Highlights of Brazil

Author: Flávia Chiquito dos Santos
Sonia Marques Döbler Advogados

Free Competition is the constitutional principle, regulated by art. 170, clause IV, of the Federal Constitution (CF), whose purpose is to protect the market system, restraining the "economic power abuse that aims at market control, competition elimination and arbitrary increase of profits" (art. 173, 4th paragraph, of the CF). Therefore, it is the State's duty to care for the prevention/restraint of abusive practices performed by market agents with dominant status when such practices may adversely affect the free competition.

The market economies, being supported by the Free Competition principle, provide lower prices to consumers, as well as higher diversity in the choice of products and also stimulus to investments in innovation, resulting in a better use of the community's funds and, consequently, expanding the market welfare.

In these terms, the State will intervene in the economy to restrain abusive practices performed by economic agents with a dominant position in order to guarantee free competition to the community and to the consumer's welfare.

27.1. Law nr. 8.884/94

a)_Development
In order to ensure the due compliance with the constitutional rules which aim at protecting the free competition, it was necessary to create a System with sufficient structure to inspect the economic order and prevent anti-competition or abusive practices.

For such a purpose, and with the strong influence of the US regulations, the first Brazilian antitrust law was created, i.e., Law nr. 4.137/62, which was effective for almost 30 (thirty) years. However, its application was very remote, since the institutional structuring created by it was practically inoperative. Therefore, Laws nrs. 8.002/90 and 8.158/91 were published, which made the performance aimed by the antitrust policy more effective. In 1994, however, Law nr. 8.884/94 was edited, which is the current antitrust law, and since then the rules of law in defense of competition prevailed in the country's institutional agenda.

The discussions about this theme have evolved on a regular basis as result of the uniformization of jurisprudence and by the execution of agreements and of covenants with several institutions, particularly in regards to greater cooperation with foreign jurisdictions, shared experiences with which have greatly contributed toward the achievement of better results in the prevention and in the repression of abuses of the economic power.

It should be stressed that markets that are governed by consistent, transparent, harmonic rules, which, to the greatest extent possible chime with other jurisdictions the world over. These markets are attractive to foreign investors who need to feel secure that they will be installing themselves in a country endowed with an efficient and evolved system protecting competition, a situation which allows their investments to be made in a safe and predictable environment.

b) CADE, SDE and SEAE
The Brazilian System of Competition Defense (SBDC) is made up of 3 (three) bodies, with distinct functions, i.e., the Administrative Council for Economic Defense (CADE), the Secretariat of Economic Development (SDE) and the Secretariat for Economic Monitoring (SEAE).

CADE, incorporated in 1962, is a body vested with powers to issue decisions on matters related to the defense of competition in Brazil and had its powers increased with the publication of Law nr. 8.884/94 that granted it higher autonomy by transforming it into a Government Self-Regulatory Body linked to the Ministry of Justice. CADE is the major body in charge of the protection of free competition in Brazil, with powers to direct, inspect, prevent, restrain and assess abuses of economic power according to the provisions of the Antitrust Law. CADE plenary consists of 1 (one) Chairman and 6 (six) Members with a 2-year term of office, and who may be reelected only once for a equal period of time. It also has its own Attorney Office (ProCADE), consisting of 1 (one) Attorney General appointed for a 2 (two)-year term of office, which may be extended for 2 (two) years more, and District Attorneys of the Brazilian Federal Attorney's Office.

CADE's performance is assisted by SDE and by SEAE. The first one is linked to the Ministry of Justice, in charge of the formulation, implementation and supervision of the protection and defense policies of competition and of the consumer. In the scope of competition defense, SDE is in charge of investigating the existence of anti-competitive behaviors as well as to issue a nonbinding legal opinion on competition aspects of Acts of Concentration for further analysis and judgment by CADE.

