The Transportation Antitrust Update

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The Transportation Antitrust Update

    The Mexico Update

    A NOTE FROM THE CHAIR In This Issue:

    his is the 25th issue of the Mexico Current Trends in Real Estate Title

    Committee’s newsletter. As always, Insurance in Mexico

    we invite your comments and sugges-T Carlos Ibarra-Fernández and

    José Ignacio Moreno-Ortiz. ....................................... 1 tions on how to improve this publication,

    and we encourage all members of the Mex-Two experts in cross-border real estate transactions

    ico Committee to get more involved in explain the ins and outs of title insurance in Mexico. In addition to providing practical guidance for practi-Committee activities. tioners, the article discusses the institutional, eco-nomic, and cultural barriers that continue to impede If you are interested in contributing

    greater use of title insurance in Mexico. This is obli-to a future issue of the Mexico Update, gatory reading for anyone involved with or interested please contact the Editor, Chris Oatway, at in real estate in Mexico. (202) 662-5456 or at Recent Developments in

    Mexico’s Competition Regime

    Francisco Fuentes Ostos and

    Javier Cortina Kalb .................................................... 8 CURRENT TRENDS IN REAL In the past decade, Mexican competition law has ESTATE TITLE INSURANCE IN grown in both importance and sophistication. These MEXICO leading practitioners discuss several recent develop-ments, including two important Supreme Court deci-by Carlos Ibarra-Fernández and sions. Even those who are not antitrust aficionados 1José Ignacio Moreno-Ortiz. will find the discussion of the constitutional issues, including the factors that delineate the powers and

    I. INTRODUCTION jurisdiction of the Federal Competition Commission, to be fascinating and highly topical.

    he real estate sector in Mexico has Highlights of Legislative Developments been experiencing important growth Mexico Committee Staff ......................................... 14 T in recent years. More than ever be-This section includes selected legal developments fore, American firms are participating in real published in the Mexican Federal Official Gazette estate transactions in Mexico as an (“FOG”).

    ; The Mexico Committee

    WEBSITE is here: 1 Carlos Ibarra-Fernández is an associate in the Real Estate Department of Greenberg Traurig's New York office, andé Ignacio Moreno-Ortiz is an associate in the Real Es-ve/mexiconews.html tate and Hospitality Practice of Creel, Garcia-Cuéllar y

     Müggenburg, S.C. in Mexico City.


    increasing number of tourism resorts, golf There may be hidden title defects that even courses, housing complexes and industrial the most careful title search will not reveal. parks are being built, financed or developed In addition to protection from financial loss, with private equity fund capital. title insurance pays the cost of defending

    against any covered claim. This article analyzes Mexican real estate

    property title insurance, which is a contro-The land registration, property recorda-versial subject in the Mexican legal commu-tion and title certification process in Mexico nity. It discusses how an insurance agree-is relatively good, with some similarities to ment under Mexican law is structured, and the recording processes used in the United what should be negotiated at the time of re-States. The majority of Mexican states have viewing the chain of title and legal back-multi-recording districts and each munici-ground of a property. It also provides rec-pality has its own recording clerk. Property ommendations regarding matters that de-registration and certification processes in serve special attention when negotiating title Mexico are becoming more efficient and insurance. more professionalized, leaving aside the

    highly bureaucratic traditional Mexican As is commonly known, when purchas-practice. ing a real estate property, a buyer must first

    consider whether the seller has due legal Any number of problems that remain un-title to the property, and if so, whether such disclosed after even the most meticulous property can be legally transferred. Al-search of public records can make a title de-though this seems to be very obvious and fective. These “hidden defects” are danger-

    rational, transactions may occur in which ous because one may not learn of them for buyers could be misled and later discover many months or years. Yet they could force that the seller was in fact unable to transfer the buyer to spend substantial sums on a le-legal title because of some defect in her te-gal defense, and still result in the loss of the nancy. property.

