1. Legal and enforcement framework
1.1 Which legislative and regulatory provisions regulate dominance in your jurisdiction?
- Article 28 of the Mexican Constitution;
- The Federal Economic Competition Law;
- The Federal Economic Competition Law's regulatory provisions; and
- The Technical Criteria for the Calculation and Application of a Quantitative Index to Measure Market Concentration.
1.2 Do any special regimes apply in specific sectors?
There are two competition authorities in Mexico:
- the Federal Telecommunications Institute (IFT), for the broadcasting and telecommunications sectors; and
- the Federal Economic Competition Commission (COFECE), which has jurisdiction in all other sectors.
1.3 Is the legislation intended purely to protect economic interests or does it have other aims?
The Federal Economic Competition Law aims to safeguard and promote competition and facilitate market entrance. However, certain anti-competitive behaviours, such as abuse of dominance, may not be punishable if efficiencies are generated that enhance consumer welfare.
1.4 Which authorities are responsible for enforcing the legislation?
- The IFT, for the broadcasting and telecommunications sectors; and
- COFECE, which has jurisdiction in all other sectors.
1.5 How active are the enforcement authorities in taking action against abuse of dominance in your jurisdiction? What key decisions have the enforcement authorities adopted most recently?
The Mexican authorities actively prosecute monopolistic practices. The Investigative Authority of COFECE is currently conducting five investigations for possible abuse of dominance. However, given the nature of the conduct under investigation, investigations tend to be protracted and are often closed without the imposition of fines. This may be seen as unfortunate and possibly as a disincentive against reporting such practices. In some cases, the investigation is closed when the target company offers commitments to remedy the relevant behaviour.
Although this case did not involve an abuse of dominance, in November 2020 the IFT ruled that Grupo Televisa had substantial market power in 35 relevant markets for the provision of restricted television services. As a result, the IFT can impose regulations on Grupo Televisa to prevent it from abusing its market power; it also implies that your business practices will be under the watchdog of the regulator. However, the decision has been challenged in court.
According to the Annual Work Programme for 2019 and 2020, COFECE's strategic actions include conducting investigations into relative monopolistic practices or illicit mergers in order to ensure the effective enforcement of the competition regulations. According to the 2020 Institutional Performance Evaluation System Results Report, COFECE is currently achieving a compliance level of around 66% through the conclusion of investigations into such conduct.
One recent decision in which action was taken against abuse of dominance concerned the market for access to the federal zone and parking facilities for the provision of taxi services at Mexico City International Airport. The penalty imposed on the airport was equivalent to the maximum fine established for relative monopolistic practices under the Federal Economic Competition Law. The decision confirmed:
- the existence of discriminatory treatment in the relevant market; and
- the substantial power of the airport in this market, as it is the only concessionaire that can authorise access to the federal zone for the provision of taxi services – no other agent can grant such authorisation.
It was thus found that this concession constitutes a barrier to entry.
2. Definitions and scope of application
2.1 What parties are covered by the dominance legislation? Are any exemptions available?
All economic agents are subject to the Federal Economic Competition Law. Article 3 defines an 'economic agent' as "Any natural or legal person, either for profit or non-profit, Federal, State or Municipal public administration agencies and entities, associations, business chambers and professional associations, trusts, or any other form of participation in economic activity".
2.2 How is 'dominance' defined in your jurisdiction?
'Dominance' is defined as having substantial power over a relevant market.
Although there is no clear-cut definition of the concept under Mexican law, Article 59(I) of the Federal Economic Competition Law refers to the "ability to unilaterally fix prices or restrict supply in the relevant market, without competitors being actually or potentially able to counterbalance such power".
An economic agent will be considered to have substantial power over a relevant market if:
- it can profitably set prices or supply; and
- neither competitors nor customers have sufficient strength to offset this capability.
2.3 How important is market share in assessing dominance in your jurisdiction? Do specific thresholds apply in this regard?
Market share is one of several factors that are evaluated in assessing dominance. To this end, the Federal Economic Competition Commission relies on the Herfindahl-Hirschman Index (IHH). This index is employed to assess concentrations, transactions and competition conditions in a market.
The thresholds under which a prospective concentration will be deemed to have a low probability of hampering competition are as follows:
- The change in IHH will be less than 100 points;
- The level of IHH following the transaction will be less than 2,000 points; or
- The following criteria are collectively met:
- The level of IHH following the transaction will remain between 2,000 and 2,500 points;
- The change in the IHH will stay within 100 and 150 points; and
- The economic agent resulting from the concentration will not rank among the four economic agents with the largest market shares.
