Brace yourselves: Has Brazil just taken the most meaningful step towards regulating digital platforms?

4.12.2024

CeCo EE.UU

The context and scope of the Ministry of Finance’s Report

The emergence of digital markets has transformed the way companies conduct business, how they interact with customers and suppliers, and how competition among firms takes place. Hence, digital platforms have been at the center of the competition policy arena for many years. The international community has been debating how to enable society to benefit from the new services and innovations that digitalization provides while mitigating antitrust concerns related to digital platforms.

In particular, the hottest debate centers on whether traditional enforcement – merger control and ex post conduct investigations – is sufficient to address such concerns, or whether adopting ex ante regulation is required. While some jurisdictions have given little to no indication that they will be taking such type of regulation in near future, others have already implemented specific ex ante rules targeting digital markets, such as the Digital Markets Act («DMA») in Europe, the Digital Markets, Competition and Consumers Act («DMCC») in the United Kingdom, and the Section 19a of the Competition Act in Germany (Gesetz gegen Wettbewerbsbeschränkungen – «GWB»).

In a landmark development, Brazil has just shown that it is most likely joining this latter group of countries. On October 10, 2024, Brazil’s Ministry of Finance released a report presenting an in-depth study on the economic and competition aspects related to digital platforms, proposing a number of both legislative and regulatory measures to improve the effectiveness of the competition rules in Brazil concerning digital platforms (the «Report»).

The Report follows a comprehensive round of public consultations that concluded last May, during which the Ministry of Finance gathered 72 contributions from national and foreign institutions, including companies, associations, governmental bodies, and academia. Among the contributions, the most groundbreaking came from the Brazilian antitrust authority itself. It was the first time that the Conselho Administrativo de Defesa Econômica (“CADE”) publicly stated that the powers granted by the current legal framework and traditional antitrust tools are insufficient to address the challenges of digital markets, which require complementary ex ante rules.

Beyond solely focusing on competition policy, the Report emphasizes that the focus of its study on digital platforms is to increase the productivity of the Brazilian economy, a historical problem that dates way before the emergence of digital platforms (see, for instance, World Bank, «O Brasil do Futuro: Rumo à Produtividade, Inclusão e Sustentabilidade«). The Report argues that «recent evidence demonstrates that economic growth and productivity gains are directly related to the intensive use of digital technologies within the different sectors of the economy» (Report, p. 6) and that «taking advantage of the opportunities presented by digital platforms may play an essential role in solving the chronic problem of productivity» (Report, p. 20). Anyhow, the Report stresses that such beneficial outcomes will only be achieved if digital markets operate with fairness and competition, and that a deficient legal framework poses a direct obstacle to the country’s development.

On the brink of transformation: the Report’s proposals

After providing a comprehensive analysis of the characteristics of digital platforms, including of Brazil’s competitive landscape, the Ministry of Finance concludes that the traditional antitrust analysis struggles to identify and address the concerns arising from digital platforms in a proper and timely manner. In order to eliminate this normative and analytical bottleneck, the Report recommends the adoption of 12 specific measures to enhance competition policy in Brazil to better tackle the issues related to digital platforms. These measures are divided in two subsets, being (i) 7 proposals to amend Law No. 12,529/2011 (the Brazilian Competition Act) (Proposals No. 1 to 7); and (ii) 5 proposals that would not require statutory alterations (Proposals No. 8 to 12):

1. Establish a procedure for CADE to designate «systemically relevant digital platforms»: similar to concepts adopted by foreign jurisdictions, such as “gatekeepers” pursuant to the DMA.
2. Introduce procedural and transparency obligations that may be imposed on designated platforms, at CADE’s discretion. These obligations could include “prior notification of mergers and specific transparency obligations, including the duty to provide clear information about its services and products, as well as to communicate changes in the terms of use of the services offered” (Report, p. 111).
3. Establish a procedure for CADE to investigate designated platforms and define, on a case-by-case basis and to the extent necessary, specific substantive obligations for these companies: negative obligations could include “imitating the participation of competitors, restricting access to offers, favoring one’s own products, making the sale of one product conditional on the purchase of another, misusing commercial data, restricting access to relevant information and hindering the interoperability of products” (Report, p. 112). Positive obligations, on the other hand, would aim to facilitate the entry of new competitors, reduce barriers to entry and expand users’ choices. To this end, companies could be required to offer tools for data transfer, allow customization of settings, provide clear and accessible information, guarantee deadlines for adapting to new rules and establish effective mechanisms for dealing with complaints.
4. Creation of a specialized unit at CADE: this measure is arguably one of the most significant. In order to effectively regulate digital platforms, CADE needs to be better suited to investigate markets and to understand companies’ business models, improving its ability to design effective and proportionate remedies. Following the example of other jurisdictions, such as the Competition and Markets Authority («CMA») in the United Kingdom, it would be of the utmost importance for CADE to hire data scientists, engineers, economists, venture capitalists, among people with other backgrounds that understand how digital platforms operate and their incentives to perform certain types of investments (e.g., mergers) and conducts. The main difficulty of implementing this proposal is the additional budget required.
5. Implement substantive obligations in cooperation with regulators such as the Agency of Telecommunications («ANATEL») and National Data Protection Agency («ANPD»), when necessary to address specific technical and sectoral aspects: this proposal would make CADE the commander-in-chief in regulating digital platforms, placing other bodies, such as ANATEL, in a subsidiary role.
6. Strengthen CADE’s powers to carry out market studies: this is another interesting measure and that does not require additional expertise from the authority. CADE could follow the examples of the CMA and antitrust agencies in South Africa and Mexico, by conducting ex officio investigations without having to rely on complaints from third parties. However, the Report does not make it clear whether its proposal includes the possibility of CADE to impose obligations on gatekeepers as a result of studies initiated ex officio.
7. Create a forum for inter-institutional cooperation between CADE and other governmental bodies on issues related to digital markets.
8. Updating antitrust analysis tools to continuously improve the analytical framework used by CADE to identify and assess competitive risks, including new theories of harm: this proposal relates to the idea that antitrust analysis should not rely solely on traditional tools for defining relevant markets and assessing market power in the digital economy. In this sense, CADE should also consider the magnitude of network effects, the interaction between different sides of the platforms, how firms collect, process and use data, and the governance mechanisms adopted by platforms, to identify market power and theories of harm. The Report ponders that the analysis of such elements in CADE’s investigations is still «incipient».
9. Review CADE’s merger notification form, including specific questions about digital platform business models: to this author’s view, this is one of the most important proposals. CADE’s current filing form was designed for traditional brick-and-mortar industries and does not allow the authority to gather information that is relevant to better understanding mergers involving digital platforms. In addition to incorporating questions specific to digital markets, including their dynamics and competitive conditions (e.g., number of users; processed and collected data, and how such data is used by the merging parties to differentiate its products; whether there is interoperability between platforms), CADE should also pay closer attention to deeper understanding the rationale of the transaction. To this end, CADE should be able to request additional internal documents from merging parties to better understand their business models and the rationale behind pursuing that specific deal, as agencies in order jurisdictions commonly do, such as the United States Federal Trade Commission («FTC»).
10. Consider adopting the non-fast track procedure for all merger cases involving large digital platforms with a high number of users: another very interesting measure that would not require legislative changes. This would allow CADE to obtain access to more information from the very beginning of the investigation, as soon as the merger is filed before the authority.
11. Make use, when necessary, of the flexibility provided for in article 88, paragraph 7 of Law No. 12,529/2011, to request the submission of mergers that, although do not meet the formal notification criteria, may pose risks to competition.
12. Adjust the figures of the turnover criteria of Law No. 12,529/2011 for mandatory prior notification of mergers: this is a proposal that would be highly welcomed. The current turnover thresholds were set in 2012 and, thus, do not reflect the reality of Brazil’s current economy. As a result, the threshold sets a low bar for notification, requiring an excessive number of small, non-concerning deals to be notified to CADE. CADE has to dedicate a lot of valuable resources to examine these mergers when it should and could be focusing more resources on more complex mergers.

