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On 30 November 2011, Law 12,529/2011 was formally enacted by the President after more than seven years of discussions. Such law came into force in May 2012, replacing Law 8,884/94. One of the most significant changes introduced by the new Law was the pre-merger review system, together with significant changes in the institutional design of the authorities’ review. The new law also brought some changes with regard to administrative proceedings related to anti-competitive practices (ie, cartels, resale price maintenance, price discrimination and others). And above all, the new law has allowed CADE to institutionally refocus its activities to those matters of greater relevance to the competition environment, such as local cartels and abuse of dominance claims.
In terms of its repressive role, CADE aims to investigate and punish violations of the economic order. The Brazilian Antitrust Law defines an anti-competitive conduct as any act intended or otherwise able to produce the effects provided in article 36, even if any of such effects are not achieved and regardless of fault.
The referred section also exemplifies conducts that may be deemed infringements to the economic order, including:
• agreements among competitors;
• 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, among others.
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 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.
An important change in the Brazilian Competition Law concerns the fines imposed on companies convicted for anti-competitive conducts – including cartels. The new fines range between 0.1 and 20 per cent of the company’s – or group’s – gross revenues in the financial year preceding the beginning of the authority’s investigation, being limited to the ‘business segment’1 in which the conduct occurred. The executive members of the company are liable to a fine ranging from 0.1 to 20 per cent of the fine imposed to the company.
In this regard, among the administrative proceedings decided by CADE in 2013 and 2014:
• eight applied the criteria of the company’s gross revenue in the ‘business segment’ of the conduct to determine the fine to be imposed;
• five of them applied the criteria of the company’s gross revenues to determine the fine to be imposed, considering that, in most cases, the rational to consider the gross revenue was that the company does not have the information segregated by ‘business segment’;
• five of them applied both criteria to determine the fine to be imposed in the same administrative proceeding for different defendants; and
• nine of them simply applied the criteria of the company’s gross revenues to determine the fine to be imposed without further clarification on this.2
The new law also provides for two specific instruments aimed at restricting anti-competitive practices: the leniency agreement and the settlement agreement. First, the leniency programme allows companies and individuals that have infringed competition rules to cooperate with the authorities on the investigation of anti-competitive practices – especially cartels – in exchange for total or partial immunity from administrative penalties, as well as criminal immunity negotiated with the Public Prosecutors. In this case, the leniency applicant shall identify the parties involved in the conduct and fully cooperate with the authorities, 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. Also, the imposition of harsher fines by the authority plays a key role in this regard, enhancing the importance of the Brazilian leniency programme. And immunity from criminal prosecutions has also encouraged directors and employees to take a step towards leniency applications. Official sources indicate that 10 leniency agreements were negotiated with CADE in 2012, one in 2013 and six in 2014.3
Another important mechanism to settle cartel cases is the cease-and-desist commitment (also known as the TCC). According to article 85 of Law 12,529/2011, CADE may negotiate commitments with defendants to cease the conduct under investigation or cease producing the harmful effects, whenever CADE believes – based on its own circumstantiated judgment on the advisability and opportunity of such proceeding – that the commitment meets the interests protected by the Brazilian Antitrust Law. Regarding that aspect, CADE has enacted new rules (Resolution No. 5/2013) for the negotiation of cease and desist agreements.
According to these new rules, besides admitting participation in 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 Defence of Diffuse Rights. Also, there are four predefined percentage ranges of discounts for pecuniary contribution, which vary according to the level of cooperation and the moment of submission of the proposal by the defendant. The first defendant to come forward and execute a TCC shall have a discount ranging from 30 per cent to 50 per cent of the applicable fine; the second from 25 to 40 per cent; and from the third onwards, the discount shall not be higher than 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 applicable fine.
Although this measure aims to provide greater predictability, it remains to be seen whether it does create the proper incentives for the execution of this type of agreement. It shall be noted that, in cases involving collusive conduct, the requirement of a confession may hold back the company’s decision to move forward with the agreement as it may facilitate damage claims before the courts. Such claims, although incipient, will tend to increase within the coming years as procedural rules evolve.
