What is the legal framework in your jurisdiction covering the behaviour of dominant firms?
In Brazil, the main piece of legislation applicable to the behaviour of dominant firms is Law No. 12,529/2011 (article 36, IV), which stipulates that any act that has as its object or effect the abuse of a dominant position constitutes an antitrust infringement subject to penalties. The Administrative Council for Economic Defence (CADE), the Brazilian competition authority, has yet to issue specific regulation establishing a framework for assessment of dominance cases, and continues to rely on its resolutions enacted under the now revoked Competition Law No. 8,884/94, in particular CADE’s Resolution 20/99 (Resolution 20/99).
Definition of dominance
How is dominance defined in the legislation and case law? What elements are taken into account when assessing dominance?
Law No. 12,529/2011 establishes that a dominant position is presumed when a company or a group of companies is able to individually or jointly change market conditions or when it controls 20 per cent or more of the relevant market. This ‘dominance presumption’ is not absolute, however, as CADE must take into account market conditions (eg, barriers to entry, rivalry, customers’ buying power, among others) to reach a conclusion on whether the company or group of companies indeed hold a dominant position in a given market. Law No. 12,529/2011 also provides that the 20 per cent threshold may be subject to change by CADE for specific sectors of the economy.
Purpose of legislation
Is the purpose of the legislation and the underlying dominance standard strictly economic, or does it protect other interests?
Law No. 12,529/2011 refers to free enterprise, free competition, the social role of private property, consumer protection and repression to the abuse of economic power as its guiding principles. In practice, however, CADE’s policy has been to enforce Law No. 12,529/2011 based mainly on economic standards, seeking to achieve efficiency and consumer welfare through the promotion of competition.
Sector-specific dominance rules
Are there sector-specific dominance rules, distinct from the generally applicable dominance provisions?
In the telecommunications sector, the General Plan of Competition issued by the Brazilian telecoms regulator (ANATEL) stipulates the rules to determine whether an economic group holds the ‘significant market power’ (SMP) to influence economic conditions in certain telecommunications markets. Companies found to hold SMP may be subject to asymmetric regulatory obligations regarding transparency, access to resources, products offer and equality, as well as wholesale price control measures put in place by ANATEL. In order to determine whether an economic group holds significant market power in a relevant market, ANATEL assesses the group’s market share, its ability to benefit from economies of scale and scope, the control over an essential facility, and its presence in both wholesale and retail segments.
Exemptions from the dominance rules
To whom do the dominance rules apply? Are any entities exempt?
According to article 31, the provisions of Law No. 12,529/2011 are applicable to individuals or public or private entities, as well as any associations of entities or individuals, whether de facto or de jure, even if created temporarily, incorporated or unincorporated, or engaged in business under a legal monopoly system.
Transition from non-dominant to dominant
Does the legislation only provide for the behaviour of firms that are already dominant?
Pursuant to article 36, II of Law No. 12,529/2011, any acts that have as their object or effect to dominate a market may be deemed an antitrust infringement. This means that the mere attempt to achieve a dominant position may be subject to penalties by the antitrust authority, regardless of whether the attempt is successful. In any case, article 36, paragraph 1 clarifies that achieving a dominant position by means of greater efficiency does not fall within the meaning of the said provision.
Is collective dominance covered by the legislation? How is it defined in the legislation and case law?
There is no separate concept of collective dominance in Brazil. However, article 36, paragraph 2 of Law 12,529/2011 expressly provides that dominance can be either individual or collective, stating that dominance is presumed whenever ‘a company or group of companies’ is able to unilaterally or jointly change market conditions or when it controls 20 per cent or more of the relevant market.
Does the legislation apply to dominant purchasers? Are there any differences compared with the application of the law to dominant suppliers?
There are no differences in terms of application of the law for dominant purchasers and dominant suppliers. Although Law No. 12,529/2011 does not have an explicit rule on dominant purchasers (in contrast to previous legislation, ie, revoked Law No. 8,884/94), it applies to these agents as well.
Market definition and share-based dominance thresholds
How are relevant product and geographic markets defined? Are there market-share at which a company will be presumed to be dominant or not dominant?
Pursuant to Resolution 20/99, the test used for market definition in dominance investigations is the ‘hypothetical monopolist test’. This is the same test adopted in merger control cases and defines the relevant market as the smallest group of products and geographic area in which such products are manufactured or sold, so that a monopolist company could impose a small, but substantial and non-transitory price increase without consumers acquiring another product to substitute it or buying it in another region.
As mentioned above, Law No. 12,529/2011 provides that a dominant position is presumed when a company or a group of companies is able to unilaterally or jointly change market conditions or when it controls 20 per cent or more of the relevant market. However, this ‘dominance presumption’ is not absolute, and CADE must take into account market conditions to reach a conclusion on whether an undertaking or group of undertakings have market power. Accordingly, Law No. 12,529/2011 also provides that such 20 per cent threshold may be subject to change by CADE for specific sectors of the economy.
Abuse of dominance
Definition of abuse of dominance
How is abuse of dominance defined and identified? What conduct is subject to a per se prohibition?
