Mexico

In Mexico, antitrust practice has been, since its creation, one of the most sophisticated and complex topics in Mexican law. This has caused a number of changes in both institutions and legislation, most of them related to increasing powers from antitrust authorities and sanctions for those that breach antitrust law in Mexico, making it an extremely agile practice in Mexico. This has caused an important concern for many companies, local and international, which have implemented antitrust compliance policies and programmes, in order to avoid an investigation and, possibly, a sanction. Consumers have also become more aware of the effectiveness and necessity of having strong antitrust institutions, and the media closely watches any relevant antitrust cases and quickly communicates them to the general public.

The Mexican Antitrust Act

The Mexican Antitrust Act (MAA) was published on 24 December 1992, based primarily on the negotiations and execution 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 in force and execution of the NAFTA.

Since its publication, the MAA 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 MAA took place in 2006 and 2011 which, among other things, increased the penalties for breaching antitrust provisions.

In addition, the Mexican Constitution has recently been reformed in terms of antitrust, modifying the organic nature of antitrust authorities and creating a specific authority that will review antitrust in the telecommunications market, which has been an area of great importance over recent decades in Mexico (the Constitutional Reform). The Constitutional Reform implies, among other things, reforms to the MAA and its Regulations, and creating additional secondary legislation, which will be drafted and published in the following months.

While the MAA applies to most companies and markets, the Mexican Constitution provides certain important exceptions. Mexico does not consider strategic activities (eg, railroads) and activities that are exclusively reserved to the state (eg, postal services, telegraph and radiotelegraphy, petroleum and other hydrocarbons, basic petrochemicals, radioactive minerals and nuclear power generation, electricity, among others) to be monopolies. Additionally, the activities of labour unions created in accordance with Mexican law and authors’ or artists’ exclusive rights over their works or inventions are not considered monopolies under Mexican law.

The Mexican Antitrust Commission and the Federal Telecommunications Institute

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

However, the Commission may also issue, when it deems appropriate or upon request, binding opinions regarding fair trade to the government agencies with regard to effects to free competition on programmes, rules, agreements or other dispositions. When economic agents have questions or concerns regarding any antitrust issue, they may file a consultation before the Commission, which will deliver a non-binding opinion to the interested parties.

As a consequence of the Constitutional Reform, the Federal Telecommunications Institute (the Institute) is in the process of being created, which among other things, will be in charge of investigating, analysing and sanctioning antitrust breaches in the telecommunications market, as well as defining which companies will have market power and stating measures in favour of free trade. In addition, the Commission and the Institute will be provided with additional tools and mechanisms to modify market structures with dominant companies, including ordering measures to remove competition barriers, regulating access to essential inputs, and ordering the divestiture of assets, rights or shares, to eliminate anti-competitive effects. The Commission’s and the Institute’s decisions will be analysed by specialised constitutional courts, which are in the process of being created, by means of the Constitutional Reform.

Through the Constitutional Reform, the Pleno (which is the main body of the Commission) is in the process of being modified from five to seven commissioners, who will be elected through an evaluation committee with the approval of the president and the Senate for a period of nine years. In any case, the Pleno will have a president commissioner and the commissioners will not be simultaneously elected (with the exception of the first seven commissioners once the Commission is modified through the Constitutional Reform), guaranteeing the autonomy and independence of the Pleno. The commissioners vote on all resolutions of the Pleno and cannot be excused unless under extraordinary circumstances.

The Institute is in the process of being provided with an organic legislation as a consequence of the Constitutional Reform. However, at this point, the Constitutional Reform only states that the Institute will also have seven commissioners, elected through an evaluation committee with the approval of the president and the Senate for a period of nine years.

Monopolistic activities

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

Absolute monopolistic practices

Absolute monopolistic practices are defined as any agreement between competitors with the goal or effect of fixing prices, limiting or restricting the available product supply, dividing markets or agreeing on postures regarding public biddings. In order for these practices to be investigated and sanctioned, the Commission only needs to prove their existence and not if the effects actually take place, which means that they are per se illegal.

However, demonstrating the existence of absolute monopolistic practices can be an extremely difficult task for the Commission to prove in an investigation. In Mexico, the Commission or the plaintiffs need to obtain the necessary evidence to start an investigation or denounce monopolistic practices, in order for the Commission to have sufficient evidence that companies are engaging in absolute monopolistic practices.

In order for the plaintiffs to provide this evidence, the information they will most likely refer to is, among others things:

• testimonies from third parties that may be affected by the agreement;
• evidence gained through raids executed by the Commission to the investigated competitors (this practice has only been implemented twice since its addition in the MAA reform of 2011);
• communications between the companies involved, including meetings, e-mails, 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.

Therefore, Mexican courts have determined that there should be bonding or related evidence to conclude 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 set the applicable market’s supply in such a way that the price of that product or service increases the profits gained by said competitors. In accordance with 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 derives 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 a certain product or service supply or demand, 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 be easier, by demonstrating that the applicable market’s mobility has remained unchanged during a certain period of time, when competitors have had realistic opportunities to expand but have decided not to, contrary to their own interest.

