Introduction

The Brazilian Competition Law (Law # 12.529/2011) was recently amended by the addition of new provisions to discipline damage compensation lawsuits.

The Brazilian antitrust community has been debating this amendment and the need to discipline damage compensation lawsuits for a few years. Also, international organizations, such as the OECD, have suggested altering Brazilian Competition Law to encourage these lawsuits[i] . Moreover, the Brazilian Competition Agency (CADE) has issued Resolution # 21/2018[ii] regulating the use of confidential information obtained from leniency agreements in these lawsuits.

Furthermore, many local competition experts have published articles, papers, and dissertations advocating the need to alter the local Competition Law to better discipline damage compensation lawsuits[iii]. Therefore, this article focusses on five topics: the arbitration clause, how lawsuits can reinvigorate CADE’s settlement program, the passing-on defense, the possibility of granting injunctions, and the estimation of the damages.

The arbitration clause

The Bill that originated the amendment had a provision according to which, those settling with CADE for cease-and-desist agreements must accept bringing a dispute regarding damage compensation to an arbitration tribunal.

This “arbitration provision” was included by the Brazilian Parliament on the grounds that arbitration proceedings are decided quicker than traditional lawsuits. Therefore, by submitting compensation claims to arbitration tribunals, those injured by cartels can be compensated much quicker. Thus, there is an incentive for filing compensation claims, which circles back to discourage cartels. Additionally, arbitration tribunals have clear rules concerning the disclosure of confidential information, which is crucial for preventing criminal lawsuits against natural persons.

This provision has been vetoed by the Brazilian President for a few reasons. First, arbitration for damage compensation is already possible. Therefore, parties can already enjoy the benefits mentioned in the previous paragraph. On the other hand, a provision that demands cartel members accept an arbitration clause to settle with CADE can discourage these cease-and-desist settlements, which are key to CADE’s successful anti-cartel policy[iv]. This issue is detailed below.

The goals of the amendment

This second topic refers to the goals of the amendment. Members of the local competition community consider that it will encourage damage compensation lawsuits. They regard that, by guaranteeing the rights of injured parties and facilitating compensation, private and public enforcements sum up to make cartels costlier, which discourages them[v].

However, from the Competition Agency’s standpoint, there are other reasons for welcoming the amendment. Since the proposition of the original Bill in 2016, there has been a fall in the number of leniency settlements in cartel cases with CADE[vi].

Damage compensation lawsuits can help CADE to stimulate its leniency settlement program. The amendment offers benefits for those who settle with CADE: paragraph 1 of article 47 of the Brazilian Competition Law allows for double damage claims against cartel members; paragraph 2 absolves leniency signatories from double damages; paragraph 3 exempts signatories from joint liability.

In this sense, increasing the cost for cartel members could be in CADE’s self-interest. If settling with CADE reduces the risk of a cartel member in a damage compensation lawsuit, this settlement then becomes more attractive for an offender. Consequently, the demand for settlements with CADE tends to increase.

Hence, the double damage provision raises the risk for a cartel member in a lawsuit. At the same time, paragraphs 2 and 3 of article 47 lower the risk for those who settle. Therefore, given the expectation that there will be more damage compensation lawsuits, there are incentives for cartel members to apply for leniency agreements with CADE. Consequently, CADE’s leniency program has the opportunity to regain traction.

The passing-on defense

The third topic is the passing-on defense[vii]. According to new paragraph 4 of article 47, a defendant must prove that a claimant passed the cartel overprice on to the next stage of the supply chain, in case they raise this argument during a lawsuit.

This provision is relevant as, according to the Brazilian civil legal framework[viii], should a cartel overprice be passed-on, damage compensation could be considered “unjustified enrichment” by a claimant. Consequently, judges would most likely acquit the complaint.

Hence, in case a claimant must prove they have not passed the overprice on, they probably will not succeed in their claim, which would result in less incentive for damage compensation lawsuits. This is the reason why the Brazilian lawmakers have decided that the burden of proof is on the defendant who raises the passing-on defense.

Nevertheless, such an inversion of the burden of proof is not free from criticisms. Proving the passing-on is not easy, but several factors can have an influence. According to Schreiber, Krüger and Seegers[ix], these factors are: “the nature and intensity of competition in the markets where the direct or indirect purchasers are active (e.g., imperfect competition and differentiated goods are supposed to result in lower pass-on rates for industrywide overcharges), the nature of input costs subject to an overcharge (whether these costs are fixed or variable, whether the overcharge is industrywide or firm-specific), the nature of the product demand that the direct or indirect purchasers face (especially the link between the demand and price level), other elements, such as price adjustment costs, the proportion of a firm’s costs affected by the overcharge, buyer power, vertical integration of direct and indirect purchasers, price regulation or the timing of the pricing decisions undertaken at the various levels of the supply chain”.

