Brazil: Interim Measures as an Enforcement Policy in Digital Markets

Introduction

Recent years have been marked by a profound digital transformation on a global level that derives from the Fourth Industrial Revolution. The modern world has experienced the effects of globalisation since the 1970s, provided by industrial automation, dynamic markets and the internet. Nonetheless, more recently market digitalisation finally overcame physical barriers and led to complex integration of human tasks.

After covid-19, naming a single business activity that does not somehow rely on digital technology has become difficult. The pandemic has transformed and continues to transform many traditional markets into entirely digital markets. Owing to their efficient functioning and dynamism, digital markets are unique and often difficult to understand. Managing them as effectively as possible demands greater cooperation between private and public organisations and institutions.

It is no different with competition law: heated discussions between authorities and market players raise concerns as to how to address the agenda of digital markets if there is still no common ground in most areas. The main challenge derives from matching effective antitrust enforcement with regulation since as soon as authorities understand a given innovation, the market changes. Removing the time lag might be made possible with the support of digital technology itself. However, competition law at its current stage still requires human intervention. The review of digital markets involves effective measures to reduce the effects of this time lag.

Against this backdrop, interim measures are a viable solution.

Besides being a means to antitrust enforcement in digital markets, interim measures boost the adoption of remedies agreed by players involved in the market dynamics because these measures repress anticompetitive conduct.

This Chapter provides an overview of the main benefits of implementing interim measures in cases involving digital markets, especially given the relationship between the particular characteristics of these markets and the features of interim measures. In the following, we discuss the Brazilian Rappi v. iFood case and contrast it with the French Google News case, as in both the antitrust authorities granted interim relief.

Interim measures have the following advantages: (1) they may be amended based on new information revealed in the investigation; (2) contributions from players can be used to elaborate their terms and reduce any information gaps; (3) they can help avoid litigation, as the antitrust authority may be persuaded not to take action during an investigation; (4) market players can more easily arrive at a consensus since they already know the authority’s initial position; and (5) cooperation between market players cuts enforcement costs.

Interim measures in digital markets and their advantages

Despite the extensive growth of digital markets caused by the rise of technology and the democratisation of internet access within past decades, authorities from different countries still disagree on the operation of these markets and the definition of digital platforms[2] because they have unique economic features, which differ from those of traditional markets: a global nature; direct[3] and indirect[4] positive network effects; crossed subsidies,[5] economies of scale[6] and economies of scope[7] derived from their multiple sides; low marginal costs;[8] customer data collection; switching costs;[9] disruptive innovation;[10] multi-homing effects;[11] tipping effects;[12] first-mover advantages; and winner-takes-all.

Although digital markets have particularities, they are not free from market concentration and abuse of economic power. In other words, despite their specificities, the greater the market power of a player, the greater its bargaining power and the more likely it is to engage in anticompetitive behaviour to make the most of digital platforms’ positive features and reduce their possible negative effects, creating entry barriers that could soon become insurmountable.

In digital markets, dominant players may use their market power to hinder users ability to engage in multi-homing, which intensifies anticompetitive effects and further increases the gap between dominant players and their competitors, strengthening tipping effects.

Some anticompetitive practices that can affect both platform users and competitors are exclusivity clauses, overcharges for platform access, discriminatory pricing, anticompetitive contractual provisions, exclusionary acquisition of competitors and limited access to essential facilities. Besides these, in specific digital markets, such as price comparison platforms, marketplaces, online advertising websites and search engines, dominant players can undermine competition by adopting most-favoured-nation (MFN) clauses and non-branding bidding agreements (NBBAs), etc.

Moreover, as the dynamic nature of digital markets produces constant changes in market players’ relationships, there are practices as yet unnamed. This happens because keeping abreast of behavioural changes (and authorities’ construction of their legality) and underlying regulatory issues of these markets is no easy task.

A classic instance of this mismatch in antitrust authorities’ position on the same behaviour is the Google Shopping case. The EU Directorate-General for Competition and the Brazilian authority, CADE, decided the case only after many years of fact-finding when they tried to understand the effects of the alleged conduct on the relevant market, the competitive dynamic of the market, etc. In the end, the long period of investigation prevented CADE from taking any actual steps to address the problems of what after years became a consolidated market – maybe even one made obsolete by new marketplace platforms.

In this context, researchers of this field have shed light on the effectiveness of antitrust authorities’ analysis model and questioned whether enforcers could have reached a more satisfactory conclusion were there a deeper understanding of the market dynamics, especially by making a distinction between platforms and aggregators.[13]

These facts illustrate the challenges antitrust authorities face: on the one hand, conducting proper fact-finding to determine if illegal activities took place – carefully, to avoid being draconian or permissive; on the other, doing it swiftly to keep up with the pace of these markets. Paradoxically, however, the more an authority deepens its fact-finding, the longer it takes the authority to act, increasing the chances that eventual intervention will be in vain.

