Since 2004, after Act No 19.911 of 2003 entered into force, the Chilean competition enforcement framework has been composed of three parts: (i) an investigatory bureau representing the general interest of the public (the National Economic Prosecutor’s Office or FNE, its Spanish acronym); (ii) a specialised court of law (the Chilean Competition Court or TDLC, its Spanish acronym) composed of five judges –three lawyers and two economists who are experts in competition and industrial organisation– that is in charge of hearing and deciding upon the antitrust actions and applications brought or submitted by the FNE or private claimants, and finally; (iii) a generalist high court of justice (the Third Chamber of the Supreme Court of Justice, “Supreme Court” or “Highest Court”) comprised of five justices which, for reasons of prudence and legality, was conceived as an instance of judicial review of the decisions passed by the TDLC –through a request akin to an appeal called “recurso de reclamación”.
This three-part system operated in a reasonably balanced way for over ten years, which explains the undeniable progress in competition policy and enforcement in Chile, with regard to both the detection and the punishment of violations of the competition rules – especially cartels. This was facilitated by the introduction in 2009 of stronger enforcement tools (such as dawn raids and a leniency regime) granted to the FNE in collusion cases, as well as by an acknowledgement of the importance that antitrust gained in Chilean society due to high-profile cases (such as pharmacies and poultry).
A clear example of this progress is the great development seen in recent times in competition compliance programmes, which signals that companies are increasingly aware of the importance of honouring fully the foundations of the free market economy in the conduction of their businesses.
For these compliance programmes to work – and it is decidedly desirable that they do so, as they are one of the fundamental pillars in the construction and strengthening of a pro-competitive culture – a minimum level of predictability or certainty is needed regarding the decisions taken by the judicial bodies in antitrust matters. Based on that certainty, undertakings – including attorneys advising companies – are guided as to which conducts and practices are deemed lawful, as opposed to those which are deemed unlawful on account of their ability to produce anti-competitive effects.
In this context, the role of the TDLC is seen as having major importance. The TDLC, as a technical court, composed of experts in law and economics with proven expertise in competition and industrial organisation theory and practice, is the body that was conceived to operate as the cornerstone of an efficient and predictable antitrust judicial system – with the notable exception of the ex ante control of concentrations (ie, mergers), as that central role was handed over to the FNE in 2017.
In this three-pronged system, for more than a decade – especially during the 2007-2017 period – the Supreme Court operated as a control mechanism for monitoring the legality of the TDLC’s decisions, displaying a highly deferential treatment of the expertise of the TDLC, using a standard of judicial review similar to the Anglo-Saxon doctrines of “clear error” or “abuse of discretion”. The consequence of this institutional deference was that only a few decisions of the TDLC were overturned by the Supreme Court.
The reasonable balance of roles noted above, however, has been altered in recent years.
In fact, as will be demonstrated further, with an emphasis on the 2018-2020 period, through a virtually uninterrupted sequence of overturning decisions, the Supreme Court has chosen to assume a leading role in the Chilean competition enforcement system. In doing so, it has shown a tendency to overrule the technical-economic and legal analyses of the TDLC and replace those analyses with its own. In other words, this phenomenon implies that the Supreme Court has abandoned its traditionally deferential review standard of the TDLC’s decisions to favour the adoption of a de novo approach to virtually all antitrust cases, with an openly diverging view from that of the TDLC in all areas of competition law (collusion, abuse of a dominant position, unfair competition, among others).
Brief summaries follow on the overturning decisions of the Supreme Court in some of the most emblematic cases from 2018 to July 2020.
(1) Claim Brought by Oscar Morales L. against Trefimet S.A. (Trefimet) for Acts of Unfair Competition in the “Thermic Lance” Industry for Mining (Supreme Court Decision Dated 8 June 2020, Docket No 26.525-2018)
In its original decision issued on 28 September 2018, the TDLC upheld the claim brought by Mr Morales, stating that Trefimet had engaged in acts of unfair competition. In particular, it was found that Trefimet had sent communications to a client that both parties had in common, in the context of an ongoing tender, stating that there were pending legal proceedings against Mr Morales for alleged violations of industrial property laws; proceedings which were actually commenced after the communications took place. All the foregoing was accompanied by a warning by Trefimet to take further legal action against anyone involved in the alleged unlawful actions of Mr Morales, which ultimately, for the TDLC, ended in an illegitimate diversion of the plaintiff’s customer base to the defendant. In a divided ruling (4-1) issued on 8 June 2020, the Supreme Court overturned the TDLC’s decision, altering historical stare decisis criteria on unfair competition. Specifically, it was held that the fact that Trefimet sent communications to the common client with the plaintiff could not be deemed as an unlawful act (recital twelve), firstly, because there are no legal or contractual provisions prohibiting, as a general rule, the issuance of communications between sellers and buyers, and secondly, because announcing the commencement of legal proceedings against a competitor or a client should be deemed as an attempt to reach a settlement prior to litigation (recital fourteen) –a conduct permitted by law.
