In short: enforcement against vertical agreements in Brazil
Complaints Procedure for Individuals
Is there a procedure for private individuals to complain to the antitrust enforcement agency about allegedly unlawful vertical restraints?
Any private party, whether party to the agreement or not, can lodge a complaint with the Council of Economic Defense (CADE), including anonymously. The General Supervision will then examine the complaint and decide whether to open a formal investigation, which essentially depends on the merits of the request. The authorities are also free to open a formal investigation ex officio (without complaints from third parties).
In both cases, the General Superintendent typically initiates a preliminary investigation to gather more information about the alleged conduct, the parties involved, and the market in order to decide whether to open an administrative proceeding. If this is the case, the parties concerned will be formally requested to present their respective defences. Once the General Superintendent has completed its investigation, it may decide to drop the case or recommend a conviction by the Administrative Court. In both cases, the case files are submitted to the Administrative Court for the final decision, which is taken by majority vote and decides whether, if it finds no clear evidence of violations, the case will be dismissed or penalties imposed on the accused.
The hearings held by the Administrative Court are public and usually take place twice a month in Brasília, and it is possible to follow the discussion live on CADE’s website.
How often is antitrust law applied to vertical restraints by antitrust enforcement agencies? What are the top enforcement priorities related to vertical restraints?
According to CADE’s public records, in 2021 the administrative court ruled on 25 administrative cases, of which 19 concerned antitrust investigations, three unified conduct investigations and three unilateral conduct investigations.
Among these cases, administrative case no. 08700.005778/2016-03 stands out, which investigated a market foreclosure promoted by a company that prohibited access to infrastructure/essential facilities related to the rail transport of bulk sugar. CADE fined the company around 250 million reais for violating the economic order.
The convicted company is a company that provides a multimodal logistics system for the export of sugar and provides transportation, warehousing and ship loading services, bringing the cargo from the production centers to its port facilities. The purpose of the behavior was:
- create difficulties for competitors to establish and develop in the vertically related markets in which they operate;
- impede the operation of sugar transportation equipment;
- prevent competitors from accessing sugar distribution channels; and
- refuse to provide the rail transport service under customary conditions.
Regarding the activities developed by the General Superintendency, we highlight the statement made in the 2020 CADE Annual Report that 30 unilateral and 11 unified behavioral investigations were initiated in 2020.
What are the consequences of an antitrust violation for the validity or enforceability of a contract that contains prohibited vertical restraints?
CADE has the right to declare an agreement, in whole or in part, invalid or unenforceable if CADE believes that such an agreement violates antitrust laws. If the decision only affects certain contractual provisions, the remaining clauses remain valid. In any event, the parties affected by such a decision could take the discussion to the courts, where an injunction could be obtained to stay the effects of CADE’s decision pending a final decision.
Can the authority responsible for antitrust enforcement impose sanctions directly or does it have to submit an application to another body? What sanctions and legal remedies can the authorities impose? What significant sanctions or legal remedies have been imposed? Are there any trends in this regard?
CADE can impose penalties directly when deciding an administrative procedure. Nevertheless, the decision as an administrative title can be challenged in court. Penalties that can be imposed by CADE are set out in Articles 37 and 38 of the Brazilian Competition Law.
For companies, Article 37 provides that the fines can range from 0.1 percent to 20 percent of the gross revenues of the company, group or conglomerate in the financial year preceding the initiation of the administrative procedure in the area of business activity in which the violation took place, which never will be less than the benefit obtained and the possible estimate thereof. In the event of a repeat offense, the fines are doubled. There are several discussions about the terms ‘area of operation’ and ‘benefit achieved’.
In cases of vertical restraints, fines imposed by CADE are typically up to 5 percent of the gross revenue of the company, group or conglomerate in the segment affected by the restraint.
The largest fine CADE has ever imposed in a vertical restraint conviction was in Administrative Case No. 08012.003805/2004-10 in 2009 in a case involving a rewards program developed by Ambev called “Tô Contigo”. CADE, aware that the program incentivized exclusivity relationships and increased barriers to entry of new competitors into the market, imposed a fine of 352 million reais (about 2 percent of the company’s 2003 revenues). Ambev has challenged CADE’s decision in court and, in addition, Ambev and CADE reached a court settlement in 2005 in which Ambev agreed to terminate the program and pay 229.1 million reais.
