Mexico has a rigid legal system in which codification is the first and main instrument, with the Federal Constitution being the pre-eminent source of law. Mexico is a federal republic, where the federation and the states have specific jurisdiction (Competencia) determined by the Federal Constitution.
The Federal Judicial Branch is organised with the Supreme Court of Justice at the top, followed by Circuit Courts, one magistrate court (appeal courts), and district courts (first instance).
The Supreme Court is a constitutional court and the direct interpreter of the Federal Constitution.
The states are organised with an executive, judicial, and legislative branch, each with their respective codes.
As a rule, the Foreign Investment Law (FIL) allows foreign investors and Mexican companies controlled by foreign investors to do the following without prior approval:
The only exceptions to this general rule are those expressly established in the FIL itself and certain limitations concerning the direct ownership of real estate in the country.
Such exceptions refer to economic activities that are:
Activities Reserved to the Mexican State
The FIL reserves certain strategic development areas to the Mexican State. Thus, no private investor may engage in:
Activities With Foreign Investment Equity Limitations
The FIL establishes foreign ownership limits in certain companies, activities and types of shares, as set forth below:
These limits may not be exceeded either directly or through any type of agreement or corporate structure or scheme, except through a particular type of shares, called “neutral” shares, which are regulated by the FIL.
Under the FIL, prior approval is required for foreign investors to own more than 49% of a company engaged in any of the following activities:
Some of the limitations identified in this section may be overruled by express provisions in free trade or other commercial treaties entered into by Mexico.
Articles 8 and 9 of the FIL provide that prior authorisation from the Foreign Investments Commission must be obtained when foreign investors intend to participate, directly or indirectly, with more than 49% of the shares of a Mexican company whose assets exceed a certain amount determined each year by the Commission. At the time of writing, this amount is approximately MXN22.6 billion.
In order to obtain authorisation from the Commission, an application must be filed. The application mainly consists of a filing explaining the details of the underlying investment, together with responses to a standard questionnaire providing certain information to the Commission with respect to the type of investment to be made in Mexico, and evidence of the benefits for the Mexican economy. Certain support documentation must be enclosed with the application, such as:
After these documents have been filed, the Commission will issue a resolution within four months.
Parties that fail to notify and go on to implement a transaction without obtaining previous authorisation from the Commission are subject to fines ranging from MXN103,740 to MXN518,700 (approximately). In addition, pursuant to Article 37 of the FIL, transactions can be nullified and will not have any legal effects on the parties or third parties.
The Commission construes the obligation of obtaining this authorisation to apply only when foreign investment will participate in an entity for the first time. Thus, if the target company has foreign investment participating in excess of 49%, no authorisation is required for the transfer of such participation to another foreign investor.
On the other hand, if the foreign investor is seeking to acquire real property in a Mexican restricted zone through a trust agreement, approval from the Ministry of Foreign Affairs (Secretaría de Relaciones Exteriores) is required for banks to acquire, as trustees, rights to real estate located within the restricted zone – namely the zone within 100km of borders and 50km of the Mexican coast, when the main purpose of the trust is to allow the use and exploitation of such assets without constituting real estate rights over them, and the beneficiaries are (i) Mexican companies without a foreigner’s exclusion clause, and (ii) foreign individuals or foreign legal entities.
Also, all foreign investors and Mexican companies with foreign investment are subject to registration with the National Registry of Foreign Investment (Registro Nacional de Inversiones Extranjeras or RNIE). Upon registration with the RNIE, periodic reporting obligations arise, and failure to comply with these obligations may trigger the imposition of fines.
Upon filing the required authorising documentation with the Commission, the target company must complete an application under which it commits to comply with the following obligations.
After the target company files the corresponding application containing the above-mentioned commitments, the Commission will either approve or deny the investment.
As a general rule, any entity (understood as natural or legal persons) who is established or located in Mexican territory can challenge any resolution issued by the Mexican authorities that constitutes a legal substantive or formal violation or a human rights violation.
The competent judicial or jurisdictional branch to resolve the dispute can be determined following a case-by-case analysis. The legal remedies which are available for the purposes of challenging denials of authorisations by the Commission are as follows.
Administrative Ordinary Remedies Before Federal Courts
Regarding federal administrative ordinary remedies, the affected party may file an appeal for revocation or an annulment trial, as follows.
Constitutional Appeal (Amparo) Procedure
If the investment denial resolution violated human rights/constitutional guarantees under the Mexican Constitution, the affected party can file a constitutional appeal (amparo) before the competent Collegiate Circuit Courts (Tribunales Colegiados de Circuito). The affected party can file the following extraordinary remedies.
