Ma transactions in Ukraine: antimonopoly aspects by dlf lawyers in ukraine
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1. To President T. Roosevelt “If we have done
anything wrong, send your man to my man
and they can fix this up” - J.P. Morgan
Antitrust in
Emerging
Countries
Mexico and Brazil
Humberto Robles Herrera.
Reviewed by:
Fiona M. Scott-Morton
THEODORE NIERENBERG PROFESSOR OF ECONOMICS at the
Yale University School of Management
2. ANTITRUST IN MEXICO AND BRAZIL
Thank you Note................................................................................................................................... 3
ABSTRACT............................................................................................................................................ 3
INTRODUCTION................................................................................................................................... 4
ANTITRUST IN MEXICO........................................................................................................................ 4
1 Definition..................................................................................................................................... 4
2 Organization................................................................................................................................ 5
2.1 Investigative Authority........................................................................................................ 5
2.2 Technical authority.............................................................................................................. 7
2.3 Board of Commissioners ..................................................................................................... 8
3 Procedure Overview.................................................................................................................... 8
3.1 Investigation........................................................................................................................ 8
3.2 Trial-Like Procedure .......................................................................................................... 10
3.3 Decision............................................................................................................................. 10
4 Leniency Program...................................................................................................................... 11
5 Merger Control.......................................................................................................................... 11
5.1 Burden of Proof................................................................................................................. 11
5.2 Thresholds......................................................................................................................... 12
5.3 Information ....................................................................................................................... 12
5.4 Efficiencies......................................................................................................................... 13
6 Practical Aspects........................................................................................................................ 13
6.1 Key aspects of National Structure..................................................................................... 14
6.2 Concentrations.................................................................................................................. 15
ANTITRUST IN BRAZIL........................................................................................................................ 16
7 Definition................................................................................................................................... 16
8 Organization.............................................................................................................................. 17
8.1 CADE.................................................................................................................................. 17
8.1.1 The General-Superintendence .................................................................................. 18
8.1.2 Tribunal ..................................................................................................................... 18
8.1.3 The DEE...................................................................................................................... 18
8.2 SEAE................................................................................................................................... 18
8.3 Attorney’s General Office.................................................................................................. 19
4. THANK YOU NOTE
I want to thank Professor Fiona Scott-Morton for guiding me through the process of compiling this
document. But more importantly, for inspiring me through her teachings into this new area of
Antitrust, of which I became passionate about.
ABSTRACT
With a bachelor in economics and two business master degrees, I always considered myself a strong
supporter for anything related to the capitalist world. I used to believe that “the free market” would
always be right and that in the end, it was a matter of survival of the finest.
As capitalism moved forward, companies and corporations began to increase in size and power.
Nonetheless, corporations are essentially made up of people and unfortunately, in more than one
occasion, individuals have used this power to tamper with the market environment. While economic
theories work, the problem is they only work in theory. In a world made up of people, we need rules,
not to correct the market, but to keep in place the people that try to play with it.
This is where Antitrust Regulation takes a stand. “Antitrust laws are the laws that apply to virtually
all industries and to every level of business, that prohibit a variety of practices that harm
competition”.
5. INTRODUCTION
The defense of free competition aims at ensuring an efficient allocation of resources in the
economy, in order to promote the increase of the overall levels of employment fee and population
income, as well as economic growth, and prevent an undue income shift between supplier and
consumer, and even the exclusion of a portion of the population from the consumer markets.
Antitrust transcends the interest of the parties directly involved in certain transaction or activity,
being consumer welfare the ultimate interest protected. In sum, the purpose of antitrust laws shall
be directed at protecting consumers, not competitors.
Antitrust is a practice that began in the United States more than 100 years ago. As the rest of the
world followed their economic practices, antitrust practices was not the exception. Nonetheless,
each country faces completely different political and economic environments with particular
challenges.
As we move forward into a more Global Economy, corporations have stronger interactions in more
than one nationality. Consequently, matching regulatory institutions in each country is of the utmost
importance.
Mexico and Brazil are the two biggest economies in Latin America,1
and each year the economic
interaction between them and the United States increases.2
Thus the analysis in this paper:
institutions and corporations across countries need to know if somebody on the other side will keep
market participants in place and will ensure their best practices.
The aim of this paper is to analyze the Mexican and Brazilian Competition legal frameworks. I will
elaborate on their design, procedures and ultimately their challenges. As we will find out, antitrust
practices in Mexico and Brazil are relatively young compared to their equivalents in United States
or Europe. However, regardless of their late start, both authorities are keeping up with the
increasingly complex economic environment and the particular challenges within their territories.
ANTITRUST IN MEXICO
1 DEFINITION
The Ley Federal de Competencia Económica (“LFCE”) is the legal framework that derives from article
28 of the Mexican Constitution. This article explicitly prohibits monopolies and monopolistic
practices, except in government-controlled industries (petroleum and all related activities,
electricity generation and radioactive minerals). Telecommunication and railroads are deemed by
the state as “priority” industries so these are subject to different regulators.
1
Brazil with 3.3 trillion USD GDP and Mexico with 2.2 trillion USD GDP according to the 2015 report of the
International Monetary Fund. (imf.org/data)
2
Economic transactions between US and Mexico and Brazil: 2012 $11 billion, 2013 $25 billion, 2014 $33 billon,
2015 $37 billion. (Data in US dollars from the United States Census Bureau census.gov/foreigntrade)
6. The Mexican Federal Economic Competition Commission (“Commission” or “COFECE”) has been
created under article 28 as an autonomous organism with legal personality and patrimony whose
purpose is to “guarantee free market access and economic competition, prevent, investigate and
fight monopolies, monopolistic practices, concentrations and any other restriction that makes
markets less efficient”. 3,4
2 ORGANIZATION
The Commission is integrated by three main bodies which carry out different roles within the entire
process of an investigation.
2.1 INVESTIGATIVE AUTHORITY
The Investigative Authority (“IA”) is the Commission’s unit responsible for conducting investigations.
It acts like a party in trial-like procedures in order for COFECE to sanction anticompetitive practices,
illegal concentrations, essential inputs or barriers to competition. This unit has technical and
administrative autonomy to conduct its operations and resolutions. The head of the IA is appointed
by the Board of Commissioners by a majority vote of at least five out of seven votes, for a term of
four years and may be reappointed only once.
The IA has two main tactics to protect economic competition in Mexico. First, a preventive role
which deals with matters related to unfair competition conditions. This is referred to as “Market
Intelligence and Regulation”. Second, a repressive role which deals with anticompetitive conducts.
Market Intelligence and Regulation
These types of investigations are initiated for the authority to resolve on market conditions,
determine the existence of essential inputs or to eliminate barriers to competition.
The Commission determines the existence of unfair competition conditions when an economic
agent sets or imposes structural, behavioral or legal barriers that diminish competition. Therefore,
the IA is entitled to determine relevant markets, an economic agent’s market power, and the
existence of essential inputs.
Relevant Market
The following factors, among others, shall be considered to determine relevant markets:
(1) the possibility of substituting the good or service considering, among others,
technological limitations; (2) Distribution costs; (3) Costs and probabilities for consumers to
access other markets; (4) Regulatory restrictions on possible substitutes.
3
There is a special organism equivalent to this commission that deals solely with anything related to
telecommunications. This “telecommunications commission”3
has the same structure, capabilities and
restrictions of our Commission. Additionally, state-regulated markets such as railroads, energy distribution,
oil drilling and transformation, are not subject of investigation under this law.
4
IFETEL: Instituto Federal de Telecomunicaciones is the Mexican authority in charge of every regulation
regarding the telecommunications sector.
7. Market Power
Market power is determined based on the economic agent’s participation in the market, its
possibility to unilaterally fix prices or limit supply, without any competitor being able to
counteract such power.5
Essential Inputs
To determine the existence of essential inputs, the IA analyzes, among others factors,
whether the input is indispensable to provide goods or services to one or more markets, the
possibility of replicating the input, and the circumstances in which an economic agent
gained power over the input.
Once the relevant parameters have been defined, the IA proceeds to determine if there is economic
harm, in which case the Commission is entitled to: (1) force the economic agent to eliminate
barriers, (2) officially classify an asset as an essential input and emanate regulation regarding its
price, use conditions, access, quality and technical conditions, etc., or (3) mandate asset
divestitures, rights, contract reformulation, etc., or use any mechanism available to restore fair
market conditions.
Anticompetitive Conducts
In its repressive role, the IA initiates an investigation which could be categorized as (1) Per-se Illegal
Conducts, (2) Relative Monopolistic Practices (Rule of Reason) and (3) Illegal Concentrations which
harm, diminish or impede economic competition.
Per-se Illegal Conducts
Under the LFCE, the IA investigates and prosecutes five types of per-se illegal conducts, all of which
are considered a federal crime. These activities are (1) price fixing, (2) market allocation,
(3) restraints of trade, (4) collusion, and (5) information exchange between economic agents with
the purpose or effect of carrying out any of the referred to conducts.
If an investigation results in a per-se illegal violation, the IA is entitled and encouraged to involve the
judicial authorities to take immediate criminal action. It is worthy to mention that under Mexican
Competition Law, these activities are the only cases in which criminal punishment is applicable.6
Relative Monopolistic Practices (Rule of Reason)
These kind of practices regularly come to the attention of the authority on request from a third
party; nonetheless, the IA is able to conduct investigations based on its own market intelligence. In
most cases, an affected economic agent files a private complaint, which the Commission then
investigates.
