April 02, 2020

COVID-19 | Antitrust - CADE and Antitrust Law in times of crisis

Antitrute - uploaded on Apr 02 at 11:30 am

CADE and Antitrust Law in times of crisis ​

Our Antitrust team has reviewed the main news and trends from the Brazilian competition agency (CADE)’s practice during the COVID-19 crisis. These are the highlights:

• CADE’s personnel continue to work remotely, dealing with cases and holding meetings through video and audio conferences;
• Only certain procedural deadlines for defendants in formal investigations are suspended, most deadlines continue to run;
• Merger control analysis will be prioritized, but may see delays due to the difficulty in obtaining data from companies;
• Partnerships among companies specifically aiming to deal with the crisis need to be clearly structured to avoid an investigation;
• Companies are already under scrutiny for alleged abusive pricing, and price increases especially in sensitive areas should be carefully considered; and
• There are legislative proposals under discussion in Congress that could relevantly affect CADE’s practice during the crisis.

CADE’s Activities

The President of CADE released a statement reinforcing the agency’s commitment to continue its activities, adapting to the health restrictions in place. Most of the agency’s staff is working remotely, which has made video and audio conferences a routine.

The agency further amended its Internal Regulations to make it possible to carry out online sessions, provided they comply with information security requirements, ensure transparency and publicity, and allow full participation of interested parties.

CADE’s ongoing activities during this challenging moment will be essential to allow for an efficient analysis of possible emergency transactions among companies – aimed at meeting the demand arising from the fight against COVID-19 – and to restrain potential abuses.

Procedural Deadlines

After the enactment of the Provisional Measure No. 928 by the Brazilian President, which included in the list of exceptional measures to fight COVID-19 “the suspension of procedural deadlines imposed on defendants in administrative proceedings for as long as the state of calamity remains,” CADE clarified that:

• Deadlines imposed on defendants in the following proceedings will be suspended: (i) proceedings with formal charges that can result in fines (cartel and unilateral conduct investigations); (ii) proceedings to investigate failure to comply with merger control rules (APAC); and (iii) proceedings that can result in fines for breach of incidental procedural rules.

• There will be no changes to the deadlines in the following proceedings: (i) merger control cases; (ii) preliminary investigations; (iii) leniency agreements negotiations; (iv) settlement agreements and merger control agreements negotiations and compliance; and (v) consultations.

Impacts on Merger Control Cases

CADE intends to prioritize the analysis of merger control cases. The purpose is to maintain the 2019 average time of analysis (17 and 90 days for fast track and regular proceedings, respectively).

However, in practice the terms may be extended for several reasons, such as problems arising from remote work, difficulty in obtaining information by the companies, or delays caused by third parties in responding to questionnaires sent by CADE. Filings should be made with all information and documents necessary for their approval without additional questioning by CADE in order to avoid delays.

Finally, four developments are expected to occur during the crisis:

1. Increase in the volume of filings involving mergers and acquisitions of companies with financial difficulties or in bankruptcy;
2. Increase in requests for the faster preliminary (“precarious”) authorization in transactions, provided the deal can be reversed in the case of a subsequent prohibition;
3. Greater scrutiny of clauses for maintenance of the regular course of business between signing and closing, as well as actions taken by companies in this period, avoiding the occurrence of gun jumping; and
4. Increase in consultations and notifications of collaborative agreements and joint ventures (see below news regarding the proposal to amend the Brazilian Competition Law in this specific point).

Caution with Cooperation between Competitors

CADE will pay special attention to companies’ activities during the Covid-19 crisis to prevent anticompetitive practices (see below information on CADE’s recently launched investigation regarding excessive pricing). In particular, contacts among competitors are expected to be under the authority’s intense scrutiny.

It is important to be very cautious in any interaction of this nature, either directly or through trade associations. Conducts such as price fixing, customer or geographic allocation and bid rigging will continue to be targeted by the authority.

Potential associations with competitors specifically aiming to deal with aspects of the crisis must be entered into in a very transparent way, with the adoption of antitrust protocols and other measures to preserve the independence of the businesses involved.

Investigation on Abusive Pricing Increase

During the crisis, it is likely that companies – especially those active in sectors considered “essential” – are questioned for price increases that may be considered abusive. On March 18, 2020, CADE launched a preliminary investigation on alleged abusive price increases by companies in the health sector such as hospitals, laboratories, drug stores, surgical masks alcohol-based hand sanitizers and Covid-19 treatment drugs distributors and manufacturers. Up to date, more than 50 requests for information have been sent.

Proposal to Amend the Brazilian Antitrust Law

On March 31, 2020, a Draft Bill (No. 1,179) was presented to the Brazilian Senate proposing the following amendments to the Antitrust Law:

1. Until October 31, 2020, the mandatory notification of collaborative contracts, joint ventures and consortia shall be suspended;
2. Until October 31, 2020, CADE shall be prevented from investigating and deciding on cases resulting from (i) the sale of goods and services at below cost prices, and (ii) the closing and partial termination of business activities without cause; and
3. Antitrust violations shall be assessed by CADE taking into account “the extraordinary circumstances resulting from the pandemic.”

As to the first item, the proposal seems very broad and might suffer adjustments to restrict its application to collaborative agreements aiming to maintain the supply and production of goods directly related to the Covid-19 crisis. The Bill is still being reviewed by Congress.

Drugs Price Freeze Proposal

On March 24, 2020, another Draft Bill (No. 881/2020) was presented in the Senate proposing to freeze prices of drugs during the state of public calamity.

CADE expressed its opposition to the project, indicating that it might trigger a reduction in the volume of products offered by smaller companies, as well as lead to market concentration and products shortage. It is uncertain whether this Bill will move forward.

 

We are monitoring the situation closely and will keep you informed of all relevant antitrust developments. If you have any specific interest or question, please do not hesitate to contact any of us.

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