Brazil: Competition Law In Brazil - An Overview

I. INTRODUCTION

In Brazil, Antitrust measures assumed particular importance under the 1946 Constitution, which laid down the main antitrust principles with a view to "curbing any and all forms of abuse of economic power, including arrangements or associations of businesses of whatever nature, the object of which is to exert domestic market control, eliminate competition and arbitrarily increase profits." Further to those basic principles, Law No. 4137 of September 10, 1962 created the Economic Protection Administrative Council - CADE, an agency directly linked to Brazilian Ministers of State.

In 1988, the Brazilian National Congress promulgated the Brazilian Federal Constitution, establishing national sovereignty, free competition, the social role of private property, consumer protection and control of economic power, inter alia, as the main principles of economic order and providing that law shall curb the abuse of economic power aiming at market control, elimination of competition and arbitrary increase of profits. Certain important rules were enacted within the period of 1990-1992, with a view to curbing abuses of economic power and also to protect consumers, such as Law No. 8158, of January 8, 1991, which invested the Economic Law Office of the Ministry of Justice - SDE with authority to investigate purportedly abusive practices and the Consumer Protection Code (Law No. 8078, of September 11, 1990).

On June 11, 1994, the National Congress promulgated Law No. 8884, which consolidated antitrust regulations in Brazil and repealed Laws 4137/62 and 8158/91. The New Antitrust Law provides for antitrust measures in keeping with such constitutional principles as free enterprise and open competition, the social role of property, consumer protection, and restraint of abuses of economic power. The purpose of the said law is to set forth preventive action and impose penalties on antitrust practices, with a view to:

  • ensuring free access to production and to the market as a whole;
  • maintaining a balance between the interests of manufacturers and business sectors and consumers;
  • avoiding economic situations which are unfair, unsuitable or damaging to the public interest; and
  • correcting negative market conditions or abusive conduct.

The antitrust regulations in Brazil are aimed at public and private legal entities or individuals and include associations and unions, with or without a legal identity of their own. In the event of failure to comply with the regulations, the legal identity of a company will be disregarded, and the company's partners or officers will be held liable therefore. In addition, companies within the same group are held jointly liable for acts and practices.

Besides curbing violations of the economic policy, Law No. 8884/94 also endeavors to prevent any acts that may affect free competition or result in monopoly. Therefore this law also covers amalgamations, mergers, organization of companies, sale and purchase of assets, or any other form of economic concentration whenever the company or group of companies which performed the acts have an interest equal or superior then twenty percent or more in a relevant market, or one of the participants in the business had a gross sales of around US$ 90 million in the latest fiscal year.

II. ADMINISTRATIVE SPHERE

As the normative and regulatory agent of economic activity, the State shall, in the manner set forth by law, perform the functions of supervision, incentive and planning; the later function is binding for the public sector and recommended for the private sector. Nevertheless, the State may directly exploit any economic activity whenever the national security or a collective interest demands.

Law No. 8884/94 transformed CADE into an independent agency reporting to the Ministry of Justice, with headquarters and jurisdiction in the Federal District, whereas SDE was maintained as an agency under such Ministry. CADE is composed by a President and six Board members, including an Attorney-General, who is charged with assisting CADE in its proceedings.

Antitrust administrative proceedings are divided into two phases within the administrative sphere: the first is an investigation phase under the SDE and the second is a decision-making phase under CADE. In other words, SDE activities include proceedings of permanent follow-up on alleged monopoly and oligopoly situations in order to prevent violations of economic policy, as well as carrying out preliminary investigations, either officially or based on a formal complain from interested parties, for purposes of determining whether administrative proceedings should be filed based on the evidence available, and CADE will be charged with handing down decisions on the SDE proceedings.

During administrative proceedings, both SDE and CADE may request information and documents from any person, agencies, authorities and public and private entities. Although investigations are under the SDE authority, upon receipt of administrative proceedings, CADE may require further action and evidence, ordering that reviews, inspections and studies be carried out. After the investigation's phase is concluded, the case is submitted to CADE for review. Decisions are taken by absolute majority of the Board, and the following antitrust penalties shall apply:

(i) for companies: a fine from one to thirty percent of the gross pretax revenue as of the latest financial year, which fine shall by no means be lower than the advantage obtained from the underlying violation, if assessable; and

(ii) for managers directly or indirectly liable to their company's violation: a fine from ten to fifty percent of the fine imposed on said company, which shall be personally and exclusively imposed on the manager.

Fines imposed on recurring violations shall be double. In addition to fines, the infringing party may:

  • be sentenced to publish a summary of the decision in the press;
  • be prohibited from contracting with government financial institutions;
  • be prohibited from participating in bidding;
  • be prohibited from paying federal taxes in instalments;
  • have public incentives and/or subsidies cancelled;
  • have its name posted in the Brazilian Consumer Protection Code;
  • have its patents compulsorily licensed; and, finally,
  • be obliged to spin off the company, transfer control, or sell assets so as to eliminate anything that is detrimental to the economic order.

SDE and CADE may take preventive measure against the infringing party when there are signs or a well-founded suspicion that the infringing party is directly or indirectly causing or may cause market damages that are unrecoverable or difficult to remedy, or may vitiate the final results of the proceedings. Such measure may be, for instance, the ordering of immediate discontinuance of the practice and, when possible, return to the previous situation, imposing a daily fine if the measure is not complied with.

