Cartels 2022

Last Updated June 14, 2022

Mexico

Law and Practice

Authors



Nader Hayaux & Goebel is a market leader in competition, anti-corruption, M&A, banking and finance, fintech, securities and capital markets, structured finance, telecommunications, tax, insurance and reinsurance, project finance, real estate, energy and infrastructure, restructuring and insolvency and government procurement. The firm consists of 18 partners and more than 35 associates and represents one of the largest groups of corporate finance experts in the Mexican market, which has worked together for more than 30 years. It is the only Mexican law firm with an office in London; it has a strong focus on developing and pursuing business opportunities in Mexico, the UK and other European countries and enjoys excellent working relationships with law firms in all major cities internationally.

The Mexican legal framework for competition is comprised of the following main instruments:  

  • the Federal Mexican Constitution, as the foundation of the competition legal framework and the enforcement agencies;  
  • the Federal Economic Competition Law;  
  • the Regulations to the Federal Economic Competition Law;  
  • the Regulatory Provisions for the Immunity and Sanction Reduction Programme provided for in Article 103 of the Federal Economic Competition Law; and 
  • the Regulatory Provisions for the Qualification of Information Derived from Legal Counsel Provided to Economic Agents. 

There are two autonomous government agencies with federal jurisdiction to enforce the competition legal framework. These entities are:

  • the Federal Economic Competition Commission (the Commission); and
  • the Federal Telecommunications Institute (the Institute, together with the Commission of Agencies).

The Institute oversees enforcing the law in the telecommunications and broadcasting sectors, while the Commission is responsible for enforcing the law in any other sector or market in Mexico.   

The procedure is administrative and can only be implemented or carried out by such Agencies. It is not possible to exercise legal actions of a civil nature to enforce competition law, except for claiming damages and lost profits.  

Specialised courts in competition, telecommunications and broadcasting exist as part of the competition system. These courts are the judicial authority in charge of any challenges filed by parties affected by the resolutions of the enforcement Agencies. Also, appeals against the decisions issued by specialised lower courts can be filed with specialised courts of appeal.   

The maximum administrative fine that the enforcement Agencies for cartel conduct can impose is up to 10% of the enterprise′s annual income. The Agencies can obtain the tax information from the corresponding authorities to determine the amount of the fine to be imposed. In case of recidivism, penalties can be doubled.   

The Commission and the Institute are the only agencies allowed to file criminal complaints with the Office of the Attorney General. Criminal liability exists for cartel-like conduct and is punishable by imprisonment of five to ten years, regardless of the corresponding economic sanction imposed by the Agencies.   

Once the Agencies become final, the affected entities or individuals can claim damages and lost profits with the specialised courts on competition, telecommunications and broadcasting.    

Private entities and individuals have no legal right to claim damages or lost profits without first having the final resolution from the Commission or the Institute.  

There is no private right of action for challenging cartel conduct. As mentioned in 1.2 Public Enforcement Agencies and Scope of Liabilities, Penalties and Awards, the challenging of cartel conduct can only be implemented by the Commission or the Institute, either ex officio or by means of a claim filed by any third party. 

There are five types of cartel conduct (also known as absolute monopolistic practices) specifically defined and catalogued by the Federal Economic Competition Law. Absolute monopolistic practices are considered illegal per seand consist of contracts, agreements, arrangements or combinations among competitors, with the following purposes or effects:   

  • price fixing – to fix, raise, co-ordinate or manipulate the sale or purchase price of goods or services supplied or demanded in the market;   
  • output restriction – to establish an obligation not 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;  
  • market allocation – 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, timespans or spaces;   
  • bid rigging – to establish, arrange or co-ordinate bids or abstentions from tenders, contests, auctions or purchase calls; and 
  • exchange of information – to exchange information for the purposes referred to in the preceding paragraphs.  

Cartels or absolute monopolistic practices are considered serious violations of the law; consequently, they are null and void and do not give rise to legal effects.   

The statute of limitations is ten years, beginning on the date the prohibited conduct ends. 

Mexican competition law can only be enforced within Mexico; however, the Commission has specifically entered into co-operative agreements with foreign agencies, namely those of the EU and the US. Thus, if the conduct occurs entirely in a foreign jurisdiction, the conduct cannot be enforced by the Agencies unless it occurs within the country. However, regarding investigations in which the possible cartel participated in multiple jurisdictions including Mexico, the Agencies have the authority to participate in international cartel investigations and co-operate with other countries to tackle the international cartel conduct.   

Mexico has entered into different free trade agreements containing competition provisions that should be implemented; for instance, the revised United States–Mexico–Canada Agreement. Please refer to 1.6 Extent of Jurisdiction and 3.5 Co-operation With Foreign Enforcement Agencies.  

At the beginning of the pandemic, the Commission established a set of criteria to allow certain types of collaboration agreements between economic agents (either competitors or non-competitors) to maintain or increase supply, satisfy demand, protect supply chains, avoid shortages or hoarding of goods, provided that such collaboration was temporary and focused on addressing the pandemic, without having negative effects on consumers. Such collaboration is still permitted since the Commission has not issued a communication stating otherwise.  

In order to prevent a cartel investigation, the economic agents need to inform the Commission of such agreements so it can authorise them. 

The number of cases filed with the Commission under such statement is confidential. 

The Agencies are required to have an objective cause to start an investigation. An objective cause is any indication of the existence of cartel conduct. According to the principles of the Mexican legal system, the investigative authority should clearly and duly justify its allegations.  

Furthermore, the Regulations to the Federal Economic Competition Law list certain conducts that could drive an investigation either ex officio or prompted by a claim filed by a third party. These conducts include: 

  • the invitation (or recommendation) to other entities or individuals to co-ordinate practice offers and conditions of production, marketing or distribution of goods and services, or to exchange information with such purpose or effect;  
  • the fixing of the sale price offered by two or more competitors in Mexico considerably above or below the international reference price; 
  • instructions or recommendations adopted by business associations, business chambers or similar organisations to perform any of the conduct described above; and 
  • two or more competitors establishing maximum or minimum prices, or adhering to prices issued by business associations or commercial chambers.   

