Competition: A Contemporary Perspective on Unilateral Conduct

Overview of Cade’s analysis of unilateral conducts

Daniel O. Andreoli

Mariana Llamazalez Ou 1

Summary: With the end of the peak of cartel investigations stemming from the Car Wash Operation by the Administrative Council for Economic Defense (CADE) and the warning on the necessity for prioritization of unilateral conduct cases in the peer review report of Organization for Economic Co-Operation and Development (OECD) that celebrated the admission of CADE as a permanent member of OECD Competition Committee , there is a clear effort from the Brazilian authorities to dedicate more attention on unilateral conducts by agents that hold a dominant position in their relevant markets. This article shows the evolution of past and current investigations carried out by CADE regarding such conducts.

Keywords: unilateral conducts; dominant position; antitrust policy; CADE.

1. Introduction

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public or in some contrivance to raise prices.2 In 1,776, the father of modern economics, Adam Smith predicted what would be a major concern for antitrust authorities around the world - the creation of cartels for manipulating market conditions. However, the British economist did not make such a forceful statement about how the ability to manipulate market conditions could go far beyond an arrangement between competitors, to complex practices performed by a single agent and that, in many cases, can even be economic and rationally justifiable.

The complexity of unilateral conducts is reflected in the fact that not even the law has an exhaustive list identifying all the conducts that could result in competition concerns, being restrictive, in the Brazilian law, to exemplify some of the practices that could be framed as unilateral. In a way, the limits of unilateral conducts lie in the creativity of those who put them into practice, since they consist of practices adopted by an agent who holds a dominant position 3, which interferes with the free competition.

It is not by chance that unilateral conducts should be reviewed by the authorities in the light of the rule of reason since the materialization of the negative effects on the market is more important than the intention behind such conduct. Unlike the current interpretation of the Brazilian antitrust authority on cartel cases, it is, in our view, necessary to prove the existence (even if potential) of negative effects. This is because it is legally possible to have the interpretation that coordinated practices, such as cartels, are punished by mere intention or attempt.

This article seeks to show how has been the evolution of investigations involving unilateral conducts since the entry into force of Law 12,529/2011 (Brazilian Competition Law), the main practices that have been the focus of investigation by authorities, as well as the important role to be developed by the Brazilian competition authority, the Administrative Council for Economic Defense (CADE), as a permanent member of the Organization for Economic Cooperation and Development (OECD).

2. History of the cases ruled by CADE

Historically, CADE has concentrated its investigations on cartel cases. However, as already indicated by the Tribunal itself and by CADE’s General Superintendence (GS), the authority has shown increasing interest in investigating unilateral practices. The President of CADE, Alexandre Barreto, recently stated that "[...] we have not prioritized unilateral conduct over cartels, but we are trying to find a balance between the two [...]".4 The President’s appointment comes in response to the inputs from the OCDE Peer Review in 2019, stating that Since the adoption of the new Antitrust Law, enforcement of legal provisions against abuse of dominant position has been rare. 5 Also as a reaction, CADE has even said that unilateral conduct is its priority, especially in digital markets.

CADE’s caselaw involving unilateral conducts, compared to that of coordinated conducts, is scarce. Since the entry into force of the Brazilian Competition Law in 2012, until December 2020, CADE has ruled 58 (fifty-eight) cases involving unilateral conducts related to the most varied practices and sectors, against 45 cases involving cartel practices and uniform commercial behavior ruled in 2015 alone.6

In 2019, there is a growing number of cases involving unilateral conduct ruled by the Tribunal, demonstrating the authorities’ intention in pursuing these conducts. Of a total of 28 (twenty-eight) cases, 10 (ten) were related to unilateral practices, while 18 (eighteen) related to cartel practices and uniform commercial behavior. The 2019 data represents a major evolution when compared to the 2018 data, for example, when out of a total of 25 (twenty-five) cases, only 4 (four) were related to unilateral conducts.

In 2020, there is a decrease in the number of cases tried by the Tribunal, possibly due to the effects caused by the global pandemic of Covid-19. Of a total of 17 (seventeen) cases ruled, 13 (thirteen) referred to the practice of cartel, while only 2 (two) were related to unilateral conduct.

Among the 58 (fifty-eight) cases ruled by CADE, until December 2020, the main practices investigated were:

Thus, it is concluded that the practices of (i) exclusivity - restriction of the freedom of initiative of economic agents with anticompetitive effect have a higher incidence in CADE; (ii) refusal to deal/supply - refusal of access to facility or essential input for the development of economic activity; (iii) discrimination against customers and/or competitors - unequal treatment of market participants with exploratory and/or exclusionary effect; and (iv) sham litigation - abuse of right of petition with anticompetitive effect.

For the confirmation of the competitive effects of the conducts mentioned above, without prejudice to other less recurrent ones, CADE’s caselaw is consolidated in the sense that the analysis must be case-by-case and guided by the rule of reason, comprising three successive and harmful stages among themselves. In order, the (a) measurement of the existence (or absence) of market power of the player, as a rule defined as a market share of 20% (twenty percent) or more of the relevant market subject to the conduct; (b) evidence of the materiality of the conduct; and (c) analysis of any compensatory economic efficiencies.

