The European Commission (EC) and the UK Competition and Markets Authority (CMA) have published new guidance on the assessment of cooperation between competitors. For the EU, this is contained in revised Guidelines on Horizontal Cooperation Agreements (EU Guidelines) and for the UK, it forms part of new Guidance on Horizontal Agreements (UK Guidance).
The EU Guidelines and the UK Guidance replace the previous 2011 EU horizontal guidelines (the Previous EU Guidelines), and both contain a significantly expanded section on information exchange.
While several of the additions confirm positions already established in EU/UK case law, the documents also provide guidance on new topics, such as data pooling and algorithms.
In addition, while there are many similarities between the information exchange sections of the EU Guidelines and the UK Guidance, there are also some interesting differences, with the CMA in particular including more detailed guidance and examples on several topics.
This alert focuses on what you need to know about the authorities’ approach to information exchange, highlighting key updates from the Previous EU Guidelines, as well as noting departures between the EC and the CMA.
Expanded guidance on the characteristics of sensitive information
Both the EC and the CMA now include more detailed material on the nature of the information whose exchange will be caught by the prohibitions on anti-competitive agreements. While the Previous EU Guidelines referred to this as “strategic information”, the EC now refers to this as “commercially sensitive information”, and the CMA uses the term “competitively sensitive information” (CSI) (albeit the CMA acknowledges that these terms are often used interchangeably).
Whether the information is CSI
Both the EC and the CMA also discuss certain characteristics of information that may affect whether or not the information is likely to be CSI. Several of these are broadly consistent with points that were already in the Previous EU Guidelines (such as the age of the information and whether it is aggregated or individualised). The new guidance does however contain some new/expanded topics, and there are also some differences in approach between the EC and the CMA:
- The EC and the CMA both restate the position in the Previous EU Guidelines that public information is not usually CSI if it is readily accessible in terms of costs of access (to all competitors and customers). However, the CMA now gives this topic significantly greater prominence than the EC. In particular:
- The CMA highlights the potential efficiencies arising from public information exchange (including through the publication of best-selling lists or price comparison data) by referencing the “road fuel market” in greater depth. It suggests that published pricing data could help drivers shop around and in turn encourage more intensive competition between fuel stations. In this context, the CMA notes plans for the UK government to create an open data fuel finder scheme requiring retailers to make their prices available on an open, real-time basis.
- On the other hand, the CMA introduces new guidance that the exchange of public information can reduce competitiveness when exchanged on an apparently confidential basis (particularly if accompanied by confidential opinions that would not normally be made public). For example, a firm might consider (eg pricing) information received directly from a competitor to be “more reliable” than similar information gathered from another source, such as a customer, especially if the customer has an incentive to try to play the rivals off against each other – even where that information is “relatively vague or imprecise”.
- The EC and the CMA include new guidance that exchange of raw unorganised data may be less competitively sensitive than the exchange of data that has already been processed into meaningful information. The EC states that this will be particularly the case where each party uses its own processing method. The CMA gives even more colour, noting that, while the exchange of raw data is likely to raise greater risks where the processing of data is relatively standardised, the risks are lower where firms are expected to adopt non-standardised, non-public approaches to processing the exchanged data. However, the CMA also notes that the exchange of processed rather than raw information may allow firms to obtain greater efficiencies.
- The EC now details a non-exhaustive list of information which is generally not CSI. Unsurprisingly, this covers information relating to: the general functioning or state of an industry; public policy or regulatory matters; non-confidential technical issues relevant to the industry in general; general, non-proprietary technology; general promotional opportunities relevant to the industry; non-strategic educational, technical or scientific data that results in consumer benefits; and non-strategic information needed to build new business partnerships. Interestingly, the CMA doesn’t include similar carve-outs (presumably in order to give it greater flexibility), but in practice we expect it to take a similar approach to these types of information.
Whether market characteristics indicate an exchange is problematic
Finally, both the EC and the CMA now include more detailed material on the characteristics of the market that can influence the likelihood that an information exchange restricts competition.
