Information Exchanges, Codes of

Ethics and Other Competition Law

Developments

Steve SzentesiMark KatzOctober 29, 2014

Overview

• 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

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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• 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

• 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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Information Exchanges – Best Practices

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 non-professionals)

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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

• 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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Foreign Developments

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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• 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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Canada - Draft Bulletin on Competition Compliance

Helpful Tools

• Competition Bureau Draft Bulletin: Corporate Compliance Program (http://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/vwapj/Corporate-Compliance-Programs-2014-09-18-e.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

• 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

• 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 non-members to compete?

• Is anyone going to complain about what the association is proposing to do?

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Bottom Line (cont'd)

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Compliance

Information Exchanges, Codes of

Ethics and Other Competition Law

Developments

Steve SzentesiMark KatzOctober 29, 2014