Mexico: Intellectual Property

Mexico: Competition Law and Intellectual Property

In Mexico, as in other countries, intellectual property rights and competition legislation have a constitutional basis.

The constitutional basis for the regulation of competition, as well as patents, creations having industrial applications and intellectual creations is found in article 28 of the Federal Constitution (the Constitution). Article 28 bans monopolies and the cornering of the market, in one or a few hands, of basic necessities for the purpose of increasing prices. This article also prohibits: conduct that prevents or tends to prevent free competition in industry or commerce or the provision of services to the public; every agreement to prevent competition and to compel consumers to pay higher prices; and in general, whatever constitutes an exclusive and improper advantage in favour of one or more specified persons to the prejudice of the public in general or of any social class. Article 28 excludes from the prohibition against monopolies and the other matters set out above, privileges given to authors and artists for the production of their works, and to inventors and those who improve an invention for the exclusive use of their works.

Additionally, article 89(XV) of the Constitution also authorises the president to grant exclusive privileges for limited periods of time, as provided by law, to those who discover, invent, or perfect things in a particular industry. Distinctive signs, such as trademarks, slogans, commercial names and designations of origin, have a constitutional basis, although indirectly, in various other articles of the Constitution protecting property and giving the Federal Congress the right to legislate on commerce.

During the past few decades, Mexico has significantly changed its competition and intellectual property legislation due to the decision to modify Mexico’s economic model from one of substitution of imports to a more open economy and as a consequence, to become a member of the General Agreement on Trade and Tariffs.

In addition to the foregoing, Mexico has entered into many free-trade agreements with other countries, such as the North American Free Trade Agreement with Canada and the United States, and with the European Union, something which has obliged Mexico to update its Competition and Intellectual Property Laws.

Legal framework

Federal Economic Competition Law

The law dealing with anti-competitive behaviour in Mexico is the Federal Economic Competition Law (the Competition Law) and its Regulations. The Competition Law essentially deals with three areas of concern: absolute monopolistic practices; relative monopolistic practices; and concentrations (mergers and acquisitions). Mexican competition law has been substantially influenced by United States law on the subject.

Absolute monopolistic practices

Absolute monopolistic practices are referred to in article 9 of the Competition Law and receive treatment similar to the operation of the per se rule in some other countries’ competition laws, since conduct classified as such is automatically unreasonable and therefore illegal without further investigation and without taking into account market share or possible efficiencies. In Mexico, only horizontal and not vertical restraints are per se illegal, namely price fixing, territory and client allocation and bid rigging, when such conduct is carried out between competitors.

Relative monopolistic practices

Relative monopolistic practices, mentioned in article 10 of the Competition Law, receive treatment similar to the operation of the rule of reason in other countries, since in order for such restraints to be illegal, certain requirements must be met, namely: the firm imposing the restraint must necessarily have market power; the purpose or effect of such restraint must be to unduly displace other firms or prevent them from having access to the market and; there are no market efficiencies. Conduct classified as relative monopolistic practices are vertical restraints, such as, among others, exclusive distributorship, territorial and client allocation, tying, price discrimination and resale price maintenance (vertical price fixing).

Concentrations

Concentrations are dealt with in article 16 of the Competition Law and require notice to be given to Mexico’s Competition Commission with respect to transactions exceeding certain thresholds in order for the Commission to review the transaction and decide whether it may harm or lessen competition.

Intellectual Property Law

Patents

Articles 15 and 16 of the Intellectual Property Law (the IP Law) establishe that an invention is considered as any man-made creation that allows matter or energy existing in nature to be transformed for use by man to satisfy a specific need and that inventions that are new, the result of inventing, and capable of industrial application within the meaning of the IP Law may be patented.

Articles 23 and 25 of the IP Law further provide that a patent will have a term of 20 years, not renewable, and that the exclusive right to use a patented invention will confer the following rights on its holder:

• if the subject matter of the patent is a product, the right to prevent others from manufacturing, using, selling, offering for sale, or importing the patented product without the holder’s consent; and
• if the subject matter of the patent is a process, the right to prevent others from using that process and from using, selling, offering for sale or importing the product obtained directly by means of that process without the holder’s consent.

The use of patents can be licensed by the holder of the patent according to article 63 of the IP Law.

Trade secrets

According to article 82 of the IP Law, a trade secret will be considered as information capable of industrial or commercial use that an individual or legal entity keeps confidential and that may enable such individual or entity to obtain or retain a competitive or financial advantage over third parties, and with respect to which sufficient means or systems have been adopted to preserve confidentiality and restrict access thereto.

The article also establishes that information constituting a trade secret will relate to the nature, characteristics or purposes of products, to production methods or processes, or to the manner or form of distributing or marketing products or services.

The information referred to in article 82 of the IP Law may be contained in documents, electronic or magnetic media, optical discs, microfilm, film, or other similar material, according to article 83 of the IP Law.

Trademarks

Article 88 of the IP Law provides that a trademark is understood as being any visible sign that distinguishes products or services from others of the same type or class on the market.

