Colombia: Overview of Antitrust Law

Article 333 of the National Constitution mandates the state to intervene in the economy by preventing practices such as unfair competition and anti-competitive conduct from taking place, in order to ensure that free and fair competition exists in the market. This document describes the Colombian antitrust regime, and highlights its most relevant characteristics. For ease of reference, we have divided this document into the following sections: merger control and anti-competitive practices.
Colombian competition law subjects mergers and acquisitions to the prior non-objection of the Superintendence of Industry and Commerce (SIC), a governmental agency that acts as a competition authority. Depending on the activities carried out by the involved parties, other specialised agencies may have authority, as is the case, for instance, for the Superintendence of Finance for financial entities, the Aviation Authority for airline carriers and the National Television Commission for television concessionaires.
The SIC is invested with administrative and jurisdictional powers. It acts as an administrative agency for purposes of merger control and anti-competitive behaviour proceedings, whereby it reviews proposed integration operations and the undertaking of actions in the market that may be contrary to free competition.

Merger control under Colombian law

Pursuant to Colombian law,¹ all entities devoted to the manufacturing, distribution, rendering or production of the same product, raw material, good or service must request clearance from the SIC for any operation consisting of a merger, consolidation, acquisition of control or economic integration.²
All transactions that might result in a market player controlling a competitor (horizontal merger) or a significant customer or supplier (vertical merger) must be informed, provided that the thresholds given below are met.
For purposes of the clearance, the SIC has indicated, through different opinions,³ that any kind of legal agreement or economic transaction that results in the combination of two or more business units under a common interest is an economic integration.
The SIC has further indicated that a transaction is not relevant from a Colombian antitrust perspective if as a consequence of such transaction the control of two independent business units is not transferred to a single interest.⁴ In this respect, the main precedent is a case in which the SIC⁵ indicated that an economic integration could take place through various legal forms such as a merger,⁶ consolidation⁷ or acquisition of control;⁸ however, the SIC has pointed out that the key issue, from an antitrust perspective, in order to determine if an economic integration is indeed taking place, is whether there is any change in the manner in and degree to which different competitors in the relevant market participate as a result of the transaction.
The SIC has identified the following criteria in order to determine if an economic integration will take place in Colombia:⁹

the purchaser has a market presence in Colombian, directly or through exports to Colombia, subsidiaries, agents or distributors or a combination thereof;¹⁰

the target company has a market presence in Colombia, either directly or through exports to Colombia, subsidiaries, agents or distributors;

there is a products or services (or both) overlap; or

the target and the purchaser (or the companies subject to the economic integration) integrate their activities. As a result of the economic integration, two business units or entities that acted independently in the relevant market are directed under a common interest as a consequence of the integration.

Thresholds under Colombian law

Pursuant to Colombian law, economic integrations with effect in Colombia require clearance prior to having any effects in Colombia, if any of the following thresholds are met:

aggregate operating income is equal to or exceeds approximately US$20.4 million for 2008.¹¹ For purposes of determining the combined value of the operational income, any sales of products or services made in the Colombian market through agents or distributors must be included; or

aggregate assets in Colombia is equal to or exceeds approximately US$20.4 million for 2008.¹² If the local companies involved in the transaction are part of an 'enterprise group', the assets of all the companies of the same group located in Colombia have to be taken into account.

If any of the aforementioned thresholds is met, the entities involved in the transaction must, jointly or separately, file a request for clearance of the transaction before the SIC, prior to implementing any steps towards an economic integration in Colombia.

Effects of not filing for clearance before the SIC

Failure to make an antitrust filing, in the event that it is required, may result in (i) the SIC fining the companies involved in the integration up to approximately US$462,000;¹³ (ii) the SIC fining the managers, directors, legal representatives and other officers of the companies involved in the integration up to approximately US$69,200;¹⁴ and (iii) the annulment of the economic integration¹⁵ by a court of law. The SIC is of the opinion that such omission itself constitutes a breach of competition rules¹⁶ and thus such transaction shall be considered null and void pursuant to law¹⁷ because its purpose would be illicit.¹⁸
Colombian law provides that actions to declare agreements null and void may be commenced by any person having an interest in obtaining the annulment.¹⁹ In addition, the solicitor general is also entitled to request the annulment.²⁰ Actions to request the annulment of agreements can be commenced within 10 years from the date of execution of the agreement providing the integration.²¹ It is also important to note that agreements that are considered as null and void may not be ratified by the parties.²²
If a court finds an agreement to be null and void, it shall cease to produce effects and the parties may be restored to the situation they were in at the moment of entering into the agreement.²³ An action for the annulment of an agreement providing for integration shall be conducted through ordinary proceedings before the civil courts.

