EnforcementComplaints procedure for private parties
Is there a procedure whereby private parties can complain to the authority responsible for antitrust enforcement about alleged unlawful vertical restraints?
Any private party, whether or not party to the agreement containing the restraint, may offer a complaint to the Administrative Council for Economic Defence (CADE), including anonymously. The General Superintendency will then analyse the complaint and decide whether to commence a formal investigation, which will essentially depend on how grounded the request is. The authorities also have discretion to initiate a formal investigation ex officio (without complaints from third parties).
In either case, the General Superintendency usually initiates a preliminary inquiry, whereby it gathers further information on the alleged conducts and on the involved parties and market, to decide whether to commence an administrative proceeding. If this is the case, the concerned parties will formally be summoned to present their respective defences. Once the General Superintendency concludes its investigation, it may decide to dismiss the case or recommend a conviction by the Administrative Tribunal. In either case, the case records are sent to the Administrative Tribunal for a final decision, which is taken by a majority of votes, concluding whether to dismiss the case if it finds no clear evidence of violations, or imposing penalties to the defendants.
The hearings held by the Administrative Tribunal are public, usually taking place twice a month in Brasília, and it is possible to follow the discussion live, through CADE’s website.Regulatory enforcement
How frequently is antitrust law applied to vertical restraints by the authority responsible for antitrust enforcement? What are the main enforcement priorities regarding vertical restraints?
According to the Administrative Council for Economic Defence (CADE)’s public records, in 2019, its Administrative Tribunal decided 27 administrative proceedings: 17 investigating cartels, six investigating cartels and four investigating unilateral conduct. As mentioned above, the main cases ruled by the Administrative Tribunal in 2019 involving vertical relations were the ones involving Google.
With regard to the activities developed by the General Superintendency, we highlight the statement in CADE’s Annual Report from 2018, that 30 unilateral conduct investigations were commenced in 2018, the agreements with Petrobras and the increase in the investigations on possible anticompetitive effects in the vertical relations within the Brazilian Payments System.
What are the consequences of an infringement of antitrust law for the validity or enforceability of a contract containing prohibited vertical restraints?
CADE is empowered to declare a contract fully or partially invalid or unenforceable if it understands that such agreement violates the antitrust law. If the decision affects only certain provisions of the contract, the remaining clauses would remain valid. In any case, parties affected by such a decision could bring the discussion to the judiciary branch, where an injunction could be obtained to suspend the effects of CADE’s decision until a final ruling is reached.
May the authority responsible for antitrust enforcement directly impose penalties or must it petition another entity? What sanctions and remedies can the authorities impose? What notable sanctions or remedies have been imposed? Can any trends be identified in this regard?
CADE may directly impose penalties when deciding an administrative proceeding. Nonetheless, as an administrative title, the decision may be contested in court. Penalties that may be imposed by CADE are established in articles 37 and 38 of the Brazilian Competition Act.
For companies, article 37 provides that fines may vary from 0.1 per cent to 20 per cent of the gross revenues of the company, group or conglomerate, in the fiscal year previous to the establishment of the administrative proceeding, in the field of the business activity in which the violation occurred, which will never be less than the advantage obtained, and the possible estimation thereof. In the case of recurrence, the fines shall be doubled. There are several discussions on the concepts of ‘field of the business activity’ and ‘the advantage obtained’.
In cases involving vertical restraints, the fines imposed by CADE are usually up to 5 per cent of gross revenues of the company, group or conglomerate in the segment affected by the restraint.
The largest fine ever imposed by CADE in a conviction for vertical restraints was in Administrative Proceeding No. 08012.003805/2004-10, in 2009, in a case involving an award programme called ‘Tô Contigo’, developed by Ambev. CADE understood that the programme created incentives for exclusivity relations and increased barriers for the entry of new competitors in the market, and imposed a fine of 352 million reais (approximately 2 per cent of the company’s revenues in 2003). Ambev contested CADE’s decision in court and, further, in 2005, Ambev and CADE reached a judicial agreement, by which Ambev agreed to cease the programme and to pay 229.1 million reais.
