An extract from The Intellectual Property and Antitrust Review, 6th Edition
Standard-essential patentsi Dominance
COFECE and IFETEL (if the matter is of a telecommunications or broadcasting nature) may determine that an economic agent is a dominant participant in the market. For these purposes, the relevant agency shall generally consider the following elements: the ability of the agent to fix prices or restrict the offer in the relevant market, where competitors are unable to impede this activity; the existence of entry barriers in the relevant market; the existence and power of competitors; and the conditions of access of the relevant agent and other competitors to input sources.
As discussed above, patents are protected under the Mexican Constitution, the IP Law and the international treaties to which Mexico is a party.
Pursuant to the applicable law in Mexico, the following are protected through patents: inventions for industrial application; technical improvements and the transfer of technological knowledge for manufacturing purposes; and generally, all inventions that foster a higher quality of goods and services in the industry.
Standard-essential patents (SEPs) are inventions or improvements subject to protection where standards are essential for functionality of the relevant commercial items or merchandise. SEPs are particularly relevant in information and communication technologies (ICT) because mobile telecommunications companies are required to comply with standards to allow intercommunication with telecommunications networks and terminal devices, either through communication protocols, or through standards for operation of devices within specific frequencies of the radio spectrum.
Thus, the creation and protection of new communications standards (or their improvements) through patents could constitute a competitive advantage in the market, allowing a SEP holder potentially to control this essential input, inhibit the entry of new competitors, inhibit innovation and unduly displace existing competitors, given that harmonising standards for ICT development is essential to allow interaction between these companies; this is particularly relevant considering that, in many cases, there are no substitutes for these technologies.6
The potential outcome of the above is the SEP holder gaining a dominant position, which may itself act as an incentive, but with the result that it engages in a prohibited monopolistic practice.
In this context, around the world, various companies that develop mobile devices have through the protection of their SEPs used strategic litigation and injunctions as a means of strengthening their market position.
To our knowledge, there is no antitrust issue or litigation in Mexico in connection with the holding of SEPs. This may be because the antitrust disputes raised by SEP-holding manufacturers have primarily been filed in other jurisdictions, and have focused primarily on the United States, Germany, Japan, the United Kingdom and South Korea.7
Mexico is in a particular situation regarding the final-consumer smartphone market because of the existence of an economic agent (América Móvil) with substantial market power in the relevant market. América Móvil currently has approximately 72 million clients, which in practice grants it high leverage in negotiations with other market participants, including developers of mobile devices intending to distribute their devices to final consumers.
Given its dominant market position, América Móvil was subject to various stringent antitrust measures by the antitrust authorities in 2014 because it had used contractual exclusivities with developers, for periods of up to six months, for the distribution of smartphones to final consumers.
Additionally, until 2015, final consumers had to mandatorily remain with their telephone and mobile phone companies for at least 12 months; mobile phones were blocked when delivered to final consumers, therefore the mobile phone could only be used with the operator to which it was linked, which effectively inhibited competitors from selling smartphones independently of the mobile phone concessionaires.
This may explain the lack of IP disputes in Mexico in connection with these matters in comparison with other countries because developer companies may not have had sufficient incentive to file sham IP disputes.ii Injunctions
Mexican commercial and IP law allow plaintiffs to seek injunctions from a court. Therefore, it is possible that a SEP holder may eventually abuse the protection granted by the law to seek an action similar to those filed in the Motorola Mobility, Inc v. Apple Inc and Samsung Electronics v. Apple, Inc cases.
Nonetheless, we are not aware of any public information in connection with the determination of an abuse of a dominant position in Mexico as a result of a SEP holder seeking injunctions.iii Licensing under FRAND terms
FRAND stands for 'fair, reasonable and non-discriminatory' licensing terms in the context of a SEP. In the Samsung and Motorola cases, the European Commission clarified that, in the standardisation context, where the SEPs holders have committed to (1) license their SEPs, and (2) do so on FRAND terms, it is anticompetitive to seek to exclude competitors from the market by seeking injunctions on the basis of SEPs, if the licensee is willing to take a licence on FRAND terms.
Mexican law does not include any statute or regulation that requires a SEP holder to license its patent under FRAND terms. Additionally, we are not aware of any information regarding litigation or settlements in Mexico in connection with the application of FRAND licensing terms. In any case, there is no provision in Mexican law that would prevent a Mexican court from taking the position that the licensing of a SEP in Mexico should be made under FRAND terms, consistent with international best practices.
The FRAND concept is an excellent tool to reach a 'middle ground', on the one hand incentivising technological innovation by developers and fostering fair and reasonable arrangements in the payment of royalties to SEP holders and, on the other hand, preventing free raiding by competitors and the imposition of excessive royalties or limitations on sales volumes, and preventing time delays for new entrants to the 'pay-for-delay' market, all of which constitute anticompetitive conduct that ultimately affects consumers.iv Anticompetitive or exclusionary royalties
As explained above, while there is no particular statute in Mexico that governs the terms under which royalties should be paid to a SEP or non-SEP holder, the existing conditions in certain markets in Mexico allow certain players with substantial power to impose certain conditions on their competitors that could be viewed as abusive. However, the framework established through the Constitutional Reform and the new FECL is expected to prevent and sanction these types of practices.