Brazil: Cartels

The defence of competition in Brazil is based upon article 173 section 4º of the Federal Constitution and Law 12,529/2011 (the Brazilian Antitrust Law), which primarily seeks to protect constitutional principles such as free enterprise and open competition, the social role of property, consumer protection and restraint of economic power abuses.

Law 12,529/2011 came into force in May 2012, replacing Law 8,884/94. One of the most significant changes introduced was the review of the thresholds for mandatory submission of concentration acts, resulting in the reduction in the number of cases involving minor competition concerns. Consequently, the Administrative Council for Economic Defense (CADE), the antitrust agency responsible for the defence of competition in Brazil, is able to shift part of its resources to investigations of anti-competitive conducts.

In its repressive role, CADE aims to investigate and punish violations to the economic order. Section 36 of the Brazilian Antitrust Law defines an anti-competitive conduct as any act intended or otherwise able to produce the following effects, even if any such effects are not achieved and regardless of fault:

• to limit, restrain or in any way injure open competition or free initiative;
• to control a relevant market of certain products or services;
• to increase profits on a discretionary basis; and
• to exert market power in an abusive way.

The referred section also exemplifies conducts that may be deemed infringements to the economic order, including, but not limited to:

• agreements among competitors;
• market division of products or services;
• limitation or restraints on market access by new companies;
• imposition of resale conditions to distributors;
• discrimination of prices or sale conditions;
• refusal to sale;
• predatory practices;
• tying sales; and
• imposition of abusive prices.

Specifically with regard to cartels, the Brazilian Antitrust Law considers anti-competitive practices to be any agreement, combination, manipulation or arrangement with competitors for the purpose of:

• fixing prices of goods or services;
• restricting or limiting the production or sale of goods or provision of amount or frequency of services;
• splitting parts of a current or potential market for goods or services, by means of allocation of clients, suppliers, regions or periods, among other actions; and
• fixing prices, conditions, advantages or non-participation in public procurement procedures.

In 2013, CADE rendered decisions in 38 cases of anti-competitive conducts, of which 22 resulted in the conviction of the involved parties. Among the total number of convictions were 13 cartel cases. The fines imposed amounted to approximately 500 million reais.

The number of cases decided by CADE last year amount to the double the number of anti-competitive conducts reviewed by the authority in the previous year. In addition, the number of convictions was also expressively higher than those of the previous years. In 2013, CADE convicted the involved parties in 22 cases; in 2012, only two convictions (one of them a cartel case); in 2011, just one conviction (a cartel case); in 2010, four convictions (two of them cartel cases); and in 2009, two convictions (one of them a cartel case). This means that the number of convictions in 2013 alone outnumbered the total amount of decisions of the past five years.¹

The stock of cases regarding anti-competitive conducts was reduced from 444 cases on 29 May 2012 to 333 cases on 29 May 2013, and to 296 cases on 29 May 2014. Since May 2012, the General Superintendence concluded the analysis of 271 conduct cases, clearly demonstrating CADE’s efforts to reduce its stock.

In addition, CADE has also been more active in the detection and prosecution of new cartel cases, resulting in the opening of new investigations. A clear demonstration of CADE’s efforts to this end is the publication of 14 new administrative proceedings in 2013 and the execution of several dawn raids to gather evidence of cartels, a measure that has been increasingly used by the authorities. Since the new Antitrust Law came into force, CADE has conducted dawn raids in seven investigations.

Another mechanism increasingly being used by CADE to detect cartels is the execution of leniency agreements. In view of the rise in the amount of fines imposed by CADE and the agency’s focus on cartels, companies involved in anti-competitive conducts are frequently seeking the authorities to blow the whistle on the existence of cartels in exchange for immunity.²

According to the Brazilian Antitrust Law, the leniency programme may be pursued by any individual or legal entity involved in antitrust infringements and shall result in total or partial immunity upon the due identification of the involved parties and full cooperation of the lenient applicants, besides other legal requirements. More recently, leniency agreements have been negotiated in Brazil concurrently with other jurisdictions such as the US, the EC, Canada, Japan and Korea. This is the result of increasing cooperation and information exchange between international authorities, especially with respect to international cartels.

The rise of the fines amounts enhanced the importance of the Brazilian leniency programme. Immunity from criminal prosecutions has also encouraged directors and employees to step forward towards leniency applications. Since the enactment of the new Antitrust Law, 14 cases were opened as a result of leniency agreements, and several others are being negotiated by CADE.

