Mexican antitrust laws and enforcers
Antitrust is a federal law subject matter. In other words, only the Federal Congress can regulate competition and pass legislation in connection therewith. Under such powers, in 1992 Congress passed the first competition act, which was repealed and replaced in 2014 by the current Federal Competition Act (FCA). The FCA, together with regulations issued by the agencies described below, constitutes the substantive body of competition law in Mexico.
The FCA is enforced across all markets and industries by the Federal Economic Competition Commission (COFECE); the exceptions are the telecommunications and broadcasting industries, in which the Federal Telecommunications Institute (IFT) is both the sector regulator and antitrust enforcer. Both agencies are chartered and organised in the Federal Constitution as autonomous bodies, independent from the Executive, Congress and the Judiciary.
Within their respective jurisdictions, the agencies (COFECE and the IFT) conduct both preventive enforcement of the FCA and corrective enforcement, pursuant to their powers to investigate anticompetitive conduct (cartels and abuse of dominance) and launch market probes (to assess lack of effective competition and the existence of barriers to competition or essential facilities).
Because COFECE and the IFT are autonomous bodies, their decisions are final and not subject to appeal before any other agency, with the exception that parties affected by COFECE or IFT decisions (i.e., decisions imposing liability for breaching the FCA, decisions ordering remedies to eliminate a barrier to competition, etc.) can petition for judicial review of these decisions or resolutions to the federal administrative district courts specialised in competition, broadcasting and telecommunications, in Mexico City, through an amparo petition. The decisions of these district courts are, in turn, appealable before circuit courts specialised in competition, broadcasting and telecommunications, in Mexico City.
Antitrust settlements in Mexico
Settlements with antitrust agencies are neither regulated in Mexican law nor are part of ordinary practice. Nevertheless, the different proceedings described above (i.e., investigations and market probes) provide opportunities for parties to discuss the competitive concerns that COFECE and the IFT may have, as well as to propose remedies or conditions to enable the agencies to close their investigation or clear a transaction, which, in practice, somewhat resemble the dynamics of settlements. The different opportunities for these discussions in proceedings set forth in the FCA are discussed below.
There are no rules for settlement discussions in multiparty investigations. Investigated parties may not have common interests. Depending on the different interests and incentives that the investigated parties or market participants may have, and whether a viable and effective solution to the concerns identified by the agencies can actually be proposed and implemented by only one or some of those parties, reaching a settlement may be feasible or may become extremely difficult.
COFECE and IFT decisions are final and, therefore, once the parties reach an agreement with the agencies, the relevant resolution accepting commitments, remedies or conditions becomes final and is not subject to approval or confirmation from any entity or agency, including jurisdictional sanction.
Note that once the parties petition for judicial review of a COFECE or IFT decision, contrary to standard practice in other jurisdictions, settlement is no longer possible as the subject matter of the trial is solely the constitutionality and legality of the relevant decision (i.e., whether the agency acted legally and reasonably). As such, the petitioned court may only affirm or revoke the agency decision or, alternatively, vacate the same and remand the matter to the relevant agency for further proceedings under a court order (in remand, settlement, along the lines described below, could theoretically be possible again).
Anticompetitive conduct investigations
Generally speaking, the FCA empowers COFECE and the IFT to investigate and punish anticompetitive conduct in the form of:
- relative monopolistic practices, which are equivalent to abuse of dominance conduct (analysed under the rule of reason);
- absolute monopolistic practices, which are horizontal restraints (otherwise known as cartel conduct); and
- illegal concentrations, which are mergers and acquisitions that foreclose competition in the relevant market.
While, as noted above, the FCA does not regulate settlements as such, each of the above proceedings allows a certain degree of negotiation with the agencies either to completely close investigations in certain cases or to obtain a waiver or reduction of certain sanctions.
All investigations become a matter of public record (including the fact that an investigation has been launched and details of the suspected conduct and the affected markets, but not the identity of the investigated parties). Once the agency has reached a decision, including in the case of abuse of dominance investigations, the decision to waive or reduce fines in consideration of the commitments made by the investigated parties (if applicable) is made public by the agency; this includes the names of the parties, the investigated conduct, the sanctions imposed and, if applicable, the commitments offered and accepted by the agency (the parties’ personal data and confidential information are redacted).