In Mexico, the General Law on Commercial Companies (Ley General de Sociedades Mercantiles – GLCC) provides for several types of structures that may be adopted by a company. However, the main – and most commonly used – forms are:
Pursuant to the GLCC, each of the foregoing must be incorporated by at least two individuals or entities, each of whom/which must subscribe at least one share/partnership interest.
In addition, pursuant to the GLCC, each of the above-mentioned forms of companies may adopt the variable capital form, whose amount may be unlimited. Generally, adopting such modality will allow companies to increase and decrease their variable portion of the capital stock through an ordinary shareholders’ or partners’ meeting, as applicable, in which case an amendment to the by-laws would not be required.
As a general formality, the incorporation of a company is formalised by appearing before a Mexican notary public who attests to the incorporation (as briefly described in 3.2 Incorporation Process). Pursuant to the GLCC, for each of the above-mentioned forms of companies, the liability of the shareholders/partners and management are generally as follows.
Together with the S.A., the S.A.P.I. is widely used as a vehicle to invest in Mexico because of its flexibility in corporate governance.
The main steps regarding the incorporation process of a company (the “NewCo”) are as follows:
Once the notary public has all the information requested (eg, KYC information), it could take roughly one to three weeks for the incorporation deed to be issued and recorded in the Public Registry of Commerce by the notary public.
As provided for in the GLCC, companies must hold an annual shareholders’ or partners’ meeting; for the SA and SAPI specifically, such annual meeting should take place within four months following the end of each fiscal year (ie, from January through April of each year).
Likewise, as provided in the GLCC, the board of directors shall submit an annual report to the shareholders’ meeting on the operations and the accounting policies observed by the NewCo and include financial statements at the end of each fiscal year.
Companies that have foreign investment need to be registered with the RNIE and comply with the annual economic report and quarterly report filings, if applicable.
From a tax perspective, non-resident shareholders of a Mexican resident company may use a generic tax identification number for purposes of shareholder registry records. In this case, the company must file the list of non-resident partners or shareholders who choose not to register before the Mexican Taxpayers Registry (RFC), within the first three months immediately following the close of each fiscal year.
Pursuant to the provisions of the Federal Fiscal Code (FFC) and the Miscellaneous Tax Ruling for 2024, when incorporating the NewCo, the identification of the controlling parties (as provided in Article 32 B quarter of the FFC) of the shareholders/partners of the NewCo is mandatory. In most of the corresponding cases, the person in charge of applying this rule will be the notary public, who will assist those who wish to incorporate a Mexican legal entity.
As a supreme body, the shareholders’ or partners’ meeting is empowered to elect, re-elect, and remove the sole director/manager or the board of directors/managers, as applicable. While management of an S.A. and an S. de R.L. may be entrusted to either a sole administrator or a board of directors, whose members may or may not be shareholders/partners of the company, management of a S.A.P.I. shall always be entrusted to a board of directors.
The sole director/board of directors may establish committees to support and aid the board in its various duties (eg, audit committee, compensation committee).
In general terms, directors are bound to follow and implement the instructions received from the shareholders’ or partners’ meeting, and to comply with the duties imposed on them under the applicable law and the by-laws of the company. Directors have a general duty to perform their activities prudently and with the same care they would ordinarily take in their personal affairs. Any director who, in any given matter, has a conflict of interest in relation to the company must disclose the nature of the conflict to the other directors and refrain from participating in any resolution in connection therewith.
In addition, directors have confidentiality obligations with respect to non-public information of the company.
Regarding the corporate veil, any legal entity recognised by Mexican law has a different and independent legal personality and capacity, assets, and liabilities from those of its shareholders/partners or holding entity. However, a few judicial precedents suggest that the corporate veil might be pierced under certain specific circumstances.
The rules governing the employment relationship are enshrined in law, collective bargaining agreements and employment agreements.
Under the Mexican legal framework, an employment relationship can be established without the need for an employment contract, generating the same effects and consequences. An employment relationship can be established when there is a relationship of superordination and subordination, and when there is remuneration. An employment contract is a contract whereby a person agrees to work for another person in a subordinated manner, in return for remuneration.
Working conditions should be in writing, and the document should contain the following details, among others:
It is important to emphasise that the lack of a written document containing the above-mentioned working conditions will not deprive the employees of the rights arising from the labour laws and the services rendered to the employer. In any case, the employer will be considered responsible for the lack of a written document.
An employment relationship may be for specific work, a fixed period, a seasonal period, or an undetermined period. It may also be subject to a trial period or initial training.
The Federal Labour Law regulates working sessions (jornada de trabajo) of eight hours per day maximum, with the following stipulations:
It is important to note, however, that the law also contemplates the payment of a salary per worked hour.
