Ideas and knowledge are a central part of creating the goods and services that comprise the global trade repertoire of countries like Mexico and China. The protection of intellectual property of a manufacturer might be the most important safeguard. Investing personnel and fiscal resources in innovation results in the idiosyncratic design, invention, method, repute or success or failure of a manufacturer in Mexico (or anywhere else), enabling it to achieve advantage over the firms with which it competes in the marketplace. These items must be sufficiently protected so that a corporation is assured that its competitive lead will not be stolen, counterfeited, or used without its authorization.
Many countries recognize the value of patents and trademarks in world markets and have taken steps to implement stringent intellectual property protection laws and measures. America’s intellectual property industries, which depend on IP defense for their revenues, greatly contribute to the vitality of the U.S. economy, and embody a rising percentage of our gross domestic product. This sector includes not only the copyright industries, such as movies, musical recordings, and book publishing, but also businesses that rely on the value of their trademarked brands. It also includes patent industries, such as the pharmaceutical industry and many manufacturers. Protection of intellectual property varies from country to country, and when considering the laws of other countries, especially when considering host countries for offshore manufacturing and management, it is important to learn the intellectual property protection laws that are in place.
In Mexico, the NAFTA protects certain intellectual properties such as: copyright of data, copyright of sound recordings, trademarks, patents or inventions, industrial designs, trade secrets, and geographical indications. These are the minimum standards of protection of intellectual property that the U.S., Canada, and Mexico must provide in their domestic laws, but they may provide more protection than is required under NAFTA. Mexican courts typically respect and enforce companies’ rights to intellectual property and the guarantee of these minimal protections gives some significant peace of mind when considering the possibility of initiating manufacturing operations in Mexico.
China, perhaps Mexico’s primary competitor in the competition for direct foreign investment, has very different laws. China has been widely questioned for both the content of its intellectual property protection laws, as well as their enforcement. China’s legal system still has many gaps, it is still weak, and it is still developing. Counterfeits are common in Asia and courts have been slow to enforce or recognize intellectual property rights.
Currently the counterfeiting problem in China is widely recognized as the most serious counterfeiting problem in world history. The Chinese Government estimates that the counterfeit trade in China is between $19 and $24 billion per year, accounting for about 8 percent of China’s gross national product. Furthermore, U.S. industries that do business in China estimate their losses to be in the billions to tens of billions of dollars per year. Since it is the world’s largest recipient of foreign direct investment, China now has unprecedented access to the world’s most valuable intellectual property.
For companies that outsource their manufacturing to third party Chinese firms, intellectual property problems are not limited to brand name thievery. Other forms of IP theft are cunning but no less detrimental. In many cases, the IP thieves are the current or former employees of Chinese firms that once worked with the original IP owners.
As a result of the 2004 Chinese decision that eliminated the export domination that had been benefitted from by state trading companies, counterfeiters can now export forged products. Prior to 2004, a fraudster had to get the cooperation and compliance of a state trading company, which had a control on export rights, before they could export counterfeit products.
Current IP Protections in China and Mexico
Mexico: Authors or owners of exclusive rights to books, sound recordings, computer software, or other works of original expression have automatic legal rights to them. Authors or owners don’t need to register, and they are guaranteed protection for 75 years after their death, however registration is recommended in the event of legal action. The copyright law grants the author both moral and patrimonial rights.
Since Mexico belongs to both the Universal Copyright Convention and the Berne Convention, foreigners are assured protection for their works in Mexico.
China: In China, ownership of the copyright to a work is granted to Chinese nationals upon completion of the work. No registration is required for copyright protection. There is no time limitation on moral rights protection. Generally, the term of protection of publication rights and other copyrights is the life of the author plus fifty years.
Mexico: Trademarks may be registered for a ten-year term, renewable for an unlimited number of ten-year terms as long as the trademark is still being used. It is not necessary to wait for the approval of registry, trademarks may be used from the moment the appropriate documentation and applications are received. Registration establishes an exclusive right to use by the registrant, but prior rights may be granted to earlier non-registered users of trademarks.
China: A trademark applicant must file an application with the China Trademark Office. Normally, the Trademark Office renders a decision within 18 months after it receives all supporting documents. If the application is approved, the mark will be published in the China Trademark Gazette. After the mark is published, there will then be a three-month opposition period. If no opposition is filed within that period, the application will mature into registration. The certificate will then be issued and the mark will be published in the Trademark Gazette again as a registered mark. The term of protection is ten years from the date the registration is granted. The trademark may be renewed for an additional ten year term within six months before the expiration date of the mark's present term. Proof of use of the trademark prior to renewal is not currently required.
