Antitrust Alert: Mexico Antitrust Authority Given Greater Powers
The Mexican Congress has given new powers to the country’s antitrust authority, the Federal Economic Competition Commission (the "Commission"). The amendments to the Federal Economic Competition Law (the "Law"), which became effective on 11 May 2011, are designed to strengthen the regulation of economic competition in Mexico. The amendments give the Commission additional procedural authority, increase the penalties that the Commission can impose, introduce new legal concepts like combined substantial power, and eliminate the premerger notice in certain cases when competition is unaffected, as in the case of internal corporate restructuring.
I. A mechanism to determine "combined substantial power."
The concept of "combined substantial power" is introduced into the law to identify situations in which two or more economic agents may exercise dominance in the same relevant market. The notion that the combined market power of two large companies may give rise to an antitrust violation has been controversial in the U.S., but is accepted in other jurisdictions including Europe. The burden is on the Commission to show the existence of combined substantial power.
II. "Fast Track" procedure and cases where notice is not required.
Mexican law requires pre-closing notification of merger and acquisition transactions that meet certain value or market share thresholds. The new amendment of Article 21 bis of the Law clarifies the process for expedited resolution of pre-closing notices. In particular, a new Article 21 bis 1 clarifies that notice of concentration is not required in the case of corporate restructuring among agents of economic groups with shared control, without participation by third parties, and creation of trusts.
III. New powers for the Commission.
Among the new powers of the Commission, most noteworthy is the authority to make site inspections without the need for a prior judicial order. The requirement of a prior judicial order in the past caused difficulty for the Commission to collect information for antitrust investigations, since requesting such order reduced the autonomy of the Commission and slowed down its investigation process. Nevertheless, new Article 31 sets forth rules that must be followed in making inspections, such as the requirement that the inspection order must contain the object, scope and duration of the inspection.
Additionally, the Commission may now also order a temporary suspension of conduct that is determined by the Commission during an investigation to constitute a probable monopolistic practice or prohibited concentration, and it may set bonds to avoid or lift the suspension while the investigation remains ongoing. Suspensions will have a maximum duration of 4 months, and may be extended no more than 2 times for an additional period of 4 months each. At the end of the process, the Commission will determine if the probable conduct exists or not and as appropriate impose sanctions (including the permanent suspension of the conduct).
IV. Resolutions by the Commission.
The Law provides that the deliberations of the full Commission must have the vote of all commissioners, who may not abstain from voting. Only in serious cases where the commissioners are unable to cast their vote, or are prevented from doing so, may the Chair of the Commission cast the decision-making vote. The amendment does not define what such serious cases are.
V. Chair and Secretary of the Commission.
The term of office for the Chair of the CFC is reduced from 6 to 4 years, with a possibility of reelection only once, at the end of which he or she shall complete, if applicable, the remaining term as commissioner. The Secretary of the Commission now has new powers such as, for example, dismissing clearly inappropriate accusations.
VI. Confidential information.
A new paragraph is added to Article 31 bis of the Law prohibiting CFC officials from making public statements or disclosing information related to the case files or administrative proceedings heard by the Commission.
The amended Law authorizes the Commission to impose sanctions significantly greater than previously available. For example, the Commission may now impose fines of up to:
- 10% of the Mexico income of a company in the case of the commission of absolute practices (such as price fixing, bid rigging, and market allocation),
- 8% of income for engaging in a prohibited concentration or a relative monopolistic practice (which may involve conduct such as tying, price discrimination, the imposition of vertical restrictions, exclusive agreements, and refusals to deal),
- 5% of income for failing to notify a concentration when legally required to do so, and
- 8% of income for failing to comply with an order to refrain from executing a concentration until the Commission issues a favorable decision.
Additionally, the amendments change the Federal Criminal Code to provide penalties of 3 to 10 years imprisonment for engaging in absolute practices.
Businesses will have to be more cautious with respect to their Mexican operations and ensure that these do not violate Mexican competition law, as violations may result not only in significantly greater fines but also expose their officers to criminal penalties. At the same time, the reform provides greater clarity with respect to premerger notifications and when such notifications will not be required.
For more information, please contact your principal Jones Day representative or either of the lawyers listed below.
Javier Martínez del Campo L.
Jesús Gabriel Altamirano
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