CPI Cartel Column edited by Rosa Abrantes-Metz (NYU Stern School of Business)
Unilateral Disclosure of Information – an Australian Perspective by Rod Sims (Chairman, Australian Competition and Consumer Commission)
Click here for a PDF version of this article.
In February 2013, I unveiled the Australian Competition and Consumer Commission’s (ACCC) revised Compliance and Enforcement Policy. This policy sets out a number of priorities that the ACCC will be focusing on in its compliance and enforcement efforts. A copy of this document can be found on the ACCC’s website, www.accc.gov.au.
Our Compliance and Enforcement Policy now emphasises that some forms of conduct are so detrimental to consumer welfare and the competitive process that the ACCC will always assess them as a priority, irrespective of the sector of the economy in which the activity occurs. Cartel conduct falls into one of these priority areas.
Often when competition agencies talk about cartel conduct, we are usually only referring to so-called “hard core” cartels. These are price fixing, bid rigging, output restriction and market allocation. The OECD has recognised that these forms of hard core cartels are the most egregious violations of competition law.1
In Australia, there are laws that prohibit cartel conduct, and since July 2009, criminal sanctions apply to individuals found guilty of engaging in cartel conduct. In order to prove cartel conduct, the ACCC generally needs to prove an element of collusion between competitors. There are some forms of anti-competitive conduct, such as unilateral information disclosures, that do not involve outright collusion, but may in any event achieve cartel like outcomes. In Australia, it is only in recent times that some forms of unilateral information disclosures become illegal.
In this article I will attempt to shed some light on the way Australian courts have approached unilateral disclosures of information and discuss the new provisions of the Competition and Consumer Act 2010 (CCA) that now operate in a limited way to prohibit such disclosures.
What are unilateral information disclosures?
Anti-competitive unilateral information disclosures are usually designed to help competing businesses to reduce or eliminate strategic uncertainty and coordinate their conduct effectively to minimise the risks associated with the competitive process. Such disclosures can minimise the effect of the “market’s invisible hand”. What separates these types of behaviour from hard core cartel conduct is the absence of express agreement between competitors to undertake specific action to hinder competition.
Not all forms of unilateral information disclosures are harmful. Some information disclosures can facilitate the effective operation of markets by providing information to consumers and should be encouraged. However in some specific circumstances, the same conduct can diminish competition to the ultimate detriment of consumers.
A common example of an anti-competitive information disclosure would be private disclosure between competitors of future pricing intentions. This type of conduct is likely to have little to no redeeming qualities and could allow competitors to achieve cartel-like outcomes without forming a cartel.
The fact that information disclosures can be both pro-competitive and anti-competitive means that it is difficult for law makers to draft one set of laws to cover all harmful forms of the conduct in all circumstances. In attempting to address adverse effects of such disclosures, care must be taken to ensure that the appropriate balance is struck between prohibiting those disclosures that are most clearly anti-competitive while allowing pro-competitive or benign disclosures to continue.
Different approaches
Europe
In Europe, anti-competitive information disclosures are prohibited by Article 101 of the Treaty on the Functioning of the European Union that prohibits “concerted practices” that have the objective or effect of distorting competition.
A fundamental principle of European competition law is that every trader act independently when deciding its business strategy. An organised exchange of information between competitors of price information will generally be regarded as having the object or effect of restricting or distorting competition; and is therefore prohibited.
A concerted practice occurs where traders knowingly substitute practical cooperation for the risks of competition – there is no need for a fully formed agreement. This is not to say that businesses should not be able to observe what is happening in the market and to adapt to it. However, any direct or indirect contact between competitors where the object or effect is either to influence the competitive process or to disclose the course of future business strategy will be illegal.
An example of this in practice is in the 2010 Royal Bank of Scotland Case brought by the UK’s Office of Fair Trading.2 RBS disclosed generic and confidential future pricing information to Barclays Bank, which Barclays took into account in determining its pricing. RBS agreed to pay a fine of £28.5 million after admitting competition law breaches.
United States
The United States (US) approaches facilitating practices under the general prohibition in section 1 of the Sherman Antitrust Act 1890. It requires an agreement and proof of effect that the conduct unreasonably restrains trade. The test for “agreement” is more easily met in the US than in Australia.
Given any contract between competitors can conceivably restrain trade US courts apply a “rule of reason test.” It will be unreasonable if the anticompetitive effects outweigh the procompetitive effects. While hard core cartels are deemed to “pass” the rule of reason test and are handled on a per se basis, agreements to engage in facilitating practices are subject to the rule of reason test. The US courts will look at the circumstances surrounding the facilitating practice to determine whether the conduct unreasonably restrains trade.
US regulators recognise that facilitating practices, such as exchange of pricing data between competitors, make it easier for firms to coordinate price or other behaviour in an anti-competitive way. Evidence of a facilitating practice may be relevant to support an inference of cartel conduct or as a violation of itself.
