The Brazilian Federal Senate approved, in early Apr. 2022, four nominations to key roles at the Administrative Council for Economic Defense (“CADE”).
Alexandre Barreto, former CADE’s President, took office as General Superintendent, thus switching offices with Alexandre Cordeiro, current President, and former Superintendent. Victor Oliveira Fernandes and Gustavo Freitas de Lima took office as new Commissioners, filling all vacancies in the Tribunal, which could lead to new majority positions of the Tribunal around several matters, including cartel´s fine calculation. Juliana Domingues, former secretary at the National Consumer Secretariat (Senacon), took office as CADE’s Attorney General.
General Superintendent Alexandre Barreto and Attorney General Juliana Domingues will hold a two-year term, with possibility of reappointment. On the other hand, Commissioners Victor Oliveira Fernandes and Gustavo Freitas de Lima will hold a four-year term.
Over the last months, CADE has increasingly raised concerns over the potential anticompetitive effects of exclusive dealing arrangements and exclusivity clauses in both merger cases and unilateral conduct investigations.
In general, CADE has reaffirmed its understanding that exclusivity clauses are not illegal per se, and that the assessment of their potential anticompetitive effects must consider the legitimate economic reasoning for the exclusivity. The most recent relevant cases are briefly described below.
Unilateral conduct investigations
The opening of unilateral conduct investigations involving exclusivity clauses has been on the rise. The latest one, dated Mar. 2022, regards an investigation against Ambev following complaints from Heineken who argued for the alleged anticompetitive effects of Ambev’s exclusive dealings with strategic and premium POS.
In Feb. 2022, in the context of an investigation of alleged abuse of dominant position in the market of corporate wellness platforms, CADE’s Tribunal ordered the platform Gympass to suspend exclusivity clauses imposed against fitness companies registered within its platform, since, according to the Tribunal, most of such exclusivity clauses lacked economic rationality. CADE also ruled that exclusive dealings with gyms that received direct investments from Gympass could exceptionally be preserved due to the economic reasonableness in ensuring return on investment.
On merger cases, CADE’s attention to exclusivity clauses has resulted in comprehensive assessments of their rational and resulted in call backs by the Tribunal after SG’s approval, and remedies that specifically focus on exclusivity matters.
In Jan. 2022, CADE’s Tribunal cleared the acquisition of Bus Serviços, an online travel agency (“OTA”), by J3 Operadora Logística subject to behavioral remedies, which included prohibiting Bus Serviços from signing exclusive agreements with bus terminals and other OTAs. According to CADE, potential exclusive agreements would increase the risk of market foreclosure by the new verticalized company.
In Feb. 2022, CADE’s Tribunal unanimously approved the acquisition, by Sony Music, of the music recording company Som Livre, owned by Globo Group. The deal, unconditionally cleared by CADE’s SG, had been called back for further analysis by CADE’s Tribunal in Nov. 2021, upon request by Commissioner Lenisa Prado, who raised concerns on the potential anticompetitive effects of exclusivity clauses in the agreements between record labels and artists. Ultimately, the clauses were deemed economically justified, due to the necessary investments in the artist’s image and in publicity.
On Mar. 23rd, 2022, CADE’s Tribunal imposed a BRL 26.4 million fine against a shipping company and an individual for participating in a global maritime-transport cartel.
In addition to a leniency agreement, other five cease-and-desist agreements were executed between CADE and the investigated companies and individuals. According to CADE’s Tribunal, they would have resorted to market division, as well as price-fixing and other trading conditions-fixing.
During the judgment, CADE’s Tribunal highlighted that, in cases of international conduct carried outside Brazil, establishing a “potential” effect would suffice to trigger CADE’s jurisdiction to enforce Brazilian competition law. It also found that the conduct impacted trading lines in which Brazil was the origin, destination, or intermediate stop, directly affecting the Brazilian territory.
