:52001XC1222(03):EN:NOT

[6] Strategically useful information may include that related to prices (including actual prices, discounts, increases, reductions and rebates), customer lists, productions costs, quantities, turnovers, sales, capacities, qualities, marketing plans, risks, investments, technologies, R&D programs and results