Competition Currents United States & Mexico | March 2021
A. Federal Trade Commission (‘FTC’)
1. New FTC officials announced.
On Jan. 21, 2021, President Joseph Biden designated Commissioner Rebecca Kelly Slaughter as acting chair of the FTC. Slaughter, a Democrat, has served as an FTC commissioner since May 2018.
On Jan. 25, 2021, FTC Chairwoman Slaughter announced a number of FTC staff leadership changes, including replacement appointments of the acting general counsel, acting directors of the FTC’s three operating bureaus (the Bureau of Consumer Protection, the Bureau of Competition, and the Bureau of Economics), as well as the acting director of the Office of Policy & Planning. The previous leaders in those offices resigned effective Jan. 29, along with departing FTC Chairman Joseph Simons.
2. FTC announces review and suspension of early-termination procedure for pre-merger waiting period.
On Feb. 4, 2021, the FTC announced it would be reviewing the processes and procedures used to grant early terminations of the 30-day waiting period for pre-merger notification filings made under the Hart-Scott-Rodino Act (HSR Act). Pending that review, FTC and the Department of Justice (DOJ) will not be granting early terminations. FTC and DOJ imposed a similar such suspension of early termination grants in March 2020 following the FTC Premerger Notification Office’s establishment of its e-filing system.
3. FTC adjusts filing thresholds under Clayton Act.
On Feb. 5, 2021, the FTC announced the adjustment of various filing thresholds under Section 7A of the Clayton Act, also known as the HSR Act, as well as the thresholds applicable to certain interlocking memberships on corporate boards of directors under Section 8 of the Clayton Act. Among other HSR Act thresholds, the size-of-transaction thresholds for pre-merger notification filings was adjusted down from $94 million to $92 million. The FTC revises the HSR thresholds annually based on annual changes in the U.S. gross national product.
B. Department of Justice/Antitrust Division
1. Richard Powers announced as new acting head of DOJ Antitrust Division.
On Feb. 8, 2021, Deputy Assistant Attorney General Richard Powers was designated acting assistant attorney general of the DOJ’s Antitrust Division, filling the position vacated by Makan Delrahim In January 2021. Powers has spent the bulk of his career at the Antitrust Division, joining through the Attorney General’s Honors Program and accumulating a variety of experience in the financial services, health care, and other sectors over the years. Powers is a West Point graduate and holds a J.D. from the University of Alabama.
2. Pilgrim’s Pride pleads guilty to price fixing, agrees to pay $107 million fine.
On Feb. 23, 2021, one of the nation’s largest chicken producers pleaded guilty to price fixing and agreed to a $107 million criminal fine. Pilgrim’s Pride Corporation, a major broiler-chicken producer based in Colorado, has pleaded guilty for its participation in a conspiracy to fix prices and rig bids for broiler-chicken products. According to filings in the case, Pilgrim’s Pride participated in a conspiracy to suppress and eliminate competition for sales of broiler-chicken products that affected at least $361 million in Pilgrim’s Pride sales. Pilgrim’s Pride is the first company to plead guilty for its role in a conspiracy to fix prices and rig bids for broiler-chicken products. Ten executives and employees at major broiler-chicken producers have also previously been charged. The investigation is ongoing.
3. Executive charged with corrupting U.S. Department of Energy’s procurement process.
On Feb. 25, 2021, charges were brought against a Louisiana energy executive for violating the Procurement Integrity Act, continuing the Antitrust Division’s focus on prosecuting fraud in the U.S. procurement process. The charges allege that the executive conspired with Cajan Welding & Rentals, Ltd. and other unnamed co-conspirators to defraud the United States by corrupting and impairing the government procurement process. Specifically, the executive allegedly obtained non-public pricing and cost information in order to obtain subcontract awards and payments from the U.S. Department of Energy in connection with its operation of the nation’s Strategic Petroleum Reserve.
C. U.S. Litigation
1. Leib et al. v. Geisinger Health et al., Civil Action No. 4:21-CV-00196, (M.D. Penn.).
Geisinger Health and Evangelical Community Hospital face a proposed class action over an alleged agreement between the two competitors to not recruit, or “poach,” each other’s employees. The suit, filed on Feb. 3, 2021, claims Geisinger and Evangelical conspired not to poach each other’s physicians, nurses, psychologists, therapists and other health care professionals in Central Pennsylvania, where the defendants are headquartered. According to the lawsuit, the no-poach agreement between the defendants began May 2015 and ran until at least Aug. 5, 2020, when the DOJ initiated a civil antitrust action to block Geisinger’s acquisition of Evangelical. According to the complaint, the agreement between the defendants “was intended to, and did, reduce competition” for health care workers in Central Pennsylvania, and suppressed the job mobility and wages of proposed class members below the levels that would have existed absent the apparent no-poach deal. “Together, during the proposed Class Period, Defendants have employed approximately 70 to 75 percent of hospital Healthcare Workers in Central Pennsylvania,” the suit says.
