Antitrust law enforcement in Brazil has continued to consolidate and evolve in recent years. This trend can also be observed in the field of international trade, where more commercial defence tools have been adopted recently, followed by important other measures to protect the internal market. As one of the BRIC economies, it goes without saying that the economic growth in the country has brought additional components to the Brazilian context: more complex transactions submitted to merger control, as well as more complex and veiled antitrust investigations, have helped to increase the visibility and relevance of the Brazilian system for economic defence (SBDC) worldwide, especially of the Administrative Council for Economic Defence (CADE), the main antitrust agency.
According to its 2012 annual report, CADE has seen an increase in the number of technical staff, who were also given more responsibility, resulting in a rise in the number of cases analysed per year (which rose from 666 in 2005 to 955 in 2012, out of which 825 were merger filings notified under the old regime, and 102 were merger filings submitted under the new regime). Between January and June 2013, 158 cases were ruled on (out of which 59 were merger filings) and only 219 cases remained to be analysed. In the same period, 82 proceedings were filed. In addition to the staff increase, the reformulation and the enhancement of co-operation within the SBDC – ie the Secretariat of Economic Monitoring (SEAE), the Secretariat of Economic Law (SDE), CADE’s Attorney General Office, the Federal Public Prosecution Office and CADE – eliminated overlapping activities. The overhaul also achieved a significant reduction in the average length of analysis of merger filings, down from 252 days in 2005 to 48 days (ordinary procedure)
and 19 days (summary procedure), both in 2012.
Breadth of decisions
The depth and strength of the decisions can also be regarded as an achievement. In June 2013, after one year of enforcement of the new Brazilian antitrust law (Law No 12529/2011), CADE has kept its eye on healthcare markets, which is demonstrated by restrictions imposed in some transactions involving the acquisition of hospitals in several Brazilian cities, especially involving Rede D’Or and Medgrupo Participações SA. It is worth mentioning the veto of the acquisition of Hospital Regional de Franca by Unimed and the acquisition of Aliança by Qualicorp in the healthcare insurance sector.
In May 2012, CADE authorised the assets swap between Brasil Foods (BRF) and Marfrig Alimentos SA, in compliance with heavy commitments as regards selling assets assumed by BRF involving approximately 35% of the parties’ production capacity in Brazil and comprising production facilities, distribution centres and an important portfolio of products and brands. Also, the authority cleared the transaction between the airline
companies LAN and TAM, subject to the swap with a competitor of some slots and infrastructure in the São Paulo International Airport, and to the exit of one of the worldwide airline company’s alliances (One World or StarAlliance). In the steel sector, CADE has granted an injunction to prevent completion of the acquisition by the Brazilian Companhia Siderúrgica Nacional (CSN) of additional stakes in its competitor Usinas Siderúgicas de Minas Gerais SA (Usiminas). Accordingly, CADE ordered that – until a final decision is made, and subject to the imposition of fines of R$10m, plus R$10,000 per day of violation – CSN would not be allowed to appoint any member to the board of directors or any other management board of Usiminas; nor should any company of CSN’s economic group have access to competitively sensitive information or exercise any management or political rights over Usiminas (for example, through voting in the general shareholders’ meetings). In addition to this, CADE imposed restrictions on the creation of a partnership between Usiminas and 19 distributors of flat steel, eliminating an exclusivity clause set out in their agreement. Still under the old regime, CADE has executed some agreements to preserve reversibility of the transaction (APROs) in key transactions, in order to maintain the competitive environment, as well as to keep the parties independent until a final decision is reached. This was the case in the merger between the Brazilian airline companies Gol and WebJet, as well as the transaction concerning the acquisition by Diagnósticos da América SA (DASA) of control over MD1 Diagnósticos SA, and the subsequent acquisition by AMIL Group of participation in DASA’s shares in the health assistance and diagnosis services sector.
Under the new regime, CADE has entered into the first merger control settlement agreements (ACCs) in transactions that raise competition concerns, as a condition of their clearance under the Law No 12529/11. The first case refers to the acquisition of Mach by Syniverse. During examination, the General Superintendence found that the transaction would result in high concentration in the GSM data clearing and near real-time roaming data exchange (NRTRDE) markets, which are technological services provided to mobile telecommunication companies for the charging of roaming. To remedy competition concerns, Mach and Syniverse proposed executing the agreement, through which they undertake certain obligations to remove any anticompetitive outcomes from the transaction. In the second case, involving Ahlstrom Corporation and Munksjö AB, CADE concluded that there was a high concentration in the pre-impregnated decorative paper market (which is used in indoor furniture in kitchens, bedrooms and offices) and in the heavy abrasive paper market (used to manufacture abrasive coating, and to polish materials tools in many industrial sectors), with no prospect of new entrants in the sector nor of sufficient firms able to compete in these markets. Therefore, the sale of an industrial unit of Ahlstrom was established as a condition to the deal. CADE also cleared complex transactions – for instance, the merger between two big retailers Casas Bahia and Ponto Frio, the acquisition of Skype by Microsoft, several acquisitions in the meat sector by JBS (although CADE is monitoring the market via monthly reports sent by the company).
