I OVERVIEW OF RECENT PRIVATE ANTITRUST LITIGATION ACTIVITY
Historically, Brazilian antitrust practice has relied on public enforcement. As a consequence, private antitrust litigation activity has been very incipient in Brazil. In recent years, however, some turning points have contributed to enhancing debates regarding private antitrust enforcement. These turning points, an outline of judicial precedents and a local legislative framework summarise the current status of Brazilian private competition enforcement.
The former Competition Act2 already set forth that injured parties could revert to the judiciary branch to defend their individual or collective interests, to cease anticompetitive practices and seek redress of losses and damages, regardless of an administrative process, which would not be prevented nor stayed by the filing of a lawsuit. This same provision is reproduced in Article 47 of the current Competition Act.3
One of the first private antitrust actions for redress of losses caused by cartel behaviour was filed in 2006, before the Minas Gerais State Court of Justice. It was related to the Long Steel cartel case. Cobraco Group obtained a preliminary injunction compelling ArcelorMittal to adopt the same price (adjusted by inflation) effective before the cartel period (the independent Long Steel Distributors case).4 The courts also ruled favourably on redress of losses from the cartel's overpricing policy. This lawsuit followed a decision handed down by CADE, the Brazilian antitrust agency, in 2005, which fined the long steel manufacturers for price-fixing, customer allocation and resale price maintenance.
In 2010, CADE innovated by recommending that a copy of a cartel decision (in the Industrial Gases cartel case) be sent to potentially injured parties with the purpose of enabling and encouraging them to seek recovery for damage caused by the anticompetitive conduct. Therefore, from 2010 CADE has encouraged victims to file follow-on claims in Brazil for damages caused by cartels.
It was in 2016, however, that the fiercest discussions about private antitrust litigation activity and its balance with local public enforcement occurred, when a landmark decision from Brazil's Superior Court of Justice (STJ) ordered CADE to disclose confidential documents originating from a leniency agreement (2016 STJ decision).
The 2016 STJ decision relied on the following assumptions: the documents originating from a leniency agreement could support claims for compensation; the legal framework for leniency programmes only provided for administrative and criminal immunity (and not civil immunity); and there is a mandatory rule of publicity for acts of the Brazilian public administration. Therefore, the STJ's rationale was that keeping the documents obtained under a leniency programme as confidential and extending such status to the civil sphere, even after the end of CADE investigations, would perpetuate the harm to third parties and, by extension, give leniency applicants a benefit that is not backed by law.
In 2018, significant developments related to private antitrust litigation came into effect. To better detail how third parties affected by anticompetitive practices could claim their rights, the Secretariat for Productivity and Competition Advocacy (Seprac), an entity under the Brazilian Treasury Ministry, issued guidelines describing methods and tools that could be used to detect cartels, quantify overcharges and quantify the passing on of overcharges.5
In addition, following appeals filed by CADE in connection with the 2016 STJ decision, in 2018, the court clarified that, as a general rule, documents obtained under a leniency agreement could only be made available after a final ruling by CADE and shall not include business secrets and commercially sensitive information.
Finally, in 2018, CADE Resolution 21/2018 was enacted regulating the procedures for the access to documents and information from administrative proceedings commenced by CADE to investigate anticompetitive practices, especially those arising from leniency agreements, settlement procedures and dawn raids. In 2019, CADE issued Ordinance No. 869/2019, which, in connection with Resolution 21/2018, establishers the procedures for the access of documents from administrative proceedings.
All these measures represent relevant developments to promote private antitrust ligation in Brazil. In 2018, CADE was subject to a peer review by the Organisation for Economic Co-operation and Development (OECD), which found that fundamental elements of a successful private enforcement legislative framework are in place in Brazil, although there are still obstacles for the creation of a private litigation culture, under which private actions would be a consequence of public enforcement.6
II GENERAL INTRODUCTION TO THE LEGISLATIVE FRAMEWORK FOR PRIVATE ANTITRUST ENFORCEMENT
Article 47 of the Competition Act generically establishes that those injured by an anticompetitive conduct may go to court to defend their individual or collective interests, to seek an injunction to cease the anticompetitive practice and to recover damages.
