Since the early history of the antitrust laws in the U.S., competitors have been exchanging information for a variety of purposes with mixed results—some held to be permissible and some not. A particular form of information exchange called "benchmarking" is currently in vogue. Benchmarking is a surveying technique that compares business practices of two or more companies for purposes of enhancing efficiency and competitiveness. Benchmarking can be undertaken by individual companies or by a group of companies. For instance, a computer manufacturer might study the invoicing procedures of an overnight delivery company, or several computer manufacturers might participate in a study of invoice processing methods used throughout their industry.
Necessary to benchmarking is the exchange of business information between the participants relating to the practice being studied. This information may be publicly available but more than likely will be unpublished business information from the companies participating in the study. Often, the exchanges will raise little or no risk of antitrust liability. However, the antitrust risks will increase as the combined market share of the participants increases, and as the information exchanged relates more closely to pricing, significant costs or production or marketing of finished products or services.
While not having considered benchmarking by name, the courts and the federal antitrust enforcement agencies have addressed in great detail the antitrust implications of information exchanges between competitors. For example, in 1993 the Department of Justice issued a civil investigative demand to hospitals in Connecticut to determine whether nurses' salaries were being fixed through the use of an annual salary survey conducted by a health care trade association. See Antitrust & Trade Reg. Rep. (BNA) (Feb. 25, 1993), p. 196. In 1994, the DOJ obtained consent decrees from Utah hospitals, their trade association and an association of human resources directors prohibiting them from using surveys and other means of exchanging and sharing nurses' salary information to fix and stabilize nurses' salaries. See United States v. Utah Society for Health Care Human Resources Administration, et al., 1994-2 Trade Cases (CCH) 6670,795, 70,844, and 70,845 (D. Utah 1994). The courts and agencies have found that exchanges of information that are in furtherance of an anticompetitive purpose or that are likely to produce an anticompetitive effect are illegal under section 1 of the Sherman Act; information exchanges that involve no such purpose and whose effect is shown to enhance efficiency should pose no problem in most cases. This article describes the major benchmarking methods and the law applicable to information exchanges between competitors, and suggests practical guidelines for reducing the antitrust concerns related to benchmarking.
Benchmarking as a Competitive Tool.
Benchmarking can be divided into two primary types: Competitive benchmarking, the more common of the two, looks at the way a certain business input or function is acquired or handled by each of a group of competitors. In the Department's investigations of Connecticut and Utah hospitals, the input being reviewed was the nurses' salaries, or, more generally, a component of the cost of labor associated with providing in-patient health care services. Competitors can benchmark a function in a similar way, such as in the aforementioned example of computer manufacturers analyzing each other's invoicing procedures to determine the most efficient practice. In any competitive benchmarking study, each company's goal is to identify the most efficient employment of the specific "input" or "function," to identify its characteristics, and then to use this point of reference as a means of altering its own operations to become more competitive:
Competitive benchmarking focuses on key production methods and characteristics that can provide a competitive advantage over a company's direct competitors. It is the most similar to traditional competitive assessment of all the benchmarking approaches, yet it is markedly different. The target isn't knowing the score but rather changing it. If Competitor A can deliver the product in two weeks while it takes us five, they have a competitive advantage. Knowing this fact is not comforting, but it is undoubtedly action-generating. K. Leibfried & C. J. McNair, Benchmarking: A Tool for Continuous Improvement, at 115 (1992).
There are two principal ways to perform competitive benchmarking. The "report card" format compares the participating companies against each other based on quantitative criteria, such as daily production output or the number of administrative personnel, and then lists them in some ordered fashion. Report card benchmarking is often undertaken anonymously so that the participants know only where they stand in relation to the group as a whole. Alternatively, the companies can go behind the report card's rankings and benchmark actual features of each other's operating methods, focusing on how the advantages are being gained.
