Download USE OF MARKS BY CONTROLLED COMPANIES UNDER NAFTA

USE OF MARKS BY CONTROLLED COMPANIES UNDER NAFTA AND TRIPS vs.
REGISTRATION OF TRADEMARK LICENSES IN MEXICO
By Carlos Trujillo
uhthoffgomezvega+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.
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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.
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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 selfapplicative 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.
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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.