There are different ways in which an investigation can be initiated:

  • claims filed by any entity or individual even if the claimant is not the affected party;
  • a requirement by the executive branch, the Ministry of the Economy or the Consumer Protection Agency;
  • ex officio; and
  • investigations deriving from information obtained from leniency applicants.  

Once the Commission or the Institute, through its investigative units, decides to start an investigation, it is required to publish a so-called Initial Ruling in the Federal Official Gazette noting the beginning of a cartel investigation proceeding, the relevant market and the type of alleged conduct on which the investigation will be carried out.  

After the publication of the Initial Ruling, the investigative process provides the corresponding enforcement Agency with a timeframe that runs from 30 to 120 business days (with the possibility to extend the investigative stage up to four times for 120 business days each time). The investigation process is confidential without the possibility of identifying the target entities or individuals.  

Once the corresponding Agencies’ investigative unit considers that it has sufficient grounds, it submits the case to the Board of Commissioners to determine whether the alleged responsible participants are formally served with a document called the Statement of Probable Liability or the case is to be closed if the corresponding Agencies’ investigative unit gathered insufficient evidence. After the alleged responsible entities or individuals are served with the Statement of Probable Liability, a trial-like administrative proceeding starts. The parties to the trial are the investigative unit as plaintiff and the defendants. The defendants have 45 business days to answer every allegation and provide as much evidence as possible. Other steps are followed during the trial-like procedure, and once the steps are completed, the resolution should be issued by the Board of Commissioners. 

Dawn raids are possible and common during cartel investigations and, in some cases, are performed before the Initial Ruling mentioned in 2.1 Initial Investigatory Steps. Dawn raids are carried out by the investigative unit.  

The obligations of a firm or individual facing a dawn raid are to allow the visit to take place without any obstructions and provide all necessary support to the visiting officials. If the firm or individual rejects or obstructs the visit in any manner, then the officials may use security forces to access the firm’s facilities, and the officials will include the fact in the corresponding minutes, and the alleged fact will be true.   

It is possible for the visited firm or individual to include comments or arguments in the minutes and attach evidence or supporting documents to their arguments. The visited entities will be entitled to appoint two witnesses who will sign the dawn raid’s minutes.

Restrictions on Dawn Raids

The scope of the dawn raids is broad. The officials are authorised to access facilities, means of transportation, computers, electronic devices, storage devices, files, or any other elements that might contain evidence. The officials may also take pictures or record videos and copy any documentation, by any means, documents, books, files, or information generated by any technology (including computers and emails) or material support, provided that they are related to the investigation. Seizure of the relevant documents is not allowed. Furthermore, the Commission or the Institute cannot have access to information protected by the attorney-client privilege, as will be explained in detail under 2.7 Attorney-Client Privilege

Procedure of Dawn Raids

The procedure of dawn raids is quite formal and must follow specific rules, as follows:  

  • the investigative authority will issue an order containing the purpose, scope and term of the visit as well as the name and address of the visited economic agents;   
  • the visited economic agent is warned that in the event of access denial, hindering the visit or refusing to provide the documents or information requested, the enforcement measures (such as penalties) shall be imposed;  
  • the visits are carried out with the purpose of obtaining information and documents related to the investigation;  
  • the visits cannot exceed two months (with the possibility to extend them for two additional months);  
  • the visits can be performed on business days and during business hours, provided that the investigative authority may allow an inspection to be initiated on non-business days and during non-business hours or for an inspection to be continued into non-business days and hours;  
  • the visited entity’s officers, representatives or employees must allow the on-site inspection, providing access to the facilities and information as mentioned above;  
  • the visiting officers may request explanations regarding the facts, information or documents related to the purpose of the visit from the economic agent’s officers, representatives or personnel, whose answers will be recorded and included in the visit’s minutes;   
  • the visits can be conducted simultaneously in two or more places at a time; and  
  • the visiting officials will draft minutes, in the presence of two witnesses and a detailed description of the facts or omissions noted during the visit will normally be included.   

The firms or individuals visited in a dawn raid are warned of certain measures, such as the imposition of fines. However, if spoliation of information occurs, the enforcement Agencies’ allegations may be considered proved, and criminal liability may be imposed.  

The visited economic agent has the right to counsel; nevertheless, the visit can start without the presence of counsel. The counsel is authorised to speak or provide comments that will also be recorded in the minutes. The counsel, like any other officer or representative of the visited entity, will also be subject to the warnings made by the visiting officials.  

Requirement to Obtain Separate Counsel

Because competition law is a specialised legal framework, the economic agents typically engage separate counsels to address the investigations. For certain investigations, it is important to have an economist if some of the arguments to be used by the defendant rely on economic analysis. It is essential to point out that there is no obligation to engage a separate counsel.  

Initial Steps Taken by Defence Counsel 

The procedure to determine a violation of the Mexican competition law is divided into two stages. The first stage comprises the investigation procedure and the second stage involves a trial-like administrative process as described in 2.1 Initial Investigatory Steps. Both steps are carried out by the Commission or the Institute, however, the first stage is carried out by the investigative authority that is an independent entity within the Agencies. The investigation procedure is confidential, so it is not possible to know if the economic agent is considered the target of an investigation or only as a third party to the process.   

Therefore, the initial steps for the defence counsel are to work together with the economic agent to internally determine if responsibility exists. Even though the investigations are confidential and it is not possible to determine who is under investigation, a visit or a request for information can provide sufficient background to carry out an assessment to prepare all the arguments and supporting evidence if a Statement of Probable Liability is to be served on the economic agents.  

Evidence and testimony are obtained from diverse sources such as:

  • dawn raids;
  • official requests to any firm or individuals, including authorities;
  • information gathered from claims filed before the enforcement Agencies;
  • intelligence investigations performed by the Commission or the Institute;
  • appearances of any individual related in any way to the purpose of the investigation;
  • anonymous claims filed on the Commission’s website;
  • public sources of information;
  • economic analysis of market studies;
  • co-operation with other authorities;
  • information gathered in other procedures carried out with enforcement agencies; and
  • information obtained from leniency applicants.  