Overtime hours should be paid at double the regular hourly rate of the working period.
The Federal Labour Law stipulates the following causes for the termination of an employment relationship:
The employer or the employee may terminate the employment relationship at any time without responsibility only under the specific circumstances mandated by the Federal Labour Law. In this case, the employer shall pay the corresponding indemnification to the terminated employee.
If the employer terminates the employment relationship outside any of the specific circumstances contemplated by the Federal Labour Law, the employer must also pay outstanding salaries after the date of the termination, for up to a maximum period of 12 months.
The Federal Labour Law refers to collective redundancies as a consequence of the closing of businesses or the definitive reduction of a workforce. Pursuant to Article 434 of the Federal Labour Law, collective redundancies may occur in the event of a force majeure or fortuitous event that is not attributed to the employer, inability to pay, the depletion of the natural resource in the case of extractive industries, and bankruptcy and insolvency. In these cases, employees are entitled to receive an indemnification of three months’ salary and the seniority premium.
Employers are not obliged to consult employees regarding the organisation of the company, business model, etc. Nonetheless, employees must be informed of relevant decisions that may affect their job conditions, etc.
Income Tax
Individuals receiving income in the context of an employment relationship are subject to income tax at progressive rates that range from 0% to 35%.
Employers are required to withhold the corresponding tax from salary payments and remit it to the Mexican tax authority on a monthly basis.
Social Security Quotas
Employers and employees are required to make contributions to the social security system.
To that effect, employers must withhold the applicable quotas from salaries and remit such quotas to the Mexican Social Security Institute (IMSS) and the Institute of the National Fund for Workers’ Housing (INFONAVIT).
These contributions are determined based on specific percentages applicable to items of social security coverage (ie, labour risks, maternity and illnesses, life and disability, retirement and severance due to old age, childcare and social benefits, and contributions to INFONAVIT) and daily salary amounts, which are subject to caps.
Local Payroll Taxes
Employers making payments to individuals under an employment relationship are obliged to pay a local payroll tax to the state in which the employment relationship occurs or labour is performed. Such tax is determined by the total salaries paid by the employer in the respective state. Payroll tax rates vary from 0.5% to 3%, depending on each state.
Mexican resident companies are required to pay a federal income tax on worldwide income, regardless of the location of its source. The current corporate income tax rate is 30%. There are no local or municipal income taxes.
Income tax is determined by applying the corporate tax rate to the company’s tax result. The tax result is determined by subtracting the authorised deductions from all items of taxable income.
To be deemed as deductible, expenses must satisfy general substantive and formal requirements (ie, being “strictly indispensable” for the business activity of the taxpayer) and specific requirements based on the nature of each expense.
Authorised deductions include returns, discounts and rebates on sales, the cost of goods sold, expenses and capital expenditures (ie, depreciation or amortisation of fixed assets, deferred expenses, and deferred charges), among others.
Non-resident companies are required to pay income tax in Mexico on all income that is attributable to a permanent establishment located in Mexico or on all income obtained from Mexican source of wealth.
In general, Mexican source income obtained by non-Mexican tax residents is subject to withholding tax. In the absence of tax treaty provisions, the following withholding tax rates apply:
The income tax must be paid on an annual basis; however, taxpayers are obliged to submit monthly advanced income tax returns and payments, which are calculated based on the current year’s revenues multiplied by a “profit factor” determined by the prior year’s figures (taxable income/total revenues).
Once a corporation has paid the income tax, after-tax earnings may be distributed to the shareholders with no additional tax charge at the corporate level. However, if the distribution is made in favour of an individual or a non-Mexican tax resident, the payment will be subject to an additional 10% dividend tax, which must be withheld by the distributing company.
Net operating losses may be carried forward for a period of ten years. No carry-back is allowed.
On 1 January 2024, the Multilateral Instrument (MLI) developed by the Organisation for Economic Co-operation and Development (OECD) entered into force in Mexico, affecting the tax treaties entered with jurisdictions that have mutually covered the tax agreements and already have ratified and deposited the MLI.
On the other hand, as of the date writing, Mexico has not implemented nor introduced in its legislation the Pillar Two recommendations issued by the OECD or any other Global Anti-base Erosion Rules (GloBE).
Value-Added Tax (VAT)
Mexican VAT is a consumption tax that is applied to the importation of goods, the sale of goods, the rendering of independent services and the use of goods. The general VAT rate is currently set at 16%.
VAT is meant to pass along each phase of any good’s production process. Thus, taxpayers will, in general terms, be entitled to credit the input VAT against the output VAT. VAT-favourable balances or VAT due must be submitted to the tax authority on a monthly basis by filing a VAT return. VAT-favourable balances may be requested in a refund or may be credited against future VAT collections.
