|March 8, 2012|
Previously published on Winter 2011-2012
Recent Complaints filed by the Federal Trade Commission (FTC) against suppliers of ductile iron fittings may indicate that the FTC is taking a broader view of when information exchanges run afoul of the antitrust laws. On January 4, the FTC filed Complaints against the three largest U.S. suppliers of such fittings, alleging that they engaged in a price-fixing scheme, and pointing, among other things, to their collection and distribution of sales volume information through a trade association as a method facilitating the alleged illegal agreement. This is despite past indications from the agency that exchanges similar to the one at issue in the new suits, which involved the sharing of aggregated, historical data through a third party, are less likely to raise antitrust concerns.
In addition, although two of the companies continue to litigate, the FTC issued a proposed Consent Order with the third. In that proposed Order, the agency would broadly prohibit the supplier from sharing any information on output or customers with its competitors. This goes beyond the 1996 Department of Justice (DOJ) and FTC Health Care Guidelines, which has been considered to provide safe harbors for certain types of information exchanges between competitors in a number of industries.
Information Exchanges and the Antitrust Enforcement Agencies
The federal antitrust enforcement agencies have frequently recognized that there are instances when information exchanges between competitors may serve a competitively neutral or even a pro-competitive function. In 1996, the DOJ and FTC issued “Health Care Guidelines,” which carved out safety zones for certain exchanges of information between competitors in order to protect them from antitrust claims. While these Guidelines specifically addressed information exchanges in the health care industry, they have been relied upon as guidelines for other industries as well. The Health Care Guidelines do not address the exchange of information about sales volume or customers, instead focusing only on the exchange of pricing information. Specifically, they offer a safe harbor for the exchange of pricing information among competitors if the exchange meets the following criteria:
1) the data collection is independently managed;
2) the data exchanged is more than three months old;
3) there are at least five participants;
4) no individual firm’s data represents more than 25% of any statistic; and
5) the disseminated information is sufficiently aggregated to prevent identification of the prices charged by any specific participant.
In 2000, the DOJ and FTC built upon the Health Care Guidelines with the issuance of “Antitrust Guidelines for Collaborations Among Competitors,” which provided views of when information exchanges between competitors are likely to result in a violation of the antitrust laws. The 2000 Guidelines specifically note that 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 . . . .” Specifically, the 2000 Guidelines advise that the competitive concern of an information exchange “depends on the nature of the information shared,” stressing that:
1) information related to price, output, costs or strategic planning is more likely to raise antitrust concerns than the sharing of “less competitively sensitive variables”;
2) the exchange of information on current operating and future business plans is more likely to raise concerns than the sharing of historical information;
3) the sharing of individual company data is more troublesome than aggregated data; and
4) limiting access to competitively sensitive information to specified individuals or an independent third-party lessens antitrust concerns.
Although, in contrast with the Health Care Guidelines, the 2000 Guidelines refer to information related to output and other non-price factors as competitively sensitive, the 2000 Guidelines continue to suggest that the dissemination of historical, aggregated data by a third party is not particularly troublesome under the antitrust laws.
The FTC’s Complaints and Proposed Sigma Consent Order
In Complaints filed on January 4, 2012, the FTC alleged that the three major U.S. suppliers of ductile iron fittings, Sigma Corporation (“Sigma”), McWane, Inc. (“McWane”) and Star Pipe Products, Ltd. (“Star”), utilized information exchanges to facilitate an illegal price-fixing agreement. Specifically, the Complaints pointed to two types of allegedly facilitating information exchanges: a public letter sent by McWane to its distributors announcing price increases, and the utilization by the companies of a trade association to disseminate monthly sales information. Participants provided sales information to the trade association, including tons shipped, diameter size, and joint type, and the association then aggregated and distributed the data to member companies. At the time of dissemination, the data was typically no more than two months old. The FTC alleged that McWane’s letter was in part intended to signal price increases to Sigma and Star because it contained information of interest to competitors and not to McWane’s distributors. The FTC claimed that the use of the trade association permitted the participants to monitor each other’s output levels to ensure pricing coordination.
Although McWane and Star continue to litigate, the FTC issued a proposed Consent Order against Sigma intended to resolve the claims against that company. Among other restrictions, the proposed Order contains language prohibiting Sigma from engaging in certain types of information exchanges. Specifically, the Consent Order would prohibit Sigma from communicating “Competitively Sensitive Information” to any other competitor. The Order broadly defines “Competitively Sensitive Information” as “any information regarding the cost, price, output, or customers” of or for the iron pipe fittings marketed by Sigma and its competitors.
The FTC’s approach to information exchanges in both the Complaints and its proposed Sigma Consent Order may indicate that the agency intends to subject information exchanges to stricter scrutiny than it has done historically. First, in the Complaints, the FTC points to a public communication, the letter from McWane that was directed to its distributors as McWane’s method of communicating price information to competitors. Although the Complaints do not specify the contents of the letter, it is alleged that the letter had a section that was meaningless to distributors and was meant solely to inform Sigma and Star of McWane’s intent pricing intentions.