The most common practices that are prosecuted are:7
5
The Commission uses indicators such as sales, number of clients, production capacity, among others.
6
Criminal punishment for per-se illegal violations includes jail time, personal and corporate fines, and banning
executives from administrative charges in any private institution for up to 5 years.
7
This form of grouping Monopolistic practices is made following the “Relative Monopolistic Practices” scheme
of the United States department of Justice typified in art 10 of LFCE; however the Mexican Antitrust Law does
not make such categorization.
8. I. Single firm monopolistic practices:
a. Resale price maintenance (vertical Price restriction)
b. Boycotts
c. Discriminatory buying or selling (different sell or purchase conditions to economic
agents with similar conditions)
d. Limit access
II. Other anticompetitive practices:
a. Tying (Tied Sales)
b. Refuse to deal
c. Exclusive dealing
d. Loyalty discounts
e. Selling below average variable cost (predatory pricing)
f. Cross Subsidization (Using profits from one product to subsidize sale of another
good below average cost)
It is important to point out that in these kind of investigations, the first action required by the IA is
to identify the relevant market in order to determine the existence of substantial market power. If
such is the case, the IA will then proceed with its regular course of investigation.
An additional relevant fact is that under Mexican law, there is no definition or reference to natural
monopolies. Thus, abusive high prices can’t be prosecuted. In natural monopoly cases, the only
conducts that can be investigated are exclusionary practices against economic agents within the
distribution chain, but nothing against consumers.
Illegal concentrations
As further described in the “Merger Control” section of this document, the LFCE has established
certain thresholds which, if triggered, require the parties to notify a transaction to the Commission
for its review and approval. Once approved, a concentration may no longer be investigated unless
false information was provided by the parties or the conditions imposed on the transaction are not
fulfilled by the parties in the terms established by the Commission.
Notification is not required if no threshold is triggered by the transaction. Nonetheless, the IA has
up to one year to investigate such concentrations.
Likewise, either by private complaint or by its own market intelligence, the IA may initiate an
investigation of those concentrations deemed illegal.
2.2 TECHNICAL AUTHORITY
The Technical Authority (“TA”) is a unit depending from the Board of Commissioners, integrated by
a merger control, a legal affairs and an economic analysis division. The head of the TA is appointed
by the Commission’s Board by a majority vote of five out of seven votes.
9. The TA‘s role is to issue a formal opinion on every investigation in which the IA finds probable
responsibility. The TA may either dismiss a case from the IA when it deems the evidence insufficient,
or it may accept the IA’s recommendation and initiate a trial-like procedure.
The TA is in charge of carrying out the trial-like procedure, which is a setting that equivalents to an
administrative trial. The IA acts as a prosecutor, the investigated economic agent acts as the
defendant, and the TA conducts the process. At the end of this stage, the TA issues a formal opinion
that is submitted to the Board of Commissioners. Thus, the Board of Commissioners has the ultimate
decision to resolve on investigations.
The TA, through its merger control division, also reviews concentration notifications. After analysis,
the TA will issue a formal opinion regarding the transaction. This opinion is also submitted to the
Board of Commissioners for their final ruling on the concentration. Additionally, the TA will also
issue a formal opinion regarding licenses, concessions, transmission rights and special permits.8
2.3 BOARD OF COMMISSIONERS
The Board of Commissioners is the ultimate instance of the Commission. It is formed by seven
Commissioners, one of them being president, and all of which are appointed by the President of
Mexico and ratified by the Senate.
The Board meets on specific dates, all pre-established at the beginning of every year, in which they
deliberate and cast a vote on every case that the TA submits. Every Commissioner reviews each case
separately and subsequently meet to collectively emit a definitive resolution.
The Mexican Antitrust Law guarantees that every case will be analyzed by “Specialized judges and
courts”. This makes reference to the fact that all members within the Commission have to be
lawyers and economists specialized in antitrust issues.
3 PROCEDURE OVERVIEW
The general procedure sequence carried out by the Commission is staged in 3 parts:
1. Investigation
2. Trial-like procedure
3. Resolution
It is important to point out that these three stages are carried out by three different divisions within
the Commission. The investigation is carried out by the Investigative Authority (IA), the trial-like
procedure is carried out by the Technical Authority (TA), and the final resolution is made by the
Board of Commissioners by a majority vote.
3.1 INVESTIGATION
The IA may start an investigation:
8
These cases do not have to go through the IA.
10. Ex-officio
o Public source (news, public declarations, etc.)
o Request by another authority (Federal Executive Branch or the DOJ-equivalent
Mexican authority)
o Own intelligence (economic pattern analysis)
Through Private Complaint, or
Under the Leniency program
Regardless of whether the investigation was brought by a third party or by the IA itself, a course of
action has to be determined. With the initial information in hand, the IA evaluates if there are
enough grounds to open an investigation or dismisses the case.
If a formal investigation proceeds, the IA has between 30 and 120 days to either determine probable
responsibility or close the investigation. At this point, the IA may use any of its enforcement tools
to gather additional information and evidence from the investigated economic agent and any other
parties relevant to the investigation.
If the IA determines there is probable responsibility, it means that there is enough evidence to seek
a sanction. Once the investigation’s due diligence is complete, the IA integrates a file that is
submitted to the Board of Commissioners, who orders the TA to initiate the trial-like procedure.
It is important to mention that in case the IA dismisses a case, it shall deliver to the Board of
Commissioners a file on the investigation. This file will also be reviewed by the Board and they are
entitled to instruct the IA to re-open the investigation and order the TA to initiate the trial-like
procedure, regardless of the fact that the IA initially dismissed the case.
In the event of a per-se violation, the IA has the power to file a criminal complaint before the
Mexican DOJ-equivalent (Procuraduría General de la República—“PGR”). Thereafter, there are two
procedures that are carried out in parallel: the regular administrative procedure conducted by the
Commission, and a criminal trial carried out by the PGR. It may even be the case that the Commission
determines no civil liability after an investigation, but the PGR finds criminal liability9
. However, the
Board of Commissioners is entitled to request the PGR to dismiss a criminal complaint filed by the
IA.
As of 2014 when the latest version of the LFCE was enacted, the Commission is empowered with a
set of tools to facilitate its job during an investigation. Therefore, the Commission through the IA is
entitled to: (i) Subpoena any economic agent involved in the investigation to make formal
declarations; (ii) Order raids; (iii) Rely on public force when required; and (iv) Obtain copies of
records, documents, and files (produced by any technology).
It is worthwhile to mention that before the last amendment to the LFCE in 2014, raids required
previous notification to the economic agents; this was viewed as depriving raids of any purpose, as
it was feared that evidence was destroyed once a raid was notified and prior to the visit.
Furthermore, it is important to mention that the authority may not extract any “originals” from the
9
As of the date of this report and according to public records, no criminal complaints have been yet submitted
to the PGR by the IA with respect to per-se violations.
11. Economic Agent’s premises. Therefore, the IA must do a thorough job of photocopying and making
digital copies of anything they deem important or relevant to the investigation.
On this line of thought, the IA has the ability to “close” the investigated Economic Agent’s offices.
This is done in order to preserve evidence that may not be collected during the first visit (mostly due
to time restrictions). Nonetheless, in practice, whenever the IA closes an office, the Economic Agent
would go to a judicial judge and appeal the decision (most of the time alleging constitutional rights
violations), and the judge would re-open the premises. This would lead to evidence destruction.
Therefore, what the IA does most of the time is collect all the evidence on their first raid, and in
some cases, this due diligence may last periods of dozens of uninterrupted hours.
3.2 TRIAL-LIKE PROCEDURE
This procedure formally begins when the IA has determined Probable Responsibility. Thereafter, the
TA will carry a trial-like procedure in which the accused economic agent acts as the defendant and
the IA takes the role of prosecutor.
The LFCE establishes that the TA has complete and absolute freedom to evaluate, valuate and
quantify all the evidence brought to the case, and has the right to dismiss or accept any evidence
based upon its previous evaluation.
In the event the TA finds the evidence is solid, it will then give the defendant and the prosecutor the
opportunity to convey additional evidence. After both parties have concluded with the evidence
and allegations exchange, the Technical Authority will integrate a file with all the information
collected so far (including information obtained at the initial investigation conducted by the IA and
the the additional evidence collected in the trial-like procedure).
This stage concludes when the TA delivers the integrated file to the Board of Commissioners. This
file will contain a recommendation regarding the culpability of the economic agent.
3.3 DECISION
The final stage of the procedure ends with the Board of Commissioners. The TA’s file is now analyzed
individually by each board member and then collectively by all of them in a public hearing. In this
instance, the defendant has the opportunity of a hearing with the Board. At this hearing, the
economic agent has a final moment to express final “thoughts” regarding the entire process;
nonetheless, at this point the evidence-presenting period is over.
After a thorough analysis, the Board will cast a vote on whether to accept or reject the TA’s
proposition in regards of the culpability of the economic agent. If the TA’s proposal is accepted, the
Board emits a resolution which includes the sanctions and remedies, all of which the Economic
Agent has to follow. This decision is definitive and not appealable.
