This blog was co-authored by: James Donald, Trainee Associate
On 27 January 2023, the Competition Commission published its Final Guidelines on the Exchange of Competitively Sensitive Information between Competitors under the Competition Act. The Guidelines are not binding but will be taken into consideration in determining administrative penalties. The guidelines are available here.
Exchange of or access to sensitive information by competitors can result in or support collusion and have other anti-competitive effects. However, the extent of harm to competition is context specific, depending on market dynamics, and the nature and age of the information. The Guidelines deal with information exchanges directly between competitors or through a third party such as a trade association which processes it, and then disseminates it among firms in the market
The aim of the guidelines is to provide clarity on when an exchange of information among competitors may cause harm to competition through instances such as increased prices, exclusion of competitors from the market, and raising barriers to entry. The Commission also addresses when an exchange of information may enhance competition.
Competitors need to be careful of exchanging information in the ordinary course of business in industry associations, in a due diligence process or transaction negotiation, or where competitors have agreements or joint ventures together. This is particularly relevant where there is a government request for information.
The Guidelines provide a definition of competitively sensitive information, as information that is important to rivalry between competing firms and likely to have an appreciable impact on one or more of the parameters of competition such as price, output, product quality, product variety or innovation and could include: prices, customer lists, production costs, quantities, turnovers, sales, capacities, qualities, marketing plans, risks, investments, technologies, research and development programmes and their results. This is a welcome development as it focuses on information that can actually have an impact on competition between the parties.
The Guidelines reinforce that the likelihood of contravening the Competition Act through information exchange depends on the nature and characteristics of the information exchanged, which includes the market characteristics, the availability or accessibility of the information exchange, the indispensability of the competitively sensitive information given the purpose of the exchange, and whether the competitively sensitive information is historical or relates to current or future activities.
Although the context is critical to assessing the impact on competition, the Guidelines set out some key points to guide competitors on this topic:
1. Factors relevant to the assessment of the impact of information exchange include: the similarity of products, concentration levels in the market (i.e. number of players), transparency of information, barriers to entry, and any history of collusion within the market.
2. Direct communication of competitively sensitive information shared exclusively among competitors to the exclusion of the general public is not permitted as it could allow participating firms to achieve coordinated outcomes to the detriment of consumers in that market.
3. The exchange of competitively sensitive information must be limited to information that is relevant and strictly necessary to achieve any pro-competitive gains (i.e. if it is necessary to identify an average capacity use in an industry for a pro-competitive purpose, there is no need for competitors to provide pricing information to one another – the information must be limited to the purpose).
4. The less participants there are in a market, the greater the risk of sharing competitively sensitive information and infringing the Competition Act;
5. Aggregated information is usually less harmful to competition. The more disaggregated and specific the information is regarding firms, customers, geographic areas, products, and time, the more advantageous the information is for facilitating or monitoring of a collusive arrangement; and
6. Firm-specific information about current/future prices, trading terms, and customers or suppliers must not be disclosed.
The Guidelines note that most trade/industry associations are not truly independent of their members. For this reason, the Commission recommends that where information is collected and then disseminated it should be collected and aggregated by an independent third party and not the industry association itself. Some industry associations are run by an independent body and this would have to be assessed on a case by case basis. Industry associations can support pro-competitive outcomes, but the processes for managing competitive information must be carefully designed to avoid competition law risk.
Contraventions of the Competition Act can have very serious legal, financial and reputational consequences. Administrative penalties of up to 10% (25% for repeat offenders) of annual turnover in South Africa, can be imposed.
Please reach out to the Norton Rose Fulbright competition law team for expert advice on your information exchange practices.