Procedure for Obtaining Other Types of Information 

The Agencies, and specifically the Commission, have an intelligence unit in charge of gathering information from different sources such as surveys, internal analysis and public sources, among others. The enforcement Agencies can also request information from other governmental agencies or foreign competition authorities. 

The companies or individuals can be obligated to produce documents or evidence if formally required to do so. The Mexican competition law does not have extraterritorial effect, however, in certain cases, companies or individuals located in Mexico must produce documents related to activities or facts of an international nature.  

The attorney-client privilege is only applicable to the external counsel of the economic agents and communications among the target entity; the external counsel communications cannot be used as evidence during the process. For instance, if during a dawn raid the enforcement agency officials find communications between the external counsel and his or her client, that information cannot be included, or even considered, for the purposes of pursuing the agencies′ allegations against the target firm or an individual. Recent judicial criteria have confirmed the attorney-client privilege in competition matters. 

In addition, the Commission has published rules applicable to attorney-client privilege in which it establishes what type of information can be considered an attorney-client privilege and the procedure to request the Commission to treat the information gathered as such.  

The rules on attorney-client privilege provide that the Commission will not use or grant evidential value to the communications if the economic agent proves that the communications with the external counsel had the purpose of seeking legal advice. The procedure to request the information be treated as attorney-client privilege is the following. 

  • During a dawn raid, the visited economic agent can request the visiting officials to classify certain documents or information as attorney-client privilege. The visiting officials must detail the request of the visited economic agent in the draft minutes. 
  • Once the authority concludes the dawn raid, the visited economic agent has 20 business days to submit a formal request to the Commission. Even if the economic agent failed to file the request during the dawn raid, it has the right to submit the request once the dawn raid has finished.   
  • The information subject to the privilege must be described, eg, if the information is digital, the exact location, name and type of document (agreement, letter, email, and memorandum), the name of the author and date.  
  • A small description of the legal advice and the reasons for the information being considered attorney-client privilege must be provided. 
  • Proof that the external counsel is legally authorised to practice law must also be included. 

Other Relevant Privileges

All entities and individuals are protected by formal rules in the Mexican Federal Constitution. Some relevant privileges granted to individuals are the following:

  • due process; and
  • the presumption of innocence for defendants.  

The due process privilege states that individuals should not be disturbed in their goods, domicile, papers or possessions without a written order of a competent authority, which should be duly supported.  

On the other side, the presumption of innocence for defendants provides that if the Commission or the Institute do not gather enough evidence to accuse the defendants of cartel behaviour, the defendants should be considered innocent, and the investigation should be closed.  

In general terms, both the entities and individuals co-operate with enforcement Agencies. However, the consequences of non-co-operation with the Commission or the Institute may give rise to fines imposed on the economic agents that fail to co-operate. For instance, a fine of approximately USD18,000 can be imposed for each day of non-compliance with an order or requirement from the enforcement agencies. 

The information obtained by the enforcement Agencies can be considered public, confidential or reserved as set out below:  

  • information deemed public can be accessed by everybody or even published on the authority's webpage; 
  • reserved information can be accessed by economic agents who are part of the trial-like procedure; and 
  • information deemed confidential can only be accessed by the economic agent which provided the information.  

In order to classify information as confidential, an economic agent is required to show and justify that the information is, in fact, confidential in nature and file a summary thereof. The following are included as bases for confidential classification:  

  • information that, were it to be disclosed, would cause damage or lost profits;  
  • information that contains personal data that requires consent for disclosure;  
  • information that would put security at risk; or  
  • information which disclosure is prohibited by any legal provision. 

Legal and factual arguments are raised at two different stages of the process. During the investigation stage, arguments can be raised through the responses and evidence provided to the official requests issued by the investigative authorities of the Agencies, regardless of the fact that it is not possible to know if the economic agent is a target or not at this stage.   

The second stage of the process ‒ the trial-like procedure ‒ is the appropriate procedural moment to raise all arguments, file evidence, provide economic analysis and include arguments to persuade the enforcement agencies that the economic agent is not responsible for the execution of a cartel. 

A leniency programme exists in Mexican competition law and is available for any economic agent that has participated in cartel conduct (either directly or indirectly). The general rules applicable to the leniency programme are the following:  

  • the applicant should provide enough evidence to allow the enforcement agency to presume a cartel;  
  • the applicant should fully and continuously co-operate throughout the investigation stage and, if required, during the trial-like procedure; and  
  • the applicant must cease its participation in the cartel.  

If said requests are fulfilled, the Agency will impose a minimum fine. The first applicant to the leniency programme will receive a total reduction of the fine. Further applicants who are not the first to provide evidence can also request such benefit, but they will only receive a reduction of 50%, 30% or 20% of the maximum permitted fine (depending on the chronological order in which requirements are submitted and on the supporting evidence provided). 

The Commission published Guidelines on the Leniency and Fines Reduction Programme that provides details on the steps an applicant should follow to apply for leniency, what an applicant should understand as full and continuous co-operation, and the procedure to revoke the benefit granted.  

No information is available in this jurisdiction.

The enforcement agencies may demand information from company employees of all levels of seniority. The requests for information can be through:

  • official requests; and
  • a requirement to appear in the enforcement Agencies offices, where officials perform interviews with company employees.

Former employees or officers can also be required to provide information or appear for interviews or hearings. 

The enforcement agencies can acquire the information directly from the target company or others (including governmental entities). To acquire the information desired, the Agencies normally issue official requests that should be fully answered within ten business days (a term that can be extended for another ten business days). The Agencies are authorised to issue as many official requests as they deem proper. Typically, the official requests contain a significant amount of information to be addressed, filed or produced. If official requests are not fully addressed, then the governmental agencies can either reiterate their request or impose a fine for every day of non-compliance. 

The enforcement agencies do not typically seek information from companies or individuals outside Mexico. However, there are legal instruments that allow the enforcement agencies to obtain information located abroad. 

There is inter-agency co-operation and co-ordination founded at four different levels:  

  • with public authorities;  
  • with academic institutions;  
  • with international institutions; and  
  • with the social and the private sector.  