It is important to mention that the only rulings that are appealable in a judicial court are divestitures
and those related to copy rights and patents.10
10
Article 28 of the Mexican Constitution establishes the framework for appeals regarding COFECE’s rulings
12. Finally, once and investigation is concluded, and the Commission has rendered a decision, it has the
ability to: (i) Impose sanctions; (ii) Order actions that eliminate barriers to competition;
(iii) Determine and regulate access to essential facilities or assets; (iv) order Divestitures; (v) Impose
injunctive measures; and (vi) Initiate class actions. All these actions will be enforced by the
corresponding Mexican authorities.
4 LENIENCY PROGRAM
The Mexican Law allows any Economic Agent that is or has been part of an unlawful economic
activity to get a reduction in fines and will not be criminally prosecuted in exchange of information
and cooperation in an investigation.
In order to be awarded this benefit, the applicant must: (i) Bring enough elements to start an
investigation; (ii) Provide full cooperation during the investigation; and (iii) Do any necessary action
required to stop the unlawful behavior.
The first person to come forward gets a minimum fine of one day of minimum wage. The subsequent
solicitants will get fine discounts whose corresponding percentages will be reduced according to the
sequence of their application.
The leniency programs establishes no limitations on number of applicants to the program.
Moreover, it establishes no distinction on who started and who followed in a cartel. All cartel
participants have the same access to the leniency program
5 MERGER CONTROL
Concentrations are not per-se illegal under Mexican law. However, the LFCE has established a
threshold above which all concentrations need to be notified to the authority and will be
investigated by the Commission. The concentrations that surpass the threshold may not be
concluded until they are authorized. Failure to notify will result in significant fines and the act is
deemed null.
5.1 BURDEN OF PROOF
Whenever a transaction is notified, the Economic Agents have the responsibility of proving the
alleged efficiencies, and how they outweigh the economic harm inflicted on consumers.
The merger process does not have an Investigation stage. If the transaction is deemed as “worthy
of investigation”. The merger filing goes directly to the TA authority.
13. Nonetheless, the IA is able to investigate any concentration within its first year of execution even if
it is below any of the established thresholds. However, under these circumstances the IA has the
responsibility of proving the harm the concentration bring to the market.11
5.2 THRESHOLDS
The thresholds above which all transactions need to be notified to the authority are established as
follows:12
Monetary threshold: Should the act or succession of acts originating the transaction,
regardless of the place where executed, amount, in the national territory, directly or
indirectly, to more than 18 million times the minimum daily wage in force in the Federal
District
Equity to sales threshold: Should the act or succession of acts originating the
transaction, imply the accumulation of 35 percent or more of the assets or shares of an
economic agent, whose annual sales originated in the national territory or assets in the
national territory are valued at over 18 million times the minimum daily wage in force
in the Federal District
Should the act or succession of acts originating the transaction, imply an accumulation
in the Mexican Republic of assets or capital stock valued at over 8.4 million times the
minimum daily wage in force in the Federal District, and where two or more economic
agents participate, whose annual sales originated in the national territory or assets in
the national territory, measured jointly or individually, equals more than 48 million
times the minimum daily wage in force in the Federal District.
5.3 INFORMATION
The following information is required in a first stage to confirm if a transaction needs to be notified
to the Commission prior to closing:
1. Value (price) of the transaction (or portion thereof allocated to the business/assets
located in Mexico).
2. Value of assets in Mexico (even if owned by a non-Mexican entity) and annual sales
originated in Mexico.
3. Capital stock of the Mexican target company.
4. Value of sellers’ and purchasers’ assets and annual sales (worldwide).
11
When Concentration is notified, the burden of proof is on the Economic Agent. If the IA begins an
investigation over a transaction that has not been notified, the burden of proof shifts and the IA has the
responsibility of proving the economic harm to the market.
12
The transaction needs to meet only one of the thresholds above for it to require notification to the
Commission. The authority has up to one year to investigate and rule over any concentration that is carried
out.
14. 5.4 EFFICIENCIES
As we have mentioned before, Economic Agents subject to investigations are given the opportunity
to demonstrate efficiencies that compensate and overcome the anticompetitive effects of their
actions.
Efficiencies are considered: (i) the Introduction of new good or service; (ii) the Utilization of
perishable goods; (iii) Cost reduction from production processes, asset integration, scale using same
production factors; (iv) Innovation; and (v) Improved quality.
6 PRACTICAL ASPECTS
The Mexican antitrust authority is highly regarded amongst Mexican institutions. Nonetheless, this
kind of Law and practice are relatively new in Mexico, and since its origins in the 90’s, COFECE has
faced constant challenges due to the particularities of the Mexican environment and uncertainty by
the Law.
In the fourth quarter of 2015, COFECE attended 154 cases. The authority concluded 89 proceedings,
31 corresponding to concentrations; 50 corresponding to public tender opinions, participants in
public tenders, concessions and licenses; and 8 regarding anticompetitive practices.
The following table shows the actions performed by COFECE in order to implement the competition
policy during the fourth quarter of 2015:
Antitrust cases - COFECE
Fourth Quarter 2015
Type of cases Number of cases
Cases conducted
Pending from previous quarter 85
Concentrations 19
Public tenders, concessions and licenses 38
Anticompetitive conducts and illegal
concentrations
26
Essential facilities and barriers to economic
competition
2
Filed in reporting quarter 69
Concentrations 36
Public tenders, concessions and licenses 20
Anticompetitive conducts and illegal
concentrations
13
Essential facilities and barriers to economic
competition
0
Concluded 89
Concentrations 31
Public tenders, concessions and licenses 50
15. 6.1 KEY ASPECTS OF NATIONAL STRUCTURE
The Mexican economic structure has a few key particularities derived from the national history
which make antitrust enforcement a complex task in some sectors.
The first relevant point is that in Mexico exists a very complex System of Trading Chambers. These
chambers are basically sectorial organizations with open forums where key players in each industry
share information regarding prices, costs, strategies, etc. This system was installed in Mexico back
in 1874 with the purpose of strengthening the economic system by providing an open forum for
producers and manufacturers for them to share growth strategies and evaluate possible synergies.
The System of Commerce Chambers rapidly grew and began to have sectorial associations.
These Chambers still exist today and still meet today. Amongst the main Associations in Mexico are
the Automotive Manufacturer Chamber, Farmers Association, Retailers Chamber, and Housing and
Developers Chamber.
It is beyond explanation how these models do not fit the current Antitrust National Policy. But
regardless of the risk these chambers pose to free competition, it is not possible to make these
chambers disappear. However, COFECE has done vast campaigns with these associations and their
leaders in order to help them understand the new regulations, and has made efforts to educate the
private institutions belonging to this chamber system.
Anticompetitive conducts and illegal
concentrations
8
Essential facilities and barriers to economic
competition
0
Pending for next quarter 65
Concentrations 24
Public tenders, concessions and licenses 8
Anticompetitive conducts and illegal
concentrations
31
Essential facilities and barriers to economic
competition
2
Constitutional Appeals
Suits pending from previous quarter 52
Suits filed in reporting quarter 10
Suits concluded in reporting quarter 4
Suits pending for next quarter 58
Opinions to regulations, laws, law initiatives or others
Total opinions issued pursuant to article 12
of the Federal Law on Economic
Competition
3
Opinions issued pursuant to the agreement
between COFECE & the Federal Commission
for Regulatory Improvement (COFEMER)
2
Opinions issued ex-oficio or per third party
requests
1
16. The second relevant point is the existence state-owned enterprises. The Mexican Government has
strong participants in the healthcare system,13
in the energy sector,14
and in the financial sector.15
In Mexico’s case, this has worked both for and against the competition authority as COFECE has filed
cases against a Mexican institution (PEMEX is accused of Tying)16
, but also has gotten valuable
information from national institutions that has helped open investigations (IMSS asked COFECE to
investigate possible collusion in its insulin suppliers)17
. This remark shows, to an extent, two key
aspects of the nature of state-owned institutions in Mexico based on each of the cases to which
reference is made: on the one hand, having a big national institution creates a market competitor
with a lot of market power, enough to force its customers into anticompetitive structures. On the
other hand, state-owned institutions are ran under tighter controls than private institutions, thus
detecting anticompetitive practices could be easier.
6.2 CONCENTRATIONS
According to COFECE’s most recent reports18
the most prominent cases regarding concentrations in
Mexico are the ones between transnational companies,19
when an international company seeks to
acquire a Mexican company20
or when two big national companies seek to merge.21
A good remark made by current practitioners both on the enforcement side and the corporate side
is that the Mexican Law has established clear parameters, thresholds and guidelines regarding
Merger Control and since its last amendment in 2014, the Mexican Antitrust Law has not faced
problematic scenarios derived from ambiguities.
In the fourth quarter of 2015, 55 concentrations were analyzed, out of which 31 were concluded.
Of the totality of concluded cases, the Commission’s Board authorized 26 concentrations,
13
IMSS (Instituto Mexicano de Seguro Social) and ISSSTE (Instituto de Servicios de Seguridad y Salud a los
Trabajadores del Estado) are two healthcare providers owned by the government. They supply public
healthcare and medicines to state employees and the general population.
14
PEMEX is the state owned institution for drilling and processing oil.
15
INFONAVIT is a state owned financial institution that provides housing credits for authorized workers.
16
PEMEX is accused of tying: PEMEX was forcing fuel distributors that bought fuel from PEMEX to use
PEMEX’s own pipes to transport the fuel from the refineries to the gas stations. PEMEX was fined 650 million
Mexican Pesos (approximately 50 million USD at the exchange rate corresponding to the time of the case).
