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Competition Law Guidance for the Education Sector on Information Exchange between Competitors

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27/06/2014

How an exchange of information may infringe competition law
Exemptions
What is commercially sensitive information?
Particular pitfalls
Procedures to follow at trade associations/industry gatherings
Walker Morris Comment

 

How an exchange of information may infringe competition law

Competition law applies to undertakings, i.e. any body engaged in an economic activity such as the provision of courses for remuneration, irrespective of the body’s legal status or the way it is funded. Competition law prohibits undertakings from entering into agreements or concerted practices [1], and prohibits decisions by associations which have as their object, or which are likely to have the effect of, restricting, distorting or limiting competition to an appreciable extent.

To be caught by competition law agreements do not have to be in writing – they could be oral, inferred from conduct or be informal “gentleman’s agreements”. It applies to “tacit collusion” between undertakings to jointly pursue an anti-competitive goal[2].

The concept of agreement/concerted practice has therefore been cast very broad and is wide enough to capture the sharing of information.  When a company or institution divulges commercially sensitive or confidential information, there is a risk that the information sharing:

  • mutes competition between them (such as by reducing the uncertainty as to how one or other competitor will behave)
  • leads to a collusive outcome (whereby the companies agree on a course of action.

A central principal of competition law is that companies should act independently when supplying and buying products or services. Competition law therefore regulates what information economic undertakings may share and how they share it.  Note that one-off passing of information can be sufficient to found an infringement[3] and the authorities are alert to the companies using third parties to pass information between them.[4]

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Exemptions

Competition law is not intended to prevent legitimate commercial activity such as joint research and development, licensing of rights, specialisation agreements, mergers and joint ventures. In some circumstances, arrangements between competitors may be covered by a “block exemption” regulation, individually exempt or cleared under “merger controls”. In this context, certain limited information can be divulged using special procedures (a clean team, Chinese walls, etc.). The rules can be complex and it is recommended you seek legal advice before speaking to a (potentially) competing institution about any collaborative venture.

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What is commercially sensitive information?

Competition law prohibits the exchange of commercially sensitive, confidential information between competitors. Broadly speaking, that is information which could influence a commercial decision or strategy of a competitor(s). The kinds of information that competing educational establishments should not normally disclose to each other include the following:

  • information relating to fees, scholarships or other pricing elements or fees strategy
  • which courses to run or terminate or the composition of any courses offered
  • the number of student places to be offered
  • the geographic reach of the educational establishment, which will not necessarily be its immediate catchment area, e.g. if the plan is to target foreign students
  • which schools to target to generate university/college applications
  • investment strategy (e.g. in what courses it is proposed to invest, when or how much)
  • details of expenditure on staff, marketing, general running costs, etc.

Though care should still be exercised, it is generally considered acceptable for competitors to discuss:

• publicly available information (i.e. information which is equally available to all competitors or customers, including in terms of costs of access)
• the state of the education sector in general terms (but do not discuss specific steps which your institution might take to improve it)
• new and proposed legislation or regulations (but not any detail regarding the impact on the individual institution, such as costs of implementation)
• technical or industry standards (e.g. in teaching or research) which are of benefit to students;
• HR issues
• environmental issues
• trade association rules and membership (but not how those rules might be used to exclude individual competitors or a class of (actual or potential) competitors, e.g. internet-based learning providers or other European universities).

Please note the above lists are not exhaustive but give a sense of the kind of information which may/not be exchanged between competitors.

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Particular pitfalls

This section discusses a few particular pitfalls to avoid:

Pricing and tuition fees

The leading UK case on anti-competitive practices in the education sector to date is the case involving independent schools where an OFT investigation found that 50 of the country’s independent schools, had exchanged information between February and June over several academic years, detailing their intended fee increases for the following year. This was a serious breach of competition law. Penalties were imposed on the schools, and as part of a settlement agreed with the OFT, the schools agreed to pay £3m into a fund to assist pupils. It is clear that if a similar infringement was uncovered in the sector today, the penalties would be far higher.

There were allegations by a Unite officer in 2011[5] that universities had colluded over tuition fees when they each agreed to charge the maximum £9,000.  The allegations may very well be unfounded but recall that there does not need to be an express agreement for behaviour to be anti-competitive.  Universities have to disclose their desired fee to the Office for Fair Access.  The important thing is not to disclose proposed fees to anyone else first.  Care should also be taken with surveys.  It is not unusual for higher education institutions to disclose their pricing intentions in response to survey requests; if the survey is then made public and the institutions adapt their pricing structures in response to it, then the institutions may leave themselves open to charges of collusive behaviour.

Benchmarking

Benchmarking is the process for comparing performance of organisations, functions or processes with the aim of highlighting best practice, which can be a very useful exercise. However, in certain circumstances benchmarking may be anti-competitive.

The safest course is to conduct a unilateral exercise comparing the institution’s performance to that of other competitors based on publically available information and without receiving information from competitors. Much information is available in the education sector, through league tables, inspectors’ reports etc. However, where information is not publicly available, guidance is provided by the European Commission and in case law[6]. As a general rule of thumb, an exchange of information, including through benchmarking, is more likely to have an appreciable effect on competition where there are only a small number of undertakings operating in the market or participating in the benchmarking exercise (say, five or fewer), where the information is commercially sensitive/confidential/detailed/not aggregated (i.e. it can be traced to an individual participant)/current or relates to future plans, or where there is a frequent or systematic exchange of information.

