Antitrust Litigation 2020

Last Updated September 17, 2020

Ecuador

Law and Practice

Author



Gottifredi & Pozo Law is a boutique law firm focused on free and fair competition matters, with wide experience in regulated markets such as banking and finance, telecommunications, distribution chains and retail. The team has successfully represented both claimants and defendants in complex damages claims, unfair competition claims, cartels and abuse of dominance cases in Ecuadorian and Andean community courts.

Ecuadorian Competition Law: its First Years

Ecuador approved its first antitrust statute in 2011 and, since then, most of the antitrust litigation has taken place before the Ecuadorian Competition Authority (Superintendency for the Control of Market Power - SCPM). This statute covers abuse-of-dominance practices, illegal and restrictive agreements, merger control, state aids and unfair competition practices. 

Before the passage of this statute, some competition-related dispositions were dispersed over several statutes, such as the Intellectual Property Law, Public Transportation Law and Special Law on Telecommunications. For a brief period of time, between 2008 and 2010, the Communitary Decision on Free Competition issued by the Andean Community Secretary was applied directly by the Sub-secretary of Competition of the Ministry of Production, until a proper legislation was passed.

After the approval of the Organic Law of Regulation and Control of Market Power (LORCPM) in October of 2011 and the issuing of its General Regulation of Appliance in 2012, the first administration of the SCPM (2011-2017) started multiple investigation proceedings and issued several fines; however, most of them have been reversed by the courts due to procedural violations, lack of motivation and problems with the definition of relevant markets.

Although some of them were highly publicised by the authorities at the time of publishing - for example, two fines imposed on CONECEL (Claro) for abuse of dominance related to exclusivity clauses on leasing of premises capable of housing antennas and one imposed on OTECEL (Movistar) for consumer-misleading advertising regarding 4G capabilities - they were reversed and nullified by Ecuadorian Courts.

For this reason, follow-on claims have not yet been presented.

The First Antitrust Decision by the Ecuadorian National Court and its Further Developments

The first decision on competition matters issued by the Ecuadorian National Court (formerly known as the Supreme Court) was issued in 2016, resolving a bid-rigging case in public procurement procedures for the provision of call-centre services to the Ecuadorian social security institute (RECAPT v SCPM). The Court rejected the interpretation of a “per se” prohibition and remanded the case to the SCPM to analyse the case under the rule of reason.

After a new investigation, in February of 2020, the SCPM ruled again, finding that the infraction existed and caused damages to the market, and issuing a new fine. It is expected that this case may be the first follow-on damages case in Ecuador, if the parties affected by the collusive agreements decide to initiate them.

The New SCPM: a Complete Shift of Focus

Considering that in Ecuadorian Law both free and fair competition regulations are covered by the same statute, between 2012 and 2017 the SCPM invested a vast amount of resources investigating cases related to unfair competition practices. During this period, 790 investigations were started, with unfair competition cases representing approximately 56% of the cases. Many of them were small cases with no real effect on the market or consumers.

However, under the new administration lead by the Superintendent, Dr Danilo Sylva, the SCPM has shifted its focus to cartels and abuse of dominance and has vested huge efforts on the technification of the Institution and recruitment of economic and legal experts for their team.

As part of these efforts, in May of 2020 the SCPM issued their first “Guidelines on unfair competition practices”, clarifying that unfair competition practices claims that imply no structural damage to the relevant market will not be investigated by the Competition Authority and should be presented directly to civil courts.

This will liberate resources of the SCPM in order to focus on cartels and abuse of dominance investigations. Furthermore, it will certainly cause an increase in direct claims initiated before civil courts.

Due to this change of focus, the new administration of the SCPM has initiated fewer investigations, but has vested its efforts on building stronger cases and building a stronger internal structure.

The SCPM has also focused on growing its cross-border capabilities and networking with its international peers. During 2020, the SCPM started a peer-review programme with the OECD and the IDB, and subscribed to co-operation agreements with other seasoned competition authorities of Latin America, such as INDECOPI (Perú) and SIC (Colombia). 

Fighting Corruption and Collusion

After the change of President in 2017, Ecuadorian authorities in general have focused on anti-corruption issues, especially related to public procurement and infrastructure projects with wide media coverage.

The SCPM is not the exception, as it has subscribed to several co-operation agreements with public procurement authorities and government agencies, especially with SERCOP, the public procurement regulator in Ecuador and with Public Prosecution of Ecuador (Fiscalía General del Estado).

This co-operation will invigorate SCPM capabilities and investigations of bid-rigging and excessive-pricing conducts in public procurement procedures. 

Also, during the COVID-19 pandemic, several collusion and excessive-pricing claims in public procurement have taken media attention, causing the initiation of ex officio probes and private-party denouncements across different authorities, including criminal investigations.

