Introduction

Due to political conjuncture and several events in Mexico, antitrust litigation has been constantly on the rise, and this trend promises to continue in the near future. Although a number of events or factors may be responsible for the trend, two specific items seem to be the cornerstones of the situation. 

First and foremost, the ruling party’s majority in both Mexican federal and local congresses has resulted in a general, overall alignment in terms of public policy at the executive and legislative level, and to a certain extent, at the current leadership of the federal judiciary. Such majority has been favouring the return of state-owned monopolies, primarily in the energy sector, a centralisation of faculties and powers in state ministries, and a preference for national champions. In addition, and after years of impasses between the executive and such authorities, new Commissioners have been appointed by the current executive, which, considering their decisions thus far, seem keen on preserving the independence of the Commission, even if this may put them at odds with the Federal Executive's policies.

The second item of relevance is a thorough mistrust of (if not outright opposition to) the work made by constitutional autonomous bodies, including the Mexican Federal Telecommunications Institute (IFT), and currently, to a lesser extent, the Mexican Federal Economic Competition Commission (COFECE). The result of such distrust has had a dual effect.

First, the creation of strong incentives for both of these authorities to be perceived as tough and efficient, and therefore the rise of verification proceedings in merger control filings as well as a more thorough scrutiny in the overall spectre of matters brought to their attention. Second, and due to lack of clarity as to the limits of powers and competences between each of these authorities, a constant, on-going battle at courts (with its corresponding collateral damage to filing parties) between COFECE and the IFT. This in order not only to ascertain their relevance in Mexico but also, to see which authority holds competence to review cases in several market segments, particularly, in the digital arena. 

Other factors may account for the rise of litigation in antirust matters, including (i) lack of transparency or clarity in the decisions from the agencies; and (ii) lack of judicial precedents that may orient parties and rein in broad interpretations of authorities under applicable laws. 

With this in mind, what follows is a short summary of some of the most important developments in antitrust litigation.

Litigation in the Retail Market Segment

In 2015, the second- and third-largest grocery store chains in Mexico filed a merger control notice by means of which the second player would acquire 159 stores from the third one. Although such purchase would merely provide the second with sufficient volume to effectively compete against the first, COFECE conditioned the transaction and requested the divestment of 27 stores, after having analysed about 160 different local, geographical markets. About half of these 27 stores were excluded from the transaction, and the remaining stores were subject to one of the first, thorough divestment programmes (and perhaps the last one) of COFECE to date. 

This divestment programme was divided into three stages, where the purchaser was allowed to carry out the divestment on its own during the first phase, and required the participation of a divestment trustee for the second and third stages. For the third stage, a fire sale was required. COFECE developed this programme primarily on its own and required that per each possible divestment, the parties to the relevant transaction submitted a merger control notice before being able to divest the relevant stores. Incidentally, such notices stopped the clock for the divestment of stores and the progression of the divestment programme. This, in addition to lack of clarity and content in later stages of the programme (particularly the third one) resulted in the administration of a divestment programme that lasted about six years to end, with the following figures:

• 21 interested parties;
• ten different merger control filings, where only two of them were approved;
• more than eight constitutional (amparo) claims were filed only by the divesting party before specialised competition courts, along with incidental/review processes; and
• six stores were materially impossible to divest, causing COFECE to issue its official acknowledgment of the impossibility for the divesting party to comply with requested remedies, even by means of a fire sale, and the ability for the divesting party to keep such stores. 

Although many causes may have contributed to these results, litigation ensued due to this divestment programme left valuable lessons for the future of antitrust in Mexico. Key points from these claims are summarised below.

Concurrence of claimants

Specialised courts determined that it was not necessary for both parties to a merger control notice to be a party to a constitutional (amparo) claim in order for it to be admissible. The courts acknowledged that parties to an antitrust proceeding might have different motivations and suffer distinct violations of their rights, so concurrence of involved parties in the relevant proceeding before antitrust authorities was not required for purposes of having access to a constitutional (amparo) claim. 

Long-term leases

Specialised courts acknowledged that long-term leases might be considered forms of complying with divestment programmes insofar as COFECE did not expressly excluded them. Parties to such a proceeding claimed that since COFECE had historically analysed long-term lease agreements as subject to merger control filing analysis, it must follow that they were also a valid form of divestment. The point was particularly evident since the divestment programme included stores that were not owned by either the purchaser or the seller.     

