Talking business is a fact of everyday life. However, the European Union's top court has confirmed that sharing some types of business information with competitors can and will be treated as a serious cartel-type violation. In a recent judgment(1) the European Court of Justice (ECJ) had the chance to revisit the legal standard governing standalone information exchanges. It confirmed the European Commission's tough stance and held that the standalone information exchange of future pricing-related information will be treated per se as a serious violation.
Employees often struggle to understand when they cross the line between 'business gossip' and illicit information exchange, particularly as different jurisdictions have different standards for its assessment.
The ECJ's message is clear – employees beware. There is zero tolerance for sharing future pricing-related information with rivals.
Northern European banana sales are organised in weekly cycles. Port shipments arrive on a weekly basis according to a regular shipping schedule. Each importer sets a quotation price on Thursday mornings. Each customer price is individually negotiated (also on a weekly basis) or set by longer-term supply contract formulae. The formulae reference a fixed price or link price to quotation prices.
The commission alleged that the three major banana importers were engaging in bilateral pre-pricing communications. On each Wednesday before the Thursday quote setting, the importers would share factors relevant to the setting of quotation prices, the following:
- weather conditions;
- 'ripeners' and yellow banana stocks (ie, stock that needed to be sold immediately);
- estimated green banana port stocks (ie, stock that did not yet require immediate sale); and
- other factors influencing supply and demand.
The information was sometimes individualised (eg, if a competitor's vessel was delayed or broke down).
The commission also alleged that on Wednesdays before the Thursday quote setting, the importers communicated:
- price trends (whether their pricing would go up, down or stay the same in the forthcoming week compared to the prices of the current week); and
- indications of quotation prices for the forthcoming week.
After the Thursday quote, the importers disclosed the quotation that each had set, again on a bilateral basis (one to one, rather than one to all).
The commission considered that the quotation prices served at least as market signals for the intended development of banana prices and were relevant for the banana trade and prices obtained. In some cases, this was a direct consequence if the price was linked directly to quotation prices in accordance with formulae based on quotation prices. It concluded that the bilateral pre-pricing communications were liable to influence operators' pricing behaviour. The Wednesday contacts were held to be a concerted practice which by their object restricted competition under Article 101 of the Treaty on the Functioning of the European Union. The importers were fined €60.3 million and the decision was upheld by the General Court. One of the importers, Dole, appealed to the ECJ.
This is the first time since T-Mobile in 2005 that the ECJ has had occasion to revisit the legal standard for standalone information exchange. The judgment essentially confirms the tough stance adopted by the commission and its horizontal guidelines. The guidelines state that "information exchanges between competitors of individualised data regarding intended future prices or quantities should… be considered a restriction of competition by object".(2)
Dole's appeal emphasised the specifics of the information. It claimed that nothing in the information exchanged had reduced competitive uncertainty between the banana importers:
- Sharing quotation price trends was incapable of removing uncertainty as to actual prices. These were negotiated individually with each customer. The information shared did not constrain the ability of customers to negotiate a better deal and importers can and did compete on price to secure business.
- The price-setting factors shared were public information, including such factors as weather, port stocks and general market information. This was public information that could be obtained from other sources. In any event, it was too far removed from the setting of actual prices. During the individual negotiation process with customers, these pre-pricing factors did not constrain the final outcome.
The ECJ took the opportunity to restate case law on information exchange. It recalled that certain types of collaboration between competitors pose a threat to effective competition and can therefore be penalised regardless of whether detrimental effects on competition ultimately materialise. Information exchange falls into this category if it is capable of removing uncertainty regarding the timing, extent and details of the participants' market conduct. The ECJ also emphasised settled case law whereby there is a presumption that companies exchanging information and remaining active on the market use that information for the determination of their market conduct.
The ECJ found that:
- bilateral pre-pricing communications had been exchanged and own quotation prices and certain price trends had been discussed between Dole and the other importers;
- quotation prices were relevant to the market concerned because market signals, trends or indications for the intended development of banana prices could be inferred from the quotation prices, and in some transactions the actual prices were directly linked to the quotation prices; and
- Dole employees involved in the pre-pricing communications had participated in the internal pricing meetings.
The ECJ concluded that the pre-pricing communications posed a threat to effective competition 'by object' and that there was therefore no need to establish whether there was in fact a detrimental effect on banana prices. The pre-pricing communications reduced the uncertainty of the competitors' foreseeable conduct for each participant.
The ECJ confirmed that information exchanges between competitors relating to future pricing are likely to constitute a violation of EU competition law, regardless of market impact. It also highlighted that the exchange of future pricing trends can lead to a violation.
The ECJ essentially confirmed the commission's position that under certain circumstances, even providing a view based on publicly available information can be illegal. While a certain piece of information might be in the public domain, a company's assessment of how that information affects its business is likely to be commercially sensitive. The General Court indicated that:
"Dole's or Weichert's point of view on certain information which was significant for the conditions of supply and demand, which could be obtained other than by means of discussions with the undertakings concerned, and its impact on the development of the market, does not by definition constitute publicly available information."(3)
The decision demonstrates the risks associated with the exchange of pre-pricing communication between competitors. It is a reminder that standalone information exchanges without an agreement on pricing can be easily caught by Article 101 of the TFEU. EU competition law differs markedly in that respect from jurisdictions such as the United States, where a higher threshold applies – namely, that it can be inferred from information exchange that a cartel-type agreement has been reached.
For further information on this topic please contact Bill Batchelor or Miklos Mudrony at Baker & McKenzie by telephone (+32 2 639 36 11) or email (email@example.com or firstname.lastname@example.org). The Baker & McKenzie website can be accessed at www.bakermckenzie.com.
(2) Communication from the commission: Guidelines on the applicability of Article 101 of the TFEU to horizontal cooperation agreements text with European Economic Area relevance, OJ 2011 C 11, Page 1, Paragraph 74.
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