On Feb. 9th, 2022, CADE’s Tribunal approved the joint acquisition of Oi’s mobile business by rivals Claro, Tim and Vivo conditioned on the fulfillment of commitments set forth in a Merger Control Agreement (“MCC”). In Dec. 2020, Oi’s mobile business was sold at a government auction after a joint bid made by the three major telecom companies. Following that, the case suffered intense scrutiny by CADE’s SG and Tribunal, and divided the Commissioners’ opinion.
Reporting Commissioner Luís Braido, followed by Commissioner Sérgio Ravagnani and Paula Azevedo, voted for blocking the deal, considering that the proposed remedies would not be sufficient to address the competition concerns arising from the reduction from four to three national players in the mobile market in the post-merger scenario. In addition, the Commissioner pointed out concerns arising from the high barriers to entry in the sector and the likelihood of significant coordinated effects.
Contrarily, Commissioner Lenisa Prado, followed by Commissioner Luiz Hoffmann and CADE’s President Alexandre Cordeiro, considered that the proposed remedies would be sufficient. Firstly, the Commissioner noted that, if the transaction were to fail, Oi would be declared bankrupt, which could deepen market concentration more than the acquisition itself. Moreover, the deal could increase rivalry in the mobile market by strengthening a third player, avoiding a duopoly between the two largest players in the sector. Finally, on the reduction of players, the Commissioner pointed out that most G20 members have two to three players in the telecommunications market.
Given the draw, the President gave his casting vote, resulting in the conditional approval of the transaction. The remedies provide for a set of measures that facilitate the entry of new players in the mobile market; among them are the divestiture, through public offering, of half of the acquired base transceiver stations (BTS); the offer for wholesale national roaming access of Oi’s network; and commitments to allow competitors to lease radio spectrums acquired from the Oi and provide rivals with Radio Access Network sharing agreements.
On Jan. 27th, 2022, the Brazilian government published an Executive Order allowing unilateral retaliation in trade disputes within the Dispute Settlement Body (“DSB”) of the World Trade Organization (“WTO”).
The measure aims to address the current paralysis of the Appellate Body (“AB”), the second instance of the DSB. Since 2019, the United States has blocked new AB member appointments, leading to a lack of adjudicators to rule on appealed cases. In the current scenario, a country convicted in the first instance ends up exempting itself from the consequences of the unfavorable decision by resorting to the AB, as it is unknown when it will return to work.
To circumvent this situation, the Executive Order authorizes retaliation, in the form of a suspension of concessions or other obligations provided for in WTO agreements, in the following instances: (i) when Brazil is authorized by the DSB to retaliate and (ii) when a WTO panel (the first instance) reports that a confirmed allegation from Brazil is appealed. The Brazilian law that regulates the subject (Law nº 12,270, of June 24, 2010), amended by the Executive Order, only provided for the first hypothesis of retaliation.
The executive order also determines that the Brazilian government must notify the other country 60 days prior to enforcing the retaliation, which must have a fixed term and be limited to the damages caused to Brazil.
The U.S. – Brazil Protocol Relating to Trade Rules and Transparency entered into force on Feb. 2nd, 2022, following the completion of internal procedures. The Protocol updates the 2011 Agreement on Trade and Economic Cooperation (ATEC), with three new annexes on Trade Facilitation, Good Regulatory Practices, and Anticorruption based on the relevant chapters of the United States-Canada-Mexico Agreement.
The Free Trade Agreement between Brazil and Chile entered into force on Jan. 27th, 2022, following the publication of the Executive Decree nº 10.949, of Jan. 26, 2022. The agreement regulates the free trade of goods and services between the two countries, including electronic commerce, intellectual property and micro, small and medium-sized companies.
Among its provisions, the chapter on government procurement stands out as it allows companies in Brazil and Chile to participate in public tenders on equal terms. Other issues agreed upon are the termination of international roaming charges for data and mobile telephony between the two countries, within 1 year from the entry into force of the agreement, and the authorization of exporting establishments without prior individual inspection.