The Brazilian Competition Authority agrees to suspend deadline for implementing certain antitrust compliance commitments undertaken in a cartel case Settlement Agreement due to COVID-19 pandemic (Basso / Valbrás)

Due to the impacts of the Covid-19 outbreak, the Brazilian Antitrust Authority (“CADE”) agreed to suspend the deadline for implementation of some antitrust compliance commitments undertaken in a Settlement Agreement (“Settlement”) in the context of a cartel investigation.

In this short note we will address a brief overview about a recent precedent and also take the opportunity to provide some straightforward and practical highlights on CADE’s functioning in the time of Covid-19 pandemic.

The precedent in a brief summary

As part of the commitments to execute a Settlement with CADE, [1] among others, the companies Basso and Valbrás [2] (“Signatories”) agreed to implement an Antitrust Compliance Program [3] within 2 years upon the signature of the Settlement. [4] A schedule of activities was prepared to guide and be followed by the Signatories – some stages/measures were set to be progressively report to CADE [5] in the course of the implementation and execution of the Antitrust Compliance Program.

In the three first stages, the Signatories were required to: (i) analyze the antitrust laws vis-à-vis the conformity of their practices in the automotive valve market; (ii) carry out internal and third party due diligence to check possible practices that harm free competition; and (iii) prepare a risk assessment report. The fulfillment of these commitments should be informed to CADE within 6 months upon the signature of the Settlement by means of a first report. The Signatories timely submitted the first report to CADE and the authority confirmed the regularity of the aforementioned commitments. [6]

The other stages in connection with the implementation of the Antitrust Compliance Program were established as follows: (iv) preparation of an Antitrust Compliance Manual to show and create a positive compliance culture within the organization; (v) training to incorporate the guidelines provided in the Manual; (vi) collection of material and parametrization of results; and (vii) presentation of periodic activity reports in accordance with the clauses set forth in the Settlement or whenever requested by CADE. The Signatories committed to provide CADE with new reports within 6 months upon the presentation of the first report, [7] detailing information on the fulfillment of the above-mentioned stages/measures.

On March 16, 2020, the Signatories filed a petition with CADE requesting the Antitrust Authority to temporarily suspend some deadlines set forth in the Settlement with respect to the implementation of the antitrust compliance measures due to the impacts of the Covid-19 outbreak. They justified that, although the Antitrust Compliance Manual was already prepared at that time, part of the activities concerning the implementation of the Compliance Program, that were expected to be executed in March and April, [8] could no longer be performed, especially because such measures would require, in addition to the displacement of the individuals in charge of the carrying out of the Program, the travel and gathering of approximately 900 employees. [9]

Accordingly, the Signatories underlined that, in conformity with the instructions of the Brazilian and the Argentinian governments about the Covid-19 pandemic, as well as in light of the guidance issued by the World Health Organization, both international transit of persons and holding meetings with a significant number of participants are not recommended practices in view of the current landscape. As a result, they claimed the temporarily suspension of the deadline to implement some measures under the realm of the Compliance Program, so as to preserve the public interest and the integrity of all people involved. The Signatories committed themselves to submit a new schedule of activities as soon as the governments review their instructions.

Conclusion for the time being

CADE acknowledged the arguments raised by the Signatories and noted their good-faith upon requesting the deadline suspension on a timely fashion basis. In that sense, citing the restrictions imposed by governmental authorities due to the Covid-19 pandemic, and also pointing that the temporarily deadline suspension would not cause irreparable damage to compliance with the terms of the Settlement, CADE agreed to suspend the deadline.

The Antitrust Authority highlighted that under an unprecedented situation that implies a restriction in the transit, which also affects large gatherings, the Signatories would face great difficulties to meet the schedule on time. CADE also observed that removing such restrictions is not under the Signatories’ control.

A look ahead: general perceptions and messages

In the wake of the Covid-19 pandemic outbreak in Brazil, it would be reasonable to expect companies/individuals requesting CADE to review and suspend certain commitments set forth in Settlements, for instance. CADE has already publicly stated that it is aware of the exceptional circumstances arising from the Covid-19 crisis, showing a general sense of solidarity, noting it will review the cases in light of the specificities at hand.

