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Venezuelan competition law has been under review since 2001, when the National Assembly approved a project to replace the rules currently in force. Eight years have passed since then and parliament restarted the discussion in 2006 and announced a brand new project based on the one approved in a first session in 2001. This paper aims to compare the current and the proposed antitrust regime to highlight the major changes included in the last report of the parliamentary commission in charge of reviewing all competition law in Venezuela. An update on recent decisions given by the competition authority is also included.
The Venezuelan Constitution of 1999 provides for the general framework for competition matters, while the Promotion and Protection of Free Competition Act 1992 (the Procompetencia Act), inspired by the EC Treaty and Spanish legislation on competition, is the particular applicable law for antitrust regulation. The Procompetencia Act is the basis for delegated legislation also applicable to antitrust matters, such as Regulation No. 1, regarding the exceptions regime for cartels, and No. 2, dealing with the assessment of economic concentrations.
The Procompetencia Act is aimed at the promotion and protection of free competition and efficiency in favour of manufacturers, merchants and consumers. It also establishes the prohibition of those practices preventing, restricting, falsifying or limiting economic freedom. The Procompetencia Act protects markets and not companies.
In 2001, as formerly mentioned, the Venezuelan parliament initiated the drafting of a new Promotion of Free Competition and Efficiency Bill (PFCEB), aiming to replace the Procompetencia Act. However, on 7 March 2006, parliament approved in a first session the Antimonopoly, Anti-oligopoly and Unfair Competition Bill (AAUCB) based on the PFCEB. The paper, prepared by the parliamentary commission for the second and final session of parliament for the approval of the AAUCB, proposed a change in the title of the Bill to ‘the Antimonopoly, Anti-oligopoly and Promotion of Fair Competition Bill’ (the Competition Bill).
Generally, the Competition Bill follows the basic model established in the Procompetencia Act, with a general prohibition of anti-competitive behaviour together with a wide range of particular prohibitions. However, there are major changes that will be dealt with in this chapter.
Those subject to the law
The Procompetencia Act is applicable to both individuals and corporations. According to article 4, the Procompetencia Act is applicable to natural persons and public or private corporations performing economic activities in the country. Nevertheless, there are public services-related sectors excluded from the regime established in the Procompetencia Act. One of the most criticised changes introduced by the Competition Bill is the exclusion of the state and public corporations from the scope of the Competition Law.
The competition authority
The Venezuelan competition authority, the Superintendence for the Promotion and Protection of Free Competition (Procompetencia) is an independent government agency attached to the Ministry of Light Industries and Commerce. Procompetencia is led by a superintendent and a deputy superintendent, both of whom are appointed by the president of the Republic for a four-year term.
Procompetencia also has five directors, one for each of the following matters: legal advice; mergers and acquisitions; research; public relations; and administrative support. During the past few years, the agency has diversified its enforcement efforts, focusing on economic concentrations and abuses of dominant position, as well as horizontal agreements.
Procompetencia is the authority in charge of the enforcement of competition law. Article 34 of the Procompetencia Act establishes the powers vested in the competition authority to conduct the investigation. The referred powers are as follows:
- to summon any person to appear to testify on pertinent matters related to alleged violations;
- to require any person to present any documents or information that may be related to the alleged violation;
- to examine ledgers and documents; and
- to summon any person, through the national press, who may be able to provide relevant information with respect to the alleged violation.
Procompetencia is also empowered to order interim measures of protection, which according to article 35 are as set out below:
- orders for the alleged prohibited practice to cease; and
- orders for measures to any avoid damages that may result from the alleged prohibited practice.
Article 35 also provides for Procompetencia to request security for any eventual damage. If the measures are able to result in severe damages to the alleged offender, it will be able to request the suspension of the measures. In this case, Procompetencia will demand sufficient guarantees from the offender in this case.
The Competition Bill establishes the creation of the National Antimonopoly and Anti-oligopoly Institute (the Institute), which will replace Procompetencia as the competition authority and will be led by a removable president appointed by the president of the Republic. The Institute will also be in charge of giving the required support to public prosecutors in charge of the prosecution of the criminal offences established in the Competition Bill.