The Federal Telecommunications Institute (IFT) applies the following criteria:
- The IHH will be equal to or less than 2,000 points;
- The level of the IHH following the transaction will remain between 2,000 and 3,000 points, and the change will not exceed 150 points; or
- The level of the IHH following the transaction will exceed 3,000 points and the change will be less than or equal to 100 points.
The IFT is in the process of deciding whether the thresholds should be updated as follows:
- The level of the IHH following the transaction will be equal to or less than 2,000 points;
- The level of the IHH following the transaction will remain between 2,000 and 2,500 points and the change will not exceed 150 points; or
- The level of the IHH following the transaction will exceed 2,500 points and the change will be less than or equal to 100 points.
2.4 What other factors are considered when assessing dominance?
- Entry/expansion barriers, such as:
- financial costs;
- the investment needed;
- alternative use of equipment;
- governmental permits;
- intellectual property;
- the importance of trademarks;
- competition restrictions in international markets;
- the behaviour of incumbent economic agents; and
- regulatory provisions;
- Competitors' strength;
- Input supply access; and
- The recent conduct of economic agents in the market.
2.5 How are the product and geographic markets defined in your jurisdiction?
A relevant market comprises products or services that are close substitutes for each other. To this effect, the close substitution of two products requires strong similarities in their use or functionality, price and availability, from the perspective of both suppliers and purchasers.
2.6 Does the dominance legislation make any distinction between dominant purchasers and suppliers?
No, the Federal Economic Competition Law applies equally to purchasers and suppliers.
2.7 Is collective dominance recognized in your jurisdiction? If so, how is it defined?
Collective dominance is recognised in the same provision as governs single dominance – Article 59 of the Federal Economic Competition Law:
To determine whether one or several Economic Agents have substantial power in the relevant market, or to resolve on competition conditions, effective competition, the existence of substantial power in the relevant market or other matters related to the process of competition or free market access referred to in this or other Laws, regulations or administrative provisions, the following elements must be considered....
The provision thus applies to both joint and single dominance.
2.8 What is the statute of limitations to prosecute abuse of dominance cases in your jurisdiction?
The powers of the competition authorities to initiate investigations and prosecute abuse of dominance cases expire once 10 years have elapsed since the cessation of the unlawful conduct.
3. Abuse of dominance
3.1 How is 'abuse of dominance' defined in your jurisdiction?
Under the Federal Economic Competition Law, abuse of dominance is qualified as a 'relative monopolistic practice' (Articles 54–56).
Abuse of dominance will be punished only where an economic agent with substantial power over a relevant market is involved. The practice investigated may take place in the relevant market and/or in related markets. The practice will not be punished if it enhances consumer welfare in a way that offsets the anti-competitive effects.
3.2 What specific types of conduct constitute an abuse of dominance in your jurisdiction?
Under Article 56 of the Federal Economic Competition Law, abuse of dominance usually involves relationships between agents at different points of the production chain, such as:
- exclusivity arrangements regarding distribution to specific individuals or locations, or during particular timeframes;
- resale price maintenance;
- tying of sales;
- prohibitions against dealing with certain third parties;
- refusal to deal;
- predatory pricing;
- incentives granted to promote exclusivity;
- discriminatory treatment;
- margin squeeze;
- discriminatory treatment regarding essential facilities; and
- margin squeeze concerning essential facilities.
3.3 On what grounds may the enforcement authorities commence an abuse of dominance investigation?
Either on their initiative or following a complaint by any interested person.
3.4 What powers do the enforcement authorities have in conducting their investigation?
The Investigative Authorities of the Federal Economic Competition Commission and the Federal Telecommunications Institute have the power to require any individual or undertaking to submit all information or documents deemed necessary for them to conduct their investigations. The authorities may also summon individuals or undertakings related to investigations for interviews, and may order and conduct dawn raids.
The Investigative Authorities can also file claims or complaints at any time with the Office of the Attorney-General regarding probable criminal conduct in matters of free market access and economic competition; and may collaborate as necessary in the investigations arising from such claims or complaints.
3.5 Is there an opportunity for third parties to participate in the investigation?
Yes, both as plaintiffs and as adjuvants, if the competition authorities require information from them.
3.6 What are the general rights and obligations of the enforcement authorities during the investigation?
The competition authorities have extensive powers to carry out investigations. To this end, they have the power to:
- request information from any person or authority;
- carry out dawn raids, supported by public force if necessary; and
- impose a fine for each day that requested information is not presented to them.
