On January 3, 2015, the new rules on the submission of the so-called "collaborative agreements" to the Administrative Council for Economic Defense ("CADE") became effective. The mandatory submission of such agreements to CADE was already set forth in the new Brazilian antitrust law, which entered into force on May 29, 2012. The new rules aim at providing additional clarity to this matter by establishing the types of agreements that shall be considered "collaborative" in nature, and therefore subject to CADE′s pre-merger control.
Pursuant to Resolution No. 10/2014, which entered into force on January 3, 2015, an agreement shall be considered "collaborative" if it lasts for more than two years, and the following additional conditions are met:
- The agreement gives rise to a horizontal overlap between the contracting parties or their respective groups, and their combined market share is equal to or in excess of 20%; or
- The agreement gives rise to vertical link between the contracting parties or their respective groups, and one of them has a market share of at least 30% in one of the markets affected by the agreement, provided that (a) the agreement contains a profit/loss sharing provision; or (b) the agreement contains exclusivity obligations.
Agreements lasting less than two years that meet the thresholds above may be also subject to CADE’s pre-merger control if, upon renewal, the two-year period is reached or exceeded.
For example, a two-year agreement will be deemed "collaborative” if it relates to competitors jointly selling a given product in Brazil, and the contracting parties’ combined market share in the market in question is equal to or in excess of 20%. Likewise, a two-year exclusive distribution agreement with effects in Brazil will be considered a "collaborative" agreement whenever the manufacturer of the product to be distributed holds a market share equal or in excess of 30% in the market at issue.
When a transaction falls within the concept of "collaborative agreements”, the contracting parties shall assess whether the other thresholds for mandatory filing set forth in the Brazilian antitrust law are also met. In the event such thresholds are met, the parties must submit the agreement to CADE′s pre-merger control before taking any measure to implement it.
First, a "collaborative agreement" shall be subject to CADE′s pre-merger control if it has effects in Brazil. Second, at least one of the groups involved in the transaction must have had gross revenues in Brazil of at least BRL750 million (roughly USD318.5 million, based on the average exchange rate for 2014) in the fiscal year immediately prior to the execution of the agreement; and at least one other group involved in the transaction must have had gross revenues in Brazil of at least BRL75 million (roughly USD31.8 million based on the average exchange rate for 2014) in that same fiscal year.
Sectors such as aviation, pharmaceutical and retail, among others, in which players typically engage in various types of distribution and supply relationships and partnerships, should carefully assess how the new rules may affect their businesses in Brazil. Failure to comply with such rules may result in substantial fines and other administrative penalties. Also, the acts implemented prior to obtaining CADE’s approval may be declared null and void.