SEAE, in turn, as a body linked to the Ministry of Finance, has 3 (three) performance areas, to wit: The Promotion and Defense of Competition; Economic Regulation; and Market Monitoring. SEAE, like SDE, must issue a nonbinding economic opinion on competition aspects regarding Acts of Concentration for further analysis and judgment by CADE. With regard to anticompetitive conducts, SEAE may issue an opinion on the matters of its competence before the proceeding is submitted to CADE for analysis.

c) Extraterritoriality

As provided for in the article 2, Law nr. 8.884/94:

"This law is applicable, without prejudice to the agreements and treaties to which Brazil is signatory party, to the practices conducted in the whole or part in Brazil or that have or may have any effects in Brazil.
§ 1 A foreign company which operates or has a branch, agency, subsidiary, offices, facilities, agent or representative in Brazil shall be deemed as domiciled in Brazil. (Wording provided by Law nr. 10.149, as of 21.12.2000)
§ 2 The foreign company shall be served process, regardless of a power-of-attorney or contractual or statutory provision, in the name of the person in charge of its branch, agency, subsidiary, facilities or offices located in Brazil. (Wording provided by Law nr. 10.149, as of 21.12.2000)" (Indication marks by me).

As per the legal provision, in addition to the territoriality principle, the Brazilian antitrust law also admits the principle of effects, as the Brazilian jurisdiction is competent to judge foreign restrictive practices that have had effects in the Brazilian territory or may have effects in the Brazilian territory. Therefore, Brazil will have competent jurisdiction even if the considered effects are prospective.

d) Controls: Preventive, Repressive and Educational

Firstly, CADE has 3 (three) major roles, to wit: the preventive control, the repressive control and the educational control.

The Preventive Control corresponds to the analysis of the Acts of Concentration, including amalgamations, mergers and associations, as provided in article 54 et. seq. of Law nr. 8.884/94. Such Acts of Concentration are private legal transactions among companies that, once subject to the criteria of compulsory submission, must be analyzed by CADE for determining if there is the possibility of such Acts of Concentration to adversely affect or restrain the free competition. Accordingly, CADE may, at its own discretion, impose behavioral or structural obligations on the companies as a condition precedent for approval, provided that non-approval of the transaction is also possible if it is found in the analysis by CADE more losses than efficiencies originating from such transaction.

The Repressive Control corresponds to the analysis of the infringing conducts relative to competition. Those anti-competition conducts are provided in art. 20 et. Seq. of Law nr. 8.884/94 and in CADE's Resolution 20. Art. 21 of the same law provisions an example and non-exhaustive list of the conducts which may be harmful to the market, when performed by agents with market power such as cartels, tie-in sales, predatory pricing, exclusivity agreements, among others.

CADE's educational role, in its turn, is focused on the dissemination of the free competition culture, notably, in the development of an antitrust policy as a form of implementing a public policy by means of partnerships with governmental bodies and institutions, resulting in the consolidation of concepts, increasing academic interest for this area, promotion of the competition policy to the community and to the technical improvement of decisions.

27.2. Act of Concentration

Art. 54, Law nr. 8.884/94, provides that "any kind of transaction that may limit or anyhow damage the free competition or result in the control of relevant markets of goods and services must be submitted to CADE for analysis".

So, CADE has the role of analyzing the transactions in order to check if damages or limitations to free competition may originate there from.

For purposes of clarification a list of transactions that may be deemed as a business concentration is given below:

I. if two or more formerly independent companies amalgamate or combine with one another;
II. if one or more companies acquire, directly or indirectly, by means of purchasing or exchanging of shares, quotas, bonds or securities convertible into shares, or assets, tangible or intangible, by contract or any other means or form, the control or parts of one or other companies;
III. if another or other companies are merged with and into one or more companies; or
IV. if two or more companies execute a partnership, consortium or joint venture agreement.

a) Subsumption of Acts of Concentration, as per Law nr. 8.884/94

Due to the subjective provisions that were set forth in the caput of section 54 of Law 8.884/94, objective criteria have been established for the filing of concentration acts before the SBDC, said criteria having been established in § 3 of said section. Let us examine this in greater detail:

"§ 3 Those acts aiming at any type of economic concentration have been included in the caput of said section, irrespectively of arising from the merger; from the incorporation of companies, or from the incorporation of a company to control other companies, or by way of any other form of corporate grouping, which may imply the equity of the company or of a group of companies which would result in twenty per cent of a given material market , or in which any of the member companies may have enjoyed gross revenues (as shown in their last balance sheet) equivalent to four hundred million reais (400,000,000.00)" (emphasis added).