During the period the administrative proceedings are being conducted, the infringing party may formalize with CADE or SDE, subject to the approval of the CADE's Board, a cease-and-desist commitment to discontinue any practice that is damaging to the economic policy. Such commitment neither implies a confession or acknowledgement of illegal practices nor suspends the proceedings, which will be later shelved in the event the commitment is carried out within the stipulated terms. SDE will be responsible for following up on compliance with the commitment. Non-compliance with the preventive measure, the cease-and-desist commitment or the CADE decision will subject the infringing party to a daily fine of approximately US$ 4,520.00, which may be increased up to twenty times in keeping with the infringing party's economic status.

The penalties provided for in Law 8884/94 shall apply with due regard for:

  • the severity of the violation;
  • the infringing party's good faith;
  • the advantages obtained or envisaged by the infringing party; (iv) actual or threatened occurrence of the violation;
  • the extent of damages or threatened damages to open competition, the Brazilian economy, consumers, or third parties;
  • the adverse economic effects on the market;
  • the violator's economic status; and (viii) recurrences.

Brazilian law defines monopolies as either natural or actual. Under certain conditions, CADE may authorize certain transactions even if they result in economic concentration, provided their purposes are cumulative or alternatively:

1.to increase productivity;

2.to improve the quality of goods and services;

3.to foster technological or economic development. In addition, the said transactions may be authorized, provided that:

  • the parties to the transaction as well as consumers benefit from the same;
  • the transaction does not eliminate competition or a substantial part of a relevant market; and
  • the means used are limited to those strictly necessary to reach the intended objectives.

In order to request the applicable authorization, the interested party must submit a formal performance commitment to CADE containing the qualitative and quantitative goals to be reached within certain periods. Implementation of the performance commitment by the interested party will be supervised by SDE, and non-compliance without good cause will result in the filing of appropriate administrative proceedings.

III. VIOLATIONS TO THE ECONOMIC ORDER

According to Law 8884/94, any acts that are intended to or may cause the effects listed below, notwithstanding an intention to harm or their actual achievement, will be considered a violation of the economic order:

  • limiting, falsifying, or in any way adversely affecting free competition or free enterprise;
  • market control of goods or services;
  • arbitrary increase in profits; and
  • exercising a dominant position in an abusive manner.

Amongst others, article 21 of Law 8884/94 lists a number of acts which may be considered a violation of economic order. These are:

  • to set or offer in any way - in collusion with competitors - prices and conditions for the sale of a certain product or service;
  • to obtain or otherwise procure the adoption of uniform or concerted business practices among competitors;
  • to apportion markets for finished or semi-finished products or services, or for sources of raw materials or intermediary products;
  • to limit or impede market access by new companies;
  • to pose difficulties for the establishment, operation or development of a competitor company or supplier, purchaser, or financier of a certain product or service;
  • to bar access of competitors to input, raw materials, equipment or technology sources, as well as to their distribution channels;
  • to require or grant exclusivity in mass media advertisements;
  • to agree in advance on prices or advantages in public or administrative bidding;
  • to affect third-party prices by deceitful means;
  • to regulate markets of a certain product or service by way of agreements devised to limit or control technological research and development, the manufacture of products or the rendering of services, or distribution thereof;
  • to impose on distributors, retailers, and representatives of a certain product or service retail prices, discounts, payment conditions, minimum or maximum volumes, profit margins, or any other marketing conditions related to their business with third parties;
  • to discriminate against purchasers or suppliers of a certain product or service by establishing price differentials or discriminatory operating conditions for the sale or performance of services;
  • to deny the sale of a certain product or service on the payment conditions usually applying to regular business practices and policies;
  • to hamper the development of or terminate business relations for an indefinite period, in view of the terminated party's refusal to comply with unreasonable or noncompetitive clauses or business conditions;
  • to destroy, render unfit for use or take possession of raw materials, intermediary, or finished products, as well as destroy, render unfit for use, or hinder the operation of any equipment intended to manufacture, distribute, or transport them;
  • to take possession of or bar the use of industrial or intellectual property rights or technology;
  • to abandon or cause abandonment or destruction of crops or harvests, without provably good cause;
  • to unreasonably sell products below cost;
  • to import any assets below cost from an exporting country other than signatories of the GATT Antidumping and Subsidies Codes;
  • to discontinue or greatly reduce production, without provably good cause;
  • to partially or fully discontinue the company's activities, without provably good cause;
  • to retain production or consumer goods, except for ensuring recovery of production costs;
  • to condition the sale of a product to purchase of another or contracting of a service, or to condition performance of a service to contracting of another or purchase of a product (tie-in sales); and
  • to impose abusive prices, or unreasonably increase the price of a product or service.

As mentioned above, breach of any of the provisions in this Law will result in either a fine of up to thirty percent of the gross sales of the latest fiscal year, if the company is found guilty, or a fine from ten to fifty percent of the fine imposed upon the company if, in addition to the company, the officer directly or indirectly responsible for the violation is also found guilty; any such fine will be the personal and exclusive liability of the officer. Recurring violations are subject to double fines.

The content of this article is intended to provide a general guide to the subject matter. A specialist's advice should be sought in order to provide professional advice on a case to case basis which will meet specific circumstances.

For more information please contact us.

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