Comparative Analysis
II:
Protecting
Intellectual Property and Competition in
Catherine R. Durgin, D. Edward Durham, Y. Louise Ku-Graf, Yitshak Merin, and Aihua Z. Palmour
University of
This report is part of a semester-long MBA team assignment devoted to the study of business organizations and the public regulatory global environment. Each member of the Ace Caldy team was asked to prepare an individual report discussing select issues in the context of their previously selected country, Chile or Mexico, and the team's previously selected company, 3M. The team has chosen to focus on the topics of anticompetitive practices and intellectual property as outlined in the syllabus.
It is the team's belief that both Mexico and Chile are good examples of developing countries responding to the benefits of open market economies. 3M is a well established highly innovative global company with a presence in both countries. As such, rather than discussing general tariff and non-tariff barriers, the team members decided to assess how each country approaches property rights and private restraints to trade. In addition, members identify how these issues affect international businesses, such as 3M.
Ace Caldy is a five-member team that is broken down into two subgroups comprised of two members focusing on Chile and three members focusing on Mexico. Two members from each subgroup will tackle the two selected topics in regard to their subgroup's country. One member of the three-member subgroup will present a comparative study of both topics in Chile and Mexico. The resulting five-pronged report is published at the team's web site.
Specifically, the report is divided into five major sections each representing the work of an individual team member. The first section is an overview of intellectual property in Chile; the second is an overview of anticompetitive practices in Chile; the third is an overview of intellectual property in Mexico; the fourth is overview of the anticompetitive practices in Mexico; and the last section is the comparative study. The country overviews focus on the significance of the laws and other policies that protect intellectual property and competition, concerns related to these laws, and how these laws and concerns impact foreign business, including 3M. The comparative study compares and contrasts the systems of the two countries.
E. David Durham
Background
As technology begins to truly impact the lives of humans around the world, the role of intellectual property grows more and more important. In order to compete in the rapidly changing global marketplace, business organizations must develop and quickly realize the full potential of new technologies and dedicate significant resources to exploit every possible competitive advantage. The speed with which information can be accurately copied and transmitted around the world makes it essential to zealously and skillfully protect intellectual properties, such as patents, designs, copyrights, trade secrets, and knowledge.
The
global marketplace is fertile ground for wide-ranging endeavors from research
and development, technology transfers, licensing, counterfeiting, and the
acquisition and use of intellectual properties. The World Intellectual Property Organization writes, "Intellectual
property has acquired such relevance and it now involves such a multitude of
actors and factors that its effective development requires an intellectual
property culture that ensures convergent
efforts as regards its strategic role in the economic, social and
cultural development. This new culture
must embrace both responsiveness
to the signs of change and consciousness
of the impact that intellectual property has on day-to-day living" (WIPO,
2003).
With the stratospheric rise in the importance of intellectual property to a firm's well-being, many countries and regional economic associations have moved to enact legislation protecting intellectual properties. Indeed, intellectual property negotiations played important roles in Chile's recent negotiation for Free Trade Agreements with the European Union (World Intellectual Property Report, 2002) and the United States (USTR, 2002).
Regulations
Chile's regulations governing patents, trademarks, and industrial models are codified in Law N 019.039, published 25 January 1991, known as the Industrial Property Law. Copyrights are guaranteed by law N 17.336 published 2 October 1970, and amended by Law N 17.773 published 17 October 1991, Law N 18.443 published October 1985, Law No. 18.957 of March 1990, and Law 19.166 of September 1992 (WIPO, 2002). Patents are granted for either fifteen years or the amount of time remaining on current patents in the country in which the patent was first granted (APEC, 2002). Trademarks are registered for 10 years, and are renewable for additional ten-year periods. Copyrights are granted for life, and extend to heirs for 50 years following death. Other Intellectual Property Law is based on Law No. 17.336 of May 1971. Chile has also signed several international accords on intellectual property rights, including the International Convention for the Protection of Industrial Property, which came into force in Chile on 30 September 1991, and the Universal Convention on Authors Rights in July 1977 (APEC, 2002). Chile is a member of several World Intellectual Property Organization (WIPO) treaties, including the WIPO Convention since 1975, the Paris Convention on Industrial Property since 1991, the Berne Convention on Literary and Artistic Works since 1970, the Rome Convention on Performers and Producers) since 1974, the Geneva Convention on Unauthorized Duplication of Phonograms since 1977, and others (WIPO, 2002). Chile has been proactive in the establishment of international legal standards for the protection of intellectual property rights, recommending ties between GATT and the WIPO statutes (Raghavan, 1990).
Concerns
However, there are concerns associated with Chile's enforcement of intellectual property rights. Chile has been on the U.S. Trade Representative's "Special 301" watch list of countries with deficient intellectual property rights protection regimes since 1989 (USTR, 2002). Several U.S.-based organizations, including the Motion Picture Association of America, the Association of American Publishers, the Business Software Alliance, the Interactive Digital Software Association, and the Recording Industry Association of America, and the International Intellectual Property Alliance signed a letter to Unites States Trade Representative Robert Zoellick in November 2002, citing specific concerns such as e-commerce, services, and culture exceptions to negotiated trade agreements in which Chile denies fellow signatories the full benefits of cross-border trade, and demands exceptions containing significant loopholes (IIPA, 2002).
According to LatinTrade.com (2002), Chile's intellectual property protections are generally compatible with international norms, but protection of patents and trademarks is deficient. Even so, efforts to protect intellectual property have been largely successful in Chilean courts. Chile does not protect the design of semiconductors, and does not have comprehensive trade secret protection. The Industrial Property Law of 1991, fails to protect many of the most important fields in biotechnology, pharmaceuticals (see also cptech.org, 2002), and computer software.
Discussion
Chile has emerged as a leading proponent of global free trade, negotiating bilateral, regional, and multilateral trade agreements. Chile’s exports are balanced between regional neighbors, the United States, Asia, and Europe, allowing it to take a central place in negotiations for broad trade agreements worldwide (U.S. – Chile FTA, 2002). However, there are some significant concerns. Chile’s patent law does not provide protection for plants and animal varieties, transition protection for pharmaceuticals (resulting in local companies pirating drugs as soon as they hit markets), and practical difficulties in repatriation of profits. Chile’s copyright law does not recognize computer software as a literary work, does not define clearly import rights or rental rights, provides inadequate penalties for breaches of the law, and places many restrictions on contracts (LatinTrade.com, 2002). Piracy of computer and video software is rampant (USTR, 2002).
While these concerns may impact 3M’s overall willingness to introduce high tech products, Chile’s government is taking proactive steps to address the concerns of the international community regarding intellectual property. An awareness of the vulnerabilities in contract law in Chile enables 3M to selectively introduce products with impact significant enough to introduce and establish the brand. The impact of these deficiencies is not judged to be so detrimental as to impede the introduction of all lines of Post-it Notes, and other related product lines. While local companies may be able to manufacture similar products, 3M’s competitive strategies in other nations with similar unfair competition have proven effective. The risk of losing control of 3M’s intellectual property through either production or sales of Post-it Notes in Chile is judged to be minimal, and outweighed greatly by the potential benefits of establishing the 3M brand in Chile. There is no need to introduce a software version of Post-it Notes, since this is freely available on the web, though the company may benefit from a Spanish-language version. It is unlikely that this product would be widely copied, since it is a freeware program.