In contrast, industry benchmarking is used to establish performance standards and detect trends in a broader competitive environment. Industry benchmarking is more expansive than competitive benchmarking and can extend beyond direct competitors to all firms with similar product lines. For example, rather than just the hospitals and the human resources directors exchanging information on nurses' salaries, such data could be compiled from other types of health care facilities that do not necessarily compete. Or, in another context, manufacturers of rubber soled shoes, including those for use in athletics and the workplace, may exchange information on their methods of affixing the sole onto the body of the shoe to find the most efficient approach. The key to industry benchmarking is that the function or input under review is employed in a similar fashion by companies with similar product or service outputs.
Each benchmarking company's goal should always be to determine the "best practice" concerning a certain business function and to use this information as a catalyst for change within its own organization to be a more effective competitor. A legitimate benchmarking effort between competitors will not involve an agreement or intent to stabilize prices or output of the participants' respective products. Even if there is no anticompetitive purpose, however, either form of benchmarking includes the potential for anticompetitive effects. Competitive benchmarking through direct exchanges among competitors in concentrated markets may well draw antitrust scrutiny. Industrial benchmarking studies that compare factors related to prices of key production inputs present greater antitrust risk than do studies of matters less closely related to the total cost and price of the product or service. (For instance, the cost of labor in a service business may be a substantial element of the total cost of the service and exchanges of information on this important element of price may thus have an effect on the pricing decisions of competitors.) Finally, even without an anticompetitive purpose or effect, benchmarking between competitors runs a risk of antitrust review merely by creating an appearance of impropriety as a potential means for facilitating collusion.
The following summary of legal authorities on information exchanges provides a brief outline of the major areas of antitrust concern applicable to benchmarking.
Judicial and Agency Authority Concerning Information Exchanges Between Competitors.
The Supreme Court has generally reviewed exchanges of business information under section 1 of the Sherman Act by use of the rule of reason rather than the per se standard. The rule of reason requires that several factors be considered, including the nature of the market, its competitive structure, the nature of the subject conduct, the reasons advanced for the conduct, alternatives that could achieve the same goals and weighing of the conduct's procompetitive and anticompetitive effects. See, e.g., National Society of Professional Engineers v. United States, 435 U.S. 679 (1978); Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36 (1977). The Court has reserved per se condemnation for cases in which competitors exchange information with the purpose or necessary effect of stabilizing prices or output in the relevant market.
Beginning with the 1921 American Column decision, the Court addressed in significant detail the propriety of information exchanges between competitors under the antitrust laws. In its early rulings, the Court focused primarily on the purpose of the competitors' concerted activity--whether information was exchanged with the intent to affect price or output. In time, and as the conduct of the competitors was less blatant, the Court's focus shifted to the likely effect of the information exchange on competition in the relevant market.
American Column & Lumber Co. v. United States, 257 U.S. 377 (1921). In this case, the government brought an action against a trade association encompassing five percent of the lumber mills in the country and accounting for one-third of the nation's output. The association sponsored an "Open Competition Plan" under which its members filed daily sales and shipping reports, monthly production and inventory reports, price lists, estimates of future production and forecasts of future market conditions. From this data, the association disseminated weekly and monthly reports disclosing the individual members' transactions. The association held meetings to discuss industry conditions and even developed "production programs" for each member in order to curtail industry overproduction. During the Plan's operation, prices for the members' products rose sharply.
Initially, the Court recognized that market participants had a legitimate interest in collecting and distributing industry information to permit them to make more intelligent business decisions. The Court found, however, that the Plan exceeded this legitimate purpose and constituted a combination to restrict production and increase prices:
Genuine competitors do not make daily, weekly, and monthly reports of the minutest details of their business to their rivals... This is not the conduct of competitors, but is so clearly that of men united in an agreement... to act together and pursue a common purpose under a common guide (257 U.S. at 410).
Maple Flooring Association v. United States, 268 U.S. 563 (1925) and Cement Manufacturers Association v. United States, 268 U.S. 588 (1925). These cases were decided by the Court on the same day. In Maple Flooring, an industry association collated and distributed detailed business information to its members in composite form. The information included such matters as average production costs, freight rates, sales data such as past prices and inventories, and discussions of market conditions at monthly association meetings. The Court distinguished the case from American Column by noting that the association in Maple Flooring neither disseminated current or future price information, nor identified specific transactions of its individual members. Simply gathering, aggregating and disseminating historical production and price information do not constitute an unlawful restraint of trade, the Court held, even if the result of such conduct "may be to stabilize prices or limit production through a better understanding of economic laws and a more general ability to conform to them."