    A “title” may be composed of rights and Due to the many rights, claims, interests interests that are disclosed in the public and encumbrances that Mexican law recog-records at the Public Registry of Property nizes in real property and the formalities for (the “PRP”), yet may be affected by existing their creation, as in all jurisdictions it is es-rights and interests that are not recorded sential for the buyer to have a title search (e.g., limitations imposed by laws and sta-and examination performed before the pur-tutes) or rights and interests that are hidden chase is consummated. This is crucial in (e.g., forgeries, secret marriages and un-order to identify the nature of the title of the known heirs). seller and whether she can legally convey

    her rights and interests to other parties. A title is the evidence of the ownership

    and/or possessory rights that a person has Among the events that can happen are over a property. It is possible that someone that the seller does not own the property. other than the owner has a legal right to the For example, title may not yet have vested property. If that right can be established, because a surrogate procedure is not com-such individual or entity can claim the prop-plete or a claim of ownership is based on an erty outright or make demands on the owner unperfected transaction like a promise as to its use. Title insurance is a means of agreement or an adverse possession which protecting one’s interest from financial loss has not been acknowledged. Or the proper in the event that problems develop regarding procedures required for some sort of devel-the rights to ownership of real property. opment have not been completed. 2

    real property appointed at the coverage of For example, there may be unrecorded con-1 unresolved agrarian le-the policy, the insurer may: dominium regimes,

    gal actions, a pending regularization, or a i) Pay the amount set forth at the policy; 2pending subdivision that is planned without and/or the required and published permits.

    ii) Hold harmless the insured (undertak-Hence, a title search of the property ing the litigation or other legal actions on should be performed, and a buyer should behalf of the insured individual or entity). always ask the seller for a copy of the public 3deed and a certificate of non-encumbrances, Title insurance was created in the United which would indicate ownership records, States where the purchase and sale agree-surfaces, property type, and - most impor-ment for real estate requires far fewer for-tantly - evidence of any encumbrances or malities than in civil law jurisdictions like security interests filed against the property. Mexico, and where the uncertainty of the Further, the buyer should request from the public registry of property data is covered tax authority a certificate stating the absence with a title opinion from an attorney with 4of any tax liability. regard to the title to be transferred (the


    TITLE INSURANCE UNDER THE MEX-For an insurance company to incorporate, ICAN LEGAL SYSTEM issue and respond for insurance policies in 6Mexico, it requires authorization from the Title insurance is an insurance agreement Ministry of Finance and Public Credit and by virtue of which the insured, through the

    the National Insurance and Bonds Commis-payment of one single premium, becomes 7sion. Currently, the only company that has the creditor of the insurance company so the this authorization to issue real estate title latter indemnifies the former for damage or insurance policies in Mexico is Stewart Title loss of her property caused by undetected

    Guaranty de México, S.A. de C.V. hidden defects or failure to disclose a supe-5rior interest. The insurance agreement is Another important player in Mexico is entered into based upon the analysis of the the First American Title Corporation property’s history prior to the date of is-(“FATC”). This company carries out the suance of the title policy (i.e., it does not analysis and assessment of the title and the cover subsequent risks). negotiation of the policy through its repre-

    sentative in Mexico. This representative is Since it is an indemnification agreement

    Grupo Nacional Provincial, the Mexican in-for damage or loss (rather than a guaranty of

    surance company that actually issues the in-payment in the event of a casualty) of the

    surance policies on behalf of FATC.


    1 Regímenes de condominio. The risks covered by the insurance policy 2 A “fraccionamiento. basically include any and all forms of evic-3 Respectively an “escritura pública and a “certificado de ; libertad de gravámen.” 46 A “certificado de no adeudo.” Articles 5 and 18 of the General Law of Mutual Insur-5 Under civil law, this concept is referred to as eviction ance Institutions and Companies (“Ley General de Institu-

    (evicción), which stands for a partial or total deprivation ciones y Sociedades Mutualistas de Seguros”). 7of a chattel acquired by a purchaser, ordered by a final Respectively, the Secretaría de Hacienda y Crédito judgment by reason of a right (over the chattel) that existed Público and the Comisión Nacional de Seguros y Fian-prior to its acquisition. zas.


