When rival businesses share confidential, competitively sensitive information, the result is usually a restraint on competition.  Indeed, it is often unnecessary for the rivals to “agree” specifically on how they will compete because the information they share ensures that no one will get an advantage from aggressive competition.  Unfortunately, antitrust standards for determining the legality of such agreements are confused and less effective than they ought to be. In a new article, we contend that agreements among rivals to exchange such information ought to be presumed illegal.[1]

While knowledge about market conditions and what rivals are doing is relevant to competition, it also allows rivals to coordinate their competitive conduct.  Experimental economic studies have consistently found that when participants are given relevant economic information but cannot communicate with each other, their market responses basically proximate the competitive market.[2]   When they can communicate and have at least some shared economic information, the resulting conduct approximates monopoly.  The lesson from these experiments confirms that such conduct may not merely facilitate some underlying conspiracy, which is the standard way such conduct is presented in antitrust cases, but is itself a restraint of competition.  The core insight is that the only economic function of any exchange of confidential, competitively sensitive information among rivals is likely the  restraint of competition among those rivals.

Too often American antitrust law relies on formal categories to determine the legal standards for restraints of trade; moreover, it tends to lump all potentially lawful restraints under the “rule of reason,” which requires initial proof that the specific conduct had a demonstrable adverse effect on competition.  Because there are a few legitimate reasons for rivals to exchange competitively sensitive information, courts have tended to focus initially on evidence of broadly based harms rather than the function of the exchange itself.

Guidelines focused on antitrust issues in health care, issued in the 1990s, strongly reinforced this approach because they postulated that such information would enhance competition and  identified “safe harbors” for information exchanges among rivals.  But in 2016, the same agencies warned businesses that exchanging information about wages was likely to be illegal and, finally, in 2022, the agencies withdrew their health care guidelines on information exchange but did not replace them with new guidance.[3]

The thesis of our article is that such exchanges ought to be presumptively illegal. This would eliminate the need to establish at the outset that there was specific harm to competition because the primary likely effect of such agreements is to restrict competition.  This presumption could only be rebutted by proof that the exchange did not result in a restraint on the competitive freedom of the parties.  For example, rivals might, using a third party, pool information that allows a benchmarking of various aspects of their business so that each can see how well relatively it is doing.  Such benchmarking does not require any firm to change its business practices.  It only provides information about the strengths and weaknesses of its operations compared with its peers.  Thus, because an exchange of competitively sensitive information among rivals might not result in any restraint of their competition, we believe that a presumption of illegality (sometimes called a “quick look’) is much better than the open-ended rule of reason standard.  Importantly, this approach expressly focuses on the function that the exchange of confidential information has and will have in the market, which is the central concern of competition law. The European Union’s competition law imposes a similar standard as evidenced in their guidelines for horizontal cooperation agreements from 2023.[4]

It is also relevant that in a private damage action, even if the plaintiff establishes that the information exchange agreement is itself unlawful, it must also prove that it has suffered economic harm.  This is an important distinction between a government case, which requires only proof of the illegal agreement, and a private damage case, which necessarily requires proof of damages as well as proof of the illegality of the agreement.

Recently, the government challenged a long-standing agreement among poultry processors to share confidential information about wages and other aspects of employment as well as the terms under which the companies compensated the farmers who raised their poultry. The government sued Cargill, one of the participants, with a complaint claiming the specific conduct at issue was illegal.[5]  Cargill then entered into a consent decree that bars any future, comparable information-sharing but that leaves unresolved the question of what legal standard applies. Currently, the government is challenging the information exchange program of Agri Stats, which was also implicated in the Cargill case.  According to the complaint, Agri Stats offered poultry, turkey, and hog processors a means to coordinate detailed, confidential information which it then used to provide a variety of recommendations to the participants in order to facilitate increasing their profits by avoiding price competition.[6]  While the theory of liability is not clearly set forth in the complaint, these cases suggest that the antitrust enforcers are moving in the direction of a presumption of illegality for such exchanges of confidential business information.  But until the courts speak, the appropriate tests for such conduct remain uncertain.  This in turn is likely to embolden some rivals to continue to engage in such conduct to the detriment of consumers, suppliers, workers, and the operation of the competitive market.

ENDNOTES

[1] Peter C. Carstensen, Annkathrin Marschall, Pooling and Exchanging Competitively Sensitive Information Among Rivals: Absolutely Illegal Not Just Unreasonable, 92 U. Cin. L. Rev. 335 (2023) available at https://scholarship.law.uc.edu/uclr/vol92/iss2/2/.

[2] See, id. at 353-354.

[3] See, id. at 371-374.

[4] See, id. at 374-381.

[5] See, United States v. Cargill Meat Solutions Corp., 1:22-cv-01821-ELH (D. Md. 2023),  available at https://www.justice.gov/atr/case/usv-cargill-meat-solutions-corp-et-al.

[6] United States v. Agri Stats, Inc., 0:23-cv-03009-JRT-JFD (D. Minn 2023), available at https://www.justice.gov/atr/case/us-v-agri-stats-inc.

This post comes to us from Peter C. Carstensen, the Fred W. & Vi Miller Chair in Law Emeritus at the University of Wisconsin Law School, and Annkathrin Marschall LL.M., University of Wisconsin-Madison Law School and First and Second State Board Examination, Johannes-Gutenberg-University Mainz, Germany. It is based on their recent article, “Pooling And Exchanging Competitively Sensitive Information Among Rivals: Absolutely Illegal Not Just Unreasonable,” published in the University of Cincinnati Law Review and available here.