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An Intellectual Property Lesson from Mexico for Manufacturers

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A conversation with a client this week reminded me that there many different flavors of intellectual property (IP), and that many companies should look carefully at integrating intellectual property rights (IPR) protection processes into all of their interactions with clients and especially prospective clients.

Imagine a company that is well-regarded in its field, contacted by a prospective purchaser from another country. prospective purchaser asks if the company can manufacture a specialized item, one that must be designed from the ground up. The company says, ‘Of course we can!’, and it proceeds to start designing a prototype to spec.

Eventually, the manufacturer writes to the prospective purchaser to ask what the next steps should be, but receives an indirect reply. Saying it wants to see the company’s production capabilities, the sales prospect asks for a prototype (or a product similar to it) to be sent to “a friend of the [sales prospect’s] representative”. It also requests prototypes under specifications different from those already being worked on by the company.

It was at this point that the manufacturer thought it might need legal advice and came to us. The company was now working on several final designs for the sales prospect, to which it had sent a quotation but had not received a signed contract. The manufacturer asked us for advice on protecting its designs, and on taking next steps with the sales prospect.

Our analysis of the sales prospect’s behavior suggested three possible scenarios:

The sales prospect planned to eventually buy from the manufacturer, but had a confused purchasing process.
The sales prospect was just window-shopping, and planned to build the products/systems by themselves.
The sales prospect planned to take the prototype to a cheaper third party for mass-production, using the manufacturer’s purloined IP to do so.

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In general, manufacturers in Mexico (and most of the rest of the world as well) have the following IP protection mechanisms available to them:

Patents

Under Mexican Law, the manufacturer’s prototypes could at first glance be patentable, providing 20-years of protection from the date the application is filed with the Mexican Patent and Trademark Office (IMPI). Unfortunately, as the Mexican Government notes here, patents take 3-5 years to get registered, a time frame that was just not practicable here.

Utility model Patents

Any objects, utensils, devices or tools that, as a result of a modification in their arrangement, structure or form, present a function different from that of their components, which are new, present useful advantages and have industrial applications, can be registered as utility models. Utility model registrations in Mexico provide 10 years of protection and grant the owner the right to prevent others from manufacturing, using or commercializing the protected model without approval. This process takes at least 18 months to navigate, again a time frame not practicable in this case.

Industrial design patents

An ancillary protection entails registering the prototypes with IMPI as industrial designs. Mexican law provides for two types of protection: for industrial drawings (any combination of shapes, lines or colors incorporated to an industrial product or craft for ornamental purposes and that gives such products a distinctive aspect) and for industrial models (the 3-dimensional version of the former). The problem in this case was that industrial design protection only covers shapes, lines or colors that give an industrial product or craft its distinctive aspect. It does not cover technical or performance-related elements, nor does it cover any element whose exact reproduction is necessary for assembly into another product as an essential part/piece. As bespoke prototypes, the chances are the manufacturer’s designs could not be registered as a Mexican industrial design patent and, in any case, registration takes at least a year, so again, impractical in this case.

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NNN Agreements

The analysis above left the manufacturer only one viable option: a non-disclosure, non-use, non-circumvention (NNN) agreement covering the prototypes. For a great explanation of what an NNN is and how it works, see this post. In this case, the NNN should also provide that the sales prospect shall buy the prototypes and contract any mass-production only from the manufacturer, which in turn would agree not to manufacture for third parties products using those prototypes. As a take-it-or-leave-it type of agreement that does not involve paying any fees to IMPI, this NNN would be easier (and cheaper!) to draft and implement than any other IPR protection measure available – very important when time is of the essence to trigger a deal signing. As it would also provide protection for the bespoke prototypes, this was clearly the best option.

The manufacturer expressed concerns about offending the sales prospect by asking it to sign an NNN Agreement and instead decided to protect its designs by leaving out “essential” information from the prototypes and not revealing the tooling necessary for mass-production.

The experience of this manufacturer should serve as a reminder that intellectual property protection is not only for finished products, but also for product designers and manufacturers. All the hassle and uncertainty with the sales prospect could have been prevented if the manufacturer had asked its sales prospect to sign an English-Spanish NNN agreement at the very beginning of their relationship.

Many Mexican manufacturers – especially SMEs – are not as sophisticated as they should be for international transactions and IP protection. I am also reminded how little the idea of IP protection is ingrained in the typical SME entrepreneur’s psyche, even though IP theft can cripple companies of this size. See It’s Perfectly Legal for Your Chinese Manufacturer to Copy Your Products, where one of our international IP lawyers talks about how it is often “lights out” for small companies who are IP theft victims.

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You should have an IP protection strategy in place before you give away information for free. IP protection is an investment, not an expense. IP protection is an investment, not an expense, and the lessons offered by this manufacturing company in Mexico are valid all around the world, especially for SMEs.

Have you had similar experiences with your company’s IP?

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