3.7 What are the general rights and obligations of the target company during the investigation? What are the general rights and obligations of individuals targeted during the investigation?
The general right of the target during the investigation is respect for its guarantees of legality (human rights).
The general obligations of the target during the investigation are to:
- cooperate with the competition authorities;
- submit all requested information; and
- act truthfully throughout.
The general rights and obligations of individuals targeted during the investigation are the same as those for target companies.
3.8 What factors will the enforcement authorities consider in assessing whether an abuse of dominance has taken place?
The analytical framework is generally as follows:
- The relevant market must be determined; and
- One of the parties involved should be credited with substantial power over the market.
The analysis, based on Article 54 of the Federal Economic Competition Law, should then determine whether:
- the conduct evaluated falls within the types of behaviour recognised by the Federal Economic Competition Law;
- anti-competitive effects are observed on the relevant market and/or on a related market due to the conduct, such as:
- undue displacement of other economic agents;
- barriers to market access; or
- exclusive advantages for some economic agents; and
- consumer welfare benefits from the conduct offset anti-competitive effects.
Based on this analysis, the competition authority will determine whether an abuse of dominance has taken place.
According to Article 54 of the Federal Economic Competition Law, the competition authority will consider whether the conduct meets any of the criteria set out in Article 56 – that is, whether it:
- is being carried out by one or more economic agents that individually or jointly have substantial market power over the same market in which the conduct is taking place; and
- has or may have the following effect, whether intentionally or otherwise:
- unduly displacing other economic agents from the relevant market or a related market;
- substantially impeding access to the relevant market or a related market; or
- establishing exclusive advantages in favour of one or more economic agents.
3.9 In case of a finding of abuse of dominance, can the company seek to negotiate a settlement or similar resolution? If so, what is the process for doing so?
Articles 100–102 of the Federal Economic Competition Law provide that before the statement of probable responsibility (accusation) is issued, the company that is subject to the investigation may express in writing its intention to seek an exemption from or a reduction in fine by committing to suspend, eliminate or correct the corresponding practice, to restore free market access and economic competition on the market.
The proposed measures must be legally and economically feasible and appropriate to avoid or eliminate the abuse of dominance under investigation. The company must also state the timeframes within which they will be implemented and the terms of verification thereof.
In response, the competition authority may issue a definitive resolution awarding the corresponding exemption or reduction sought and stating the measures to be taken to restore free market access and economic competition on the market. If it does so, the company must expressly accept this definitive resolution.
4.1 What defences are available to companies in response to enforcement?
A company can appeal through an indirect amparo trial before a specialised court. The appeal procedure must be initiated before a final resolution has been issued.
4.2 Can companies avail of leniency in abuse of dominance cases?
Not as such, but they can seek an exemption or reduction in fine as set out in question 3.9. This procedure is quite similar to leniency, as it allows the company to avoid liability and fines.
5. Remedies and sanctions
5.1 What remedies and sanctions may be imposed for abuse of dominance? Can sanctions be imposed on individuals?
Article 127, section I of the Federal Economic Competition Law provides for the issue of orders to a company to remedy or cease the illegal practice. Also, a fine of up to 8% of its annual income may be imposed.
In case of refusal of access, restriction of access, or access under discriminatory terms and conditions to an essential facility, the competition authority may order measures to regulate access to that facility.
The relevant individuals may also be:
- held ineligible to act as a board member, manager, director, executive, agent, representative or legal representative for up to five years; and
- fined up to:
- 200,000 times the current unit of measure and actualisation, where they directly or indirectly participated in the abuse of dominance on behalf or on account and order of the company; or
- 180,000 times the current unit of measure and actualisation, where they contributed to, facilitated, or instigated the abuse of dominance.
Finally, suppose that a company has benefited from an exemption or reduction in fine, but does not comply with the competition authority's resolution. In that case, it can be fined up to 8% of its annual income, regardless of the corresponding criminal liability – in relation to which the competition authority will file a complaint to the Public Prosecutor's Office.
5.2 How are the remedies and sanctions in abuse of dominance cases determined?
Abuse of dominance practices are illicit and will be punished, unless the economic agent can prove that the practices resulted in efficiency gains and have had a favourable impact on economic competition and free market access, thus overcoming their possible anti-competitive effects and enhancing consumer welfare.
Where accusations are substantiated, the competition authorities may order:
- the correction or suppression of the monopolistic practice or illicit merger in question; and
- the imposition of administrative fines.