Law No. 12,529/2011 does not define abuse of dominance, but its article 36, paragraph 3, lists examples of practices that could be regarded as an abuse of dominant position, such as tying and exclusivity arrangements. Resolution No. 20/99 establishes a methodology to identify potential abuses:
- definition of the relevant market;
- calculation of the party’s market share;
- assessment of market conditions, including concentration levels and barriers to entry; and
- balancing of negative effects of the conduct on the market against its efficiencies.
Accordingly, CADE’s case law has generally followed an effects-based approach in order to identify a dominance abuse. With respect to resale price maintenance, however, CADE has been adopting a stricter approach. Following the SKF case (2013), resale price maintenance agreements (especially those that prescribe minimum or fixed prices) are now scrutinised much more rigorously: albeit not under a blunt per se approach, as CADE presumes this practice to be illegal and the undertaking has the burden to prove its efficiencies.
Despite that, in 2018, responding to a query submitted by Continental, six of CADE’s seven commissioners understood that Continental’s ‘minimum announced price policy’ - related to its tire division - was lawful from a Brazilian competition law perspective. CADE reached this conclusion based mainly on three conditions, which will be reevaluated at the end of each term of five years: (i) lack of dominant position in the relevant markets affected by the price policy; (ii) the price policy was developed unilaterally by Continental and did not suffer any interference or influence from retailers; and (iii) the price policy applies to all retailers, without any discrimination.
Exploitative and exclusionary practices
Does the concept of abuse cover both exploitative and exclusionary practices?
In theory, 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. In 2010, in the Sindimiva case, CADE had a lengthy discussion regarding the enforceability of the rule on exploitative pricing, considering the lack of reasonable criteria to examine whether the price was exploitative or not. Although a 4-3 vote held that exploitative pricing could be a stand-alone claim, to this date CADE has not found any exploitative conduct itself to amount to an antitrust infringement.
Link between dominance and abuse
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?
Considering that Law No. 12,529/2011 sanctions the abuse of a dominant position, the existence of dominance must be established to justify an investigation of a company for abuse. In dominance abuse investigations, CADE will deem that a dominant position is being abused if the conduct’s anticompetitive effects are greater than its efficiencies, following the methodology stipulated by Resolution No. 20/99. CADE may consider cases in which the anticompetitive effects did not occur in the same market in which the company is dominant, but in a downstream, upstream or neighbouring market (see the THC2 case mentioned in question 18 for further details regarding the geographic extent of dominance). In those cases, the foreclosure effects must have occurred as a consequence of the abusive conduct of the dominant firm in the market in which it held a dominant position.
What defences may be raised to allegations of abuse of dominance? When exclusionary intent is shown, are defences an option?
Pursuant to Resolution No. 20/99, the analysis of abuse of a dominant position requires an examination of the actual or potential effects of the investigated conduct. Under such analysis, a defence on efficiency gains can be presented by a dominant company, which can argue, for example, that the conduct reduces transaction costs, deters free riding or protects investments made in research and development. If those efficiency gains are deemed to outweigh the anticompetitive effects of the conduct, CADE will conclude that there is no abuse and that the conduct is legal from a competitive and legal perspective. Article 36 of Law No. 12,529/2011 downplays intent as an element for assessing whether a conduct is lawful. Therefore, even if an exclusionary intent is demonstrated, companies can still raise defences to allegations of abuse of dominance. In practice, however, CADE has not decided a case on the basis that an anticompetitive practice was justified by efficiency gains.
Specific forms of abuse
Types of conduct Types of conduct
There is no specific provision regarding rebate schemes in Law No. 12,529/2011 or Resolution No. 20/99. However, as mentioned above, any behaviour that has the (actual or potential) effect to harm competition, including by abuse of dominant position, may be considered an antitrust infringement. Therefore, while rebate schemes are not per se infringements, they may still be considered illegal under Law No. 12,529/2011 depending on whether they have the ability to foreclose competitors from entering the market. Accordingly, CADE’s precedents have been consistent in applying the effects-based approach, acknowledging that even though rebate schemes can have efficiencies, they also raise anticompetitive concerns, which is why they demand assessment on a case-by-case basis.
One of the most relevant cases that discussed rebates was the Ambev/Tô Contigo case (2009). Such case involved a fidelity programme called Tô Contigo, created by Ambev, the leading Brazil brewery company. The programme awarded advantages to retailers that purchased Ambev products, including discounts and points that could be exchanged for prizes. In its decision, CADE acknowledged that rebate schemes may generate positive effects in the market. Nevertheless, in that case, CADE concluded that the practice’s anticompetitive effects outweighed its efficiencies, stating that Ambev’s market power, combined with the exclusivity requirement imposed on selected retailers and the loyalty nature of the rebates increased competitors’ costs and foreclosed their access to the market, therefore restricting competition. For these reasons, CADE punished Ambev for antitrust infringement, imposing a fine of 352 million reais. Ambev challenged CADE’s decision in court and, in July 2015, reached an agreement with CADE, agreeing to pay a fine of 229 million reais and terminate the investigated conduct.