Special Tax on Goods and Services
This excise tax sets forth a specific tax rate per each type of good, comprising the production, sale or import of goods, including tobacco, alcoholic beverages, certain fuels, pesticides, and food with high caloric content.
Incentives and tax credits are as follows.
There is an optional income tax consolidation regime that allows a partial consolidation of income of corporate groups. However, due to its restrictions and limitations, most companies in Mexico do not elect to file consolidated tax returns.
There is a three-to-one debt-equity ratio limitation on the deduction of interest deriving from intercompany loans. Interest that exceeds such ratio is non-deductible.
In line with BEPS Action 4 (Limiting Base Erosion Involving Interest Deductions and Other Financial Payments), a fixed ratio rule applies in Mexico, limiting a company’s net interest expense deduction to 30% of the company’s EBITDA. Interest that is non-deductible pursuant to this rule may be carried forward for ten years. A de minimis rule applies under which this limitation is applicable only to annual net interest exceeding MXN20 million.
As an OECD member, Mexico has adopted transfer pricing legislation recognising the arm’s length principle. In general, Mexico has been an active adopter of the OECD’s transfer pricing standards as set forth in the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations and in BEPS Action 13 (Transfer Pricing Documentation and Country-by-Country Reporting).
General Anti-avoidance Rule
The Mexican Federal Tax Code contains a general anti-avoidance rule, which sets forth a business purpose test as a standard to be applied by tax authorities in the tax review of transactions that generate tax benefits. Under this rule, tax authorities may recharacterise transactions that lack a business reason or may disregard such a transaction if they consider that it does not have real economic substance.
Mandatory Disclosure Requirements
Taxpayers and tax advisers are obliged to disclose certain transactions to tax authorities if they generate a tax benefit in Mexico and meet any of the hallmarks listed in the Federal Tax Code. The mandatory disclosure requirements are based on the European Union’s DAC6, with significant differences.
In Mexico, the Federal Competition Law (FCL) sets forth that a Concentración is a merger, acquisition of control, or any act by virtue of which companies, associations (JVs), shares, trusts, or assets in general are made between competitors, suppliers, customers, or any other economic agent.
When certain parameters are reached, and before a merger is fully executed, the Antitrust Commission must approve the operation.
Pursuant to the FCL, the approval of the Antitrust Commission is required in the following scenarios:
The parties must file a petition with the Antitrust Commission, which must review the relevant market to rule out a possible anti-competitive effect. The Commission can request any information from the filing parties or even third parties regarding the Concentración. When all the information is rendered to the satisfaction of the Antitrust Commission, a ruling is approved with certain conditions, or a denial of the Concentración is rendered within 60 working days.
Once a Concentración is approved, the ruling will be valid for a period of six months, which can be extended once for the same duration.
The FCL sets forth that any agreement between competitors is forbidden (competitors’ agreement) and will be punished. The specific conducts covered are:
It is important to point out that the legal framework sets forth that an anti-competitive agreement must be deemed unlawful per se. Thus, there is no room for an interpretation in favour of pro-competitive effects around an anti-competitive agreement (rule of reason).
The sanction for carrying out a competitor’s agreement could be a fine of up to 10% of gross revenue in the specific year, or criminal and administrative sanctions for the individuals who committed or were instrumental to the competitor’s agreement.
Under the FCL framework, there will be an abuse of dominant position involving an economic agent with substantial market power (as determined on a case-by-case basis by the Antitrust Commission) in the event of:
It is important to differentiate from the cartel or competitors’ agreement where the sanctioning does not take possible efficiencies into consideration; in a case of abuse of market power, in order to avoid sanctions, the economic agent bears the burden of proof to show that its conduct provides efficiencies to the relevant market.
A patent confers on the patentee an exclusive right to use an invention and is granted for a non-renewable period of 20 years. The application for registration of a patent should be filed with the Mexican Institute of Industrial Property (IMPI), which will carry out an initial examination of the formal requirements of the application and will publish the application in the Official Gazette if it is approved and the corresponding fees are paid.
For a period of two months after the application is published, the IMPI may receive observations from any person regarding the compliance of the application with the requirements established in the law. Once the application is published, the IMPI will initiate a revision of the merits of the application, considering, if necessary, the information received as a result of the publication of the application.
Where there is no impediment, the IMPI will grant the patent to the patentee, which will be subject to the payment of the corresponding fees. Once granted, the patent will be published in the Official Gazette. The IMPI may initiate a Procedure of Administrative Declaration ex officio or upon the request of a party and impose sanctions. The Federal Tribunals will have jurisdiction over civil, commercial, or criminal controversies, without prejudice to the right of the parties to agree to an arbitration procedure.