Another important mechanism to settle cartel cases is the cease-and-desist commitment (CDC). According to section 85 of Law 12,529/2011, CADE may negotiate commitments by the defendants to cease the conducts under investigation or cease producing their harmful effects, whenever CADE believes – based on its own circumstantiated judgment about the advisability and opportunity of such commitment – that the commitment meets the interests protected by the Brazilian Antitrust Law.

Besides confessing participation in a collusive practice and ceasing its conduct or the production of its effects, the obligations to be undertaken by the defendants include the payment of a contribution to the Fund for the Defense of Diffuse Rights.

Aiming for better guidance and higher certainty in the outcome of its negotiations, in 2013 CADE introduced changes to the rules concerning the execution of CDCs.³ An important novelty of the new policy concerns the parameters for calculating the pecuniary contribution, which vary according to the level of cooperation and the moment of submission of the proposal by the defendant. As a result, the sooner the defendant submits its proposal for a CDC, the lower the pecuniary contribution is likely to be.

For the first defendant to come forward and execute a CDC, the amount of the contribution shall be calculated considering a reduction of between 30 and 50 per cent of the fine that could be imposed in the event of a condemnation; for the second defendant, a reduction of between 25 and 40 per cent; and from the third defendant on, a reduction of up to 25 per cent. For the agreements executed after the remittance of the case to the Tribunal, the maximum reduction shall be of 15 per cent of the expected fine.

Although this measure aims to provide greater predictability, it is to be observed whether it does create the proper incentives for the execution of this type of agreement. It shall be noted that, in cases involving collusive conducts, the requirement of confession may hold back the company’s decision to move forward with the agreement as it may facilitate damage claims before the courts.

CADE’s recent case law – 2013/2014⁴

In 2013,⁵ several fuel retail cartel cases were decided by CADE, with fines on convicted companies ranging from 8 to 17 per cent of their gross revenues, and fines on convicted individuals ranging from 8 to 15 per cent of the fines imposed to their respective companies.⁶ Such regional cartels have been detected in different cities within the Brazilian territory, and despite the limited local effects, tend to absorb resources from the authorities in their enforcement efforts.

On 3 March 2013, CADE decided the ECAD cartel,⁷ involving price fixing of copyright and related rights for the public performance of general musical works, literary musical works and phonograms. CADE considered that the companies’ conduct fell under section 20, items I to IV, combined with section 21, items I, II, IV, V and XXIV, from Law No. 8,884/94, in force by the time the conduct was implemented. The case was initiated by a complaint filed by the Brazilian Association for Pay TV (ABTA), who accused the involved companies of colluding to determine values of retribution and copyrights, and create barriers to entry to prevent or hinder the formation of new associations of copyright holders. The reporting commissioner considered that the infringements were proven, among other evidence, by the price calculation criteria available on the website of the Central Office for Collection and Distribution (ECAD) and the promotion of meetings to fix the prices. The fines totalled 38.5 million reais. CADE has also imposed ancillary penalties, such as the reformulation of the managing rules of the association and the criteria for the admission and maintenance of new associations.

On 22 May 2013, CADE fined several companies and individuals⁸ involved in a bread cartel in the city of Sobradinho, Federal District. The infringement was evidenced by the presence of the defendants in meetings promoted by the Food Industry Syndicate of Brasília, aiming to discuss and fix sales prices. The implementation of the practice was demonstrated by the fact that posters announcing the increase of salt bread prices were distributed among the companies associated to the referred syndicate. The fines on all the companies and individuals involved totalled 635,000 reais.

On 28 August 2013, CADE fined companies and individuals involved in a fuel surcharge cartel.⁹ The case was initiated by a leniency agreement executed by Lufthansa. The scope of the investigation was the alleged exchange of information between companies active in the segment of air cargo transportation in order to fix the price of the fuel surcharge to be charged from customers. The authorities performed dawn raids at the headquarters of certain companies and obtained e-mails and documents that lead to the authorities’ conclusion that the companies held discussions with the purpose of settling the price and date for fuel surcharge increases. The charges were dismissed with respect to United Airlines, Inc, since CADE considered there were no evidence of its involvement in the collusion. In addition, Air France and KLM confessed their participation and entered into a settlement agreement with CADE, which resulted in the payment of a pecuniary contribution of 14 million reais. Fines imposed on the companies and individuals convicted by CADE – albeit under discussion in view of pending appeals – amounted to approximately 300 million reais.

In the occasion of the judgment, CADE reaffirmed its understanding that with regard to companies and managers, the fines set forth by Law 12,529/2011 are more beneficial and therefore shall be applied in those cases initiated under the effectiveness of Law No. 8,884/94, but decided after the current Law came into force.