When authorities are uncertain about the behaviour and the effects of intervention in digital markets, cooperation between market players is of particular importance, as it mitigates any information gap. The collaboration between these players helps authorities to make informed decisions, preventing mistakes that could further damage the market than the alleged anticompetitive conduct identified.

Based on these two aspects – the time required for due investigation versus the timeliness of the intervention and the importance of players’ cooperation to reduce any information gaps – interim measures are especially useful in digital markets.

Regarding the first point, a measure can be granted, and, as it is provisional, it may be revoked at the first sign it did not produce the expected outcome. Therefore, if its effects on the market prove appropriate, the final judgment can incorporate its provisions. Moreover, it provides authorities a lesson. As interim measures are adopted based on general principles of caution and action, they are not limited to conventional forms (such as a prohibition against executing a certain kind of contract, an obligation to grant access to a given infrastructure, etc.) and may take any form to stop the illegal activity. Each measure represents a learning opportunity to enhance the next one, perfecting these temporary instruments.

As for the second point, as it is possible to reverse, replace or adapt them, these measures can more freely incorporate information brought by the market players during the fact-finding. In other words, once the measures have been granted, market players can still provide the authority with additional information that may help to revise the original measure. Therefore, these two aspects show the benefits of using interim measures to respond to the specificities of digital markets.

Despite their advantages, obtaining interim measures can still be a challenge. A study conducted by CADE’s Office of the Superintendent General from 2015 to 2020 showed applications were denied in 73 per cent of the cases because of the risk that they would affect the market irreversibly. These risks were related to a shallow investigation, imminent insolvency, difficulties to prove the interdependence between the risks used to support the request and the investigated conduct, and the fact a government intervention at the time could not reverse the status quo.

Having argued the benefits of enforcement through interim measures, two cases illustrating the effects of this approach are discussed below: iFood and Google News case, which were reviewed by CADE and the French antitrust authority respectively.

Rappi v. iFood and Google News

Complaints of anticompetitive conduct in digital markets are steadily increasing globally.

In the Brazilian case, app company Rappi filed a complaint with CADE against iFood seeking interim measures. Rappi alleged that iFood held a dominant position in the online food-ordering market and took advantage of its position to adopt restrictive vertical practices by signing mass exclusivity agreements with partner restaurants. The practice was said to have foreclosed the market and created entry barriers, given the agreements’ long-term contractual provisions and termination fines.[14]

In its defence, iFood claimed that the market is highly dynamic and comprises several business models – a feature inherent in digital markets. Subsequently, iFood argued that exclusivity agreements are necessary to prevent the free-rider problem and ensure return on investment. Additionally, the defendant proved the successful entry of several other players in the market in recent years. This argument is consistent with what was shown above: the dynamics of digital markets have been strengthened by the covid-19 pandemic.

Rappi requested the immediate suspension of all exclusivity obligations and discriminatory practices agreed between iFood and its partner restaurants. Were CADE to uphold these agreements, it argued, the dynamism of the digital market, whose constant changes promote the emergence of new players in an expanding market, could paradoxically also result in foreclosure for these same entrants because of an increase in the market power of dominant players such as iFood.

To ascertain whether Rappi’s claim was plausible, the Office of the Superintendent General considered iFood’s dominant position and the effects of its conduct on a significant or strategic part of the market. According to ABRASEL, the Brazilian association for bars and restaurants, iFood is the market leader, holding a share of approximately 86 per cent (well above the 20 per cent threshold the Brazilian Competition Law establishes for CADE to presume a company has a dominant position). Further, the Office of the Superintendent General considered the company’s first-mover advantage and a possible tipping effect, which could create entry barriers. However, CADE and the companies disagreed about each player’s market shares, suggesting an information gap between the antitrust authority and the companies operating in that market.

Despite the disagreement about the market share of players, the Brazilian authority linked the success of an online food ordering platform to its reach of a volume of restaurants, which is closely related to a company’s potential to exercise market power. The authority understood exclusivity clauses could hamper the production chain by preventing players from reaching the volume of restaurants required to successfully operate in this market. However, as exclusivity agreements are not illegal per se in Brazil, other elements have been considered in analysing potential competitive harm, such as the percentage of market foreclosure and exclusivity clauses’ time limits and provisions for renewal.