Within the public authorities’ co-operation, the Commission has co-operation agreements with the Bank of Mexico, the Mexican Tax Administration, the Ministry of Economy (SE), the Ministry of Finance and Public Credit, the Energy Regulatory Commission, and the Consumer Protection Agency (CPA), among others.  

With academic institutions, there are agreements between the Commission and Instituto Panamericano de Alta Dirección de Empresa and Centro de Investigación y Docencia Económicas. Regarding co-operation agreements with international institutions, the Commission has such agreement with the Inter-American Development Bank, and finally, with the social and the private sector, the Commission has a co-operation agreement with the Consejo Coordinador Empresarial

These interagency co-operation instruments are relevant since several cases have started by means of co-operation or information provided by other government agencies. In addition, the Mexican competition law provides that the SE and the CPA can file claims for cartel conduct. Also, if the enforcement agencies learn that cartel conduct may result in damages or lost profits to consumers, the CPA should be informed so it can start an investigation accordingly.  

The Commission is quite active in its relationship with foreign enforcement agencies. For instance, it is committed to adopting the best international practices through participation with international organisations such as the OECD, the International Competition Network, and the United Nations Conference on Trade and Development.  

There are also international treaties and instruments that require the Commission to comply with mechanisms of co-operation with other agencies. In addition, it has entered into co-operative agreements with other agencies, such as the one executed with the European Commission for increased co-operation on competition matters and in merger control cases. The co-operation agreement with the European Commission includes the possibility for either agency to remit a case to the other when potential law violations exist. It also provides for training and the exchange of officials between both authorities. For instance, in the past, US and British authorities have participated with the Commission to train their officials. For more information, see 1.6 Extent of Jurisdiction

Criminal cases for cartel conducts can be filed with the Attorney General′s Office by the Agencies without necessarily having a final resolution. Therefore, enforcement agencies can file criminal claims once the investigative authority issues the Statement of Probable Liability. Third parties or other agencies cannot bring criminal cases for cartel conduct; however, it is not common for a cartel investigation to give rise to criminal procedures.  

Once the Attorney General′s Office is aware of the claim, it will apply the criminal law rules to determine whether or not a crime has been committed. These rules and principles are quite different from the administrative procedure carried out by the Agencies. If the Attorney General’s investigation results in an alleged cartel crime, it will then file the case with a criminal court for the fining process. The defendant has the right to due process and to know the basis and rationale on which the accusation is supported. 

As mentioned in 1.2Public Enforcement Agencies and Scope of Liabilities, Penalties and Awards,the procedure to enforce competition laws in Mexico is of an administrative nature, and no civil actions to enforce such laws can be brought (other than damages or loss of profits civil procedures). Regarding the right to third parties to file claims in order for the Agencies to start a cartel investigation, the third party may submit a plaintiff before such authorities through a written document containing:  

  • the specifics of the alleged responsible entity or individual;  
  • a description of the facts considered illegal, the market structure, and the goods and services involved;  
  • how the conduct affects the market;  
  • a list of documents and supporting evidence which may include minutes, communications, videos, audio recordings, statistics, market surveys; and  
  • any other evidence or information that might help enforcement agencies to analyse the case.  

The complaints are filed with either the Commission or the Institute, and the investigation and analysis of the claim are carried out by the independent investigative authority of the applicable Agency, which will eventually do one of the following: 

  • issue an official communication marking the beginning of the investigation, previously described as the Initial Ruling;  
  • issue an official request to the claimant to petition fulfilment of the requirements of a complaint; or  
  • issue an official communication refusing the claim, either due to the lack of the necessary requirements or because the behaviour cannot be considered as cartel conduct.  

Defendants do not have access to the information in possession of the investigative authority while the confidential investigation is in process. Once the Statement of Probable Liability is served on the defendant, it is possible to know the specifics of the conduct attributed to the defendant. 

Cartel conduct always implies at least two involved parties are considered to be competitors. Therefore, the enforcement is typically brought against multiple parties within the same case. The identity of the parties involved in the conduct will be disclosed once the investigation stage is complete and the alleged responsible parties are served with the Statement of Probable Liability.  

Depending on the type of procedure (ex officio or following a claim) the burden of proof to initiate the cartel investigation is on the plaintiff or applicable Agency. Once the investigation procedure is completed and the investigative authority gathers enough evidence (ie, from the claimant, information gathered during dawn raids, previous investigations, and information provided by the target entities and other parties), then the investigative authority will have the burden of proof by means of the Statement of Probable Liability. 

The enforcement proceedings carried out by the Commission or the Institute are of an administrative nature. The finders of facts are both the plaintiff and the enforcement Agency. The Agencies enforce the law for those facts. In the event of criminal cases, the finder of fact is the enforcement agency which files the claim with the Attorney General. The Attorney General's Office investigates the criminal case, and the criminal courts apply the criminal law to those facts. 

Evidence obtained in one proceeding can be used in another proceeding if it is related to the facts and the target company. Information provided by applicants for the leniency programme is only used in the proceeding for which the information is provided.  

According to the legal principles applicable in Mexico, the evidence should comply with constitutional standards, which allow the defendant to have access to due process. Therefore, the enforcement Agencies should produce and support their allegations with the highest standard of legal and economic analysis. If the defendant is fined by the Commission or the Institute, it could still challenge the decision by means of an amparo proceeding before specialised courts on competition, telecommunications and broadcasting. Such courts will analyse whether the procedure performed by the enforcement Agencies followed legal standards and principles; if it did not, the resolution could be amended or revoked. For more information, see 1.2 Public Enforcement Agencies and Scope of Liabilities, Penalties and Awards and 4.8 Available Forms of Judicial Review or Appeal.

Experts are, in some cases, fundamental to a proper defence. Economists, in particular, as independent experts, produce an important part of the argument and evidence presented to the Agencies. Furthermore, if a communication is not written in Spanish, translation experts are necessary to translate into Spanish relevant communications or translate the appearance of a given person who does not speak Spanish, and who is necessary for the cartel procedure.  

