The Antitrust Review of the Americas 2019

Mexico: Overview

03 September 2018

Von Wobeser y Sierra, SC

Introduction

Mexican antitrust practice has become increasingly relevant owing to significant changes in both legislation and practice, mostly related to the increasing powers of the antitrust authorities (the Mexican Antitrust Commission (COFECE) and the Federal Telecommunications Institute (IFT)) and higher penalties imposed on those who violate antitrust law in Mexico. This has led many companies, both domestic and international, to implement antitrust compliance policies and programmes to avoid investigation and possible sanctions.

Recent constitutional reforms resulted in a new Mexican Antitrust Act (MAA), which has empowered COFECE to pursue a greater number of investigations and exercise its authority more vigorously, including the exercise of powers that were not available to the previous Federal Antitrust Commission. In addition, this MAA has resulted in much greater scrutiny of mergers and investigations under new concepts established in the MAA in key industries for the Mexican economy, such as the sugar, airline and agriculture sectors.

Likewise, the decision to separate the Mexican antitrust authorities into COFECE and the IFT was initially viewed by many practitioners as a possible regression in antitrust practice. The division may mean some relevant telecommunications cases will be resolved by an authority without experience in antitrust cases. Additionally, sometimes it may be unclear which authority is competent to act.

Nevertheless, since the implementation of this decision, the competition and antitrust environment in Mexico has prospered and both authorities have been acting efficiently, increasing the number of cases and the sophistication of the arguments being discussed. As proof of the above, in October 2015, the Second Collegiate Circuit Court in Administrative Matters, Specialised in Economic Competition, Broadcasting and Telecommunications, resolved the first jurisdiction dispute in antitrust matters in favour of the IFT, declaring it had jurisdiction to rule on the concentration between the multinationals Nokia and Alcatel Lucent, which was authorised in that same year by the IFT.

The history of the Mexican Antitrust Act

The first Mexican antitrust law was passed in 1992, based primarily on the negotiation of the North American Free Trade Agreement (NAFTA). Mexico needed to make the necessary changes and additions to its internal legislation, mainly with regard to the defence and enforcement of fair trade and free competition, in order to ensure the entry into force and execution of NAFTA.

Since its original passage, Mexican antitrust law has undergone important reforms, taking into consideration changes in the Mexican economy and the way the markets have developed. The most important reforms to the law took place in 2006 and 2011 which, among other things, increased the penalties for violating antitrust provisions.

In addition, and as mentioned above, in June 2013, the Mexican Constitution was reformed in terms of antitrust and telecommunications, modifying the organisational nature of the antitrust authorities and creating a specific authority that will review antitrust matters in the telecommunications market, which has been an area of great importance in recent decades in Mexico (the Constitutional Reform). The Constitutional Reform implied, among other things, the creation of a new MAA and its corresponding regulation, as well as the additional secondary legislation.

The regulatory provisions of the Mexican Antitrust Act

On 10 November 2014, the Plenary of COFECE issued and published the Regulatory Provisions of the MAA (the Regulatory Provisions), which entered into full force and effect as of 11 November 2014. It is important to note that while the Regulatory Provisions were intended to clarify and regulate provisions contained in the MAA, unfortunately they do not provide the legal certainty that they should; instead they contain too many vague and unclear concepts. In this regard, below we offer a brief summary of the main matters of concern regarding the Regulatory Provisions.

• The circumstantial evidence of a probable per se illegal practice (absolute monopolistic practice) as sufficient grounds to initiate an investigation. This provision makes inaccurate assumptions that could be applicable without requiring actual involvement of the economic agents that may be considered responsible for such behaviours. In this regard, we believe that the protection of the in dubio pro reo principle is at risk, given that if there is any doubt in connection with the active participation of an economic agent in such behaviours, the Regulatory Provisions do not favour the economic agent; in fact, they consider it as evidence of a likely per se illegal practice.

• Powers of COFECE to consider the failure of a person directly involved in a procedure to answer the authorities' questions to provide the requested information as a confession.

• From our point of view this provision is a clear violation of the no self-incrimination principle.

• Unclear criteria to declare the existence of substantial joint power between two or more economic agents.

