The Anticompetitive Aspects of Information Exchange Agreements A U'S' Perspective

1
The Anticompetitive Aspects of Information
Exchange Agreements A U.S. Perspective

• Krisztián Katona, Counsel for International
  Antitrust
• The views are my own and do not necessarily
  reflect those of the Commission or any of its
  Commissioners.

2
Overview

• US antitrust framework for information exchanges
• Section 1 Sherman Act
• Section 5 FTC Act
• Supreme Court case law
• FTC and DOJ guidelines
• Recent enforcement actions (National Association
  of Music Merchants case)

3
Legal Framework Section 1

• Section 1 Sherman Act
• Elements to a Section 1 violation
• Agreement
• Between entities
• Unreasonable restraint on competition
• Affecting interstate commerce
• Per se rule of reason
• Information exchanges rule of reason

4
Legal Framework Section 5

• Section 5 FTC Act prohibits unfair methods of
  competition
• May reach conduct that doesnt rise to a Section
  1 violation (e.g., invitation to collude see
  Valassis case)
• National Association of Music Merchants, Inc.

5
Supreme Court Jurisprudence

• American Column and Lumber Co. v. United States,
  257 U.S. 377 394-95 (1921)
• Open Competition Plan is facilitating practice
  
• United States v. American Linseed Oil Co., 262
  U.S. 371 (1923)
• Purpose of exchange is to affect prices
• Maple Flooring Mfrs. Assn v. United States, 268
  U.S. 563 (1925)
• No purpose to fix prices or restrain trade

6
Supreme Court Jurisprudence (contd)

• United States v. Container Corporation of
  America, 393 U.S. 333 (1969)
• Shift from purpose to the likely effect on prices
• United States v. Citizens S. Natl Bank, 422
  U.S. 86, 113 (1975)
• the dissemination of price information is not
  itself a per se violation of the Sherman Act
• Catalano, Inc. v. Target Sales, 446 U.S. 643, 647
  (1980)
• advanced price announcements are legal

7
Appellate Courts Decisions

• In re Petroleum Products Antitrust Litigation,
  906 F.2d 432 (9th Cir 1990)
• Form of exchange is not determinative of its
  legality
• United States v. Airline Tariff Publg Co., 836
  F. Supp. 9, 12 (D.D.C. 1993)
• Signaling future price intentions condemned
• Todd v. Exxon Corp., 275 F.3d 191 (2d Cir. 2001)
• Confidential exchange to set employees salaries
  troubling and problematic

8
FTC/DOJ Health Care Statements (1996)

• Guidelines for dissemination of price and cost
  data among health care providers
• Antitrust safety zone
• Third party collects and manages the information
• The data provided is more than 3 months old
• Specific information cannot be matched with
  competitors
• Outside the safety zone rule of reason
• Principles apply to other industries

9
FTC/DOJ Collaboration Guidelines (2000)

• FTC/DOJ Antitrust Guidelines for Collaboration
  among Competitors
• The Guidelines recognize the exchanges
  procompetitive benefits
• Three main points
• Type of information shared (price, output, costs
  are more likely to raise concerns)
• Recency of sharing past-present-future
  information
• Individual company data aggregated data

10
Advisory Opinions and Business Letters

• FTCs advisory opinions
• E.g., clinical integration programs
• (GRIPA (2007) and TriState (2009) cases)
• DOJs business review letters
• E.g., Fair Factories Clearinghouse (2006)
• Safeguards
• Voluntary participation
• Aggregated information
• Antitrust policy statement

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Procedures and Safeguards

• Market data is gathered and maintained on a
  confidential basis by a neutral third-party.
• Voluntary participation, with results reasonably
  accessible to all competitors.
• Data limited to historic market information no
  data gathering related to future prices or other
  competitive issues.
• Indices and reports are designed to aggregate and
  report data in a way that precludes price
  calculations.
• Reports not including recommendations or
  encouraging actions by competitors or others.

12
Recent U.S. Information Exchange Cases

• National Association of Realtors (NAR) case
• DOJ suit (Sept. 2005) against NAR to require the
  continued operation of an information exchange
  program (Multiple Listing Service MLS)
• NARs virtual office website policy . . .
  suppresses technological innovation,
  discourages competition on price and quality, and
  raises barriers to entry
• Consent decree (May 2008) requires NAR to rescind
  this policy and treat Internet-based brokers the
  same as brokers on the MLS
• In sum the Agencies recognize the procompetitive
  benefits and will do more than permit programs,
  i.e. affirmatively require their continued
  operation

13
National Association of Music Merchants

• FTC complaint and consent order in National
  Association of Music Merchants (NAMM) (April
  2009)
• Complaint NAMM violated Section 5 FTC Act by
  enabling and encouraging the exchange of
  competitively sensitive information about pricing
  policy and strategy among its members
• At NAMM meetings competitors discussed minimum
  advertised pricing (MAP) strategies, margins,
  profits, restricting retail price competition,
  and securing higher retail prices
• NAMM setting agenda and steering discussions

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National Association of Music Merchants (contd)

• FTC complaint
• Conduct constitutes unfair method of competition
  (principal tendency or likely effect of harming
  competition and consumers)
• No legitimate business purpose and efficiency
• Conduct can facilitate collusion
• Consent order
• Bars NAMM to exchange price information
• Prohibits NAMM from aiding merchants to form
  anticompetitive agreements
• Requires extensive antitrust compliance program

15
Valassis

• Invitation to collude case
• Issue free-standing inserts
• Valassis v. News America
• Valassis CEOs communication during stock analyst
  conference call
• Compare with United States v. American Airlines,
  Inc. 743 F.2d 1114 (5th Cir. 1984)
• FTC consent order (March 2006)
• public statement was invitation to collude

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Conclusion

• U.S. law on information exchanges
• procompetitive benefits anticompetitive
  risks
• Extensive guidance form government policy
  statements and recent enforcement actions
• Thank you!
• kkatona_at_ftc.gov