New Bill Inspires Confidence for Foreign Investors

Competition Authorities
Mergers and Acquisitions
Prohibition of Unfair Competition
Comment

The National Assembly is considering the bill of the new Law to Promote Free Competition and Efficiency. This bill will replace the Law on the Promotion and Protection of Free Competition which has been in force since 1992.

The purpose of the bill is to eliminate the unnecessary regulation of economic activities, as well as to promote and defend free competition and efficiency in favour of companies and consumers acting in Venezuela.

The bill establishes prohibitions and penalties for practices restricting free competition and, particularly, for behaviour that is intended to obstruct, distort or restrict economic freedom. Also, it establishes a new system to control mergers and acquisitions that will result in monopolies or dominant positions in the market.

Competition Authorities

The bill creates the Competition Defence Commission and the Court for Defence of Competition, which will be entrusted with the performance of duties currently performed by the Superintendency for Promotion and Protection of Free Competition, assigned to the Ministry of Production and Trade.

The commission will be an autonomous institute with legal capacity and its own assets independent of those of the National Executive. All its operations will be undertaken autonomously.

The commission will be composed of three commissioners and three alternates appointed by the president of the republic. However, the National Assembly, with the favourable vote of the majority of its members, will elect the individual who will preside over the commission.

The following are among the commission's most important powers:

• the preparation and coordination of policies for promotion of free competition in Venezuela;

• the investigation and supervision of anticompetitive or illegal trade practices;

• analysis of the potential restricting effects on free competition of state regulation of certain economic activities, as well as the preparation of such amendments to the regulations as it deems necessary; and

• the issuance of opinions on adjustments to be made to state programmes and policies when these are contrary to free competition.

The Court for Defence of Free Competition will be a part of the judiciary, composed of three judges appointed by the Supreme Court of Justice. It will conduct proceedings against individuals and legal entities suspected of anti-competitive practices.

According to the bill, when the commission judges that a company is suspected of an anti-competitive commercial practice it must file the corresponding claim or complaint before the court. The court may commence proceedings against the company according to which the latter may be ordered to adopt temporarily the measures necessary to protect the market. At the end of the proceeding, if the court determines that the company is indeed guilty of illegal practices (or practices restricting free competition) it may issue any orders that it deems necessary to restore the situation in the market and protect consumers and other competitors. It may also impose fines and economic penalties on the company.

Mergers and Acquisitions

The bill contains a new system for the evaluation of mergers and acquisitions in Venezuela. It establishes a preventive system for mergers and acquisitions that give rise to a dominant position or restrict free competition. Prevention is achieved by establishing an obligation to notify the Competition Defence Commission of any mergers or acquisitions that exceed certain minimum limits as to the volume of the businesses and the value of the assets of those participating in the transactions. One group of mergers and acquisitions is defined as 'passive' mergers and acquisitions. They do not restrict free competition in law subject to requirements concerning the time during which the assets, shares and securities are kept.

When the mergers and acquisitions are effected without the commission's authorization it may file a complaint before the Court for Defence of Free Competition requesting that the transaction be declared illegal and rendered null and void, and that penalties be imposed. Likewise, the Competition Defence Commission may request that a merger or acquisition be declared illegal if it has been based on false information, even if authorized by the commission

Prohibition of Unfair Competition

The bill develops the regulations that prohibit practices from restricting free competition in Venezuela. It establishes prohibitions regarding:

• the establishment of cartels;

• boycotts;

• abuses of dominant positions;

• non-compete agreements;

• vertical restrictions; and

• exclusionary practices.

The bill contains a chapter that broadly governs unfair competition. This is an improvement on the current regulation, which contains only one vague article on this matter. The bill lists an increased number of events that are expressly prohibited by law, including:

• acts of confusion;

• deceptive advertising;

• false advertising;

• advertising that denigrates competitors;

• infringement of trade secrets;

• copying of products; and

• bribery in trade.

According to the bill, any act or practice in the performance of economic activities which causes or is capable of causing confusion as to the ownership of the company or its property and services, or their quality, characteristics or origin, constitutes an act of confusion, as does any act that damages the reputation of a company and its property or services.

The bill also prohibits any false or unjustified statements issued in the performance of economic activities that discredit or may discredit other companies or their activities, products or services.

Comment

The bill constitutes significant progress, providing legal certainty and inspiring confidence for foreign investors, given that it establishes guaranties inherent in a free market economy and protects companies in commercial relationships. In addition, the bill improves economic efficiency in domestic markets because it seeks the elimination of obstacles and limitations in state economic activities with the purpose of improving free competition.

For further information on this topic please contact Olga Nass de Massiani, Isabel Victoria Márquez or Vera De Brito de Gyarfas at Travieso Evans Arria Rengel & Paz by telephone (+58 212 277 3333) or by fax (+58 212 277 3334) or by email ([email protected], [email protected] or [email protected]).