(2) Claim Brought by the FNE against Cencosud S.A. (Cencosud) and Others (Supreme Court Decision Passed on 8 April 2020, Docket No 9361-2019)
On 28 February 2019, the TDLC upheld a claim brought by the FNE against three supermarket chains, Cencosud, Walmart Chile S.A. and SMU S.A. (SMU). It found that between 2008 and 2011 there was a “hub and spoke” agreement or concerted practice between them, implemented through common poultry suppliers, aimed at fixing the price of fresh chicken in an amount equal to or higher than its wholesale acquisition price. The most relevant aspect of the original decision issued by the TDLC is the fact that, for the first time, at a judicial level, the significance of the existence of competition compliance programmes was discussed, when imposing sanctions on companies that, despite having implemented such programmes, had participated, through its employees, in anti-competitive – and therefore illegal – conduct. Relying on international literature and case law as a point of reference, the TDLC concluded that the existence of a serious, credible, and effective compliance programme (recital eighty-two), that includes elements such as a senior and empowered compliance officer, an effective communication system, and disciplinary controls, among other factors (recital eighty), could exempt the firm that implements such a programme from antitrust liability (recital one hundred and seventy-six). In its decision dated 8 April 2020, in addition to increasing the fines set by the TDLC, the Supreme Court overturned the TDLC’s decision regarding the possibility of granting antitrust immunity to undertakings that implement serious, credible, and effective compliance programmes. Broadly, the Supreme Court reasoned on the grounds that any exemption from liability must be expressly provided for by law, which is not the case with regard to competition compliance programmes. The Supreme Court stated that the foregoing does not prevent, at least in theory, a compliance programme from being considered as a mitigating circumstance by the TDLC when calculating the sanction to be imposed on the offender, but always subject to the condition that, in addition to being comprehensive, real and serious, the compliance programme must be effective in preventing anti-competitive behaviour. In the view of the Supreme Court, the fact that in a particular case anti-competitive behaviour has taken place readily demonstrates that the compliance programme under analysis has not been effective, for which reason the defendant cannot avail itself of a mitigating circumstance on this basis (recital fifty-one) This, in practice, leaves little room, if any, for compliance programmes to be at least considered as a mitigating circumstance in favour of firms which have implemented such programmes.
(3) Consultation by Cruz Verde S.A. Concerning Merchant Discounts Applied by Transbank S.A. (Transbank) under a Self-Regulated Pricing Plan (PAR, its Spanish Acronym) Approved by the TDLC in 2005 (Supreme Court Decision Dated 27 December, 2019, Docket No 24.828-2019)
By the unanimity of its members (5-0), the Highest Court disagreed – again – with the TDLC with regard to the economic justifications that could allow Transbank – found to be dominant in the credit and debit card payments acquiring market – to charge merchants differentiated prices (merchant discounts). In its Decision No 53/2019, the TDLC had allowed Transbank to design a new PAR with prices that included certain discounts calculated by volume of transactions and average “ticket” amounts (or average spending). In the view of the Supreme Court, however, such differentiations (which are very common in all types of industries) do not have a clear, direct and exclusive justification based on the costs of providing the acquiring card-payment service by Transbank to merchants and, therefore, are anti-competitive and constitute a breach of the constitutional guarantee of equality before the law: “Such authorisation [to implement discounts, the Supreme Court reasoned] implied discrimination or differentiation that cannot but be regarded as arbitrary, because it is not based on economic efficiency, the free operation of competitors in the market or entrepreneurship freedom, but, on the contrary, it is based only on the relative size or importance of the merchant [Transbank’s customer] (…) the provision of the particular service (…), regardless of volume, must be provided based on an equal efficiency basis (…)” (recital nineteen).
(4) Consultation by Asociación Chilena de Empresas de Turismo A.G. on Joint Business Agreements (JBAs) between LATAM Airlines Group S.A. (LATAM), American Airlines Inc. Agencia en Chile(AA), Iberia Líneas Aéreas de España S.A., Operadora Sociedad Unipersonal (Iberia) and British Airways PLC (BA) (Supreme Court Decision Dated 23 May 2019, Docket No 31.502-2018)
(Since the JBAs occurred prior to the reform of 2016, they were reviewed by the TDLC and not the FNE.)
