Legal framework

Antitrust law

What are the legal sources that set out the antitrust law applicable to vertical restraints?

Law No. 12,529 of 30 November 2011 (the Brazilian Competition Act) is the main legal source setting out the antitrust law applica­ble to antitrust conduct in Brazil, including vertical restraints. The Brazilian Competition Act came into effect on 28 May 2012, replacing Law No. 8,884/94, and introducing several important changes to the Brazilian antitrust system. The Administrative Council for Economic Defence (CADE), the Brazilian competition authority, has been empowered with both investigative and decision-making attri­butions, in addition to the necessary independence to comply with its legal obligations.

The Brazilian Competition Act does not provide for a definition of vertical restraints, and specific guidelines in this respect are yet to be issued by the authorities. In this context, CADE currently relies on former regulations issued during the previous legal regime, including CADE Resolution No. 20 of 9 June 1999 (Resolution CADE 20/99), which has been partially revoked, but sets out an important analysis of possible anticompetitive practices, including a definition of what characterises vertical restraints.

Past rulings issued by the authorities are also an important source of guidance when it comes to vertical restraints, although the commis­sioners at CADE are not bound to past decisions when evaluating new cases, meaning that they are completely independent to form their own conviction in ruling a case, based on the specificities applicable therein, within the boundaries provided by the legislation.

In addition to administrative liabilities that may arise from a CADE ruling, anticompetitive vertical restraints may give rise to private claims in Brazil. Article 47 of the Brazilian Competition Act establishes that injured parties can actively go to court to defend their individual or collective interests, to end anticompetitive practices and to seek redress of losses and damages regardless of the existence of an admin­istrative proceeding.

Types of vertical restraint

List and describe the types of vertical restraints that are subject to antitrust law. Is the concept of vertical restraint defined in the antitrust law?

Article 36 of the Brazilian Competition Act contains the basic presump­tions for the assessment of vertical restraints. It describes all types of anticompetitive practices that could be deemed as violations of the economic order, even if their effects are not achieved and regardless of the willingness of the agent to harm the market. In this context, the Brazilian Competition Act prohibits any acts that have as their object, or may lead to, the following effects:

  • limiting, restraining or in any way harming open competition or free enterprise;
  • controlling a certain product or service’s relevant market;
  • increasing profits arbitrarily; or
  • abusing a dominant position.

 

In an attempt to provide more clarity on specific conduct that could be interpreted together with the above-mentioned provisions, the Brazilian Competition Act (paragraph 3 of article 36) brings a non-exhaustive list of acts that may constitute anticompetitive practice. Vertical restraints may include:

  • the imposition on distributors, retailers and representatives of goods or services, of specific retail prices, discounts, payment conditions, minimum or maximum volumes, profit margins or any other marketing conditions related to their business with third parties;
  • discriminating against purchasers or suppliers of goods or services by establishing price differentials or discriminatory operating con­ditions for the sale or performance of services;
  • refusing to sell goods or services within the payment conditions usually applying to regular business practices and policies; and
  • conditioning the sale of goods to acquisition of others or to use of services, or conditioning the provision of services to use of another or to acquisition of goods.

 

As mentioned above, the Brazilian Competition Act does not contain a formal definition of vertical restraints. Resolution CADE 20/99, on the other hand, establishes that vertical restrictive trade practices are restrictions imposed by manufacturers or suppliers of products and services in a certain market on a vertically related market downstream or upstream along the production chain. It also provides that vertical restraints are connected to the existence of a dominant posi­tion and may raise antitrust issues when they imply the creation of mechanisms that exclude rivals, whether by increasing the barriers to entry or costs of competitors.

Legal objective

Is the only objective pursued by the law on vertical restraints economic, or does it also seek to promote or protect other interests?

CADE is responsible for fostering and promoting the culture of competition in Brazil, as well as assisting in the oversight of certain constitutional principles (mainly provided in article 170 of the Brazilian Federal Constitution), includ­ing consumer protection, freedom of enterprise and the social role of private property.

Responsible authorities

Which authority is responsible for enforcing prohibitions on anticompetitive vertical restraints? Where there are multiple responsible authorities, how are cases allocated? Do governments or ministers have a role?