Likewise, in the case of the amparo, other kinds of experts may be necessary depending on the market of the cartel investigation. Experts of the sort needed depends greatly on the kind of evidence that is part of the cartel procedure. 

The attorney-client privilege is recognised and cannot be used as evidence. See 2.7 Attorney-Client Privilege

It is possible to have multiple or simultaneous enforcement proceedings involving the same or related facts. Nonetheless, the enforcement agencies typically order the joinder of files related to the same facts to have a single procedure. 

Sanctions are imposed directly by the Commission or the Institute, depending on the case. However, if the cartel investigation has led to a criminal complaint, these complaints are resolved by criminal courts, which impose sanctions. 

Other than the leniency programme mentioned in 2.11 Leniency, Immunity and/or Amnesty Regime, there are no plea bargaining or settlement procedures for cartel conduct.  

No collateral effects (other than criminal complaints or civil cases to claim losses and damages) exist. The Commission has been actively pursuing a fight against corruption agenda, and as part of this agenda, there are initiatives to create collateral effects: for instance, debarment in public procurement processes or public bids of entities or individuals sanctioned for cartel conducts. 

Criminal proceedings can only be started by means of a formal complaint brought by the Commission or the Institute. Criminal law is quite formalistic, and specific rules apply. Currently, only a few cases have been brought before the Attorney General. If, under criminal rules, the cartel conduct described in the Federal Criminal Code is carried out, then a specific unit of the Attorney General's Office would require a criminal judge to start the fining process, provided that the corresponding judge will determine the applicable sanction.  

The cartel investigations performed by the enforcement Agencies are of an administrative nature. The Mexican competition law allows companies and individuals to be fined after an adversarial procedure in the form of a judicial trial. The enforcement Agencies are the only entities authorised to apply sanctions (other than criminal charges and resolutions determining damages and loss of profits). In the event of civil actions to claim damages and loss of profits, the specialised courts on competition, telecommunications and broadcasting will determine the corresponding amount to be paid, if applicable. 

Sanctions are of an economic nature; however, the enforcement Agencies can order the correction or suppression of certain types of conduct in the future. 

The Commission specifically encourages economic agents to implement competition compliance programmes as a preventative measure to avoid violations of the Mexican competition law. Nevertheless, no specific rules or benefits are included in the competition law. 

Sanctions imposed by the enforcement agencies are for the benefit of the government and are not intended to provide consumer redress or any benefit to other affected parties.  

A judicial review is the only procedure available to challenge the enforcement Agencies' resolutions. The judicial challenge (known as indirect amparo) should be filed with the specialised courts on competition, telecommunications and broadcasting. Appeals against the decisions of a lower court are lodged with specialised courts or appeal courts on competition, telecommunications and broadcasting. No other remedies are available to challenge either inner process resolutions or acts or final resolutions other than the above-mentioned indirect amparo

No private right of action exists for cartel conduct in Mexico. However, once the final resolution from either the Commission or the Institute is issued, any affected third party can file civil actions to claim damages and loss of profits, which will be brought before the specialised courts on competition, telecommunications and broadcasting. 

Class actions for competition cases are allowed in Mexico when led by the enforcement Agencies; however, competition class actions are not common in Mexico.  

No private right of action exists for cartel conduct in Mexico. Nevertheless, civil actions exist for damages and loss of profits. 

Evidence obtained from government investigations is admissible and, in some cases, can be considered as an indication of cartel conduct.  

Because there is no private civil litigation to enforce competition law related to cartel conduct, there is no describable frequency of claims. Also, it is not common in Mexico to file civil actions to claim damages or loss of profits.  

The compensation for successful attorneys is agreed upon between clients and their counsel on a case-by-case basis. The resolutions issued by the enforcement agencies do not provide for the compensation of legal representatives. 

The resolutions issued by the Commission or the Institute do not mandate that unsuccessful claimants be obligated to pay defence costs for counsel. Nevertheless, in a procedure to claim damages and loss of profits, and depending on the case, costs can be included as part of those damages. 

Mexican competition law does not allow for private civil litigation, except for civil cases related to damages and loss of profits; consequently, there are no appeals on this regard. It is possible to challenge decisions issued by the specialised courts on competition, telecommunications and broadcasting with the corresponding specialised courts of appeal.   

According to the strategic plans of the Commission and the Institute, there are markets or sectors that will be given specific attention and may be the subject of future cartel investigations. On the Commission’s side, they published a project for its 2022‒2025 strategic plan, and its priority sectors include food and beverage, transportation and logistics, financial markets, construction and real estate markets, energy, health, public procurement and digital markets. For the Institute, its strategic plan for 2019‒2023 includes as priority sectors the digital ecosystem and new technologies. 

The following guidelines have been published by the Commission and are non-binding; however, important criteria and interpretations are included therein: 

  • Guidelines on information exchange between economic agents; 
  • Guidelines on initiating an investigation regarding anti-competitive practices; 
  • Guidelines on investigations regarding absolute monopolistic practices; and 
  • Guidelines on the Leniency and Fines Reduction Programme. 
Nader, Hayaux & Goebel

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Mexico City
CP 05120
Mexico

+52 55 4170 3000

+52 55 2167 3099

info@nhg.com.mx www.nhg.com.mx
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Basham, Ringe y Correa has offices in Mexico City, Monterrey, León and Queretaro with 107 lawyers and is one of the leading full-service law firms in Latin America. Established in Mexico in 1912, the firm draws on more than a century of experience assisting its clients in conducting business throughout Mexico and abroad. Clients include prominent international corporations, financial institutions and individuals. The firm’s large group of lawyers and support staff are committed to maintaining the highest professional and ethical standards. Constantly exposed to the international legal system, many of its lawyers and other professionals have completed graduate studies at foreign universities and worked in companies and/or law firms abroad. The firm’s preventative and strategic advice on all types of law allows it to offer clients effective, complete and timely solutions to their concerns with fully integrated and tailored solutions for every client.