• Lack of regulation in connection with 'barriers to competition', which is a novel legal concept not only in our domestic legislation but in international law.

• Lack of regulation in connection with relevant legal concepts of dawn raids (eg, attorney–client privileged communications, safeguarding of industrial secrets, safeguarding of personal information not related to the investigation, etc). In this regard, it is interesting to mention that, in 2017, through the amparo proceeding, the First Collegiate Circuit Court in Administrative Matters, Specialised in Economic Competition, Broadcasting and Telecommunications resolved that during the investigation stage, especially while conducting dawn raids, COFECE breached the attorney–client privilege for the extraction of information, documentation and communications protected by the legal privilege of confidentiality. The courts determined that COFECE infringed the constitutional rights of an adequate defence and privacy contained in articles 6, 14, section 2, section 10 and 20, and section (b), subsection VIII of the Mexican Constitution. It was concluded that while conducting dawn raids and the investigation process, COFECE must immediately exclude this information and refrain from reproducing it, in the understanding that if does use it, all acts derived from that information will be considered illegal acts.

COFECE and the IFT

The first Mexican antitrust agency was created in 1993 as an independent agency of the Ministry of Economy with technical and operational autonomy and independence. With the Constitutional Reform, COFECE was created as an autonomous constitutional entity. It is responsible for preventing, investigating and sanctioning monopolies, monopolistic practices and unlawful mergers in all markets (with the exception of telecommunications) with full autonomy in its decisions. COFECE also drafts and publishes guidelines and criteria regarding how to interpret, investigate, enforce and apply antitrust law.

COFECE may also, on its own initiative or upon request, issue binding opinions regarding free trade to government agencies indicating possible effects on competition of programmes, rules, agreements or other provisions. When economic agents have questions or concerns regarding any antitrust issue, they may file a consultation before COFECE, which will deliver a non-binding opinion to the interested parties.

The IFT was also created as a result of the Constitutional Reform, and is responsible for investigating, analysing and sanctioning antitrust violations in the telecommunications market, as well as determining which companies have market power and implementing measures that favour free trade. COFECE and the IFT are now also provided with tools and mechanisms to modify market structures with dominant companies, including ordering measures to remove barriers to competition, regulating access to essential inputs and ordering the divestiture of assets, rights or shares, to eliminate anticompetitive effects. The decisions of COFECE and the IFT must be analysed by specialised constitutional courts.

On 24 February 2017, the IFT determined that Grupo Televisa holds market power in the 'restricted television and audio' market by establishing that its satellite platforms and fixed platforms have the technical and economic capacity to compete at present and potentially in the national market, which serves as an example of the new powers granted to the IFT under the aforementioned constitutional reforms. Likewise, in May of 2018 the IFT Investigating Authority initiated an investigation for anticompetitive practices in the national market of restricted television and audio services, as well as internet, fixed and mobile telephony services. Through the Constitutional Reform and the MAA, the Plenary (COFECE's main body) was increased from five to seven commissioners, who are elected through an evaluation committee with the approval of the President and the Senate for a period of nine years. The Plenary has a chairman and, subsequent to its formation, the commissioners will not be simultaneously elected, guaranteeing the autonomy and independence of the Plenary. The commissioners vote on all resolutions of the Plenary and cannot be excused except under extraordinary circumstances

In July of 2014, the Plenary of COFECE issued and published the Regulatory Provisions of the MAA applicable to the telecommunications and broadcasting sectors, and in September of the same year, the organisational legislation for the IFT was published. Such legislation establishes, in accordance with article 28 of the Mexican Constitution, that the IFT is the antitrust authority in telecommunications matters. Likewise, it states that the IFT will operate in accordance with the MAA and other applicable antitrust provisions, and that the Plenary of the IFT will have seven commissioners. Among the other bodies of the IFT, it is important to mention the Specialized Unit in Antitrust Matters. According to the IFT legislation, the unit oversees the it has under its charge the Directorate General for Antitrust Procedures, Merger Control and Concessions, and Economic Consultation. The Directorate drafts rulings and submits them to the opinion of the Plenary of the IFT.

Monopolistic activities

The MAA divides monopolistic activities into two main groups: absolute monopolistic practices and relative monopolistic practices.

