OVERVIEW OF MEXICO'S IPR ENVIRONMENT

Protection of intellectual property rights (IPR) in Mexico holds particular significance for American companies because of the enormous volume of trade that takes place between our neighboring countries. In 2004, bilateral trade totaled $167,543 billion, including $111,752 billion in U.S. exports to Mexico. This trade is increasingly composed of products protected by IPR under international treaty obligations and NAFTA. The free movement of goods and services in North America's integrated market makes robust protection of IPR crucial -- especially as companies' international competitiveness is challenged by illicit goods originating in Asia, in particular. This overview explains the scope of Mexico's IPR problem, and assesses IPR protection in the country.

Scope of Mexico's IPR Problem

The scope of Intellectual Property Rights (IPR) abuses across Mexico’s industrial sectors continues to outpace the GOM’s enforcement efforts. Losses to Mexican and international companies due to trademark counterfeiting, copyright piracy, and patent infringements lie in the hundreds of millions of dollars annually and are growing. Solutions to this problem, which significantly affects the film, music, software, pharmaceutical, and textile industries, are hampered by limited political will, a lack of capacity and coordination among law enforcement entities, competing crime-fighting priorities, weak application of IPR laws, and insufficient planning and coordination among industry sectors. The protection of IPR is complicated by Mexico's extensive poverty and corruption. Black markets provide a significant source of employment in the informal sector, which accounts for up to 50 percent of the total economy. Illegally reproduced goods, sold at a fraction of the cost of their legitimate counterparts, also give poor consumers access to otherwise unattainable items. Some government leaders are reluctant to crack down on piracy out of fear that this could lead to social unrest, and many Mexicans believe cheap knock-offs offer a preferable alternative to what they view as overpriced products sold by greedy American firms. There are also corrupt politicians and law-enforcement officials who protect IPR violators, from the street vendor level up to ringleaders of notorious markets like Mexico City's Tepito.

IPR Protection in Mexico

Under NAFTA and the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), Mexico is obligated to implement certain standards for the protection of intellectual property and procedures to address infringement such as piracy and counterfeiting. Despite a fairly comprehensive set of IPR laws and an increase in the number of seizures and arrests in 2003 and 2004, the extent of IPR violations in Mexico remains dramatic. Monetary sanctions and penalties are minimal and generally ineffective in deterring these illegal activities. The United States remains concerned about the continuing high levels of piracy and counterfeiting in Mexico and closely monitors how the Mexican Government is addressing these problems. Mexico was taken off the Special 301 Watch List in 2000, but put back on in 2003 due to enforcement concerns. In Mexico, the Attorney General's Office (PGR) is responsible for investigating and prosecuting IPR crimes. The Mexican Institute of Industrial Property (IMPI) is the government agency responsible for administrative enforcement of IPR. Unfortunately, Mexican IPR laws are weakly applied and poorly understood. Mexican judges continue to reject cases involving IPR crimes, discouraging prosecutors from building cases. Some feel it is pointless to try cases since industry attorneys routinely cut deals with the infringing party before the judicial process is complete. Industry representatives, in response, say the cumbersome judicial system makes staying in court prohibitively expensive.

Copyright Protection

Copyright piracy remains a major problem in Mexico, with U.S. industry loss estimates growing each year. Although enforcement efforts by the Mexican government are improving, piracy levels continue to rise, resulting in closures of legitimate copyright-related businesses, according to industry sources. Counterfeit sound and motion picture recordings are widely available throughout Mexico, where piracy has shifted from traditional formats to optical discs (CD, DVD, CD-ROM) and internet piracy. The International Intellectual Property Alliance (IIPA) estimates that trade losses due to copyright piracy in Mexico totaled $807 million in 2003. That year, music piracy represented 61 percent of the total market. Industry estimates the business software piracy level at 63 percent in 2003. In July 2003, the Mexican Congress amended the Mexican copyright law. These amendments fail to address the comprehensive reforms needed by Mexico to: (1) effectively implement the obligations of the WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty (Mexico is a party to both agreements); and (2) correct existing incompatibilities in the law with Mexico’s obligations under the NAFTA IPR Chapter and the WTO TRIPS Agreement. Implementing regulations that Mexico has indicated would address these concerns were to have been published by the end of October 2003, but as of early 2005 have not yet been made available. The United States has been urging Mexico to meet its various obligations by issuing satisfactory implementing regulations. Mexican law enforcement agencies have conducted thousands of piracy raids. In 2003, the Attorney General's Office created an IPR enforcement unit, which combines federal prosecutors and police to make the enforcement regime more effective and efficient. Industry representatives report that raids against counterfeiting operations have improved from 2003 and there has been improved access to prosecutors. Despite increased raids and seizures of counterfeit material, only 24 of the 1087 counterfeiters who were arrested in 2003 and 2004 received sentences greater than one year, thus undercutting the deterrent effect of the raids and arrests. Very few IPR violations result in prison terms. As a result, counterfeiters are often released and return to the street.

Patent, Trademark, Pharmaceutical and Agricultural Chemical Protection

Patents and trademarks are under the jurisdiction of the Mexican Institute of Industrial Property (IMPI), an independent agency that operates under the auspices of the Secretary of Economy. Some U.S. trademark holders have encountered difficulties in enjoining former subsidiaries and franchisees from continued use of their trademarks. U.S. companies holding trademarks in Mexico have cited problems with trademark enforcement and administration. When counterfeit items are discovered, injunctions against trademark violators are often unenforceable and are consistently challenged before the courts. Although federal administrative actions are supposed to be completed within four months, actions related to trademark enforcement often take as long as 18 months. The time can be lengthened by jurisdictional and procedural disputes within the Mexican government, as well as by internal coordination problems within IMPI. Trademark applications in Mexico are not subject to opposition. Registrations are issued and can only be canceled post-registration. On average, it takes two and a half years to cancel a trademark registration, and the registrant is allowed to continue using the mark for one year following cancellation. U.S. pharmaceutical and agricultural/chemical companies are concerned about the lack of coordination between IMPI and other Mexican agencies with regard to government procurement of copies of patented pharmaceuticals. In September 2003, a Presidential decree sought to resolve the "linkage" issue between IMPI and the Ministry of Health by requiring applicants for safety and health registrations to show proof of a patent or that test data was obtained in a legitimate manner. However, the pharmaceutical industry reports that this decree is not being properly enforced.

Border Enforcement of IPR

NAFTA Article 1718 and Article 51 of the TRIPS Agreement obligate Mexico to allow U.S. intellectual property rights holders to apply to Mexican authorities for suspension of release of goods with counterfeit trademarks or pirated copyright goods. Intellectual property rights owners seeking to use the procedure must obtain an order from a competent authority that directs customs officials to detain the merchandise. Companies requesting such actions report positive outcomes.