In May 2024, the Tribunal of the Administrative Council for Economic Defense (“CADE”) unanimously approved Petrobras’ request to renegotiate the terms of the settlement agreements (“TCCs”, in the Portuguese acronym) signed with CADE in 2019 in the context of an abuse of dominance investigation.
In the original TCCs, Petrobras had agreed to divest eight refining units across the country and four gas distributors, but the divestment plan was revoked by Brazil’s President in 2023. Under the renegotiated terms, Petrobras is no longer obligated to divest five refineries and one gas distributor. However, CADE will supervise oil and renewable energy prices for the next three years and Petrobras will make public its general commercial policies for oil delivery to ensure non-discriminatory prices. As regards the gas sector, Petrobras will appoint independent members to the board of directors of the retained gas distributor. According to CADE’s Tribunal, the new agreement also includes robust monitoring mechanisms.
In March 2024, CADE’s Tribunal acknowledged a gun jumping infringement by two tech companies but decided not to impose fines, since previous rulings on the definition of economic groups involving investment funds for mandatory notification purposes had been unclear and inconsistent.
This decision provided relevant guidance on the matter. First, the Tribunal identified that rules that apply only to deals in which investment funds are directly involved (e.g., as buyer), had been wrongly applied to cases where funds are indirectly involved (such as when it holds a stake in the buyer), and clarified that such scenarios should be distinguished: only in the first case the economic group composition should include the investor who holds directly or indirectly at least 50% of the fund’s shares, individually or through any type of investor agreement, in addition to the directly involved party (i.e., the fund itself), its controlled entities and the ones in which it holds directly or indirectly at least 20% of the voting or total capital.
Second, the Tribunal identified that, over the years, CADE has employed different approaches to assess whether an entity is subject to unitary or shared control, particularly on analyzing minority shareholders’ rights. It found that, as a rule, for the purposes of characterizing an economic group with regards to fulfilling the threshold for mandatory notification, this analysis should consider the shareholders rights attributed by governance documents (such as the shareholders’ agreement), such as rights to veto and appoint members of governance bodies. In this context, it pointed out that, for unitary control to be recognized, certain conditions need to be fulfilled, including the capacity of the controlling shareholder to independently establish business strategies. When there isn’t a clear single controller identified, it’s assumed that control is shared among shareholders.
Over the last judgment sessions, CADE’s Tribunal has increasingly discussed the application of new parameters for gun jumping fines methodology to ensure the sanction proportionality and foster settlement agreements.
In recent cases, CADE’s Tribunal has considered that gun jumping fines should be limited to 20% of the transaction’s value, except in cases where the misconduct is intentional. Moreover, in recent rulings, CADE has granted a 10% discount on the fine amount due to the companies reaching a settlement with CADE.
CADE’s Tribunal unanimously blocked the acquisition, by a drywall manufacturer, of a competitor’s sole manufacturing site. This is the first transaction blocked by CADE´s new Tribunal composition.
The Tribunal found the transaction would diminish the number of players from four to three, leading to extremely high post-transaction concentration levels both nationally and regionally, in a market that already displayed significant entry barriers as shown by the lack of substitute products for drywall and the absence of new competitors entering the market despite its growth.
According to CADE’s decision, structure remedies were unfeasible, considering the transaction’s nature and the indivisibility of the target-asset, and the applicants proposed behavioral remedies related to minimum production volume and price control, but they were rejected, as their implementation would be ineffective to mitigate antitrust concerns.
In April 2024, CADE’s Tribunal unanimously closed the administrative procedure against a tiremaker and seven of its resellers concerning an alleged price-fixing cartel. The case, prompted by a complaint from a competitor, sought to challenge the legality of a minimum resale price fixing practice implemented through a commercial policy applied to the company’s network of resellers.
Reporting Commissioner Gustavo Augusto argued that, according to CADE’s case law, there is a distinction between resale price maintenance and cartel. The former can be a lawful commercial strategy for organizing the resellers of a particular brand, provided it does not harm consumers or characterizes an abuse of dominant position. In contrast, the latter is an illicit act per se. Therefore, in itself, suppliers of goods may lawfully establish prices for the resellers of their brand.
