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 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 respect to resale price maintenance, however, CADE has 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 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 were other RPM cases ruled by CADE after the SKF decision 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 not only the limitation of free competition, but also the arbitrary increase in profits. The 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, amongst others, due to exclusionary behaviour, and 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 an alleged abusive behaviour. The negative impact does not necessarily need to occur in the market in which the firm enjoys a dominant position, but they 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 will not necessarily lead to the conclusion that any conduct by a dominant firm shall be considered illegal per se. While assessing the actual or potential negative effects of the conduct under investigation, CADE shall take into account the characteristics of the market(s) 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 an 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 so far CADE has not conduct 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, in case retailers are not able to achieve the established goals, no discount will apply to the sales made on a given period – then 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). Such 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 to the benefit of publicity agencies that, according to CADE, would have greater incentives to concentrate their campaigns with Globo to the detriment of other media companies. CADE has argued that Globo’s incentives plan would establish a growing bonus percentage for publicity agencies that concentrated higher percentages of their budget to Globo, in addition to non-linear discounts and upfront payments mechanisms. Such decision is not final as the investigation is ongoing.

Tying and bundling

Law No. 12,529/2011 on its article 36, paragraph 3, XVIII lists tying and bundling as conduct that could amount to an antitrust infringement in case they result in 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), for example, 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, deciding that the arrangement did not constitute an antitrust infringement for that reason.

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 such conduct was the potential tying effect, as only customers that opened a bank account with Itaú Unibanco would be able to take advantage of the Redecard’s special conditions.   CADE imposed an interim measure determining that Redecard would have to open its promotional offerings to all merchants and to 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 found a 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, and the like, or, to a lesser extent, the facilitation of upstream or downstream collusion. CADE recognises, however, that exclusive dealing can be justified, especially to prevent free riding and protect investments.

In recent years, CADE has investigated a number of exclusive deal­ing cases. In 2018, CADE 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 convicted to pay a fine and had to amend the 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 strategic 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, and 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.

Predatory pricing

Predatory pricing is considered a potential antitrust infringement, pursuant to article 36, paragraph 3, XV of Law No. 12,529/2011. CADE's precedents further detail the concept of predatory pric­ing, establishing that it would be the practice of charging prices below the average variable cost, seeking to eliminate competitors and then recoup 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 finding of predatory pricing, thus expressly 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 is also being analysed as an alleged practice of predatory pricing and cross-subsidisation. Typically, businesses that accept credit cards have to wait circa 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 this market. A player that is not part of a commercial banking conglomerate would have thus to internalise these 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 Law No. 12,529/2011 on its article 36, paragraph 3, IV, margin squeeze is characterised as the imposition of difficulties on competitors’ operation or develop­ment of goods or services.  Margin squeeze practices are potentially harmful to competition, as they may increase 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.

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, paragraph 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, such conduct can help reduce transaction costs and avoid free riding. Therefore, in order for such prac­tices to be found an antitrust infringement, access to the facility must be considered essential and its replication must be either impossible or not reasonably feasible.

An interesting debate around alleged refusal to deal has arisen in the context of a complaint brought by an association of cryptocoin brokers against banks for alleged refusal to give access to the banking system to such brokers. The banks are accused of allegedly closing bank accounts or refusing to open bank accounts for cryptocoin 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 would have a dominant position when individually considered in the market concerned. Moreover, the General Superintendence concluded that banks would have reasonable justification to refuse dealing with cryptocoin brokers, such as fraud prevention. CADE’s Tribunal, on the other hand, decided that the General Superintendence should reopen the fact-finding phase and continue the investigation.

Also in 2020, the Brazilian bank Bradesco settled a case brought by CADE due to 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. Moreover, Bradesco agreed to pay a pecuniary contribution of approximately 24 million reais to CADE.  

As to the application of the essential facility doctrine in conduct cases, the São Paulo airport operator GRU Airport and the fuel suppliers Raízen, AirBP and BR Distribuidora are currently being investigated for allegedly preventing access of third-party suppliers to the airport fuel pool, which would be an essential facility for refuelling the aircrafts at the São Paulo international airport. In September 2020, CADE's General Superintendence issued a non-binding opinion recommending that the defendants should be found guilty. The case is yet to be decided by CADE’s Tribunal.

Predatory product design or a failure to disclose new technology

Predatory product design and failure to disclose new technology are covered by article 36, paragraph 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 aiming to assure their exclusive rights in manufactur­ing certain auto parts. The majority of CADE’s Commissioners understood that there was not enough evidence that automakers were abusing their intellectual prop­erty rights. In CADE’s view, there would be no reason for distinguish­ing the intellectual property rights in the auto-parts OEM and aftermarket segments. Moreover, alleged anticompetitive effects resulted from the intellectual property policy itself, and because such policy is enforced by the Brazilian National Institute of Industrial Property (INPI), CADE would not have jurisdiction to review and amend its application.

Price discrimination

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

According to CADE, in order to find price discrimination illegal, the following criteria must be met:

• 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 were described above were met in that case and imposed fines on the companies.

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 4–3 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, manufacturers of face masks and sanitiser, would have unjustifiably raised their prices and profits during the covid-19 pandemic.

Abuse of administrative or government process

Sham litigation practices can amount to antitrust infringement if deemed to have the objective or be able to restrain 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 was not reasonable or adequate to its alleged intent.

A recent case concerned Correios, the Brazilian postal company, for having allegedly kept filing lawsuits and requesting injunctions against competitors aiming to protect its alleged statutory monopoly, despite most of the lawsuits had 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 due mainly to its right to be exempted from paying filing and procedural fees (as a company wholly owned by the Brazilian 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

Other types of unilateral conduct that has given rise to competition concerns include Most Favourable Clauses (MFNs) and Resale Price Maintenance (RPM) schemes.

MFN clauses are usually reviewed under a rule of reason type approach, so the characteristics of the market(s) 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 also when reviewing MFNs, RPMs and other vertical restraint cases. This does not mean, however, that MFNs will not be acceptable if the payer has more than 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 OTAs 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 open to the general public, as well as on metasearch websites such as Trivago and TripAdvisor.

With respect to RPM, CADE has 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 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 were other RPM cases ruled by CADE after the SKF decision in which a rule of reason approach was adopted.

Law stated date

Give the date on which the information above is accurate.

January 2021.