With a view to the above, CADE has already made informative considerations on the materiality and possible efficiencies of (i) exclusivity; (ii) refusal to contract/supply; (iii) discrimination against customers/competitors; (iv) sham ligitation. Respectively:

(i) Exclusivity - In a recent decision for conviction in the market of automotive alarms in the aftermarket - IAM,8 the investigated company celebrated, since 2010, distribution agreements with exclusivity clauses, these being "incontrovertible facts in the case records"9 that, considered along with the market power of investigated company, caused the foreclosure of the market of automotive alarms IAM, being the only player that celebrated agreements with exclusivity clauses with distributors, being the national distribution channel the most efficient and with the largest volume of production flow. In accordance with the Reporting Commissioner’ vote: 10

[...] the theory of damage to be ascertained in the case in question is whether the PST, by enjoying its dominant position, already attested in this vote, and signing exclusive contracts with distributors, would have artificially raised barriers to entry and/or expansion in the market for automotive alarms, in order to harm competition to a greater extent than the benefits generated by the conduct (negative net effects) and without plausible justification for doing so.

It is also important to mention the investigation in the administrative inquiry no. 08700.000529/2020-08 against Grupo Globo Comunicações e Participações S.A., on an alleged abuse of dominant position by the Globo Group in advertising agreements. According to the preliminary investigation carried out by the GS, some bonus clauses, discounts, and incentive plans applied by the group could lead to the foreclosure of the market due to the possible induction of exclusivity and contractual loyalty, in addition to encouraging arbitrary discrimination between time/space buyers and competing companies. The case is under review by the GS.

(ii) Refusal to deal/supply - In one of the nine dismissed cases of refusal to deal/supply, specifically on the sharing of electricity pole infrastructure by Eletropaulo to Walberg, 11 the latter accused Eletropaulo of denying the sharing of essential infrastructure of electricity poles, discriminatory practices against competitors and the price of pole rentals and limiting and preventing new companies from accessing the market. However, the Reporting Commissioner,12 on the grounds of his vote for the dismissal of the case, considered that:

As demonstrated in the opinion of the Superintendence, Eletropaulo complied, within the deadlines provided, with all the determinations of the relevant legislation, (i) making available, to possible applicants, document describing the conditions for infrastructure sharing - which already indicates its intention to share with third parties; (iii) requesting additional information from interested parties; (iv) answering questions from interested parties; and (v) disclosing the price per cable attachment point that would be charged.

(iii) Discrimination - Regarding the conduct of discrimination of competitors, there is also the case of the Gemini Consortium as plaintiff and Petrobras and White Martins13 as defendants. In that case, the defendants were convicted by CADE for cross-subsidisation and price discrimination in the supply of natural gas to the Gemini Consortium. Following the analysis of the structural conditions of the natural gas market favorable to the practice of discrimination against competitors, the Reporting Commissioner14 indicated, as evidence of discriminatory treatment15, to the following points:

The result of this analysis has effectively pointed to the existence of evidence of this abusivity, which can be visualised in at least three concrete dimensions: (i) supply of natural gas at a value lower than that practiced in the market; (ii) the existence of a set of more advantageous contractual clauses; and (iii) market closure by capturing so-called anchor customers.

(iv) Sham Litigation - Finally, in a recent case, CADE investigated the possibility that the pharmaceutical company Genzyme abused its right of petition in order to maintain a monopolistic position in the drug market with the active principle of sevelamer. In his vote for the dismissal of the case, the Reporting Commissioner followed the GS in the methodology of its analysis by means of the following tests16 (a) PRE17 - filing of objectively groundless actions, but not necessarily with misleading facts; (b) POSCO18 - filing of several actions against competitors with a low probability of success; (c) deceitful litigation - filing with expectation of causing damage to the other party, but by false information; and (iv) judicial agreements and other actions - legal settlements with the effect of causing the exit of a competitor from the market, or a change in his conduct in exchange for specific compensation.

3. Resolution of cases involving unilateral conducts through settlement agreements

As indicated in the chapter above, among the 58 cases ruled by CADE involving unilateral conduct, 49 (forty-nine)19 were shelved after the execution of settlement agreements (in Portuguese, Termos de Compromisso de Cessação, TCC) between the defendant and CADE. It should be noted that in such cases, agreements are not limited to the termination of the practice or payment of a monetary contribution, but also encompassed obligations to do and not to do in order to remedy the concerns identified, resulting in agreements with a tendency to be more resolutive than purely punitive. In this regard, the GS has already mentioned that:

On the contrary, in vertical practices lawfulness is discussed for its effects, because agreements involving such pipelines are built based not only on the pecuniary element, but, above all, focusing on the object of investigation itself, requiring if its termination or modification. These are the core elements of an agreement on vertical practices, incidentally, as is the various antitrust authorities in other jurisdictions. The gains in terms of well-being derive from the intervention of authority over the economic domain, making it cease or modify potentially harmful practices, an element of difficult objective weighting, but of easy logical conclusion. Application for TCC nº 08700.001323/2018-72, related to Administrative Inquiry nº 08700.002656/2016-57, technical note nº 42/2018/CGAA2/SGA1/SG/CADE. Applicant: B3 S.A. - Brazil, Stock Exchange, Counter

It should be noted that, as provided for in Article 183 of CADE’s Internal Rules and Article 85, paragraph 1 of the Brazilian Competition Law, the payment of a monetary contribution is not a mandatory requirement for the execution of TCCs involving unilateral conduct, being more used by the authority when it identifies reasonable indications of infringement of the economic order by the defendant. Nevertheless, the history of TCCs approved by CADE in this type of conduct shows that most of the agreements (38 out of 49) involved the payment of monetary contributions.

