UK and EU Horizontal Guidelines - Episode 2: Information Exchange

Fiona:

Hello, and welcome to the second episode in our miniseries on the new EU and UK horizontal guidelines. My name is Fiona Garside, and I'm a Senior Expertise Lawyer in Ashurst's Antitrust, Regulation and Foreign Investment team. I'm delighted to be joined today by Laura Carter, a Senior Associate in our London team and Jessica Bracker, an Associate in our Brussels office. Thank you both for joining me.

Laura:

Hi Fiona. Hi Jessica.

Jessica:

Hi Laura. Hi Fiona.

Fiona:

So today we're going to talk about how the new EU and UK horizontal guidelines deal with information exchange. Information exchange has been an area of focus for many years and it's an important element of infringements for which significant fines have been imposed. So just to give a few examples, the Commission has previously imposed fines totaling EUR 138 million for detailed and individualised information exchange on current and future production capacities and prices, and also imposed fines of over EUR 1 billion on banks for participating in cartels relating to the spot FX markets. That cartel involved primarily exchanging sensitive information and trading plans and occasionally coordinating their trading strategies. So there can be very significant consequences for engaging in this type of behaviour. Now, before we dive into the detail, Laura, could you just remind us of the basic elements of information exchange?

Laura:

Of course. So information exchange can take various forms. It might be direct: so that could be a one-way, two-way or a multi-way information exchange between competitors which could take place via text message, a phone call or, perhaps, at a meeting. But information exchange can also be indirect through a third party, such as a trade association or a common supplier and the guidance will apply to all these forms. What do we mean by information? Well, it's really all types of information and data. From raw unorganised digital content that might need processing to make it more useful through to data that's already been organised in a meaningful way and then also non-digital or physical information.

Jessica:

It's important to keep in mind that not all information exchange is anti-competitive. Both the CMA and the European Commission highlight that some information exchange may be pro-competitive and benefit consumers. So just to give you a few examples: information exchange can solve issues caused by information asymmetries (where one party has more information than another party); it can enable the development of new or better products and it may also help companies deal with unstable demand or save cost by reducing their inventories.

Fiona:

Thank you both. So why have regulators been so interested in information exchange in recent years?

Laura:

Well, it's a key principle of competition law that every business must independently determine its own competitive conduct on the market. So a business should, for example set its own prices and determine its own market strategy and commercial policy. If businesses get together and start exchanging certain types of information, the concern is that that would lead them to coordinate their behaviour on the market rather than competing vigorously against each other on the basis of price, quality and other factors. So both the UK and EU guidelines set out two key concerns arising from information exchange. First, that it artificially increases transparency between competitors and can therefore restrict competition by reducing competitive uncertainty. So here the theory is that exchanging information can facilitate collusion if it allows one company to signal to its competitor how it's going to behave in the market. In this way, information exchange can be used to support a wider anti-competitive agreement or concerted practice, for example, monitoring a price fixing agreement, but it can also be anti-competitive in and of itself.

The second key concern is that information exchange can lead to anti-competitive foreclosure. For example, because it puts competitors who don't engage in the exchange at a disadvantage compared to those who do. This could happen where companies with a significant share of the market set up a data sharing initiative but prevent third parties from accessing the data. We've seen a recent example of this in the Insurance Ireland commitment decision issued by the Commission in June last year.

Fiona:

Thanks, Laura. Now, if we take each element in turn and go into a little bit more detail. What guidance do we have on the different types of information and how regulators will view exchange of each category of information?

Jessica:

As Laura mentioned, the prohibition applies to exchanging information that is likely to reduce competitive uncertainty. There are a few names given to this type of information: commercially sensitive information, competitively sensitive information and also strategic information. Whether information is commercially sensitive, turns on the usefulness of the information to the companies receiving it. This is generally assessed against a number of different factors: in particular, the type of the information exchanged, the age of the information and how the data is presented. Certain types of information by their very nature are usually considered to be competitively sensitive. This includes information on prices, quantities, demand, capacity, market shares or customers. But it also includes information on the firm's future business strategy such as plans to enter new markets or to launch new products.

