1. On March 17, 2015, Resolution No. 12 of the Administrative Council for Economic Defense (CADE) came into force, regulating the process for inquiries to CADE about whether contracts and business practices are compatible with the Brazilian Competition Act (Act No. 12,529/2011). CADE Resolution No. 12/2015 derives from a public consultation process initiated in October 2014 and from CADE’s praiseworthy interest in regulating the Competition Act provision under which the Administrative Competition Tribunal [1] will answer inquiries on “ongoing practices”[2] upon payment of a filing fee[3] and presentation of the respective documents.
2. This new regulation creates a paramount tool for market players to obtain the necessary legal certainty over: (i) the interpretation of laws dealing with CADE’s prior review of mergers, acquisitions and joint ventures (the so-called economic concentration acts);[4] (ii) the lawfulness of any types of contracts, business strategies or practices already initiated by the applicant; and (iii) the lawfulness of any types of contracts, business strategies or practices, already conceived and planned, but not yet initiated by the applicant.
3. CADE Resolution No. 12/2015 contains an extensive list of requirements for processing inquiries,[5] which must revolve around matters falling within the sphere of authority of CADE and include the following information:
a) particulars of the applicant and other parties involved; no inquiry can be made by any party not directly involved in the business practice dealt with in the inquiry;
b) proof of the lawful interest of the party concerned;
c) accurate specification of the subject matter, including a complete and thorough description of all material facts, as no facts other than those described and proved in the inquiry will be taken into consideration and no theoretical inquiries will be admitted;
d) all documentation and information that allow CADE to provide a sufficiently informed answer;
e) specification of all rules of law and CADE precedents that may be concerned with the subject matter of the inquiry to ensure that there is no CADE resolution or precedent over the matter addressed in the inquiry; and
f) in case of ongoing business practices, a statement that there are no pending investigations, administrative proceedings or CADE judgments involving the facts covered by the inquiry, as no inquiry can be made with respect to practices ever investigated or punished by CADE before.
4. CADE prepared a long list of conditions to prevent misuse of the inquiry tool, and there is no possibility of amending or supplementing inquiries already submitted, according to CADE Resolution No. 12/2015. Therefore, the applicants must conduct an in-depth review of the existing information and documentation about the business practice before making any inquiry to CADE, so as to avoid its outright rejection. The applicants must pay special attention to a particular requirement, i.e. identify ongoing administrative proceedings and also decisions addressing the subject matter of the inquiry, considering that CADE currently relies on an automated system with records of its decisions and, besides, there is limited public access in general to most ongoing investigations.
5. The requirements under CADE Resolution No. 12/2015 should not hinder use of this inquiry process. Inquiries are to be sent over to the Administrative Competition Tribunal for judgment within 120 days. Bearing in mind that CADE Resolution No. 12/2015 aims at offering market players greater legal certainty and transparency, CADE is expected to promote the use of the inquiry process within the context of notifications to be submitted to CADE in line with the principles of formal substitutability (instrumentalidade das formas), procedural economy (economia processual), and function-over-formalism (informalismo) in administrative proceedings.
6. CADE Resolution No. 12/2015 has correctly established that CADE will be bound to its conclusions for at most five years, which are to be limited to the parties and to the subject matter originally dealt with in the inquiries. However, because this regulation also authorizes CADE to revise its interpretation based on “supervening facts or reasons,” the need to actually set this five-year period and the scope of the term “supervening reasons” can be questioned vis-à-vis CADE’s aim of promoting greater legal certainty by responding to the inquiries submitted to it.
7. Also extremely commendable is the determination that CADE cannot apply a new interpretation retroactively to impose a penalty on the applicants or on any market player. This is so because CADE is bound to its decisions, which become enforceable erga omnes.
8. According to CADE Resolution No. 12/2015, the Administrative Competition Tribunal has powers to issue precedents (súmula) based on CADE judgments on the inquiries and, therefore, contributes to shaping CADE decisions even further. Such precedents are of extreme importance to guide market players with respect to CADE’s interpretation of a certain matter, as they are issued after at least ten uniform CADE final decisions, whether by the Office of the General Counsel or by an absolute majority of the Administrative Competition Tribunal, as provided in CADE Internal Rules. Those powers granted to the Administrative Competition Tribunal operate as yet another reason for market players to follow closely on the decisions rendered in such inquiries.
9. CADE Resolution No. 12/2015 goes hand in hand with CADE’s efforts toward strengthening the Brazilian Competition System while “promoting pro-competition practices” and “disseminating the competition culture.” To establish a closer liaison between CADE and society at large, including the business community, CADE Resolution No. 12/2015 should enhance the interface with market players and offer greater legal certainty and transparency while also clearing unnecessary hurdles along the way.
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[1] CADE is composed of an Administrative Competition Tribunal, a General Superintendence and an Economic Department.
[2] Article 9, paragraph 4.
[3] According to article 23 of the Competition Act, the filing fee is set at fifteen thousand Brazilian Reais (R$ 15,000.00) for cases triggered by submission of inquiries.
[4] Article 90 of the Competition Act states that “a concentration act occurs when:
I – there is a merger involving two or more companies that were independent until then; II – one or more companies directly or indirect acquire – by purchase or swap of shares, membership units (quotas), securities or share convertibles, or tangible or intangible assets, by contract or through any other means or ways – the control over or parts of one or more companies; III - one or more companies absorb another company or companies; or IV - two or more companies enter into an association, consortium or joint venture agreement.
[5] Articles 3 and 4.
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*Leonardo Peres da Rocha e Silva and Alessandro Pezzolo Giacaglia are lawyers of Pinheiro Neto Advogados.
*This article was prepared as a source of information and debate and should not be considered a legal opinion on any specific transaction or business.
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