Among the agreements executed with CADE resulting from unilateral conduct, 38 TCCs involved financial obligations ranging from BRL 10,000.0020 to BRL 65,000,000.00.21 In this regard, the GS has already stated that:

"CADE’s track record in TCC negotiations in unilateral conducts demonstrates that the payment of financial contribution has been an exception, especially when the TCC is negotiated by the GS, in an intermediate stage of investment. Out of 16 agreements negotiated by the GS since 2012, in only 7 there was a cash contribution, and of those 7, 4 were negotiated and approved between July and September this year, in the means of payment market.

In these 4 applications negotiated and approved by the Tribunal recently, despite criticism from the Council regarding the alleged low value of contributions, it is important to mention that: (i) CADE’s history, and not only GS’s, is for non-payment of monetary contributions in unilateral pipelines or, in case of collection, the rates are significantly lower than cartel cases; (ii) both the TCC applications involving the means of payment markets and the present one are still in the IA phase and the research phase should be weighed in the consideration of the cash contribution, analogous to that provided for in Article 228 of CADE’s Internal Rule; (iii) even if the policy of combating unilateral conduct is to be tightened up, this cannot be done in contravention of the principles of proportionality and reasonableness, by suddenly and inordinately altering the policy of the autarchy, which could generate legal uncertainty and a disincentive to the very successful CADE’s long-standing agreement policy". 08700.001323/2018-72, referring to the Administrative Inquiry nº 08700.002656/2016-57. Proponent B3 S.A. - Brasil, Bolsa, Balcão. Technical Note 42/2018/CGAA2/SGA1/SG/CADE, of 24 September 2018.

Analyzing the agreements already executed with CADE since the entry into force of the current Brazilian Competition Law, it can be observed that fewer TCCs executed involving unilateral conduct imply payment of a financial contribution. For example, in 2018, out of the five (5) TCCs approved, only one (1) resulted in the obligation to pay a monetary fine; in 2019, of the three (3) TCCs approved also only one (1) resulted in the obligation to pay a monetary fine; In 2020, only 1 (one) TCC was approved involving unilateral conduct and which resulted in obligation to pay a monetary fine. 22 This is possibly due to the fact that many of the conducts investigated are practiced without its author knowing that such practice can have negative effects on the competitive environment, being able to demonstrate the pro-competitive effects of its activity, from objective and rational justifications.

• Banking sector

It is interesting to note that a considerable part of the agreements approved by the Tribunal involved institutions of the payment sector. Since the entry into force of the Brazilian Competition Law, 10 (ten) TCCs have been approved by the Tribunal with financial institutions, 23 involving, in most cases, practices related to the obligation of exclusivity clauses, discrimination and refusal to deal in the markets of credit cards, receivables, credit offer, accreditation, among others.

It is also noted that 60% (6 out of 10) of the TCCs approved with companies in the sector did not imply the payment of cash contributions, as they were negotiated in the early stages of the investigation. The GS took into account the interest of the defendants in solving the potential problem identified quickly and effectively, as well as the ability of organizations to justify the reason for the implementation of such practices.

Possibly, the complex structure and dynamics of these markets leads to the occurrence of practices by agents that hold a dominant position, which can often cause negative effects on the market as a whole. Discussions involving the payment industry are not limited to unilateral conducts and are equally complex both in the context of merger cases and potential coordinated conducts.

• Importance of TCCs

Unlike investigations involving coordinated conducts that, in most cases, involve past and already completed actions, unilateral conducts require a faster analysis and resolution because they are related to present practices and that impact markets more immediately. Thus, the agreements can serve as a way to address the competitive concerns identified (when existing) in order to preserve free competition.

Through the TCCs, CADE can re-establish the balance of the competitive environment relatively quickly and effectively, through interventions in potentially abusive contractual clauses, impose non-discrimination obligations, alter commercial policies, or simply make certain conduct cease. In this regard, in the context of the approval of the Settlement Proceeding no. 08700.001845/2017-93, involving Redecard S.A., the former Commissioner Cristiane Alkmin pointed out the relevant role of CADE’s TCCs policy:

Even more relevant is to identify that the TCC Policy has been very positive for the country, not only because it closes cases, collects resources for Brazilian society and reduces judicialization; but especially because it ends up having an educational bias of the highest relevance for those who participated in anticompetitive conduct. After all, a culture does not change from one day to the next and I see the TCC as a forceful instrument of cultural change in relation to those who commit antitrust crimes.

Nevertheless, care must be taken to ensure that the agreement tool is correctly implemented by the authority, as the OCDE itself points out in the aforementioned Peer Review, since in large part the lack of convictions prevents authority from sending a clear message to society about what kind of practices really should be avoided. In this sense, it is important to combine the policy of TCCs for unilateral conducts with in-depth analysis of the investigated conducts aiming, as mentioned, the establishment of clear parameters to be followed by the market as well as for legal certainty.

4. New investigations

As mentioned above, CADE has signaled greater interest in the pursuit of unilateral conducts, which is reflected in the increase in the number of cases launched involving such practices. Although some of the investigations may still be kept confidential when initiated as preparatory proceedings based on publicly available information, it can be observed a large jump in the number of inquiries, preparatory proceedings and administrative proceedings launched by CADE in the last 5 (five) years can be observed, despite a decrease in 2020, possibly motivated by the Covid-19 pandemic. Thus, there are three (3) cases launched in 2020 (2 (two) administrative proceedings and one (1) administrative inquiry); 10 (ten) cases in 2019 (2 (two) administrative inquiries, 1 (one) preparatory proceeding and 7 (seven) administrative proceedings) against only 3 (three) in 2018 (all involving the conduct of an alleged abuse of dominant position through the collection of THC224 in the markets of port operation and bonded storage), none in 2017 and only one (1) administrative proceeding in 2016, which was concluded with the execution of a TCC (proceeding involving the practice of sham litigation).

