26 August, 2015
In brief
Recent comments made by Andrew Forrest, Fortescue's founder and chairman, at a meeting in Shanghai have drawn attention to the potential competition law risks inherent in any public discussion of a company's future strategy with regard to production levels and pricing. His comments prompted an investigation by the Australian Competition and Consumer Commission (ACCC), which was concerned that they constituted an invitation to participate in illegal cartel behaviour.
The ACCC eventually cleared Mr Forrest, finding that his remarks did not breach Australian competition law. However, this case raises some important issues about public signalling of strategic information concerning price, quantities or other sensitive information between competitors, especially with regard to recent developments in Europe. EU regulation of information exchange is far more wide-reaching than that of Australia and many other jurisdictions (the EU is seen as the strictest jurisdiction in this field of the law), and its complex and evolving nature means that companies need to be aware of the potential competition law implications of any public statements with regard to future strategy.
Andrew Forrest and the ACCC
After a business dinner on 24 March 2015 Mr Forrest found himself in hot water with the ACCC after calling on global iron ore producers to act together to cap production and reverse declining prices. At an AustCham event in Shanghai, Mr Forrest stated that he would be "absolutely happy" at that moment to cap Fortescue's production at 180 million tons. He went on to challenge world's other largest iron ore producers, Rio Tinto, BHP Billiton and Vale, to cap their production too, arguing that it would mean "the iron ore price goes straight back up to USD 70, USD 80, USD 90".
Immediately, the ACCC asked Mr Forrest to explain his comments and announced that it would investigate what appeared to be anti-competitive conduct. The ACCC was concerned that Mr Forrest's remarks could be interpreted as "an attempt by Forrest to induce Fortescue's competitors to agree to cap iron ore production, in contravention of the cartel conduct provisions" of the Competition and Consumer Act 2010 (see ACCC press release of 30 April 2015).
Luckily for Mr Forrest, after investigating the matter the ACCC decided to take no further action. It found that Mr Forrest's comments did not belie a genuine intention to propose an arrangement with the other producers. In reaching its conclusion the ACCC took into account the fact that the comments had been "made "off the cuff" in response to audience questions" and "were hypothetical and intended to encourage a policy debate about the long term future of the iron ore industry".
However, the ACCC did comment that "it is important that the business community understands that public statements calling for competitors to agree to limit production or to raise prices may constitute a serious cartel offence". Leading competition lawyers in Australia were reported as stating that the main concern regarding the comments was the matter of "production signalling". Currently, Australian regulation of so-called "price signalling" or information disclosure regarding future price, capacity or commercial strategy, extends only to the banking sector. However, after a recent review of competition regulation in Australia the ACCC has argued that it should be extended to apply to all markets, hinting at the potential for Australia to follow other jurisdictions in taking a more aggressive approach towards information exchange. Indeed, the competition risks attached to public statements regarding future pricing and/or production are something to which other regulators, especially those in Europe, have taken a far stricter approach in recent years.
EU approach to unilateral statements and "price signalling"
Under EU competition law, and the national law of EU Member States, statements of the kind made by Mr Forrest could also have garnered particular interest from regulators given EU regulation of anti-competitive information exchange under Article 101 TFEU. This is particularly the case following the publication of the EU Commission's "Guidelines on the applicability of Article 101 TFEU to horizontal cooperation agreements" [2011] OJ C 11/1 (the "Horizontal Guidelines"), which in many ways have paved the way for a more interventionist approach on information exchanges.
At first glance, Mr Forrest's statement may appear a long way from a genuine attempt to start a cartel in iron ore production: it was a one-off statement, made in public and there was no agreement or reciprocal declaration from Fortescue's rival producers (other than to declare loudly that his comments were nonsense). However, under EU competition law these factors may not always preclude a finding of anti-competitive behaviour. On the contrary, the law is so strict that it does not take much to fall found of the prohibition on anticompetitive information exchanges.
