Background of the Case
The lawsuit follows a lengthy investigation initiated by COFECE in 2016 into the pharmaceutical production, distribution, and commercialization market. The authority found that several companies had engaged in cartel agreements to:
- Refrain from distributing medicines on certain days.
- Restrict the volume of medicines supplied to pharmacies.
- Manipulate prices and limit discounts to pharmacies.
In August 2021, COFECE fined the cartelists, 21 individuals, and an industry association. The fines totalled 903,479,000 MXN (approximately 45 million USD), with individuals also receiving disqualification penalties (Antitrust Ruling).
Key Observations
- Selective Targeting: COFECE intentionally excluded Nadro, S.A.P.I. de C.V. (Nadro) and Almacén de Drogas, S.A. de C.V. (Almacén de Drogas) from the Collective action, despite their involvement in the original cartel.
- Collective Action Type: COFECE likely filed a diffuse collective action, which protects indeterminate collective interests, as opposed to Ccllective actions in a strict sense or homogeneous individual actions. The strongest indication for such a conclusion is that, by suggesting the damages to be awarded to the IMSS (a public healthcare institution), COFECE appears to be arguing for collective redress for the healthcare system instead of for any particular affected party or parties.
Implications for Antitrust Practice in Mexico
Passive Joinder
Due to the selective targeting, the case raises questions about whether Nadro and Almacen de Drogas should be called to the trial. After all, the harm was caused jointly by all the cartelists and the compensation is due by all of them.
While Mexican law provides for necessary passive joinder in some instances, the Federal Civil Code establishes joint and several liability for joint harm. Courts have ruled that no passive joinder is required in such cases, as each liable agent must pay in full. However, defendants may still request the inclusion of Nadro and Almacén de Drogas to reduce their financial impact potentially. In similar terms, if the case goes forward without calling Nadro and Almacén de Drogas and the defendants are ordered to pay for the damages, the right of the condemned parties to claim from the excluded cartelists their proportional part of the compensation may be jeopardized.
Parallel Collective Action
According to public information, a non-profit association filed a separate collective action in a strict sense in 2023, also seeking damages from the anticompetitive practices covered by the Antitrust Ruling (Parallel Collective Action). For scenarios like this one, Mexican law requires the consolidation of diffuse and collective actions. This raises questions about how the court will handle the different collectivees represented and proposed remedies in each case and how the collective redress will be allocated among the claimants and -potentially- the IMMS.
Definitiveness
Mexican law provides that antitrust damages may only be claimed based on a definitive ruling issued by COFECE (i.e. when all the possible defence mechanisms to challenge the ruling have been exhausted). However, the law does not provide clear terms for interpreting this definitiveness.
Antitrust proceedings against cartels often involve multiple responsible parties, each of whom may decide whether to challenge the ruling individually. In Mexico, the timeline for defence mechanisms varies depending on the specifics of each case and the type of review mechanisms invoked. This raises important questions about when a ruling is deemed definitive. One interpretation suggests that a ruling becomes definitive for each responsible party once they have exhausted their available defence mechanisms. However, this approach carries risks, as the defence mechanisms pursued by other parties could potentially overturn the original determination by COFECE. Alternatively, suppose a ruling is considered final only when no further challenges are possible. In that case, questions arise about how potential claimants are formally notified of their right to file a damages lawsuit and whether this could lead to exceeding the statute of limitations. The courts will play a crucial role in providing clarity on these issues.
Statute of Limitations
The damages addressed in the Antitrust Ruling occurred between 2006 and 2016, potentially exceeding the 3.5-year statute of limitations for collective actions. However, the law provides that the limitation period is interrupted by the start of an investigation.
In line with the previous section, the lack of clarity regarding when the statute of limitations resumes and when a ruling is considered final has led to conflicting interpretations in Mexican courts. For example, in the Parallel Collective Action case, the judge initially dismissed the claim, citing that the statute of limitations had expired. However, on appeal, the reviewing court overturned this decision, stating that the appropriate procedural stage to address the statute of limitations is later in the proceedings, not at the point of accepting the lawsuit. Given the absence of a consistent criterion from Mexican courts, the issue remains unresolved.
Type of Damages Claimed
In competition, damages arising from a cartel come from 2 effects:
- The overcharge effect. The overprice charged as a consequence of the cartel.
- The volume effect. The loss of sales due to higher prices can be further divided into pure volume effect and lost consumption effect.
While the specific effects alleged in the COFECE Collective Action remain undisclosed, the characteristics of the case suggest potential arguments addressing all these effects. The cartel operated at a higher level in the supply chain, within a market involving intermediaries, and engaged in collusive agreements to manipulate prices and restrict output. Following the development of this case, it will be crucial to understand whether COFECE has advanced arguments on these effects and how the authority established the basis for compensation.
Passing-on the Damages
The "pass-on effect" in antitrust damages cases with intermediaries presents complex issues for damage allocation. From an economic perspective, damages should be calculated based on who absorbed the overcharge and to what extent. Legally, the pass-on argument can be used as both a shield and a sword in damages claims. Approaches in other jurisdictions to this issue vary and in Mexico there is no caselaw on the subject. In addition, under causality rules in Mexico and their traditional application, it could turn hard to establish before a court that the overprice is “a sufficient condition to produce the outcome” and that represents a “damage subject to redress”.
Leniency Program
The COFECE Collective Action raises questions about the future of Mexico's leniency program. While the program offers benefits for unveiling collusive agreements, it does not address potential damages claims. This new approach by COFECE may impact companies' incentives to apply for leniency, as they must now consider the risk of damages claims from both affected parties and the authority itself.
Summary
The COFECE Collective Action marks a significant shift in Mexican competition policy, potentially leading to new criteria on various aspects of antitrust damages claims. This case will likely establish important precedents for damages and collective action procedures in Mexican competition law, areas that have been underdeveloped until now. Antitrust lawyers in Mexico and internationally should closely follow this case's development and outcome, as it may have far-reaching implications for competition law practice in the region.