Graphic 1. Proceedings opened by CADE (2016 - 2020)

Source: Electronic publications available on CADE’s website and prepared by the authors.

Specifically in 2019, it can be observed that of the 10 (ten) new proceedings opened, 3 (three) are related to the financial market involving conducts of alleged abuse of dominant position and discrimination and refusal to deal 25, while 2 (two)26 refers to proceedings to investigate alleged abuse of dominant position by Google, arising from the ruling of other administrative proceedings against the company. The other proceedings involve alleged practices of resale price maintenance, anticompetitive clauses in labor conventions, imposition of various vertical restrictions and abuse of dominant position, in the most varied markets, such as gyms, wristwatches, transgenic and seed events, freight rail transport, bonded warehousing and operating systems licensable for mobile devices.

Among the cases launched in 2019, the cases filed against Google and Itaú Unibanco S.A. and Redecard S.A., both involving sectors increasingly observed by CADE, stand out.

• New investigations against Google - Administrative inquiry no. 08700.003498/2019-03 and preparatory proceeding no. 08700.002940/2019-76

During the 1st Extraordinary Ruling Session, held on June 19, 2019, after the ruling of the proceeding launched to investigate alleged practice of scraping,27 the Tribunal has requested a new administrative inquiry to investigate potential abuse of dominant position by Google in the search market as well as in the vertically related news market, especially in relation to the use of third-party content on Google News. The Tribunal became aware of this potential conduct from the answers submitted by the Globo Group to CADE’s questionnaires in the scope of the administrative proceeding no. 08700.009082/2013-03, in which the Globo Group indicated that:

As for the period 2011 and 2012, we know that G1 content appeared in search results, but we could not point out at this time how the Google news platform worked at the time, nor what content was displayed. As for the later period, the answer is yes - the platform provided links, calls and photos of the contents of G1. However, we have not been able to accurately state when this content is displayed.

Any practice of scraping in the news market would allow Google to allegedly scrap content from other competing sites, such as the news site G1 of the Globo Group, by Google, which, would then make the relevant content appear on its search page, creating an appeal so that consumers no longer need to access the competing site to have access to that content.

Also against Google, the preparatory proceeding no. 08700.002940/2019-76 was launched on June 5, 2019, to investigate alleged anticompetitive practices in the market for operating systems that can be licensed for mobile devices.

The case was also examined by the European Commission, which on 18 July 2018 issued a decision imposing a fine of EUR 4,3 billion to Google for the abuse of dominant position in the Android operating system market by requiring mobile phone manufacturers to sell the devices already with their pre-installed applications. According to Margrethe Vestager, European Commissioner for Competition 28, Google used the Android operating system to consolidate its dominance as a search engine, usurping the possibility of potential competitors to innovate and effectively compete.29

According to CADE’s President What we are doing now is to analyze the decision of the European Union to decide whether it is the case that we have a performance here or not.30

Given these new proceedings launched by CADE, in addition to other actions carried out by the authority, it is possible to observe that the practices of the main digital company and the digital market as a whole are increasingly under the radar of authorities not only in Brazil, but from all over the world. In this sense, CADE’s General Superintendent Alexandre Cordeiro, has already signaled that unilateral conduct remains a priority for the next two years and the digital economy will continue to be an object of concern to authority.31

• Administrative Proceeding no. 08700.002066/2019-77. Itaú Unibanco S.A. and Redecard S.A

In the financial sector, it is worth mentioning the administrative proceeding initiated by CADE on October 25, 2019, to investigate alleged anticompetitive conducts in the means of market carried out by Itaú Unibanco S.A. (Itaú) and Redecard S.A. (Redecard).

Unlike other investigations in the sector that resulted from complaints from companies that felt harmed in some way, the case against Itaú and Redecard was opened ex officio by CADE itself from an advertising campaign promoted by Redecard in May 2019, by which it informed that the company offered to the commercial establishments a reduction on the settlement date for spot operations made with credit card for to only two days, as long as they had a banking domicile in Itaú (its owner), in addition to annual revenues of up to BRL 30 million. To establishments with other banking domiciles, however, Redecard would apply the 30-day settlement date.

In addition, in order to avoid the effects of the practice, the GS imposed a preventive measure against the companies to cease the requirement of banking domicile in Itaú as a condition to offer the two-day period for settlement of spot operations made with credit card.

In this administrative proceeding, CADE sought to investigate the effects of the verticalization of the domestic financial system by agents that hold a dominant position and how this can impact several other market agents that depend on such services and that would be unjustifiably harmed.

The increase in the number of investigations involving the financial sector illustrates CADE’s concern about the levels of competition in this sector. In this sense, the CADE’s President, Alexandre Barreto, has already signaled that he intends to organize a working group with BACEN to discuss competitive concerns in the financial sector in general, following the suggestion of Commissioner Luis Henrique Bertolino Braido.

5. Trends for CADE’s practices

As explained in this article, it is possible to observe that CADE has shown an increasing interest in investigating unilateral conducts that may result in negative effects to the competitive environment, showing a lot of interest in studying and understanding the functioning of complex markets that require increasingly detailed analysis.