References and Webliography
Asia-Pacific Economic Cooperation. (2003). Retrieved 15 March 2003 from http://www.apecsec.org.sg/ipr/contact/chile-home.html.
Chile-U.S. Free Trade Agreement. (2003). Retrieved 15 March 2003 from http://www.chileusafta.com/backgrounders/bgs_trade-markets.html.
Cptech.org. (2002). Retrieved 15 March 2003 from http://www.cptech.org/ip/health/phrma/nte-99/chile.html.
International Intellectual Property Association. (2002). Retrieved 15 March 2003 from http://www.iipa.com/rbi/2002_Nov5_CHILE_FTA.pdf.
International Intellectual Property Association. (2002). Retrieved 15 March 2003 from http://www.iipa.com/fta_issues.html.
LatinTrade.com. (2003). Retrieved 15 March 2003 from http://www.latintrade.com/newsite/content/cprofiles/data-ext.cfm?d=2049&c=6.
Office of the U.S. Trade Representative. (2002). Retrieved 15 March 2003 from http://www.ustr.gov/reports/2002/special301-wl.htm.
Raghaven, C. (1990). Retrieved 15 March 2003 from http://www.sunsonline.org/trade/areas/intellec/02060090.htm.
Sistema de Informacion sobre Comercio Exterior. (2003). Retrieved 15 March 2003 from http://www.sice.oas.org/ctyindex/CHLpg.asp.
World Intellectual Property Organization. (2002). Retrieved 15 March 2003 from http://www.wipo.org/about-ip/en/ipworldwide/pdf/cl.pdf. See also http://www.wipo.int/ .
World Intellectual Property Report. (2002). Retrieved 15 March 2003 from http://subscript.bna.com/SAMPLES/wipr.nsf/85256269004a991e8525611300214487/1cd6e606a41ed7ea80256b7b005fb1e7?OpenDocument.
Protecting Trade and Competition in Chile
Catherine R. Durgin
The enforcement of competition law is increasingly more important to improve the efficiency of markets and to ensure the benefits of the global economy. When properly applied, competition or antitrust law promotes innovation and economic growth. By deterring anti competitive behavior, such laws also ensure that consumers have access to a wide variety of goods and services at competitive prices. Chile has used trade as a tool for economic growth for over two decades. As a result, the country protects and encourages competition with laws and antitrust agencies designed to prevent and resolve disputes involving anti competitive practices. Chile also works to expand its domestic laws to the global marketplace and attract international business and investment. 3M is an international company currently benefiting from Chile’s open, competitive market.
Competition
Law in Chile
Chile’s competition law is currently
codified in Law No 211 of the Ministry of Economy, Development and
Reconstruction, as revised and published by Decree No 511. This law created a
National Economic Prosecutor's Office empowered to prevent and resolve anti
competitive practices and disputes within the market. The law also created
antitrust commissions to act as special tribunals for competition. With
adjudicative and rule making authority, the antitrust commissions hear a wide
range of cases dealing with monopolies, vertical or horizontal integration,
entrance barriers, price discrimination, and dominant position abuses. The
antitrust agencies have authority over the public and private sector, with the
power to investigate, sanction, and imprison those in violation of the
competition statute. In addition, the competition authorities are allowed to
impose price controls, such as maximum prices, as a preventive measure during
the course of investigation. These measures are imposed for 15 days and may be
extended for up to 30 days (National Economic Prosecutor's Office,
2002).
Anti
Competitive Practices
Competition Law No 211 broadly defines anti
competitive practices as any act that hinders, eliminates, restricts, or
obstructs competition. Article 2 outlines a non exclusive list of actions or
agreements that tend to restrain free competition:
ü Establishment of distribution of quotas,
reduction or suspension of production;
ü Transport related activities;
ü Cartels or distribution of quotas, market
areas allocation, or exclusive distribution through one sole individual or
body, of the same product made by various manufacturers;
ü Determination of prices for goods and
services on the basis of agreements or by forcing prices to third parties; and
ü Limitations affecting the freedom to work or
the freedom of workers to unionize meet or bargain.
The rules apply to both nationals and foreigners and to both
goods and services. Further, they encompass anti competitive behavior that
takes place outside the country but has domestic repercussions. Although regulatory exceptions exist for
areas such as intellectual property, mining, and financial services, anti
competitive behavior in any of these areas is subject to the competition law.
Public monopolies are permitted in
certain sectors, including extractive, industrial, marketing, and service, but
the rules clearly prohibit private monopolies in these same activities. Under
certain conditions, though, private monopolies or the concentration of market
power in private hands is allowed in order to improve public welfare (Article
4, Law No. 211) (National Economic Prosecutor's Office, 2002).
Concerns
In certain cases, Chile permits anti
competitive practices. For example, monopolistic practices may proceed if the
cost of the monopoly is less than the cost of implementing corrective policies
or if the antitrust commissions lack economic or human resources to conduct the
necessary investigations. Despite limited resources, many cases are
successfully investigated. In fact of
all Latin American countries, Chile consistently enforces it antitrust
provisions (Frankel & Rodgriguez, 2001).
Another concern with Chile’s law relates to
overlapping powers and conflicts between antitrust agencies and other
specialized economic regulatory agencies. Several recent bills in Chile
implement concentration thresholds in specific sectors like water and
electricity. Any transactions raising a group’s combined market share over the
set threshold is considered per se anticompetitive. Apparently, this conflicts
with the agency’s approach of applying a rule of reason analysis to each
proposed transaction to determine the potential anti competitive effects (Frankel
& Rodgriguez, 2001). Rulings
related to anti competitive behavior are highly fact-specific and the rule of
reason analysis takes this into consideration on a case by case basis. Another problem is that the rules do not
make it clear which actions will lead to a penal prosecution.
Conspicuously missing from Chile’s
competition laws are provisions regarding mergers and acquisitions. These rules
typically outline the applicable requirements for notification, market power
thresholds, fines and deadlines, and criteria for approving mergers. The
guidelines usually require disclosure of numerical thresholds of the parties’
assets and revenues. Chile’s failure to have clear guidelines for pre merger
notification has lead to indecision and confusion by parties as to whether
transactions need to be notified. Further, Chile does not communicate the
timeline for the approval process, leaving many businesses feeling uneasy about
how to proceed. The existing case law does provide sufficient information to
reasonably determine whether transactions will violate the antitrust laws. Parties undertaking time sensitive
transactions have two options. First, they can submit their transaction for
prior approval from the regulators and subject their transaction to the risks
associated with a prolonged delay.
Second, they may go ahead with their merger without prior approval and
expose the transaction to the risk that the regulators will investigate after
the fact and possibly dissolve the transaction (Frankel & Rodriguez, 2001).
Transparency
& Corruption
Transparency is
essential for both companies and individuals involved in trade. Participants in
commerce need to know as much as possible about the conditions of trade. Thus,
it is imperative that rules, regulations and policies governing trade and
competition are accessible and transparent.
The opposite of transparency is opacity. Opacity is defined as the lack of clear, accurate, formal, and
widely accepted practices. The Opacity
Index is a report based on global surveys and compiled by
PriceWaterhouseCoopers. It estimates the adverse effects of opacity on the cost
and availability of capital in 35 countries.
According to this report, Chile and the United States were both ranked
in second place as the most transparent places in the world to do
business. Singapore is ranked number
one (PriceWaterhouseCoopers, 2002).
