Brazil: Private Antitrust Enforcement

Introduction

The Brazilian New Competition Act (NCA) has recently celebrated its second anniversary.1 Law No. 12,529/2011 introduced major changes into the Brazilian antitrust practice. The biggest change, without any question, was the introduction of a pre-merger filling system, which has consumed much of the new agency’s efforts and resources during its early years. Other relevant changes in the field of antitrust investigation, such as the possibility of piercing the corporate veil of companies involved in anti-competitive practices, and the strengthening of the interaction between antitrust and intellectual property, are yet to be seen.

Despite creating a whole new antitrust system, Law No. 12,529/2011 has done little to change the incentives of private parties to seek antitrust enforcement before courts. The only reference to private enforcement in the NCA has the exact same language of the old law: article 47 grants individuals harmed by anti-competitive practices the right to pursue and obtain private damages, notwithstanding the existence of an investigation or administrative proceeding before the Administrative Council for Economic Defence (CADE). Absolutely no innovation in this area was brought by the new legislation. This is why in 2011, before the NCA was passed, the former Secretariat of Economic Defence (SDE), now the General Superintendence (GS), issued a public consultation2 proposing a draft bill to amend the NCA and to boost private enforcement. The draft bill suggested, for example, that companies convicted by CADE should be obliged to indemnify consumers affected by the anti-competitive practice. According to the bill proposal, consumers would be allowed to use CADE’s findings to seek private damages. The proposed bill also suggested that private plaintiffs should be allowed to seek double damages from companies convicted by CADE. However, after Law No. 12529/2011 was passed, the SDE’s proposals ended up falling by the wayside.

Nevertheless, CADE is proving to be more concerned with the private antitrust enforcement, as further explained below.

However, as we shall demonstrate in the first part of this chapter, there are many questions yet to be answered before private enforcement takes off in Brazil. Basic questions such as who may file, when and how they may file, and what can be claimed may need to be clarified before plaintiffs feel comfortable initiating an extremely long and expensive recovery of damages. The second part of this chapter will report on the current status of the major private cases initiated in the past years. Finally, suggestions will be provided to address the lack of incentives to seek private antitrust enforcement in Brazil.

Questions yet to be answered

Standing to sue: who can seek private antitrust enforcement?

Right of standing to seek private antitrust enforcement in Brazil will depend on whether the action is collective or individual.

Collective actions may be filed by any of the entities with extraordinary standing to sue listed in article 82 of the Consumer Defence Code and article 5 of Law No. 7347/85, which governs the public civil actions. They are: the Public Prosecutor’s Office; the Public Defender’s Office; the federal union, the states, municipalities and the Federal District; the entities and the bodies belonging directly or indirectly to the public administration, including the regulatory agencies, state-owned companies, public foundations, and the mixed economy companies; and any civil association that has been legally established for at least one year and whose institutional goal is to defend the economic order, free competition or the rights protected by the Consumer Defence Code.

Those entities have standing to protect the ‘individual homogeneous rights’ of every private individual who may feel harmed by the anti-competitive practice. A right is ‘homogeneous’ if it arises from the same source of damage, as well as if there is a predominance of matters that are common to all the individuals involved in the claim, rather than to any specific individual matter.

Therefore, if the legal matters related to each private individual are different from one another and the origin of the damages caused to each of them is also different, then no homogeneity shall exist, and no right of standing shall be granted for the filling of collective actions.

So far, no major questions have arisen regarding rights of standing for collective actions, as long as the homogeneity exists. The same cannot be said with respect to individual claims. As mentioned above, article 47 of the NCA grants any individual harmed by anti-competitive practices the right to pursue and obtain private damages, notwithstanding the existence of investigation or administrative proceedings before CADE. Also, as a general principle of civil liability, anyone who causes harm to an individual, either through gross negligence or wilful misconduct, is obliged to make reparation.3

This means that, in theory, not only the competitors that have potentially been harmed by reduction of profits or loss of market share, but also direct purchasers (eg, clients) and indirect purchasers (eg, ultimate consumers) who paid excessive prices, could have simultaneous rights of standing, as long as they comply with the civil liability requirements (see below). Here is where questions start to arise.

