Licensing 2015

Mexico

Ignacio Domínguez Torrado

Uhthoff, Gómez Vega & Uhthoff, SC

Contributing editor Bruno Floriani

Lapointe Rosenstein Marchand Melançon LLP

Overview

1             Are there any restrictions on the establishment of a business entity by a foreign licensor or a joint venture involving a foreign licensor and are there any restrictions against a foreign licensor entering into a licence agreement without establishing a subsidiary or branch office? Whether or not any such restrictions exist, is there any filing or regulatory review process required before a foreign licensor can establish a business entity or joint venture in your jurisdiction?

To determine whether there are restrictions on the establishment of a business entity by a foreign licensor, it must be considered that under Mexican law there are no general prohibitions for a licensor to establish a local entity, and that it must only comply with certain legal requirements, including:

  • having a permanent address in Mexico;
  • being legally incorporated in Mexico in compliance with all the formal requirements;
  • complying with all tax obligations; and
  • having two or more shareholders or partners.

While in general there is no restriction on establishing a legal company in Mexico owned by foreign entities, there are restrictions on certain activi- ties considered  by Mexico as reserved activities, such as oil, electricity, postal services and satellite communications.

There are no restrictions against a foreign licensor entering into a licence agreement without establishing a subsidiary or branch office. A for- eign licensor may enter into a licence agreement without needing to estab- lish a local entity, either a branch or subsidiary.

As to whether any filing or regulatory process is required before a for- eign licensor can establish a business entity or joint venture, the answer can be broken into two parts. In connection with a joint venture via a con- tractual agreement,  in general, there is no need for any compliance with regulatory requirements. If the joint venture is done via the incorporation of a Mexican company with a local partner or through the incorporation of a local entity by foreign investors, there will be several legal requirements that must be complied with, such as:

  • obtaining an authorisation to use any given company name from the Ministry of Economy who will determine  that the activities that the company will perform do not fall within any of the prohibitions or restrictions either by the activity per se or by the percentage of foreign capital that such company will have;
  • incorporating the company before a notary public;
  • registering the  newly  incorporated   company   before   the  Public Commercial Registry and the Foreign Investment Bureau;
  • having a legal address in Mexico; and
  • obtaining a federal tax number and thus registering before the Internal Revenue Service.

Kinds of licences

2     Identify the different forms of licence arrangements that exist in your jurisdiction.

The Mexican legal system recognises and thus permits all kinds of licence arrangements, such as within the industrial property area, which in Mexico consists of patents,  trade  secrets, trademarks,  service marks, layouts of integrated circuits, franchises, plant varieties, know-how and technology. In addition, within the copyright arena, all copyrightable subject matter is subject to licence, including literary works, musical works, dramatic works, dances, pictorial works or works of drawing, sculptures and works of a plastic nature, works of caricature and short stories, architectural works, cinematographic  and other audio-visual works, radio and televi- sion programmes,  computer software, photographic works and works of compilation.

Other rights recognised under  the Mexican Federal Copyright Law can also be the subject matter of a licence, such as the ‘related copyrights’, which may include those rights that the artists and musicians have in con- nection with their performances.  There are also special mechanisms  to protect titles of serial publications and broadcasts, artistic names and characters, referred to as ‘reservation of rights’, that are also the subject matter of licences.

Law affecting international licensing

3             Does legislation directly govern the creation, or otherwise regulate the terms, of an international licensing relationship? Describe any such requirements.

Article 78 of the Mexican Commercial Code establishes that in commercial agreements, each party will be bound by the terms and conditions of the agreement without the need for further formal requirements. The parties may establish the terms and conditions they consider suitable for their agreement, as long as such terms do not contravene legal provisions.

