Introduction
COFECE investigation
Background
Comment
On 31 March 2022, the Federal Economic Competition Commission's (COFECE's) investigative authority published the start of an investigation to determine the existence of barriers to competition and/or essential facilities in the e-commerce retail market. The investigation procedure is listed under file number IEBC-001-2022 and was initiated ex officio, as the COFECE considers that there may not be effective competition conditions in the e-commerce market.
Following this publication, the COFECE will exercise its authority to gather information from the relevant economic agents in the e-commerce market. Investigative actions may include:
- dawn raids;
- requests for information;
- subpoenas; and
- other proceedings to conclude if there are no effective competition conditions in the e-commerce market.
The COFECE has between 30 and 120 days to conclude this investigation. This period may be extended twice.
Under article 94 of the Mexican Federal Economic Competition Law (FLEC), if the investigative authority determines the existence of barriers to competition or essential inputs, it could recommend the COFECE's plenum to:
- issue recommendations to public authorities, in case the distortions derive from legal dispositions, for those authorities to carry out the corresponding procedures to adjust the legal frame to suppress such distortions;
- order economic agents to suppress the barriers identified;
- determine the existence of essential facilities and regulate access, prices, rates, technical conditions and quality, as well as to determine the calendar to apply this regulation; and
- order the divestment of assets, rights, partnership interests or stock, in the necessary proportions, to eliminate the identified distortions.
If the investigative authority finds a barrier to entry or essential inputs, it will publish its preliminary conclusions containing remedy proposals that could essentially regulate the digital space. Any party that is directly affected by the proposed measures will be able to challenge the preliminary conclusions and, if applicable, regulation proposals, during a trial-like procedure.
The competition issues in the digital space have drawn attention in many jurisdictions where lengthy studies, reports and regulations have attempted to tackle the gatekeepers' threat to competition, among other things. In Mexico, while the debate on digital platforms is active, the actions by competition watchdogs have been stalled by jurisdictional battles between the COFECE and the Federal Telecommunications Institute (IFT).
In 2021, the IFT launched an investigation to determine barriers to competition in the digital space, including search engines, social networks, cloud computing and mobile operating systems. In light of the investigation, the COFECE claimed jurisdiction over several markets before the courts and that it retains power with regard to search engines, social networks and cloud computing.(1) Following this judgment, the COFECE concluded the investigation, stating that the probe was more of a fishing expedition than a fact-based investigation.
The COFECE's latest investigation is more focused than the preceding one, and it appears to be a continuation of the investigative authority's attempts to determine potential abuses of dominance in the e-commerce and payment systems sectors. While these recent proceeding were closed due to lack of evidence, the COFECE likely has some ideas and evidence of potential structural problems in the market. In line with other jurisdictions, the investigation could result in the issuance of asymmetric regulations, especially for gatekeepers, which might include measures to prevent discrimination, leverage market power and self-preferencing to ensure non-discriminatory access to essential facilities.
Besides the high burden of proof that the COFECE must meet to find barriers to entry (eg, dominance, essential facilities), the investigation could encounter some practical difficulties. First, considering a criterion established by the First Collegiate Tribunal of the First Circuit, which specialises in economic competition, telecommunications and broadcasting, the COFECE can only issue a regulation in the absence of a sectoral regulator; otherwise, it limits its powers to recommending non-binding corrective measures to the competent authority.(2) As a cross-sectoral market, there is no specific authority that regulates e-commerce; therefore, it is yet to be seen if a sectoral regulator, such as the IFT, may claim jurisdiction if the COFECE's regulation fails to provide clarity.(3) Second, the COFECE's plenum does not have sufficient quorum to issue regulatory measures under article 94 of the FLEC. In this regard, the authority needs at least five affirmative votes to issue regulatory measures; however, the plenum currently comprises four members, and the executive branch and Congress are reluctant to appoint new commissioners.(4)
Currently, there are several federal trials and a constitutional controversy that are pressuring the COFECE to end the deadlock and order the executive branch and Congress to appoint the outstanding three commissioners. Before the investigation ends, it can only be expected that the deadlock that is preventing the COFECE from issuing regulatory measures under article 94 of the FLEC is ended by the executive branch or the courts intervene and compel the executive branch and Congress to do so.
For further information on this topic please contact Lucía Ojeda, Ernesto Álvarez Castillo or Francisco J García del Valle Torres at SAI Law & Economics by telephone (+52 55 59 85 6618) or email ([email protected], [email protected] or [email protected]). The SAI Law & Economics website can be accessed at www.sai.com.mx.
Endnotes
(1) Ruling of the First Specialised Court on jurisdiction conflict 1/2021. Pages 72-85. Further information is available here (in Spanish).
(2) Ruling from the First Collegiate Tribunal of the First Circuit, which specialises in economic competition, telecommunications and broadcasting, on the appeal of the amparo trial 142/2018, paragraphs 250-256.
(3) In this regard, there is no specific authority to regulate e-commerce. However, the problem with e-commerce, like other digital platform business models, is that one of its main inputs is internet, which means that telecommunications networks and providers may be involved. These latter markets fall under the IFT's jurisdiction by constitutional mandate. Complexities could arise when deciding which authority has jurisdiction to study and issue regulation on these inputs.
(4) The COFECE has already suspended one procedure under article 94, given the insufficient quorum. Further information is available here (in Spanish).