The Administrative Council for Economic Defense (CADE) recently examined two cases of abuse of the constitutional right to access the Judicial Branch with the purpose of harming competitors, a practice known as ?sham litigation?

Sham litigation may constitute a violation of Antitrust Law and subject companies to fines ranging from 0.1% to 20% of their annual gross sales.

One of the cases was initiated by the Superintendent-General to investigate possible violations in the steel rebar market, through practices such as the repeated filing of actions without an indication of irregularities, and the use of false information in order to harm the competito´s reputation, delay the release of imported goods, cause losses and raise prices, as well as discourage the entry of other importers in the market.

The other case, which related to the television paid programming broadcasting market, was tried and closed by decision of a majority of the members of the Administrative Court. The reason for this was the fact that many of the lawsuits without legal grounds filed against competitors by the individuals and companies investigated had already led to the sentencing of a company of the same economic group for sham litigation. Thus, a new unfavorable decision would constitute a violation of the non bis in idem rule.

More than a dozen cases of sham litigation have already been examined by CADE, which imposed penalties of up to 5% of the gross sales of the companies investigated. For example, in 2015 the companies Eli Lilly do Brasil Ltda. and Eli Lilly and Company were fined in approximately R$36 million for the abusive and unjustified filing of administrative proceedings and lawsuits aiming to exclude competitors, through the protection of a patent, in order to maintain the exclusive marketing of a certain medicine.

Nevertheless, examining whether certain practices constitute sham litigation or are just a lawful exercise of a constitutional right is not an easy task.

CADE´s precedents, largely based on the American legal theory about the subject, indicate that the following elements should be taken into account to characterize sham litigation: (i) lack of reasonableness of the right claimed and of truthfulness of the information used in the action; (ii) lack of legal grounds of the action filed, in such a way that a favorable judgement cannot be expected; and (iii) lack of adequacy and reasonableness of the means employed and of probability of success of the claim. In short, CADE must determine that the purpose of the action is not to beat the competitor in the merits of the case, but just to cause embarrassment or damage the competitor?s business.