Exchange of Competitively Sensitive Information Among Competitors Prompts DOJ Enforcement Action
A recent DOJ complaint against six companies that own local television stations provides an example of a fairly unusual enforcement action by federal antitrust authorities to address an exchange of competitively sensitive information among competitors. The complaint asserts that the companies violated Section 1 of the Sherman Act by sharing sensitive sales and inventory data.
The DOJ is seeking to enjoin the conduct but has not sought civil or criminal fines. Even in the absence of fines, an accusation of unlawful information sharing nevertheless can place significant burdens on defendants. These burdens include the cost and distraction of responding to a government investigation and the risk of private follow-on litigation that may result in civil treble damages.
The DOJ's action may signal a prioritization of information exchange enforcement, particularly in light of agency guidance to human resource professionals in 2016 that sharing terms and conditions of employment among competitors can violate the federal antitrust laws.1 The action is a reminder that merely exchanging competitively sensitive information among competitors can violate the Sherman Act and the FTC Act, even absent any express or tacit agreement to fix prices, reduce output, or rig bids.
I. The Information Exchange Charged in United States v. Sinclair Broadcast Group
The Justice Department's complaint names Sinclair Broadcasting Group, Inc., Raycom Media Inc., Tribune Media Co., Meredith Corp., Griffin Communications, and Dreamcatcher Broadcasting.2Each defendant owns TV broadcasting stations in various local markets across the country. The defendants' broadcasting stations compete with one another in local markets to sell advertising "spots' in their programming. They sell the spots through two national advertising intermediaries to companies that conduct national ad campaigns, and also sell the spots directly to local advertisers.
The defendants use revenue pacing data to track their advertising sales volume. Revenue pacing compares a station's revenues booked for a recent time period to the revenues booked for the same period in the previous year. These data are not only an important measure of sales but also provide insight into the volume of a station's unsold "spot" inventory. It is therefore competitively sensitive information.
The DOJ alleges that the defendants exchanged real-time revenue pacing information for current and future months.3 It alleges that defendants' stations in the same local market exchanged such information directly with one another and through the two national intermediaries.4
In the DOJ's view, the information exchange distorted the normal price-setting mechanism in the relevant local spot advertising markets nationwide.5
The proposed final judgments prohibit the defendants' stations from communicating non-public pricing, pricing strategy, pacing, holding capacity, revenue or market share information to a competing station unless the information is more than 18 months old.6 The proposed final judgments also impose compliance, reporting, and cooperation requirements on the defendants.7 The proposed final judgments expire after seven years.8
Although no private suits have been filed yet against the defendants, these types of enforcement actions typically expose them to follow-on litigation by advertisers.9
II. Courts Apply Rule of Reason Standard to Information Exchanges
Courts test the legality of agreements to exchange information under a rule of reason standard and find them unlawful only when their effect is to unreasonably restrain trade. Violations may be found when the circumstances—including but not limited to industry concentration—are such that the exchange is likely to have anticompetitive effects.10
The central question in such an inquiry is whether the agreement would likely harm competition by increasing the ability or incentive of competitors to profitably raise prices above competitive levels or reduce output, quality, service, or innovation below what likely would prevail in the absence of the agreement.11 The analysis depends on a variety of factors, including the business purpose and nature of the agreement; the type of information shared; whether the information that is disseminated is made available to other market participants, such as customers; and safeguards implemented to minimize the risk that competitively sensitive information would be disclosed.12
III. Agency Enforcement Policies Distinguish Pro-Competitive Exchanges
The agencies generally recognize that many forms of information sharing between competitors can be pro-competitive. They have issued several statements on information sharing to guide conduct. Most notably, the agencies' Antitrust Guidelines for Collaboration Among Competitors provide that the reasonableness of an information exchange depends mainly on the nature of the information that is shared. The DOJ and FTC are particularly concerned with the sharing of information relating to price, cost, output, customers, or strategic planning.13 Specifically, the Guidelines provide:
The [Antitrust] Agencies recognize that the sharing of information among competitors may be procompetitive and is often reasonably necessary to achieve the procompetitive benefits of certain collaborations. . . . Nevertheless, in some cases, the sharing of information related to a market in which the collaboration operates or in which the participants are actual or potential competitors may increase the likelihood of collusion on matters such as price, output, or other competitively sensitive variables. The competitive concern depends on the nature of the information shared. Other things being equal, the sharing of information relating to price, output, costs, or strategic planning is more likely to raise competitive concern than the sharing of information relating to less competitively sensitive variables. Similarly, other things being equal, the sharing of information on current operating and future business plans is more likely to raise concerns than the sharing of historical information.14
The agencies' Statements of Antitrust Enforcement Policy in Health Care, issued in 1996, set forth an antitrust "safety zone" for information exchanges among health care providers. The agencies have applied this guidance outside the health care context.15 The safe harbor requires that (1) a third party (for example, a trade association) manages the collection and dissemination of the information; (2) the information is more than three months old; and (3) the third party sufficiently aggregates the information before disseminating it to the participants.16 To meet the last requirement, any statistic that is distributed must be based on data from at least five participants. No individual participant's data may constitute more than 25 percent of a statistic on a weighted basis. And the aggregation must be sufficient to prevent a participant from deducing the data provided by any individual competitor.17
Most recently, in 2014, the agencies issued an Antitrust Policy Statement on Sharing of Cybersecurity Information.18 It underscores the enforcement agencies' continuing interest in information exchange issues. The Statement recognizes the pro-competitive benefits of sharing cyber threat information in order to improve security. It notes that the sharing of cyber threat information is generally done "in an effort to protect networks and the information stored on those networks, and to deter cyber attacks."19 The Statement acknowledges that sharing such information is generally distinct from sharing competitively sensitive information and is "unlikely in the abstract to increase the ability or incentive of participants to raise price or reduce output."20 Nonetheless, the agencies caution that the specific facts underlying an exchange will drive the agencies' analysis in any particular case.
