New rules for importers and what they mean for rights holders

While international trade is a key engine of economic prosperity, issues of border safety and enforcement are of increasing strategic importance, given the high priority that most countries place on national security.

Mexican Customs and the Administration for the Audit of Foreign Trade – in their capacity as the government agencies responsible for controlling and administering the international movement of merchandise – are introducing changes to the way that they operate. These are designed to improve import procedures and may have significant implications for rights holders.

The first important change is a draft decree proposed by a federal congressman which would amend the Customs Law to give customs officials the authority to temporarily seize potentially infringing goods. This is designed to give the competent authorities sufficient time to determine whether the goods are in fact infringing, in which case the seizure will become permanent.

The second is a change to import procedures which would introduce new requirements relating to the trademarks on imported goods.

Although in both cases the changes are to be implemented by the revenue authorities rather than by the trademark office, they are designed to strengthen the surveillance authority of customs officials in order to prevent trademark violations.

Draft decree

Since early 2008 Customs has launched various strategies to stop counterfeit goods at the Mexican borders. Border measures have proved to be an efficient legal remedy for fighting counterfeiters and securing infringing goods in terms of a cost/benefit analysis.

However, until now, the law has not directly empowered customs officials to stop the import or export of suspected counterfeit goods. Instead, Customs has had to rely on warrants granted by the trademark office’s enforcement division and the Attorney General’s Office to perform a preliminary seizure.

Several amendments are still pending to internal rules issued by the revenue authorities with regard to the procedures to be followed by customs officials when they encounter suspected counterfeits. These include changes that are vital to assure the continuity of the early alert anti-counterfeiting system.

Under this system, officials must check both the digital database of registered trademarks maintained by the trademark office and a preliminary database being developed by the deputy’s office in Customs’ headquarters. Cross-referencing these databases helps officials to identify distinctive signs and obtain contact information for rights holders and their attorneys, so that enforcement actions can be pursued.

In mid-2009 the customs database was expanded to include technical information about sensitive products, including licensees, preferred ports of entry, names of commonly used customs brokers, the usual countries where authentic goods are manufactured and so-called ‘data sheets’, which include pictures and detailed information to help officials to distinguish counterfeits from genuine goods.

The new draft decree would amend the Customs Law and enable customs officials to order the preliminary seizure of suspected counterfeits.

Rationale

According to the rationale of the draft decree, once passed, the secretary of the treasury will be granted new powers to detect and analyse merchandise that is suspected of infringing industrial property rights.

In order to fulfil their functions of inspection and surveillance, customs officials will be authorised to identify goods which they suspect of infringing trademarks.

On encountering suspect counterfeits, customs officials must carefully compare these products to the information set out in the trademark office’s trademark database.

If the suspect goods do not match the information held in the database, customs officials must notify the rights holder or its local representatives (as recorded at the Trademark Office) asking them to confirm whether the products are genuine and, if not, to take the appropriate enforcement actions.

Temporary seizures

The notification that suspected counterfeits have been identified should also specify that customs officials will hold these products for seven days, in order to give the rights holder time to ascertain whether the merchandise is genuine or fake.

It was considered that seven days should give rights holders sufficient time, as it is not always easy to collate all the necessary information and determine whether products are genuine. Sometimes it is even necessary to submit samples for physical analysis by X-ray or electronic devices.

The draft decree further provides that where other authorities do not order the permanent seizure of the goods at issue, the customs officials who initiated the procedure shall release the goods and file an affidavit containing all facts of the case. This is designed to act as an anti-corruption measure and make it less likely that officials are tempted to release seized goods in exchange for bribes.

Paper trail

Customs officers must issue a detailed affidavit when the suspect goods are seized. This must set out all characteristics indicated in the legislation, so that the owner of the seized merchandise can rely on its products being returned if they are found to be non-infringing and the result of a legitimate purchase.

In addition, the draft decree would oblige rights holders or their legal representatives to check annually to ensure that the information held by the trademark office is up to date. This is considered a crucial measure, given not only the extent to which officials will be relying on this information, but also the speed at which many products are updated due to developing technology or rapidly changing markets. It will also help importers by ensuring that sufficient information is available for them to demonstrate that their goods are genuine, which in turn should help to speed up their release.

The draft decree will also apply to all natural and legal persons that are not licensees, importers or dealers, but that otherwise deal in imported goods which bear trademarks. Such persons must be able to provide supporting documentation to prove that the goods in which they deal were legally acquired abroad. Failure to do so will result in the goods’ seizure.

Parallel imports (the so-called ‘grey market’) are legal in Mexico. Therefore, diverted products may be introduced into Mexico after they have been introduced to other markets by the rights holder. However, importers of such goods must be able to prove the source of their imports.

The draft decree should also make consumers more wary of buying counterfeits. Although they might be able to purchase goods at a lower price, they will risk losing those goods altogether if they are seized by the authorities. In addition, they may be subject to administrative penalties or fines.

Customs must issue minutes recording any seizures of goods – whether temporary or definitive – which list all legal grounds and reasons that led to the detention. The owner of the goods then has 30 days in which to prove that the imported goods do not infringe any trademark rights. If it fails to do so, the goods – and sometimes even the means by which they were being transported – become the property of the Treasury.

