Information Exchanges,
Codes of Ethics and
Other Competition Law
Developments
Steve Szentesi
Mark Katz
October 29, 2014
OVERVIEW
Trade Associations Under
Scrutiny
• The benefits of trade/professional
associations are widely acknowledged:
• represent members to government, enhance
business safety standards, sponsor research and
product development, engage in industry-wide
promotion and education
• And yet…
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Trade Associations Under
Scrutiny
• Trade associations are a frequent target of
competition enforcement action
• Irresistible combination of opportunity and
temptation
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Trade Associations Under
Scrutiny
• Adam Smith summed it all up in An Inquiry
into the Nature and Causes of the Wealth of
Nations:
•"People of the same trade seldom meet, even
for merriment or diversion, but the
conversation ends in a conspiracy against the
public or in some contrivance to raise prices."
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Trade Associations Under
Scrutiny
• Canadian competition law has been
concerned with the conduct of trade and
professional associations from the start
• By one count, trade associations have been
implicated in over 50 competition cases in
Canada, involving a wide range of industries
and activities
• Trade associations continue to feature in
ongoing cases and proceedings
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Trade Associations Under
Scrutiny
• In various speeches, Canada's Commissioner
of Competition (John Pecman) has highlighted
competition law risks for trade and
professional associations, with particular focus
on issues such as:
• Information exchanges
• Rules regarding membership and member
activities (which are often embodied in a "code of
ethics" or "code of conduct")
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INFORMATION
EXCHANGES
Information Exchanges
• Information collection is a commonplace
association function
• Used for legitimate purposes such as industry
benchmarking, safety standards, lobbying
• But collection and exchange of competitively
sensitive information can raise concerns if used
to facilitate illegal agreements
• See Bureau Competitor Collaboration Guidelines:
cartels often involve and are based on
information exchanges between competitors
(e.g., to monitor adherence by cartel participants)
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Information Exchanges
• Relevant factors to assess information exchange risk:
• Type of information – "competitively sensitive" confidential information
(pricing, costs, terms of sale, markets and territories, capacity/production,
customers, business/strategic plans) v. competitively neutral or public
• Currency of information – current/future v. historic
• Frequency of exchange – frequent v. occasional
• Level of detail and aggregation – aggregated v. company specific
• Who has access – will the information be accessible to company personnel
who are directly involved in competitively sensitive activities?
• Use of a third party – will an outside party be used to gather and analyze
information?
• Market characteristics – is the market susceptible to collusion
(concentration/barriers to entry)?
• Purpose – is there a legitimate, pro-competitive objective?
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Information Exchanges –
Best Practices
• Information collected should be based on historical data
• Raw data should not be shared between members
• Associations should not coerce members to participate in
information exchanges
• Circulated information should be of a generalized (i.e.,
aggregated) nature
• Competitively sensitive information should only be
retained as long as necessary for particular legitimate
objective
• Consider using an independent firm to collect, analyze
and distribute information
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CODES OF ETHICS
Codes of Ethics
• Associations need to establish membership criteria and
rules to carry out their functions (often embodied in
"code of ethics")
• Concern is that these rules can be used to limit
competition by:
• Artificially restricting entry or participation in an
industry/profession (e.g., entrance rules/standard setting)
• Denying competitor access to "essential facilities"
• Imposing rules of conduct that inhibit competition or
innovation (e.g., pricing policies, mandatory service levels,
non-solicitation of members' customers, employment
restrictions, advertising restrictions, restrictions on nonprofessionals)
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Codes of Ethics
• Recent U.S. examples:
• Music Teachers National Ass'n (U.S.)
• California Ass'n of Legal Support Professionals
• National Ass'n of Residential Property Managers
• National Ass'n of Teachers of Singing
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Code of Ethics– Best
Practices
• Association codes of ethics and similar "self-regulating"
initiatives should be structured so that they:
• are clear and transparent;
• are voluntary or incorporate disciplinary procedures for breaches that
are reasonable and not exclusionary;
• enjoy wide acceptance among the membership;
• have clear objectives;
• offer meaningful incentives to participate;
• provide for a regular flow of information to members; and
• incorporate effective dispute resolution procedures
• do not restrict competition any more than is necessary to achieve the
desired objectives and, indeed, should seek to promote competition
whenever possible
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Code of Ethics– Best
Practices
• Codes of Ethics must not be used to:
• enforce pricing schedules or otherwise limit price
competition;
• prevent members from soliciting business from each
other;
• prevent members from soliciting employees from
each other;
• create barriers to expansion/entry by new
competitors;
• prevent members from adopting innovative business
practices
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OTHER DEVELOPMENTS
Foreign Developments
• Two foreign cases worth noting:
• FTC v. North Carolina State Board of Dental
Examiners (is a state-sanctioned
professional body immune from antitrust
scrutiny)
• ACCC v. Colgate Palmolive Pty Ltd. et al (can an
industry initiative to achieve environmental
benefits be anticompetitive?)
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Canada – TREB Case
• Toronto Real Estate Board ("TREB") case:
• TREB – association of realtors in Toronto
• Competition Bureau alleged that certain of TREB's rules limiting members'
business practices were an abuse of dominance
• Competition Tribunal dismissed case, in part, because TREB did not
compete in market for real estate brokerage services
• Federal Court of Appeal: Abuse of dominance does not require dominant
party to be a competitor in relevant market where effects may be
observed
• Leave to appeal to SCC refused; matter remanded to Competition Tribunal
for reconsideration
• Decision potentially expands scope of liability for
associations
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Canada - Draft Bulletin on
Competition Compliance
• Competition Bureau has issued revised draft of
Corporate Compliance Bulletin
• Although aimed generally at "corporations",
helpful for associations as well
• Draft puts a great deal of emphasis on issues such
as:
• appointing someone with specific responsibility for
compliance
• ongoing monitoring and assessment of program
• Bureau also recently issued brief guidance
specifically for associations
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Helpful Tools
• Competition Bureau Draft Bulletin: Corporate
Compliance Program
(http://www.competitionbureau.gc.ca/eic/site/cbbc.nsf/vwapj/Corporate-Compliance-Programs-2014-09-18e.pdf/$file/Corporate-Compliance-Programs-2014-09-18-e.pdf)
• Competition Bureau pamphlet: Trade Associations
and the Competition Act
(http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03691.html)
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A REMINDER
Bottom Line
• Ensuring compliance with Canadian
competition law is a critical function of trade
associations
• Key is to avoid coordinated conduct that
limits/reduces competition between members
or negatively affects competitive abilities of
non-members
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Bottom Line (cont'd)
• Requires constant vigilance on the part of
association staff:
• Establish a compliance policy for association
• Train staff/conduct periodic audits
• Consult with counsel if have any questions/concerns
• Staff should always keep these questions in mind:
• Are the members proposing to limit/reduce competition between
themselves, particularly in any of the following areas of conduct:
pricing/sales/production/bids?
• Are the members proposing to negatively impact the ability of nonmembers to compete?
• Is anyone going to complain about what the association is proposing to
do?
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Compliance
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Information
Exchanges, Codes of
Ethics and Other
Competition Law
Developments
Steve Szentesi
Mark Katz
October 29, 2014