(CNT-017-2013). This case was specially debated as per Mexican Law, the fuel industry in Mexico is only
owned by the estate thus is not subject to the antitrust law, however the distribution is not part of that
agreement.
17
In 2014 IMSS filed a complaint with COFECE for alleged collusion in the insulin market. COFECE opened an
investigation which resulted in 4 pharmaceuticals involved. The accused parties were found guilty and fined
with 150 million Mexican Pesos each (approximately 11 million USD at the exchange rate corresponding to
the time of the case) (IO-003-2006).
18
Annual Reports by COFECE for 2010 – 2015.
19
Nestle-Pfizer merger: it was blocked as the new entity would hold a monopoly over mild production with
over 80% of market share.
20
Sherwin Williams buys COMEX (CNT-054-2014) concentration blocked. Both participants combined would
hold over 58% of the market share in the production and distribution of interior and exterior paint.
21
Soriana-Comercial Mexicana (CNT-021-2015): the merger was allowed with conditions. Even though both
competitors were in the same market, they were located in different geographical areas. However, there
were 14 stores in overlapping places which were instructed to divest.
17. conditioned 2, and denied 1, and 3 other concentrations were terminated by the parties. By the end
of 2015, 25 cases remained for analysis in 2016. These figures could be interpreted as merging
parties having knowledge of the law as the predominant figure comes from allowed transactions.
Concentration cases by type of resolution
Fourth Quarter Report COFECE 2015
Cases Total
Pending from previous quarter 19
Filed in reporting quarter 36
Concluded 31
Authorized22
26
Conditioned 23 1
Denied24 1
Others 25 3
Pending for next quarter 24
ANTITRUST IN BRAZIL
7 DEFINITION
With the constitution of 1988, the Brazilian State ceased to be an economic agent and, began its
movement towards becoming a normative and regulating one. Its new objective is to ensure that
private enterprises get access to most of the sectors that were so far reserved for the State.
In Brazil, the protection of competition begins to take on a greater role from the Federal Constitution
of 1988 that listed free competition as a principle of economic order. And then, the publication of
the competition law in 1994, made it official (Old Law). These were the origins of the Brazilian
Competition Policy system (BCPS).
The BCPS works with two approaches very similar to the Mexican competition system: the first
refers to the repressive role, also known as behaviors control which investigates and prosecutes
possible violations of the economic order by economic agents. The second is the preventive or
22
An authorized concentration is that authorized by the Board in the terms notified by the economic agents
involved in the transaction.
23
A conditioned concentration is that in which the Board conditions the authorization to the fulfillment of
certain actions in order to eliminate potential risks to competition that may result from the transaction.
24
A denied concentration is that in which the Board rejects its authorization due to possible risks to
competition in the relevant market.
25
“Others” means transactions not filed, not admitted to process or terminated by the parties. A
concentration is deemed not filed when the economic agents involved do not deliver the information
requested for the merger control analysis. A concentration not admitted to process is that in which the
Commission is not the competent authority to execute the analysis. A terminated concentration happens
when the economic agents decide not to continue with the merger control review.
18. structures control role, where concentration schemes that may limit or harm competition, or may
result in domain of relevant goods or assets are inhibited.
8 ORGANIZATION
According to the Old Law, the former antitrust law, the BCPS was formed by three authorities: CADE
(Administrative Council for Economic Defense); Secretariat of Economic Law, of the Ministry of
Justice (SDE); and the Secretariat for Economic Monitoring, of the Ministry of Finance (SEAE)-
The two Secretariats were responsible for the issuance of non-binding opinions to CADE, which was
the authority responsible for rendering the final binding decision. This complex organization,
however, was subject to criticism by lawyers and economists, and even by some of CADE’s own
commissioners, since it caused inefficiency and, consequently, delay in the antitrust analysis.
On December 1st
, 2011, the Old Law was amended (the Old Law, as amended, is the New Law).
According to the New Antitrust Law, the DE and CADE merged into a new CADE, and the former
SEAE will remain independent although most of its powers were transferred to CADE.
As of 2011, the Law regulates six types of administrative “proceedings” established to prevent,
investigate and suppress violations of the economic order:
(i) Administrative proceeding for an inquiry to investigate an alleged violation (“Propose”);
(ii) Administrative proceeding to carry out the investigation of anticompetitive practices
(“Investigate”);
(iii) Administrative proceeding to impose administrative sanctions for violations practices
(“Sanction”); 26
(iv) Administrative proceeding for the analysis of acts of economic concentration;
(v) Administrative proceeding to investigate non-notified transactions;27
and
(vi) Administrative proceeding to impose incidental fines.28
8.1 CADE
The new CADE is structured by the following bodies:
1. The General Superintendence (“GS”), which analyzes and issues decisions on antitrust
investigations and review procedures;
2. The Administrative Tribunal of Economic Defense (“Tribunal”), CADE’s ultimate instance;
3. The Department of Economic Studies (“DEE”), responsible for the issuance of economic
studies to assist the General Superintendence and the Tribunal.
26
(i), (ii), and (iii) are addressed in the PROCEDURE OVERVIEW section, as these three proceedings are the
stages of an investigation.
27
Proceedings (iv) and (v) are part of the Merger Control framework of the Law and will be addressed in the
corresponding section of this report.
28
The administrative procedure to impose incidental fines is a new type of administrative procedure that did
not exist under the Old Law. This procedure is related to procedural issues, such providing false information
by parties.
19. 8.1.1 The General-Superintendence
The General-Superintendence is formed by one General-Superintendent and two Assistant-
Superintendents. The General-Superintendent is appointed by Brazil’s President for a 2-years term,
renewable for an additional 2-years, and approved by the Senate. The two Assistant-
Superintendents are appointed by the General-Superintendent.
The General-Superintendence’s duty is to monitor, investigate, prosecute and issue decisions in
connection with the imposition of fines upon defendants and merger clearance.29
In essence, the General Superintendence is the part of CADE that investigates, evaluates and makes
a preliminary decision regarding anticompetitive practices. It is relevant to mention that unlike
under the Mexican Antitrust System30
, it is within CADE’s GS capabilities31
to not only conduct the
investigation, but also to issue sanctions for every case.
8.1.2 Tribunal
The Tribunal is formed by six Commissioners and one Chairman. Each member of the Tribunal is
appointed by Brazil’s President and approved by the Senate, for a 4-years term. It used to be terms
of two years, but most investigations lasted for over two years which raised doubts on the
appropriateness that new members were appointed in the middle of an investigation.
The Tribunal is the highest instance in CADE’s structure and its prerogatives are similar to an appeals
court. It is responsible for: (i) rendering the final judgment in antitrust investigations and antitrust
review procedures as decided by the General-Superintendence; (ii) approving commitment
agreements with parties; and (iii) analyzing preliminary measures adopted by the General-
Superintendent. Additionally, the Tribunal may request the adoption of effective measures by other
entities of the government in order to enforce the New Antitrust Law.
8.1.3 The DEE
The DEE is responsible for issuing economic opinions by its own initiative or at Tribunal’s or the
General-Superintendent’s request. This body was created with the purpose of assisting CADE in the
economic aspects of its decisions. This department is led by a Chief Economist “who possess a
reputation for moral integrity and outstanding knowledge of economics” as subscribed by the Law.
The Chief Economist may and will (upon request) assist to the Tribunal’s hearings and will actively
participate but he will not have a voting right. His/her main role in these hearings is to emit opinions
and validate the technical and scientific accuracy of the analysis and decisions made by CADE.
8.2 SEAE
Under the New Law, SEAE’s activities are related solely to competition advocacy. The economic
analysis on antitrust review procedures that was performed by SEAE was transferred to CADE.
29
GS faculties and tools are addressed in the Procedure Overview section of this report.
30
Under the Mexican Antitrust Law, it is not within the capabilities of the Investigative Authority to issue
sanctions for economic conduct violations. The IA’s role is limited to issuing an opinion on culpability.
31
The GS’s faculties and enforcement tools will be addressed in deeper detail in the PROCEDURE OVERVIEW
section of this document.
20. The SEAE’s most relevant work now is delimited to emit opinions on drafts of acts or new standards
related to the promotion of economic competition. Moreover, they conduct scheduled studies that
serve as an input to the Ministry of Finance in the creation of sectorial public policies.
8.3 ATTORNEY’S GENERAL OFFICE
The Attorney General’s Office (“AGO”) associated32
with CADE is a branch of the Ministry of Justice
that assists CADE in all of their proceedings. The AGO provides legal advice to CADE when required,
adopts judicial measures to help CADE enforce their decisions, and issues opinions before the
Tribunal upon request.
This Office has a Chief Prosecutor,33
whose main role is to participate without a right to vote, in the
meetings held by the Tribunal, providing assistance and clarification regarding CADE’s proceedings.
Moreover, when a case reaches the Tribunal, the AGO will represent the GS before the Tribunal and
will then act as the prosecutor.
9 PROCEDURE OVERVIEW
9.1 PROPOSAL, INVESTIGATION AND SANCTION
Every case that CADE prosecutes, is originated at the GS. Under the Old Law, the proposition and
investigations in connection with anticompetitive practices were carried out by SDE. At the end of
its analysis, SDE would issue a non-binding opinion to CADE, which would analyze the evidence and
then render the final decision. Considering the merger of CADE-SDE, the tasks once performed by
the Secretariat are now under the responsibility of the General-Superintendence.