It was not the purpose or the intent of the Sherman Anti-Trust Law to inhibit the intelligent conduct of business operations, nor do we conceive that its purpose was to suppress such influences as might affect the operations of interstate commerce for the application to them of the individual intelligence of those engaged in commerce, enlightened by accurate information as to the essential elements of the economics of a trade or business, however gathered or disseminated (258 U.S. at 583-84).
The Court held that, absent proof of an actual "agreement or concerted action to lessen production arbitrarily or to raise prices beyond the levels of production which would prevail if no such agreement or concerted action ensued," the naturally stabilizing effects of information exchanges are not unlawful. (There is reason to doubt whether the Court would now approve the kinds of discussions at trade association meetings apparently condoned in Maple Flooring.)
In Cement Manufacturers, the Court extended its Maple Flooring holding by approving an exchange between competing trade association members of information pertaining to cement deliveries to customers under "specific job contracts"; freight rates on cement from certain locations; creditworthiness of customers; and industry conditions discussed at association meetings. The Court found that the manufacturers needed to exchange current sales prices and quantities to prevent fraud by customers who purchased cement under a "specific job contract" at a designated price but then used the cement delivered for a different job. Consequently, the Court held that these "controlling circumstances" justified the exchange of company-specific, current sales and customer data despite the stabilizing effect on price that such conduct engendered.
United States v. Container Corp., 393 U.S. 333 (1969). In Container Corp., the Court focused on the effect that the competitors' information exchanges were likely to have on competition in the relevant market. The defendants manufactured corrugated containers, which are largely fungible products, and competed with one another in a relatively concentrated market. The defendants agreed to provide each other with price information concerning their most current sales or offers to specific customers upon request. The defendants did not, however, agree to fix or stabilize prices or output of the products sold.
Despite the absence of an agreement or intent to fix prices, the Court found that the arrangement had this very effect:
Price information exchanged in some markets may have no effect on a truly competitive price. But the corrugated container industry is dominated by a relatively few sellers. . . . The exchange of price data tends towards price uniformity. . . . Stabilizing prices as well as raising them is within the ban of section 1 of the Sherman Act. As we said in United States v. Socony-Vacuum Oil Co., [310 U.S. 150] at 223, "in terms of market operations stabilization is but one form of manipulation." The inferences are irresistible that the exchange of price information has had an anticompetitive effect on the industry, chilling the vigor of price competition (393 U.S. at 337).
The Court distinguished Cement Manufacturers on the ground that the container manufacturers had no "controlling circumstance" or procompetitive reason, such as the elimination of fraud, to justify their concerted action. And unlike Maple Flooring, where the defendants' association collected and disseminated historical information in composite form without identifying individual competitors, the container manufacturers provided actual, current price data directly to one another.
United States v. United States Gypsum Co., 438 U.S. 422 (1978). In U.S. Gypsum the Court again focused on the effect that an information exchange had on price and output rather than on the purpose of the exchange. Here the competitors' verified directly with each other the prices offered to current customers with the alleged purpose of establishing the "meeting competition" defense under the Robinson-Patman Act, rather than fixing prices. The Court noted that the exchange of price information is not per se unlawful, as such conduct could produce procompetitive effects. But the Court found that verification of competitors' prices as a means to ensure compliance with price discrimination laws was not an adequate justification, or "controlling circumstance" as referred to in Cement Manufacturers, to permit the concerted activity, because it tended "to contribute to the stability of [prices in an oligopolistic industry] and open the way for the growth of prohibited anticompetitive activity" (438 U.S. at 458).