The authorities set out the same market characteristics: (i) the level of transparency in a market; (ii) the number of undertakings present; (iii) the existence of barriers to entry; (iv) the homogeneity of the product or service concerned by the exchange; (v) the homogeneity of the undertakings involved; and (vi) the stability of demand and supply conditions on the market.
In addition, the EC discusses the impact of the complexity of the market. It notes that undertakings are more likely to reach a common understanding in terms of coordination when they have similar costs, customers, market shares etc, and it may be easier to achieve a collusive outcome on a price for a single homogeneous product than on numerous prices in a market with many differentiated products.
Clarifications on non-reciprocal disclosures
Both the EC and the CMA expand on the Previous EU Guidelines’ relatively limited treatment of unilateral disclosures and public announcements:
- Both the EC and the CMA now confirm that unilateral disclosures of CSI can take place through chat messages as well as input in a shared algorithmic tool. This is in addition to disclosures via emails and meetings. Such disclosures will be problematic where the competitor accepts and acts upon the disclosure and there is a link of cause and effect between the disclosure and the competitor’s subsequent conduct on the market.
- Both authorities also confirm the well-established presumption that a company receiving CSI from a rival takes account of the information and adapts its behaviour on the market accordingly unless it publicly distances itself, for example by responding with a clear statement that it does not wish to receive such information, or reports it to the authorities.
- However, the CMA provides additional clarification that this presumption will only apply if it is established that the recipient was aware of the content of the communication received. The CMA also notes that the mere fact that an email or website post is sent to a recipient does not in itself indicate that the recipient was aware of its content, nor is there a legal presumption that the recipient ought to have been aware of the content of the message. The EU Guidelines are silent on this point and it is unclear whether the EC would take a similar approach.
- Both authorities also remove the statement in the Previous EU Guidelines that genuinely public unilateral announcements will generally not constitute a “concerted practice”, and they instead state that this cannot be excluded. In particular, they reiterate that public announcements referring to future pricing intentions, where these are non-binding with respect to customers, may signal a firm’s intended market strategy to rivals and facilitate collusion, particularly if “the information is sufficiently specific”. The CMA adds that the collusion risk will be greater if the information also “relates to existing, relatively commoditised products”. However, the CMA also notes that an announcement of the price on launch of an innovative, new product may bring about efficiencies by stimulating consumer demand.
New material on indirect exchanges
The EC and the CMA both include a new section on the risks surrounding indirect exchanges of information between competitors via a third party, which was not covered in the Previous EU Guidelines. Much of the new guidance reflects the position established by EU case law, with some helpful additional clarifications:
- Both the EC and the CMA refer to the well-known concept of “hub-and-spoke” In addition to flagging the more traditional arrangements between manufacturers/suppliers and their distributors/retailers, the EC and the CMA also note that an online platform can act as a hub where it facilitates, coordinates, or enforces information exchanges between users of the platform. Both authorities also flag the concept of indirect information exchange via algorithms (see more on this below). The CMA provides a further example of common agencies, such as trade associations, facilitating exchanges between their members.
- Both authorities also walk through the established circumstances in which such indirect exchanges between competitors could constitute an infringement.
Confirmation of case law on information exchange as a “by object” infringement
Both the EC and the CMA now confirm the position established in case law that the exchange of CSI can be considered a standalone “by object” infringement if the exchange is “capable of removing uncertainty between participants as regards the timing, extent and details of the modifications to be adopted by the undertakings concerned in their conduct on the market”.
Helpfully, the authorities include lists of exchanges between competitors that have previously been considered as “by object” restrictions. Reflecting different enforcement cases in the two jurisdictions, these lists already diverge:
- Both the EC and the CMA red-flag the exchange by competitors of: (i) current pricing and future pricing intentions and production capacities; (ii) current or future commercial strategy; (iii) arrangements/forecasts relating to current and future demand; and (iv) forecasts of future sales.
- The EC also refers to future product characteristics which are relevant for consumers.