On 4 December 2013, CADE judged an alleged cartel involving book editors and bookstores.¹⁰ The investigation was opened as a result of a complaint by the Assistance Desk for the Federal District Barristers (CAA-DF), according to which the defendants were colluding with the purpose of reducing discounts offered to CAA-DF, since the latter was actually competing with bookstores. As a result, the editors, acting under the pressure of the bookstores, would have colluded for the reduction of the discounts granted to CAA-DF, impairing its competitiveness in the market. CADE imposed fines of between 3,000 and 5,000 reais for the companies involved in the anti-competitive conducts, in view of the low turn­overs verified.

In 22 January 2014,¹¹ CADE judged the drugstores cartel of Curitibanos, a city located in Santa Catarina state, and decided for the sentencing of all the involved companies. The administrative process was opened due to a representation sent to the Competition Authorities by the Public Prosecutor’s Office. The alleged conduct consisted of agreements between drugstores to establish specific days of the week in which each competitor would offer discounts. Therefore, CADE concluded that drugstores have colluded to set forth a rotational system of discounts and that the conduct was illegal under section 20, item I, and section 21, item I, of Law no. 8,884/1994, thus deciding for the imposition of fines amounting to approximately 1.5 million reais.

Some days after that decision, on 5 February 2014, CADE decided a cartel¹² among transportation companies to rig bids promoted by the State of Rio Grande do Sul for the hiring of collection, transportation and final destination of solid waste and hospital waste services. The fines applied by CADE amounted to approximately 1.2 million reais, representing around 15 per cent of the companies’ gross revenue in 2008.

On the same day, CADE judged the fire extinguisher cartel¹³ and decided for the sentencing of all the involved companies and individuals. The administrative process was established for the investigation of alleged violations to the economic order resulting from agreements between the companies for price fixing. The conduct was evidenced by documents associating the fire equipment companies and spreadsheets disclosing their fixed and variable costs, which were deemed sufficient to prove the existence of the alleged cartel. CADE considered that the companies’ conduct was anti-competitive, according to section 20, items I and II and section 21, item I of Law 8,884/1994, and imposed fines that amounted to approximately 1.9 million reais.

On 19 February 2014, CADE decided a bid-rigging case in the market for air cargo transportation.¹⁴ According to the complaint sent to CADE by the Federal Attorney’s Office, the companies Skymaster Airlines Ltda and Brazilian Express Transportes Aéreos Ltda would have agreed on prices and conditions for their participation in public tenders promoted by Empresa Brasileira de Correios e Telégrafos – ECT, Brazilian postal incumbent, for the hiring of air transportation services. CADE concluded that the companies colluded to influence the result of the tenders, thus harming free competition. The fines imposed amounted to around 83.4 million reais.

From the cases recently judged by CADE, the most relevant was the conviction of the cement cartel case.¹⁵ The case involved the investigation of an alleged collusion in the Brazilian market of cement and concrete. The instruction of the process, which included search and seizure procedures at the head offices of the companies involved, was concluded in November 2011. The former Department of Economic Defense of the Secretariat of Economic Law recommended the conviction of the companies and respective employees allegedly involved in the cartel.

Although the case was brought to judgment on the plenary session that took place on 22 January 2014, the decision was suspended due to the request from Commissioner Márcio de Oliveira Júnior to review the case records. On that occasion, the reporting commissioner, Alessandro Octaviani, had already voiced his opinion, stating that the cement industry ‘was highly collusive’ and that the evidence obtained mainly by means of the search and seizure procedures demonstrated that trade associations played a key role in discussion forums, which facilitated the collusion among the companies for the fixing of prices and commercial conditions. In his view, the evidence also indicated that the companies allocated customers according to territories and created barriers for competitors that were not part of the associations.

On 28 May 2014, CADE’s Tribunal decided for the condemnation of the involved companies, imposing fines exceeding 3 billion reais, one of the highest administrative fines imposed worldwide on cartel cases. CADE considered that the conducts of the companies were illegal and consisted in violations of section 20, items I, II, III and IV, combined with section 21, items I, II, III and IV, all of Law 8,884/94.

In addition to the heavy fines imposed, a novelty of the case concerned the structural penalties ordered, which imposed the divestment by the defendants of part of their assets in the cement market, as well as the disposal of minority corporate interest in companies active in such market. It should be noted that the assets can only be acquired by third parties that are not part of the same economic groups of the convicted companies.