Illegal concentrations are defined in the FCA as mergers, acquisitions, associations or other forms of combinations of which the intent or effect is to foreclose competition. While the agencies are barred from investigating concentrations reported and cleared by them, they may still investigate the following concentrations:
- those not reported to them;
- those cleared on the basis of inaccurate information; and
- those subject to remedies (with respect to the parties’ compliance with such remedies).
Investigations of illegal concentrations may result in significant fines (up to 8 per cent of the taxable revenue in Mexico of the parties to the relevant transaction), disqualification and potentially even an order to unwind the concentration. Thus, the parties under investigation may elect to approach the relevant agency during the investigation stage (that is, prior to the issuance of a statement of objections) and apply for a waiver or reduction of the fines and other sanctions that the agency could otherwise impose.
To obtain such benefit, the parties under investigation must persuade the relevant agency that (1) they are committed to terminating the illegal merger, and the feasibility of this; (2) the remedies and commitments put forth are viable and appropriate from a legal and economic standpoint to terminate the anticompetitive effects of the illegal merger; and (3) the results of the same can be verified within a certain time frame. To the extent the agency is persuaded by these proposals, it can waive the imposition of sanctions and close the investigation based on the commitments of the parties or, alternatively, enter a decision finding that an illegal merger was effected but reducing the sanctions that it would have otherwise imposed on the involved parties, based on the commitments.
This process lends itself to some give and take with the agency with respect to the existence and plausibility of the concerns, on the one hand, and the viability and scope of the remedies, on the other. It also requires the submission of written commitments and the acceptance thereof by the agency in a resolution. Thus, the process as a whole is somewhat equivalent to a settlement.
In this process, applicants are not required to recognise or admit to the concerns identified by the agencies, although a commitment to terminate the investigated merger and restore competition is required.
Abuse of dominance
As noted above, the FCA prohibits certain conduct (relative monopolistic practices) to the extent this is performed by economic agents with market power (i.e., are dominant). This conduct is analysed under the rule of reason.
Abuse of dominance can also result in significant fines and sanctions, including those discussed in the context of illegal mergers (fines of up to 8 per cent of the taxable revenue in Mexico of the parties to the illegal conduct, disqualification and potentially an order to divest certain assets or businesses), thus creating the same incentives described above to approach the agency and seek a waiver or reduction of the fines and other sanctions that it could otherwise impose.
The legal threshold to obtain the benefit is the same as described above for illegal mergers (i.e., the investigated parties must commit to terminate the illegal conduct and propose viable and plausible remedies to restore competition) as are the dynamics and potential outcomes of the process (i.e., there is open communication with the agency with respect to the viability and scope of the remedies; a written commitment is necessary; and eventually the commitments are accepted by the agency through a resolution), thus yielding a process equivalent to a settlement.
As is the case with illegal merger investigations, applicants are not required to recognise or admit to the existence of wrongdoing, although a commitment to terminate the investigated conduct and restore competition is required. To the extent the agency is persuaded by these proposals, it can either waive the imposition of sanctions and close the investigation based on the commitments of the parties without entering a finding of wrongdoing or, alternatively, enter a decision finding abuse of dominance but reducing the sanctions that it would have otherwise imposed on the involved parties, based on the commitments.
An example of this is COFECE’s decision in the Grupo CIE case. On 17 December 2015, COFECE launched an investigation into alleged abuse of dominance (exclusive dealings, foreclosure of competition) in the production of live entertainment, operation of public entertainment venues and automated ticket sale markets. Prior to the issuance of the statement of objections, Grupo CIE and its affiliates (which operate the Ticketmaster system in Mexico) proposed remedies that, with certain modifications required by the agency, were accepted by the COFECE’s board of commissioners, ultimately resulting in the anticipated termination of the investigation. Consequently, no finding of wrongdoing was entered into nor were sanctions imposed.
The remedies that Grupo CIE and its affiliates undertook consisted of:
- the waiver of exclusivity clauses in contracts with non-affiliated operators and brokers and the commitment not to enter into similar exclusive dealings for a period of 10 years;
- a commitment not to increase their rights over venues with a minimum capacity of 15,000 for five years; and
- a commitment to display these commitments on their website and to publish them in a major newspaper.
