Dominance Comparative Guide

• Law Firm: Almeida Guzman & Asociados
• Subject Matter: orporate/Commercial Law, Antitrust/Competition Law, Corporate and Company Law, Contracts and Commercial Law, Antitrust, EU Competition
• Author: Mr Alberto Brown and José Urízar
• Published date: 05 January 2023

1 Legal and enforcement framework

1.1 Which legislative and regulatory provisions regulate dominance in your jurisdiction?

The Organic Law for the Regulation and Control of Market Power (LORCPM) of 13 October and its Regulation of 7 May 2012 contain the relevant legislative and regulatory (ie, secondary legislation) provisions, respectively. There is also a non-binding Guide for the Investigation of Abuse of Market Power, issued by the Superintendence for Market Power Control (SCPM) in August 2021.

Articles 7 and 8 of the LORCPM define the concepts of 'dominance' and 'market power'. Article 9 of the LORCPM defines the concept of 'abuse' and contains a non-exhaustive list of types of conduct that may be characterised as abusive.

Articles 8 and 9 of Decision 608 of the Andean Community define the concepts of 'abuse' and 'dominance', respectively. Decision 608 applies whenever there is conduct which has effects in more than one member state.

Both the domestic and regional (Andean) rules of abuse of dominance are largely modelled on EU competition law and are frequently interpreted in light of European case law.

1.2 Do any special regimes apply in specific sectors?

No.

1.3 Is the legislation intended purely to protect economic interests or does it have other aims?

Article 9 of the LORCPM prohibits abusive conduct by a dominant undertaking that may have the effect of "distorting competition" or "adversely affecting efficiency or the general welfare". Nonetheless, Article 9 of the LORCPM must be interpreted in light of Article 1, which refers to the "establishment of a social, solidary and sustainable economic system", along with "efficiency" and "general and consumer welfare", as the goals of the LORCPM. Furthermore, Article 4 of the LORCPM sets out the guiding principles that should be followed in the enforcement of the LORCPM. Among other things, Article 4 refers to:

• the "pursuit of deconcentration";
• the "right to economic freedom";
• the "equitable distribution of the benefits of development"; and
• "efficiency".

Article 4 of the LORCPM Regulation sets out the general criteria for the evaluation of anti-competitive conduct forbidden by the LORCPM and largely reproduces the abovementioned concepts pertaining to the aims of the law. It is doubtful whether the recent reforms to the LORCPM Regulation of 28 September 2022 – which purport to establish a hierarchy of goals within Ecuadorian competition law whereby consumer welfare becomes the preferred standard of evaluation for allegedly anti-competitive behaviour – are compatible with Articles 1 and 4 of the LORCPM. In other words, the preference of consumer welfare over deconcentration (ie structural concerns) and economic freedom seems unjustified and illegal, and may be incompatible with the normative structure of the LORCPM.

1.4 Which authorities are responsible for enforcing the legislation?

The SCPM is the national administrative agency designated by the LORCPM for its enforcement. Contentious-administrative tribunals have jurisdiction to hear annulment actions on the grounds of illegality defects (ie, breach of the LORCPM) in SCPM decisions. Civil tribunals have limited jurisdiction to hear follow-on damages claims, in the sense that civil claims can proceed only after there has been a final or unappealable administrative decision. There are no standalone civil damages claims in Ecuador.

1.5 How active are the enforcement authorities in taking action against abuse of dominance in your jurisdiction? What key decisions have the enforcement authorities adopted most recently?

The SCPM is not very active in investigating and enforcing the abuse of dominance provisions (Article 9 of the LORCPM). Three key decisions were handed down by the SCPM in 2022: Banred, Sayce and Egeda.

Banred is the dominant undertaking in the domestic automated teller machine interbank network market. Pursuant to a complaint filed by a rival network operated by the country's cooperative and mutual financial entities (ie, building societies), Banred was fined for abuse of its dominant position by foreclosing access to the relevant market by disproportionately increasing interconnection tariffs, as well as engaging in exclusionary behaviour through raising its rivals' costs. Banred was also found to have engaged in abusive discrimination towards the complainant.

Sayce and Egeda are companion cases since both were initiated by the same complaint, filed with the SCPM by the Ecuadorian Telecommunications Companies Association. Sayce is a collective management society for music copyright owners; while Egeda is a collective management society for audiovisual production copyright owners. In essence, the complaint alleged that both Sayce and Egeda had engaged in excessive pricing regarding the royalty charges to which they were entitled pursuant to Ecuadorian IP law. While Egeda succeeded in its defence and fended off the charges, Sayce was found to have abused its dominant position.

2 Definitions and scope of application

2.1 What parties are covered by the dominance legislation? Are any exemptions available?

Any parties – whether private or state owned, domestic or foreign – are covered by the dominance legislation if their conduct has actual or potential effects within the Ecuadorian territory.

Article 6 of the Organic Law for the Regulation and Control of Market Power (LORCPM) Regulation expressly excludes any general exemptions regime for abusive conduct by dominant undertakings. However, Article 28 of the LORCPM allows for the establishment of concrete exemptions through secondary legislation where this is necessary for:

• the development of a national monopoly in the public interest;
• the development of strategic sectors of the economy or public services; or
• the technological and industrial development of the national economy.

2.2 How is 'dominance' defined in your jurisdiction?

Article 7 of the LORCPM defines 'dominance' as the capacity to exercise significant influence in the market. It is further defined as the capacity to behave independently from competitors and trading counterparts.

2.3 How important is market share in assessing dominance in your jurisdiction? Do specific thresholds apply in this regard?

Market share is a very important factor in assessing dominance. For instance, in the final decision in Superintendence for Market Power Control (SCPM) Decision SCPM-CRPI-001-2022 of 11 May 2022 (Banred), market share (88%) was the most significant criterion in finding that Banred had a dominant position (para 544). The relevance of a particular market threshold is affected by other factors that are also considered by the SCPM in establishing market power within the relevant market. The SCPM is unlikely to establish a presumption of dominance in cases where the allegedly dominant undertaking has a market share below 50% (Banred, para 387).

2.4 What other factors are considered when assessing dominance?

Other factors, apart from market share, may be considered when assessing dominance. These criteria, which were expressly applied in Banred, are as follows:

• percentage of total market revenue;
• the Herfindahl-Hirschmann market concentration index;
• barriers to entry; and
• network effects (Banred, paras 487-543).

2.5 How are the product and geographic markets defined in your jurisdiction?

Specific secondary legislation on market definition was issued in November 2016 ('Market Definition Regulation').

The definition of product markets is governed by Articles 5 to 19 of the Market Definition Regulation. For the purposes of market definition, the first step involves an analysis of demand-side substitutability, where the following economic tools may be used:

• the small but significant non-transitory increase in price (SSNIP) test;
• demand-side price elasticity;
• demand-side cross-price elasticity; and
• price correlation analysis.

The second step involves an analysis of supply-side substitutability and potential competition, where the following economic tools may be used:

• the supply-side substitutability test; and
• the near-universal substitutability test.

There may be subsequent steps, where factors such as the following may be considered:

• ...