February 2020

New cartel screening tool may enhance investigations by CADE

A new working paper published by the authority explores the possibility of applying statistics to public procurement auctions


CADE’s Department of Economic Studies (DEE) released, in December, a working paper discussing the possibility of applying Moran’s I statistic to a public database of procurement auctions in order to screen potential collusive behaviors between competitors.

According to Working Paper No. 05/2019, entitled “Using the Moran’s I to Detect Bid Rigging in Brazilian Procurement Auctions”, the economic screen based on Moran’s I can show a positive and statistically significant autocorrelation between bids placed during sealed auctions. The study employs the Integrated Administration and General Services System (Comprasnet – SIASG) database, which retains information regarding purchases and contracts executed by the federal public administration, is public and of easy access by the authority.

The economic screen is tested in identifying correlation between bids by participants of an alleged bid-rigging cartel in the Brazilian market for implantable cardiac devices, currently under investigation by CADE’s General Superintendence (GS).

The proposal follows other projects structured by CADE to enhance screening methods in bid-rigging, such as GS’s intelligence unit’s “Cérebro” (i.e., “the Brain”). Initiatives as such aim at strengthening the authority’s investigation technique, rendering it less dependent on leniency applications and whistleblowers to detect cartels.

The Working Paper, however, suggests that, despite being of use to fortify CADE’s investigations, Morans’s I statistic requires the authority to have prior knowledge of the companies that potentially involved in the bid-rigging cartel: the screen can only be applied to assess the conduct of actors that were previously selected. As such, the economic screen does not suffice to bolster ex-officio investigations, rather it still relies on additional evidence (e.g., from leniency agreements or third-party complaints). Thus, we do not anticipate a major shift in the general functioning of investigations and administrative proceedings before CADE.

 

Senacon intensifies its work on personal data protection investigations

Recent notifications show personal data protection as priority in the governmental agenda


The National Secretariat of Consumers (Senacon) has intensified its action regarding consumers’ personal data protection. The agency of the Ministry of Justice and Public Safety has notified several companies due to their privacy and data protection policies. Such measures have already targeted Google and Facebook, as well as the apps Rappi, Tinder and Grindr and credit bureaus like Serasa and SPC. In Facebook’s case, Senacon has even issued a BRL 6.6 million fine as a result of Cambridge Analytica’s investigation.

These notifications were not based on the Brazilian Personal Data Protection Law (Lei Geral de Proteção de Dados – “LGPD”). After 2 years of vacatio legis, the LGPD will only enter into force in August 2020, although there is still the possibility of extension due to the draft bill No. 5,762/2019, which seeks to postpone the law’s entry into effect to 2022. The notifications and fines recently issued by Senacon were therefore based on broad interpretations of other laws, such as the Consumer Defense Code (Código de Defesa do Consumidor), the Positive Registry Law (Lei do Cadastro Positivo), the Brazilian Civil Rights Framework for the Internet (Marco Civil da Internet) and the Federal Constitution (Constituição Federal) itself.

Thus, there are clear signs of data protection’s growing importance and how this topic seems to be taking priority in the governmental agenda. In addition to Senacon, the Federal District and Territories Public Prosecutor’s Office (MPDFT) has recently launched a Public Civil Inquiry, also to investigate credit bureaus, and has shown increasing action on the data protection issue.

It is worth mentioning how these investigations and notifications by different authorities, such as Senacon and MPDFT, will develop with the LGPD’s entry into force and the start of activities of the National Data Protection Authority (ANPD). The application of other legislation, in addition to the LGPD itself, in cases of personal data protection attracts attention, especially because it may lead to conflicts of jurisdiction and, consequently, legal uncertainty. It is necessary, therefore, to carefully observe this process from the institutional organization standpoint, that is a sensitive point for companies which are in the process of adaptation to Brazil’s new data protection context.

 

CADE’s analysis influence CVM debate regarding competition in the securities market

CVM has opened a public hearing to discuss the possibility of multiple stock exchanges in Brazil after the antitrust authority’s debates


In light of the discussions held by Cade in a number of antitrust procedures, the Securities and Exchange Commission (CVM) opened a public hearing in the end of December to discuss the possibility of multiple stock exchanges operating in Brazil. Cade’s proceedings may instigate debate over regulatory changes in different organizations, in order to ensure that competitors have access to certain information or necessary infrastructure to compete in such market.