The objective criteria, such as those that have been contemplated in the aforementioned § 3 releases the company from having to submit operations to SBDC which might involve companies owning an immaterial market share, which are both simple and incapable of producing negative effects on the market, and avoiding any accrual of work for the System as well as excessive burdens for those being managed.

Moreover, as regards the ‘billing' criterion, it should be stressed that CADE issued an understanding (by way of Brief 1, published in the Official Gazette or Record on October 18, 2005), whereby only those revenues that have been exclusively obtained by companies or groups of companies within the Brazilian territory are relevant as regards the concentration act. This understanding does away with the need to file for countless concentration acts involving companies domiciled outside of the country which would be unable to offer any risks to the domestic market, but which, until that point in time, needed to be submitted to the SBDC only due to the fact that one of the companies participating in the operation had earned revenues abroad equivalent to, or in excess to the revenues that have been set forth in the Brazilian anti-trust Act - i.e., 400 million reais.

There are still many controversies raging within the Council about concentration acts that need to be mandatorily submitted to the SBDC. As mentioned previously, this arises from too wide an interpretation of article 54, which has caused their administration to file their operations merely to be safe from suffering any penalties in the future, such as the levying of fines for untimely filing, as well as fines arising from certain associations between companies which could be characterized as conducts that would violate the economic order.

Some cases, which in the past have given rise to controversies regarding the mandatory submission to the SBDC, have already been regulated, such as for instance, those involving corporate restructurings pursuant to Brief 2, published in the Official Gazette of Record of the Federal Union on August 27, 2007;

"The acquisition of a minority share of the voting capital stock by a partner already holding a majority share does not configure an act of mandatory filing (section 54, of Law 8.884/94), provided the following conditions are met: (i) the seller does not get any powers pursuant to law, to statutes or agreements of (i.a) to appoint officers; (i.b) to determine the company's business policy; or (i.c) to veto any matter of corporate interest; and (ii) to practice any lawful acts which have not been set forth in sections (ii.a) - non-competition with effective dates in excess of five years and/or territorial scopes beyond the effective action of the company; and (ii.b) arising from any type of control power between the parties once the operation has been carried out".

In face of the foregoing, it would be appropriate to stress that jurisprudence has been consolidating at CADE about this matter, said jurisprudence having an important role in delimiting the legal uncertainty arising from the terms of the caput of said article 54.

III.2. Deadline to Inform about Concentration Acts

Concentration Acts may be informed to SBDC in advance to the execution of the operation, or within fifteen (15) business days of it. It is worth stressing that at the time the concentration act is being accomplished - which shall trigger the legal timeframe to inform about it, which is to be construed when the first document entailing the parties is executed, or rather, the point in time when the parties entail themselves to one another from the legal point of view, which, in turn, triggers the obligation to inform about the operation.

It should be stressed that the belated filing of a concentration act subjects the parties involved to a monetary fine of no less than 60,000 and no more than 6,000,000 Ufirs , pursuant to the criteria that have been set forth in CADE's Resolution 44/07.

III.3. Notification Fee Pertaining to Concentration Acts

As to the expenses involved, the subject shall be obliged to pay for a Processing Fee of forty-five thousand reais (R$45,000.00) at the time it informs the concentration operation to the SBDC, said amount to be equally split-up between CADE, SDE and SEAE.

III.4 Analysis of Concentration Acts

The filing of concentration acts before the SBDC should be accomplished through three (03) counterparts to SDE, which shall immediately forward one copy to CADE and another to SEAE. The information and the documents that are necessary to accompany the notice pertaining to these concentration acts must comply with CADE's Resolution 15 of August 19, 1998, which regulated both the formalities and the procedures regarding this type of procedure.

