Two recent judgments of the General Court of the EU (the Court)1 provide a stark reminder of the long reach of competition law in relation to exchanges of information between competitors. Although the European Commission’s findings of fact in these cases disclosed a frequent and detailed series of communications concerning future prices, it would be wrong to dismiss the relevance of the Court’s approach as concerning only situations of grave infringements. The reasoning and underlying policy of the Court (and of the Court of Justice of the EU) applies to a much broader category of situations, many of which may be uncomfortably close to the kind of discussions between competitors in trade associations and elsewhere that have not raised red flags. The Banana cases are a warning to companies to look to their industry and corporate practices to ensure that there are no information exchanges that might offend under this extended form of competition control.
In the Banana cases, the Court was clear that an information exchange between competitors can infringe EU competition law even where the exchange of information did not form part of a broader cartel, and where there is no direct link between the conduct and consumer prices. This may be the case not only where the relevant market is a highly concentrated oligopoly, but also where it can be described as not being a fragmented market. In these circumstances, the parties’ subjective intentions are not relevant; nor is it necessary to consider whether the exchange affected any prices (whether consumer or otherwise); it will be unlawful merely because it is capable of affecting competition.
THE CONDUCT IN QUESTION
The Court judgments arose out of the European Commission’s investigation of the conduct of certain banana suppliers between 2000 and 2002. A dawn raid in 2005 was followed by a decision in 2008, under which the Commission found an infringement and levied fines. The Court confirmed and developed the policy articulated by the Court of Justice of the EU in T-Mobile Netherlands BV & ors [2009] relating to information exchanges. Such policy is that information exchanges can be prohibited as a striking form of anti-competitive arrangement – a ‘concerted practice by object’ – and that there is no need to demonstrate that the arrangement amounted to an agreement between the parties or any other form of consensual conduct – nor that it had any anti-competitive effect.
In its original decision, the Commission found that the companies had communicated to each other the prices that they intended to quote to banana purchasers in the EU. They set their quotation prices for their brands each week, in practice on Thursday mornings, and announced them to their customers. Prior to such announcement, they communicated bilaterally to disclose such quotation prices to each other. These quotation prices applied to green bananas – ie unripe bananas that would then be ripened by the retailer or by a ripener. They also quoted yellow banana prices on the basis of the green price plus a ripening fee. The quoted prices were not, however, the prices that were finally agreed by each supplier separately with their respective customers. Prices paid by retailers and distributors for bananas would be the result either of weekly negotiations or on the basis of pre-established pricing formulae comprising a fixed price or a price linked to the quotation price of the seller or of a competitor. The actual price could also be linked to the ‘Aldi price’, which was the weekly counter-offer made by the retailer Aldi (then the largest importing retailer of bananas in the EU) in response to the quotation price. This ‘Aldi price’ was increasingly used by others as an indicator for banana pricing formulae.
THE NATURE OF THE INFRINGEMENT
Although the quotation prices were not the actual prices, the Commission found that they served as a signal to pricing trends and to the intended development of banana prices, particularly as the quotation price was directly linked to actual prices through the pricing formulae. Considering ‘the precise purpose of the concerted practice, in the economic context in which it is to be pursued’,2 the Commission found that the banana suppliers must necessarily have taken account of the information received from competitors when determining their conduct on the market, and that the conduct therefore was liable to influence operators’ pricing behaviour. It therefore gave rise to a ‘concerted practice having as its object the restriction of competition’ contrary to what is now Article 101 of the Treaty on the Functioning of the European Union.
To understand the breadth of the Court’s decision, it is worth revisiting the definition of a concerted practice. It is:
‘… a form of co-ordination between undertakings by which, without it having been taken to the stage where an agreement properly so-called has been concluded, practical cooperation between them is knowingly substituted for the risks of competition.’3
There must be a concertation between parties and subsequent conduct by them on the market and a relationship of cause and effect between the two. But the Court is willing to presume, in the absence of evidence to the contrary, that undertakings that take part and remain active on the market will take account of the information exchanged with their competitors in determining their future conduct.
As the Court confirmed in the Banana cases, since there was no attempt by the Commission to characterise the arrangements as an agreement, there was no need for it to demonstrate that there was a meeting of minds between the participants. By pursuing the conduct as a concerted practice by object, the Commission did not have to find any form of consensual conduct; this form of infringement does not require a meeting of minds and does not require the finding of an anti-competitive effect.
The concept of concerted practice by object is based on a stricter creed, under which two or more parties may find themselves liable for a serious infringement in spite of having agreed nothing, without proof of a joint intention, and whose subsequent conduct has no market impact. It is enough simply to rely on the requirement that each economic operator must determine independently the policy which it intends to adopt on the market. The receiver of information concerning the future intentions of a competitor cannot cleanse itself of the stain of this infringement even if it can demonstrate that its subsequent conduct was the result of market conditions and not the receipt of the information. The removal of the uncertainty as to a competitor’s future conduct is irremovable even in these circumstances.