    8 as it may derive from several causes of Integral de los Residuos) (the “Waste Man-tion

    action (lack of capacity, lack of authority to agement Law”) was published in the Federal

    execute the agreement, marital property, un-Official Gazette (“FOG”). The statute came recorded liens, etc.). into effect as of January 6, 2004. Pursuant

    to the Waste Management Law, owners In practice, once deficiencies (risks or and/or occupiers of real estate affected by contingencies) such as easements, usufructs, soil contamination may now be jointly and promises, rights of way, and other recorded severally liable for cleaning up the sites, real estate property rights are detected, they even though they may not have caused the are excluded from the coverage of the contamination. This statute prohibits the policy. transfer of any site contaminated with ha-

    zardous waste without the prior authoriza-Importantly, a common exception to cov-

    tion of the Ministry of the Environment and erage is “Matters that are not recorded at the 119Natural Resources. Public Registries.” This is typically unac-

    ceptable for the insured because it dramati-In accordance with the Waste Manage-cally decreases any advantage for purchas-ment Law, in the event that certain environ-ing the title insurance. Basically, this excep-mental contingencies are found on a given tion makes the policy useless: If anything land, a notice of remediation of the contami-arises which was not recorded, the purchaser 12nated site (a “Remediation Notice”) shall 10is not covered. be published at the FOG and recorded at the

    PRP. Remediation Notices shall contain a There has been an important recent de-

    description of the real estate property subject velopment with respect to the matters rec-

    to remediation actions along with the cor-orded at the PRP and exceptions to the cov-

    responding restrictions on the land. erage of the title insurance policies. On Oc-

    tober 8, 2003 the new Law for the Preven-Although the Regulations of the Waste tion and Integral Management of Waste (Ley Management Law have not yet been enacted General Para la Prevención y Gestión and the inscription of the Remediation No-

    tices has not been implemented at all, envi-;

    ronmental contingencies and these annota-8 See note on “eviction,” supra. tions will have to be addressed somehow in 9 This is normally the exact language used and should title insurance policies. raise a red flag with any purchaser of title insurance. 10 In connection with these undisclosed or unknown con-IV. PROCEDURE FOR ENTERING INTO A tingencies, Ramon Sanchez-Medal, one of Mexico’s most TITLE INSURANCE AGREEMENT renowned scholars makes an interesting critique of Article

    i) An application is completed and sent to 3009 of the Civil Code for the Federal District. This article

    reads: “The Registry protects the rights acquired by a bona the insurance company requesting a quota-fide third party, once they are recorded, even if later on the tion for the premium and issuance of the right of the grantor is annulled or resolved, except when the policy. The applicant has to provide infor-cause of nullity clearly derives from the inscription itself. mation regarding the transaction originating This provision shall not be applicable to gratuitous con-the purchase of the title insurance and do-tracts, nor to acts or contracts which are executed or cumentation of the real estate property (title granted in violation of Law.” In the opinion of this scholar,

    the above provision (which derives from a reform in 1979) ; dramatically decreased the principles of public faith and 11registry legitimacy of the PRP because under its terms the The “Secretaría del medio Ambiente y Recursos Natu-bona fide purchaser who takes for value only has a “weak rales” (“SEMARNAT”). 12presumption of right on his favor” given that the record A “Declaratoria de remediación de sitios contamina-inscription could be invalidated at any time. dos.”


of the seller, chain of title, certificates of no V. MATTERS FOR CONSIDERATION

    liens, appraisal and survey). Normally the Both the need and efficacy of insurance purchaser’s attorney handles the quotation have been severely questioned, given that and negotiation of the premium. the legal and social reality of the United For the initial study of the documents, the States is very different from that of Mexico. insurance company usually charges an initial This can be verified in the recording systems fee which covers the insurance company’s and real estate markets of each country. The attorney fees for reviewing the background vast majority of attorneys and notaries pub-of the real estate property and issuing the lic in Mexico are not aware of the existence title opinion. This initial fee is non-of this insurance, and the few that do know refundable; however it is credited towards of it believe that it is an imported American

    the premium policy in case the same is final-product whose implementation may be use-ly issued. In Mexico, this fee is approx-less and impractical.

