Healthy competition among competitors brings considerable benefits for the consumers and for the larger economy itself. It enhances efficiencies in the economy – static and dynamic efficiencies, productive and allocative efficiencies-- as rivals try to outdo each other. It incentivises innovation (witness the race between pharma companies for inventing a vaccine against COVID-19), and increases the availability of goods and services at competitive prices for the consumers. These benefits can be negated or diluted if rivals, instead of competing, begin to collude among themselves with the view to maximise their own profits.

The most egregious form of collusion among rivals is when they form a cartel - to control prices, reduce supplies, boycott select customers or rig bids. Usually, this collusion is secretive and competition authorities have considerable difficulty in unravelling these agreements. The history of competition law is replete with instances of the most damaging cartels in products ranging from daily necessities such as bread and onions to pharmaceuticals, tyres, metals and auto parts.

There can no doubt be some benefits from exchange or dissemination of information among competitors and the public. For instance, information relating to availability of goods and services and their prices can be convenient for the consumers as this can reduce search costs about the range of available choices and comparative prices. It can help market players to better plan their production, supply chains and investments, and it can improve supplies to unserved areas.

In some cases, it is required by the law that certain information  be made public by companies or is collated by the regulator and put out in the public domain, e.g. the Indian insurance regulator requires insurance companies and the capital market regulator requires mutual fund companies to provide current information at prescribed intervals about their businesses which is collated and published by the regulator. This includes types of charges levied, new business gained, and market share achieved. This enables the regulator to more effectively regulate the sector and the public to get some insight into a sector that has immense information asymmetries.  

On the other hand, information exchange about sensitive commercial data can create the conditions for rivals to collude. The exchange could be direct or even indirect through a third party. It could be the basis for an agreement among competing companies or an association decision or be a concerted practice. Trade associations often, willingly or unknowingly, could end up facilitating such collusion which is the antithesis of healthy competition. In each case, if the object or effect is anti-competitive it would be a breach of competition law.

Rivals can indulge in exchange of information that is commercially very sensitive e.g. about prices, supply volumes or terms of trade. Such exchange can be either ancillary to or adjunct to a cartel with the view to monitor any deviations from the conspiracy, or it can be a standalone form of exchange. When the exchange is ancillary to the cartel, it is analysed and punished by competition authorities as part of the larger conspiracy, and is treated as a per se offence.

However, exchange of commercially sensitive information on its own can be a violation of competition law if its object or its effect is to subvert competition as it can reduce the strategic uncertainty in markets that compels competitors to offer the most attractive prices and terms of supply to customers giving full play to their animal spirits. Normally, there can be little justification for exchanging commercially sensitive information among competitors, and even if the exchange is not treated as a per se violation, the parties would be hard put to explain why at all such information was being exchanged. The anti-competitive effect depends on the nature of information exchanged. For example, exchange of information that relates to prices, customers, terms of trade, bid values in case of tenders and the like directly reduces competition between the parties. Such data exchange is treated as a per se violation in most jurisdictions.

Information exchange that is historical or is aggregated such that it is not possible from the data to deduce the activities of individual competitors is usually considered acceptable. Much depends on the age of the data and the level of aggregation. Such exchange is assessed basis the rule of reason, that is its benefits are to be assessed against its anti-competitive effects. Same is the case of information exchange for purposes like setting standards, submitting anti-dumping petitions, research and development and so on. Similarly, information may also need to be exchanged in the context of a due diligence required for proposed merger. However, care has to be taken that any such exchange is strictly limited to the stated purpose, and does not become an occasion for sharing sensitive individual company data.  Exchange of public data could be admissible, but it has to be understood that data cannot be regarded as being public if substantial costs are required to access it.  

In the Indian Competition Act, Section 3(3) thereof deals with prohibition of cartels. It states that any agreement, decision of an association or a (concerted) practice relating to determining prices, limiting or controlling supply or production, allocating markets or customers and rigging of bids shall be presumed to be anti-competitive.  It follows that if there is an agreement, association decision or practice for exchanging information about the above it too is presumed to be anti-competitive. The very act of exchanging such information, which is truly commercially sensitive by its nature, will affect the mind of a competitor in deciding its own course of action; for example if an enterprise gets to know that its competitor is offering or planning to offer a discount on its prices, this knowledge will affect its own strategy about the market prices.

It would follow from the above provision in the Indian competition law that mere exchange of sensitive commercial data (at least in respect of the items mentioned in Section 3(3) thereof) is presumed to be anti-competitive notwithstanding that the parties may contend that they never used the data to determine their own course of action. There is no way for the Competition Commission of India (the CCI) to enter the minds of the parties to the exchange to determine whether they actually used the information in their business decisions. Even unilateral transfer of such sensitive information can be seriously problematic unless the company can demonstrate that it had proactively or explicitly refused to receive any such information.  

In the above background, the CCI’s decision in the well-known Flashlights Market case (Suo Moto Case No. 01/2017) came as a surprise. The parties had been held guilty of a cartel in the batteries market, but also exchanged information about a connected market, that of flashlights such as “production / sales data, draft press release, and price information”. However, the CCI concluded that the parties had not actually acted upon the said information, and so were exonerated. Such a decision from the competition enforcement authority sends out a wrong message and can amount to a license to parties, through their association or otherwise, to exchange sensitive data and thereby breach one of the basic tenets of competition law.  It would make the task of punishing cartels even more challenging for the CCI. The CCI may like to reconsider such a position about exchange of sensitive commercial information among rival companies, and perhaps put out corrective guidance in its advocacy literature.