How confidential information exchanged at a single meeting can infringe competition law
The recent judgment of the Competition Appeal Tribunal (the "CAT") in Balmoral Tanks v Competition and Markets Authority shows that exchanging competitively sensitive information with competitors - even at a single meeting, on a one-off basis - can infringe EU/UK competition law, exposing companies to potentially significant fines and reputational harm. What are the key lessons for business?
What was the Balmoral Tanks case about?
The origins of the Balmoral Tanks case can be found in two connected infringement decisions issued by the CMA in 2016. The first related to price-fixing of galvanised steel water tanks (the "Main Cartel") see textbox opposite. However, Balmoral Tanks ("Balmoral") was not a party to that arrangement. Instead, in a separate decision, the CMA found that Balmoral had exchanged competitively sensitive information with three of the companies involved in the Main Cartel (the "Information Exchange").
The Tamworth meeting
The Information Exchange took place at a single meeting in July 2012 at the Best Western Hotel in Tamworth, which the CMA had secretly recorded. It related to current and future pricing intentions, including a discussion of target price ranges for certain sizes of tank.
In some circumstances, the exchange of information can infringe EU/UK competition law even where it falls short of an explicit agreement between competitors to fix prices - and in this case Balmoral was fined 130,000 for merely discussing, rather than actually agreeing, prices. It was clear throughout that Balmoral was not part of the Main Cartel and had refused to join the Main Cartel when invited indeed, its main reason for attending the meeting was to make it clear that it did not wish to participate. Nonetheless in the CMA's view, the information exchanged at that single meeting was sufficient to infringe EU/UK competition law. Balmoral appealed the CMA's Information Exchange decision earlier this year, and the CAT handed down judgment in October.
What information was exchanged?
The meeting began with some general market discussions, but then turned to the subject of prices in some detail, examples of which included the following:
- Balmoral shared its views on prices for specific tanks and on moving prices upwards, stating: "anything below 15,000 is stupid. Back up to where it should have been about 17,500 to 18,000".
- Balmoral disclosed the current prices at which it was selling certain tanks: "the schools and 135 [a type of tank] are very similar 9,500, 10,500, 15,000 to 17,000".
- The attendees exchanged information about what their prices would be if they were asked to quote on a future deal: in response to a question about a hypothetical tender, Balmoral's representative said that for "A one off tank, I would be surprised if it is less than 16,000..."
- There were also discussions about price bands for schools tanks: "9,500 to 10,500 is a target. If I hear anything from our guys that's anything above that will be exciting or below, that would be a concern"; and for other types of tank: "I've seen quite a few around about the 15,000 mark, so I'd say 15,000 to the 17,000 mark".
Why did Balmoral's appeal fail?
Balmoral argued strongly that it had not infringed EU/UK competition law in the Information Exchange meeting in particular, it maintained that it lacked the intention to exchange information and that in any event, its conduct at the meeting could not have had any anti-competitive effect. The CAT, however, took a different view. The following points are worth highlighting:
- Motive was irrelevant: Balmoral argued that it had wanted to bring to an end unwelcome contacts from the participants in the Main Cartel and convey that it would continue to compete actively in the market. However, the CAT ruled that Balmoral's motive for attending was irrelevant; the issue was whether competitively sensitive information had in fact been exchanged.
- Sensitive information was exchanged: The CAT noted that the Balmoral representative remained at the meeting to discuss prices for some time after making it clear that Balmoral was not going to join the Main Cartel. Moreover, Balmoral had given a more general indication (whether or not it was true) that it was not intending to push prices down and its representative at the meeting must have been aware that the other attendees were likely to use the information he provided in their future pricing decisions.
- The information did not have to be precise: Balmoral maintained that the information it provided could not have influenced pricing because, for example, it was too "broad brush" and not sufficiently specific to allow the other meeting participants to make meaningful adjustments to their prices. However, in the CAT's view, while there are differences between tanks, they were not so great as to render any price exchange devoid of utility. Although the information was by no means as full as it could have been, it was sufficiently precise to be useful to the participants.
- Disclosure of competitors' pricing by customers made no difference: Balmoral pointed out that it was common practice for customers to disclose competing bids to their various suppliers, in order to drive down prices and secure better deals for themselves. As such, it argued that the information it had provided to competitors did not tell them anything new. However, the CAT noted that the meeting nonetheless provided a valuable opportunity for participants to have those understandings confirmed directly by their competitors, even if they could obtain similar information from customers from time to time.
- Continuing to compete aggressively made no difference: Finally, Balmoral argued that it had continued to compete aggressively on price following the meeting. However, the CAT ruled that this did not absolve Balmoral of liability, since a company can still be liable for an infringement even if it disregards what has been agreed at a meeting.
A harsh outcome?
On the face of it, a 130,000 fine for attending a single meeting at which it refused to participate in the cartel may appear to be a somewhat harsh outcome for Balmoral especially when you consider that:
- one of the participants received full immunity from fines for "blowing the whistle," despite having been far more deeply involved in the Main Cartel; and
- the evidence that the information provided by Balmoral actually had an anti-competitive effect appeared to be mixed.
However, as explained above, Balmoral was found to have exchanged competitively sensitive information and the case law on such exchanges does not always require proof of an adverse effect on competition (because such conduct can be regarded as a "by object" infringement of competition law, where it is effectively assumed that the effect will be anti-competitive).
As the CAT observed, the case law defines the concept of concerted practice in price exchanges so broadly because "executives meeting together for a legitimate industry purpose must be firmly discouraged from giving into any temptation they may face to slip into illegitimate discussion of prices."
Not the first time
This is not the first time that a business has been penalised under UK or EU competition law for sharing competitively sensitive information.
In 2010, Royal Bank of Scotland was fined £28 million by the OFT (the CMA's predecessor) for disclosing pricing information about loans to Barclays. The illegal exchanges took place on the fringes of legitimate social, client or industry events.
Similarly, in 2011, fines totalling €315 million were imposed on Proctor & Gamble and Unilever by the European Commission for a cartel relating to washing detergents, which included exchange of sensitive pricing information as well as collusion on pricing and promotional activities. The cartel was facilitated through meetings between the parties relating to a legitimate initiative designed to promote more sustainable consumption of laundry detergents.
The importance of a compliance culture
All these cases serve as an important reminder that businesses should:
- take steps to strictly control the flow of confidential information outside the company, particularly to competitors; and
- exercise great care when attending meetings with competitors or events (even social or industry events) at which competitors are present – clear justifications and parameters should be established for holding and attending such meetings, and participation should be kept under review on a regular basis to ensure that such meetings do not go beyond legitimate purposes (e.g. sharing of best practices).
More generally, these cases are also a reminder of the enduring importance of competition compliance programmes, and instilling a meaningful competition compliance culture within a business.