In brief: abuse of dominance in Brazil

Abuse of dominance

How is abuse of dominance defined and identified? What conduct is subject to a per se prohibition?

Abuse of dominance is not defined in the law, and the Administrative Council for Economic Defence (CADE) has generally followed an effects-based approach to assess dominance cases. CADE will usually discuss the relevant market definition, assess the firm’s market share and the dynamics of the market concerned, and balance the potential negative effects of the conduct on the market against efficiencies deriving therefrom.

With regard to resale price maintenance, CADE adopted a stricter approach in a case concerning the auto-parts sector in 2013 (the SKF case), in which, by a majority ruling, CADE’s Tribunal decided that resale price maintenance (RPM) schemes prescribing minimum or fixed prices would be presumed to be illegal unless the parties prove that the conduct produces efficiencies to the benefit of consumers. This decision, however, is not settled case law; there have been other RPM cases ruled by CADE after SKF in which a rule of reason approach was adopted.

Does the concept of abuse cover both exploitative and exclusionary practices?

Law No. 12,529/2011 covers both exclusionary and exploita­tive practices since it prohibits any acts that have as their object or effect the limitation of free competition and the arbitrary increase in profits.

Enforcement against exclusionary practices is more common. For example, CADE has previously imposed fines on firms in the brewery, ice cream, banking, gas distribution and postal services markets, among others, owing to exclusionary behaviour, and it has other ongoing matters in which the investigated conduct has alleged exclusionary effects.

What link must be shown between dominance and abuse? May conduct by a dominant company also be abusive if it occurs on an adjacent market to the dominated market?

The existence of dominance must be established to justify an investigation into alleged abusive behaviour. The negative impact does not necessarily need to occur in the market in which the firm enjoys a dominant position, but it must have occurred as a consequence of dominance in an adjacent market.

What defences may be raised to allegations of abuse of dominance? When exclusionary intent is shown, are defences an option?

The existence of a dominant position does not necessarily lead to the conclusion that any conduct by a dominant firm will be considered illegal per se. While assessing the actual or potential negative effects of the conduct under investigation, CADE takes into account the characteristics of the markets concerned, the economic justification behind the conduct and the efficiencies deriving therefrom. If the efficiency gains are deemed to outweigh the anticompetitive effects of the conduct, no infringement shall be found. The same framework of analysis and similar defences apply where exclusionary intent is shown.

Specific forms of abuse

Rebate schemes

Rebate schemes are usually assessed by the Administrative Council for Economic Defence (CADE) under a rule of reason-type approach. Even though CADE acknowledges that rebate schemes can be justified and can lead to efficiency gains, they may give raise to foreclosure concerns that are usually reviewed carefully by CADE when involving a dominant firm.

Although CADE has not conducted an in-depth analysis on the differences between retroactive rebates and incremental rebates, CADE’s General Superintendence has acknowledged that, in theory, retroactive rebates can impose additional pressure on retailers. This is because, if retailers are not able to achieve the established goals, no discount will apply to the sales made in a given period, thus affecting the entirety of their margins. 

One of the most relevant cases that discussed rebate schemes in Brazil was the Ambev/Tô Contigo case (2009). The case involved a loyalty programme called Tô Contigo, created by Ambev, the Brazilian subsidiary of AB InBev. CADE concluded that the practice would foreclose Ambev’s competitors by leading to a de facto exclusivity that would prevent them from accessing a relevant portion of retailers.

In November 2020, CADE imposed an interim measure against the Brazilian media company Globo Comunicações for alleged exclusionary behaviour resulting from incentive plans and upfront payments made for the benefit of publicity agencies. The agencies, according to CADE, would have greater incentive to concentrate on their campaigns with Globo to the detriment of other media companies.

CADE argued that Globo’s incentives plan would establish a growing bonus percentage for publicity agencies that concentrated higher percentages of their budgets to Globo, in addition to non-linear discounts and upfront payments mechanisms. The decision is not final as the investigation is ongoing.