It is worth mentioning that the pecuniary contribution of the TCC should also be calculated based on the ‘business segment’ criteria. However, in Settlement Agreement No. 08012.002568/2005-51, the reporting commissioner Ana Frazão has mentioned that the monetary contribution has considered, among other aspects, the relevant market involved in the conduct, and has not considered the ‘business segment’. In Settlement Agreement No. 08012.008850/2008-94, CADE calculated the monetary contribution based on the company’s gross revenues. And finally, in Settlement Agreement No. 08012.008821/2008-22, the General Superintendency adopted the market of medicines for public institutions in general to calculate the pecuniary contribution, which is not a ‘business segment’ provided by Resolution No. 03/2012. Thus, some flexibility on the adopted criteria has been verified for the purposes of TCC negotiation. CADE executed 53 cease-and-desist commitments in 2013; 36 in 2014 and, up to May 2015, 27 TCCs.4
As previously mentioned, Brazilian competition law has been more dedicated to cartel prosecution than it used to be in its former years. In 2014, CADE rendered decisions in 57 cases of anti-competitive conduct, of which 39 resulted in the conviction of the involved parties. By May 2015, CADE had rendered decisions in 21 cases, of which 17 were convicted. Most of the cases convicted in 2014 and 2015 referred to cartel cases. In addition, the Brazilian Authority raised more concerns, related to bid-rigging cartels.
Among CADE’s main investigations is the alleged bid rigging on the acquisition of trains and construction of metro lines (Operation Cross-line).5 The investigation was initiated due to a leniency agreement, and search and seizure procedures were performed in 13 companies located in Brasilia (DF) and in Diadema, Hortolandia and São Paulo (SP). CADE is also investigating an alleged cartel involving Petrobras bids, which was also initiated by a leniency agreement and is currently in the initial phase.
These are certainly among the biggest investigations CADE has ever conducted, and involve a challenging cooperation and interaction network among different legislations and authorities, given the fact that corruption infringements are also alleged exposing CADE’s ability to manage complex cases.
CADE’s recent case law
Several relevant cases have been decided by CADE within the past year, some of them clarifying a number of non-responded issues provided by the new legislation. On 7 August 2014, CADE imposed on pharmaceutical laboratory Merck a fine of 4.295 million reais for the formation of a cartel to prevent the sales of generic medicines.6 The case concerns the residual arm of the generics cartel whereby several laboratories were condemned a few years ago, but which, coincidentally, has just been reverted by the courts, as mentioned below.
On 10 December 2014, CADE condemned 11 manufacturing companies of orthopaedic orthotics and prosthesis for a cartel that operated in public procurements held by the National Institute of Social Security, in the state of São Paulo. The tribunal has also condemned the Brazilian Association of Technical Orthopaedics for the development and diffusion of a price table to its affiliates. Fines applied added up to 2.2 million reais. Besides the fines imposed, the companies were prohibited to take part in public procurements held by the federal state, municipal administration, by the Federal District, and by entities of the indirect public administration for a five-year period.7
From the cases decided by CADE in 2014, the most relevant one was the conviction of the cement cartel case.8 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, was concluded in November 2011. The former Department of Economic Defence 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 by a 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 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.
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 as the convicted companies. Such measure adopted by CADE is aimed at promoting entry of new players into the affected market.
Thus, on 28 May 2014, CADE’s tribunal decided on 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 conduct of the companies was 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.
CADE also condemned the companies involved in the marine hoses international cartel on 25 February 2015 for the effect produced on the country. The fines imposed were 13.5 million reais.9 According to the reporting Commissioner, the cartel activities represented significant damages to the Brazilian market. He explained that marine hose customers paid much higher prices than the expected market prices under a competitive framework.
More recently, on 9 April 2015, CADE condemned six companies that combined results in two local public bids held in 2010, aimed at the contracting of traffic support services, signalling, monitoring, maintenance and supervision.10 In this case, the General Superintendency uncovered an amicable environment for conversations and information exchange among the parties charged, proving that the companies had partners and representatives in common or with a family relationship between them. These behaviours are internationally recognised as bid-rigging indicatives, according to a study developed in 2009 by the Organization for Economic Co-operation and Development.
