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Too close for comfort… The (il)legalities of data exchange between competitors

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It is increasingly important that companies are cognizant of conduct which may inadvertently ensnare them in the clutches of a CCI investigation, which can be arduous, long-winding and reputation-damaging.

Too close for comfort… The (il)legalities of data exchange between competitors
In a recent event celebrating the 10-year anniversary of the Competition Commission of India (CCI), the Finance and Corporate Affairs Minister Nirmala Sitharaman encouraged the CCI to turn into ‘CCI 2.0 mode’, urging the competition watchdog to be more pro-active and initiate suo-motu investigations of any potential competition concerns on account of both, domestic and international companies, in the Indian market.
In this backdrop, it is increasingly important that companies are cognizant of conduct which may inadvertently ensnare them in the clutches of a CCI investigation, which can be arduous, long-winding and reputation-damaging. From a competition compliance perspective, one of the toughest tasks for a company is to prevent its employees from engaging in illegitimate exchange of information with competitors. Companies must exercise caution and sensitise its employees from unintentionally contravening the Competition Act, 2002 (Competition Act).
Information exchange 
An exchange of current, disaggregated and commercially sensitive pricing or business information (such information is collectively referred to as Competitively Sensitive Information or CSI) amongst competitors increases market transparency and reduces strategic uncertainty of competitors (actual or potential), thereby limiting their incentives to compete against each other.
Generally, information exchange among entities could occur either directly as a part of a ‘naked cartel’ agreement or indirectly through a common intermediary/supplier or in the context of a horizontal cooperation agreement or by way of structural links.
The European Commission (EC) has a very strict standard for exchange of information amongst competitors as it considers exchange of CSI as a by object restriction of competition. Even a single meeting or exchange of CSI can amount to a breach. The CCI, which usually follows the EC’s approach, however, does not consider exchange of information on a stand-alone basis amounting to a contravention of the Competition Act. This could, however, be sufficient for the CCI to initiate an investigation against parties.
In Builders Association of India v. Cement Manufacturer Association and Ors., the CCI considered evidence of exchange of price sensitive information amongst the cement manufacturers as a ‘plus factor’ when investigating price parallelism in the cement industry. Similarly, in Re: Alleged Cartelisation in Flashlights Market in India, the CCI reiterated that the exchange of data relating to production and sales of a product only indicates a possibility of collusion and can be considered as a ‘plus factor’. The CCI, therefore, would deem such exchange as unlawful if it is in conjunction with other evidence (such as price parallelism) to that effect. However, once such ’plus factors’ are established, the impugned conduct would be presumed to have caused an appreciable adverse effect on competition in the market.
Stringent penalties 
The consequences of violation of the Competition Act are significant. The CCI can levy fines (of up to 10 percent of the relevant turnover or up to three times the profits of the erring entity, whichever is higher), in addition to directing the erring entity to cease and desist from the contravening conduct. In addition, the individuals, are also liable to receive very large fines (up to 10 percent of the individual’s income). In practice, the quantum of penalty is determined on a consideration of aggravating and mitigating circumstances, on a case-to-case basis.
Information exchange among competitors can occur in the following scenarios:
Direct information exchange as a way to facilitate a ‘naked cartel’ agreement:
A ‘naked cartel’ agreement, such as a price-fixing or market-sharing agreement, is considered as a per se violation of competition rules. Given their nature, such ‘hard-core’ cartel agreements are presumed to have caused an appreciable adverse effect on competition under the Competition Act and parties to such an agreement must demonstrate that the agreement is not detrimental to competition. An exchange of CSI has been regarded as the “most significant and clinching evidence” that competitors had indeed cartelised.
Indirect exchange of information by way of a common intermediary:
Competitors may also exchange information indirectly, through a common intermediary or a third-party (a common customer or an independent consultant). Therefore, caution should be exercised while collecting market intelligence from downstream or upstream players as mandating the customers to systematically furnish CSI of competitors could raise competition concerns. For instance, in Express Industry Council of India vs. Jet Airways & Ors., despite no evidence of any direct meetings amongst competitors, the CCI found several major domestic airlines guilty of cartelising with respect to the fuel surcharge (FSC) prices, on account of admissions made by the airlines that they received information pertaining to their competitors’ FSC prices from their common cargo agents.
Protocol needed
In the context of horizontal cooperation agreements:
Information exchange may also take place in the context of horizontal cooperation agreements between competitors, such as joint production, purchase / supply, distribution agreements etc. Such agreements are quite common and are not per se anti-competitive because they require exchange of certain information to be implemented. However, the information exchanged should strictly be limited to the scope of the agreement, i.e., the level of information legitimately required to give effect to the agreement; and should not ‘spill-over’ to information that relates to other upstream, downstream or neighbouring markets or CSI of other competitors in the same market.
By way of structural links:
The Competition Act does not per se prohibit a structural link between competitors. Particularly, the Competition Act recognises the efficiency enhancing benefits of a joint venture.
Nevertheless, such arrangements may raise competition concerns on account of:
  • Reducing incentives to compete thereby softening competition between the competitors.
  • Interlocking directorships may lead to unlawful exchanges of information relating to markets where the parties continue to be competitors.
  • In light of above, it would be advisable to adopt a protocol on exchange of information setting out practical guidance to be followed by the business teams when they find themselves in one of the above scenarios. This would reduce the potential risk of contravention of the Competition Act.
    Ram Kumar Poornachandran is Partner and Shubhang Joshi is Associate at TT&A. The views expressed by the authors are personal. The author can be reached at rpoornachandran21@gmail.com.

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