Parental Liability in Brazil: Jurisdiction and Application of Competition Law

1. Parental Liability São Paulo, November 15, 2017 Daniel Douek

2. Brazil - Jurisdiction • Definition of territoriality for the application of Brazil's Competition Law (Law nº 12.529/2011): • “Art. 2º This law is applicable (…) to the practices committed fully or partially on national territory or practices that produce or might produce effects on national territory.” (Law nº 12.529/2011)

3. Brazil - Jurisdiction • CriteriatoestablishBrazilianJurisdiction: • Direct effects- evidence that (a) Brazil was included in the scope of the agreement or (b) sales were made to the country; (e.g. Marine Hoses cartel) • Indirect effects - cartelized products were used as input for the production of goods that were exported to Brazil (e.g. DRAM cartel) • Case by case approach: “In view of the scarce resources available to the Administration, there is a need to weigh in, in this case, the convenience and opportunity of investigating similar conduct vis a vis the prioritization of cases with more relevant impacts in the national territory. For no other reason, there are rare or nonexistent cases of cartel with purely indirect effects being investigated by other jurisdictions.” (CADE General-Superintendence’sopinion in GasInsulatedSwitchgear cartel).

4. Brazil - Parental Liability • Brazilian Competition Law (Law nº 12.529/2011): • Art. 32.The various types of violation of the economic order imply the liability of the company and the individual liability of each of its directors or officers, jointly and severally. • Art. 33.The companies and entities belonging to an economic group, de facto or de jure, shall be jointly and severally liable when at least one of them commits a violation to the economic order. • Art. 34. The legal personality of the entity responsible for breaching the economic order may be disregarded when there is abuse of rights, excess of power, infringement of law, fact or illegal act or violation of the articles of association or bylaws.

5. Brazil - Parental Liability • In theory, there is parental liability in Brazil, but in practice CADE tends to read such provision restrictively. • Opening of the administrative procedure: (a) companies of the same economic group might be included if there is evidence (mere indicia would suffice) that such companies could also be involved in the infringement, (b) lower standard of proof to include as a defendant. • Judgement on the merits: (a) no fine unless the company itself was directly involved in the infringement, (b) sanctioning based on Criminal Law principles (individualization of the conduct), (c) higher standard of proof for a conviction, (d) joint liability for the payment of fines. • Liability for theconduct ≠ Liability for thepaymentof fines?

6. Brazil - Parental Liability • Case law: • Case n. 08012.004599/1999-18 (“Vitamins cartel”) • Both parent company and subsidiary were investigated; • Only the parent company was considered directly responsible for the infringement, since there was lack of evidence involving the subsidiary; • “(...) although I share the understanding that one cannot exclude a priori their responsibility [Brazilian subsidiaries]for the simple fact that the cartel was started abroad, I understand that there is insufficient evidence to justify its conviction, which is why I dismiss the application ex officio, thus dismissing the proceedings concerning national legal entities and natural persons.”; convictionofF. Hoffman-La Roche Ltd., Basf Aktiengesellschaft, and Aventis Animal Nutrition (CADE, Vitamins Cartel, Vote ofReportingCommissioner Ricardo Villas BôasCueva, item 5)

7. Brazil - Parental Liability • Case n. 08012.004702/2004-77 (“Peroxide cartel”) • Subsidiary was sanctioned, parent company was not; • Parent company was responsible for the payment of the fine imposed to its subsidiary. • “Companies belonging to the same Economic Group are considered joint and severally liable for a violation of the economic order practiced by at least one of them. (…) Solvay do Brasil Ltda. [parent], in turn, shall be considered jointly and severally liable for the wrongdoing committed by Peróxidos do Brasil Ltda. [subsidiary] for belonging to the same Economic Group, as provided for in Article 17 of Law 8,884/94. (…) As for Solvay do Brasil Ltda., I have previously acknowledged that the participation in the cartel by the Solvay Group was mainly made by Peroxides do Brasil Ltda. Therefore, I cease to impose a fine against it. However, it was recognized the joint and several liability of the [parent]company in relation to Peróxidos do Brasil Ltda. [subsidiary], because they belong to the same Economic Group. In this regard, on Solvay do Brasil Ltda. weighs the obligation to guarantee the payment of the fine imposed on Peróxidos do Brasil Ltda..” (CADE, Peroxide Cartel, Vote of Reporting Commissioner Carlos Ragazzo, para. 156).

8. Thankyou! daniel.douek@pnm.adv.br Obrigado! caiomario@pnm.adv.br