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Spain's competition authority smokes out cigarette cartel facilitated by online software

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United Kingdom

Three of Spain's major cigarette makers – Philip Morris Spain, Altadis and JT Internacional Iberia – as well as distributor Logista, have been fined a total of EUR 57.7 million by the country's

Co-authored by Nick Pimlott and Jonathan Peters

Three of Spain's major cigarette makers – Philip Morris Spain, Altadis and JT Internacional Iberia – as well as distributor Logista, have been fined a total of EUR 57.7 million by the country's competition authorities for exchanging sensitive sales information over a decade from 2008 to 2017.

Logista owns a software platform that the three manufacturers used to compare price information in real time. It received the largest fine of EUR 21 million as facilitator of the arrangement, but plans to appeal the decision on the basis that it has a legitimate explanation for its conduct, and there was no anticompetitive effect.

The verdict has a number of interesting implications for how competition authorities may react to the use of technology to facilitate infringement, in particular which parties they may hold liable in such a scenario.  It may also shed some light on the difficult area of the kinds of information that may and may not be shared between competitors.

1.  Use of software platforms to facilitate infringement

The technology in question was a platform showing each company's sales figures updated in real time. The cigarette makers could login to view their own, but also grant others access to their data. This enabled them to view patterns of consumer behaviour on the market, the response of demand by province to price changes, and the launch of new products. Whilst the Spanish competition authority - Comisión Nacional de los Mercados y la Competencia (CNMC) - never contended that the parties had an anticompetitive object in their use of the platform, it concluded there was an anticompetitive effect as a result of the features enabling the exchange of sensitive information.

The Spanish decision indicates a tough approach by competition authorities to technologies that may enable anticompetitive conduct.  Whilst the case does not appear to involve the use of Big Data or algorithms to facilitate cartel activity – both highly topical issues - it nonetheless demonstrates how established principles of competition law are being applied increasingly to software platforms, as cartels move into virtual spaces.

In the UK, the CMA warned over two years ago that software providers could be at risk themselves of breaching competition law, if they helped their clients use software to facilitate cartels. This followed the CMA's decision against GB Eye and Trod, in which it found that two online poster sellers had engaged in price fixing by using automated re-pricing software to monitor and adjust prices. Again, it did not matter that the cartel was sustained, following an initial price-fixing agreement via email, through automated software rather than continued engagement between individuals – the CMA found that the law encompassed this area, fining Trod and disqualifying its managing director.

2.  Distributors being held party to horizontal infringements between suppliers

The CNMC's decision is an example of a company at a different level of the supply chain being penalised in relation to a horizontal infringement.

The principle that companies who facilitate anti-competitive agreements between competitors could be liable for cartel infringements even if they are not active on the affected market was established by the Court of Justice of the EU was established in a ruling issued in 2015. In that case, Swiss consultancy AC Treuhand was found to be 'essential' to the running of a cartel – the cartelists had used the firm's consulting services to help organise meetings to fix prices for heat stabilisers used in the manufacture of plastic products.  Despite not being active on the relevant market, AC Treuhand was nonetheless considered to be capable of distorting it.

Likewise, Logista does not manufacture cigarettes, and it distributes in a wide variety of other markets, but it was found to be liable for the infringement alongside the cigarette manufacturers by virtue of its role as a facilitator.

3.  Was the shared information competitively sensitive?

As it prepares to launch its appeal, Logista has released a press statement asserting that the information was not sensitive, and was provided in strict compliance with the neutrality and non-discrimination principles, being made available for free to all tobacco manufacturers who distribute their products with Logista.

However, the CNMC maintained that the real-time sales information was substantially different to the sort of information published monthly by the regulator of Spain's cigarette market, and enabled the three manufacturers in question to retain a stable market share of around 95% since 2008. This begs the question of whether any of the data available on Logista's platform could be said to be public, rather than sensitive information at all – could the information be gleaned from other sources, and regardless of whether the software platform was free to manufacturers distributing with Logista, could other players in the market also access it?

Conclusion

The decision shows that competition authorities are willing to push further than ever before to crack down on cartels facilitated through modern technology. Unlike in the Trod case, the software here simply presented data, rather than sustained the cartel through automatic price adjustments, but that was enough to penalise the operator of the software platform. And unlike in AC Treuhand, the third party at a different level of the supply chain did not have the object of assisting the infringement, but simply offered a platform that had the potential effect of restricting competition. Third party software developers need to stay more vigilant than ever of the ways in which their platforms can be used by licencees, and ensure they do not find themselves entangled in infringements along the supply chain.

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