In line with the important work carried out by the authority, in February 2019, CADE was formally accepted as a permanent member of the OECD’s Competition Committee. In the peer review published by the entity in 2019 regarding 2018, the importance of combining the units of analysis of merger cases and analysis of unilateral conducts to increase the staff responsible for reviewing such conducts. Among the prioritization points, the report pointed to the need to increase the number of investigations and completion of proceedings involving the practice of abuse of dominant position:

"There was a general perception that combining mergers with unilateral conduct in the same units inevitably meant that more resources are in practice devoted to merger review given the statutory deadlines. Consequently, there are fewer resources working on unilateral conduct investigations. In the absence of more staff, and as a stopgap, one staff member in each of these units has been made responsible for unilateral conduct cases. However, it is doubtful that this will redress the balance towards more unilateral conduct investigations.

(…)

Unilateral conduct cases have also been identified as an area where CADE will likely take additional efforts to launch new investigations and conclude pending abuse of dominance matters".32_33

It is worth noting that the observations made by the OCDE were considered by CADE given the considerable increase in the number of proceedings launched in the year following the report, as indicated in Chapter IV above. Following the lines of investigation carried out by CADE in recent years, the tendency is for a better balance between cartel investigations and unilateral conducts.

As a permanent member of the OCDE’s Competition Committee, there is a clear tendency for CADE to seek to adapt to international best practices with regard to antitrust policy, including strengthening the capacity to pursue unilateral conducts.

6. Conclusion

The years 2017 and 2018 marked the culmination of CADE’S effort to pursue cartel practices, motivated mainly by Operation Car Wash. Nevertheless, despite the continuous relevance of CADE’S performance in the enforcement against cartels, equal attention deserves the pursuit of practices related to unilateral conducts executed by agents who hold a dominant position.

The year 2019 has already shown that CADE intends to pay more attention to unilateral practices, in line with the general recommendations of the OCDE. The importance of the analysis and investigation of such practices go beyond the conviction and punishment of companies, being essential to guide the industries about what would be the good practices to be adopted in the conduct of their business.

The general concern of all jurisdictions with regard to unilateral conducts is the possibility of market foreclosure at the expense of a free competition environment, especially in post-crisis scenarios as we will live in the coming years in which naturally dominant companies tend to gain even more relevance in the most diverse sectors of the economy.

In this sense, in markets structured in increasingly complex ways and that accompany the dynamism of global economies, as well as the configuration of new markets due mainly to the rapid development of the digital world, attention and training of competition authorities is necessary.

Bibliography

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¹ Daniel Oliveira Andreoli is a partner in the antitrust practice at Demarest Advogados. He holds a Masters degree in Corporate and Competition Law approved with merits in European and English Competition Law from King’s College - University of London and a Bachelor’s degree in Law from PUC-SP. Daniel is a member of the Unilateral Conduct Working Group of IBA and a member of the board of IBRAC. He is also Non-Governmental Advisor of Cade at ICN. Mariana Llamazalez Ou is an associate in the antitrust practice at Mattos Filho. Graduated in Law from the Pontifical Catholic University of São Paulo - PUC/ SP (2018) and bachelor’s in accounting from the National Service of Commercial Learning - SENAC (2020). The authors are grateful for the consistent research and assistance of Raphael Povoas and Job Pitthan in the preparation of this article.

² SMITH, A. The Wealth of Nations: Inquiry into their Nature and Causes.

³ The Brazilian Competition Law determines that a company or group of companies holds a dominant position when controlling a substantial portion of the relevant market, being presumed by law (Article 36, §2º, Law 12,529/2011) when controlling 20% of the relevant market in question. Such assessment is made on a case-by-cases demand and may change to specific sectors of the economy.

⁴ Mlex Market Insight, January 8, 2020, "Major staff increases, enhancements to advocacy among Brazil competition agency’s plans for 2020" – Fonte: https://www.mlex.com/GlobalAntitrust/DetailView.aspx?cid=1154430&siteid=203&rdir=1

⁵ OECD (2019), OECD Peer Reviews of Competition Law and Policy: Brazil www.oecd.org/daf/Competition/oecd-peer-Reviews-of-Competition-law-andpolicy-Brazil-2019.htm

⁶ Information extracted from CADE’s platform (CADE em números, in Portuguese), available at: http://cadenumeros.cade.gov.br/QvAJAXZfc/opendoc.htm?document=Painel%2FCADE%20em%20N%C3%BAmeros.qvwhost=QVS%40srv004q6774 Anonymous=true

⁷ Emphasizing that, as most cases investigate more than one practice, the sum of the total in the table above is higher than 58 (fifty-eight) cases ruled by CADE.

⁸ Administrative Proceeding no. 08012.005009/2010-60, ruled on August 12, 2020.

⁹ Op. Cit., Voto Relator, Doc. SEI nº 0793352.

¹⁰ Op. Cit.

¹¹ Administrative Proceeding no. 08012.002716/2001-11, ruled on February 19, 2014.

¹² Op. Cit., Voto-Relator, Doc. SEI 0116899.

¹³ Administrative Proceeding no. 08012.011881/2007-41, ruled on July 12, 2016.

¹⁴ Administrative Proceeding no. 08012.011881/2007-41, ruled on December 07, 2016.

¹⁵ Op. Cit. Reporting Commissioner’s Vote, Doc. SEI 0277837

¹⁶ Administrative Proceeding no. 08012.007147/2009-40, ruled on June 17, 2020.