Second, both the Complaints and the language in the proposed Sigma Consent Order implicate a broad array of information exchanges beyond the exchange of pricing information traditionally looked at unfavorably by the FTC, including exchanges as to sales volume and geographical sales information. This appears so even though the companies’ information exchanges were: historical; achieved through an independent third party; and disseminated in an aggregated form, These are all factors that the antitrust agencies have in the past indicated lessen antitrust concerns. Finally, by prohibiting Sigma from exchanging “any information regarding the cost, price, output, or customers,” the proposed Sigma Consent Order is more restrictive than the FTC’s Health Care Guidelines’ safe harbor.
It remains true that in order to establish an antitrust violation, an information exchange must be connected to an underlying unlawful agreement to fix prices. In remarks made in 2011 before the ABA Section of Antitrust Law, FTC Commissioner J. Thomas Rosch stressed this point, stating that before an information exchange can violate the U.S. antitrust laws, a plaintiff must “meet its burden of connecting what is otherwise lawful conduct (collecting and reporting price information from competitors) with an underlying unlawful agreement to fix prices.” However, he also noted that this “does not mean that firms and their employees can engage in the exchange of price information liberally or with impunity,” warning that even when “one honestly believes he or she is engaging in perfectly lawful behavior, there remains the fear . . . that someone else is engaging in unlawful, anticompetitive behavior . . . .”
The FTC’s recent indications that it may be applying a heightened scrutiny to information exchanges in concentrated industries, illustrated through its suits against the three major ductile iron fitting suppliers, and Consent Order proposed against one of the companies, suggest that companies in such industries should remain sensitive to sharing any communications with competitors that involve not only price but any information that could be considered competitively sensitive.
 DOJ & FTC, Statements of Antitrust Enforcement Policy in Health Care, Statement 6: Enforcement Policy on Provider Participation in Exchanges of Price and Cost Information (1996) (hereinafter the “Health Care Guidelines”).
 See David H. Evans and Benjamin D. Bleiberg, Trade Associations: Collaboration, Conspiracy and Invitations to Collude, The Antitrust Rev. of the Americas (2011).
 Health Care Guidelines at Statement 6.
 FTC & U.S. Dep’t of Justice, Antitrust Guidelines for Collaborations Among Competitors 21 (2000) (hereinafter the “2000 Guidelines”).
 Id. at 15.
 Id. at 21.
 More recently, J. Thomas Rosch, an FTC Commissioner, addressed information exchanges in a presentation. He noted that he used the term “price information” when referring to information exchanges only for the sake of brevity, and that he meant the term to also include information exchanges about “costs, inventories, capacities, and other aspects of production, marketing, sales and distribution . . . .” See J. Thomas Rosch, Commissioner, FTC, Antitrust Issues Related to Benchmarking and Other Information Exchanges n.1 (May 2, 2011), available at http://www.ftc.gov/speeches/rosch/110503roschbenchmarking.pdf [hereinafter Rosch Speech].
 See Complaint, In the Matter of Sigma Corp., FTC File No. 101-0080 (Jan. 2012), available at http://www.ftc.gov/os/caselist/1010080/120104sigmacmpt.pdf [hereinafter Sigma Complaint]; Complaint, In the Matter of McWane, Inc., FTC File No. 101-0080 (Jan. 2012), available at http://www.ftc.gov/os/adjpro/d9351/120104ccwanestaradmincmpt.pdf [hereinafter McWane Complaint].
 Sigma Complaint at 4; McWane Complaint at 6; see also Press Release, Federal Trade Commission, FTC Action Protects Competition in Market for Iron Pipe Fittings Used in Municipal Water Systems (Jan. 4, 2012), available at http://www.ftc.gov/opa/2012/01/mcwane.shtm.
 Sigma Complaint at 5; McWane Complaint at 7.
 See, e.g., McWane Complaint at 6-7.
 Proposed Decision and Order, In the Matter of Sigma Corp., FTC File No. 101-0080 (Jan. 2012), available at http://www.ftc.gov/os/caselist/1010080/120104sigmado.pdf [hereinafter Proposed Decision and Order]; see also Analysis of Proposed Consent Order to Aid Public Comment, In the Matter of Sigma Corp., FTC File No. 101-0080 (Jan. 2012), available at http://www.ftc.gov/os/caselist/1010080/120104sigmaanal.pdf (providing background on the Complaint against Sigma).
 Proposed Decision and Order at 5.
 Id. at 2.
 See, e.g., McWane Complaint at 6.
 Although the information exchanges at issue in Sigma were managed by an outside third party and were historical in nature, they would not have qualified for safe harbor protection under the 2006 Health Care Guidelines, both because the data exchanged was only two months old when disseminated, and there were only three participants in the exchange rather than the requisite five. See Health Care Guidelines at Statement 6.
 Proposed Decision and Order at 2.
 Williamson Oil Company, Inc. v. Philip Morris USA, 346 F.3d 1315 (11th Cir. 2003) (upholding summary judgment dismissal of a claim that the major tobacco companies engaged in a price-fixing conspiracy, and noting, inter alia, that their monthly exchanges of sales volume information through an independent company provided “practical and financial advantages that stem from the ability to monitor the sales of one’s competitors and from the spreading of the responsibility for providing market share and pricing data to those competitors”).
 See Rosch Speech at 10.
 Id. at 11.