Two competition law decisions in early 2012 give valuable guidance

Two competition law decisions published in early 2012 have highlighted the dangers for companies when their staff engage in discussions with competitors – and how best to limit risk.

The cases make clear that, when a company employee or representative is present in a discussion between competitors that could have restrictive effects on competition (eg, a discussion about prices being charged or planned, or about customers, territories or markets being served or targeted, or about business plans):

  • silence is no defence to liability
  • to escape liability, the company representative must publicly distance himself or herself from the discussion
  • it is hard to escape liability by claiming to have been “coerced” to participate
  • liability can arise from conversations in informal, and even social, contexts

In one of the cases, competing suppliers of “chloroprene rubber” (a polymer used to make rubber parts such as cables and hoses, glues and latex) were found to have infringed the EU prohibition on anti-competitive agreements (Article 101) by effectively agreeing, at a series of meetings, to allocate markets between themselves and to implement a series of price increases. In February 2012, the EU General Court upheld this decision, rejecting an appeal by one of the participants, the Japanese company Denki, which had been fined €47 million (about GB £39 million or US $61 million) for the infringement. Denki had tried to argue that it was not a participant in the agreement, because it had been silent at the meetings (rather than actively agreeing), and because it had been “coerced” into taking part by the threat of anti-dumping proceedings being brought against it.2

In the other case, the UK’s main competition enforcement authority, the OFT (Office of Fair Trading), concluded that two of Britain’s leading retail banks, RBS and Barclays, had infringed the EU prohibition on anticompetitive agreements (Article 101) and its UK national equivalent, because certain individuals in RBS’s business unit for providing loans to professional services firms had informed their counterparts at Barclays of their intentions regarding the pricing of such loans. The OFT imposed a fine of GB £28.59 million (about €35 million, or US $45 million) on RBS; the OFT also concluded that Barclays, too, had infringed the prohibition, in spite of Barclays being only the recipient of the information, and Barclays would have been fined, but benefited from immunity from fines for having “blown the whistle” to the OFT. The OFT made its decision in January 2011, but the decision was only published at the end of February 2012.3

Silence is no defence to liability

In the “chloroprene rubber” case, Denki argued that it was not a party to the marketsharing or price-fixing agreement, because although its employees attended a “limited number of meetings”, they never agreed to the price-fixing or market-sharing proposals, and their subsequent commercial behaviour (not implementing the proposals) showed that they were “firmly and consistently opposed” to market-sharing. Therefore, Denki claimed, there was not the “concurrence of wills” between Denki and the other parties to show the existence of an agreement or concerted practice. The EU General Court rejected Denki’s argument, stating that:

“when agreements of an anti-competitive nature are reached at meetings of competing undertakings, it is sufficient… to establish that the undertaking concerned participated in meetings during which agreements of an anti-competitive nature were concluded in order to prove that the undertaking participated in the cartel.”

The EU General Court would not accept the idea that silence negated participation, because a party’s silence amounts to tacit approval of an unlawful initiative which “effectively encourages the continuation of the infringement and compromises its discovery”.

In the UK retail banking case, similarly, the OFT rejected any suggestion that mere passive receipt of information (as opposed to actively passing information) was a defence against liability:

“The mere receipt of information concerning competitors may be sufficient to give rise to concertation.”

The OFT, like the EU General Court in the chloroprene rubber case, rejected the notion that it is a defence that the party concerned did not act on what was said or agreed of the meeting.

The need for the company representative to distance himself or herself publicly from the anticompetitive agreement

The EU General Court in the chloroprene rubber case was strict on this point, saying that “in order to disassociate itself effectively from anti-competitive discussion”, the company concerned (or its representative at the meeting) must “indicate to its competitors that it does not in any way wish to be regarded as a member of the cartel and to participate in anticompetitive meetings”.

Similarly the OFT, in the retail banking case, reaffirmed EU case law that, in order to exonerate itself from an illegal agreement or concerted practice, the recipient of pricing information must “manifestly oppose” the anti-competitive arrangement. The recipient will only be able to rebut allegations of infringement if it can put forward “evidence to establish that it had indicated its opposition to the anti-competitive arrangement to its competitors”.

Coercion as a defence

The cases do not completely rule out the possibility that it can be a defence to an accusation of participating in an illegal agreement that the company was coerced to attend the meetings. However, it is hard to establish that defence.

  • In the chloroprene rubber case, the EU General Court rejected Denki’s argument that there was no concurrence of will or common objective between Denki and the other participants in the meeting, because Denki’s employees “were coerced to attend the meetings” by the threat of anti-dumping proceedings. The EU General Court rejected this argument as ineffective, on the grounds that the company could have reported the pressure and the threats to the relevant authorities.
  • The OFT in the retail bank case took an even harder line, saying that the fact that a party “may have participated only under pressure from other parties does not mean that it is not party to the agreement (although these facts may be relevant to the level of penalty [fine])”.

Liability arising in informal, and social, contexts

In the retail banking case, the passing of information giving rise to liability (on the part of both the giver of the information and the recipient) took place in a variety of conversations, including at a bowling event organised by an accountancy firm, and at a seminar at the office of a law firm. Staff need to be trained to understand that contacts with competitors in even the most informal settings (in coffee breaks at conferences, on the golf course, in a bar or a café) can give rise to liability, and competition rules must be closely adhered to even in those contexts.

Meanwhile, in Australia…

New draft Australian legislation4 has put beyond any doubt that disclosure of confidential price is illegal, even if the recipient does not act on it. From 6 June 2012, Australian law will explicitly prohibit the private disclosure of price information to a competitor in the same market. So far, the prohibition will be implemented only in respect of the banking sector, although there is provision for the government to issue regulations to implement it in respect of other sectors of the economy.