3.4 Information exchanges as agreements restricting competition by object

3.4 Information exchanges as agreements restricting competition by object

3.4.1 Introduction

Ancillary information exchanges occur as part of a wider arrangement and is ancillary to that scheme.(1) Bennett & Collins (2010) p.328. Cooperation between competing carriers, for instance regarding capacity utilisation, often requires some exchange of commercially sensitive information. The question becomes whether that exchange can give rise to collusive outcome regarding the participants’ activities within and outside the cooperation.(2) Communication 2022/C164 para.409. Relevant case law is reviewed to uncover the legal requirements for ancillary information exchange to restrict competition by object. After identifying certain key features, the discussion addresses whether the different forms of cooperation in liner shipping can restrict competition by object.

In liner shipping, information can be exchanged ancillary to a pooling, alliance, conference, or consortium agreement. Most of these agreements can be claimed to pursue efficiencies in terms of stabilising supply, optimising capacity-usage, or improving competition. However, analysing the information exchanges may uncover an objective to restrict competition and increase the profits of the currently operating carriers.

That was the rationale in Fatty Acids, which illustrates the delicate borders between pure and ancillary information exchanges.(3) Case IV/31.128 - Fatty Acids. Concerning an information-sharing agreement between competing producers of oleochemicals, the participants exchanged historic information every quarter regarding their respective quantities sold in the market.(4) Case IV/31.128 - Fatty Acids paras.1 and 12-13. The Commission held that it “bears a strong resemblance” to an outright quota-fixing agreement, restricting competition by object.(5) Ibid. paras.39 and 44. The information exchange agreement enabled and facilitated the objective of quota-fixing, and was in that sense ancillary. One may argue that the underlying quota-fixing agreement was disguised as an information-sharing agreement.

Especially complex cooperation blurs the lines between ancillary and pure information exchanges. Fatty Acids illustrates the importance of assessing such exchanges in the context of its agreement, and that the totality of the agreement and information exchanged must be assessed. Depending on the complexity, the spill-overs of commercially sensitive information can be minimised through safeguarding measures.(6) See Communication 2022/C164 para.341 regarding joint purchasing agreements. Such measures are also relevant to the assessment, for instance if obvious measures are not in place. Case law has seen that ancillary exchanges can constitute restrictions by object.

For statistical data exchanged ancillary to market-sharing and price-fixing, the exchange will often be considered a restriction by object, as in the case Vegetable Parchment.(7) Case 78/252/EEC Vegetable Parchment para.69. The Commission noted that the exchange of statistical data must be analysed, since the sharing of especially specific statistics between competitors may exist for the tacit sharing of markets or fixing prices.(8) Ibid., paras.63-64. Similar exchanges in Cobelpa were found to have “crossed the threshold which separates a lawful information agreement from a practice intended to restrict and distort competition.”(9) Case 77/592/EEC Cobelpa para.27. Finally, the case Benelux Flat-glass illustrates how the exchange of sale figures allowed competitors from the Benelux countries to monitor closely the sales of their main rivals, enabling them to control or modify the trade flows between the states.(10) Case 84/388/EEC Benelux Flat-glass paras.45 and 47.

Arguably, the exchange of information must thus be central to the anti-competitive nature of the agreement, both in the sense of enabling the cooperation and to retain it through monitoring. The cases confirm that the characteristics discussed above remain equally important for ancillary exchanges. The totality of shared information between competing carriers must be assessed, where particularly frequent flow of individualised and commercially sensitive information may enable collusion of future conduct, constituting an ‘object’-infringement. Thus, liner shipping companies engaged in cooperative agreements should strive to restrict the flow of information exchanges. Should competition authorities’ investigations uncover exchanges of commercial information unrelated to for instance the cargo-sharing agreement, such as average freight rates for the routes in question, they may conclude on an anti-competitive object.