In this sense, the General-Superintendence is responsible for: the “Administrative proceeding for an
inquiry to investigate an alleged violation” proceeding, which in essence is, proposing an
investigation. The GS will initiate this proceeding using its own intelligence34
or by a third party
complaint.
Once the Investigation has formally been proposed, the GS officially begins the “Administrative
proceeding to carry out the investigation of anticompetitive practices”. During this proceeding, the
GS itself carries out the investigation. In order to comply with this duty, among the most remarkable
faculties, the GS is able to: (i) to request search and seizure warrants in Courts; (ii) to require
documents from third parties and entities of the government; (iii) to request information from
companies and individuals; (iv) subpoena individuals for oral explanations and declarations;
(v) andconduct inspections being able to copy any type of data. After the “investigation”
proceeding’s due diligence is completed, the GS moves on to the next phase of the procedure.35
32
The Attorney’s General Office associated with CADE is a branch of the Ministry of Justice. This office is not
part of CADE but it plays an important role representing the General Superintendence before the Tribunal.
33
The Chief Prosecutor is appointed directly by the President.
34
GS’s own intelligence comes from data and reports issued by the DEE.
35
At the end of the “investigative phase”, the GS may decide to dismiss a case. The only cause described in
The New Law for a case to be dismissed is “lack of grounds”.
21. Finally, the GS begins the Administrative proceeding to impose administrative sanctions for
violations practices (“Sanction”). If an Economic Agent is found guilty, harm is determined, a fine is
imposed, and a remedy is proposed by the same GS.
9.1.1 Violations
The Brazilian Antitrust Law sets forth three basic principles from which all violations derive. These
acts are: (i) to limit or restrain free competition; (ii) to control the relevant market of goods or
services; (iii) to arbitrarily increase profits; and (iv) to abuse dominant power.36,37
Following to the framing of these principles, the acts38
that constitute an economic violation are: (i)
to agree with competitors in price, production, market segmentation, pricing conditions; (ii) to agree
upon business practices; (iii) to prevent access of new entrants to a market; (iv) to prevent access
to competitors to a source of input; (v) to require or grant exclusivity; (vi) to impose on the trade of
distributors (to refuse to sale goods or services); (vii) to monopolize intellectual property; (viii) to
sell goods or services unreasonably below the cost; and (ix) to condition the sale of a good or service.
Unlike other legislations39
, the Brazilian Antitrust Law makes no distinction between per-se
violations and monopolistic practices.
9.2 TRIAL
Once the GS has sanctioned a case, the Economic Agent could just accept the GS’s decision or it
could ask for a review by the Tribunal, where the trial takes place. This trial resembles more that of
the United States system. The trial sessions of the Tribunal are public and will have the GS, the Chief
Economist, and parties relevant to the case, submit an oral testimony. Additional facts and evidence
are welcome at this stage. By the end of the trial, the Tribunal will then vote in favor or against the
GS sanction. Additionally, the Tribunal has the ability to change the GS’s sanction and emit a new
sanction based on their interpretation of the findings.
9.3 AGREEMENTS
The New Antitrust Law establishes types of official “commitments” that CADE is entitled to do with
third parties as a result of any of their investigations. Among the most relevant ones are: (i) the
performance commitment agreement, used to remedy mergers with possible anticompetitive
effects; (ii) the cease and desist commitment, executed between CADE and the parties in
anticompetitive practices investigation; and (iii) leniency agreement, derived from CADE’s leniency
programs.
36
Dominant Market position is assumed when a company or group of companies control over 30% of the
Relevant Market.
37
Achieving a dominant position in a market by a natural process is not considered a violation.
38
The Brazilian Antitrust Law frames XIX different violations under its article 36; only the most relevant were
noted.
39
Mexican and U.S. competition policies make clear distinctions between per-se violations and monopolistic
practices.
22. 10 LENIENCY PROGRAM
The Brazilian Antitrust Law or “New Law”, empowers CADE, through the General Superintendence,
to enter into leniency agreements that may “terminate punitive action or reduce up to two thirds
the applicable penalty”40
. However, there are no provisions in the Law as for what infringements
are covered by the Leniency program.
The main requirements of the Brazilian Law resemble much those of the American Law: (i) identify
other members involved in the violation; (ii) provide all documentation necessary for the
investigation; (iii) be the first to report the violation in the investigation; (iv) cease all involvement
in the violation.
The Leniency program is only available for the first Economic Agent that brings a case to CADE. If
CADE has no knowledge on the case, the Economic Agent gets full administrative leniency; if CADE
already has knowledge on the case, then the penalties could only be reduced up to two thirds.
There is no leniency per-se for any other Economic Agents that come behind the first applicant;
however, there is the Cease and Desist Commitment to which all the other Economic Agents
involved in the infringement may apply. The fine discounts reach up to 50% and decrease according
to how many applicants came first and how advanced is the investigation. And even still, if an
Economic Agent is not able to apply to any fine-reduction program, it could always apply to a
leniency program related to another violation; which would grant him leniency in the second
violation and fine reductions in the first violation.
The leniency program gives the applicant criminal immunity for any prosecution conducted by CADE;
nonetheless, the program does not protect the applicant from civil liability. Therefore, after the
signature of the leniency agreement, the applicant is exposed to damage claims in Brazil.
11 MERGER CONTROL
As per the New Antitrust Law, the Antitrust Review Proceeding is now carried out by the GS, which
will analyze the transaction and issue a decision. 41
There is a threshold which separates the transactions that require notification to the authority and
those which don’t. Companies have the obligation of notify the authority if: (i) one of the economic
agents involved in the transaction registered gross sales in the country of at least R$400 million in
the last fiscal year; and (ii) one other economic agent involved in the transaction registered gross
sales in the country of at least R$30 million in the last fiscal year.
40
Article 84 of the New Law.
41
The Antitrust Review Procedure before the New Antitrust Law was issued required the coordination of the
three bodies of the SBDC—SDE, SEAE and CADE. The analysis was made by SEAE, which would issue a non-
binding opinion. This non-binding opinion would subsequently be signed by SDE, and only then be sent to
CADE for the final decision.
23. The concentrations that require notification are submitted directly to the GS. They review the case
and directly emit a resolution. In this sense, the General-Superintendence can: (i) approve the
transaction without restriction; (ii) approve the transaction with restrictions; (iii) disapprove the
transaction; or (iv) declare the transaction as “complex”. Most decisions do not involve the Tribunal.
In case of approval of the transaction without restrictions, the General-Superintendence’s decision
will not be revised by the Tribunal and, therefore, will be CADE’s final decision. Under this result,
third parties42
may challenge the decision of approval without restrictions, and the case is brought
up to the Tribunal.
If the transaction is approved with restrictions, it is the duty of the Tribunal to determine the
restrictions that they find necessary to mitigate any negative effects of the concentration over the
relevant market in hand. In order to carry out this duty, the Tribunal is entitled to issue orders to: (i)
sale assets; (ii) spinoff part of the company; (iii) transfer part of corporate control; (iv) licensing part
of intellectual property rights; and (v) any other necessary to eliminate effects.43
If the transaction is disapproved by the GS, the Economic Agents may submit a plea to the Tribunal
for reconsideration. The Economic Agents will be able to attach additional information only once in
order to support their case. Following this, the Tribunal judges the new information and decides
whether to reevaluate the case or not. The new decision might be also a disapproval, an approval,
or an approval with restrictions.
Additionally, there is the possibility where the GS declares the transaction as “complex”44
. In this
case it means the GS is unable to evaluate the economic effects of the merger, and the case is passed
directly to the Tribunal.
It is relevant to mention that no transaction that exceeds the established threshold can be carried
out without CADE’s authorization. This was a very important achievement that changed from the
Old Law45
to the New Law. The General-Superintendent has now 120 days to issue a decision, and
may request additional 60 days in complicated cases, and then 90 additional days, subject to the
approval of the Tribunal in extreme situations.
Finally, it is also important to point out that the administrative proceeding to investigate non-
notified transactions already existed under the Old Law, but was carried out by SDE. Under the New
Antitrust Law, it will be carried out by the General-Superintendence, which has up to 1 year to
investigate any merger.
42
The third parties which are made reference to are most frequently Worker Unions or Trade Organizations
that result affected with the transaction.
43
Nowhere in the law or its attachments indicates a clear delimitation for the Tribunal when it refers to “any
measure”.
44
The Brazilian antitrust Guidelines set the parameters under which a transaction is deemed as “complex”.
45
Under the Old Law, transactions could be carried out before authorization.
24. 12 PRACTICAL ASPECTS
Brazilian antitrust has improved greatly since it first started a couple of decades ago. Nonetheless,
it still has many areas of opportunity for growth and development.
In the following section, I will explore the most prominent areas of opportunities in the Brazilian
Antitrust enforcement based on the experiences of previous cases.
Before moving forward, it is important to point out that there is no doctrine of judicial precedent in
Brazil, which means that CADE’s Commissioners are under no obligation to follow past decisions in
future cases. Under CADE’s internal regulations, legal certainty is only achieved if CADE rules in the
same way at least ten times, after which they codify a given statement via the issuance of a binding
statement. To date, CADE has issued nine binding statements, all but one related to merger review.46
12.1 KEY ASPECTS OF NATIONAL STRUCTURE
Brazilian economic structure has some particularities of its own. One of the matters that stand out
specially regarding antitrust enforcement is their banking industry.
