PATENT LITIGATION IN MEXICO: OVERVIEW AND STRATEGY

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1 PATENT LITIGATION IN MEXICO: OVERVIEW AND STRATEGY SUBSTANTIVE ISSUES IN PATENT LITIGATION IN MEXICO Global E-Commerce Law and Business Report. September, Patent infringement actions. The Mexican Industrial Property Law (MIPL) states in Article 213 what is considered in Mexico as an Administrative Infringement, among which, Fractions XI to XIV refer specifically to patents. Accordingly, the patent holder or an authorized licensee can initiate an administrative infringement action against a natural or legal person that manufactures or produces products covered by a patent, sells or causes to be in commerce products covered by a patent, uses patented processes, and sells or causes to be in commerce products having the knowledge that they were obtained through a patented process. In addition, Fraction XXV of the same Article 213 contains a general provision for any action against the law that does not constitute a crime, which of course could be used in patent cases. For instance, according to Article 25 of the MIPL the patent holder has the exclusive right to impede other persons to manufacture, use, sell, put for sale or import patented products, as well as to impede other persons to use a patented process or to use, sell, put for sale or import products obtained through a patented process. Accordingly, although importation of patented products is not expressly defined as an administrative infringement in Article 213, it is an act reserved exclusively to the patent holder and, therefore, importation without permission is against Article 25 of the MIPL and could constitute an infringement under Fraction XXV of Article 213 of the MIPL. In order to prove infringement, the patent owner can ask the Mexican Institute of Industrial Property (MIIP) an inspection visit, as well as offer any other kind of proofs except for non-written testimonial and confessional proofs. In the case of process patents, the burden of the proof can be reverted to the alleged infringing party. That is, the defendant must prove that the products were manufactured through a different process if the product obtained through the process is new or if there exists a significant possibility that the product has been produced through the patented process and the patent owner has not been able to prove the process that was actually used. Finally, the following remedies to infringement are applied by the MIIP upon payment by the patent owner of an injunction bond through a proceeding that will be later explained:

2 To order the retirement from commerce or to impede commercialization of infringing products. To order the retirement from commerce of: o Objects used or manufactured illegally. o Infringing objects, packages, containers, boxes, papers, marketing materials o and the like. Gadgets or instruments designed for or used in manufacturing, elaboration or obtainment of infringing products. To immediately prohibit commercialization or use of infringing products. To seize goods. To order the infringing party or third parties (contributory infringement) to desist from the acts against the MIPL. To order the suspension of the services or to close down the establishments wherein the above measures are not enough for preventing further violations of the rights conferred by the MIPL. Once the infringement is proved, the person infringing the patent can be punished according to the severity of the infringement with a fine of up to 20,000 days of Mexico City s minimum wage (around USD) plus an additional fine of 500 days of Mexico City s minimum wage (around 2200 USD) per each day that the infringement continues, temporary 90 days closure of the company, definitive closure of the company and/or administrative arrest for 36 hours, independently of the damages and loses that might be claimed by the patent owner before a civil court based on the infringement declaration issued by the MIIP. Exemptions to infringement. According to Article 22 of the MIPL a patent cannot be enforced against a person that: Performs in the private or academic fields scientific and technological research activities of merely experimental, testing or teaching nature, provided they have no commercial purposes. Uses, commercializes or acquires the invention once it was lawfully introduced into the market (this has been interpreted as the national market). Has used or has initiated the necessary actions to start using the patented invention prior to the filing date or the priority date of the patent. Employs the invention in transport vehicles that are in transit within Mexico. Uses a patented living material as a source of variation or propagation for obtaining other products, if and only if this action is not reiterate. Uses, puts in the market or commercializes patented living material for purposes other than variation or propagation thereof once said materials were put in the market lawfully by the patent owner or its licensee (this also has been interpreted as the national market).