Absolute monopolistic practices (also known as horizontal or per se illegal practices)

Absolute monopolistic practices are considered per se illegal, and these consist of contracts, agreements, arrangements or combinations among competing economic agents, which have, as their purpose or effect, any of the following:

• to fix, raise, coordinate or manipulate prices;

• to establish an obligation to produce, process, distribute, market or acquire only a restricted or limited amount of goods, or the provision or transaction of a limited or restricted number, volume or frequency of services;

• to divide, distribute, allocate or impose portions or segments of a current or potential market of goods and services, by a determined or determinable group of customers, suppliers, time spans or spaces;

• to establish, arrange or coordinate bids or abstentions from tenders, contests, auctions or purchase calls; or

• to exchange information with any of the purposes or effects referred to in the previous subsections.

It is important to mention that horizontal practices are considered null and void, and consequently they do not produce any legal effect, and the economic agents that engage in such practices will face the sanctions established in the MAA, including any criminal or civil liability that may arise therefrom.

However, demonstrating the existence of absolute monopolistic practices can be an extremely difficult task for COFECE in an investigation. In Mexico, COFECE or the plaintiffs need to obtain sufficient evidence in order to start an investigation or denounce monopolistic practices.

For the plaintiffs to provide this evidence, the information they will most likely refer to includes, among other things:

• testimonies from third parties that may be affected by the agreement;

• evidence gained through raids by COFECE on the investigated competitors (this tool is increasingly used by the authority to obtain key information for the investigation);

• communications between the companies involved, including meetings, emails, faxes or phone-call records; and

• the existence of behaviour that is unusual in the applicable market, which can only be explained by a possible agreement between competitors.

Owing to the difficultly of obtaining sufficient evidence, Mexican courts have determined that there should be related but conclusive evidence to infer from signs and evidence that an absolute monopolistic practice has taken place. It follows that sufficient indirect evidence paired with general statements is suitable to determine certain facts or circumstances from the best available information regarding the actions of companies that have entered into agreements to carry out absolute monopolistic practices.

Price-fixing may occur when one or more competitors within a given market are able to control their supply, creating a shortage of that product. In other words, a group of competitors sets the applicable market's supply in such a way that the price of that product or service increases the profits gained by said competitors. According to the MAA Regulations, indirect evidence of price-fixing may come from the sale prices offered by two or more competitors being significantly higher or lower than the prices of the same products elsewhere, unless it results from taxes, transportation or distribution; or that such competitors set a range of prices or adhere to the prices issued by a competitor or association.

The purpose of product restriction or limitation is to control the supply of or demand for a certain product or service, thus causing an increase in prices. In most markets, product restriction or limitation can simply be affected by assigning the amount of goods or services competitors will provide or sell, letting the market itself decide the pricing on said product. Providing indirect evidence of this type of practice may require additional supply-and-demand studies of the product over time, taking into consideration previous distribution and sales from all competitors.

Market division takes place when competitors distribute, assign or impose segments of a current or potential market of goods and services, using their available customers, suppliers, schedules or locations. This type of practice takes place when competitors divide the market using one or more of the following divisions:

• by customers, when the involved companies agree not to seek or enter into similar agreements with any of the other companies' customers;

• by territory, when competitors agree to restrict the availability of their products or services to certain areas, cities or territories; or

• by products, when competitors agree not to engage in the production, sale or distribution of certain products sold or produced by their competitors.

The gathering of indirect evidence of this type of practice can include demonstrating that the applicable market's mobility has remained unchanged during a certain period, when competitors have had realistic opportunities to expand but have decided not to, contrary to their own interest.

Bid-rigging takes place when competitors agree to participate in certain offers, or even refrain from participating in public bids, that are likely to guarantee that the contract will be awarded to a specific competitor. This type of practice can be difficult to identify when the public authority has agreed to help the competitors control the market. However, indirect evidence can be obtained when the bidding is always awarded to the same company or when certain competitors have contracts awarded to them in a clear rotation (carousel practice), as well as when the competitors bid at higher prices or conditions that cannot compete with those offered by a competitor.

