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New Modernized Competition Law

September 30, 2009

Colombia’s Competition Law was updated in late July, after two years of consideration.  Law 1340 of 2009 (no English translation appears to exist yet, but the old law was translated and available through Globalex) updates the old competition laws, primarily Law 155 of 1959, Decree 1302 of 1962 and Decree 2153 of 1992.  Its main features are a central authority, national public notice of proposed combinations, statutory timeframes for the authority to consider proposed transactions, a presumption in favor of approval of transactions that concern less than 20% of a market, rule of reason analysis dependent upon the impact of a transaction on competition, presumptions in favor of transactions that increase or are not harmful to competition as shown by empirical evidence, and increased penalties matched with flexibility to reward whistleblowers and self-reporting.

Bogotá law firms have been prolific in drawing attention to the new Competition Law’s central features.  Posse Herrera & Ruiz distributed the analysis of the new law, prepared by partner Alvaro José Rodríguez, that is reproduced in full below. 

In addition, Brigard & Urrutia published a review of the law that has been reproduced on the World Services Group professional services network website. Their review focuses on these points:

  • Creation of a single antitrust authority – the Superintendent of Industry and Commerce or SIC.
  • Increase of fines on legal entities and individuals who violate the law, with reduction or elimination of fines for those who cooperate in investigations.
  • Threat of reversal of mergers. The SIC has the power to reverse a merger when: i) the SIC was not timely and fully notified or it was performed prior to obtaining the clearance; and ii) the companies involved do not comply with remedies imposed by the SIC.
  • Automatic authorization of the merger if the relevant firms have less than 20% of the relevant market
  • A detailed procedure that must be followed if the parties to the transaction hold more than 20% of the relevant markets

Prieto & Carrizosa published its report  (in Spanish only, currently), noting;

  • Among the most important issues is the establishment of the Superintendent of Industry and Commerce (SIC) as a national competition authority in the country, while the Superintendent of Public Service and the National Television Commission (NVIC) lose powers that previously had in this area. The law confirms, however, that the Superintendent of Finances and Aerocivil retain their powers over mergers and combinations in their respective sectors.
  • Additionally, fines for anticompetitive practices are substantially increased while there are “partnership benefits” to people who report anti-competitive practices, which may include full or partial exemption from fines that would normally be imposed for taking part in behavior.
  • It is important that companies review their approach to protocol, and trade practices. While a restrictive practice in the past, but could be worth “the risk” of an insignificant fine, now that risk is not consistent with the consequences of the sanction to be imposed and increased the chances that someone withdraws.
  • The new law establishes a procedure that lengthens the time frames that the SIC has to decide on applications for approval of these operations, and requires an order of publication in a national newspaper, which jeopardizes their privacy.

And, Cavelier Abogados published its review of the Competition Law in its Infolex legal bulletin.   They too focus on the “transfer of powers to the SIC… that ensures greater safety for investigations and an appropriate use of the state’s resources. Similarly, it eased the conditions under which interested parties and the general public can participate in this type of administrative actions when affected by behaviors that restrict competition.”

Comments are welcome here and readers should refer to these law firms for more information about this description.

The new Competition Law took effect when it was officially published, but the authorities that were formerly acting as competition authorities still retain their powers for six (6) months after the July publication.  From now on, the Superintendent of Industry and Commerce (SIC) will have exclusive authority to review mergers, acquisitions, consolidations, or integrations (“operations”).  

The SIC must annually determine the total amount of assets and operating income taken into account in order to define which operations are required to obtain prior approval from the SIC.  The SIC must object to those operations that tend to create undue restrictions over competition. Even where the assets and operating income threshold is exceeded, an operation representing less than 20% of the relevant market will be authorized, provided SIC is properly notified.  And, SIC may authorize combinations subject to conditions and the performance of certain obligations where it deems those conditions and obligations sufficient to protect competition.  The Competition Law prevents the SIC from blocking a combination or other object the operation where there is evidence such as studies using recognized methodologies demonstrating that positive effects of combinations upon consumer exceed negative effects, and that the benefits or efficiencies cannot be achieved by any other means.  Violations can result in fines on a graduated scale for entities of up to one hundred thousand legal minimum salaries (today COL$ 993,800,000 or approximately US$ 24,845,000) or up to a hundred and fifty per cent (150%) of the profit derived from the illegal conduct.

Also noteworthy – the Competition Law introduces the new concept of “value chain” (cadena de valor) and formalizes the obligation to report vertical integrations.

Procedures have been significantly modified, and the new procedure is of great  is expected prevent needless notification procedures and the costs and time they entail where the SIC finds that the integration will not produce undue restrictions on competition.  On the other hand, the law requires notice to the public of the proposed transaction where the SIC so requires it, which may cause delays and other complications where the notification process cannot start until the transaction has been made public. 

