The absence of a competition regulatory framework may result in either an outright ban of pro-competitive exchange or a boon to anti-competitive information exchange
By Jayakrishnan KR
Sharing of information amongst competitors is a worldwide common practice in many industries, which is now in a much larger extent than in the past. The new digital economy facilitates significant cooperation and information sharing between competitors, which is not restricted to the big data industries rather extended to traditional sectors too. Discussions and exchanges of information between competitors can also take place in trade associations, which may impact the economic decisions of the competitors.
There is an increasing recognition that information exchange can enhance efficiencies. It will help for better investment decisions, accurate demand and supply forecasts, better allocation of resources, better efficient production planning, improved distribution and marketing strategies, which in turn will potentially result in better quality, more variety, reduced cost and better future ability to respond to the ever-changing demands of the consumers. It may also facilitate the entry of firms with enhanced efficiencies. Information exchange is a good means to increase market transparency and consumer knowledge and may also be beneficial to consumers by all means.
However, the exchange of commercially sensitive and individualised market data can, under certain circumstances, have the effect of revealing to all competitors the market positions and strategies of the various individual competitors. This may reduce strategic uncertainty about competitors’ actions and may have an appreciable adverse effect on competition. Further, information exchange may also be a facilitating mechanism for the implementation of anti-competitive practice, such as monitoring compliance with a cartel; where an exchange of information is ancillary to such an anti-competitive practice. There may be instances where the information exchange in itself has the object of either restricting competition or facilitating a mechanism for implementation of any anti-competitive practices.
The necessity and pro-competitive features of information exchange are recognised in major jurisdictions such as the US and EU. However, given its anti-competitive potential, competition authorities in the said jurisdictions formulated industry-specific guidelines providing the conditions under which information exchanges are likely to be viewed as legitimate and permissible. These guidelines ensure to retain the benefits of information exchange while eliminating information exchanges having an appreciable adverse effect on competition. Further, they help the competitors to identify pro-competitiveness and permissibility of various information exchanges and to restrict the information exchange within the permitted parameters, thereby avoiding unnecessary prolonged litigation.
However, the Indian competition regulatory framework has not so far recognised the necessity of regulatory guidelines for information exchange. Section 3 of the Competition Act, 2002 prohibits agreement/ concerted action which causes or is likely to cause an appreciable adverse effect on competition. It does not contain any provision explicitly regulating information exchange. No guidelines have been framed thus far on the lines of the US and EU, whereby pro-competitiveness and permissibility of various information exchanges could be ascertained. Instead of eliminating unnecessary information exchange, this situation may result in either an outright ban of pro-competitive information exchange or a boon to anti-competitive information exchange.
Apart from these, the absence of regulatory guidelines for information exchange may also cause unnecessary prolonged litigation and hardship to competitors. As per the existing competition legal framework, any layman can file a complaint about information exchange under Section 19. In case, there is no prima facie case, the Competition Commission can close the matter by passing appropriate orders in terms of Section 26 of the Competition Act, 2002. However, as such an order is appealable as stipulated under Section 53B read with Section 53A of the Act, an establishment can be dragged into a prolonged litigation proceeding. This will potentially expose the companies to the risk of onerous penal liability of 10% of the average of the turnover for the last three preceding financial years as stipulated under Section 27 of the Competition Act. The repercussions of such a proceeding will be disastrous for a conglomerate as the said risk of 10% penal liability will have to be figured in various regulatory compliances filings throughout the pendency of the proceedings at various stages.
Given the pro-competitive features and anti-competitive potential of information exchange and its increasing worldwide recognition as efficiency-enhancing and beneficial to the consumers, it is indispensable to have guidelines for information exchanges which in effect will prevent the adverse effect thereof on competition and ensure that it is beneficial to the consumers.
(Author is Partner at Corporate Law Group. Views express in the article are the author’s own)