Investigation of Collusive Practices in the Market for the Production, Distribution and Marketing of Medicines (IO-001-2016)

Collusive conducts are the most serious and damaging anti-competitive activities in which economic agents may engage. Experience shows that in markets where collusion is discovered, terminated and sanctioned, prices are subsequently reduced by an average of 23% in the long run. This shows the average overpricing they cause in the markets. On top of this fact, colluding in the pharmaceutical and health sector is particularly damaging to all society since it is one of the most sensitive industries. In Mexico, the drug market is of paramount importance for its impact on the health and lives of the people and the role it has on household spending.

Considering the above, in the last few years, the Federal Economic Competition Commission (COFECE) has consistently intervened in the healthcare sector and sanctioned several companies supplying healthcare inputs for colluding in public tenders organised by the main healthcare public entities in Mexico.

In May 2016, COFECE initiated the investigation number IO-001-2016, one of the most ambitious investigations processed by this authority, regarding six collusive conducts in the market for the manufacturing, distribution and commercialisation of medicines in the national territory. This case involves establishing certain commercial conditions for pharmacies imposed by the main drug distributors in Mexico, based on collusive agreements implemented in 2006 with the purpose of restricting the supply and fixing, manipulating and increasing the price of the medicines distributed. After the investigation concluded, COFECE conducted a trial-like proceeding, and on 2 August 2021, it issued its final decision. 

In addition to being a case involving a sensitive economic sector in Mexico, this is one of the most relevant decisions regarding collusive conduct issued by COFECE in the last years for several reasons:

  • it involved the investigation and penalisation of several simultaneous, but differentiated collusive conducts carried out by the same economic agents in the same investigated market; therefore, it resulted in one of the most ambitious cases handled by COFECE so far in which economic agents throughout the entire value chain were investigated;
  • COFECE’s Board imposed the maximum fine it was able to impose in this case and one of the highest in the last years;
  • this decision imposed, for the first time, the sanctioning to disqualify certain individuals who were key executives in the companies they represented at the time where the conduct took place; and
  • the anti-competitive practices were carried out in one of the most relevant markets for the Mexicans, affecting the constitutional right to protect the health of the population and the income of families.

As a result of the above, COFECE imposed fines for a total amount of MXN903,479,560.71 (approximately USD45,565,369.56), to five drug distributors, Nadro, S.A.P.I. de C.V. (“Nadro”), Casa Marzam, S.A. de C.V. (“Casa Marzam”), Fármacos Nacionales, S.A. de C.V. (“Fanasa”), Almacén de Drogas, S.A. de C.V. (“Almacén”), and Casa Saba, S.A. de C.V. (“Casa Saba”), as well as to 21 individuals who participated on their behalf, for engaging in absolute monopolistic practices in the drug distribution market. COFECE also penalised the Association of Distributors of Pharmaceutical Products in México (“Diprofar”, for its acronym in Spanish of Asociación de Distribuidores de Productos Farmacéuticos de la República Mexicana) and an individual for assisting in the execution of such conducts (as coadjutants).

COFECE also imposed for the first time the sanction of disqualification to ten executives of the penalised companies.

The Drug Market in Mexico

The Mexican drug industry is composed of companies located at different levels of the value chain. The manufacturing process is at the top of the value chain and involves domestic and foreign laboratories engaged in the research, development and manufacture of drugs to prevent and treat diseases.

The next level of the value chain is distribution. Most laboratories do not distribute or market their products directly to the retail sector, but they do so through wholesale distributors. There is a limited number of participants at this level who carry out their operations through two distribution schemes:

  • Traditional scheme – in this scheme, the laboratories sell their drugs to the distributors, subsequently selling them to the pharmacies. In the case of patented drugs, the laboratories determine the maximum retail price, following guidelines established by the Ministry of Economy. For the rest of the drugs, the laboratory determines the pharmacy price and the maximum reference price at which distributors can sell to pharmacies. In this scheme, the distributor′s margin is the difference between the price they pay to the laboratory and the price they sell to the pharmacy.
  • Fee for service scheme – laboratories sell the drugs to the distributors at the pharmacy price and pay them with a fee calculated on the basis of the volume of products they sell to pharmacies. The distributor's profit consists of the commission received from the laboratory.

To date, both schemes co-exist and allow the distributors to market drugs to a large number of retailers or pharmacies, which make up the third link in the industry, the sale of drugs to the public. Therefore, pharmacies only have access to the supply of medicines or drugs under the commercial conditions set by the laboratories' distributors. 

Legal Analysis

Article 53 of the Federal Economic Competition Law (FECL) and previously Article 9 of the repealed Federal Economic Competition Law (“Repealed Law”) establish the elements to prove and penalise collusive conduct, identified in the FECL as an absolute monopolistic practice:

  • it shall be carried out by economic agents competing among themselves; and
  • it shall consist of contracts, agreements, arrangements or combinations, with the object or effect of anti-competitive conduct defined as an absolute monopolistic practice by the FECL.

Competing economic agents

The drug distributors Nadro, Casa Marzam, Fanasa, Almacén, and Casa Saba were considered competitors themselves for the following reasons:

  • the economic activity carried out by such companies;
  • the mutual recognition as competitors;
  • the statements rendered by shareholders, employees and former employees; and
  • the fact that all of them belong to the same association of distributors of pharmaceutical products, Diprofar.

Anti-competitive conducts

During the investigation stage conducted by COFECE’s Investigative Authority, 34 economic agents were charged with probable liability for their alleged participation in six collusive conducts identified in the file as follows:

  • Days of Rest;
  • Limited Discounts;
  • Credit Committee;
  • Conduct 3.66;
  • Quadrants Conduct; and
  • Fee for Service. 

From those conducts, the ones identified as Limited Discounts, 3.66, and Quadrants were analysed by COFECE for potentially triggering the anticompetitive conduct consisting in fixing, raising, co-ordinating, or manipulating the sale or purchase price of goods or services supplied or demanded in the markets, in terms of Article 53, Section I of the FECL and Article 9, Section I of the Repealed Law.

