Unraveling the Brazilian Antitrust Settlement Practice – a First Glance
Gabriel Nogueira Dias
Francisco Niclós Negrão
Raquel Cândido
Thaís de Sousa Guerra
1. Introduction
One of the best known anecdotes involving the Danish great physicist Niels
Bohr tells that once, upon receiving an old friend in his winter cabin, he was faced with
an unexpected and provocative question. His friend, after glancing at the lintel of the
entry door and seeing there a fairly wasted “lucky horseshoe”, inquisitively asked:
“Lucky horseshoes? Do you believe in them, Niels?” The scientist, famous for his
notable sense of humor and keen perception, did not waver in his response: “As a matter
of fact I don’t believe in lucky horseshoes. The person who gave it to me, however, said
they work whether you believe in them or not…”1
CADE, the Brazilian antitrust authority (CADE) celebrates its 50th anniversary
in 2013. After a half century of permanent progress – independently of the
Administration of the country or its economic environment –, we could certainly argue
that CADE’s efforts in favor of a healthy competition environment in Brazil may pursue
the same the enchantment of lucky horseshoes: whether you believe or not, it works.
This paper must be taken as homage to CADE’s mission in Brazil and it was
especially prepared for the 40th Annual International Antitrust Law & Policy
Conference, traditionally organized by prestigious Mr. Barry Hawk at the Fordham
Competition Law Institute.
One of the main themes that will be discussed at Fordham regards ‘competitor
agreements’, and how various jurisdictions deal with such agreements under their laws.
The subject is broad and instigating, and, among others, includes cartel, certain vertical
practices (which in Brazil are usually the object of conduct control), joint ventures, joint
purchasing, licensing and distribution, and associative contracts in general (which in
Brazil are usually the object of structural/merger control). This paper narrows the
subject and focuses on one specific and important practical aspect: the key points of the
Brazilian antitrust settlement policy, which may represent to parties the best possible
strategy and solution for an investigation launched as a result of a competitor
agreement.
1
Anecdote included in the book of essays of the German skeptic philosopher Marquad about the inevitability of
Human Sciences. Marquad, Zukunft braucht Herkunft, p. 167 (free translation).
In specifum, it aims to present a first glance regarding the legal aspects of the
Brazilian Antitrust Repressive Control and the overall regulation and experience with
the so called Cease and Desist Agreements (Termo de Compromisso de Cessação “TCC”). Such legal instrument became extremely important in Brazil during the past
few years for the companies. This is so, not just because Cease and Desist Agreements
are a sound form of solution to antitrust investigations, but also because they are an
interesting instrument to achieve legal certainty regarding some complex practices and
heterodox agreements between different parties, especially involving vertical practices.
From a pragmatic perspective, the legal instrument of Compromisso de Cessação could
be seen as an important way to get the deal trough.
In this context, section 2 of this paper describes the main procedural issues
regarding a settlement request before CADE. Section 3 deals with the important matter
of settlement negotiation. Section 4 provides the reader an attentive overview of the
main obligations that must be included in the document that is going to be presented and
negotiated with CADE. Once the parties effectively agree on the terms of the TCC and
it is formally approved by CADE, the questions about how the obligations are going to
be fulfilled and monitored by the authorities become imperative – section 5 is therefore
fully devoted to this complex issue. Section 6 presents the conclusions of the paper.
2. Procedural Issues regarding the request of an agreement
The Cease and Desist Agreements entered into by CADE and legal entities or
natural persons are provisioned by Law 12,529/112. There are vivid discussions – also
already brought to the Courts – about the legal nature and function of the so-called
TCCs. Are they a right of an investigated company/individual or rather an discretion
from the Brazilian antitrust authority in light of its judgment of convenience and
opportunity? Nevertheless, after the signature, the agreement constitutes a judicially
executable instrument 3.
The filing of a TCC draft proposal does not suspend the ongoing investigation
against the negotiating party. After the TCC is approved by the CADE Tribunal and is
signed, the investigation will be suspended while the agreement is being performed,
given that the TCC usually contains obligations that must be carried through for a
certain period of time. The TCC only brings the investigation to an end with regard to
the signing parties once the agreement is fully implemented and CADE understands that
all of the obligations were adequately fulfilled.
2
Article 85, Law 12,529/11.
3
Article 85 (8), Law 12,529/11.
The proposal to sign a draft TCC shall be rejected when antitrust authorities do
not reach an agreement with defendants regarding its terms. As a way to encourage
defendants to at least try to enter into a TCC, the rejection by CADE of such
opportunity to settle does not implicate (at least not officially) an assumption of guilt by
the investigated entity that filed the proposal4.
The TCC proposal needs to be directed to the General Superintendence or to the
Reporting Commissioner, depending on the stage of the ongoing investigation.
Therefore, it is necessary to briefly explore the rites of such procedure to be able to
know to whom TCC request must be presented.
The investigations carried out by CADE follow a specific formal procedure.
According to Law 12,529/11, the General Superintendence is in charge of the
investigation and may conduct Preliminary Investigations. After the conclusion of
Preliminary Investigations, the General Superintendent may order the inception of an
Administrative Proceeding or its dismissal5.
Once an Administrative Proceeding is initiated, all defendants shall be
summoned to present their individual defense and specify the evidence to be produced.