Bid-Rigging and Excessive Pricing in Times of COVID-19

Although there are no official pronouncements, it is known that pharmaceutical markets, drug distribution markets, sanitising product markets and others are being monitored. Some ex officio investigations have been initiated in relation to the provision of medicines and sanitising products to Public Health Institutions.

As mentioned in two press releases issued in March of 2020 in relation to the COVID-19 outbreak, the SCPM will not consider itself a price regulator, but will focus on investigating collusive behaviours.

The Ecuadorian Organic Law for the Control of Market Power (LORCPM) and its Regulation provide a basis for both standalone and follow-on damages actions.

Follow-on Actions

Follow-on actions are subject to a special derived-damages action, heard in summary procedure, pursuant to Article 71 of the LORCPM, which provides that infringers of free and fair competition regulations shall be liable for any loss caused, recognising the right of those harmed by them to obtain full compensation, including loss of profits, consequential damages and interests. 

Follow-on claims are subject to summary procedure, requiring the claimant to prove only the damage caused and the connection to the infraction already ruled by the competition authority. In these cases, judges may not rule on the existence of the infraction itself, and shall show deference for the decision made by the National Competition Agency.

Due to the reversal and nullification of the majority of the SCPM (2011-2017) decisions that imposed sanctions, and the fact that others are pending litigation in front of Administrative Courts, there is not yet a known case of follow-on action in Ecuador. 

Standalone Actions

However, standalone damages actions are subject to Civil Code provisions on damages, that may cover loss of profits, consequential damages, interests and moral damages.

Standalone claims can be brought in front of Civil Courts without the Ecuadorian Competition Authority having previously ruled on the existence of an infringement; however, the burden of proof is higher due to the absence of a presumptions or reversal of burden regime in civil matters.

A claimant will be required to prove the existence of the anti-competitive infraction and the damages caused by the conduct.

Standalone actions are subject to ordinary procedure. This gives defendants a broader variety of defences available and requires a higher burden of proof for plaintiffs.

There are no specialist courts on antitrust matters. All damages' claims, both standalone and follow-on, are to be heard by civil judges.

The competent civil court would be the one located where the defendant is domiciled.

In the case of a challenge to a decision of the Competition Authority, it must be presented before the Administrative Courts, whose decisions can be appealed on cassation before the National Court of Justice.

Decisions are Binding, but Take Time to Become Final

Pursuant to Article 71 of the LORCPM and Article 79 of its Regulation of Appliance, a final and binding decision issued by the Ecuadorian Competition Authority cannot be rebutted by the civil judge for the purposes of a damages claim. 

In consequence, in the case of follow-on actions, the existence of the infringement is proved with a certified copy of the resolution by the Ecuadorian Competition Authority and a judge may not give the facts a different interpretation.

However, before a decision becomes final, several years may pass. In practice, parties will normally appeal from a SCPM decision to the judiciary claiming that the decision could not be considered final. Until then, a follow-on claim could not be initiated.

Intervention of the SCPM in Damages Claims

There is no provision that requires the intervention of the Competition Authority in damages actions; however, it is not forbidden. To date, there is no record of the SCPM participating in any damages case as a third party.

In the Absence of Specific Rules on Antitrust Damages Claims, the Claimant Bears the Burden of Proof

As a general rule, claimants bear the burden of proof, according to the Civil Code rules on damages.

However, in the case of follow-on actions, claimants are not required to prove the existence and illegality of the infraction, pursuant to §71 of the LORCPM.

However, in the case of standalone actions, the existence of the infraction must be proved by claimants and has to be determined by the judge before addressing the existence of damages.

In both cases, facts can be proven by direct and indirect evidence, and can be inferred through presumptions in certain cases, where an uncertain fact can be assumed though the link with another certain one.

However, there is no directive on antitrust damages or similar instrument that provides for the reversion of the burden of proof or the presumption of damages as there is in other jurisdictions.

The burden of proof in civil actions is the balance of probabilities, in a similar way in which it applies in US and Spanish civil cases.

In relation to the estimation and valuation of the amount of damages, courts are allowed to make their own estimations on the amount of damages, especially in relation to moral damages, but expert witnesses' opinions may help inform judges' criteria.

Theoretically, damages' claims can be brought both by direct and indirect purchasers; however, proof can be burdensome and difficult in the case of the latter.

As there is no specific regulation or presumption that benefits the indirect purchaser or shifts the burden of proof in its favour, there is little incentive to bring actions by indirect purchasers.

This situation arises regarding both follow-on and standalone claims; in consequence, it is not yet known if a case of damages has been brought by an indirect purchaser.

