Out-Law Guide | 27 May 2008 | 4:07 pm | 3 min. read
This guide was last updated in September 2018
Information exchange between companies is an everyday commercial reality. If companies didn't exchange information, commercial life would grind to an abrupt halt as nobody would ever be able to reach agreement. Even competitors may publish certain information in order that those active in the market can gauge the general health of an industry. Without such exchanges important investment decisions by the businesses themselves as well as by investors and government would be made in the dark.
Despite this, companies must be very careful when making information available as sharing too much information could breach competition law and create exposure to the risk of a large fine or even criminal sanctions for individuals.
The main competition law concern arises when the nature of the information exchanged between current or potential competitors makes it easier for them to predict each others' behaviour and adjust their own accordingly. This in its most severe form may ultimately enable participants to fix prices or allocate customers or markets, in other words to participate in a cartel.
The key is to know when 'enough' becomes 'too much'. Unfortunately there is no clear answer to this question as much depends on the specific economic and factual context. However, following some basic guidance can significantly reduce the risk.
With whom can you exchange information?
The risk is greatest when information passes between current or potential competitors. For this reason it is this exchange of information that is most strictly controlled (and punished) by competition law. Information exchange between supplier and buyer is not only permissible but necessary if they are to reach a commercial agreement. Nevertheless, even this information exchange can cause problems where that information could be used to fix the buyer's resale prices for end customers.
Alarm bells should also ring if the information exchanged between supplier and buyer could be used to support anti-competitive behaviour between competing suppliers. For example, if a supplier who is a member of a cartel were able to find out the prices charged by its competitors from his buyer this would help to police the cartel. A buyer should therefore not pass such information to a supplier. Equally a supplier should not request such information.
Companies in unrelated industries may want to exchange information for completely legitimate reasons, such as benchmarking. This should not be a problem even when confidential information is exchanged so long as the information is not used for any anti-competitive purpose. Companies exchanging such information must be mindful to control the purposes for which such information is used.
What information can be exchanged between competitors?
The factual/economic background of each market needs to be taken into account, as some are inherently more transparent than others.
However, exchange between competitors of information which is not in the public domain and concerns the parameters of competition, such as resale price, production capacity or costs is more likely to be caught by competition rules than exchange of information that is commercially less sensitive.
The age of the data, the extent to which it is aggregated (i.e. anonymised) and the frequency of exchange are key. If the information exchanged is "historical" rather than current it is likely to cause fewer issues as it is less likely to reveal competitor strategies. What is considered to be "historical" will vary from case to case but depends again on the use to which the information could be put. In practice, this often means that information should only be exchanged until it is at least one year old.
If the information exchanged is sufficiently aggregated amongst competitors so that a competitors' individual sales and values are not ascertainable, competition law risk may be removed, so potentially even very recent information may be exchanged.
The point at which 'enough' becomes 'too much' always depends on the particular prevailing circumstances, with regard being had to the nature of the information exchanged and the economic context in which the exchange takes place. A rule of thumb is that the more valuable to a company's commercial policy the information being exchanged is, the less likely it is that it should be shared. Therefore companies exchanging information, especially with an actual or potential competitor, are strongly advised to seek specialist competition advice before doing so.