By the unanimity of its members, the Supreme Court partially overturned – only with regard to the transport of passengers – TDLC’s Decision No 54-2018, through which “metal neutral” JBAs had been approved, subject to the implementation of mitigation measures. These collaboration agreements between competitors were entered into between LATAM and AA for flights between South America and the United States and Canada, and between LATAM and Iberia and BA for flights between South America and Europe. The Supreme Court basically upheld the economic and technical analysis of the TDLC in relation to the risks and efficiencies arising from the JBAs, but disagreed on the adequacy of the mitigation measures ordered by the TDLC to neutralise the anti-competitive risks arising from those instruments (recital twenty-two). The Supreme Court went even further and analysed the possibility of imposing other potential mitigation measures – based on national and comparative experience – that were neither considered by the TDLC nor proposed by the parties. However, it arrived at the conclusion that such measures were also insufficient to mitigate the anti-competitive risks inherent to the JBAs (recital twenty-six). For this reason, the Highest Court quashed the decision of the TDLC, declaring that the JBAs – only with regard to the transport of passengers – were against antitrust law and, therefore, could not be approved under any circumstance. As a result of this decision, the parties abandoned the JBAs for Chile in its entirety (including cargo).
(5) Claim of Televisión Interactiva S.A. and Filmocentro Televisión S.A. (TVI) against VTR Comunicaciones SpA (VTR) (Supreme Court Decision Dated 15 May 2019, Docket No 8.313-2018)
In a divided decision (4-1), the Supreme Court overturned the TDLC’s Decision No 161/2018, that had denied the claim brought by TVI – the owner of a number of Chilean Pay-TV channels – against VTR, a multi-channel video programming distributor (MVPD) in Chile. The claim alleged an infringement by VTR of a mitigation measure imposed by the TDLC in 2004, as a condition for authorising the merger of VTR with another MVPD (Metrópolis Intercom S.A.). The infringement of this measure, according to TVI, occurred through the removal of its channels from VTR’s multi-channel offering. The TDLC rejected TVI’s claim after finding that, when the facts occurred (namely, between December 2015 and July 2016), VTR no longer held a dominant position in the relevant market of Pay-TV in Chile. The majority vote of the Supreme Court, however, found that VTR’s dominant position should be presumed while the allegedly infringed condition remained in effect (recital sixteen, majority vote) and that, in any case, the economic analysis conducted by the TDLC, whereby it concluded that VTR no longer held a dominant position in the Pay-TV market, was technically “erroneous” (recital eighteen, majority vote). Thus, the Highest Court stated that the removal of TVI’s channels was unjustified, ordering VTR to reinstate those channels in its multi-channel offering (recitals nineteen and twenty, majority vote).
(6) Claim Brought by Corporación Nacional de Consumidores y Usuarios de Chile A.G. (Conadecus, as per its Acronym in Spanish) against Cencosud (Supreme Court Decision Dated 24 February 2020, Docket No 44.266-2017)
By unanimous decision, the Highest Court quashed TDLC’s Decision No 159/2017, which had dismissed the claim brought by Conadecus against the supermarket chain Cencosud for the alleged violation of an asset divestment measure ordered by the TDLC in its Decision No 43/2012 as a condition for the approval of a merger between SMU and Supermercados del Sur S.A. (SMS). One of the most striking aspect of the Supreme Court’s decision was the finding that a mitigation measure imposed on one of the parties to a merger (in this case, SMU, as the purchaser of SMS), can be enforced against –and, therefore, potentially infringed by– a third party, external to the transaction (in this case, Cencosud), merely because the third party in question submitted information in the non-contentious procedure leading to Decision No 43/2012 (as Cencosud did). The TDLC, in its Decision No 159/2017, had found that the only party bound by the divestment obligation in question, which consisted of the order to dispose of certain assets to a purchaser who should not hold more than a 25% share in the Chilean supermarket industry, was SMU. The Supreme Court found, however, that despite SMU’s compliance and divestment of its assets, the fact that Cencosud (an undertaking with a market share greater than 25% at the nationwide supermarket industry) subsequently concluded a long-term lease over one of those assets with the new owner, meant that Cencosud had effectively breached Decision No 43/2012.