Tying and bundling
Law No. 12,529/2011 in its article 36, paragraph 3, XVIII defines tying and bundling as conducts whereby an undertaking conditions the sale of goods or the provision of services to the acquisition or use of another good or service. Such conduct is subject to penalties. Pursuant to Resolution No. 20/1999, competition concerns arise when a dominant firm uses tying and bundling to leverage its dominance into new markets.
Precedents show that CADE examines four cumulative requisites in order 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 tying market; and
- whether the conduct’s efficiencies outweigh the anticompetitive effects.
In recent years, CADE has dismissed many investigations, determining that the conduct did not meet the above-mentioned requisites. In the CBSS case (2015), for example, CADE assessed tying practices in the meal vouchers market. This investigation was based on a complaint by Sodexo, a meal vouchers company, against major Brazilian banks that were allegedly offering discounts in financial transactions to corporate customers in exchange for hiring CBSS, another local meal vouchers company affiliated to the investigated banks. According to Sodexo’s complaint, this practice amounted to an anticompetitive tying arrangement. CADE did not agree with such view. According to CADE, because this was a mixed bundling (ie, consumers were offered the choice of buying the bundled products separately), the coercion criterion would only be met if the price charged for the products purchased separately was ‘exorbitantly’ higher than the price charged for the bundle, amounting to a de facto inducement. Given that CADE found no evidence that prices charged for the separate and bundled products were so discrepant, it decided that the arrangement did not constitute an antitrust infringement and dismissed the investigation.
There is no specific provision regarding exclusivity in Law No. 12,529/2011. Nevertheless, as mentioned, any behaviour that has the effect (actual or potential) of harming competition, including by abusing one’s dominant position, may be considered an antitrust infringement subject to penalties. As such, while exclusivity provisions are not per se infringements, they can amount to an infringement of Law No. 12,529/2011 if their anticompetitive effects outweigh their efficiencies. According to Resolution No. 20/99, the anticompetitive effects raised by exclusivity arrangements generally relate to the facilitation of upstream collusion and to unilateral increase of market power through foreclosing of distribution channels or input supply; efficiencies, in turn, relate to reduction of transaction costs and prevention of free riding.
In recent years, CADE has investigated a number of exclusive dealing cases, imposing penalties on several of them. In the Odebrecht case (2007), the construction company entered into exclusivity agreements with virtually all the suppliers of hydroelectric turbines (ie, GE, Alstom, VA Tech and Voith Siemens), preventing them from negotiating with other groups interested in participating in the Rio Madeira energy public bidding. The Secretariat of Economic Law (CADE’s former General Superintendence) adopted a cautionary measure, suspending the effectiveness of those exclusive arrangements. Odebrecht entered into a settlement with CADE, by which it agreed to withdraw the judicial claims and accepted the cancellation of the exclusivity clause in its agreements with the turbines suppliers.
Other cases involved Unimed, a physicians’ cooperative that often required exclusivity from local physicians and hospitals for the provision of healthcare services, prohibiting them from affiliating with other healthcare plans. CADE prohibited such exclusivity arrangements on the basis that they foreclosed other healthcare plans from entering the market.
In 2018, CADE also concluded an investigation against Unilever and Nestlé for imposing long-term exclusivity agreements to ice cream retailers. Not only were retailers required to sell Unilever’s or Nestlé’s ice creams on an exclusive basis, but they were also prohibited from storing ice cream from other competitors in Unilever’s or Nestlé’s freezers. Additionally, Unilever and Nestlé would also impose fines if retailers failed to comply with the minimum sales volume. During the investigation, CADE concluded that Nestlé did not hold a dominant position in the market, given that its market share would range from 10 to 20 per cent. As a result, CADE dismissed such claims against the company. Unilever’s market share, on the other hand, ranged from 60 to 70 per cent and, therefore, it clearly held a dominant position in the market. Although CADE acknowledged that the company had an economic rationale to require the exclusive use of its freezers by retailers (ie, to prevent free riding), the antitrust authority found that demanding exclusivity in sales or imposing minimum sales volumes had negative impacts on competition. For this reason, Unilever was forced to pay a fine of 29 million reais. CADE has also determined that Unilever must amend the commercial agreements with retailers in order to exclude clauses that were considered to be abusive.
CADE has also started to investigate whether the agreements celebrated between municipalities and beer manufacturers, through public biddings, for the sales of beer during the festivities of the Brazilian carnival would constitute an infringement to the Brazilian competition law. These agreements would restrict the sales of beer to a single brand in locations where the street celebrations were going to be held, as well as limiting the number of authorised sellers. According to CADE’s allegations, there is also indication that not only street sellers would have to comply with this exclusivity, but that commercial enterprises located close to the festivities would also suffer limitation from municipal supervisors or from representatives of the brand that won the public bidding. Moreover, CADE will investigate whether municipalities would direct the public biddings to favour a given brand.
