Inventory of Domestic Laws and Regulations Relating to
Competition Policy in the Western Hemisphere
Submitted by the OAS Trade Unit to the FTAA Working Group on Competition Policies
VII. Exceptions to Prohibited Practices
Public service concessions, granted as an exception to policy, may not be for a period longer than 40 years. (Constitution, Article 134).
With Congressional approval, the Executive Branch can establish a state monopoly for certain exports, if this is in the national interest. (Constitution, Article 147).
When so decided by the Sectoral Superintendent, through the corresponding resolution, the prohibition provided in this law shall not apply to mergers that contribute to increasing the production or improving the distribution of regulated goods and services or to stimulation of technical or economic progress for the benefit of consumers and users without eliminating competition in a substantial part of the affected production. (Sectoral Regulation System Law).
Brazilian legislation makes an express exception to cornering the market as the result of a natural process based on the greater efficiency of economic actors.
It also allows the Administrative Council for Economic Defense (CADE) to authorize acts, whatever form they may take, that may limit or harm the competition or result in the domination of relevant markets for goods and services.
This authorization of the CADE, however, is subject to the following conditions:
1. The acts should have as their objective, cumulatively or alternatively, increasing productivity, improving the quality of goods and services, or promoting efficiency and technological or economic development.
2. The resulting benefits should be distributed equitably between the participants and the consumers, or end users.
3. The authorization should not entail eliminating a substantial part of the relevant market for goods and services.
4. They should observe the limits strictly necessary for attaining the objectives sought.
In addition, acts that are necessary because of prevailing concerns related to the national economy or the common good, if at least three of these conditions are met and no harm results to the consumer or end user.
The Act applies to all sectors of the economy and there are no total exclusions from its application. The only exceptions relate to selected activities such as collective bargaining, amateur sport, securities or fishing. Apart from these general exemptions, several other more limited exceptions are found throughout the Act. These exceptions take the form of exceptions or defences to specific offences or non-criminal reviewable practices. A few other exemptions limiting the application of the Act are also contained in laws other than the Competition Act.
Exceptions and defences contained in the Act are the following:
(i) Financial Institutions: certain agreements between financial institutions are excepted from the prohibition in section 49. Included are agreements made regarding loans or deposits made or payable outside Canada, underwriting of securities, exchange of statistics and credit information, participation in federally or provincially insured loans programs, servicing customers outside Canada, and agreements approved by the Minister of Finance for the purpose of financial policy. Similarly, an amalgamation or acquisition involving banks is exempt from the prohibitions relating to mergers if certified by the Minister of Finance as being desirable in the interest of the financial system. (Section 94(b)).
(ii) Cooperative Associations: the prohibition against price discrimination does not enjoin a co-operative association, credit union, co-operative credit society or caisse populaire from returning to its members, suppliers or customers any surplus arising from its operations. (Section 50(3));
(iii) Professional Services: agreements that relate to a service and to standards of competence and integrity reasonably necessary for the protection of the public in the practice of a trade or profession or in the collection and dissemination of information relating to thc service are not contrary to the conspiracy provision of the Act. (Section 45(7));
(iv) Specialization Agreements: agreements exempted from the conspiracy and exclusive dealing provisions of the Act if the agreement is registered with the Competition Tribunal. (Section 85 to 90);
(v) Intellectual Property: an act engaged in pursuant only to the exercise of any right or enjoyment of any interest derived under the Copyright Act, Industrial Design Act, Patent Act, Trade Marks Act, or any other Act of Parliament pertaining to intellectual or industrial property is not an anti- competitive act. (Section 79(5));
(vi) Joint Ventures: joint ventures undertaken for a specific project or program of research and development are excepted from the merger provisions of the Act. A joint venture qualifies for this exception where: the project would not otherwise have likely taken place; no change of control of any party may occur; a written agreement exists to restrict the activities of the venture, govern the continuing relationship between the parties, provide for contribution of assets by at least one party, and provides for termination upon completion of the joint venture, and the combination does not, or is not likely to, prevent or lessen competition except to the extent reasonably required to complete the project or program. (Section 95(1));
(vii) Franchise Agreements: franchise agreements between affiliates are not subject to the exclusive dealing, tied selling and market restriction provisions. Similarly, franchise agreements between certain deemed affiliates are not subject to review for market restriction. (Section 77).