The general prohibition established in articles 9 and 10 of the Procompetencia Act is the substantive law on cartel matters. A cartel has been defined by Procompetencia taking into account the elements of such a practice, these being: the will of the parties (there must be an agreement); the parties to the agreement (it must have been reached by competitors); and the purpose of the agreement (it must violate free competition). The above-mentioned article 10 provides for a general prohibition on agreements, collective decisions or recommendations, and concerted practices aimed at:
- price fixing;
- limitations on production, distribution or technological development;
- market allocation;
- discriminatory agreements; and
- the imposing of ancillary conditions to enter into a contract.
According to article 7 of Regulation No. 1 of the Procompetencia Act, the following practices will be illegal per se and will never be allowed by Procompetencia:
- price fixing;
- limitation of production through the setting of quotas;
- boycotts or limitations to market access through actions designed to induce third parties to refuse to supply goods or services, obstruct access to goods or services, or refuse to sell raw materials or factor inputs or offer services to others; and
- market allocation.
Vertical cartels may be allowed by Procompetencia, providing that the parties prove the efficiencies that the vertical agreement may bring to the relevant market.
Cartels will be prosecuted through an administrative proceeding conducted by Procompetencia, which will decide if a cartel was in place. The last noteworthy fine Procompetencia imposed was in a cartel case (price fixing) against 20 airlines. A particular feature of the decision is that each route was defined as the relevant market for each airline (there was one airline per route) but the Competition Authority considered that the airlines were competitors and that they had an agreement regarding the commissions they paid to travel agents per ticket sold. The fines imposed on the sanctioned airlines vary between US$40,000 and US$800,000.
The Competition Bill creates a distinction between cartels and horizontal agreements, which are still prohibited according to the rule of reason. However, the Competition Bill establishes the causes for horizontal agreements to be justified because of the economic efficiencies produced, and the prior control to obtain an authorisation from the competition authority. It also includes the prohibition of cartels in bidding procedures and advertising. Nevertheless, the most important change is the criminal sanction established for cartels.
According to the Procompetencia Act, dominance exists in the following cases:
- when a given economic activity is performed by one or several related undertakings, as suppliers or purchasers; and
- when there is more than one undertaking involved in the performance of an economic activity but there is no effective competition between them.
The Procompetencia Act establishes sanctions for those companies abusing their dominant position to affect part of the market or the whole of it.
There is a description of conduct considered as abuse of dominant position, which is set out below:
- discriminatory pricing and the imposition of other commercialisation or service conditions;
- exploitative prices, terms or conditions of supply;
- refusal to deal and to offer access to essential facilities;
- discriminatory conditions; and
- tying and leveraging.
In 2007 a sanction was imposed on liquor distributors because of the inclusion of anti-competitive clauses in distribution contracts. The fine imposed amounted to US$3.23 million for one of the undertakings, which was sanctioned on the basis of abuse of dominance and exclusionary practices, and US$1.42 million for the other, which was only sanctioned for exclusionary practices. During 2008 a sanction was imposed on a pharmaceutical company because of abuse of dominance (article 13.2) and exclusionary practices (article 6), since the undertaking sent letters to protect an alleged patent right which, according to the Competition Authority, does not prevent third parties to use a component since the protection was given over a procedure to obtain that component. The fine imposed reached US$1.5 million.
The Competition Bill expressly recognises collective dominance, and clearly establishes that discriminatory practices must be unusual in commerce to be considered as an abuse of dominance.
Article 6 of the Procompetencia Act provides that: ‘Acts or conduct of agents not specifically protected by law, that wilfully impede or obstruct the entry or exit of firms, goods or services into any or all areas of the market are prohibited.’
On the basis of article 6, Procompetencia has rendered some noteworthy decisions in 2008. A fine of US$2.4 million was imposed on a company of the iron and steel industry which did not provided a competitor with the material required for the manufacturing of steel bars.
Article 7 of the Procompetencia Act provides for a general prohibition on boycotts and actions aimed at inducing third parties to refuse to supply goods or services; obstruct access to goods or services; or refuse to sell raw materials, factor inputs or to offer services to others.