Informing risks associated with a transaction

Specialised courts had historically stated that due to jurisprudence issued in connection with Amparo Law, constitutional claims were not admissible against actions or notices from competition authorities that did not result in a final determination that would effectively endanger or affect the claimant.  However, claims in the context of the divestment programme made it possible to consider that the nature of some acts of antitrust authorities, even though not final, were sufficiently determinant in nature to affect the entire process. One of those acts was precisely the need of antitrust authorities informing thoroughly on competition risks associated with their transaction, and on a written basis. Otherwise, the courts reasoned that the parties would have insufficient tools to address antitrust concerns and thus, affect the overall merger control process. This particular resolution seems to not only have opened the door for other potential claims in the near future, but also, changed the way in which COFECE at least has been informing parties of competition risks associated with their transaction.   

Prevention of execution of resolutions

At one point in time, the divestment programme offered an interesting dilemma. Parties to at least one of the divestment transactions were involved in a constitutional claim against COFECE due to a challenge issued in respect of their transaction. In the meantime, the divestment trustee was reaching its limit for divesting pending stores under the second stage of the process, and required to start preparing for a fire sale. If the fire sale was carried out and the constitutional claim ended up being solved in favour of the parties, it would have been materially impossible for the parties to close their transaction, as other parties may have already acquired the stores during the fire sale. Therefore, the divesting party made another constitutional claim in order to prevent the divestment programme from advancing to the third phase until litigation had definitively concluded. 

Article 28 of the Mexican Constitution prevents parties from requesting any kind of suspension under an amparo claim, but generally, does state that the execution of fines and sanctions is prevented until after amparo claims are ended. Considering such text, the parties made important efforts for specialised courts to confirm that the application of the fire sale, in light of existing litigation, would effectively undermine and prevent the parties from defending their rights, and thus, needed to prevent its execution.

Although the parties were not successful in preventing the fire sale at such point in time, some of the magistrates in specialised courts did elaborate on their decision, stating that the referred prevention was requested on a pre-emptive basis, without any conclusive evidence that the fire sale would be executed before a decision pertaining the amparo claim had been reached. This effectively opened a door to future claims where the scope of the constitutional prohibition to prevent the execution of decisions of antitrust authorities might be questioned.           

Unfortunately, several other items that were brought forward under constitutional claims by means of the divestment programme did not have a conclusive result. For instance, once the fire sale was in the process of being executed, the divesting party requested again the prevention of its execution, only to withdraw such claim later in the process after being informed by the divestment trustee that the fire sale did not have any interested participants registered in the upcoming process. 

In the end, and as referenced, the divestment programme was recently acknowledged by COFECE as impossible to carry out, allowing the divesting party to keep the remaining stores. Notwithstanding, the effects of the original resolution and its market analysis have continued to cause ripples, sometimes contradictory in nature, in the competition analysis of the retail market segment, particularly where grocery chain stores are concerned.

For example, in 2019, COFECE blocked the merger between the alleged biggest market player in the grocery store segment in Mexico and a tech company that provides logistical services for at-home delivery of grocery store products. COFECE argued that the transaction was blocked because, among others, market power allegedly held by the grocery store player would cause the exit of other competitors from the digital application held by the tech company, create incentives for misuse of information from other competitors, or deny using other platforms from other tech companies for the provision of such delivery services.

Such result seems contradictory in nature from prior precedents involving the divestment programme. This, since COFECE resolved in many of its prior cases that online grocery shopping was minimal in Mexico, and construed a market analysis that prevented the consideration that all brick-and-mortar stores competed against each other, even in close proximity, due to a segmentation of the relevant market considering types of stores and specific, applicable geographical markets.

Although the tech company was eventually sold to another party where no further analysis was apparently required, the existence of such narrow (and contradictory), precedents and market analyses will no doubt give rise to ample opportunities for parties to continue to challenge resolutions that come (or are related) to the retail market segment. This in addition to the present challenges of the digital economy, as seen below.

Another example is a recent case related to sale of necessary goods and services, in this case, an alleged price fixing of such items, which seems to disregard the referenced precedents.

Indeed, and based on a recent case file, two supermarket chain stores were considered to have colluded with several tortilla distributors due to an alleged price-fixing scheme in a municipality in Mexico.

Arguments aside referring to whether the price-fixing scheme existed or not and whether it was encouraged or structured by local authorities due to political reasons, the fact of the matter is that COFECE considered that supermarket chains are considered competitors of local distributors and small shop owners, which was precisely one of the major points that was not acceptable in referenced prior precedents due to an established segmentation between types of businesses and stores.

COFECE’s decision in this case is currently being challenged in specialised, federal courts due to this evident contradiction in its market analysis, as well as for other relevant arguments including the temporary disqualification of the stores’ supervisors since they were considered accessories to the conspiracy. Disqualification of personnel of companies which have been considered a party to price-fixing schemes has also been on the rise, where the labour effects of such actions are not clear since disqualifications by antitrust authorities, even if only temporary, are not in principle considered valid grounds under Mexican labour laws to legitimately terminate employment.

The Fight for the Digital Economy

The struggle to determine the relevant competition authority to analyse antitrust matters in the digital economy continues.

