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CADE condemns shopping malls for imposing radius clauses in contracts

Condemnation

The practices were conducted by companies in the city of Porto Alegre, in the state of Rio Grande do Sul
published: Sep 06, 2016 04:29 PM last modified: Sep 06, 2016 04:29 PM

The Tribunal of the Administrative Council for Economic Defense – CADE condemned, in the judgement session of 31 August 2016, the shopping malls: Iguatemi, Rua da Praia, Praia de Belas, Moinhos Shopping, Shopping Bourbon Country, Shopping Bourbon Assis Brasil and Shopping Bourbon Ipiranga for imposing distance-restriction clauses in contracts with retailers in Porto Alegre,. The imposed fines total more than BRL 15 million.

The radius clause is a contractual instrument that compels the tenant of a commercial spot in a shopping mall not to offer the same activities, products in other stores within a predetermined distance. Although this type of  provision is not considered illegal in all contracts, it has the potential to cause anticompetitive effects, depending on how the conditions are established.

In a vote  pronounced at  the judgment session of 22 June 2016, the Reporting Commissioner of the case, Márcio de Oliveira Júnior, stated that the radius clauses imposed in the analyzed contracts had the potential to close the market, both unilaterally and  indefinitely, in an area equivalent the entire city of Porto Alegre. In addition, the lease agreement with the tenants, especially the smaller ones, was based in a contract model offered by the lessor, which imposed restrictions, foreseeing sanctions for the tenant in case of noncompliance, without an effective negotiation of terms between the parties.

Therefore, Mr. Oliveira Júnior understood that the radius clauses were anticompetitive and voted for the condemnation of the shopping malls, establishing that they remove the clauses from contracts with the retailers. In the same session, Commissioner João Paulo de Resende  requested to review the  proceeding and the judgment of the case was suspended.

In the judgement session of August 31, Resende rendered his vote in which he concluded that such clauses had the potential to harm competition. He voted for the condemnation of the shopping malls, following the legal provision adopted by the Reporting Commissioner but partially diverging from his legal reasoning.

Commissioners Paulo Burnier, Alexandre Cordeiro and Gilvandro Araújo voted in accordance with the Reporting Commissioner´s vote. Commissioner Cristiane Alkmin Junqueira followed the legal provision adopted by the Reporting Commissioner, but diverged on the methodology of the analysis.