    imately $3,500.00 dollars. For instance, the law firm of Creel, ii) Within approximately thirty days García-Cuéllar y Müggenburg, S.C., recent-(depending on the transaction and the specif-ly conducted a survey of fourteen notaries ic property), the insurance company per-public from the states of Baja California Sur, forms a legal title due diligence of the prop-Mexico, Jalisco, Nuevo León, Quintana Roo erty, which includes the analysis of the doc-and Mexico City. The notaries were asked uments, investigation at the PRP and in if they understood how the real estate title some cases the physical verification of the insurance works, what purpose it serves and measurements and boundaries. whether they would recommend it. Out of

    the fourteen notaries public, ten did not iii) A “title commitment” is issued with know what title insurance was or how it the results of this due diligence. This docu-worked. And of the remaining four who did ment constitutes the promise to issue the know what was it, the only two with a sig-policy subject to the condition precedent that nificant familiarity with it actually discou-13the first authenticated copy or testimony raged its use. containing the formalization of the transac-

    tion is recorded before the PRP, therefore On one side, it is argued that the review striving for legal certainty. of documents and the formalities undertaken

    by notaries public pursuant to the good faith The title commitment already sets forth requirement makes unnecessary the review the terms upon which the policy will be is-procedures performed by American attor-sued. Along with the negotiation and review neys for the issuance of the title opinion. of the title commitment, it is recommended Therefore this public faith and the qualifica-to review the “Pro-Forma Policy” as well. tion from the PRP are said to suffice in order This document points out the final terms and to guarantee the purchaser that it is not ne-conditions that will be contained in the poli-cessary to look for more protection given cy. that everything has been reviewed in order

    to perfect the agreement. However, this iv) The payment of the premium is made,

    public faith pertains to the legal act itself, and once the first authenticated copy or tes-

    not to the background originating it. timony is recorded, the policy is issued.


    13 This is the first counterpart of the public deed issued by

    the notary public.


    14 before whom every to detect and assess contingencies, which The notary public,

    purchase of a real estate property must be should make their operation more efficient formalized, is somewhat responsible for per-and less expensive.

    forming a title search. However, the notary Some attorneys are of the opinion that in-normally limits her services to the property stead of purchasing title insurance, a com-deed itself and the non-encumbrances certif-plete title examination with a Mexican legal icate, which is not the most exhaustive and opinion on the status of a property can be desirable title search. In her character as a rendered by Mexican counsel, who can also governmental representative, the notary does obtain copies of all documentation regarding not assure title to the real estate property, the chain of title. These copies can be ob-nor does she have any legal liability for title tained from the PRP for any given real estate defects. Accordingly a purchaser cannot property. However, even the most highly pursue any legal action against the notary skilled attorney or law expert cannot protect unless fraud, misrepresentation or gross neg-against all title defects and claims such as ligence could be proven before a Mexican fraud, forgery, alteration of documents, im-court of law. Title discrepancies do exist, personations, secret marital status, lack of and buyers may end up losing their property capacity of the parties, and errors in the pub-or at least paying a considerable amount on lic records known as “hidden risks or de-lawyer’s fees. fects” that affect an innocent and bona fide

    The justification for title insurance is that purchaser or lender.

    in light of the deficiencies of the Mexican Therefore, provided that the recommen-PRP, added caution is not an extra. Title dations listed below are taken into consider-insurance should be considered as long as it ation, purchasing title insurance may be a is effective (see comments, supra, on cover-prudent decision, specially considering that age and exceptions thereto) and its costs are financial losses may prove to be costly and reasonable. It is important to keep in mind difficult to recover in a Mexican court. that the legal framework provides the pur-

    chaser with the mechanisms to claim dam-Now lenders can insure against a wide ages, loss profits and indemnity against dis-range of potential title problems on an “in 15possession. In this scenario, it would have perpetuity” basis.

    to be the insurance company who would

    have to exercise such legal actions, thereby VI. SECURITIZATION

    supposedly saving time and money to the

    Although the process is slow, the concept insured (and as provided by the terms of the

    of title insurance has begun to overcome the policy).