3 Patent cancellation actions. A patent can be challenged through an administrative procedure when the claimed invention does not comply with the basic requirements of patentability (Article 16 of the MIPL), when it cannot be considered as an invention (Article 19 of the MIPL) and when the description and claims are not enabling or are incomplete (Article 47 of the MIPL), when it was granted against the law in force at the moment of grant, when during prosecution the applicant incurred in an action that rendered the application abandoned, or when it was granted by a serious mistake or omission. In other words, patents are considered invalid when they claim inventions that are not novel, have not inventive step (are obvious), have not industrial use (have no utility), or claim subject matter that is considered non-patentable or that is not considered invention, such as essentially biological processes for producing, reproducing and propagating plants and animals; animal races; the human body and parts thereof; discoveries disclosing or uncovering something already existing in nature even if it was previously unknown to humankind; structures, plans, rules and methods of performing mental acts, games or business and mathematical methods; and computer programs, among others mentioned in Articles 16 and 19 of the MIPL. Patent cancellation actions are usually used as a defense against patent infringement actions, and may be declared partial in regard to specific claims or in the form of a clarification or precision in the claims. Patent non-use. A patent can be cancelled by the MIIP due to non-use of the invention only after two years of operation of a compulsory license (Fraction III of Article 80 of the MIPL) and only if the grant of the compulsory license did not remedy the lack of use of the invention or if the patent owner fails to prove at that time that it uses the patented invention or that there is a justified reason for such lack of use. In turn, any person can file an application for the grant of a compulsory patent license when the corresponding invention has not been used by the patent owner or its licensee in Mexico after three years as of the date of grant and if within one year as of the application for a compulsory license by a person, the patent owner failed to start the exploitation of the corresponding invention. Importation into Mexico of patented products or of products obtained by patented processes is considered use in Mexico. In view of this fact, namely, that for the purpose of granting compulsory licenses, the mere importation of the product is considered as use, the compulsory licensing system is practically inoperable

4 Patent prosecution hints. In general, failure to comply with any requirement having as a consequence the abandonment of the patent is a cause of nullity of the corresponding patent. Therefore, every action should be carefully reviewed to comply with the requirements. The following issues are important in patent prosecution in Mexico as certain practices can affect the validity of a patent because abandonment could be alleged in litigation after grant: If the division of an application is expressly required through an official action of the MIIP, the divisional application should be filed within the terms established by the law. Voluntary Divisional applications should be filed before completion of the prosecution stage of the parent application, that is, before the patent is either definitely rejected or granted. If a limitation requirement is issued by the MIIP asking for maintaining only certain subject matter in the application but the division is not expressly required, then it is highly preferable to file the voluntary divisional application at the moment of filing the reply to the official action that required the limitation of the patent application. Although certain official actions are issued by the MIIP stating that the applicant can file certain prior art documents in English language, the complete Spanish translations of such documents must be filed in all cases. To avoid excessive costs, in the practice some applicants authorize agents to file translations only of the relevant portions of the required documents. This practice has been accepted by the MIIP but could lead to invalidity of the issued patent in litigation. Failing to submit any document required by the MIIP during prosecution should be avoided. The official fees should be paid precisely and completely even if an unfair or mistaken requirement of the MIIP is being alleged when answering to an official action. When answering to objections the practice of circumventing the objection by amending the claims or the description without addressing specifically the objection should be avoided. For instance, an objection to novelty, inventive step or the like should be address specifically by providing the arguments necessary to overcome the objection, including an amendment of the claims, instead of following the practice of stating only that the set of claims is being modified to coincide with the claims of a granted US or EP patent. The current scenario for the proceedings of patent litigation in Mexico. As it was previously mentioned, the Mexican Institute of Industrial Property (MIIP) is the Governmental Office in charge of the patent enforcement and patent litigation procedures in our country, which follows the aforementioned general rulings. Due to the fact that the MIIP is an administrative entity dependant of the Ministry of the Federal Government, technically, every patent litigation case is not properly a trial due to the fact that judges do not decide administrative entities procedures.

