Law Project nº 3.937/04 – New Competition Defense Law

  • Marcela Turani Palhares - 02 April, 2012 - Publications

The Brazilian Competition Defense System is presently regulated by Law nº 8,884/1994, which deals with the entities composing the competition system and their respective jurisdictions, as well as regulates the procedures to prevent and sanction violations against the economic order.

Its purpose is to promote a competitive economy, through the prevention and repression of actions that may compromise the free competition in Brazil.

On October 5, 2011 was approved by the Brazilian House of Representatives Project Law nº 3,937/2004, of the Deputy Eduardo Cadoca, which amends articles 20, 24, 26 and 54 of Law nº 8,884/1994.

The project privileges the application of the “reason rule” in the analysis of supposed anticompetitive conducts. This means that concentration acts will be analyzed taking into account the positive effects that may result there from. Therefore, acts that promote economic efficiency and consumers’ well-being, and whose benefits ca not be obtained by other means with less restrictions or damages to the free competition, will not be considered anti-competitive.

May changes resulting from the Project:

Composition of the Brazilian Competition Defense System

How it is: the Brazilian Competition Defense System is composed by the Administrative Council of Economic Defense (CADE), the Economic Law Secretariat (SDE) and the Economic Monitoring Secretariat (SEAE).

CADE is the administrative entity responsible for the final decision on the competition issue, which happens after the cognizance phase before the SEAE and/or before the SDE.

SDE is in charge of filing supporting documents to facilitate the analysis of the economic concentration acts (mergers, acquisitions, etc.), as well as of investigating possible violation to the economic order. This Secretariat, although composing the Competition Defense System, is linked to the Ministry of Justice.

SEAE is responsible for giving opinions on concentration acts, investigating possible anti-competitive conducts in order to denounce them to the SDE and elaborate opinions.  Like SDE, it is also linked to the Ministry of Justice.

How it will be: With the Project, CADE itself will be responsible for the evidence and decision phase, and it will be composed by the General Supervisory Office, the Economic Studies Department, the Administrative Tribunal of Economic Defense and the Federal Attorney’s Office. The Supervisory Office will be in charge of the investigations and evidence phase in the administrative procedures and concentration acts, while the Tribunal will render the decisions on those procedures.

Analysis of the concentration acts

How it is: According to the provisions of Law nº 8,884/1994, the analysis of the concentration acts may be made after the closing of the transaction by companies. Regarding mergers and acquisitions, the Law gives jurisdiction to SEAE to analyze them, give an opinion and send to CADE’s judgment.

How it will be: With Project Law nº 3,937/2004, the control of concentration acts will occur before the transaction is completed, in other terms the concentration act shall be approved by CADE previously.

CADE will have 90 (ninety) days to conclude its analysis. The drafting of §2 of article 54, amended by the Project Law, provides that, if CADE does not render its decision within 90 (ninety) days, the concentration act may be concluded without CADE’s approval.

The analysis of mergers and acquisitions will be carried out by the CADE’s Supervisory Office.

Sanctions

How it is: the sanctions are foreseen in article 24 of the Law and the fines are fixed in UFIR. The fine may vary between 1% to 30% of the company’s gross revenue in the previous year.

How it will be: the list of sanctions of article 24 has increased, being included, among others, penalties of accounting and legal activities split, the company’s spin-off and corporate control sale.

In addition, the fines that were foreseen in UFIR, are now defined in Reais, and the Executive Power may readjust them by Decree. The fine may vary between 1% to 30% of the company, group of companies or conglomerate’s gross revenue – in the relevant market – in the year before the beginning of the proceedings.