The conducts identified as Days of Rest and Credit Committee were analysed by COFECE for potentially triggering the anti-competitive conduct consisting of establishing the obligation of limiting the manufacture, process, distribution, commercialisation or acquisition of goods, or the supply of services, in terms of Article 53, Section II of the FECL and Article 9, Section II of the Repealed Law.

Finally, the conduct identified as Fee for Service was analysed by COFECE for potentially triggering the anti-competitive conduct consisting in dividing, distributing or allocating customers, suppliers, time spans or spaces in the distribution of goods or services in terms of Article 9, Section III of the Repealed Law.

As the trial-like proceeding unfolded, COFECE’s Board considered there were sufficient elements to evidence the responsibility of several economic agents for carrying out the conducts identified as Limited Discounts, 3.66, Quadrants, Days of Rest and Credit Committee, while considering that the Fee for Service Conduct was not evidenced, and the file was closed with regard to such conduct. 

The anti-competitive conducts are explained as follows:

Conducts related to price fixing

Limited Discounts Conduct 

This conduct was carried out from May 2011 to April 2012 by the drug distributors Marzam, Nadro, Almacén, Fanasa and Casa Saba with the purpose and effect of standardising the maximum discounts applicable with respect to the sales price of certain drugs distributed in Mexico.

In normal competition conditions, distributors compete among themselves for their customers (the pharmacies) by providing discounts on the pharmacy price suggested by the manufacturer or laboratory. The greater the discount offered to the pharmacies, the greater the probability that a particular distributor obtains more customers and, therefore, achieves a greater market share. 

However, in the case at hand, the drug distributors colluded to standardise a list of products for which they established a maximum number of discounts (limited discounts) that had to be respected by them. The association Diprofar received the lists provided by each distributor, integrated them into one single list and sent it for review and comments of the distributors engaged in such conduct.

The Diprofar’s Operations Committee made the recommendations it deemed pertinent, aimed at achieving compliance with this conduct in written minutes. These recommendations were then reported to the board of directors for a final decision. This conduct was supervised by the distributors at the meetings held at the Diprofar and through communication between themselves and Diprofar’s president.

Conduct 3.66

This conduct was carried out from February 2011 to 18 August 2013, by the drug distributors Marzam, Nadro, Casa Saba and Almacén to increase the pharmacy price of several drug products manufactured by certain laboratories by 3.66%.

In 2011, several laboratories reduced the commercial conditions for the distributors. Manufacturers increased the price of drugs or reduced the discounts granted to the distributors engaged in the Conduct 3.66, which resulted in a decrease in their profit margin.

As a result, in February 2011, the affected distributors agreed to increase the pharmacy price of the products made by those laboratories by 3.66%, limiting the commercial conditions for the distributors. However, in May 2012, several pharmacies complained because they noticed the increase in the pharmacy price from the corresponding distributors.

Quadrant Conduct

This conduct was carried out in two stages. The first stage was from July to October 2014 and involved the participation of Marzam, Nadro, Fanasa and Saba; and the second stage ran from October to December 2015 and involved Marzam, Nadro and Fanasa. This conduct had the purpose and effect of fixing the sale price of certain drugs made by several laboratories through the homologation of the final sale price to the distributors’ clients by preparing “quadrants‟.

Conducts related to the limitation of supply of goods or services

Days of Rest Conduct

This conduct was carried out from June 2006 to the end of 2016 by the drug distributors Marzam, Nadro, Almacén, Fanasa and Casa Saba with the purpose and effect of co-ordinating among themselves to not distribute medicines in Mexico on certain days of the year, namely, the mandatory rest days established in the Federal Labor Law, as well Holy Friday and the Day of the Dead. 

Through this conduct, the distributors colluded among themselves to prevent any of them from supplying pharmacies on non-business days. This was to reduce their costs without affecting the companies′ operations, avoid paying extraordinary salaries and prevent other distributors from supplying pharmacies when the others were not distributing and prevent them from losing market shares.

This agreement was implemented on confirmation by the distributors involved in anticipation of the dates on which activities would be suspended. The confirmations were reported at the Diprofar’s meetings minutes, subsequently circulated by the Diprofar’s president to the board of directors.

The distributors effectively suspended the distribution of medicines on the agreed dates when they reached an agreement. However, if any of the distributors decided not to suspend work on the agreed dates, it was understood that they were free to decide whether or not to distribute the drugs on that day. In both scenarios, the Diprofar’s president notified the rest of the distributors of the decision. 

Credit Committee Conduct

This conduct was carried out from January 2008 to December 2016 by the drug distributors Marzam, Nadro, Almacén, Fanasa, and Casa Saba with the coadjutant of Diprofar. The distributors agreed to distribute only a limited number of drugs to certain debtor customers (pharmacies) to recover overdue balances held by those customers in default. The distributors sought to create a common front to avoid customer payment malpractices. They thus implemented measures such as freezing or reducing credit lines, establishing credit limits per distributor, keeping track of critical cases, suspending or reducing supply, and carrying out co-ordinated actions, among others. 

Conduct related to the market segmentation

Fee for Service Conduct

This conduct was carried out from April 2009 to October 2013 by the drug distributors Nadro, Marzam, Casa Saba and Fanasa with the probable purpose and effect of allocating among themselves the customers to which each would distribute drugs according to the market shares held by each. 

However, COFECE’s Board concluded that the arguments provided by the accused economic agents were sufficient to reverse the presumption of guilt of the economic agents involved in this conduct. The Board also noted that the evidence in the file was insufficient to prove that this was anti-competitive conduct and impose sanctions. Consequently, it was ordered to close the file only with respect to this conduct and the economic agents involved in it were exonerated. 

The competition authority considered that there were no grounds for penalising this conduct for the following reasons:

  • the evidence considered by the Investigation Authority was not enough to prove collusive conduct;
  • the methods and consequences of the conduct correspond to a vertical restraint within each laboratory's supply chain (intra-brand competition);
  • the documentary elements gathered during the investigation do not provide evidence that the distributors co-ordinated between themselves to impose on the laboratories the allocation of customers, and the laboratories ultimately decided to allocate by themselves the clients to their distributors; and
  • there was no evidence in the record that the Fee for Service Conduct constituted an absolute monopolistic practice.

