Antitrust And Competition Law In Ecuador
Romero Arteta Ponce has extensive experience in carrying out preventive Due Diligence and our Law Firm has positioned itself as a leading in this field particularly on the application of the new legislation.
SUMMARY ANTITRUST LAW OF ECUADOR
Antitrust Law (the Organic Law for the Regulation and Control of Market Power, LORCPM as abbreviation in Spanish was published in the Official Register of Ecuador in August 2011
On October 13,2011, Ecuador enacted a law with nationwide jurisdiction, this legislation is an essential step towards regulating a highly concentrated market and it includes chapters for controlling the abuse of dominant positions, restrictive agreements and practices, unfair competition and control of concentrations.
The Superintendence for Control of Market Power has been designated as the authority that will regulate these issues and that will be in charge of the investigative, litigious and resolutory functions of the law.
With respect to abuse of dominant positions, the law includes a non-restrictive list of prohibitions. The increase of profit margins through unjustified extraction of consumer surplus is noteworthy, and is a much-debated economic concept that could lead to interpretations regarding justified margins for a market operator.
In general, the law restricts such conducts that impede, limit, falsify, or distort competition or that negatively affect economic efficiency or the general wellbeing, and limits exclusive distribution and resale price maintenance, among others.
REGULATION AND MARKET CONTROL LAW
Article 11. – Prohibited Agreements and Practices. – These are prohibited and shall be punished in accordance with the rules of this law: any agreement, decision or collective or concerted recommendation or consciously parallel practice, and generally all acts or conduct made by two or more economic operators, of whatever kind, related to the production and exchange of goods or services, the object or effect is or may be to prevent, restrict, falsify or distort competition or adversely affect economic efficiency or welfare in general.
In the area of Antitrust Law, the de minimis rule or agreement of minor importance is the one that affects competition in the market but only in a negligible manner or form, in other words NOT SENSITIVE, and therefore it is not applicable, searchable and sanctions pursuant Article 11 (Prohibited Agreements and Practices) of the LORCPM in accordance with Article 13 (Minimum Rule) and the Third Regulation for the implementation of the Organic Law for the Regulation and Control of Market Power.
Article 13 which talks about the de MINIMIS RULE, determines that the prohibitions established in Article 11 shall not apply to any economic operative factors in which the small scale of operation and / or its little significance, it is not able to significantly affect competition.
This rule has some very specific exceptions that have to do with:
- a) Those horizontal agreements to fix prices, limit production or sales and market sharing, and
- b) Vertical agreements of resale fix prices and territorial protection.
Although at first instance we must say that any player with a market share less than five (5%) percent would be exempted from the application of the law, we must take into account the provisions in the preceding paragraph, although independent from the market share, which may even be less than five (5%) percent if on the agreements there are market sharing deals of territorial protection, the exemption does NOT apply unless there is an economic unit or that the impact is really INSIGNIFICANT, but that must be determined by the authority.
ANTI-COMPETITIVE VERTICAL AGREEMENTS AND / OR CONTRACTS
- What are anti-competitive agreements?
Restrictive agreements between individuals or organizations purporting to limit competition in the competitive range of options by which they compete with each other (price, quantity, performance, commercial terms, etc…).
Usually, such agreements include restrictions on the type of competitive behavior that the parties plan to follow. For example, competitors may agree to charge higher prices than the market or restrict the production or marketing. Mainstream economic theory assumes that these agreements are intended generally to maximize profits at the expense of its participants to extract consumer benefit.
This Law establishes two clarifications regarding the prohibited “agreements”, namely:
- a) These are required to be entered among by a multitude of companies that otherwise would act independently of each other, and
- b) The legal form taken is irrelevant; the important thing is the fact that they behave on the market.
- The multiplicity of independent companies as a prerequisite to enter among into an agreement.
An agreement is forbidden if there are two or more companies which agree to carry out anti-competitive practices. In this manner, agreements between companies belonging to the same group, which is treated as an economic unit.
- The irrelevance of the legal form adopted: agreements, collective recommendations and concerted practices.
The contracts or agreements, written or oral, formal or informal, would be included in the prohibition. Moreover, this would include any agreement, whether or not it is intended to be legally binding. In this regard, national legislation considers that contracts or agreement includes “any agreement, whether or not in writing or is not intended to be legally enforceable.”
Generally, it is considered “agreement” from a substantive point of view all wills between companies that are at the root of the elimination of the independence of action among those who participate in it.
Thus, strictly, agreements between companies include contracts, and, in general, with legally binding agreements. This point is significant and extremely important, so we recommend that executives and managers analyze this point as well.
The competent authority may understand that there is an “agreement” regardless of the legal nature of the contract, it’s possible a legal name under national law, the form of the agreement, whether written or oral, express or implied, bilateral or multilateral, corporate type or not.
c.1 Agreements and / or collective recommendations (associations, chambers and partners)
One type of agreements that we should be very careful is the collective recommendations which are usually given in the form of decisions by associations or business chambers. These associations are composed of several independent entrepreneurs, who at the core of the association take collective decisions.
If a Company is part of any Business Association of Ecuador and in this sense should be established as the company policy, the form and participation of the association in order not to violate through this association the rules established in the LORCPM.
The decisions of these unions, business associations or chambers are the resolutions adopted by the governing bodies or legal associations, that is, by its members. This is, of decisions that affect or may affect the associated companies, or otherwise, without need for each to manifest their will in favor of a resolution. As mentioned, we have to know and be very careful as when and where we should be involved, but especially when it has to be part (vote) of the decision, it is essential that this participation, whether active or passive way by voting or running membership-it has clearly determined by the respective manuals and guides that should be implemented by the company in their participation in the various associations, chambers and / or unions.
- Types of anticompetitive agreements.
There are two categories of anticompetitive agreements.
- The first category of agreements is the one that seeks coordination or cooperation among rival firms. This category understands the agreements to fix prices, allocate markets between competitors to limit production, and to boycott a third party.
- The second category consists of agreements used to prevent the entry of a potential competitor to the market, or to force the currently existing one to exit the market.
d.1 Types of Anticompetitive Agreements:
- Direct or indirect fixing of purchase price, sales price or marketing conditions.
- Exclusive agreements to a certain brand(s) or product(s)
- Agreements to limit the production or distribution.
- Agreements of markets sharing or supply resources.
- Establishment of a resale price.
- Boycott a third party
- Tied contracts
The pricing agreements and market sharing are per se illegal, when its purpose and unique essential effects are of restricting competition. On the other hand, those pricing agreements and market sharing which are complementary to an integration or association which have been agreed and adopted to achieve greater efficiency of production activity in question must be analyzed case by case to determine their rationality. If these are considered unjustified, they must be declared as illegal.
Unfair competition was regulated previously and exclusively by the Intellectual Property Law, which led to discussions and to its limited application solely to cases relating to intellectual property.
The Law includes a detailed section on unfair practices, highlighting that disloyalty needs no awareness or willful dispositions nor the evidence of actual damages-including conducts carried out through advertising activities. Among other things, it regulates comparative advertising that cannot be proven, imitative actions, violation of corporate secrets and violation of rules such as abusive establishment or judicial and administrative proceedings. Unfair competition processes may be brought to the Ecuadorian Intellectual Property Institute if they do not affect the general interest, in which case the Institute must give notice to the Superintendence in order to determinate whether the conduct exclusively pertains to the intellectual property. Otherwise, and in all other cases, accusations must be filled with the Superintendence of Control of Market Power.