In addition, through FTC Advisory Opinions and DOJ Business Review Letters, the agencies have consistently asserted that they do not intend to take enforcement action regarding proposed information exchanges that either explicitly exclude sharing competitively sensitive information or that conform to the safe harbor requirements. For example, in 2014 the Antitrust Division issued a business review letter stating that it would not challenge a proposal to share cyber threat intelligence data through an electronic platform that collects participants' incident reports. The division noted that the information exchange would not involve competitively sensitive information about "recent, current, and future prices, cost data, output levels, or capacity" and that safeguards included commitments by participants to avoid using the platform to share competitively sensitive information.21
In 2013 the FTC issued an advisory opinion stating that it would not challenge a proposal for licensed money transmitters to share information on terminated money transmitter agents through an electronic database. The FTC explained that the information sharing was unlikely to cause competitive harm because the database would be maintained by an independent third party vendor and the database would not facilitate unlawful coordination on competitive factors such as agent commissions or price, cost or output information. The agency also cited the economic efficiencies that the information exchange was intended to produce, to the benefit of consumers.22
In 2001, the Antitrust Division issued a business review letter stating that it would not challenge a proposal by for-hire motor carriers to promote industry best practices by disseminating various benchmarks regarding their costs, such as workers' compensation, tractor maintenance, and tire costs, through a survey conducted by a trade association. The trade association asserted that it would not gather or disseminate competitively sensitive information, such as freight rates, service volumes or capacity, or future marketing strategies. In its review, the division noted the stated purpose of the exchange was to reduce costs, that the proposed process conformed with the safe harbor requirements, and that the industry at issue was unconcentrated.23
Despite the active role that the agencies have taken in promulgating enforcement policies in this area, or perhaps because of these efforts, agency enforcement actions against information exchanges have been relatively infrequent, with just a handful of enforcement actions over the last decade. These actions have targeted information exchanges involving strategic plans, current or future pricing, and output.24
IV. Information Sharing Best Practices
Taking into account the agencies' enforcement policies, advisories and actions, including the most recent action against the Sinclair Broadcasting Group and its alleged co-conspirators, there are a number of best practices to keep in mind regarding information exchanges among competitors. These include:
- Do not share with or seek from competitors non-public, recent or prospective information in the following sensitive categories:
- price and other terms or conditions of sale that are the basis of competition;
- output, sales volumes and market shares;
- revenues, profits and profit margins;
- customer information; and
- business, operating or strategic plans, including those regarding pricing, product or service offerings, marketing and advertising, or research and development.
- Follow the agencies' safe harbor guidelines when sharing non-public information among competitors. The guidelines require that:
- a third party manages data collection (e.g., a trade association, industry publication, purchaser, government agency, consultant, or academic institution);
- the information is more than three months old; and
- disseminated information is sufficiently aggregated—at least five providers report the data; no individual provider's data represent more than 25 percent of the relevant statistic on a weighted basis; and data aggregation is sufficient to prevent a participant from deducing the data provided by any individual competitor.
- Using or disseminating information from public sources, such as open websites, government filings, analyst reports, investor materials, and press releases, does not raise significant antitrust issues.
- The use or dissemination of information from industry reports does not raise antitrust issues of concern as long as the reports are publicly available.
- Keep the following rules in mind when engaging in trade association activity:
- legal counsel should review all proposed trade association activity in advance;
- legal counsel should review in advance all meeting agendas involving meetings with competitors;
- do not deviate from meeting agendas approved by counsel;
- counsel should be present at all meetings with competitors; and
- avoid "private meetings" among competitors.
- Implement internal antitrust training and compliance programs with the aid of experienced counsel.
- Seek antitrust counsel if you are unsure whether an information sharing practice is lawful.
U.S. Dep't of Justice & Fed. Trade Comm'n Antitrust Guidance for Human Resources Professionals (2016), https://www.justice.gov/atr/file/903511/download.
Id. ¶ 20. The practice allegedly harmed the competitive process by helping each station anticipate whether its competitors were likely to raise, maintain, or lower spot advertising prices in particular local markets, depending on whether their sales were or were not on track compared to the previous year. That insight allegedly informed the stations' pricing strategies and enabled them to resist advertisers' attempts to obtain lower prices by playing the stations off against one another.[[N: Id. at ¶ 20.
