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Be Careful When Pooling Data
On 14 May 2019, the European Commission provided a reminder that, although often pro-competitive and legal, in some situations data-pooling arrangements may be seen as anti-competitive. Companies participating in such arrangements need to make sure they understand the boundaries. The same is true in relation to any information exchange with a competitor, as illustrated by the recent decision and fines in the foreign exchange spot-trading cartel.
The new data-pooling case relates to Insurance Ireland, an association bringing together several member companies active in the insurance sector in Ireland. The organization administers and makes available to its member companies the Insurance Link database, to which members contribute insurance claims data on an ongoing basis. The stated purpose of the system is to facilitate the detection of potentially fraudulent behaviour by insurance claimants and to ensure the accuracy of information potential customers provide to insurance companies and/or their agents.
The Commission, while expressly not questioning that data-pooling arrangements can be pro-competitive, is investigating whether the conditions imposed on companies wishing to participate in and access the Insurance Link database may have placed these companies at a competitive disadvantage on the Irish motor insurance market, in comparison to companies with access to the database. It will also no doubt wish to consider whether the system enables the participants to become aware of the market strategies of their competitors.
It’s notable that the EU Guidelines on horizontal cooperation agreements, in the section covering information exchange, expressly deal with this issue:
“An exclusive exchange of information can lead to anti-competitive foreclosure on the same market where the exchange takes place. This can occur when the exchange of commercially sensitive information places unaffiliated competitors at a significant competitive disadvantage as compared to the companies affiliated within the exchange system. This type of foreclosure is only possible if the information concerned is very strategic for competition and covers a significant part of the relevant market.”
These guidelines, which will shortly come under Commission review, set out the general principles applicable to the competitive assessment of information exchange (and various other forms of cooperation) between actual or potential competitors in the EU. They are important guidance for the analysis of any horizontal arrangement between actual or potential competitors.
European Commission Fines Beer Manufacturer for Restricting Cross-Border Sales
One of the guiding principles of EU competition law is that, save in limited circumstances, direct or indirect restrictions on cross-border trade between EU Member States are not permitted. The European Commission and national regulators in the EU have imposed numerous fines on companies for agreeing to such restrictions or, in the case of dominant companies, for unilaterally imposing such restrictions on their trading partners.
The world’s largest beer company, AB InBev, is the latest company fined for its unilateral behavior in restricting cross-border trade. The Commission found that it had abused its dominant position on the Belgian beer market by hindering cheaper imports of its “Jupiler” brand beer from the neighbouring Netherlands. Reflecting the long duration of the infringement (over seven years) and the high value of sales in the two countries, the fine imposed was more than €200 million.
AB InBev was found to be dominant on the Belgian beer market due to its constantly high market share (Jupiler alone accounts for around 40 percent of the total Belgian beer market by volume and even could safely be rebranded as “Belgium” during the 2018 World Cup); its ability to increase prices independently from other beer manufacturers; the existence of barriers to significant entry and expansion; and the limited countervailing buyer power of retailers, given the essential nature of some beer brands sold by AB InBev (such as Jupiler).
The Commission decided that the company had abused this dominant position in Belgium by pursuing a deliberate strategy to restrict the possibility for supermarkets and wholesalers to buy Jupiler beer at lower prices in the Netherlands and to import it into Belgium. The overall objective of this strategy was to maintain higher prices in Belgium by limiting imports of less-expensive Jupiler beer products from the Netherlands. AB InBev achieved this in several ways:
- AB InBev changed the packaging of some of its Jupiler beer products supplied to retailers and wholesalers in the Netherlands to make these products harder to sell in Belgium, notably by removing the French version of mandatory information from the label, as well as changing the design and size of beer cans.
- AB InBev limited the volumes of Jupiler beer supplied to a wholesaler in the Netherlands, to restrict imports of these products into Belgium.
- A number of AB InBev's products are very important for retailers in Belgium as customers expect to find them on their shelves. AB InBev refused to sell these products to one retailer unless the retailer agreed to limit its imports of less-expensive Jupiler beer from the Netherlands to Belgium.
- AB InBev made customer promotions for beer offered to a retailer in the Netherlands conditional upon the retailer not offering the same promotions to its customers in Belgium.
These are classic examples of illegal activities by a dominant company. The Commission originally identified concerns via its market monitoring, and it’s perhaps a surprise that the company’s internal competition compliance programme or internal audits did not pick them up so they could be stopped earlier.
Restrictions of this nature will also be problematic if agreed between a supplier and its customers, whether the supplier is dominant or not. All companies trading in the EU need to be aware of the limitations competition law imposes on their ability to restrict cross-border trade.
Companies Cannot Pay a Competitor Not to Compete
On 23 May 2019, the UK Competition and Markets Authority (CMA) provisionally found that four pharmaceutical companies infringed competition law by agreeing not to compete in the supply of an anti-nausea drug in the UK, including through a payment not to enter the market. This type of violation usually leads to significant fines.
According to the CMA, Alliance Pharmaceuticals, Focus, Lexon and Medreich agreed not to compete for the supply of prescription-only prochlorperazine 3mg dissolvable or “buccal” tablets to the UK National Health Service. Prochlorperazine is an important drug used to treat nausea and dizziness.
The CMA alleges that Lexon and Medreich had been taking steps to launch their jointly developed prochlorperazine. The companies then entered into an overarching agreement implemented through two separate agreements:
- Between Alliance and Focus, where Alliance supplied prochlorperazine exclusively to Focus.
- Between Focus, Lexon and Medreich, where Focus paid Lexon a share of the profits it earned on the onward sales of Alliance’s prochlorperazine. Lexon, in turn, shared these payments with Medreich.
Therefore, Lexon and Medreich were paid a share of the profits Focus earned on the supply of the Alliance Pharmaceuticals product, and agreed not to compete for the supply of prochlorperazine in the UK. The CMA characterized this as “a company [paying] a rival not to enter the market.”
This is the CMA’s provisional finding and the companies now have the chance to make representations to the CMA before it reaches a final decision.
Cartel Facilitator Is Part of Cartel
It is well-established that a company which facilitates cartel activity between competitors can be treated as having engaged in that cartel. In the latest example of this, the UK energy regulator Ofgem fined an energy software and consultancy service for aiding an anti-competitive agreement preventing two competing energy suppliers in the UK from actively targeting one another’s customers through face-to-face sales.
To facilitate this agreement, the suppliers shared commercially sensitive information in the form of customer meter point details. The software company, Dyball Associates, aided this arrangement by designing, implementing and maintaining software systems that allowed customer meter point details to be shared between the two, and recruitment of the other’s customers to be blocked.
In finding Dyball liable, Ofgem was simply applying previous case law from the EU level. The EU’s highest court, the European Court of Justice, has held that a company can be liable for a cartel even if it did not operate on the market in question but only supported and organized the cartel implemented by others. The leading case is AC-Treuhand (2015), in which a consultancy played an essential role in the cartel infringements of companies active in the European tin stabiliser and ESBO/esters heat stabiliser markets and had been remunerated by them for organizing regular cartel meetings at its Zurich premises.
The lessons of AC-Treuhand and other similar cases, now including this new Ofgem case, should form part of the compliance training of all similar consultancy and software providers.
Additional European competition law news coverage can be found in our news section.
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