Recent consent orders in a U.S. Federal Trade Commission "signaling" case reflect the antitrust risks of competitor information exchanges, even through trade associations, especially in concentrated industries.
The FTC has brought an FTC administrative action alleging price fixing and other anticompetitive behavior involving three of the largest U.S. suppliers of ductile iron pipe fittings (DIPF), which are used in municipal water systems. It now has published for public comment a proposed consent order with Star Pipe Products, Ltd., to resolve the FTC claims that Star violated Section 5 of the Federal Trade Commission Act by engaging in price fixing. This is the second such settlement; alleged co-conspirator Sigma Corporation already settled similar charges with the FTC. (See our prior Antitrust Alert, " Does Recent FTC Consent Agreement Signal Heightened Antitrust Scrutiny for Information Sharing by Competitors?") The third company, McWane Inc., continues to oppose the FTC's administrative complaint.
The FTC complaint alleges that McWane invited Sigma and Star to collude, communicating its proposal through a letter to customers. The FTC also alleges that the companies used an industry association to exchange sales information, so that each could confirm the others were complying with the agreement to raise prices. Sigma and Star now have agreed to consent orders that limit their ability to share information with competitors.
The FTC complaint alleges that McWane, Star, and Sigma unlawfully agreed to coordinate price levels for imported DIPF. According to the FTC, McWane invited Sigma and Star to collude beginning in 2008, when it communicated to Sigma and Star a plan to raise prices for imported DIPF. McWane allegedly communicated the terms of its plan to increase prices to Sigma and Star though a customer letter sent by McWane to waterworks distributors, the common customers of the three suppliers. The FTC alleges that Sigma and Star communicated their acceptance of McWane's offer by publicly limiting their discounting and engaging in unlawful information exchanges to facilitate the price coordination.
According to the FTC, the three firms exchanged information documenting their volumes of monthly sales through a trade association called the Ductile Iron Fittings Research Association (DIFRA). Each company submitted data to DIFRA, which provided the data to an accounting firm, which aggregated the data that then was distributed back to the three suppliers. Each company allegedly used the aggregated information to monitor its own market share and determine whether its co-conspirators were adhering to the terms of their collusive arrangement.
The FTC's complaint also alleges that McWane and Sigma agreed that Sigma would abandon efforts to enter the U.S. market, in exchange for becoming a distributor of McWane's products, and that McWane excluded Star from entering the domestic market by adopting restrictive exclusive dealing policies.
Proposed consent order
Just like the prior consent order agreed to by Sigma, the proposed order agreed to by Star and the FTC would prohibit Star from the following conduct:
- Participating in any agreement to fix, raise, or stabilize the prices at which DIPF are sold in the U.S. or to allocate markets, customers, or business opportunities for DIPF.
- Soliciting any competitor to participate in such anticompetitive conduct.
- Participating in any agreement between competitors to exchange competitively sensitive information, such as the sales information exchanged through DIFRA, and from otherwise disclosing such information to competitors.
The consent order nonetheless will allow Star to participate in exchanges of competitively sensitive information, through a third party, if these restrictions are followed:
- The information being exchanged must relate solely to transactions that are at least 6 months old.
- Industry statistics based on exchanged data must cover a period of at least 6 months and can be prepared only twice a year.
- Industry statistics must represent an aggregation of data from no fewer than 5 competitors, no individual competitor's data contribution to any statistic can represent more than 25% of the total reported sales, and no three competitors' data contributions to any statistic can represent more than 60% of the total reported sales.
- All industry statistics must be sufficiently aggregated or anonymous such that no competitor can identify the data submitted by any other competitor.
- There can be no communications about the information exchange, except (1) at official meetings of the information exchange, (2) following a written agenda, and (3) in the presence of antitrust counsel.
- All aggregated industry statistics must be made public at the same time they are communicated to any contributor.
This case is primarily about an alleged price fixing scheme, and these agreed restrictions are far tighter than the U.S. antitrust agencies' general guidance on safe harbors for information exchanges (in the FTC/DOJ Health Care Guidelines). The proposed consent order nevertheless deserves close attention. These companies structured their information exchanges much like many trade associations disseminate data to their members – after being aggregated by a third party. But these steps obviously did not insulate the DIFRA members from an antitrust investigation, and the FTC was convinced that the companies were using the information received from the association to enforce their collusive arrangement.
One other aspect of this case is worth mentioning. The FTC pursued Star even though the allegations the agency was able to make against Star are much less significant than the allegations against McWane and Sigma.. For instance, although Star allegedly participated in the conspiracy, and the complaint alleges that McWane and Sigma executives discussed by phone their efforts to implement price increases, there are no similar allegations about Star. In a separate allegation, the FTC accuses Sigma of inviting McWane and Star to collude after the original conspiracy dismantled in 2009, but Star refused to accept Sigma's invitation to revive the conspiracy. Finally, Star allegedly was a victim of McWane's use of exclusive dealing policies to monopolize the domestic DIPF market. The complaint alleges against Star little more than that Star followed McWane's price increases and provided sales information to a trade association that promised to aggregate the data prior to circulation. FTC Commissioner Rosch publicly objected to including Star in the complaint, saying Star appeared "much less culpable" than McWane and Sigma.
This is the latest FTC action challenging a "price fixing" agreement allegedly formed by "signaling" through other communications, such as public statements or, as in this case, communications to customers. However, the new restrictions imposed by these FTC consent orders suggest how industry participants can strengthen a trade association information exchange program. Tighter restrictions such as these could be adopted to reduce antitrust risks in sharing information or address any perception that an information exchange program could be misused. In particular, companies in concentrated industries or where there is a history of competitor coordination may consider adopting some of these restrictions as part of an antitrust compliance program.
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