The Competition Commission has published its final Guidelines on the exchange of competitively sensitive Information between competitors. The guidelines attempt to explain what constitutes permissible and impermissible information exchanges between competitors as well as the Commission's general approach to assessing exchanges of information between competitors and the exchanges that could lead to contraventions of the Competition Act, 1998.
The Competition Act outright prohibits the exchange of competitively sensitive information between competitors that involves:
- direct or indirect price fixing;
- division of markets: or
- collusive tendering.
In addition, exchanges of information that substantially prevent or lessening competition, unless a party to the exchange of information can show pro-competitive, technological and/or efficiency gains from the exchange that outweigh its anti-competitive effects, are also prohibited by the Competition Act.
Importantly, the Commission does acknowledge that the sharing of competitively sensitive information can be beneficial for competition. However, it also highlights the potentially pernicious impact that such exchanges can have, given that they can be used to achieve collusive or coordinated outcomes without concluding explicit agreements to co-operate.
The guidelines provide a broad definition for competitively sensitive information:
"Information that is important to rivalry between competing firms and is likely to have an appreciable impact on competition (for example price, output, product quality, product variety or innovation). Competitively sensitive information could include prices, customer lists, production costs, quantities, turnovers, sales, capacities, qualities, marketing plans, risks, investments, technologies, research and development programmes and their results."
The potentially harmful effects of an exchange of competitively sensitive information, and whether it is problematic, is determined by:
- the nature of the information exchange;
- the purpose for which the information is being exchanged; and
- the overall market characteristics and dynamics
These will be evaluated on a case-by-case basis.
The guidelines are not market specific but do identify the following (non-exhaustive) list of factors that the Commission will assess when evaluating the effect of exchange of competitively sensitive information between competitors:
- Market characteristics – Firms should consider the relevant features of the market such as product homogeneity, levels of concentration, barriers to entry, market shares of competing firms and history of collusion within the market. Generally, the higher the level of concentration and the lower the level of product differentiation, the more likely that an exchange of competitively sensitive information will amount to a breach of the Competition Act.
- Exchanges of historical, current or future conduct – Generally, exchanges of competitively sensitive information concerning future conduct is anti-competitive. Exchanges of current/recent competitively sensitive information is also likely to be regarded as anti-competitive; and exchanges of past competitively sensitive information may be anti-competitive but the level of aggregation is critical to this evaluation. The more disaggregated (broken down into smaller units of information) the competitively sensitive information is, the more likely it is to be anti-competitive. The frequency with which exchanges of competitively sensitive information occur will also play a role in determining whether such exchange is problematic – with high frequency exchanges being of greater concern.
- Mechanism for and accessibility of exchanged information – competitively sensitive information that is shared between competitors to the exclusion of the public may be considered as evidence of a contravention of the Competition Act. The Commission notes that, aggregated historical information shared among industry players must be accessible to all industry players simultaneously. The Commission will consider the mechanism through which the exchange was conducted (ie, directly or indirectly through trade associations or other third parties). The Commission is likely to view direct communication as potential evidence of a contravention of section 4 of the Competition Act.
- Indispensability of the information exchanged – To the extent that there is a real need to share competitively sensitive information to achieve pro-competitive gains, the exchange must be indispensable to the creation of such gains, must carry the lowest risks to competition, and must be limited to the information that is relevant and necessary to achieve said gains.
The guidelines also strongly advise that trade associations appoint independent third parties to collect and collate competitively sensitive information and that this third party not share disaggregated information as collected from trade associations and/or members. Moreover, the guidelines acknowledge that while government policy makers may require access from market participants to competitively sensitive information to formulate policy, competition concerns arise when market participants collect and process this information themselves, and it is therefore recommended that policy makers collect and process the information themselves or appoint an independent third party to do so.
While the guidelines are not binding on South African competition authorities, they should to be taken into account when interpreting or applying the Competition Act, particularly as the finalisation of the guidelines likely signifies an enforcement focus for the Commission going forward. Therefore firms should be cautious when engaging in any exchanges of competitively sensitive information with (direct or potential) competitors. The risks of getting it wrong are substantial. Firms that contravene section 4 of the Competition Act may be liable for, amongst other things, a severe administrative penalty of up to 10% of annual turnover (and up to 25% for repeat offences).
Should you be uncertain as to whether an exchange of information may fall foul of the Competition Act, please do not hesitate to reach out to the competition team at ENSafrica. A copy of the full guidelines is accessible here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.