Generally speaking, the older the information is the less likely it is to be commercially sensitive. Current or forward-looking information is much more likely to be considered strategic and its exchange is therefore more likely to give rise to competition concerns. Unfortunately, there is no hard and fast rule for when information becomes historic: that will all depend on the particular sector. For example, information can generally be considered historic if it's several times older than the average time of the pricing cycles in a given industry.

Laura:

Genuinely public information will generally not give rise to competition concerns and information will be considered to be genuinely public if it's readily accessible, including in terms of cost to all competitors and customers. So in particular, the UK guidance highlights that information may not be genuinely public if the costs involved in gathering it puts competitors off. Sometimes sharing information that's publicly available can even be pro-competitive. So for example, if it helps customers to make a more informed choice.

In the UK, the CMA has just concluded a market study into the supply of road fuel and so the UK guidance uses retail fuel prices to illustrate this concept of genuinely public information. So first, fuel prices advertised by each petrol station in a local area will be genuinely public among the competitors and customers present in that area – they can easily see the prices as they drive past – so this information exchange is unlikely to be problematic.

However, if two competing chains of petrol stations started to exchange their real-time pricing information directly this would be problematic. Other competitors and customers can't replicate that same level of data without incurring significant time and cost by driving all over the country checking the prices.

Then in contrast, the CMA notes that if all fuel pricing data were made freely available to consumers via an app allowing them to shop around and compare prices this could in turn encourage fuel station owners to compete more intensely to attract customers and this type of app is exactly what the CMA has proposed should be created following its market study. Information is also less likely to give rise to concerns where it's aggregated and can't be reverse-engineered. Clearly the more detailed the information is, the more useful it's going to be to a competitor.

And then one point of slight difference between the EU and UK guidelines relates to the exchange of inaccurate or misleading information. The CMA guidance recognises that, in some circumstances, even imprecise or inaccurate statements can reduce uncertainty and therefore give rise to competition concerns. The CMA notes that deliberately sharing false or misleading information where it's designed to influence another company's competitive strategy can restrict competition. This issue isn't really addressed in any detail in the equivalent EU guidelines, which simply note that just because pricing information may be incorrect or misleading it doesn't mean there's no competition risk.

Fiona:

Thank you both. So we've talked about the types of information that can be exchanged. Now, can we think in a little bit more detail about how competitors might exchange this information?
Jessica: As Laura mentioned earlier, there can be direct or indirect information exchange. Let's start with direct information exchange. One which often takes people by surprise is the one way disclosure of strategic information. This could happen for example via chat messages, emails, phone calls, or during meetings. Let's take one example. Your company is part of an industry association, during a meeting of that association a competitor unilaterally discloses its future pricing strategy. Well, other companies present in the meeting will be presumed to take account of the information. This is so unless they publicly distance themselves or report it to the regulator.

There is another important point to keep in mind with unilateral disclosure. The fact that strategic information is disclosed in the public domain will not in itself mean that it escapes the prohibition. Obviously, public announcements can have benefits such as helping customers make informed decisions. A typical example already touched upon by, Laura, is the advertising on the road by petrol stations of their current retail prices. By contrast, a public announcement is less likely to result in benefits if it doesn't commit the company vis-a-vis its customers. So for instance, a company may set out in a public statement its future pricing intentions but not commit to change prices at a certain date in the near future. This would be unlikely to benefit consumers and could give competitors an important signal about the pricing strategy of that firm. As you see, once again context is very important.

Laura, do you want to pick up indirect information exchange?

Laura:

Yes, thanks Jessica. So as we touched on earlier, indirect information exchange is where information is passed on through a third party: that could be a platform operator, a trade association or a mutual supplier or customer. Depending on the circumstances, the third party can also be held liable for an infringement of competition law. The guidelines set out a few examples, so first there are hub and spoke agreements. These arise where, for example, a common supplier acts as a hub and relays information between competing downstream retailers, or perhaps a common customer acts as a hub between competing upstream suppliers.

