Antitrust Compliance: Price Information Sharing And Transparency Issues

1
Antitrust Compliance Price Information Sharing
And Transparency Issues

• Presentation to the
• Association of Bermuda Compliance Officers
• Cameron Findlay Aon
• Thomas F. Bush Lovells June 4, 2007

2
Where antitrust issues arise

• Direct communications between competitors
• Established channels of communication
• Informal conversations between employees
• Indirect communications between competitors
• Using intermediaries as a channel
• Third-party publishers
• Web pages and B2B electronic exchanges
• Public disclosures of sensitive information

3
The challenge to compliance officers

• Legality of communications often uncertain
• Penalties for illegal communications harsh
• Prison sentences
• Fines
• Treble damages
• Some legal communications are appropriate
• Serve valid business purposes
• Especially in finance and insurance sectors

4
Is the communication illegal?

• Sherman Antitrust Act 1
• Any contract, combination or conspiracy . . .
  in restraint of trade is illegal.
• Communications can violate the Sherman Act if
• They facilitate a cartel agreement or
• In the absence of cartel agreement, they lead to
  price coordination.

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Cartels

• Any agreement among competitors to
• Set the prices that they charge
• Divide customers or markets
• Reduce output
• Restrict terms of sale
• Reduce price competition between themselves or
• The equivalent
• Is per se illegal

6
Facilitate a cartel agreement

• Cartel members use communications to
• Reach agreements
• Signal timing and amounts of price moves
• Police compliance with agreements
• Communications can be evidence of an illegal
  cartel agreement, when they
• Are closely associated with price changes
• Lack legitimate business purposes
• Expose discounters and/or
• Are contrary to independent business interests.

7
Lead to price coordination

• Circumstances that make price coordination likely
  -
• Companies have market power
• High market shares
• Barriers to entry into market
• Market is susceptible to price coordination
• Highly concentrated
• Fungible product
• Inelastic demand
• Type of information assists coordination
• Current or future versus past data
• Transactions versus aggregates or averages

8
Overseas application of the antitrust laws

• Sherman Act applies to foreign commerce that
  has a direct, substantial and reasonably
  foreseeable effect on domestic sales or imports
• Price-fixing and information sharing cases did
  the activities have a foreseeable effect on
  prices in the United States?
• Irrelevant factors
• Nationality of the defendants
• Place of the price-fixing agreement
• Place of the information sharing

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Overseas enforcement

• Criminal enforcement (US Dept of Justice)
• Extradition
• Border watches
• Interpol notices
• Cooperation with foreign enforcement agencies
• Civil enforcement (treble damages class actions)
• Jurisdiction over any company that transacts
  business in the United States
• Worldwide service of process
• Joint and several liability

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What compliance officers must do

• Learn all communications with competitors
• Direct contacts with competitors by any employee
• Indirect communications
• Public disclosures of sensitive information
• Manage all legal communications
• Identify clearly
• Establish strict procedures and limitations
• Maintain necessary records
• Prohibit all other communications
• Reporting process for questionable practices

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Hypothetical 1

• You are the chief compliance officer for a
  Bermuda property and casualty insurer. Bill, one
  of your underwriters, calls you in a panic from a
  bar, where he is having a drink with a good
  friend from another insurer, Joe. Bill says that
  they had begun talking generally about the market
  for U.S. property coverage, but as the
  conversation progressed, Joe asked, For
  instance, have you been asked by Brokerco to
  quote on the Transco placement? It sure seems to
  me like Brokerco is trying to hammer us
  underwriters. Bill asks what he can tell Joe
  about your companys quote.

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Hypothetical 2

• You are the compliance counsel for a large
  Bermuda insurance broker. One of your brokers
  comes to you and shows you a quote from an
  underwriter with a notation that the quote is
  offered expressly subject to underwriter
  receiving best terms, including best price.
  Your broker asks you how to respond.

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Hypothetical 3

• Your company sells a specialized financial
  product in the United States. Only three other
  companies compete. One proposes that all
  companies submit sales price and volume
  information to a publisher, who will compile the
  data and post it on the web. The following
  alternatives are under consideration
• A posting on the web of individual transactions
  up to the present, disclosing parties, volumes
  and prices.
• Same as (a), except hiding the names of the
  parties
• The web page would disclose only average weekly
  prices.
• Same as (c), but sales would be at least three
  months old.
• Same as (c), but customers would not have access.

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Hypothetical 4

• You work for a bank that belongs to the
  Association of Bermuda Banks (ABB). At an ABB
  conference, during a breakout session, one of the
  discussion leaders proposes that to reduce
  liability costs, banks should all consider
  adopting as a best practice a standard
  limitation of liability clause limiting a banks
  liability in certain common situations. Your CEO
  comes back from the conference and says that this
  is a great idea. What do you do?

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Hypothetical 5

• Your companys web page discloses current rates
  for your products and services. The web page
  also states when new rates will go into effect
  and when special discounts will expire. The web
  sites of all competitors display the same
  information. Your company continually monitors
  its competitors web pages for announcements of
  rate changes and reacts with its own pricing
  decisions, You believe that competitors do the
  same.

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Hypothetical 6

• Each year, you meet in Paris for an elegant
  dinner with representatives of your main
  competitors. You discuss global market
  conditions and each companys expectations for
  the market in the coming year, but no agreements
  are reached. Your company does not sell any
  services or products in the United States, but
  other companies who attend the dinners do. The
  US Department of Justice has asked you to testify
  before a grand jury investigating the Paris
  dinners. Are you and your company at risk?

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Hypothetical 7

• In your industry, companies regularly call one
  another to confirm information supplied by
  customers about competitive bids. The
  information given is only to confirm or refute
  the information already supplied by a customer.
  Your sales representatives defend the practice as
  necessary to protect against customers who
  present fraudulent information on competitive
  bids. They insist that no agreement exists on
  prices to be charged.

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Hypothetical 8

• You are a commercial lender. A trade
  association is conducting a survey of credit
  losses for companies in your industry. You are
  being asked to provide details of your losses
  over for the past three year. In return, you
  will receive a report showing aggregate and
  averages for the losses incurred by all companies
  that choose to participate in the survey, along
  with details on large losses, without identifying
  the parties to the transactions. Only companies
  participating in the survey will receive the
  report.

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Hypothetical 0

• Your CEO has been invited to be the featured
  speaker at the main dinner for the annual meeting
  of your industrys trade association. In the
  current draft of his speech, he surveys current
  market conditions, takes note of overcapacity and
  expresses the hope that all companies will act
  with prudence and discipline. He does not
  propose any particular actions for the companies
  to follow.

20
Antitrust Compliance Price Information Sharing
And Transparency Issues

• Presentation to the
• Association of Bermuda Compliance Officers
• Cameron Findlay Aon
• Thomas F. Bush Lovells June 4, 2007