The Anticompetitive Aspects of Information Exchange Agreements – A U.S. Perspective

1. The Anticompetitive Aspects of Information Exchange Agreements – A U.S. Perspective Krisztián Katona, Counsel for International Antitrust* The views are my own and do not necessarily reflect those of the Commission or any of its Commissioners.

2. Overview • US antitrust framework for information exchanges • Section 1 Sherman Act • Section 5 FTC Act • Supreme Court case law • FTC and DOJ guidelines • Recent enforcement actions (National Association of Music Merchants case)

3. Legal Framework – Section 1 • Section 1 Sherman Act • Elements to a Section 1 violation: • Agreement • Between entities • Unreasonable restraint on competition • Affecting interstate commerce • Per se – rule of reason • Information exchanges – rule of reason

4. Legal Framework – Section 5 • Section 5 FTC Act prohibits “unfair methods of competition” • May reach conduct that doesn’t rise to a Section 1 violation (e.g., invitation to collude – see Valassis case) • National Association of Music Merchants, Inc.

5. Supreme Court Jurisprudence • AmericanColumn and Lumber Co. v. United States, 257 U.S. 377 394-95 (1921) • “Open Competition Plan” is facilitating practice • United States v. American Linseed OilCo., 262 U.S. 371 (1923) • Purpose of exchange is to affect prices • Maple Flooring Mfrs.Ass’n v. United States, 268 U.S. 563 (1925) • No purpose to fix prices or restrain trade

6. Supreme Court Jurisprudence (cont’d) • United States v. Container Corporation of America, 393 U.S. 333 (1969) • Shift from purpose to the likely effect on prices • United States v. Citizens & S. Nat’l Bank, 422 U.S. 86, 113 (1975) • “[t]he dissemination of price information is not itself a per se violation of the Sherman Act” • Catalano, Inc. v. Target Sales, 446 U.S. 643, 647 (1980) • “advanced price announcements are legal”

7. Appellate Courts’ Decisions • In re Petroleum Products Antitrust Litigation, 906 F.2d 432 (9th Cir 1990) • Form of exchange is not determinative of its legality • United States v. Airline Tariff Publ’g Co., 836 F. Supp. 9, 12 (D.D.C. 1993) • Signaling future price intentions condemned • Todd v. Exxon Corp., 275 F.3d 191 (2d Cir. 2001) • Confidential exchange to set employees’ salaries “troubling” and “problematic”

8. FTC/DOJ Health Care Statements (1996) • Guidelines for dissemination of price and cost data among health care providers • Antitrust safety zone: • Third party collects and manages the information • The data provided is more than 3 months old • Specific information cannot be matched with competitors • Outside the safety zone – rule of reason • Principles apply to other industries

9. FTC/DOJ Collaboration Guidelines (2000) • FTC/DOJ Antitrust Guidelines for Collaboration among Competitors • The Guidelines recognize the exchanges’ procompetitive benefits • Three main points: • Type of information shared (price, output, costs are more likely to raise concerns) • Recency of sharing; past-present-future information • Individual company data – aggregated data

10. Advisory Opinions and Business Letters • FTC’s advisory opinions • E.g., clinical integration programs (GRIPA (2007) and TriState (2009) cases) • DOJ’s business review letters • E.g., Fair Factories Clearinghouse (2006) Safeguards: • Voluntary participation • Aggregated information • Antitrust policy statement

11. Procedures and Safeguards • Market data is gathered and maintained on a confidential basis by a neutral third-party. • Voluntary participation, with results reasonably accessible to all competitors. • Data limited to historic market information – no data gathering related to future prices or other competitive issues. • Indices and reports are designed to aggregate and report data in a way that precludes price calculations. • Reports not including recommendations or encouraging actions by competitors or others.

12. Recent U.S. Information Exchange Cases • National Association of Realtors (NAR) case • DOJ suit (Sept. 2005) against NAR to require the continued operation of an information exchange program (Multiple Listing Service – MLS) • NAR’s virtual office website policy “. . . [s]uppresses technological innovation, discourages competition on price and quality, and raises barriers to entry” • Consent decree (May 2008) requires NAR to rescind this policy and treat Internet-based brokers the same as brokers on the MLS • In sum: the Agencies recognize the procompetitive benefits and will do more than permit programs, i.e. affirmatively require their continued operation

13. National Association of Music Merchants • FTC complaint and consent order in National Association of Music Merchants (NAMM)(April 2009) • Complaint: NAMM violated Section 5 FTC Act by enabling and encouraging the exchange of competitively sensitive information about pricing policy and strategy among its members • At NAMM meetings competitors discussed minimum advertised pricing (MAP) strategies, margins, profits, restricting retail price competition, and securing higher retail prices • NAMM: setting agenda and steering discussions

14. National Association of Music Merchants (cont’d) • FTC complaint • Conduct constitutes unfair method of competition (“principal tendency or likely effect of harming competition and consumers”) • No legitimate business purpose and efficiency • Conduct can facilitate collusion • Consent order • Bars NAMM to exchange price information • Prohibits NAMM from aiding merchants to form anticompetitive agreements • Requires extensive antitrust compliance program

15. Valassis Invitation to collude case Issue: free-standing inserts Valassis v. News America Valassis CEO’s communication during stock analyst conference call • Compare with United States v. American Airlines, Inc. 743 F.2d 1114 (5th Cir. 1984) FTC consent order (March 2006): public statement was invitation to collude

16. Conclusion • U.S. law on information exchanges: procompetitive benefits – anticompetitive risks • Extensive guidance form government policy statements and recent enforcement actions Thank you! kkatona@ftc.gov