It is important to note that one additional absolute monopolistic practice was included in the MAA, which is the exchange of information with the purpose or effect of fixing prices, restricting supply, dividing markets or bid-rigging. With a view to establishing more objective criteria for determining when information exchanges should be considered lawful, COFECE issued the Guidelines for the Exchange of Information among Economic Agents, emphasising certain points to consider when the exchange of information may have the risk of being considered as anticompetitive:

• the exchange of information of strategic value runs a greater risk of being considered anticompetitive, since it allows anticipation of the actions of the competitors;

• aggregate and purely statistical information, where recognition of individualised information is not possible, generally poses no risk;

• historical information increases the difficulty of predicting behaviours. Recent information, current or future, implies greater risks;

• frequent exchanges of information between the same economic agents entails greater risks;

• when the information is in the public domain, its exchange tends to generate less competition problems. When the information exchanged is difficult to access, or expensive to access, it tends to raise suspicions;

• exchange through associations can become risky when strategic information is exchanged;

• information shared by independent third parties to competing economic agents creates fewer risks; and

• information collected through commercial or market intelligence firms can be risky only when it facilitates coordination among competitors through the exchange of strategic information. To reduce risk, one must adopt measures of confidentiality and information protection.

Relative monopolistic practices (also known as vertical or rule of reason practices)

Under the MAA, relative monopolistic practices are any act, contract, agreement, procedure or combination that has or may have as its purpose or effect, in the relevant market or a related market thereof, that of unduly displacing other economic agents, substantially impeding their access or establishing exclusive advantages in favour of one or several economic agents. Unlike horizontal monopolistic practices, it is commonplace that these practices occur in a vertical relationship (eg, between a producer and its distributor).

However, proving the illegality of relative monopolistic practices is subject to ascertaining that:

• such practices were carried out by one or more economic agents that individually or jointly exert market power in the same relevant market in which the practice is executed; and

• such practices did not produce gains in efficiency.

Generally, a company has substantial power in the market when it has the ability to raise prices, reduce or control the supply, or otherwise restrict fair trade or free competition without the ability or possibility for its competitors to counter such actions. In order for COFECE to determine whether a company has substantial power in the market, it needs to consider:

• the company's market share and ability to unilaterally fix prices or restrict supply in the relevant market, without competitors being actually or potentially able to counterbalance such power. To determine market share, COFECE may consider sales indicators, number of clients, production capacity, as well as any other factor deemed appropriate;

• the existence of barriers to entry and the factors that could foreseeably alter either said barriers or the supply of other competitors;

• the existence and market power of its competitors;

• the economic agents' and their competitors' possibilities to access input sources;

• the recent behaviour of the economic agents that participate in said market; and

• any other factors provided by the Regulatory Provisions, and the technical criteria issued by COFECE to that effect.

'Relevant market' is not defined in the MAA. However, Mexican courts have defined it as the geographical area in which similar products or services are available to supply or demand, considering both the available products or services and the geographical area in which they can be obtained. Therefore, in order for a relevant market to be defined, there needs to be a set of goods or services identical or similar available to consumers in an area large enough for the consumer to be able to obtain said goods or services.

Pursuant to the MAA, in order for COFECE to establish a relevant market, it needs to take into consideration:

• the possibilities of substituting the good or service in question for others, whether of domestic or foreign origin, considering the technological possibilities, the availability of substitutes for consumers and the time required for such substitution;

• the good's distribution costs; its relevant inputs; its complementary goods and substitutes from other regions or abroad, taking into account freights, insurance, tariffs and non-tariff restrictions, the restrictions imposed by economic agents or their associations and the time required to supply the market from these regions;

• the costs and opportunities that users or consumers have to access other markets;

• the federal, local or international regulatory restrictions that limit the users' or consumers' access to alternative supply sources, or the access of suppliers to alternative clients; and

• other factors provided by the Regulatory Provisions, and the technical criteria issued by COFECE to that effect.