An example of the US approach in action can be seen in the Container Corp Case.3 In that case, the US Supreme Court found that the exchange of price information between competitors where information was furnished on the expectation of reciprocity was sufficient to meet the agreement threshold, and because of its anti-competitive effect, was a violation of the Sherman Act.
Australia
In Australia, the competition policy framework is underpinned by the Competition and Consumer Act 2010 (CCA) and concepts such as facilitated practices, concerted practices or tacit collusion do not exist generally in competition law.
In broad terms it is often said that the CCA adopts a rules-based rather than a principles-based approach to legislative drafting by attempting to define all forms of prohibited conduct with a great deal of specificity. This is in contrast to approaches to competition law in other jurisdictions such as Europe and the US.
The competition provisions of the CCA prohibit horizontal agreements between competitors such as cartel conduct and agreements that substantially lessen competition. However before the effect or purpose of an agreement is considered, the court must be satisfied there is a “contract, arrangement or understanding” between competitors. The Australian courts have held that proving a contract, arrangement or understanding will generally require direct evidence of a communication; a “meeting of the minds” between the parties; and an actual commitment by at least one party to act in a certain way.
A couple of high profile cases demonstrate this point. In Apco Service Stations v ACCC, petrol retailers exchanged price information regarding the sale of petrol in the Ballarat region of Victoria. In that case, the Federal Court decided that a mere hope or expectation from other members of the cartel that one retailer would act in a particular way is insufficient to support an arrangement or understanding in contravention of the cartel provisions.4 This contrasts with the US position, where I understand that expectation of reciprocity is sufficient.
In ACCC v Leahy Petroleum, petrol retailers exchanged price information regarding the sale of petrol in the Geelong region of Victoria. In that case, the Federal Court decided that there was no “contract, arrangement or understanding” between the parties because the party providing price information was not obliged to provide the information and the recipient was not obliged to act upon the information.5 This contrasts with the position in Europe where a business which receives future pricing information from its competitor is likely to be regarded as having engaged in a concerted practice if they accept the information, use it, or do not publicly distance themselves from such a communication.
Consequently, prior to the recent amendments, it was likely that in Australia a business could lawfully receive pricing and other strategic information from a competitor and take advantage of that information without breaching the CCA if they are provided on a “for information and no obligation” basis. Similarly, providing such information on a “no obligation” basis was unlikely to be captured.
Recent amendments to the CCA
Partly as the result of the ACCC’s experiences in the petrol cases, and partly as the result of the Government’s concerns about the possibility of tacit collusion in the banking sector regarding the setting of interest rates, in December 2010, as part of its Competitive and Sustainable Banking System Package, the Government announced its intention to address anti-competitive price signalling and information disclosures by way of amendments to the Competition and Consumer Act 2010. Following stakeholder consultation, new legislation was enacted and took effect on 6 June 2012.
The amendments to the CCA inserted Division 1A – Anti-competitive disclosure of pricing and other information – and created two prohibitions on information disclosures:
A per se prohibition of private disclosures of pricing information unless done in the ordinary course of business; and
A disclosure of business information including price, capacity to supply or acquire, or commercial strategy, whether publicly or privately for the purpose of substantially lessening competition in a market.
These prohibitions only apply to goods and services of the classes that are prescribed by the regulations to the Competition and Consumer Act 2010. Currently, these prohibitions only apply to banks. The government has the ability to extend the coverage of these prohibitions to any other goods or services.
These provisions have yet to be tested in Australian courts. However, the ACCC expects covert sharing of prospective pricing information between competitors will be captured by the per se prohibition as such conduct would not be in the ordinary course of business. The ACCC’s approach to the second prohibition will be to focus on the purpose aspect of the information disclosure. That is, the ACCC will look at the evidence and consider the reason or reasons for making the information disclosure. If the purpose was to facilitate coordinated conduct, then the ACCC will seek to use this prohibition to stop and punish that information disclosure through Court action.
Concluding remarks
While Europe and America have had ways of dealing with tacit collusion in any market for a number of years, Australia has taken a more cautious approach by only applying the relevant laws to banks.
The ACCC position is that any conduct that has the purpose or design to damage competition should be prohibited. The current unilateral information disclosure provisions prevent some anti-competitive conduct in the banking sector that will facilitate tacit collusion; however the ACCC view is that these provisions should be applied more broadly, across all industries.
Sydney
23 July 2013
1 See OECD, Recommendation concerning effective action against hard core cartels, 25 March 1998.
2 Decision of the Office of Fair Trading: Infringement of Chapter I of the CA98 and Article 101 of the Treaty on the Functioning of the European Union by Royal Bank of Scotland Group plc and Barclays Bank plc, Decision No. CA98/01/2011, 20 January 2011.
3 United States v. Container Corp., 393 U.S. 333 (1969).
4 Apco Service Stations Pty Ltd v Australian Competition and Consumer Commission [2005] FCAFC 161.
5 Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd [2007] FCA 794.