There is no guidance, either in the case law or in the NCA, regarding the risk of multiple recovery involving direct and indirect purchasers, for example. Could a direct purchaser recover damages from the violator, even though it has passed on the excessive price further down the distribution line? This is an extremely relevant question because, as we will demonstrate below, the Brazilian legal system adopted the theory of direct and immediate causation, which means that if damages were not caused directly and immediately by the violator’s conduct, there is no duty to indemnify.

It will take some time until the Brazilian courts decide whether or not to apply the same approach adopted in the Illinois Brick4 case by the US Supreme Court. In this case, the Supreme Court basically limited the situations in which an indirect purchasing plaintiff can sue a price-fixing manufacturer, based on the pass-on theory (ie, based on the allegation that higher prices were passed on further down the distribution line). As we will see below, due to the civil liability requirements, it is not even clear whether this theory could ever be replicated in Brazil. If the conclusion is that this theory cannot be applied, courts will probably end up having to deal with the arduous task of measuring how much of price increase was passed on. The question is whether courts will find a way to comply with the civil liability requirements, without placing too much emphasis on the duty of direct and indirect purchasers to prove damages.

Statute of limitation: when should the claim be filed?

Individuals harmed by anti-competitive practices have the right to pursue and obtain private damages, notwithstanding the existence of an investigation before the antitrust agency. Evidently, those individuals might prefer to wait for CADE’s final decision and build a stronger case against the violator in court. However, antitrust investigations in Brazil usually take years (in many cases, decades), especially in the case of multiple defendants or if parties are seeking remedies before courts in an attempt to bar the investigation. This could potentially cause a clash with the statute of limitations periods.

The Brazilian Civil Code sets a term of three years to individuals or entities who want to seek recovery based on a civil liability claim.5 This issue becomes complex, however, with regard to what moment the limitation period clock should start ticking.

Article 189 of the Civil Code6 says that the rights of standing of an individual or entity seeking recovery start as soon as its substantive rights have been violated and will extinguish after the statute of limitations period. From a stand-alone analysis of this rule, the conclusion should be that the three-year term would start as of the day on which the individual or entity became aware of the damages he or she has suffered as the result of the violator’s anti-competitive practice. At this point one should be asking: if the individual or entity becomes aware that CADE started an investigation of certain illegal practices against, for example, a competitor, would this be enough to say that the individual or entity was aware of damages suffered? What if the individual or entity has brought a complaint asking CADE to investigate the violator? We do not have answers to these questions yet.

The issue is even more complex than that, however. This is because article 200 of the Brazilian Civil Code says that ‘when the claim arises as a result of an event that shall be investigated in the criminal courts, the statute of limitation will not run before a final decision [by the criminal courts]’. Since most of the anti-competitive practices listed in Law No. 12529/2011 can also be defined as criminal offences by Law No. 8137/1990,7 this could lead to the conclusion that the three-year term would not start until the final decision is rendered by the criminal court (which could also take years).

There are two different schools of thought interpreting article 200 of the Civil Code. The first says article 200 should not be applied in recovery cases related to antitrust practices. According to this theory, the sentence ‘shall be investigated in criminal courts’ refers only to situations where it is absolutely necessary to analyse the criminal implications of a certain fact before making any conclusion within the civil sphere. This would not be the case in recovery cases related to antitrust practices because administrative, criminal and civil measures could be taken simultaneously, since no prejudice will exist among them. The investigation initiated by CADE will not prevent criminal investigations by the public prosecutors, and such criminal investigation should not prevent private litigation. This school of thought therefore says the statute of limitation term starts as of the moment when the private individual becomes aware of the damages suffered as a result of the anti-competitive practice.

In contrast, the second school of thought interprets article 200 more broadly. This school says that, while the decision rendered by the civil court does not interfere in the result of the criminal investigation, the law grants the individual or entity the right to wait for the criminal investigation outcome, before deciding whether to file the civil claim against the violator. Consequently, according to this theory, the time limit of the statute of limitation as regards the civil claims would only start running after the final decision in the criminal sphere.

None of these questions have ever been tested in recovery cases involving anti-competitive practices. For that reason, a more conservative approach should be adopted by individuals or entities harmed by anti-competitive practices. Filing the claim within the three-year period after the individual or entity became aware of the anti-competitive practice would be the best strategy to avoid any questions related to statute of limitations defences.