Corruption among officials and senior law
enforcement personnel is not a major problem for Chile. Allegations of official
corruption in Chile are usually investigated, but the situation is not as good
in the military (Freedom House, 2000). Recent media coverage indicates that
Chile will swiftly investigate potential corruption and remove corrupt
officials from office. Transparency
International's 2002 Corruption Perceptions Index (CPI) classifies countries in
terms of the degree to which corruption is perceived to exist among public
officials and politicians. Each country's score is an average of results from
surveys of business people, the general public, and country analysts. The surveys are designed to measure the
extent to which bribery is perceived to be a common practice. According to the
2002 CPI, Latin American countries fell in the middle of the 99-nation index
where the score of 10 means no corruption at all. Finland scored 9.7 and is the
top-ranking country in a sample of 102 countries. Chile is in 17th place, with
a score of 7.5, similar to Germany with a score of 7.3, and the US with a score
of 7.7. Chile's position is far above other Latin American countries. For
example, Uruguay is ranked 32nd, Trinidad & Tobago 33rd, Costa Rica 40th, Brazil and Peru 44th, Colombia and Mexico
57th, and Argentina 70th. In regard to Chile, the index highlighted national
Internet bidding for procurement deals as a means for reaching greater
transparency standards (Transparency International, 2002).
Chile supports efforts to combat problems with corruption and transparency at home and abroad. Reports indicate that transparency and corruption are significant considerations for domestic and international businesses. For example, between May 1, 2001 and April 30, 2002, the competition for 60 contracts worth $35 billion may have been affected by the bribery of foreign officials. Many countries work with the Organization for Economic Cooperation and Development (OECD) to encourage decision-makers in government throughout the world to tackle anti competitive practices and promote market-oriented reform. The participants of the OECD Convention for Combating Bribery of Foreign Officials in International Business promote honest international trade and investment and work to curtail bribery. Although Chile deposited its respective instruments of ratification with the OECD, the country still must adopt domestic laws to implement the Convention. The convention expects prompt attention by Chile in this area so that its Working Group on Bribery can move on to Phase II and review each Party's mechanisms for enforcement of its laws implementing the Convention. Chile’s delay has raised questions about its commitment to the Convention (OECD, 2002).
Because of its growing size, relative
sophistication, and existing laws; some sources claim that Chile’s financial
system is vulnerable to money laundering.
Narcotics corruption is not a serious issue affecting Chile, but current
laws do not require the reporting of suspicious or high value transactions.
Chile has not established a distinct governmental organization to undertake
financial intelligence analysis (Freedom House, Inc., 2000).
Chile and the
Global Market
Regional Trade Agreements
In
keeping with its economic growth and development strategy, Chile has signed
trade agreements with over 30 countries, including Canada, Mexico, Argentina, Bolivia,
Columbia, Ecudaor, Peru, and Venezuela. Some of these trade agreements address transparency and competition policy
issues. For instance, in December 2002,
Chile and the US signed a Free Trade Agreement. This was the first such pact
between the US and a South American nation. After nearly a decade of
negotiations lead by Chile, the agreement sets new standards with provisions
for anti corruption rules in government contracting. Significant agreements
were reached to increase copyright and trademark protection for digital works
and improve transparency of regulations (USTR, 2002).
World
Trade Organization
Chile has also joined international efforts
to establish a global competition authority. Typically, the World Trade
Organization (WTO) members work to eliminate barriers to trade created by
governments, such as tariffs. However, most WTO members acknowledge that there
is a strong relationship between trade and competition. Private restraints on cross-border trade
remain beyond the reach of WTO, and members do not agree on the necessity of
measures to create a multilateral set of rules governing competition. This is a
significant and complex issue since the absence of antitrust or other
competition policies can affect markets in the home country and in other
countries as well (Center for International Development, 2003b).
The US and the EU
argue that anti competitive practices distort trade the same as tariffs. They
claim that the WTO rather than individual countries should regulate unfair
competition. Unlike the US, the EU thinks that developing countries should be
allowed to opt out of the standards. Developing countries are divided on the
issue. Some Latin American countries favor such a policy, while several Asian
countries do not. In addition, some developing countries fear that large,
multinational corporations will expand into their domestic markets and threaten
their domestic firms. Many developing countries also disagree with multilateral
competition measures because they view them as too intrusive. In particular,
these countries believe that competition policy depends on a country's unique
market conditions (Center for International Development, 2003b).
Impact on Foreign Companies
Chile has a policy of free trade without
barriers and has a stable legal and regulatory environment. Chile’s rules
governing trade and competition are considered clear and explicit. According to
the CPI rating, corruption in Chile is perceived to be on the same level as
Germany and the US. Media coverage and other investment reports indicate that
bribery is not acceptable practice. The Country’s open market system is also
supported with established commercial codes that provide alternative methods
for operating in Chile, including appointing a representative, forming an
agency or branch of a foreign corporation, or forming a partnership or
corporation under Chilean law. Although Chile is still considered a developing
country, the economy is sophisticated. Chilean managers tend to know their
industry. Foreign businesses should understand that Chile is much different
than other markets in Latin America. The Chilean market is much more open,
developed, and growing faster than others in the region. Chileans are generally
honest, friendly and easy to deal with. Commercial transactions in Chile are
subject to minimal paper work compared to that required for some of Latin
America's more protected economies (Deloitte & Touche, 2002). These factors
help promote international business and eliminate risks associated with any unfair
competition in Chile.
3M
Perspective
3M is an
international company with a strong presence in Chile. In fact, 3M’s global
strategy prompted the company to set up operations in Chile long before the
country began to liberalize its trade regime. Established in 1975, 3M Chile,
S.A. has a proven record of customer satisfaction and adding value to 3M
products through its technical, sales, marketing and administrative
capabilities. Since 1991, 3M Chile has been responsible for developing and
servicing customers in Bolivia. Its major markets are building maintenance,
construction, consumer, electrical, electronic, general industrial, health
care, office, telecommunications and transportation. (3M, 2003). 3M takes a customer oriented approach to
business and considers laws regulating trade necessary and important in order
to protect the consumer. In general organizations benefit from competition laws
since such laws, if properly applied and enforced, work to prevent competitors
from gaining unlawful advantage.
Discussion
Chile’s open trade
regime and work within the WTO to develop the world economy indicate that Chile
will continue to strengthen and advance its competition laws. Chile relies heavily on international trade
for its economic growth. As such, the country takes positive steps to promote
and encourage competition, but may lack human and economic resources to draft
new laws and keep their existing laws current.
The competition laws are still catching up to the country’s economic
model. For example, recent legislation gives the National Economic Prosecutors
“new and stronger investigative powers, including the power to carry out raids
assisted by the police to gather information related to suspected violations of
antitrust laws“(Frankel & Rodriguez, 2001, p. 4). The antitrust laws in
Chile suffer from some of the same problems found in the US – such as
overlapping jurisdictions and conflicting agency roles and goals. With a good
record on enforcement and relatively explicit rules, the established antitrust
agencies have become more accepted and entrenched. Chile is dependent on many
regional trade agreements, which may complicate its competition policy in the
international marketplace. At the same time, Chile and many other countries are
cooperating with antitrust authorities
across borders to improve the efficiency of global competition. Anti
competitive practices do not appear to present significant risks for
international businesses in Chile, but some anti competitive practices,
including monopolies still persist. Also, Chile should respond to the need for clear guidelines
regarding mergers and acquisitions. The country’s laws are evolving and responding to its privatization and
trade liberalization. The friendly open market, together with the Country’s
unique culture, promotes international trade and provides domestic and
international businesses with an opportunity for competitive advantage.