The Brazilian State’s role as a banker began thirty years ago. Continuing a policy that started in the
early 19th
century, the successive governments chose to bail out failing banks rather than to close
them. In addition, during the 1960s and 1970s both federal (central) and state governments
introduced several development banks and most states started commercial banks. Nonetheless,
due to bad administrations and heavy bureaucratic burdens, by 1990 nearly all the state banks faced
bankruptcy and several had been intervened by the federal government whose stated intention was
to privatize them.
The bank privatization story in Brazil began in late December 1994 and is still continuing. However,
due to Brazil’s “patrimonial capitalism”47
form or leadership, the government still retains two of the
five largest banks in the country48
. Additionally, regardless of the leadership philosophy, the
rationale behind this has a strong fundament: due to country instability and unpredictable future
conditions, private investment in the financial sector has been unable to meet the needs of long-
term funding. As of 2015, “Banco do Brasil” is the main supplier of long term funding in the country,
yet it is still regarded as one of the most inefficient institutions in the country and has been operating
under loss for years.
As for antitrust enforcement, we may see how this poses a problem. Theoretically speaking, if a
government controls one of the competitors in the market, this would be the means to ensuring fair
competition conditions and a legal framework would not be required. Nonetheless, if such
competitor is incapable of keeping up with the market, the government needs an antitrust
46
Binding Statement No. 7, whereby it is an antitrust violation for a physicians’ cooperative with monopoly
power to prevent affiliated physicians from being affiliated with other physicians’ cooperatives and medical
insurance plans.
47
It is the means by which a state organizes and controls the economy to consolidate its rule
48
As of September 2015, the five largest Brazilian banks by asset volume were: Banco do Brasil (BB- State-
owned), Itau, Caixa Economica Federal (CEF- State-owned), Bradesco, and BNDES (relbanks.com)
25. enforcement authority. This environment bring an evident issue: the government could be facing
itself at some point, which makes no sense.
In 2015, CADE started an investigation involving 15 financial institutions including transnational
giants such as HSBC, Deutsche Bank, and Citigroup under suspicion of manipulating exchange rates.
The alleged crimes go back as far as 2007 when, upon request of Banco do Brasil, the financial
institutions began exchanging information through a platform provided by Bloomberg.
Additionally, for the first time in antitrust history, CADE opened an investigation against a state-
owned institution. In 2014, CADE announced officially an investigation against Banco do Brasil for
exclusively dealing contracts to supply payrolls to civil servants.49
This case has received intense
political pressure as public servants could be involved. Although the case is still unsolved, CADE has
voiced “it could take from several months to years as we are engaging institutions like our own”.
12.2 CONCENTRATIONS
According to the professionals50
interviewed that are currently involved in Brazilian antitrust, the
main issue that CADE is facing today remains in the Merger Control arena.
CADE’s regulations are somewhat new, and despite having been modified a couple of times in the
past years, there are some ambiguities and areas subject to interpretation. This is the case of filing
a transaction: it should be a very straightforward assessment. Nonetheless, in practice it has proven
to be challenging to law practitioners in Brazil who most of the times have different interpretations
of the same criteria.
The Brazilian Law establishes that: (i) the law applies to practices performed fully or partially in Brazil
or that produce or may produce effects in the national territory, and (ii) a foreign company that
conducts transactions or has branches, agencies, subsidiaries, offices, establishments, agents or
representatives in Brazil shall be deemed domiciled in national territory.
Brazilian lawmakers have disregarded where the merger is taking place and the nationality of the
merging parties focusing only on the merger’s ability to produce effects in Brazil.
Under this legal framework, it is accepted that the effects test may be met in two circumstances.
The first is when the merger produces direct effects in Brazil, i.e., when the merging parties are
either organized in Brazil or have a branch, agency, subsidiary, office, establishment, agent or
representative in the country. The second is when the merger produces indirect effects in the
country. This situation is usually associated to foreign transactions in which the target has export
sales to Brazil.
However, “jurisdiction based on local activities or exports without any clear local nexus has proved
to be inadequate”. There is a large number of filings for the purchase of companies with extremely
low sales to Brazil and relative to the organization of joint ventures among companies that simply
met the general turnover threshold requirements, regardless of whether Brazilian assets were being
49Case 08700.003070 / 2010-14
50
Beatriz Branda, Brazilian lawyer specialized in Corporate Law; Marcela Mattiuzzo, technical adviser in
CADE’s General Super Intendance
26. contributed to the joint venture, or whether it would compete in the Brazilian market or serve local
customers.
In other words, no merger filing should be required where the transaction is unlikely to have a
significant, direct and immediate economic effect within the Brazilian territory. The established
thresholds take into account the Brazilian activities of the buyer group and the seller group as a
whole, instead of looking at the target’s activities. As such, the thresholds are unable to filter
concentrations that are unlikely to result in anticompetitive effects in Brazil.51
Thus, CADE should
probably add a guideline that deals with this issue.
Brazilian thresholds for concentration filing also pose challenges to CADE. The first of them is to
determine which entities should be deemed parties to the same “economic group” of the party
directly involved in the merger, for the purposes of turnover calculation.
The Law defines an economic group as comprised of: (i) the companies under common control,
internal or external, and (ii) the companies in which any of the companies under common control
holds directly or indirectly at least 20% of the total or voting capital stock.
The new regulation gives room for the interpretation that a group should be comprised of (i) the
party directly involved in the transaction (“Merging Party”); (ii) its ultimate controlling entity
(“Parent Company”); (iii) all the other companies directly or indirectly controlled by the Merging
Party or the Parent Company (“Companies under Common Control”); and (iv) all the companies in
which the Merging Party, the Parent Company or any of the Companies under Common Control
holds directly or indirectly at least 20% of the total or voting capital stock (“Subsidiaries”).
But in practice it has happened that a Merging Party with five shareholders holding stakes of 20%
each and not bound by any shareholders’ agreement would belong to five different economic
groups, instead of being itself the parent of a more limited corporate group defined by control or
20% interest in a downstream line drawn from the Merging Party. Assuming that each of the 20%
shareholder in the merging party is subject to the common control of two shareholders, should one
take into account at least ten economic groups? How far should one go up from the Merging Party
to reach the top of its corporate group?
Another practical difficulty in turnover calculation refers to groups that buy and/or sell companies
in the course of the year preceding the transaction. For instance, company C belongs to group G and
is party to a merger in 2014. To assess whether the turnover threshold is met, company C must
calculate group G’s turnover in 2013. In October 2013, group G’s parent company entered into an
agreement to acquire target T, but the transaction was only closed in January 2014. Should C take
T’s 2013 turnover when calculating the group revenue?
51
The organization of a joint venture for the provision of automotive services in Europe; ZF Friedrichshafen
AG and Knorr-Bremse Systeme für Commercial Vehicle GmbH (Merger No. 08700.001204/2013-13)
27. 12.3 REMEDIES
The Brazilian Law establishes no parameters on how a merging party may or may not address and/or
negotiate with CADE the remedies, if required, for a transaction. Should the remedies be negotiated
with the General Superintendence or with the Tribunal?52
Merger cases that require remedies have to be submitted to the Tribunal. But as we cleared in the
Merger Control Overview section of this paper, the GS includes the remedies they deem necessary
to preserve competition. On this matter the merging parties may negotiate with the GS the
remedies, or they may wait until the case reaches the Tribunal and negotiate remedies with the
commissioners directly.
Moreover, the Law doesn’t mention a guide regarding behavioral commitments or structural
changes. Evidence shows that CADE opts for either remedy indistinctively. An example of a case in
which CADE negotiated a combination of structural and behavioral remedies is the Sadia/Perdigão53
case. On the other hand, the Tim/Telefónica54
case is considered an important case in which
behavioral commitments prevailed.
The most popular behavioral agreements made by CADE so far are: (i) to not acquire other
companies; (ii) to take no actions to oppose new entrants; and (iii) to address problems with
essential facilities in regulated industries.
12.4 CARTEL ENFORCEMENT
12.4.1 Types of accusations.
The following list shows the types of cartel that have been investigated since 2003.
Price Fixing 11
Bid Rigging 3
Publication
Information
3
Market Allocation 2
Collective Negotiation 2
Boycott 2
As we may see, Price Fixing is the most prevalent of the cases prosecuted. But this may be in part
attributed to the fact that it is one of the easiest to investigate55
and whose effects are very easy to
spot.
52
Since the New Antitrust Law, only 1 transaction has been blocked for not reaching an agreement in the
remedies up to the latest report from CADE in 2015.
53
CADE, Perdigão S/A and Sadia S.A(Merger No. 08012.004423/2009-18) (July, 2013).
54
CADE, Mediobanca – Banca di Credito Finanziario S.p.A; Intensa Sanpaolo S.p.A; Sintonia S/A; Assicurazioni
Generali S.p.A; Telefónica S.A. (Merger No. 53500.012487/2007) (April 28, 2010).
55
This was the general consensus of the interviewees who assisted in this document.
28. From 1994 to around 2003, the Brazilian antitrust authorities heavily focused on merger reviews.
Starting 2003, the antitrust authorities established a hierarchy of antitrust enforcement that placed
anti-cartel enforcement as top priority. A significant step in this direction was the creation of the
Leniency Program.