The MAA indicates the following activities as relative monopolistic practices:

• the fixing of exclusive marketing or distribution rights;

• the imposition of conditions that a distributor must follow regarding the marketing or distribution of goods or services;

• tied sales;

• conditioning a sale, purchase or transaction to not using, marketing or providing goods or services produced or marketed by a third party;

• the refusal to sell, trade or provide goods or services normally offered to third parties;

• boycotts;

• selling below the average variable cost or below the average total cost but over its average variable cost if the economic agent could recoup its losses through future price increases;

• the granting of discounts or incentives with the requirement of not engaging in economic activities with a certain third party;

• cross-subsidies;

• price discrimination;

• activities engaged in by competitors with the purpose of increasing costs, hindering the production process or reducing the demand for competitors;

• the denial of, restriction of access to, or access under discriminatory terms and conditions to an essential input; and

• margin squeezing, which is the narrowing of margins between the prices of access to an essential input provided by one or more agents and the price of a good or service offered to the final consumer by those economic agents, in which the same input is used for its production.

The main purpose of the last two activities mentioned above, which were included in the MAA, is the avoidance of the abusive exploitation of essential inputs. Therefore, COFECE must determine the existence of essential inputs, considering the following:

• if the essential input is controlled by one or more economic agents with substantial power, or which have been determined as dominant agents by the IFT;

• whether or not the reproduction of the input is possible by another economic agent from a technical, legal or economic point of view;

• if the input is indispensable for the provision of the goods or services in one or more markets, and if it has close substitutes;

• the circumstances under which the economic agent gained control of the input; and

• any other criteria established under the Regulatory Provisions.

The last two are also novel types of conduct included in the MAA, and for greater regulatory precision, the act establishes the criteria for determining the existence of this innovative legal concept called 'essential inputs', the main purpose of which is the avoidance of the abusive exploitation of those inputs that might be essential for entering or participating in a market. Therefore, the criteria COFECE must follow in order to determine the existence of essential inputs is the following:

• if the essential input is controlled by one or more economic agents with substantial power, or which have been determined as preponderant agents by the IFT;

• whether or not the reproduction of the input by another economic agent is possible, from a technical, legal or economic point of view;

• if the input is indispensable for the provision of the goods or services in one or more markets, and if it has close substitutes; and

• the circumstances under which the economic agent gained control of the input.

In addition, the Regulatory Provisions state that it shall also be considered whether allowing the use of an 'essential input' by a third party will generate efficiency in the market.

Recently, COFECE issued a Guide for Processing the Procedure of Investigation of Relative Monopolistic Practices or Prohibited Mergers to be disseminated among economic agents, practitioners, authorities and the public in general, indicating the form in which the Investigating Authority of COFECE carries out an investigation procedure of a possible relative monopolistic practice or prohibited merger, and information about the stages of the investigation procedure.

Leniency programme

Since 2006, COFECE has had a leniency programme in place for companies or individuals involved in absolute monopolistic practices to voluntarily report their activities. Under the MAA, companies or individuals that have participated in absolute monopolistic practices may reduce or avoid sanctions (which can include criminal sanctions) provided they denounce the illegal acts in question and take the necessary steps to terminate their participation. The leniency programme grants full immunity and confidentiality to the company or individual that was the whistle-blower, in order to continue promoting the option for such company or individual to apply for the immunity programme in current or future investigations.

The powers of COFECE and sanctions for those who violate the antitrust provisions have increased the incentives for joining the leniency programme. However, its efficiency and development has faced some challenges in recent years, such as the following.

• Due to the globalisation of the economy. If a company cooperates with one jurisdiction it may cause a domino-effect, and other agencies around the world may identify that company as operating in its country with the same anticompetitive practices and start an investigation.

• Legal ambiguity that may result in the withdrawal of the leniency programme benefits. In 2016, COFECE decided to withdraw the benefits of the programme from Mitsubishi Heavy Industries and Denso Corporation, considering that the applicants suspended their full cooperation with the authority during the procedure. COFECE sanctioned the companies with a fine of 72 million pesos for absolute monopolistic practices.

• The development of leniency programmes in other matters like anti-corruption.

Mergers

The MAA defines mergers as the acquisition or control operation by which companies, shares, stocks, trusts or assets in general between competitors, suppliers or customers are concentrated. COFECE investigates and, if applicable, sanctions mergers that may have the purpose of reducing, impairing or preventing fair trade of identical or similar goods or services.

Not all mergers must be notified to and cleared by COFECE prior to their execution. The MAA states that, in order to determine whether a merger notice must be filed before COFECE, the participating companies must determine whether the merger will have effects in Mexico and whether the merger surpasses the thresholds set forth in the MAA. If the merger exceeds any of the following thresholds, the companies involved must file a notice before COFECE in the following situations.

