Practical issues in dealing with information exchanges. Paolo Palmigiano Chairman of the European association of inhouse competition lawyers

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1 Practical issues in dealing with information exchanges Paolo Palmigiano Chairman of the European association of inhouse competition lawyers

2 Introduction One of the most complex areas to advice We are talking about pure information exchanges (not cartels) Law and economics not entirely clear on where to draw the line between object and effect Difference between object and effect infringement matters The EU Horizontal Guidelines leave a number of open questions

3 What to consider The issue arises in Informal and formal meetings with competitors Trade associations, industry bodies, conferences Benchmarking exercises Mergers and Joint Ventures Third-party (indirect) exchanges Information exchanges assessed by considering: Market structure (the more concentrated, the higher the risk) The type of information exchanged The frequency of information exchanged How recent it is (historical = more than 1 year old?)

4 Type of exchanges and analysis

5 How easily rules can be breached Provision of loans to professional services (and two loans to clients RBS was competing with Barclays in a tendering process) Some employees from RBS and Barclays attended a social bowling event organised by an accountancy firm. One of the RBS employees informally chatted about how the new credit regulatory framework under Basel II was beginning to affect margins at RBS and suggested a meeting Over 4-5 months there were informal and infrequent contacts, including a lunch at All Bar One and drinks at a branch of O'Neill's RBS communicated orally that they will not be chasing debt at silly prices. Barclays took that into account in its pricing decision as I think this is good news for us and we may need to be careful not to price too low when we are up against them. RBS no longer intends to price at the bottom end RBS suggested that they wanted to be on the same page in terms of the interest margin Barclays was relatively pleased to know they would not be pricing at a very fine margin Barclays never provided to RBS any information, but accepted the information from RBS, disseminated it and used it to form the basis of their pricing decisions

6 A couple of difficult issues - I 1. How old should the data be? 2. Public v non-public Exchanges of genuinely public information are unlikely to constitute an infringement of Art.101 (Horizontal Guidelines) Defined as equally accessible to all competitors and customers (in terms of cost of access) (Horizontal Guidelines) Too restrictive? Available to both? What about payment of an access fee for the data?

7 A couple of difficult issues - II Object - Receiving party of future pricing information presumed to have acted on such information (therefore infringed Art. 101) absent clear statement that information is not wanted or rejected. How is the standard met? Trade associations meeting? Leniency? Effect - One commentator said Be prepared to demonstrate any anti-competitive effects are outweighed by the pro-competitive effects of the information exchange (by way of economic analysis, if necessary) Difficulties of assessing those and of Art. 101(3) analysis A case by case analysis places a high cost and burden on firms which may not be in a position to carry out a complex economic analysis for every individual situation - risk of chilling beneficial firm activity

8 Practical suggestions - Benchmarking Do it through a third party Only share historic data and refrain from exchanging information on future price and other sensitive data Document the pro-competitive rationale for sharing the information Do it as much as possible in writing and not in face to face meetings If face to face meetings are necessary, work from a written agenda and prepare minutes

9 Practical suggestions - Trade associations Training and guidance for individuals who attend trade associations / industry bodies Set up a register for attendance Check that association has rules of procedure and compliance with competition law Reminder of competition law at meetings Tell employees how to distance themselves and to contact the legal team if necessary

10 Practical suggestions - JVs between competitors May involve exchange of commercially sensitive information so Need to put in place firewalls Compulsory training for all firewalled employees Contractual clause? Compliance certificate to be signed by all firewalled employees each year? A compulsory cool off period during which any person which has been involved in the commercial management could not take up similar responsibilities within the competing retained activities for a certain period?

11 Practical suggestions - Merger negotiations between competitors To the extent that prior to closing the merging parties remain separate entities (or that the deal might not be completed), the exchange could violate Art. 101 Safeguards to put in place Ensure confidentiality agreements are entered into Limit the information exchanged / requested to what is necessary for evaluating the proposed transaction Limit the number of people who have access to the information If competitively sensitive information is to be shared, need for: Clean room with only a subset of the due diligence team Independent 3 rd party to assess information and provide analysis Ring-fence the deal team from pricing or commercial team

12 Practical suggestions - Chinese walls Many challenges - Not always easy Sometimes the same person has to fulfil two roles Remind employees of their responsibilities Training and signature of documents Limit the information received to the the minimum possible and only for those who need to act on it Especially problematic when information is received legitimately but possible use for other purposes

13 To conclude if you believe your company is at risk, training is key Ask the business why they need that information - without a compelling business reason for the proposed exchange, the risk of it being used as a basis for a costly (even if misguided) investigation likely outweighs the potential benefits If there are legitimate reasons to exchange information, need to ensure that the same benefits could not be achieved through less restrictive means (greater degree of aggregation, less frequent exchanges etc) Need to document pro-competitive rationale, process of exchange and any compliance precautions (firewalls, clean teams etc) However lack of clarity may encourage a more conservative approach preventing pro-competitive information sharing, and therefore consumer detriment - one might find oneself in a situation where her iis confident there is a pro-competitive justification and strong business rationale but there is fear it might attract regulatory scrutiny