Such measure adopted by CADE aimed at promoting entry of new players in the affected market. Although set forth in the Brazilian Antitrust Law, structural remedies of this nature had never before been applied by the authorities and raised several debates about their convenience and effects to the marketplace, in addition to their feasibility.

On top of the divestiture orders – which involved 20 per cent of the production capacity of the companies in those regions where they own more than one concrete plant – CADE has also forbidden the companies from entering into any transactions among themselves involving the cement sector or to acquire any assets in this market within the next five years. The imposition of such structural remedies was considered a necessary measure to allow the entrance of new players and promote rivalry in this segment.

Further to the decisions recently rendered by CADE, it is worth noting that on 20 March 2014, the General Superintendencyopened an administrative procedure against 18 companies and 109 individuals, pressing charges for what has been referred to as the São Paulo and Brasilia subway cartel. Companies are accused of having rigged bids in the past 15 years, following an investigation that started in 2013 in which dawn raids were carried out simultaneously in their headquarters. The case gained relevance for the fact that the name of the lenient was leaked to the press, which raised intense debates about the credibility of the leniency programme and the legal certainty that CADE could provide to the lenient. The case also raised media discussions about a potential political bias of the competition authorities.

It is also important to refer to the Federal Court’s decision of 6 May 2014 which decided for the annulment of CADE’s decision on the gas cartel.¹⁶ The federal judge, José Márcio da Silveira e Silva, affirmed that it was clear that the cartel existed and had negative effects to the marketplace. However, in view of illegalities verified in the course of the investigation – namely, the anonymous tip that supported the search and seizure order, which resulted in the gathering of that set of documents used as grounds for CADE’s decision – the judge considered that the whole administrative process was illegal according to the ‘fruits of the poisonous tree’ theory. CADE has appealed the decision and the case shall be examined by the Federal Court of Justice.

Conclusion

The prosecution of cartels is clearly a priority for the Brazilian competition authorities, as verified from the analysis of the agency’s statistics. In this sense, CADE’s efforts not only to eliminate the stock of cases but to open new and better investigations clearly demonstrate that this is the main item in CADE’s agenda for the next years.

Also, another trend observed within CADE’s agenda regards the increasing concern towards enforcement of the law against national cartels, implemented by large companies active in segments of basic products or services used by the general consumer, and which are able to seriously affect the country’s economy.

CADE is also imposing harsher fines, not only in view of the severe damages caused by cartels to the country’s economic scenario, but also with the aim of demonstrating to companies that anti-competitive conduct will be severely punished, therefore dissuading them from adopting illegal practices.

As a consequence, it is expected that more companies will seek the authorities for the execution of leniency agreements, thus increasing the opening of investigations. This trend is already noted in CADE’s recently opened investigations, almost all of which result from leniency agreements.

Finally, as mentioned above, it shall be observed whether the new policy set forth creates the proper incentives for the execution of leniency agreements, considering that a confession is required in cartel cases.