• The price of the transaction in Mexico (that is, considering only the companies, subsidiaries, affiliates or assets located in Mexico, which will be indirectly acquired by the acquiring company) exceeds approximately US$74.5 million. COFECE has recognised that often in international transactions no allocation of the price to be paid for the Mexican assets or shares is made and therefore it is not possible to determine whether this threshold is surpassed.

• The buyer, whether located in Mexico or abroad, will acquire at least 35 per cent of the assets or shares of a company or companies (whether located in Mexico or abroad) whose assets or annual sales in Mexico exceed approximately US$74.5 million. To calculate the value of the assets, the 'total assets value' stated in the audited financial statements for the previous year must be considered. If no audited financial statements are available, the internal financial statements could be used.

• The assets or annual sales volumes of the buyer or the seller (whether located in Mexico or abroad), exceed approximately US$199 million and the transaction involves the purchase in Mexico of assets or capital greater than approximately US$34.8 million. The calculation of the asset value is obtained from the audited financial statements. Additionally, to calculate the 'capital' acquired, the information regarding the 'adjusted for inflation capital' stated in the financial statements for the previous fiscal year must be considered.

When a merger has effects in Mexico and any of the mentioned thresholds are surpassed, the participating companies are obliged to file a merger notice to COFECE. However, in those transactions where it is clear that the effects produced will not have adverse effects in the relevant market, the merger notice can be filed through a simplified format, with the possibility for COFECE to request additional information before authorising the merger.

In this respect, COFECE issued the Merger Notification Guide, the purpose of which is to provide information on and an explanation of the concepts, the law and the procedures associated with the notification of mergers, in order to facilitate this procedure for the economic agents.

Furthermore, in mid-2015, COFECE issued the Technical Criteria for the Calculation and Application of a Quantitative Index to Measure Market Concentration, which explain in detail the method COFECE uses to measure, through the Herfindahl-Hirschman Index (HHI), the degree of concentration in the relevant markets and to explain the considerations for applying it. This index permits COFECE to come to a first approximation of the structure of the markets and the effects the mergers may have on them.

Finally, at the end of 2015, the Federal Fees Act was amended to include that beginning on 1 January 2016, for the reception, study and processing of each merger notification, the economic agents initiating the process must pay a filing fee of approximately US$8,888.

Proceedings

The monopolistic practices procedure seeks to protect free competition and fair trade. It is considered a public interest activity.

By means of the MAA, the COFECE Investigating Authority has been created, to guarantee the independence of the authorities responsible for the investigation process and the authorities responsible for the resolution.

During the investigation process, all documentation and information filed by all interested parties (denounced parties, plaintiffs, third parties and authorities) is confidential and unavailable to anyone outside COFECE and its personnel. This has been greatly criticised by many who claim it damages the constitutional right to due process. However, no claims in this regard have been successful for the interested parties, strengthening the powers of investigation of COFECE. The first stage of the procedure is the investigation and research stage, which has the purpose of gathering evidence in order to determine possible monopolistic activities. The evidence is gathered by COFECE by requesting information and documentation it considers necessary from all interested parties, by summoning people COFECE believes may hold information regarding the investigation, and by conducting dawn raids with the purpose of obtaining additional information.

The investigation stage lasts for up to 120 business days, with the possibility of extending the period for up to four additional periods of 120 business days. In any case, when the investigation stage of the procedure ends, COFECE must issue and deliver to those companies that may be responsible a notice either of probable responsibility, if COFECE determines the possible existence of monopolistic activities, or of the closing of the investigation, when COFECE concludes that from the gathered evidence it cannot determine that any monopolistic practices have been undertaken. Either of the aforementioned actions ends the investigation stage of the procedure. Only if a probable responsibility notice is issued by COFECE may the second stage of the procedure, the trial stage, begin.

Under the MAA there is no longer an obligation to publish the start of investigation in the Official Gazette.