                                    TO:                  CLIENTS AND FRIENDS

                                    FROM:            POSSE HERRERA & RUIZ

 

                                    DATE:            

                                    REFERENCE:  LAW 1340 OF 2009- COMPETITION LAW

______________________________________________________________________

            1.         As a part of the legal services offered by our law firm, we have prepared this communication to present the innovations that in our concept the Law 1340 of 2009 (the Competition Law”) brings about. In particular, the Competition Law updates current antitrust legislation to the market conditions, by adequately following market users and by optimizing antitrust authorities´ legal and administrative tools.

            2.         Prior to the expedition of the Competition Law, antitrust matters in Colombia were mainly governed by the Law 155 of 1959, Decree 1302 of 1962 and Decree 2153 of 1992. With the issuance of the Competition Law our legislative framework has delved further into the topics of protection of competition, by regulating restrictive commercial practices — that is, foreclosure agreements and conducts and abuses of dominant position- and the regime of enterprise integrations, by unifying their procedures.

            3.         It is worth noting that, even though the Competition Law is in force from the day it was officially published, the authorities that were acting as competition authorities until the expedition of the Competition Law, will retain their powers in these matters for six (6) months after the issuance of the law. Nonetheless, (i) every preliminary investigation or complaint must be submitted to the Superintendence of Industry and Commerce (“SIC”) once the said term has expired, and (ii) the opinion of the SIC must be taken into account in every investigation or filing for integrations that is under study by any other competition authority.

            4.         RELEVANT ASPECTS OF THE COMPETITION LAW

4.1.       Scope of application of the Competition Law

            4.1.1     The Competition Law covers and applies to both natural and legal persons that conduct an economic activity or enterprise that has or may have effects in national markets, regardless of the sector of the economy.

4.2.       General aspects regarding Mergers and Acquisitions in the Competition Law

            4.2.1     The current antitrust legislative framework regulates mergers, acquisitions, consolidations or integrations (in general “operations”) by and between entities that have or may have restrictive effects on competition.

            4.2.2     The SIC is confirmed as the exclusive competition authority for the application of antitrust norms and the norms of fair and free competition.

            4.2.3     Modifying article 4 of Law 155 of 1959, the Competition Law empowers the SIC to annually determine the total amount of assets and operating income taken into account in order to define what operations are required to obtain prior approval from the SIC. In this regard the Competition Law prescribes that, even though the assets and operating income threshold is exceeded, an operation representing less than 20% of the relevant market will be authorized, but the participants are still required to notify it to the authority.

            4.2.4     The introduction of the concept of “value chain” (cadena de valor) is particularly noteworthy as it formalizes the obligation to report vertical integrations, which was a contentious matter prior to the enactment of the Competition Law.

            4.2.5     The exemption of the duty of prior notification for integrations between entities belonging to the same Company Group (Grupo Empresarial) is kept in the Competition Law. This exemption refers exclusively to Company Groups in the terms of article 28 of Law 222 of 1995, this is, a group of companies where, in addition to subordination, there is a unity of purpose and direction by the controlling or holding entity.

            4.2.6     The SIC must object to those integrations that tend to create undue restrictions over competition.

            4.2.7     The Competition Law entitles the SIC to revert an integration, merger, acquisition or the like that was not informed or was performed before the expiration of the period the SIC has, to study the corresponding operation. The above, only if the investigation allows the SIC to conclude that the operation either (i) imposes undue restrictions to the competition, or (ii) was objected or has not complied with the conditions under which it was authorized.

            4.2.8     The SIC may authorize an operation subject to conditions and the performance of certain obligations, whenever it considers that those conditions and obligations are enough to guarantee the protection of free competition. For these 3 purposes, the SIC is entitled to verify and supervise the compliance with the conditions and obligations. The violation of the conditions or obligations may cause the imposition of sanctions, and could even result in the reversion of the operation.

            4.2.9     If the participants in an operation show evidence, based on studies supported by methodologies of recognized technical value, that the positive effects of the operation upon consumers exceed the negative effects upon free competition, and that those benefits or efficiencies cannot be achieved by any other means, the SIC may not object the operation.

                        (a)        In that case, the operation may be conditioned and the SIC shall

            be able to request the guarantees it considers adequate.

                        (b) In addition, the SIC may issue instructions specifying the elements that must                be taken into account for the evaluation and assessment of the studies.

            4.2.10   Whenever the market conditions are such that effective and real competition is guaranteed, the SIC may refrain from objecting an operation, regardless of the percentage of participation in the market.

            4.2.11   The participants in operations that are or have been investigated or conditioned shall pay to the SIC an annual contribution that must be fixed by the authority by means of resolution, proportional to the value of total current assets.

4.3.       Regime of sanctions

            4.3.1     One relevant innovation of the Competition Law is the possibility for the SIC to impose sanctions to individuals. The Competition Law caps the amounts of fines and sanctions for entities in one hundred thousand legal minimum salaries (today COL$ 993,800,000 or approximately US$ 24,845,000) or up to a hundred and fifty per cent (150%) of the profit derived from the illegal conduct. For individuals, the amounts are capped in two thousand legal minimum salaries (today COL$ 49,690,000,000 or approximately US$ 496,900). In the same sense, the law includes criteria for the graduation of the fine, and determines circumstances for the aggravation or [reduction] of the sanction.

