Gestión Digital – COVID-19 and the limits of antitrust law

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DATE: 28-04-2020

CORRALROSALES IN THE NEWS: 

-Ana Samudio

The main objective of antitrust law is to ensure the existence of an equal playing field so that competitors have the same opportunity to offer goods and services to consumers in every relevant market. This initial budget necessarily implies the ban of agreements between competitors – any express or implicit agreement that reduces uncertainty about the behavior of a competitor – and the abuse of market power.

Within the framework of necessary and urgent measures to confront the world health crisis derived from the COVID-19 pandemic, several competition authorities have seen the need to relax – and even suspend – the sanctioning regime applicable to agreements between competitors, allowing exceptionally that these take place when temporary cooperation is necessary to guarantee the fair provision of essential goods and services during the crisis.

The first such announcement was from the Norwegian competition authority, which allowed, over a three-month period, coordination of itineraries between two local airlines to ensure the availability of the service. This announcement was quickly followed by regulators in Germany, England and the Netherlands, who relaxed the control regime for agreements between competitors aimed at guaranteeing the provision of goods and services; allowing competitors: (i) the exchange of information regarding availability, (ii) the cooperation necessary to keep the establishments open, (iii) the sharing of logistics of warehouses and transport; and (iv) the assignment / exchange of personnel to meet demand.

On its part, the European Competition Network (ECN), which groups the European Union’s competition authorities, issued a joint statement determining that, under current circumstances, reasonable cooperation between competitors would not constitute a restriction of competition in the terms of the community regulation and / or creates efficiencies in the production and distribution of goods and services that overweight the restriction that they could generate; and defined channels of attention to resolve doubts that operators may have about the legitimacy / illegitimacy of an intended cooperation, in light of these exceptional circumstances.

Likewise, the authorities in charge of the control and judgment of competition matters in the United States of America -Department of Justice and Federal Trade Commission- have created an expedited procedure -with duration of seven (7) calendar days- for the analysis and authorization of cooperation between competitors. The entire process is carried out online, for which operators interested in cooperating must provide information that demonstrates the relation with the crisis, necessity, and reasonability of the cooperation, under the protection of the crisis unleashed by the pandemic.

In Colombia, an exceptional regulation was created by which the Logistics and Transportation Center, created as an independent entity from the competition authority, has the mission of evaluating and approving agreements between competitors that are intended to generate efficiencies in the logistics and cargo transportation market which would be deemed illegal at any other time.

Along with these measures that make the system applicable to agreements between competitors more flexible, several authorities have stressed the importance of guaranteeing the provision, at fair and competitive prices, of products considered essential to protect the health and life of consumers (such as respirators, masks and disinfectant products), while warning that the operators that abusing their market power to affect this guarantee will merit a swift and hefty sanction. Along these lines, the Superintendence of Control of Market Power in Ecuador has issued two warrants to producers and sellers of these goods, reminding them that, according to the Organic Law of Regulation and Control of Market Power, they cannot take advantage of the emergency to increase their profit margins through unjustified price increases and will remain vigilant and implement the necessary control actions to preserve consumer rights and free competition.

In the first of the warrants, the Superintendent of Control of Market Power stated, that “Any variation in prices must obey the dynamics of the market and the individual and independent decisions of economic agents and not to anti-competitive agreements or union recommendations.” This assertion -which a priori would be contrary to the affirmative actions taken by competition authorities from other jurisdictions that were explained above- applies to the anticompetitive price-fixing agreements and not to the fair temporary cooperation between competitors aimed to benefit the consumers and tends to guarantee the supply  in this delicate estate of emergency, under the exemption to the prohibition provided in article 12 of the Organic Law of Regulation and Control of Market Power, which in the present state of affairs would justify cooperation between competitors when the following conditions are met simultaneously:

  1. Consumers or users be allowed to participate equally in their advantages: The purpose of cooperation would be to guarantee the provision of goods and services during the state of emergency, with which this condition would be fulfilled.
  2. That they do not impose restrictions that are not indispensable for the achievement of those objectives: Any intended cooperation must be strictly limited to measures required to meet the objective.
  3. That they do not grant economic operators the possibility of eliminating competition with respect to a substantial part of the products or services contemplated: The terms of the cooperation must not constitute barriers of entry or permanence of other competitors in the market.

If you want to read this article in Spanish, click here

The distribution contract: competition issues and its regulation in the new Code of Commerce

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From 1997 and until the Code of Commerce came into effect last May 29, 2019, the distribution contract did not have a specific regulation. It was governed by the general rules applicable to trade acts, contracts and regulations on jurisdiction.

On December 31, 1976, the Law for the Protection of Agents or Distributors of Foreign Companies (Distributors Law) was enacted, which regulated the commercial relationship between an entity not based in Ecuador and a person – be it natural or legal- designated as representative, agent or distributor. This Law mainly provided a special protection regime for the distributor / agent. Thus, among the most relevant provisions included, the grantor was not authorized to unilaterally terminate the contract even by expiration of the term established in the contract itself, save for specific causes established in the Distributors Law, which in turn had to be qualified by the competent judge, and established a method of calculating large compensation for damages.

On July 5, 1996, the Distributors Law was amended, fundamentally limiting the compensation amount, and on September 19, 1997, it was repealed. Even so, the rights and obligations born while the Distributors Law was in force were maintained. The Antitrust Law, enacted on October 2011, introduced concepts such as exclusivity – of products, territories, customers or types of customers – that a priori seemed to be in conflict with the free competition regime, which required a robust support – from the economic and market techniques – that would legitimize its stipulation.

Since May 29, 2019 the new Code of Commerce (Code) clarified the picture, clearly tracing the rules governing the distribution contract. The most prominent are:

  • The distribution contract is the authorization in which a party called the grantor or principal confers on another party called concessionaire or distributor the possibility of selling products, providing services, or a combination of both, in a given territory.
  • In general, it leaves to the will of the parties the conditions of these contracts, such as: exclusivity of territory, exclusivity of product, minimum volumes and periodicity in purchases, among others; and establishes rules that will be applied in the absence of stipulation by the parties or that are contrary to the Antitrust Law.
  • Establishes the obligation of the supplier to deliver commercial and technical information necessary for the best distribution of the goods or services stipulated in the contract.
  • Allows the supplier to make direct sales without the participation of the distributor, unless otherwise agreed.
  • Prohibits the supplier from limiting the possibility of the distributor to make sales, through the internet, except for reasons of public health, consumer safety or legal prohibition.
  • Determines that, if a term of validity is not established, distribution contracts are considered as indefinite and may be terminated by either party, prior a 90-day notice. The Antitrust Law states that termination without a cause with no prior 30-day notice, could be considered as abuse of market power in an economic dependency relationship.
  • The serious or repeated breach of the contract that is not remedied within 15 days from the notification of the breach, will result in its termination, and the compliant party will be entitled to compensation for damages.

Ana Samudio
Senior Associate at CorralRosales
asamudio@corralrosales.com