In deciding on the quantum of fines, the elements that must be considered to determine the severity of the infraction are:
- the damage caused;
- indications of intent;
- the market share of the offender;
- the size of the affected market;
- the duration of the practice or concentration;
- the economic capacity of the offender; and
- where relevant, cooperation with the authorities in the exercise of their powers.
Only administrative sanctions may be imposed for abuse of dominance; in other words, criminal sanctions are not available. Sanctions may be determined up to a maximum fine equivalent to 8% of the offender's annual income, regardless of the corresponding civil liability.
Additionally, the Federal Economic Competition Law provides that the competition authorities may sanction individuals. Persons who have directly or indirectly participated in monopolistic practices on behalf or on account and order of an undertaking may be:
- prohibited from acting as a board member, manager, director, executive, agent, representative or legal representative for up to five years; and
- fined the equivalent of 200,000 times the current daily general minimum wage in Mexico City.
In case of recidivism:
- the original fine issued by the competition authorities may be doubled; and
- the authorities may order the divestiture or transfer of assets, rights, partnership interests or stock, to the extent necessary to remedy the anti-competitive effects.
5.3 Can the enforcement authorities impose remedies and sanctions directly or is court action required?
The imposition of remedies falls within the exclusive remit of the competition authorities.
6.1 Can the defendant company appeal the enforcement authorities' decision? If so, in what forum and what is the process for appeal?
A company can appeal through an indirect amparo trial before a specialised court. The appeal procedure must be initiated once the competition authority has issued its decision.
6.2 Can third parties appeal the enforcement authorities' decision, and if so, in what circumstances?
Only if the third party is the plaintiff.
7. Private enforcement
7.1 Are private enforcement actions against abuse of dominance available in your jurisdiction? If so, where can they be brought?
7.2 Are class actions or other forms of collective action available in your jurisdiction?
Yes, class actions are available through a civil complaint.
7.3 What process do private enforcement actions follow?
7.4 What types of relief may be sought and what types of relief are most commonly awarded? How is the relief awarded determined?
7.5 Can the decision in a private enforcement action be appealed? If so, to which reviewing authority?
8. Trends and predictions
8.1 How would you describe the current dominance enforcement landscape and prevailing trends in your jurisdiction? Are any new developments anticipated in the next 12 months, including any proposed legislative reforms?
Due to legal secrecy requirements, the enforcement landscape is quite difficult to assess, as current investigations are not made public. Final decisions are partially made public but usually lack sufficient detail to understand their analytical foundations. Court proceedings on the findings of the competition authorities can take years to complete and final decisions are not usually fully discussed by the competition authorities.
Since its creation in 2014, the Federal Economic Competition Commission (COFECE) has concluded and resolved five investigations into abuse of dominance. Three of these resolutions resulted in the imposition of sanctions on economic agents in the markets for:
- the supply of petroleum products to service stations belonging to the PEMEX franchise (2017); and
- interconnection services for the termination of mobile phone calls (2015 with a final ruling issued by the Federal Institute of Telecommunications).
In 2020, two investigations relating to abuse of dominance were concluded. One of these was in the market for online public broker platforms (closed due to a lack of evidence). Likewise, in 2019, investigations were concluded in the markets for:
- laboratory tests and certification in the pulp industry;
- raw, pasteurised milk and its derivatives; and
- retail sales of diesel and gasoline.
The prosecutor of COFECE is currently conducting five investigations for possible abuse of dominance in the following markets:
- generation, wholesale commercialisation and supply of electric energy and associated products, as well as services and activities relating to these markets in the national territory;
- the evaluation of the conformity of alcoholic beverage mezcal;
- the supply and wholesale distribution of consumer goods and retail marketing;
- digital advertising services and related services; and
- the production, distribution and commercialisation of medical oxygen and associated services in the national territory.
Meanwhile, the Federal Telecommunications Institute is conducting six investigations into probable relative monopolistic practices or illicit mergers in the following markets:
- fixed and mobile telephony services; fixed and mobile internet access services; and the production, distribution and marketing of online audiovisual content in the national territory;
- the production, distribution and commercialisation of online content; the distribution and commercialisation of electronic devices for the reproduction of online content; and restricted television and audio services in the national territory;
- the provision of wholesale unbundling services of the local network of the incumbent in the telecommunications sector in the national territory;
- mobile telecommunications services and commercialisation of mobile terminal equipment in the national territory;
- wholesale leasing services of local and inter-location dedicated links in the national territory; and
- the distribution of mobile terminal equipment and the marketing of mobile telecommunications services.