United States v. National Malleable & Steel Castings Co., 1957 Trade Cas. 6 68,890 (N.D. Ohio 1957), aff'd per curiam, 358 U.S. 38 (1958). National Malleable is one of the few decisions to apply the antitrust laws directly to benchmarking conducted by competitors. Defendants were manufacturers of railroad car couplers. In order to standardize their product so that it could be used on all railroad cars throughout the country, defendants exchanged information on all aspects of their operations including input costs and methods of production. After a lengthy trial, the court enthusiastically endorsed the defendants conduct finding that the exchange of cost data and the reciprocal plant visitations were procompetitive and designed to enhance efficiency and lower costs of production. The court stated:
I don't believe or find that these defendants reciprocated cost information to get prices up, as part of an illegal combination at all. I think they did it to check costs with each other so that they could get their costs down...
I find that plant visitation was all for the same ultimate purpose, to improve their work, to observe new machinery, to observe new methods. All done ultimately to reduce costs, because these defendants must compete with each other even in efficiency, because labor and material was increasing costs so much in one direction that it behooved them to cut costs in every other direction, if they could.
I find getting costs down by either of these methods of imitating the other fellow to cut costs or learning more efficient methods to better compete with him ultimately keeps prices down, too (1957 Trade Cas. at p. 73,596).
The Federal Trade Commission.
Section 5 of the Federal Trade Commission Act allows the FTC to declare unlawful any "[u]nfair methods of competition . . . and unfair or deceptive acts or practices" (15 U.S.C. ' 45(a)(1)). As generally interpreted by the Supreme Court, section 5 permits the FTC to take action against conduct that does not run afoul of "either the letter or the spirit of the antitrust laws" and "regardless of their nature or quality as competitive practices or their effect on competition" (F.T.C. v. Sperry & Hutchinson Co., 405 U.S. 233, 239 (1972)). Thus, the FTC can declare exchanges of business information between competitors unlawful even though such conduct does not otherwise violate the Sherman Act. See, e.g., Triangle Conduit & Cable Co. v. F.T.C., 168 F.2d 175 (7th Cir. 1948) (affirming the FTC's finding that conduit manufacturers' "independent" use of a common basing point for determining the freight component for quoting delivered prices, derived by exchanging data pertaining to delivery costs, violated section 5 because it tended to create uniform prices).
Despite the prior expansive readings of section 5, the FTC's ability to condemn conduct that falls outside of the antitrust law's coverage was significantly curtailed in E.I Du Pont de Nemours & Co. v. F.T.C., 729 F.2d 128 (2nd Cir. 1984). The Second Circuit reversed the FTC's finding that section 5 had been violated by uniform pricing practices arrived at independently by manufacturers of anti-knock gasoline additives. As in Triangle Conduit, the competitors in Du Pont sold their products on a delivered price basis. They also provided customers 30 days' advance notice of price changes, notified the press of price increases before they took effect and employed "most favored nations" clauses in their contracts guaranteeing customers that they would receive the same price.
In holding that no violation of section 5 occurred, the court ruled that Congress did not empower the agency "to bar any business practice found to have an adverse effect on competition. Instead, the Commission could proscribe only `unfair' practices or methods of competition" (729 F.2d at 136). The court required the FTC, in applying section 5 to business conduct in a highly concentrated market, to find "at least some indicia of oppressiveness . . . such as (1) evidence of anticompetitive intent or purpose on the part of the producer charged, or (2) the absence of an independent legitimate business reason for its conduct" (729 F.3d at 139). The standard under section 5 was thus brought more in line with the analysis followed under the Sherman Act.
The willingness of the FTC to permit efficiency-enhancing information exchanges under section 5 was demonstrated in its approval of a production joint venture between General Motors and Toyota (In re General Motors Corporation, 103 F.T.C. 374 (1984)). After citing various prophylactic measures to restrict the flow of price- and cost-related information between the competing parent companies, the FTC found that GM's ability to benchmark Toyota's more efficient manufacturing and management techniques was procompetitive, since it allowed GM to improve its operating methods.