According to article 89 of the IP Law, the following signs may constitute trademarks:

• visible names and figures that are sufficiently distinctive and capable of identifying the products or services to which they are applied, or are intended to be applied, when compared with others of the same type or class;
• three-dimensional forms;
• trade names and corporate names, provided that they are not included in the following article; and
• the proper name of an individual, provided that it cannot be confused with an already registered trademark or published trade name.

Article 95 further provides that the registration of a trademark will remain in force for 10 years from the date of filing of the application and may be renewed for periods of the same duration.

Copyright Law

Articles 11 and 13 of the Copyright Law provide that a copyright is the protection given by the Mexican government to the creators of literary and artistic works in the following areas, granting to them exclusive privileges for the following works:

• literary;
• music, with or without lyrics;
• drama;
• dance;
• pictures or drawings;
• sculptures and plastic arts;
• caricatures and stories;
• architecture;
• cinematographic and other audiovisual works;
• radio and television programmes;
• computer programs;
• photographs;
• applied works of art that include graphic and textile designs; and
• compilations of collections of works, such as encyclopedias, anthologies, and works from databases, whenever such collections, by their selection or the arrangement of their content or materials, constitute an intellectual creation.

Intellectual property protection seen from a competition perspective

It is in the area of patents that competition law has its principal impact since patents and competition issues would, at first glance, appear to be contradictory but in fact are complementary.

Mexico’s Competition Law, as well as other countries’ competition laws, recognise the importance of protecting inventions in order to provide incentives for innovation and therefore grant them special treatment by way of patents.

Article 5 of the Competition Law basically repeats what is established in article 28 of the Constitution, as mentioned above, and establishes that privileges granted to authors and artists to produce their works, or to inventors and individuals who improve inventions, for the exclusive use of their inventions or improvements, will not constitute monopolies.

In June 2006, the Competition Law, especifically article 5, was amended to include a paragraph specifying that the economic agents referred to in this article would be subject to the provisions of the Competition Law with respect to any matter not expressly included within the protection of article 28 of the Federal Constitution.

In view of the Mexican Competition and Intellectual Property Laws, it can therefore be said that intellectual property rights are governed by the Competition Law with respect to those aspects which are not expressly protected by the IP Law.

Anti-competitive practices, using intellectual property rights (basically patents), are usually carried out by means of cartels between the owners of competing patents or through the licensing of patents, in some cases.

Cartels

In Mexico cartels are called absolute monopolistic practices, and as previously mentioned, are considered illegal without taking into account market share or possible efficiencies.

Some of the most common absolute monopolistic practices carried out with respect to patents are as follows:

Cross-licensing and pooling patents

In some cases, several patents owned by different people are jointly used, with cross-licences being given or designating a third party to use all the patents (pooling arrangements), for various purposes, for example, forming complementary technologies, reducing transaction costs, or avoiding infringement litigation.

These practices can be pro-competitive and generally will not lessen competition since the owners of the patents are not in a horizontal relationship. Nevertheless, cross-licensing and pooling arrangements may be anti-competitive when used to fix prices or allocate markets or customers (absolute monopolistic practices), as well as when those entering into the arrangement have market power and there are no efficiencies that can be proved, when they exclude or drive competitors from a market or when they reduce innovation (relative monopolistic practices).

Hence, to determine if these practices are illegal or not it is necessary first to distinguish if they are for cooperative or competing patents. If they deal with competing patents, the practice should be considered as illegal per se since it would be considered as an absolute monopolistic practice. On the other hand, if it is determined that they refer to cooperative patents, the practice should be considered legal as long as they do not fall into one or more of the practices deemed illegal in article 10 of the Competition Law and the economic agent has market power.

Using the right to defend a patent to eliminate competition

Filing an action for patent infringement or to annul another patent are rights granted to the owner of a patent in order to obtain a legal temporary monopoly of the patent as granted by the IP Law. Nevertheless, experiences in other countries have shown that in some cases, the owner of a patent can abuse these rights in order to hinder competition, suing competitors for the illegal use of a patent for similar products but which in fact are prepared differently from the patented process, or by requesting the annulment of a competing patent. In these cases, the courts are used as a tool to hinder competition. A good way of considering whether or not these actions are being used as a way to hinder competition is if the plaintiff of the patent infringement or annulment of another patent action has market power.

Non-use of a patent

This refers to an agreement between two or more holders of competing patents by which they agree that one of them will not use its patent, leaving the use to the other. This non-use of a patent agreement between competitors with the objective of avoiding competition is something that is illegal.

Licensing

Intellectual property rights are commonly licensed to third parties in order for the owner of the intellectual property right to reach markets which would not be possible to reach by the owner of the rights’ own means. On a general basis, these licences are seen as favourable to competition and the markets in general since licensing a patent usually would allow more customers to acquire the licensed product or service and competition by licence holders may result. Licensing also allows licensees to learn about the patented product, including its technology, something which could be used by the licensees once the patent expires.