Customs’ intervention is essential not only in the enforcement of IP rights in Mexico, but also more widely across Latin America. This is because Mexico is often used by counterfeiters as an entry point to transfer illegal goods from Asia to destinations in North, Central and South America. An increase in the effectiveness of Mexican Customs will lead to positive results in the rest of the Americas too.

As well as this, an effective Mexican Customs helps with the enforcement of trademarks in Mexico, even where a product is destined for a country where enforcement may be difficult or impossible.

Tightening the net

In the last few years Customs has reported an increase in imports of sub-valued goods. These arise when companies importing goods into the country use forged documents or alter the price at which the goods will be sold (ie, an unbranded electronic product will cost considerably less than one bearing a well-known trademark), in order to pay less duty. After the goods are imported into Mexico, the importers illegally mark the products with well-known trademarks and sell them on at a much higher price.

This questionable practice has spread among counterfeiters and importers in Mexico, causing a significant loss of tax revenue for the government. Although originally a tax issue, the government is now attempting to tackle it from the perspectives of both tax and intellectual property.

Accordingly, on July 4 2014 Customs introduced Rule 3.1.36. This sets out additional requirements for importers of products in several sectors, including pharmaceuticals and medicines, jewellery, wristwatches, clothing and fabrics. Importers of such goods must provide certain information relating to the trademarks that the imported goods will bear.

According to the law, an import manifesto is mandatory when the value of the imported product is over $3,000.

Rule 3.1.36 stipulates that: “Importers who introduce goods under the customs regimes of permanent importation, temporary importation and tax deposit, that are classified under a tariff contained in annex 10, section A, sector 9 and annex 30, must declare the information on the mark which identifies the goods and distinguishes them from other similar, which should be completed in block identifiers with key and add appropriate in accordance with appendix 8 of annex 22.”

To complement this, on September 3 2014 Customs also published Annex 22 of the General Rules on Foreign Trade. This included an appendix on identifier supplements, which enforced Rule 3.1.36 and specified that the following should be included in every customs declaration:

• confirmation that the importer owns the trademark that features on the merchandise and the relevant trademark certificate number;
• if the importer is not the owner of the trademark, confirmation that it is an authorised licensee or is otherwise authorised to use the trademark;
• confirmation that the merchandise bears no nominative trademark;
• confirmation that the importer does not own the trademark or have authorisation to use or distribute the trademark (provided that it is not infringing any IP rights);
• confirmation that the merchandise holds a nominative trademark that is not registered; or
• confirmation that the trademark is pending registration, along with the application’s filing date.

However, many importers complained that the wording was insufficiently clear, especially with regard to cases where the importer does not own the trademark and has no authorisation to use it or to distribute goods bearing it (as is the case for grey-market goods).

For this reason, the rule was suspended by means of Circular P041 (dated July 24 2014), which meant that it never in fact entered into force.

After reviewing and discussing these issues, a new version of the rule – Rule 3.1.34 – was published and entered into force. This referred for its applications to Appendix 9 of Annex 22.

Regulations in force

The General Rules on Foreign Trade 3.1.34 and Appendix 9 of Annex 22 shall be understood as follows.

Every importer of goods must fill out a manifesto for specific products, such as medicines, clothing and watches, which states the word mark appearing on the products.

The specific events that trigger such an obligation are when:

• the importer owns the registered trademark, in which case it must also supply the registration number issued by the trademark office;
• the importer holds a licence, authorisation or agreement to use or to distribute the product bearing the registered trademark – no further information is required;
• the product bears no trademark – no further information is required;
• the importer is importing diverted but genuine products (ie, parallel imports) or the product bears a trademark that is not registered in Mexico – no further information is required; or
• the importer has filed a trademark application in Mexico, in which case it should also supply the application date.

The new regulation has caused many customs brokers (ie, agents that provide assistance to importers) to request documents from their clients to meet these requirements, despite there being no obligation to submit additional documentation such as certificates of registration, trademark application papers or licence agreements.

Notwithstanding this, rights holders should consider granting licences to their distributors or at least an affidavit to smooth the import process, even though it is not strictly necessary for distributors to have any documents regarding authorisations, agreements or licences.

If a Mexican business states in the customs application (ie, the import manifesto) anything that concerns an authorisation, a licence or any contract to import products protected by a registered trademark into Mexico, distributors should have the relevant documentation to hand in case the Administration for the Audit of Foreign Trade audits the import documents.

Under the Customs Law, the fine for misplacing customs applications or any errors in the documentation is $112 per event.

If the importer fails to provide any information (correct or otherwise) with regard to trademarks that appear on imported products, its authorisation to import such goods into Mexico may be suspended. Failure to supply information in any other fields is punishable by a fine and by suspension from the register of importers.

Conclusion

Trademark enforcement at the borders looks set to become a hot topic for all importers of goods to the Mexican market, as well as those seeking to enforce their trademarks not only in Mexico, but also in other countries which are the ultimate destinations of counterfeit goods.