In distribution agreements, it is common for suppliers to establish commercial policies aimed at preserving brand image, maintaining a consistent business strategy, or strengthening their market position. However, when such policies include the imposition of resale prices, they may give rise to competition law concerns.

The Federal Economic Competition Law (Ley Federal de Competencia Económica, “LFCE”) does not, in itself, prohibit a supplier from communicating suggested resale prices to its distributors. The legal risk arises when such suggested prices cease to be merely recommendations and become, either directly or indirectly, binding on the distributor. The lawfulness of such conduct will depend on whether the elements established under the LFCE for the existence of a relative monopolistic practice are met.

Distribution Agreements

In distribution agreements, suppliers commonly issue price lists, implement commercial campaigns, or provide suggested retail prices. However, when a distributor loses the genuine ability to independently determine its resale price, such conduct may be analyzed as a restriction on free competition.

Pursuant to Articles 54 and 56 of the LFCE, the imposition of prices or other conditions that a distributor or supplier must observe when marketing goods or services constitutes one of the types of conduct that may qualify as a relative monopolistic practice, subject to the other requirements set forth under the LFCE, including that the economic agent have substantial market power in the relevant market and that the conduct has or may have anticompetitive effects, such as improperly displacing other competitors, preventing their access to the market, or creating exclusive advantages.

COFECE, now succeeded by the National Antitrust Commission (Comisión Nacional Antimonopolio, “CNA”), has stated that resale price maintenance constitutes one of the vertical restraints contemplated under the LFCE and that its assessment requires consideration of market conditions and the potential effects of the conduct, as not every pricing policy is automatically unlawful.

When Does the Risk Increase?

From a compliance perspective, companies should carefully review contractual provisions or commercial practices that:

• Require distributors to adhere to fixed or minimum resale prices;
• Conditioning the supply of products, discounts, rebates, or other incentives on compliance with a specified resale price;
• Provide for contractual penalties or termination where a distributor sells at a price different from that established by the supplier; or
• Cause suggested resale prices to operate in practice as mandatory prices.

The LFCE also recognizes that certain practices may be justified where the economic agent demonstrates that they generate efficiency gains that benefit the competitive process and ultimately enhance consumer welfare.

The manner in which contractual provisions are drafted, as well as the mechanisms used to implement pricing policies, discounts, incentives, or supply conditions, can be critical in assessing their compliance with the LFCE. Accordingly, specialized legal counsel can help identify potential risks at an early stage, structure commercial policies and distribution agreements in accordance with the applicable legal framework, and assess them in light of the specific characteristics of the relevant market and commercial relationship.

A preventive legal review not only helps mitigate potential legal exposure but also supports the development of commercial strategies that enable businesses to achieve their objectives without compromising compliance with applicable law.