However, if we consider those licences that include duly registered IP rights (such as patents or trademarks)  and that the agreement  will be recorded pursuant to the Mexican Industrial Property Law, then some legal minimum clauses are to be included, such as:

  • the name and address of licensor and licensee;
  • the trademarks or patents included in the licence;
  • the nature of exclusivity of the licence: exclusive or non-exclusive;
  • the term of the licence with a wording indicating that it will not exceed the lifetime of the involved trademarks or patents;
  • an indication as to whether the licensor will retain the right to enforce the trademarks or patents  (if no such disposition is included in the agreement,  it is construed by operation of law that the licensee will have the right to enforce trademark or patent rights);
  • the territorial scope of applicability; and
  • royalties (if any).

4     What pre-contractual disclosure must a licensor make to prospective licensees? Are there any requirements to register a grant of international licensing rights with authorities in your jurisdiction?

Generally speaking, there are no pre-contractual disclosure requirements imposed on licensors when licensing an intellectual property asset, whether registered  or not. However, with specific reference  to franchise  agree- ments, the Mexican Industrial Property Law under article 142-bis and sub sequent articles obliges the franchisor to provide to a potential franchisee the information about the franchise at least 30 calendar days prior to the signature of the franchise agreement. In this regard, this obligation should be construed  in light of the contents  of article 65 of the Regulations of the Industrial Property Law, which establishes the minimum information about the franchise to be delivered  to the franchisee,  consisting of the following:

  • the name, address and citizenship of the franchisor;
  • a description of the franchise;
  • the time during which the franchisor and the local master franchisor, if applicable, have been doing business with the franchise;
  • the IP rights involved in the franchise;
  • payments and royalties that the franchisee must comply with;
  • the kind of technical assistance and services that the franchisor will be providing to the franchisee;
  • the territory of the franchise;
  • an indication as to whether the franchisee will have the right to grant sub-franchises and,  if  applicable,  the  requisites  for  granting  the sub-franchises;
  • the confidentiality obligations to be acquired by the franchisee; and
  • in general, the rights and obligations that will be acquired by the fran- chisee at the time of execution of the franchise agreement.

5             Are there any statutorily- or court-imposed implicit obligations in your jurisdiction that may affect an international licensing relationship, such as good faith or fair dealing obligations, the obligation to act reasonably in the exercise of rights or requiring good cause for termination or non-renewal?

Not applicable.

6   Does the law in your jurisdiction distinguish between licences and franchises? If so, under what circumstances, if any, could franchise law or principles apply to a licence relationship?

The Mexican Industrial Property Law does not provide a definition for a licence, thus licences will be governed, in general, by Mexican commercial and civil law. However, and in connection  with franchises, the Mexican Industrial  Property Law specifically provides a definition thus establishing what a franchise is in relation to a licence. Article 142 of the Law establishes that:

[a] franchise shall exist when, together with the licensing of the use of a mark, know-how is transferred or technical assistance provided so that the person to whom the licence is granted can produce or sell goods or provide services consistently according to the operating, commercial and administrative methods established by the owner of the mark, in order that the quality, prestige and image of the products or services distinguished by the said mark may be maintained.

If a licence agreement bears all of the legal elements required for a franchise, then a court may indeed rule that it is not a licence per se but a franchise. However, if not all of the elements  mentioned  under law and regulations are comprised within the licence agreement then it would not be considered to be a franchise.

Intellectual property issues

7     Is your jurisdiction party to the Paris Convention for the Protection of Industrial Property? The Patent Cooperation Treaty (PCT)? The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs)?

Yes, Mexico is a party to all three international treaties.

8     Can the licensee be contractually prohibited from contesting the validity of a foreign licensor’s intellectual property rights or registrations in your jurisdiction?

Yes.

9   What is the effect of the invalidity or expiry of registration of an intellectual property right on a related licence agreement in your jurisdiction? If the licence remains in effect, can royalties continue to be levied? If the licence does not remain in effect, can the licensee freely compete?

Under  the  Mexican Industrial  Property  Law, the  recordal  of a licence agreement  before the Mexican Industrial Property Institute shall be can- celled when the IP right is declared invalid or expires in the case of patents and in the case of trademarks by nullity, expiration or cancellation of the registration of the mark, or when the marks were pending applications and their registration is not granted.