Second, online platforms and algorithmic tools can enable information exchange between their users for example to secure particular price levels or margins. Platforms can also be used to impose technical restrictions to prevent users from offering lower prices or other benefits to final customers, and third information exchange can also take place via trade associations or other industry groups. Now, all three or more parties to an indirect information exchange can be held liable and fined for an infringement.

So the company sharing the information can be liable if it agreed, intended or reasonably foresaw that the third party would share the information with its competitors. The receiving company can be liable if, under the EU guidelines, it requested or accepted the information or if, under the UK guidance, it was aware of the anti-competitive objectives of the company sharing the information. That receiving company will be presumed to have taken account of the information in its market conduct unless it publicly distances itself or reports the disclosure to the relevant regulator and then finally, the third party that transmits the information can be liable as a facilitator. Where it was aware of the anti-competitive objectives of the company sharing the information and intended to contribute to them.

Fiona:

Another important factor is the frequency of the information exchange. So generally speaking, the more frequently you're exchanging information the more likely that is to give rise to competition concerns. However, it's not impossible and previously a standalone disclosure has been found to be enough to infringe competition law. So that's not a hard and fast rule.
Now listeners familiar with competition law will know that there are two types of infringement, by object infringements and by effect. How do regulators categorise information exchange?

Jessica:

As you know, if an information exchange qualifies as a by object restriction there is no need for a regulator to show that the exchange actually had an effect on competition. So it's quite important for the burden of proof. Information exchange will be a by object restriction if it concerns commercially sensitive information and if it is by its very nature capable of removing uncertainty about how the company is going to behave on the market. When considering whether an exchange falls within the by object box, it's important to consider its objectives and context. So in particular, the type of goods and how the market actually works are key elements to consider. The EU and UK guidance provide examples of information exchange, which have been considered to be by object infringements in the past. This covers amongst others, information exchange on current and future pricing or on future product characteristics relevant for the consumers. Last but not least, I want to flag that both the UK and EU guidance indicate that where an information exchange constitutes a cartel it will be very unlikely to meet the criteria for exemption.

Fiona:

Thanks, Jessica. We'll come back to those exemption criteria shortly. One other important consideration, especially for by effect infringements is the particular market characteristics. For example, the more transparent the market, the less uncertainty and therefore the more likely exchanges are to be problematic. Similarly, the more concentrated the market the more likely information exchange is to give rise to problems. Laura, what guidance are we given on by effect infringements in the guidance?

Laura:

Well, any effects will need to be considered on a case by case basis. So unlike a by object infringement for an effect's infringement the regulator will need to compare the actual potential effect of the information exchange against the counterfactual, which is the situation that would've existed in the absence of the information exchange. So to show there's a restrictive effect on competition and therefore establish an infringement, the exchange must be likely to have an appreciable adverse impact on the market by affecting for example, price, output, quality, variety or innovation. Generally speaking, the information exchange will need to cover a sufficiently large share of the market to have an appreciable effect, but what will be considered sufficient market coverage will depend on the particular market and on the specific facts of the case.

Fiona:

Thanks Laura. Before we turn to the exemption, thinking on a practical level. Jessica, how can companies reduce the risk of being found to have exchanged information in breach of competition law?

Jessica:

Companies should ensure that they have put internal measures in place, including regular competition law trainings for employees. It is particularly critical for employees participating in industry association meetings. As we have seen earlier, companies may be found liable for an anti-competitive information exchange simply for being present in a meeting where a competitor unilaterally disclosed strategic information. Employees should be made aware of that and of how to react. There are various steps that can be taken to mitigate risks, this includes making sure that any meetings with competitors have clear agendas in place. The agenda should be reviewed to assess the level of risk, and you should then ensure that the agenda is followed during the meeting. If the conversation shifts towards commercially sensitive topics then you should object, ensure this is recorded in the minutes and publicly distance yourself from the discussion. You should also contact your in-house legal team or external legal advisors as soon as possible.

