Brazil: Abuse Of Dominant Position – What's New In Brazil?

Last Updated: 14 November 2015
Article by Leonardo P. Da Rocha e Silva

The Brazilian Competition Authority, CADE, has been quite active not only in reviewing mergers, acquisitions and joint-ventures and in battling against cartel behavior, but also in cracking down on illegal unilateral conducts by companies with market power. Given the importance for Brazilian and international companies to be aware of potential charges, challenges and opportunities in Brazil, this article addresses the current legal framework, enforcement figures, notable recent cases, and trends regarding investigations by CADE on firms abusing their dominant positions.

Legal Framework – Background

The 2011 Competition Act (Law 12529/2011) prohibits a company from unilaterally abusing its dominant position in the market.2 In Brazil, a dominant position occurs "when a company or group of companies is capable of altering, in a unilateral and concerted manner, the market conditions or when it controls twenty percent (20%) or more of the relevant market."

Unilateral conducts/restrictions that may characterize an abuse of dominant position include (i) refusals to deal; (ii) predatory pricing; (iii) tie-in arrangements; (iv) price discrimination; (v) exclusivity agreements; (vi) resale price maintenance, to name a few. CADE seems to be aware of the fact that, while these restrictions may constitute limitations to free competition, they may also bring economic efficiencies, which must be weighed against the potential anticompetitive effects, under a rule of reason approach.

If a company is held to have abused its dominant position, CADE's Tribunal may impose a fine from 0.1% to 20% of the gross revenues of the company or group of companies obtained, in the financial year immediately before the formal investigation is initiated, in the field of business affected by the anticompetitive conduct. To impose penalties on dominant firms for abuse, the 2011 Competition Act does not require CADE's Tribunal to obtain evidence of the effects of anticompetitive behavior in the relevant market. Penalties may apply even if any such effect is not achieved.

Investigations into conducts of dominant firms are made by CADE's General Superintendence, which has been striving to conclude such investigations within three years. Final decisions on investigations are taken by CADE's Tribunal, the body responsible for imposing the penalties or shelving the cases, on an average of three years.

CADE in figures

From June 1, 20123 to June 1, 2015, 4 CADE's Tribunal condemned companies involved in six investigations related to abuse of dominant positions in different sectors of the Brazilian economy. This figure does not include several cases in which CADE's Tribunal sentenced medical associations for abuse in imposing exclusivity arrangements and the adoption of price tables. The fines imposed on companies (not trade associations) 5 for abuse of dominant positions reached over R$ 90 million in such 3-year period – during which CADE shelved, without imposing any penalties, 45 cases of the same type.

Notable recent CADE cases

In March 2015, CADE's Tribunal imposed a R$ 25 million-plus fine on a telecom operator that allegedly had monitored its customers' calls to the call center of one of its competitor – a recent market entrant at the time. 6 The telecom operator, which held over 90% of market share in a specific Brazilian region, monitored those calls to offer special service packages and stave off customer migration to its competitor. According to CADE's Tribunal, the telecom operator took undue advantage of sensitive customer information obtained from compulsory interconnection of telecommunications networks. CADE's Tribunal concluded that the telecom operator aimed at impeding, by unlawful means, the entrance of new players in the market, as the offered packages discouraged consumer migration.

In March 2015 and December 2014, CADE's Tribunal fined oil companies over R$ 55 million for influencing fuel prices charged by gas stations acting in the region of São Paulo and Bahia. 7 In one of those cases, based on wire-tapping of one of the company's employees, who was also fined, CADE's Tribunal held that there was enough evidence that the gas stations were being compelled to adopt a uniform business conduct at the expense of free competition. Even conceding that the investigated company's market share did not exceed 20%, CADE's Tribunal held that the company was abusing its dominant position, based on the characteristics of the market and other elements obtained during the investigation. Those are landmark cases because of the CADE's Tribunal views on illegal resale price fixing and the situation of gas stations acting under the control of the Brazilian Petroleum Agency – ANP.

In February 2014, two different money transportation companies, one active in Goiânia, in the Brazilian state of Goiás, and another active in Belo Horizonte, in the Brazilian state of Minas Gerais, were fined for having charged their competitors (providers of security services for several lottery agencies in those regions) a fee for storage of cashboxes. 8 According to CADE's Tribunal, this practice was meant to increase operational costs for competitors and thus jeopardize their performance in the valuables transportation market. CADE's Tribunal held that such money transportation companies enjoyed monopolist positions in relation to government-owned bank Caixa Econômica Federal's treasury activities in those cities. For CADE's Tribunal, the lack of economic substance for the fee, the absence of benefits for consumers, and the fact that those services were already paid for by Caixa Econômica Federal made it clear that the conduct in point was intended to freeze out competitors from the security service market in Goiânia and Belo Horizonte. Fines reached over R$ 3 million in both cases.

In January 2013, CADE'S Tribunal sentenced a Brazilian subsidiary of a bearings manufacturer for resale price maintenance arrangements with distributors. 9 By majority vote, CADE's Tribunal declared that the company abused its dominant position in the Brazilian market by imposing the prices charged by retailers for seven months between 2000 and 2001. This decision underscored CADE's Tribunal view that it is on the investigated company to prove economic efficiency gains that would justify a resale price maintenance scheme. CADE's Tribunal signaled that restrictions directly related to prices charged by retailers/distributors will be increasingly on its radar, considering the CADE's Tribunal's skepticism about whether efficiencies outweigh anticompetitive risks of such schemes. In this specific case, CADE's Tribunal imposed a fine at 1% of the company revenues in the year prior to commencement of the investigation.

What's Next?

Considering the provisions of the 2011 Competition Act, the current Brazilian economic scenario, and the organizational measures that have bolstered CADE's efficiency over the past three years, it seems fair to expect CADE's General Superintendence to intensify its investigations into unilateral conduct of dominant firms in the near future.

Despite the challenges in terms of evidence and examination of efficiency defenses, CADE's General Superintendence seems to be working hard to be in a good position to commence new cases based on complaints filed by third parties or on its own initiative. The cases opened recently and investigations underway before CADE's General Superintendence in some key sectors are good news for those advocating that strong competition policy can only be implemented if appropriate measures are taken against illegal unilateral conducts.

Footnotes

1.The author is grateful to Tiago Severo Gomes and Henrique Araujo de Carvalho, who helped with the research used for writing this article.

2.Article 36, IV, of Law 12529/2011.

3.The 2011 Competition Act entered into full force and effect on May 29, 2012.

4.The cases judged until June 1, 2015, were based on the provisions on abuse of dominant position of the 1994 Competition Act (Law 8884/1994), which are practically the same of the provisions of Law 12529/2011. This is so because those cases were initiated under the 1994 Competition Act.

5.The calculation of fines excluded those imposed by CADE in the cases related to medical associations, as indicated before.

6.Administrative Proceeding No. 08012.003918/2005-04.

7.Administrative Proceeding No. 08012.004736/2005-42 and Administrative Proceeding No. 08012.011042/2005-61.

8.Administrative Proceeding No. 08012.006272/2011-57 and Administrative Proceeding No. 08012.009757/2009-88.

9.Administrative Proceeding No. 08012.001271/2001-44.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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