Competition Cases Can Be Very Lengthy

The duration of the proceedings can vary significantly in the court handling the case. Civil cases brought before the courts of Quito and Guayaquil may face significant delays due to a backlog of previous cases, so a case may last more than two years. Cases in other main cities with a lower caseload may be solved in less than a year.

Considering that the administrative procedure before the SCPM may itself take up to two years, this makes competition cases in Ecuador very lengthy.

Due to the COVID-19 pandemic and the restrictions imposed because of it, significant delays are expected both in administrative and judicial procedures.

Suspensions of Proceedings and Litis Pendentia

Suspensions of proceedings are not possible in follow-on cases, unless the decision by the competition authority itself has been appealed. In that case, a party may claim that the decision is not final and firm, and may benefit from a litis pendentia exception to dismiss the claim.

In standalone cases, there is no provision that allows a suspension of proceedings; normally the civil action and the competition authority’s probe will advance in parallel.

Class actions are not available in Ecuador.

Class actions are not available in Ecuador.

There is no judicial oversight in any settlement procedure. However, an action of nullity can be presented if the settlement is based on false facts, or induced through violence or force.

Summary judgment is available only in the case of follow-on actions, mainly favouring the plaintiff.

Summary procedure is regulated by §332 and §333 of the General Procedures Code; it has shorter terms for filing defence memorials than an ordinary procedure and it is decided in a single hearing.

In the case of any civil damages claim, the competent court will be that of the defendant’s domicile. However, a claim can be dismissed if damages have not occurred or have been caused in Ecuador, directly or indirectly.

In the event that a defendant argues that the damages have not been caused or suffered in Ecuador, it can challenge jurisdiction as a preliminary exception that would be resolved in the preliminary hearing in the case of standalone actions, or in the first part of the single hearing, in the case of follow-on actions.

Also, there can be jurisdictional issues related to the investigation by the National Competition Authority itself and the Andean Community Secretary, who has jurisdiction over infractions that have cross-border effects among member countries.

According to a recent preliminary interpretation issued by the Andean Court of Justice issued in May of 2020, if a conduct has both local and cross-border effects, it can be judged both by the National Authority and by the Andean Community Secretary.

Section 71 of the LORCPM provides a five-year limitation period on follow-on actions, starting at the date when the decision on the infraction becomes final.

The statute of limitations for the SCPM starting an investigation procedure is four years, which will be counted as starting on the date that the infraction was known, or has ceased, in the case of continued infractions. 

Standalone actions are subject to a four-year limitation period, starting at the date of the occurrence of the infraction, under general civil law damages rules. In the case of continued conducts, this limitation period will start when the conduct ceased.

There is no specific rule for discovery or disclosure of documents in antitrust matters. According to general rules on documentary evidence, a party can request that a judge compel a third party to produce any documentation in that third party’s possession.

In the case of follow-on actions, some complex issues may arise in relation to the reproduction of documents declared confidential by the Ecuadorian Competition Authority, as some of it may become available if the infractor challenges the decision in administrative courts or, alternatively, may be restricted to being used as evidence of damages by a claimant.

An affected party may request to produce documents used as evidence in the previous administrative procedure on a separate procedure, but the direct admissibility of that procedure is not granted.

In recent years, in a widely publicised case regarding tissue paper, controversy was raised due to the usage of some documents presented by a leniency applicant to initiate a case in front of the Andean Community Secretary that led to the first fine ever imposed by the Andean Authority. However, an Ecuadorian Court ruled that the use of these documents broke confidentiality duties, leading to the suspension of the fines by the Andean Community Court of Justice. (See 5.3 Leniency Materials/Settlement Agreements.)

Litigation is expected to arise on these issues in the future.

The Ecuadorian Constitution grants the right of professional secrets and violation of an attorney-client secret may be prosecuted as a criminal infraction. However, courts may order the production of evidence containing confidential information, including in some cases privileged information.

Leniency materials and settlement agreements entered into with the SCPM are currently protected from disclosure. 

The regulation on leniency programmes was amended recently to rebuild confidence in them, after a polemical case regarding tissue paper where the documents revealed for a local leniency application were used as a basis for initiating a case before the Secretary General of the Andean Community.

The Andean Authority used this evidence in 2016 to impose its first-ever antitrust fine, a decision that has been challenged in front of the Andean Community Court of Justice. This decision was controversial as the competition authorities of Peru and Colombia requested its reversal, alleging that its upholding would destroy the efficacy of their leniency programmes, as applicants will not have confidence to disclose any information to national authorities if it could be used to initiate supra-national cases.

As a preventive measure, the Andean Court suspended the payment of the fine, until a final decision is taken by Ecuadorian courts regarding the legality of the revelation of the documentation.