3.4.2 Liner conferences, consortia, and pools

EATA is illustrative for ancillary information exchanges in liner shipping. It concerned an agreement between competing liner shipping companies to establish a capacity management programme for their common trade routes. The express purpose was to allow the parties to stabilise and increase their freight rates through e.g. controlling the transport capacity supplied by each participant. The agreement also contained provisions regarding the exchange of information.(11) Case 1999/485/EC EATA paras.9-14.

The parties would exchange information as frequently as every month concerning their maximum declared capacities, their percentage utilisation and total of actual filled shots, their forecasted capacity for the following two months, and their estimated monthly total for the next four months. The information was individualised to each member and would ensure their compliance with any collective decision on non-capacity utilisation.(12) Ibid. paras.154-155.

The Commission expressly recognised that information as commercially sensitive, and that these private and frequent exchanges of sensitive information confirmed the anti-competitive context of the exchange. Additionally, the exchange of information concerning the market conditions was one of the measures to give effect to the objectives of the EATA. Thus, the exchanges both confirmed the anti-competitive conduct (collusion) and maintained the collusion. The Commission conducted its analysis by explicitly evaluating the liner shipping market structure. It pointed to the very high combined market shares of the parties (up to 86 %), to the fact that most EATA-parties were members of the same association of shipping lines, and that many were parties to another agreement concerning tariff charges and sub charges. These links increased the total restrictions on competition and increased the flow of information between the participants.(13) Ibid. paras.14, 66-71, 77-79 and 152-155. Accordingly, the market conditions can be of decisive importance.

The case law concerning information exchanges illustrates certain competition law concerns in the liner shipping sector. Although one may argue that information within the shipping sector quickly becomes historic, EATA illustrates how information on past, current, and future capacities can all be deemed commercially sensitive, and that frequent exchanges of such information violate Art. 101 (1). Considering the case law examined in section 3.2.3 supra such an exchange may constitute a restriction by object, especially if applying an analytical approach where the liner shipping market structure is evaluated.

EATA also illustrates that even though the Conference BER was applicable, such group exemptions are interpreted narrowly. The Conference BER exempted agreements under a “liner conference” having as its objective the fixing of rates and conditions of carriage.(14) Regulation 4056/86 art.4. The condition of a “liner conference” required that the parties “operate under uniform or common freight rates” and other trading conditions.(15) Regulation 4056/86 art.1 (3)b). Even though its objective was to fix the freight rates offered, EATA var considered not to fall under the scope of a conference agreement, as it had “no direct mechanism for agreeing on the implementation of freight-rate increases”(16) Case 1999/485/EC EATA para.82. (emphasis added).

EATA thus confirms that although the current Consortia BER exempts a variety of operational agreements, these will not benefit from the exemption should they exceed the scope of the activities expressly mentioned in Article 3 or the market share limits in Article 5. Furthermore, agreements having the object of fixing prices, sharing markets or limit capacities outside the scope of Article 3 (hardcore restrictions) will not benefit from the exemption.(17) Regulation 906/2009 art.3-5.

Challenging nuances emerge when considering statements in Budapest Bank, where the Court confirmed that also cooperation which “indirectly determines” the prices offered constitutes restrictions by object.(18) Case C-228/18 Budapest Bank para.62. Indirect price fixing is recognised as pursuing anti-competitive object or effects in Art. 101 (1) litra a): "directly or indirectly fix purchase or selling prices or any other trading conditions." However, Budapest Bank explicitly recognises indirect pricing as an object-infringement. The scope of “indirect” price fixing in relation to information exchanges is uncertain. However, one may argue that pooling agreements concerning capacities and revenues can fix prices indirectly, depending on the competitive situation on a given route.

Some authors have advocated that revenue-pooling is regarded as the most anti-competitive form of cartel in terms of competitive pricing.(19) Bennathan & Walters (1969) p.172. Although current practice of pools may be less strictly assessed, the pooling of revenues and information thereof can effectively reduce participants’ incentive to compete on price and other parameters, especially in smaller pools facilitating monitoring. This may hold especially true in pools consisting of fewer participants, as each party more easily can monitor the developments of its competitors. Depending on the “relevant market” definition, the pooling agreement may thus indirectly fix prices on a route. Furthermore, should the pool exercise full disclosure between the participants, full information regarding competitors’ vessel performance, hereunder average speed, fuel consumption, utilised space v available space, would be exchanged. Consequently, one may argue that pooling agreements “indirectly fix” the quality and quantity of the transport services offered, potentially constituting ‘object’-infringements.

