Diego Palacois June 5 2017 Protecting market-leading products from imitators BCB | Intellectual Property - Mexico Diego Palacois Intellectual Property IntroductionTypes of imitationTypes of infringementUnfair competitionCommentIntroductionBeing a so-called 'market follower' is a common business strategy in today's consumption-based economy. Companies following this strategy imitate market leaders in a defined market or commercial sector in such a way that enables them to avoid direct confrontation and benefit from the leaders' innovation.In today's globalised economy, innovation can quickly be copied or imitated. However, this is not always negative. Imitation has some benefits for the general economy, as it provides:access to products and technology that some people cannot afford; andmotivation for companies to keep innovating.That said, market leaders often invest significant resources – including time, human capital and money – in innovation and expect an economic benefit from this investment. IP rights therefore exist to protect market leaders and their investment in innovation.IP laws and regulations generally protect market innovation, as it encourages fair trade and contributes to economic and social development. While most countries' IP protection rules distinguish between what is and is not permitted with regard to imitation, in Mexico this distinction is unclear. In order for a declaration of infringement to be made against an imitating competitor, the administrative authorities and the courts must review alleged infringement on a case-by-case basis.Types of imitationTypes of product imitation include:counterfeiting – duplicating a market-leading product (including its packaging) and selling it as the original on the black market;cloning – emulating a market-leading product (including its name and packaging), but with slight differences; andimitating – combining some features or elements of a market-leading product with innovative or significantly different features.Types of infringementCounterfeitingThe IP Law expressly prohibits counterfeiting. It is a federal crime, punishable by three to 10 years' imprisonment and a fine ranging from 2,000 to 20,000 days of minimum wage.Patent infringementThe law classifies the unauthorised exploitation of goods or services protected by a patent as an 'administrative infringement'. However, no criteria is provided for assessing the similarities between an allegedly infringing product or process and the protected subject matter and the authorities' guidelines are not always clear in this respect.It is easier for a patent owner to achieve a declaration of infringement if the evidence shows that the product or process imitated by the accused is the same or very similar to the specifications described in the patent claims. However, the theory of equivalence is not widely accepted by the authorities, which tend to deny an infringement when the alleged infringing product or process differs in some magnitude from the described patented matter. In practice, this criterion's subjectivity has repeatedly favoured the imitator.Trademark infringementWith regard to trademarks, the IP Law provides that the exclusive use of a trademark in a determined market is possible only by means of its registration with the Mexican Institute for Industrial Property. Competitors in the relevant industry are then prohibited from using the registered trademark. By law, identical trademark imitation is considered an administrative infringement and a federal crime.The IP Law uses the widely accepted expression 'confusingly similar' with regard to the use of similar trademarks, which is also classified as an administrative infringement. The use of a trademark that is confusingly similar to another registered trademark to identify the same or closely related products to those described in the trademark registration is prohibited.The authorities must interpret the words 'confusingly similar' on a case-by-case basis. Competitors can use any trademark in the market if such use does not encourage consumers to purchase the identified product or service as a result of confusion concerning its origin. In other words, a competitor cannot use a trademark that resembles another registered trademark to identify certain products or services in such a way that may lead consumers to think that:the competitor's products or services are being offered by the owner of the registered trademark; orthe competitor's products or services are in some way associated with those of the registered trademark owner.Trade dressThe IP Law also protects the appearance of products and services (ie, trade dress). However, the law's definition of 'trade dress infringement' is complicated and unclear; it prohibits the use of a combination of distinctive signs and functional and aesthetic elements to allow the identification of similar products or services equal or confusingly similar to others protected by the law where said use causes or induces consumers to confuse or mistake an association between the IP rights holder and the unauthorised user.As such, it must be demonstrated that:an unauthorised agent has used a 'combination' of distinctive signs and functional and aesthetic elements similar to those used by the rights holder; andsaid use can actually cause confusion or deceive consumers.Due to these requirements, taking action against this type of infringement has, in practice, proved to be futile.Unfair competitionThe concept of unfair competition is extremely relevant when assessing possible trademark or trade dress infringement. In a number of cases, the courts have established that unfair competition exists when an economic agent diverts the attention of its competitor's clients for its own benefit, not through its own resources or inventions, but by imitating the predominant characteristics of its competitor's products or services.Determining the 'predominant characteristics' of a competitor's products or services has been the subject of much debate. In many cases of potential trademark infringement, the authorities have had to analyse, on a subjective basis, whether a certain characteristic copied by the competitor of a rights holder is predominant or secondary.In some markets, certain products and their packaging share common elements – for example, the cereal boxes of sugar-coated corn flakes are often blue and feature an image of milk being poured into a cereal bowl, imitating the appearance of Kellogg's market-leading product. However, as the imitator is not using Kellogg's registered trademarks or another characteristic that may be deemed to have been predominantly copied from Kellogg's, the use of these elements is not punishable under the IP Law. Similar examples include biscuit, soda and cleaning product packaging, which often imitates the colours of the relevant market leader's packaging. Another example can be found inside some Italian restaurants located in Mexico City, where red or green plaid tablecloths cover the tables and Italian pictures decorate the walls, resembling the concept of the Italian restaurant introduced by the chain Italianni's.A more recent example of imitation is Snapchat's so-called 'stories' feature, which was recently imitated by various other mobile applications, including Facebook Messenger, Instagram and WhatsApp. Since only the appearance of this feature on the application is protected by IP legislation, rather than the idea and its function, Snapchat's competitors have been allowed to create their own stories feature, as long as their interfaces differ from Snapchat's.CommentThe imitation of leading market products or services has grown rapidly in recent years. Not only has imitation proven to be profitable, it can also result in fast-paced innovation and contribute to social and economic development.IP legislation should focus on establishing fair limits for imitation and proper penalties for those that cause a real disruption in the market by blatantly copying the characteristics, features or trademarks of a competitor's products or services in an attempt to benefit from customer confusion.At present, Mexico's IP regulations do not clearly differentiate between legal and illegal imitation and, in many cases, it is up to the court to decide whether a market follower can imitate the innovative features of leading products and services. This creates uncertainty for IP holders and the market in general.IP rights holders that want to stop their competitors from imitating their products and services and capitalising on their innovation should build a strong case showing how the imitation is detrimental to fair competition. This should help to encourage the authorities to make a finding of infringement and award damages in the innovator's favour.For further information on this topic please contact Diego Palacios at Becerril, Coca & Becerril SC by telephone (+52 55 5263 8730) or email ([email protected]). The Becerril, Coca & Becerril website can be accessed at www.bcb.com.mx.