Peru: National Institute for the Defence of Free Competition and the Protection of Intellectual Property

The National Institute for the Defence of Free Competition and the Protection of Intellectual Property (INDECOPI) continued in 2016 with the consolidation of its agenda on defence of free competition, which has been focused in the battle against cartels. Consequently, several sanctioning proceedings against agents who affected Peruvian antitrust law were started and concluded last year. The most significant cases that were decided were linked to the health sector - a sector of particular interest to the Peruvian competition agency. Furthermore, in 2016 the Leniency Program Guidelines Draft was published, which aims to make the rules of the leniency programme more predictable, in order to attract more applications and thereby to detect more cases of collusion. Applications for leniency increased in 2016 to a historic record of four and, most notably, most of them were related to local cartels. In the same vein, INDECOPI wants to provide greater transparency in its activities to promote competition, which is why it has approved its Market Studies Guidelines.

Cases decided

In 2016, the Commission for the Defence of Free Competition of INDECOPI (the Commission) decided, among others, cases involving the health market. The first, known as the ‘pharmacy cartel', involved five chains of pharmacies, which represented 72 per cent of sales of pharmaceuticals nationwide.

The Commission imposed total fines of US$2,641,992.95 on the grounds that permanent coordination took place among the chains aimed at increasing the prices of, at least, 36 pharmaceuticals and related products of different brands, on specific dates between January 2008 and March 2009. The products under the scope of the coordination were mostly sold only under medical prescription, so they were very difficult to replace by the affected consumers. Other products included nutritional supplements, which are generally consumed by babies, children and the elderly.

This price-fixing scheme had a negative impact on consumers, owing to the fact that - during the period under investigation - 88 per cent of the expense on medicines by the Peruvian population was incurred in private pharmacies, while the remaining 12 per cent corresponded to spending at public or private hospitals.

This is the first case in which the Commission, following a recommendation by the investigating authority, imposed on the offending companies the adoption and execution of an antitrust compliance programme for a period of three years. The development of this corrective measure, which has the purpose of preventing future infringements, will be supervised by INDECOPI.

The Technical Secretariat considers that such measures allow the identification of risks of infringement of the competition rules and to effectively implement measures to counter such risks, in addition to generating a culture of competition among the company's personnel in order to avoid recidivism.

The decision was not challenged by four out of five of the companies sanctioned. Only one of them brought an appeal to the Tribunal of INDECOPI (the second and definitive administrative instance) and it is still pending a final decision.

Earlier in 2016, the Commission fined 34 companies that provide haemodialysis (and two of its employees) approximately US$2 million after verifying that they were colluding to rig prices in five procurement processes called by the state between 2010 and 2012.

The state public procurement rules compel the entities to request price quotations from potential service providers, in order to establish a reference value for the public tender. This reference value affects the final price that will be paid to the winners of the contest, as it generally constitutes the maximum price they can bid. The strategy used by the companies was to coordinate the amount of their quotations so that the reference value increased and they could receive higher payments from the state.

The Commission was categorical in pointing out that any coordination by competing agents that seeks to have an impact on the determination of the price of goods or services offered in the market, such as an agreement on the quotations presented to a public entity, constitutes price fixing and should be sanctioned. This decision has been appealed before the Tribunal of INDECOPI and is still pending a final decision.

Initiated proceedings

The strategy of increasing dawn raids when indications of collusion arise, the use of IT forensic tools for the collection and processing of evidence,¹ and a decided dissemination of the leniency programme, has allowed the Technical Secretariat to find evidence of collusion and, therefore, to start sanctioning procedures in relevant sectors, such as:

• natural gas for vehicles in Lima and Callao, as a consequence of indications of an agreement among competing service stations on prices and commercial promotions between 2011 and 2015. Currently, 66 companies and 30 of their officials are being investigated. Consumption in these cities represented, on average, 97 per cent of the total consumption of natural gas for vehicles nationwide; and
• the diesel and liquid fuel markets in Chimbote city (in the north of the country) due to preliminary evidence of price agreements between 2012 and 2015. Currently, 26 companies and eight of their employees are being investigated. The alleged agreement would reveal coordination among competitors through an association of fuel stations.

We must emphasise the toughening of the Technical Secretariat's policy of cartel prosecution through the prosecution of individuals involved in such cases. The investigating authority is clear that it should continue with this policy in order to discourage individuals from carrying out this type of illegal conduct within their organisations.