Notes

1. Information obtained from CADE’s annual reports and statistics, available at www.cade.gov.br.
2. The Brazilian leniency programme was first introduced in our legal system in 2000, and was regulated by Law 8,884/94, section 35-B and Ordinance MJ No. 456/2010. Since May 2012, the Brazilian leniency programme is regulated by the new Brazilian Competition Law, Law 12,529/11, section 86 and 87.
3. In a trial session held on 6 March 2013, the Tribunal of the Administrative Council of Economic Defense – CADE approved Resolution No. 5, of 6 March 2013, which set forth CADE’s policy regarding the execution of agreements in investigations of anti-competitive conducts.
4. Reference to cartel cases decided in 2014 are updated until decisions published up to 20 June 2014.
5. In CADE’s Annual Balance of 2012, 13 cartel cases are mentioned, however two of those cases referred to matters jointly analysed (Teresina’s Fuel Cartel – Administrative Process No. 08012.007301/2000-38 and No. 08700.000547/2008-95 and Santa Maria’s Fuel Cartel – Administrative Process No. 08012.007149/2009-39 and No. 08012.004573/2004-17), thus the total number of cases judged amounted to 11.
6. Cases involving fuel retail cartels: Administrative Process No. 08012.010215/2007-96; Administrative Process No. 08700.000547/2008-95; Administrative Process No. 08012.004472/2000-12; Administrative Process No. 08012.001003/2000-41; Administrative Process No. 08012.011668/2007-30; Administrative Process No. 08012.007301/2000-38; Administrative Process No. 08012.004573/2004-17; Administrative Process No. 08012.002959/1998-11; and Administrative Process No. 08012.007149/2009-39.
7. Administrative Process No. 08012.003745/2010-83. Defendants: Escritório Central de Arrecadação e Distribuição, União Brasileira de Compositores, Sociedade Brasileira de Administração e Proteção de Direitos Intelectuais, Associação Brasileira de Música e Artes, Associação de Músicos Arranjadores e Regentes, Sociedade Brasileira de Autores, Compositores e Escritores de Música e Sociedade Independente de Compositores e Autores Musicais.
8. Administrative Process No. 08012.004039/2001-68. Defendants: Panificadora e Confeitaria Eulálio – ME, Panificadora da Paz, Panificadora e Lanchonete Shallom, Panificadora Pão de Sal, Panificadora Pão de Ouro, Panificadora Lua da Serra Ltda, Pão d’Italia, Panificadora Serranê Delícias do Trigo, Panificadora Pão da Casa, Panificadora de Itália, Panificadora Martins, Pão Nosso, Panificadora e Mercearia Belo Pão, Panificadora e Confeitaria Candanga Ltda – ME, Panificadora São Francisco, Panificadora Pão Francês, Panificadora Pão da Casa, Panificadora e Confeitaria São Conrado.
9. Administrative Process No. 08012.011027/2006-02. Defendants: Deutsche Lufthansa AG, Lufthansa Cargo AG, Swiss International Airlines, American Airlines, Inc, KLM – Companhia Real olandesa de Aviação, Societé Air France, ABSA Aerolíneas Brasileiras SA, Varig Logística SA – Varig Log, Alitalia Linee Aeree Italiane SPA and United Airlines Inc.
10. Administrative Process No. 08012.012420/1999-61. The process was shelved with regard to the Defendants Livraria e Papelaria Saraiva SA, Associação Nacional das Livrarias, Associação Nacional das Livrarias – Regional da Bahia, Saraiva SA Livreiros Editores, Editora Atlas S.A., Malheiros Editores Ltda, Editora Revista dos Tribunais Ltda e Companhia Editora Forense. The Defendants Livraria e Editora Brasília Jurídica Ltda, Livraria do Advogado de Brasília Ltda, Livraria Universitária de Brasília Ltda, Valdinar da Costa Veras EPP, Livraria Edições Jurídicas Ltda, Livraria Acadêmica Ltda and Câmara do Livro do Distrito Federal were condemned by CADE.
11. Administrative Process No. 08012.004365/2010-66. Defendants: Farmácia Frei Rogério (Drogaria Ogliari Ltda ME), Farmácia Santa Bárbara (Santos & Niles Ltda ME), Farmácia Vital (Farmácia e Drogaria Sordi Ltda), Farmácia Nossa Senhora Aparecida (Righes & Filhos Ltda e Drogaria Nossa Senhora Aparecida Ltda ME), Farmácia Atual (Léa de Fátima Ferreira & Cia Ltda ME), Farmácia Graciosa (Graciosa Drogaria e Perfumaria Ltda), Farmácia Sul Brasil (Farmácia Sul Brasil Ltda), Farmácias Moderna (Farmácia Tambosi Ltda ME), Farmácias Moderna (A S Tambosi & Cia Ltda), Farmácias São João (Brasfarma Comercial de Medicamentos Ltda).
12. Administrative Process No. 08012.011853/2008-13. Defendants: Coletare Serviços Ltda, Simpex Serviços de Coleta Transporte e Destino Final de Resíduos Ltda and Wambass Transportes Ltda.
13. Administrative Process No. 08012.001794/2004-33. Defendants: Oliveira e Lima Com Extintores Ltda, Chamatec Extintores de Incêndio Ltda, Eficaz Ltda, Extintur Ltda, Casa do Extintor Ltda, Copel Extintores Sist. Seg. Ltda, FN Equipamentos C/ Incêncio Ltda, Gama Extintores Com. e Serv. Ltda, Centraltec Com. de Extintores Ltda, Comando Extintores Ltda, AABA Extintores Ltda, Guanabara Extintores Ltda, Getel Equipamentos de Segurança Ltda, Triunfo Com. e Serviços Ltda, Ceilândia Extintores Ltda, Samambaia Extintores Ltda, Confiança Extintores de Incêndio Ltda-ME, Associação de Empresas de Equipamentos de Combate de Incêndio no Distrito Federal – AEECI-DF.
14. Administrative Process No. 08012.010362/2007-66.
15. Administrative Process No. 08012.011142/2006-79.
16. Administrative Process No. 08012.009888/2003-70.