The FTC has also approved the exchange of business information compiled through trade associations or some other third party. For example, in an Advisory Opinion letter to the Knitted Textile Association, the FTC approved of a program in which the association would collect data from manufacturers on production, purchases, shipments, inventory and open orders. Advisory Opinion No. 743, 83 F.T.C. 1847 (1974). The FTC's approval was contingent on the information being held in confidence and that data pertaining to individual manufacturers not be disclosed to other participants. But see Advisory Opinion No. 753, 85 F.T.C. 1224 (1975) (disapproving Texas Watchmakers Association's use of questionnaire seeking breakdowns of retail charges for watch repairs and parts, and for ultimate disclosure in the form of average, high and low prices computed for each item both generally and by region). More recently, the U.S. Department of Justice and Federal Trade Commission issued their "Statements of Antitrust Enforcement Policy in Health Care" (August 1996) which provide a "safe harbor" against federal enforcement actions for exchanges of price and cost information among competitors that meet the following criteria:
The Agencies will not challenge, absent extraordinary circumstances, provider participation in written surveys of (a) prices for health care services, [footnote omitted] or (b) wages, salaries or benefits of health care personnel, if the following conditions are satisfied:
- the survey is managed by a third party (e.g., a purchaser, government agency, health care consultant, academic institution, or trade association);
- the information provided by survey participants is based on data more than 3 months old; and
- there are at least five providers reporting data upon which each disseminated statistic is based, no individual provider's data represents more than 25 percent on a weighted basis of that statistic, and any information disseminated is sufficiently aggregated such that it would not allow recipients to identify the prices charged or compensation paid by any particular provider.
Id. at 50 (No. 6: Statement of Department of Justice and Federal Trade Commission Enforcement Policy on Provider Participation in Exchanges of Price and Cost Information).
Although the Statements of Enforcement Policy specifically relate to the health care industry, the agencies have made it clear that the principles are generally applicable.
The Department of Justice.
The Antitrust Division of the Department of Justice has frequently addressed the propriety of information exchanges in the context of trade associations or consulting agencies used to compile data and disseminate it to participating companies. In this context, the Department has broadly permitted cooperative exchanges between competitors when safeguards are imposed that reduce the risk that the participants will collude on price. See DOJ Business Review Letter to Joseph F. Haas (June 22, 1992); DOJ Business Review Letter to Alan M. Frey (July 6, 1984).
The safeguards most emphasized by the Department are concealing the identity of the participating companies and disseminating the data compiled in some aggregate fashion. For instance, in approving an exchange between hospitals of information pertaining to the charges for various services through an accounting firm, the Department commented on the anonymity to be imposed on the study:
Certain aspects of your proposal provide safeguards against such collusion. HIOB's report will not disclose the identities of the participating hospitals, and you have stated that the design of the relevant peer groups will not permit the identification of hospitals belonging to any such group. (DOJ Business Review Letter to Joseph F. Haas (June 22, 1992).)
Similarly, the Department favorably noted in another review letter that the chemical price and sales information to be obtained historical in nature and would be reported in an aggregate format:
[T]he type of information proposed to be exchanged and the safeguards on the method of exchange make it unlikely that the proposed activities, in themselves, will facilitate collusion in this industry. The participating domestic producers will not exchange information concerning their own prices or sales and information on prices and sales of imported sodium metasilicate reported to the domestic producers will be aggregated, at least 30 days old, not broken down by geographic area, and provided on a regular rather than on an ad hoc basis. The Department believes that the import information exchange may serve a legitimate purpose in making information available to domestic producers necessary to meet import competition or to determine whether to initiate antidumping or countervailing duty actions, and is unlikely to have a significant anticompetitive effect. (DOJ Business Review Letter to Alan M. Frey (July 6, 1984).)
In an analogous context, the Department has reviewed exchanges of information conducted through a joint buying agency formed by competitors to negotiate acquisitions of services and supplies. While the Department has applied the aforementioned safeguards to these arrangements, it has also looked closely at the cost of the jointly acquired good or service component relative to the cost or price of the finished product sold by the members in competition with one another. In such a context, the Department has stated that if the percentage of price that this cost represents, and if the cost component represents less than 20 percent of the finished product's price, an antitrust violation normally will not lie. See DOJ Business Review Letter to Patrick M. McAdam (December 2, 1985).