In examining whether there was a risk of harm that could be difficult or impossible to repair, CADE concluded there was danger in delay. Were iFood to continue signing exclusivity agreements until the authority announced its final decision, this could lead to market exits and diminish consumer choice, even if the authority eventually found against iFood, ordered the practices to stop and imposed legal sanctions. Moreover, the Office of the Superintendent General considered the ruling to be reversible, since if CADE regarded the practices legal in its final judgment, iFood could just resume its business negotiations; until then, the company could operate as it deemed efficient, while maintaining its agreements in force.

Consequently, CADE granted Rappi interim relief to prevent iFood from adding exclusivity clauses to its executed business contracts until the completion of the investigation. In addition, this measure aimed at ensuring market forces were free to operate in the sector of online food ordering and delivery, that companies functioned as usual and that entry conditions were in place for new players with similar or disruptive strategies.

The case shows some of the difficulties in adjudicating some aspects of digital markets, especially owing to the information asymmetry and the complexity of these markets. Further, although CADE granted interim relief against iFood, the latter did not appeal the ruling, which, however tacitly, shows the company accepted CADE’s position and possibly even agreed that the practices damaged the market.

Regarding the Google News case, the French Competition Authority received a complaint from unions that represented several newspapers and magazines, which reported on Google’s antitrust conduct related to the press, government communications and online advertising. According to the complainants, Google’s application of Law 2019-775, of 24 July 2019,[15] constituted an abuse of dominant position, since the company had unilaterally decided not to display news excerpts, photos and videos on its many services unless publishers allowed Google to do so free of charge. In practice, this often happened, which led complainants to seek interim relief.

Initially, the authority noted Google probably had a dominant position, as the company held a monthly share of around 90 per cent in late 2019 in the French general search engine service market. Moreover, this market had significant barriers to entry and expansion, which became evident owing to the high investment required to develop a search engine, the network effects entailed, and Google’s long experience, all of which made Google’s position particularly difficult to challenge.

Moreover, the authority examined the probability of Google having (1) implemented unfair transaction conditions since there was no deal or compensation in place for displaying copyrighted content; and (2) offered the same treatment to very different market players, without objective reasons, which is categorised as a discriminatory practice. Likewise, the authority considered Google’s new displaying policy became more negative to market players after Law 2019-775 entered into force.

The authority also stressed that these practices reinforced the idea that Google’s dominant position was responsible for bringing relevant internet traffic to both publishers’ and news agencies’ websites, who, for their part, had no choice but to comply with the new display policy and agree to earn no financial compensation for their content. Against this background, the authority ruled that Google’s behaviour caused severe and immediate competitive harm that, considering the severe press crisis, prevented publishers and news agencies from exploiting resources crucial for their survival.

In April 2020, the authority granted the complainants interim relief, allowing for publishers’ and news agencies’ good faith negotiations with Google on its terms for reusing and displaying copyrighted content, and granting corresponding compensation, under the principle of neutrality. To ensure enforcement, the authority also demanded that Google regularly write and submit to the authority compliance reports during negotiation. In September 2020, Agence France-Presse and press publishers once more turned to the French authority claiming Google was not complying with the agreed terms. In January 2021, Google and APIG, an alliance of French newspapers representatives, declared they were negotiating newspapers’ compensation. However, there was no agreement and, in July 2021, the French authority fined Google €500 million and demanded that it prepare a concrete plan to compensate news agencies for their content.

Procedural issues aside, this case shows the disruptive innovation brought by Google News and the difficulties involved in negotiating compensation for news agencies’ content promoted on the platform. By scrutinising potentially negative effects on that market, France’s Competition Authority enabled Google to discuss terms with press representatives; nevertheless, a delayed resolution resulted in the authority imposing a fine on Google – which remains controversial.

Similarities between the two cases involving interim relief demonstrate how Brazilian and French antitrust authorities are concerned with finding a way to address failure in digital markets. In the iFood case, iFood did not appeal the ruling, apparently having accepted the terms of the relief. As for the Google case, the company had the chance to reach an agreement with the press representatives, but the authority intervened because of a delay.

Both results reveal the positive effects of interim measures: the fact a company does not appeal a ruling translates into reduced government costs and strengthens legal certainty – by preventing divergent rulings within administrative law or even the judicial system – and market stability – by preventing investment exit owing to market uncertainty. Moreover, in Google’s case, the relief might also have expedited consensus by showing Google the authority’s initial position on the matter – although delayed negotiations resulted in a fine.

Conclusion

Technological innovation will always outstrip antitrust authority policy, impairing their ability to understand and intervene in a proper and timely fashion to deter possible anticompetitive effects. Among other reasons, this is due to an information gap between the authority’s knowledge about a market and its companies’ operations (also considering the expertise of entrant and pioneer companies).