(viii) Referra1 Selling -referral selling is permitted where such schemes are licensed or otherwise allowed. (Section 56(4).
(ix) Export Cartel: agreements that relate solely to the export of products from Canada benefit from a defence from the conspiracy provisions of the Act, provided that they do not, or are not likely to, reduce or limit the real value of exports of a product, restrict any person from entering into or expanding the business of exporting, or lessen competition unduly in the supply of services facilitating exports from Canada. (Sections 45(5) and (6)).
(x) Restrictive Agreements: no conviction under section 45 may occur if the agreement relates only to specified subject matter set out in subsection 45(3). These exceptions do not apply where such an agreement is, or is likely to (1) lessen competition unduly with respect to prices, quantity or quality of production, markets or customers, or channels or methods of distribution, or (2) restrict the entry into or expansion of a business in a trade, industry or profession. (Section 45(4)).
(xi) Mergers: an exception exists to the application of the merger provisions where the merger will likely bring about gains in efficiency that will be greater than, and offset, the effects of any substantial prevention or lessening of competition and where such efficiency gains would not be attained if an order of the Tribunal against the merger was issued. Section 96 (2) lists the factors which must be applied to determine whether such efficiency gains are present. (Sections 96(1) and (2)).
(xii) Bid-rigging: the bid-rigging provisions do not apply to situations where the agreement is made known to the tendering authority before bids are made, where the agreement involves affiliated companies. (Section 47(3)).
(xiii) Refusal to Supply: a refusal to supply a purchaser on the basis, of the purchaser's low pricing policy is permissible if the supplier has a reasonable belief that the purchaser made a practice of: using the supp1ier's products as loss-leaders; engaging in misleading advertising in respect of the supplier's products; or not providing the level of service that purchasers of that product might reasonably expect. (Section 61(10)).
(ixx) Exclusive Dealing, Tied Selling and Market Restriction: exclusive dealing and market restriction are not offensive where they are engaged in only for reasonable period of time to facilitate entry of a new supplier or product into a market. Tied selling may be allowed where it is deemed reasonable having regard to the technological relationship between the products to which it applies, or where it is engaged in by a money lending business to better secure loans. (Sections 77(4)(b) and (c)).
(xx) Deceptive marketing Practices: a due diligence defence to bait and switch selling exists where a person took reasonable steps to obtain an adequate supply, did obtain an adequate supply but demand surpassed reasonable expectations, or undertook to and did supply the product or a reasonable substitute within a reasonable time(Section 57(3)). A sale above price is allowed where an advertisement prominently states that the price as stated is subject to error, a second advertisement was immediately made to correct an erroneous advertisement, an advertisement referred to a sale of a security obtained on the open market while its prospectus was still current, or the person selling the product was not engaged in the business of dealing in that product. (Section 58(3)).
(xxi) Delivered Pricing: delivered pricing is allowed where the supplier could not accommodate delivery to any additional customers at a locality without making a significant capital investment, or where a practice of refusal of delivery was necessary to maintain a standard of quality in respect of an article to be sold in association with a trademark owned or used by the supplier. (Section 81(2) and (3)).
Another defence that can be invoked under the Act pertains to "regulated conduct". Unlike the exemptions and defences listed above, this defence is derived from legal decisions rendered in the context of the application of criminal provisions of the Act. This applies to activities undertaken pursuant to valid regulatory legislation. The regulated conduct defence is limited to conduct specifically authorized by valid legislation and does not apply to all types of behaviour in a regulated industry.
The major exceptions to the application of the Act which appear in laws other than the Act are:
(i) Ocean Shipping: Section 4 of the Shipping Conferences Exemption Act, 1987 exempts from the Act certain agreements of international shipping conferences (i.e. cartels that regulate rates and conditions of service in liner shipping) registered with the National Transportation Agency; (ii) Energy: Section 33 of the Energy Supplies Emergency Act ("ESEA") gives the Energy Supplies Acquisition Board the power to exempt from the Act an agreement, arrangement or course of action undertaken by a person to comply with a written request from the Ministry of Natural Resources in relation to the ESEA or any of its regulations.
The following conducts will not be considered contrary to free competition:
Article 1 of Law 155/59 provides that the national government may authorize the signing of agreements or accords limiting free competition in order to defend the stability of a basic sector of goods and services in the public interest.
