Use Of Marks By Controlled Companies Under NAFTA And Trips vs. Registration Of Trademark Licenses In Mexico
By Carlos Trujillo
Uhthoff, Gomez Vega+Uhthoff.
The right to use a mark grants to the trademark owner the exclusive privilege to use the mark and the prerogative to exclude others from using the same or a confusingly similar mark, for products or services of similar nature.
Three forms to acquire rights over a mark are foreseen in the industrial property regimes around the world:
a) By obtaining the corresponding registration before competent national authorities;
b) By using the mark for the products or services it is applied to, or c) A combination of the above actions.
For the case of Mexico, Article 87 of the Industrial Property Law (IPL) foresees that the exclusive right to use a mark is acquired through its registration with the Mexican Institute of Industrial Property (MIIP). Use of a mark, however, has relevant impact in the Mexican industrial property system. Uninterrupted use is required for a trademark registration to maintain its effects and previous use situations in Mexico or abroad, under certain circumstances, use establishes exceptions against the rights conferred by a trademark registration and they may establish grounds to exercise an action against the trademark owner to obtain the cancellation of a trademark registration.
This paper will focus on certain aspects related to the use of a mark in Mexico, when it is done not directly by the trademark owner but by a third party that may have some business relationship, in view of some provisions present in the North America Free Trade Agreement (NAFTA) and the WTO’s Trade-Related Aspects of Intellectual Property Rights Agreement (TRIPS), in force in Mexico since years 1994 and 1995 respectively.
According to the provisions of Article 62 of the Regulations of the IPL, it should be construed as “use of a mark” in Mexico, among other situations, when the products or services covered by it have been placed into commerce or are available in the national marketplace in the amount as it is usual under commercial practices, or when the mark is applied to products for exportation.
From the interpretation of Articles 130 and 152 of the IPL, use of a mark must not be interrupted for more than three consecutive years. Otherwise, the possibility for a party of challenging the validity of the trademark registration through the exercise of a cancellation action on grounds of non-effective use of the mark in Mexico may be opened. Use should be done directly by the trademark owner or by a licensee. In the latter assumption, when use is made by a licensee, the corresponding license agreement requires to be registered before the MIIP.
Through the registration of a trademark license agreement, the licensee becomes an authorized user of a mark and the agreement, which was only effective between licensor and licensee, becomes enforceable against third parties. On the other hand and according to Article 140 of the IPL, the use of the mark by the licensee who has been registered as such before the MIIP is taken as if it were done by licensor and therefore benefits the licensor to demonstrate effective use of the mark in Mexico.
When a licensing structure around the mark has been established more than compulsory, the registration of a trademark license agreement in Mexico is an action necessary to prove that the use of the mark by a licensee inures on behalf of the trademark owner.
The registration of a trademark license also is a recommendable action in order to establish as a matter of official records that the mark is in use under license by a third party different from the trademark owner. This could discourage third parties from initiating a cancellation action on grounds of a lack of use event, since the presumption of use by the licensee will be established and will be clearly reflected in the official file of the mark.
There are three different categories of “users” of marks from a Mexican legal perspective. Ones that are only distributing or marketing products inside the territory of Mexico. Others that apart from the commercial activities, they also participate in the manufacturing processes of the product that will be finally marketed inside Mexico and, users that do not enter into the mentioned categories for using a service mark.
From a Mexican legal perspective a trademark license agreement is required when the licensee, apart from distributing or marketing the product, it also takes part in the manufacturing processes. This derives from the interpretation by the Supreme Court in conflicting cases in which the requirement of use of a mark by a licensee has been discussed.
Considering the above, the registration of a license agreement is necessary in Mexico when a licensee uses the mark not only for strict commercial purposes, but also when it somehow participates in the manufacturing processes for products that thereafter will be distributed or marketed in Mexico, as well as for users of service marks.
In a traditional legal sense in Mexico and according to a judicial decision (Thesis No. 186,522), which is a relevant decision but is not strictly mandatory, the purpose of a trademark license is to authorize a trademark user when it takes part in the manufacturing process of the products or for providing services to consumers using the mark. For only participating in the marketing of products inside the Mexican territory, a license agreement is not strictly required.
In this order of ideas, the interpretation of the court distinguishes two different conducts around the use of a mark in Mexico: i) use of the mark itself, which involves taking part into production activities for the resulting product or for providing services with the mark and ii) marketing or distribution of products. For the first category, the court’s criteria is that a license agreement to appoint the trademark user is required. This implies in turn the need to register the license agreement with the MIIP since, as explained in former paragraphs, this action is necessary for the license to produce effects against third parties. For the second, no license agreement is needed since the entity using the mark is considered by the court, as one that only performs a marketing action that does not justify the granting of a trademark license.