Approximately fifty leniency agreements have since been signed, the majority with alleged members
of international cartels, and more than 400 search warrants have been served since 2003.
The table below provides a summary of the main cartel cases sanctioned by CADE and the duration
of the investigation:
CASE Filing of the
Investigation –
Adjudication
Fines (USD)
Marine Hose 2007 – 2015 5 million
Hospitals 2000 – 2015 3.8 million
Metal Detectors for
Security Doors
2008 – 2014 4.4 million
Cement56 2006 – 2014 1.8 billion
LPG distribution 1997 – 2014 3.7 million
Air Freight 2007 – 2014 29 million
Copyright Collection 2010 – 2013 12.6 million
Air Cargo 2006 – 2013 100 million
Hydrogen Peroxide 2004 – 2012 47 million
Industrial Gases 2003 – 2010 800 million
Steel 2000 – 2005 120 million
Security Services 2003 – 2007 15 million
Vitamins 1999 – 2007 5.7 million
12.4.2 Settlement Program
An important turning point in the cartel prosecution was the Brazilian Settlement Program
established in 2007, which allows firms to end an investigation through an agreement with the
authorities before the official sanction is filed.
A settlement agreement may be reached at any point of the investigation, either with the GS or with
the Tribunal. Nonetheless, defendants may only try to reach a settlement once.
The table below shows a list of the most important cases that have reached a settlement
agreements between CADE and the defendant:
56
In May, a CADE tribunal fined six companies, six individuals, and three industry organizations a record BRL3.1
billion (US$1.4 billion) for conspiring to fix prices, divide the market, and create barriers to entry in the cement
market. This has been the most notorious case for CADE so far.
29. CASE Filing of the
Investigation –
Adjudication
Fines (USD)
DRAM 2009 – 2015 14.4 million
IT Services 2012 – 2014 400 thousand
LCD 2008 – 2014 15 million
LPG Distribution 2005 – 2014 9.7 million
Ambulances 2005 – 2014 12.5 million
Underground
Cables
2010 – 2013 480 thousand
Plastic Bags 2006 – 2008 8 million
Since 2013,57
CADE has executed approximately sixty settlements, mostly in connection to cartel
investigations. From December 2014 to February 2015 alone, the Court approved thirteen
settlements with defendants in domestic and international cartel cases.
The current enforcement practice shows that CADE has been open to negotiate settlements at all
stages of the proceedings. Accordingly, three of the aforementioned settlements were entered into
only a few months after dawn raids had been conducted in connection with the case.
12.5 INTERNATIONALIZATION
Brazil has been increasing its cooperation with foreign antitrust agencies in cartel cases. Brazil’s
antitrust authorities have executed cooperation agreements with the U.S. Department of Justice,
the European Commission, Argentina, Canada, Chile, China, Equator, France, Peru, Portugal, and
Russia.
The Brazilian authorities have requested the assistance of foreign authorities in several occasions to
conduct an investigation58
and, more recently, with the increasing number of dawn raids, foreign
authorities and injured third parties have become interested in evidence seized in Brazil.
12.6 CRIMINAL PROSECUTION
Apart from being an administrative offense, cartel is also a crime in Brazil, punishable by criminal
fine and imprisonment ranging from two to five years according to Brazil’s Economic Crimes Law.
57
In 2013, a provision to the Law was placed. This provision was called “umbrella provision”, which shielded
employees from administrative liability in settlement agreements, even if they are not active part of the
settling party. Nonetheless, this provision is only applicable to settlements and not to leniency programs. So
this is a clear incentive for an individual to lean towards a settling agreement. On the other hand, leniency has
these advantages: in a settlement agreement, the parties have to deal with administrative and criminal
investigations separately; and in a settlement, criminal immunity is no longer available.
58
In February 2009, Brazil’s administrative and criminal authorities launched the first simultaneous dawn raid
in connection with an international cartel investigation, together with the U.S. Department of Justice and the
European Commission.
30. Also, this Law specifically targets fraudulent bidding practices, punishable by criminal fine and
imprisonment from two to four years.
CADE has created a legal framework for the relationship with the criminal authorities with the
purpose of reducing legal uncertainty between agencies. Moreover, the Brazilian Police created the
“Intelligence Center for Cartel Investigations” in 2007, to advance cooperation efforts in
investigations of cartels.
More than 350 executives are facing criminal proceedings in Brazil for alleged cartel offenses and
there is a final criminal decision sentencing 19 executives59
to pay a criminal fine for cartel offenses.
In 2014, a criminal court sentenced one defendant in an international cartel case to serve 10 years
and 3 months in prison, and also determined the payment of damages in the amount of
approximately USD 165 million. Even though the maximum statutory prison term for cartel offenses
is of 5 years, the judge found the defendant guilty on multiple counts (collusion and criminal
conspiracy)60
. Another 21 executives were sentenced to serve jail terms of two to five years for being
found guilty in cases of cartel offenses.
12.6.1 Effects of criminal prosecution on antitrust enforcement
In the past years, Brazilian Antitrust Enforcement has grown. Nonetheless, since the cartel cases
follow an administrative path and a judicial path, there have been situations in which the outcome
of an investigation is not entirely what was expected.
The judicial system and CADE are not completely aligned.61
For example, in 2013, the state of Sao
Paulo filed a civil claim against a leniency applicant to recover overspent money due to the existence
of an alleged bid rigging in connection with the construction and maintenance of Sao Paulo’s
subway. The leniency applicant got full immunity by CADE but was heavily prosecuted under civil
law. Another example is in 2010 and upon request of the Ministry of Justice, CADE for the first time
published a copy of its decision regarding a cartel violation in the generic drug market, so that
potentially injured parties could seek damages from the relevant wrongdoers. CADE found the
companies guilty of price-fixing, and the alleged injured parties sought redress in court. The judge,
however, concluded that there was no antitrust violation and therefore did not award any
compensation to the plaintiffs.62
According to law, practitioners’ involved in Brazilian Antitrust follow-on on litigation depends on the
strength of CADE’s case, and even after a final ruling has been issued by the agency, all the evidence
of the administrative investigation may be re-examined by the judicial courts, which could
potentially lead to two opposite conclusions (administrative and judicial) regarding the same facts.
59
The law makes no distinction between Brazilian and foreign executives and prosecutes both.
60
Following CADE’s investigation of the international air cargo industry, a Brazilian court imposed a record jail
sentence of 10 years and three months and a BRL378.9 million ($165 million) fine on a convicted Brazilian air
cargo executive
61 Brazilian’s Civil Code establishes that any party who causes loss to a third party, must indemnify those who
suffer the losses. Based on this statement, the Brazilian Antitrust Law included an amendment which enabled
anticompetitive violation victims to recover their losses
62
On average, judicial courts confirm over 70% of CADE’s decisions according to CADE’s latest report; 2014
31. These kind of situations have led to adverse effects on the number of leniency applicants.
Additionally, there are no clear guidelines on the Leniency Program regarding on what happens if
an agreement is not reached. Applicants and their legal counsels are heavily concerned about the
information they share with the authorities in the negotiation. There are no guarantees about the
documents being returned or destroyed, so if the negotiation reaches no agreement, they might be
used in an investigation by the authorities.
Brazil’s Congress must therefore pass new legislation that gives the leniency applicant more
protection throughout the process from liability to preserve the incentives for companies to come
forward and self-report antitrust offenses.
CONCLUSION
Economic Competition policies and legal frameworks around them are evidently “new” compared
to the rest of the legal systems. The first reference we have is the Sherman Act that took place in
United States in 1890 and the Clayton act from 1914.
If we take a look at the countries that we have analyzed in this paper, both Mexico and Brazil have
extremely recent antitrust legislations which began in the 90’s. Despite the rapid learning process
both countries have gone through, they are both still bound by inexperience, legal holes and a very
complex political and cultural environment.
13.1 STRUCTURE
As we have seen, both Mexican and Brazilian systems are very much alike in their structure.
Nonetheless, the functions and procedures carried out by each agency have small but significant
differences.
In the Mexican Antitrust System, we have an investigative agency which is considered to be
independent. Nonetheless, every recommendation made by the IA is subject to thorough scrutiny
first by the Technical Secretary and then by the Tribunal. Moreover, since the Tribunal has still the
ability to make the IA drop or open an investigation, such independence could be questioned.
Furthermore, as we discussed, in the case of per-se violations there are two investigations carried
out in parallel: one by COFECE and one by the PGR. Nonetheless, the Tribunal is entitled to ask the
PGR, to drop the case. At first glance this could seem the right course of action, but a key question
to answer is: why the need of two authorities carrying out the same trial?
Giving COFECE the authority to close both investigations has two fundamental errors. First, the fact
that a branch of the Executive might cut off the criminal investigation is in a way a form of
marginalizing the Judicial Power. Second, civil liability and criminal liability could yield different
results and one should not limit the other. Both investigations63
are carried out under different legal
frameworks64
, and might reach two different results. The fact that standards of proof and elements
63
Criminal Investigation and Administrative Investigation
64
COFECE works under “Ley Federal de Competencia” while PGR Works under the Federal Criminal Code.
32. of cause of actions differ in criminal and civil cases, opens the door for alleged-violators to go around
the law. Having two authorities reviewing the case and reaching different resolutions shouldn’t be
interpreted as the system is flawed. On the contrary, it helps the system “catch the bad guys” as it
makes enforcement more robust.
The rationale behind this attribution is that COFECE is a specialized institution while the PGR is not.
