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March 11, 2013 11:00 PM

Staying on the right side of competition law in the polyurethane industry

Simon Robinson
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    By Simon Robinson

    Fixing prices and allocating markets and shares of product is a bad idea. It can lead you and your company into serious legal problems; you may even go to prison warned Professor Filip Tuytschaever, advocaat, or lawyer, of Contrast, a firm of legal professionals, speaking at the recent EuroPUR meeting in Madrid.

    Tuytschaever, whoes firm specialises in European and business law said companies needed all of their staff to avoid eight types of behaviour to reduce their risk from competition law by about 90%.

    Tuytschaever warned that breaches of the law can lead to heavy administrative and criminal fines at the national and European level. At the European level, the administrative fines can be 10% of the worldwide turnover of the companies involved. Individuals can also face fines if they are found guilty of participation. In Belgium, these are fairly modest at €10,000 maximum, in the Netherlands the maximum is €450,000, in the UK and Republic of Ireland individuals can face imprisonment if convicted of anti-competitive activity.

    In addition to the reputational damage that companies operating schemes to control markets face, their contracts may be legally unenforceable, he added.

    There is also the possibility that companies-- and possibly individuals --that feel they may have suffered at the hands of market manipulators may take them to the civil courts. If this happens in the US, often by way of class actions, then fines can be very high indeed.

    If a firm operates a market rigging scheme, “the risk is real” of being discovered, he said.

    “Leniency is the real reason” that people blow the whistle on cartels. “In all EU member states , apart from Malta, going to the authorities and informing them that a cartel exists will get the first company total immunity to fines.”

    “Some people have asked if cartels could be used as a strategic business tool,” he said, “Companies have said ‘can we set up a cartel and then go to the authorities?’”

    “We advise against this,” Tuytschaever said, “cooperation does not immunise your firm against private actions.” See story lifting the lid on a class action.

    All the people in the organisation should comply with competition law from the top to the bottom. In Europe the authorities will not accept a defence that the individuals involved acted against policy or in opposition to management.

    Market rigging operates in two directions: vertically that is along supply chains; and horizontally, between competitors and potential competitors.

    Vertical price fixing such as selling price maintenance and setting minimum prices is illegal in many jurisdictions. Distributors are independent partners. They buy product from a principal and sell it on at a price they decide. Principals may recommend an advised price and set a maximum price, but setting a fixed or a minimum price for distributors to sell at is illegal.

    Territorial restrictions,

    There are 28 member states and in principle all distributors should be free to sell anywhere within Europe. Only in a system of exclusive distribution is it possible to prohibit active sales of distributors in each other’s territory. Passive sales, which occur if a buyer approaches a distributor outside the exclusive territory, are allowed and there is little you can do about it as the exclusive distributor.

    Activities to avoid:

    • Agreeing with your competitors the size and direction of price movements
    • Sharing information about your company’s or other companies’ current price levels and pricing intentions
    • Discussing discounts, bonuses, credit, and payment terms with your competitors is also illegal in the EU
    • Sharing the market and ring-fencing customers: “You cannot say ‘I take Spain, and France and stay away from Germany and Poland, if you do the opposite…’ or ‘I’ll focus on my historical customers and not attack your historical base.’”, said Tuytschaever.
    • Bid rigging – getting together with your competitors to ensure that no-one undercuts the agreed price one of the competitors will bid for a public and private tender. “This is very dangerous for public tenders in the EU,” he added.
    • It is also illegal to agree with your competitors to limit output or agree with them on supply quotas.

    Trade associations:

    “I would like to take away some paranoia. There is a simple rule applying to trade associations: what is illegal outside a trade association does not become legal because it is part of a trade association’s activity. Companies may not fix prices outside a trade association; they may not do so inside a trade associate. They may not exchange strategic information outside a trade association; they may not do inside it, Tuytschaever emphasised. ”Just remember, if it is illegal outside a trade association, then it is illegal inside a trade association.”

    He added that, generally strategic information is anything relating to the future, including prices, customer lists, production costs or production quantities. It is OK to exchange other kinds of information depending on the type of information, the age of the information, the level of detail and whether the information is public or private.

    Historical information is not strategic as “as a rule anything 12 months old is OK”, said Tuytschaever. Current information that is aggregated and distributed is OK. EU law recognises that this may be of benefit to the market. If information is from three or more sources and aggregated in such a way to make it impossible to say which company it relates to it is OK, he added.

    If you find yourself in a meeting where price-fixing, bid-rigging, market allocation or any of the other anti-competitive activities are happening you should “distance yourself publically, minute your objections to the conversation, leave the meeting immediately, report to your legal department”, said Tuytschaever. In the short run it may be financially beneficial and people think they can get away with it. This temptation should be avoided, he said, because the risks are too high.

    Empirically, a majority of cartels involves senior management, said. Tuytschaever. “Sometimes they think that they won’t be discovered, and if they are then the investigation will take between three and five years, and the decision of the competition authority can be appealed before court and that may take up to 10 years and by that time ‘I’ll be gone,’ ”said Tuytschaever.

    “This is increasingly dangerous as member states are adopting legislation to make the people involved in market manipulation personally liable,” the legal specialist warned.

    “Zero tolerance is zero tolerance. Don’t risk the reputation of your company; don’t risk your own reputation.” Tuytschaever concluded.

    Dos and Don'ts 

    Don’t

    1.            Do not discuss prices with your competitors

    2.            Do not discuss price changes with your competitors

    3.            Do not share out the market for your products with your competitors

    4.            Do not discuss how to divide tenders between competitors

    5.            Do not discuss production levels with your competitors directly

    6.            Do not tell your distributors to a minimum price to sell your products

    7.            Do not discuss current or future plans with your competitors

    Do

    1.            Share information with trade associations and price discovery services that aggregate the data and reflect it back to the market in an anonymous way

    2.            Make your objection to any of the items in the don’t list and make sure it is noted in the minutes. Knock over a glass of water so people remember that you objected, suggests Tuytschaever.

    3.            Tell your legal department about any meetings where you were concerned.

    4.            Train your staff about how to avoid competition problems

    5.            Ensure there is a secure way for staff to tell the ceo or chairman of any competition worries

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