Another example is the Pemex TRI case. In 2015, Pemex Transformación Industrial (Pemex TRI) was the subject of a complaint filed with COFECE alleging that Pemex TRI, an arm of the Mexican state-owned oil company Pemex, discriminated against certain distributors of marine diesel in terms of the conditions under which they could make wholesale purchases of such diesel from Pemex TRI. As in the prior case, before a statement of objections was entered, COFECE closed the investigation without a finding of wrongdoing or the imposition of sanctions, accepting the following commitments from Pemex TRI:
- to refrain from granting discretional benefits to wholesale purchasers of fuel and to adopt objective and transparent criteria instead;
- to refrain from unilaterally and arbitrarily suspending the supply of fuel to wholesale purchasers;
- to engage an external auditor to monitor the conditions on which Pemex TRI sells fuel and report the same to COFECE;
- to amend existing wholesale agreements to make the aforementioned conditions clear and transparent;
- to report data related to the wholesale of fuel to COFECE semi-annually; and
- to make public the aforementioned commitments.
Absolute monopolistic practices are horizontal restraints that are pursued and punished per se under the FCA. These are the most serious offences regulated by the FCA and thus carry the highest possible fines (up to 10 per cent of the taxable revenue of the involved economic agents in Mexico), disqualification and potentially an order to divest certain assets or businesses. In contrast to other offences, cartels can result in criminal liability for the individual participants, whether these are direct participants or those representing a corporation.
Unlike illegal merger and abuse of dominance investigations, settlement of per se illegal conduct investigations is not possible. As in other jurisdictions, investigated parties may apply for leniency and seek a reduction of the applicable fines and a waiver of criminal liability prosecution. The dynamics of the leniency programme are, however, different to those of a settlement as the legal requisite applicable to leniency applicants is whether they can provide useful and new evidence to establish the existence of the cartel and support the case of the agency, not whether they can propose remedies that restore competition. Also, a leniency application requires a written admission of wrongdoing (i.e., of the participation in the cartel).
In some isolated instances, investigated parties not otherwise eligible for leniency have offered commitments (such as immediately terminating the conduct, improving their antitrust awareness and compliance programmes and informing customers that they can contact the agency if they believe that anticompetitive behaviour is occurring) to the agencies to make bona fide cases for reducing potential fines, although the agencies are not legally required to accept such commitments.
Thus, in the case of cartel investigations, there is no real window to settle the matter, and investigated parties are only left with the option of applying for leniency or contesting the allegations of wrongdoing.
A particular feature of the FCA is that it allows the agencies to launch probes into specific markets if they suspect that barriers to competition or essential facilities exist in such markets, even in the absence of indications of anticompetitive behaviour (that is, cartel, abuse of dominance or illegal merger). Also, a number of federal statutes allow COFECE, on its own or prompted by the Federal Executive, to open probes into specific markets if it suspects that they show a lack of effective competition.
While no violation of the FCA is required to launch these probes, the results of these can have equally burdensome consequences and, therefore, those parties that are suspected of having created or abused a barrier to competition or of having controlled an essential facility may have incentives for approaching the agency to offer commitments because, in lieu thereof, the agency may impose sanctions, as described below.
The agencies can make public the fact that they have launched a market probe, detailing the investigated markets and the competitive concern giving rise to the same (i.e., the presumptive existence of barriers to competition or essential facilities, or suspected lack of effective competition). Once the investigation comes to an end, the conclusions of the relevant agency’s investigative arm are also made public. Finally, the process moves to a trial-type proceeding and the parties affected by the agency’s preliminary findings have a chance to plead their case, offer evidence and submit arguments. The matter is then finally adjudicated by the relevant agency’s board of commissioners and the decision (in which personal data and confidential information is redacted) is made publicly available.
Absence of effective competition
As noted above, COFECE (not IFT) is empowered under certain federal statutes to determine whether, in a certain market, effective competition exists. The powers of COFECE, however, are limited to issuing a declaration that either it has no basis to conclude that there is lack of effective competition or, alternatively, that there is a lack of effective competition in a certain relevant market. Such a decision, however, would enable the relevant sector regulator to issue regulations to remedy the competitive concerns found by COFECE, including, notably, rate regulation.
