On December 1, 2011, after nearly seven years of ongoing deliberations, President Dilma Rouseff finally sanctioned the bill of law amending several sections of the Brazilian Antitrust Law.
Bill of Law N. 3,937/04 has amended Law N. 8,884/94, Brazil's so-called Antitrust Law, introducing significant changes to the Brazilian Competition/Antitrust System, namely: (i) a restructuring of the antitrust authorities; (ii) new merger control review rules and criteria; and (iii) a new definition of anticompetitive behaviours and the penalties imposed for violation. Such Bill of Law has been sanctioned by the President with a few vetoes (some of which will be explained below) and was published in the Official Gazette on December 1, 2011.
A "Super CADE"
All antitrust/competition matters having an effect in Brazil are currently scrutinized by the Administrative Economic Defence Council (Conselho Administrativo de Defesa Econômica - CADE), the Secretariat of Economic Law of the Ministry of Justice (Secretaria de Direito Econômico - SDE) and the Secretariat for Economic Monitoring of the Ministry of Finance (Secretaria de Acompanhamento Econômico - SEAE).
The new Brazilian Antitrust Law restructures the Brazilian antitrust authorities by merging the SDE and CADE together to form a single body which has been nicknamed "Super CADE".
CADE will be formed by the Administrative Economic Defence Tribunal (Tribunal Administrativo de Defesa Econômica), the General-Superintendence (Superintendência-Geral) and the Department of Economic Studies (Departamento de Estudos Econômicos). SEAE will continue to exist along with "Super CADE", although the former will play a "competition advocacy" role.
New controls on mergers
Merger review control rules have changed significantly with the new Brazilian Antitrust Law.
Firstly, a merger review submission must be filed with the Brazilian antitrust authorities prior to the closing of the transaction instead of during the post-closing phase as things stand under the current system.
The current market share test, verifying that the individual or combined market share resulting from the transaction does not exceed 20% in a given affected market, has been dropped by the new Brazilian Antitrust Law.
The law has also altered the so-called 'turnover test' by determining that transactions will have to be filed for approval whenever one of the corporate groups involved has recorded a gross turnover or revenue in Brazil of at least R$400 million in the previous financial year and the other has recorded at least R$30 million. Such turnover amounts can be amended, jointly or separately, by means of an Ordinance from the Ministry of Justice.
Any M&A (including joint ventures) which meets the new turnover threshold will require prior approval from CADE prior to completion, under the penalty of fines varying from R$60,000.00 to R$60,000,000.00.
The provision establishing that merger notification should be submitted to Super Cade within 15 business days of the first binding document is still in effect. However, this provision will require clarification since it is unclear as to when the submission of merger notification in a pre-merger review basis should occur.
Moreover, the new Law reduces the deadline for merger review by the Competition/Antitrust authority. All merger notification filings will have to be reviewed within 240 days. The Bill of Law included the innovation that the merger would be tacitly approved should the same not be reviewed by Super Cade within the above-mentioned timeframe. However, President Dilma Rousseff has vetoed such provision, given the potential harmful competition effects that such provision could entail. President Dilma also vetoed a provision which would have allowed parties undergoing merger review to request prior approval of the transaction during the 1st year the new rules are in effect.
CADE has already informed that it will hire 200 new members of staff to meet the above-mentioned purpose.
Besides introducing changes to the economic criteria of merger review filings, the new Law introduces a reduction in penalties for anticompetitive behaviour. Such penalty currently varies from 1% to 30% of the gross turnover registered by the corporate group (registered in the financial year prior to which the infraction occurred). The new Law has changed such range to 0.1% to 20% of the gross turnover registered either by the individual company in the relevant market, or by the group or conglomerate, calculated in respect of the gross turnover registered in the financial year prior to the investigation. The penalty should never be under the amount of the advantage obtained through the anticompetitive behaviour.
In the event of it being impossible to measure the turnover registered by the corporate group, the penalty will vary from R$50,000.00 to R$2,000,000,000.00.
The new Law also will apply fines to members of management who have engaged in anticompetitive behaviour corresponding from 1% to 20% of the penalties imposed to the group committing the infraction.
The rules defining anticompetitive behaviour have also been revised by the new Law to include certain practices not contemplated before, such as the abusive exercise or exploration of rights registered as industrial or intellectual property or technology, or as a trademark.
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