Sharing information with competitors is a risky business
August 24, 2016
Competition law requires competitors to act strictly independently of each other in the market. When competing companies share commercially sensitive information, whether directly or indirectly through a third party, this can cause two types of problems under competition law. First, exchanges of commercially sensitive information may facilitate collusion between companies participating in the information exchange, enabling those businesses to engage in cartel activities such as price fixing, market sharing, limiting output and bid rigging. Second, even in the absence of cartel activity, an information exchange mechanism may still fall foul of competition law if it increases market transparency to such a degree that companies are aware of their competitors’ future intended behaviour on the market. This may reduce their incentives to compete and lead to competition on the market being prevented, restricted or distorted.
Through its enforcement of the Competition Act 2002, as amended, the Competition and Consumer Protection Commission (CCPC) plays an important role in challenging businesses who share commercially sensitive information with their competitors with the aim of dampening competition between them to the detriment of their customers and ultimately consumers.
The insurance sector
In 2013, the CCPC opened an investigation into potential anti-competitive information sharing between private motor insurers via a software product provided by an intermediary software services provider, Relay Software Limited (Relay). The software product in question had been developed by Relay for use by insurance brokers. Insurance companies participating in the system provided their future pricing information to Relay for inclusion on Relay’s software platform. Insurance brokers subscribing to Relay’s software product could then access multiple insurance companies’ future pricing information in order to provide quotes to customers.
The CCPC investigated whether participating insurance companies had access, via Relay, to commercially sensitive information relating to their competitors’ future pricing intentions. In such circumstances, the CCPC was concerned that this could potentially lead to reduced price competition between participating insurers. Following engagement with the CCPC, Relay cooperated with the CCPC’s investigation and confirmed that mechanisms had been put in place to ensure that each insurance company using the Relay product had access only to its own pricing information. Relay has entered into an Agreement and Undertakings with the CCPC, under which Relay has committed not to supply any software to insurance companies unless the software complies with principles relating to information exchange agreed with the CCPC.
Allianz Plc, AXA Insurance Limited, Zurich Insurance Plc, RSA Insurance Ireland Limited and Sertus Underwriting Limited (an RSA Group company) cooperated with the CCPC’s investigation and have each entered into Agreements and Undertakings with the CCPC. The Agreements and Undertakings impose clearly defined restrictions on these insurance companies in relation to their access to the commercially sensitive information of competing insurance companies via intermediary software systems. To read these Agreements and Undertakings click here. Compliance with the Agreements and Undertakings will be monitored by the CCPC. Following receipt of the Agreements and Undertakings, which addressed the CCPC’s competition concerns, the CCPC’s investigation was closed in August 2016.
Factors to be considered when exchanging or sharing information
While companies may seek to exchange or share information for legitimate business reasons, any exchange of commercially sensitive information between competitors is likely to interfere with the normal conditions of competition in a particular market. In order to determine whether an information exchange has the potential effect of restricting competition in a particular market, it is necessary to take into account all of the circumstances in which it takes place, including the type of information that is exchanged, the method by which it is shared and the characteristics of the relevant market more generally.
The nature of the information that is to be shared with a competitor is of key importance for determining whether the information exchange may have the effect of restricting competition in a particular market. The CCPC considers that the following types of information are commercially sensitive and in most circumstances must not be shared between competitors:
- Current and future pricing information (for example, actual prices, discounts and rebates);
- Current and future output and sales information (for example, volumes, turnovers and market shares);
- Current and future commercial plans (including, product development, marketing and promotional plans);
- Information about costs; and
- Customer lists.
This list is not exhaustive and the CCPC considers other types of information to be commercially sensitive depending on the circumstances of the information exchange. Further guidance for assessing whether an information exchange may lead to a restriction of competition has been published by the European Commission and is available here.
Consequences of breaching competition law
At the conclusion of the CCPC’s investigation into an alleged breach of competition, the CCPC may opt to take either civil or criminal action against the company and/or any individual concerned. Where the CCPC considers the matter to be civil in nature, it can initiate civil proceedings in the Irish courts against the company and/or individual. Where the CCPC considers the matter to be criminal in nature, the CCPC may take a summary prosecution in the District Court or, for more serious breaches of competition law; the CCPC may send a file to the Director of Public Prosecutions who will decide whether to bring a prosecution on indictment in the Central Criminal Court. If found guilty on indictment, a company can be fined up to €5 million or 10% of the company’s annual turnover, while an individual can be fined up to €5 million or 10% of his or her annual turnover and/or be imprisoned for up to 10 years.