Dissemination of industry statistics

Sometimes trade associations collect and disseminate industry statistics. These statistics can be very useful. It is acceptable for a trade association to do this only if the information is submitted separately by each member to an independent person (such as an administrator or accountant employed by the trade association). This person must not be employed also by one of the trade association members. The information sent back out to members must be historical and aggregated so that recipients cannot identify the figures relevant to any individual member.  Sometimes a trade association can have too few members to be able to guarantee that aggregated data will not reveal commercially sensitive information about one member to its competitors.

Codes of conduct and Technical/industry standards

Codes of conduct and technical or industry standards are often objectively a “good thing”.  But they may act as a deterrent to potential new entrants to the market or serve to limit competition between existing members. You should seek legal advice before signing up to a code or standard and be careful as to the commercial sensitivity of any information divulged in developing the code or standard.

Joint activities

Any commercial activities co-ordinated through a trade association, for example joint marketing or purchasing by competitors or development of common terms and conditions, risks infringing competition law, although in some circumstances such activities may be exempt. The risk is that the project may involve participants in divulging commercially sensitive information such as their current terms and preferred suppliers, or the co-operation may restrict competition in the market. Legal advice should be sought before participating in the project.

Restrictions on advertising

Restrictions on advertising may breach competition law. Any recommendation by a trade association or agreement between members which restricts an undertaking’s ability to compete for business is likely to be anti-competitive. Any involvement in an arrangement to restrict the general advertising of prices, campus facilities or pass rates, for example, should be avoided.

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Procedures to follow at trade associations/industry gatherings

Any decision, rule or recommendation of a trade association or any agreement between its members that has an appreciable (actual or potential) effect on competition in the market may infringe competition law. One of the main risks with associations is that the association may, directly or indirectly, act as a vehicle for exchange of commercially sensitive information between members and thereby facilitate anti-competitive activity. In these circumstances, both the association and the individual members could be found guilty of an infringement.

The wider the membership of a trade association or the greater percentage coverage it has over a market, the greater the risk that any activities it enters into will have an appreciable effect on the market. For certain types of infringement (related to pricing and market sharing by geographic area or course type, for example) any infringement would be considered appreciable.

It is therefore advisable to use the following procedures when attending a trade association meeting/industry gathering:

  • During the meeting, it is very important that you expressly refuse to join in any suspect activity.  Sitting quietly through the meeting whilst other members engage in unlawful discussions will not protect you.  You will be deemed by the competition authorities to have been party to the unlawful activity.
  • You should say to the others present at the meeting that you believe that what they are doing/proposing to do may infringe competition law and that you refuse to be involved or that you will not participate until you have received legal advice on whether the discussions comply with competition law. You should insist on your objection being noted in the meeting minutes.  If the other members continue the discussions, you must leave the meeting.  Have it noted in the minutes when you left and your reason for doing so.
  • It is important to remember that competition law applies also to informal discussions which you hold with competitors e.g. over dinner or drinks. It is for this reason that you are strongly advised to avoid discussing business matters with your competitors save in the context of formal meetings where you stick to an approved agenda. If the potential breach occurs in an informal or social setting, refuse to engage in the conversion, make a written note of what was said and when and why you refused to participate and report the matter to the appropriate person/compliance officer within your organisation.

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Walker Morris Comment

The concern regarding exchange of commercially sensitive, confidential information is that it could lead to co-ordination of competitive activities or otherwise influence the offering of a competitor. Divulging such information can give the appearance of unlawful activity, even if none was intended. The rules apply whenever there is an object (ie intention) or an effect (even inadvertent) to restrict competition.

The competition authorities have wide-ranging powers to investigate and enforce competition law including conducting on site, unannounced inspections at the campus/head office, questioning current and former employees and imposing fines. Third parties harmed by anti-competitive activity can also claim damages.

Exchanging commercially sensitive and confidential information with a competitor poses a serious risk under competition law. For further advice, please contact Trudy Feaster-Gee.

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[1]  Broadly speaking, a concerted practice is conduct that falls short of an agreement but which nevertheless results in a mutual expectation by the parties about what action is to be taken.
[2]  Cases C-2 & 3/01 P BAI and Commission v Bayer [2004] ECR I-23.
[3]  Case C-8/08 T-Mobile Netherlands BV v Raad van Bestuur van de Nederlandse Mededingsautoriteit [2009] ECR I-4529.
[4]  See the OFT investigations into tobacco manufacturers and retailers (OFT press release 56/108) and the dairy sector (OFT press release 45/10)
[5]  Evidence of Mike Robinson, national officer for higher education at Unite to the Business, Innovation and Skills Committee’s inquiry into the government’s funding reforms, March 2011.
[6]  The  EC Horizontal Competition Agreements Guidelines.  A good illustration of this in practice is the OFT’s 2011 investigation into the private motor insurance sector.  The insurers used an information tool that allowed them to access not only the pricing information they themselves provided to brokers but also pricing information supplied by competing insurers. The OFT was concerned that the exchange of information that was highly individualised, commercially-sensitive, non-public and future, might constitute a concerted practice that restricted competition by object and that the nature of the information exchanged was such that it potentially increased significantly the ability for the insurers to reach a co-ordinated outcome on the pricing of private motor insurance. The OFT accepted commitments from the insurers to bring the infringement to an end.

 

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