Private lawsuits can be brought regardless of the existence of an administrative decision on an anticompetitive practice, and even before an administrative proceeding itself is instated (stand-alone litigation). In addition, in case a private claim is filed as a result of an administrative proceeding (follow-on litigation), both proceedings will develop independently.
Both individuals and corporations can be sued, either individually or collectively. Private antitrust lawsuits can also take the form of individual claims or collective actions.
Coupled with the provisions in the Competition Act, the Brazilian Civil Code and the Brazilian Civil Procedure Code (CPC) also set out general rules governing private lawsuits. Moreover, collective actions are further governed by a specific legal system that brings together several laws and regulations, such as the Brazilian Consumer Protection Code and the Public Class Actions Law.
Finally, as described in Chapter I above, there were relevant developments in the legislative framework for private antitrust enforcement in Brazil in recent years. Resolution No. 21/2018 and Ordinance No. 869/2019 set important rules that discipline the procedures for the disclosure of documents obtained by CADE in the context of its administrative investigations. Additionally, Bill of Law No. 11,275/2018 (former Senate Bill of Law No. 283/2016) includes relevant mechanisms to foster private enforcement. Bill of Law No. 11,275/2018 is currently under consideration by the Constitution, Justice and Citizenship Commission at the Senate and it is expected to be approved by the President soon. Additionally, Bill of Law No. 11,275/2018 (former Senate Bill of Law No. 283/2016) includes mechanisms to foster private enforcement, such as double reimbursement for losses suffered due to breaches of the economic order, as well as the statute of limitation suspension for private antitrust actions, while the investigation is ongoing before CADE. Bill of Law No. 11,275/2018 is currently under consideration by the Constitution, Justice and Citizenship Commission at the Senate and it is expected to be approved by the President soon.
As established in Article 2, the Competition Act applies (without conflicting with the conventions and treaties to which Brazil is a signatory) to any anticompetitive conduct that is fully or partially performed in Brazil, or that produces or may produce effects locally.
Therefore, foreign entities responsible for anticompetitive conduct abroad, if somehow causing effects within the Brazilian territory, could in principle be sued locally, either by CADE or through a national judicial authority.
In addition, CADE resolution 21/2018, which came into effect in 2018, also contains a provision strengthening the extraterritorial effects of the Competition Act on private antitrust litigation by stating that confidential documents may be exceptionally disclosed, among other hypotheses, when there is international judicial cooperation, as long as the disclosure is authorised by CADE and the leniency or settlement agreement applicant.
Private antitrust litigation can take the form of individual enforcement actions or collective actions (class actions or public civil actions).
Any aggrieved individual or company may bring a civil lawsuit for redress of damages arising from anticompetitive practices. In addition, in public class actions, the following, among others, have standing to represent the interests of those aggrieved by anticompetitive conduct (under Article 5 of Law No. 7,347 of 1985,7 as amended):
- the Public Prosecutor's Office;
- the Public Defender's Office;
- the federal government, federal district, states and municipalities;
- independent government entities, government-owned companies, foundations and mixed-capital companies; and
- an association established for at least one year to engage, among other institutional purposes, in the protection of consumer rights, the economic system or free competition.
Moreover, private enforcement claims can be taken to state or federal courts in connection with private suits for damages filed by individuals or companies (or by institutions that legally have standing for public class actions) aggrieved by anticompetitive practices.
Notwithstanding this extensive list of eligible persons, a possible deterrent to private competition lawsuits following CADE's conviction of antitrust conduct (follow-on litigation) is the cost (both financial and other costs) of litigating in Brazil. For instance, defeated parties must pay court costs and expenses, plus statutory attorneys' fees, totalling as much as 10 to 20 per cent of the value of the claimed damages (except in public class actions). In addition, from filing a claim until a final decision is rendered, a lawsuit may take 10 to 15 years on average, during which time legal costs will accrue to both litigants. Within this context, Bill of Law No. 11,275/2018 mentioned above contains provisions that aim to speed up judicial claims by allowing CADE decisions to ground the concession of evidence-supported relief.