Those whose purpose is to cooperate in the research and development of new technology;
Agreements on the compliance of standards, rules and measures not adopted as compulsory by the competent agency if they do not restrict the entry of competitors to the market; and,
Those concerning procedures, methods, systems and ways of utilizing common facilities. (Article 49, Decree 2153).
There are no exceptions to prohibited practices, other than those included in Title Four above.
The concession of any monopoly for exercising economic activities, such as extractive, industrial, commercial or services activities shall not be able to be granted to private individuals.
The monopoly of certain activities such as those pointed out in the foregoing paragraph, only be means of law, may be reserved to fiscal, semifiscal, public, autonomous administration or municipal institutions.
Notwithstanding and provided that the national interest may require it, it will be able to be authorized by founded supreme decree and previous favourable report of the Resolutory Commission, which is established in the present law, the execution or the maintenance of those acts or contracts that, referred to in foregoing articles, being however, necessary for stability or development of national investments. (Article 4).
State monopolies and those provided for in law are permitted. (Constitution).
No exceptions are noted.
(1) Subject to subsection (2), any person who proposes to enter into or carry out an agreement or to engage in a business practice which in the opinion of that person is an agreement or practice affected or prohibited by this Act, may apply to the Commission for an authorization to do so.
(2) In respect of an application under subsection (1), the Commission: (a) may, notwithstanding any provision of this Act, if it is satisfied that the agreement or practice, as the case may be, is likely to promote the public benefit, grant an authorization subject to such terms and conditions as it thinks fit; or (b) may refuse to grant an authorization and if it does so, the Commission shall inform the applicant in writing of its reasons for refusal. (Section 29).
While an authorization granted under section 29 remains in force, nothing in this Act shall prevent the person to whom it is granted from giving effect to any agreement or any provision of an agreement or from engaging in any practice to which the authorization relates. (Section 30).
In addition to the granting of Authorizations by the Commission the Act contains other limited exceptions in the form of defences to specific offences. They include the following:
(i) Agreements which substantially lessen competition: provisions of agreements having the effect of lessening competition will be enforceable if the Commission is satisfied that it - (a) contributes to the improvement of production or distribution of goods and services; or the promotion of technical or economic progress, while allowing consumers a fair share of the resulting benefit; or (b) imposes on enterprises concerned only such restrictions as are indispensable to the attainment of the objectives mentioned in paragraph(a); or (c) does not afford such enterprises the possibility of eliminating competition in respect of a substantial part of the goods or services concerned. (Section 17)
(ii) Abuse of Dominance: an enterprise shall not be treated as abusing a dominant position - (a) if it is shown that its behaviour was exclusively directed to improving the production or distribution of goods or to promoting technical or economic progress; and consumers were allowed a fair share of the resulting benefit. (b) by reason only that the enterprise enforces or seeks to enforce any right under or existing by virtue of any copyright, patent, registered design or trademark. (Section 20)
(iii) Exclusive Dealing and Market Restriction: these practices are not considered offensive where they will be engaged in only for a reasonable period of time to facilitate entry of a new supplier of goods or new goods into a market or when engaged in between or among interconnected companies. (Section 33)
(iv) Conspiracy: a conspiracy, agreement or arrangement which relates only to a service and to standards of competence and integrity that are reasonably necessary for the protection of the public -
(a) in the practice of a trade or profession relating to the service; or
(b) in the collection and dissemination of information relating to the service. (Section 35)
(v) Consumer protection provisions: the defences to a sale at bargain price without adequate stock are that the person took reasonable steps to obtain an adequate supply, did obtain an adequate supply but demand surpassed reasonable expectations, or undertook to and did supply the product or a reasonable substitute within a reasonable time. (Section 40).
The LFCE admits no exceptions to prohibited practices. However, relative monopolistic practices should be evaluated by the "rule of reason", to examine how the practice favors and/or deters competition. The purpose of this analysis is not to establish exceptions to prohibited practices, but rather to evaluate conduct that is not prohibited per se.
Potentially anticompetitive practices which do not fall into the per se category (exclusive dealing or requirements contracts and other non-price vertical restraints, cooperative marketing activities, etc.) are analyzed under a "rule of reason@ standard, which requires an in-depth analysis of the effect on competition in the relevant market. In rule of reason analysis, competitive intent and effect are weighed along with the business justification of the challenged activities to determine their legality. It should be noted that a rule of reason analysis does not "exempt" prohibited conduct, but rather determines whether conduct which is not "per se" prohibited should fall within the prohibitions of the antitrust laws.