In this case’s scenario, despite the high market share of the defendant, CADE considered it unlikely that the conduct would produce anticompetitive effects, given (i) the practice’s economic rationality; (ii) the establishment of prices within the exclusive scope of intra-brand competition; and (iii) the insufficiency of the evidence to justify a cartel conviction.
By means of a consultation before CADE, two companies in the retail and construction materials acquisition market raised questions about the lawfulness of creating a joint purchasing committee to negotiate general supply conditions with their main suppliers nationwide, to obtain greater discounts and reduce transaction and logistics costs.
CADE’s Tribunal unanimously stated that the conduct was legal, considering the reduced market share possessed by the companies and their low volume of purchases, incapable of establishing monopsony power. Thus, potential anticompetitive concerns were addressed.
Additionally, as regards merger control, the Reporting Commissioner Carlos Jacques sustained that the memorandum of understanding presented by the parties does not qualify as an associative agreement, since there is no (i) common undertaking or (ii) sharing of risks and results.
CADE’s Tribunal has assessed requests from two companies and related individuals to renegotiate their TCCs previously signed with CADE, ruling in favor of granting more favorable terms to the settling parties.
In the first case, among other requests, the settling parties sought the postponement of the deadline for the payment of the company’s financial contribution. In the second one, the settling company requested for the reduction of the company’s financial contribution established in four TCCs signed in 2018. The request was based on the fact that the company had signed other three TCCs between 2020 and 2022 that considered the implementation of a compliance program to reduce the financial contribution owed, thus requesting the same condition to be applied to the first four TCCs. By majority, CADE’s Tribunal fully granted the claim and transferred the discount applicable to one of the TCCs that had already been fully paid to another one. Only Commissioner Gustavo Augusto voted contrarily to the discount transference.
CADE has released two new guidelines: (i) the Guia V+, a guideline for non-horizontal merger reviews, which aims at assisting market players in understanding the steps, techniques, and criteria used by CADE in vertical and conglomeratemerger control cases, providing a source for decision-making in business practices; and (ii) the Trustee Manual, a guideline that that provides guidance on the activities of monitoring, selling and operational trustees as regards antitrust matters, covering both merger control and anticompetitive conducts proceedings.
In recent months, the Foreign Trade Secretariat (“SECEX”) opened antidumping investigations regarding the following exports to Brazil:
Additionally, SECEX has (i) initiated a sunset review of the antidumping duty applied to imports of PVC-S from the United States; (ii) opened a countervailing duty review on imports of cast iron and/or chrome-alloy steel grinding bodies from India; (iii) closed a sunset review of antidumping duties applied to imports of biaxially orientated polyester film from Turkey, deciding not to extend the measure; and (iv) closed an antidumping investigation on imports of pre-painted steels from China, as the required on-site verification was not possible.
In its turn, the Executive Committee of the Brazilian Foreign Trade Chamber’s (GECEX) determined the application of a provisional antidumping duty on imports of non-surgical gloves from China, Malaysia and Thailand.
According to SECEX Circular N. 2/2024, the antidumping duty on the following products will expire in the second semester of 2024: (i) austenitic stainless steel flat-rolled products from China and Chinese Taipei (10.02.2024); (ii) low-carbon flat-rolled products from South Africa, China, South Korea, and Ukraine (10.02.2024); (iii) fresh or chilled garlic from China (10.03.2024); (iv) ethanolamines – monoethanolamines (MEA) and triethanolamines (TEA) from USA and Germany (11.01.2024); (v) padlocks from China (11.13.2024); (vi) hairbrushes from China (11.22.2024); (vii) loudspeakers from China (11.29.2024); (viii) motorcycle tires from China, Thailand, and Vietnam (12.19.2024); and (ix) nylon threads from China, South Korea, and Chinese Taipei (12.23.2024).
The interested parties in the extension of these measures may submit a petition to initiate an end-of-period review, which must be filed no later than four months before the expiration date. If a sunset review is initiated, any interested parties will be able to actively participate in the proceedings.
Denise Junqueira
djunqueira@cascione.com.br
Brazilian Competition Case Law, Trade & Trends | June 2024