Tying and bundling

Article 36(3)(XVIII) of Law No. 12,529/2011 lists tying and bundling as conduct that could amount to an antitrust infringement if they result in a negative impact on the market or markets concerned.

Precedents show that CADE assesses four cumulative factors to determine whether this kind of conduct amounts to an anti­trust infringement:

• whether the tying and the tied goods are two distinct products;
• if there is any sort of coercion for the joint purchase of both prod­ucts or services;
• whether the seller holds a dominant position in the market for one of the tied products or services and could use that to leverage its market power on the market for the other tied product or service; and
• whether the efficiencies outweigh the anticompetitive effects resulting from the conduct.

In the CBSS case (2015), CADE assessed tying practices in the meal vouchers market and found no evidence that prices charged for the bundled products as a bundle and separately were that different . CADE thus decided that the arrangement did not constitute an antitrust infringement.

In October 2019, CADE launched a formal investigation against the Brazilian financial institution Itaú Unibanco and Redecard (Itaú's credit card network) regarding special conditions offered by Redecard to small merchants who have a bank account with Itaú Unibanco. According to CADE, one of the issues arising from the conduct was the potential tying effect, as only customers that opened a bank account with Itaú Unibanco would be able to take advantage of Redecard’s special conditions.

CADE imposed an interim measure determining that Redecard would have to open its promotional offerings to all merchants and stop all advertisements that would tie Redecard’s discounts to Itaú Unibanco. A final decision on the merits of the investigation is still pending.

Exclusive dealing

While exclusivity provisions are not per se illegal, they may amount to an antitrust infringement if CADE finds a potential negative effect on the market deriving from the conduct under investigation.

According to CADE’s precedents, the anticompetitive effects raised by exclusivity arrangements generally relate to market foreclosure, such as creating difficulties for competitors to access distribution channels, key customers or suppliers, among others, or, to a lesser extent, facilitating upstream or downstream collusion. CADE recognises, however, that exclusive dealing can be justified, especially to prevent freeriding and protect investments.

In recent years, CADE has investigated a number of exclusive dealing cases. In 2018, it concluded an investigation against Unilever and Nestlé for entering into long-term exclusivity agreements with ice cream retailers. Although the investigation was closed against Nestlé because CADE concluded the company did not hold a dominant position, Unilever was ordered to pay a fine and had to amend its commercial agreements with retailers to exclude clauses that were considered to be abusive. In its decision, CADE argued that Unilever’s practice would foreclose competitors as exclusivity conditions were imposed to retailers that were responsible for the majority of Unilever’s sales volume.

In 2020, CADE concluded an investigation into the exclusive partnerships that Positron, an automotive alarms manufacturer, had with national distributors. It ruled that the conduct would amount to an antitrust infringement as it would foreclose competing manufacturers, while Positron’s alleged dominant position and good reputation would indicate that Positron did not need exclusivity clauses to compete effectively in the market.

In 2021, CADE’s General Superintendence preliminarily imposed two main interim measures in exclusive dealings investigations after ruling that a preliminary intervention by CADE would be needed to hinder supposed irreparable harm to the market prior to the final decision. In the Rappi/iFood case, the imposed interim measure:

• prevents the delivery company from entering into new exclusivity dealings with restaurants or altering previous non-exclusive agreements with restaurants until a final decision is reached by CADE’s Tribunal; and
• allows the company to maintain current exclusive dealings for extendable periods of one year, subject to mutual agreement between iFood and the contracting party at the end of each term.

In the TotalPass/Gympass case, the imposed interim measure prevents Gympass from entering into new exclusive dealings and suspends most-favoured-customer clauses and related fines in those agreements, until a final decision is reached by CADE’s Tribunal. Both cases are yet to be ruled on the merits.