Trade mark holders are given the exclusive right to affix the trade-marked sign to the goods and offer them for sale or during trade. The registration will be valid for ten years and can be renewed for the same duration. To obtain the registration, an application should be filed with the IMPI alongside the payment of the corresponding fees.
The IMPI will publish the application in the Official Gazette and grant a period of one month to receive observations or comments from any person regarding the application. When the deadline for observations and comments expires, the IMPI will analyse the merits of the application and grant a period of two months to the petitioner to state its position. Once the proceeding is concluded, the IMPI will issue a resolution granting or denying the trade mark. The resolution should be published in the Official Gazette.
The IMPI may initiate a “Procedure of Administrative Declaration” ex officio or upon the request of a party and impose sanctions. The Federal Tribunals will have authority over civil, commercial, or criminal controversies, without prejudice to the right of the parties to agree to an arbitration procedure.
The holder of the registration of an industrial design has a temporary exclusive right to use the industrial design. The registration is valid for five years and renewable for up to 25 years.
The application for registration of an industrial design should be filed with the IMPI, which will carry out an initial examination of the formal requirements of the application and publish it in the Official Gazette if the application is approved and the corresponding fees are paid. Once the application is published, the IMPI will initiate a revision of the merits of the application. Where there is no impediment, the IMPI will grant the registration of the industrial design; once granted, it will be published in the Official Gazette.
The IMPI may initiate a “Procedure of Administrative Declaration” ex officio or upon the request of a party and impose sanctions. The Federal Tribunals will have authority over civil, commercial, or criminal controversies, without prejudice to the right of the parties to agree to an arbitration procedure.
A copyright grants the author of a literary, artistic, or scientific work exclusive moral and economic rights over the work. The economic rights over the work will be valid during the author’s life and for 100 years after the author’s death and 100 years after being published. Moral rights are granted to the author in perpetuity.
The application for registration should be filed with the National Institute of Copyrights (INDAUTOR), which is in charge of the Public Registry of Copyrights. The INDAUTOR will determine the resolution of the application within 15 days. The inscription in the Registry is only declaratory and not constitutive of rights. Once the inscription is made, the applicant will have 30 days to request the corresponding certificate.
The INDAUTOR oversees the enforcement of copyrights. Federal Tribunals will have authority over copyrights; however, when controversies arise between private parties, they may choose State Tribunals or an arbitration procedure to solve the controversy. When the controversy relates to an official communication or act of the INDAUTOR, the Federal Tribunal of Administrative Justice will have authority.
IP rights over software are protected by the Federal Law of Copyright under the same terms as for literary works. Unless otherwise agreed, economic rights over computer software belong to the employer when the software is created by one or several employees in the performance of their functions or following the instructions of the employer. The holder of the economic rights of the software may, among others, authorise or prohibit:
Databases that constitute intellectual creations are protected by the Federal Law of Copyright under the same terms as compilations; such protection does not extend to the data and materials contained in the database. However, databases that do not constitute original work are protected in their exclusive use for a period of five years. The holder of economic rights over the database may, among others, authorise or prohibit:
Trade secrets are protected by the Federal Law for the Protection of Industrial Property. The person in control of the trade secret may convey the trade secret or authorise the use of it. The authorised person is obliged to maintain the confidentiality of the trade secret. A person or entity that obtains information containing a trade secret by any immoral or unlawful means will be held accountable.
Article 6, Section A, Subsection II of the Constitution of Mexico recognises data privacy as a human right and protects all information that relates to a person’s private life and personal data through the laws of Mexico.
Likewise, in Article 16, paragraph 2, the Constitution establishes that “every person has the right to the protection of their personal data, the access, rectification and cancellation of such data, and to express their opposition, in the terms established by law, which will establish the exceptions to the principles that govern the data processing, for reasons of national security, public order, public safety and health or to protect the rights of third parties”.
However, the laws that regulate data privacy specifically are recent. Data protection is mainly regulated through two federal laws.
Mexico considers that the right to the protection of personal data includes the right of the owner of such data to access, rectify, cancel, and oppose their data. These are known as the ARCO rights.
The FLPPDRE only applies to Mexican regulated entities; as such, its purpose is to establish the basis and procedures for granting the right of protection of personal data in Mexico. A foreign company targeting customers in Mexico would not have to abide by this law. However, an international company that has business in Mexico and provides information to a Mexican regulated entity must comply with the FLPPDRE.
The FLPPDPP, conversely, and according to its rules of procedure, will apply to any company that:
Thus, any company that falls within the three above-described categories will have to abide by the FLPPDPP and will have to grant the right of protection of personal data in accordance with the ARCO rights.