After the conclusion of the fact finding phase, the General Superintendence shall notify
the defendants to present new arguments6. Subsequently, the General Superintendence
issues a reasoned report recommending either the dismissal of the Administrative
Proceeding or reaffirming it believes a violation existed7. The case files, along with the
opinion issued by the General Superintendence, are then sent to CADE’s Administrative
Tribunal.
Next, the Administrative Tribunal, by means of a Reporting Commissioner
(i) may require an opinion of the Attorney General’s Office8; and (ii) may determine
new finding of facts9. Upon conclusion of discovery, defendants will be notified to
present final arguments, after which the case will be decided10.
4
Article 85(7), Law 12,529/11, and article 183(5), CADE Regulation 1/2012.
5
Article 67, Law 12,529/11.
6
Article 73, Law 12,529/11.
7
Article 74, Law 12,529/11.
8
Article 75, Law 12,529/11.
9
Article 76, Law 12,529/11.
10
Articles 76 and 77, Law 12,529/11.
In this context, the draft TCC needs to be filed either to the GeneralSuperintendent or to the Administrative Tribunal’s Reporting Commissioner, depending
on the stage of the ongoing investigation11.
TCC draft proposals must usually be submitted individually by the investigated
parties. When two or more applicants belong to the same economic group, the
applicants may file one proposal, mentioning each individual investigated party, and the
authority may decide on the possibility of a joint negotiation. Finally, the authority may
also, based on its analysis of convenience and opportunity, decide to jointly negotiate
the individual TCC draft proposals related to one investigation.12
One related topic that has not been settled so far concerns connected cases, e.g.
an investigation regarding one company and another specific investigation regarding the
conduct of individuals linked to said company. CADE sometimes splits investigations
(dividing companies and individuals) in order to speed up the analysis of the case, given
that sometimes there is much delay in serving individuals. In case of different stages of
the ongoing investigations, as one being currently under the General-Superintendent’s
analysis and the other being under the Administrative Tribunal’s Reporting
Commissioner for instance, the new Competition Act does not provide the to whom the
TCC proposal must be directed. The Brazilian legal community is still longing for
regulation on this issue.
The proposal to sign a TCC may be confidential13, may be filed at any time until
the end of the fact-finding phase of the administrative proceeding, and should only be
filed once during the investigation14. The procedure to propose and negotiate a TCC is
relatively simple and largely depends on the interest of CADE in negotiating the
agreement.
It is mandatory for the TCC to contain the specification and detailing of the
signing party’s obligations to stop engaging in the investigated activities or in the
activities possibly causing harmful effects, as well as other applicable obligations, as
per negotiated15. The TCC must also establish a fine to be paid in case of failure to
comply, in full or in part, with the undertaken obligations16.
11
Article 179, CADE Regulation 1/2012.
12
Article 180, CADE Regulation 1/2012.
13
Article 85(5), Law 12,529/11 and Article 179 (3), CADE Regulation 1/2012.
14
Article 85(4), Law 12,529/11.
15
Article 85(1), Law 12,529/11.
16
Idem.
TCCs may also involve other kinds of obligations, such as the creation and
enforcement of a full competition compliance program, collaboration with authorities
(which may or may not involve providing information to convict other investigated
parties), an open-door policy in which authorities may visit company facilities without
notice, a commitment by which the investigated party abstains from judicially
challenging a search and seizure operation and the documents there obtained, and the
obligation to provide periodic reports ascertaining that the TCC is being complied with.
TCCs on investigations regarding cartel or any kind of anticompetitive
associations between competitors will necessarily involve the payment of a monetary
contribution17 to the Fund for Diffuse Rights. Such monetary contribution can be
divided in installments18.
The monetary contribution can be reduced based on the order in which the TCC
applicant came forward and its degree collaboration with CADE on the investigation.
The rule is that, if the case is yet under analysis by the General Superintendence,
(a) first applicant will receive a discount that may amount from 30% to 50%; (b) second
applicant, 25% to 40%; (c) third and other applicants, up to 25%.19 CADE Regulation
1/2012 also provides that if the investigations are concluded by the Superintendence and
the case is thus under analysis by a Reporting Commissioner of the CADE Tribunal, the
maximum amount of reduction in the monetary contribution is of 15%.20
3. Negotiations
There are several steps provided by CADE Regulation 1/2012 – also known as
“CADE Bylaws” (Regimento Interno do CADE) regarding the negotiations between the
investigated parties and CADE. Once a TCC proposal is filed by a defendant, the
investigation status defines the measures to be taken by the authority. If the case is still
under review by the General Superintendence, for instance, this body will define the
rhythm of the negotiations of the TCC.
The Negotiation has a specific time-frame21 instituted by the GeneralSuperintendent which will culminate in the signature or dismissal of the draft TCC.
17
Article 85(2), Law 12,529/11.
18
Article 196, CADE Regulation 1/2012.
19
Article 187, CADE Regulation 1/2012.
20
Article 188, CADE Regulation 1/2012.
21
Article 181 (1), CADE Regulation 1/2012.
Such time-frame can be suspended22 if further measures are needed in order to carry out
the negotiations. By the end of the established time-frame, the Applicant of the TCC has
to present a final draft within 10 days23. In case of not presenting a final draft in the
determined time-frame previously established, the Applicant will not be able to present
a new TCC proposal24.