Predatory pricing

Predatory pricing is considered a potential antitrust infringement, pursuant to article 36(3)(XV) of Law No. 12,529/2011. CADE’s precedents further detail the concept of predatory pric­ing, establishing that it is the practice of charging prices below the average variable cost, seeking to eliminate competitors and recouping the losses by charging prices and yield profits that are closer to monopolistic levels. The test establishes the possibility of recoupment of losses as a condi­tion for a finding of predatory pricing, thus, in principle, excluding seasonal commercial practices with no impact on competition. To date, CADE has not found any conduct to amount to an abuse of dominance based on predatory pricing.

Itaú Unibanco’s and Redecard’s promotional campaign has been analysed as an alleged practice of predatory pricing and cross-subsidisation. Typically, businesses that accept credit cards have to wait 30 days to receive payments from a customer’s bank; however, Redecard announced that merchants with an account with Itaú Unibanco would have their credit card payments processed in just two days for no extra fee.

The General Superintendence submits that by decreasing the period required to process payments, Redecard incurs additional costs, which could be compensated by the increase in customers for Itaú Unibanco; however, other credit card-processing companies would have to offer similar terms to keep being competitive in the market. A player that is not part of a commercial banking conglomerate would thus have to internalise those costs and could be driven out of the market. The case is yet to be ruled on the merits.

Price or margin squeezes

Pursuant to article 36(3)(IV) of Law No. 12,529/2011, the imposition of difficulties on competitors’ operations or develop­ment of goods or services can be considered antitrust infringements. Margin squeeze practices can potentially be considered as violations as they are potentially harmful to competition (eg, by increasing rivals’ costs).

The practice occurs, for example, when a vertically integrated company, active in both the upstream and downstream markets, holds a dominant position in the upstream market and sells its downstream product with a very small margin, while selling the input to its rivals for a price that does not allow them to offer competitive prices on the downstream product.

CADE usually investigates this type of conduct alongside discrimination accusations. A relevant example takes place in the context of port charges (more specifically, the SSE/THC2 charge). In 2021, CADE’s Tribunal found Tecon Suape, a port terminal, guilty of discriminating against competitors in relation to price and margin squeeze accusations. According to the Tribunal, such conduct may distort the market conditions unless it can be justified by differentiated costs.

CADE concluded that the SSE is charged exclusively on cargo destined to rival off-dock warehouses and that those costs were not duly demonstrated in the case files, thus leading to higher costs imposed on rivals (margin squeeze) and discrimination against competitors in the market for storage services.

The Tribunal also preliminarily applied interim measures against the SSE charge in 2021, such as in the APMT case; however, the original investigations are still ongoing.

Refusals to deal and denied access to essential facilities

Refusal to deal and denial of access to essential facilities are deemed a potential antitrust infringement, pursuant to article 36( 3)(V) and (XI) of Law No. 12,529/2011. According to CADE’s precedents, refusals to deal and denial of access to essential facilities can increase barriers to entry and create foreclosure effects.

However, in certain circumstances such conduct can help reduce transaction costs and avoid freeriding; therefore, for such practices to be considered an antitrust infringement, access to the facility must be considered essential, and its replication must be either impossible or not reasonably feasible, although in certain cases the presence of a significant dominant position by the holder of the facility has also been considered to be sufficient to pursue an investigation, regardless of a rigid essentiality test.

Refusal to deal cases can also happen outside the essential facility context; they may be considered as an antitrust infringement on a rule of reason basis.

An interesting debate regarding alleged refusal to deal has arisen in the context of a complaint brought by an association of cryptocurrency brokers against banks for alleged refusal to give them access to the banking system. The banks are accused of allegedly closing bank accounts or refusing to open bank accounts for cryptocurrency brokers without any reasonable justification.

CADE’s General Superintendence recommended the dismissal of the preliminary probe, concluding that there was no evidence of coordination between banks, and none of them had a dominant position when individually considered in the market concerned. Moreover, it concluded that banks would have reasonable justification to refuse dealing with cryptocurrency brokers (eg, to prevent fraud). CADE’s Tribunal, on the other hand, decided that the General Superintendence should reopen the fact-finding phase and continue the investigation.