With regard to new developments anticipated in the next 12 months, in its Strategic Plan 2018–2021, the Federal Economic Competition Commission defined its institutional objectives and strategic approaches for the relevant period. One of its main objectives is the effective enforcement of competition law. To this end, the commission has set out an action plan that includes:
- facilitating and encouraging informed complaints of anti-competitive practices;
- effectively monitoring markets for the detection of anti-competitive practices and illicit mergers in priority sectors; and
- actively promoting the prevention and correction of anti-competitive market structures and legal frameworks by:
- investigating and issuing declarations in priority sectors that lack conditions for effective competition;
- analysing and resolving on time the concentrations notified to it to prevent risks to competition;
- preparing market studies that identify restrictions to competition in priority sectors; and
- monitoring compliance with its recommendations.
The commission has also established a prioritisation strategy for the execution of its actions during the relevant period. This identifies priority sectors based on six main criteria, including the prevalence of anti-competitive practices. These criteria aim to identify sectors and sub-sectors in which markets and regulations may facilitate collusive agreements or abuse of dominance.
Based on these criteria, the commission has identified six economic sectors as priorities for its strategic plan:
- health; and
- procurement (although this is not strictly speaking an economic sector).
The competition authorities also have the power to issue directives, guides, guidelines, and technical criteria, further to public consultation, on matters such as investigations of anti-competitive practices. Although the Federal Economic Competition Commission has not conducted public consultations on its preliminary drafts relating to substantial power, it has issued and made available for public consultation various guidelines relating to the study and analysis of substantial power and dominance. These cover:
- the technical criteria for the calculation and application of a quantitative index to analyse the possible effects of a concentration on competition and free competition;
- guidelines for investigations into relative monopolistic practices or illicit mergers;
- technical criteria for the initiation of investigations into monopolistic practices.
- modifications to the guidelines for the initiation of investigations into monopolistic practices and illicit mergers; and
- changes to the guidelines for processing investigations into relative monopolistic practices or illicit mergers.
These directives, guidelines, and technical criteria should be reviewed at least every five years.
The Federal Telecommunications Institute has currently issued two drafts for public consultation:
- proposed draft amendments to the guidelines for the control of concentrations in the telecommunications and broadcasting sectors; and
- modifications to the technical criteria for calculating and applying a quantitative index to determine the degree of concentration in the telecommunications and broadcasting markets.
Likewise, between 2016 and 2020, the following preliminary drafts were issued:
- preliminary draft guidelines that establish the terms for the incumbent to have a physical presence at internet exchange points;
- a preliminary draft accounting separation methodology for incumbents, economic agents with substantial market power and shared networks;
- preliminary draft guidelines for the filing of electronic applications for the authorisation of tariffs of incumbents and economic agents with substantial market power in the telecommunications sector;
- preliminary draft guidelines for the filing of requests for the investigation of market conditions set out in Article 96 of the Federal Economic Competition Law in the telecommunications and broadcasting sectors;
- proposed draft modifications to the accounting separation methodology applicable to incumbents, economic agents with substantial market power and wholesale shared networks;
- modifications to the accounting separation methodology applicable to incumbents, economic agents with substantial market power and wholesale shared networks; and
- preliminary draft guidelines for filing complaints on monopolistic practices and unlawful concentrations in the telecommunications and broadcasting sectors.
Finally, in 2021, the following relevant documents were issued regarding investigations into anti-competitive misconduct (including abuse of dominance and substantial power):
- preliminary draft guidelines for handling trial proceedings concerning monopolistic practices and illicit mergers in the telecommunications and broadcasting sectors;
- proposed draft guidelines for determining relevant markets in the telecommunications and broadcasting sectors; and
- preliminary draft guidelines for the substantiation of investigations and procedures conducted electronically by the investigating authority of the Federal Telecommunications Institute.
9. Tips and traps
9.1 What would be your recommendations to companies to avoid an abuse of dominance charge, and what potential pitfalls would you highlight?
Companies should assess their market shares according to the framework set out in the Federal Economic Competition Law. Companies often estimate their market shares using different parameters from those applied by competition authorities.
If a company's market share is 25% or more, it should review its commercial practices to assess whether they could be subject to investigation by competition authorities.
Where its market share exceeds 25% and any of its practices are of a type that could be subject to investigation, the company should:
- cease this practice immediately; or
- continue this practice only if it is profitable while searching for alternatives to replace it, to avoid an investigation by the competition authorities.
Companies should further bear in mind that an investigation can be triggered by any complainant – including former employees or directors, competitors, and customers – as well as ex officio.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.