V THE PROCESS OF DISCOVERY
The Brazilian legal system envisages a wide array of elements to prove allegations in court, and the CPC provides a non-binding list of means of proof by expressly stating that 'all legal means, as well as morally legitimate ones, even if not specified in this Code, may apply to prove a fact' (CPC Article 369).
The judge can order (on his or her own initiative, or at a litigant's request), among others, that:
- documents be produced by the litigants themselves or by third parties;
- government entities provide certifications or records of an administrative proceeding if so necessary to prove an allegation; or
- specific evidence be put forward by a litigant.
Regarding (a), for instance, if a party refuses to show a document, a presumption against it on the question of fact can be raised. In Brazil, as a general rule, the burden of proof lies with the accuser and may be shifted solely in some specific cases (e.g., the concept of a reverse burden of proof is applied to consumers, and especially if these are legally, economically or technically vulnerable or if the specificities of a case could render it impossible or excessively difficult for a given party to produce evidence). It is worth noting that the production of evidence can entail significant costs for the parties, either individually or jointly.
Regarding (b), CADE is also subject to this provision, but has expressly raised concerns that private enforcement litigation demanding access to such type of evidence may pose risks for the future of successful leniency programmes. CADE Resolution 21/2018 provides for the specific situations in which documents produced through investigations conducted by the authorities may be disclosed to third parties interested in seeking their rights through private antitrust claims. In order to provide more safety to companies that have collaborated with CADE, Ordinance No. 869/2019 also defines the procedures for the disclosure of documents established by Resolution 21/2018.
Ordinance No. 869/2019 establishes that (1) regarding administrative proceedings ruled by CADE'S Administrative Tribunal, the Reporting Commissioner in the case will determine in the judgment of the case which documents shall then be disclosed, granting interested parties (including defendants and claimants) the right to question this decision and (2) regarding administrative proceedings that are still under analysis by the authority or that have occurred before Resolution 21/2018, access to documents should be exceptional and analysed on a case-by-case basis.
Finally, in cases in which the underlying anticompetitive conduct has already been analysed and convicted by CADE, there is no common ground among the different local judicial authorities on the weight of evidence granted to CADE's decision. The general understanding is that CADE's decision should be taken as relative evidence, since an administrative decision can be reviewed by a court. In practice, CADE's decisions have been taken into consideration in private litigation cases. On the other hand, three trial courts and the Minas Gerais State Court of Appeals have ruled that CADE final decisions are 'unequivocal evidence' of an antitrust violation, granting injunctions to displace the collusive equilibrium and halt overcharging.8 Bill No. 11,275/2018 in turn contains a provision acknowledging that CADE's final decision can be used to support the concession of evidence-supported relief by the judge.
VI USE OF EXPERTS
Parties can request (and the judge can order on his or her own initiative) a wide range of means of proof, including the use of experts. The CPC devotes an entire chapter specifically to regulating the procedure and the possibility of using experts.
There is a high chance of expert opinions being required as evidence in a private antitrust litigation due to the intrinsic economic nature of the matters at issue and in response to the need for a full understanding of the market concerned. Expert witnesses would also be instrumental in defining whether an antitrust infringement has occurred, and in ascertaining the harm and ensuing compensation.
Finally, economic evidence originally produced under a CADE administrative proceeding can also serve as proof in a lawsuit.
VII CLASS ACTIONS
In Brazil, individuals and companies with individual homogeneous rights arising from an anticompetitive conduct may rely on class actions to go to court, represented by the persons defined in Section IV. In these cases, although the representation is collective, reparation of damages will be individual.
Class actions are governed by several laws and regulations, such as the Brazilian Consumer Protection Code and the Public Class Actions Law. According to the OECD Peer Reviews of Competition Law and Policy for Brazil, state and federal prosecutors' offices have been responsible for the majority of civil suits seeking collective redress, most of which have been related to consumers' rights complaints.