A new scheme is now developing in Mexico around provisions of NAFTA and TRIPS.
An international treaty was in the past, equivalent to a federal law and there was no guideline as if provisions of the law should be applicable to a given case, over the ones foreseen in an international treaty or vice versa.
As of the year 1999 the Supreme Court has ruled that international treaties have supremacy over federal laws and therefore, they are ranked over the mentioned laws and immediately below the Federal Mexican Constitution (Thesis 192,867). This is also a relevant decision that is still pending to comply with some formalities to be a mandatory rule for all federal courts, but it establishes the directive to follow when provisions in a federal law and an international treaty enter into a conflict, or when provisions in an international treaty should have suppletory application for cases not foreseen in a federal law.
In order for an international treaty to be mandatory in Mexico, it must comply with three essential requisites: i) subscription by the Executive Power, ii) ratification by the Mexican Senate and, iii) publication of the full text of the treaty (not just of the notice of subscription) in the Official Gazette of the Federation. An international treaty complying with the mentioned actions becomes self- applicative and except for those cases in which the treaty establishes a date in which it will start producing effects or a gradual applicative term, it fully enters into force at the same time of its publication in the Gazette.
For the case of NAFTA its publication date was December 20 and 21, 1993 and it entered into force on of January 1st, 1994 (provisions about entered into force gradually). Publication date of TRIPS as Annex 1 C of the Marrakech Agreement Establishing the World Trade Organization was December
30, 1994 and it also came into force on January 1st, 1995.
Both NAFTA and TRIPS have equivalent provisions in the sense that use of marks made by entities “under control” should be recognized as if use is made by the trademark owner for purposes of maintaining the corresponding trademark registration.
Paragraph 9 of Article 1708 of NAFTA reads as follows:
“Article 1708: Trademarks
9. Each Party shall recognize use of a trademark by a person other than the trademark owner, where such use is subject to the owner‘s control, as use of the trademark for purposes of maintaining the registration.”
On its side, Article 19 of TRIPS establishes the following:
“Article 19 Requirement of Use
1. If use is required to maintain a registration (a trademark registration), the registration may be cancelled only after an uninterrupted period of at least three years of non-use, unless valid reasons based on the existence of obstacles to such use are shown by the trademark owner. Circumstances arising independently of the will of the owner of the trademark which constitutes an obstacle to the use of the trademark, such as import restrictions on or other government requirements for goods or services protected by the trademark shall be recognized as valid reasons for non-use.
2. When subject to the control of its owner, use of a trademark by another person shall be recognized as use of the trademark for the purpose of maintaining the registration.”
Deriving from the mentioned provisions of NAFTA and TRIPS it can be interpreted that when someone different than the trademark owner is using a mark, the requisite in Mexico to have the user registered as a licensee to prove effective use thereof has been suppressed, provided that the entity using the mark is under control of the trademark owner. Or in other words, the use of a mark by a company under control of the trademark owner will be sufficient to evidence effective use of the mark in Mexico, without needing to register the user as a licensee with the MIIP.
Although this could open some possibilities to avoid formalities in Mexico regarding execution and registration of trademark license agreements, there are some complications that should be noted. The most relevant is the lack of definition about what should be understood as a “controlled entity”. The other is the traditional conception under Mexican law (based on traditional Roman law) about the legal existence of companies, which for a Mexican perception have a legal nature completely different than the constituent partners.
As an example of the conflicts regarding the interpretation of the term “controlled entity”, there is a concept in the Mexican IRS Law for “related parties” which could be considered equivalent. The IRS Law defines “related parties” for purposes of tax consolidation, those in which one of them has participation in the administration, management or “control” over the other. This concept, however, on a decision by the Federal Court of Taxing and Administrative Justice was deemed inapplicable to the term “controlled entities” for trademark matters under TRIPS and NAFTA. The court ruled that the “control” should be made over the “use of the mark” and not over the entity using the mark without any additional guideline, therefore, establishing that the concept foreseen in the IRS Law is not applicable to the “controlled entities” notion for a trademark law perspective.
Until no further legal definition is established in law or through new judicial criteria about the mentioned aspects in the construction of the relevant provisions in NAFTA and TRIPS, the registration of license agreements in Mexico would still be the safest course of action to adopt when the mark is in use by a third party with intervention in the manufacturing process or for the case of service marks, in order that the use of the mark completely recognized as made on behalf of the trademark owner.
The use by “controlled entities” should be taken not as an action itself but as an argument to enable a defense against a cancellation action where the use of the mark by a party different that the trademark owner is questioned. For supporting this argument, sufficient written evidence to demonstrate a commercial relationship between the trademark owner and the user should be gather and opportunely filed. Since there are no defined guidelines for understanding the “controlled entity” concept, results will be open to the interpretation of the court that finally rules upon the matter in question.