March, 2018
CADE’s application of pecuniary penalties and punitive measures: the need of ascertaining its “state of rightness” – By María Gabriela C. Bacha, Edited by Carlos Mena Labarthe
The application of a pecuniary penalty is the main mechanism that CADE (Brazil’s antitrust authority) has with which to punish companies found guilty of anticompetitive behavior and to deter these agents, and other potential infringers, from engaging in future illicit acts. And considering that CADE has imposed more and more of these fines in recent years, we can see that its methodology for calculating such penalties is of crucial importance.
Article 37 of Brazil’s Antitrust Act (Law 12,529/2011) establishes that a company found guilty
of antitrust violations will be subject to a fine of 0.1% to 20% of its gross revenues – specifically, those
deriving from the offending business area and earned during the fiscal year just prior to the start of the
administrative proceeding (the “gross revenues criterion”). Moreover, the article establishes that such a
fine may never be less than the amount of gains improperly made from the infringement (the
“advantage-obtained criterion”), provided that such an amount can reasonably be estimated.
With respect to the “gross revenues criterion” established at the beginning of article 37, CADE
has been consistent in its decisions: fines levied upon companies have unfailingly been a percentage of
the designated year’s gross revenues. Nevertheless, in recent years, lawyers, scholars, and CADE itself
have been locked in a heated debate centered on CADE’s apparent negligence vis-à-vis the estimation of
the advantage obtained in cartel cases: from 1996 through 2013, in only 17% of cartel convictions did
the antitrust authority even bother to estimate the advantage the cartelists obtained through their
misconduct3. Only gross revenues were considered. Therefore, although CADE’s fines have always
followed to the letter article 37’s gross-revenue aspect, thus establishing a vast number of precedents,
antitrust community, especially CADE commissioners, have yet to come to any real consensus on how
to punish wrongdoing.
That is because certain variables and distortions have made the fair application of punitive
measures much harder to achieve than a superficial reading of article 37 might indicate. Take the
socially beneficial “advantage-obtained criterion”: by confiscating profits obtained through
anticompetitive violations and imposing a fine, it aims to send present and potential offenders a clear
message that “crime does not pay” – the deterrent effect.
However, this criterion runs up against procedural difficulties. First, the estimation of a specific
commercial gain resulting exclusively from the antitrust contravention demands information of difficult
access – e.g., detailed datasets on the actual prices charged and volumes of output produced. In
addition, any of several accepted methods and models – each possibly resulting in a different number4 –
may be used to build a counterfactual scenario.
Such “deal breakers,” in CADE jargon, are the main reason for the supremacy of the “gross revenues criterion.” CADE’s commissioners argue that properly calculating advantage obtained requires financial and human resources5 that the authority, chronically short-handed and under- funded, simply cannot afford. Moreover, the commissioners argue as well that until concrete evidence proves otherwise, it must be assumed that their current modus operandi is indeed deterring future misconduct.
The fact that estimating the advantage obtained from anticompetitive infringements entails
hard work is not a valid reason to avoid doing it: the benefits of a fair but implacable competition policy
are manifold. Nevertheless, it is also necessary to consider that CADE is stretched to the limit in
addressing numerous other legitimate topics related to the implementation of antitrust policy in Brazil.
In addition, relying on only one of several accepted methods and models to estimate the advantage
obtained may encourage appellate judges to overturn CADE’s rulings; this in turn can undermine
CADE’s effectiveness in deterring anticompetitive behavior and discredit its decisions before the
Judiciary and society in general.
In an informal but very real sense, it is not that CADE is necessarily wrong, we just do not know
whether it is right. And ascertaining that “state of rightness,” or at least creating conditions to achieve it, must not be delayed. Therefore, in Brazil’s top universities, undergraduates and graduate students,
led by professors and CADE personnel, could undertake a nationwide research effort to get hard facts
on every cartel process and resultant CADE decision. Such an ex post evaluation would comprise
establishing a consensus-based preferred method to calculate the illicit advantage, revisiting all past
decisions and calculating the infringement-generated commercial gains in each specific case, and then
comparing those new numbers with the fines imposed by CADE. The result would provide CADE the
legal certainty that the imposed fines either have or have not included fair elements of punishment for
the detected misconduct and have or have not provided a deterrent for future misconduct. With such
knowledge, CADE can do its job and be respected and judicially unassailable in the application of
penalties.
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