2. In re Broiler Chicken Antitrust Litigation (Direct Purchaser Plaintiff Action), Civil Action No. 1:16-cv-08637, (N.D. Ill.).
On Feb. 23, 2021, the chicken wholesalers leading a proposed price-fixing class action over an alleged industrywide scheme won preliminary approval from a federal judge in Chicago for a $155 million settlement with Tyson Foods Inc. and JBS SA subsidiary Pilgrim’s Pride Corp. Judge Thomas M. Durkin gave his tentative approval to the settlement, which calls for payments of $75 million by Pilgrim’s and $80 million by Tyson. The ruling came the same day Pilgrim’s Pride separately became the first chicken processor to plead guilty to price fixing, summarized above.
If ultimately approved, the civil settlement will resolve antitrust allegations against these two companies on behalf of a class of “direct purchasers,” but not parallel retailer and consumer claims consolidated with them in the U.S. District Court for the Northern District of Illinois. Tyson said last month it will pay $221.5 million to escape the entire case, a day after groups of “indirect commercial and institutional indirect purchasers” and “end-user consumer plaintiffs” notified Durkin of agreements in principle.
3. The People of the State of California v. Vitol, Inc., (Super. Ct. of Cal.).
On Feb. 25, 2021, the court denied a request by Vitol Inc. and SK Trading International Co. to throw out a California lawsuit accusing them of taking advantage of a 2015 refinery explosion near Los Angeles to inflate the price of gasoline. Superior Court Judge Andrew Cheng ruled that the lawsuit, filed by California Attorney General Xavier Becerra, sufficiently supported the claim that the companies’ “alleged invidious conduct” resulted in higher prices for consumers at gas pumps. The judge also found that the state had supported its claim that the companies conspired in violation of antitrust law.
In the complaint, Becerra alleges that Vitol and SK violated California’s antitrust laws and engaged in fraudulent practices that raised the price of gasoline in the state. A February 2015 explosion at a gasoline refinery in Torrance knocked out 10% of California’s gasoline supply and caused an undersupply of refined gasoline in the state. The lawsuit claims Vitol and SK took advantage of the disruption by colluding to drive up the price of reported benchmark trades in order to increase the price of gasoline in the state. The complaint also alleges the firms executed certain trades to hide the scheme and share profits, and that their actions illegally suppressed competition within the gasoline market.
A. COFECE fines Interjet and HBC for failure to timely notify the agency of HBC’s acquisition of Interject stock.
The Federal Economic Competition Commission (“COFECE” or “Commission”) authorized the transaction between ABC Aerolineas (Interjet) and HBC International, in which HBC acquired part of the capital stock of Interjet. However, the Commission fined the companies for not notifying it of the transaction before closing, as required by the Federal Economic Competition Law (LFCE).
COFECE was informed that, in June 2020, Interjet increased its capital stock, which was purchased by HBC, resulting in the acquisition of part of Interjet. However, it was not until August 2020 that the companies notified COFECE of the transaction. At the same time, the parties acknowledged that they should have given prior notice and waited for authorization before consummating the transaction. COFECE imposed fines totaling 955,680 pesos (US $47,000) after finding that HBC and Interjet failed to comply with the legal obligation to notify the Commission of the transaction.
B. COFECE publicizes preliminary version of the document on Clean Energy Certificates, seeking public comment.
On Feb. 8, 2021, COFECE made available to the authorities, unions, permit holders, academia, and the general public the preliminary version of “Transition to Competitive Energy Markets: Clean Energy Certificates (CEL) in the Mexican electricity industry.” Comments and suggestions may be submitted between Feb. 8 and March 5 via the link above or by email to email@example.com.
The current draft allows private participation in electricity generation and commercialization activities in a competitive environment that encourages lower costs, both economic and environmental, for the benefit of consumers and productive sectors. As part of this legal framework, the regulation contemplates that the Ministry of Energy (SENER) will establish the obligation for suppliers and certain users of electricity to have a certain amount of CEL certificates, which they can acquire from the producers from whom they buy electricity. These producers, in turn, secure CELs by proving to the Energy Regulatory Commission (CRE) that they produce a certain amount of energy from clean energy sources. The objective is to incentivize the installation of new electricity generation projects based on clean sources to, among other objectives, comply with Mexico’s international commitments on environmental matters.