In 2020, the Brazilian bank Bradesco settled a case brought by CADE arising from a complaint filed by Guiabolso, a smartphone application designed to provide users with a financial management mechanism, claiming that Bradesco would be hindering its access to the banking information of Guiabolso’s users. Under the settlement, Bradesco agreed to develop a mechanism that will allow users that want to share their data with Guiabolso to do so easily. Bradesco also agreed to pay a pecuniary contribution of approximately 24 million reais to CADE.

In respect of the application of the essential facility doctrine in conduct cases, the São Paulo airport operator GRU Airport and the fuel suppliers Raízen, Air BP and BR Distribuidora are currently being investigated for allegedly preventing third-party suppliers from accessing the airport fuel pool, which is an essential facility for refuelling the aircraft at the São Paulo international airport. In September 2020, CADE’s General Superintendence issued a non-binding opinion recommending that the defendants be found guilty. Dissenting non-binding opinions issued by CADE’s attorney general and the Public Prosecutor’s Office later followed. The case is yet to be decided by CADE’s Tribunal.

In 2021, CADE’s Tribunal found Rumo-ALL guilty of refusing to provide competitors with railroad transportation services within the downstream market of logistic services for sugar exportation, thus allegedly imposing difficulties to their operation in the vertically related markets, as well as to their access to essential sugar distribution channels.

Predatory product design or a failure to disclose new technology

Predatory product design and failure to disclose new technology are covered by article 36(3)(V) and (XIX) of Law 12,529/2011, which indicate as a potential antitrust infringement the creation of dif­ficulty for the operation or development of competitors and the abuse of technology, brand, industrial and intellectual property rights for exclusionary purposes.

In 2018, CADE’s Tribunal concluded the judgment of the Anfape case, in which the auto manufacturers Fiat, Ford and Volkswagen were investi­gated for alleged abuse of intellectual property rights, by means of filing lawsuits and other actions aiming to assure their exclusive rights in manufactur­ing certain auto parts.

The majority of CADE’s commissioners understood that there was not enough evidence to show that the automakers were abusing their intellectual prop­erty rights. In CADE’s view, there would be no reason to distinguish the intellectual property rights in the auto parts original equipment manufacturer and aftermarket segments. Moreover, alleged anticompetitive effects resulted from the intellectual property policy itself, and because the policy is enforced by the National Institute of Industrial Property, CADE would not have jurisdiction to review and amend its application.

Price discrimination

Pursuant to article 36(3)(X) of Law No. 12,529/2011, dis­criminatory practices can amount to an antitrust infringement under certain circumstances.

According to CADE, the following criteria must be met for price discrimination illegal to be illegal:

• the company must hold a dominant position;
• there are structural, contractual or corporate incentives for the discrimination;
• the discrimination has the potential to harm competition; and
• there is no reasonable justification for the conduct.

In the Gemini case (2016), CADE discussed an alleged price discrimination practice in the provision of natural gas by the state-owned oil company Petrobras. The Gemini consortium was formed by Petrobras (the natural gas supplier), White Martins (responsible for liquefying the gas) and Gas Local (the distributor of the liquefied natural gas). The complainant argued that Petrobras would supply the natural gas to the consortium at a lower price when compared to the price charged to the rest of the market. CADE found that all four criteria described above were met in that case and imposed fines on the companies.

In 2021, CADE’s Tribunal found Tecon Suape, a port terminal, guilty of discriminating against competitors in relation to price and margin squeeze accusations. According to the Tribunal, such conduct may distort the market conditions unless it can be justified by differentiated costs.

CADE concluded that the SSE is charged exclusively on cargo destined to rival off-dock warehouses and that those costs were not duly demonstrated in the case files, thus leading to higher costs imposed on rivals (margin squeeze) and discrimination against competitors in the market for storage services.

The Tribunal also preliminarily applied interim measures against the SSE charge in 2021, such as in the APMT case; however, the original investigations are still ongoing.