Apart from the recordal issue mentioned  above, it has to be considered that if a licence subject matter expires or is invalidated then the pur- pose of the agreement ceases to exist. However, there is no legal provision that expressly states this situation. Considering royalties, the parties will be bound by the terms and conditions of the agreement that may foresee this issue. Aside from the cancellation of the recordal of the agreement, if the licence agreement establishes a longer term of validity, the contractual obligation will remain between the parties and thus the licensee will not be in a position to compete freely.

10   Is an original registration or evidence of use in the jurisdiction of origin, or any other requirements unique to foreigners, necessary prior to the registration of intellectual property in your jurisdiction?

No.

11   Can unregistered trademarks, or other intellectual property rights that are not registered, be licensed in your jurisdiction?

Yes, since there is no express prohibition by law, but such licence agree- ments will only have legal effects between the signatory parties.

12   Are there particular requirements in your jurisdiction: for the validity of an intellectual property licence; to render an intellectual property licence opposable to a third party; or to take a security interest in intellectual property?

For a licence agreement,  including a security interest  agreement,  to be opposable against a third party, such agreements must be recorded before the Mexican Institute of Industrial Property against the registered IP rights affected.

There are certain legal requirements that the agreements must comply with in order to be recorded, as follows:

  • the name and address of licensor and licensee; the trademarks or pat- ents included in the licence;
  • the nature   of  exclusivity  of  the  licence,  whether   exclusive  or non-exclusive;
  • the term of the licence with a wording indicating that it will not exceed the lifetime of the involved trademarks or patents; and
  • an indication as to whether the licensor will retain the right to enforce the trademarks or patents. If no disposition in this regard is included in the agreement, it is construed by operation of law that the licensee will have the right to enforce trademark or patent rights, the territorial scope of applicability and royalties (if any).

13   Can a foreign owner or licensor of intellectual property institute proceedings against a third party for infringement in your jurisdiction without joining the licensee from your jurisdiction as a party to the proceedings? Can an intellectual property licensee in your jurisdiction institute proceedings against an infringer of the licensed intellectual property without the consent of the owner or licensor? Can the licensee be contractually prohibited from doing so?

Yes. If there is no indication to the contrary in the agreement, by law, the licensee will have the right to institute proceedings against an infringer. This can be contractually prohibited.

14  Can a trademark or service mark licensee in your jurisdiction sub-license use of the mark to a third party? If so, does the right to sub-license exist statutorily or must it be granted contractually? If it exists statutorily, can the licensee validly waive its right to sub-license?

Yes, but only if it is contractually allowed by the licensor.

15   Is your jurisdiction a ‘first to file’ or ‘first to invent’ jurisdiction? Can a foreign licensor license the use of an invention subject to a patent application but in respect of which the patent has not been issued in your jurisdiction?

Yes, it is possible to grant a licence agreement over an invention in respect to a patent that has not been issued in our jurisdiction.

16   Can the following be protected by patents in your jurisdiction:

software; business processes or methods; living organisms?

None of the above are patentable.

17   Is there specific legislation in your jurisdiction that governs trade secrets or know-how? If so, is there a legal definition of trade secrets or know-how? In either case, how are trade secrets and know-how treated by the courts?

Yes, trade secrets are governed under a specific chapter of the Industrial Property Law. Specifically, article 82 of such Law provides the following definition of a trade secret:

[A] trade secret shall be considered as any information susceptible of industrial or commercial application that a natural person or legal entity keeps, is of confidential character and is associated with secur- ing or retaining a competitive or economic advantage over third par- ties in the conduct of economic activities, and regarding which the said person or entity has adopted sufficient means or systems for preserving confidentiality and restricting access.

The information constituting a trade secret shall necessarily relate to the nature, characteristics or purposes of products, to production methods or processes or to ways or means of distributing or marketing products or ren- dering services.