See United States v. United States Gypsum Co., 438 U.S. 422, 441 n.16 (1978) ("The exchange of price data and other information among competitors does not invariably have anticompetitive effects; indeed such practices can in certain circumstances increase economic efficiency and render markets more, rather than less, competitive. For this reason, we have held that such exchanges of information do not constitute a per se violation of the Sherman Act."); see also Todd v. Exxon Corp., 275 F.3d 191, 198-99 (2d Cir. 2001) (applying rule of reason to allegations that fourteen oil industry defendants instituted a system whereby they periodically conducted surveys comparing past and current salary information and participated in regular meetings at which current and future salary budgets were discussed).
U.S. Dep't of Justice & Fed. Trade Comm'n Antitrust Guidelines for Collaborations Among Competitors (2000) (hereinafter Collaboration Guidelines) at 4, https://www.ftc.gov/sites/default/files/documents/public_events/joint-venture-hearings-antitrust-guidelines-collaboration-among-competitors/ftcdojguidelines-2.pdf; see also United States v. Container Corp. of Am., 393 U.S. 333, 337 (1969) (finding Sherman Act § 1 violation where price exchange among corrugated container manufacturers who collectively had 90% market share would tend to result in price uniformity and a reduction of price competition); compare Maple Flooring Manufacturers' Ass'n v. United States, 268 U.S. 563 (1925) (exchange of average cost and shipping rate data by members of wood flooring manufacturers association did not violate § 1 of the Sherman Act in the absence of evidence that the exchange resulted in anticompetitive effects on prices or production).
See, e.g., Gypsum Co., 438 U.S. at 441 n. 16 (citing American Column & Lumber Co. v. United States, 257 U.S. 377 (1921)); United States v. American Linseed Oil Co., 262 U.S. 371 (1923)); Todd, 275 F.3d at 212-213 (holding where defendants exchanged salary information, "the 'nature of the information exchanged' weighs against the motion to dismiss. The characteristics of the data exchange in this case are precisely those that arouse suspicion of anticompetitive activity under the rule of reason.").
For example, the Antitrust Division has applied the safe harbor policy to proposed information exchanges in the trucking industry. Letter from John M. Nannes, Acting Assistant Attorney General, Department of Justice Antitrust Division, to Daniel R. Barney, Esq., Scopelitis, Garvin, Light & Hanson (March 27, 2001), https://www.justice.gov/atr/response-truckload-carriers-associations-request-business-review-letter; Letter from Thomas O. Barnett, Assistant Attorney General, Department of Justice Antitrust Division, to David Owen, President, Nat'l Assoc. of Small Trucking Cos. and Richard L. Bell, Bell & Co. (April 9, 2007), https://www.justice.gov/atr/response-national-association-small-trucking-companies-nastc-and-bell-companys-request-business.
U.S. Dep't of Justice & Fed. Trade Comm'n Statements of Antitrust Enforcement Policy in Health Care (1996) (hereinafter Health Care Statements) at 44-45, https://www.ftc.gov/sites/default/files/attachments/competition-policy-guidance/statements_of_antitrust_enforcement_policy_in_health_care_august_1996.pdf.
U.S. Dep't of Justice & Fed. Trade Comm'n Antitrust Policy Statement on Sharing of Cybersecurity Information (2014) (hereinafter Cybersecurity Statement), [[N:https://www.ftc.gov/system/files/documents/public_statements/297681/140410ftcdojcyberthreatstmt.pdf.
Letter from William J. Baer, Assistant Attorney General, Department of Justice Antitrust Division, to Steven A. Bowers, Esq. Fish & Richardson P.C. (Oct. 2, 2014), https://www.justice.gov/atr/response-cyberpoint-international-br-request-business-review-letter.
Michael J. Bloom, Assistant Director, Office of Policy and Coordination, Federal Trade Commission, to Ezra C. Levine, Esq., Morrison & Foerster LLP (Sept. 4, 2013), https://www.ftc.gov/sites/default/files/documents/advisory_opinions/money-services-round-table/130904moneyservicesopinion.pdf.
Letter from John M. Nannes, Acting Assistant Attorney General, Department of Justice Antitrust Division, to Daniel R. Barney, Esq., Scopelitis, Garvin, Light & Hanson (March 27, 2001), https://www.justice.gov/atr/response-truckload-carriers-associations-request-business-review-letter.
See Complaint, In the Matter of Bosley, Inc. et al., No. C-4404 (F.T.C. filed May 30, 2013) (providers of medical and surgical hair restoration procedures charged with exchanging non-public information about future product offerings, price floors and discounts, plans for business expansion and contraction, and current business operations and performance); Complaint, In the Matter of Nat'l Ass'n of Music Merchants, Inc., No. C-4255 (F.T.C. filed April 8, 2009) (trade association charged with facilitating an exchange among its members of non-public information regarding pricing and business strategies for the purpose of coordinating price increases for musical instruments); Complaint, United States v. Professional Consultants Insurance Co, Inc., No. 05-01272 (D.D.C filed June 24, 2005) (association of actuarial consulting businesses charged with sharing competitively sensitive information about its members' plans and efforts to implement limitation of liability clauses in client contracts).