CADE’s take on cooperation between competitors amidst Covid-19 crisis

There has been a lively debate around the world on how antitrust authorities should be dealing with cooperation among competitors amidst the Covid-19 crisis. On May 28, 2020, the Brazilian antitrust authority (“CADE”) had the opportunity to formally rule on the first case brought to their attention and showed that, in line with other antitrust authorities around the world, CADE is ready to move quickly and give the necessary guidance to companies willing to cooperate with others as a mean to deal with the challenges of the current crisis.

The case discussed by CADE’s Tribunal concerned a collaboration agreement between major beverage and food companies, namely Ambev, BRF, Coca-Cola, Mondelez, Nestlé and Pepsico (jointly referred to as the “Parties”), which had the main purpose of mitigating the effects of the economic downturn faced by small and medium retailers in the food and beverage sector as a result of the social distancing measures related to the Covid-19 pandemic in Brazil.

The collaboration agreement will encompass actions for the recovery of small retailers in the food and beverage sector and the adoption of sanitary measures (distribution of EPIs to around 150,000 points of sales and release of health and safety protocols). In addition, each party to the collaboration agreement has committed to individually implement special commercial conditions for a period of three months aiming at recovering the small retailers’ profit margins, including, amongst others: (i) differentiated commercial conditions such as extended deadlines for payment, greater number of installments, digital credit for the first purchase, special discounts, samples, and consigned products; (ii) guarantee of stocks and working capital with promotions and special discounts; and (iii) sharing of non-confidential information and provision of access to other benefits to small retailers granted by players active in the food and beverage markets.

The main takeaways from CADE’s decision are the following:

1) Procedural Flexibility

The Brazilian antitrust agency is willing to show procedural flexibility to assess the lawfulness of cooperation between competitors envisaged either to address market failures arising from the current economic crisis (e.g. overcoming demand and supply shocks) or to join efforts for R&D to fight Covid-19. Although the collaboration agreement in question did not meet the filing thresholds and there is a consultation mechanism to assess the lawfulness of agreements and commercial practices (whose review period may last up to 120 days), CADE’s General Superintendence reviewed and processed the submission of the Parties in an expedited fashion under an unregulated fast-track mechanism called “protocol procedure”. Acknowledging the exceptionality and urgency of the request and the need for prompt guidance, CADE issued its decision within ten calendar days counted from the filing of the request.

2)Framework of analysis consistent with international best practices

CADE has followed guidelines from both the OECD and the ICN on best practices to review cooperation between competitors amidst Covid-19 and reached to the conclusion that, in principle, the cooperation envisaged by the Parties did not amount to an antitrust violation.  The decision was supported on the following grounds: (i) there is a reasonable economic justification for the cooperation agreement and a nexus between the proposed cooperation and the Covid-19 crisis (i.e., cooperation between competitors was deemed as key for small retailers to resume their economic activities); (ii) the cooperation will be in force for a limited period (i.e., up to October 31, 2020); (iii) the Parties will neither coordinate commercial practices nor exchange competitively sensitive information; (iv) the Parties will adopt safeguards to prevent the exchange of competitively sensitive information at the meetings among competitors to implement the envisaged collaboration; and (v) such cooperation may generate efficiencies that could not be obtained by each party alone, and, as a result of such cooperation, consumers will be better off.

3)No antitrust immunity for the notifying parties and monitorship

CADE has also made it clear that the decision does not grant to the Parties any kind of antitrust immunity.  If, later on, there is evidence of an antitrust infringement associated with the implementation of the cooperation agreement in question, CADE will still have powers to take enforcement actions against the Parties. The implementation of this collaboration among competitors will be monitored by CADE’s General Superintendence, which may request, at any time, the Parties to provide information on the implementation of the collaboration and will review the final report to be submitted by the companies when the collaboration ceases to exist.

As we can see, CADE is abiding by international best practices and showing its commitment to strike a proper balance between flexibility to review cooperation between competitors to tackle the economic downturn resulting from the pandemic and prevention of distortions in competition. Although this is the first Covid-19-related collaboration between competitors reviewed and cleared by CADE, this is not the first time that CADE resorts to the “protocol procedure” to review a cooperation agreement between competing companies.  CADE followed the same procedure and framework of analysis to assess a collaboration agreement between fuel companies (namely Raízen, Petrobras Distribuidora, and Ipiranga) to share logistics capabilities due to shortages provoked by the “truck drivers’ strike” in 2018.  Going forward, we may expect that CADE will adopt the same approach while reviewing other cooperation agreements between competitors to overcome market disruptions resulting from the Covid-19 crisis.