Predatory pricing is considered by article 36, paragraph 3, XV of Law No. 12,529/2011 as a potential antitrust infringement, being defined as the sale of a product or service for a price that is below its cost. Resolution No. 20/99 further details the concept of predatory pricing, establishing that it would be the practice of charging prices below the average variable cost, seeking to eliminate competitors in order to charge prices and yield profits that are closer to the monopolistic levels. It also 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.
In early 2019, CADE’s General Superintendence recommended that the claims of charging predatory prices by using cross-subsidisation against Abbvie and Abbott brought by Cristália should be dismissed. According to the plaintiff, Abbott was taking advantage of its profits in the sales of lopinavir/ritonavir to charges prices below cost on its medicine based on ritonavir. During the fact-finding phase the General Superintendence found that the prices charged by the plaintiff in the public auction that was the object of the investigation were very similar to the ones charged by Abbott. Moreover, CADE used as evidence the fact that the Brazilian Ministry of Health, based on previous contracts executed by the Public Administration, deemed that Abbott’s prices were reasonable. The case is subject to CADE’s Tribunal final ruling.
Price or margin squeezes
Pursuant to Law No. 12,529/2011 in its article 36, paragraph 3, IV, the practice of margin squeeze is a potential antitrust infringement. It is defined as the imposition of difficulties on the operation or development of goods or services.
In recent years, CADE has discussed margin squeeze in a few cases. In the VU-M case (2014), CADE dismissed a complaint by GVT (a landline operator) whereby it accused mobile network operators (MNOs) of setting different prices to terminate calls on their own networks depending on which company originated these calls (ie, the MNO themselves or a landline operator). According to GVT, calls originated by MNOs were charged with a lower termination rate when compared with calls by landline operators and, as a result, MNOs would be favoured to the detriment of landline operators in the downstream market (ie, origination market). CADE found, however, that this conduct did not amount to a margin squeeze practice. It found that the termination rate was regulated by ANATEL, leaving no room for the MNOs to define prices and deliberately engage in margin squeeze; the MNOs did not compete with landline operators in the downstream market and even in the absence of a price regulation, there would be no rationale for the MNOs to attempt to harm landline operators by means of a margin squeeze practice.
However, in the THC-2 case (2015), CADE fined port operators Tecon and Intermarítima 5.8 million reais for imposing abusive storage fees on customs-bonded dockside terminals in the city of Salvador (state of Bahia). In this case, Tecon and Intermarítima were charging anticompetitive fees on customs-bonded dockside terminals whenever importers decided to store their cargo in dry ports instead of Tecon and Intermarítima’s own storage. Given that customs-bonded dockside terminals depended on those port operators receiving their customers’ cargo and performing their storage services, CADE found that Tecon and Intermarítima held a dominant position and were able to raise their rivals’ costs, squeezing their margins. CADE also issued its final decisions and fined Tecon (4.7 million reais) and Rodrimar (972,000 reais) in similar cases involving abusive fees imposed on customs-bonded dockside terminals in Porto Grande (state of Rio Grande do Sul) and in the Port of Santos (state of São Paulo), respectively.
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 Resolution No. 20/99, refusals to deal and denial of access to essential facilities can increase the barriers to entry in the market and create foreclosure effects. However, such conduct can help reduce transaction costs and avoid free riding. According to CADE’s precedents, in order for such practices to be found an antitrust infringement, access to the facility must be considered essential for entrance into the market and its replication must be either impossible or not reasonably feasible.
CADE has dismissed a number of investigations for refusals to deal in recent years. In the Thyssenkrupp case (2014), for example, CADE dropped an investigation involving Thyssenkrupp, an elevator manufacturer, for its refusal to supply spare parts to independent maintenance companies and denied them access to its software to repair elevators. In its assessment, CADE found no evidence that Thyssenkrupp had been refusing access to its software and concluded that independent maintenance companies were able to find other suppliers of spare parts in the market. Therefore, CADE decided that the alleged conduct did not amount to an antitrust infringement and dismissed the case.
Recently, CADE’s Tribunal settled its investigation against Correios. Correios is the Brazilian postal company that allegedly holds a statutory monopoly for delivering specific types of documents (eg, magnetic stripe cards and checkbooks). Correios was being investigated for abuse of dominant position and for having allegedly discriminated against customers by refusing to provide services to competitors over the argument that these services were part of its statutory monopoly, even when Correios would not in fact be providing an adequate level of service to final customers. CADE’s General Superintendence, CADE’s Attorney General and the Public Prosecutor’s Office issued their opinions, according to which Correios would have committed as a bare restraint, as it unjustifiably and repeatedly refused to provide services to competitors, even though it was providing these services to non-competitors over the same period. The investigation was suspended as CADE’s Tribunal entered into a settlement agreement with Correios. Correios did not acknowledge its participation in the investigated conduct, but agreed to pay a fine of 21.9 million reais and to refrain from imposing discriminatory prices and commercial conditions on its customers, among other commitments.
