Competition authorities are increasingly targeting information sharing between competitors. This is reflected in the £28.6 million fine, which RBS has recently agreed to pay the Office of Fair Trading (OFT) to settle a claim that RBS unlawfully disclosed to Barclays information about the future pricing of RBS’s loan products. Unlawful information sharing can even include simply being the recipient of unsolicited information from a competitor: once you have received such information you are presumed to have acted on it. The onus will then be on you to prove you did not.
What is information sharing?
Information sharing involves the exchange of commercially sensitive and/or strategic information with a competitor. Information sharing can take various forms, for example the sharing of commercially sensitive data directly between competitors, or through trade or industry associations, or even indirectly through a third party. In the banking context, this would include, for example, providing or receiving information relating to planned:
· changes to interest rates;
· promotional or special offers; or
· changes to lending criteria.
Unlike the caricatured image of secret cartel meetings in smoke-filled rooms, information sharing can just as easily take place at the fringes of social, client and industry events. This is what happened in the RBS/Barclays case. There is no need for an express agreement, a handshake, nor a wink or a nod. For example, it will be sufficient if, at a meeting or conference, a competitor provides you with a price list which you accept, without requiring anything from you in return. Any activity where it can be said that some form of practical co-operation has been substituted for the risks of competition will be caught.
Surely some information sharing is good?
Competition authorities recognise that information sharing can often be pro-competitive. It can lead to efficiency gains and increased competition. For example sharing information about consumer defaults and risk characteristics in the banking and insurance sectors helps in the efficient allocation and pricing of risk.
However, information sharing can also have negative effects on competition, as it helps to reduce uncertainty and thus facilitates collusion. Taking the price list example, while there may not be an agreement to fix prices, having the price list enables you to set prices in the knowledge that it is unlikely that your competitor will undercut you.
The difficulty arises in drawing the line between efficiency-enhancing (and thus pro-competitive) information sharing and information sharing that restricts competition. Which way the scales will tip depends on both the characteristics of the market on which the information sharing is taking place as well as the type of information being shared.
In markets where companies are similar in terms of size, costs, products and services, as banks and property lenders typically are, it is more likely that information sharing will be found to be anti-competitive. Due to the greater potential for effective collusion within such markets, competition authorities are likely to approach investigations into information sharing on such markets with a greater degree of scepticism.
A company active in the property banking market which finds itself under investigation is likely to face an uphill struggle to rebut the presumption that any information received from a competitor (whether wanted or not) has been acted upon. Similarly, arguments as to efficiencies to justify information sharing will need to be clear, unequivocal and convincing.
When do you cross the line?
The sharing of publicly available information (i.e. information that is freely available and at no cost), aggregated data (where individual company level data cannot be discerned or ‘reverse engineered’) and historic data is unlikely to be caught by competition law. For example, aggregated data of the profiles of customers who have defaulted on loans may be shared. This helps to ensure that credit is priced efficiently to take the risk of default into account. This benefits consumers who pose less of a risk as it permits each lender to set interest rates which it believes appropriately reflects the lower risk.
If, on the other hand, you were to share with competitors the actual interest rates that you intended to charge, or the profile of customers to whom you were actually prepared to lend, that would be anti-competitive information sharing. Other information, which is likely to be found to be anti-competitive if shared, is anything which is commercially sensitive such as prices, customer lists, the total volume of loans intended to be made and marketing plans.
So what are the do’s and don’ts of information sharing?
Feel free to collect publicly available market intelligence. However, if you suspect that your competitors are sharing confidential and/or sensitive business information, you should seek legal advice.
Only enter into a statistical data exchange or a benchmarking exercise with your competitors after having first taken legal advice.
Take a broad view of what amounts to commercially sensitive information. As mentioned above, this would probably cover covers information on (current and future) prices and terms, future plans and strategy. Information as to current conduct will also be caught if it enables a company to deduce the future conduct of one of its competitors.
Where confidential and/or sensitive business information is being shared at a formal meeting, voice your concerns and, if necessary, leave the meeting and have it recorded in the minutes that you left for this reason.
If information is being exchanged in an informal context, try and change the topic and remove yourself from the situation. It goes without saying that you should not act on the information you have received. Do not disclose such information to anyone else, other than to your legal advisers.
One of the key findings by the OFT in the RBS/Barclays case was that, although Barclays had not solicited the information, it had accepted it and then acted upon it. In fact, receipt alone will give rise to the presumption that you have acted upon it. It will be for you to prove that you have not acted upon the information, which will be a difficult task unless you took appropriate steps when you first received the information. If in any doubt, seek legal advice immediately.
Rod Carlton
Partner
Freshfields Bruckhaus Deringer LLP
