Technology impacts business competitiveness in different sectors

Technology has forever changed the competitive dynamics of business models. The end of the physical barriers that characterized traditional markets, the reduction of operating costs in the digital environment and access to gigantic databases of users has allowed companies to innovate and offer their customers cheaper and personalized products and services.
Technology has also revolutionized legal services. To follow up on these demands, Mattos Filho structured the multidisciplinary group Mattos Filho Tech, composed of lawyers and partners of different practice areas, which meet a wide range of demands from our clients. Click here and learn more about the initiative.
In October and November, we held the first edition of the Tech Legal Trends event at our São Paulo and Rio de Janeiro offices. We brought clients together to discuss the impacts that technology has had on different areas.
Check out the main highlights of the event below.

1- Competition law in the digital environment

The trends provoked by active companies in digital markets impacted the traditional tools of antitrust analysis of the Administrative Council for Economic Defense (“Cade”). For partner Michelle Marques Machado, of the Antitrust practice, the following characteristics of digital markets have become relevant for antitrust analysis:

• Multi-sided markets
  Traditional markets are usually one-dimensional, with pairs competing for certain products. In the digital market, players from adjacent markets, who do not have the same business model, can exert significant pressure on other businesses. Companies offering different products and services compete at the same time.

• Zero price
  In traditional markets, price competition is important. In the digital one, the strategy is not to charge a price, the most important thing is to offer an experience.

• Data
  Depending on the ability of companies to process market information, data is of great importance in the business strategy.

• Scale
  The marginal cost to start serving a new user is quite low, as it is not necessary to have a physical space – and to bear its costs – to operate the business.

• Innovation
  In several markets, potential innovation becomes the main growth driver for a company.

• Multihoming
  The use of a platform by a user does not prevent that person from using another platform.

Given these innovations, relevant topics of concentration acts in digital environments arise for Cade to evaluate:
– How to define a relevant market in multidimensional competition scenarios?
– How and to what extent does innovation compromise the traditional definition of the market?
– What is the best proxy to analyze market power in digital environments?
The case law of Cade’s antitrust analysis has been revised to better fit companies that are active in the digital economy.
For example, the concepts of market definition (digital environments have fluid boundaries), the specificity of the relevant market for each product (players with different business models compete with each other), and the use of the market concentration index were made more flexible.
The potential for future innovation has also become a key aspect of Cade’s analysis.
Michelle says that empirical analysis has gained increasing prominence in the analysis of the antitrust council, as it is not possible to apply a “one-size fits all” model or methodology to the markets of the digital economy.

2- Tax challenges for technology

The digital age amplifies the challenges for the delimitation of tax residence, since technology allows the offer of complex services in different locations, without companies having to physically install themselves in these spaces.
“Currently, which legal entities are subject to tax? Those domiciled in Brazil, but does a company need to be domiciled in Brazil to explore the Brazilian market? No! However, these companies are not yet covered by the Brazilian income tax”, says Lisa Worcman, a partner in the Tech Mattos Filho practice, and specialist in the technology and entertainment markets.
“What technology companies want most is legal certainty”, reinforces partner Renata Cubas, of the Tax practice.
Renata recalls that the discussions on tax reform in the last 50 years are the same: reduce indirect taxation, unify and simplify taxes, and not increase the tax burden.
The exemption from payroll or the possibility of tax incentives are the main demands of technology companies today. With an increasing number of professionals – many of them highly qualified – the cost of labor is one of the biggest expenses of companies operating in this area.

3- Brazilian Civil Rights Framework for the Internet

In Brazil, the “Marco Civil da Internet” (in English, Brazilian Civil Rights Framework for the Internet), a kind of constitution for the digital world sanctioned in 2014, determined the rights of internet users and defined rules for companies operating in the digital world. Partners Fernando Dantas and Fabio Kujawski explored the responsibility of the platforms, respectively, the main lessons of the Marco Civil da Internet and the new European copyright directive.
As Fernando pointed out, “The time of law is very different from the time of technology and, within the law, the time of case law is very different from the time of statutory law. The case law naturally takes time to mature the content of the normative provisions.”
Digital tools have allowed considerable gains in innovation and scale of service, through initiatives such as fintechs, healthtechs and insurtechs that were also explored at the event.