According to research carried out by Giovana Vieira Porto9 and based on data collected by the Brazilian Institute for Competition, Consumer Affairs and International Trade Studies (IBRAC), class actions outnumber individual enforcement actions in private antitrust litigation.
VIII CALCULATING DAMAGES
Calculating the damages payable to a plaintiff is one of the most challenging aspects of private competition litigation. A decision on the occurrence of damage serves as grounds for ultimately calculating the compensation payable. Consequently, ascertaining damage is one of the cornerstones in a private competition claim.
One of the main findings of a research conducted by Giovana Vieira Porto10 is that the criteria adopted by trial and appellate courts in calculating damages currently lack uniformity.
In calculating property damage (and, by extension, the resulting compensation), they have identified at least five distinct methodologies:
- the use of experts in the award calculation;
- the difference between the price paid by consumers and the price that was effective before the anticompetitive conduct, doubled;
- an average of the profit made during the anticompetitive conduct;
- the amount to be set at the award calculation stage; and
- the values stated in an expert report during the discovery phase.
For its part, moral damage (pain and suffering) is mostly calculated by examining:
- the defendant's socioeconomic conditions;
- the nature of the injury;
- the consequence of the injury to victims;
- the repercussions in the personal lives of the aggrieved persons; and
- the reasonableness and proportionality of the compensation in relation to the damage caused.
In view of the above, and with the aim of providing more certainty in estimating cartel damages, in 2018 the Seprac issued guidelines that provide an economic analysis of the law, the value of the compensation and deterrence, as well as a general overview related to quantifying damage. The authorities clearly recognise that compensation for harm imposed on society does not refund the victims of a cartel, and that an effective antitrust enforcement framework must involve a complementary mechanism that entitles victims to demand compensation for damage. For this to be feasible, however, it is important to overcome one of the main obstacles for private antitrust actions: credibly proving and quantifying damage.
In this context, the guidelines detail concepts related to cartel practices, including methods of detection and, most importantly, possible methods for quantification of overcharges and the passing on of overcharges, which include comparison-based methods and market or firm structure-based methods.
IX PASS-ON DEFENCES
The Consumer Protection Code states that a clause precluding, exonerating or otherwise alleviating the obligation to indemnify for product and service defects is void, and further imposes joint and several liability on the manufacturer, builder, importer or assembler. Therefore, the existence of a direct relation between the defendant and the injured party is not mandatory – final consumers may sue suppliers of intermediate goods engaged in anticompetitive conducts in indirect purchaser cases, for instance. In Brazil, it still under discussion whether a pass-on defence assertion would be accepted before a Brazilian court as an argument to exclude the obligation to indemnify. Indeed, defendants can and do argue that the cartel overcharges were transferred down the value chain, although the chances of success of pass-on defences are questionable.
In addition, the Seprac guidelines explicitly consider the passing on of overcharges, recognising the higher challenge of quantifying damages in this situation. According to this approach, the passing on of overcharges must be deduced from the compensation that must be paid to intermediate consumers, and the final consumer is entitled to compensation.
X FOLLOW-ON LITIGATION
Although the existence of an administrative procedure is not a condition for private litigation in Brazil, private claims may occur as a consequence of an administrative procedure (follow-on litigation). In these cases, civil and administrative proceedings will be independent.
Although CADE's decision is not binding in the judiciary branch, it may be an important piece of evidence in a judicial decision in a private claim. In the first follow-on litigation involving a global cartel case, direct purchasers of compressors for refrigeration filed a lawsuit that was ultimately ruled on by the STJ in 2016 (as already stated, the decision compelled CADE to disclose documents obtained under a leniency agreement and was further clarified in 2018 through establishing that disclosure should occur after a final ruling by CADE's Tribunal). The disclosure of documents by CADE for private claims has been widely discussed in recent years and clarified by Resolution 21/2019 and Ordinance No. 869/2019.