The President of the Republic, in Council of Ministers, and having heard the opinion of the Superintendent for the Promotion and Protection of Free Competition shall determine the norms under which the following activities shall be allowed: 1. The fixing directly or indirectly, individually or in concerted action of bid or offer prices of any good or service; 2. The application, in commercial relations, of unequal conditions for equivalent or similar services that fashion inequities into the competitive process, especially if distinct from conditions which would emerge naturally if there existed effective competition in the market, except in the case of discounts granted from prompt payment, volume discounts, less risk, and other conditions commonly found in commerce; and 3. Exclusive territory arrangements and franchises with exclusive dealership provisions. (Article 18).
In establishing the norms under which the activities indicated in the preceding subparagraphs may be conducted, the Executive Branch shall concurrently comply with the following: 1. Authorization of these activities, will have as objectives: contributing to production improvements, commercialization and distribution of goods and services, or promoting technical or economic progress; 3. Prior authorization of lawful activities, and control over their implementation, by the Office of the Superintendent; and 4. The authorization will contain the minimum required to achieve intended goals. (Single Paragraph, Article 18).
The Office of the Superintendent may authorize practices or actions that benefit the respective consumers or users, contribute to increased economic efficiency of the persons who engage in them, and comply with the requirements established in the Law: 1. The agreements, decisions, collective recommendations or joint practices specified in Articles 9 and 10 of the Law; 2. The agreements, decisions, collective recommendations or joint practices specified in Articles 10 and 12 of the Law, which inhibit effective competition and have significant impact on the respective market; and 3. Unilateral practices or conduct specified in Articles 6, 7 and 8 of he Law. (Article 8 of Regulation No. 1).
With respect to exclusive distribution contracts, they are not protected by this exception if:
a) the distributer is a competitor of the supplier in the production of the goods identified in the contract;
b) the products subject of the contract can be obtained by customers solely through the distributor, and competing products are not available either within or outside the assigned territory;
c) there exists no effective competition for the products subject of the contract;
d) there are restrictions on market access for other producers of competing products
e) the supplier is in a position to determine, directly or indirectly, the prices or the conditions of contract for resale of the product to third parties; and
f) the contract is for an indefinite duration, or for a period longer than five years.
Similarly, exclusive purchase contracts are excluded from protection under this exception if:
a) the distributor is a competitor of the supplier in the production of goods subject of the negotiation;
b) the products bear no relationship to each other, either in terms of their nature or their commercial use;
c) the contract is for an indefinite duration, or for a period longer than five years.
The Resolution provides, however, that exclusive distribution and purchase contracts that are not protected by this exception may nevertheless be authorized on an individual basis by the superintendency, upon application by the interested party.
(Resolution No. SPPLC/036-95).
In addition, with the exception noted, Resolution SPPLC/036-95 provides that in the case of exclusive distribution contracts, the obligations, conditions or competition-restricting clauses that the supplier may impose on the distributor are limited to the following:
a) not to manufacture or distribute products that compete with those identified in the contract within the assigned territory;
b) to purchase the products identified in the contract exclusively from the distributor. A simultaneous contract for exclusive distribution and purchase would be considered to fall under this category;
c) to advertise the products identified in the contact, within the assigned territory;
d) not to advertise the products identified in the contract, outside the assigned territory;
e) to purchase complete runs, or minimum quantities of the products identified in the contract, or to maintain minimum inventories of such products;
f) to maintain a sales or warehousing network where so required by the nature of the products identified in the contract;
g) to sell the product identified in the contract with its own name, trademark and distinctive packaging; and
h) to offer warranties and provide customer servicing for the products identified in the contract.
Finally, it establishes that in exclusive distribution contracts, the distributor may impose obligations, conditions or anti-competitive restrictions on the supplier only to the extent of preventing him from supplying or selling the product identified in the contract directly to customers in the assigned territory, and with respect to exclusive purchase contracts, the distributor may require the distributor [sic: the supplier?] to sell exclusively to him only the products identified in the contract. A simultaneous contract of exclusive distribution and purchase would considered to fall under this category.