The U.S. Department of Justice and Federal Trade Commission, "Statements of Antitrust Enforcement Policy in Health Care" (August 1996) provide a "safe harbor" against federal enforcement actions for joint purchasing arrangements among competitors. (By joint purchasing, the agencies mean some form of economic integration among the parties to the joint purchasing activity. Id. at 54 n.17.)
The Agencies will not challenge, absent extraordinary circumstances, any joint purchasing arrangement among health care providers where two conditions are present:
- the purchases account for less than 35 percent of the total sales of the purchased product or service in the relevant market; and
- the cost of the products and services purchased jointly accounts for less than 20 percent of the total revenues from all products or services sold by each competing participant in the joint purchasing arrangement.
The first condition compares the purchases accounted for by a joint purchasing arrangement to the total purchases of the purchased product or service in the relevant market. Its purpose is to determine whether the joint purchasing arrangement might be able to drive down the price of the product or service being purchased below competitive levels. . . . The second condition addresses any possibility that a joint purchasing arrangement might result in standardized costs, thus facilitating price fixing or otherwise having anticompetitive effects. This condition applies only where some or all of the participants are direct competitors. . . . (Id. at 54-55 (No. 7: STATEMENT OF DEPARTMENT OP JUSTICE AND FEDERAL TRADE COMMISSION ENFORCEMENT POLICY ON JOINT PURCHASING ARRANGEMENTS AMONG HEALTH CARE PROVIDERS).
It should be noted that the Department has intensely scrutinized the substance of ostensibly procompetitive conduct to expose and prevent anticompetitive effects. This enforcement aim was demonstrated in United States v. Automobile Manufacturers Association, 1969 Trade Cas. 6 72,907 (C.D. Cal. 1969), where the Division obtained a consent decree that prohibited automobile manufacturers from delaying the development and introduction of pollution control devices through collusive efforts. Despite the apparent benefits to be gained from the manufacturers' pooling of patents and know-how, the Division contended that the effect of this conduct, which included exchanges of confidential information regarding emission controls and specifications, was to harm competition by retarding innovation and delaying the production of the devices in order to keep manufacturing costs down.
The Department's continued interest in this area is evidenced by its current investigation into possible price fixing of Connecticut nurses' salaries through an annual salary survey conducted by a trade association of health care providers. The Department's apparent concern is the association's dissemination of current salary data that identified the data for each healthcare provider involved.
The Connecticut investigation could have far-reaching effects given the prevalence of salary, benefit and other employment surveys among competitors in analogous industries. Absent bona fide collective bargaining through a recognized multi-employer bargaining unit, it is ordinarily illegal for employers to fix or stabilize wages and other terms of employment. See, e.g., Brown v. Pro-Football, Inc., 1992-1 Trade Cases 6 69,747 (D.D.C. 1992) (agreement by NFL teams on salaries for "developmental squad" members held illegal price-fixing). Subsequently, in Brown v. Pro Football, Inc., 116 S.Ct. 2116 (1996), the Supreme Court affirmed a reversal by the Court of Appeals for the District of Columbia, and held that the employers' agreement was protected by the "nonstatutory labor exemption" for unilateral actions taken immediately after an impasse is reached in collective bargaining negotiations. This is true whether or not the participants in the survey compete in the sale of products or services, because in any event, they are competitors for the services of employees in a community or market.
Practical Guidelines for Benchmarking.
The cases and agency actions provide general guidance on how to structure a benchmarking study to reduce the risk of an antitrust violation but they do not offer a formula for success that can be universally applied. The key principles, especially for benchmarking among competitors in a concentrated market, include the following:
- Do not exchange or discuss current or prospective price or output data. Even without an agreement to fix prices or production levels, it is difficult to conceive of any procompetitive purpose that will be served by exchanging such data among competitors. Further, such conduct is grounds for a presumption of an adverse competitive effect.