References
Deloitte & Touche (2002, September). Doing business in Chile. Retrieved March 21, 2003, from http://www.deloitte.cl/framearea.asp?cod=15
Center for International Development at Harvard University. (2003a). Chile international trade news summary. Retrieved March 20, 2003, from
http://www.cid.harvard.edu/cidtrade/gov/chilegov.html
Center for
International Development at Harvard University. (2003b). Competition
policy summary. Global Trade Negotiations. Retrieved March 20, 2003, from http://www.cid.harvard.edu/cidtrade/issues/competition.html
Frankel, K., & Rodriguez, T. (2001). Overview of antitrust enforcement in Latin America. A Latin Lawyer special report. Retrieved March 16, 2003, from http://www.torytory.ca/publications/pdf/AR2001-1T.pdf
Freedom House, Inc.
(2000). Political rights and civil
liberties. Chile Country and Territory Report. Retrieved March 16, 2003, from http://www.freedomhouse.org/research/freeworld/2002/countryratings/chile2.htm
National Economic Prosecutor's Office (2002). Chilean Competition Statute, Last version. Retrieved March 17, 2003, from http://www.fne.cl/
3M. (2003). 3M Chile.
Retrieved March 22, 2003, from http://www.3m.com/market/telecom/access/buy/intl/chile.jhtml
OECD (2002). Antibribery Report 2002. Trade compliance center. Retrieved March 16, 2003, from http://www.tcc.mac.doc.gov/cgi-bin/doit.cgi?226:71:878472215:1:68.
Office of the United States Trade Representative. (2002, December 11). U.S. and Chile conclude historic free trade agreement. Retrieved 1 March, 2003, from http://www.ustr.gov/releases/2002/12/02-114.htm
PriceWaterhouseCoopers. (2002). Opacity Index. Retrieved March 15, 2003, from http://www.pwcglobal.com/extweb/ncsurvres.nsf/docid/22CA0D19E1D97D8A80256BA30035391B
Transparency International. (2002, August 28). Corruption Perceptions Index 2002. Retrieved March 15, 2003, from http://www.transparency.org/cpi/2002/cpi2002.en.html
Yitshak Merin
This individual report is part of a semester long team study on various global issues. The team has selected Chile and Mexico as the countries to research and 3M as the company to consider.
The report has three parts. It starts with an overview of intellectual property (IP), describes how IP is protected and the challenges that the internet has imposed on IP protection. The section concludes with a description of the inter-country issues with IP.
The second section describes specific IP issues in Mexico. An overview of Mexican law and how it is and is not enforced is described.
The final section describes how 3M Corporation protects its intellectual property.
Intellectual property refers to creations of the mind and spirit. It embodies the inventions, literary and artistic works, symbols, names, images, and designs used in commerce. As the internet continues to grow worldwide, and the web allows fast and easy distribution of information, knowledge and content, intellectual property has become a critical subject of debate. “In this new and rapidly changing environment, information and knowledge are increasingly the source of value; hence the intellectual property system - the body of law protecting creations of the mind - is crucial in maintaining a stable and equitable foundation for the development of the digital society” (World Intellectual Property Organization, 2001, para.1).
Countries around the world are working hard to protect intellectual property. Laws and treaties are created and changed to meet the demands of a fast changing world. One of the signs of progress is how much a country preserves intellectual rights. The most affluent countries in the world are characterized by their high regard for private property rights.
The three types of intellectual property protection are patents, copyrights, and trademarks.
A patent is a document that grants the holder exclusive rights on an invention for a fixed number of years. It confers monopoly rights to the creator regardless of how the idea is expressed (Turban, King, Lee, Warkentin, & Chung, 2002).
Patents provide the most protection of the three types of intellectual property protection.
A copyright protects the expression of an idea, not the idea itself. Copyright protection deals with the rights of authors, composers and musicians (Hill, 2003).
Trademarks are the external symbols used by a company to identify its products. Once a trademark is registered, the owners have exclusive rights to use the trademark on their goods and services and to take legal action to prevent others from using their trademark without consent. In most countries trademarks have no expiration date and are valid as long as the trademark holder pays a fee to keep the trademark registered.
The phenomenal rise of the internet has caused both complicated trademark issues and created judicial problems. The internet provides users with the ability to reach several million people in a very short time frame. With this rate of information exchange, it is often difficult to tie down points of origin. If a company finds that one of its trademarks is used by some web site in another country, it is often hard to seek legal remedies against the operators of that web site.
Music and software piracy is the main source of intellectual property violation today. The main reason for software piracy is that software is very easy and very cheap to copy. The margin price of an additional copy of Microsoft Word is a few pennies. Yet, Microsoft charges much more than that to recover some of the costs of developing the product.
Hill (2003) shows estimates of software piracy to be about 40% worldwide, with 57% in Latin America. Hill also quotes a number of $2.2 billion annually lost by the music industry to pirates. These numbers are problematic as it is hard to believe that all these buyers of $1 CDs would have paid the full $20 for a legal copy. However, the trend is clear. To stay in business, companies must protect their intellectual property.
Countries must create and enforce laws to protect intellectual property or foreign companies will not do business in that country.
A major concern for intellectual property rights is the differences in the legal protection afforded among different nations. As mentioned earlier, the internet provides people instant contact to the four corner of the globe. This means that electronic businesses must become familiar with the laws of several nations, not just the law of their domestic state or country. For instance, unlike the United States some regions of the world do not require legal formalities or fees to gain copyright protection so there is no need to have the copyright symbol affixed. If a copyright work is legally purchased in some countries, it may be illegal to export it. The bottom line is that the owner holds the exclusive right to importation (Turban et al., 2002).
Mexico has a wide base of laws protecting intellectual property. However, Mexico has not yet achieved the necessary ethical and philosophical foundation that has enabled progressive Western countries to promote the safeguarding of intellectual property.
"There is no social, political or economic recognition in Mexico of the importance of promoting and safeguarding intellectual property" (Becerril, Coca & Becerril, 2002, para. 12).
Copyright in Mexico is protected by the Mexican Copyright Act "Ley Federal de Derechos de Autor." This law was enacted in 1984 and was amended in 1991 to include computer programs.
The second source of law is the Industrial Property Act "Ley de la Propiedad Industrial." The predecessor of this code, "Ley de Fomento y Proteccion de la Propiedad Industrial" was enacted in 1991 and amended in October 1993 and in 1994. The Industrial Property Law encompasses among others patents, trademarks and trade secrets (Moeckel, 1995, para. 3).
Original intellectual creations in Mexico are protected under the Author's Rights "derechos de autor" classification. Under the author's rights system of Mexico, moral rights are recognized and perpetually protected for the benefit of an author. Broadly defined, moral rights are a set of rights or prerogatives related to the honor, prestige and reputation of the author (Perez-Serrano, 1997, para. 8).
The protection of author's rights in Mexico is governed exclusively by federal legislation (Mexican Constitution, supra note 3, Article 28 and 73 section XXV). The current copyright statute, the Federal Law of Author's Rights, (FLAR) (Ley Federal del Derecho de Autor) Federal Law of Author's Rights" (D.O. 12-24-96) (Mex) was passed by the Mexican Congress on December 25, 1996 and became effective March 24, 1997. This law repealed the former copyright statute enacted in 1956 and amended in 1963 and 1991. The new copyright act in Mexico contains innovative provisions that grant jurisdiction to the Mexican Institute of Industrial Property "Instituto Mexicano de la Propiedad Industrial" or IMPI to enforce "commercial violations."
