July 22, 2014
In an interesting case that caught my eye yesterday and today, the U.S. Federal Trade Commission (FTC) has proposed a settlement in a case involving allegations that an online bar code re-seller engaged in an “invitation to collude” under Section 5 of the U.S. FTC Act. See: Different methods, same old antitrust problem and Two barcode resellers settle FTC charges that principals invited competitors to collude.
According to the FTC, the principal of InstantUPCCodes.com, a company engaged in the online re-sale of bar codes, allegedly sent a “friendly introduction to two competitors” that also included a friendlier recommendation yet that the competing companies stop competing in price. This cartel-related courtship reportedly went like this:
“Hello Phil, Our company name is InstantUPCCodes .com, as you may be aware, we are one of your competitors within the same direct industry that you are in … Here’s the deal Phil, I’m your friend, not your enemy … Here’s what I’d like to do: All 3 of us, US, YOU and [Company A] need to match the price that [Company B] has …. I’d say that 48 hours would be an acceptable amount of time to get these price changes completed for all 3 of us. The thing is though we all need to agree to do this or it won’t work … Reply and let me know if you are willing to do this or not.”
According to the FTC two of three bar code companies in this case indicated a willingness to coordinate on price if a third company could be persuaded to come along. The third company did not reply, however, to these overtures and prices were not ultimately ever raised or coordinated by the two other companies.
Under the U.S. FTC Act, private communications among competitors can violate section 5 of the FTC Act if: (i) an explicit or implicit communication to a competitor, (ii) sets forth proposed terms of coordination, (iii) which, if accepted, would constitute a per se violation of the Sherman Act.
As part of the proposed settlement, two of the barcode companies are prohibited from: (i) communicating with competitors about barcode rates or prices; (ii) entering, participating, offering, etc. agreements with competitors to fix prices, divide markets or allocate customers; and (iii) urging any competitor to raise, fix or maintain prices (or limit or reduce the terms or levels of service provided).
This case is in a rather fascinating area (or perhaps what only competition law geeks consider fascinating) of cartels (i.e., illegal or potentially illegal agreements among competitors), attempted cartels, information exchanges and signaling.
In other words, in the conspiracy/cartel area under U.S., Canadian and other countries’ competition/antitrust laws there is a spectrum of “horizontal” or competitor-competitor agreements that may be illegal ranging from: express cartel agreements (e.g., explicit agreements between competitors to fix prices) – to cartel agreements established through circumstantial or indirect evidence (e.g., meetings followed by price increases) – to the more amorphous and, in many ways, much more interesting area where competitors are alleged to have violated competition laws through information exchanges, signaling or mere attempts to form illegal agreements.
While in Canada there is no parallel to “invitations to collude” (i.e., attempted cartel agreements) under the FTC Act, discussions, information exchanges or other contacts or communications between competitors can nevertheless lead to significant risk and liability. The key criminal competition law offences in Canada are: conspiracy agreements between competitors (price-fixing, market allocation/division agreements, output restriction agreements and bid-rigging agreements) (see: conspiracy (cartel) agreements and bid-rigging). These offences, if established, carry penalties that include criminal fines or imprisonment.
In the context of legitimate trade or professional association meetings or initiatives, pro-competitive joint ventures or legitimate benchmarking or survey exercises, to name but a few examples, credible competition/antitrust issues are unlikely to arise (though it is prudent to chat to your counsel about where the “risk lines” likely lie in these areas that involve competitor contacts/interactions).
On the other hand, as this U.S. “invitation to collude” case illustrates, discussions or attempts to agree with competitors on topics such as price, markets, output or the terms of bidding are classic antitrust risk areas and can, both in the U.S. and also in Canada, generally lead to several potential results: first, a challenge that an illegal cartel (e.g., price-fixing) agreement has in fact been formed; second, making it easier for the enforcement agencies to challenge such competitor-competitor activities; or, third, in jurisdictions like the U.S. that have competition provisions that prohibit mere “attempts” to collude, such competitor contacts may in and of themselves violate competition laws.
Tips to Minimize Cartel (Conspiracy) Risk
From Competitor Contacts
1. Before entering into discussions or agreements with competitors, consider whether the agreement/discussion is likely pro-competitive (e.g., a pro-competitive joint venture, transparency enhancing benchmarking or survey exercise, etc.) or anti-competitive (e.g., to fix or stabilize prices, allocate markets, restrict output, etc.).
2. If participating in organized events or groups involving direct competitors (e.g., trade or professional associations), ensure that the association has a competition law compliance program (or at minimum “conduct of meeting guidelines”) and that your personnel know where the “line is” regarding clearly illegal competition/antitrust conduct.
3. If your company or personnel participate in organized (e.g., trade associations) or informal (e.g., online chat rooms or social media) discussions with competitors, know where the line is re: appropriate and inappropriate discussions. Given the increased online, social media and chat room enforcement by international competition/antitrust enforcement agencies, particularly in the banking sector, it also seems to me that it makes very good sense that corporate, association and other organizations’ competition compliance programs specifically address competition compliance in the online/social media/chat room spaces.
4. Perhaps most importantly, if you, your company or your company’s personnel are contacted by a competitor and the tenor of the request looks “offside” competition/antitrust laws (e.g., relates to coordination on price, markets, output or bidding or tendering terms) get some advice. Advice I have often given, depending on the circumstances, includes: (i) replying; (ii) indicating that the company/association/personnel does not agree with the requested coordination; and (iii) a statement that the company/association/personnel sets prices independently / determines where to sell independently, etc. This can often be a prudent diligence step to counter any potential later allegations, should they arise, that the company/association, etc. was a party to conduct that may be a competition/antitrust law offence.
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