/ Antitrust Update – Chile7 May, 2020
Adverse effect on the up to now successful leniency programme in Chile as a result of a recent Supreme Court decision on a leniency application case and recent amendments to the Chilean consumer protection law providing for fines in consumer protection class action cases. Recent guidance from the Chilean antitrust authorities in relation to collaboration agreements in times of the COVID crisis.
1.- Leniency Programme Update
Chile’s leniency programme to combat cartels was established in 2009 by an amendment (Law 20.361) to the competition law statute and provides for exemptions from certain penalties for the first whistle-blower past the post and for a reduction of penalties in the case of the second whistle-blower. As with all leniency programmes, its goal is to unravel cartels by piercing the secrecy under which cartels typically operate. Normally cartels go to great lengths not to be detected.
The penalties from which the first whistle-blower past the post is EXEMPTED include:
- criminal liability for cartels, which liability had been reintroduced to the competition statute in 2016;
- the dissolution of the legal entity; and
- the fine provided for cartel conduct, which had been increased in 2016 from UTA 30,000 (approx. US$ 24 million) to up to 30% of the turnover or up to twice the economic benefit of the infringing conduct; or, if the turnover or economic benefit cannot be determined, the TDLC may impose a fine of up to UTA 60,000 (approx. US$ 48 million).
As to the penalties which may be reduced in the case of the second whistle-blower past the post, these are:
- a reduction of up to 50% of the fine;
- a reduction of the applicable prison term; and
- an exemption from the provision that imposes an effective prison term of at least one year with no right to probation.
However, the penalties from which there is no exemption are:
- the prohibition to contract with the government or to win government concessions for a term of up to 5 years, if such sanction is imposed in the court decision; and
- civil liability for damages.
This leniency programme structure, notwithstanding the above restrictions, has been seen by the antitrust authorities and industry practitioners as being successful in detecting cartels, but there are two recent developments that raise concerns as to the future of the programme.
The first one relates to a recent Supreme Court decision in the Tissue Cartel case. Under the antitrust statute the exemption for the first whistle-blower does not apply to those that are the cartel leaders that have forced competitors to join the cartel. The bad news is that the Supreme Court held in this case that such leniency benefits are not applicable to any leaders of cartels that hold a dominant position, regardless of whether they actually used force or not, given that such dominance would be sufficient to demonstrate that such leader would have the ability to force competitors to join.
The second worrying development refers to the recent amendment to Chile’s consumer protection statute (CPS). Indeed, under the newly amended CPS, fines for conduct that affects collective interests of consumers may be of up to 30% of the sales of the product or service during the period of the violation or double the economic benefit, with a cap of UTA 45,000 (approx. US$ 32 million).
As can be noted, the new fines contained in the CPS are very similar in size to those from which the whistle-blower under the competition statute may be exempt. However such exemption does not apply to fines under the CPS, even if the base conduct is the same. Furthermore, it is not unlikely that such fines may be imposed under the CPS to successful applicants to the cartel leniency programme. Indeed, in some of the most prominent cartel cases, i.e. the Pharmacy/Drugstore Cartel Case, the Chicken Cartel Case and the Tissue Cartel Case, the cartel members have had to face class action lawsuits filed by the Chilean consumer protection agency (SERNAC).
Thus, the likelihood that the fines under the CPS be imposed on a cartel leniency applicant introduces uncertainty and disincentives to cartel members that are considering applying for leniency. This means that Chile’s leniency programme has been somewhat weakened, which is not good news considering that without robust leniency programmes it is very difficult to effectively combat cartels.
2.- COVID crisis guidance from antitrust authorities.
The Chilean antitrust court (TDLC) has issued guidance in terms of the procedure to obtain clearance for collaboration agreements between competitors during the COVID crisis. Indeed, the TDLC has specified that it will not apply its standstill rule to applications for clearance in the present context. This means in practice that parties may move forward with their agreements notwithstanding the clearance proceedings may be pending. This is in fact very good news considering that the clearance procedure before the TDLC as provided in the competition statute is quite rigid in relation to minimum terms for interested parties to participate, which minimum terms typically lead clearance proceedings to last several months. A practical effect of this new guidance is that even if the agreement is found to be unlawful and the TDLC would order the conduct to cease, the actions in the interim under the agreement might be considered to benefit from immunity.
Furthermore, the antitrust prosecuting agency (FNE) issued a statement with respect to the legality of collaboration agreements during the COVID crisis. The FNE stated that in order to determine the lawfulness or unlawfulness of a collaboration agreement between competitors, a balancing exercise must be made of the effects, efficiencies and risks. If a collaboration agreement amongst competitors generates efficiencies, such efficiencies are greater than their anticompetitive risks, mechanisms are adopted to restrict as much as possible the interaction amongst competitors and there is no mechanism less harmful for competition to achieve the said efficiencies, which would mean that such agreement is necessary, then the collaboration agreement would be deemed lawful. Notwithstanding the general nature of the statement, this is nonetheless welcome guidance. Therefore, it is paramount that those wishing to enter into such agreements during the current COVID crisis analyse, assess and design such agreements with caution taking into account the above criteria laid out by the FNE.
If you need more information, please do not hesitate to contact our antitrust team.