Mexico: Overview

In summary

In this article, we present a summary of the antitrust legal framework in Mexico, including investigation procedures – for both monopolistic practices and market issues – and merger control matters. We also provide a general overview of the practitioner’s environment and analyse the recent trends of the competent authorities and their cooperative relationship with other international antitrust authorities. Finally, we analyse the impact that the covid-19 outbreak has had on antitrust practice in Mexico and the challenges faced as a consequence of the pandemic.

Discussion points

• Constitutional reform and its effects
• Monopolistic conduct
• Mergers, proceedings and barriers to competition
• Enforcement and sanctions
• International cooperation
• Impact of covid-19

Referenced in this article

• Mexican Antitrust Commission
• Mexican Antitrust Act
• MAA Regulatory Provisions
• Second Collegiate Circuit Court
• Mexican competition leniency programme
• Federal Telecommunications Institute

Introduction

In the past decade, antitrust practice has become a particularly relevant matter in Mexico due to the significant transformation that both the legislation and the practice have been undergoing. With the latest constitutional amendment adopted in 2013, ¹ the Mexican government stated a very clear intention to keep working, both independently and jointly with the international community, on creating a healthy and strong antitrust environment in Mexico that would allow the efficient, effective and legal development of the Mexican markets and economy.

After seven years since its implementation, we can analyse with more accuracy the main factors that this constitutional amendment has brought to the antitrust field in Mexico: how some relevant legal-economic concepts have been evolving, and the challenges that have been faced and will potentially be faced by all participants in the field (authorities, economic agents, academics and practitioners), as well as the impact that this transformation has had on Mexican and international markets, and the Mexican economy in general.

Currently, considering the unprecedented times that we have been experiencing since the covid-19 outbreak, the authority is facing completely different but no less testing challenges. The Mexican Antitrust Commission (COFECE) has been working on not only the implementation of digital platforms that can support both their merger control and investigative procedures on a long-term and permanent basis, but also on some analysis and regulatory strategies that can support the Mexican markets in their effective and successful recovery from this significant crisis.

The following sections provide a brief outlook of the antitrust legal framework in Mexico, then focus on summarising and analysing the key concepts under the Mexican Antitrust Act (MAA) ² and its secondary regulation. We also explore some of the tendencies followed by the Mexican antitrust authorities, COFECE and the Federal Telecommunications Institute (IFT). Finally, we provide a brief outlook of what we consider will be the next steps for the antitrust practice in Mexico.

Outlook of the antitrust legal framework in Mexico

MAA

The first Mexican antitrust law was enacted 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, 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 (the Constitutional Reform), modifying the organisational nature of the antitrust authorities and creating a specific authority that will review antitrust matters in the telecommunications sector, which has been an area of great importance in recent decades in Mexico. The Constitutional Reform implied, among other things, the creation of the MAA and its corresponding regulation, as well as the additional secondary legislation.

The regulatory provisions of the MAA

On 10 November 2014, the Plenary of COFECE (its main body) issued and published the Regulatory Provisions of the MAA (the Regulatory Provisions), ³ which entered into full force and effect on 11 November 2014. Although 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. Below is 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 (AMP)) may qualify as sufficient cause 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, 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. 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 Mexican 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). In this regard, in 2017, through a constitutional litigation proceeding (amparo), 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(2), 16(12) and 20(b)(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, on the understanding that if it does use it, all acts derived from that information will be considered illegal acts.

Effects of the implementation of the constitutional amendment

There are at two main factors of the constitutional amendment that have had a significant impact in the antitrust field in Mexico. The first is the width and strength of the powers conferred to the Mexican antitrust authorities. The second is the notorious increase in the severity of the penalties imposed on infringers of the antitrust disposition in Mexico. This transformation has forced companies, both domestic and international, to implement or strengthen their antitrust compliance programmes and to get more involved with the antitrust culture and tendencies in Mexico.

The MAA 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 former Mexican Antitrust Commission (COFECO). In addition, the MAA has resulted in much greater scrutiny of mergers and investigations under new concepts established in it, 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 (the Second Collegiate Circuit Court), 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. Additionally, in March 2017, the same Second Collegiate Circuit Court, in the context of the AT&T and Time Warner merger, resolved a second jurisdictional dispute between COFECE and IFT, determining that a concentration may be analysed by both regulators, depending on the analysis of the following elements:

• the relevant markets;
• its complexity or technicality;
• how the chain of value is integrated;
• the possibility of modifying the competitive landscape of related markets;
• whether the relevant market or a related market constitutes an essential input for the telecommunication and broadcasting sector; and
• the specialisation of each governmental body.

In this case, the Second Collegiate Circuit Court established that the IFT should address all matters related to telecommunications and broadcasting, and leave the rest of the relevant markets to be analysed by COFECE.