As regards the time it takes for the operation before SBDC to be evaluated, SEAE shall have thirty (30) days to issue its technical opinion, while SDE shall have an additional thirty (30) days after that. Subsequently, the process shall be forwarded to CADE, which shall have sixty (60) days to deliberate about it. These timeframes, however, may be suspended when the above agencies require any additional information about the operation, to complement the original process. In this case, the period of analysis may be extended

Intending to expedite the time it takes to evaluate the operations that do not offer any danger to bring concerns from the competition point of view and to impair the market, a simplified procedure has been introduced to summarily deal with Acts of Concentration.

III.5. The Interested Parties

Even though the figure of the Interested Party has been defined both in the Economic Defense's Administrative Council's Internal Rule Book (CADE) as in MJ Ordinance 4 of January 05, 2006, of the Economic Defense Office (SDE), only this latter ruling has been defined so far:

"Article 13. Any capable physical individual or duly constituted legal entity are legitimate interested parties in the Administrative Proceeding, including organizations and associations which may join the administrative proceeding in the following capacities:
(...)
IV - impugning agent, is the one opposing itself to "AC" approval;
(...)
VI - a third interested party is the party which, without being the representative, represented party, petitioner or impugning party, is the holder of rights or interests that may be affected by the decision which is to be adopted, such as competitors, and consumer associations inter allia." (emphasis added).

According to this provision, therefore, the impugning party may be construed as being a party opposing the operation, while the third interested party may warn the authorities about the possible negative effects arising from the operation, without requesting their approval.

d) Consultation

There is also the legal resource of Consultation, which enables the administered entity to submit certain conducts, in thesis or ongoing and, and acts and contracts, only in thesis to SBDC, so that this may hold a position about the possibility of those conducts or acts to be able to be harmful to the competition environment. Note that those answers do not generate, in no situation whatsoever, express authorization from CADE for the practice of those conducts or materialization of those acts/ contracts, as provided for in the 7th article, XVII, of Law nr. 8.884/94, art. 102 and ss, of CADE's Internal Statute and in CADE's Resolution nr. 18/98. For such, the administrated entity must collect a procedural tax for the presentation of the Consultation, equivalent to R$ 5.000,00 (five thousand reais) and, eventually, if it is concluded that the operation is obligatory submission the fee of R$ 45.000,00 will be additionally collected, as per the terms of art. 54, of Law nr. 8.884/94.

e) CADE Plenary Decision on Acts of Concentration

CADE decision will depend on the result of the last stage of its analysis, and it can be by the (i) total approval of the transaction; (ii) approval with restrictions; or (iii) disapproval.

It behooves to stress that the number of operations denied by CADE's Plenary Chamber has been very small as compared to the number of operations analyzed by this body.

27.3. Acts in Breach of Competition

a) art. 20 and 21, of Law nr. 8.884/94

According to art. 20, a conduct is considered an infringement to the economic order when its adoption has as an object or may originate the following effects, despite being potential ones: to limit, falsify or in any form damage the free competition, arbitrarily increase the profits of the economic agent, dominate the relevant markets of goods and services or when said conduct means that the economic agent is performing his market power in an abusive manner.

The characterization of one infringement to the economic order occurs despite the agent's guilt and may be configured, even if the noxious effects are only potential. However, the conquering of the market originating from a natural process of higher efficiency of the economic agent, in relation to the other competitors is considered legal under the competition viewpoint.

Art 21 provides examples of some conducts that may characterize infringement to the economic order, at the proportion that they concur with the hypotheses of anti-competition effects provisioned in art. 20. One notes that those conducts will be analyzed by the SBDC on a case-by-case basis in order to detect or not the harmful effects to the market.

