Improper information exchange: fending off the unwanted advances
Most companies train their employees to avoid competitor communications, particularly those involving competitively sensitive material.
A more challenging compliance issue arises when a competitor initiates a communication that may be inappropriate and it is necessary to respond to and/or disavow the communication. This can be a key risk issue for clients.
Unsolicited and risky communications create risk. Even though a company may not initiate, or even want, the proposition, these advances require appropriate action and cannot be ignored.
The increasing importance of information exchange and invitations
Enforcement agencies throughout the world continue to focus on competitor communications, and are developing rules that extend liability based on communications.
In the United States, the U.S. Federal Trade Commission (FTC) has continued to develop its “invitation to collude” doctrine, which finds liability for improper communications, even in the absence of an agreement. In a recent action, the FTC found a violation where online barcode resellers communicated directly about a potential agreement to raise prices. The communications were direct and clear, as illustrated by the excerpt from an email below:
“Here’s the deal Phil, I’m your friend, not your enemy… I can even assure you right now, that I will never lower my prices under yours, I will only match your prices. This problem has to stop between the 3 of us constantly lowering our prices. Here’s what I’d like to do: All 3 of us- US, YOU and [Competitor A] need to match the price that [Competitor B] has.... We all need to work together on keeping the prices where they should be.”
Even though the companies never raised their prices, the FTC found a violation. In prior cases, the FTC found violations based in whole, or in part, on public statements made to securities analysts.
In the European Union, regulators have aggressively pursued cases where parties have shared competitively-sensitive information, even where there is no conclusion that an actual agreement to fix prices was reached. In one recent case, the European Commission found a violation based on statements made during an industry conference question and answer session.
The Office of Fair Trade in the United Kingdom has stated that “the mere disclosure of [pricing] information to competitors will almost certainly be anti-competitive where it is capable of influencing their future conduct on the market, as will its receipt”. In Mexico, inappropriate information exchange can lead to criminal sanctions, and Mexico’s new competition legislation included an expansion of the types of information exchange that could be subject to sanction.
For these reasons, companies must not only have robust compliance policies to prevent dialogue with competitors, but must also consider how to distance themselves from unwanted advances.
Minimising your risks: responding to unwanted competitor contacts
When a company receives an unwanted communication from a competitor, we believe that the following best practices should be followed:
- Reject the communication. The recipient of the inappropriate clear that he or she (i) believes that the communication is not appropriate; (ii) will make decisions unilaterally; and (iii) does not want to receive similar communications in the future.
- Document the rejection. Be sure that the rejection is memorialised. If the rejection is in writing, keep a copy of the rejection notice. If the rejection is made orally, a memo confirming the conversation should be drafted and filed.
- Write down the reasons for subsequent unilateral competitive actions. Any immediate competitively-sensitive decisions should be documented so that they can be demonstrated to be independent of the inappropriate communication. For example, if a price increase is taken, the reasons for the price increase – such as increased costs – should be documented.
- Confirm that this is not the tip of the iceberg. Sometimes when an employee receives a solicitation from a competitor, it is truly unsolicited. Other times, however, there is risky behaviour that led to this note. At a minimum, it is important to interview the recipient; depending on what is found, a further investigation may be warranted.
The following are some common questions that clients often ask when they receive an unwanted solicitation:
Why can’t I just ignore this?
Ignoring this unwanted advance creates the appearance of agreement or, at a minimum, acquiescence. In some jurisdictions, this will be sufficient to find a violation. Even where it is not, regulators that may come upon this communication will be sceptical that the advance was rejected. At a minimum, there will be an expensive investigation. And, if there is parallel conduct, the communication will be viewed as a powerful plus factor that may raise the risk of private damages actions.
Shouldn’t I call the legal department of the company that sent it and let them quietly handle it?
Certainly, there is value in calling the legal department, but we recommend that this be done in addition to rejecting the communication. A call to a competitor’s legal department will cause that legal department to assess whether the communication is part of a larger problem. If the competitor does find a problem, then it may well self-report to receive the benefits of amnesty or leniency. Without a clear rejection of the advance, the innocent recipient will be dragged in.
Should I tell the regulators about it?
If an investigation identifies conduct that could be risky, it is certainly prudent to evaluate options. However, a government investigation often cascades, and may well cause legal risk or, at a minimum, legal spend.
What if the solicitation isn’t direct, but is made through a public statement?
A public statement is much more difficult to repudiate, other than through another public statement. Depending upon how direct the solicitation is, the best approach may be to document the rejection internally and to document the basis for any unilateral competitive action, such as a price increase.
Are there any compliance steps that we should take?
The solicitation can create a teaching moment, allowing counsel to reinforce the company’s competition compliance policies. In addition, reviewing facts around the unwanted communication may reveal risky behaviour that can be curbed. For example, if the communication came about through a trade association or other contacts, the company’s trade association policies can be reviewed or the trade association can be asked to tighten up their procedures.