Legal requirements: how must plaintiffs proceed?

In both collective and individual actions, parties seeking damages related to an anti-competitive behaviour must show three elements: an illegal action or omission performed by the violator; the occurrence of damages; and a relationship between the illegal act or omission and the damage suffered.

The illegal act or omission could be any conduct or behaviour performed by the violator that is prohibited by Law No. 12529/2011. Irrespectively of the existence of any prior decision rendered by CADE about the matter, it is up to the plaintiff to show that the violator effectively engaged in an illegal practice.

Damages could be any material loss suffered by the violator’s competitors (eg, reduction of profits or market share) or by its clients or consumers (eg, the excessive price paid for a given product or service), or even third parties related to the aforesaid entities. Curiously, it should not be enough for plaintiffs to make reference to CADE’s conclusions in order to comply with this requirement. Under the administrative sphere, it is enough that the alleged illegal practice has the potential to produce harmful effects to the economic order for CADE to convict the violator. With respect to the civil liability standard, the plaintiff must prove it has suffered a real damage, since, according to the Brazilian legal system, hypothetical damages are not recoverable.8 In practice, this means that a hard-core cartel could be convicted by CADE, even if it did not produce any harmful effects (eg, because participants cheated each other), but the same would not be true under the civil liability regime. At this point, it is not clear how courts will address these two different legal standards.

With regard to causation, plaintiffs must prove that their losses resulted directly from the unlawful act performed by the violator. As mentioned above, article 403 of the Civil Code9 adopted the theory of direct and immediate causation. If the damages were not caused directly and immediately by the violator’s conduct, there is no obligation to indemnify. Again, how strictly courts will apply this theory is yet to be answered.

The difference between collective and individual actions is procedural. Complaints filed by individuals or companies have a single phase, which means that all the three elements shall be demonstrated by the end of the evidentiary phase.

Collective actions have two procedural phases. During the first phase, it is up to the plaintiff to show that the violator performed an illegal practice. The decision rendered will be generic, attesting whether or not the illegal practice occurred. During the second procedural phase, each individual harmed by the illegal practice shall evidence the damages suffered, as well as the direct and immediate causation between the damage and the illegal practice performed by the violator.

Extension of the recovery: what can be claimed and how to prove damages?

As a general rule, the Brazilian civil liability system authorises the recovery of damages in order to compensate the plaintiffs,10 but not to punish violators. For that reason, any indemnification granted to individuals or entities harmed by anti-competitive practices should be limited to the damages effectively suffered by them.

This does not limit plaintiffs from requesting indemnification bearing punitive features. Indeed, some court precedents have accepted such requests, stating that the decision must have an exemplary nature in order to discourage recidivism by the violator. However, in cases in which the Brazilian case law has granted punitive damages for pain and suffering, the amount arbitrated has been substantially less than the amounts granted by US courts.11 To date, no punitive damages have ever been imposed in connection with anti-competitive practices.

Indeed, plaintiffs can claim for any sort of material loss suffered, including decrease in profits, market share or share value (in the case of competitors) or even the difference between the regular price and the higher price paid for a given product or service as a result of the illegal practice (in the case of direct purchasers or ultimate consumers).

The main challenge for plaintiffs will be to prove the occurrence of real damages. It is true that Brazilian procedural law grants plaintiffs a vast array of possibilities to produce evidence, including the presentation of documents, accounting or economic expert examinations and witnesses. However, the question will be whether court-appointed experts will have the necessary expertise to quantify such damages, making justices comfortable enough to convict violators. Given the lack of experience of judges, court experts and attorneys, we should expect disproportionate and non-standardised decisions.

Indeed, in the few private antitrust cases where courts have imposed the duty to indemnify, there is no clear path on how to quantify damages. Especially in collective actions, most of them refer to what the Brazilian doctrine calls ‘collective moral damages’, in addition to the effective material damage suffered by the group of private individuals. While the legality of such concept is highly controversial in Brazil, courts have made use of it, almost as a way to assure that the violator will pay some sort of indemnification, given the uncertainty and difficulties in arbitrating effective damages.

It will take some time until the Brazilian superior courts settle the most appropriate method to quantify and calculate damages derived from anti-competitive practices.