Currently, the stock trading service is operated exclusively by B3, which concluded an arbitration proceeding with company ATS in late December, paving the way for the company to access its central depository and operate as a stock negotiation platform in the country.

Cade has investigated B3’s alleged anticompetitive practices in the past after ATS’ complaints. In 2016, ATS reported the stock exchange (BMVF at the time) before Cade for imposing practices which created barriers to entry in the market for variable income trading services. B3 celebrated a Cease and Desist Agreement with the antitrust authorities and committed to give access to operational tests in its platforms for potential financial agents interested in operating in Brazil.

CVM also secured initiatives in this sense to develop the financial system. The authority proposed a series of changes in normative instructions, such as: (i) listing of issuers and admission of securities to trading; suspension and exclusion of securities; large lot trading; free public information; and procedures related to the request for authorization to operate an organized market management entity; (ii) a new model of unified self-regulation, in which part of the activities arising from the duty of self-regulation by the entities managing the organized market and the entities operating infrastructure of the financial market will be exercised jointly, through a single self-regulatory entity; and unification of the loss compensation mechanism; (iii) criteria for measuring the best performance for retail investors; and changing disclosure obligations in the context of competition between trading environments.

The creation of new trading platforms arouses debates both from regulatory and competitive perspectives. Although it is not yet possible to predict whether the new measures will be sufficient to foster competition in this market, CVM’s proposals are innovative and represent an important advance in the debate on the opening of competition in the securities market, and also as a consequence of Cade’s analysis.

 

IBM Red Hat case triggers discussion on gun jumping fine

CADE’s Tribunal debates changing the limits for fines, which would be currently outdated for high-value transactions


In the context of an Administrative Proceeding to Investigate a Merger (APAC, in its Portuguese acronym), CADE’s Tribunal discussed the possibility of increasing the limits of gun jumping’s fines, set by Law No. 12,529/2011. As discussed in the judgement session of December 11 and in subsequent statements by CADE’s Commissioners, on one hand the legal limit on the fine would be outdated in the sense that it does not adequately assess global cases or large companies. On the other hand, these cases would be exceptional and, therefore, there would be no urgency for the normative change.

At the judgment session, CADE’s Tribunal closed an APAC agreement with IBM and Red Hat due to the premature closing of the global acquisition of Red Hat by IBM before the decision of the Brazilian antitrust authority. According to the agreement, companies will pay a fine of R$ 57 million for the practice, known internationally as gun-jumping. This is the highest fine for this breach ever applied by CADE.

The parties filed the transaction in Brazil in April 2019. Two months later, in June, SG recommended the approval without restrictions of the merger. Some days later, the Tribunal took over the case to deepen the analysis. However, on July 9, the parties formally communicated CADE about the global closing of the transaction. They informed that, in the light of the Tribunal’s paralysis due to the absence of a quorum since the beginning of July, the uncertainty regarding the deadline for the authority’s final decision, and also considering that the transaction was approved without restrictions in all other jurisdictions where it was notified, they had decided to close the global transaction, maintaining separate structures in Brazil (a procedure known as carve-out).

Despite the companies’ argument, after instruction by the reporting Commissioner Paula Farani, the Cade’s Tribunal reiterated its historical understanding that the maintenance of separate structures is not sufficient to fend off the characterization of the gun-jumping [1] infraction — fining the companies.

During the trial,  reporting Commissioner Paula Farani criticized the low value set by the legislation and stated that, were it not for the legal cap, the fine computed according to the methodology of CADE Resolution No. 24/2019 could exceed the amount of R$ 1 billion. She also pointed out that “this case portrays that the legal limit may not be up-to-date, since it does not reflect major transactions, and it must be a case for CADE to take it to the Legislature”.

On the other hand, CADE’s President Alexandre Barreto declared to MLex [2] that the alteration of the legal ceiling for fines provided for in art. 88, Paragraph 3 of Law No. 12,529 should not be a priority for the competition authority, unless cases of gun jumping in global megamergers become more frequent. Barreto understands that the IBM-Red Hat case was exceptional and, therefore, there was no urgency for a legislative change.

Given these two positions, the analysis of CADE’s precedents reveals that in most cases of gun-jumping the estimated value of fines and monetary contributions is below the legal limit. The historic of gun jumping fines reveals that the second largest punishment recorded was R$ 30 million, in the also global transaction of Technicolor and Cisco System. In addition, it is observed that in most of the cases, the punishment was less than R$ 1 million, and in at least six other cases, the punishment ranged between R$ 1 million and R$ 3 million.