After the negotiation, the final draft of the TCC has to be analyzed by the
General-Superintendent, which will issue an opinion for acceptance or rejection of the
proposal, to be submitted to the Administrative Tribunal for a final decision regarding
the execution of the agreement.
Alternatively, if the investigation is already under analysis by a Reporting
Commissioner, the negotiation time-frame is instituted by CADE’s Bylaws as 30 days,
extendable for other 30 days25. Equally, such time-frame can be suspended26 if further
diligences are needed in order to carry out the negotiations. It is very common for
several suspensions to occur during those determined times and some negotiations may
even last years.
Next, the Administrative Tribunal, by means of the Reporting Commissioner,
may require an opinion of the General-Superintendent, regarding the terms of the
TCC27.
As in the procedure before the General Superintendence, at the end of the timeframe, the investigated party that filed for a TCC has to present a final draft within 10
days28. Such final draft also has to be submitted to the Administrative Tribunal for
decision by CADE to execute the TCC or not
In both cases, the General-Superintendent or the Administrative Tribunal’s
Reporting Commissioner have the incumbency to appoint at least three CADE staff
members to be part of a Negotiating Commission29-30 and the decision-making on the
final draft receives priority status on CADE’s judgment sessions.
The main goal on organizing a Negotiating Commission is to create an
independent body in order gain agility towards the negotiations and measures that may
be needed to conclude steps on reaching an agreement. If technical information is need,
22
Article 181 (2), CADE Regulation 1/2012.
23
Article 181 (3), CADE Regulation 1/2012.
24
Article 183 (6), CADE Regulation 1/2012.
25
Article 182 (1), CADE Regulation 1/2012.
26
Article 182 (2), CADE Regulation 1/2012.
27
Article 182 (3), CADE Regulation 1/2012.
28
Article 182 (4), CADE Regulation 1/2012.
29
Article 181, CADE Regulation 1/2012.
30
Article 182, CADE Regulation 1/2012.
e.g. specific data or industrial/market information to be researched, the Negotiating
Commission can quickly go ahead with the pertinent research and/or information
requests.
The Negotiating Commission, however, cannot be compared to a mediator party
due to its dependence to the appointer’s review (General-Superintendent or Reporting
Commissioner), and the fact that its decisions are non-binding. The Negotiation
Commission relates more to an intermediary third party, which acts independently of
the Applicant and the final decision-makers, despite not being autonomous to make a
final decision regarding the TCC proposed.
In fact, the Commission works as a buffer and this distance helps to relieve the
pressure over the Commissioners and the General-Superintendent. The Commission
plays a key role on reaching common grounds between the authorities’ and the parties’
expectations on the negotiation. It also gives the government decision-maker (GeneralSuperintendent or Reporting Commissioner) the necessary distance from the negotiation
table, since depending upon the time that the negotiation period lasts, all players on the
table can develop an unwelcomed closeness to each other or an eagerness to reach the
final terms of the agreement. Therefore, the interaction between the Negotiation
Commission and the General-Superintendent and/or the Reporting Commissioner helps
the authorities’ requirements to be fulfilled, with the necessary distance from the
applicants of the TCC.
From the company’s or individuals’ perspective, sometimes the lack of contact
with the decision-making authority slows down the speed of negotiation, each and every
provision, wording, and language of the TCC must be validated. In such context,
developing a good relationship with the Commission is a key factor for reaching proper
results in a timely manner.
There is also a question of how much of its decision power the GeneralSuperintendent and/or Reporting Commissioner is willing to delegate to the
Commission. The body of negotiators that CADE has is currently made mostly of very
competent and experienced personnel, very committed to reaching outstanding results
on every negotiation they are engaged into.
After going through the Negotiating Commission common grounds finding, the
final draft still has to be evaluated by the General-Superintendent or by the Reporting
Commissioner, according to the investigation’s phase, before being sent to the
Administrative Tribunal on the judgment sessions. It is key to note that the
Administrative Tribunal cannot modify the final draft - its only possible rulings are to
accept it or reject it31.
In cartel cases or anticompetitive associations between competitors, since the
monetary contributions and cooperation are mandatory, the amount of the monetary
31
Article 183 (1), CADE Regulation 1/2012.
contribution has to be settled32-33 along with the level of cooperation expected from the
TCC signatory party, at the time of the decision by the Administrative Tribunal. In such
cases (cartel), the Applicant must necessarily admit its participation in the investigated
conduct.34
One interesting situation and innovation is that the negotiations can also start by
initiative of the General-Superintendent, which can present the opportunity for
settlement to the investigated party or parties. The procedure follows the same steps
described above. The only difference is that if the procedure under initiative of the
General-Superintendent does not go through, the investigated party does not lose the
right to file a proposal of a TCC of its own, further on the investigation.
Moreover, regardless the initiative of settlement, the Negotiating Commission is
the one to set the pace to the negotiation process, which in some complex cases, as
previously mentioned, can take up to one year.
Considering the usual time frame of investigation analysis, even though the
investigation is not suspended during the negotiation phase, it is possible that the
investigation does not present major developments during this phase, something that
results in low risks for the investigated parties negotiating a TCC.