Recent cases in court

The lack of a centralised database makes it impossible to have a clear picture of the development of the private antitrust enforcement in Brazil. Many of the most prominent cases analysed by CADE in recent years have been taken to courts, though. Those cases are still pending a final decision by the courts, but will likely answer many of the open questions that may be discouraging other plaintiffs from seeking antitrust enforcement. Below is a brief discussion of these cases and how they can address some of the open questions.

Hermetic compressors – Electrolux v Whirlpool (individual action)

In 2009, Whirlpool signed a settlement agreement with CADE to close an investigation in the market of hermetic compressors. The case started after one of Embraco (Whirlpool Group)’s12competitors signed a leniency agreement, reporting an alleged cartel with effects in the US, Europe and Brazil.

Under the terms of the settlement agreement, Whirlpool agreed to pay 100 million reais to the Brazilian competition authorities, and pleaded guilty by stating that ‘[t]he Embraco Group [Whirlpool] assume, pursuant to article 129-G of CADE’s by-laws, the existence of contact between Embraco officials and competitors’ officials, with the exchange of commercially sensitive information, such as pricing and price increases, regarding the Brazilian hermetic compressors market, infringing article 20 of Law No. 8,884/94.

Electrolux, a direct purchaser of hermetic compressors from Embraco, and Whirlpool’s competitor in the home appliances market, filed a suit for damages based on Whirlpool’s guilty plea. Essentially, Electrolux claims the recovery of damages without the need to provide further evidence regarding the existence of the infringement. According to Electrolux, the only requirement to be proved should be the amount of harm suffered as a result of Whirlpool’s illegal practice.

This precedent shows the risks involved in signing a settlement agreement with the obligation to plead guilty. Certainly, the court will have to clarify whether or not a guilty plea made before CADE (in the administrative sphere) can be used against the defendant in a judicial claim (another issue that has never been decided in an antitrust claim). Further, the court will probably give a hint on the applicability of the pass-on theory, as well as provide some guidance on standards to calculate damages.

Industrial and medical gases (collective actions)

On 1 September 2010, CADE convicted several companies for cartels in the market of industrial and medical gases13 and, as a result, suits for damages have arisen.

On 29 September 2009, before CADE’s final decision, the Association of Hospitals of the State of Minas Gerais14filed a public civil action15 claiming recovery of damages arising from the anti-competitive practices perpetuated by the producers of medical gases. The court granted a preliminary injunction, in order to prevent the alleged violators from overpricing the medical gases, subject to a daily fine. The court also ordered an expert examination in order to quantify the extra price paid by the hospitals due to the illegal practices. The suit, which is running before the Belo Horizonte Lower Court, is still pending judgment.

More recently, on 2 March 2012 (after CADE’s final decision), the Federal Public Prosecutor’s Office filed a public civil action16, claiming for the recovery of damages suffered by the Brazilian Unified Health System. This claim is also pending judgment before Campinas Federal Lower Court.

Both cases are likely to evidence what will be the approach of courts in quantifying damages in collective actions. The precedents shall also set the standard for calculating individual damages during the second phase of the procedure, and possibly will demonstrate how strict courts will be in proving the direct and immediate causation between the damage and the illegal practice performed by the violator.

Industrial and medical gases (individual/collective action)

On 10 January 2011, the Sanitation Company of the State of São Paulo (Sabesp) also filed a claim against the producers of industrial and medical gases, claiming recovery of damages suffered not only by Sabesp, but also by its customer, as the result of the cartel. The case was dismissed by the lower court, due to a matter of Sabesp’s lack of standing to file a public civil action claiming collective damages. According to the decision, the correct injunction for Sabesp would be an individual claim. Sabesp appealed against the decision and the claim is awaiting the review by the Federal Court of Appeals.

This case will provides some important guidance on the extent to which mix-economy companies, like Sabesp, can claim collective damages on behalf of its customers.

Cement and ready-mix concrete (collective action)

The Public Prosecutor’s Office of the State of Rio Grande do Norte has filed a public civil action for the recovery of damages in the amount of 5.6 billion reais, as a result of the alleged cartel in the cement and ready-mix concrete markets. The case is still under analysis.

