Big Brush Ltd. (hypothetical company for this hypothetical case) acquires a trademark from one of its suppliers so it can expand its product portfolio. A few months later it receives a letter from the Colombian Antitrust Office (Superintendencia de Industria y Comercio) asking for explanations and threatening to fine Big Brush for not reporting this economic integration (“integración económica”).
This hypothetical example illustrates how average businessmen only associate economic integrations with mergers and acquisitions. The fact is, the scope of economic integrations is much broader, and failure to report can imply serious financial liability.
Below we highlight some of the basic elements and references to applicable law concerning the duty to report economic integrations.
The duty to inform
The duty to previously inform operations involving economic integrations is established in Article 4 of Law 155 (1959). By constitutional delegation, the government must prevent restrictive trade practices and the abuse of dominant positions in the market.[1]
Integrations
Regarding vertical or horizontal integrations and under Article 4 of Law 155, the Colombian Antitrust Office has indicated that the operations that must be informed are the ones of a vertical type. “The norm presupposes that the actors are participating in the activities of production, supply, distribution or consumption of determined goods, raw materials, products, merchandises, or services within the same market, meaning that it is not necessary for the companies involved to be in the same production, supply, distribution or level of consumption, but rather they must belong to the same market.” [2]
Additionally, even though Article 4 makes reference to “mergers, consolidations, integrations or acquisitions enabling control”, the Colombian Antitrust Office has interpreted Article 4 in the broadest sense in order to conclude that the legal mechanism of the operation is irrelevant if the essence of an economic integration is met.[3]
Although there is no statutory definition, the Colombian Antitrust Office has interpreted integration to mean:
“Integration: Alliance or union between two or more companies in order to form a single one through the creation or implementation of operational plans, and the design and execution of common policies regarding financial, administrative, technical, commercial, and operative aspects, and in general any case of business decisions that influence the development of present and future activities concerning the company resulting from the integration, that has the objective to create a larger company, which can expand its activities and project itself in better conditions in order to compete internally as well as externally.”[4]
As to “consolidation”, the Colombian Antitrust Office has held:
“Consolidation: The sequential process in which a company, that already had participation in another one, acquires the control of the second one through net asset transference.” [5]
Finally, referring to “acquisitions enabling control”, the Colombian Antitrust Office’s doctrine has indicated that control over a company exists “when more than 50% of a company’s ordinary stock with the right to vote are held, when the investor has a large amount of stock with the right to vote that is less than 50%, but where the remaining stock in its majority is owned by small investors through entwined boards, through ownership between companies or businesses dedicated to different economic activities and industries that are not related, which are created through mergers and acquisitions and/or investments inside a large range of industries.” [6]
“Authorization” and information regimens required by External Circular No. 10
The Colombian Antitrust Office issued guidelines that establish two distinct authorization regimes for integrations. The first is a “general authorization” regime, the second an “individual information” regime. The “general authorization” regime is applied to companies that have a very small size and very low participation in market. Since it is likely that they will not incur in restrictive trade practices or the abuse of dominant positions in the market, there is no duty to inform.
Individual information regime
Operations not included within the “general authorization” regime, must be informed in accordance to the pertinent dispositions, and must be presented to the Office with the following documents. 1. A description of the operation. 2. Identification of the market regarding:
- The product.
- Consumers.
- Competitors.
- Zone.
- 3. Suppliers and distribution channels.
The Office may require additional information.
Sanctions:
Failure to comply with the duty to inform generates the possibility for the Director of the Colombian Antitrust Office to impose fines. Nevertheless, the imposition of fines will not relieve one of the duty to inform the operation. Finally, the time that the Office has to investigate and impose sanctions is three years from the date of the integration. [7]
