BAKER & McKENZIE

MEXICO

Trademark Risk in the Maquiladora Industry

Over the past twenty years Mexico has undergone major economic reform. The intent has been to replace prior economic views with a new open border policy based on international the Maquiladora trade, technology transfer and investment.

One result has been the creation of the Mexican maquiladora program, governed by the Decree introduction for the Promotion and Operation of the Export Maquiladora Industry of December, 1989, amended in December, 1993, effective on January 1, 1994. It was designed to combat a high unemployment rate along the border with the United States. The United States had both a relatively high wage scale and a consumer-oriented society's demand for inexpensive and intensive production of such goods Trademarks under Mexican

The Mexican government recognized that pursuing free trade principles required not only an improved legal system in the fields of international trade and foreign investment, but also higher standards of intellectual property protection and enforcement. The 1976 Law on Inventions and Trademarks was not adequate. In 1991 a new statute (the Law for the Promotion and Protection of Industrial Property) we promulgated. It contained significant changes in the field of patent and trademark protection, prosecution, maintenance and enforcement. In October, 1994, the Industrial Property Law (hereinafter the "Law") was introduced. Its principal purpose was to conform Mexican law to the extent possible to the provisions of the North American Free Trade Agreement (NAFTA) and the Agreement on Trade-Related Aspects of Intellectual Property rights, including trade in counterfeit goods (TRIPS ) .

Under the Law, a trademark is 'any visible sign adopted by a manufacturer, merchant or renderer of services to identify its goods or services and distinguish them from others of the same kind or class in the marketplace". The Law expressly considers the following to be trademarks:

• Visible, sufficiently distinctive names and figures capable of distinguishing the goods or services to which they are applied, or intended to be applied, from other products or services of the same kind or class.

• Three-dimensional forms.

• Trade names and denominations or corporate names, provided they do not fall within the express prohibitions of the law.

• The name of a natural person, provided that it is not confused with a registered trademark or a published trade name.

Naturally, a trademark must be distinctive if it is to identify the origin of the goods or services and thereby avoid confusion, deception or mistake. If a trademark is to protect purchasers from confusion regarding what they are purchasing, the trademark must be recognizable, identifiable and different from other marks.

The exclusive right that a trademark provides to its owner arises when registration is granted by the Mexican Institute of Industrial Property ("IMPI"). Trademark prosecution takes an average of four months to mature into registration. The cost is about US$800.00. The Law is national in scope, protecting trademarks throughout Mexican territory.

Use of Trademarks in the Maquiladora Industry

Typically a maquiladora assembly plant, most commonly located near Mexico's northern border, imports equipment, machinery and foreign materials "in bond" for assembly of a finished product for reexport.

Generally speaking, the product is finished in the maquiladora plant in Mexico and thereafter is shipped abroad to be distributed and sold. Usually the trademark intended to identify the product in the destination market is applied before the product leaves the maquiladora plant.

The important point to be noted is that such use of the trademark can constitute an infringement of a Mexican trademark registration, even if the product is not sold or intended to be sold in Mexico. Article 213 of the Law sets the rules regarding infringements:

Art. 213. The following constitute administrative infringements:

IV. To use a trademark confusingly similar to another registered trademark, to cover the same or similar products or services as those protected by the registered trademark...

Regarding use, the Regulations of the Law state the following:

Art. 62. For the purposes of Article 130 of the Law, among other cases, it shall be understood that a trademark is in use when the goods or services covered by such trademark have been placed in the market or are available in the market in the country under such trademark in the amount and form corresponding to the uses and custom of commerce. It shall also be understood that a trademark is in use when it is applied to goods for exportation...

Based on the foregoing, a Mexican trademark owner is entitled to file an infringement action against a maquiladora owner for unauthorized use of a registered trademark in the maquiladora operation, even if the products are intended for the export market.

Under the Law, effective since October 1, 1994, trademark infringements are no longer criminal. Instead, they are administrative violations of the Law. A trademark infringement case is prosecuted before IMPI. The defendant may contest the validity of the registration by formally requesting its nullity in writing.

Damages cannot be claimed in an action before IMPI. It decides only the infringement issue. Damages can be claimed in a court proceeding only after IMPI' s resolution of the infringement claim is beyond appeal. IMPI decisions can be appealed to a district court, with further appeal available to a circuit court, the decision of which is final.

Administrative penalties for infringement range from fines of up to about US$66,000, to temporary or definitive closure of the infringing business, and even administrative arrest for 36 hours. IMPI usually imposes fines. If a defendant continues infringement the fine doubles. If infringement continues after IMPl's decision no longer is appealable, the conduct is considered criminal, and thus penal actions can be taken against the defendant.

A maquiladora owner may face infringement actions brought by the owner of a registered trademark in Mexico if the goods finished in the maquiladora plant bear the protected Jose-Juan Mendez Cortes trademark. Ideally maquiladora owners should file for and obtain protection of their marks (Mexico City) in Mexico. At least they should search IMPI records for each mark intended to be applied to Tel: (52-5) 230-2900 the products in order to identify the risks that may be faced.

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