¹⁷ Op. Cit., Reporting Commissioner’s Vote, Doc. SEI nº 0768732 and GS Technical Note, Doc. SEI 0621369.

¹⁸ The PRE test stems from the judgment of the Professional Real Estate Investor (PRE), Inc., et al. vs. Columbia Pictures Industries case, Inc., et al, in which the Supreme Court of the United States of America defined objective and subjective criteria for characterizing the practice of Sham Litigation.Case information is available at: https://supreme.justia.com/cases/federal/us/508/49/

¹⁹ It is interesting to note that a considerable portion of the TCCs approved by CADE, since the entry into force of the Brazilian Competition Law, corresponds to agreements signed in 2017 regarding the practice of imposing price adjustments for services and imposing new clauses, which, if not accepted, would imply a break in the contractual relationship and price tabulation in the health sector. Of the 20 (twenty) agreements approved in 2017, 13 (thirteen) were related to such practices.

²⁰ Settlement Agreement Proceeding no. 08700.003960/2012-98

²¹ Settlement Agreement Proceeding no. 08700.004988/2012-42

²² Settlement Agreement Proceeding no. 08700.003425/2020-47 (Banco Bradesco S.A.).

²³ Settlement Agreement Proceedings no. 08700.004988/2012-42 (Banco do Brasil S.A.); 08700.004410/2014-58 (Redecard S/A); 08700.006078/2014-66 (Hipercard Banco Multiplo S.A. and Bompreço Bahia Supermercados Ltda.); 08700.001844/2017-49 (Banco Itaú Unibanco S.A. and Hipercard Banco Múltiplo S.A.); 08700.001845/2017-93 (Redecard S.A.); Requerimento nº 08700.003613/2017-70 (Cielo S.A.); 08700.003614/2017-14 (Elo Serviços e Elo Participações S.A.); Requerimento nº 08700.005212/2018-35 (Cielo S.A.); 08700.005251/2018-32 (Banco do Brasil S.A.) and 08700.003425/2020-47 (Banco Bradesco S.A.).

²⁴ THC2 (Terminal Handling Charge-2) is the price charged by port operators of customs port facilities where cargo is stored in ports.

²⁵ Administrative Proceeding no. 08700.002066/2019-77. Defendant: Itaú Unibanco S.A. and Redecard S.A. Administrative Proceeding no. 08700.004201/2018-38. Defendant: Banco Bradesco S.A. and Administrative Proceeding no. 08700.003187/2017-74. Defendant: Itaú Unibanco S.A.; Banco Bradesco S.A.; Banco Santander Brasil S.A.; Banco do Brasil S.A. and Caixa Econômica Federal.

²⁶ Administrative Inquiry no. 08700.003498/2019-03 and Preparatory Proceeding no. 08700.002940/2019-76.

²⁷ The practice of scraping consists of copying concurrently relevant content from rival thematic sites for use in their thematic search engines. Administrative Proceeding no. 08700.009082/2013-03, ruled by the CADE’S Tribunal on June 19, 2020.

²⁸ Declaration available at: https://ec.europa.eu/commission/presscorner/detail/en/IP_18_4581

²⁹ (...) Google has used Android as a vehicle to cement the dominance of its search engine. These practices have denied rivals the chance to innovate and compete on the merits.

³⁰ Declaration available in: https://cn.reuters.com/article/brazil-google-idBRKN1L01P4-OBRIN

³¹ Mlex Market Insight, February 4, 2020, Unilateral conduct in digital markets a priority for CADE Superintendent Cordeiro. Available in: https://www.mlex.com/GlobalAntitrust/DetailView.aspx?cid=1160331&siteid=203&rdir=1

³² OECD Peer Reviews of Competition Law and Policy: Brazil 2019, available at: https://www.oecd.org/competition/oecd-peer-reviews-of-competition-law-and-policy-brazil-2019.htm

³³ Tradução livre para o português: Houve uma percepção geral de que combinar atos de concentração com conduta unilateral nas mesmas unidades significava inevitavelmente que mais recursos são na prática dedicados à análise de fusões, dados os prazos legais. Consequentemente, há menos recursos destinados às investigações de condutas unilaterais. Na ausência de mais funcionários, e como uma medida provisória, um funcionário em cada uma dessas unidades foi responsabilizado por casos de conduta unilateral. Entretanto, é duvidoso que isto reequilibre o balanço para mais investigações de condutas unilaterais. (...) Casos de conduta unilateral também foram identificados como uma área onde o CADE provavelmente fará esforços adicionais para lançar novas investigações e concluir questões pendentes de abuso de posição dominante

Cade, competition advocacy and unilateral practices: analysis and perspectives

Guilherme Teno Castilho Misale

Carlos Eduardo Tobias

Luiz Pires de Oliveira Dias

Abstract: This article aims to analyze CADE’s performance with respect to competition advocacy in the context of unilateral practices, showing the main initiatives and tools adopted by the Brazilian antitrust authority in that regard. In particular, the article seeks to draw a parallel between the emphasis that unilateral practices have been taking on the antitrust agenda in light of the strengthening of the competition advocacy. Under this investigation, we concluded that competition advocacy initiatives have been contributing to amplifying the discussions concerning competition in the country, paving the way for the development and beefing up of such initiatives in the Brazilian legal framework, notably in view of unilateral practices.

Keywords: Administrative Council for Economic Defense. CADE. Unilateral Practices. Competition Advocacy. Competition Defense.