In this case, as COFECE may only issue a declaration and may not directly take measures to remedy the lack of effective competition, the parties cannot engage in a settlement-like discussion and certainly cannot offer commitments to terminate the investigation. To the extent COFECE enters a decision finding that a certain market shows a lack of effective competition, the affected parties may pursue a dialogue with the competent sector regulator, provided applicable laws so allow, to participate in the rule-making process.
Barriers to competition and essential facilities
A barrier to competition under the FCA includes any structural feature of the market or conduct of an economic agent whose effect or intent is to exclude competitors or foreclose their ability to compete, or that otherwise forecloses competition in the markets. Should an agency conclude that there are barriers to competition in a given relevant market, it can order that an undertaking take certain action to remove such barriers or order it to divest certain assets or businesses.
The FCA allows the agencies to investigate whether, in any given market, essential facilities exist. Should an agency conclude after such a probe that a certain facility is controlled or held by a single agent or a limited number of agents; is not replicable; and is essential for the provision of goods and services in one or more markets, and has no close substitutes, it may:
- establish rules of access to the essential facility;
- apply price or rate regulation applicable to the same;
- prescribe the technical and quality conditions under which the essential facility must be provided; and
- provide the timetable for the application of the measures.
As the consequences of these investigations can be burdensome, economic agents affected by the measures proposed by the agency may elect to approach it and offer remedies. This option can be exercised at any time after the agency has issued its preliminary findings that a barrier to competition or an essential facility exists and before the case before the agency moves to closing arguments. To so do, the interested economic agents must submit in writing: (1) remedies and commitments that are viable and appropriate from an economic standpoint to address all the competitive concerns identified by the agency, which are concrete, feasible and effective; (2) a timetable for the materialisation of the commitments; (3) and evidence to support the foregoing.
To the extent the agency is persuaded by these proposals, it can close the investigation based on the commitments.
As with the other examples described above, the process lends itself to a negotiation with the agency with respect to the existence of barriers to competition or essential facilities and the viability and scope of the remedies. It also requires the submission of written commitments and the acceptance thereof by the agency in a resolution, thus somewhat resembling the process of a settlement negotiation. Applicants are not required to recognise or admit to the existence of barriers to competition or essential facilities claimed by the agencies, although a commitment to address the concerns raised by the agency is required.
An example of this negotiation is the Colleges of Public Intermediaries case. In 2018, the Colleges of Public Intermediaries of Mexico City, Estado de México and Nuevo León, were the subject of a complaint before COFECE claiming that they discriminated among members. Before a statement of objections was issued, COFECE closed the investigation without a finding of wrongdoing or the imposition of sanctions, accepting the following commitments from the institutions: to retroactively revoke differentiated membership duties; and to take measures to avoid discriminatory treatment of affiliates going forward.
Tips for dealing with the enforcer when negotiating settlements
As noted above, the main questions surrounding a settlement-like discussion with the agencies are the following.
- Do the parties generally agree with the competitive concerns identified by the agency?
- Can the parties propose remedies that are viable and verifiable so as to address such concerns?
While the agencies may provide the investigated parties with an incentive to avoid costly and time-consuming litigation, their willingness to settle will ultimately be driven by the extent to which their concerns can be fixed.
Thus, except for straightforward cases, in which the concern is an exclusivity provision in a set of agreements, or the participation in the management of a non-affiliated business, a successful negotiation with the agencies will likely require support from economists in matters such as open access, non-discriminatory treatment. It is therefore critical that, from the outset, the interested parties are ready to engage in meaningful discussions with adequate support from counsel and economists.
1 Christian Lippert and Carlos Chávez are partners, and Carolina Rodríguez, Adriana Peralta and Andrés Trejo are associates, at Galicia Abogados, SC.
2 Case No. IO-005-2015; www.cofece.mx/en/restaurar-competencia-espectaculos-en-vivo-y-venta-automatizada-de-boletos/.
4 A public intermediary is a licensed attorney vested with public faith (i.e., can certify documents and situations) and authorised to act as an appraiser, among other things. They are statutorily required to become members of and be certified by the College of the state in which they are authorised to act.
5 Case No. DE-018-2018; www.cofece.mx/acepta-compromisos-de-corredores-publicos/.