During the last four years, judgements of specialised courts have been changing, favouring one agency or the other, making it extremely complicated to identify which will be the agency in charge of reviewing a particular transaction.

The most recent judgements of specialised courts seem to imply that the use of internet is the key element to settle the jurisdiction in favour of the IFT. However, it would seem that such element is not sufficient to properly classify a case under the scope of the telecoms or broadcasting segment, particularly if considering that in the near future, almost all businesses will have an online presence in one way or the other. Should this trend continue, it would be expected that COFECE will gradually diminish in its participation of antitrust matters in favour of the IFT.

In any event, practitioners and filing parties should continue to account for possible jurisdictional conflicts and burdensome filings considering that, in case of doubt, filings or processes before both COFECE and IFT will be required.

Litigation in the Power Sector

For more than two years, the Federal Government has issued several rules and regulations as well as amendments with the sole purpose of benefiting the state-owned companies, Petróleos Mexicanos (PEMEX) and Comisión Federal de Electricidad (CFE), in the oil and gas and electricity industries, respectively.

Although the content of such rules and regulations, as well as amendments, are varied, the constant element that these share is their outright disregard for competition matters and policy in Mexico. In light of this, dozens of amparo claims have been filed in specialised antitrust courts for purposes of avoiding private parties, from generators or producers, to industrial end-consumers, from being left out of the energy industry in Mexico, or otherwise, from being forced in one way or the other to accept PEMEX or CFE as their almost exclusive supplier.

The political rhetoric behind such actions is well known currently across the globe; ie, national security and sovereignty, unfair foreign investment, corruption, to name a few. However, such arguments have not yet had the desired effect in specialised courts, where several amparo claims have been successful in seeking to stop such trend and where antitrust arguments have been one of the most important elements in convincing the courts of the inapplicability of such acts. Among such arguments, undue displacement of competitors, lack of access to better sources of power, discriminatory access to essential inputs and facilities, are commonly referred in all amparo claims. 

Since the Federal Government has not shown any sign of stopping its efforts to reinstate the monopoly of state-owned enterprises in the energy sector, even after failing to obtain the necessary votes to amend the constitution for such purposes, it is to be expected that antitrust litigation in energy matters will continue to thrive.

In this regard, practitioners should note that both the United States of America and Canada have already started relevant proceedings under the United States-Mexico-Canada Agreement due to the Federal Government’s alleged lack of compliance with such treaty in the energy sector. Since the treaty holds a specific article related to competition policy and its enforcement, it is also to be expected that competition matters in such proceedings will be analysed. 

Other Relevant Matters

The aforementioned matters are not the only ones driving the agenda of litigation in antitrust in Mexico.

For example, and following trends in the labour sector, COFECE fined 17 football clubs and eight individuals for fixing caps for salaries of football players, which was also considered to broaden concerns about gender salary gaps. Furthermore, fines were also issued due to practices preventing the free trade of football players, and indirectly, labour rights of these in negotiating their salaries and permanence or change between football clubs. The arguments used in such case by COFECE may start a trend in reviewing non-solicitation covenants in the context of possible mergers, as well as in other processes, to ensure free-trade provisions in labour market segments. Furthermore, this may also start a trend in litigation matters, since a clash between labour non-compete clauses is expected. Although such provisions are acceptable in civil and commercial matters, competition laws in Mexico may, in essence, prohibit such covenants. 

On this note, COFECE is also currently on a streak of sanctions against cartel participants which include the temporary disqualification of managers, supervisors and directors that they considered to have participated in the cartel from their appointments or offices. This has resulted in several litigation cases that question the constitutional grounds of such sanctions, including labour laws and principles. At the date of this publication, there has only been one single precedent where a judge has granted a permanent suspension against any such disqualification until the entire case under litigation is solved, and which is expected to be revisited in a second-tier review by an appellate body of magistrates.     

In other matters, and as referenced, COFECE struggled with the lack of ratification of missing Commissioners to solve relevant cases and ensuing litigation. In 2018, COFECE started an investigation due to possible barriers to competition and/or essential inputs in card payment systems (clearinghouses). Although COFECE’s Investigative Authority has already concluded that there are barriers to competition in such market segment, and trial-like proceedings have already occurred, the Board of Commissioners of COFECE had been prevented from solving the case due to lack of quorum.

To address this, COFECE made a claim against the Federal Executive for lack of designation of missing members of the Board, but also, issued a general suspension notice, which prevented parties to such case from receiving a final resolution. The parties involved sought for specialised courts to declare the illegality of such general suspension and force COFECE to declare its closing, since the statute of limitations for issuing its resolution had already elapsed. Even though the missing Commissioners have been appointed and the case has been finally solved, such claims are still under analysis by specialised courts.