The conducts listed in art. 21 are the following: cartel; predatory pricing; fixation of resale price; territorial restrictions to costumer base; exclusivity agreements; tie-in sales; price discrimination; etc.

b) Penalty

One the conducts set forth in the aforementioned articles 20 and 21 are evidenced, the applicable penalties may reach up to 30% of the amount of the gross income of the relevant company for the year prior to the filing of the proceeding; and from 10% to 50% of the penalty imposed to the company to the natural person of the manager, in addition to certain prohibitions to operate, hire or obtain benefits in public agencies. If it is recurring practice, the penalties will be imposed in double. The seriousness of the infringement will be taken into consideration when the penalty is imposed; the infringer's good faith; the advantage obtained or intended by the infringer; the materialization or not the infringement; the degree of damage, or danger to harm, to free competition, to the national economy, to the consumers or to third parties; the negative economic effects produced in the market and infringer's economic status and the recurrence.

c) Cartel: Leniency, TCC (Commitment to Cease Conduct) and Competition Crime
Cartel

Is an agreement among economic agents that offer substitute products aiming at the increase of prices and profits by means of market division, arrangement of prices, share of production quotas, control of produced/ distributed quantities or territorial division.

In the last years (since 2003), SBDC has intensified its performance to identify and fight possible cartels. SDE has been using inspection tools introduced in Law n. 8.884/94, by the Legislative in 2000 (operations of dawn raids and leniency agreements) and CADE began to impose record penalties to companies and managers. Many of these cases are being discussed court.

Within this scope, SDE executed technical cooperation agreements wit the Federal Police and with the Federal Public Prosecution Service to assist in the implementation of this program to fight cartels.

In 2000, Law nr. 10.149 innovated the Brazilian antitrust law by including the possibility to make Leniency Agreement, a kind of plea bargaining provided in the Criminal Law, in which natural persons or legal entities which infringed the economic order are rewarded with suspension of the penalty imposed by the public administration or reduction from one to two thirds of the applicable penalty, so long as they effectively cooperate in the investigations and administrative proceeding (art. 35-B, Law nr. 8.884/94). Some requirements must be complied with for participation in this program, and the lenient party shall benefit from it.

In addition, in 2007, the possibility to celebrate an agreement to suspend the cartel investigation was introduced, by means of the amendment of the Competition Defense Law, called Commitment to Cease Conduct (TCC).

Prior to the amendment of the referred Law, SDE and CADE were authorized to execute TCC in the course of several conducts investigated by SBDC. However, the legislation used to veto the execution of agreements of this kind with those represented in cartel proceedings. However, a legal amendment was made and to determine that the suspension of cartel investigations would be conditioned to the interruption of harmful practice by the investigated person by means of the payment of pecuniary contribution not lower than the value of the fine fixed in art. 23, Law nr. 8.884/94, and, provided that the commitment is executed before the proceeding judgment.

Predicated on paragraph 9 of article 53 of Law 8.884/94CADE's, Resolutions 46/2007 and 51/2009 have set forth complementary rules about the appropriateness, the timeframe and the manner of execution of the TCC.

In addition to being an administrative infringement, the practice of cartel is a crime in Brazil, subject to penalty or imprisonment from 2 to 5 years .

27.4. Court review of CADE's decisions

CADE is the last instance of administrative proceeding and is responsible for final decisions on competition issues. However, CADE's decisions can be contested in court as provided in art 5, XXXV, of CF, c/c art. 109, I.

In lawsuits in which CADE is the plaintiff or defendant or as an assistant or opponent, the competent court is the Judiciary Section of the Federal District. However, in the causes in which judgment upon decisions of CADE is entered resulting in a penalty or covenants or restrictive covenants, CADE may choose to file the lawsuit at the venue of the person against whom the judgment is entered. One should highlight that CADE's decisions which impose a penalty or obligations are extrajudicial executive titles, as per article 60, of Law nr. 8.884/94, and the penalties must be filed in the current liabilities, applying, whenever suitable, the provisions of Law nr. 6.830/80.