Mergers and acquisitions control
According to article 11, the Procompetencia Act establishes a general prohibition of economic concentrations when they are able to harm competition either by having restrictive effects on free competition or by producing dominance in the market. Regulation No. 2 of the Procompetencia Act sets out the general guidelines for the evaluation and control of economic concentrations, while Resolution SPPLC/039-99 (the Resolution) goes further in details about the evaluation of such transactions. The Resolution deals with:
- economic concentrations;
- relevant market;
- concentration in the market;
- competition in the market;
- entry analysis;
- vertical economic concentrations;
- the economic concentration of conglomerates; and
- efficiencies produced by the operation.
Regulation No. 2 establishes a non-mandatory notification to be given by the parties to the competition authority prior to the economic concentration transaction.
No decision on economic concentrations has been rendered by Procompetencia in 2008. But in 2007 Procompetencia issued three different decisions on economic concentrations. The first was rendered on the merger of two gas distribution companies. Procompetencia authorised the merger and notified the state-owned companies that had activities in the gas sector since it was considered that some changes should be made in the allocation of gas acquisition contracts to protect the participation of medium-sized and small companies.
The second authorisation was given for the acquisition of a personal care business from an international pharmaceuticals firm by a local company. Third was a favourable opinion given at the request of the telecommunications regulator on the merger of two telecoms firms.
As opposed to the current regime, the new Competition Bill establishes prior mandatory control over transactions involving economic concentrations if they match at least one of the following conditions:
- the patrimony of the parties involved in the transaction is valued nationwide at over 2.5 million tax units, which is a benchmark used to annually update the value; or
- the value of total business of the parties involved in the transaction is valued nationwide at over 1 million tax units.
One of the most relevant factors established in the new Competition Bill to evaluate economic concentrations is any sanction previously imposed on any of the economic agents involved in the transaction by the competition authority.
According to the Competition Bill, if the economic concentration is completed without the notification or authorisation of the competition authority, the transaction will be considered null and void, and a fine of 4,500 tax units will be imposed on the parties involved. If the notification contains false information, the competition authority is empowered to impose a fine of 7,000 tax units, and to initiate an investigation aimed at determining whether abuse of dominance has been committed.
Procompetencia is empowered to order interim measures of protection, which according to article 35 are as set out below:
- orders for the alleged prohibited practice to cease; and
- orders for measures to avoid damages that may result from the alleged prohibited practice.
Article 35 also provides for Procompetencia to request security for any eventual damage. If the measures are capable of resulting in severe damages to the alleged offender, it will be able to request that the superintendent suspend measures. In this case, the superintendent will demand sufficient guarantees from the offender in this case.
The Competition Bill authorises the competition authority to order the same interim measures of protection pointed out above, plus the provisional closing of the economic agents aimed at protecting evidence of anti-competitive practices.
There are no criminal, only administrative sanctions, namely fines, for breaching of any rule contained in the Procompetencia Act. The fines are from 10 per cent up to 20 per cent of the net sales of the offender and could reach up to 40 per cent in the cases of reoffenders.
The new Competition Bill increases the fines up to 35 per cent of net sales, 45 per cent for reoffenders, and includes fines of between 1,000 and 4,000 tax units for non-payment of an imposed fine. This new Competition Bill provides for criminal sanctions as follows:
- between five and 10 years’ imprisonment for cartel activity and confiscation of goods if the offender is a juridical person;
- one to five years for those who commit usury;
- two and four years for those who manipulate the market to obtain windfall profits; and
- three to six years for hoarding.
Judicial review of decisions rendered by the competition authority
Decisions rendered by Procompetencia can be challenged by applying for judicial review before the Courts for the Judicial Review of Administrative Matters within 45 days of the official notification to the sanctioned person. The judgment rendered by the aforementioned Court can be appealed before the Political-Administrative Chamber of the Supreme Tribunal of Justice.
The new Competition Bill does not modify the jurisdiction given to these tribunals to review decisions given by the competition authority.
Private litigation in competition matters
Article 55 of the Procompetencia Act provides for civil actions to be taken on the grounds of compensatable damages before a civil court by those affected by an anti-competitive practice. This civil action can only be initiated after the decision of Procompetencia is final and binding. The same approach is followed by the Competition Bill.