Not Per Se: Two Approaches to Unlawful Information Exchanges
We hear it all the time: “not per se.” In ordinary parlance we tend to use it interchangeably with “not necessarily” or “not exactly the case.” Despite its prevalent use in a negated fashion, per se means “by itself” or “on its own” and represents something inherent. For example, publishing something likely to harm one’s reputation by exposing them to hatred or contempt, and doing so without a valid excuse, is per se defamatory libel under section 298(1) of the Criminal Code, RSC 1985, c C-46. Similarly, in a competition context, so-called “hard-core” cartel activities like blatant agreements between competitors to fix prices are per se unlawful. In this article, I will examine how even in the absence of per se illegality, information exchanges between competitors such as those involved in price fixing can nevertheless be deemed unlawful.
Coordinated conduct is not necessarily anticompetitive. There are all kinds of corporate behaviours that involve coordination between competitors that actually contribute to fair and competitive markets. This bears asking, however, whether coordination varies in degree. The courts have answered in the affirmative. The ambit ranges from procompetitive practices that are good for markets to anticompetitive collusion. As alluded to, the per se rule applies if the plaintiff alleges that the defendants explicitly formed an agreement to fix prices. But what if there is no such explicit agreement yet there remains some semblance of anticompetitive collaboration? As it turns out, there are ways information exchanges can constitute unlawful coordination even if they are not per se unlawful — a price-fixing agreement may be inferred on the basis of conscious parallelism. This idea typically involves an oligopoly of a small number of firms with virtually all control over a market, and one firm takes the lead in adopting a particular pricing strategy while the others follow suit. The typical pattern involves one firm raising its prices and its competitors subsequently act in parallel. This creates a scenario where no actual agreement exists by and between the firms, yet adverse competition in the market and harm to the consumer result.
If such interdependent conduct is accompanied by evidence of facilitating practices (i.e. collaborative practices that strategically facilitate collusion or otherwise restrict competition), a price fixing agreement can be inferred. Information exchanges are an example of such facilitating practices. It is necessary at this point to consider the Sherman Act, 26 Stat. 209, 15 U.S.C. §§ 1–38, which is intended to promote free competition while prohibiting two central practices:
(1) anticompetitive agreements and business dealings, and
(2) unilateral conduct that monopolizes or attempts to monopolize markets.
Under § 1 of the Sherman Act, information exchanges themselves can constitute a violation. Information exchanges are not illegal per se but can nonetheless be found unlawful under the rule of reason. For an explanation of the rule of reason, see my article here. This was demonstrated in United States v Container Corp. of America, 393 U.S. 333 (1969) where the SCOTUS found that under the circumstances, the data exchange involved caused a stabilization of prices and thus had an anticompetitive effect on the market. Furthermore, in United States v United States Gypsum Co., 438 U.S. 422 (1978) the Court explained that the dissemination of price information is not itself a per se violation of the Sherman Act because such practices, when done properly, can increase economic efficiency and render markets more competitive, which is a good thing.
If a plaintiff does not allege a per se violation, the court’s analysis will instead focus on whether the information exchange was unlawful pursuant to the rule of reason. The framework for applying a rule of reason inquiry in such a circumstance involves the following six factors which I will discuss in turn:
(1) the nature of the exchange;
(2) market power;
(3) susceptibility of the market;
(4) fungibility of the products sold;
(5) public accessibility of the data that was exchanged;
(6) the overall effect on competition.
The nature of the information exchange is not as self-explanatory as one would expect. Rather, it actually hinges on considerations of data currency. That is, past, current, and future price information. Because current prices tend to influence future prices and more easily facilitate conspiracy, exchanges of current price information carry the greatest potential for generating anticompetitive effects.
With respect to market power, the traditional method is to define the relevant product market and show the defendants’ percentage share of that market. To do so, courts will examine, inter alia, the interchangeability and cross-elasticity of demand for potential substitute products. In other words, they will consider whether consumers would respond to a price increase of one product by simply switching to another one.
Once the relevant market is defined, the court will analyze the structure of that market to determine whether it is susceptible to tacit coordination (another way of identifying collusion without an actual agreement). Susceptible markets tend to be highly concentrated; the threshold, however, is unclear. For instance, in Todd v Exxon, 275 F3d 191, 196 (2d Cir. 2001), it was said that the market of 14 defendant companies was not considered concentrated but was not exactly unconcentrated either.
Turning to fungibility of the products, it does not make much sense for a cartel to establish and police a price conspiracy when you cannot compare the very products being sold. Fungible products can facilitate anticompetitive coordination in a concentrated market because it is easier to reach a consensus on some competitive variable (by using, for example, benchmarks to which the competitors compare numbers).
Another consideration is public accessibility. Public dissemination of data may be procompetitive because access to information may better equip buyers to compare products, which is conducive to efficient markets and diminished anticompetitive effects. By contrast, if no such public disclosure occurs, it is easier for a court to find that fishy in the sense that discussions made between competitors in private — the content of which is never publicized — are much more likely to involve collusion, which could thereby generate an adverse effect on competition.
This leads to the final consideration I will mention here which is an actual negative effect on competition giving rise to real antitrust injury. A plaintiff in an antitrust action must not only allege cognizable harm to themselves but also an adverse effect on competition in the market as a whole.
At bottom, then, information exchanges are not always anticompetitive. While they are not per se unlawful for they have the ability to enhance competition, fortify rivalries, and increase economic efficiency, they can nonetheless be found unlawful if a plaintiff does one of two things. Either (1) the plaintiff alleges that the particular nature of a given information exchange was an explicit, per se violation of the antitrust laws; or (2) the plaintiff can allege that an anticompetitive scheme was indirectly formed by the exchange of information as determined by a rule of reason analysis. So, is any given information exchange between competitors unlawful?
Not per se.
Sources:
1. Carolyn McCarthy, “Consciously Perplexed: Coordinated Behaviour in Abuse of Dominance Policy.” Available at https://mcmillan.ca/Files/110358_ConsciouslyPerplexed.pdf.
2. Criminal Code, RSC 1985, c C-46, s 298(1).
3. Sherman Act, 26 Stat. 209, 15 U.S.C. §§ 1–38.
4. Todd v Exxon, 275 F3d 191, 196 (2d Cir. 2001).
5. United States v Container Corp. of America, 393 U.S. 333 (1969).
6. United States v United States Gypsum Co., 438 U.S. 422 (1978).
Disclaimer: The information contained in this article is not legal advice. It should not be construed as legal advice and should not be relied upon as such.