Information that is considered as public domain, that is evident to a person skilled in the art on the basis of previously available information or that must be disclosed by virtue of a legal provision or court order shall not be considered a trade secret. Information that is supplied to any authority by a person possessing it as a trade secret shall not be considered public domain or be disclosed by virtue of a legal provision when it is supplied for the purpose of obtaining licences, permits, authorisation,  registrations or any other official acts.

Courts have been somewhat reluctant  to enforce trade secret violations, although any violation thereto is punishable by civil, administrative and criminal remedies.

18   Does the law allow a licensor to restrict disclosure or use of trade secrets and know-how by the licensee or third parties in your jurisdiction, both during and after the term of the licence agreement? Is there any distinction to be made with respect to improvements to which the licensee may have contributed?

Any provisions for confidentiality will be determined in the licensing agreement when necessary. The law does not explicitly allow this restriction, but nor does it forbid it; thus it is allowed under general contractual law. Such restrictions may last longer than the term of the licensing agreement

Concerning  improvements   for  methods   in  know-how  and  trade secrets, there is no legal provision in Mexico to determine whether the licensor or the licensee will have proprietary  rights in connection  with them. In this regard, it is extremely important for the licence agreement to foresee:

  • if the licensee will be authorised to make improvements;
  • who should be the owner of the improvements; and
  • the implications upon termination of the agreement.

19  What constitutes copyright in your jurisdiction and how can it be protected?

Copyright is the recognition given by the state to a creator of any of the literary and artistic works specified in article 13 of the Federal Copyright Law, by virtue of which it grants its protection to the author’s enjoyment of exclusive prerogatives and privileges of a personal and economic char- acter. The former constitute moral rights and the latter economic rights.

Copyrightable subject matter includes literary works, musical works, dramatic works, dances, pictorial works or works of drawing, sculptures and works of a plastic nature, works of caricature and short stories, archi- tectural works, cinematographic and other audio-visual works, radio and television programmes,  computer  software, photographic  works, works of applied art, including works of graphic or textile design, and works of compilation.

In addition,  there  are other rights recognised  under  the Copyright Law, such as the ‘related copyrights’, that may include those rights that the artists and musicians have in connection with their performances. There are also other special mechanisms  to protect titles of serial publications and broadcasts, artistic names and characters, referred to as ‘reservation of rights’ that, although governed under the Copyright Law, are not copy- rights per se.

Speaking strictly legally, protection is obtained once the work is fixed in any tangible medium of expression. For enforcement  purposes, how- ever, registration is recommended before the Mexican Copyright Institute and is requested by the authorities when trying to enforce a copyright.

20   Is it advisable in your jurisdiction to require the contractual assignment of copyright by the licensee to the licensor for any artwork, software improvements and other works that the licensee may have contributed to?

It is advisable, as otherwise the derivative works created by the licensee will be owned by the licensee.

Software licensing

21   Does the law in your jurisdiction recognise the validity of

‘perpetual’ software licences? If not, or if it is not advisable for other reasons, are there other means of addressing concerns relating to ‘perpetual’ licences?

The Federal Copyright Law allows software licences for an indefinite time but always linked to the lifetime of the economic rights derived from the software subject matter of the licence.

22   Are there any legal requirements to be complied with prior to granting software licences, including import or export restrictions?

There are no legal requirements in this regard. However, it is highly advis- able, as mentioned before, to register the software with the Mexican Copyright Office.

23   Who owns improvements and modifications to the licensed software? May a software licensee obtain bug fixes, upgrades and new releases from the licensor in the absence of a contractual provision to that effect?

In general, any author or creator of any derivative work will own the rights to such work. However, the owner of such derivative work will not be able to exploit it commercially unless there is written consent by the owner of the original work.

There is no obligation for the licensor to provide such upgrades, bug fixes or new releases, unless there is a contractual obligation to do so.

24   May a software licensor include a process or routine to disable automatically or cause unauthorised access to disable, erase or otherwise adversely affect the licensed software?

If it is considered under the terms and conditions of the licence agreement, there is, indeed, the possibility of including mechanisms to disable or erase the licence of the software.

