Antitrust: sanction overruled by the Court of Appeals

On May 30, 2008, the Federal Court of Appeals for the city of Posadas, Province of Misiones (the “Federal Court of Appeals”) revoked a sanction imposed on October 23, 2006 by the Secretary of Domestic Trade and the National Commission for Defense of Competition (the “Antitrust Commission”) to two natural gas supplier companies that were accused of an alleged cartel by which they distributed markets.

The proceedings were originated by a claim filed by one distributor of natural gas in the city of Posadas. The Antitrust Commission decided that there was an illegal conduct that harmed competition that was specifically contained in Section 2(c) of the Antitrust Law No 25,156 (the “Antitrust Law”). This rule prohibits the distribution of zones, markets, customers or supplying sources. According to the Commission, market distribution is one of the most common collusive agreements and the consequence is the increase of the benefits by the participants of the collusive agreement. The effect, on the other side, is the reduction of the goods being sold and the increase of the prices.

Although the Antitrust Law specifically states that antitrust conducts are not illegal per se, as the harm to the general economic interest must be evidenced, in this case, the Antitrust Commission did not apply a rule or reason and interpreted that the conduct was prejudicial to competition and was directly sanctioned. According to the Antitrust Commission, the practice in this case was considered as a “hardcore cartel” which consisted in a particularly serious and anticompetitive collusive agreement.

The Federal Court of Appeals decided that the procedure for deciding the sanction was not duly performed and also sustained that the Antitrust Commission did not follow a real competitive analysis in order to evaluate whether an illegal conduct was committed. It first stated that the Antitrust Commission did not specify the relevant market in which the participants offered their products and therefore it failed to analyze the real competitive effect of the conduct.

Additionally, it pointed out that the evidence gathered by the Antitrust Commission was not sufficient to decide the imposition of a sanction. It further mentioned that the testimonies that were taken during the evidence stage were not completely analyzed and only the parts that were in favor of an illegal conduct were used. The Federal Court of Appeals specifically stated that the evidence must be evaluated in its totality and cannot be analyzed in a particular form leaving parts of it aside.

The lack of general analysis of the testimonies, according to the Federal Court of Appeals, showed that there was insufficient evidence to demonstrate the existence of a collusive agreement that may have harmed competition.

Based on the misuse of the evidence by the Antitrust Commission, the Federal Court of Appeals decided that it was not necessary to review the possible and potential harm to the general economic interest and overruled the decision taken by the Antitrust Commission.

This decision is very important as it clearly shows the Antitrust Commission that when it decides to impose a sanction it must perform complete full research, it must analyze all available evidence, not just the part of the evidence that is convenient for its intentions. Additionally, the Court of Appeals stated that the decision did not show a competition analysis of the relevant market and therefore from now on, the Antitrust Commission will have to base their decisions on a market analysis and its characteristics in order to continue analyzing any potential anticompetitive conduct.

It is expected that this case will reach the Argentine Supreme Court but, as the case was dismissed due to poor review of the evidence, there are many chances that the Supreme Court will not accept the analysis of the case and therefore the decision of the Federal Court of Appeals will be confirmed.