Proceedings before the SIC

The entities involved in the transaction must file a request for clearance before the SIC, before implementing any steps towards an economic integration in Colombia.
Once the request for clearance has been filed, the SIC has 30 business days to clear the transaction or to request additional information. The aforementioned period will not start until the information referred to in the applicable regulations is regarded by the SIC as complete. Once the parties submit the required additional information, the SIC has an additional term of 30 business days to issue a decision. If this term lapses without a response from the SIC, the transaction is deemed to be approved by the SIC with no objections.
The resolution conditioning or objecting to a transaction will be notified to the petitioner, who may file an appeal, within the following five business days. If the decision is not reversed, the petitioner may challenge the decision before the Council of State, by initiating nullification proceedings within the next four months.
The filing consists of a brief, describing, inter alia, the basic legal structure of the transaction, the parties involved, information regarding the product market, the geographic market, the consumers, manufacturing procedures (when applicable), distribution channels, client list, and imports and exports.

Gun jumping under Colombian law

Colombian antitrust regulations are only applicable to integrations taking place in the Colombian market. This means that if the integration activities are undertaken outside Colombia and will not have any effect in the Colombian market, no filing need be made with the Colombian competition authorities.
However, it is worth noting that there are no antitrust standards governing coordination between merging firms before clearance in Colombia.
As a general rule, any kind of integration in the Colombian market must be previously approved by the antitrust authority - provided, of course, that any of the filing thresholds is met. In practice this means that the parties to any given integration are usually able to carry out any activity so long as they continue to compete effectively in the Colombian market; any action that eliminates or reduces competition in the Colombian market will be regarded as a uncleared integration and, as such, will be subject to the penalties mentioned above. Thus, it is customary that, in the event that timing does not allow for a clearance to be obtained before the transaction takes place internationally, the Colombian portion of the transaction is carved out until such clearance is obtained.

Analysis criteria

There are no clear standards for how the SIC conducts its analysis of a proposed transaction. Typically, analysis of a given case will look for the following criteria:

market share. HHI analysis is standard. Market share concerns may be disregarded if other factors reduce its importance;

for purposes of this analysis, the SIC uses the HHI index, which uses the market share of the parties involved in the transaction in the local market, assuming that there are two plausible ways of defining the relevant market: (i) that the relevant market only comprises the companies that are currently in the same market in the country; and (ii) that besides the companies that are currently in the same market, the relevant market should also include certain 'uncommitted entrants' that, in a term shorter than one year, are currently in a position to enter the market in response to an increase in prices;

entry barriers: required capital investments, access to technology, presence of strong competitors in the market or in adjacent markets, supply of raw materials, distribution networks. The SIC has stated that if the resulting entity acquires an important participation in the relevant market, but the market does not have any entry barriers, the proposed transaction probably would not deserve any comment by the authority;²⁴

exclusivity agreements or clauses. SIC has stated that the existence of exclusivity agreements in the market were the participants of an integration compete may be deemed as a factor restricting the entry of new competitors to the relevant market. It is important to point out that it is not clear whether the per se rule or the reason rule applies in these cases;

consumer power. Strong consumer power in the relevant market where the participants of an integration compete is usually deemed to be a factor restricting anti-competitive behaviour in the market; and

trademark power. The SIC has given a great deal of importance to trademarks as a consumer driver.²⁵ In this sense, the fact that any trademark involved in a transaction is a consumer driver is an important factor taken into account by the SIC when analysing the transaction.

Anti-competitive conducts

The rules governing anti-competitive conducts in Colombia, provided by Decree 2153 of 1992, is one of the most advanced competition laws in Latin America. In addition the SIC is very active in the enforcement of antitrust regulations.
Pursuant to the aforementioned Decree, all agreements, pacts or contracts between two or more companies are deemed to be anti-competitive whenever they result in an agreement to fix prices and other market conditions (cartels); an abuse of the dominance that any competitor may have in a relevant market; or acts that are contrary to free competition.

Cartels

Colombian law prohibits any agreement reached by competitors in a market with the purpose of fixing prices or manipulating market conditions. For instance, article 47 of Decree 2153 of 1992 provides a non-exhaustive list of agreements that are considered to have the purpose of, or result in, manipulation of market conditions.
Such regulation provides that among others the following conducts are anti-competitive, and will be deemed to be illegal per se:

direct or indirect price fixing or determining discriminatory sales conditions or commercialisation conditions with third parties;

distribution of market shares between producers or distributors, or any agreement with the purpose of blocking the entrance of third parties to the market;

allocation of production quotas or suppliers market shares or the distribution or limitation of any inputs or raw materials;

limitations to the adoption or development of new technologies and techniques; and

the inclusion of subsidiary or ancillary clauses for entering into an agreement or contractual provisions whereby any competitor is bound not to produce goods or render services.

Acts

Colombian antitrust regulations provide that the following acts are deemed to limit competition:²⁶

the breach of the regulation concerning advertisement;

influencing a company to increase the prices of its goods or services or influencing such company to desist in its intention of decreasing said prices;
or

the decision to boycott or limit the access to any participant or potential participant in the market by means of refusing to execute agreements or engage in commercial relationships thereto if said act is the result of a retaliation against a company's price policies.