Interestingly, CADE cleared the transaction between airline companies Azul and Trip provided Trip and TAM Airlines ended their codeshare agreement by the end of 2014. It also required Azul and Trip to operate at least of 85% of their scheduled takeoffs and landing slots at Rio de Janeiro’s Santos Dumont airport. However, this case showed that CADE is keen to verify in depth all information provided by the applicants: it fined the companies R$ 3.5m for misleading information. This kind of penalty had already been provided by former Law No 8884/94, although there are no decisions that are worth mentioning in this regard. Such penalty was maintained in Law 12529/2011. However, it is only now that CADE has applied a strict and harsh treatment to the analysis of accuracy and completeness of information provided by the parties and shown itself keen to punish even minimal evidence of misleading information. In the Azul / Trip case, for instance, CADE imposed such a high fine (note that the maximum fine is R$5m) because the parties did not tell it about the existence of the codeshare agreement with TAM. This information only came out during complementary discovery by CADE and was a determinant in the imposition of restrictions on the transaction. The second and more recent case of misleading information involves the Laureate Group and the Brazilian private university Anhembi Morumbi, which were fined in R$4m for hiding information about their economic groups, which revealed that Laureate Group members were already active in the educational sector. The transaction involved the increase in Laureate Group’sequity interest in the managing company of Anhembi Morumbi from 51% to 100%. The first precedent of misleading information concerned the transaction between the companies Cruzeiro do Sul Educacional SA and ACEF SA in the distance learning sector. According to CADE, the parties did not supply the accurate number of courses offered and the number of students enrolled. CADE imposed a fine of R$200,000.
Also as an achievement, CADE has (when analysing merger filings) taken a restrictive and objective approach in regard to the notification thresholds. It has also accepted the need to enact regulations concerning some aspects of Law No 12529/11 – such as the “associative agreements” (including distribution agreements, consultancy agreements, partnerships in general, and service agreements) that fall within the scope of antitrust law – as well as aspects of control and relevant influence for the purposes of submitting a transaction to merger control. In addition, CADE has looked at controlling behaviours, such as cartels and unilateral conduct. However, Brazil is still waiting for a development here, either in terms of the speedy conclusion of cases or of the willingness to open new investigations. In this context, the Brazilian competition defence system has increasingly evolved over the last 20 years or so. However, this is not enough to put Brazil in the first tier in terms of antitrust enforcement and competition culture. Cultural and latent problems – not exclusively related to competition law and to the SBDC but rather relating to Brazil as a whole – make the challenge even greater. Discussions about competition defence in Brazil are in progress, along with the discussions about competition law generally, which actually started in Brazil less than 20 years ago, Consequently, the competition culture has yet to be fully established not only at the academic and government level, but also in the business environment and in society as a whole.
The tripod underlying Brazilian competition policy (merger control, behaviour control and competition advocacy) is still being built. In merger control, CADE faces the need for a settled case law and methodology, which, in addition to institutional maturity, will give Brazilian society the desired predictability of whether a transaction should be submitted to CADE and whether there will be difficulties for unconditional clearance.
In behavioural control, CADE has also grown, which can be observed by the number of cases ruled on, the level of penalties applied and the outcomes of the judicial discussions afterwards. Hence, CADE needs to keep developing and refining investigations in order to signal to society that it is not worth taking risks about violating antitrust laws. For new cases, the leniency programme is something novel and little known. The new system still surprises people and engenders little confidence because Brazilian legal tradition is not used to granting benefits to criminals who, in admitting to and giving information about their crimes, assist in the conviction of other possible wrongdoers. However, this position should change with a shift in the legal culture in force, so that more leniency agreements are ultimately executed in Brazil. These agreements are useful for the authorities once they make it possible to get information that would be very hard to obtain in the normal course of an investigation. Additionally, the unilateral conduct cases remain a big challenge that has to be faced. CADE has not achieved many convictions but it has made a start with the SKF case (2013), which was the first conviction for resale price maintenance. The 2012 case involving Banco do Brasil and exclusive dealing in payroll loans should also be regarded as an achievement. More cases of unilateral conduct, including those related to state-owned enterprises, might arise and help reinforce CADE’s mandate to achieve free competition and a level playing field regime in the Brazilian markets. CADE is starting to define its role regarding competition advocacy, which might be shared with SEAE. Problems relating to taxation could trigger this very important pillar of competition law in Brazil. Both agencies will need to think of antitrust in a broader manner in order to contribute to social welfare as much as possible. Brazilian society is anxious for the support of the experts on competition to help the country become more competitive and fairer.