The fact that the parties to a lawsuit can challenge every piece of evidence, even when it has been produced by CADE within an administrative proceeding, can also be a significant obstacle to the development of private enforcement in Brazil, as in practice it means having to re-litigate the existence of a cartel. As a result, in an attempt to foster private litigation, Bill No. 11,275/2018, includes a provision that acknowledges that CADE's final decisions have relevance to court decisions in related private litigation.
Attorney–client privilege and other related aspects arising from the attorney–client relationship are regulated by the Brazilian Bar Association Statute and its regulations.11
The Brazilian Bar Association Statute and its regulations apply to all Brazilian lawyers. As a rule, attorneys are assured of their right to protect and have a duty of not disclosing information received within the context of an attorney–client relationship. This privilege covers every piece of oral or written information in physical or electronic format, which renders it inviolable. It also extends to an attorney's office, files, data, mail, email and other communications. In this respect, there is a controversy concerning whether the attorney–client privilege is applicable to both external attorneys and in-house counsel, or only to external attorneys. Although the prevailing opinion of jurists has been that there is no limitation to the privilege based on this, some public authorities may have a contrary opinion in practice.
It has been argued that some in-house counsel now have a role in a company's business that is more similar to a manager or officer's role, rather than being an attorney stricto sensu. Consequently, in some situations involving information in the possession of an in-house counsel, there is a possibility of the attorney–client privilege being relativised, and thus the information disclosed.
XII SETTLEMENT PROCEDURES
Settlement procedures are usually promoted by private and public attorneys, and are officially encouraged by the judiciary. The CPC establishes that mediators and conciliators are aides in the administration of justice. Therefore, before or during the course of private antitrust claims, the use of alternative dispute resolution mechanisms should be facilitated.
However, parties are not under an obligation to engage in an alternative dispute resolution process before trial, and may expressly inform the judge that it is not in their interest to engage in mediation or conciliation (without any implications for the court dispute or their otherwise suffering any personal retaliation for that decision).
Parties may resort to arbitration only in disputes involving disposable economic rights; see below.
Article 47 of the Competition Act clearly reads that damaged parties can take antitrust claims to court, but it remains controversial whether they can dispute antitrust matters through arbitration.
Under Law No. 9,307 of 1996, arbitration revolves around disposable economic rights, which means that the relationship has to be financially based. Since an antitrust discussion involves both economic and constitutional rights, it is hard to ascertain whether antitrust claims are arbitrable in Brazil.
Anticompetitive conduct can harm both society as a whole as well as the companies and individuals directly affected by it. The damage inflicted upon society refers to the collective rights of free competition and free enterprise, which constitute inalienable rights and which cannot be referred to arbitration. However, the damage inflicted upon companies and individuals that have suffered a measurable loss may indeed be subject to arbitration.12
One of the advantages of arbitration is that the parties may have their dispute settled confidentially by a trustworthy arbitrator (instead of a judge). In addition, it is probable that an arbitral decision will be more precise and faster than a court ruling. Arbitration has been debated in the context of Bill of Law No. 11,275/2018, and whether its adoption could for instance allow for a reduction in potential damages to be paid by defendants who accept the mechanism in favor of procedure celerity. Some of the settlement agreements recently homologated by the authority's administrative tribunal already include this provision.
XIV INDEMNIFICATION AND CONTRIBUTION
Under Article 47 of the Competition Act, those harmed by an anticompetitive conduct may resort to the judiciary13 for redress of their losses.
However, there are obstacles that might hinder indemnification and discourage plaintiffs from seeking redress in court, such as:
- the high costs and time-consuming process of litigation;
- possible retaliation from cartel members, which are likely to be the plaintiff's main suppliers;
- procedural difficulties in proving the conduct, a causal relationship and the ensuing damage; and
- difficulties in calculating damages and compensation.