As one might expect, proposals belonging to the first group (Proposals No. 1 to 7) are more challenging to implement, given that they depend on Congress’ willingness to adopt them. Moreover, it is impossible to predict how long it would take for Congress to propose a bill that would contemplate such amendments, be approved in the Senate and in the House of Representatives, and receive the President of the Republic’s sanction. It is worth noting that the Report does not constitute a bill itself, nor does it suggest the wording of the provisions of a potential bill. Instead, the proposals focus on elements that could be included in possible new provisions of the Brazilian Competition Act. With respect to Proposals No. 8 to 12, their implementation is certainly easier, given that they depend exclusively on CADE’s efforts and do not require legislative reforms.

What to expect next

Although there is a bill being discussed in the Brazilian Congress regarding the regulation of digital platforms (Bill No. 2768/2022), the discussions surrounding such bill are stalled and its last development occurred in June, 2023, when a public hearing was held to invite experts to discuss the topic. Moreover, Bill No. 2768/2022 was criticized by a number of stakeholders, including CADE, which posited that the bill «lacks clarity on what it aims to achieve» and «addresses the obligations attributed to platforms considered essential access controllers in a very generic and open manner«, as well as from scholars (see «The Regulation of Competition in Brazil: Comments on the Digital Markets Law Bill (PL 2768/2022); and CeCo’s note on Victor Fernandes’ (CADE’s commissioner) presentation on ForoCompetencia)”. These factors show that such bill will hardly pass without going through major alterations.

The Report, on the other hand, is a clear sign that Brazil is taking meaningful steps towards regulating digital platforms in an ex ante manner. The proposals do not copy a specific type of regulation adopted abroad, but rather combine different elements from foreign models. For instance, the proposed path is to amend the current Competition Act (as it occurred in Germany), rather than enacting a whole new statute entirely devoted to digital platforms (as the DMA). The Report also emphasizes the importance of adopting infralegal measures and soft law, citing the examples of the United States, Japan and Singapore. With respect to the obligations that could be imposed on platforms, the Report’s proposals resemble the models adopted in the United Kingdom and Germany. Differently from the DMA, the Ministry of Finance suggests obligations to be defined individually for each company, after a case-by-case analysis involving a detailed examination of the company’s business model. The Report also opens the door for allowing companies to present defense arguments based on efficiencies or legitimate justifications for their conduct.

The Report is the result of a more comprehensive and detailed study, and most importantly, reflects the same views expressed by CADE in its contribution to the Ministry of Finance’s consultations. In addition, the Report seems to reinforce the position that CADE is the most adequate body to regulate digital platforms, rather than the ANATEL, as Bill No. 2768/2022 had suggested.

This shows that the Ministry and the competition authority are aligned on how the country should regulate digital platforms. One can expect that such alignment will likely boost the agenda towards ex ante regulation of digital platforms in Brazil. While legislative reforms take longer to implement and depend on Congress’ will, the Report’s endorsement of CADE’s perspective certainly encourages and legitimizes the authority’s ability to implement measures that depend solely on the competition authority itself in the near future.

The Report shows a maturation of the debate on the subject in Brazil. While Brazil seems to be studying and learning from the experience of other jurisdictions, it gives signs that is not overlooking the particularities of the Brazilian economy. Moreover, the Brazilian Government is being attentive to the objectives and the expected benefits of regulating digital platforms, notably ensuring free competition with the goal of increasing economic productivity.

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