U.S. antitrust laws may be violated whenever a competitor directly or indirectly communicates, solicits or facilitates exchange of competitively sensitive, nonpublic information with its rivals. Such communications among competitors always have been suspect, but recent cases illustrate these rules fully apply to hotel owners and operators.
From 2010 to 2011, the Connecticut Attorney General investigated La Quinta Worldwide, McSam Hotel Group, Metro Ten Hotel and Jamsan Hotel Management concerning their long-term participation in “call-around” exchanges, wherein hoteliers in close proximity exchanged sensitive nonpublic information at least once a day about occupancy and room rates. The companies settled the cases with the Attorney General, in part by agreeing to terminate the “call-around” practices. The Connecticut Attorney General’s investigation and settlement attracted media attention, making it likely this issue will remain an area of interest to government enforcement authorities.
The most prevalent forms of competitively sensitive information are nonpublic terms and conditions of sale to customers, such as:
• price (i.e., nonpublic or future);
• output (i.e., occupancy or other qualitative dimension of a hotel owner/operator’s supply); and
• competitive strategy data (i.e., expansion, growth, retrenchment planning), particularly when the exchanged information is highly detailed, disaggregated and forward looking.
In its most recent pronouncement, the Federal Trade Commission, a principal enforcer of antitrust laws, has emphasized three primary risks posed when competitors exchange such information among one another:
1. What begins as a discussion of competitively sensitive prices, output or strategy easily can transform into a full conspiracy among competitors to fix prices or otherwise restrain trade. Conspiring to fix prices, other terms, allocating markets, or customers is often deemed unlawful per se and can trigger significant fines and civil liability. It may even constitute a criminal antitrust violation.
2. An information exchange may facilitate coordination among competitors that harms competition even in the absence of an explicit agreement regarding future conduct. This is what the Connecticut Attorney General alleged in the “call-around” cases, finding that the information exchanges provided nonpublic data to competing operators, enabling them to increase room rates at certain hotels on specific days. Other recent enforcement actions under the Sherman Act by FTC and a private plaintiff’s action highlight the legal risk posed by improper information exchanges among competitors, even where the parties do not explicitly agree on pricing or other matters.
3. Knowledge of a competitor’s future strategic plans reduces competitive uncertainty and enables rivals to restrict their own competitive efforts, even in the absence of coordination with competitors. For example, such exchanges could give an owner/operator visibility into its competitor’s nonpublic strategies that could lead the owner/operator not to open competitive properties or market competitive services or amenities in a particular location.
To avoid these risks (and the burden and costs of being the subject of an antitrust investigation), hotel owner/operators should keep in mind the following guidelines:
• Absent prior consultation and approval from counsel, do not enter into any express or implicit agreements or understandings with your actual or potential competitors regarding your price, output and competitive strategic decision making.
• Absent prior consultation and approval from counsel, do not even discuss, exchange or share any competitively sensitive data with your competitors.
• If such competitively sensitive information exchanges have previously occurred, orally report to and discuss with counsel.
• Orally report to counsel any overtures or suggestions from competitors that invite your company to collude or exchange competitively sensitive information.
• Do not attend or remain at trade association meetings or other formal or casual gatherings with competitors where competitively sensitive information is exchanged or discussed, and immediately inform counsel if such communications have taken place.
• Consider antitrust compliance training for company officers and any employees who have contact with competitors and/or responsibility for sales, marketing or pricing.
By contrast, hotel owner/operators should continue to track and rely on publicly available competitive information, including data on third-party websites and statistics contained in recognized industry reports. In this regard, your in-house and outside counsel can help your company structure its ongoing competitive decision-making processes to maximize your commercial opportunities while minimizing your antitrust risks.
Kirby Lewis is a counsel at Goodwin Procter and serves as a member of the firm's Antitrust & Competition Practice. Mr. Lewis specializes in antitrust and trade regulation counseling and litigation, with particular emphasis on defending government investigations of mergers and acquisitions and analyzing joint ventures and other competitor collaborations.
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