Information exchanged ancillary to e.g. a consortium may facilitate and enable cooperation exceeding the scope of the agreement and the conditions in the BER, potentially resulting in a restriction by object. Agreements regarding capacity adjustments, which are exempted only if “in response to fluctuations in supply and demand”(20) Regulation 906/2009 art.3 (2). are likely be deemed capacity controls if the frequent exchange of individualised, sensitive information go beyond what is necessary to address the issue of fluctuating supply and demand. Liner shipping companies should therefore be observant not to exchange more information than necessary for the functioning of the joint operation agreement. The characteristics must be assessed in the context of the relevant liner shipping market, considering concentration, transparency, and barriers of entry. To categorise coordination of capacities as an object-infringement, the analytical approach is arguably required. The orthodox approach is likely to simplify the agreement and deem its nature not to restrict competition, thus referring it to a ‘by effect’-assessment.

3.4.3 Strategic liner alliances

Also strategic alliances can restrict competition by object. Alliance agreements govern horizontal coordination of service capabilities of the participants,(21) Slack et al. (2011) pp.65-66. and may regulate terms of container utilization on a large scale for several sailing routes.(22) Panayides & Wiedmer (2011) p.26. Alliances may consist of a combination of vessel sharing, slot exchange and slot chartering,(23) Van Bael & Bellis (2021) p.1458. providing for a potentially large degree of cooperation on commercially important parameters. Depending on the underlying agreements, alliances may fall under the definition of a consortium, and can, in principle, fulfil the conditions of the Consortia BER.(24) Ghorbani et al. (2022) p.440. However, because of the current alliances’ extensive scope and market shares, information exchanges within alliances may be so harmful to competition that they constitute ‘object’-infringements

Neither the Courts nor the Commission have assessed liner alliances under Art. 101.(25) Van Bael & Bellis (2021) p.1458. Generally though, cooperation and information exchanged within the major liner shipping alliances may violate Art. 101, and the Commission is expected to subject them to great scrutiny.(26) OECD (2015b) p.5. Some guidance can be found in case law from the aviation sector. Being part of the transport sector, central considerations are transferable to liner shipping. Depending on how the relevant market is defined, alliances often hold very large market shares on several routes,(27) Case COMP/AT.39595 Continental/United/Lufthansa/Air Canada (Continental) para.43. both industries are capital-intensive, and there exists substantial barriers of entry.(28) Case AT.39964 Air France/KLM/Alitalia/Delta (Air France) paras.59, 79 and 97.

The case British Airways concerned extensive cooperation between three large airlines on certain transatlantic flights. The parties were members of the “Oneworld” alliance, and cooperating through a variety of agreements. After conducting its investigation, the Commission found that a revenue-sharing joint venture restricted competition by object on several routes. It was emphasised that the competitors cooperated in relation to “key parameters” of competition, namely fare prices, capacities, schedules, and sales and marketing. This extensive level of cooperation would practically “eliminate competition” on prices, capacities, and other parameters.(29) Case COMP/39.596 British Airways/American Airlines/Iberia (British Airways) paras.2, 32-33 and 38.

In the case Continental, the parties were all members of the “Star Alliance” and enjoyed long-standing extensive cooperation on several transatlantic routes. The agreement primarily under scrutiny was a revenue-sharing joint venture (“A++ agreement”), expanding the scope of cooperation further and eliminating competition which “most likely could not be replaced.”(30) Case COMP/AT.39595 Continental paras.2, 8, 34-36 and 54.

In the case Air France is the most recent of the three and concerned particularly a joint venture agreement (“TAJV”) between members of the “Skyteam Alliance.” The TAJV established profit- and loss-sharing between them on several transatlantic routes, and due to the comprehensive cooperation the parties were deemed to “fully coordinate their activities on capacity, schedule, pricing and revenue management” on these routes.(31) Case AT.39964 Air France paras.2, 10 and 38.

