Information exchange: be reasonable

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Each day companies seek out market information to gain insights on how to compete more effectively.  When companies compete more effectively, that can be good for consumers, making more and better goods and services available to them at lower prices. But when competing companies seek market intelligence by exchanging price or other commercially sensitive information, that may facilitate collusion or otherwise harm competition and consumers in violation of the antitrust laws.

Companies can manage antitrust risk by ensuring that information exchanges with competitors are “reasonable”—that is, not likely to harm competition. A company contemplating an information exchange might first ask whether the purpose or likely effect of the exchange is to promote or rather to hinder competition, and whether adequate safeguards have been put in place to avoid even the inadvertent “chilling” of competition.

As explained in the FTC/DOJ Competitor Collaboration Guidelines, the reasonableness of an information exchange depends mainly on the nature of the information that is shared. The sharing of information relating to price, cost, output, customers, or strategic planning is more likely to be of competitive concern than the sharing of less competitively sensitive information. Similarly, the sharing of information about current or future operating and business plans is more likely to be of concern than the sharing of historical information. And the sharing of company-specific data is more likely to raise concerns than the sharing of aggregated data of multiple firms that does not permit identification of information by company. For example, the FTC recently charged that the CEOs of two companies engaged in surgical hair transplantation violated the FTC Act by exchanging company-specific information about future product offerings, price floors, discounting practices, expansion plans, and operations and performance. The FTC concluded that the exchange could facilitate coordination or endanger competition by reducing uncertainty about a rival’s product offerings, prices, and strategic plans, and served no legitimate business purpose.

On the other hand, information that is highly technical is not as likely to raise competitive concerns when shared among competitors. For instance, earlier this year, the FTC and DOJ issued an Antitrust Policy Statement on Sharing of Cybersecurity Information, which clarified that sharing technical cyber threat information is unlikely to raise antitrust concerns, and has the potential to improve the security, availability, integrity and efficiency of the nation’s information systems. The statement confirms that antitrust law is not a roadblock to legitimate information sharing.

What types of data exchanges among competitors are “reasonable?” The antitrust agencies have identified a “safety zone” within which data exchanges are highly unlikely to raise substantial concerns. In general, the agencies will not challenge a data exchange if:

  1. the exchange is managed by a third-party, like a trade association;
  2. the information provided by participants is more than three months old; and
  3. at least five participants provide the data underlying each statistic shared, no single provider’s data contributes more than 25% of the “weight” of any statistic shared, and the shared statistics are sufficiently aggregated that no participant can discern the data  of any other participant.

An exchange of information that falls outside the safety zone may still be lawful, but only if, taking account of likely anticompetitive effects and any procompetitive justifications, the exchange promotes competition.  But remember, if the sharing of information among competitors results in an agreement to fix prices or limit output, that agreement may be unlawful per se, and could lead to criminal charges.

If you are thinking about exchanging information with competitors and are uncertain whether you should, you can request an advisory opinion from FTC staff. A staff advisory opinion typically will state whether staff would recommend that the Commission challenge the proposed conduct if it were to be undertaken. For example, FTC staff recently advised The Money Services Round Table that it had no intention to challenge a proposed information exchange designed to assist money-transmitters in complying with money- laundering laws, among other things. The proposed exchange would consist of a database identifying persons whose agency relationships with a money-transmitter were terminated due to failure to comply with laws or money-transmitter policies. FTC staff concluded that the exchange would be unlikely to facilitate coordination on a significant competitive factor, such as price. Staff further concluded that the exchange could increase the efficiency of a money-transmitter’s compliance with money laundering laws, thus benefiting consumers.

The bottom line is this: even competitors can exchange information when the purpose and likely effect of the exchange is to make the participants more effective competitors. To that end, let reason be your guide.

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