The document highlights issues such as:
Energy providers’ barriers to entry into electricity supply market. For example, the constant changes to methodology for calculating the rates of the State-owned Electricity Company (CFE) prevent competition with CFE and discourage large users, who are supplied by CFE, from making purchases in the wholesale electricity market. In this way, CEL’s obligations are concentrated in CFE, preventing users from having more options for energy providers.
Delayed granting of generation permits. Until October 2020, CRE had 99 permit requests and 153 modifications and transfers of permits still pending review. Permit procedures can take up to 300 business days or more to resolve applications.
Lack of expansion of transmission and distribution networks. This creates difficulty in interconnecting new projects, especially solar and wind.
Cancellation of long-term auctions without justification. Auctions for the sale of electricity and CELs have been suspended since 2019, making it difficult to finance new clean energy generation.
C. COFECE declares lack of competition in passenger ferries in Isla Mujeres and Cozumel.
On Feb. 11, 2021, COFECE announced its preliminary conclusion that there is no effective competition in six passenger-ferry routes (a) between Isla Mujeres and Puerto Juárez, Gran Puerto, El Caracol, Playa Tortugas and El Embarcadero and (b) from Cozumel to Playa del Carmen.
The Investigative Authority established that Naviera Magna (Magna) has a high market share in those routes and that there are economic and regulatory barriers that allow Magna to set super-competitive rates.
In this market, users do not have the option of other means of transport, such as land or air, that allow them to move between the islands and the mainland. Although there are other forms of maritime transport (such as nautical tourism, tender and charter, as well as private boats and motorboats), these satisfy different needs than those covered by passenger ferries. During the investigated period (January 2015 to July 2020), the entry of several companies to the market was observed, without Magna reducing its rates in response to this new competition.
Following publication of this preliminary conclusion, interested economic agents may present statements and allegations they consider pertinent, so that the Board of Commissioners may issue the final resolution of this case. If this Preliminary Opinion is confirmed, the sector’s regulatory authority may be able to issue rates regulation.
D. COFECE issues a formal accusation for possible collusion in hygiene products manufactured with cellulose.
On Feb. 15, 2021, COFECE summoned several companies and individuals upon finding evidence of collusion in the market for hygiene products manufactured with cellulose, which produces everyday goods such as baby diapers, feminine sanitary protection and incontinence products, among other related products. If the unlawful conduct is proven, companies may be fined, and individuals may face criminal proceedings with penalties ranging from five to 10 years in prison.
E. COFECE recommends to the Congress not to approve the initiative to reform the Electricity Industry Law.
COFECE recommended that the Mexican Congress not approve the proposed terms by which various provisions of the Electricity Industry Law would be added or amended, since the changes could severely affect competition surrounding electric energy generation and commercialization.
The current constitutional framework contemplates the possibility of competition in the generation and supply (commercialization) of electricity. For their part, transmission and distribution networks, as strategic areas in charge of the State, must be operated in a neutral manner and under the open-access principle. This dynamic encourages the production and supply of energy at competitive prices.
COFECE asserts that if the proposed changes are approved, competition would be prevented by:
Giving priority to hydroelectric plants (which are mostly owned by the CFE), over wind, solar, and private combined cycles. This would eliminate competition between generators by reducing costs and discouraging the installation of more efficient and cleaner generation projects, to the detriment of consumers and the environment.
Violating the guarantee of open access to the National Transmission Network and the General Distribution Networks, which are an essential input for there to be competition in generation and supply. In order to compete and carry out energy from power plants to end users, generators and suppliers inevitably require open access to these networks that is not unduly discriminatory. The proposed amendment would give the National Center for Energy Control (CENACE) authority to grant such access “when technically feasible,” without stating the criteria for how CENACE will exercise that discretion.
Allowing CFE Supplied of Basic Services (CFE SSB) to acquire electricity without resorting to competitive mechanisms. The proposed amendments would allow the state-owned energy supplier (CFE) to continue to buy its energy from its own power plants – including newly acquired plants – rather than through competitive auctions. This implies that around 84% of the existing generation could be acquired by the country’s main supplier through non-competitive methods.
Allowing CRE to deny permits without just cause, to stop granting permits, and to close the generation market.
Edoardo Gambaro, Pamela J. Marple, Yuji Ogiwara, Stephen M. Pepper, Gillian Sproul, Hans Urlus, Dawn (Dan) Zhang, Mari Arakawa, Filip Drgas, Simon Harms, Marta Kownacka, Pietro Missanelli, Massimiliano Pizzonia, Anna Celejewska-Rajchert, Jose Abel Rivera-Pedroza, Ippei Suzuki, Rebecca Tracy Rotem and Alan W. Hersh contributed to this article.