The Mexican FLAR regulates three broad types of rights granted to authors: The patrimonial or economic rights, the moral rights, and related or neighboring rights.
Article 221 BIS of the IP Law establishes the reparation of material damage or losses that may be sued for the violation or unauthorized use of industrial property or copyrights to be no less than 40% of the sale price to the public of each relevant product or service. In effect, this signifies it is not necessary to prove the amount of damages or losses nor the direct causal relationship. One simply must prove that a violation occurred and prove the sale price to the public of the products or services (Mendez, 2001).
Mexico has signed the WIPO Copyright Treaty on December 18, 1997 (Wipo, 2001).
Becerril et al. (2002) identify the following problems associated with enforcing the intellectual property laws in Mexico:
· Lack of legal tradition;
· Corruption and impunity;
· Lack of academic training, updating and specialization on the part of the authorities, as well as their administrative and operational inefficiency; and
· Lack of material and financial resources.
Mexico has traditionally lacked adequate mechanisms for the enforcement of intellectual property rights. In order to fight piracy, all parts of the Mexican society will have to come together.
The Mexican government is aware of the problems traditionally associated with protecting intellectual property. Mexico has initiated the coordination of the intellectual property protection for the members of APEC.
A 2002 special report by the US government does not list Mexico as one of the countries that poses significant concern but mentions: "enforcement efforts in Mexico continue to need improvement" (http://www.usconsulate.org.hk/usmo/economic/2002/043001.htm).
3M takes extreme caution to protect its intellectual property. Every page of the company's web site has the copyright notice and links to the legal information and privacy policy pages. Anyone using the company web site is implicitly agreeing to the terms of use, noted very clearly on every page.
"Intellectual property is imbedded in 3M’s 'DNA.' Protecting the company’s unique technology, products and processes has been a priority for 100 years. Because innovation is the growth engine at 3M, intellectual property has more currency than cold cash. 3M defends its patents—at home and abroad" (Century of innovation, 2002).
In 2000, 3M was issued 525 patents and filed for 860 more. In the 1990s alone, 3M received 4,853 U.S. patents and ranked in the top 27 international companies based on the total number of U.S. patents awarded. In its best year of that decade—1995—3M ranked 14th among international companies and sixth among U.S. companies receiving patents. These rankings put 3M in a league with other patent powerhouses such as IBM, NEC, Canon, Motorola, Toshiba, Mitsubishi and Hitachi.
The company's passion for patents can be traced back to 1914. After 12 years without producing a really profitable product, 3M finally developed and manufactured its Three-M-ite abrasive cloth in 1914. This was a superior product, produced just in time for the US army war needs. Product sales were coming in very quickly and the company was on its way to success. Then 3M’s rival, Carborundum Company, threatened to sue 3M saying that 3M had infringed on Carborundum’s patent for its abrasive, “Aloxite.” (Century of innovation, 2002). William McKnight hired a lawyer, Paul Carpenter of Chicago to defend these accusations. This was the start of an intellectual property legal department. Today, 3M employs 60 intellectual property lawyers.
3M is 102 years old. For over a century the company has been creating innovative new products. Recognizing that there are many applications for 3M technologies that have remained untapped, 3M is offering some of these unique technologies for license, so others can also benefit from these valuable assets. 3M has created a department to work with inventors, to help facilitate the sale, license, or donation of intellectual assets. The company has created a special web site for the transfer of technology (3M Technology Transfer, 2003).
One of the signs of progress in a country is its treatment of intellectual property rights. There is a correlation between how a country protects intellectual property of individuals and companies and the willingness of other countries and companies to trade with the country.
Mexico highly depends on trade with other NAFTA members and other countries in the world. Mexico has a stable, free market economy and a democratic government that is a strong advocator of free trade and foreign investment. Foreign Direct Investment (FDI) presents a bright picture in the Mexican economy. In addition it has fairly reliable constitutional and legal systems. There is awareness among Mexican lawmakers for the need to protect IP and the country's laws are very progressive toward full protection. More can be done to enforce these laws. To successfully compete in the global world, Mexico will have to do more and show global companies that when they make investments in Mexico their intellectual property is safe.
3M is a highly innovative company. The company has a strong and long lasting tradition of protecting its intellectual property. The awareness toward this protection is embedded deep in the company culture.
3M: Century of Innovation (2002) Retrieved March 21, 2003 from http://www.3m.com
3M Technology Transfer (2003). http://cms.3m.com/cms/US/en/2-154/cRlrrFT/view.jhtml
Becerril, Coca & Becerril (2002) The promotion and protection of intellectual property in Mexico as a motor of development - why can't we achieve it? Retrieved March 20, 2003 from http://www.legal500.com/devs/mexico/pr/mxpr_006.htm.
Hill, C.W.L. (2003). International business: Competing in the global marketplace. (4th ed.). New York: McGraw Hill.
Mendez, J. (2001) Mexican Trademark and Copyright Law as it Applies to E-Commerce. Retrieved Mar 19, 2003 from http://www.llrx.com/features/mexicoecom.htm
Moeckel, M. (1995) Intellectual Property Protection and Enforcement in Mexico. Retrieved Mar 19, 2003 from http://www.natlaw.com/pubs/moeckel.htm
Perez-Serrano, A. F. (1997) Overview of copyright protection in the United States and Mexico. Retrieved mar 20, 2003 from http://www.natlaw.com/pubs/spmxip12.htm
Turban, E., King, D., Lee, J., Warkentin, M., & Chung, H.M. (2002). Electronic commerce: A managerial perspective (2 ed.). Upper Saddle River, NJ: Prentice-Hall.
World Intellectual
Property Organization. (2001). Emerging Issues in Intellectual Property.
Retrieved Mar 19, 2003 from http://www.wipo.int/about-ip/en/index.html?wipo_content_frame=/about-ip/en/studies/index.html.
Anticompetitive Practices in Mexico
Y. Louise Ku-Graf
In many emerging economies such as Mexico, competition policy has not been an important area of concern to be addressed. Concerns for economic growth and modernization are usually prioritized before establishing comprehensible laws against anticompetitive practices. However, in order to have a market system where business can freely compete within a boundary of laws, effective and clear antitrust laws are essential. In this section, an overview of the Mexican antitrust law is presented. In addition, key discussion of the business environment and anticompetitive practices in Mexico will be addressed so that global companies such as 3M could use to its advantage in investment decisions.
Mexican Antitrust Commission and Law
The Mexican antitrust commission known as the Federal Competition Commission (Comision Federal de Competencia or CFC) was established in 1994 after the Federal Law on Economic Competition (Ley Federal de Competencia Económica or Antitrust Law) was enacted in 1992 (Berg and Duffy, LLP., 2002). The CFC is an independent autonomous administrative agency. The main goal is to conduct investigation, issue administrative rulings, and enforce the Antitrust Law against entities engaged in anticompetitive market practices (Lopex-Velarde & Berdeja-Prieto, 1994, para. 5). Technically speaking, the economy ministry governs the CFC and its five commissioners. However, the CFC handles its own budgets and the commissioners meet alone behind closed doors (Distrust in antitrust, 2001).