Finally, agreeing on public biddings takes place when competitors agree to participate with certain positions, or even refrain from participating in public biddings, which are likely to have the effect of guaranteeing that the bidding will be granted 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 biddings 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.

Relative monopolistic practices

In accordance with the MAA, relative monopolistic practices are all actions, contracts, agreements, procedures or combinations of such with the purpose or effect of improperly displacing competitors from the market, substantially limiting their access to the market or establishing exclusive advantages in favour of one or more competitors. Unlike absolute monopolistic activities, it is commonplace that these practices are conducted in a vertical relationship (eg, between a producer and its distributor). However, relative monopolistic practices are subject to ascertaining that the company engaged in this type of activities has substantial power in the market and that the activities take place within the relevant market.

Mainly, 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 the Commission to ensure a company has substantial power in the market, it needs to consider:

• the company’s participation in the market and if it has the ability or opportunity to fix prices or restrict supply by itself, without the possibility that competitors would counter such ability or opportunity;
• the existence of entry barriers and the existence of elements that may alter those barriers;
• the existence and market power of its competitors;
• the ability of the company and its competitors to access production and distribution sources; and
• the recent behaviour of the competitors that participate in the relevant market.

‘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 offer 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. In order for the Commission to establish a relevant market, it needs to take into consideration:

• the possibility of substitution of the goods or services with similar goods or services (considering costs, accessibility, pricing, etc);
• the difference in the distribution costs of the goods and other necessary costs (freight, insurance, restrictions, etc) compared with other territories or abroad;
• the costs and possibility that consumers have to search for the same or similar products in other markets; and
• the regulatory restrictions that federal, local or international authorities execute in order for consumers to have access to alternative supply sources.

The MAA states 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;
• the refusal to sell, trade or provide goods or services normally offered to third parties;
• boycotts;
• the granting of discounts or incentives with the requirement of not engaging in economic activities with a certain third party;
• cross-subsidies;
• price discrimination; and
• the activities engaged in by competitors with the purpose of increasing costs, hindering the production process or reducing the demand for competitors.

In order for the Commission to determine if the relative monopolistic practices will be sanctioned, it analyses, among other things, the gains arising from such conduct and the intentionality of its actions.

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. The Commission 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 filed before and cleared by the Commission prior to their execution. The MAA states that, in order to determine if a merger notice must be filed before the Commission, the participating companies must verify if the merger will have effects in Mexico; and if 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 the Commission in the following situations:

• If 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 $93 million. The Commission 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 if this threshold is surpassed.
• If 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 in Mexico whose assets or annual sales (those of the Mexican companies only) exceed approximately $93 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.
• If the assets or annual sales volumes of the buyer or seller, regardless of the country they are located, or both together, exceed approximately $248 million and the transaction involves the purchase in Mexico of assets or capital greater than approximately $43 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 is surpassed, the participating companies are obligated to file a merger notice to the Commission. 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 the Commission to request additional information before authorising the merger.

Proceedings

The monopolistic practices procedure seeks to protect free competition and fair trade. It is considered a public interest activity. Therefore, 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 the Commission and its personnel. This has been greatly criticised by many, claiming that it damages the constitutional right to due process. However, no claims in this regard have been successful to those interested, strengthening the powers of investigation of the Commission.

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 when the Commission requests information from all interested parties and documentation it considers necessary, by summoning people the Commission believes may hold information regarding the investigation and by conducting dawn raids with the purpose of obtaining additional information.

The investigation stage begins when the Commission issues an initiation agreement, of which an extract is published in the Official Federal Gazette, containing at least the probable violations or breaches of the MAA and the market in which the alleged monopolistic practices were executed, so that any person may assist in the investigation. This stage lasts for up to 120 working days, with the possibility of extending the period for up to four additional periods of 120 working days. In any case, when the investigation stage of the procedure ends, the Commission must either emit and notice to those companies that may be responsible, a Probable Responsibility Notice, if the Commission determines the possible existence of monopolistic activities; or the closing of the investigation, when the Commission concludes that, from the gathered evidence, it cannot determine that any monopolistic practices have been undertaken. Any of the aforementioned actions ends the investigation stage of the procedure. Only in the case when a Probable Responsibility Notice is issued does the second stage of the procedure begin, which is the trial stage.

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 the Commission by providing evidence and proof they consider necessary, within 30 working 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, the Commission can request the gathering and filing of additional evidence in order to have a better understanding of the investigation. Once all evidence has been gathered and presented before the Commission, it shall provide a 10-day period in order for the parties to provide any final allegations with regard to the procedure. When the final allegations have been presented, one commissioner shall receive all information gathered for his or her analysis, following an appointment order. The commissioner shall then be required to present a final resolution draft before the Pleno for its approval, rejection or modification. The Commission shall issue a final resolution within the following 40 working days.