Leniency programme

The draft of the Leniency Program Guidelines published for comment by the Technical Secretariat have the purpose of giving greater predictability to future applicants about the rules applicable to the programme. Important comments have been received from various specialists, law firms and organisations, such as the American Bar Association and the International Bar Association. This document is currently under discussion by the Commission, which is expected to approve a definitive version of the Guidelines this year.

The publication of the aforementioned draft also demonstrates the interest of the competition agency in making its guidelines as transparent as possible, as well as involving the public and the academic community in this process.

It is worth mentioning that the greatest number of leniency applications was recorded in 2016. Four applications were received, which is the highest figure in the history of antitrust enforcement in Peru. What is most remarkable is that the majority of such applications correspond to local companies, which may break a generally accepted myth that the ‘local culture' is not compatible with programmes of this type.

Competition advocacy

The promotion of more competitive markets is one of the main tasks on the competition agency's agenda. One instance of recent work in this area is the recommendation of the Commission to the provincial municipality of Urubamba (southern Peru) to promote competition in the transport of tourists service market (to the Inca fortress of Machu Picchu) by choosing providers by tendering processes. This is because the current operator of such route would not have a valid contract that allows it to operate. The Commission further stressed that, for the purposes of the tender, there must be transparent and objective rules established (for example, a rule that establishes that none of the participating companies can be composed of officials or companies of the municipality of Urubamba). The municipality has accepted this recommendation and has committed to carrying out a public bid to choose a new operator of the route, which must compete to provide this service.

Moreover, the Commission approved the Market Studies Guidelines, which was jointly developed by the OECD, INDECOPI and several competition agencies in Latin America (Chile, Colombia, Costa Rica, Mexico and Panama). The Market Studies Guidelines seek to explain to interested parties (companies, consumers, etc) what the market study consists of, its importance in the advocacy actions carried out by the Commission, the possible results that can be derived from them, the selection and prioritisation criteria of the markets, the different stages of the research, and the way in which they can participate.

Finally, in order to contribute to the dissemination of the free competition rules, the Techincal Secretariat has developed an educational video that can be found at www.youtube.com/watch?v=_z2QV2sDp74.

Future agenda

The proceedings initiated and decided have shown the authority ‘showing its teeth' when prosecuting cartels. The investigation, prosecution and sanctioning activities developed by the competition agency have encouraged many companies to ‘accelerate' their implementation of compliance programmes, which undoubtedly contributes effectively to the prevention of anticompetitive behaviour. The competition agency takes a positive view on the self-regulating efforts of such companies.

A good compliance programme helps to correct distortions or avoid risks of non-compliance with the rules of free competition. As the saying goes, ‘an ounce of prevention is worth a pound of cure'. The competition agency wants to contribute to this purpose, and its future agenda includes approving Compliance Program Guidelines.

Furthermore, for the first time in Peru a case has been decided as a consequence of a leniency application: the ‘toilet paper cartel'. The discovery has made it possible to disrupt the longest-running cartel that has been recorded in Peru (10 years), consequently preventing future coordinated increases in prices, which would mean several millions of soles (Peruvian currency) being imposed on consumers. Even with the discount granted to the collaborating parties, in this case the Commission also imposed the highest fine ever in Peruvian antitrust enforcement history.

Notwithstanding its positive significance, this case has also generated some opinions contrary to the leniency programme, considering it excessively benevolent with offending companies. Because of their damaging nature, we all would like cartels to be detected and sanctioned without mercy. However, dispensing with the benefits of a tool such as the leniency programme is a luxury that not even more experienced competition agencies from countries with relevant history in the prosecution of cartels can have. In that sense, the competition agency has the enormous task of defending the leniency programme from some politically motivated legislative initiatives aimed at eliminating or reducing the benefits of the programme because of its ‘lack of popularity'. It remains a task for INDECOPI to explain how the programme effectively contributes to the detection and sanction of cartels that otherwise would remain active and unpunished.

Finally, in what is left of this year, INDECOPI expects to conclude cases of collusion that the Technical Secretariat has initiated in the past months, as well as approving a definitive version of the Leniency Program Guidelines and also to issue a new advocacy observing the rules established in the recently approved Market Studies Guidelines.

Notes

1.  In 2013, 27 companies were raided; in 2014, 49; in 2015, 124; and in 2016, 131.