Cigarettes producers fined for alleged indirect info exchange

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EU and Competition Law

Enforcement of competition rules in relation to indirect information exchange seems to be catching on; while the European Commission only flagged the risks in its consumer electronics cases, the ACM has taken up the challenge and imposed fines. Four cigarettes producers were fined a total of EUR 82 million for allegedly indirectly exchanging information on the future retail prices of cigarettes through their wholesalers and other buyers. According to the ACM, the manufacturers knowingly accepted this information and used it to determine their own pricing strategies.

Companies should be wary of the ACM’s strict approach towards indirect information exchange. According to the ACM, any customer communication should be clearly marked ‘for your eyes only – not for redistribution’ and sales teams should be instructed to expressly decline any competitor information inadvertently received through third parties.

Third party price list circulation

Due to a sector-specific taxation system, cigarette pack prices are set by the manufacturer instead of the retailer (as is usual for consumer products). To allow wholesalers and other buyers to adapt their sales systems to newly-set prices, tobacco manufacturers send price lists to them in advance. The ACM found that, in the period 2008-2011, some of the buyers passed the manufacturers’ future price lists on to competitor manufacturers, who knowingly received, accepted and asked for them. Manufacturers allegedly also sent ‘trial balloons’ with information to wholesalers to feel out their competitors’ response. The ACM held that the manufacturers used this information to set their own retail prices for cigarettes packs, thereby enabling them to coordinate their pricing strategies.

First time fine for indirect info exchange

This is the first time the ACM has imposed fines for indirect information exchange between competitors. The Commission has played with the concept in its consumer electronics cases but decided to stick to vertical resale price maintenance (RPM) because there was no clear-cut evidence of retailers driving the RPM (by e.g. requesting their suppliers intervene with ‘undercutting’ retailers).

According to the ACM, there is evidence that the manufacturers were aware that their information found its way to their competitors through the wholesalers, and used this ‘road’ to their own advantage. As a result, despite that not all manufacturers always implemented exactly the same price adjustments, the conduct put ‘the brakes on competition’; thereby stifling mutual competition.

The four cigarette producers have filed objections against the ACM’s decision. It therefore remains to be seen whether the ACM approach will stand.

Recommendations

For now, companies should remain vigilant about the type of information they receive – even inadvertently. Even though most sales managers are aware of the anticompetitive risks of competitor contacts, the risks of accepting third party information may be less obvious. 

Pending the appeals against the ACM Decision, it is therefore advisable for companies to double-check whether their antitrust compliance programmes include potential risks related to third party communications. It is also worth clearly indicating ‘for your eyes only – not for redistribution’ on all customer communications. Finally, until a ruling on the appeals, it is advisable to instruct sales teams to expressly decline all competitor information inadvertently received through third parties, and to notify the company’s legal department as soon as possible upon receipt of such information.

This article was published in the Competition Newsletter of October 2020. Other articles in this newsletter:

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