A newsletter from the Competition/Antitrust team at Advocacia Del Chiaro
CADE starts full-blown investigation into alleged international pharmaceutical cartel
On November 18, CADE’s investigatory unit (“Superintendence”) initiated a full-blown investigation [1] into an alleged international cartel in the market for production and distribution of Scopolamine N-butylbromide (SNBB). SNBB is an active pharmaceutical ingredient used in antispasmodic medications.
According to the Superintendence’s technical report initiating the investigation, there is evidence that seven multinational companies [2] and some employees and former employees entered into anticompetitive agreements to fix production volumes, coordinate prices, and protect territories and preferential clients from entrants. The Superintendence argues the alleged cartel occurred between 1989 and 2019 and was operated via “systematic, frequent and formal” e-mail exchanges and meetings between competitors. Defendants in Brazil will be notified of the investigation to submit their defenses.
Payment technology companies agree to pay BRL 6.7 million for gun jumping
On November 24, FD do Brasil (“FD”) and Software Express reached an agreement with CADE to settle an investigation into the failure to notify their merger and comply with the stand-still obligation (‘gun jumping’) [3]. To settle the case, the companies agreed to pay a financial contribution in the amount of BRL 6.8 million (around USD 1.2 million).
FD is a payment technology company part of the US-based First Data group, while Software Express is a Brazilian company that operated in the same industry. In March 2019, FD acquired Software Express. FD do Brasil voluntarily filed the merger post-closing, in June 2020 [4]. According to the company, it failed to notify the deal in 2019 because the accounting report it considered at the time was prepared under the US Generally Accepted Accounting Principles (US GAAP) and indicated a turnover below the threshold for mandatory notification. It was only after an independent auditor prepared another accounting report based on the Brazilian accounting practices (BR GAAP) that it found out that it had actually met the legal threshold for mandatory notification.
CADE’s Tribunal held that, even though FD acted in good faith, it should still be punished for gun jumping, since companies operating in Brazil must apply BR GAAP to determine whether they meet the criteria for mandatory notification. In any event, the fact that FD voluntarily submitted a late filing led to a 50% reduction in the applicable fine.
CADE blocks acquisition after non-compliance with structural remedies
On November 24th, CADE’s Tribunal blocked the acquisition of Plamed, a health insurance provider with activities in Brazil’s Northeastern Region, by Hapvida, one of Brazil’s largest health insurance providers. CADE moved to block the transactions due to parties failure to comply with structural remedies established in a consent decree signed in February 2021 as condition for clearance [5].
Hapvida’s acquisition of Plamed was submitted for CADE’s review back in April 2020. After a lengthy investigation, CADE concluded that the merger would result in the creation of a duopoly in certain cities and thus increase risks of unilateral exercise of market power by Hapvida. Therefore, CADE conditioned the clearance of the deal to antitrust remedies negotiated with the parties in a consent decree. Remedies included an obligation to divest a sufficient volume of contracts with health insurance clients to reduce the market concentration caused by the merger and behavioral remedies that sought to control price increases and offer Plamed’s clients the opportunity to switch to Hapvida’s health insurance plans. The parties also agreed to keep their businesses separated until the completion of the divesture obligation.
The package of remedies negotiated with CADE by the parties established that the sale of contracts with health insurance clients had to take place within a certain timeframe and be completed until July 28. However, on July 22, parties filed a request to extend the deadline previously established, as they had been unable to comply with the divesture plan within the expected timeframe. CADE rejected the request and initiated a proceeding to determine alternative measures. In sequence, parties presented a potential buyer for the health insurance contracts and a revised timetable to complete the divesture.
The majority of CADE’s Commissioners, however, held that even though parties were negotiating with a potential buyer, they failed to justify why they had not met the deadline to request a review of the timetable previously negotiated –parties had to file their extension request 15 days before the deadline to complete the divesture expired, but only did so six days before the expiration date. Furthermore, Commissioners held that the potential buyer identified by the parties was not an “effective, viable and long-term competitor”, since it was a new entrant with limited presence and reduced network. Therefore, CADE’s Tribunal blocked the merger due to failure comply with the consent decree.
This is the second time in 2021 that CADE’s Tribunal decided to block a merger for non-compliance with remedies previously negotiated. In April, CADE blocked the acquisition of Innova, a polystyrene producer previously owned by Petrobras, by Videolar, a rival in this industry, after parties failed to comply with behavioral remedies negotiated in 2014 [6]. In October, however, CADE’s Tribunal reversed its own decision and cleared the deal conditioned to a new package of behavioral remedies.