Exploitative prices or terms of supply

Despite some controversy, Law No. 12,529/2011 is deemed to cover exploitative prices as it expressly prohibits any act that has as its objec­t or effect ‘the arbitrary increase in profits’. This was confirmed in the Sindimiva/White Martins case (2010), in which a four-to-three vote judgement held that exploitative pricing could be a stand-alone claim. To date, however, CADE has not found any exploitative conduct to amount to an antitrust infringement.

CADE is currently investigating whether players in the health sector, such as hospitals, drugstores and manufacturers of face masks and sanitiser, unjustifiably raised their prices and profits during the pandemic.

Abuse of administrative or government process

Sham litigation practices can amount to antitrust infringement if deemed to have the object of effect of restraining competition in the market. According to CADE’s precedents, the following ele­ments must be taken into account when assessing whether a company engaged in sham litigation:

• whether the claim was credible or based on misleading information;
• whether the claim was baseless and there was no realistic expectation of success; or
• whether the means adopted by the investigated company to present its claim were not reasonable or adequate to its alleged intent.

A recent case concerned Correios, the Brazilian postal company, for allegedly continuously filing lawsuits and requesting injunctions against competitors with the aim of protecting its alleged statutory monopoly, despite most of the lawsuits having been rejected by the courts. CADE’s General Superintendence reached the conclusion that while those lawsuits gen­erated significant costs to Correios’ competitors, Correios was not facing any significant cost to bring those cases mainly owing to its right to be exempted from paying filing and procedural fees (as a company wholly owned by the government). Correios ultimately decided to settle the case with CADE.

Mergers and acquisitions as exclusionary practices

Concentrations (including mergers and acquisitions) are covered exclusively by the Brazilian merger control rules set forth by articles 88 and 90 of Law 12,529/2011 and by CADE’s Internal Rules and related regulations. A concentration can be blocked or approved with conditions by CADE if it has the potential to harm competition by creating or strengthening a dominant position.

Other abuses

Most-favoured-nation (MFN) clauses are usually reviewed under a rule of reason type approach, so the characteristics of the markets concerned and the practice in question, as well as the player’s market share, will guide CADE’s assessment.

In principle, given that there is a presumption of dominance starting at the 20 per cent market share level, CADE tends to use this threshold when reviewing MFNs, resale price maintenance (RPM) and other vertical restraint cases. This does not mean, however, that MFNs will not be acceptable if the payer has more than a 20 per cent market share; the assessment will be done on a case-by-case basis.

In 2018, the online travel agents Booking, Decolar and Expedia settled an investigation launched by CADE into the MFN clauses inserted in their respective agreements with hotels. The online travel agencies agreed to cease the use of wide clauses that prevented the hotels from offering better prices or conditions in any other online or offline channel, or both.

On the other hand, the settlement agreement says that MFN clauses can be implemented in relation to accommodation providers’ direct online booking channels that are open to the general public, as well as on metasearch websites such as Trivago and TripAdvisor.

This conduct (coupled with exclusivity dealings) is also being investigated in the context of the TotalPass/Gympass case, in which CADE’s General Superintendence preliminarily imposed an interim measure to prevent Gympass from entering into new exclusive dealings and suspend most-favoured-customer clauses and related fines in those agreements until a final decision is reached by CADE’s Tribunal. Both cases are yet to be ruled on the merits.

With regard to RPM, CADE adopted a stricter approach in a case concerning the auto parts sector in 2013 (the SKF case), in which, by a majority ruling, CADE’s Tribunal decided that RPM schemes prescribing minimum or fixed prices would be presumed to be illegal unless the parties can prove that the conduct produces efficiencies to the benefit of consumers. This decision, however, is not settled case law; there have been other RPM cases ruled by CADE after the SKF decision in which a rule of reason approach was adopted, usually assuming anticompetitive effects arising out of minimum price-related RPM conduct.

Law stated date

Give the date on which the information above is accurate.

January 2021.