Trade Names and Slogans:
Mexico: Slogans and phrases may be registered. Trade names don’t require registration, but they do require recordation and publication. No system of regulation in Mexico for trade names and slogans, however there is a presumption that you are using the trade name or slogan in good faith.
China: A company can register and license company names, brand names, slogans, and trade dress for China and worldwide markets.
Mexico: A company using the patented product may register patents for inventions that are new, non-obvious and have industrial applications for twenty years. Patents may be licensed on privately negotiated terms. Legislation extends eligibility for product patents to pharmaceuticals, chemicals, biotechnology products, metal alloys and agrochemicals.
China: An invention patent application is subject to substantive review upon the request of the applicant within three years from the date of application. There is no substantive review for utility model and design patents. Patent rights commence from the date of publication in the Patent Gazette. The term varies depending on the type of patent.
China has failed to recognize patent protection for computer software, discouraging foreign companies from investing in the country. China denies protection to Chinese software enterprises at home and leaves them facing an unfamiliar environment in international markets full of competitors seasoned in patent protection of program products.
Intellectual Trade Secrets
Mexico: No registration is required to prevent individuals who have such secrets from disclosing them. Such individuals and other companies who hire those individuals to gain the information may be subject to penalties for disclosure of trade secrets, including being held responsible for the damages.
China: Trade secret protection is entirely dependent on the individual company. Employee confidentiality agreements can be required at each company and if it is breached the perpetrator will be held responsible for compensating the damages. There is no fixed law for how long an employee must keep the trade secret confidential.
Intellectual Property Law Enforcement:
Mexico: Unlike other emerging countries, Mexico has shown a commitment to protecting intellectual property rights. Through both its domestic laws and the many treaties it has signed, Mexico has developed the suitable legal infrastructure to comfort foreign investors that it takes intellectual property rights seriously. Mexico is a party to the following international treaties:
• World Intellectual Property Organization
• Paris Convention for the Protection of Industrial Property
• Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks
• Lisbon Agreement for the Protection of Appellations of Origin and their International Registration
• Patent Cooperation Treaty
• Singapore Treaty on the Law of Trademarks
• Trademark Law Treaty
• Vienna Agreement Establishing an International Classification of the Figurative Elements of Marks
• Strasbourg Agreement Concerning the International Patent Classification
• Locarno Agreement Establishing an International Classification for Industrial Designs
The Mexican Institute of Industrial Property is responsible enforcement of all industrial and intellectual property laws in Mexico and it is widely viewed as being very effective. Mexico has an official arrangement to enforce intellectual property rights that includes civil solutions by Mexican authorities. NAFTA required that the civil actions correspond with the various legal standards, which are familiar to Americans. NAFTA also required procedures to be available to a right holder to apply to have counterfeit or pirated goods not to be released from customs.
Governmental sanctions include closing down the violating company either provisionally or permanently. Administrative arrest is also a possibility.
China: Protection of intellectual property law has been established by government legislation, administrative regulations, and declarations in the areas of trademark, copyright and patent. This has led to the establishment of a complete legal construction to defend both local and foreign intellectual property. Despite these progressive improvements, copyright violations are common in China and major members of the automotive and electronics industries commit intellectual property violations all the time.
In the year 2000, there were 22,000 enforcement cases, which were brought by the State Administration of Industry and Commerce. The average fine in those cases was $794. Perhaps even more astonishing, there were 45 total criminal prosecutions. That is 45 cases out of 22,000 enforcement actions that were then transferred over to the authorities for criminal prosecution. The level of enforcement in China does not create prevention.
No problem of this size and scope could exist without the direct or indirect involvement of the government. District governments establish many of the wholesale markets. Local governments, specifically the local Administrations of Industry and Commerce, invest in and protect these local markets. When counterfeiters have good contacts with local governmental or law enforcement officials, they may find a fortification for their counterfeiting activity.
China accounts for probably 80 percent of all of the counterfeit items that are exported in the world today. It supports local economies. Shutting down counterfeiting will mean, in many instances, shutting down entire towns and municipalities, which will cause problems of unemployment, dislocation, and social chaos.
In China there are no criminal penalties specifically directed at the exporter of counterfeit goods, and government often is associated with counterfeit activity. Mexico’s NAFTA regulated IP laws are much more secure and protective for foreign managed and owned businesses. Due to the enforcement and level of commitment of enforcing the Mexican IP protection laws that are in place, it allows for companies to feel safer bringing their ideas forward while investing in a different country.