CADE fines companies for refusing access to an essential facility
CADE’s Tribunal fined Rumo Logística Operadora Multimodal S.A. (“Rumo”) and América Latina Logística S.A. (“ALL”) (together Rumo-ALL) a total amount of BRL 247.1 million (around USD 44.1 million) for refusing access to an essential facility [7].
Rumo-ALL have been part of the same economic group since Rumo acquired ALL in 2015. At the time of the merger, Rumo operated in the market for logistics services for cargo export via the Port of Santos (the most relevant in Brazil). ALL, in turn, was a logistics operator that owned the São Paulo Railroad Network (“Malha Paulista”), which is used to transport cargo to the Port of Santos. Therefore, the merger resulted in a vertical integration between Rumo’s activities in the market for logistic services for cargo export via the Port of Santos and ALL’s activities as the owner of the railway employed to transport cargo to the Port of Santos. Considering the risks that ALL-Rumo could use its monopoly over the São Paulo Railroad Network to eliminate rivals in vertically related segments, CADE conditioned the merger to behavioral remedies negotiated in 2016.
The investigation started in August 2016, after Agrovia S/A (“Agrovia”) filed a complaint against Rumo-ALL. Agrovia was Rumo’s only competitor in the market for logistics services for sugar export via the Port of Santos. Agrovia argued that ALL’s Railroad Network was an essential facility and Rumo-ALL were abusing their dominance by refusing to timely repair a railway yard, which was, in turn, key for Agrovia to access the essential facility.
According to CADE’s Tribunal, Rumo-ALL held market power due to the control over the São Paulo Railroad Network. Furthermore, this railroad should be considered an essential facility because (a) it was essential for transporting sugar to the Port of Santos and (b) the railroad could not be replicated. Agrovia was then dependent on the São Paulo Railroad Network, since it was the only viable alternative to transport sugar to the Port of Santos.
CADE’s Tribunal acknowledged that competitors do not have an obligation to facilitate the operation of rivals. However, Rumo-ALL, as a “dominant player and controller of essential infrastructure”, had the obligation to adopt a “diligent and careful attitude” to ensure that rivals would be able to access the São Paulo Railroad Network. In this sense, by refusing to timely repair the Santa Adélia railroad yard, which was necessary for Agrovia to move sugar via the Railway Network, Rumo-ALL failed to comply with its obligation of being “diligent and careful”. Furthermore, CADE held that, by refusing to repair the railroad yard, Rumo-ALL was able to exclude Agrovia from the market, as the company went bankrupt within months after being unable to transport sugar to the Port of Santos. Much of Agrovia’s former clients, in turn, signed contracts with Rumo-ALL. Against this background, CADE held that there was a causal link between Rumo-ALL’s behavior and the exclusion of its only rival in the market for logistics services.
Finally, the Tribunal also ordered the Superintendence to initiate a new investigation into an alleged refusal by Rumo-ALL to negotiate services of port handling with Agrovia and asked CADE’s Attorney General to investigate whether Rumo-ALL’s behavior characterize violations to the remedies negotiated in the context of their merger back in 2016.
About Advocacia Del Chiaro
Advocacia Del Chiaro is a leading Brazilian law firm working in Competition/Antitrust and Commercial Litigation. For almost three decades we have advised major national and multinational companies and worked closely with several international law firms, handling some of the country’s most complex competition cases.
With offices in São Paulo and Brasilia, we have a highly specialized team with vast experience in a wide range of matters and industries. Our practice has been recognized as top tier in Brazil by sources like Legal 500, Chambers and Global Competition.
If you have questions, please contact the heads of our competition department:
José Del Chiaro Ferreira da Rosa
Phone: + 55 11 30309000
E-mail: jdc@ajdc.com.br
Ademir Antonio Pereira Jr
Phone: + 55 11 30309007
E-mail: apj@ajdc.com.br
NOTES
[1] Administrative Proceeding no. 08700.004235/2021-28.
[2] The companies mentioned are: Alchem International Pvt Ltd., Alkaloids of Australia Pty Ltd., Alkaloids Corporation; Boehringer Ingelheim Pharma GmbH & Co.; Linnea AS; Transo-Pharm Handels-GmbH; and Vital Laboratories Pvt Ltd.
[3] Administrative Inquiry for Merger Cases no. 08700.002914/2020-81.
[4] Merger no. 08700.001846/2020-33.
[5] Merger no. 08700.001846/2020-33.
[6] Merger no. 08700.009924/2013-19.
[7] Administrative Proceeding no. 08700.005778/2016-03.