4. Main Obligations
a. Recitals
When drafting a TCC, practice has shown that the Recitals have become very
important not only during negotiating period, but mostly after the document’s signature
and approval rendered by the CADE Tribunal.
Recitals must be drafted in order to set the context in which the document was
negotiated. This context will be very important when the agreement is executed but
even more so when the monitoring of the TCC compliance is carried by the authorities.
This section is a very good opportunity to set the tone of the agreement and also
to insert in the document the spirit of the negotiation carried by the parties and the
negotiating committee, since the agreement will gain a life of its own and its monitoring
will not necessarily be carried by the people who took part in its negotiation. Recitals
are an important tool to assure the parties that future interpretation of the agreement will
not escape from its original goals and context.
32
Article 184 (6), CADE Regulation 1/2012.
33
As well as the conditions of payment, such as the possibility of instituting monthly installments.
34
Article 185, CADE Regulation 1/2012.
The more complex the issues investigated on the administrative procedures,
more important are the definitions. Every economic sector and activity has its own
particular terms, and sometimes translating the proper language used by experts into
acceptable legal terms for the agreement can be challenging.
It is very important to keep in mind that the language of this contract must be
clear for CADE, for internal and external counsel, but most importantly for the
company personnel engaged fulfilling and complying with the agreement. All people
that will operate the TCC must have clarity on what was agreed.
b. Object
The object of the agreement will reflect upon the scope of the suspension that
shall be applicable to the administrative proceeding that originated the TCC. In some
cases, the object of the investigation proceeding may be very broad, and defining which
parts of the investigation are reached by the agreement will reassure the signing parties
that the engaged commitment will be effective and resolve the matter properly.
If there is more than one alleged unlawful practice investigated on one single
proceeding, the negotiating parties shall determine that all of them are comprised in the
agreement. Recent experience has shown that if the object of the agreement is not well
defined, the authorities may start a new investigation regarding facts that were already
envisioned by a previous investigation that led to a previous agreement and were not
included in the first TCC.
Incidental proceedings related to the main procedure can also be a part of the
agreement. For example, when AmBev engaged into an agreement with CADE
regarding the introduction of proprietary non-interchangeable returnable 630ml beer
bottles in the market – being accused of increasing rivals’ costs, given that the market
operated by means of returnable and interchangeable 600ml beer bottles – , the TCC
signed suspended not only the administrative procedure but also the voluntary appeal
related to it:
“2.2. The present agreement comprehends Administrative Proceeding.
08012.002474/2008-24 and Voluntary Appeal 0877.002874/2008-81
and, as a consequence, the totality of facts, allegations and requests of
both procedures”35
This is another example in which the language used must be very precise in
order to reach the best results when entering a TCC.
35
Administrative Proceeding No. 08012.002474/2008-24
c. Absence of judgment regarding the merits
This clause can seem a standard one but it can also be considered the heart of the
agreement. Having the assurance that engaging into the TCC will not lead to
conclusions regarding the company’s conducts that were being investigated is very
important for the parties, due to future civil and criminal actions.
Administrative proceedings often investigate more than one single conduct at the
same time, as well as many incidental matters that come up during the investigation
period.
The absence of judgment regarding the merits gives real meaning to the
investigation suspension, since after the execution of the TCC, CADE and/or the
General Superintendence are prevented from carrying further investigation regarding
the signatory party.
This clause is even more important in procedures that have more than one
defendant and not all of them have engaged into a TCC. CADE and/or General
Superintendence will continue its discovery and finding on the case, but in doing so
they must not give any value to acts performed by the signatory of the TCC. This is a
very challenging issue as recent experience has shown.
Find below a few examples of this clause:
AmBev TCC (630ml beer bottle)
“3.1. AMBEV and CADE acknowledge that the execution of this
agreement does not implicate any kind of merits analysis by the
signatories regarding the investigation and related matters carried on
Administrative Proceeding08012.002474/2008-24 and Voluntary Appeal
08700.002874/2008-81, and it also does not result in any judgment of
merits regarding:
3.1.1 the acknowledge of the EXCHANGE SYSTEM or REGULAR
BOTTLES as essential facility;
3.1.2 limitation to AMBEV’s right of innovation;
3.1.3 the eventual release or utilization of AMBEV BOTTLES in the beer
market; and
3.1.4 the eventual obligation of AMBEV commercializing beer in
returnable bottles through the EXCHANGE SYSTEM or similar”36
36
Administrative Proceeding No. 08012.002474/2008-24
Souza Cruz TCC (cigarettes merchandising exclusivity in points of sale)
“3.1. SOUZA CRUZ and CADE acknowledge that the execution of this
Commitment does not implicate any merits analysis by the signatories
regarding he object investigated and related matters carried on
Administrative Proceeding No. 08012.003921/2005-10”37
d. Admission of facts
CADE’s Bylaws sets that the filing of a request to negotiate a TCC does not
implicate in an admission of the facts nor of the wrongfulness of the investigated
conduct38. The most important thing about this provision is to determine exactly the
scope of possible: (i) facts admission; and (ii) conduct wrongfulness.
This provision is especially important in cases in which there is more than one
defendant, since the administrative procedure will be suspended regarding the TCC
signatory party but will continue regarding defendants that did not apply for an
agreement. The General Superintendence and/or CADE will continue to investigate and
analyze evidence regarding the other defendants, but on their findings they are
prevented from scrutinizing the signatory’s acts.