    traditional public perception regarding its Due to the nature of and formalization importance and subsequent benefit when required for the creation of real estate prop-purchasing properties or securitizing mort-erty rights in Mexico, even given the defi-gages. With the eventual creation of a sec-16ciencies of the PRP it may be the case that ondary mortgage market, “REITs” and se-

    title insurance is more effective in Mexico cured lending programs backed by Mexican than in the United States. Therefore insur-real property as collateral, title insurance ance companies have more tools with which will become a mandatory requirement in

    every transaction. Investors in mortgages, ;

    who have no knowledge of conditions in 14 The “Notario Público.” 15 In civil law the term is saneamiento para el caso de ; evicción,which is a statutory indemnity (see note on evic-16tion, supra). Real Estate Investment Trusts.


    Mexico, will increasingly need the assurance pany for the issuance of the title commit-by a financially sound institution that the ment and the scheduling of the closing. titles to the realty serving as collateral for The time that an insurance company various mortgage instruments are marketa-takes to review the documents is normally ble, and that the titles to the real estate back-greater than what it initially estimates. ing the mortgage securities are in fact valid. Therefore one has to be careful when in-Once complete certainty is attained, title in-cluding provisions in the agreements (par-surance will be the essential element that 17) to the effect that the ticularly promiseswill facilitate the entrance of foreign lend-issuance of a title commitment is a condition ers into Mexico’s residential and commer-precedent for closing, since the development cial mortgage market. and quality of that work generally does not

    depend on the parties to the transaction yet During the next several years, the title in-

    may compromise the success of the opera-surance industry will expand its importance

    tion. in Mexico as development activity increases.

    This expansion will assist in the creation of iv) Availability of this insurance should a flourishing Mexican mortgage industry be considered when drafting indemnity and a secondary mortgage market system clauses. similar to those in the United States. The

    availability of title insurance will help to In many cases, and depending on the cha-increase the flow of foreign capital into the racteristics of each transaction, the existence country and thus contribute to Mexico’s of title insurance may allow the seller to set economic growth. the insured amount as a threshold to limit

    her liability for damages, lost profits and ECOMMENDATIONS VII. Rindemnity in case of eviction, in the event

    that the insured amount is insufficient to sa-i) Coverage exceptions must be reviewed

    tisfy these claims, and to cover such contin-and discussed in detail prior to the issuance

    gencies. of the title commitment and the title policy.

    VIII. CONCLUSION In practice, the persons reviewing the

    documents on behalf of the insurance com-As the real estate market keeps growing panies are normally not deeply familiarized and Mexican and American attorneys con-with the operation of the PRP, nor with sev-tinue to get involved in more sizeable and eral legal and technical aspects that have to expensive transactions, title insurance is be-be considered in real estate transactions in coming more necessary in an attempt to mi-Mexico. This results in the issuance of a nimize investment risks and likewise for policy with very limited coverage and with purposes of satisfying due diligence and rat-overly broad exceptions to it. ing scrutiny.

    ii) Negotiation and discussion of the ; amount of the premium.

    17 Under Mexican law a promise agreement (“promesa de Among the most important disadvantages contrato”) is a preparatory contract by virtue of which the for utilizing this type of insurance on a real parties commit to execute, within a specified term, a future estate transaction are the costs, which gener-contract. The essential elements of the future contract (the ally range between 0.5% and 1.0 % of the definitive contract) are foreseen in the promise. Normally value of the transaction. the obligation to execute the definitive contract (e.g., a

    purchase and sale of real estate property) is subject to sev-iii) It is very important to set the time-eral conditions precedent, like a satisfactory due diligence, frame for the review by the insurance com-obtainment of permits and issuance of a title commitment.


