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GREATER AND ADDITIONAL SANCTIONS FOR CARTELS: CONTROVERSIAL BILL

GREATER AND ADDITIONAL SANCTIONS FOR CARTELS: CONTROVERSIAL BILL

2016/11/28

CARTEL, LENIENCY AGREEMENTS AND LIABILITY FOR PRIVATE DAMAGES

CARTEL, LENIENCY AGREEMENTS AND LIABILITY FOR PRIVATE DAMAGES

2016/11/24

THE ABUSIVE NATURE OF DISCOUNTS TO CASH OR CHECK (BANK DRAFT) PAYMENTS

THE ABUSIVE NATURE OF DISCOUNTS TO CASH OR CHECK (BANK DRAFT) PAYMENTS

2016/11/21

EXPERT EXAMINATIONS IN CADE MAY BECOME SIMPLER AND MORE ACCESSIBLE

EXPERT EXAMINATIONS IN CADE MAY BECOME SIMPLER AND MORE ACCESSIBLE

2016/11/20

PRACTICING LAW BEFORE CADE

PRACTICING LAW BEFORE CADE

2016/11/19

MERGERS AND EMPLOYMENT ISSUES

MERGERS AND EMPLOYMENT ISSUES

2016/11/18

CADE: ENTERING INTO AN AGREEMENT WITH A DEFENDANT DOES NOT INTERRUPT…

CADE: ENTERING INTO AN AGREEMENT WITH A DEFENDANT DOES NOT INTERRUPT…

2016/11/18

THE GRAPHITE ELECTRODES CASE – A SETTLEMENT IN LIMBO

THE GRAPHITE ELECTRODES CASE – A SETTLEMENT IN LIMBO

2016/11/16

LIBOR AND SUPREME COURT

LIBOR AND SUPREME COURT

2016/11/15

JUDICIAL REVIEW OF CADE’S DECISIONS.

JUDICIAL REVIEW OF CADE’S DECISIONS.

2016/11/12

COMPETENCE CONFLICT BETWEEN CADE/BACEN AND THE SUPPLEMENTARY BILL OF LAW

COMPETENCE CONFLICT BETWEEN CADE/BACEN AND THE SUPPLEMENTARY BILL OF LAW

2016/11/12

NOTIFICATION OF WHAT IS NOT NOTIFIABLE

NOTIFICATION OF WHAT IS NOT NOTIFIABLE

2016/11/11

A PIPOCA E O DIREITO

A PIPOCA E O DIREITO

2016/10/28


São Paulo 15.12.2017

GREATER AND ADDITIONAL SANCTIONS FOR CARTELS: CONTROVERSIAL BILL

GREATER AND ADDITIONAL SANCTIONS FOR CARTELS: CONTROVERSIAL BILL

GREATER AND ADDITIONAL SANCTIONS FOR CARTELS: CONTROVERSIAL BILL

Mauro Grinberg

The Senate Bill n. 283/2016, presented by Senator Aécio Neves, provides for possible and considerable changes to the system of sanctions established by Law n. 12.529/2011, also known as the Antitrust Law, which “structures the Brazilian System of Competition Defense” and “provides for the prevention and repression of infractions against the economic order”. The Reasoning behind the bill starts by clarifying that “this project aims to enhance the deterrent character of the fines imposed by the Administrative Council of Economic Defense in convictions of companies for infractions against the economic order, as well as stimulate the filling of private suits to cease infractions and seek compensation for damages resulting from it”.

The comments below aim to present an initial and modest contribution to the study of this Senate Bill and may be followed up by more thorough comments as the debates advance. This debate is important, given the possible consequences of eventual approval of the Bill. Thus, here are the comments to the Bill’s provisions:

Article 1 of the Bill provides a change to item I of the article 37 (“A violation of the economic order subjects the ones responsible to the following penalties”) of the Antitrust Law, whose original wording is: “in the case of a company, a fine of one tenth percent (0.1%) to twenty percent (20%) of the gross sales of the company, group or conglomerate, in the last fiscal year before the establishment of the administrative proceeding, in the field of the business activity in which the violation occurred, which will never be less than the advantage obtained, when possible the estimation thereof”.