Monopolistic conduct

Pursuant to article 52 of the MAA, there are several activities that are forbidden and can be classified as monopolistic or anticompetitive conduct. These activities are listed as follows: monopolies; and monopolistic conduct and any barrier that, in terms of the MAA, can diminish, damage, prevent or condition the free competition in the production, processing or trading of any kinds of goods and services.

In terms of monopolistic conduct, the MAA classifies them into two main groups: AMPs (horizontal or per se illegal practices) and relative monopolistic practices (RMPs) (vertical practices).

AMPs

AMPs 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 points.

AMPs are considered null and void, and consequently they do not produce any legal effect, and the economic agents that engage in these practices will face the sanctions established in the MAA, including any criminal or civil liability that may arise therefrom.

However, demonstrating the existence of AMPs can be an extremely difficult task for COFECE in an investigation. To start an investigation, COFECE or the IFT is required to obtain sufficient evidence to generate a probable cause of investigation that triggers the formal process. This information can be generated by the authority itself, provided by a complainant or an applicant of the leniency programme, or given by the Executive Branch of the government.

The complainants or leniency programme applicants are required to provide sufficient evidence to convince the authority to initiate an investigation. Generally, 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 and 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 difficulty of obtaining sufficient evidence, Mexican courts have determined that there should be related but conclusive evidence to infer from signs and evidence that an AMP 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 the AMP.

Price-fixing may occur when one or more competitors within a given market are able to establish, increase, fix or manipulate the price in a particular market. In other words, a group of competitors sets the applicable market’s price of a product or service to 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 the 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 effected by assigning the amount of goods or services competitors will provide or sell, letting the market decide the pricing of said product. Providing indirect evidence of this type of practice may require additional supply-and-demand studies of the products or services offered 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, where the involved companies agree not to seek or enter into similar agreements with any of the other companies’ customers;
• by territory, where competitors agree to restrict the availability of their products or services to certain areas, cities or territories; or
• by products, where 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 where competitors agree to participate in certain offers, offer excessive prices such that its proposal will be disregarded 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 where 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), through economic analysis such as screening, as well as when the competitors bid at higher prices or conditions that cannot compete with those offered by a competitor.

One additional AMP was included in the MAA, which is the exchange of information with the purpose or effect of fixing prices, restricting supply, segmenting the market segmentation 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 increase the risk of being considered as an anticompetitive information exchange:

• 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 fewer competition problems. When the information exchanged is difficult or expensive to access, it tends to raise suspicions;
• the 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.

RMPs

Under the MAA, an RMP is 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, unduly displacing other economic agents, substantially impeding their access or establishing exclusive advantages in favour of one or several economic agents. Unlike an AMP, it is commonplace that these practices generally occur in a vertical relationship (eg, between a producer and its distributor), but in some particular cases they may be regarded as horizontal practices entirely different from any AMP (eg, predatory pricing or cross-subsidisation).

However, proving the illegality of RMPs is subject to ascertaining that:

• the 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
• the practices did not produce enough gains in efficiency to compensate for the harm made to the market or the competition itself.

Generally, a company has substantial power in the market when it has the ability to unilaterally 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. For COFECE to determine whether a company has substantial power in the market, it needs to consider the following:

• 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, the number of clients and production capacity, as well as any other factor deemed appropriate;
• the existence of barriers to entry and the factors that could foreseeably alter 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, 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, for COFECE to establish a relevant market, it needs to take the following into consideration:

• the possibilities of substituting the product 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 the substitution;
• the product’s distribution costs, its relevant inputs, and 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 RMPs:

• the establishment of exclusivities regarding marketing or distribution rights;
• the imposition of conditions that a distributor must follow regarding the marketing or distribution of goods or services;
• tied sales and bundling;
• exclusivities;
• 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 product 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:

• whether the essential input is controlled by one or more economic agents with substantial power, or that have been determined as dominant agents by the IFT;
• whether the reproduction of the input is possible by another economic agent from a technical, legal or economic point of view;
• whether the input is indispensable for the provision of the goods or services in one or more markets, and whether 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 points above 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 ‘essential inputs’, an innovative legal concept, 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 to determine the existence of essential inputs is the following:

• whether the essential input is controlled by one or more economic agents with substantial power, or that have been determined as preponderant agents by the IFT;
• whether the reproduction of the input by another economic agent is possible, from a technical, legal or economic point of view;
• whether the input is indispensable for the provision of the goods or services in one or more markets, and whether 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.

In 2015, 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 RMP or prohibited merger, and information about the stages of the investigation procedure.

Leniency programme

The Mexican competition leniency programme (MCLP) was introduced to the Mexican legal system in 2006 as part of a significant amendment made to the Mexican Antitrust Law in force at the time. The Mexican version of the leniency programme was not duly implemented until late 2007, when COFECO had it first formal application.