25   Have courts in your jurisdiction recognised that software is not inherently error-free in determining the liability of licensors in connection with the performance of the licensed software?

No court resolution has been issued on this subject.

26   Have courts in your jurisdiction restricted in any manner the enforceability or applicability of the terms and conditions of public licences for open source software (ie, GNU and other public licence agreements)? Have there been any legal developments of note in your jurisdiction concerning the use of open source software?

No court resolution has been issued on this subject, and there are no rel- evant legal developments concerning the use of open source software.

Royalties and other payments, currency conversion and taxes

27   Is there any legislation that governs the nature, amount or manner or frequency of payments of royalties or other fees or costs (including interest on late payments) in an international licensing relationship, or require regulatory approval of the royalty rate or other fees or costs (including interest on late payments) payable by a licensee in your jurisdiction?

In general there are no regulations on this matter. However, it is highly recommended to review the tax issues concerning price transfer when deter- mining the percentage of the royalties to be paid.

28   Are there any restrictions on transfer and remittance of currency in your jurisdiction? Are there are any associated regulatory reporting requirements?

No.

29   In what circumstances may a foreign licensor be taxed on its income in your jurisdiction?

The local licensee is obliged to withhold the taxable amount derived from royalty payments and to pay it to the Mexican Internal Revenue Service. The receipt document  of such amounts  will be used by the licensor to credit payment of such taxable amount to its government authorities and, thus, avoid double taxation.

30   Can a judgment be rendered by courts in a foreign currency in your jurisdiction? If not, would a contractual indemnity for any shortfall to a foreign licensor due to currency exchange fluctuations be enforceable?

A judgment can be rendered  by a foreign court and it will be subject to a recognition procedure before the Mexican courts. If recognised, the licen- see will be obliged to pay the amount corresponding to the exchange rate published on the day of payment in the Official Gazette.

Competition law issues

31   Are practices that potentially restrict trade prohibited or otherwise regulated in your jurisdiction?

The Federal Law of Economic Competition (LFCE) implements the consti- tutional prohibition on monopolies, not by making monopolies unlawful as such, but by prohibiting and punishing acts by which monopoly practices might occur.

According to articles 9 and 10 of the LFCE, practices are catalogued as absolute or relative. The first practices are prohibited and agreements to undertake  them  are legally invalid. On the other  hand,  the relative practices may not be unlawful unless the defendant  is considered to have ‘substantial power’ in a defined relevant market and is not able to claim otherwise.

There are four categories included in the absolute monopolistic practices that refer to horizontal agreements between competitors: price fixing, output restriction, market division and bid rigging. The LFCE also considers certain particular actions to be of this category, namely, the price-fixing provision forbids information exchanges with the purpose or effect of set- ting up or manipulating  price, the output restriction  provision prohibits arrangements on the amount or regularity with which goods and services are produced, the market division provision regulates prospective and existing markets and the bid-rigging provision covers agreements  regard- ing participation in auctions and establishment of the prices to be bid.

Other horizontal actions are considered relative practices, that is, practices that unduly damage or impair the process of competition  and free access to production, processing, distribution and marketing of goods and services.

In connection with vertical agreements,  all practices are considered relative practices. The LFCE regulates the following: vertical market division, resale price maintenance, tied sales, exclusive dealing and refusals to deal.

Other actions treated as relative practices are predatory pricing, exclusive arrangements in exchange for special discounts, cross-subsidisation, discrimination in price or conditions of sale and raising competitors’ costs.

The  abovementioned   relative   monopolistic   practices   might  be against the law if the following two conditions are met:

  • if it is proved that they improperly displace other agents from the market, substantially limit their access or establish exclusive advantages in favour of certain persons; and
  • if the responsible party has substantial market power in the relevant market.

32   Are there any legal restrictions in respect of the following provisions in licence agreements: duration, exclusivity, internet sales prohibitions, non-competition restrictions, and grant-back provisions?