However, 10 days after all the parties have filed their final allegations, the defendant companies may request the Commission to have an oral hearing with the Pleno in order to clarify issues solely regarding the arguments in the reply the Probable Responsibility Notice, the offered evidence, the allegations and the documents contained in the investigation file.

In addition, since the reforms to the MAA of 2006 and 2011, before the Commission issues its final resolution, any of the defendant companies may submit a document by which it agrees to suspend, remove, correct or discontinue the corresponding monopolistic practices, by requesting its inclusion in an immunity programme. This programme is a significant incentive for those companies involved in monopolistic practices. According to the MAA, companies or individuals that have participated in absolute monopolistic practices may reduce or avoid the imposition of sanctions, provided they denounce the illegal acts in question before the Commission and take the necessary steps to terminate their participation in such activities. The first company or individual to submit to the immunity programme will have the corresponding sanctions reduced almost completely. The fine can be reduced by 50 per cent, 30 per cent or 20 per cent for the companies or individuals that subsequently submit to the immunity programme, in accordance with the chronological order in which the companies have submitted to the immunity programme and the elements of evidence they provide.

Against the Commission’s final resolution, a reconsideration appeal may be filed before the Commission itself, which shall be resolved within 60 working days. Finally, against the resolution of the appeal, the affected party may file a constitutional appeal, in order to claim that the affected party’s constitutional rights were denied or violated during the proceedings, before the competent Federal Courts.

However, under the Constitutional Reform, the procedures analysed by the antitrust authorities may only be appealed by constitutional appeal, which will be substantiated by specialised antitrust judges and courts to be created, and will not be subject to suspension. In addition, only if companies are punished with fines or divestiture of assets, rights or shares, the resolution will be implemented pending resolution of the appeal. Finally, the only resolutions that may be appealed are those that terminate the proceedings, for violations committed in the resolution or during the proceeding.

Enforcement and sanctions

Regarding antitrust legislation in Mexico, both the company and its employees directly participate or that are involved in any activities in breach of antitrust law can be held jointly responsible for any breach to 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 of both an administrative and a criminal 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 from 5 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 the Commission, in the case that such notification is legally required;
• up to 8 per cent of the company’s income if the company engages in any relative monopolistic activities, prohibited mergers or carries out mergers in violation of a previous order of the Commission; and
• up to 10 per cent of the company’s income if the company engages in absolute monopolistic activities, breaches any preventive measures or breaches any conditions imposed regarding mergers.

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 $930,000 for anyone who helps, induces or participates in any monopolistic activities, prohibited mergers or other efficient market restrictions stated in the MAA; and
• up to approximately $1,003,000 for anyone who directly participates in any monopolistic activities or prohibited mergers while representing the defendant company.

In addition, derived from the MAA reform in 2011, the Federal Criminal Code was also reformed in order to include felonies regarding breach of antitrust provisions. The penalty for those individuals directly involved in any absolute monopolistic activities is imprisonment for three to 10 years. However, the accusation of such a felony can only be filed by the Commission itself.

The Commission determines the aforementioned sanctions based on the seriousness of, and the damage caused by, the breach, the intention to carry out any prohibited actions and the participation of the company in the correspondent market, as well as the size of the applicable market and the duration of the monopolistic activities.

International cooperation

In accordance with the MAA and its Regulations, during the investigations by the Commission, the Commission is (and it is expected that the Institute will be) 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 in general. Furthermore, the Commission is (and it is expected that the Institute will be) 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 had a significant increase in the past decades, Mexico has executed a number of 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 in order 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

This year, the Commission was involved in very important and complex mergers in the beer, food, financing and automobile markets, as well as in investigations in the chicken, transportation and telecommunications markets, among others. These proceedings helped the consumer and the companies be even more aware of the Commission’s relevance in Mexico.

Derived from the Constitutional Reform, a major challenge awaits for the Mexican Congress, the antitrust authorities and the special courts that will be created, to execute and enforce antitrust law in their respective fields. The transferring of antitrust powers in telecommunications to the Institute is interpreted by many as a government warning to further investigate and sanction a market that is of a great importance in Mexico, with companies holding a significant market power. Furthermore, Mexican authorities are currently drafting new Regulations to the MAA, as well as several guidelines regarding how monopolistic practices will be detected, determined, analysed and sanctioned.

These recent activities are proof that the new Mexican government is working harder to further ensure that monopolistic activities are investigated and sanctioned. Mexico has made consistent efforts with respect to antitrust investigation, prevention and enforcement. However, secondary legislation to be drafted will clear up a number of concerns regarding the execution and enforceability of antitrust legislation, including if the ordering of the divestiture of assets, rights or shares to eliminate anti-competitive effects by the Commission and the Institute shall be derived from a sanction or investigation or if no such requirement may be necessary. The evolution of antitrust law in Mexico has been quick and complex, and the following years will greatly determine how antitrust authorities will coexist and the extent of the government’s regulation in preventing monopolistic activities.