The wording proposed by this Bill’s article adds the excerpt “as well as in the other years in which the cartel was active” after the “in the last fiscal year before the establishment of the administrative proceeding”, possibly increasing the basis of calculation over which the fine will be applied.

Comments:
1. It is clear, from the wording of the Bill, that it, from this point on, only deals with cartels and none of the other possible violations of the economic order (examples: tying, predatory pricing, refusal to supply, fixing resale prices, etc.), thus reducing the scope mentioned in the Reasoning.
2. The Bill, instead of replacing the original basis of calculation (last fiscal year before the establishment of the administrative proceeding) for another (revenues in the years in which the cartel was active), sums the two bases, as if all the infractions always continued until the last year prior to the initiation of the administrative proceedings. This is frequently not the case, since in much situations the administrative proceedings are initiated years after the end of the cartel. Ideally, if one wishes to maintain the Bill’s guiding idea (fine increases), the original criteria should be deleted, mentioning only the substitutive basis of calculation, which may or may not embrace the last fiscal year before the initiation of administrative proceedings.
3. There is an interpretative benefit in the proposed changes because punished companies may (i) not have had revenue in Brazil on the last fiscal year before the initiation of administrative proceedings or (ii) have significantly different revenue (higher or lower) compared to their previous average, especially during the period in which the cartel was active; this eliminates the always interpretative solutions of applying fines based on criteria other than what is strictly in the law.
4. We should also discuss the facilitation or even incentive that will arise to apply excessive punishments, especially considering long term cartels. This will certainly occur if CADE continues to apply fine percentages close to the maximum of 20%, having in mind that the minimum provided by law is 0,1%. There is the risk of insolvency; somebody will say they deserve it, but it can also be said that insolvencies affect not only businesses but society in general, including competition itself, and may reduce consumers’ and suppliers’ options (at the expense of competition). Imagine a hypothetical market where there are three companies, two of them succumbing to exaggerated punishments. A more dramatic situation, applying item III (not modified by Bill) of the same article may occur “for managers, directly or indirectly responsible for the offense committed when proven intent or fault”, being imposed a “fine of 1% (one per cent) to 20% (twenty per cent) of that applied to the company”. Here the rigor of the law should include more moderate percentages than those that commonly applied in order to avoid excessive civil insolvencies.

Article 2 of the Bill adds four paragraphs to the main section of article 47 (“Those harmed, directly or by those legitimized in article 82 of Law n. 8.078, of September 11th, 1990, may take legal action to, in defense of their individual or diffuse interests, obtain the cessation of practices that constitute violations to the economic order, as well as compensation for losses and damages, regardless administrative investigations or proceedings, which will not be suspended because of the suit filed”) of Antitrust Law.

This article has two well put characteristics:
1. It allows those harmed people to seek in court, if they prefer this path in lieu of the administrative proceedings before CADE, a decision that there is an infraction against the economic order, not having to demonstrate that they are a legitimate party, as set forth in the sole paragraph of the 1st article of the Antitrust Law (“The people are the holders of the legal interests protected by this Law”).
2. It allows those harmed people to seek in court compensation for damages suffered due to the action of a cartel; usually these damages are expressed in higher prices paid by purchasers, if a sales cartel, or lower prices paid by sellers, if a buying cartel.

Paragraph 1 establishes: “Those harmed people will have the right to damages in double regarding the harm suffered due to violations of the economic order provided in article 36, paragraph 3, I and II, notwithstanding any penalties imposed in administrative and criminal scopes”.

Comments:
1. Here, the Bill brings a near copy of an unique aspect of US law (which is the only one to predict the tripling of damages), which, in Brazilian Law (and in most legal systems outside the common law system) may imply private punishment, which is not accepted here.
2. There is clearly an option to double private compensation, in item I (“to limit, restrain or in any way injure free competition or free initiative”) and item II (“to control the relevant market of goods or services”) in detriment to item III (“arbitrarily increase profits”) and item IV (“exercise a dominant position abusively”). The risk is the difficulty of separating item IV from items I and II, which will be a great jurisprudential challenge.
3. Another challenge will be to demonstrate the reason why only in these cases double compensation is granted, whilst not being granted in situations of perhaps greater severity, such as compensation for deaths and environmental damage caused by companies or individuals;