In addition to it, Banco do Brasil, Bradesco, Cielo, Itaú Unibanco and RedeCard recently settled an investigation in the payment card processing market. The companies were investigated for (i) allegedly refusing to read the receivables of commercial enterprises that use other card processing companies, which are competitors from Rede (controlled by Itaú Unibanco) and Cielo (controlled by Banco do Brasil and Bradesco) and creating obstacles for smaller banks to have access to Rede’s and Cielo’s credit card receivables data, which would prevent such smaller banks’ customers from anticipating their receivables; and (ii) ‘locking’ relationships to retain customers’ receivables, even in the absence of active credit operations that could justify such locks. Itaú Unibanco, Banco do Brasil, Bradesco and Cielo agreed to pay monetary contributions of 21 million reais; 1.9 million reais; 2.2 million reais and 29.7 million reais, respectively. They have also agreed to behavioural commitments, that is: opening up its credit card receivables services to other credit card processing companies; and only using relationship locks in credit operations warranted by credit card receivables. CADE has also started to investigate Santander for the same practices, based on a complaint filed by Stone, a card processing company, according to which Santander would be engaging in such conduct in order to privilege Getnet, its own card-processing company.
In terms of upcoming cases, other investigations against Brazilian big financial institutions were also launched by CADE in 2018. Nubank, a fintech, filed a complaint accusing Itaú Unibanco, Bradesco, Santander, Banco do Brasil and Caixa Econômica Federal of refusing to provide services in the credit card business, such as automatic debit or access to banking statements. Moreover, CADE launched a preliminary inquiry in order to investigate if Braspag, a payment gateway service provider, is refusing to provide services or adopting discriminatory practices against some payment processing companies.
Regarding essential facilities, the GRU Airport case has been under CADE’s scrutiny since 2014 due to an exclusive arrangement between the GRU Airport and three fuel suppliers (Raízen, AirBP and BR Distribuidora) that operate a fuel pool at the airport. GRU Airport and the fuel suppliers are being investigated for allegedly preventing the access of third-party suppliers to the fuel pool, which would be an essential facility for refueling the aircrafts in such airport.
Predatory product design or a failure to disclose new technology
Predatory product design and failure to disclose new technology are covered under 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.
CADE has decided two interesting cases of alleged predatory product design involving Ambev, the leading brewery company in Brazil. Much of the beer marketed in Brazil is packaged in reusable bottles. Those bottles have a standard 600-ml size that allows market players to coordinate their recycling programmes. In this regard, the first investigation concerned the introduction by Ambev of a 630 ml proprietary bottle that was similar to the standard 600 ml bottle and was allegedly causing confusion in this recycling programme, raising the costs for competitors that marketed products that compete with Ambev’s products. The investigation was closed in 2009 after Ambev entered into a cease-and-desist commitment with CADE, agreeing to stop using its 630 ml bottles within a certain period.
The other investigation concerned the launching of proprietary one-litre returnable bottles by Ambev, which also allegedly harmed competitors by creating difficulty for the sharing system of returnable bottles. According to CADE, this conduct would be an antitrust infringement if the following criteria were met: the company held a dominant position; the conduct had the potential to cause anticompetitive effects in the market; and there was no legitimate justification for such practice. In this case, despite Ambev’s dominant position, CADE understood the conduct was not able to cause anticompetitive effects because, unlike the 630 ml bottles, the one-litre bottles were very different from the standard 600 ml bottles and, therefore, easier for competitors to identify and return them, without higher costs. In addition, CADE understood that the practice had a legitimate justification, having a different purpose that was in fact beneficial to consumers. Therefore, CADE dismissed the case in 2012.
In 2018, CADE’s Tribunal also concluded the judgment of the Anfape case, in which Fiat, Ford and Volkswagen were being investigated for alleged abuse of their intellectual property rights, by means of filing lawsuits aiming to assure their exclusive rights in manufacturing auto parts. The General Superintendence and Public Prosecutor’s Office recommended the conviction of the defendants, while CADE’s Attorney Office recommended the acquittal. The majority of CADE’s Commissioners, on the other hand, 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 primary and in the secondary auto parts market. 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 be the competent authority to review and amend its application.
Pursuant to article 36, paragraph 3, X, of Law No. 12,529/2011, discriminatory practices may be an antitrust infringement. According to Resolution No. 20/1999, while price discrimination can sometimes be justified if based on volume, for example, owing to economies of scale, it can also be the symptom of other potentially anticompetitive practices, such as refusal to deal and bundling. Accordingly, this practice, as all other potential antitrust infringements, must be assessed on a case-by-case basis, balancing their potential anticompetitive effects with their efficiencies.
In the Gemini case (2016), the assessment of discrimination practices was discussed. It involved an alleged price discrimination practice in the provision of natural gas by Petrobras. According to Comgás, the claimant, Petrobras was favouring the Gemini consortium (formed by Petrobras, White Martins and GasLocal) when supplying gas-to-gas distributors. According to CADE, in order for a discriminatory conduct to amount to an antitrust infringement, the following criteria must be met:
- the company holds a dominant position;
- there are structural, contractual or corporate incentives for the discrimination;
- the discrimination has the potential or effect to harm competition; and
- there is no legitimate justification for the conduct.