5 This technical legal issue is the starting point to begin explaining how the Mexican Government, through its administrative offices and Administrative and Judicial Courts, is failing to achieve its duties regarding the patent prosecution and enforcement in Mexico. First of all, we must state that patent litigation cases (cancellation or infringement actions) are prosecuted before the MIIP following the general litigation procedure rulings such as an initial brief in which the plaintiff must offer all of its evidence including certified copies of all of the official documents from the MIIP. After the plaintiff files its initial brief, the MIIP will serve summon to the defendant party with a copy of all of documents and arguments against it. The defendant party will have a term of ten days to answer the plaintiff s initial brief in case of infringement actions, and a term of thirty days regarding cancellation actions based on the grounds of non use as well as on nullity actions. Regarding patent infringement actions, the possibility exists to initiate such procedure with an official inspection visit, commonly known as raid, in order to seize from the plaintiff s premises all of the infringing merchandise. In order to proceed with the seizure of all of the infringing products, it is compulsory to exhibit with the initial brief an injunction bond in order to guarantee to the alleged infringer the damages and losses that may be incurred against him. Unfortunately for our patent prosecution system, it is mandatory for the MIIP to release all of the seized merchandise if the defendant party exhibits a counter bond that guarantees back damages and loses to the plaintiff. This legal weapon for the defendant party really diminishes the whole idea of an enforcement action, considering that the very reason for the plaintiff to initiate an action against an infringer is precisely to stop the infringer s continued use of the patented process or product. Seizure actions related to patent cancellation procedures are not as common as in the infringement ones. Nevertheless, the plaintiff still has that legal opportunity if he exhibits an injunction bond to comply with the legal formalities. Regarding the seizure of infringing merchandise in any of the Mexican borders, the Mexican Customs Law (MCL) rules that in order to seize any patent or trademark infringing product it is mandatory for the plaintiff to give to the MIIP and to the Custom Border Office, detailed information to determine how does the infringing merchandise will enter Mexican territory, within a period of fifteen days. As we may notice, this ruling of the Mexican Customs Law is, with all due respect, a legal absurd because whereas it is quite impossible for the infringed patent owner to investigate or to determine in which transport and in which custom border control the patent infringing merchandise will access to Mexican territory.

6 We believe that such investigative tasks should be compulsory for the government entities such as the MIIP or the Custom Border Office and not to individuals who try to enforce its intellectual property rights. Notwithstanding the above, it is very important to highlight that in Mexico all of the administrative procedures as well as every kind of trial before any administrative authority or a judicial court, is always prosecuted through written statements rather than an oral type of prosecution system as it is handled in the non-romanist law systems. Coming back with the procedure before the MIIP, after both parties have settled the case with their initial and answer briefs, the MIIP will issue an official action in order to ask the parties for their final pleadings. Just after the MIIP receives the final pleadings from the parties it is now entitled to make a judgment of all of the evidence shown by the parties and issue an administrative decision in which it must rule against one of the parties. Unfortunately, due to a severe backlog of administrative work and a heavy personnel cut in the MIIP, it takes from twelve to twenty four months to issue a final decision regarding patent litigation procedures and in some cases that period is extended up to thirty six months if, for example, a patent infringement action is counter sued by the defendant party through a cancellation action based on nullity basis. As we may notice, the effectiveness of the patent litigation system is not very promising as it is now structured. However, the case gets worse if we analyze Mexican Administrative and Judicial Appealing System as it is currently conceived. The amendments to the Federal Administrative Procedure Law. Due to political pressures from some senators of the Mexican Congress and even the support of a former director of the MIIP, in April and March 2000, the Federal Administrative Procedure Law was amended in its article 1 in order to convey its application to practically every administrative office dependant from the Federal Government together with almost every administrative law such as the Mexican Industrial Property Law (MIPL) through the MIIP. On the other hand, in December 2000, article 11 of the Structure Law of the currently known as the Federal Court of Tax and Administrative Affairs (formerly known as the Federal Tax Court with exclusive jurisdiction for tax litigation) was amended to extend the jurisdiction of said court for the appealing of every final decision issued under the scope of the Federal Administrative Procedure Law. As we may deduce, the final decisions issued by the MIIP were now in hands of the formerly exclusive tax judges, and not in the hands of the District Judges, which already had the expertise in handling appealing procedures, related to Intellectual Property cases.