Although these factors are not hard evidence of the passing-on, it is possible to use them to prove whether passing-on is likely. In case a defendant can prove these factors, they may petition the judge for requesting data from the claimant in order to produce hard evidence of the passing-on. However, the new provision mentions evidence of the passing-on, not that it is likely. So, evidence of the likelihood may be a way to obtain the necessary data to prove whether the passing-on actually happened. Nevertheless, should a defendant produce evidence of the likelihood of the passing-on and a judge refuse their petition, they can argue that their right of defense has been denied and appeal to higher courts. This can postpone the final decision and discourage damage compensation lawsuits.

As Brazilian caselaw is scarce, it is important that the local judges understand the decisions made by their peers in more mature jurisdictions concerning the treatment of the passing-on defense in damage compensation cases. In this regard, the decisions of the US and the European Union should be thoroughly assessed by local judges[x].

This suggestion does not ignore that there are substantial differences between the Brazilian legal framework and those of other jurisdictions. Moreover, the Brazilian competition policy has its own features, not to mention that the local economic landscape is also different.

The review of CADE’s decisions by the judiciary

The fourth topic is that the amendment also has a provision according to which judges can consider CADE’s decisions as a basis to file injunctions in damage compensation lawsuits against cartel members. This provision may be considered too harsh by a Brazilian judge. The main reason for such an interpretation is that, even though CADE’s ruling is made by its tribunal, after the due process of law, it is only an administrative decision. As such, according to the Brazilian Constitution, CADE’s decisions can be questioned by a defendant before the judiciary. Therefore, an injunction based on a CADE’s administrative decision may have to co-exist with the legal questioning of that same decision, which generates legal uncertainty.

Damage estimation

The fifth topic is the damage estimation, which is a further challenge for damage compensation lawsuits in Brazil. There are different methodologies to estimate damages caused by a cartel[xi]. In a lawsuit, each party submits its estimate, and the judge decides whose estimate is acceptable. Nevertheless, this is new to most Brazilian judges. So, they will be constantly challenged to deal with this new matter. Therefore, it is recommended that the judges rely on economic experts and/or train their staff members in quantitative methods.

Conclusion

The rationale for leniency programs relies on the premise that collusion is unstable. One reason for the fall in the number of leniency agreements is that colluders learn that these agreements can harm them and design mechanisms to discourage settlements. Consequently, the success of leniency programs as part of a public cartel enforcement policy can lead to the fall in importance of these programs. This means that by raising the risk for non-leniency signatories in damage compensation lawsuits, the amendment can encourage colluders to settle with CADE. Thus, the amendment goes beyond stimulating damage compensation lawsuits. It is also a means of breathing new life into CADE’s leniency program.

Therefore, it is in CADE’s interest to stimulate these lawsuits. Those injured by a cartel also have an incentive to file them. This alignment of incentives can stimulate damage compensation claims in Brazil.

However, challenges to make these lawsuits gain traction remain, as pointed out in this article. The local judiciary will also face additional challenges, especially to their caseloads: there are 77 million cases pending decisions. Also, the length of lawsuits in Brazil is usually very long. Finally, judges have to learn how to deal with matters that they are not familiar with.

Let us expect that these challenges are properly addressed.

[i] See: https://www.oecd.org/daf/competition/oecd-peer-reviews-of-competition-law-and-policy-brazil-ENG-web.pdf.

[ii] See: https://sei.cade.gov.br/sei/modulos/pesquisa/md_pesq_documento_consulta_externa.php?DZ2uWeaYicbuRZEFhBt-n3BfPLlu9u7akQAh8mpB9yOBW1wi2BIgHkFzHYAbp2tiaipuTiy15xzmH33qiGjCWMDetWZR-kGnRQyG8vei7xM_nxTy3_CZ4xui30_UBNsN

[iii] See, for example, Gondim, Claudia Gama. Ação de reparação civil por danos concorrenciais: Proposta de lege ferenda para promover o equilíbrio entre as medidas pública e privada de combate às práticas anticompetitivas. Tese de Doutorado em Direito. Faculdade de Direito, Universidade Federal de Minas Gerais, 2017.

[iv] Although arbitration is an efficient dispute resolution mechanism, it should not be imposed on signatories of cease-and-desist agreements with CADE. There are incentives for both parties to discuss damage compensation before an arbitration tribunal, such as the quickness of the decisions when compared to the judiciary, specialized judges and confidentiality. Quickness of the decisions is also in the interest of defendants, as they may want to leave a liability behind.

[v] See: https://globalcompetitionreview.com/article/brazil-introduces-double-damages-private-antitrust-claims

[vi] See: https://www.gov.br/cade/pt-br/assuntos/programa-de-leniencia/estatisticas

[vii] For a discussion about the passing-on defense argument, see: Till Schreiber, Carsten Krüger, Martin Seegers, Passing-on. Global Dictionary of Competition Law, Concurrences, Art. N° 88937. Available at: https://www.concurrences.com/en/dictionary/damages-actions

[viii] See: article 884 of the Brazilian Civil Code.

[ix] See: Till Schreiber, Carsten Krüger, Martin Seegers (Op. cit.).

[x] See: Till Schreiber, Carsten Krüger, Martin Seegers (Op. cit.).

[xi] See: https://webadvocacy.com.br/2022/06/24/vantagem-auferida-e-o-chamado-a-experiencia/