The Ley Federal de Competencia Económica or the Mexican antitrust law ostensibly prohibits anticompetitive practices. Specifically, article 9 of the Ley Federal de Competencia Económica prohibits absolute monopoly and monopolistic practices with specific focus on horizontal restraints (Mascarua, 2002). Although Mexico has had an antitrust statute for nearly seventy-years, it has never been truly enforced (Lopex-Velarde & Berdeja-Prieto, 1994, para. 2). There have not been established treatises, case law, or records of actions that were supervised by the CFC. As a result, it is difficult to provide reliable legal advice in anticompetitive practices in Mexico. Nevertheless, the following guidelines and discussion set path to a foreign investor.
Similar to the antitrust laws in the U.S., the Ley Federal de Competencia Económica includes a notification requirement for all mergers and acquisition based a monetary threshold. According to articles 12 and 13, the Ley Federal de Competencia Económica requires the entities to file a report if the acquisition is valued at $55 million or more, the transaction will result in the accumulation of above 35% of assets or shares in excess of $55 million, the merger partners’ joint assets or annual sales exceed $220 million or transaction from merger will result an additional accumulation of assets of $22 million (Lopex-Velarde & Berdeja-Prieto, 1994, para. 8).
A more meaningful interpretation of the Mexican monetary threshold on mergers is drawn when compared to the U.S. In the U.S., pre-merger notification is required for mergers exceeding $50 million in value (Federal Trade Commission, 2001). For a vast economy like the U.S., it is reasonable that the threshold is set high so that the antitrust agencies’ burden is minimized. In fact, the threshold was raised only two years ago in February 2001 from $15 million (Federal Trade Commission, 2001). Therefore, it is clear that in Mexico, most mergers are likely to take place with little resistance. For an emerging economy like Mexico, it is important that companies are allowed to merge and become more efficient through scale economies. This can be interpreted as an opportunity for certain merger and acquisition-prone foreign investors.
As one would expect from any antitrust laws, the Ley Federal de Competencia Económica prohibits monopolistic behavior such as price fixing, output restriction, territorial allocations, and bid rigging. These behaviors are characterized as horizontal restraints. However, unlike the antitrust laws of many other countries, the Ley Federal de Competencia Económica permits vertical agreements (i.e. when the parties involved are non-competitors but one supplies the other) so long the parties involved are not dominant firms or monopolies (Lopex-Velarde & Berdeja-Prieto, 1994, para. 16). This is rather different from the U.S. antitrust laws where vertical mergers are also under scrutiny of the law.
A close look at article 9 of the Ley Federal de Competencia Económica reveals similarity to Section 1 of the Sherman Act of the U.S. Antitrust Law. In the U.S., the antitrust law is covered in three major laws: Sherman Antitrust Act, Clayton Act, and Federal Commission Act. Specifically, Section 1 of Sherman Antitrust Act outlaws restraints of trade and Section 2 outlaws attempted and actual monopolization. Violations of the Sherman Act are felonies and subject to penalties up to $10 million for corporations ($350,000 for persons), or up to 3 years imprisonment, or both (U.S. Department of the Justice, 1997). The Clayton Act 15 U.S.C. §§ 12-27, 29 U.S.C. §§ 52-53 proscribes price discrimination, vertical agreements such as predatory pricing, and mergers that may lessen competition. The important difference is that Clayton Act is civil law and does not carry criminal liabilities as the Sherman Act (U.S. Department of the Justice, 1997). Lastly, Section 5 of the Federal Trade Commission Act bars certain horizontal mergers if they constitute an unfair method of competition (Federal Trade Commission, 1997).
In Mexico, however, only financial penalties are enforced against violators. This aspect is very different from the U.S. but is similar to European Union penalties (Hernández, 1996). Additionally, it is important to note that in Mexico, horizontal agreements (i.e., when parties involved are direct competitors) are characterized as illegal per se whereas in the U.S., a rule of reason approach is used that consider offsetting pro-competitive justifications to otherwise illegal horizontal agreements (Mascarua, 2002). Therefore, the per se Mexican approach deems certain conduct illegal on its face without taking into account the net effect of the conduct on social welfare (Graf, 2000).
Foreign Investment in Mexico
In order to successfully invest in Mexico, business must acquaint itself with the local Mexican laws as well as business practices. The investing company must pay close attention to the investment opportunity as analyzed by reputable resources such as the World Trade Organization. Also, business practices that involve kleptocracy must be well understood by the foreign investment company.
According to the latest available report provided by the World Trade Organization, Mexico’s overall economic performance over the last five years has been positive. In fact, Mexico is one of the fastest growing countries among WTO’s twenty largest single Members (World Trade Organization, 2002). According to the report, the growth is largely due to sound macroeconomic policies, stable exchange rate, and falling inflation and unemployment. The report also points out that the majority of Mexico’s trade is under preferential rules with NAFTA. Although Mexican trade policy promotes foreign investment, their principal trade partner is the U.S. The report also notes that Mexico’s manufacturing sector is a “key catalyst” for economic growth (World Trade Organization, 2002).
Additional information that is crucial in evaluating investment in Mexico is the extent of governmental corruption such as bribery. This is measured in the corruption perceptions index (CPI) supplied by Transparency International. According to the CPI for 2002, Mexico is ranked 57th by CPI out of the 102 countries surveyed worldwide, with the U.S. ranked 16th (Transparency International, 2002). The CPI is important as it provides a measure that reflects the degree to which corruption is perceived to exist among public officials and politicians. Thus, the CPI is a tool that provides decision-making business people and risk analysts a snapshot that influences key decisions on investment and trade.
Anticompetitive Practices Vigilance
The Mexican government is famous for its dichotomy of protectionists and liberals when it comes to monopolies. The protectionists want to preserve strong national companies while the liberals want the monopolies broken. Although Mexico now has established antitrust laws, there are major caveats that are important to foreign investors.
As discussed earlier in this paper, horizontal agreements (i.e., when parties involved are competitors) are deemed as illegal per se in Mexico. Due to the Mexican per se approach, international investors should exercise caution when entering agreements with competitors in order to avoid violating the horizontal restraints stated in the Ley Federal de Competencia Económica.
In addition to horizontal restraints, foreign investors must be aware of competition stemmed from state-owned enterprises. The Ley Federal de Competencia Económica has an unusual clause that exempts state owned enterprises from the law. Specifically, any economic activities also known as strategic activities that are exclusively reserved to the state do not constitute an unlawful monopoly under the Mexican constitutional law and Antitrust Law (Lopex-Velarde & Berdeja-Prieto, 1994, para. 17). In other words, any international companies that compete in such industries (such as telecommunications) are unlikely to receive treatment of operating in fair competitive market environment.
Lastly, foreign investors must be aware of some local business practices that inhibit operational efficiency. First, foreign investors must carefully choose where to bank in Mexico. For example, in Mexico, American checks are held 30 days before the fund is released. A bank that is associated with a U.S. bank can handle wire transfers much faster so that employees can get paid (Whittington, 1993). Second, if the entity operates in Mexico City, sales associates might find it difficult when company cars are limited to be driven for only three days per week, a limitation set due to air pollution problem in Mexico City (Whittington, 1993). Third and lastly, metric system is used in Mexico. In other words, anything sold with imperial measurements in the U.S. must be repackaged in meter increments for Mexico.
Investment Reasons from the Perspective of 3M
3M has already established a presence in Mexico. In fact, 3M’s firm grasp of the Mexican market prompted its competitors to enter the Mexican market. Shurtape, the second-largest U.S. manufacturer of tape after 3M indeed entered the Mexican market. As expected, it faced many obstacles from packaging to other increased costs due to various exporting fees (Whittington, 1993).