In some instances, commercially sensitive information needs to be exchanged for legitimate purposes. In such cases, it's important to consider whether and how to ring-fence that information. For example, this can be done using clean teams: that means a restricted group of employees who are not involved in the commercial operations and are subject to strict confidentiality obligations.

Fiona:

Thanks, Jessica, that's helpful. So we've talked in previous episodes about the fact that there is an exemption from the restriction on anti-competitive agreements and to benefit from this companies need to meet four criteria. So the agreement must give rise to efficiencies, meaning it needs to improve production or distribution or to promote some technical or economic progress. Secondly, the agreement should not impose restrictions that go beyond what is necessary to actually achieve those efficiencies. Third, it needs to ensure that customers receive a fair share of the benefits. And finally, the agreement should not eliminate competition, so there should be some element of competition left. Laura, what guidance do we have on how the regulators will approach these exemption criteria for cases involving information exchange?

Laura:

I think it's fair to say the guidance really focuses on the first two criteria for exemption, so efficiencies and indispensability. It's recognised that information exchange can lead to efficiency gains. So for example, benchmarking performance against best practices in the industry can enable companies to improve their offering. It can also help consumers and companies compare the price or quality of products. As we know, the CMA is quite fond of data publication as a solution to potential issues in markets as we've seen with the CMA Open Banking remedies and the road fuel market study I mentioned earlier.

In terms of indispensability, the guidance makes it clear that parties will need to show that the exchange of information was reasonably necessary to achieve the efficiency gains. So for example, in the context of a benchmarking exercise it may not be indispensable to exchange individualised data where aggregated information can generate the same efficiencies and also pose a lower risk of harm to competition.

Fiona:

Thanks, Laura. One thing that we have got additional guidance on in the new guidelines is practical examples. Are there any that either of you would highlight in particular to listeners?

Jessica:

Of course. So the new guidelines give a few examples relating to sustainability. This is obviously very topical and linked with recent Commission investigations and calls for more guidance on where to draw the line in that specific area. On the one hand, the EU guidance says that sharing data is essential to develop new products or technologies may be pro-competitive discoveries in products. Similarly, pulling data on suppliers using sustainable products or sustainable processes can lead to efficiencies. On the other hand, the Commission flags the potential issues arising from exchanging between competitors information relating to compliance with new regulatory requirements. Such exchange may be perfectly legitimate, but it will be problematic, for example, if it leads to agreeing not to market products more environmentally friendly than required by law. Here, innovation would be hampered which is obviously anti-competitive.

Laura:

Thanks, Jessica. I agree those are very topical and very relevant examples to some of the current antitrust investigations. From my perspective, I think as we discussed earlier information in the public domain is generally considered less likely to give rise to competition concerns. However, the guidance is by no means clear cut on this and both the EU and UK guidelines include examples of situations where depending on the legal and economic context public announcements may amount to restrictions of competition by object.

So the first example given concerns for suppliers with a 70% market share who frequently announce their future prices publicly but often change those prices before they come into effect. The second example given concerns a CEO who makes public statements about how the industry should respond to market developments by increasing prices. And these examples illustrate as Jessica noted earlier that even information that is available to all competitors and customers in the market can constitute a serious infringement of competition law in the eyes of a regulator and competitors who become aware of such information may even find themselves under an obligation to publicly distance themselves or report the announcements to the authorities.

Fiona:

Thank you both for that interesting discussion. Information exchange is a complicated issue and as you've both highlighted, there are many factors to consider in each case. So I think it's important to flag that even small differences between the EU and UK approaches are only going to make this more difficult for companies to self-assess and we'll need to watch to see whether enforcement trends start to diverge.

In an attempt to offer more practical guidance, the EU and UK guidelines now include a flow chart to help with self-assessing behaviour and also a table that sets out who would be liable for information exchange in different scenarios, so coming back to that indirect information exchange where the different parties might be liable. However, this remains a really complicated area where advice should always be sought and as I said, companies should be mindful of the potential for diverging outcomes between the EU and UK approaches. If you're interested in hearing more about the horizontal guidelines, then watch out for the next episode in this podcast series.

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