Refusal to Deal
Intellectual Property and Antitrust Laws
The existing Antitrust Commission and antitrust laws were implemented during the capitalist era that followed the 1973 coup when President Salvador Allende was deposed. This overview focuses on areas where antitrust legislation has impacted on the domestic economy. Three different periods will be discussed:
- the 1970s and 1980s, when the commission focused on preventing restrictions that could have stifled competition;
- the 1990s, when the commission played a prominent role in regulation; and
- recent times, which have seen the tightening of merger control and an increasing intervention of the antitrust principles in intellectual property matters.
Decree-Law 211 governs the antitrust system. Article 2 of the decree broadly defines 'contravening conduct' as "any act that tends to impede free competition within the country." However, the brief list of just six examples has obliged the commission to elaborate this body of law.
The antitrust authorities are comprised of the following bodies:
- The Resolutive Commission (Comisión Resolutoria). This is the higher commission vested with broad powers to grant preliminary injunctions and fines, and to dissolve and divest corporations. Its decisions may be appealed before the Supreme Court in certain cases. The commission is comprised of a supreme court judge, two deans (one each from faculties of law and economics) and two heads of service from the Ministry of Finance and the Ministry of Economy. The members are ad honorem.
- Preventive commissions (Comisiones Preventivas). These commissions, of which there are 13 in the whole country, have wide powers of investigation but they cannot impose remedies and have no staff of their own. Their members are ad honorem.
- The National Prosecutor (Fiscalía Nacional Económica). This body has a permanent staff and is also vested with wide powers of investigation.
During the 1970s the Antitrust Commission's role was to foster competition and curtail monopolistic practices. It looked warily upon restrictions, and common business structures (eg, exclusive distribution agreements or franchising) were usually blocked. Retail price suggestions and price fixing were strictly prohibited. However, no restrictions could be imposed on distributors who had bought goods. This distinction omitted elemental economic analysis and almost a decade passed before the commission was willing to relax its approach towards exclusive areas, franchising and price suggestions to distributors. The commission has now agreed to assess the competitive conditions of relevant markets. Nevertheless, price fixing is still regarded as a per se illegality for distribution agreements.
A similarly harsh approach was taken towards discrimination and refusal to deal. Somehow the commission equated protection to competition with protection to competitors, so that a supplier could discriminate among his customers only under objective parameters such as volume discounts or prompt payment, regardless of whether the discrimination was anti-competitive or not. Similarly with refusal to deal, suppliers were not free to refuse a purchase order without grounds other than objective circumstance (eg, insolvency). Recently, in a landmark case, the commission stated the law regarding refusal to deal and recognized selective distribution as a legitimate ground for refusal.
The commission is gradually progressing towards a more liberal approach to vertical restrictions, but is still conservative in its approach to discrimination, where it provides protective rules for small competitors but ignores the increasing bargaining power of large retail chains.
According to antitrust legislation regarding vertical restrictions, exclusive distribution agreements are permitted. The commission will focus on interbrand competition rather than intrabrand competition. Allocating territories or preparing restrictive covenants are common clauses of these contracts. Manufacturers or suppliers must establish rules applicable to all dealers on a non-discriminatory basis. Retail price fixing is prohibited.
Franchising is allowed. In franchising contracts there are restrictions which the authorities may accept but which would not be acceptable in exclusive distribution agreements (eg, tighter control by the franchisor over retail prices).
The practice of charging different prices to similar conditions, or equal prices to different conditions, is deemed to constitute price discrimination and thus distorts competition.
Promotions are valid if they are freely agreed by the distributor (who cannot be forced to join the promotion) and are limited in time.
The preventive commissions have stated that price lists and discounts must be:
- non-discriminatory; and
Furthermore, sellers must have only one price list for cash payment. Beyond that price list, discounts should be applied under objective criteria, such as sales volume or prompt payment.
The most common discounts permitted by the commission are:
- sale volumes;
- prompt payments; and
- cost savings passed to the purchaser (ie, functional discounts).
The last criterion is loosely defined by the commission and, therefore, is flexible.
The landmark case regarding refusal to deal is D&S v Rosen. According to this case refusal to deal is illegal if:
- the buyer cannot compete because he is deprived of supplies;
- the buyer is willing to accept the general terms of sale of the supplier; and
- monopolist or oligopolist supply markets exist.
Refusal to supply is only acceptable if the buyer does not accept the supplier's general conditions, which must be objective and reasonable. When the market is competitive, even refusals that are not grounded upon objective and reasonable general rules may be deemed illicit.
During the 1990s Chile experienced:
- expansion of its gross domestic product;
- continued privatization of state companies;
- creation of new industries (eg, mobile telecommunications and natural gas pipelines); and
- increase of foreign investments.
Regulation of these fields was either incomplete, underway or not established at all. The Antitrust Commission helped to devise rules aimed at fostering competition, and made landmark judgments concerning key sectors of the economy including electricity, gas, telecommunications and water supplies.
Intellectual Property and Antitrust Laws
The problem of reconciling intellectual property rights with antitrust laws lies in the fact that an intellectual property privilege grants a legal monopoly. The Antitrust Commission has so far only dealt with this issue in cases involving trademarks - the only intellectual property privilege which does not grant a legal monopoly over the product itself, and which therefore clashes only mildly with antitrust principles.
The commission's criterion regarding trademark matters is that the owner of a trademark may use the exclusive rights that arise but only to the extent that such use does not amount to an abusive exercise of the rights.
Initially, the trademark cases presented to the commission involved parallel import situations, typically arising in cases where a local distributor registered the trademark of a foreign manufacturer and, upon termination of the distributorship relation, intended to use the trademark to prevent the importation and distribution of the same products. This practice was deemed to amount to an abusive exercise of trademark rights and was consistently prevented by the commission. These initial cases were easy to resolve, because the trademark under scrutiny usually corresponded to a well-known foreign mark extensively used and registered abroad by the foreign manufacturer. Moreover, the same products had been distributed in the local market before registration of the trademark in Chile.
The commission subsequently extended this reasoning, applying the abuse of rights to condemn and impose fines upon two Chilean companies in the retail store business that registered several trademarks of the French company Carrefour. As soon as the company announced the initiation of its operation in Chile, it was threatened with trademark infringement actions.
Although the case concerned a trademark that was used for a retail store (and not to distinguish products), and irrespective of the fact it had not been used in Chile, the commission still ruled that in registering the French trademarks, the intention of the companies was to encumber the potential entrance of Carrefour to the Chilean market. This was held to amount to an abusive exercise of trademark rights and thus contrary to antitrust laws. These decisions (comprising Dictamen 1040 of July 3 1998 and Resolution 543 of June 9 1999) rendered by the resolutive and preventive commissions were ultimately reversed by the Supreme Court, but the reversal was grounded solely upon factual bases and the analytical reasoning of the commissions was left untouched.
In light of these decisions, it can be concluded that the Antitrust Commission may be approached to seek redress for almost any kind of problem involving trademarks and other classes of industrial or intellectual property privilege.
Over the last 20 years antitrust authorities have played an important role in promoting free competition and fair business practices. One concern remains, that during the last five years the authorities chose to deal with politically sensitive topics and occasionally may have been affected by the interests of pressure groups. It is important that antitrust regulations should be well administered in order to avoid incorrect application of the law that frustrates economic development and free enterprise.
For further information on this topic please contact Gerardo Varela at Cariola Diez Perez-Cotapos & Cia Ltda by telephone (+56 2360 4000) or by fax (+56 2360 4030) or by e-mail ([email protected]).
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