Source: Latin Lawyer
Posadas in Montevideo has helped FNC – the Uruguayan subsidiary of Brazilian beverage giant Ambev – in a landmark ruling where the country’s antitrust authority set out new criteria for the use of exclusivity agreements in the local beer market to avoid market monopolisation.
In a resolution published on 9 December, Uruguay’s Commission for the Promotion and Defence of Competition (COPRODEC) established new legitimacy criteria for exclusivity agreements entered into by beer manufacturer Fábricas Nacionales de Cerveza (FNC).
The ruling came after FNC formally requested for the antitrust commission to outline the criteria under which players with a dominant market presence can enter exclusivity agreements legitimately in the beer production sector – triggering a hearing into the matter, which commenced in 2023.
FNC’s request for the criteria follows a series of big-ticket sanctions that were imposed on the company by COPRODEC for executing exclusivity agreements to take advantage of its dominance in Uruguay’s beer market.
COPRODEC’S new resolution declared that the beer company can enter into exclusivity agreements so long as they cover only 8% or less of the producer’s points of sale at ‘on-premise’ sites – such as bars, restaurants and pubs. In the same COPRODEC also outlined within the new criteria that exclusivity agreements must only cover up to 20% of the volume of FNC’s beer sales at these outlets.
The ruling also concluded that any exclusivity agreements must be issued in writing and must have a maximum term of two years. Additionally, both parties involved in the contract must have the capacity to terminate the agreement with 60 days’ notice.
The criteria will apply to retailers in each of Uruguay’s 19 departments and in the cities of Punta del Este, Piriápolis, Atlántida, Ciudad de la Costa and La Paloma.
Posadas partner Fernando de Posadas describes last month’s resolution as a “significant milestone in Uruguay’s antitrust landscape, reflecting a significant shift in the authority’s approach.”
Exclusivity agreements restrict a company’s ability to negotiate with other parties for a specific period. In the retail and hospitality sectors, they are used to limit who is authorised to sell a product or where that product can be sold.
The ruling comes after FNC received a US$4.7 million fine in 2022 – which at the time, was the highest-ever to be issued by COPRODEC – after the antitrust authority found that the company had entered into over 6,000 exclusivity agreements with several retailers over the years.
Uruguay’s antitrust authority sanctioned FNC for abusing its dominance through such agreements, despite having imposed a US$1.7 million fine on the brewer for similar conduct in 2017. The fine was issued following a claim launched by Chilean drinks importer Compañía Cervecerías Unidas (CCU), which raised concerns that FNC was displaying anti-competitive behaviour through these agreements one year prior.
COPRODEC launched another investigation in 2019 after craft beer manufacturer Martín Russotto accused FNC of stopping local retailers from selling beers made by different brands. Martín Russotto eventually dropped its complaint after it reached a confidential agreement with FNC in June of that year, but COPRODEC pursued its investigation.
CCU returned for COPRODEC’s 2019 investigation providing over 40 separate examples of the company utilising exclusivity agreements since being ordered to stop. In October of that year, the antitrust authority ruled that FNC’s implementation of exclusivity agreements had stopped new companies from entering Uruguay’s beer market, whilst inhibiting the growth of rival companies and limiting the number of products available to consumers.
Following those findings, FNC was met with hefty sanctions – including the highest-ever fine it received in 2022 – prompting the brewer to request Uruguay’s antitrust authority to establish clear criteria on exclusivity agreement restrictions. That led to COPRODEC’s milestone resolution last month.
The recent ruling sets an important precedent for the use of exclusivity agreements in Uruguay’s food and beverage sector going forward, by establishing rules for the fairer employment of these partnerships.
Elaborating on the significance of the ruling, Fernando de Posadas says: “It is the first case to establish legitimation criteria for exclusivity agreements.“ He elaborates that: “Rather than indiscriminately repressing the actions of dominant players, it demonstrates a commitment to evaluating the potential pro-competitive effects of such agreements on a case-by-case basis within this market.”
In its request that led to the latest decision, FNC stated that these agreements are not inherently unlawful and noted that they can sometimes have a positive impact on market competition by encouraging investments in specific businesses, improving access to financing for internal investments and enabling the creation of new ventures within a market.
Counsel to Fábricas Nacionales de Cerveza (FNC)
In-house counsel – Mariano Sicardi and María Florencia Crespo
Posadas
Partners Fernando de Posadas and Diego Gamarra and associates Federico Samudio, Magdalena Cuñarro and Luciana López