4.3.2     Persons related or involved with the offender may not pay or guarantee the fine or sanction imposed.

            4.3.3     The power of the SIC to impose a fine or sanction for the violation of the antitrust legal regime expires five (5) years after the commission of the violation, or after the commission of the last constitutive act of the violation in the case of continuing conducts, provided that the resolution imposing the fine or sanction has not been notified within that term.

4.4.       Special procedure for operations

            4.4.1     The participants will need to submit a pre-evaluation request that will have to be accompanied by a report of the operation and the basic conditions in which the same will be achieved, pursuant to the instruction that the SIC issues for those purposes.

            4.4.2     Within the next three (3) days, the SIC shall determine whether or not the operation has to be informed. In case it does have to be informed, the SIC shall demand the publication of a notice in a nation-wide newspaper, and there will be a ten-day period during which the public may supply information relevant to the assessment of the operation. Whenever the participants make evident that for public order reasons the information must not be published, the same shall remain secret. A key issue that will give rise to much discussion is what could be considered as a “public order reason”. In this point it is important to clarify that, in our concept, public order reasons refer to those circumstances that may materially affect relevant public interests, such as the economic order or the stock market, and do not include the simple interests of the concerning parties of keeping the transaction confidential.

            4.4.3     During the thirty (30) days following the presentation of the pre-evaluation

request, the SIC will determine whether or not it is appropriate to continue with the authorization procedure.

            4.4.4     If the procedure continues, the SIC shall communicate it to the corresponding authorities in charge of regulation and oversight of the participants, requesting the supply of necessary information within the next fifteen (15) days. These authorities may include the regulatory commissions for telecommunications, energy and gas or sewage, the Superintendence of Companies, and others.

            4.4.5     During that time, interested parties that may be harmed may request or propose actions in order to prevent or reduce the negative and anticompetitive effects of the restrictive conduct. In the same sense, whoever is investigated may have access to the information submitted by the public, in order to exercise its right to defend.

            4.4.6     If the SIC has not objected or conditioned the operation within the following three (3) months after the participants have submitted all the required information, the operation will be understood as authorized.

            4.4.7     The inactivity of the participants for more than two (2) months during any stage of the proceedings will be deemed as though they had desisted.

            4.4.8 In our view, this new procedure is of great significance as it is expected to allow preventing a needless notification procedure with the costs and time it entails, in the cases the SIC finds that the integration will not produce undue restrictions on competition. However, a matter for concern is the need to make public the proposed transaction. This may cause delays because it may be the case that the notification process cannot start until the transaction has been made public. Under the prior laws, the SIC maintained confidentially and therefore it was possible to begin the process sooner. It is to be expected that more transactions be cleared at the pre-evaluation stage. If so, the new law may result in a typically shorter clearance time for the majority of the transactions. However, transactions that move on to the formal evaluation stage will probably take longer to clear than under the current regime.

4.5.       Procedure of investigation of competition restrictive practices

            4.5.1     The Competition Law created a new scheme whereby offenders can obtain benefits within an investigation proceeding by rendering information, documents or any other evidence concerning other participants in the operation that presumably violates antitrust laws. The benefits can be obtained whenever the offender turning the information in is not the mastermind, leader or instigator of the conduct, and depending on the accuracy, efficacy and opportunity of the information and collaboration.

            4.5.2     If the person being impeached offers and grants suitable guarantees before the expiration of the term for requesting or supplying evidence, the investigation proceedings may be terminated in advance. The guarantees may be accepted by the SIC, in which case the same authority is entitled to monitor the compliance with the obligations. The breach of the said obligations will cause the imposition of sanctions by the SIC. Pursuant to the Competition Law it is the SIC who is entitled to regulate the conditions and forms in which the guarantees can be offered.

            4.5.3     Injunctive measures for the immediate suspension of anticompetitive conducts were limited to those cases in which it can be considered that not taking the measures may jeopardize the investigation or the decision arising thereof.

4.5.4     Any vices or irregularities arising out of or from the proceedings will be deemed sanitized if the impeached person does not allege them prior to the expiration of the term the SIC has, in order to communicate to the person the report considering whether and infraction exists or not. If the vices or irregularities come up after that period, they must be alleged during the term in which the participant can oppose to the decision that brings to an end the proceedings.

4.6.       State Intervention

            4.6.1     The mechanisms by which the State (National Government) may intervene in order to limit or restrict competition by and between persons exclusively refer to (i) price stabilization funds, (ii) para-fiscal funds for promotion of agriculture, (iii) the establishment of guarantee minimum prices, (iv) regulation of internal markets of agricultural products, (v) safeguards regime (régimen de salvaguardias), and (vi) the mechanisms foreseen in Law 101 of 1993 and Law 81 of 1998.

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