This has become a very delicate issue to CADE’s daily activities, since setting
the boundaries for what kind of references about the TCC signatory are allowed or not
can be challenging. On a recent case, General Superintendence issued its opinion
making several references to a party that had previously engaged on a TCC39. The party
felt that CADE had violated the TCC executed previously, arguing that the references to
its conducts were refrained. CADE’s General Attorney has issued an opinion regarding
the matter stating the simple references do not harm the agreement signatory. The
matter is still under dispute and will be resolved by case Reporting Commissioner, and
it will certainly result on a very interesting ruling, setting precedent for further cases.
The consequences for the resolutions of dilemmas as mentioned above can be
very critical, since third parties could, in an opportunistic way, benefit from the
documents produced by CADE related to the TCC signatory, and they can try to use
such documents on discovery on other jurisdictions and even in civil courts in Brazil.
37
Administrative Proceeding No. 08012.003921/2005-10
38
Article 179, paragraph 5th , CADE Regulation 1/2012
39
TCC 08700.001369/2009-09,
The exception to the admission of facts rule is the mandatory admission of guilt
in cartel investigations, in which the Applicant must necessarily admit its participation
in the investigated conduct.40
This is in fact an innovation under the new antitrust act, given that previously
admission of guilt was only deemed mandatory in cases in which a leniency agreement
had been signed by another investigated party.
An example of an admission of facts clause is below:
CPFL TCC (exclusivity on drafting construction projects for electricity
distribution system):
“1.1 The execution of this Commitment Agreement, as stated on article
53 of Statute n. 8.884/94, does not mean confession regarding facts nor
the acceptance of the wrongfulness of the investigated conduct.”41
e. Positive acts
Brazilian law determines some mandatory provisions to be inserted on the TCC
draft: (i) establishment of a fine to be paid in case of failure to comply, in full or in part,
with the undertaken obligations; (ii) establishment of a monetary contribution to the
Fund for Diffuse Rights, whenever applicable (article 183(3), Law 12,529/11). As
already mentioned previously, TCCs in cartel investigations will necessarily involve the
payment of a monetary contribution (article 184).
That being said, it is important to note that during the negotiation period there is
much ground for discussing other positive obligations. Some of them are inserted
aiming to give the document publicity, as for example, a clause determining the
publication of a press release on the company’s website, as well as newspapers, national
and regional ones. Those clauses usually set forth the size of the publication (full
newspaper page, half or a quarter), how many times it should be printed as well as other
important details.
TCCs may also involve other kinds of obligations, such as the creation and
enforcement of a full competition compliance program, collaboration with authorities
(which may or may not involve providing information to convict other investigated
parties), an open-door policy in which authorities may visit company facilities without
notice, and a commitment by which the investigated party abstains from judicially
challenging the search and seizure operation and the documents there obtained.
40
Article 185, CADE Regulation 1/2012.
41
Administrative Proceeding 08012.008506/1998-90
As per the release on the company’s website, a very frequent provision is the one
that establishes in how many clicks the information should be made available to the
public.
Souza Cruz TCC (cigarettes merchandising exclusivity in points of sale):
“ 4.5.1 SOUZA CRUZ shall make available on its website, two days after
the approval of the term, one click away, the release stated on Annex III
along with the full content of the agreement, for 120 days.”42
Oi TCC (policy of free access to internet):
“In order to better clarify the market on trade practices and obligations
assumed with CADE, contributing also to the administrative authorities
in the dissemination of antitrust and application of Law 8,884/94, Oi
agrees on:
(i) displaying the Notice referred to in Annex 1, on Oi’s website (xxx) in
a visible way, a click away from the page on the Oi Velox for a period of
60 (sixty) days. The first publication shall take place within 5 (five) days
after the date of approval of this term.”43
Also aiming at the full disclosure of the agreement, a very frequent provision is
to send a copy of the TCC, by mail, to all third parties that can be affected by its results.
Souza Cruz TCC (cigarettes merchandising exclusivity in points of sale):
“4.4 On the approval of this TCC by CADE, SOUZA CRUZ also agrees:
(…)
4.4.2. Within thirty (30) days, to send a letter, as set out in Annex I, to all
POINTS OF SALE in Brazil served by SOUZA CRUZ, informing them of
the opportunity to expose, publicize and market freely COMPETITOR(s)
PRODUCT(s), the possibility of fixing COMPETITOR(s) DISPLAYS next
to the SOUZA CRUZ’s DISPLAYS, and the possibility of storing
42
Administrative Proceeding No. 08012.003921/2005-10
43
Administrative Proceedings No. 08012.007199/2011-31, 08012.004551/2005-38 and 08012.004552/2005-82
COMPETITOR(s)
DISPLAYS.”44
PRODUCTS
inside
the
SOUZA
CRUZ’s
Oi TCC (policy of free access to internet):
“In order to better clarify the market on trade practices and obligations
assumed with CADE, contributing also to the administrative authorities
in the dissemination of antitrust and application of Law 8,884/94, Oi
agrees: (…)
(ii) to send a copy of this TCC to SCI Providers contractors of VELOX
PROVEDOR within 30 days after the date of approval of this term.”45
A very common clause is one setting the obligation to collaborate with the
competition authorities in understanding how the specific market or industry works, not
only regarding the suspended procedure but any other being carried through by CADE.
