Swapping information with competitors has always been fraught with legal risk – and is about to get riskier in Australia and, potentially, in New Zealand if our Government follows Australia’s lead.
This Brief Counsel looks at the proposed Australian reforms, summarises the current position in New Zealand and sets out some good practice guidelines to help businesses stay on the right side of the law.
The Australian legislation
The Competition and Consumer Amendment Bill (the Bill), which is expected to be passed next year, will initially be confined to the banking sector but may be extended by regulation to other sectors.
Proposals are to outlaw:
- private disclosures to competitors or potential competitors of information about prices, rebates, allowances or credits, and
- public disclosure or “signalling” of any information relating to pricing, rebates, allowances, credits, the firm’s production or supply capacity, or the firm’s “commercial strategy” where the purpose of the disclosure is to substantially lessen competition in any market.
The Bill exempts disclosures:
- authorised by law, for example a continuous disclosure requirement for a listed company
- made to a related entity, a customer or a joint venture partner
- connected to an acquisition of shares or assets
- accidental and beyond the discloser’s control, or
- notified in advance to the competition regulator (the ACCC) and the ACCC raised no objection.
If passed as drafted, the Bill will significantly restrict unilateral information exchange. The ACCC will, for example, no longer have to establish that the parties to the exchange had reached a “contract, arrangement or understanding”.
The New Zealand position
Information exchange by itself is not illegal in New Zealand. However, it is positively dangerous to exchange pricing and output suggestions with competitors for several reasons:
- any information sharing arrangement that facilitates tacit collusion may substantially lessen competition or facilitate price fixing contrary to the Commerce Act
- even where no agreement has been reached, the court may see the information exchange as an unlawful attempt to reach an arrangement
- such an arrangement can be reached or evolve over time rather than requiring an explicit communication, and
- in relation to proof, the courts will draw inferences if necessary and where justified on circumstantial information. A discernable pattern or trend in pricing (e.g. regular price increases after information exchange), perhaps coupled with a questionable document or two, might suffice to establish an understanding. You have little control over what other firms might be saying, writing or emailing.
While New Zealand has an exemption for joint ventures, there is no defence for information exchanged in a failed attempt to agree a joint venture.
Tips for ensuring safe information exchange
Businesses must carefully control the distribution of commercially sensitive information, especially in the context of mergers, acquisitions and joint venture discussions. Protections might include:
- defining the reasons for the exchange
- limiting the categories of information shared
- controlling who the information goes to, and
- planning for the return or disposal of the information if discussions fall through.
For industry collaborations, such as systems for sharing insurance claim information, an information exchange is more likely to be safe under the Commerce Act if:
- the information was collected independently
- the information is anonymous and/or generalised so that particular producers or consumers cannot be identified, and
- the scheme is voluntary.