[1] This position was manifested by the authority at the time of the judgment of Apac No. 08700.011836 / 2015-49, which analyzed the global transaction between Technicolor S / A and Cisco Systems.

[2] MLex. Higher gun jumping fines not a Cade priority in wake of IBM-Red Hat case, agency’s president says. Aired on 06.01.2020.

Government issues Provisional Measure that affects urban mobility technology companies

Provisional Measure has already been amended to increase obligations for transportation app companies


In November, the federal government issued the Provisional Measure (“PM”) that alters the Law No. 12,587/2012 and increases the roster of cities that must present an urban mobility plan. According to the PM No. 906, cities that are over 20 thousand inhabitants or part of a metropolitan region must present a plan to the Ministry of Regional Development that is compatible with its master plan until April 2021. The cities that fail to provide this urban mobility plan are susceptible to budgetary restrictions by the federal government in that area.

The original text of the PM has already received amendment proposes to increase obligations for transportation app companies. Amongst those, the proposal of the congressman Mauro Lopes (MDB party) suggests changes that would make drivers share data regarding its trips and impose an annual survey on vehicles to be held on car shops certified by a federal agency responsible for certification. Senator Acir Gurgacz (PDT party) also proposes altering the law in order to regulate electric scooter traffic.

The PM and its amendments may have several effects on the regulation of transportation in the cities, especially when considering the increasing expansion of tech companies in this field. These regulations have taken potentially negative effects already, to the point of affecting the continuity of some of those companies’ operations in Brazil due to the high costs and many responsibilities created for the entrepreneur.

November 2019

Bill seeks to postpone the effectiveness of the Brazilian General Data Protection Act

On October 30, Congressman Carlos Bezerra presented a bill that seeks to delay the entry into force of the Brazilian General Data Protection Act (LGPD, Law 13709/2018) in two years — from August 2020 to August 2022.

The date of entry into force of the LGPD, enacted in August 2018, has already been postponed once. The original Act was due to enter into force in January 2020. But it was amended last December by former President Michel Temer when he enacted the Executive Order creating the National Data Protection Authority (ANPD), later converted into Law No. 13.853/2019, and approved in July.

The LGPD is a transversal law that affects a wide range of economic agents. Even if a company only handles personal data in its Human Resources department, for example, it needs to comply with the new Act. Therefore, attempts to postpone entry into force are expected. However, it must be highlighted that such a delay is controversial not only for the protection of personal data under the perspective of individual rights, but also because it intensifies legal uncertainty for companies. Many of the Brazilian firms have already developed projects to comply with the LGPD and are eagerly waiting for both the authority to be created and the law to be applied in order to clarify many relevant aspects of data protection in Brazil. For example, how and when the ten legal bases provided for the processing of personal data will indeed be acceptable and when they may be contestable (e.g.the limitations for the use of the research studies basis or for the basis of compliance with a legal or regulatory obligation by the controller).

 

CADE’s General Superintendence recommends closing investigation on access to competitive information in the payment methods market

On October 14, CADE’s General Superintendence (GS) recommended closing an administrative inquiry investigating potential anticompetitive conduct. Such conduct consisted of the transmission of sensitive information among competitors in the payments market.

More specifically, the investigation was based on Redecard’s consultation before CADE. The company questioned the antitrust authority on whether card networks could ask card processing companies (specifically “Rede”) for access to information regarding businesses and facilitators (sub-accreditors). According to Reporting Commissioner Paula Azevedo, who analyzed the consult and decided it merited scrutiny from the GS, the case represented a good opportunity to analyze the economic and competitive relevance of commercial data, as it would be necessary to assess if the access to such information would represent a competitive advantage for the card networks.

The GS investigated whether there is competition between sub-accreditors agents, card processing companies and card networks. It concluded that there may be competition between sub-accreditors and processing companies. As a result, processing companies’ requests for facilitators’ sensitive information may raise competitive concerns. Regarding the relationship between card networks and sub-accreditors, CADE did not acknowledge that there is competition between them, pointing out that there is no evidence that digital wallets (such as Visa Checkout and Masterpass services) would exert competitive pressure on sub-accreditors.

Regarding the anticompetitive risks of the information exchange, following the Brazilian Central Bank (BCB) assessment presented in response to a request for information sent by CADE, the GS concluded that security issues are a legitimate justification for information sharing. The GS analysis did not evaluate the competitive effects of the conduct. Thus, the GS asserted that even if some information requested may be deemed sensitive, such request is justified by the need to ensure the integrity of financial transactions.

