Antitrust Alert: Does Recent FTC Consent Agreement Signal Heightened Antitrust Scrutiny for Information Sharing by Competitors?

On January 4, 2012, the Federal Trade Commission ("FTC") published for public comment a proposed consent agreement with Sigma Corporation ("Sigma") resolving FTC claims that Sigma violated Section 5 of the Federal Trade Commission Act.  The consent agreement stems from a larger FTC investigation of alleged price fixing and other anticompetitive behavior involving three of the largest U.S. suppliers of ductile iron pipe fittings ("DIPF"), which are used in municipal water systems.

One of the FTC's primary allegations is that Sigma and its two competitors, McWane Inc. and Star Pipe Products Ltd., unlawfully exchanged information on their monthly sales volumes through an industry association in order to ensure that all three companies were complying with an agreement to raise prices.  McWane and Star reject these charges and are continuing to oppose the FTC's administrative complaint.  Sigma has settled with the FTC by agreeing to a proposed consent agreement that includes restrictions on its ability to exchange sensitive information with its competitors.

Antitrust consent agreements are a notoriously unreliable means for assessing changes in legal standards because they represent a negotiated resolution, often entered into to avoid the cost of agency litigation, and not a judicial decision.  They do, however, provide a good indicator of current agency enforcement approaches, and, for this reason, the settlement with Sigma merits a careful read.  Its information sharing provisions are considerably more restrictive than the safe harbor provision of the 1996 DOJ/FTC Health Care Guidelines, which antitrust lawyers have relied on for many years in counseling clients on information exchanges and benchmarking with competitors.  Whether the Sigma consent foreshadows a change in the FTC's approach to competitor information exchanges is unclear, but this enforcement action should be of interest to any company involved in competitor information exchanges.  It is a reminder of the potential dangers inherent in information sharing with competitors and reinforces the importance of obtaining legal advice on the appropriate parameters of such activities.


The FTC complaint alleges that, beginning in 2008, McWane, Star, and Sigma unlawfully agreed to fix prices for imported DIPF.  According to the FTC, McWane invited Sigma and Star to collude with it beginning in early 2008, when it communicated to Sigma and Star a plan to raise prices for imported DIPF.  The FTC alleges that Sigma and Star accepted McWane's invitation to collude and, in furtherance of the alleged conspiracy, each company purportedly raised its prices for imported DIPF in January 2008 and again in June 2008.

During this period, according to the FTC, the three firms also exchanged information documenting the volume of their monthly sales through a trade association called the Ductile Iron Fittings Research Association ("DIFRA").  Each company allegedly used information received from DIFRA to monitor whether the other co-conspirators were adhering to the terms of their collusive arrangement.  The FTC's complaint also alleges that McWane and Sigma entered into unlawful agreements through which Sigma agreed to abandon efforts to enter the U.S. market in exchange for becoming a distributor of McWane's products.  FTC also claims that McWane excluded Star from the domestic DIPF market by threatening to penalize distributors if they bought any of Star's products and that Sigma agreed to adopt similar policies.

Proposed Consent Agreement

The FTC's Section 5 complaint against McWane and Star triggers a Part III administrative proceeding before an FTC administrative law judge.  Sigma, however, has settled the FTC action by agreeing to a proposed settlement that would prohibit it from: 

  • Participating in or maintaining any conspiracy to fix, raise, or stabilize the prices at which DIPF are sold in the United States, or to allocate or divide markets, customers, or business opportunities for DIPF;
  • Soliciting or inviting any competitor to participate in any such anticompetitive conduct; and
  • Participating in or facilitating any agreement between competitors to exchange competitively sensitive information, such as the sales information exchanged through DIFRA, and from otherwise disclosing such information to competitors, except in certain circumstances. 

The prohibition on Sigma's exchange of competitively sensitive information contained in paragraphs II.C and II.D of the proposed order is subject to certain exceptions, such as information sharing "reasonably related to a lawful joint venture, license, or potential acquisition" or the provision of information on prices or other terms of sale to actual or prospective DIPF purchasers.  In addition, Sigma can participate in an information exchange involving competitively sensitive information using a third party to manage the information collection, although the Analysis to Aid Public Comment implies that the FTC does not expect this information sharing to happen.

