United States: Loose Lips: The Danger Of Sharing Competitive Information With Competitors

Keywords: competition, antitrust, FTC, Federal Trade Commission,

Increasing prices can be stressful for manufacturers as they consider such questions as: What is the proper price point? How will customers react? What will the competition do? In addition to these issues, manufacturers considering a price increase should also be concerned with antitrust best practices.

There are many well-recognized business reasons to raise prices: increased demand, rising costs, or finding it profitable to follow the price increase of a larger competitor. However, regardless of the intentions, improper communications, suspicious meetings, or the mere presence of executives at trade association meetings around the time of a price increase can give rise to antitrust scrutiny.1

As the US Federal Trade Commission's recent consent judgments with AmeriGas and Blue Rhino make clear, communications with competitors at or near the time of a price increase are fraught with danger, especially when competitively sensitive information is exchanged. In order to avoid potential antitrust pitfalls, companies considering price increases should avoid communications with competitors and adhere to antitrust compliance procedures, like carefully documenting meetings, having corporate counsel present at any trade association or other meeting with competitors, and not announcing price increases further in advance of the effective date than necessary.

The Applicable Law

Mere "evidence of social contacts and telephone calls among [competitors is] not sufficient to exclude the possibility that the [competitors] acted independently."2 "The decision by a group of industry players to have a meeting or to talk at a dinner or cocktail reception does not constitute a conspiracy."3 After all, "[c]ompany personnel do not often operate in a vacuum or 'plastic bubble'; they sometimes engage in the longstanding tradition of social discourse."4 For this reason courts have rejected as "pure conjecture" the assumption "that the contemporaneous presence of [corporate] officers at a trade association meeting permits an inference of conspiracy."5

With that said, communications with competitors around the time of a price increase may raise the specter of price-fixing in certain situations if proper compliance measures are not observed. For instance, some courts have found nearly contemporaneous trade association meetings and price increases to be suggestive of a conspiracy. In In re Titanium Dioxide Antitrust Litigation,6 a district court denied motions for summary judgment where class plaintiffs tendered evidence showing that manufacturers of titanium dioxide kicked off a series of lock-step price increases shortly after attending meetings of an industry trade association.7 Moreover, the evidence showed that 88 percent of price increases on titanium dioxide occurred within 30 days of an industry-wide trade association meeting.8 The court held that "[t]his fact deserves greater attention, as it suggests that the Defendants may have used [trade association] to communicate their pricing plans, coordinate price increases, and to confirm that each competitor would follow the leader on a price increase."9

AmeriGas

In the Matter of AmeriGas and Blue Rhino10 illustrates the potential antitrust scrutiny that can result from competitor communications at the time of an industry-wide price increase. AmeriGas and Blue Rhino are the largest suppliers of propane tank exchanges at retail locations in the United States.11 Collectively, they control 80 percent of the US market; no other propane tank provider has more than a 9 percent share.12 As a practical matter, they are the only companies that have the capacity to provide propane tank exchanges at major national retailers such as WalMart, Lowes and Home Depot.13 In April 2008, due to increasing input costs, Blue Rhino announced that it would reduce the amount of propane in its tanks from 17 pounds to 15 pounds—effectively, a price increase on its propane tanks.14 AmeriGas matched Blue Rhino's fill reduction shortly thereafter.15

WalMart rejected Blue Rhino's price increase.16 According to the FTC's administrative complaint, Blue Rhino and AmeriGas responded by conspiring to make the price increase "stick." From June to September 2008, Blue Rhino and AmeriGas executives spoke several times via telephone and email, allegedly to coordinate their responses to WalMart.17 The FTC claimed that WalMart was ultimately forced to accept the fill reductions due to the coordination between Blue Rhino and AmeriGas.18

On October 31, 2014, AmeriGas and Blue Rhino entered into consent orders that ban each company from communicating competitively sensitive non-public information to any competitor.19 In his concurrence accepting the consent orders, Commissioner Joshua Wright observed: "No antitrust practitioner would counsel his or her client to engage in the direct competitor communications and concerted actions that are alleged to have occurred between Blue Rhino and AmeriGas. This is with good reason: such conduct is plainly anticompetitive and unlawful under Section 1 of the Sherman Act."20

Avoiding Antitrust Pitfalls

In the Matter of AmeriGas and Blue Rhino is an example of what not to do. Companies can minimize the risk of similar government investigations and civil litigation by adopting a few simple antitrust compliance procedures. While every company and industry is different, some of these steps are:

  • Providing regular antitrust training to employees with pricing responsibility and those that attend trade association meetings;
  • Limiting the number of employees who are aware of future pricing actions;
  • Not announcing price changes further in advance of the effective date than necessary;
  • Creating a detailed, written agenda before each trade association meeting and ensuring that the participants at the meeting stick to it;
  • Having legal counsel attend trade association meetings;
  • Insisting that any trade association adopt an antitrust compliance policy and that it be read before each meeting;
  • Avoiding discussions with competitors regarding prices, costs, or other competitive sensitive information and seeking input from antitrust counsel before attending any meeting where competitively sensitive information may be discussed;
  • Avoiding side meetings or social gatherings outside of the trade association meeting that antitrust regulators or plaintiffs' counsel may later claim were a forum for collusion; and
  • Consider skipping industry meetings at or near the time of a price increase.