The claim filed by the Public Prosecutor’s Office of the State of Rio Grande do Norte,17 among other issues, shall provide an important guidance regarding the extent to which a state prosecutor’s office can recover damages suffered by individuals located out of its jurisdiction. Part of the doctrine and case law says that the effects of a possible conviction should be limited to the state of Rio Grande do Norte.

The same matter was also reviewed by CADE,18 which convicted several companies for cartel and imposed fines amounting to 3.1 billion reais.

Underground railway and train projects (collective action)

In 2013, Siemens Ltda. and Siemens AG had signed a leniency agreement with the GS, reporting their participation in an alleged cartel in public bidding related to projects for underground railways and trains and auxiliary systems. In March 2014, the GS initiated an administrative procedure19 to investigate the cartel, which is still being analysed by the GS (the administrative procedure is sub judice).

The Public Prosecutor’s Office of the State of São Paulo has filed a public civil action for the recovery of diffuse and collective moral damages in the amount of 576.5 million reais, as a result of the alleged cartel in public bidding related to the market of projects of subway and train and auxiliary systems. This claim is also sub judice and pending judgment.

Boosting private enforcement in Brazil

From what has been said, it is possible to say that private enforcement is becoming a reality in Brazil and this topic cannot be left out of the agenda of any company doing business in Brazil. Additionally, sooner or later, many of the open questions will be addressed by the Brazilian courts. However, we believe that CADE could take a more active and effective role in creating incentives for private enforcement and expedite this process.

Recently, the European Commission has adopted a proposal for a directive on how individuals and companies can claim damages derived from anti-competitive practices in violation of the EU antitrust law. The proposal suggests a number of measures to facilitate damage claims, including specific rules on limitation periods, granting victims the right to claim damages once an infringement has been found by a competition authority; clarification regarding situations in which the damage is ‘passed on’ along the distribution or supply chain; and rules to facilitate consensual settlements, allowing a faster and less costly resolution of disputes. The Commission also adopted a Communication on quantifying damages resulting from anti-competitive practices so as to provide guidance to courts and parties.

Although CADE does not have yet any legislation or guidelines in the same sense, in the recent Cement judgment that took place on 28 May 2014, Commissioner Márcio de Oliveira Junior dedicated a specific point of his decision to talk about private enforcement, affirming that when the victims are not indemnified, the reparation of the damages caused by cartels is not complete.

For this reason, and recognising that the Brazilian legal culture is still not used to private antitrust enforcement, the commissioner determined that the decisions issued on the case, as well as all useful evidences for private enforcement shall be sent and disclosed to interested parties, which might include builders’ merchants and associations, governmental agencies hiring engineering services (principally sanitation and entertainment works), and also popular housing projects.

Also, the commissioner included an exhibit in its decision, estimating the damages caused by the cartel and aiming to support the private claims for damages. In the document, the commissioner provided a methodology for his estimate of the damages, which was based on the damages involved in a large number and range of projects conducted by both the Brazilian government and private parties, including: (i) housing programmes; (ii) transportation and infrastructure (highways and bridges) projects; (iii) constructions of sources of energy (hydropower plants, nuclear plants and wind farms); and (iv) buildings related to the promotion of culture and entertainment, such as museums, shopping malls and the football arenas built for the World Cup.

It is expected that a new discussion will arise in the event that CADE does disclose confidential investigation documents to interested third parties. This is a case that deserves full attention in the future, considering that it could initiate a new trend of private enforcement in Brazil.