The National Institute for Transparency, Access to Information and Personal Data Protection (the INAI) is the autonomous constitutional agency that guarantees access to public information and the protection of personal data.
In relation to access to public information, the INAI guarantees that any federal authority, autonomous body, political party, trust, public fund or union, or any person who receives public resources or performs as an authority, delivers the public information to anyone who requests it. It also guarantees the proper use of personal data and the exercise and protection of the ARCO rights that anyone has in relation to their information.
The role and authority of the INAI is set forth in Chapter VI, Section I of the FLPPDPP.
Article 38 of the FLPPDPP provides that the INAI has the purpose of disseminating knowledge of the right of protection of personal data in Mexico, promoting its exercise, and monitoring the compliance of provisions set forth in the FLPPDPP and those that derive from it – particularly those related to the fulfilment of obligations by the entities regulated by this law.
Furthermore, Title 8 Chapter I of the FLPPDRE establishes the way in which the INAI should be organised, and the laws that regulate it. It provides that, “the integration, appointment procedure and operation of the Institute [the INAI] and the Council shall be in accordance with the General Law of Transparency and Access to Public Information, the Federal Law of Transparency and Access to Public Information and any other applicable regulations”.
Mexico will change its Presidency and Congress in 2024; however, none of the presidential candidates have included tax reform in their campaign proposals. In this regard, while tax-related legal reform is possible, important reforms are unlikely in 2024.
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dlapiperlatinamerica@us.dlapiper.com www.dlapiper.comNew technologies in Mexico – IP Overview
Introduction
In recent years, Mexico has emerged as a vibrant hub for technological innovation, witnessing cutting-edge advancements that are reshaping numerous sectors of its economy. From ground-breaking gadgets to innovative software solutions, the Mexican tech landscape is vibrant with creativity and potential.
Nevertheless, amidst this rapid technological evolution, the slow legislative process in Mexico has led to a lack of clear regulatory framework governing these innovations to date.
This article serves as an update to our publication from last year, offering new insights and perspectives for businesses interested in innovating or investing in new technologies in Mexico so they are aware of the latest IP trends in the jurisdiction. We will discuss the current efforts to regulate technological tools and examine how the associated issues are currently being addressed in the IP field.
Legislative breakthroughs in Mexico
In Mexico, a wave of legislative initiatives focusing on AI has emerged since mid-2023 and early this year. These initiatives encompass diverse sectors and aim to outline and integrate AI within specific contexts.
For example, in the public health sector, an ongoing initiative seeks to regulate AI’s application in the medical industry, prioritising transparency, users’ rights protection, and data privacy. Additionally, proposals to amend the Federal Penal Code address concerns like AI-generated content, such as child pornography and deep fakes. Efforts are also underway to refine and update copyright laws for AI-generated works, with delineations in certain sectors while safeguarding intellectual property rights (“IP rights”).
There are also two pivotal initiatives centred on establishing governmental oversight bodies. The first proposes the creation of the Mexican Agency for the Development of Artificial Intelligence, entrusted with formulating a National Strategy on AI and advocating for national interests. The second advocates for regulation through official Mexican standards (a form of specific regulations) and proposes the creation of the Mexican Council of Ethics for Artificial Intelligence and Robotics, comprising multidisciplinary experts, to ensure adherence to governmental standards and ethical protocols.
Another noteworthy proposal is the Federal Law that Regulates Artificial Intelligence, currently under review by the Congress, which addresses AI systems’ development, commercialisation, and consumer rights, drawing inspiration from the European Union’s recently approved AI legislation. It categorises AI systems based on risk levels and introduces consumer notification requirements for AI interactions.
In terms of IP, there is an initiative that provides that any work made using artificial intelligence must be declared as such to the National Copyright Institute (INDAUTOR) when registration is sought. It also points out that AIs will only be able to train their language models with databases authorised by the owner of the IP rights. Unlike previous initiatives, this one designates the existing Federal Telecommunications Institute as the authority for deciding AI matters, suggesting the formation of a National Artificial Intelligence Commission inside such federal authority.
However, as finalised legislation is still being discussed by the Congress, stakeholders are encouraged to adhere to existing Mexican regulatory frameworks to resolve any disputes that may arise from the use of AI or any other technological tool. Therefore, in the following sections, we will analyse the guidelines that government entities such as the Mexican Intellectual Property Office (IMPI) and INDAUTOR, aligning with current legislation and international standards, have adopted to foster a favourable environment for businesses that develop and/or use AI and other ground-breaking technological tools in their operations.