So if the specialized institution finds no liability, theoretically speaking the unspecialized authority
shouldn’t find liability either. However, in countries like Mexico where corruption indexes are high,65
giving one authority such attribution, means that there is only one “negotiation” that needs to be
done.
On the bright side, the system as a whole is very well structured. The Investigative Authority is
technically independent from the rule making authority, which grants the procedures impartiality.
Once the IA submits and investigation, the decision making entity, and the prosecuting entity have
no conflict of interest.
Regarding Brazil, we see a somewhat similar structure: there is an office that carries out the
investigation (GS) independent from the rule making office (Tribunal). However, their functionalities
are different.
In Brazil, the General Superintendence has been empowered with ruling abilities. As we discussed,
they have the authority to conduct investigations and additionally impose sanctions. At first glance
could seem as a fundamental flaw in their system as the prosecutor and the decision making
authorities are embedded in one. As not all cases must reach the Tribunal, the economic agent is at
clear disadvantage in the system. However, when a case does reach the Tribunal, the GS will step
aside and the AGO takes the role of prosecutor.
There are two main possible reasons behind this. First, to add speed to the process. According to
the law practitioners interviewed on both sides of the law, the investigation-sanction process in
Brazil was too long due to cases going from hand to hand. By empowering the GS with sanctioning
capabilities, the time between a case was filed and its consequent sanction would be drastically
reduced. On the other hand, if the case does reach the Tribunal, it is completely understandable to
have a third party take over as prosecutor to avoid bias and conflict of interests in a trial. The AGO
adds impartiality to the process.
13.2 JUDICIAL REVIEW
In the Brazilian legal system, the Brazilian Antitrust Authority (CADE) is in charge of the enforcement
of the Antitrust Law. CADE is the agency that has authority to investigate, prosecute, and decide on
conducts that may be considered offensive to competition, as set out in Article 36 of the Antitrust
Law, applying the penalties provided for in Articles 37 and 38 of said Law. CADE also has the
authority to approve concentrations.
65
Transparency International ranks Mexico in 95 out of 168 in terms of corruption: 1 being the least corrupt
and 168 being the most corrupt.
33. CADE is part of the Federal Executive Branch and reports to the Ministry of Justice. However, despite
its attachment to the Executive Branch, it is legally qualified as an “autarquia”66
, a specific type of
independent government agency, and the special legal regime established by the Antitrust Law
ensures CADE a certain level of independence from the Executive Branch.
CADE’s decisions cannot be appealed at the administrative level, however, under the Brazilian
Constitution, they can be challenged in court. Yet this appeal does not address the ruling itself, but
only the process and correct due-diligence conducted by CADE. In this sense, what the Judicial
Power will examine is that CADE’s actions were consistent with the Law.
Finally, under the Mexican Constitution, COFECE is also a branch of the Executive, and while it is
considered an autonomous and independent unit, it is also subject to review by the Judicial Power.
Once the Tribunal from COFECE rules a decision, the Economic Agent may submit an appeal before
a judicial court. Nonetheless, in this appeal, the Judicial Power will only address violations in the
process itself rather than the merits of the ruling. This is meant to ensure the legality of the acts
conducted by COFECE. 67, 68
In this sense, both systems have managed to maintain the checks-and-balances of this branch of the
executive. It is important to remark that both systems (Mexican and Brazilian) allow for a Judicial
review on the process and not on the ruling. This means that the systems are ensuring that the
experts on antitrust deal with the economic side of the case (CADE and COFECE), while the experts
on the Law (Judicial Power) deal with legality.
13.3 FINAL NOTES
It is evident that both Mexico and Brazil are still at a developing stage in their antitrust policies and
enforcements. Nonetheless, both countries are learning fast and are conducting the correct
processes in order to get better. Both Brazil and Mexico have amended their antitrust Laws more
than once in just a few years, always seeking to empower the right authorities and at the same time
trying to cover up loop-holes from previous versions of the Law while keeping up with the evolving
Economic Agents. Additionally, it is clear that despite their different structures and enforcement
tools, both agencies seek on the one hand to prosecute anticompetitive practices, but on the other
hand, they try to do it in the most professional way as principles of impartiality and legality are
ensured through their processes.
Mexico has a new set of regulations coming up to the congress which will be voted later in 2016
while Brazil has set forth an amendment to its own competition Law to be voted early in 2017.
66
Under Brazilian Law, the term “autarquia” means the legal entity created by law to perform typical
governmental activities in a decentralized way (Article 5 of the Decree Law 200/67). To a certain extent, the
“autarquias” are equivalent to the government agencies of the U.S. system
67
The Federal Judicial Branch concluded 4 constitutional appeals (amparo suits) filed against the COFECE’s
resolutions. 2 of the appeals confirmed COFECE’s decision, making the imposed fines definitive and, the other
2 granted constitutional relief and reversed COFECE’s decision.
68
The two decisions reversed were under the same grounds. Dismissal per lack of jurisdiction: Suits in which
COFECE hasdno jurisdiction to rule over the case.
34. Additionally both agencies keep fighting for more resources as according to their members, many
cases are not prosecuted due to the lack of them.
Nonetheless, despite their relative novelty and possible inexperience, both agencies have made
clear statements in their respective countries: antitrust enforcement is real, companies need to play
within the law, and nobody will be excluded from the enforcement.
35. EXHIBIT 1: COFECE STRUCTURE AND PROCEDURE
INVESTIGATIVE AUTHORITY
TECHNICAL SECRETARY
Process
carried as a
trial
Merger
Analysis
BOARD
(decision made by vote)
Absolute
Monopoly
Practice
SOURCES OF INVESTIGATION
• Ex officio
• Public source (news, public declarations, etc.)
• Information given by another authority
• Own intelligence (economic pattern analysis)
• Private Complaint
• Leniency program
PGR
A parallel process is
carried out by the PGR
(judicial authority as
AMP are per-se illegal
and considered a
crime
• Anticompetitive Conducts
• Market Investigations
Concentrations that
exceed established
thresholds
ResolutionAppeal
Specialized
Court
The
procedure is
Challenged
36. EXHIBIT 2: COFECE: MERGER CONTROL PROCESS
Filing of concentration Notice
Missing
Information
request
Submission of Additional
information
Submission of missing
information
Additional Information
request
Ruling of the Commission
* Each of these terms might be extended up to additional 40 days on request of
the Commission depending on the complexity if the transaction
**Concentration is deemed clear if no ruling is issued within legal time frame
Concentration
Rejected
Concentration
Approved
10 Business Days
15 Business Days*
15 Business Days
60 Business Days* 60 Business Days 60 Business Days**60 Business Days
10 Business Days
15 Business Days*
37. EXHIBIT 3: CADE STRUCTURE AND PROCEDURE
General Super-Intendence
Investigation
Proposal
Investigation
Sanction
Tribunal
Department of
Economic Studies
SEAE
Competition
Advocacy
Judicial
Court
Appeal: challenge the
procedure itself, but not the
resolution
Appeal Resolution
Final
Sanction
Concentrations that
exceed established
thresholds
Concentration
is classified as
COMPLEX
38. REFERENCES
International Monetary Fund
2015 Annual Report by Country
imf.org/data
United States Census Bureau
2015 Annual Report
census.gov/foreigntrade
The United States Department Of Justice
“Relative Monopolistic Practices”
justice.gov/art/relativemonopolisticpractices
COFECE
“Ley Federal de Competencia Económica de
México”
cofece.mx/normateca
COFECE
“Ley Orgánica de Competencia”
cofece.mx/normateca
COFECE
“Guia de Programa de Inmunidad”
cofece.mx/normateca
COFECE
“Disposiciones Regulatorias de COFECE”
cofece.mx/normateca
COFECE
“Lineamientos y Controles de Competencia
Económica en México” – 2014
cofece.mx/normatecaCOFECE
COFECE
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cofece.mx/cofece/index.php/promocion/ana
lisis-de-casos
COFECE
Concentración Nestle – Pfizer
cofece.mx/cofece/index.php/promocion/ana
lisis-de-casos
COFECE
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cofece.mx/cofece/index.php/promocion/ana
lisis-de-casos
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Mexicana”
cofece.mx/cofece/index.php/promocion/ana
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cofece.mx/cofece/index.php/promocion/ana
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Manatt & Jones
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June, 2014
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Reporte 2013
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Annual report 2015
bcb.gov.br
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“Lei nº 12.529, de 30 de novembro de 2011”
http://www.cade.gov.br/Default.aspx?8da07
1b848dd32f104310b2439
Thomson Legal Magazine
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Rocardo Gaillard, 2016
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Michael Harper, 2012
CADE
“Brazilian antitrust Guidelines”
cade.gov.br
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Concorrencia, Consumo e Comercio
Internacional
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Tauil & Chequer
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Francisco Rohan, 2012
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cade.gov.br
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William Smith, 2015
Science Direct
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Harry Makler, 2010
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Brazilian Banks”
July 2015, Jeffrey Lewis
CADE: news reports “Open investigation on
Brazilian Banks”; 2015 report
Transparency International
“Corruption by country” 2015
transparency.org
INTERVIEWS
Marcela Matiuzzo
Office of the President – Legal Advisor
CADE
Beatriz Branda Ponzoni
Corporate Lawyer
DLA Piper Brazil
Barbara Asiain
Corporate Lawyer
Santamarina & Steta Mexico