A provision of hiring respectable auditing firms, at signatory’s cost, can also be
an option in order to assist CADE with the verification of the agreement fulfillment.
This is a tool commonly resorted to by the authorities, as, for example, on the TCC
entered into by CADE and telecommunications company Oi regarding an alleged
discriminatory practice. This agreement determined the implementation of a highly
complex internet-based technical solution, the parties reached an agreement to contract
a respectable auditing firm to verify compliance.46
Oi TCC (policy of free access to internet):
“7. With auditing purpose for compliance with this TCC, the PROMISEE
undertakes to hire an independent auditing firm, within 10 (ten) days of
the exhibition on the PORTAL.”47
44
Administrative Proceeding No. 08012.003921/2005-10
45
Administrative Proceedings No. 08012.007199/2011-31, 08012.004551/2005-38 and 08012.004552/2005-82
46
Clause Seven of the agreement executed on July 25th, 2012, by CADE and Telemar Norte Leste S.A., Telemar
Internet Ltda. Brasil Telecom S/A and BRT Serviços de Internet S/A, jointly known as “Oi”.
47
Administrative Proceedings 08012.007199/2011-31, 08012.004551/2005-38 and 08012.004552/2005-82
The demonstration of performance of the TCC is a very important chapter in the
drafting of the agreement, since when the document gains a life of its own, after the
execution, this clause will set the guidelines for the monitoring of the party’s full
compliance with the agreement.
Each specific clause may generate different time frames for compliance. Some
clauses will actually generate two related time frames, one for the actual performance of
the obligation and another for demonstrating to the authorities that the obligation has
been fulfilled. If the main obligation was fulfilled in time but the accessory obligation of
demonstrating to CADE was not, some sanction will be imposed to the party.
The demonstration of the obligation fulfillment to CADE may be done by filing
documents, media, pictures, magazines, newspapers, auditing reports and any resource
necessary to show that the obligation was performed in the obliged time.
TCCs involving cartels must involve an obligation to collaborate with the
investigation in exchange for a reduction for the pecuniary contribution.
f. Negative acts
It is mandatory for the TCC to contain specification of the signing party’s
obligations to stop engaging in the investigated activities or in the activities causing
harmful effects, as well as other applicable obligations, as agreed during negotiations48.
Some obligations are translated into negative provisions to refrain from
performing an act or a few acts, as depicted by the examples below:
Souza Cruz TCC (cigarettes merchandising exclusivity in points of sale):
“4.1.To achieve the object of this document, SOUZA CRUZ assumes
permanently, regardless of the time frame of this TCC, the following
obligations:
4.1.1. Allow POINTS OF SALE to store COMPETITOR(s) PRODUCT(s)
inside the DISPLAYS installed by SOUZA CRUZ.”49
CPFL (exclusive deals for the preparation of projects and the construction of
energy distribution networks in the State of São Paulo):
48
Article 85(1), Law 12,529/11.
49
Administrative Proceeding No. 08012.003921/2005-10
“3.1. The PROMISEE assumes, from the signature of the TCC, the
obligation to refrain from requiring exclusivity for the drafting and
execution of projects in construction of electricity distribution networks
located in its concession area.”50
The duration of such clauses may in some cases be undetermined, as the
authorities expect that the signatory party of a TCC shall never reengage on the
investigated activities.
g. Financial contribution
The vast majority of TCCs regarding unilateral conducts establish a monetary
contribution to the Fund for Diffuse Rights (article 183 (3)). TCCs in cartel
investigations will necessarily involve the payment of a monetary contribution (article
184, Law 12,529/11). In both cases, the monetary contribution can be divided in
installments51.
Here, it is very important to separate the two different scenarios. When dealing
with unilateral conducts, setting the base for calculating the value of the contribution
may be key to determining a positive outcome for the party.
The authorities usually set a starting value for negotiation based upon the
expected fine that would be applicable if the case was tried and the party convicted.
Fines applicable as determined by legally-defined range from 0,1% to 20% over the
gross sales of the company, group or conglomerate in the last fiscal year before the
beginning of the administrative proceeding. The gross sales are updated to current
present values by means of an inflation index. Fines cannot be less that the economic
advantage obtained from the alleged violation.
Here it is very important to limit the gross sale market to the field of activity in
which the violation occurred. This is especially important for conglomerates. The
ground for negotiation in this matter is to determine the calculation base and whether
there are mitigating circumstances applicable.
Some mitigating circumstances can be: (i) how early the party requested the
TCC; (ii) good faith; (iii) how much the investments of complying with the TCC will
cost, (iv) other circumstances that are related specific to the case.
50
Administrative Proceeding No. 08012.008506/1998-90
51
Article 196, CADE Regulation 1/2012.
For each of those mitigating circumstances a percentage reduction will be
applied to the initial base value.
In the table below a hypothetical example of the proposal for a financial
contribution is presented. In the scenario, the updated/present value for the company’s
gross sales is US$ 5,500,000.00 (five million and five hundred thousand dollars).
