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Archive for March 9th, 2011

Information exchange=cartel?

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Many have praised the inclusion of some guidance on exchanges of information within the new EU Guidelines on horizontal agreements. Personally, I agree with those arguing that guidance from the Commission was necessary, and I acknowledge that there are some useful (although arguably insufficient) orientations in the new guidelines. There is nonetheless an issue which may have not been adequately dealt with, and that I believe has very far-reaching implications. I´m referring to the idea of equating information exchanges with cartels (the title of the post probably gave you a hint):

Section 59 of the Guidelines states that “communication of information among competitors may constitute an agreement, a concerted practice, or a decision by an association of undertakings with the object of fixing, in particular, prices or quantities. Those types of information exchanges will normally be considered and fined as cartels“.  No qualifications.

Sections 72-74  develop the idea: “Information exchanges betweeen competitors of individualised data regarding intended future prices or quantities should therefore be considered a restriction of competition by object. In addition, private exchanges between competitors of their individualised intentions regarding future prices or quantities would normally be considered and fined as cartels because they generally have the object of fixing prices or quantities

– Where did this come from??

To my best knowledge (and please correct me if I´m wrong), information exchanges have only been treated by the EU Courts as cartels, or even as restrictions by their object, in two scenarios: (i) either they were an instrument intended to monitor or enforce a “proper” cartel; or (ii)  they were conflated into a single and continuous infringement composed of various agreements and/or concerted practices pursuing a common goal (and, in practice,  this situation generally arises where evidence is scarce and not enough to prove that the practice at stake was in its own right a cartel, or at least part of one).

That is, either they were purely ancillary to a cartel (first scenario), or they interacted with a wider agreement in the framework of a global plan having a single objective (second scenario). In other words, the European Courts have not validated the idea that stand-alone information exchanges shall be “considered and fined” as cartels.

In fact, it is significant to note that, unlike what happens in the rest of the document, no case-law is quoted in the Guidelines in support of these propositions (there is one cosmetic reference to the ECJ´s ruling in Glaxo, but it has nothing to do with the substance of what´s being discussed -it is cited as the source of the expression on the “legal and economic context”).

– Implications

Against this background, it is pretty clear that the legal approach towards exchanges of information has changed, and become wider and tougher. We´ve always lived with the idea that a thorough assessment of any information exchange was necessary prior to reaching any conclusion about its potential impact on competition, but apparently this isn´t so anymore.

The joint application of the ECJ´s Judgment in T-Mobile (which also enlarged the notion of concerted practices in an unprecedented and yet unclear way) with a wide interpretation of the statements contained in the Guidelines will certainly make it easier to label many things as a “cartel”. An example: if a company receives individual information on the future prices of its competitors it could be held liable for its participation in a cartel, even if it never used that information or even if the prices circulated amongst the competitors had priorly been given to their respective customers.

In practice, this opens the door for leniency applicants to come forward with evidence of information exchanges, and for the Commission to settle those cases under the procedure envisaged for cartels. With regards to sanctions, it means that companies that until now were participating in information exchange schemes have suddenly become members of a cartel, and are therefore subject to the huge fines, personal sanctions, and, in some jurisdictions, even criminal prosecution that is reserved for cartel cases.

– He who sows the wind will reap the whirlwind

The perils arising from such statement are not confined to the future decisional practice of the European Commission. After all, the European Commission is generally a very reasonable enforcer subject to the review of very reasonable Courts.

My main concern lies on the spill-over effects of the content of the Guidelines.  The European Commission has a role as primus inter pares that carries with it a special responsibility. In this sense,  it may not have been prudent to include this rather novel and ample statements because they run the risk of being overstretched by other enforcers. I fear that the Commission may be providing an “alibi” to enforcers willing to avoid the burden of undertaking sophisticated analyses. Hasn´t the Commission noticed that enforcement at the national level tends nowadays to automatically resort to the object category?

Justice Cardozo once warned about the dangers linked to legal principles expanding beyond the limits of their logic.  This tendency not only applies to principles, but also to rules and, as acknowledged by Hovenkamp in his great book The Antitrust Enterprise , “in the short run rules weigh much more  heavily than principles“. Considering that in the context of European competition enforcement system the statements included in the Commission´s guidelines automatically become quasi-rules for national competition authorities and courts, the risk of those statements expanding beyond the limits of their logic is blatant.

But the risk is not hypothetical. The Spanish Competition Authority adopted a decision last week in which it imposed a fine of 51 million euros on 8 companies active in the sale of hairdressing products for their participation on a stand-alone information exchange labeled as a “cartel” (even if the Spanish Competition Act contains a definition of the concept of cartel that is narrow enough to exclude many conducts that pursuant to an original interpretation of the Guidelines would consitute one).

Although I am unaware of the specificities of the case (my firm is not involved in it and the text of the decision has not yet been published) and it may well be that the exchange was a restriction of competition which deserved such a sanction, the press release already reveals that the risks to which I referred above are a reality.

Hold tight:

It is established doctrine of the national and Community competition authorities that the exchange of information between competitors in relation to future information on prices and quantities amounts to a cartel and must be sanctioned as such”.

Let´s at least hope that the Commission becomes aware of these risks and decides to closely monitor the way in which other enforcers will interpret its guidelines.

Written by Alfonso Lamadrid

9 March 2011 at 9:24 pm

Posted in Case-Law, Uncategorized