1. Introduction

The fight against unilateral (anticompetitive) practices tends to gain greater prominence as the boundaries of knowledge advance and competition policy takes priority within the context of Antitrust Law. In view of an ever-changing landscape of changes and challenges, reflecting on the implications of unilateral practices in the antitrust domain becomes an even more necessary and challenging task, especially when considering concentration and consolidation processes that certain markets are experiencing worldwide, including intricate dynamics and innovative arrangements. In recent times, unilateral practices have taken on new contours and gained increased relevance on the competition agenda, both in academic literature and in the practices of antitrust authorities. This is due to a fertile ground for reflection and analysis, in the wake of markets’ developments and the activities of economic agents, who seem to be more attentive to this subject.

Competition advocacy, as conceptualized in this article, fits into the antitrust authority’s agenda as a potential tool related, for instance, to situations where the imposition of penalties and remedies alone may not constitute a sufficient mechanism to counteract the adverse effects of a given anticompetitive practice, particularly within a context where the structural conditions of the analyzed market - which may be supported by regulatory norms - encourage such misconduct, yielding a counterintuitive impact on the behavior of the players (suggesting an apparent conflict at most). From this viewpoint, competition advocacy can serve to raise awareness within the regulatory/legislative authority regarding the harmonization of norms, guidelines, projects etc. to the competitive dynamics of the market, adding new nuances through the lenses of best competition practices, ultimately aiming to ensure the healthy functioning of commercial relationships.

These short lines aim to introduce the backdrop that motivated this article. On one hand, unilateral practices may be associated with a variety of forms, both in terms of the type of commercial practice in which they can materialize and with respect to the structure and competitive dynamics of the markets in which they are observed. On the other hand, the customary practice of competition advocacy by the Brazilian antitrust authority (Administrative Council for Economic Defense - CADE) seems to be predominantly rooted in ex-post advocacy, i.e. an advocacy role concerning anticompetitive misconducts that have already been subject to analysis and that - this point deserves emphasis - require regulatory alterations to address potential concerns for the economic order.

In this context, it seems appropriate to shed light on the following considerations: while unilateral practices are characterized by peculiarities that require case-by-case analyses in light of inherent idiosyncrasies, competition advocacy presupposes that, when addressing before other authorities, CADE has theoretically already examined the issue at hand (whether in the context of anticompetitive practices control, merger control, or even through market studies) and, based on such examination, has deemed necessary to address specific aspects, suggesting changes or recommending technical adjustments in line with best competition practices, with a systemic and systematic approach to the legal framework.

At a first glance, this fact might lead one to believe that addressing matters related to unilateral practices through competition advocacy tools would be restricted solely to cases analyzed by CADE, wherein the competition authority deemed it necessary to engage with other authorities to submit considerations aimed at adjusting/enhancing the competition-related content of the subject under discussion. However, this perspective is not complete, as we will depict throughout this article by introducing elements that complement the scope of competition advocacy undertaken by CADE.

With due regard for the significant and diverse debates surrounding both unilateral practices and competition advocacy, this article seeks, within its methodological scope, to provide general insights to the toolkit employed by CADE to address, through competition advocacy, issues related to unilateral practices that impact (or have the potential to impact) the economic order. In doing so, this article aims to contribute with analytical elements for the discussion.

Following this Introduction, this article is structured as follows: (a) Chapter 2 provides general considerations regarding unilateral practices and to what extent the diversity of manifestations impacts CADE’s analysis; (b) Chapter 3 compiles points on CADE’s competition advocacy practice in the context of unilateral misconducts, while also presenting a more detailed analysis of the main tools that the antitrust authority employs in its advocacy endeavors; and (c) Chapter 4 offers reflections stemming from the preceding chapters, addressing the key aspects highlighted in the investigation, concluding with final remarks that evoke a potentially promising landscape for the development of the subject matter.

2. Unilateral Practices: Diversity of Forms

For purposes of this article, it is pertinent to briefly address a specific aspect of unilateral misconducts: the diversity of anticompetitive practices that can fall under this category when unilaterally exercised by an economic agent, and the implications this holds for CADE’s activities in terms of identification, investigation, and potential enforcement of such practices.

Previously, the practice of antitrust enforcement largely centered on coordinated misconducts - particularly notable during the first half of this decade in Brazil, where emblematic cartel cases dominated a significant portion of the authorities’ agenda. However, the contemporary landscape, shaped by technological advances and increasingly digital realities, highlights the reorganization of the modus operandi of certain markets (while also creating new ones and reshaping behavioral patterns). This evolution is prompting CADE to (re)calibrate its toolbox, shifting its focus to adapt to the new facets and embedded implications of unilateral practices.1

It is indeed true that the changes and new environments extend beyond merely influencing the realm of unilateral practices; they also resonate within coordinated arrangements, which are themselves impacted by emerging market trends and the behaviors of its players. Nevertheless, one can perceive a significant difference in the way these two types of conduct internalize and adapt to the advancements of the antitrust frontier, especially when considering the distinct paradigms and analytical tools that guide the examination of such misconducts.

In particular, unilateral practices have a closer relationship with a significant aspect tied to the realignment of economic agents’ actions, encapsulated in the trend of concentration/consolidation observed in certain sectors of the economy. In other words, this relationship becomes more direct given that CADE’s analysis in the context of merger control is attuned to the risk that, as a consequence of a legal transaction (merger or acquisition), economic agents may acquire sufficient market power to wield dominance and significantly influence/alter competitive conditions, notably through unilateral practices.2-3 Consequently, transactions resulting in the creation/fortification of economic conglomerates or the enhancement of portfolio power, for instance, tend to require heightened attention to potential unilateral practices that may stem from them.