During the early years of modern Mexican antitrust law, many of the cases involved price fixing. Significant examples that are relevant to 3M are the price fixing cases against the Mexican Association of Cargo Agents (Asociación Mexicana de Agentes de Carga, A.C.), and the Cancún Association of Customs Agents (Agentes Aduanales de Cancún, A.C.) (Federal Competition Commission of the United Mexican States, 1997). Both of these price fixing cases involved restraints of trade that could directly affect 3M's ability to compete in Mexico by raising transport costs for goods 3M imports into Mexico and maybe the costs of exporting goods produced in Mexico.
Entry Barriers to 3M Products
The CFC also sought to suspend refusals to trade, boycotts and other practices that created entry barriers in consumer appliances. Without such protection, 3M may find itself facing similar entry barriers for its products. It almost seems unlikely that the antitrust agency’s disappointing record would improve. However, the CFC did try to curb the power of the telecommunication giant Teléfonos de México (Telmex), a former state monopoly that was privatized in 1990 (Economist Intelligence Unit Limited, 2002). Its involvement represents a new departure from the old protectionist record.
Outlook on Future Foreign Investment in Mexico
Despite the existing barriers and difficulties to competition, Mexico remains attractive to foreign investment. One of the obvious reasons is the fact that Mexico is the fastest growing territory in Latin America. With NAFTA in place, Mexico has the potential to grow even faster. Another reason is the culture of their business practice. Apparently, Mexican customers tend to pay their bills on time (Whittington, 1993). This is important to any global company operating in Mexico.
Emerging economies often present great opportunity for foreign investments to flourish. The markets of an emerging economy that is stable such as Mexico tend to grow and prosper. With Mexico’s strong performance in the past five years as pointed out by the WTO report and NAFTA in place, Mexico is an attractive country in which to invest or to further strengthen presence. This is especially a good opportunity for American global companies such as 3M. Nevertheless, concern I warranted for the young Mexican antitrust law, the Ley Federal de Competencia Económica, unclear record of their competition commission, Comision Federal de Competencia (CFC), and the per se Mexican approach on horizontal agreements. Actions of the CFC could cause setbacks of the pro foreign investment policy of their trade policies. Also, global companies must play close attention to local business practices. Local business culture such as limited driving days and different measurement systems that are uncommon in the U.S. could prove significant in conducting business efficiently. However, like many global investments, risks are inevitable. Global companies such as 3M must remain vigilant of changes in Mexican laws and the competitive environment to the greatest extent possible so that the company’s international competitive action and strategy can be properly implemented in Mexico.
References
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Berg and Duffy, LLP. (2002). Antitrust regulation. Retrieved March 17, 2003, from http://www.bergduffy.com/Mexico/mexican_antitrust_regulation.htm
Economist Intelligence Unit Limited. (2002). Antitrust bust. Business Latin America.
Retrieved March 15, 2003, from
UMUC library database, ABI/Inform, http://www.umuc.edu/library/
Federal Competition Commission of the United Mexican States. (1997). Annual economic competition report. Retrieved March 17, 2003, from http://www.natlaw.com/pubs/spmxat2a.htm
Federal Trade Commission. (2001). Major changes to Hart-Scott-Rodino premerger notification requirements to take effect February 1, 2001. Retrieved March 16, 2003, from http://www.ftc.gov/opa/2001/01/hsrreform.htm
Federal Trade Commission. (1997). 1992 Horizontal merger guidelines (revised 1997). Retrieved March 16, 2003, from http://www.ftc.gov/bc/docs/horizmer.htm
Graf, S. (2000). Research and development competition and the persistence of market power: Theory and evidence from the chemical industry. University of Virginia.
Hernández, C. G. (1996). Competition policy in Mexico. Profmex. Retrieved March 17, 2003, from http://www.isop.ucla.edu/profmex/volume1/4fall96/Art4/Mexcomp.html
Lopex-Velarde, R., & Berdeja-Prieto. A. (1994). Antitrust enforcement in Mexico. International Financial Law Review (13)
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(2002). Mexico: April 2002. Retrieved
March 16, 2003, from http://www.wto.org/english/tratop_e/tpr_e/tp190_e.htm
Aihua Z. Palmour
Mexico and Chile are among countries with the most advanced economies and the greatest investment potential in Latin America. Both countries are members of the WTO, APEC, and party to many international and regional trade arrangements. To attract foreign investment, stimulate domestic industry, and gain overall advantage in the global market, both Mexico and Chile have established legal and regulatory systems to protect intellectual property and competitive practice. This section takes a comparative approach in studying the legal system and the enforcement of laws in both countries based upon team remarks and case studies.
Both Mexico and Chile have a series laws to protect intellectual property. In Mexico the IP laws are:
Federal Copyright Law (1984, amended in 1991) to protect copyright;
Industrial Property Law (1991, amended in 1994) in regulating patents, trademarks and trade secrets; and
Federal Law of Author’s Rights (1997) to protect original intellectual creations (Moeckel, 1995; Perez-Serrano, 1997).
In Chile the IP laws are:
On copyright: Law No.17,336(1970), Law No.18,443 (1985), Law No. 18,957 (1990), and Law No. 19,166 (1992); and
Industrial Property Law of 19,039 (1991) (WIPO, 2002).
In order to line up with international standards, lawmakers in both countries consistently upgrade their IP laws. In Mexico, for example, significant revisions in IP protection qualified the country for NAFTA entrance in 1994 (Intellectual Property, 2001). Chile’s copyright laws were established in the 1970s, and have been revised many times over the years.
In both countries there is a broad range of regulatory rules governing copyrights, patents, and trademarks.
Under the 1994 Mexican Industrial Property Law, contracts are not subject to official registration and approval. Chile, with one of Latin America's most liberal policies on licensing agreements, authorizes all types of arrangements (Intellectual Property, 2001).
In Mexico there is no limit on the royalty payments, but authorities could regard excessively high transfers as a form of tax evasion. Chile’s royalty rule requires 1% for use of trademarks, 3% for use of trademarks plus some processes, and 5% for use of patents and technical know-how. For royalties of more than 5%, payments must be made through the parallel exchange rate (Intellectual Property, 2001).
In Mexico, there is 15% tax for technical assistance, know-how, plans, formulae and similar technology transfers. There is a withholding tax of 40% on royalties paid to a foreign licenser of patents, trademarks and trade names (except those countries who have a tax treaty with Mexico). Chile has a 30% withholding tax on payments of royalties. The rate drops to 20% for technical assistance or engineering services, whether provided in Chile or abroad (Intellectual Property, 2001).
Mexico’s trademarks are valid for ten years (renewable), and patents for 20 years (no renewals). Patents for pharmaceutical products may be extended to 23 years. Copyrights last for 50 years after the death of the author. In Chile, patents are granted for 15 years. With a limit of 15 years, pharmaceutical patents have duration equal to the period granted in the country of origin. Industrial designs are protected for ten years (non-renewable). Trademark protection is valid for ten years (renewable). Copyrights cover the duration of the author's lifetime plus 50 years (Intellectual Property, 2001).
Mexican law recognizes intellectual rights to computer programs and electronic databases. However, the country needs greater protection of digital media, the use of trademarks on the Internet and protection of electronic distributions. Chile offers the most secure online transaction in Latin America. The country’s Intellectual Property Registry and the same laws that cover traditional media oversee trademarks and copyrights on the Internet. (E-Business Regulations, 2000).