In the administrative sphere, CADE is the authority responsible for enforcing prohibitions on anticompetitive vertical restraints. CADE’s structure is composed of the General Superintendency and the Administrative Tribunal. The General Superintendency is responsible for the investigative phase of a preliminary investigation, consultation or administrative proceeding. The Administrative Tribunal, composed of six commissioners and a chairperson, is responsible for final rulings in administrative proceedings. The Brazilian Competition Act (article 9, paragraph 2) establishes that the Administrative Tribunal decisions are not subject to revision by the executive branch, and must be promptly enforced. Nevertheless, all decisions issued by CADE may be subject to judicial review, and the enforcement of CADE’s decisions may also be made through the judiciary branch, by initiative of its General Attorney.

Jurisdiction

What is the test for determining whether a vertical restraint will be subject to antitrust law in your jurisdiction? Has the law in your jurisdiction regarding vertical restraints been applied extraterritorially? Has it been applied in a pure internet context and if so, what factors were deemed relevant when considering jurisdiction?

Article 2 of the Brazilian Competition Act sets out the territoriality principle, by establishing that the Administrative Council for Economic Defence (CADE) will have jurisdiction over any acts, including vertical restraints, wholly or partially performed within the Brazilian territory, or prac­tices taking place abroad, but capable of producing effects in Brazil.

To date, there have been no cases analysed by CADE in which the law has been applied extraterritorially against alleged anticompeti­tive vertical restraints in a pure internet context. In Administrative Proceeding 08700.009082/2013-03 (Google Shopping), the General Superintendency briefly restated that, according to article 2 of the Brazilian Competition Act, the effects theory should be taken into consid­eration in analysing CADE’s jurisdiction to conduct an investigation. According to the authorities, however, such analysis would depend on the occurrence of the practice and its effects.

The Brazilian Competition Act determines whether a given vertical prac­tice constitutes an economic violation on a case-by-case basis, guided by the rule of reason.

According to the rule of reason, vertical restraints are not illegal per se, but may raise antitrust issues when implying the creation of exclusionary mechanisms. Additionally, vertical restraints can only be deemed a violation with the potential to harm competition if the agent holds a dominant market position in the relevant market involved. A dominant market position is presumed when the company or its economic group has at least 20 per cent of a relevant market. Such threshold may be altered by the authorities depending on the characteristics of the market.

Finally, as recognised by CADE, although vertical restraints may, in some cases, limit free competi­tion, in other circumstances they may also bring efficiencies and benefits, which must be weighed against the potential anticompetitive consequences, in accordance with the rule of reason.

Agreements concluded by public entities

To what extent does antitrust law apply to vertical restraints in agreements concluded by public entities?

Article 36 of the Brazilian Competition Act establishes that the law applies to anticompetitive practices, including vertical restraints, and should encompass individuals, public or private companies, as well as any individual or corporate associations, established de facto or de jure – even on a provisional basis – irrespective of separate legal iden­tity, and notwithstanding the exercise of activities regarded as a legal monopoly. Therefore, there are no exemptions to the application of the Brazilian Competition Act to public entities, and, to date, important public companies such as Petrobras, Banco do Brasil and Empresa Brasileira de Correios e Telégrafos have already been investigated by CADE.

Sector-specific rules

Do particular laws or regulations apply to the assessment of vertical restraints in specific sectors of industry (motor cars, insurance, etc)? Please identify the rules and the sectors they cover.

Early in 2018, the Administrative Council for Economic Defence and the Brazilian Central Bank (BACEN) signed a Joint Normative Act, which provides for cooperation between the entities, including in the investigation of anticompetitive conducts in the financial sector.

Law No. 6,729/79 regulates the relationship between manufactur­ers and distributors in the motor car industry and sets forth rules on territorial and customer restraints.

In addition, regulated industries, such as telecommunication, energy and healthcare, have specific agen­cies providing for industry-specific regulation (ANATEL, ANEEL and ANS or ANVISA, respectively), which are often taken into consideration in the analysis of anticompetitive conducts by CADE.

General exceptions

Are there any general exceptions from antitrust law for certain types of agreement containing vertical restraints? If so, please describe.

No. The Brazilian Competition Act applies indistinctly to any conduct that may harm competition, including vertical restraints.