Generative AI tools
AI tools have transcended mere replication of existing things, enabling the creation of content that blurs the line between reality and simulation, often mimicking human-like qualities. Among the most impressive achievements in this area is the development of generative algorithms capable of producing lifelike images and videos. Models such as BigGAN and StyleGAN have propelled image generation to unprecedented levels, crafting photographic portraits of fictional individuals and breathtaking landscapes seemingly plucked from the depths of imagination. Also, algorithms equipped with natural language processing capabilities have gained increasing favour among scholars and professionals, allowing them to generate written content in a matter of seconds.
While these tools can undoubtedly benefit businesses in terms of time and cost savings, the absence of regulation and the dilemma of copyright ownership paradigms around them may jeopardise or even cause them to face economic and legal problems.
The foregoing because generative AI algorithms typically draw content from extensive datasets of pre-existing content, raising concerns about potential copyright infringement. Instances have arisen where AI-generated content closely resembles existing works, precipitating disputes over ownership and originality. Furthermore, the ease with which AI replicates existing designs may cause apprehensions regarding the safeguarding of industrial designs and trade secrets. Additionally, the capacity of generative AI to fabricate persuasive counterfeit content poses risks of IP infringement. The proliferation of AI-generated counterfeit goods, for instance, may threaten to undercut the market for genuine products, inflicting economic losses upon companies and IP rights holders.
In Mexico, there have not been any significant cases of this nature yet, therefore we still do not have judicial precedents on the matter. Although existing regulations such as the Federal Law for the Protection of Industrial Property and the Federal Copyright Law may offer some guidance on how to handle potential infringement cases and establish that artwork created by AI is not subject to protection since by statutory mandate the creator can only be human, in practice, entities lack a clear means to differentiate with precision between AI-generated works and counterfeit products or works made with the assistance of or by AI in its entirety.
Based on the aforementioned challenges, it is advisable for entrepreneurs to proactively engage with legal experts specialising in IP to navigate the complexities surrounding AI-generated content and counterfeit detection. Developing robust strategies for monitoring and protecting IP Rights, alongside implementing advanced technological solutions for authenticity verification, can help mitigate risks and safeguard business interests effectively.
Updates on the metaverse and its regulation in Mexico
The metaverse represents a virtual landscape where users interact with one another and with a multitude of digital elements, and where the digital realm emulates the physical and traditional environment. Within this expansive digital world, users have the capacity to craft and possess a diverse array of virtual assets, spanning from clothing and luxury items to artworks, weaponry, and even virtual real estate. These digital creations, manifested as encoded data, find existence within the virtual space upon execution by compatible hardware.
While the widespread embrace of the metaverse is still in early stages, there is a growing interest among Mexican enterprises, public figures, and individuals to be part of it. This increasing curiosity is driving them to seek information and explore opportunities within this virtual realm, yet it seems that there are more questions than answers at this stage. However, the advances that have been achieved are as follows.
Trade mark registration
As might be obvious, trade mark registration in the metaverse presents unique challenges compared to traditional trade mark registration in the physical world. In the digital realm, trade marks can encompass not only traditional brand names, logos, and slogans but also virtual assets, avatars, and other elements that contribute to a brand’s identity within virtual environments.
One of the primary challenges in trade mark registration within the metaverse lies in defining the scope of protection for virtual assets and experiences. Traditionally, trade mark registration has focused on tangible goods and services, but in the digital realm, the lines between physical and digital assets blur, demanding a re-evaluation of traditional trade mark frameworks.
Furthermore, the global nature of the metaverse poses jurisdictional challenges for trade mark registration, as virtual environments transcend physical borders and traditional legal jurisdictions. Therefore, businesses operating in the metaverse must navigate varying legal frameworks and requirements across different jurisdictions to ensure comprehensive trade mark protection for their brands. For instance, in Mexico, the protection for virtual assets and experiences within the metaverse has been resolved by adopting a similar criterion as the one used by the United States: virtual goods or services should be registered under classes 09, 35 and 41. Class 09 is for downloadable virtual assets, such as footwear, clothing, hats, glasses, handbags, sports bags, backpacks, sports equipment, art, toys, and accessories for online use, while class 35 is for retail store services with virtual goods and class 41 for entertainment services, namely online virtual goods.
Trade mark infringements in the metaverse
Another important concern in the metaverse revolves around the potential infringement of IP rights. For example, if a user creates a virtual object that closely resembles or directly copies IP-protected forms from the physical world, such as trade marks or copyrighted works, does this constitute infringement? Or should the principles of freedom of expression and artistic creativity take precedence?
In the realm of Mexican legislation, the metaverse is acknowledged as a virtual marketplace where IP rights hold control, and competent authorities are tasked with resolving any ensuing disputes. Moreover, prima facie, platforms hosting such content could face liability for facilitating the dissemination of infringing material, while users may themselves incur legal consequences for their actions.