For natural or legal persons who do not carry out any business activity and therefore do not register gross receipts, Article 37 stipulates that the fine will vary between 50,000 and 2 billion reais. There is also a special provision if the administrator is directly or indirectly responsible for the violation if negligence or intent is proven. In these circumstances, the administrator’s fine varies between 1 percent and 20 percent of the fine imposed on the company. Investigations of individuals for vertical restraints are rare in CADE’s precedents.
Article 38 provides for the following alternative sanctions, in addition to fines, which may be imposed depending on the seriousness of the facts or public interest:
- the publication of the sentence extract on half a page and at the offender’s expense in a newspaper designated by the judgment for a period of two consecutive days for one to three consecutive weeks;
- Exclusion from public funding and from participation in tenders when it comes to the acquisition, sale, provision of works and services, the provision of public services, in public administration at federal, state, local and district level and in indirect administrative units , z a term of at least five years;
- registering the offender with the National Register of Consumer Protection;
- Recommendation to the respective authorities so that:
- a compulsory license over the offender’s intellectual property rights be granted if the infringement is related to the use of that right; and
- the infringer is denied installments of federal taxes owed by the infringer or has any tax incentives or government subsidies withdrawn in whole or in part;
- the sale of the company, the transfer of company control, the sale of assets or the partial cessation of operations;
- prohibits the offender from conducting business in his own name or as a representative of a legal entity for a period of five years; and
- any other act or measure necessary to eliminate harmful effects on the economic order.
These provisions demonstrate that CADE has a wide range of sanctions in place, which include structural remedies (such as sale of assets) and any action necessary to eliminate the anti-competitive effects arising from the conduct.
investigative powers of the authority
What investigative powers does the antitrust enforcement agency have in enforcing the ban on vertical restraints?
Law No. 12.529/11 gives CADE extensive investigative powers, which include the ability to:
- Requesting information and documents from natural or legal persons and from public or private bodies, authorities and bodies;
- Request for oral clarification from natural or legal persons as well as from public or private institutions, authorities and corporations (or their respective representatives);
- conducting inspections at the company’s place of business or place of business;
- applying for search and seizure warrants from the judiciary; and
- Request for access and copies of documents in support of an investigation or proceeding instituted by government agencies.
Dawn searches are dependent on court orders and have traditionally been used by CADE in the context of antitrust investigations rather than vertical restraints.
To what extent is private enforcement possible? Can non-parties to agreements containing vertical restraints obtain declaratory judgments or injunctions and claim damages? Can the contracting parties assert claims for damages themselves? What remedies are there? How long should a company expect private enforcement action?
Article 47 of the Brazilian Competition Law generally provides that persons harmed by anti-competitive behavior may go to court to defend their individual or collective interests, seek an injunction to stop the anti-competitive behavior and seek damages. In practice, plaintiffs can claim compensation for material damage (actual damage and lost profits) and non-material damage.
Private lawsuits can be brought independently of the existence of an administrative decision on anti-competitive behavior and even before the initiation of administrative proceedings. Even the existence of a private prosecution does not prevent the administrative procedure, which develops independently.
Individuals and companies can be sued individually or collectively. Private antitrust actions may also take the form of individual enforcement actions or class actions.
In connection with the provisions of the Competition Law, the Brazilian Civil Code and the Brazilian Code of Civil Procedure also contain general rules for private prosecutions. In addition, class action lawsuits are governed by a specific legal system that brings together several laws and regulations, such as the Brazilian Consumer Protection Act and the Public Class Action Lawsuits Act.
Finally, the parties to a litigation may challenge any evidence, even if it was presented by CADE as part of an administrative proceeding (i.e. any evidence from the administrative inquiry may be re-examined by the courts), which may result in conflicting decisions, as well as the time limit for completing a prolong litigation, which usually lasts at least five years.