In a recent ruling on a transaction involving the investment of large trading companies in a joint venture that operates in the intermediation of road freight, the Administrative Tribunal of of the Administrative Council for Economic Defense (Cade) addressed the risks to competition related to collaboration among competitors and the mechanisms to mitigate them.
The subject is extremely relevant, considering that transactions between rival companies, such as joint ventures, infrastructure sharing agreements and associative agreements are frequent in a wide array of sectors.
Transactions of this nature often have pro-competitive objectives, such as achieving economies of scale, diluting risks and costs in the implementation of a new project, or obtaining better results in research and development, among others. However, collaboration between rival companies can harm competition and consumers due to the risk of exchange of sensitive information and increase in the ability or incentive to raise prices and/or reduce output, quality of products or services and innovation – a concern that may apply not only to the market directly affected by the transaction, but also other markets in which the parties are actual or potential competitors.
For this reason, collaboration agreements among competitors tend to undergo careful scrutiny by Cade, which takes into account factors such as the market shares of the companies involved, the characteristics of competition in the relevant market and how the transaction was structured, to assess whether there are risks of exchange of sensitive information and/or incentives and conditions for coordination between the parties that may facilitate explicit or tacit collusion in others markets where they operate independently.
In line with international best practices, whenever Cade considers it necessary to adopt remedies in transactions of this nature, the agency generally requests the adoption of Chinese Walls, robust compliance programs, and independent management bodies for the joint business. Additionally, Cade may required that:
- sensitive data relating to the activities of partners outside the scope of the joint venture that are necessary for their joint business be collected, processed and analyzed by an independent third party;
- sensitive operational information on the joint venture provided to partners be limited to what is strictly necessary to ensure the monitoring and protection of their joint investment; be restricted and protected by physical and electronic barriers to avoid access to other companies of the partners’ groups, and/or be only transmitted to partners in aggregate, historical or anonymized form;
- all meetings of partners or management bodies of the joint venture be subject to previous convocation, with a clear and precise agenda, expressly prohibiting discussions on matters involving information on the individual business of the partners outside the scope of the joint venture, and that all the matters discussed in these meetings be duly registered in minutes;
- meetings between partners and members of management bodies be monitored by an external lawyer to prevent the exchange of sensitive information relating to their individual business; and/or
- employees and/or members of the joint venture management bodies be prohibited from acting in other companies of the economic groups of the partners, or even in the management of competing companies of other groups (interlocking directorates).
In such cases, antitrust risks should be assessed before the conclusion of the transaction agreements, allowing the parties to discuss and design adequate governance mechanisms and antitrust protocols before submitting the transaction to Cade's analysis. This caution tends to avoid a longer analysis by the agency and reduce the risk of remedies to obtain clearance. .