- Risks associated with exchanges of costs increase as the percentage of the product's price that the costs under consideration represent increase. As this percentage increases, courts and agencies become concerned that competitors, armed with knowledge of the product's cost structure and public information on price, could calculate each other's margins and predict and coordinate future prices. Keep in mind the Antitrust Division's guideline that exchanges of information about costs representing over 20 percent of a product's price give pause for concern.
- Where feasible, exchange cost or other sensitive information through a third party consultant or trade association having no direct affiliation with an industry member.
- "Sterilize" raw data obtained from competitors either by presenting it in an aggregated form or masking it so that the data is not identified with a particular company.
- Limit the exchange to objective and historical information. Do not exchange projections, forecasts or prospective marketing or production plans.
- "One-shot" or infrequent benchmarking among competitors is easier to defend than regular, periodic benchmarking. While the latter can be justified in appropriate circumstances under the rule of reason, it is more likely to create suspicions of improper coordination, or of policing or enforcing anticompetitive agreements.
- In benchmarking studies undertaken in stages, avoid direct contact between company representatives to the extent feasible. Often, after the comparative data is disseminated, benchmarking participants want to undertake follow-up meetings and exchanges in order to refine the information received and make it more valuable for use in altering internal practices and procedures. In situations when direct exchanges can be approved, prepare a proposed agenda of the meeting for review by counsel so that the topics can be restricted to matters not likely to impact competition.
- Consider whether a proposed benchmarking study could give rise to a boycott claim by competitors not permitted to participate. Suppose that, in a benchmarking of certain production methods, only the top five competitors participate in the study, leaving the bottom ten without access to the results. These excluded competitors could maintain that excluding them weakened their position in the market and, thereby, adversely affected competition. Although such a claim might be successfully defended, it could be more prudent to open participation to all affected companies or make the results available to all on reasonable terms.
- Be aware that benchmarking conduct that falls outside of the Sherman Act's proscriptions may nonetheless meet resistance from the FTC under section 5's broader enforcement mandate.
Naturally, applying these guidelines with any degree of certainty is difficult. For example, one might have concluded that the joint pollution control research project undertaken by the Automobile Manufacturers Association was wholesome. Only by looking behind the stated purposes of the conduct did the Department of Justice conclude that the research venture would reduce competition by dampening innovation.
One of the most important considerations with respect to benchmarking is the appearance that such conduct projects. The image of vigorous competition is not one of sharing competitive advantages, but rather of unilaterally wielding them to advantage in competitive rivalry. The suspicion thus created when competitors share important unpublished information is best allayed by reciting, and then demonstrating, why the exchange will promote rather than restrict competition. This forensic point is reflected in General Motors Corp., 103 F.T.C. 374 (1984). While the consent order generally forbade the parties to share non-public information relating to the "costs of GM or Toyota products" (p. 384), the approved production joint venture was supported in part as offering "a valuable opportunity for GM to complete its learning of more efficient Japanese manufacturing and management techniques." 103 F.T.C. at 377-388.
Of course, companies interested in benchmarking without exposing themselves to the antitrust risks associated with information exchanges between competitors have a viable option-study practices and procedures of noncompetitors who use similar inputs and functions in their operations. Not only does benchmarking of noncompetitors allow companies to enhance efficiency without the appearance of unlawful collusion, but noncompetitors may be easier to recruit as benchmarking partners. Moreover, because noncompetitive benchmarking requires more planning and creativity to structure a meaningful study, each participant must generally focus more closely on its own practices needing improvement than on its standing vis-a-vis competitors.
Exchanging information through benchmarking is a sound method for increasing a company's efficiency and competitiveness. While information exchanges are generally not judged under the per se rule, care must be taken to avoid inter-competitor exchanges that might be seen as threatening competition. As with any business practice, benchmarking should be undertaken with a procompetitive goal in mind. If participants benchmark with an eye towards increasing competitiveness, properly structured information exchanges should remain outside the prohibitions of the antitrust laws.