4. HealthTechs: digital health in Brazil and regulatory news

One of the biggest challenges for the health sector in Brazil is the decentralization of regulation. There are many competing and complementary authorities working in this area, acting in a non-harmonious way.
The regulations that influence the relationship between technology and health are:

• Brazilian Internet Civil Rights Framework
• Access to Information Law
• National Policy for Technological Innovation in Health
• Electronic Health Record Law
• Brazilian General Data Protection Law (LGPD)
• Federal Council of Medicine resolutions on telemedicine
• It is also possible to mention other regulations that impact the sector, such as:
• Regulations created by the Brazilian Health Regulatory Agency (Anvisa) and the National Health Agency (ANS)
• Medical Code of Ethics
• Clinical research standards
• Rules of other professional councils

The LGPD, which will go into effect in August 2020 and will affect all sectors of the economy, is not intended to prevent technology companies operating in the healthcare sector from shutting down their operations. “The work will be to educate and better format the way these companies operate”, says partner Ana Cândida Sammarco, of the Life Sciences practice.
Making the regulation of the LGPD compatible is crucial to the health sector’s business model. HealthTechs study how to adopt these rules so that the data collected from patients can be processed to offer the best experience for each type of person.
“We are living in a new scenario where patient’s sensitive data has a more rigorous treatment”, explains partner Thiago Sombra, from the practice of Business Public Law. “Associating technology with experience will be the differential for companies that want to offer services for people to live better”.

5- InsurTech: new insurance for digital distribution

InsurTechs are technology companies operating in the insurance industry. Currently, there are three main trends mapped for this sector: the digitalization of the services, the platformization with an improvement in the experiences of end-users, and greater and more efficient use of personal data.
The regulation of insurance distribution by digital means is guided by four resolutions:

• SUSEP Circular No. 440/2012
• CNSP Resolution No. 294/2013
• CNSP Resolution 348/2017
• CNSP Resolution No. 349/2017.

“The first Circular, in 2012, deals with microinsurance and remote means. It only regulates the internet, the rest we have difficulties to fit. Resolutions nº 348 and 349, although dealing with products, mention the remote environment and the exemption of documents for digital hiring “explains partner Camila Calais, from the practice of Insurance, Reinsurance and Pensions.

During October, the Brazilian Private Insurance Authority (SUSEP) ran a public consultation to implement the “Regulatory Sandbox in the Insurance Market”, establishing a flexible regulatory environment for testing innovative products and services, to reduce costs and eliminate barriers to entry.
For lawyer Roberto Panucci, Susep’s initiative aims to help regulate InsurTechs in the market. Until January 2020, selected companies will be able to register innovative products or services regarding the technology presented or the form of technological application. The registered projects will be evaluated by a committee composed of members of the insurance market, SUSEP, CVM, and Central Bank of Brazil.
“There are still no small insured companies in this market, with lower revenues. We see this movement of the sandbox with good eyes since all the stakeholders involved will have to talk to reach a solution “, says Roberto.

6- Fintechs: new business models in the financial market

Fintechs are startups that work to innovate financial services from a technological platform. These companies look at structural market problems and propose innovative and technological solutions. Fintechs offer services in a more accessible way and focus on the customer experience.
In Brazil, there are currently more than 500 companies of this type operating. Most of them operate in the online payments and loans sector, but there are also important initiatives in the area of foreign exchange and capital markets.
The Brazilian market has enormous potential for the growth of these companies. “About 30% of the population does not have formal access to any banking service, such as a current account or credit, which makes people’s daily lives unfeasible”, comments partner Larissa Arruy, of Baking and Finance and Payment Methods.
“Among the unbanked adults, more than 60% have access to cell phones with internet. There is a gap between this population and traditional financial institutions, and it is in this sense that a favorable business environment is created “, says the partner.
Fintechs changed the business model of the financial sector, traditionally dominated by large financial institutions.  However, the law has not kept pace with the disruptive speed of these new businesses.
“What is the tax regime applicable to fintechs? Any change in the taxation model will have to pass through an initiative of Congress, which makes the process slower and more complex “, states partner Tatiana Penido, of the Tax practice area. “An environment of very great uncertainty is created”.
The Central Bank of Brazil (BC) and the Brazilian Securities and Exchange Commission (CVM) are the regulatory agents in this sector. For three years now, the BC has adopted a more transparent posture that seeks to encourage innovation and competition in the financial market, encouraging the entry of new players.
The Federal Revenue Service has a more reactive stance than other regulators. “Institutions must be assessed individually, related to the size and risk of the activity. At what point do we consider that a fintech has grown so much that it is inserted into a tax framework like a large bank? “, asks Tatiana.
Currently, the main regulatory discussions in the financial sector are:

• Open banking: exchange of information between financial companies, to offer more personalized services
• Fast payment: possibility to make payments at any time, every day of the week. The Central Bank of Brazil will create a platform that will enable these operations
• Cybersecurity: seeking a balance between information security and the transmission of this data between financial institutions
• Competitive discussions: new entrants challenge traditional practices, and Cade has been watching these movements closely to ensure healthy competition between institutions
• Regulatory sandbox: the Securities and Exchange Commission opened a public hearing to establish an experimental regulatory environment for innovative business in the capital market
• Foreign exchange market: the Central Bank of Brazil proposed a bill to institute a new, more modern, concise and legally secure legal framework for the foreign exchange and foreign capital market in Brazil and Brazilians abroad