Competition laws, antitrust and other issues - Antitrust filing in Brazil
- Brazil
- 10/07/2004
- Azevedo Sette Advogados
Free trade, free competition and consumer’s rights, among others, have constitutional protection and support in the Brazilian Federal Constitution, in its article 170. Also, as a complement to our Constitutional guideline, Law n. 8884, of June 11th 1994, sets forth the rules and procedures for prevention and repression of infractions against the economic order, as well as to avoid the abuse of economic power, unfair trade, trust and market concentration and actions that may harm the market. In addition, the government, through its regulations seeks to secure free competition and fair trade following the constitutional principles and applicable law.
The Brazilian competition and antitrust agencies and authorities in Brazil are:
CADE - Administrative Counsel for Economic Defense - is a federal government entity linked to the Ministry of Justice. It is an adjudicatory body with national jurisdiction, competent to judge administrative procedures about competition law, market prices and antitrust matters. Furthermore, CADE is competent to decide about the existence or not of infraction towards the economic order in each specific case, as well as deciding the proceedings about relevant trade acts, commercial matters and contracts that shall be subject to its approval and also has the power to apply penalties as set forth by the law.
SDE - Secretariat of Economic Law of the Ministry of Justice - is a government body of the Ministry of Justice competent to provide legal and documentation support to CADE, assisting it on the proceedings referring to infractions against the economic order, trust, market concentration, unfair trade and other related matters, and giving legal opinions.
SEAE- Secretariat for Economic Monitoring of the Ministry of Finance- is a government body of the Ministry of Economy and Finance that also assists CADE, and as the case may be is called to give economic and financial opinion about the relevant operations and further matters submitted to CADE´s analysis.
All applications and proceedings presented to CADE are judged by the mentioned Council and, therefore, such entity may approve or not the trade act, commercial operation, market concentration or even approve it with the imposition of certain conditions or new obligations to the companies.
The abuse of economic power occurs every time a company takes advantage of its superiority economic condition in order to harm competition, to limit the market performance or furthermore, to increase its profits arbitrarily. In other words, we might say that the abusive agent uses badly or makes illegitimate use of the power it has in the market. This abuse does not occur from specific practices, but truly when the one who has a substantial portion of the market acts not accordingly with its goals, deviating, surpassing the reasonable frontiers.
The following practices may be considered arbitrary:
Joint Sale: it consists in the practice of subordinating the sale of goods or a service to the sale of other goods. Whoever practices the joint sale causes barriers to the entrance of potential competition in the market or obstructions to the expansion of competition that is already present. The subordination provided by the joint sale generates a restriction of the freedom to buy and sell by pressure, by coaction, without having any benefit for the consumer in the entailed acquisition.
Selective Systems of Distribution: They are imposed restrictions, unjustifiably, by the manufacturer to the distributor, used in such way to discriminate distributors, sellers and consumers, which will end to be damaging to free competition. The restrictions are justifiable only when they aim to keep an effective standard of distribution, to provide services of maintenance and guaranties to consumers. The antitrust legislation will cohibit the agent whenever he will obstruct the consumer access to a certain product, without any reasonable motivation.
Predatory Prices: Often companies use the strategy of lowering on purpose the prices of their products to inferior values to their cost price, hoping that, doing so, the competitors will give up the market of that sector. At first, the consumer may be satisfied because he will buy the product at a lower price, but, later, he will prejudiced himself due to the lack of competition among the manufacturer, a fact that will erase the benefits which are inherent to the competition already analyzed in this paper.
Facts such as the examples of the hereinabove mentioned infractions, as well as others, may be denounced to CADE by any person or company which is being harmed.
In addition, mergers, acquisitions, incorporations and joint ventures are typical acts of concentration. They are part of the natural process of development of an economy of market and themselves do not represent abusive practices. Such operations generally aim to increase the efficiency of a company through, for instance, to diminish costs. But these operations at the same time result in restrictions to competition.
Therefore, any act or commercial operation that may limit or otherwise restrain open competition, or that result in the control of relevant markets for certain products or services, market concentration, unfair trade, trust or similar shall be submitted to the Brazilian antitrust agency for review and approval.
The prior approval from Brazilian antitrust and competition authorities is compulsory for any merger, acquisitions, joint ventures and purchase and sale agreements, when at least one of the two following conditions is met: (i) if one of the merging parties acquires, after the merger, at least 20% of the market share in a relevant market, or (ii) if any of the players involved in the merger had a gross annual revenue in its last financial statement equal to or higher than R$ 400 million (about US$135 million). CADE has interpreted this sum as being the worldwide revenue of the whole economic group.
The transactions or relevant trade acts must be notified through an application presented by the interested parties to the antitrust and competition authorities within maximum 15 days after the execution of the first binding document among the parties (regardless it being definitive or not), as long as the parties stop behaving as competitors among themselves or in relation to any third party (CADE’s Resolution n. º 15, art. 2). The interested parties may also make an application prior to any closing or execution of a binding document, although this proceeding is not usual.
Competition and antitrust law also establishes several pecuniary punishments. The noncompliance with the deadlines for notification of the operation will be punishable with fines ranging from R$63,846.00 (approximately US$ 20,000) up to R$6,384,600.00 (approximately US$2,000,000), in addition to the obligation of submitting the operation for the Brazilian antitrust and competition authorities´ approval, subject to undo the operation. All parties involved are liable for not filing for the approval of the operation. Within the antitrust and competition authorities, there is a special commission with the purpose to inspect the market and detect market concentration operations. The assessment of fines varies according to the following criteria: (i) the time that has elapsed after the 15-day period counting from the triggering event; (ii) the size of the companies; (iii) the market; and (iv) the if the notification of the operation was spontaneously or not.
The parties involved in the trade act or commercial operation shall provide jointly with the application a number of documents and information to the Brazilian antitrust and competition authorities. As a general rule, none of these documents and information are confidential. However, any of the parties may request that the filing receives confidential treatment, according to Resolution 12/98, Section II. For this purpose, the party seeking confidentiality shall place a request justifying the need of secrecy. The decision of whether or not granting confidentiality is discretionary, but you may appeal in case of denial.
The parties shall pay an administrative fee to submit the operation to the analysis and approval of the Brazilian competition and antitrust agencies of R$45,000.00 (approximately US$15,000.00), which is determined by Law 9,781 of January 19,1999, altered by Law 10,149 of December 2000.
CADE is not very fast to respond to the applications filed. The proceedings duration may vary from 4 to 6 month, if a fast track is obtained, depending on the nature of the application and other issues, or 6 months to 1 or more years, depending on the complexity of the application and the matter involved.
