Exclusive dealing is condemned by CADE


Automotive alarms company convicted for anticompetitive exclusive distribution agreements

The Administrative Council for Economic Defense (CADE) convicted Positron (the market leader in the automotive alarm market) on last Wednesday (12 August) to pay a fine of approximately R$ 8 million for having signed an exclusive contract with distributors.

The investigation, which began in 2010 following a complaint by a competitor, was aimed at investigating Positron’s alleged conduct of market closing, sham litigation, and abuse of intellectual property rights.

Cade regarded the contracts as anticompetitive, noting that they were capable of closing the market and raising barriers to entry for rivals. Even though the exclusivity was limited to distributors responsible for slightly over 30% of sales in the market and provided for contract termination at any time with no cost to the distributor, Positron was still considered to be imposing difficulties on its competitors by denying them access to a profitable set of customers, who would have to pursue less efficient distribution chains. In addition, exclusivity is not a usual practice in the specific investigations market, which strengthens the understanding that distributors feel pressured to accept Positron’s exclusivity contracts, at the risk of losing a significant portion of their sales, highlighting that the company has been dominant in the market since 2010. As a result, the Council concluded that the practice undermined both the entry of distributors into the downstream market and direct competition with Positron’s products, artificially increasing their dominance and the higher level of their prices.

The Reporting Commissioner, Luiz Hoffmann, emphasized that the exclusivity agreements are not an illicit conduct per se, but Positron should have proved the benefits generated by this exclusivity in the market, which did not occur. In addition to the fine of approximately R$ 8 million, the Company will have to spend 5 years without signing any exclusivity contracts and, after the term, it will have to notify CADE in case of doing so. Moreover, it will have to remove exclusivity clauses from all contracts in effect within 90 days.

Allegations of sham litigation and abuse of intellectual property rights have been for lack of evidence. Concerning the first of them, the conclusion was that the questioned lawsuits had a credible legal basis and were not directed to specific companies in a repeated and unreasonable manner, nor did the Company confirm the use of fraudulent data or information. Regarding the second, the filing of trademark applications constituted a distinctive sign. Those for industrial design met the requirements of originality and novelty; while those for the administrative procedures were concluded to not present characteristics that could assess a manifestly unfounded claim.