JURISDICTIONAL CHALLENGES FOR FMCB (FAST MOVING CONSUMER GOODS)

Fast Moving Consumer Goods

FMCG refers to ‘Fast Moving Consumer Goods’, i.e. products with a short shelf life. This low durability is due either to high consumer demand or because the very nature of the product implies rapid deterioration.

All products that deteriorate in a short period of time, such as fresh products from the fruit and vegetable, dairy or livestock sectors among others, are examples of fast moving consumer goods, but so are all those that are produced massively and in a short period of time with the aim of being marketed at a particular time or campaign, such as summer ice cream, or Christmas sweets among many other examples.

These products hang from a pillar that constitutes their backbone: the supply chain. The 21st century imposes new forms of consumption, production and distribution. The supply chain is the essential structure whose good functioning guarantees optimum results both for the producing and distributing company and for the demand, i.e. the consumer.

E-commerce

Currently, the growth of the FMCG segment is so important that large, medium and small producers have joined the task of delivering directly to consumers, seeking to reduce dependence on distribution chains. This has caused a high demand for collaborators in the field of transport and logistics to enable them to take advantage of this opportunity.

The challenge is important, because strict compliance with storage and delivery times, proper refrigeration and packaging of transported goods, as well as an adequate inventory management system are needed to ensure that fast moving consumer goods reach distribution points or the consumer without difficulties.

Due to the new purchasing habits of users and the emergence of technologies that are changing the way of communicating with customers, the FMCG industry is experiencing a period of intense change. The market and the opportunities that FMCG are generating, plus the growth of small and medium enterprises with e-commerce and increasingly personalized services, are generating a new global consumption dynamic that will require the participation of new actors and new technologies. But are intellectual property laws ready to deal with these new trends?

Intellectual Property and FMCG

Intellectual property rights are critically important in the fast moving consumer goods industry because companies operating in this sector rely heavily on brand recognition and brand loyalty for their success.

It makes sense for intellectual property rights to be fundamental to the long-term success strategy of any consumer goods company. Thus, consumer goods companies can use numerous intellectual property rights, including copyrights and trade secrets; however, we consider that there are two strategic phases in fast moving consumer goods: the product development and the commercialization and marketing phase.

In terms of product development, patents, as well as industrial designs and utility models, represent a fundamental industrial right for product development.

An effective patent protection can represent, depending on the industry, the most important asset of consumer goods, especially in specialized sectors such as pharmaceuticals and electronics, to name a few, where these products require time and investment to be developed and, consequently, longer time to profit.

However, patents may be less useful in highly innovative industries with rampant turnover due to the fact that product life cycles are very short, because by the time a company obtains a patent and can legally enforce it through litigation, the product in question may already have become obsolete.

As we know, as patents are an exclusive right limited for a period of time, it is important to combine the development of these invention rights with other intellectual property rights, such as trademark or copyrights.

Even long after a patent has expired, consumers can continue to search for a particular product, regardless of similar competitive products in the market, if a company has been diligent in cultivating trademark rights in its products. These trademark rights, the associated goodwill and the connotation of consistent quality that they provide, help establish this brand awareness and loyalty, which enhances the second phase previously mentioned, that is, commercialization and marketing.

The brand of the product, including the commercial image of same, is generally the most visible and long-lasting intellectual property right that consumer goods companies must exploit and use. Trademarks are relevant to companies in all sectors of the consumer goods industry and are often the most important differentiator between competitors.

Thus, the growing innovation in the methods and distribution channels of the FMCG, involves mainly two threats against the intellectual property rights of this type of goods: the counterfeiting of products and the parallel importation of them.

Counterfeiting

Counterfeiting is a practice in which goods, which are generally of inferior quality, are manufactured and sold as an imitation of the intellectual property rights of a third party, without their permission. This in turn, causes consumers to buy a counterfeit product under the impression that it is genuine. In fact, the trade in counterfeit products has become as profitable as the trade in illegal drugs and narcotics and, as an additional benefit to counterfeiters, carries fewer risks.

It is common knowledge that counterfeiting greatly affects luxury goods; however, this is proving to be an obsolete line of thinking as, globally, in recent months the industry in general has been affected by an increase in counterfeit of fast-moving consumer goods.

Statistics show that more than 15% of the world’s most counterfeit brands are those for fast moving consumer goods. The main concern is the health and safety risks posed by unsuspecting consumers. It is therefore vital that brand owners of consumer goods are aware of this and that they take the necessary measures to protect their brands, as well as consumers, from imitations of their products so that they do not reach the market. This will not only save money, but will also protect the brand image and reputation.

The war against counterfeiters is ongoing and may never end, but trademark owners must equip themselves with the necessary tools provided by local laws and international intellectual property treaties. A collaborative approach between trademark owners, assisted by intellectual property lawyers and national customs, health and consumer protection agencies, as well as criminal ones, must work together to reduce counterfeiting.

The Grey Market

Regarding parallel imports, these occur when a legitimate product acquired abroad is imported without the permission of the intellectual property holder at the import destination. In other words, these are legitimate goods and not pirated goods. In Mexico, parallel imports are permitted; however, foreign trade regulations created to combat piracy serve as a legal obstacle to such imports.

Parallel imports have always generated a great debate not only in Mexico, but also worldwide, because sometimes there is confusion as to whether or not they are allowed. Parallel imports are also called “grey market” and, unlike pirated goods, parallel imported goods are genuine, i.e. their origin is traceable to the consent of the trademark owner under the theory of exhaustion of rights when a product becomes available at the first point of sell.

While grey market products often do not represent the same level of danger to consumers and trademark owners as counterfeit products, as these are often genuine products originating from the trademark owner, they can still be detrimental to consumer goods companies. For example, consumer goods companies cannot control the quality of products that are resold in the unwanted market. In fact, grey market products can damage the brand image and reputation of the company if the product was formulated differently for the intended market, and is not well received or does not work properly in the unwanted market.

As such, grey market goods may not comply with the official standards of the destination country such as failure to comply with government impositions of labeling, advertising or even composition.

Conclusion

The FMCG industry has a long history of growth through major brands, but the model that drove the success of this sector has undergone a major transformation due to changing consumer needs, behavior and preferences.

Adequate intellectual property protection enables right holders to cope with the constant development of the fast-moving consumer goods industry, which translates into economic growth and competitiveness.

Therefore, seeking policies in favor of the culture of protection and enforcement of intellectual property rights, as well as fully identifying potential risks against such exclusivity rights through an appropriate coordination and support with specialists in the field, establishing policies of zero tolerance to infringement and counterfeiting of products, becomes essential for the success of companies engaged in the development and marketing of fast-moving consumer products.

While intellectual property legislations are probably a step backwards from the dynamic and rapid development of world trade, the implementation of adequate defense policies using the tools currently provided by such legislations represents an infallible formula for the success of companies in this sector in a constant and sustainable manner.

David Zamores