Colombia: Superintendence of Industry and Commerce

Collaboration agreements or mergers? It is not always easy to differentiate between collaboration agreements between competitors that amount to mergers, and collaboration agreements between competitors that constitute simple joint ventures not subject to merger law.

Although the question may be thought as theoretical, it is predominantly practical. Indeed, the nature of the transaction (be it a merger or a joint venture) will determine the legal regime applicable to the operation in Colombia. While transactions that constitute mergers must be notified ex ante before the Superintendence of Industry and Commerce (SIC) (which may clear, condition or block the operation), collaboration agreements or other operations that do not constitute mergers are not subject to ex ante notification, but are reviewed under an ex post analysis, ie, using rules that regulate agreements in restraint of trade and abuses of dominance.

In practice, when undertakings wrongly classify their transaction as a simple collaboration agreement and do not notify the operation ex ante, when in fact the transaction constitutes a merger, they will be subject to a monetary sanction that may be up to 100,000 minimum monthly wages (approximately $30 million), or even higher, if the benefit obtained by the undertakings with the uninformed merger was more than such amount. Moreover, if the SIC considers that the operation unduly restrains competition, it may order the parties to reverse it.

On the other hand, if undertakings correctly consider that their operation is not a merger but is just a joint venture not subject to ex ante approval, they may still be subject to an ex post investigation under the rules that prohibit agreements in restraint of trade, if their collaboration agreement entails anti-competitive effects.

Since Colombia’s competition law does not establish when a collaboration agreement – or joint venture – should be considered a merger, nor does it provide rules to determine when a collaboration agreement that does not constitute a merger may be considered anti-competitive or pro-competitive, it was necessary for the SIC to clarify these areas of the law through case law, in order to increase the security and predictability of the system.

Taking the above into account, in a recent case the SIC explained when a joint venture amounts to a merger, and also provided guidance on how to determine whether a joint venture that does not amount to a merger should be considered pro-competitive.¹

According to SIC’s recent case law, a joint venture between competitors constitutes a merger – and therefore should be notified before the authority, provided it complies with additional objective requirements – in the following cases:

• The operation is designed as permanent and it results in the elimination of a competitor from the market: in order to be considered a merger, the transaction must have a vocation of permanence, and must eliminate a competitor in a definitive manner, or at least for a substantial period of time. In other words, the transaction must change the structure of the market.
• The operation does not consist simply in the unification of a concrete function from the participating enterprises, but it should be the unification of a line of business or a market: this means that parties should not just unify certain specific activities that they perform on a daily basis to function in a relevant market (such as buying inputs, distributing their products, etc). On the contrary, the entities should unify lines of business or create an entity which by itself constitutes a business, has independent presence or access to a relevant market, and is designed to offer products or services – at least in a substantial manner – to any person who demands them. In other words, the transaction should not be an agreement between competitors to just buy inputs collectively, or to distribute collectively their products, as this would likely constitute a joint venture.
• The business resulting from the agreement must have full functions in the market: the result of the transactions (be it the union of two previously competitive businesses in one, the creation of a separate enterprise, a research centre, etc) should have independent resources at least to have the potential to develop in an autonomous way in the market, as a separate business from the ones operated by the allied companies.

In those cases in which the operation does not comply with the previously listed elements, it will be considered as a collaboration agreement between competitors, and will not be subject to pre-merger notification. The pro-competitive or anti-competitive character of such agreement will be determined by the SIC using it’s ex post functions, which include the possibility of investigating possible anti-competitive agreements.

With regards to the effects of collaboration agreements the SIC recently established that, in general, collaboration agreements between competitors (that do not amount to a merger) do not produce undue restrictions on competition whenever the following elements are present²

• Competitors that are part to the collaboration agreement have less than 15 per cent of the relevant market: in cases in which competitors have less than 15 per cent of the market, it is highly unlikely that the agreement may result in an undue restriction of competition, as other competitors may establish sufficient competitive pressure.
• The agreement produces efficiencies: the agreement must produce efficiencies, either in the production, acquisition, distribution or commercialisation of the relevant products.
• There is an indispensable character of the restrictions: the restrictions to free competition that are generated as a result of the collaboration agreement between competitors must be indispensable to reach the efficiency objectives that the agreement wants to achieve.
• Benefits for consumers: consumers should have a fair share of the benefits resulting from the agreement. For such reason, the efficiencies created through restrictions on competition should produce sufficient benefits for consumers, so that they compensate the restrictive effects.
• No elimination of competition: the agreement must not allow the elimination of competition with respect to a substantial part of the products or services of the companies involved.

Although the SIC’s faces several challenges in the enforcement of Colombia’s competition laws, decisions like the one described in this article constitute an important development, as they provide higher security and predictability for companies on how they should behave in the market.

Notes

1. Superintendence of Industry and Commerce, Resolution 4851 of 2013.
2. Ibid.