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Essential facilities and Primary Jurisdiction in Mexico

Introduction

On June 12, 2013, an amendment to the Mexican Federal Constitution regarding antitrust and telecommunications matters became effective (the "Constitutional Amendment"). Among other things, the Constitutional Amendment created a new Federal Economic Competition Commission (Comisión Federal de Competencia Económica; "COFECE") as an autonomous constitutional body, as well as new specialized federal courts in economic competition, telecommunications and broadcasting.

The Constitutional Amendment also granted COFECE new powers to identify essential facilities and regulate their access. The details and scope of these new powers, as well as the applicable proceeding, were further detailed in the new Competition Law published in 2014.

The first case ever in which COFECE made use of these powers relates to the allocation of landing and take-off slots in Mexico City's airport, which was recently reverted by a Federal Circuit Court through an application of the primary jurisdiction doctrine, concluding that slots regulation fell within the technical expertise of the Ministry of Communications and Transportation (Secretaría de Comunicaciones y Transportes or "SCT") through the General Direction for Civil Aeronautics (Dirección General de Aviación Civil).

The Essential Facilities Doctrine and COFECE's Authority

The powers granted to COFECE in the Constitutional Amendment were based on and are similar to, the essential facilities doctrine applied by both US Courts and the Court of Justice of the European Union.

In Mexico, in order for a facility to be deemed as essential, COFECE must analyze: (i) whether the facility is controlled by one or more economic agents with market power in any given market; (ii) whether the facility cannot be replicated from a technical, legal or economic perspective; (iii) whether the facility is essential for the provision of goods or services in one or more markets and has no substitutes; (iv) the conditions which lead to the economic agent's control of such facility; and (v) whether regulating access to the essential facility will generate efficiencies in the market.

Investigations by COFECE with respect to essential facilities may derive in: (a) recommendations to public authorities; (b) orders to economic agents to eliminate a competition barrier; (c) the determination of an essential facility and the issuance of guidelines to regulate, as appropriate, its access, tariffs, rates, technical and quality conditions, and timing; and (d) the divestiture of the controlling agent's assets, rights, shares or interests, as required to remedy any anticompetitive effects, in those cases in which other measure are not sufficient for these purposes.

The Case

The first case ever in which COFECE used these new powers was in February 2015, in an ex officio investigation (file number IEBC-001-2015) related to Mexico City Airport's ("AICM") allocation of landing and take-off slots. As AICM is a saturated airport, any airline intending to conduct operations therein requires a slot assignment.

In June 2017, based on the evidence it gathered during the investigation, COFECE concluded (among other things), that slots in AICM were an essential facility and that the way in which they were being allocated by AICM resulted in inefficiencies and anticompetitive effects, deriving in a high concentration of slots among few airlines, which limited both the entry of new airlines and the expansion by airlines holding fewer slots. According to COFECE, this also led to systemic distortions in the daily operations of airlines in detriment of consumers.

As a result, among other aspects, COFECE's decision imposed upon AICM certain obligations ("COFECE's Essential Facilities Decision"), including (i) enforcing an 85/15 compliance rule upon airlines under penalty of losing previously assigned slots; and (ii) imposing certain restrictions (cap) to carriers holding 35% or more slots accumulation per hour.

In July 2017, one of the affected airlines2 filed a constitutional appeal (amparo claim) with a District Court challenging COFECE's Essential Facilities Decision based on an interpretation of the essential facilities, primary jurisdiction and implied immunity doctrines in the US and Europe, arguing that COFECE's Essential Facilities Decision exceeded the purpose of COFECE's powers and that slots allocation fell within the technical expertise of the SCT, who not only had to consider antitrust aspects, but also technical, safety, efficiency, public policy and international commitments within its analysis.

In the first instance, the District Court dismissed the claim, arguing essentially that (i) the airline had not suffered a direct affectation by COFECE's Essential Facilities Decision as AICM still needed to implement it; and (ii) that the case was inadmissible because if the outcome was favorable to the airline, the ruling would also benefit other airlines and the AICM itself -which were not parties in the trial- and therefore, would contravene the "relativity" principle pursuant to which an amparo ruling can only favor the claimant.

The airline appealed the District Court's decision, which was assigned to the First Federal Collegiate Circuit Court specialized in competition, broadcasting and telecommunications matters (the "Circuit Court") (file A.R. 142/2018).

The Circuit Court's Ruling

The Circuit Court reverted the District Court's dismissal and ruled in favor of the claimant's arguments, stating that slots allocation was indeed, a matter of technical and public policy considerations within SCT's particular field of expertise and discretion.

When analysing the conflict, the Circuit Court determined that COFECE acted against the principle of the separation of powers, a core element for the Mexican democratic system and that COFECE exceeded the scope of its authority and invaded SCT's sphere of action.

The Circuit Court further clarified that COFECE, as antitrust expert, could issue non-binding recommendations to SCT, which the latter could take into account alongside technical, safety and international elements to better determine the way in which slots would be assigned.

For these reasons, the Circuit Court concluded that COFECE's powers to regulate access to essential inputs are limited to the fulfillment of its regulatory purpose, and such powers do not extend to regulating operational and technical matters related to aeronautical services.

In other words, in cases in which there are legal and regulatory provisions that grant authority to a sector regulator with technical expertise, COFECE's essential facilities powers are limited to non-binding opinions or recommendations and it cannot assume powers to regulate access to the facility, prices, technical conditions or quality in those sectors, since there is an ad hoc authority with powers and expertise to do so.

The direct effect of this ruling is that COFECE's Essential Facilities Decision is not applicable to the claimant airline (including the cap of 35%), however, the ruling is also a landmark case in regard to COFECE's essential facilities powers in regulated markets.

Although the ruling is not mandatory upon future cases, it does offer guidance on the Federal Court's interpretation of the primary jurisdiction doctrine, effectively limiting COFECE's essential facilities authority in cases in which there is a sector regulator with technical expertise.

Conclusion

COFECE's Essential Facilities Decision was the first of its type, and it was necessary for Federal Courts to provide an interpretation of the scope of COFECE's powers to regulate essential facilities, particularly in regulated markets, in order to "allocate initial decision-making responsibility between courts and agencies and to ensure that they do not work at cross-purposes"3, preventing inconsistent decisions between COFECE and the sector regulator.

The ruling provides a clear interpretation by Federal Courts of COFECE's authority to regulate access to essential facilities, limiting those powers to the material scope of its competence.

The ruling in Delta's appeal against COFECE's first-ever essential facilities case is a landmark case which will shape competition law practice in Mexico for years to come.


  1. Luis Gerardo García Santos Coy and Mauricio Serralde Rodríguez are partners, Jorge Kargl Pavía is counsel and Sebastián Martínez Pastrana is an associate at Creel, García-Cuéllar, Aiza y Enríquez SC.
  2. Delta Air Lines.
  3. Ellis v. Tribune Television Co., 443 F.3d 71, 81 (2d Cir. 2006).