    However, this insurance still needs to

    RECENT DEVELOPMENTS IN evolve and adapt more to the legal system

    and business environment of Mexico. In THE MEXICOS COMPETITION

    this regard, as a key element to continuing REGIME to attract foreign investment and achieve

    by Francisco Fuentes Ostos and transactions, lo-legal certainty on real estate1Javier Cortina Kalb cal governments and several actors in the

    private sector have become concerned about

    Three antitrust cases resolved in the last the improvement of the Public Registries of

    18 months by Mexican judicial and antitrust Property.

    authorities constitute important develop-

    Finally, to the extent that title insurance ments in the Mexican antitrust regime. The becomes more efficient and cost-effective, first of such cases analyzed herein, the Si-its benefits will certainly become known and nergia case, is important because its resolu-accepted by notaries public and legal practi-tion by the Federal Commission of Econom-tioners in general, thus penetrating the mar-ic Competition (the “Commission”) intro-ket faster and facilitating real estate transac-duced a precedent whereby a joint venture tions. amongst competitors was analyzed and ap-

    proved by the Commission as a notified concentration rather than as a prohibited

    agreement amongst competitors. The other

    cases discussed herein, the Warner Lambert

    and State of Durango decisions of the Su-

    preme Court, are landmark decisions that

    declared unconstitutional certain statutory

    provisions of the Federal Economic Compe-

    tition Law (the “Law”).


    A. Overview.

    In July 2004, the Commission approved a

    joint venture amongst competitors in the re-

    tail stores market. Although the Commis-

    sion had previously approved other joint 2ventures in the past,Sinergia is different in

    that the Commission initially rejected such

    collaboration, but on appeal it changed its

    initial ruling.

    On October 2003, three mayor multi-

    product retailers in Mexico, Controladora

    Comercial Mexicana, S.A. de C.V. (“CCM”),


    1 Mr. Fuentes is a partner and Mr. Cortina is an associate at

    the law firm of Mijares, Angoitia, Cortés y Fuentes. 2In the glass floated, cardboard, and processing credit

    card holders market.


    (i) it would create an agent with substantial Gigante, S.A. de C.V. (“Gigante”) and

    negotiation and purchasing power vis-à-vis Tiendas Soriana, S.A. de C.V. (“Soriana”)

    suppliers of goods sold in retail stores, (ii) together with Sinergia de Autoservicios, S.

    the participating economic agents failed to de R.L. de C.V. (“Sinergia,” Spanish for

    provide sufficient evidence of the synergies “Synergy”), notified a proposed combina-

    that would be created as a result of combina-tion to the Commission. Such combination

    tion, and, (iii) the economic relationship consisted in the creation of a joint venture

    created among the three competitors could vehicle, Sinergia, which would provide its

    facilitate conducts constituting absolute mo-owners (CCM, Gigante and Soriana) pur-

    nopolistic practices (such as price fixing) in chasing services consisting of the joint nego-

    certain localities where the only economic tiation of terms and prices for retail goods.

    agents participating in relevant market were Upon consummation of the proposed joint

    two or more partners to the joint venture. venture, Sinergia would have the purchasing

    power equivalent of Walmart de México, the On July 12, 2004, after the Commission’s leading retail chain in Mexico. resolution was challenged through a Motion

    for Reconsideration, the Commission re-On its face, the proposed concentration

    voked its previous resolution, thereby autho-appears to be an agreement amongst com-

    rizing Sinergia. petitors that, pursuant article 9 of the Law,

    constitutes an absolute monopolistic In summary, the most relevant arguments 3However, the Commission had practice.made by CCM, Gigante and Soriana in the determined, in other prior approved joint Motion for Reconsideration were that: ventures, that certain forms of cooperation

    among competitors are not illegal under ; There are additional elements other than Mexican law. purchase price (such as transport costs,

    devolutions, wages, store format, costs Under the Law, a joint venture among structures, discounts, etc.) that are consi-competitors is deemed to be a “concentra-dered when setting the final retail price 4tion,” and as such requires prior notifica-to consumers. Therefore, the fact that tion to the Commission. CCM, Gigante, and Soriana would ob-

    B. Notification Process and tain equal purchase prices on certain

    Motion for Reconsideration. products purchased through Sinergia

    would not enable them to coordinate or Initially, on February 26, 2004, the fix sales prices. Commission refused to authorize Sinergia.