Nevertheless, the absence of clarity and formal mechanisms has spurred self-regulation within the metaverse. Platforms within the metaverse, often referred to as “worlds”, have taken it upon themselves to implement measures like notice-and-takedown, which empower IP owners to request the removal or disabling of infringing content in the digital sphere.
Therefore, companies should remain vigilant and proactive in protecting their IP rights in the metaverse. This includes not only utilising self-regulatory measures provided by digital platforms but also leveraging legal avenues available through the IMPI. By combining both approaches, businesses can better safeguard their creations and assets in the evolving digital landscape of the metaverse.
Copyright
The creative environment of the metaverse not only permits, but actively encourages users to generate unique virtual objects and spaces. From an IP standpoint, this dynamic raises questions about ownership rights over such creations. Specifically, does the user who crafts these virtual assets hold the rights to them, or could the platform itself, as the facilitator of the virtual world, claim ownership?
Under Mexican copyright law, only natural persons are recognised as authors of copyrightable works and maintain economic rights over their creations, unless explicitly stipulated otherwise. Consequently, users in the metaverse could theoretically assert ownership over their virtual creations, especially in the absence of any agreements to the contrary. However, this scenario becomes complicated by the fact that acceptance of the terms and conditions of the metaverse platform is typically required for participation in the virtual world.
Another aspect to consider is that the platform may change its terms and conditions at any time, or even cease to exist or merge with another platform. This could potentially result in the loss of users’ creations or unauthorised uses thereof. Therefore, as the metaverse continues to evolve, it becomes crucial to clarify and establish clear guidelines regarding ownership rights.
Considering the above, companies developing their own virtual worlds must prioritise the rule of law, ensuring that it prevails and is enforced within the framework of the current Mexican legal system. Both service providers and users engaged in activities within the metaverse are obligated to adhere to and comply with applicable legal provisions, just as they would in the physical world.
NFTs
Non-fungible tokens (NFTs) are digital assets stored on a blockchain, a decentralised digital ledger ensuring secure and transparent transactions. NFTs are unique and indivisible, representing one-of-a-kind items that cannot be replicated or divided. While they’ve gained footing in the art world allowing companies to sell digital products as collectible items, NFTs also have applications across industries, including real estate.
Although still in its early stages in Mexico, some Mexican companies and artists have begun selling digital art and virtual goods through NFT technology, securing the registration of these digital assets.
In Mexico, as well as in all countries that are members of the Nice Agreement, these virtual assets have been defined as authenticated downloadable digital files falling under and classified under Class 9. This implies that companies wishing to register a trade mark to distinguish this type of goods must seek registration within this class.
While the aforementioned represents significant progress, challenges persist in the practical implementation of copyright. The issue lies in distinguishing between digital ownership via NFTs and IP rights tied to the underlying physical elements. For example, when an NFT containing digital artwork is sold, questions arise regarding the buyer’s ownership of the artwork’s copyright. Likewise, in the case of a musician selling a song as an NFT, does the buyer obtain the song’s copyright? Ongoing discussions revolve around whether the artist retains copyright ownership while granting the buyer certain usage rights.
These discussions will likely evolve as the NFT market expands rapidly, extending beyond art and entertainment to various businesses. Therefore, it is crucial for companies to remain vigilant and responsive to the changes that arise, ensuring adaptability and informed decision-making in this dynamic landscape.
Immersive technologies
In recent years, Mexico has witnessed a notable surge in the adoption and advancement of virtual reality (VR) applications. The increasing adoption of virtual reality has been propelled by several factors, including greater accessibility to VR devices. This accessibility has enabled more individuals to experience the immersive technology firsthand, driving its widespread adoption across different economic sectors.
For companies developing VR technologies, protection of their innovations is of great importance. Hardware components can be safeguarded through patents, provided they meet the criteria outlined in Article 41 of the Federal Law for the Protection of Intellectual Property. This entails ensuring that the invention is novel, non-obvious, and involves an inventive step. On the other hand, software components in Mexico are typically protected through copyright laws, which safeguard the expression of creative works.
While seeking protection for products of this type may appear straightforward, it is crucial for companies to adeptly navigate the legal framework to safeguard their IP rights while also fostering innovation within the rapidly expanding VR industry.
Conclusion
In conclusion, while the absence of specific national regulation for groundbreaking gadgets and innovative software solutions might create uncertainty, it does not mean a complete legal vacuum. It is crucial for all stakeholders to acknowledge and meet their obligations under Mexican law. Adopting a proactive approach, focused on prevention rather than solely depending on corrective measures, is prudent. By doing so, businesses and individuals can adeptly navigate the evolving digital landscape until a clear regulatory framework governing these innovations is established.
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