Nevertheless, anti-competitive practices can be carried out by means of licensing. As previously mentioned, vertical relationships are considered by Mexico’s Competition Law as relative monopolistic practices and therefore, in order to be considered illegal, the licensor will need to have market power and the purpose or effect of the practice must be to unduly displace licensees or prevent them from having access to the market. In addition, there must be no market efficiencies that can be proved.

Some of the most relevant relative monopolistic practices carried out by licensing of patents are explained as follows:

The grant of the licence of a patent

In some cases, the licensor can condition the granting of the licence of a patent to a promise by the licensee to assign to the licensor any improvements made to the patent or to license exclusively or not exclusively such improvements to the licensor. It has been proven that this condition usually will hinder the licensee from investing in improvements to the patent. Nevertheless, these cases should be analysed following the rule of reason and some guidelines that can help to determine if such practice should be considered as illegal from a competition point of view, are whether the licence of the improvements was exclusive or not and the duration of the licence agreement. For example, if the licence is exclusive and for a long period of time, it is more likely to be considered as illegal.

Tying arrangements

A vertical restraint which may be found in a licence agreement is when the owner of a patent obliges the licensee to acquire other products or services, different from the patented product, in order to sell the latter. Nevertheless, in these cases the owner of the patent may be able to prove efficiencies from such conduct, for example in a licence agreement of a patent of a product, the licensor could require the licensee to also acquire the technology to create the product in order to ensure the quality of the product itself.

Refusal to sell

When the owner of a patent refuses to sell to a third party a patented product which is usually offered to others, this would prevent such third party from entering the market as a competitor. Therefore, if the owner of a patent has market power and no efficiencies can be evidenced from the refusal to sell, this conduct would be considered as an anti-competitive practice.

Different terms for licensees found in the same conditions

Licensees of a patented product who are situated in the same condition should be made at the same prices and on the same terms of sale in order not to be considered as an anti-competitive practice.

Licensing after the expiration of a patent

A practice that may be considered illegal, from a competition point of view, is when the payment of royalties for the licence of a patent lasts for more than the term of the patent itself. This practice could be considered as a means whereby the owner of the patent limits competition and indirectly expands the 20-year period that the IP Law allows the owner of a patent to have a monopoly.

Acquisition of patents

In addition to cartels and the licensing of a patent, a third way in which an anti-competitive practice can occur through the use of patents occurs when a single firm acquires a patent or patents, or the exclusive right to use them, of patents for competing products, when the objective or effect is to reduce competition in such market or to create a monopoly.

Mexican Federal Competition Commission cases

In Mexico there have been a few competition law cases related to intellectual property rights and most if not all of them have not been proceeded with. Nevertheless, the following is a description of those cases resolved by the Federal Competition Commission in this area.

Landsteiner Scientific, SA de CV and PIHCSA Médica, SA de CV v Merck & Co, and Merck Sharp & Dohme de México, SA de CV1

In May 2004, Landsteiner Scientific, SA de CV (Landsteiner), and PIHCSA Médica, SA de CV (PIHCSA) filed a complaint against Merck & Co, and Merck Sharp & Dohme de México, SA de CV (jointly Merck) for presumed relative monopolistic practices, as established in article 10° (VII) of the Competition Law and article 7° (V) of its Regulation prior to their amendments.

Landsteiner and PIHCSA accused Merck of starting several administrative and judicial proceedings, as well as communicating to their competitors and distributors, for the purpose of preventing other companies from selling the chemical-pharmaceutical composite ‘Alendronato’ or Acido 4-Amino-l-Hidroxibutiliden-1, 1-Bisfosfonico, a product suitable for the treatment and prevention of osteoporosis.

In the investigation, it was determined that the facts alleged by Landsteiner and PIHCSA referred to the term of the patents and certain undefined rights of the patents. This did not constitute acts whose effect was or may be to displace other economic agents from the market, impede substantially their access or establish exclusive advantages in favour of one or more persons and therefore the Commission decided that the practices did not displace competitors nor establish entrance barriers.

Representaciones e Investigaciones Médicas, SA de CV v Productos Roche, SA de CV2

On September 2003, Representaciones e Investigaciones Médicas, SA de CV (Rimsa) filed a complaint against Productos Roche, SA de CV (Roche) for presumed relative monopolistic practices in the distribution and marketing of Filgrastim, a medicine used to reduce the discomfort of chemotherapy.

Amgen, Inc is the owner of patents that protect Filgrastim and its production. These patents grant the exclusive right to use this medicine and Roche is their licensee.

Among other things, Rimsa claimed that Roche tried to obstruct access to competitors by means of two national publications, accusing several of its competitors of breaching its patents rights. The Federal Competition Commission, however, considered that the publications by themselves were not proof that Roche had, as its objective, displacing any of its competitors and hence decided that the relative monopolistic practice allegedly attributed to Roche was not demonstrated.

Notes

1 Federal Competition Commission. Economic Competition Gazette, year 8, number 21, January – April, 2005, pp249-269. File reference: DE-54-2003 and RA-03-2005.

2 Ibid, pp292-345. File reference: DE-13-2004.