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13 February 2014
Under the previous Brazilian merger control system provided for under Law 8,884/94, several non-classical M&A transactions (eg, supply agreements and some licensing of IP agreements) were subject to merger review by the Administrative Council for Economic Defence (CADE). In particular, Article 54 of the law stated that all acts with potential anti-competitive effects should be mandatorily reported.
This broad statutory language left much room for uncertainty and did not fit well with the expected change to a pre-merger review system that would introduce a bar on closing obligations and considerably higher penalties for failing to notify reportable transactions. With the introduction of Law 12,529/11, the open-ended wording of the former law was replaced by a list of reportable transactions. According to Article 90 of the new law, a concentration occurs when:
Unfortunately the new wording was not enough to answer all concerns – since there is no statutory definition for the concept of 'associative agreements', CADE has broadened its interpretation of this concept and aligned it to that adopted under the former law. However, CADE has recently issued a number of decisions concerning the scope of this term, although it has not yet provided comprehensive guidelines.
CADE has issued several rulings in relation to joint undertakings and non-compete agreements.(1)
In BR/MPEC CADE decided that any joint undertaking between companies with the purpose of engaging in business activity may influence market conditions and, as such, may be subject to merger review, irrespective of the existence of structural links. According to CADE's attorney general, the partnership would supposedly raise risks associated with:
In Ipiranga/Dimed CADE held that an agreement to provide consultancy services was reportable. According to the authority, the non-compete obligations provided for in the agreement could potentially restrict competition. The same reasoning was applied to certain codeshare agreements that were considered subject to mandatory notification only because of their potential anti-competitive effects.
CADE has also recently ruled(2) that IP licensing agreements executed under the former law should be notified as long as they:
Moreover, CADE's superintendence general decided in Monsanto/Bayer that IP licensing agreements are not reportable under the new law as long as they do not contain provisions that could grant influence to one party over another (eg, exclusivity or non-compete clauses, transfer of assets). However, CADE's tribunal overruled this decision,(3) arguing that this type of agreement is still reportable under the new law if its object or effects leads to common commercial interests, risk sharing and the coordination of parties' activities by means of a joint undertaking.
Nonetheless, as stated in other similar and previous cases, the same reasoning will not necessarily apply to other types of long-term agreement.(4)
While CADE did not expressly acknowledge that the following cases were related to associative agreements, it ruled that certain supply agreements may also be reportable.(5)
In MABE/Whirlpool CADE argued that where supply agreements between competitors involve the use of capacity, such agreements may be subject to mandatory notification.
In a similar fashion, in Raízen/Novozymes CADE stated that a supply agreement on an exclusive basis between non-competing parties should be notified, specifically due to the exclusivity provision, in a direct reference to part of the case law that prevailed under the former law. However, CADE did not expressly state that precedents decided under the former law would always apply to future cases.
The recent precedents set by CADE in connection with associative agreements and non-classical transactions indicate that the case law developed under the former law may still be relevant when interpreting the new merger thresholds provided for under the new law. Unfortunately, the provision that establishes that associative agreements are reportable has been used to justify the notification of cases based on potential anti-competitive effects, without taking into consideration whether the relevant deal would also be subject to merger review procedures in other jurisdictions, or whether over-expansion of the definition of 'associative agreement' would contradict the legislature's objectives in enacting the new law.
For now, in view of such precedents, the agreements that could possibly be subject to merger review will include those that provide for:
Irrespective of the merits of CADE's policy making after the enactment of the new law, the existing institutional framework nonetheless lacks legal certainty in this regard. As penalties for not filing mandatory transactions under the pre-merger review system can also be burdensome, the business community eagerly awaits the enactment of regulations containing standards regarding the definition of associative agreements, which CADE has indicated that it plans to do in the near future.
For further information on this topic please contact Barbara Rosenberg, Marília Avila or Guilherme Morgulis at Barbosa, Müssnich & Aragão Advogados by telephone (+55 11 2179 4600), fax (+55 11 2179 4597) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Barbosa, Müssnich & Aragão Advogados website can be accessed at www.bmalaw.com.br.
(1) See BR/MPEC (Merger Case 08700.008736/2012-92, decided in November 2012) and Ipiranga/Dimed (Merger Case 08700.001895/2013-47, decided in March 2013). With respect to codeshare agreements, see, for example, TAM/American Airlines (Merger Case 08700.010858/2012-49, decided in April 2013) and VRG/Alitalia (Merger Case 08700.006488/2013-26, decided in August 2013).
(2) See Commissioner Eduardo Pontual's leading opinion in Monsanto/Syngenta and other licensees (Joint Merger Cases 08012.002870/2012-38, 08012.006706/2012-08, 08700.003898/2012-34 and 08700.003937/2012-01, all decided in August 2013). See also Monsanto/Embrapa (Merger Case 08700.006336/2013-23, decided in July 2013) and Monsanto/Bayer (Merger Case 08700.004957/2013-72, decided in January 2014).
(3) Commissioner Alessandro Octaviani's leading opinion in Monsanto/Bayer (Merger Case 08700.004957/2013-72) has not yet been made available. Therefore, the exact meaning of the criteria to define an associative agreement provided thereto cannot yet be determined.
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