The Industrial Property Law includes provisions to regulate licence agree- ments in connection with the following issues:

  • the licence shall not be registered when the IP right has expired or where its duration is longer than the term of the IP right;
  • with the exception of the licences of public utility and compulsory licences, any licence may be exclusive;
  • in connection with non-competition covenants, these are enforceable under Mexican law. However, under constitutional construction there has been some debate on the validity or not of such covenants but to date there has been no jurisprudence on the matter; and
  • indemnification, disclaimers  of liability, damages  and limitation  of damages.

As previously mentioned,  the contracting  parties will be bound by the terms  and conditions  they deem  necessary.  Although all of the above- mentioned  clauses can be included, there may be some issues regarding enforceability in some of them, particularly the non-compete clause after the termination of the agreement.

Indemnification, disclaimers of liability, damages and limitation of damages

33   Are indemnification provisions commonly used in your jurisdiction and, if so, are they generally enforceable? Is insurance coverage for the protection of a foreign licensor available in support of an indemnification provision?

Indemnification provisions are commonly used on licence agreements  in Mexico. Insurance is not commonly used in Mexico to guarantee contrac tual obligations, rather, the obtention of a bond in favour of the licensor in the case of default by the licensee may be an alternative.

34   Can the parties contractually agree to waive or limit certain types of damages? Are disclaimers of liability generally enforceable? What are the exceptions, if any?

In general, damages are understood  as an economic loss caused by illicit conduct or a breach of a contractual obligation. It is possible to contractu- ally limit or waive the indemnification for damages and this is recognised as enforceable by the courts.

Termination

35  Does the law impose conditions on, or otherwise limit, the right to terminate or not to renew an international licensing relationship; or require the payment of an indemnity or other form of compensation upon termination or non-renewal? More specifically, have courts in your jurisdiction extended to licensing relationships the application of commercial agency laws that contain such rights or remedies or provide such indemnities?

There is no actual limitation on terminating the agreement if the cause of termination  is contractually agreed. However, the affected licensee may seek court remedies to try to uphold the agreement under different specific scenarios or seek payment of damages.

36   What is the impact of the termination or expiration of a licence agreement on any sub-licence granted by the licensee, in the absence of any contractual provision addressing this issue?

The terms and conditions of a sub-licence agreement must concur with the terms of the main licence agreement and the terms and conditions of the main agreement will apply to the sub-licences. Hence, it will certainly be considered that, in the event of the termination of the licence agreement, the sub-licence will also be terminated.

Bankruptcy

37  What is the impact of the bankruptcy of the licensee on the legal relationship with its licensor; and any sub-licence that licensee may have granted? Can the licensor structure its international licence agreement to terminate it prior to the bankruptcy and remove the licensee’s rights?

It will depend  on the terms and conditions  agreed upon in the licence agreement. If these circumstances are foreseen, then there is the possibility of terminating the agreement instantly.

Governing law and dispute resolution

38   Are there any restrictions on an international licensing arrangement being governed by the laws of another jurisdiction chosen by the parties?

There is no restriction on governing laws or jurisdiction as long as it is gov- erned by the laws of the country of residence of one of the parties. This situation will apply when submitting to the venue of the judicial courts.

39   Can the parties contractually agree to arbitration of their disputes instead of resorting to the courts of your jurisdiction? If so, must the arbitration proceedings be conducted in your jurisdiction or can they be held in another?

Yes, the parties may choose to submit to arbitration in the case of a contro- versy and may also choose the place for the arbitration.

40  Would a court judgment or arbitral award from another jurisdiction be enforceable in your jurisdiction? Is your jurisdiction party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards?

Yes, an arbitral award is enforceable in Mexico.

Mexico is a party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

41   Is injunctive relief available in your jurisdiction? May it be waived contractually? May the parties waive their entitlement to claim specific categories of damages in an arbitration clause?

Injunctive relief is not available in Mexico.

The parties may, indeed, choose to waive specific categories of dam- ages and submit to only those contractually agreed.