- The CMA adds the following to its list: (i) current financial state on a particular market and its business strategy; (ii) publicly available current/past pricing data where the context of the disclosure has provided valuable reassurance as to future conduct; and (iii) elements of a potential entrant’s launch plans.
Clearly, as separate EU and UK case law builds up, further differences in the authorities’ assessments may take shape.
Data sharing/pooling – a new framework for analysis
The EC and the CMA provide a new common framework for assessing “data sharing”, a term the EC and the CMA use to describe all possible forms and models underpinning data access and transfer between companies, including data pools where data holders group together to share data resources.
Both authorities acknowledge the increasing use of big data analytics, AI and machine-learning techniques in decision making, and the UK Guidance gives a nod to the UK National Data Strategy’s encouragement of data sharing.
A more permissive approach to data sharing . . .
First, the authorities offer some comfort: data sharing generally does not amount to a “by object” restriction of the EU and UK antitrust rules if it is established that it has genuine pro-competitive effects.
Further, data sharing that has restrictive effects on competition may be exempt from the antitrust prohibitions because of the efficiencies it generates. Indeed, the EC and the CMA recognise that data sharing often leads to
pro-competitive efficiencies. It can, for example, ensure a better assessment of the risk of providing services to new customers and so facilitate market entry and benefit consumers. It may be essential for the development of new products, services and technologies. In addition, it can facilitate the identification of illegal practices such as the sale of counterfeit products.
. . . but foreclosure risks remain, calling for a case-by-case assessment . . .
Second, the EC and the CMA detail how data sharing may result in anti-competitive foreclosure and information asymmetry vis-à-vis non-participating competitors. They both flag that such foreclosure is more likely where: (i) the data shared is of strategic importance to compete on the market; (ii) the exchange covers a significant share of the market; and (iii) third parties’ access is prevented or delayed.
Relevant factors to consider include the purpose of the shared database, the conditions of access to and participation in it and the type of information exchanged (such as its relevance for setting prices, volumes or conditions of service), as well as the economic conditions in the relevant market.
. . . and steps to minimise risk
Finally, the EC and the CMA helpfully set out measures that firms can take to mitigate the risk of a reciprocal data-sharing/pooling arrangement infringing their respective antitrust prohibitions. These in effect limit and control how the data is used:
- The management of a data pool should be assigned to an independent third party (trustee) that is subject to strict confidentiality rules – non-disclosure agreements should be concluded with each participant.
- The trustee should ensure that only information that is necessary and proportionate to the implementation of the legitimate purpose of the data pool is collected.
- Participants should in principle only have access to their own information plus the final, aggregated information of others – technical and practical measures can ensure that the CSI of other participants is not shared, while focusing on historic data and decreasing the frequency of exchange further reduce risk.
- The participants should ensure that the arrangement is set up in a transparent manner, and is based on fair, objective and non-discriminatory access criteria.
Algorithms – collusion red flags
The EC and the CMA each include new guidance on assessing algorithms, broadly following the same principles.
They both recognise that the independent use of algorithms to monitor competitors’ prices may pro-competitively reduce costs and barriers to entry. However, they also note that pricing algorithms may be used to implement and/or increase the stability of an anti-competitive agreement or concerted practice:
- The CMA states that the use of common behavioural coordination algorithms to agree on parameters of competition (eg price) is typically a restriction of competition “by object”. The EC calls this “collusion by code” and notes that it typically amounts to a cartel.
- Algorithms designed to monitor pre-existing anti-competitive agreements or concerted practices are also problematic. The resulting increased market transparency allows the detection in real time of price deviations and effective punishment from those engaging in such agreements or practices.
- The authorities call out the risk that the use of third-party tools and algorithms could create
a “hub-and-spoke” structure that facilitates anti-competitive information exchange. In terms of indirect information exchange via a shared optimisation algorithm which takes commercial decisions based on competitively sensitive data-feeds from competitors, they note that aggregation of CSI into a pricing tool offered by a single IT company to which various competitors have access could amount to horizontal collusion. Depending on the facts of the case, the participating competitors and the third party may all be held liable.