For individuals or legal entities that do not perform a business activity and, therefore, do not register gross revenues, article 37 establishes that the fine will vary from 50,000 to 2 billion reais. There is also a specific provision when the administrator is directly or indirectly responsible for the violation, when negligence or wilful misconduct is proven. Under this circumstance, the administrator’s fine will vary from 1 per cent to 20 per cent of the fine applied to the company. Investigations of individuals for vertical restraints are rare within CADE’s precedents.
Article 38 establishes the following alternative penalties, besides fines, that may be applied according to the seriousness of the facts or public interest:
- the publication, in half a page and at the expense of the perpetrator, in a newspaper indicated by the judgment, of the extract from the conviction, for a period of two consecutive days for one to three consecutive weeks;
- ineligibility for official financing and for participation in biddings when the objective is acquisitions, divestitures, performance of works and services, provision of public services, in the federal, state, municipal and federal district public administration, as well as in indirect administration entities, for a term of not less than five years;
- the registration of the wrongdoer with the National Registry for Consumer Protection;
- recommendation to the respective public agencies so that:
- a compulsory licence over the intellectual property rights held by the wrongdoer be granted, when the violation is related to the use of that right; and
- the violator be denied instalment payment of federal taxes owed by him or her, or that tax incentives or public subsidies be cancelled, in full or in part;
- the company divestiture, transfer of corporate control, sale of assets or partial interruption of activity;
- the wrongdoer be prohibited from carrying on trade on its own behalf or as representative of a legal entity for a period of five years; and
- any other act or measure required to eliminate harmful effects to the economic order.
These provisions show that CADE has a wide range of sanctions that include structural remedies (such as the sale of assets) and any measures required to eliminate the anticompetitive effects arisen by the conduct.Investigative powers of the authority
What investigative powers does the authority responsible for antitrust enforcement have when enforcing the prohibition of vertical restraints?
Law No. 12,529/11 empowers the Administrative Council for Economic Defence (CADE) with extensive investigative power, which includes the possibility of:
- requesting information and documents from any individuals or legal entities, as well as from public or private bodies, authorities and entities;
- requesting oral clarifications from any individuals or legal entities, as well as from public or private bodies, authorities and entities (or their respective representatives);
- conducting inspections at the company’s place of business or office;
- requesting search and seizure warrants from the judiciary branch; and
- requesting access and copies of documents supporting an inquiry or proceedings commenced by government bodies.
Dawn raids depend on judicial orders and have traditionally been used by CADE in the context of cartel investigations rather than in vertical restraints.Private enforcement
To what extent is private enforcement possible? Can non-parties to agreements containing vertical restraints obtain declaratory judgments or injunctions and bring damages claims? Can the parties to agreements themselves bring damages claims? What remedies are available? How long should a company expect a private enforcement action to take?
Article 47 of the Brazilian Competition Act generically establishes that those injured by an anticompetitive conduct may go to court to defend their individual or collective interests, to seek an injunction to cease the anticompetitive practice and to recover damages. In practice, plaintiffs may seek compensation for pecuniary damages (actual damages and lost earnings), as well as moral damages.
Private lawsuits can be brought regardless of the existence of an administrative decision on an anticompetitive practice, and even before an administrative proceeding itself is instated. In addition, the existence of a private claim does not stay the administrative proceeding, which develops independently.
Individuals and corporations can both be sued, either individually or collectively. Private antitrust lawsuits can also take the form of individual enforcement actions or collective actions.
Coupled with the provisions in the Competition Act, the Brazilian Civil Code and the Brazilian Civil Procedure Code also set out general rules governing private lawsuits. Moreover, collective actions are further governed by a specific legal system that brings together several laws and regulations, such as the Brazilian Consumer Protection Code and the Public Class Actions Law.
Finally, the parties to a lawsuit can challenge all evidence, even when it has been produced by the Administrative Council for Economic Defence (CADE) within an administrative proceeding (ie, all evidence of the administrative investigation may be re-examined by the judicial courts), which may lead to contradictory decisions, as well as increase the timing for a lawsuit conclusion, which usually takes at least five years.