It is clear that there are no significant differences between IP regulations in Mexico and Chile, and they are compatible with international standards. Chile has more refined rules of royalty payments, and Mexico’s royalty tax is lower on domestic business, but higher on internationals. Both countries offer similar IPR protections. Chile is better prepared for e-commerce.
Despite established legal and regulatory systems, there are international concerns associated with both countries’ capability of enforcing intellectual property rights. In Mexico, social, economic, political problems, corruption, and the lack of legal tradition, adequate training and resources, are obstacles to effective IP law enforcement (Becerril, Coca & Becerril, 2002). Chile, though regarded by the U.S. government as a country with strong intellectual property laws, also causes concern due to its lack of energetic efforts to track down violators as well as deficient protection of copyright laws (IIPA, 2002).
Mexico has successfully used intellectual property rules to protect its national brands abroad. Mexican Industrial Property Institute (IMPI), for example, was able to remove some 50 brands of so-called tequilas, (the most famous Mexican drink,) illegally sold in Europe in one year through a spirits-protection agreement signed with 15 European Union countries in 1997 (Guenette, 2000). However, Mexican intellectual property laws are facing an uphill battle at home. There are millions of counterfeit goods produced in Mexico and sold daily on the streets by hundreds of vendors. In addition, containers of imitation goods regularly enter the country untaxed and uninspected. In the year 2000, President Vincente Fox fired 60% of the nation’s customs inspectors, who were charged with corruption. Mexico is regarded as a “sluggish jurisdiction” for IP rights enforcement because of the repeated violations of IP law (Slind-Flor, 2001).
In Chile, piracy is a big business. In the music industry, for instance, 40% of all music sold in Chilean market is pirated. The music sale in Chile fell 20% in 2001, and piracy is considered partly responsible for the fall. The escalation of piracy in the music industry is described by one record producer: “If somebody is arrested in the morning for selling pirated records, chances are this person will be back in the street selling his or her supply by the afternoon” (Fortuno, 2002). The Chilean IP law enforcement increased its anti-piracy efforts by launching massive public education, such as TV ads and school lectures. However, the Chilean public cannot reach an agreement on how to deal with the pirated products. In 2001, Santiago police seized 150,000 books and printed materials through a series of police raids, which was the biggest defeat ever for Chile’s pirate book industry. But a criminal court judge stepped in and ordered the books to be distributed to the city’s poorest neighborhoods rather than be destroyed. The judge’s decision caused heated public debate. Chile’s ever growing piracy industry and the lack of public awareness put the country on top of the league in terms of pirated books (Petrovich, 2001).
Mexico’s legal system has provisions that regulate monopolies since 1917, when the current Mexico Constitution was enacted (Antitrust Regulation, 2002). But the true enforcement of protecting competitive practice was not established until 1992 as the Federal Law on Economic Competition as enacted. The Competition Law sets up relatively high threshold for mergers, prohibits monopolistic behaviors known as horizontal restraints, and enforces financial penalties against violations. However, the Competition Law does allow vertical agreement under the condition of non-monopoly (Lopex-Velarde & Berdeja-Prieto, 1994).
In Chile, there is Competition Law No.211 of 1973 which was revised and published in 1980 in executive Decree 511. The law prohibits various restrains in competition such as monopolistic domination and manipulation on price, distribution, production control, and so on. The Competition Law takes a prudential approach to monopoly. Public monopolies are permitted in certain areas, while private monopolies are prohibited in the same areas, but allowed in others under the certain circumstances. Regarding to mergers, the Competition Law is not specific enough to provide clear guidelines on thresholds, fines and timelines. Meanwhile, there are conflicts between the enforcement of the competition law and other economic regulations (Frankel & Rodriguez, 2001).
The enforcement of competition laws requires a healthy social and economical environment. The environment should include a transparent political system, high business ethic code, efficient financial transaction system, etc. According to Transparency International Corruption Perception Index 2002, Mexico scores 3.6 of 10, ranking #57 among 102 countries, right above China (3.5, #59). By the measure of Opacity Index of 35 countries, in which the low score indicates low opacity, Mexico is ranked fifth along with Italy (PriceWaterhouseCoopers, 2002). In addition, Mexican Competition Law favors state owned enterprises under certain circumstances, which may prevent foreign companies from receiving fair trials (Lopex-Velarde & Berdeja-Prieto, 1994). The inefficient Mexico banking system can also cause delay. On the other hand, Mexicans have a long tradition of paying their bills on time.
Chile has the most transparent political and economic system in Latin America according to the record of Transparency International. Chile leaves other countries in the region far behind, with a score of 7.5 and ranked #17, just below the U.S. (7.7, #16) (Transparency International, 2002). And its rank according to the Opacity Index is as good as the U.S in the second place (PriceWaterhouseCoopers, 2002). Chile’s clean slate is the result of an open and sophisticated economic system, enforcement of competition law, the effectiveness of anti-corruption policy, and the honor of honesty and hospitality that are imbedded in Chilean culture. However, Chile still needs to line up its domestic policy with international competition standards, and reinforce its financial system in protecting criminal activities (Freedom House, Inc., 2000).
Since the Mexican Federal Law of Economic Competition became effective in 1993, numerous cases have proven the effectiveness of the law enforcement. The Federal Competition Commission (CFC), Mexico's competitive practice watchdog, gained international stature for blocking Coca-Cola's acquisition of Cadbury Schweppes in Mexico. And other countries follow the CFC's lead. The CFC also successfully brought down Mexican airline holding company, Cintra, separating the nation's two dominant airline carriers. The CFC noted that Cintra's dominance of the market had hurt domestic traffic options and inflated travel prices. In the telecommunication sector, CFC declared Telmex, a powerhouse telecom company, a dominant carrier, which paved the way for legislation to restrict company's market prowess. Despite the overall improvement in the competitive environment in Mexico, the U.S. trade officials push for more and faster changes (Castellanos, 2001).
The air traffic in Chile has also changed dramatically due to the enforcement of the Competition Law. In 1999, the U. S. and Chile signed their open-skies pact, which virtually cleared the way for American Airline and LAN Chile to operate business in the market with antitrust immunity. The U.S. official considered the open-skies arrangement between the two countries as a significant step in the direction of providing the greatest opportunity for a global airline industry to form and grow (Compart, 1999). The competitive practice happened on the ground, too. Chile has become an attractive market for international retailers. There are several leading department store chains operating in Chile, including J.C. Penney. Food supermarket also becomes competitive, particularly in Santiago area, where customers have numerous options and little loyalty. The competitive markets result in price competition, increasing in private label merchandise and innovations in marketing development. The competition can be seen in many other retailing businesses, such as fast food, video rental and home improvement (Chile, 1996).
Both Mexico and Chile establish intellectual property laws and competition laws that are compatible with international standards. Those laws strengthen two countries’ competitive advantages in global market. Chile has more transparent social and economic system to enhance the enforcement of the laws. Mexico’s social and political problems, corruption in particular, hinder the execution of laws and regulations. But Chile’s population is only 14 million and growing slowly, so that its market is relatively small. Mexico has a fast growing population of 100 million, and one of the fifteen largest economies in the world. From the point view of protecting intellectual property and competitive practice, both countries are ideal markets of 3M. However, the company should take social environments and market potentials into the consideration in planning its global marketing strategies.
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