CADE ends exclusivity in tobacco points of sale

The Administrative Council for Economic Defense – Cade and Philip Morris Brazil Industry and Commerce Ltda signed last Wednesday (January 23rd), a Cease and Desist Agreement (“TCC” for its acronym in Portuguese) in which the company committed itself to end any kind of exclusivity clause for merchandising, product display, storage or sale in tobacco points of sale. The agreeement is valid for both: future contracts and for those signed previously by Philip Morris.

In order to dissuade the adoption of restrictive competition practices, the agreement also predicts for Philip Morris to pays a contribution in the amount of 250,000 BRL, that will be collected to the Brazilian Diffused Rights Fund (“FDD” for its acronym in Portuguese).

Alessandro Octaviani, Cade Commissioner in charge of the case, emphasized that in the cigarettes market, “the dispute for space may hold an aggressive competition that is not always lawful”. This is because due to the harm caused by tobacco, legitimately, the State acts to restrict the advertising and combat the use of tobacco products. For Octaviani, this institutional context requires an intervention of the antitrust authority. “We defend the free competition in all markets. In this one it could not be different”.

The TCC signed with Philip Morris ends an administrative proceeding that investigates an alleged violation to the economic order resulting from the imposition of exclusivity clause on merchandising and product display in tobacco points of sale. (Administrative Proceeding no. 08012.003921/2005-10).

In 2005, the Secretariat of Economic Law from the Ministry of Justice sent this investigation to CADE and suggested the condemnation of Philip Morris and Souza Cruz for understanding that the practices investigated could result in market foreclosure, elevation of trade barriers to market entry and reduction of interbrand competition. In July 2012, Souza Cruz also signed a TCC agreeing to stop practices that could restrict the access of competing companies in points of sale. The agreement provided the payment of 2,9 million BRL as a contribution to FDD.

During last Wednesday’s session, (January 23rd), Cade´s Tribunal approved a formal order to guarantee the following of the implementation of the agreemente signed with Souza Cruz. The document requests the Attorney General´s office to visit and question points of sales in Brazil. The goal is to verify if the company is performing all the agreed obligations.