Paragraph 2 establishes: “The provision of paragraph 1 does not apply to the co-perpetrators of the infraction to the economic order who have signed leniency agreements or cease and desist agreements, whose compliance has been declared by CADE, who will only respond for the damage caused to those harmed”;

Comments:
1. This paragraph reveals a clear incentive for participants in a cartel to seek out the authority and report their offenses, where the confession of a conduct (with the corresponding collaboration with the authority for the cartel to be investigated and punished) will avoid double compensation, which constitutes the private punishment provided in the preceding paragraph. Therefore, once again we are in the ballpark of private punishment.
2. Here there is some procedural difficulty, since no judicial decision that does not contain double compensation can become final until CADE declares that a party to an agreement has fulfilled all obligations. This fulfillment sometimes takes a few years, and here we are only addressing the financial and structural obligations (these usually consist of the sale of assets). If we have behavioral obligations, that are usually long term, the situation may be even worse.

Paragraph 3 establishes: “The application of the benefit of § 2 is subject to delivery, by the signatory of a leniency or cease and desist agreement, of documents which will enable CADE to estimate the damage resulting from the violation to the economic order”.

Comment: It is true that item I of article 37 of Antitrust Law establishes that the fine “will never be less than the advantage obtained, when possible the estimation thereof”. However, the Bill parts from the assumption that the estimation is always possible because double compensation will only be avoided if the interested party provides to CADE elements for estimating the damage; otherwise, there will always be double compensation. In practice, there will be a new requirement for the agreement, since, if CADE does not manifest immediately on those elements, the party that confess their practice may not have the benefit of avoiding double compensation, since it depends on the later agreement of CADE, which shall evaluate compliance of the requirements.

Paragraph 4 establishes: “The signatories of leniency and cease and desist agreements are responsible only for the damage they have caused to those harmed, not being responsible for damage caused by other perpetrators of the violation of the economic order.”

Comment: The Reasoning of the Bill mentions solidarity provided in article 32 of Antitrust Law which, however, treats solidarity between company and its managers: “The various types of economic order violations implicate jointly the liability of the company and the individual liability of each of its directors or officers, jointly and severally”. The Bill, on the other hand, assumes solidarity among the various members of the cartel, which the law does not state.

Article 3 adds a sole paragraph to the main section of article 93 (“The decision of Court Plenary, determining fine or imposing an obligation to do or not do, constitutes an extrajudicial execution”) of Antitrust Law: “The decision of the Plenary of the Tribunal, resulting in a fine or imposing obligations, constitutes an extrajudicial executive title”.

Comment: The Bill wants to establish, in practice, a new possibility of evidential injunctive relief, beyond the four already provided in the items of article 311 of the Civil Procedure Code: I – “when the abuse of the right to defense or clear intent to procrastination by the party is characterized”; II – “the factual allegations can be proven only by documents and when a thesis has been accepted in a trial of repetitive cases or binding precedent”; III – “if concerning a request grounded in adequate documentary evidence of a deposit contract, in which case a decision will be handed down determining the delivery of the object in custody, under penalty of a fine”; IV – “the initial petition is accompanied by sufficient documentary evidence of the plaintiffs rights, against which the defendant does not present evidence capable of generating reasonable doubt”. There is unconstitutionality here because there is the intention of suppressing right to defense of those accused of participating in a cartel when CADE executes its decision.

Article 4 adds article 46-A to the Antitrust Law: “When a claim for losses and damages originates from rights provided in article 47, the statute of limitations term will not compute for the duration of the investigation or proceedings in the CADE”.

Comment: the article is beneficial to eliminate the problems caused by questions concerning the beginning of the statute of limitations terms: if date of the infraction or date of conviction by CADE?

Article previously published in Jota, on August 5th, 2016.


Al. Santos, 787, 8th floor

São Paulo - Postal Code: 01419-001, Brasil

gca@gcalaw.com.br

+55 11 3371 5050

Al. Santos, 787, 8th floor

São Paulo - Postal Code: 01419-001, Brasil

gca@gcalaw.com.br

+55 11 3371 5050

Grinberg e Cordovil Advogados