In this case, CADE found that all four requirements were present: Petrobras held a dominant position in the gas market, and it had incentives to engage in discriminatory conduct because it was vertically integrated with the gas distributor Gemini. There was evidence that the market was being foreclosed owing to the alleged discrimination and defendants had no legitimate rationale for the conduct. Therefore, CADE punished Petrobras, White Martins and Gas Local with a fine of approximately 22 million reais, prohibiting them from engaging in any discriminatory practice in the marketing of gas.
In addition to the conduct discussed in question 19, Brazilian banks, Banco do Brasil, Bradesco and Itaú Unibanco were also investigated for applying discriminatory fees on credit card transactions and retaliating against customers who chose to use other card processing services. As a result, the settlement agreements executed with CADE also established that the settling parties should cease from engaging in such conduct.
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 objective or effect ‘the arbitrary increase in profits’. This was confirmed in the Sindimiva/White Martins case (2010), mentioned above, in which a 4-3 vote judgment held that exploitative pricing could be a stand-alone claim. To this date, however, CADE has not found any exploitative conduct to amount to an antitrust infringement.
Abuse of administrative or government process
Sham litigation practices can amount to antitrust infringement if deemed to have the object or be able to restrain competition in the market. CADE has been dealing with a number of sham litigation cases in recent years. According to CADE’s precedents, the following elements must be taken into account when assessing whether a company engaged in anticompetitive 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. In the Eli Lilly case (2015), for instance, CADE understood that Eli Lilly tried to artificially maintain its position as the exclusive supplier of Gemzar, a cancer drug, by filing misleading and contradictory lawsuits with Brazilian courts and challenging the Brazilian Patent Office’s refusal to grant the patent of the cancer drug. Therefore, CADE convicted Eli Lilly for anticompetitive sham litigation, imposing a fine of 36.6 million reais.
In 2018, two pharmaceutical companies from Lundbeck Group were acquitted in an administrative proceeding launched by CADE. A Brazilian association of generic drugs industries filed a complaint claiming that Lundbeck, the leader of antidepressants based on escitalopram, was filing lawsuits and taking extrajudicial measures to artificially maintain its exclusivity in the market. The main point of the complaint was that Lundbeck was questioning the proceeding adopted by the Brazilian Health Surveillance Agency (Anvisa) to register generic drugs. CADE concluded that the discussion on how to properly protect the data related to the manufacturing of drugs counts with different positions and CADE is not the competent agency to solve this dispute. Moreover, CADE also stated that there was not enough evidence that the measures taken by Lundbeck were groundless or even that the company hid or presented false information.
A similar approach was taken by the General Superintendence in the Cristália/Abbott case discussed above, in which the companies were also being investigated for adopting sham litigation tactics. Allegedly, the companies would be taking abusive measures to enforce its property rights over their medicine based on sevoflurane, ritonavir and on the combination of lopinavir/ritonavir. According to CADE, the evidence in the case files did not demonstrate that Abbott/Abbvie acted in bad faith, tried to mislead the court or used false arguments in their claims. CADE has also stated that it is not part of its attributions to question the merits of the Brazilian Health Surveillance Agency and therefore concluded that the measures taken by Abbott/Abbvie were reasonable. Such decision is still pending confirmation by CADE’s Tribunal.
In addition to it, Correios was also under CADE’s scrutiny for alleged sham litigation practices. CADE’s General Superintendence has reviewed over 200 lawsuits involving Correios, in which the extension of its statutory monopoly is discussed. CADE’s General Superintendence concluded that Brazilian courts would have ruled against Correios in most lawsuits related to Correios’s alleged statutory monopoly over the delivery of certain types of documents. Notwithstanding that, Correios kept filing these lawsuits and requesting injunctions aiming to protect its alleged statutory monopoly. CADE’s General Superintendence has also reached the conclusion that while those groundless lawsuits generated significant costs to Correios’ competitors, Correios would not have incurred such costs due mainly to its right to be exempted from paying filing and procedural fees (as a company wholly owned by the Brazilian government). CADE’s General Superintendence, CADE’s Attorney General and the Public Prosecutor’s Office found that the evidence available in the case files supports the conclusion that Correios was adopting sham litigation tactics to artificially maintain its market position, raise rivals’ costs and create higher barriers to entry. Pursuant to the settlement agreement executed with CADE’s Tribunal, Correios has also agreed to keep a detailed database of all lawsuits that have been filed by the company; establish a standard procedure to be followed prior to filling any new lawsuit; and refrain from filing new lawsuits to discuss themes that were within the scope of the investigation, until the Brazilian Supreme Court rules on the appeal that concerns the subject matter.