Due to the above obstacles, there may not be enough incentives for victims to seek indemnification against cartelists. As a consequence, there have still only been a handful of lawsuits to that end.14
Nevertheless, CADE is keen to encourage lawsuits as a powerful mechanism to fight cartel schemes. Leniency agreements do not reach the civil sphere, focusing instead on the criminal and administrative spheres. As a result, companies signing such agreements are not protected against civil lawsuits, which may encourage individuals to pursue indemnification claims against companies that engage in anticompetitive conduct (serving, by extension, as a deterrent to anticompetitive practices).
XV FUTURE DEVELOPMENTS AND OUTLOOK
CADE continues to focus on deterrence of anticompetitive conduct in Brazil, especially on cartels. In recent years, these efforts have included relevant measures to promote private litigation as a complementary tool to public enforcement, and include:
- the Guidelines issued by the Seprac providing methods to quantify damage caused and advantages taken by undertakings as a result of a cartel;
- Resolution 21/2018, which aims to regulate access to documents obtained by the authorities and to foster private antitrust litigation;
- Bill of Law No. 11,275/2018, which provides for a set of very important mechanisms that should foster private antitrust litigation and is expected to be a landmark that will complete the Brazilian legal framework for combating cartels; and
- Ordinance No. 869/2019, which defines the procedures for the disclosure of documents established by Resolution 21/2018.
The country still lacks a strong private litigation culture,15 and there are relevant challenges related to litigation, costs, procedural difficulties, economic complexity of the discussions, lack of expertise at the judiciary branch and potential risks of retaliation. Nevertheless, CADE is clearly seeking to align with other more mature jurisdictions as regards private competition enforcement.
1 Cristianne Saccab Zarzur is a partner, Marcos Pajolla Garrido is a senior associate and Carolina Destailleur Bueno is an associate at Pinheiro Neto Advogados.
2 Former Competition Act, Law No. 8,884 of 1994.
3 Competition Act, Law No. 12,529 of 2011.
4 Noman, Gustavo Lage. 'Das provas em processo concorrencial'. 2010. Available at www.dominiopublico. gov.br/download/teste/arqs/cp136669.pdf. Accessed December 2018.
5 An English version of the Seprac guidelines may be accessed at http://www.fazenda.gov.br/centrais-de-conteudos/publicacoes/guias-e-manuais/estimating-cartel-damages. Last accessed on 7 December 2018.
6 OECD (2019), OECD Peer Reviews of Competition Law and Policy: Brazil www.oecd.org/daf/competition/oecd-peer-reviews-of-competition-law-and-policy-brazil-2019.htm.
7 The Law governs public class actions for, inter alia, damage caused to the environment, consumers or historical patrimony.
8 Peixoto, Bruno Lana and Da Silva, Ludmilla Martins. 'Recovery actions for cartel damages: state of affairs and challenges for the next five years'. Brazilian Antitrust Law (Law No. 12,529/11): 5 Years (2017).
9 Porto, Giovana Vieira. 'As ações ajuizadas com pedido de indenização por dano de cartel: uma análise empírica do estado da arte no Brasil'. 2017.
11 Brazilian Bar Association Statute, Law No. 8,906 of 1994.
12 Dantas, Yane Pitangueira. 'A Arbitragem como Meio Alternativo na Resolução de Demandas Indenizatórias Decorrentes da Prática de Cartéis e a Minuta de Resolução do CADE submetida à Consulta Pública 05/2016'. Revista de Direito da Concorrência, Vol. 5, No. 1, May 2017, page 241.
13 As provided above, there is a controversy on whether alternative dispute resolutions such as arbitration apply to cases of private competitive enforcement.
14 Athias, Daniel Tobias. JOTA. 'Cartel, acordos de leniência e responsabilidade civil por danos privados'. 27 April 2016. Available at https://jota.info/artigos/cartel-acordos-de-leniencia-e-responsabilidadecivil-por-danos-privados-27042016#_ftn2. Accessed December 2017.
15 OECD (2019), OECD Peer Reviews of Competition Law and Policy: Brazil www.oecd.org/daf/competition/oecd-peer-reviews-of-competition-law-andpolicy-brazil-2019.htm.