Also, on 20 May 2015, CADE condemned 27 gas stations and nine individuals for cartel formation in the fuel market in the metropolitan area of Vitória, in the state of Espírito Santo. The anti-competitive practices occurred between 2006 and 2007. In total, fines imposed add up to approximately 65.7 million reais.11
And more recently, in April 2015, CADE condemned several companies for cartel formation in bidding processes held by the Basic Sanitation Company of the State of São Paulo for the execution of constructions in the Santos Metropolitan Region 4.12 The fines applied add up to 19.6 million reais.
With regard to cease and desist agreements in cartel cases, on 11 February 2015, CADE signed six agreements in cartel investigations. In total, 53.1 million reais was collected to the Fund for the Defence of Diffused Rights. Four of these TCCs were related to two proceedings investigating a cartel in the market of cathode ray tubes for television and computer monitors.13 One of the TCCs was related to a cartel investigation in the market for the provision of international air and sea transport services from and to Brazil.14 The last one was signed in the context of the international cartel investigation in the market of dynamic random access memory.15
Three agreements were also signed on 25 March 2015, relating to a cartel investigation in the Brazilian market for residential, commercial or industrial electricity consumption meters. The companies and individuals involved committed to collect pecuniary contributions for the Diffused Rights Fund.16
Another noteworthy point is that some of the key decisions granted by CADE on cartel infringements have been scrutinised by the judiciary courts. In this regard, a recent decision of the Appeals Court in Brasilia declined to reinstate cartel fines against several pharmaceutical companies. CADE was aiming to reinstate fines imposed in 2005 on these companies for blocking distributors to handled generic alternatives, which were subsequently annulled by a first-instance judge. However, the court was not convinced that CADE had enough evidence to convict the pharmaceutical companies of a cartel offence. The judges had concluded that the main – and only – piece of evidence used to support a conviction was fragile and insufficient to show that companies had infringed the law. The outcome of the case is useful for shedding light on the standard of proof CADE needs to meet to sanction companies.
The prosecution of cartels is clearly a priority for the Brazilian competition authorities, particularly the prosecution of bid riggings. Also noted is the concern that CADE has developed in prosecuting local cartels which have a stronger impact on the Brazilian economy, and which often is combined with corruption issues, giving CADE a complex and challenging cooperative approach with other authorities.
It can also be observed that CADE is imposing harsher fines, not only in view of the severe damage caused by cartels to the country’s economy, but also with a dissuasive purpose.
As a consequence, it is expected that more companies will look to the authorities for the execution of leniency agreements, thus increasing the number of investigations CADE is able to conduct. This trend has already been noted in CADE’s numbers, with the great majority of launched investigations resulting from leniency agreements.
Another noted fact is the increasing number of cease-and-desist commitments, which result from more clarity on the rules for negotiation provided by CADE’s recent regulation on the matter.
The authors would like to thank Fernanda Harari, who played a key role in preparing this article.
- CADE has enacted Resolution No. 3/2012 providing for a list of ‘business segment’ that should be considered to apply article 37 of Law 12.529/2011.
- RDC, Vol. 3, No. 1, Maio 2015, pp. 161-180.
- Information obtained from CADE’s annual reports and statistics, available at www.cade.gov.br/upload/Balan%C3%A7o%203%20anos%20nova%20lei-atualizado.pdf and www.cade.gov.br/Default.aspx?f132f23dc342c267fd5ff4.
- Information obtained from CADE’s annual reports and statistics, available at www.cade.gov.br/upload/Balan%C3%A7o%203%20anos%20nova%20lei-atualizado.pdf.
- Administrative Proceeding 08700.004617/2013-41.
- Administrative Proceeding 08012.005928/2013-12.
- Administrative Proceeding 08012.008507/2004-16.
- Administrative Proceeding 08012.011142/2006-79.
- Administrative Proceeding 08012.010932/2007.
- Administrative Proceeding 08012.008184/2011-90.
- Administrative Proceeding 08012.008847/2006-17.
- Administrative Proceeding 08012.009885/2005-21.
- Administrative Proceedings 08012.002414/2009-92 and 08012.010338/2009-99.
- Administrative Proceeding 08012.001183/2009-08.
- Administrative Proceeding 08012.005255/2010-11.
- Administrative Proceeding 08700.008413/2014-60.