Abuse of dominant position

Under Decree 2153 of 1992, a competitor in a particular market holds a dominant position thereto when it may, directly or indirectly, set any market conditions in the relevant market. In particular, the SIC has identified the following procedure in order to determine if any given competitor holds a dominant position:

definition of the relevant market;

determination of the position of the relevant company in the market; and

determination that it is not likely that current potential competitors may waken its market position.

In addition, said Decree provides that the following acts exercised by competitors in a market where they hold a dominant position are deemed to be unlawful:

predatory pricing;

inclusion of discriminatory provisions in agreements concerning similar operations;

inclusion of subsidiary or ancillary clauses to enter into an agreement or which provides contractual provisions whereby any competitor is bound not to produce goods or render services; and

sale of products or rendering of services in a specific area of the Colombian territory in different conditions than those offered in other areas of Colombia.
In case the SIC finds that any market participant has undertaken any of the foregoing acts, the SIC may order the relevant competitors to cease any anti-competitive conduct. In addition, the SIC may impose fines on said competitors (up to approximately US$69,200). The breaching competitor may provide adequate guarantees as to the end of the relevant anti-competitive activities, which will put an end to any investigation conducted by the SIC.²⁷

Recent developments

A proposed bill has been filed before the Colombian Congress. The most important features of this bill are the following:

to give exclusive authority to investigate and sanction antitrust infractions to the SIC;

to increase the statute of limitations for administrative proceedings regarding anti-competitive behaviour from three years to six years; and

to set the maximum fines that may be imposed by SIC in connection with anti-competitive behaviours at 100,000 monthly minimum wages (approximately US$23 million) for companies; and 2,000 monthly minimum wages (approximately US$462,000) for individuals.

Shortly before publication of this chapter, the bill was unanimously approved in the first round by the Senate of Colombia.

Notes

1 Law 155/59, article 4.
2 SIC opinions 01052835 of 17 Jan 2001 and 03021028 of 14 May 2003.
3 Among others, SIC opinions No. 00043577 of 23 June 2000; 00086137 of 30 Nov 2000; and 01052835 of 17 Aug 2001.
4 SIC opinion No. 03003014 of 28 Jan 2003.
5 The SIC closed an investigation against Chevron Petroleum Company of Colombia and Texas Petroleum Company, arguing that the conditions stated in article 4 of Law 155 of 1959 are not present if the parties involved do not participate in the same relevant market, meaning no economic integration would take place (Resolution 06384 issued on 28 February 2003).
6 Pursuant to article 172 of the Commercial Code, a company is merged into another when it is absorbed by another company, resulting in the transfer of all assets to the absorbing company.
7 According to SIC's Opinion No. 96048285 issued on 27 Sept 1996, a consolidation is the process whereby, through a number of steps, a company acquires the control of another entity in which it already has a capital participation.
8 Pursuant to article 45, item 4 of Decree 2153 of 1992, control would be understood as the possibility to influence the commercial activities of a company, to vary its line of business or compromise the assets required to develop its activities. Therefore, the acquisition of control of any given company is understood as an economic integration.
9 SIC opinion No. 00043577 of 23 Jun 2000; and 03003014 of 28 Feb 2003.
10 SIC opinion No. 000337761 of 30 Jun 2000.
11 This amount is equivalent to 100,000 minimum monthly legal wages (MMLW). The MMLW is determined by the Colombian government on a yearly basis. For 2008, the MMLW is COP$465,500 (the amount of US$ is calculated using an exchange rate of COP$2,000 per US$1).
12 This amount is equivalent to 100,000 minimum monthly legal wages.
13 Equivalent to 2,000 minimum monthly wages. The statute of limitations applicable is three years from the date when the transaction is implemented in Colombia.
14 Equivalent to 300 minimum monthly wages.
15 SIC Opinion No.00086127 of 30 Nov 2000.
16 Idem.
17 Article 46 of Decree 2153 of 1992.
18 Article 1523 of the Civil Code sets forth that the purpose of the contract is illicit when the contract is prohibited by law.
19 Article 1747 of the Civil Code. Further, the Supreme Court of Justice has indicated that any person may have standing to sue and seek the nullification of a contract vitiated with illicit purpose as long as it demonstrates that he or she has interest in seeking the nullification (article 2 of Law 50 of 1936). The Court has considered that such third parties are those who have an economic interest on the outcome of the proceedings rather than a moral interest. Opinion by Justice JF Ramirez, 2 Aug 1999. File 4937.
20 Idem.
21 This statute of limitation is established by Law 791 of 2002.
22 Article 1742 Civil Code.
23 Article 1746 Civil Code.
24 Cf 'El Control Sobre las Integraciones Empresariales', www.sic.gov.co.
25 Resolution 24374 of 2007. The SIC used the same arguments used by the European Commission in the Case T-464/04, Impala v Comm'n, Judgment of the Court of First Instance, 13 Jul 2006.
26 Article 44 of Decree 2153, 1992.
27 Please see Resolution 24206 of 2000.