ProCADE is in charge of the CADE's performance at the Judiciary whether in the execution of decisions imposed by CADE, whether speaking at the time of the filing of the legal proceeding by the party that didn't agree with CADE's decision, in the attempt that the Judiciary Power reverts the decision of the Council. It should be informed that there is a Committee at CADE (CAD-CADE) which is in charge to Follow-up CADE's Decisions, inspecting and manifesting in a Technical Note about the fulfillment of the decision within the fixed time periods.

Notwithstanding the time spent for the analysis of a certain operation/ conduct, in the administrative scenario, the proceeding may last for years in the legal area due to the moroseness of Justice as well as by the institutional organization of the Brazilian Judiciary System, which allows the presentation of appeals to several existing judicial instances.

27.5. Relation between SBDC and other institutions

SBDC performs jointly with some regulatory agencies, which are agencies in charge of some sectors of the economy, mainly by those from the infrastructure and public services. In practical terms, this partnership between the regulatory agencies and the competition defense bodies occurs in the following manner: the processes are instructed by SEAE and SDE, only forwarding a copy of the proceeding a regulatory agency with the purpose that this one as a specialized agency in the matter will manifest about the real case. CADE, in its turn is the judging body and the opinions by the agencies and secretariats are only for that purpose and not binding the decision to be adopted by the Council.

With regard to the National Telecommunications Agency (ANATEL), in its turn, the adopted procedure is distinct in comparison to the one carried out with the other regulatory agencies as the proceeding instruction linked to the telecommunications sector is made by ANATEL itself and the judgment is performed by CADE.

A list of the Brazilian Regulatory Agencies should be mentioned: ANEEL (Brazilian Electricity Regulatory Agency); ANATEL (The National Agency of Telecommunications); ANP (Petrol National Agency); ANVISA (National Health Surveillance Agency); ANS (National Health Agency); ANA (National Agency of Waters); ANTT (National Agency of Terrestrial Transport); and ANTAQ (National Waterway Transportation Agency).

The Federal Public Prosecution Service can also intervene in the proceedings being carried out at the SBDC, and shall speak, as guardian of the law, whether in the conduct proceedings or in the antitrust filings related to acts of concentration, according to the article 12, of Law nr. 8.884/94.

In addition, an agreement was executed between CADE and the Central Bank (BACEN) - a Brazilian Self-Regulatory Entity linked to the Ministry of Finance - for technical cooperation among these agencies.

Internationally, CADE entered into international agreements with several countries, as well as Treaties and Cooperation Protocols with the MERCOSUR countries. SBDC also attends several international meetings to exchange antitrust policies experiences, such as OCDE (Organization for Economic Co-operation and Development) and ICN (International Competition Network).

27.6. SBDC reestructuring bill

Bill of Law 06/2009 drafted by the Chamber of Deputies is undergoing due legislative process. This Bill of Law purports to reformulate Law 8.884/94, and to restructure the Brazilian System for the Defense of the Competition.

Among the amended points, 3 (three) of them are more relevant:

1) Consolidation of the current CADE with SDE, concentrating SEAE attributions in the so-called "advocacy of competition". The proposition formally creates the Brazilian System of Competition Defense formed by CADE and by SEAE. Three bodies are consolidated at CADE: The Economic Defense Administrative Court (current CADE), the General Superintendence (current SDE) and the (new) Department of Economic Studies, whose main mission is to care for the strictness and technical and scientific updating of the agency's decisions;
2) Criteria for submission of antitrust filings: a) to decrease from R$ 400 million to R$ 150 million the minimum amount of invoicing of one of the participants from which the operation must be notified; b) introduce a "second lock" in the invoicing parameter, requiring the invoicing of the second largest company involved in the transaction is at least, R$ 30 million; c) eliminate the participation criteria in the post-operation relevant market of over 20%; and
3) Change a posteriori submission of antitrust filing so that the submission is made prior to the closing of the transaction.

It is worth remembering that the Bill nr. 5.877/2005 is included in the governmental program called PAC (Growth Acceleration Program).