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Proposed amendments to Competition Law

Octavio Olivo Villa

In April, the President of Mexico submitted to Congress an initiative to amend Mexico's Competition Law, Federal Criminal Code and other federal laws, to strengthen the powers of the Federal Competition Commission so as to make meaningful progress with antitrust enforcement in Mexico. The enforcement tools and powers of the Commission under the current Competition Law have proved insufficient to effectively safeguard economic competition and freedom of trade and prevent monopolies, monopolistic practices and other restrictions on the efficient market of goods and services in Mexico.

The initiative that is currently being discussed in Congress is aimed at:

(i) implementing efficient mechanisms to facilitate and provide incentives for the non-contentious resolution of antitrust enforcement proceedings;

(ii) recognising oral arguments in administrative proceedings before the Commission;

(iii) modifying the Commission's organisational structure to make its functions more efficient and transparent;

(iv) giving the Commission the power to summon any person it believes may be able to furnish information or documents so as to enable the Commission to issue opinions on economic competition matters;

(v) expanding the Commission's supervision and enforcement authority over activities carried out by government agencies and entities of the federal public administration;

(vi) significantly increasing fines for violations and introducing in the Criminal Code a catalogue of conducts defined as criminal offences punishable with incarceration, so as to provide an effective deterrent for illegal antitrust activity and market abuse;

(vii) giving the Commission the power to order the suspension of alleged monopolistic practices before they are found to be illegal;

(viii) giving federal courts appellate jurisdiction on competition matters to carry out appellate review of the Commission's resolutions; and

(ix) strengthening the powers of the Commission to conduct inspection visits known as dawn raids, using the element of surprise to collect evidence indicating illegal antitrust activity.

Recent cases have highlighted the need to strengthen the Commission's enforcement powers, to step up economic sanctions against both corporations and individuals involved in illegal antitrust activity and to simplify the procedures for the imposition of sanctions.

One important case relates to the Commission's investigation into suspected absolute monopolistic practices in the market of medicines sold to the Mexican Institute of Social Security (IMSS) through public bids. The investigation was prompted by suspicious conduct by a number of pharmaceutical companies that participated in more than 200 public bids carried out by the IMSS from January 2002 to March 2009.

Following a lengthy investigation, the Commission found in January 2010, in a divided vote, that Eli Lilly y Compañía de México, Laboratorios Cryopharma, Probiomed and Laboratorios Pisa had coordinated the submission of public bids in bidding processes conducted by the IMSS from 2003 to 2006 to purchase human insulin used to treat diabetes, forcing the IMSS to pay artificially inflated prices. The Commission also found that Laboratorios Pisa, Fresenius Kabi Mexico and Baxter had coordinated the submission of public bids in biddings conducted by the IMSS from 2003 to 2006 to purchase a wide range of injection solutions, having a similar effect on the prices paid by the IMSS for such products. The Commission found a clear pattern of conduct where the offenders would take it in turns to bid artificially high prices to have a contract awarded, on the understanding that the other offenders would bid even higher prices when it was not their turn to win the award of a contract.

In its resolution, the Commission decided to impose economic sanctions against the pharmaceutical companies involved to the amount of MXN$21.5 million ($1.659 million) each, being the highest possible fine against a non-repeat offender under the applicable provisions of the Competition Law. The Commission also resolved to impose economic sanctions against the individuals directly involved in the illegal activities, but gave them the opportunity to first submit to the Commission evidence of their economic condition before setting the amount of the fines applicable against each of them.

For the culpable pharmaceutical companies, the consequences of having been caught appear to have been more than outweighed by the profits they must have generated through the illegal activity from 2003 to 2006. This case highlights that maximum sanctions at current levels do not necessarily deter illegal antitrust activity in the absence of criminal penalties for individuals.

The amendment initiative recently submitted by the President of Mexico to Congress is intended to step up economic sanctions against both corporations and individuals involved in illegal antitrust activity and simplify the procedures to impose sanctions. The proposed amendments to the Criminal Code are intended to clarify the language describing illegal antitrust conduct that leads to imprisonment, to provide fair warning to the potential lawbreaker and effectively become a general deterrent. We have yet to see what Congress has to say.

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