Dear clients and cooperation partners,
We are pleased to offer an update regarding recent developments in the field of competition law, in particular regarding information exchanges among competitors. We offer here a brief insight into the three most important judgments of 2011 on this subject from the Senate of the Supreme Court of Latvia (SC Senate). Although any situation must be considered individually in competition law, we believe that these cases can still shed valuable light on the risks related to information exchange.
Even an unimplemented agreement on price increase is prohibited
At the end of April 2011, the SC Senate affirmed a decision of the Competition Council finding that an agreement between companies to raise the price of procurement contracts is prohibited. Both companies had concluded separate procurement contracts with the same municipality enterprise. In an informal talk, managers of both companies acknowledged that their costs in fulfilling these procurement contracts had risen and that they would ask the municipality enterprise to increase the contract prices. To verify their increased costs, it was agreed that one company would send its actual service pricing structure to the other. The companies did not implement their plan as initially intended; instead, they used the procedure already included in the procurement contracts to take into account inflation. In this case, the court agreed that it was not important whether the agreement was implemented in the planned manner, as concerted practices related to price increase violate competition laws irrespective of whether such concerted practices affect competition. This position accords with one of the chief principles of competition law: price is a crucial competition parameter and each company should determine its service prices and trade or transaction terms independently.
Information exchange on sales figures in an oligopoly
Another significant judgement is a SC Senate judgment of September 2011 in a case that considered information exchange among the largest paper wholesalers in Latvia. These companies regularly exchanged data about sales figures for previous quarters. Initially, the paper wholesalers exchanged this information directly among themselves, but later the data was sent to a market research company that prepared and distributed summarised results. The court did not consider whether this information exchange could affect company decisions regarding sales volumes or price, or whether the information exchange served as a market division instrument. However, the court did agree with the Competition Council that the information distributed was sufficiently individualised that the competitors could find out individual sales figures for certain wholesalers. The court also supported the approach of the Competition Council in identifying indicators of an oligopoly in the wholesale paper market without applying a deeper economic analysis. In this case, two indicators served to demonstrate the existence of an oligopoly: (i) several large market participants together hold 60% of market; and (ii) the methods of paper wholesale are sufficiently uniform and homogenous that competitors can coordinate their activities without direct contact or coordination. After assessing the wholesalers' practice, it was decided that they had exchanged commercially sensitive information prohibited by competition law.
In our opinion, however, the Competition Council has made insufficient use of economic criteria to determine whether the wholesale paper market represents an oligopoly. Likewise, the court has reduced the standard of proof required to demonstrate the consequences of information exchange, thus going against the most recent approach of the European Court of Justice in this kind of cases.
Is an exchange of sensitive information allowed before a merger?
Finally, the SC Senate considered and affirmed in October 2011 a case concerning an information exchange violation among the three largest producers of chicken eggs in Latvia, which together held a total market share of 40%. The Competition Council found that the information exchanged by the companies was not publicly available and that it included the means of determining production prices and sales (including production costs), as well as production and sales figures (including export figures). Moreover, unlike in the second case considered above, no information exchange occurred between the competitors. Instead, the information was sent in one direction only without data being received in return. The Competition Council noted that the companies involved in this supposed information exchange later merged to become one market participant as defined in the relevant competition law. Consequently, the exchange of information was only prohibited while the companies were competitors.
These cases demonstrate the strict position of the Latvian Competition Council and the SC Senate with regard to information exchange among competitors. Having detected an exchange of commercially sensitive information among competitors, the Competition Council seldom considers the economic or market effect of the information exchange. In these situations, information exchange alone is deemed a violation of competition law with the aim of limiting competition. Moreover, taking into account the approach of the European Court of Justice in competition cases, the Latvian courts need to impose higher standards of proof on the Competition Council to enhance the quality of both the reviewed cases and the decisions.