5 February 2016
On January 20, 2016, the Tribunal of the Administrative Council for Economic Defense ("CADE") ruled that the companies Cisco Systems Inc. ("Cisco") and Technicolor S.A. ("Technicolor") are to pay 30 million BRL due to gun jumping practices. Pursuant to art. 88, paragraph 3º of Antitrust Law (Law No. 12.529/2011), such a violation occurs when transactions of mandatory submission are closed prior to the antitrust clearance.
The transaction involved a global acquisition in which Technicolor acquired a subsidiary, owned in its totality by Cisco, in the global broadband technology development market. On November 20, 2015, CADE learned of these facts through a press release published on the company’s website, which stated that the transaction had been closed, except for in Brazil and Colombia. Three days later, the companies officially reported the facts to CADE, and disclosed to CADE the existence of a carve-out agreement covering Brazil. Cisco and Technicolor argued that the carve-out agreement would isolate Brazil from potential anticompetitive effects derived from its closure. A carve-out agreement is a contractual instrument used to block the effects of closing a global transaction in a given jurisdiction where it has not yet been cleared by the antitrust authority.
CADE, however, held that the agreement did not sufficiently avoid anticompetitive effects and therefore it was enough to trigger the law for gun jumping. According to the reporting-commissioner’s decision: “[carve-out agreements] are tools that are very difficult for competition authorities to monitor, and the effectiveness of this type of agreement is rather questionable in terms of avoiding the exchange of sensitive information between competitors." In this sense, the Reporting Commissioner, who was later joined by CADE’s Tribunal by in unanimity, emphasized that "carve-out agreements will not be accepted in Brazil for purposes of avoiding or mitigating gun-jumping".
CADE's Tribunal, Cisco, and Technicolor settled and entered into a Merger Control Agreement ("ACC") whereby the companies: (i) recognized the existence of gun jumping; and (ii) committed to the payment of a monetary contribution in the amount of 30 million BRL. The amount of said monetary contribution is noteworthy because it was a record for this type.
This was the first case of gun jumping ruled on by CADE after Resolution No. 13/2015, which regulates the administrative procedure for Assessment of Merger Filings ("APAC"). Since Law No. 12.529/2011 entered into effect, CADE has imposed fines for gun jumping practices in six other merger filings, namely:
- GNL Gemini Comercialização e Logística de Gás Ltda. / Companhia de Gás de Minas Gerais, issued in June, 2015, implying the execution of ACC and a 90,000.00 BRL monetary contribution;
- Goiás Verde Ltda. / Brasfigo Ltda. and Brasfigo S.A., issued in April, 2015, implying the execution of ACC and a 3,000,000.00 BRL monetary contribution;
- Fiat S.p.A. / Chrysler Group LLC, issued in May, 2014, implying the execution of an ACC and a 600,000.00 BRL monetary contribution;
- Potióleo S.A. / UTC Óleo e Gás S.A., issued in February, 2014, implying the execution of an ACC and a 60,000.00 BRL monetary contribution;
- Aurizônia Petróleo S.A. / UTC Óleo e Gás S.A., issued in February, 2014, implying the execution of an ACC and a 60,000.00 BRL monetary contribution; and
- OGX Petróleo e Gás S.A. / Petróleo Brasileiro S.A., issued in August, 2013, implying the execution of an ACC and a 3,000,000.00 BRL monetary contribution.