The trial stage begins with the issuance of the probable responsibility notice, which contains, among other things, the monopolistic activities the defendant companies allegedly committed, the elements considered to draw said conclusion, and the request to notify the defendants to defend themselves and try to disprove the arguments and conclusions of COFECE by providing evidence and proof they consider necessary, within 45 business days after the notification. It is at this stage when the investigation file will not be confidential for the parties and they will have access to all non-confidential information gathered throughout the investigation phase. The necessary evidence must be included with the document in which the defendant companies answer the probable responsibility notice, which may include all documents, information, expert opinions, testimonies and all other information that is relevant to the investigation and is presented in accordance with the applicable legislation.

Once the evidence has been presented and admitted, COFECE will have 15 business days to reach its decision regarding the offered arguments and evidence. Once the evidence has been submitted, and within the next 10 business days, COFECE can request the gathering and filing of additional evidence in order to have a better understanding of the investigation. Once all the evidence has been gathered and presented before COFECE, it must provide a 10-business day period for the Investigating Authority and the parties to provide any final arguments in connection with the procedure. When the final arguments have been presented, one commissioner, by instruction of the chairman of COFECE, will receive all information gathered for his or her analysis, following an appointment order. The selected commissioner will then be required to present a final resolution draft before the Plenary for its approval, rejection or modification. COFECE must issue the final resolution within the following 40 business days.

However, 10 days after all the parties have filed their final arguments, the defendant companies, or the plaintiffs, may request COFECE to have an oral hearing with the Plenary to make the statements they deem appropriate.

The MAA includes several special procedures, among which are:

• an investigation procedure to determine the existence of barriers to competition or essential inputs that could generate anticompetitive effects;

• a procedure for rulings regarding market conditions such as effective competition, market power existence or any other analogous concept; and

• a procedure for the issuance of formal opinions or resolutions on licensing, concessions, permits and similar authorisations.

All of these specific procedures can be initiated by COFECE itself or at the request of the President (either personally or through the Ministry of the Economy). With the addition of this specific regulation, and where applicable, a resolution by COFECE, the latter may order the entities involved in markets related to essential inputs to remove the existing barriers to new competitors, as well as the divestiture of assets or rights.

Barriers to competition

The concept 'barriers to competition' is a new one – globally – that was included for the first time in Mexican legislation through the recent MAA. This concept is defined as any structural market characteristic, act or deed performed by economic agents with the purpose or effect of impeding access to competitors or limiting their ability to compete in the markets; which impedes or distorts the process of competition and free market access, as well as any legal provision issued by any level of government that unduly impedes or distorts the process of competition and free market access.

From this definition we can abstract that any of the following three premises that impedes or distorts the competition process and the free market may be considered a barrier to competition:

• structural characteristics of the market;

• acts or deeds of the economic agents; or

• legal provisions issued by any level of government.

Thus, in order to guarantee effective competitive conditions in the markets damaged or distorted by any of these three premises, the legislature decided to include a special procedure by virtue of which:

• the existence of this type of barrier to competition will be determined; and

• the corrective measures that are considered necessary to eliminate the restrictions on the efficient functioning of the market in question are established.

In contrast to the concept of barriers to competition, the MAA – since the original antitrust legislation of 1992 – established the concept of 'barriers to entry' which, according to article 59 of the MAA, is one of the elements that must be analysed to determine substantial power in the relevant market.

In comparison with barriers to competition, article 7 of the Regulatory Provisions contains an illustrative list of those elements or acts that may be considered barriers to entry.

Barrier to entry

Barrier to competition

Application Element to be analysed to define a relevant market Independent concept with a special procedure to guarantee the efficient functioning of the markets
Criteria for its determination Articles 59 MAA and 7 of the Regulatory Provisions Do not exist
When first regulated Since the first MAA First regulated in the MAA of 2014
Comparative law Concept established in various jurisdictions (US, European Union) Not established in other countries

Under the Constitutional Reform, the procedures processed by the antitrust authorities may only be reviewed by constitutional appeal, which will be heard by the specialised antitrust judges and courts, and only those handled by COFECE may be subject to suspension, since the First Collegiate Circuit Court in Administrative Matters, Specialised in Economic Competition, Broadcasting and Telecommunications ruled that the aforementioned rule established in the Constitution expressly for COFECE could not be applied to the IFT by analogy. In addition, only if companies are punished with fines or divestiture of assets, rights or shares will the resolution be implemented pending resolution of the appeal. Finally, only the resolutions that terminate the proceedings and regarding violations committed in the resolution or during the procedure may be appealed.