Later, by means of a subsequent amendment to the Mexican Antitrust Law, in 2011, two significant factors influenced the implementation of the programme. Criminal immunity was included as part of the benefits of the programme and COFECO was empowered with the prerogative of conducting dawn raids towards those that could be considered to be involved in cartel behaviour. It was not until that year that COFECO could finally conclude a cartel investigation and successfully sanction the responsible parties precisely because of the information provided through the leniency programme. From that moment on, the MCLP has gone through several increases and decreases in terms of the number of applications; however, to understand this phenomenon, it is worth considering as a potential cause the challenging and demanding process of quick adaptation through which the Mexican competition law has been in the past decade.

As part of the competition authorities’ efforts to promote and develop the leniency programme in Mexico, today there are at least three main legal sources of guidelines for the effective use of this tool. The first is the MAA, which, by means of its article 103, provides the pure prerogative of the individuals and entities to apply for the programme. The second source is the Regulatory Provisions, which, through articles 114, 115 and 116, provide detail on the application process. The last source is the Guidelines for the Leniency Programme, ⁴ which, despite the controversial fact that they are not binding, have been one of the determinant factors of success in the implementation of the programme, since they contain highly detailed instructions and answers for all the main stages of the process.

Pursuant to the aforementioned sources, the application process runs in several stages that, for illustrative purposes, in this article are classified as follows: the application stage; the investigation and conditional granting of benefits stage; and the decision and definitive granting of benefits stage. Each of these stages, as discussed in more detail below, has its own areas of opportunity for improvement.

During the application stage, the applicant will submit a formal electronic request to use this ‘protective’ prerogative granted by the law, and formally meet with the authority to provide it with all the information and documentation in his or her power related to the case. Through this initial approach, the authority will be able to determine whether the case fulfils the requirements to be investigated and whether the applicant could be ‘protected’ by the MCLP. Regarding the first condition, according to the MAA, this specific programme is only available for an individual or entity ‘who has engaged or is engaging in an AMP; has participated directly, on behalf or by account and order of undertakings in absolute monopolistic practices, and the Economic Agent or individual which has contributed, fostered, induced or participated in the execution of an absolute monopolistic practice’; meaning that this exemption and fine reduction procedure is only available for cartel cases and not for those cases involving an alleged non-per se illegal conduct. ⁵ Therefore, if the conduct described in the initial application is considered by COFECE as cartel behaviour, the first condition would be fulfilled.

With regard to the second condition, it can be assumed that the authorities’ ‘golden rule’ for granting the protection offered by the law is the quality and sufficiency of the information and evidence presented by the applicants. Roughly, if the authority considers that the provided information constitutes clear and sufficient evidence to presume the existence of a cartel practice, the second condition would be fulfilled as well. Once fulfilled, the authority will offer the applicant the conditional granting of the benefits and, if accepted by the applicant, it would initiate the corresponding investigation under these protective and cooperative terms.

In the investigation and conditional granting of benefits stage, the authority will request the full and continuous cooperation of the applicant throughout the formal investigation procedure. The procedure will be followed in the ordinary way.

Similar to most of the leniency programmes currently in force around the globe, the MCLP has a confidentiality component. Pursuant to the nature of the programme and how it is set forth in the MAA, the authority has the obligation to keep the identity of the applicants confidential. Its main purpose is to protect the identity of the applicants to avoid any potential revenge from the other cartel members against the whistle-blowers.

During the decision and definitive granting of benefits stage, after conducting the corresponding investigation procedure, the authority will issue the final decision through which it will resolve the level of liability of the parties allegedly involved in the cartel, or the closure of the file due to the lack of evidence to establish responsibility. If COFECE decides to impose liability on the parties, the applicants (as part of the liable parties) must be unconditionally granted with the benefits described in the table below. However, these benefits would only be unconditionally granted to the applicants if, according to the authority’s criteria, they have fully and continuously cooperated with the authority throughout the investigation and they have taken all necessary actions to no longer engage in the unlawful practices.

Pursuant to the Regulatory Provisions of the MAA and the Guidelines for the Leniency Programme, the benefits to be granted by the MCLP can be summarised as follows.

Since its formal start in 2007, COFECE has received more than 142 applications to the MCLP, from which about 8 to 10 per cent have ended in actual sanctions for the agents involved. ⁶ From the information that is publicly available, we can identify that some of the most relevant cases that had been successfully investigated and penalised by COFECE owing to the MCLP actually involve primary sectors for the development of the Mexican economy, such as the transportation (passengers ⁷ and maritime) and manufacturing markets, ⁸ among others.

