Superintendency Rules on Television Cartel Practices - International Law Office

Facts
Decision
Comment

The Pro-competition Superintendency has recently ruled on cartel practices by the two major Venezuelan television broadcasting companies.

Facts

On November 14 2003 Corporación Televen CA filed suit against the two major Venezuelan television broadcasting companies, Corporación Venezolana de Televisión (Venevisión) and RCTV CA, alleging violation of six articles of the Law for the Promotion and Protection of Free Competition, including Articles 6 and 10(1) and (3), which refer to exclusionary practices, price fixing and market division.

Televen alleged that:

• Venevisión and RCTV had implemented a cartel that operated through the annual pre-sale of commercial advertising space. They devised a joint negotiation scheme to grant discounts to advertising agencies, subject to certain conditions, including a demand that their customers not enter into contracts with Televen for advertising space;
  
  
• a company named Sercotel had been used by Venevisión and RCTV as the location where they planned the programming guidelines and the division of the advertising market for the pre and post-sale periods, with the aim of maintaining and increasing their ratings. Sercotel also allowed Venevisión and RCTV to impose control mechanisms on cartel members by fining participants that performed a higher number of transmissions than that supported by the contracts sent to Sercotel for follow-up purposes; and
  
  
• Venevisión and RCTV abused their dominant positions in the market and engaged in exclusionary and unfair competition practices to the detriment of the other participants in that market.

Televen also claimed, regarding proof of the cartel, that it was not necessary to produce evidence such as a signed agreement or the recording of a meeting among its members in order to demonstrate that the two companies agreed anti-competitive practices. Televen stated that all that was required was that the elements of the practice, when evaluated as a whole, directly or indirectly reveal the existence of the concerted practice.

Venevisión argued that:

• traditionally, in the television broadcasting market, advertising spaces are subject to commercialization before the year they are transmitted through pre-sale processes, which allow advertisers to negotiate parts of the strategies they devise at a lower cost because they are purchased at preferential prices, as broadcasting stations need to attract the highest possible number of transactions in that period;
  
  
• although the general commercialization conditions in the pre-sale processes are very similar in the domestic and international industry, Venevisión unilaterally decided the margins of negotiation, incentives, rates and rate increases, which would be offered to its clients taking into account various economic factors. All this information was compared with similar data available with respect to the competitors;
  
  
• it had not tried to impede the access or permanence of Televen in the market. Instead, Televen had conducted unfair competition practices against Venevisión through a media campaign designed to attract customers;
  
  
• Sercotel was a company with its own administrative and operations personnel to whom Venevisión entrusted the collection of invoices for investments made by advertisers. Sercotel was not used by Venevisión and RCTV to perform conduct cartel practices;
  
  
• Televen's denunciation was a clear case of an attempt to manipulate the regulator in order to try to obtain strategic commercial information to penalize its competitors for their success achieved through competitive and effective strategies in the television broadcasting industry; and
  
  
• there was insufficient evidence to prove any of the infractions alleged by Televen against Venevisión.

RCTV claimed that:

• it had not entered into any agreements or performed any concerted practices to fix rates or commercialization conditions during the pre-sale of advertising space, nor had it agreed to divide the market with anyone. It had not carried out any exclusionary practices or boycott activities against Televen;
  
  
• its right to a defence had been violated in several ways, such as by an inspection carried out at Sercotel through questionnaires sent to RCTV by the superintendency and during the evidence-taking phase; and
  
  
• the superintendency was not authorized to investigate alleged restrictive practices supposedly committed in the pre-sales of 1992 to 2002, because this was barred by the statute of limitations.

Decision

The superintendency found that Sercotel had been incorporated by Venevisión and RCTV in 1973, and that it was not only a company engaged in collection activities, but also the channel through which both television stations had exchanged strategic confidential information since then. There was clear evidence of concerted conduct between the two broadcasters in the sale of advertising space in open television, reflected, for instance, in the amounts of space contracted by a group of advertisers in the 2002 and 2003 pre-sale campaigns, which were identical for both television stations. A conscious parallelism existed in the acts performed by both companies in their design, calculation and planning of the commercialization strategies for advertising space, which was ultimately shown in the contracts executed with advertisers.

The superintendency looks at three issues when evaluating whether economic agents have performed concerted practices or operated cartels as prohibited by Article 10 of the Pro-competition Law:

• whether the performance of such practices is attributable to competitors;
  
  
• whether the conduct is the outcome of their concerted will which results in a joint action; and
  
  
• whether the conduct falls within the categories or descriptions contained in Article 10 of the law.

The superintendency reiterated the three concurrent conditions that must be met to declare the existence of exclusionary practices prohibited by Article 6 of the Pro-competition Law:

• the ability of the parties in question to affect the relevant market;
  
  
• the occurrence of a practice that impedes the presence of an economic agent in the relevant market; and
  
  
• the absence of any economic justification for the exclusionary practice.

The analysis of the facts and the pertinent legislation led the superintendency to conclude the following:

• The television broadcasting market in Venezuela is concentrated. Between them, RCTV and Venevisión enjoy approximately 70% of the market. Therefore, they have sufficient power to affect the market jointly;
  
  
• There was no explanation for the companies' strategy of offering preferential conditions to advertisers in order to attract their investment other than the intent to restrict the effective participation of other television stations in the commercialization of advertising space, thus creating artificial barriers to the entry or permanence of competitors in that market;
  
  
• Neither RCTV nor Venevisión alleged the possible efficiencies of their conduct and there was no economic justification for the conduct; and
  
  
• Venevisión and RCTV are economic agents that act as competitors in the production, commercialization and sale of advertising spaces in open television, and the conduct denounced by Televen fell under Articles 10(1) and (3) of the law relating to price fixing and market division.

On February 24 2005 the superintendency ruled that the activities of Venevisión and RCTV restricted free competition in the manner set out in Articles 6 and 10(1) and (3) of the Pro-competition Law. It imposed fines of approximately $10 million on each company. It also ordered that:

• they cease the restrictive practices;
  
  
• Sercotel be wound up immediately;
  
  
• each company carry out its collection procedures independently and individually;
  
  
• all future and new materials or commercial structures related to the purchase of advertising space to be offered to advertisers be presented by each company to the superintendency; and
  
  
• a detailed report be filed by these companies after concluding each negotiation process for the sale of advertising space in open television.

On April 12 2005 RCTV appealed the superintendency's decision before the Court of Contentious Administrative Matters, and Venevisión asked the court to attach its docket to the appeal. The First Court of Contentious Administrative Matters admitted the appeal and request on May 11 2005 and ordered the partial suspension of the superintendency's decision pending an appeal decision. The appeal process is still ongoing.

Comment

Although the superintendency has recently been subject to criticism, in the past it has consistently applied its criterion that conduct prohibited by Article 6 of the law (exclusionary practices) must be analyzed according to the rule of reason, whereas activities which violate Article 10 of the law (horizontal restraints) must be evaluated under the per se rule. To justify its position, the superintendency recently stated that this criterion does not mean that it will enforce a strict antitrust policy with respect to all horizontal agreements, or that it seeks to categorize all agreements between competitors as restrictive of free competition. The criterion followed is that horizontal agreements targeted by Article 10 of the law are what are known in the United States as 'naked agreements', and that there are other provisions in the law which deal with horizontal agreements as well.

For further information on this topic please contact Olga Nass de Massiani or Isabel Victoria Márquez at Travieso Evans Arria Rengel & Paz by telephone (+58 212 277 3333) or by fax (+58 212 277 3334) or by email (onm@traviesoevans.com or ivm@traviesoevans.com).