Notes

  1. The law was passed on 30 November 2011 and came into force on 29 May 2012.
  2. Public Consultation No. 14, dated as of 28 September 2011.
  3. See articles 186, 187 and 927 of the Brazilian Civil Code.
  4. 431 US 720 (1977).
  5. Article 206, section 3, V, of the Civil Code: ‘The statute of limitation for civil redress is three years.’
  6. Article 189 of the Civil Code: ‘The violation of a right creates a claim to the holder of the right, which is extinguished by the statute of limitation periods referred to in articles 205 and 206.’
  7. Article 4 of Law 8.137/90 states that: ‘A crime against the economic order may occur in case of:
       abuse of economic power, by dominating the market, or by fully or partially eliminating competitors
      by means of any kind of agreement between companies;
       entering into agreements, covenants, adjustments or alliances between suppliers with the scope of:
         (a) artificially setting prices or quantities to be sold or produced;
         (b) controlling regionalised markets, by a company or group of companies;
         (c) controlling, in detriment of the competition, of a distribution chain or reseller’s network.
    Penalty – a jail term ranging between two and five years and pecuniary fine.’
  8. ‘Articles 1,059 and 1,060 require “effective” damages as the underlying duty to indemnify. As a result, the damages caused must be manifest, actual and subsisting. Hypothetical damages are uncertain, eventual and they may or may not happen. The principle of actuality requires that the damage must have been determined to have caused. Subsisting is the kind of damage that has not yet been redressed. If the damage proves to be inexistent, said damage is not certain either, and therefore, no indemnity would be payable…The duty to redress presupposes the existence of damages, and without damages no indemnity shall be due. Risk of damages is not enough. Unlawful conduct is not enough. Without a concrete circumstance, which may be damaging to economic or moral assets, there can be no duty to redress.’ (Superior Court of Justice. Special Appeal No. 965.758, Reporting Justice Nancy Andrighi, judged on 19 August 2008.) ‘There is no such thing in Brazilian law as presumed damages. Any postulation as to losses and damages must be backed on actual proof of injury, without which the agent must be absolved in any civil liability lawsuit filed against him…In this fashion, damages must be concrete, that is, they must be real and effective, and one may not conceive a request to redress eventual or hypothetical damages.’ (Alonso, Paulo Sérgio Gomes; Pressupostos da responsabilidade civil objetiva; São Paulo: Saraiva, 2000, pp128–129.)
  9. Article 403: ‘Even if the failure to execute may arise from the negligence of the debtor, losses and damages may only comprise effective damages or the stoppage of profits arising directly and immediately from it, without prejudice to any legal provisions.’
  10. Article 944 of the Civil Code: ‘An indemnity shall be measured by the extent of the damage.’
  11. ‘By this token, even though there has been a breach of the agreement, which has been acknowledged by the regular courts, the situation that has been described in the records did not add greater consequences to the consumer’s psychic or emotional sphere, so that the setting of damages for pain and suffering of 5,000 reais, and legal fees of 1,000 reais, accomplish in this case the pedagogic and punitive function by discouraging the violator from recidivism, without, on the other hand, constituting undue enrichment.’ (Superior Court of Justice. Internal Appeal No. 46.590-SP, Reporting Justice Sidnei Beneti, decision issued on 18 October 2011.)
  12. Whirlpool is vertically integrated in Brazil, producing hermetic compressors and home appliances that use such compressors (eg, refrigerators).
  13. Administrative Proceeding No. 08012.009888/2003-70. Claimant: Secretary of Economic Law ex officio. Defendants: Indústria Brasileira de Gases Ltda, White Martins Gases Industriais Ltda, AIR Products Brasil Ltda, AIR Liquide Brasil Ltda, AGA SA and others. The convicted companies were obliged to pay the largest fine yet imposed as a result of cartel behaviour, amounting to 2.94 billion reais. On 22 September 2010, CADE reduced the fines previously imposed, and the new amounts imposed on the companies became equivalent to 2.33 billion reais.
  14. The association was representing several direct purchasers of medical gases.
  15. Public Civil Action No. 7099345-90.2009.8.13.0024. 28th Civil Court of the Court of Minas Gerais.
  16. Public Civil Action No. 0002983-48.2012.4.03.6105. 3rd Federal Court of Campinas.
  17. Public Civil Action No. 0105302-66.2012.8.20.0001. 3rd Civil Court of Natal
  18. Administrative Proceeding No. 08012.011142/2006-79. Claimant: Secretary of Economic Law ex-officio. Defendants: National Union of Cement Industry – SNIC; Brazilian Association of Cement Portland – ABCP; Brazilian Association of Ready-Mix Concrete Companies – ABESC; Companhia de Cimento Itambé, Empresa de Cimentos Liz SA, Itabira Agro Industrial S/A, Lafarge Brasil SA, Cimpor Cimentos do Brasil Ltda, Holcim do Brasil SA, Camargo Corrêa Cimentos S/A, Votorantim Cimentos SA and others. The companies were convicted on 28 May, although the decision is pending publication.
  19. Administrative Proceeding No. 08700.004617/2013-41.

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