- With respect to unilateral disclosures of CSI, “introducing a pricing rule in a shared algorithmic tool (for instance, a rule to match the lowest price on a particular online platform or shop +[ ]%, or the price of a particular competitor –[ ]%), is also likely to be caught” by the antitrust prohibitions, “even in the absence of an explicit agreement to align future pricing”.
- Going further than the EU Guidelines, the CMA suggests that in sectors in which firms use software or algorithms developed by third parties to assist with their price setting (or other key business terms), disclosing to a competitor the identity of the third-party software used may be problematic.
In parallel, the EC and the CMA draw out two principles for assessing pricing algorithms under EU and UK antitrust law: (i) if a pricing practice is illegal when implemented offline, there is a high probability that it will also be illegal when implemented online; and (ii) firms involved in illegal pricing practices cannot avoid liability on the ground that their prices were determined by algorithms given that an algorithm (just like an employee) remains under the firm’s control.
New cautions around potential defences to information exchange
The EC and the CMA now include in their guidance several cautions around potential defences to information exchange:
- The fact that information exchanged may be incorrect or misleading is not a defence. According to the UK Guidance, even an exchange of “false or inaccurate” information can restrict competition. Referring to UK case law, the CMA notes that an information exchange which is “deliberately misleading” may be particularly likely to be competitively sensitive as it may be designed to influence the recipient’s competitive strategy.
- Both the EC and the CMA now confirm that where a law or public authority merely encourages or makes it easier (rather than requires) firms to exchange information with rivals, antitrust rules are still likely to apply. The same principle is relevant to the extent that firms subject to regulation retain discretion as to how they comply with an information exchange requirement.
Steps to minimise the competition risks
New guidance on steps that can be taken to minimise the risks of information exchange between competitors is added by both the EC and CMA:
- Ensure that CSI is properly ringfenced so that it cannot influence a competitor’s behaviour. For example, use clean teams or trustees to receive and process information. A clean team should be restricted to a group of individuals not involved in commercial operations and bound by strict confidentiality protocols. Any trustee should be an independent third-party service provider.
- As discussed above, control access to data pools by ensuring participants only have access to their own information and the final, aggregated information of others. Consider assigning the management of a data pool to a trustee and ensure that only information necessary for the purpose of the data pool is collected.
- Plan contacts with rivals by reviewing the agenda and purpose of the contact in advance to identity potential risks. Consider whether competition counsel should attend, stick to the agenda and ensure accurate minutes are produced and circulated.
- Assess public announcements by verifying that the information serves a legitimate purpose and the level of detail disclosed is appropriate. Limit any strategic information announced to that which relates to the company itself – don’t announce strategic steps dependent on the action of rivals.
- Publicly distance from disclosure of CSI (including in public announcements) – clearly stating and recording in minutes (or own notes) your objections and your departure from any continued discussion. Consider reporting the potential disclosure of CSI to the authorities.
Will differences in guidance mean diverging analysis in practice?
Overall, the EC and the CMA provide welcome new clarification on information exchange, in particular for firms wishing to make use of AI and digital tools.
As highlighted above, there is significant similarity in the two sets of guidance, which is clearly good news for businesses with operations across the EU and the UK.
And, while there are some differences between the EU Guidelines and the UK Guidance, much of the distinction is due to the CMA providing more clarification and additional detail than the EC on a number of topics/issues, rather than advocating a diverging approach. It is therefore likely that in many cases the analysis of whether an information exchange could infringe the EU and UK antitrust rules will be substantially the same. Ultimately, however, we will need to see how the authorities apply the guidance in practice, in case divergences start to emerge.
Information exchange is not the only topic featured in the materials. The EU Guidelines and UK Guidance also provide revised guidance on how antitrust law applies to the most common types of cooperation agreements between competitors, including production, mobile telecoms infrastructure sharing, commercialisation, joint purchasing (distinguishing buyer cartels) and standardisation. They also advise businesses on how to interpret and apply the new EU and UK block exemptions for research and development and specialisation agreements. Again, there are some differences in the approach taken by the EC and the CMA – we will be reporting on these separately.