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.

Defences

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.