7 For the first time in the Mexican IP history, the appealing of IP procedures was now a duty of the administrative courts which by the way, are dependant from the Executive Power (Mexican President) as it is stated in the Mexican Constitution, and not in the hand of Federal Judicial System which is integrated by the District Courts, Circuit Courts and the Supreme Court. The chaos. This strong change almost provoked chaos for IP litigators in the first months that followed the period in which the amendments were fully in force, due to the fact that neither District Judges nor the Federal Court of Tax and Administrative Affairs judges were fully capable of determining whether or not to admit under their jurisdiction IP litigation appeals. Finally, Circuit Courts end even the Supreme Court issued their final criteria regarding this issue, determining that MIIP s final decisions should be appealed before the Federal Court of Tax and Administrative Affairs through a Federal Administrative Annulment Trial (FAAT), and against the FCTAA s decision, a Constitutional Action before the Circuit Courts could be filed as a last legal remedy. It is important to highlight that the FAAT was originally planed as a legal scenario to determine the validity of tax decisions and not to determine the validity of IP appeals. Therefore, IP appeal litigation has been suffering several problems and inconsistencies regarding the judge s criteria due to the fact that IP was a totally different and unknown subject for the FCTAA s judges. Another of the problems that were provoked by this legal scenario was again, a severe backlog in the issuance of final decisions by the FCTAA s judges. We already stated that a patent litigation procedure before the MIIP could take a period from 12 to 36 months to be finally decided; lets add another period from 12 to 24 months for the FCTAA s judges to issue their own decision against the MIIP s one, and against it, lets add another 12 to 18 months for the Circuit Court to issue its final decision for the Constitutional Action (Mexican Amparo). Taking into consideration that the validity of a patent has an unextendable term of 20 years, it seems that IP litigation in Mexico as it is now structured, really looses its sense as it is giving to the infringer the opportunity to enjoy a litigation period from 3 to 6 years. In some cases, patents in litigation expire while its validity was being questioned before the courts. The litigation period is not the only legal obstacle in this matter, some tax procedural technicalities are inevitable for patent litigation, such as the possibility for the parties to offer before the FCTAA, new evidence that was not originally offered and questioned by the parties before the MIIP.

8 Due to the above-mentioned problems, it seems compulsory to re-amend the Federal Administrative Procedure Law in order to deny its applicability to IP s administrative decisions, and consequently, avoid the jurisdiction of the FCTAA. Considering the above, it is thought that the best way to expedite the process of obtaining final decisions and to achieve a full governmental support for the enforcement of Patents and every other IP right, will be the creation of IP Specialized Courts through the process of summary judgments. However, it seems that this idea will have to stay frozen until our government, legislators and former MIIP s directors, finally take the responsibility to fully support the protection of IP rights through the correct application of the Mexican Industrial Property Law, as well as all of the International Treaties signed by our country in which the protection of IP Rights is conveying, although none of these International Treaties make compulsory for Mexico to create such kind of courts. Finally, due to the recent issuance of diverse jurisprudential criteria from the Mexican Supreme Court, technically, it now exists for some cases the possibility to avoid the jurisdiction of the FCTAA, and to give back to the District Courts their original Jurisdiction for IP appeal litigation cases. If such action is favorable, the whole litigation process will be expedited in a great manner in favor of the parties. However, this has been until now a non-common litigation strategy that should be considered on a case-by-case basis. Damages and loses. Article 221 of the MIPL rules the possibility for the IP titleholders to recover before a Civil Court damages and loses provoked by the infringing party. This article has recently come to the attention of several litigators, Civil Courts, and even the Supreme Court, due to the fact that such article does not specifically state if such Civil Action can be filed before filing the administrative action at the MIIP, or if the filing of the Civil Action at the Civil Courts should be held until the MIIP rules a final decision in the administrative procedure. Due to the fact that the Civil Process is by far a more expedite litigation scenario, and due to the fact that the MIPL states that the penalties for damages and loses would not be less than 40% of the total amount of sales of the infringing products, several cases have been initiated before the Civil Courts without initiating administrative actions before the MIIP. The Supreme Court is currently studying this case in order to issue a final jurisprudential decision regarding this matter.

9 Conclusions. 1. The Mexican Institute of Industrial Property (MIIP), currently needs heavy economic support from the Mexican Federal Government to hire more personnel and to instruct deeper the current one, in order to solve the severe backlog of administrative and litigation cases regarding patents and every other IP protected asset. 2. The Mexican Industrial Property Law (MIPL), the Federal Administrative Procedure Law (FAPL), the Mexican Customs Law (MCL) and even the Federal Criminal Code (FCC) need to be amended to eliminate some legal obstacles and inconsistencies in order to avoid the jurisdiction of the Federal Court of Tax and Administrative Affairs (FCTAA), in order to expedite the process of obtaining final decisions, and to achieve a full governmental support for the enforcement of Intellectual Property rights. 3. The creation of a Mexican Intellectual Property Court is currently an out of the question project. However, it is the highest advisable proposal to fully protect IP Rights and to properly comply with all of the International Treaties signed by Mexico in which the protection of IP Rights is conveying.