How competition law regulates discussions and arrangements between universities: the details

This guide is based on UK law. It was written in November 2010.

This guide explains the ground rules for discussions between universities on how to cooperate without falling foul of competition laws. It complements OUT-LAW's introductory guide to the subject, How competition law regulates discussions and arrangements between universities: the basics.

Summary

Classic cartel behaviour is when several competitors gather in secret to agree to fix their resale prices. Most people would consider that unjustifiable and anti-competitive. The same conclusion would apply, therefore, to a meeting between Vice-Chancellors from different universities at which they agreed to set their future tuition fees at or above a specified level.

But what if the Vice-Chancellors instead wished to discuss their likely student numbers on particular courses during future academic years? And what if the underlying intention was to assess if co-operation could reduce their respective cost bases?

Unsurprisingly, the answers to such questions are fact and context specific. However, broad competition law principles can be identified and should be borne in mind by all universities.

The ground rules

The starting point is that any competition authority will be intuitively suspicious of discussions or exchanges of data between competitors on matters that could be considered confidential or commercially sensitive.

In this context, the reference to competitors means universities (or other higher education providers) that either currently do compete with each other (actual competitors) or could realistically begin to compete with each other (potential competitors). It would be rash, for example, if a Russell Group university automatically assumed that another university outside the Group was not a competitor for competition law purposes.

Discussions and exchanges of data between competitors should be carefully policed. The following ground rules are of general application.

• There should be an objectively justifiable reason (e.g. joint purchasing of commodities) for competitors to enter into discussions or disclosures about something that could be regarded as confidential or commercially sensitive. Doing so simply to understand how a competitor intends to act or compete in the future isn't a sufficiently good reason.
• If there is an objectively justifiable reason then a clear agenda should be circulated and reviewed before any discussion or meeting takes place. Any agenda items that might create competition law difficulties should be identified up-front and either they or the discussion/meeting should be abandoned.
• The pre-agreed agenda should be followed. If a discussion strays into a potentially anti-competitive area then the attendees should immediately try to terminate the discussion and if they are unsuccessful they should leave the meeting and ask for their departure to be noted in the minutes. An individual listening to, but not participating in, an anti-competitive discussion is vulnerable to an accusation of infringing the competition rules in addition to those individuals who actively engaged in that discussion.
• Meaningful notes should be taken of what was discussed or exchanged, as an absence of minutes could be taken as indicating that the attendees engaged in anti-competitive behaviour.

These ground rules would apply to a discussion between just two universities and also to a meeting at which a much larger number of universities are represented. The ground rules also apply regardless of whether a meeting between representatives of universities occurred in an informal social context, or whether it happened as part of a significantly more formal gathering.

What is in the black zone?

Any discussion or exchange of data between competing universities about their future pricing intentions (including the level of their future tuition fees) is highly likely to be regarded as problematic under the competition rules.

This general prohibition is likely also to extend to discussions or exchanges between competing universities about the number of student places they intend to offer in the future. The competition law risk increases in line with the granularity of the data being discussed or disclosed. For example, there is a greater competition law risk if discussions or disclosures occur between competing universities on a per-course basis, or broken down by type or category of students.

For similar reasons, an agreement, arrangement or understanding between competing universities would likely be regarded as anti-competitive if its sole purpose was to reach an understanding on:

• What they would charge third parties for the provision of goods or services – including the amount they would charge students for tuition fees.
• How many places they would make available for students.

Exceptional circumstances would be needed to justify these types of behaviour between competing universities.

What is in the grey zone?

Predictably, there is a much larger grey zone, in which the question of whether a particular disclosure or discussion may be permissible or prohibited depends upon the specific facts and context.

Universities are being encouraged to communicate and cooperate with each other in order to save costs, achieve operating synergies and generally improve efficiency levels. This impetus will increase as the implications of the Browne report and the CSR sink in. These pressures will invariably mean that universities will want (and perhaps need) to share some confidential or commercially sensitive data in order to realise an objectively laudable aim. The competition rules will however apply to any such contacts between competing universities.

By way of general guidance, the competition rules are less likely to be infringed if any discussions and disclosures between universities concern:

• Data that are not confidential or commercially sensitive;
• Information that is already in the public domain and equally costly to access to everyone;
• Aggregated and anonymised data, from which it is not feasible to attribute any specific commercially sensitive or confidential data as originating from a particular university;
• Historical data that are unlikely to enable a university to predict how a competing university might act commercially in the future.

Universities might also wish to collaborate, for example by sharing facilities, purchasing goods or services jointly in order to achieve purchasing synergies. Collaboration might also extend to competing universities providing services jointly in order to reduce their cost of provision, or to joint marketing and commercial activities. In simple terms, the following generic ground rules can be suggested.

• An arrangement between competing universities that is confined to the joint purchasing of non-strategic goods or services is less likely to create material competition issues. The competition analysis would become more involved if the joint purchasing arrangement involved goods or services that had an important impact on the participating universities' service offerings, overheads or operating margins.
• A collaboration arrangement that is limited to the sharing of facilities between universities that will allow those participating to reduce their overheads, but where the universities still independently compete for new business and students, may well be arranged so as to comply with the competition rules. Particular care will be needed if the facilities concerned could be regarded as being "essential facilities" to which third parties need access in order to carry on business.
• By contrast, an arrangement that extends to how the participating universities market themselves or provide goods or services, especially if it envisages the universities undertaking these activities jointly, is likely to require close scrutiny under the competition rules.
• If the cooperation arrangement extends to universities agreeing the prices at which they will provide goods or services, or the quantity of such goods or services that they will provide (for example, the numbers of student places they will offer) then exceptionally close scrutiny will be needed to ensure compliance with the competition rules.

When considering the possible impact of the competition rules on any discussions, exchanges or cooperation, universities should try to assess in general terms whether it might adversely affect the intensity of competition between them and any third parties.

In doing so, the universities should not focus only on whether it may have a direct adverse effect on price competition; they should also consider whether it might adversely affect the intensity of non-price competition between them.

For example, two universities competing in a specific area of commercially-focused research may agree not to poach each other's key research staff. Such an arrangement may not directly affect price competition, but it may adversely affect how (and how intensively) they compete, for example, in terms of innovation.

A rule-of-thumb test

The following four-step analytical framework should provide useful rule-of-thumb guidance on whether a particular arrangement might comply with the competition rules.

• First, there is an objectively reasonable and justifiable aim that the participating universities are seeking to achieve.
• Secondly, under the arrangement no unnecessary restrictions on competition are being imposed or accepted.
• Thirdly, the proposed arrangement will lead to tangible benefits for students (or consumers of university services).
• Finally, the proposed arrangement is the least restrictive means of achieving the objective and consumer benefits.

If the answers to these questions are all affirmative then the arrangement may be compatible with the competition rules. Reaching that conclusion will however involve an individual fact- and context-specific assessment, taking account in particular of the commercial position of the participating universities and the marketplace for the goods or services in question.

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