International Spotlight: Price Gouging Restrictions in Brazil Converging with U.S. Enforcement
Companies that sell consumer products worldwide should note the growing convergence between Brazil and the United States for the use of anticompetitive practices laws to prosecute price gouging. The Brazilian Competition Law (Law No. 12,529/2011) prohibits a non-exhaustive list of anticompetitive practices, including engaging in acts that “arbitrarily increase profits.” Brazil’s antitrust authority, Conselho Administrativo de Defesa Econômica (“CADE”), however, has not traditionally investigated claims of price gouging as a standalone theory of harm, recognizing the difficulty of demonstrating that a price increase was “arbitrary” as opposed to a legitimate reaction to market developments. Instead, CADE typically has enforced the prohibition against price gouging as part of broader proceedings involving other anticompetitive practices.
Following the onset of the COVID-19 pandemic, CADE began taking steps to investigate price increases due to concerns about price gouging. This approach is significant to all businesses that sell products intended to reach consumers, and especially those businesses that manufacturer or sell products that have seen increased demand due to the virus.
On March 18, 2020, CADE initiated a preliminary investigation involving companies in the pharmaceutical and medical industries, targeting prices charged to customers for laboratory tests, alcohol-based hand sanitizers and surgical masks. The authority’s top investigator, Alexandre Cordeiro, indicated that CADE “did research” and “figured out that prices for some products have increased in a non-reasonable and disproportionate way in relation to the demand.” In response, and “[i]n view of the situation of high demand for medical-pharmaceutical products due to the need for emergency care motivated by the increase in cases related to COVID-19,” CADE announced that it would be investigating whether “companies in the health care sector may be increasing prices and profits arbitrarily and abusively,” making it necessary for CADE to take action “to ensure that such abuses, if effectively verified, are punished[.]”
As part of its investigation, the agency reports that it has contacted at least 80 hospitals, health insurance companies, pharmacy chains, and suppliers and manufacturers of surgical masks, hand sanitizers, and medicines used to treat COVID-19. In its effort to collect data and track price changes, CADE asked for their invoices dating from November 2019 through July 2020. CADE has also requested similar pricing information from certain regional Departments of Health, to assess pricing changes in the public sector. (Note that the preparatory proceedings are public and files can be accessed at this link).
The matter is ongoing, and the result may set an important precedent. If the authority ultimately decides to press charges of “arbitrarily increasing profits” against the companies under scrutiny, this action could signal a broader change in CADE’s stance on price gouging that companies operating in Brazil should take heed of.
Violations of the competition law may result in administrative and criminal penalties. For the investigation noted above, failure to comply with CADE’s requests constitutes a violation punishable by a daily fine of BRL 5,000 to 100,000 (approximately USD 1,000 to 20,000).
Importantly, private plaintiffs can also bring suit and seek damages as well as injunctive relief. If the plaintiff is a consumer, the Consumer Protection Code (Law No. 8,078/1990) also potentially may apply, which shifts the burden of proof to the business. In effect, once a plaintiff has stated the facts in support of their reasonable claim, defendants bear the burden of proving those facts are incorrect.
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This international spotlight series will unpack country-specific laws that may be of particular interest. Watch for additional overviews of price gouging restrictions applied in markets that are important to our readers.