With some or all of these compliance measures in place, companies can significantly reduce the risks highlighted by AmeriGas.

Originally published 2 March 2015

Footnotes

1. See, e.g., In re Urethane Antitrust Litig., 2013 WL 65988 (D. Kan. Jan. 4, 2013) (denying summary judgment where there was evidence that "high-ranking executives at the companies socialized and communicated with each other, including at or near times of lockstep price increases, including at trade association meetings that provided ample opportunities for pricing discussions"); Kleen Prods., LLC v. Packaging Corp. of Am., 775 F. Supp. 2d 1071 (N.D. Ill. 2011) ("Plaintiffs also stress as an additional factor the temporal proximity of price increase and capacity reductions to trade association and industry events"); In re Blood Reagents Antitrust Litig., 756 F. Supp. 2d 637 (E.D. Pa. 2010) (plaintiffs alleged that leading blood reagent companies were members of the same trade association and engaged in inter-company hiring of high-level executives); In re Brand Name Prescription Drugs Antitrust Litig., 1999 WL 1024547 (N.D. Ill. Nov. 5, 1999) (plaintiff claimed that pharmaceutical manufacturers pledged to peg future price increases to the consumer price index at a trade group meeting).

2. In re Baby Food Antitrust Litig., 166 F.3d 112 (3d Cir. 1999); see also Tose v. First Penn. Bank, N.A., 648 F.2d 879 (3d Cir. 1981) ("Proof of opportunity to conspire, without more, does not create a jury question on the issue of concerted action."); Am. Chiro. Ass'n v. Trigon Healthcare, 367 F.3d 212 (4th Cir. 2004) (holding that "mere contacts and communications, or the mere opportunity to conspire ... is insufficient evidence of an anticompetitive conspiracy."); Williamson Oil Co. v. Philip Morris USA, 346 F.3d 1287 (11th Cir. 2003) ("[T]he opportunity to fix prices without any showing that [the defendants] actually conspired does not tend to exclude the possibility that they did not avail themselves of such an opportunity."); Weit v. Continental Ill. Nat'l Bank & Trust Co., 641 F.2d 457 (7th Cir. 1981) (observing that "the mere opportunity to conspire, even in the context of parallel business conduct, is not necessarily probative evidence.").

3. In re Text Messaging Antitrust Litig., 2014 WL 2106727 (N.D. Ill. May 19, 2014); see also In re Dairy Farmers of Am., Inc. Cheese Antitrust Litig., 2014 WL 4083938, at *33 (N.D. Ill. Aug. 18, 2014) (although defendants communicated at or near the time of price increases, there was no evidence they discussed pricing intentions).

4. In re Baby Food Antitrust Litig., 166 F.3d 112, 133 (3d Cir. 1999).

5. In re Chocolate Confectionary Antitrust Litig., 999 F. Supp. 2d 777, 804 (M.D. Pa. 2014); see also In re Text Messaging Antitrust Litig., --- F. Supp. 2d ---, 2014 WL 2106727, at * (N.D. Ill. 2014) (granting summary judgment where plaintiffs were "unable to point to anything beyond [their] own speculation to establish that defendants' executives discussed collusive price increases" at trade association meetings).

6. 959 F. Supp. 2d 799 (D. Md. 2013).

7. Id. at 807-08.

8. Id. at 809.

9. Id.

10. See Complaint, In the Matter of Ferellgas Partners, L.P., Docket No. 9360 (Mar. 27, 2014).

11. Id. at ¶¶ 2, 35.

12. Id. at ¶ 2.

13. Id. at ¶¶ 2, 35.

14. Id. at ¶¶ 3, 30, 32.

15. Id. at ¶ 40.

16. Id. at ¶¶ 37-39.

17. Id. at ¶ 50.

18. Id. at ¶ 53.

19. On January 7, 2015, the Federal Trade Commission approved a final order barring AmeriGas and Blue Rhino from agreeing to restrain competition. See Decision and Order, In the Matter of Ferrellgas Partners, L.P., Docket No. 9350 (Jan. 7, 2015), available at http://www.ftc.gov/system/files/documents/cases/150109bluerhinodo.pdf.

20. Concurring Statement of Commissioner Joshua D. Wright, In the Matter of Ferrellgas Partners, L.P., Docket No. 9360 (Oct. 31, 2014), available at http://www.ftc.gov/system/files/documents/public_statements/596831/141031 amerigaswrightstmt.pdf.

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