Mergers and acquisitions as exclusionary practices
Mergers and acquisitions subject to the Brazilian merger control are addressed in article 88 of Law 12,529/2011 and can be blocked or approved with conditions by CADE if found to hinder open competition or result in control by a company of relevant markets. CADE may also impose restrictions in connection with future mergers and acquisitions as a penalty for companies found guilty of being involved in antitrust infringements, in particular in cases involving virtually all the companies of a given industry. This occurred in the Cement case (2014), in which most of the companies active in the Brazilian cement industry were found guilty of participating in a cartel, and, as per CADE’s decision, were prohibited from carrying out transactions among themselves in projects involving the cement sector, as well as to acquire any asset in the ready-mix concrete market over the period of five years counted as of CADE’s decision.
Other types of abuse may fall under article 36 of Law No. 12,529/2011 and amount to an antitrust infringement as long as they have the object or are able to produce the effects of restraining competition, dominating a relevant product or service market, arbitrarily increasing profits or abusing a dominant position.
This could include the use of ‘broad’ parity clauses, for example. In 2018, three online travel agencies (OTAs), Booking.com, Decolar.com and Expedia, executed settlement agreements with CADE in the context of an investigation on the abusive use of ‘broad’ price parity clauses. Through these broad parity clauses the investigated OTAs were able to offer more advantageous prices and conditions to customers, in comparison to those offered by the hotels’ own (online and offline) sales channels or by other travel agencies. Pursuant to the settlement agreements, the investigated OTAs committed to use only parity clauses with a narrower scope. Therefore, the parity clauses could no longer be applied to hotel offline sales channels (such as check-in counters and offline travel agencies). Moreover, the investigated OTAs were prohibited from demanding parity in relation to prices charged by other OTAs.
CADE has also concluded its first investigation regarding zero rating. São Paulo’s Federal Prosecutor Office filed a complaint against telecom companies, Vivo, Claro, Tim and Oi claiming that ‘zero rating’ internet plans offered by them were unlawful. Pursuant to the complaint, ‘zero rating’ constitutes a violation to Brazil’s internet law and its neutrality principle. CADE’s General Superintendence closed the preliminary inquiry due to the lack of evidence that such conduct is able to harm competition. According to CADE, zero rating offers do not aim at favouring traffic conditions for specific partners (for example, to guarantee a higher speed of access to users of a given application), but rather to enable certain content to be consumed with similar technical conditions, but without consuming internet data. CADE concluded that zero rating was not only beneficial to customers, but also increased rivalry between competitors and innovation.
In late 2018 CADE finally started to investigate whether Petrobras was be abusing its dominant position in the refinery market. According to CADE’s Chairman, although Petrobras no longer holds the legal monopoly in this activity, only a few competitors are present in the market and they would not be able to exert competitive pressure. CADE has also stated that, currently, Petrobras decides how it will perform in the market, and the market’s only option is to follow Petrobras’ rules. CADE decided to launch only a preliminary inquiry at first, because it is still unclear whether Petrobras’ behaviour amounts to an antitrust infringement.
Which authorities are responsible for enforcement of the dominance rules and what powers of investigation do they have?
CADE is the agency responsible for investigating, prosecuting and ruling on abuse of dominance conduct. CADE is divided into two departments: the General Superintendence and the Administrative Tribunal (Tribunal).
The General Superintendence is responsible for initiating and conducting investigations related to infringements, adopting preventive measures to cease anticompetitive practices, negotiating and entering into agreements, and otherwise preventing and prosecuting antitrust infringements. During its investigation, the General Superintendence has broad powers, including the power to search companies’ premises and to seize documents or other materials as it may deem necessary. Law No. 12,529 grants the General Superintendence authorities power, including the power to make dawn raids without prior notice, provided that a judicial order is issued. After concluding its investigation, the General Superintendence will issue a non-binding opinion with its findings and a recommendation to the Tribunal, which should be either to dismiss the case, or to impose penalties for infringement of the law.
Seven members, who are in charge of ruling on anticompetitive conduct cases, make up the Tribunal. At the Tribunal, a Reporting Commissioner will be appointed to issue a report and a vote on the case after hearing CADE’s Attorney General, who will issue a non-binding opinion. The case will then be brought to judgment before the Tribunal at a public hearing. The Tribunal may decide to dismiss the case if it finds no clear evidence of abuse of dominance or to impose penalties and order the defendants to cease the antitrust infringement.
Law No. 12,529/2011 also creates a third body, namely the Department of Economic Studies, which acts as an advisory body for both the General Superintendence and the Tribunal in the analysis of mergers and anticompetitive conducts.
Sanctions and remedies
What sanctions and remedies may the authorities impose? May individuals be fined or sanctioned?
Article 37 of Law No. 12,529/2011 allows CADE to impose fines that vary from 0.1 per cent to 20 per cent of the company or group of companies’ pre-tax turnover earned in the economic sector affected by the conduct in the year prior to the beginning of the investigation. The fine must be no less than the amount of harm resulting from the conduct. Directors and other executives found liable for the conduct may also be fined from 1 per cent to 20 per cent of the fine imposed on the company. So far, the highest fine imposed on a dominance case was the 352 million reais fine imposed on Ambev/Tô Contigo (2009).