This deficit in knowledge of a market and its dynamics can be mitigated by interim measures that promote agreed behaviour in targeted companies.

Regarding the iFood case, since there was no appeal, although the company may not have fully agreed with the authority’s understanding, it is nevertheless a sign that the company concluded that accepting the measure was preferable to litigation. A possible reason for this relates to the provisional nature of interim measures and the possibility that they will be amended at the end of adjudication or revised to better fit the market.

Regarding Google News, reaching a settlement and a common denominator is a more economical solution than enforcement. Additionally, it helps the targeted players to find an autonomous answer as they hold the information required to arrive at the best solution.

In summary, providing interim measures in these scenarios could disrupt the understanding that effective antitrust enforcement should be fiercely and unilaterally imposed by antitrust authorities, bearing in mind the immense information gap between the parties.

Therefore, we stress that administrative sanctions should fit into a broader context: searching for the truth by examining facts and guarding the public interest. Granting temporary relief within an antitrust authority’s administrative proceeding has the ultimate goal of protecting this legal interest by defending competition and deterring anticompetitive practices.


Notes

1 Alexandre Cordeiro is president, Ana Paula Guimarães is chief of staff of presidency, Bruna Pamplona de Queiroz is head of the international unit, and Julia Werberich is an adviser at the presidency’s office at CADE, the Administrative Council for Economic Defence.

2 For Professor Thibault Schrepel, one divergence is the distinction between digital platforms and aggregators. Such differences have a relevant influence in examining digital markets. Polyanna Vilanova and Julia Werberich, 'Plataformas e agregadores: diferenciações e impactos na análise concorrencial', available at: https://www.conjur.com.br/2021-fev-15/defesa-concorrencia-impacto-plataformas-agregadores-analise-concorrencial. Retrieved 26 August 2021.

3 The greater the number of users on the same side, the more useful a network is.

4 In a multi-sided platform, when a group of users increases in number, it positively affects another group of platform users and vice versa.

5 Crossed subsidisation means providing subsidies to one side of the market to obtain success on the other. That is the case with search engines, such as Google, or social media that adopts a search engine.

6 Economies of scale derive from collecting user data to enhance the platform and attract users, who become a key input. However, the product improvements of companies able to collect user data increase their market power and potentially raise barriers to entry for small businesses.

7 Economies of scope derive from the complementarity of different services provided on the same platform, translating into a greater ability to collect user data.

8 After covering costs with hardware and a webserver to store data, digital markets bear a low marginal cost to add a new user to the platform. This aspect, together with the economies of scale, is crucial for these platforms, as they influence pricing and product differentiation strategies; however, they also favour market concentration. In: Caderno do CADE de Mercados de Plataformas Digitais. Pg. 12. Available at: https://cdn.cade.gov.br/Portal/centrais-de-conteudo/publicacoes/estudos-economicos/cadernos-do-cade/plataformas-digitais.pdf.

9 Several platforms incur high costs for migrating to another platform, which helps retain users.

10 Disruptive innovation creates new markets and drastically changes existing ones. Innovation can drastically reduce the market share of other companies, leading them to exit the market.

11 Despite being essential for competition in digital markets, companies attempt to prevent multi-homing effects by implementing anticompetitive practices, such as technical barriers, bundling of services, exclusivity clauses and others.

12 Together, a company’s economies of scale and scope, positive network effects, and substantial switching costs result in such an advantage against its competitors that creates tipping effects, namely a significant market concentration that leads to a monopoly.

13 This issue was raised by professor Thibault Schrepel, and further detailed in the paper 'Plataformas e agregadores: diferenciações e impactos na análise concorrencial'. Available at https://www.conjur.com.br/2021-fev-15/defesa-concorrencia-impacto-plataformas-agregadores-analise-concorrencial.

14 Administrative Enquiry No. 08700.004588/2020-47. Available in Portuguese at: https://sei.cade.gov.br/sei/modulos/pesquisa/md_pesq_processo_exibir.php?0c62g277GvPsZDAxAO1tMiVcL9FcFMR5UuJ6rLqPEJuTUu08mg6wxLt0JzWxCor9mNcMYP8UAjTVP9dxRfPBcaPonKpemYl591TZDVz41cKkeMG3znSccU-isTZDv-qj; Both iFood and Rappi are digital platforms that sell products and services from partner companies in a vertical marketplace.

15 The law establishes the conditions for balanced negotiations between publishers, news agencies, and online government communications services, resetting how compensation is divided between the three by favouring publishers and news agencies.

Get unlimited access to all Global Competition Review content