In this context, it is important to clarify that, despite (unlawful) unilateral practices presupposing engagement in anticompetitive misconducts by a single player with dominant position in each market, such misconducts do not necessarily fit into a rigid and precise definition, as they can be expressed through a wide array of practices.4 As such, unilateral misconducts can be executed by a player aiming to benefit itself or other companies within their economic group/conglomerate through commercial contracting policies with other agents. These misconducts may also be employed, directly or indirectly, with the intent of generating barriers that amplify the risk of market foreclosure, discriminating and excluding competitors, stifling innovation etc.

Accordingly, one could argue that the breadth of unilateral anticompetitive practices also contributes to making them not obvious and trivial for the antitrust authority to apprehend, and sometimes even for the economic agents themselves. Particularly from the perspective of the antitrust authority, since such practice is carried out by a single agent, the analysis of evidence and indications detaches from the search for competitively sensitive information exchanges and/or covert and elusive agreements among competitors (as is customary in the context of coordinated practices). Instead, it focuses on more nuanced elements related to market structures and dynamics, with an emphasis on verifying the existence of dominant position and the contractual arrangements and commercial policies themselves. This is achieved through a specific interpretation of their legal-economic strategies and justifications, incentives and reasons for adopting the practice, in addition to extrinsic factors, such as regulatory policies that may influence the agent’s behavior.

In these cases, competition analysis demands more time, scrutiny, and depth to investigate the anticompetitive effects that may arise from the unilateral practice under examination (i.e. whether the net negative effects are balanced or not by the specific positive effects of the practice). This usually involves intricate economic and econometric analyses supported by sophisticated tools – supported in CADE’s case by the work of the Department of Economic Studies (DEE) – as well as consultations with regulatory authorities, market agents and so forth. Unlike coordinated misconducts, where the analysis is primarily focused on collecting and scrutinizing evidence that substantiates the practice, unilateral practices require an effort to ascertain whether, based on the factual elements and considering the above, the practice has constituted an anticompetitive violation framed under the Law No. 12,529/2011 (Competition Defense Law).

In principle, the gathering of evidence, as well as the understanding of the practice within the context of market dynamics, are elements of analysis for both forms of misconduct (coordinated and unilateral). Nevertheless, while the assessment of coordinated misconducts demands (or should demand, in our view) a minimal understanding of the market within which it operates,5 the analysis of unilateral misconducts, for the reasons already outlined, requires a deeper understanding of the actions of economic agents, their strategies and commercial policies, to attribute probative value to the gathered evidence. Emphasizing this aspect is very important within the context of competition advocacy, as will be explored below. This activity may seek to address competition-related matters with other bodies preventively, without necessarily being based on a concrete case, and without foregoing the reinforcement of CADE’s understanding of a case that has been the subject of its analysis.

Having said that, the array of practices that can fall under unilateral misconducts and the need for a deeper understanding of market dynamics for antitrust analysis are factors that guided the examination of the tools currently employed by CADE for the practice of competition advocacy, as will be outlined below.

3. Competition Advocacy

This chapter aims to explore how unilateral misconducts fit into the realm of competition advocacy undertaken by CADE. In that sense, firstly, two conceptual premises regarding competition advocacy, as adopted in this article, are initially elucidated. Subsequently, the chapter briefly delves into the role played by each of the three constituent bodies within CADE in the context of competition advocacy. Finally, through an analysis of a limited number of selected cases, the main tools employed by CADE for advocacy purposes are examined.

3.1. Premises regarding CADE’s exercise of competition advocacy

The first premise underpinning this article lays in the fact that, although the Competition Defense Law has explicitly allocated the role of competition advocacy to the Secretariat for Economic Monitoring (SEAE),6 now succeeded by the Secretariat for Promotion of Productivity and Competition Advocacy (SEPRAC), the legislative framework has left at least a room that also supports CADE’s engagement in this area. In our view, this can be identified as a result of one of the competencies of CADE’s Administrative Tribunal (Administrative Tribunal).7 Indeed, despite the importance of the ongoing institutional debate between CADE and SEPRAC regarding the sharing of competencies in competition advocacy, since the enactment of the Competition Defense Law, CADE has been making efforts to expand its advocacy activities. This is clear, for instance, in the use of instruments with the potential to enhance the effectiveness of its considerations and recommendations.

The second premise is related to the very concept of competition advocacy.8 The generality of this term, reinforced by the absence of a definition in the Competition Defense Law, opens room, in principle, for various interpretations, understandings and delineations not only regarding which practices fall under the umbrella of competition advocacy but, more importantly, regarding its purposes. In this context, for purpose of this article, it is presumed that the activities constituting competition advocacy by CADE are those aimed at promoting competition defense and are not underpinned by the enforcement aspects established in the Competition Defense Law for the authority’s activities within anticompetitive practices and merger controls.9

3.2. Roles played by CADE’s bodies in the practice of competition advocacy

While all the bodies comprising the internal structure of CADE (i.e. Administrative Tribunal, General-Superintendence - GS/CADE - and DEE) take part in the role of competition advocacy, it is worthwhile to provide a brief consideration about the interaction dynamics among them.

As the final instance of the agency responsible for adjudicating anticompetitive practices and imposing sanctions on economic agents (when the violation of the economic order is confirmed), the role of the Administrative Tribunal primarily revolves around transmitting its decisions to other regulatory authorities and branches of the Legislative and Executive. This