Thus, provided that grounded and justified reasons are claimed in good-faith by a given economic agent to demonstrate, for example, economic constraints and hard operational conditions to meet some commitments negotiated with CADE, in principle it would be reasonable to expect that the Antitrust Authority could alleviate and be prone to adopt a flexible approach and renegotiate terms and deadlines, assuming this does not jeopardize the competition environment nor create competition hurdles or harm the market.

Furthermore, under the premises above, in principle CADE would be willing to discuss and reach common understandings with companies concerning hypothesis involving, for instance, cooperation among competitors, provided that the cooperation is indeed necessary in the specific context, mainly from the efficiency point of view to supply essential goods and services in order to benefit consumers and the economy.

Therefore, always on a grounded basis, and holistically depicting the reasons for the cooperation, e.g. showing the effects, synergies and positive outcomes arising from the cooperation to cope with the obstacles posed by the current circumstances, CADE may temporarily allow entrepreneurial cooperation and other types of businesses partnerships between undertakings through preliminary review proceedings named “Crisis Protocol”. Notwithstanding a more flexible approach that one could see, CADE has already warned that it will keep vigilant to safeguard the market and competition, and is very attentive to any sort of abuse that could be practice by any given agent that may want to opportunistically get advantage out of this unprecedented context. In other words, compliance with competition laws (and Law in general) is not in quarantine.

All in all, one can infer CADE’s willingness to find viable solutions and alternatives to preserve the economy and help the country in these hard times.

That being said, and in order to provide an informative view on CADE’s functioning during the challenging scenario of Covid-19 pandemic, we have put together some practical remarks below, based on CADE’s statements and our daily experience.

Quick and practical highlights concerning Covid-19 pandemic and CADE’s functioning

• CADE has already issued a statement and an informative note to inform the antitrust community and the society about its activities and also to clarify some procedural deadlines during the Covid-19 pandemic;

• CADE is aware of the public calamity circumstance and is sensitive to the worldwide crisis that is also affecting Brazil. The Brazilian Antitrust Authority has said it will carefully analyze each particular case, including specific situations in which extensions of deadlines might be necessary, upon justified and grounded requests;

• CADE is working on a regular basis and, in general, cases are on track. All procedural deadlines are running, except the one for defendants under Administrative Proceedings for imposition of penalties. [10] Other administrative proceedings, such as leniency and settlement negotiations, preliminary investigations and merger reviews are running without material change from CADE’s side, although one can observe some delays in certain merger reviews due to difficulties pointed by some companies and incumbents to get back to CADE on a timely order with responses to official letters and other queries;

• CADE was already equipped with full electronic process prior to the Covid-19 outbreak and keeps improving and investing in tools to facilitate access by its internal staff and external practitioners. The Brazilian Antitrust Authority has been adopting recommended sanitary measures to avoid the spread of the Covid-19. A substantial part of CADE’s staff is working remotely and, in general terms, we have not observed a significative slow pace in the merger review, nor a halt in investigations. By the way, broadly speaking, it is worth observing that the degree of productiveness at CADE has been increasing during the Covid-19 pandemic;

• CADE suspended face-to-face meetings with the external public. The meetings were converted into videoconferences/conference calls, or, in some cases, postponed;

• Judgment Sessions are taking place by means of virtual meetings that are publicity broadcasted in real time at CADE’s website and through CADE’s YouTube page; [11]

• CADE created a specific page in its website to gather the initiatives and actions it is performing in view of the Covid-19 pandemic, in a sense of transparency to maintain the society up to date; [12]

• CADE has already brought a preliminary investigation in the sector of healthcare-medical products to investigate alleged anticompetitive practices in connection with abusive price gouging;

• CADE expressed support for the International Competition Network (“ICN”) statement [13] on competition enforcement during the Covid-19 pandemic;

• Currently, it is pending review before the Brazilian Chamber of Representatives (and also subject to presidential sanction) the Bill No. 1,179/2020, already approved by the Federal Senate, which provides for amendments to private legal relations during the Covid-19 pandemic, with some provisions affecting the enforcement of the Brazilian Antitrust Law;

