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CADE’s General Superintendence recommends the condemnation of the Brazilian Post

Abusive litigation

The state-owned company is investigated for three anticompetitive conducts
by Assessoria de Comunicação Social published: Apr 27, 2017 02:35 PM last modified: Apr 27, 2017 02:35 PM

The General Superintendence of the Administrative Council of Economic Defense - CADE has recommended the condemnation of the Brazilian state-controlled postal company, Empresa Brasileira de Correios e Telégrafos – ECT, regarding anticompetitive conducts (Administrative Proceeding nº 08700.009588/2013-04). The recommendation has been published in the Federal Official Gazette on 25 April 2017.

The investigation has begun after a complaint from the trade union Sindicato das Empresas de Transportes de Carga de São Paulo e Região – Setcesp.

The trade union reported that the Brazilian Post would be practicing anticompetitive conducts in order to extend its legal monopoly of mail delivery. By means of unjustified and continuous judicial actions (practice known as sham litigation), the ECT would be excluding competitors.

According to the Setcesp, the ECT would have been practicing higher prices towards customers that were competitors. Clients that were not competitors would have been paying lower prices for the same product.  

CADE’s General Superintendence did not contest ECT’s legal monopoly. Nevertheless, it considered that the company was practicing some anticompetitive conducts, according to the Brazilian Competition Law.

 Abusive Litigation

The General Superintendence analyzed the results of more than 200 lawsuits regarding the company in which were discussed the extension of the postal monopoly. The Brazilian Post lost most of court cases related to services such as the issuance of tax, water and electricity bills.

According to the Superintendence, the ECT would have practiced sham litigation. The fact that the Brazilian Post has insisted on a high number of potentially baseless judicial actions and motions for preliminary injunctions would have increased the costs to customers and other companies that operate in the sector. This practice would have brought harmful competition consequences, such as the reduction of players in the market, imposition of entry barriers, higher prices, lower quality and rapidity in the provision of services, and reduction in the services offer.

In addition, the litigation strategy would not have been costly to ECT due to several factors inherent to the company – procedural privileges and a permanent legal office for its defense, for instance.

 Failure in services provision

The Brazilian Post won the majority of the judicial actions related to other products – such as magnetic cards, checkbooks and delivery. Bearing this in mind, the company has been managing to implement its legal monopoly related to these services. Nonetheless, the Superintendence verified that ECT is not providing some of these services as expected. Regarding magnetic cards and checkbooks, there is evidence that the company does not assure tracking and delivery control, deadline predictability and timing, inviolability, special modalities and home delivery in several locations within large Brazilian cities.    

The Superintendence also verified that ECT seems not to have any delivery service with expected and usual delivery deadlines. In addition, by law, ECT cannot provide several services included in its delivery offer, such as cash payment, collection of signatures and actuarial activities.  

According to the Superintendence, there is a contradiction between the cases that have been upheld in the Brazilian courts, which are related to products such as magnetic cards, checkbooks and delivery, and the fact that the company is not providing these services as expected.  The result of this practice would be a pure and illicit competition restriction – practice known as naked restraint. It means that the company would be hindering competitors from providing services not assured by ECT. The company would also be preventing consumers and customers from obtaining these services in the market.

Discrimination

The investigation also offered evidence of anticompetitive discrimination. The Brazilian Post’s network is the most spread in the country: it is present in all municipalities and financially supported by legal benefits and privileges, such as the legal monopoly of mail delivery. Consequently, the ECT’s network would constitute a necessary infrastructure for competitors that cannot afford such an extensive service coverage in order to operate. However, according to the investigation, there is evidence that the Brazilian Post hinders or impedes competitors to use its infrastructure. 

Regarding e-commerce deliveries and financial services, there is evidence that the company refuses to work with some competitors, providing its services only to non-competitors.

CADE’s Administrative Tribunal will now review the Administrative Proceeding in order to issue a final decision on the case. If ECT is condemned, it will have to pay a fine of up to 20% of its gross turnover in the prior year of the beginning of the proceeding.