Sanctions

COFECE’s Board noted in its decision that the sanctioned conducts affected one of the most relevant sectors of society and the Mexican State, which is responsible for executing policies in this vital area for social development. In addition, the market under investigation is distinguished for requiring a continuous supply of drugs to guarantee the right to health protection. The collusive conduct occurred in the distribution and commercialisation link of the value chain, affecting the surplus of retailers or pharmacies and indirectly in the price paid by the final consumers and in the supply of medicines and their access and availability. The behaviours caused injury to Mexican families, particularly those with lower incomes. According to the National Institute of Statistics and Geography (INEGI for its acronym in Spanish), the poorest households spent an average of 5.2% of their total expenditure on medicines, while higher-income families spent an average of 1.6% of their total expenditure on medicines. The decision estimated that the penalised conducts caused damage to the Mexicans for more than MXN2,359 million.

In light of the above, COFECE imposed penalties on five drug distributors, 21 individuals who participated on their behalf, and two coadjutants of carrying out the conduct. The sanctions were cumulative for performing various activities, and in the case of individuals, ten of them were additionally penalised with the sanction of disqualification.

Fines

The total fine imposed on the economic agents amounts to MXN903,479,260.71 (approximately USD45,565,369.56). This sanction is the maximum possible that COFECE could set and is one of the highest imposed by the competition authority in the last years.

Regarding the three conducts related to price fixing (Limited Discounts, 3.66 And Quadrants), COFECE’s Board noted a plurality of actions that integrated as single unlawful conduct given that there was a unity of purpose and identity of legal injury. The three conducts intended to influence the price at which the distributors sold the drugs to the pharmacies in the traditional drug scheme. Therefore, the economic agents involved were penalised with one single penalty.

On the other hand, the Board considered that the Days of Rest and Credit Committee conducts constituted independent conduct that deserved separate sanctions derived from separate collusive agreements and for different purposes.

According to the resolution, the Days of Rest conduct had the object and effect of approving the days when the distributors were not distributing drugs to avoid paying double or triple salaries to their employees for working on those days. On the other hand, the Credit Committee′s conduct had the purpose of stopping the indebtedness of customers. The distributors agreed to limit or restrict the sale of drugs to the companies with the highest debts.

Disqualification

Additionally, this resolution imposed, for the first time in the history of COFECE, a sanction consisting of disqualification of certain individuals provided in Article 127, Section X of the FECL. 

Article 127, Section X of the FECL provides that those persons who participate directly or indirectly in monopolistic practices or unlawful concentrations, in representation or on behalf of legal entities may be sanctioned with a temporary disqualification to act as directors, administrators, managers, officers, executives, agents or representatives of a legal entity for a term of up to five years.

COFECE’s Board determined that the sanction of disqualification of several individuals was justified since the injury caused by the economic agents and individuals that carried out the five anti-competitive conducts that were evidence was of high severity, given that they affected the drug market,  impacting the right to health of all Mexicans, especially the low-income people, who spend a greater amount of their income on health needs.

The Board noted that in light of Article 28 of the Mexican Constitution and its interpretation by the Mexican Supreme Court of Justice, the legislator deemed it pertinent to contemplate specific sanctions that, in addition to those derived from monopolistic practices, correspond to those individuals who act on behalf of or for the account and order of legal entities that violate the LFCE.

Therefore, the imposition of different periods of disqualification was considered appropriate in this case because the penalised individuals participated in one or several of the absolute monopolistic practices that were evidenced.

The specific sanctions imposed in the case at hand imply the prohibition to act as directors in any company of the economic group of the economic agent that the individuals represented at the time of carrying out the anti-competitive conduct for six months to four years.

New Trends in Enforcing Cartel Activity

One of the most relevant aspects of the case under study is the imposition of the sanction of disqualification to various officials who participated as directors of the sanctioned pharmaceutical distributors. This is a novel aspect in the enforcement of the FECL, and it sets an important precedent even worldwide, where only a few jurisdictions, such as the UK, Vietnam and Hong Kong, contemplate this sanction in their legal systems and where there have been few cases of sanctions by this modality in the world.

In our opinion, the imposition of the sanction of disqualification of officials marks a new trend in the enforcement of the Mexican competition authority that we believe will have a deterrent effect on anti-competitive practices. This is because now individuals will have to consider that their participation in absolute monopolistic practices may generate fines and the sanction of being disqualified from key positions within the companies they represent.

Basham, Ringe y Correa

Paseo de los Tamarindos No. 100, Piso 5
Bosques de las Loma
Alcaldía Cuajimalpa de Morelos
05120, Ciudad de México
Mexico

+52 55 5261 0400

+52 55 5261 0496

basham@basham.com.mx www.basham.com.mx
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Law and Practice

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Nader Hayaux & Goebel is a market leader in competition, anti-corruption, M&A, banking and finance, fintech, securities and capital markets, structured finance, telecommunications, tax, insurance and reinsurance, project finance, real estate, energy and infrastructure, restructuring and insolvency and government procurement. The firm consists of 18 partners and more than 35 associates and represents one of the largest groups of corporate finance experts in the Mexican market, which has worked together for more than 30 years. It is the only Mexican law firm with an office in London; it has a strong focus on developing and pursuing business opportunities in Mexico, the UK and other European countries and enjoys excellent working relationships with law firms in all major cities internationally.

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Basham, Ringe y Correa has offices in Mexico City, Monterrey, León and Queretaro with 107 lawyers and is one of the leading full-service law firms in Latin America. Established in Mexico in 1912, the firm draws on more than a century of experience assisting its clients in conducting business throughout Mexico and abroad. Clients include prominent international corporations, financial institutions and individuals. The firm’s large group of lawyers and support staff are committed to maintaining the highest professional and ethical standards. Constantly exposed to the international legal system, many of its lawyers and other professionals have completed graduate studies at foreign universities and worked in companies and/or law firms abroad. The firm’s preventative and strategic advice on all types of law allows it to offer clients effective, complete and timely solutions to their concerns with fully integrated and tailored solutions for every client.

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