One may conclude that the case is a remarkable precedent in which the competitive analysis was affected by arguments and different legal interests, such as user safety.

 

CADE confirms Understanding of limitations for cases involving influence of uniform conduct 

Confirming the recent understanding adopted in the ruling of the Trains Cartel, CADE’s Tribunal unanimously acknowledged, at the judgment session on June 30, the five-year statute of limitations for the conduct of influence of uniform conduct. The new orientation was confirmed In an administrative proceeding that investigated an alleged cartel between thirteen gas stations in the State of Paraíba, as well as the participation of the Association of Fuel Resellers of Paraíba (Aspetro), the Paraíba State Petroleum Retail Trade Union (Sindipetro) and Ello-Puma Fuel Distributor in the anticompetitive agreement.

Reporting Commissioner Bandeira Maia acknowledged that the conduct of these agents was that of influencing an uniform commercial practice among competitors, something different from the cartel itself. Therefore, he claimed the 5-year period, rather than the 12-year one (broadly established in the Tribunal’s precedents for cartel cases), should be applicable.

The case is a relevant precedent since there is a discussion on whether the influence of uniform conduct is subject to a statute of limitations of 12 years, such as for cartel offenses, based on the applicable criminal law. In past cases, CADE adopted a statute of limitations of 12 years for the conduct of influence, but in recent judgments it has applied the five-year term.

October 2019 Edition

In this edition of our newsletter, we discuss the approval of the new CADE nominees by the Senate and the reinstation of the Tribunal’s minimum quorum; the clearance, by the antitrust authority, of the acquisition of Nextel by Claro without restrictions; the US authority determination to use arbitration in merger; and the changes to the General Telecommunications Law, approved by the Brazilian Senate.

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September 2019 Edition

In the current edition of our newsletter, we discuss the new CADE nominees; the approval of the Executive Order of Economic Freedom by the Brazilian Senate; and the Federal Decree No. 9,977/1, which is focused in Social Impact Businesses.

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August 2019 Edition

In this edition of our newsletter, we discuss the conviction of companies for bid rigging in train and subway markets; the agreement signed by CADE and Petrobras to open the Brazilian natural gas market; CADE’s new resolutions, which seek more transparency and standardization; the uncertainty over CADE’s nominees; and the approval with vetoes, by the Presidency, of Law that creates the National Data Protection Authority.

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July 2019 Edition

In this edition of our newsletter, we discuss the three investigations against Google dismissed by Cade in the past weeks, the agreement signed by the Brazilian antitrust authority and Petrobras to open the refining market, and the moment of regulatory turmoil in the Brazilian financial sector.

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June 2019 Edition

In this edition of our newsletter, we discuss the Declaration of the Rights of Economic Freedom, recently issued by the Brazilian President; the decision, by the Supreme Federal Court, that declared the unconstitutionality of municipal bans on the operation of individual transport apps; the two new Commissioners nominated by the Presidency to fill upcoming vacancies at CADE’s Tribunal; and also the approval, by the National Congress, of the executive order which creates the National Data Protection Authority.

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May 2019 Edition

In the latest edition of our newsletter, we discuss the dismissal, by CADE’s Tribunal, of the General Superintendence recommendation to convict fuel distributors for a hub and spoke cartel, accepting influence to cartelize charge instead; the taking off of the Brazilian aviation market, which involves the acquisition of Avianca’s assets after its bankruptcy and a draft bill allowing Brazilian airlines to be 100% foreign owned currently being discussed by Brazil’s Congress; and recent progress regarding the Brazilian General Data Protection Act (LGPD).

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April 2019 Edition

In this edition of our newsletter we discuss the release, by CADE, of the OECD peer review report of Brazilian competition policy, the clearance, by the Brazilian antitrust authority, of the Disney/Fox merger and of the acquisition of All Chemistry do Brasil by its rival SM Empreendimentos (Fagron), both deals with remedies, and also the first hub and spoke cartel sentenced by Chile’s competition authority.

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February 2019 Edition

Check out our newsletter to more information regarding CADE’s 2018 activities report and acceptance to the OECD Competition Committee, the authority’s movement forward in the debate about cartel fines and the closing of a bid-rigging probe in the market for prison-food, in which the antitrust authority debated the connection between corruption and anticompetitive practices. We also discuss the opening, by Brazil’s telecom Regulator, of the debate about the Brazilian regulatory supervisory models.

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