CADE may also order the publication of its decision in a major Brazilian newspaper, at the defendants’ expense, order structural or behavioural remedies, such as the corporate spin-off and impose any other sanctions deemed necessary to terminate the conduct’s anticompetitive effects. According to article 84 of Law No. 12,529/2011, either the Tribunal or the General Superintendence can adopt preventive measures (cease-and-desist orders) whenever there are reasons to believe that the defendant caused or may cause irreparable or substantial damage to the market, or when awaiting a final decision may render it ineffective.
Finally, article 85 allows CADE to enter into an agreement with the defendant, at any stage of the proceeding, whereby the defendant undertakes to cease the investigated conduct (the cease-and-desist commitment). The case is put on hold while the commitment is duly complied with. If the conditions set out in the commitment are fully met, the case is dismissed.
Can the competition enforcers impose sanctions directly or must they petition a court or other authority?
The sanctions are imposed directly by CADE. Despite that, if defendants fail to pay the fine or comply with other penalties within the term established in CADE’s decision, according to CADE’s Resolution No. 1/2012, it must petition the court in order to seek enforcement.
What is the recent enforcement record in your jurisdiction?
Abuse of dominance investigations are less common in Brazil in comparison to cartel investigations. In contrast with 2017, when, based on publicly available information, CADE did not found the defendant to be guilty in cases in connection with abuse of dominance, in 2018 CADE convicted Unilever for abuse of dominance in connection with exclusive agreements in the ice cream market. CADE has also entered into important cease and desist agreements with major banks in connection with their abuse of dominance related to the card payment processing market. The trend shows that CADE shall continue to grow its enforcement in connection with abuse of dominance in the coming years.
Abuse of dominance proceedings usually take from one to three years until CADE reaches a final decision, but complex cases may take a little longer as they involve consultations with the market and stakeholders (eg, agencies, trade associations, among others) and further discussions on economic rationale and possible efficiencies of the investigated conduct.
Where a clause in a contract involving a dominant company is inconsistent with the legislation, is the clause (or the entire contract) invalidated?
CADE has the authority to declare a contract or some of its provisions invalid if they are found to be an antitrust infringement under Law No. 12,529/2011. In this case, the contract’s remaining provisions not related to the antitrust infringement, if any, would remain in force.
In the Unilever case, for example, CADE determined that the agreements entered into with retailers, which contained the clauses considered to be abusive, should be amended.
To what extent is private enforcement possible? Does the legislation provide a basis for a court or other authority to order a dominant firm to grant access, supply goods or services, conclude a contract or invalidate a provision or contract?
According to article 47 of Law No. 12,529/2011, those harmed by an antitrust infringement are allowed to seek indemnification and the cessation of the anticompetitive conduct in courts. Courts have authority to adopt any measure - including invalidating contractual clauses or ordering a firm to grant access to certain technology (eg, with the purpose of obtaining the cessation of the anticompetitive conduct). Despite this framework for private enforcement resulting from antitrust infringement, however, private actions are still relatively rare in Brazil.
Do companies harmed by abusive practices have a claim for damages? Who adjudicates claims and how are damages calculated or assessed?
Article 47 of Law No. 12,529/2011 allows those harmed by an antitrust infringement to seek indemnification and the cessation of the anticompetitive conduct in courts. This is parallel to administrative proceedings, which will not be suspended in view of the claim in court. Private compensation claims can be filed by an individual, an entity or by various entities. Consumer organisations, public prosecutors and other public bodies can initiate collective actions. Damages are assessed by the courts on a case-by-case analysis. Plaintiffs usually request the court to appoint an expert in economics to assess the competitive counterfactual price and enable damages calculation. To date, most claims for damages are stand-alone claims related to cartels. The calculation method for damages in antitrust cases in Brazil is deemed highly controversial, and, due to the existence of only a few decisions granting damages, it is still unclear how Brazilian courts would tackle this topic.
To what court may authority decisions finding an abuse be appealed?
CADE’s decisions finding an abuse can be challenged only before a federal court. It is worth noting that the Brazilian Supreme Court understands that the Brazilian Constitution allows injured parties to choose in which regional federal court they want to appeal against a decision by CADE (or any other federal agency). In theory, CADE’s decisions are subject to a broad review by the courts, but Brazilian courts usually adopt some level of self-restraint by only examining the formal aspects of a decision rather than its material aspects (ie, decision-making regarding correct appreciation of facts and the law).
Unilateral conduct by non-dominant firms
Are there any rules applying to the unilateral conduct of non-dominant firms?
Article 36, II, of Law No. 12,529/2011 forbids any unilateral conduct (eg, tying, predatory price, patent abuse) that leads to dominance of a relevant market of goods or services. As mentioned, Law No. 12,529/2011 presumes dominance whenever ‘a company or group of companies’ is able to unilaterally or jointly change market conditions or when it controls 20 per cent or more of the relevant market.
In the Unilever case, even though both Unilever and Nestlé adopted the same approach towards retailers, only Unilever’s conduct was considered an antitrust infringement. This is because CADE understood that Nestlé did not hold a dominant position in the ice cream market.