The likely reason for this is the highly restrictive limitations imposed by the consent agreement on competitor information sharing.  During the 20-year term of the consent agreement, Sigma must comply with the following restrictions for any exchange of competitively sensitive information: 

  • Data must relate solely to transactions that are at least 6 months old;
  • Industry statistics based on exchanged data must cover a period of at least 6 months and can be prepared only twice a year;
  • Industry statistics must represent an aggregation or average of data received from no fewer than 5 competitors;
  • No individual competitor's data contribution to any industry statistic can represent more than 25% of the total reported sales;
  • No three competitors' data contributions to any industry statistic can represent more than 60% of the total reported sales;
  • All industry statistics must be sufficiently aggregated or anonymous such that no competitor can, directly or indirectly, identify the data submitted by any other competitor;
  • There can be no communications to the relating to information exchange, other than communications (1) occurring at official meetings of the information exchange; (2) relating to topics identified on a written agenda prepared in advance of such meetings; and (3) occurring in the presence of antitrust counsel; and
  • All aggregated industry statistics, at the same time they are communicated to any contributor, must be made publicly available. 

Lawyers who counsel on competitor information exchanges and benchmarking will immediately recognize that a number of these provisions are different from and significantly more restrictive than those contained in the "safe harbors" established by Statement 6 of the 1996 DOJ/FTC Health Care Guidelines.  See Dep't of Justice & Federal Trade Comm'n, Statements of Antitrust Enforcement Policy in Health Care, Statement 6: Enforcement Policy on Provider Participation in Exchanges of Price and Cost Information (1996). The Health Care Guidelines, for example, use a three month, not six month, window for "aging" the data.  The Guidelines also do not impose limitations on communications by the participants in the exchange, and certainly do not require the presence of antitrust counsel during any such communications.  Nor do the Guidelines have any requirement that the aggregated results of the information exchange be made publicly available.

The only reference to the 1996 Health Care Guidelines in the Sigma consent is contained in the Analysis to Aid Public Comment, footnote 3, in which the FTC states:

The DIFRA information exchange failed to qualify for the safety zone of the Health Care Guidelines for several reasons.  Although the DIFRA information exchange was managed by a third party, the information exchanged was insufficiently historical, the participants in the exchange too few, and their individual market shares too large to qualify for the permissive treatment contemplated by the Health Care Guidelines.  While failing to qualify for the safety zone of the Health Care Guidelines is not in itself a violation of Section 5, firms that wish to minimize the risk of antitrust scrutiny should consider structuring their collaborations in accordance with the criteria of the safety zone.

There is no explanation of why the specific provisions of the Sigma consent agreement go beyond these safety zones.  Obviously, the highly concentrated (three-firm) industry involved here and the alleged price agreements and other conduct allegations described in the complaint undoubtedly influenced the FTC's position.  However, the lack of any explanation for why the consent provisions go beyond the safe harbor requirements is puzzling.

The Analysis to Aid Public Comment also strongly implies that the FTC does not expect to see Sigma participate in an information exchange that complies with the consent agreement's mandates any time soon:

The proposed order also prohibits Sigma's participation in an exchange of [competitively sensitive information] involving price, cost or total unit cost of or for DIPF when the individual or collective market shares of the competitors seeking to participate in an information exchange exceed specified thresholds.  The rationale for this provision is that in a highly concentrated market the risk that the information exchange may facilitate collusion is high.  Due to the highly concentrated state of the DIPF market as currently structured, an information exchange involving Sigma and relating to price, output or total unit cost of or for DIPF is unlikely to reoccur in the foreseeable future.  (Emphasis added.) 

The specific, highly restrictive provisions here may be nothing more than the FTC's way of ensuring this outcome. 


It may be that the more restrictive information sharing provisions here should be viewed as sui generis and limited to the specific facts presented by the complaint.  But the attention that the consent agreement likely will receive may revive questions concerning the FTC's (and the DOJ's) failure to provide recent and comprehensive guidance on the important topic of competitor information exchanges.  The 1996 Health Care Guidelines continue to be widely used by antitrust counselors in many industries outside health care field simply due to the lack of better alternatives.  Particularly if the current agency leadership has different views on the appropriate safe harbor standards for competitor information exchanges, those views should be clarified through a general policy statement, not a negotiated settlement. 

The Sigma settlement documents and McWane/Star Part III filings can be found here.  

Lawyer Contacts
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Kathryn M. (Kathy) Fenton

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