It is fairly uncontroversial that, where an information exchange has an effect on competition, then an infringement will arise. The Court confirmed this when it stated that an information exchange is an unlawful if it:
‘… reduces or removes the degree of uncertainty as to the operation of the market in question, with the result that competition between undertakings is restricted’.4
But the Banana cases and T-Mobile were not based on the notion of a concerted practice that had an anti-competitive effect – they were based on the notion that the arrangements had an anti-competitive object. As indicated in the ‘object or effect’ bifurcation of Article 101, no anti-competitive effect need be proved once an anti-competitive object has been identified. To repeat this important principle in the context of a concerted practice: an arrangement is unlawful where there is no agreement, and no meeting of minds, and without proof of an effect on competition, merely on the basis of the ‘object’ of the arrangement.
There is therefore no need to take account of the actual effects of the arrangement once it is apparent that its object is to prevent, restrict or distort competition within the common market. This is because certain forms of collusion between undertakings can be regarded, by their very nature, as being injurious to the proper functioning of normal competition. As the Court found in T-Mobile, there will be an anti-competitive object if the arrangement has the potential to have a negative impact on competition – it must simply be capable of having an anti-competitive effect. But the fact that such effects actually arise is relevant only for determining the fine and not for the existence of the infringement itself.
The breadth of this policy is more starkly revealed in the T-Mobile case itself, from which much of the Court’s approach in the Bananas cases was derived. In that case, advocate general Kokott advised that an exchange of confidential information between competitors is tainted with an anti-competitive object if the exchange is capable of removing existing uncertainties concerning the intended market conduct of the participating undertakings ‘and thus undermining the rules of free competition’. She found that it is irrelevant whether the exchange constituted the main purpose of the contact or simply took place in the framework (or under the auspices) of a contact which in itself had no unlawful object. She classified infringements of competition by object as being comparable to certain criminal offences that rely purely on the presence of risk. For example, drunk driving is a criminal offence irrespective of whether, in fact, the driver endangered another road user or was even responsible for an accident. As in such cases, according to the advocate general:
‘… it is sufficient that a concerted practice has the potential – on the basis of existing experience – to produce a negative impact on competition. In other words, the concerted practice must simply be capable in an individual case […] of resulting in the prevention, restriction or distortion of competition.’
Based on such a broad theoretical – almost theological – approach to concerted practice by object, the Court in the Bananas case even expressed a concern regarding discussions between competitors that were based on public information unconnected with price. It supported the Commission’s view that even if information about the topics discussed could be obtained from other sources, the competitors’ views about them, exchanged in bilateral discussions, could not.5 In this case, such discussions were based on public and available information concerning climatic events. The Court held that such discussions should not cover:
‘… the joint evaluation by competitors of that event, in combination, as the case may be, with other information on the state of the market, and of its impact on the development of the sector, very shortly before their quotation prices are set.’6
The fundamental principle endorsed by the Court was that the sharing, on a regular and frequent basis, of information relating to future quotation prices had the effect of artificially increasing the transparency of the market where the regulatory regime had already reduced the scope of competition. But despite finding that – because of the EU common organisation of the banana market – prices on the banana market were not based wholly on the free operation of supply and demand, the Court held that the co-ordination engaged in by the parties did have an anti-competitive object, because it further reduced uncertainty in the market.
CONCLUSION
The concept of an infringement constituted by an exchange of information through the medium of a concerted practice by object is disconcertingly wide. One crumb of comfort is that the Court’s view that an exchange of information of the type in issue would be regarded as anti-competitive by object took account of the market context. Infringements are far more likely to arise in a highly concentrated market – whether or not the increased transparency actually did distort rivalry on the market and increase the probability of collusion. But in a fragmented market, an exchange of such information may be neutral, or even pro-competitive. Of course, an exchange that in fact had an anti-competitive effect in a fragmented market would be an infringement by effect, even if not by object.
Most undertakings do not have discussions that touch on future pricing7 but many will, with the approval of counsel, discuss the likely impact of changes in market characteristics. The Court in the Bananas cases took issue with discussions of publicly derived information within the context of a concerted practice by object. It explained its concerns that information on weather conditions was one of a number of important factors in the determination of the level of supply in relation to demand, so:
‘… reference to them during bilateral discussions between well-informed traders necessarily resulted in a sharing of understanding of the market and of its evolution in terms of prices.’
This distinction, between discussions of external events and their joint evaluation, although clear in theory, may not always be so bright in practice. Those responsible for setting rules of engagement for discussions in trade association meetings and other competitor contacts should bear this broad approach in mind. Such an inclusive approach to prohibited topics of conversation between well-informed traders may well cover areas that have generally been considered to be relatively safe – such as the impact of changes in tax or regulation on the market. Although the Court indicated that it was permissible to exchange mere harmless gossip on the industry in general, this is not normally the area on which companies require detailed advice.
By Tim Frazer, partner, Arnold & Porter (UK) LLP.
E-mail: tim.frazer@aporter.com.
Notes
- Fresh Del Monte Produce Inc v European Commission [2013] and Dole Food Company Inc v European Commission [2013], together referred to below as ‘the Banana cases’.
- Fresh Del Monte Produce Inc, at paragraph 304.
- Suiker Unie & ors v Commission [1975], at paragraph 26.
- Fresh Del Monte Produce Inc, at paragraph 303.
- Dole Food Company, at paragraph 295.
- Fresh Del Monte Produce Inc, at paragraph 346.
- But see the Office of Fair Trading decision regarding the information exchange between a number of motor insurers, December 2011, OFT 1395.