Enforcement and sanctions

Regarding antitrust legislation in Mexico, both the company and its employees directly participating or involved in any activities in breach of the antitrust law can be held jointly responsible for any such breach of the MAA. However, the penalties imposed on companies and individuals are different, both in amounts and in nature.

The sanctions for breaching the MAA or engaging in any monopolistic practices or prohibited mergers can be administrative and criminal in nature, with the possibility of doubling any sanction in case of recidivism. Regarding companies that breach antitrust law, the MAA may order the correction or suppression of the monopolistic activity or prohibited merger and the imposition of fines that may go up to 10 per cent of the company's income, depending on the action in breach of antitrust regulations, as follows:

• up to 5 per cent of the company's income if the merger is carried out without giving prior notice to COFECE, in the event such notification is legally required;

• up to 8 per cent of the company's income if the company engages in any relative monopolistic activities;

• up to 10 per cent of the company's income if the company engages in absolute monopolistic activities, violates any preventive measures or violates any conditions imposed regarding mergers;

• up to 8 per cent of the company's income if the company engages in an illegal concentration; and

• up to 10 per cent for failing to comply with the conditions imposed by COFECE in the concentration resolution.

With regard to individuals or employees involved in the defendant company's execution of monopolistic activities, the applicable fines, as stated in the MAA, are as follows:

• up to approximately US$746,341 for anyone who helps, induces or participates in any monopolistic activities, prohibited mergers or other market restrictions stated in the MAA;

• up to approximately US$829,261 for anyone who directly participates in any monopolistic activities or prohibited mergers while representing the defendant company;

• up to approximately US$725,610 for misstating or delivering false information to COFECE; and

• up to approximately US$746,341 for government officials who have participated in any act related to a concentration which had to be authorised by COFECE.

As an example of the seriousness of the imposition of sanctions in Mexico, on 1 June 2017, COFECE imposed, for the first time in Mexico's history, a sanction of approximately US$469,000 on a notary public of Mexico City for formalising a concentration that did not have the approval of COFECE.

In accordance with the Constitutional Reform, the Federal Criminal Code was also reformed to include felonies regarding violation of antitrust provisions. The penalty for individuals directly involved in any absolute monopolistic activities is imprisonment from five to 10 years.

Furthermore, consistent with the absolute monopolistic practice added to the MAA, another felony was included, which is the exchange of information with the purpose or effect of fixing prices, restricting supply, dividing markets and bid-rigging.

Finally, it is considered a felony to alter, destroy or disturb documents, electronic files or any evidence during an inspection.

COFECE determines the aforementioned sanctions based on the seriousness of, and the damage caused by, the violation, the intention to carry out any prohibited actions and the share of the company in the market, as well as the size of the applicable market and the duration of the monopolistic activities.

International cooperation

Under the MAA and its regulations, during their investigations COFECE and the IFT are entitled to request information or evidence regarding monopolistic activities committed in Mexico from foreign government agencies, as an act of cooperation between government authorities, in order to ensure compliance with antitrust law. Furthermore, COFECE and the IFT are specifically empowered to execute and negotiate all sorts of agreements and international treaties regarding antitrust and free competition.

Based on the fact that international trade has increased significantly in the past decades, Mexico has executed free trade agreements with several countries (including the United States, Canada, Japan, Chile, the European Union and Israel) that include and recognise the importance of international cooperation and coordination among the competent authorities to ensure the effective enforcement of antitrust law between the free trade areas. In addition, Mexico has executed agreements with the United States and Canada, among others, that deepen cooperation to ensure the prevention and prohibition of monopolistic activities.

Outlook and challenges

We will follow closely the rulings of COFECE in the significant cases mentioned, given that such rulings will represent in the future important precedents of this new authority, as well as reflect the long-term results of the above-mentioned comprehensive reform in Mexico.

In conclusion we can say that the reforms have resulted in a more efficient and stronger Mexican competition authority, which has decided to exercise its faculties fearlessly but responsibly, with a growing level of expertise that allows it to solve increasingly complex cases.

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