• In short, with respect to antitrust matters in light of the cited Bill, on a temporary and exceptional basis, it is proposed (i) the suspension of the need for prior approval for joint ventures, consortia and associative agreements; [14] and (ii) the temporary exemption for two antitrust violations, namely, (a) unjustified sale below the cost; and (b) partially or totally cease the company’s activities without proven cause. [15]

Footnotes

[1The Settlement was executed under the Administrative Proceeding nº 08700.002904/2017-41, that investigated alleged anticompetitive practices (price fixing, market division and exchange of commercially sensitive information) involving automotive part, namely engine valves, valve guides and valve seats, sold in Brazil in the independent market of spare parts – aftermarket / IAM.

[2Basso S.A. and Valbrás Indústria e Comércio Ltda., as well as some individuals (Settlement request No. 08700.004192/2018-85).

[3At a minimum, to implement the Antitrust Compliance Program, the following aspects were set to be observed by the Signatories: (i) involvement of top management; (ii) use of adequate resources for implementation; (iii) hiring third parties with autonomy and independence to manage the program.

[4The CADE’s Tribunal unanimously approved the Settlement in the judgment session held on May 22, 2019.

[5For the clarity sake, the Attorney General’s Office at CADE (Procuradoria Federal Especializada junto ao CADE – ProCADE) is the body responsible for monitoring the compliance of settlements’ commitments (for purposes of objectivity, though, ProCADE and CADE is read interchangeably herein when commenting the precedent).

[6CADE made a minor observation related to the fact that, despite analyzing the antitrust laws, the Signatories have not assessed their conformity vis-à-vis the automotive valve market. As to the other commitments, CADE noted full regularity.

[7The first report was presented on November 20, 2019.

[8Based on a schedule provided by the Signatories (it is not available in the public case records), the report to be provided in April should comprise: (i) Preparation of the Compliance Manual; (ii) Presentation of the Manual to the top management; (iii) Review and amendment of the Manual; (iv) Public availability and dissemination of the Manual; (v) Training employees based on the Manual; (vi) Creation of hotline and mailing.

[9The Signatories clarified that such activities were expected to take place in the coming months by means of meetings to be held in Argentina and Brazil.

[10Procedural deadlines regarding gun jumping investigation and administrative proceedings for the imposition of incidental procedural penalties are also suspended for the time being.

[12Available at: http://www.cade.gov.br/coronavirus. CADE also published a Q&A document to address some common queries in light of the current scenario. Available at: http://www.cade.gov.br/imagens/perguntas-e-respostas.pdf. CADE has not yet published specific and formal guidance, though. More legal certainty and clarity about some practices would be appreciated by the economic agents, following the approach of some other jurisdictions, for instance.

[13ICN Steering Group Statement: Competition during and after the COVID-19 Pandemic. Available at: https://www.internationalcompetitionnetwork.org/wp-content/uploads/2020/04/SG-Covid19Statement-April2020.pdf.

[14The Bill is not totally clear and can still be modified by the Chamber of Representatives. The suspension referred above applies to agreements entered into as of March 20, 2020 and effective until the end of October 2020. In addition, such suspension applies in principle to agreements related to fighting or mitigating the consequences of the Covid-19 pandemic.

[15Same caveat above with respect to potential lack of clarity on some aspects of the Bill. The exemption is valid from March 20, 2020 until the end of October 2020. For other practices executed after March 20, 2020 and while the state of national public calamity lasts, CADE must consider the extraordinary circumstances arising from the Covid-19 pandemic for the purposes of the antitrust scrutiny.

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Eduardo Caminati Anders, Marcio de Carvalho Silveira Bueno, Guilherme Teno Castilho Misale, The Brazilian Competition Authority agrees to suspend deadline for implementing certain antitrust compliance commitments undertaken in a cartel case Settlement Agreement due to COVID-19 pandemic (Basso / Valbrás), 31 March 2020, e-Competitions March 2020, Art. N° 94628

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