(7) Claim brought by the FNE against CMPC Tissue S.A. (CMPC) and SCA Chile S.A. (SCA) (Supreme Court Decision Dated 6 January 2020, Docket No 1.531-2018)
In a divided decision (4-1), the Supreme Court partially quashed the TDLC’s Decision No 160/2014. In the original ruling, the TDLC had granted the FNE’s claim against CMPC and SCA in what was referred to as the tissue collusion, including CMPC’s successful application for leniency, exempting it from any fine. Using the coercion exemption established in the Competition Act, SCA challenged CMPC’s application for leniency on the grounds that the company had been the ringleader of the cartel and had coerced SCA to participate in it (under the threat of a price war). This petition was dismissed by the TDLC. The TDLC considered that the standard required for the coercion claimed by SCA had not been met (which was defined on an extremely stringent level) and, likewise, the TDLC found that expanding the possibility of revoking the benefit associated with a successful application for leniency would discourage the use of this tool and, therefore, hinder the detection of cartels (recital one hundred and fifty-two, Decision No 160/2017). The Supreme Court overturned the TDLC’s decision, arguing that the existence of a “serious and credible warning of the cause of economic damage to the respective firm, especially if it is a threat of hampering such firm participation and even excluding it from the market, may constitute, by itself, a type of pressure that is to be classified as coercive, and which would justify, provided that it was sufficiently demonstrated together with the other legal requirements, that the organiser of the cartel could be deprived of the benefit of exemption from the pertinent fine” (recital twenty-two, by majority vote). Based on these conclusions, the Highest Court reversed the fine-exemption benefit that had been originally granted to CMPC and ordered the company to pay roughly USD16 million, the maximum fine applicable when the facts of this case occurred.
(8) Claim Brought by Conadecus against Entel PCS Telecomunicaciones S.A. (Entel), Telefónica Móviles Chile S.A. (Movistar) and Claro Chile S.A. (Claro) (Supreme Court Decision Dated 25 June 2018, Docket No 73.923-2019)
In a divided decision (3-2), the Supreme Court overturned the TDLC’s Decision No 154/2016, which had rejected Conadecus’s claim against the mobile network operators (MNOs) Entel, Movistar and Claro, for allegedly hoarding spectrum and participating in the spectrum block bid for the 700 MHz band in late 2013 (700 MHz Bid) in violation of the 60 MHz cap or maximum spectrum limit that could be assigned to each operator. According to Conadecus, this cap was established in a previous Supreme Court decision issued on 27 January 2009, in the context of the 3G Spectrum Bidding Contest. The claim argued that, based on that cap, the defendant MNOs were forbidden from participating in the 700 MHz Bid. In its Decision No 154/2016, the TDLC found that the 60 MHz cap set forth by the Highest Court in 2009 was not generally applicable, but rather limited only to the resolution of the 3G Spectrum Bidding Contest case; otherwise, the Supreme Court would have exerted a policymaking/regulatory authority beyond the scope of judicial litigation (recital seventy-one, Decision No 154/2016). Additionally, the TDLC found that Conadecus had failed to establish that the defendant MNOs had a dominant position in the Chilean mobile telecommunications market, and further found that the claimant was unable to demonstrate that the defendants had participated in the 700 MHz Bid with the intention of anti-competitively hoarding spectrum, or that they had compromised, at any moment, the efficient use of the spectrum under their possession. The Supreme Court, however, disagreed with all the above and ruled that, in this case, it would be necessary to assess the joint market power of the three defendant MNOs (recital thirteen, majority vote). The Highest Court also ruled that its decision in the 3G Spectrum Bidding Contest case was clear in establishing that the 60 MHz cap “(…) constituted a finding that went beyond the mere judicial review of the terms of the 3G Bid, but rather this measure determined the margin even for the future (…)” (recital fourteen, majority vote). It therefore found that, by participating in the 700 MHz Bid, Entel, Movistar and Claro disregarded the maximum spectrum limit per operator, sentencing them to divest an equivalent amount of the spectrum that each company had been awarded in the 700 MHz Bid, in excess of the aforementioned general and mandatory cap of 60 MHz.
In summary, these cases –where both the TDLC and the Supreme Court have assessed issues of great importance for the field of competition law– show the increasing intervention of the Supreme Court in technical and economic antitrust matters, for which there had historically been a deference to the findings of the TDLC. This excessive discrepancy in the way that the Competition Law should be applied has undoubtedly strained the levels of predictability and certainty that had led to a coherent and rigorous development of this field in Chile.
* Full disclosure: FerradaNehme intervened in the cases mentioned in Nos 2), 3), and 5), representing the interests of certain parties.