At the end of 2018, an Ecuadorian court decided that the revelation of this information breached confidentiality duties, a decision that was confirmed in 17 May 2019 when the National Court of Justice rejected the cassation appeal filed by the SCPM.

Parties may request the testimony of any person who is aware of facts related to the matter of the trial and has a duty to appear at the trial hearings. Witnesses make their statements under oath and are subject to oral cross-examination.

Public officers such as the Superintendent of Market Power are not subject to being called as witnesses in trials regarding their functions; instead, they should submit a written sworn statement.

Expert witnesses are essential in every antitrust-related procedure. Usually, both claimants and defendants will offer expert testimony regarding market definitions and damages calculations.

As there is little experience by the judiciary on competition matters, courts rely heavily on experts. In practice, it is common to present both economic and legal experts as witnesses. Legal expert witnesses are used to inform the court on specific competition law concepts.

Experts shall be qualified by local judiciary authorities. Experts are required to appear at the trial hearings to present their reports and are subject to cross-examination; if they do not attend a hearing, they can be compelled to appear by the police and can lose their expert qualification by the judiciary authority.

In non-arbitration proceedings, courts may not require experts to produce joint statements in advance. Although it is not usual, courts may open a debate phase between experts during trial hearings to discuss conflicting opinions.

As a general rule, a defendant is liable only for the loss actually suffered, consequential damages, interests and moral damages.

Ecuadorian law does not include exemplary or punitive damages; antitrust damages are considered to be reparatory.

The passing-on defence is theoretically possible; however, the Ecuadorian National Court has not yet heard a case related to the passing-on defence.

Passing-on standing to sue is available expressly in some regulated sectors and other areas of law such as telecommunications and banking.

Interest shall be paid from the time the damage occurred until the time when the compensation is paid, with the exception of moral damages.

The principle of joint and several liability has been recognised by the Ecuadorian National Court in relation to civil damages in general, but the Court has not heard a specific antitrust case on the matter yet.

Considering the general provisions on damages included in the Civil Code and the General Procedures Code, the aggrieved party may elect to bring suit against all the infringers or against only one or some of them.

Also, a claim can be brought against parent corporations if they have exercised influence on the conduct of their subsidiaries.

In the case of follow-on actions, for parties that have benefited from leniency applications, there is no limitation on their liability or any immunity in relation to private damages' claims, as there is no exception included in any relevant statute.

Contribution proceedings are not regulated under Ecuadorian legislation. However, in the case of a damages claim, the plaintiff may include a plurality of parties as defendants, provided that they all have a causal link with the damages caused to the plaintiff.

Injunctive relief is available in Ecuadorian legislation, but its applicability in antitrust matters is limited. Articles 124 to 123 of the General Code of Procedures regulate preventive measures on all kinds of non-criminal trials, establishing requirements for measures such as prohibition to sell specific properties, prohibition to leave the country, among others, but give little room for conduct-specific injunctions that are common in other jurisdictions.

For intellectual-property related matters only, Article 133 of the General Code of Procedures gives the right to a greater variety of cease-and-desist injunctions.

In any case, the applicant shall prove (i) the existence of risk derived from the delay, and (ii) an appearance to be right on the merits.

However, in practice, constitutional preventive measures are used to reach some kind of injunction, if an affectation to a constitutional right can be proved.

Damages actions can be subject to arbitration, mediation and other alternative dispute resolution methods if parties agree on them, even if there was no previous contractual relation between them.

Also, a judge can submit the case for mediation during preliminary hearings, but parties cannot be compelled to reach a settlement.

Litigation funding is not forbidden or regulated in Ecuador.

As a general rule, the party who is fully defeated may be ordered to pay the costs of the counterparty; however, this is not common in practice, unless the judge has ruled about the existence of abuse of the law, reckless or bad-faith litigation.

There are referential cost guidelines on the Law of the Attorney’s federation, based on the amount at stake, but they are not usually applied.

Appeals are available for any party both before provincial courts and subsequently before the National Court (formerly, the Supreme Court).

Appeals before provincial courts are ordinary appeals where a new and comprehensive review of the case is granted.

Gottifredi & Pozo Law

Circunvalación Sur y Camino a Turi
Cardeca Business Center
of. 401-404
Ecuador

+593 7 2888815

+593 7 2888815

fpozo@gottifredipozo.com www.gottifredipozo.com
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Law and Practice

Author



Gottifredi & Pozo Law is a boutique law firm focused on free and fair competition matters, with wide experience in regulated markets such as banking and finance, telecommunications, distribution chains and retail. The team has successfully represented both claimants and defendants in complex damages claims, unfair competition claims, cartels and abuse of dominance cases in Ecuadorian and Andean community courts.

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