    ; Although Sinergia would have, before The main reasons for the rejection were that

    suppliers, negotiation and purchase ; power, that did not imply that each of 3Absolute monopolistic practices under Mexican law are them would obtain, as a result, substan-similar to per se violations under U.S. antitrust laws in the tial power in the wholesale purchase and sense that agents committing the practice are not required retail distribution markets. to have substantial power in the relevant market. The

    ; Only a limited percentage of products Commission is not required to study or to demonstrate that

    purchased by CCM, Gigante, and the agents involved have substantial power in order to chal-

    Soriana, would be purchased through Si-lenge or enjoin an absolute monopolistic practice. 4nergia. Article 16 of the Law defines a concentration as “merger,

    acquisition of control, or any other act carried out among ; Sinergia’s operating structure made it competitors, suppliers, customers, or any other agents by impossible for CCM, Gigante, and So-which companies, associations, shares, partnership interests, riana to exchange information (because trusts, or assets in general may be combined.”


    posed to absolute monopolistic practic-Sinergia would maintain an independent 6es.Sections I through VI of Article 10 de-operating structure and it would be Si-

    scribe specific conducts that constitute rela-nergia’s employees who would compile

    tive monopolistic practices, while Section information from the partners in the ven-

    VII generally proscribes as relative monopo-ture, not the other way around).

    listic practices “…all acts that unlawfully ; The power attributed to Sinergia in the harm or hinder the competition process and Commission’s rejecting resolution was the free access to the production, processing, miscalculated. distribution and commercialization of goods

    and services.” ; Various synergies for CCM, Gigante,

    and Soriana, as well as for suppliers, Before the Supreme Court’s opinion, un-would be achieved by Sinergia, includ-der the aegis of this Section VII, the Com-ing better service to suppliers, increased mission had been able to determine, on a sales volumes, reductions in returns and case by case basis, weather or not any con-rejections, reduction in cost of sales by duct by an economic agent should be consi-suppliers, and the consolidation of trans-dered a relative monopolistic practice. This portation. situation created a problem of judicial uncer-Four of the five commissioners found the tainty, since its existence created an open-above arguments convincing under the stan-ended standard for classifying conducts as dards for authorizing proposed concentra-monopolistic practices.

    tions. The joint venture was approved sub-

    In 1997, the Commission initiated an in-ject to the agents involved providing the

    vestigation of relative monopolistic practices Commission with acceptable proposals for

    in the chewing gum manufacturing market. mechanisms to ensure that the joint venture

    As a result of that investigation, the Com-would not substantially facilitate monopolis-

    mission determined the existence of impro-tic practices by CCM, Gigante, and 5per predatory pricing carried out by Grupo Soriana.

    Warner Lambert Mexico, S.A. de C.V. II. THE WARNER LAMBERT CASE. (“Warner Lambert”), the manufacturer of

    “Chicklets” and “Clarks.” It enjoined this A. Overview practice and imposed a fine on Warner

    Lambert. Unable to place Warner Lam-On November 25, 2003, in the resolution

    bert’s predatory conduct in other sections of of case commonly known as the “The

    Article 10 of the Law, the Commission is-Warner Lambert Case,” the Mexican Su-

    sued its resolution against Warner Lambert preme Court declared the unconstitutionality

    based on the open-ended Section VII of that of Section VII of Article 10 of the Federal

    article. Economic Competition Law (the “Law”).

    Article 10 of the Law provides a catalogue B. Supreme Court Arguments. of relative monopolistic practices (as op-

    Upon review of the Warner Lambert case, ; the Mexican Supreme Court disregarded ar-5Article 17 Section III of the Law provides that when guments made by the Commission which, in analyzing the icompetitive effects of a proposed concentra-; tion, the Commission must consider “…if such combina-6tion has as purpose or effect of substantially facilitating for For relative monopolistic practices to exist, the economic its participants…the exercise of monopolistic practices….” agent practicing them must have substantial power in its It is clear, based on the conditions required for approval, relevant market. Contrariwise, absolute monopolistic prac-that the Commission gave substantial weight to this provi-tices exist whether or the agents practicing them have sub-sion. stantial power in their relevant markets. 10

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