Gross Sales
(present value)
5,500,000.00
Financial
Contribution Starting point
(1%)
55,000.00
Mitigating
circumstances
Good faith
15%
Early TCC request
15%
Implementation of costly technical solution
15%
Total of mitigating circumstances
45%
Contribution less
mitigating
cirscunstances
30,250.00
Final contribution
30,250.00
As previously mentioned, TCCs settled by investigated parties, company or
individual, on investigations regarding cartel, or anticompetitive associations between
competitors, will necessarily involve the payment of a monetary contribution52 to the
Fund for Diffuse Rights.
As mentioned previously, the monetary contribution can be reduced based on the
order in which the TCC applicant came forward and its degree of willing to collaborate
with CADE on the investigation. The rule is that, if the case is yet under analysis by the
General Superintendence, (a) first applicant will receive a discount that may amount
from 30% to 50%; (b) second applicant, 25% to 40%; (c) third and other applicants, up
to 25%.53 CADE Regulation 1/2012 also provides that if the investigations are
concluded by the Superintendence and the case is thus under analysis by a Reporting
52
Article 85(2), Law 12,529/11.
53
Article 187, CADE Regulation 1/2012.
Commissioner of the CADE Tribunal, the maximum amount of reduction in the
monetary contribution is of 15%.54
In this scenario, considering the possible reductions are limited by law, it is very
important to negotiate well the calculation base, the percentage applicabls, and the
applicable mitigating circumstances.
h. Sanctions due to non-fulfillment
It is equally important to take extreme care in the precise wording regarding the
sanctions due to failure to comply, in full or in part, with the undertaken obligations.
The section of the TCC regarding sanctions can be divided into several clauses
that will establish fines for the non-fulfillment of the obligations. The range of values
for the fines may vary depending upon the complexity of the non-complied obligation.
Thus, the failure to comply with a simple obligation will most probably generate a low
fine, but if there is failure to comply with a very complex obligation or the core
obligation of the TCC, very significant penalties may be applied and the TCC may be
even be considered non-complied with as a whole.
When drafting this section, internal and external counselors must be very clear
with each other and with General Superintendence/CADE, since usually the company’s
legal department will work very closely with external attorneys during the TCC
compliance period. Internal counselors must be very realistic on negotiating the time
frame for performing every obligation, because if they fail to do so, the consequences
can be very costly to the signatory. External counselors need the internal personnel’s
expertise in order to draft clauses and time frames that are viable for the full compliance
of the TCC. Precise language will play a key role in this matter. Some examples of such
clauses are found below.
CPFL (exclusive deals for the preparation of projects and the construction of
energy distribution networks in the State of São Paulo):
“7.1 If the obligations agreed herein are not fulfilled without consent or
cause, the PROMISEE will be subject to a daily fine of 15 (fifteen)
thousand UFIRs counting from the date of noncompliance, subject to the
regular procedures of due process and settlement.,
54
Article 188, CADE Regulation 1/2012.
7.2 In case of breach of obligations under the fifth clause without prior
consent or cause, the PROMISEE will be subject to a daily fine of 5
(five) thousand UFIRs from the actual breach, subject to the regular
procedures of the defense and settlement, especially the planned in
clause 5.2.”55
Oi (policy of free access to the internet):
“9. Eventual noncompliance with the TCC should be compulsorily
declared by CADE pursuant to art. 7, Paragraph VI, of Law 8,884/94.
However, the signatory’s right to legal defense in demonstrating the
compliance with its obligations will be safeguarded, including the
possibility of presentation of evidence.”56
If the TCC is considered null, the administrative procedure suspended by its
execution will resume its normal course, and fact finding, discovery and merits analysis
will be performed. This may be described in a specific clause, such as the one presented
below.
Souza Cruz TCC (cigarettes merchandising exclusivity in points of sale):
“7.8. The eventual failure, partial or total, regarding TCC compliance
by SOUZA CRUZ shall be compulsorily declared by CADE pursuant to
art. 7, Paragraph VI of Law 8,884/1994. The signatory’s right to legal
defense in demonstrating the compliance with its obligations will be
safeguarded, including the possibility of presentation of evidence.
7.9. Once verified the total noncompliance with this TCC, CADE’s
Board shall determine the pursuance of the Administrative proceeding
[investigaton] nº 08012.003921/2005-10 regarding SOUZA CRUZ.”57
55
Administrative Proceeding No. 08012.008506/1998-90
56
Administrative Proceedings No. 08012.007199/2011-31, 08012.004551/2005-38 and 08012.004552/2005-82
57
Administrative Proceeding No. 08012.003921/2005-10
i. Changes/new adjustments in the assumed obligations (e.g. due to
regulatory issues or changes in the economic environment)
As previously mentioned, the context in which the TCC was negotiated and
executed is very important for the interpretation and complete fulfillment of the
agreement. There is, however, an element that may play an unforeseen role in this
scenario: the future. When, for instance, dealing with regulated markets, changes in
legislation and statutes can result in several alterations in the TCC, since if the context
in which it was designed is altered, repercussions can be expected on the obligations
undertaken. Drastic economic changes in a specific sector of the economy may produce
the same effect.
Therefore, when negotiating a TCC with CADE it is highly recommended to
have clauses that foresee this possibility and from the start set a plan for when such
situations take place.