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, penalises 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, 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 that will be indirectly acquired by the acquiring company) exceeds approximately US$71 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$71 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; or
• the assets or annual sales volumes of the buyer or the seller, jointly or separately (whether located in Mexico or abroad), exceed approximately US$189.5 million and the transaction involves the purchase in Mexico of assets or capital greater than approximately US$33 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, 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 explains in detail the method COFECE uses to measure, through the Herfindahl–Hirschman Index, the degree of concentration in the relevant markets and to explain the considerations for applying it. This index enables 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 from 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$8,637.

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, COFECE’s investigating authority was 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) are 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 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 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 of either probable responsibility, if COFECE determines the possible existence of monopolistic activities, or the closing of the investigation, where 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 does 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, but the Regulatory Provisions establish that the investigative authority of COFECE must publish on its website, within the first 120 days of the investigation, a notice to make people aware that a certain market is under investigation, as well as to advise that any person can provide relevant information to COFECE regarding the investigation.

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 of the notification. It is at this stage that the investigation file will not be confidential to 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’s investigative authority will have 15 business days to manifest anything regarding the offered arguments and evidence offered by the economic agents. Once the evidence has been submitted, and within the next 10 business days, COFECE can request the gathering and filing of additional evidence 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 chair 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 before the Plenary to make the statements they deem appropriate.

The MAA includes several special procedures, among which are the following:

• 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 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 the 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 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, 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.

Under the Constitutional Reform, the procedures processed by the antitrust authorities may only be reviewed by constitutional appeal, which will be heard by the specialist 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 regard violations committed in the resolution, and fines imposed within the process 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 the event 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 be 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, if the notification is legally required;
• up to 8 per cent of the company’s income if the company engages in any RMPs;
• up to 10 per cent of the company’s income if the company engages in AMPs, 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$710,836 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$691,090 for misstating or delivering false information to COFECE; and
• up to approximately US$710,836 for government officials who have participated in any act related to a concentration that 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 the violation of antitrust provisions. The penalty for individuals directly involved in any AMPs is imprisonment for five to 10 years.

Furthermore, consistent with the AMP provisions 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 or 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, 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 international trade increasing significantly in the past few decades, Mexico has executed free trade agreements with several jurisdictions (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.

Impact of the covid-19 outbreak on antitrust practice in Mexico

In our view, COFECE has not experienced any negative impact on the merger control division as a consequence of the pandemic. In terms of merger reviews, COFECE has decided that all cases will be handled through the electronic system (which in the past has been recommended for non-complex transactions only). This has allowed COFECE to continue with the merger review process on a regular basis. Likewise, COFECE has committed to expedite the review process to avoid further delays to filings. In terms of the timelines related to merger review cases, it is our perception that they have in fact been positively impacted since being handled remotely as a consequence of the pandemic. Considering recent public statements made by the authority, we expect COFECE to relax its review standards in cases related to industries affected by the pandemic. The authority expressed its willingness to consider the specific conditions of affected industries to expedite the merger review procedures, and has, in fact, mentioned its interest in exploring the failing firm theory for the first time.

On the other hand, for investigations, on 25 June 2020 COFECE issued the Regulatory Provisions on the Use of Electronic Means in Investigation Procedures and other Procedures, through which it is seeking to conduct all of its procedures electronically. COFECE expects that, through such electronic means, several proceedings, such as appearances, testimonials, confessions and oral hearings, can be conducted remotely.

In this regard, it is also important to mention that COFFEE recently issued a public statement advising that it will not investigate arrangements between competitors restricting competition as long as they prove to be necessary to fight the pandemic. COFECE is working on implementing a consultation system through which the chief prosecutor will review the terms and conditions of collaboration agreements and will report COFECE’s opinion or approval. For these purposes, COFECE has set up an email address and is working on the legal details to regulate a formal approval of any possible agreement between competitors to fight the pandemic.

Finally, regarding the potential implementation of a price-control strategy through the antitrust authorities, it is important to note that a price control mechanism is established in law in Mexico, but this has not been used in decades. For the implementation to take place, COFECE must declare a lack of competition in the specific market. However, to date, COFECE has not expressed any intention of exercising this power.

Outlook and challenges

It is undeniable that during the past few years, COFECE has done extraordinary work in the development and implementation of its prevention and investigation faculties and tools. We are all conscious that effective antitrust policies are recognised worldwide as indispensable in the fight for competitive and efficient markets, especially since the covid-19 outbreak, and therefore it is important to keep reviewing and improving them to make sure that they are working in the most efficient way. It is also important to maintain international cooperation and closely follow international tendencies.

The rulings of COFECE in the significant cases mentioned will be closely followed, given that these 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, and the implementation of the new specific regulation, including the Regulatory Provisions on the Use of Electronic Means In Investigation Procedures, 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 and to adapt to the new normality for practising law.

Notes