Johan Anzora
I- Economic concentrations in Costa Rica
As part of competition law (Antitrust), any transaction or business through which two or more independent companies formalize an agreement that unites them or when one company acquires another is usually referred to as an “economic concentration.”
This agreement can take different forms, such as a share purchase agreement, a quota transfer agreement, a merger of companies, the sale of a commercial establishment, or a strategic alliance, among others.
In Costa Rica, the issue of concentrations is regulated by Law No. 9736, “Law on the Strengthening of the Competition Authorities of Costa Rica” (LFAC).
II- What economic concentrations are reported to COPROCOM?
There are some economic concentrations that, in view of certain factors identified by the legislator, could affect free competition in the Costa Rican market in one way or another. For this reason, the LFAC regulates the merger control process, which begins with a notification to the Commission for the Promotion of Competition (COPROCOM) so that it can study the transaction and determine whether there are risks or dangers to competition.
There are two criteria for determining whether there is a duty to notify: one territorial and one economic. These criteria must be met concurrently and simultaneously. If only one of them is present, but not the other, the transaction or business does not have to be notified.
The first criterion is the impact on Costa Rica. For the notification requirement to arise, at least two economic agents, independent of each other, that carry out or have carried out economic activities with an impact on the country must be involved in the business. This impact may be direct (through sales or the provision of services in the country) or indirect (for example, distribution of products through a third party).
The second criterion relates to compliance with the thresholds for gross sales or value of productive assets of the agents involved, which are calculated individually and jointly. These thresholds are updated annually by COPROCOM and can be consulted here.
III. Prohibitions during the case study
Once notification has been made, the matter is examined by COPROCOM. As a general rule, a concentration that must be notified cannot be implemented before being authorized by COPROCOM (Article 95 of the LFAC). This means that the concentration (and the respective contract) is suspended until COPROCOM has issued its decision.
Article 118(f) of the LFAC defines as a very serious offense the performance of acts to implement the concentration without COPROCOM’s authorization. However, the law does not specify what is meant by acts of implementation. Considering that, from a legal perspective, the notified contract or agreement is suspended, the restriction on acts of implementation must be understood in a broad sense.
What are the implications of a broad interpretation? Essentially, the conclusion would be that any act of execution, whether partial or total, internal acts of the agreement, external acts of execution, or acts between the parties to the transaction are prohibited. This means, for example, that shares cannot be endorsed, assets transferred, payments made for the sale, or shareholders’ meetings held to authorize the merger, among other things.
As this is a very serious offense, those involved in the economic concentration are liable to fines ranging from 0.1% to 10% of the total turnover of the economic agent in the fiscal year immediately preceding the imposition of the sanction.
IV- Exceptions to the prohibition
Only in exceptional cases may COPROCOM authorize an act of execution (Article 95 of the LFAC). To apply this exception, the notifying parties must submit a reasoned request fully justifying the economic damage caused to the economic agents by suspending the concentration and the effect that this enforcement would have on the process of competition and free competition in the country. Naturally, COPROCOM is empowered to impose certain conditions and obligations on economic agents in order to lift the suspensive effects.
V- Conclusion
Once COPROCOM has been notified of an economic concentration, the concentration and the contracts supporting it are suspended until this authority has issued a ruling. This leads to the conclusion that no action may be taken that tends to consummate, materialize, or bring about the economic concentration. If such action is taken, economic agents are liable to heavy fines.