On a very recent case involving the highly complex and regulated
telecommunications market, ANATEL (Brazilian Telecommunications Agency) issued
new regulation that changed the structure of the broadband internet providers market
and reached some important obligations of a TCC that is still under its compliance
period. CADE’s authorities are yet to decide whether the TCC become moot due to the
new regulation. This will certainly be a very interesting ruling.
Oi (policy of free access to the internet):
“13. Pursuant to art. 53, § 8, of Law 8,884/94, the TCC may be amended
in whole or in part, and the compliance with its rules may be waived by
CADE ex officio or at the request of PROMISEE, if proven the excessive
burden and absence of harm to the collectivity.”58
5. CADE’s monitoring of the TCC and the specific procedure involved
The responsibility for monitoring TCC compliance is usually attributed to the
General Attorney of CADE (Procuradoria do CADE - ProCADE). The General
Superintendence, was granted power by Law 12,529/11 to issue opinions59 regarding
the monitoring of TCCs. This newly-introduced rule may result in tension between the
General Superintendence and the General Attorney of CADE in the monitoring of
TCCs, and is a complex issue, yet to be settled by CADE.
58
Administrative Proceedings No. 08012.007199/2011-31, 08012.004551/2005-38 and 08012.004552/2005-82
59
Article 13, Law 12,529/11.
If any department within CADE decides to issue an opinion regarding the failure
to comply with a specific point on the TCC, a Notice of Violation (Auto de Infração –
AI) can be issued, condemning the TCC signatory party to face the consequence of the
alleged unlawful behavior. Such Notice of Violation results in an initiation of a new and
independent procedure, subject to due process. Needless to say, it can delay the main
issue on monitoring the TCC and new measures may be taken by CADE in order to
verify if the alleged infraction took place.
Compliance with obligations defined in TCCs is subject to changing conditions.
The Brazilian Antitrust Act recognizes that, and provides that signed provisions can be
modified if a change in circumstances is such that the agreed obligations configure an
excessive burden for the signatory party.60
The monitoring of a TCC can become extremely delicate when regarding cartels
or any anticompetitive associations between competitors, since the investigation
mandatorily continues regarding the violations by the investigated parties that did not
come forward into signing a TCC.
On one hand, since some facts where already confirmed and declared by the
TCC signatory, which mandatorily declared its guilt in a cartel case, those affirmations
cannot prevent the other investigated parties to the exercise the adversary proceeding
and have the opportunity to argue against the alleged violations jointly perpetrated. On
the other hand, the discovery of new evidence, that could further implicate the TCC
signatory, has to be chased regarding the other investigated parties, but always with
prudence. The main reason is that all the produced evidence after the signing of a TCC
has not been submitted to the signatory party adversary proceeding. Therefore, the lack
of manifestation on the signatory party can create legally unreasonable situations, such
as the absence of the exercise of adversary proceedings on largely broadcasted
conclusions by the antitrust authority.
Most of the times, the evidence produced and the conclusions by CADE are
available for third parties and the general public, situation that could be dangerous to the
signatory party, regarding a possible damage claim for anticompetitive behavior by a
client or supplier, for example. Therefore if the investigations are carried further, the
evidence produced should always be confidential, only available to CADE and the
investigated parties. Some consider that the less detail that is made available to the
public, the more attractive the signing of a TCC will appear to the investigated party’s
eye61.
60
61
Article 85(12), Law 12,529/11.
Thus the reason why the publication of decisions similar to TCC documents such as America’s plea agreement and
the European Union’s cartel settlement are so brief.
If in the conduction of the investigation regarding parties that did not sign a
TCC, other violations made by signing parties but not covered by the TCC are
demonstrated, the signatory party may face a new investigation.
TCCs also can suffer opposition/intervention from third parties that consider
themselves interested parties affected by the signature of a TCC. Law 12,529/11
guarantees their right to intervene and be consulted during the negotiations, along with
other common public figures that have the power to also intervene in many other
judicial procedures in Brazilian courts.62 Third parties must make a timely application to
be heard and consulted during the TCC negotiation or to be only consulted after the
TCC signing63.
Although the use of such right to petition aims to protect the healthy competition
environment, abuse cases in which a competitor complains about a TCC signatory party
that is actually being lawful to the agreement can be ruthlessly reprehended.
A resolution amending the TCC policy was subject to public consultation and
the new provisions were incorporated to CADE’s Regulation. The public consultation
received contributions from 11 national and one international institutions between
December 2012 and January this year. The suggestions received by CADE also
concerned the right for the TCC signing party to be able to promptly reply to such
virtual petitions filed by third parties. The final draft of CADE’s Regulation brings not
only the right for reply but also the right to amend the TCC draft accordingly64.
6. Conclusion
Even though the legislation and CADE have advanced considerably regarding
TCCs, there is still work to be done by the Brazilian antitrust authority in order to boost
the will of investigated parties to come forward into signing such instruments. There is
much new regulation involving the issue, and countless mishaps that can interfere with
the due compliance may still unsettle companies and individuals with coming forward
in this regard. As remarked in the introduction, it is important to understand the design
of Cease and Desist Agreements not just as a form of solution to antitrust investigations,
but also because it is an interesting instrument to achieve legal answers from the
authorities to different complex practices and heterodox agreements.
62
Article 50, Law 12,529/11.
63
Article 195, CADE Regulation 1/2012.
64
Article 195 (2) and (3), CADE Regulation 1/2012.