Information exchange can constitute an anti-competitive agreement or concerted practice
Under EU law an exchange of information can be caught by competition law if it amounts to an agreement or "concerted practice" with the object or effect of restricting or distorting competition in the EU internal market. According to both case law and the Horizontal Guidelines an information exchange will be problematic in principle where that exchange of information reduces strategic uncertainty around future commercial policy as the key rule is that competitors must act independently (Case C-8/08, T-Mobile Netherlands). Particular types of information are more likely to be deemed strategic, such as that relating to prices and. Hence, declarations about future non-finalised strategy such as production levels and its potential price effect would likely be regarded as strategic information.
Exchanges of such strategic future information will normally be regarded as infringements of the competition rules "by object" without any need for the regulators to show effects on competition. This is because the information exchanged is considered by its very nature as possibly leading to a restriction of competition. Indeed, the Horizontal Guidelines explicitly state that exchanging information on companies' individualised intentions concerning future conduct regarding prices or quantities is particularly likely to lead to a collusive outcome and should therefore be considered a restriction of competition by object (paragraphs 73-74). On the contrary exchanges of non-future information will fall in a greyer area and an analysis would need to be undertaken as to the likely effects on competition.
Even only passive receipt of information and only at a single meeting can be caught
A situation where only one undertaking disclosed strategic information to its rivals can also constitute a concerted practice (Joined Cases T-25/95 and others, Cimenteries). The lack of reciprocity or an explicit agreement between parties does not avoid a finding of a concerted practice. EU case law contains a rebuttable presumption that companies in receipt of unilateral information exchanges by competitors will take account of that information and adapt their market conduct accordingly, unless the company receiving the data responds with a clear statement that it does not wish to receive it (so called "public distancing" from the anti-competitive behaviour). The Courts and the Commission have found that exchange of sensitive information even at a single meeting between companies can be caught (T-Mobile Netherlands).
Exchanging the information publicly is not an excuse if it strays into "signalling"
Secret exchanges of information are clearly more problematic but public exchanges, while permissible in principle, can also be caught. For example, the Horizontal Guidelines explicitly state that the exemption for truly public statements will not apply to situations where such announcements involve invitations to collude, and may not apply where such an announcement is followed by similar public announcements by other competitors (see Horizontal Guidelines paragraph 63 and footnote 10).
Recent European cases at a national level have illustrated the increasingly aggressive approach towards price signalling in the telecoms sector, especially through public announcements. In a Dutch investigation into price-signalling it was held that public statements at meetings or in trade journals about future market behaviour could lead to a risk of anti-competitive co-ordination; this was particularly the case because the strategies revealed were not finalised. And in the UK investigation into the cement market the UK Competition Commission found that letters informing customers of "aspirational" price increases restricted competition. There is yet to be an EU Commission decision on this particular area but the Commission appears keen to tackle this area. In a recent ongoing investigation into container shipping companies may shed further light on the Commission's approach. It is investigating a number of container shipping lines following a series of public announcements regarding general rate increases through press releases on company websites and specialised trade press. It is looking likely that the case will be concluded under the settlement procedure but even so it may provide more clarity as to the Commission's approach to public announcements regarding future pricing policy.
Key considerations for businesses
Businesses need to be increasingly aware of the possible competition law implications of any information exchanges with competitors including public statements that touch upon future strategy, especially with regard to prices and output. While each case is obviously dependent on its particular facts and context, and law regarding information exchange remains particularly complex and evolving, recent developments in Europe suggest that companies need to keep a keen eye on information they both release and receive in public. Certain practices could help to mitigate the risks of any contravention of antitrust laws in this area. For instance, companies should avoid public communication of information regarding future pricing or strategic plans unless strictly necessary, especially where such plans are not yet finalised (and there is therefore greater risk that they are seen as "signalling" rather than announcing committed future information). They should also make sure that management and employees receive sufficient training to be aware of the potential risks in this area. And where a company receives such information from a competitor, or is mentioned in a competitor's announcement containing this kind of information, it should consult its legal advisors to consider any response required.
For further information, please contact:
Kyriakos Fountoukakos, Partner, Herbert Smith Freehills
kyriakos.fountoukakos@hsf.com