Firstly, these cases confirm that, depending on the geographic coverage and operating routes in question, members of alliances are under competition rules fully regarded as competitors.(32) Case COMP/AT.39595 Continental paras.16 and footnote 14. Secondly, alliances can involve cooperation in many aspects of the transport service. In Continental, the Commission found that the members’ strategic network plans included capacity requirements, potential schedule patterns, pursuing joint revenue, inventory, and marketing management, combining their pricing functions, and aligning their pricing policies. Additionally, the A++ agreement included provisions concerning cooperation in relation to airport operations, quality management, IT and monitoring. Considering the case law reviewed in this thesis, there can be little doubt that coordination on all these commercial aspects necessarily includes a substantive degree of information exchanges which heavily increase market transparency. The creation of similar networks within liner shipping alliances will remove uncertainty regarding competitors’ future conduct, thus restricting competition by object. The Commission’s formulations that these agreements were “eliminating competition” on central parameters, and the parties “substituted competition with full cooperation” support this observation.(33) Ibid. paras.36-37.

Finally, the cases illustrate the challenge and importance of accurately identifying structures on the relevant market. One argument by the alliance members in Air France was that the Commission’s assessment of the market failed to “fully capture the extent of competition that airlines experience from competing networks” notably from other alliances and coalitions.(34) Case AT.39964 Air France para.19. Should the participants of a pooling agreement face fierce competition from other pools, competition may be sufficiently ensured. However, by consolidating independent capacities, the number of competing carriers decreases, potentially increasing concentration and transparency, and thus facilitate collusion. Regardless, alliance members’ ability to show potential enhanced competition between alliances and pools on the relevant market may ease competition authorities from finding an object-infringement.

As seen, the extensive cooperation within alliances may cause the concern of ancillary information exchanges in areas of capacities, geographic coverage, technical developments, and marketing. Even if the cooperation in itself would not amount to a restriction by object, the increased transparency and knowledge about competitors’ operations resulting from shared information may result in competition authorities finding a restriction by object.

This analysis seemingly requires some consideration of the economic and legal context of the agreement and information exchanged. The analytical approach may, therefore, more effectively capture the restrictive nature of the agreements in liner shipping. The cases of smaller pools and consortia will likely evade the ‘by object’-categorisation when applying an orthodox approach. However, because of the liner shipping alliances’ size and scope, that cooperation may be captured also when applying an orthodox approach. In British Airways, for instance, the Commission preliminary determines that the agreements “by their very nature” aimed at and had the potential of restricting competition, thus constituting an object-infringement.(35) Ibid. para.33. Moreover, should the competition authorities similarly find that liner shipping alliances “eliminate” competition on the relevant market,(36) Case COMP/39.596 British Airways para.37. the agreements and information exchanged are more appropriately treated as ‘object’- rather than ‘effect’-infringements.

This section has addressed the anti-competitive potential of ancillary information exchanges. Examining when sharing of information restricts competition ‘by object’, certain characteristics determine the categorisation. Case law has emphasised the strategic or sensitivity nature of the information, to what extent information is individualised, and whether the information concerns future intentions or current and past results. Moreover, the frequency of the exchange and whether the exchange produces any plausible efficiencies are relevant. Private exchanges may be deemed more likely to result in collusive outcome, although also public announcements can be deemed ‘object’-infringements. The totality of the exchange is decisive and especially important for ancillary exchanges, where exchanges facilitating and enabling anti-competitive collusive outcome can be prohibited. Some traditional cooperation in liner shipping may be considered anti-competitive by object, should for instance the pooling or consortia agreement go further than what is necessary to improve capacity utilisation, or the cooperation within large alliances eliminates competition on certain parameters. Competing carriers should thus be aware of the information flows permitted in relation to their cooperative agreements, as the case law of Art. 101 illustrates how several such agreements can be deemed ‘object’-infringements.