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Manufacturing in Mexico vs China: IP protection

08 Jan 2016

Companies considering offshoring their operations to a foreign country have much to consider. One important aspect of expanding to foreign borders is intellectual property. If a business is going to manufacture goods in a different location, it is crucial its products, ideas and innovations are protected under law.

The U.S., for example, has very strong IP laws, which to a large degree contributes to the country's economic success. In Mexico, the North American Free Trade Agreement protects certain intellectual properties including copyright of data, sound recordings, trademarks, patents or inventions, industrial designs, trade secrets and geographical indications. Further, Chambers and Partners pointed out that the country's participation in the Trans-Pacific Partnership renews its commitment to IP protection, as the agreement aims to promote increased innovation in participating countries. In addition to these partnerships, Mexico is part of the following agreements:

  • World Intellectual Property Organization.
  • Paris Convention for the Protection of Industrial Property.
  • Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks.
  • Lisbon Agreement for the Protection of Appellations of Origin and their International Registration.
  • Patent Cooperation Treaty.
  • Singapore Treaty on the Law of Trademarks.
  • Trademark Law Treaty.
  • Vienna Agreement Establishing an International Classification of the Figurative Elements of Marks.
  • Strasbourg Agreement Concerning the International Patent Classification.
  • Locarno Agreement Establishing an International Classification for Industrial Designs.
  • Beijing Treaty on Audiovisual Performances.
  • Marrakesh Treaty to Facilitate Access to Published Works for Persons Who Are Blind, Visually Impaired or Otherwise Print Disabled.
  • Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks.

While China - one of Mexico's key competitors as far as offshore manufacturing is concerned - has made major strides to provide increased protections for businesses operating there, manufacturers still have many concerns. For example, The Indian Express reported according to the Chinese government, nearly 40 percent of online products in China are counterfeit.

For companies considering expanding to Mexico or China, it is important to compare the IP protections of each country and make an informed decision.

Current IP Protections in China and Mexico
There are five different types of IP protections companies should consider before deciding on manufacturing in Mexico or China:

1. Copyright

  • Mexico: According to the World Trademark Review, an author or other economic copyright holder in Mexico has the right to communicate, use, distribute, reproduce and commercially exploit a work. Authors or owners of exclusive rights to books, sound recordings, computer software and even digital content have automatic legal rights to those items and are guaranteed protection for 75 years after their death without the need to register. Additionally, since Mexico participated in the Universal Copyright and Berne Conventions, foreigners in the country are guaranteed protection.
  • China: In China, ownership of the copyright to a work is granted to Chinese nationals once the work is completed, and no registration is required.

2. Trademarks

  • Mexico: Businesses in Mexico can register a trademark for a ten-year term, which is renewable for an unlimited number of terms so long as the trademark is still in use. By registering their trademarks, businesses establish their exclusive right to use.
  • China: In China, a business must file an application with the China Trademark Office and wait 18 months for a final decision. Once the mark is published, there is a three-month opposition period. If no opposition is received, the trademark will be registered. Trademark registration lasts 10 years and may be renewed for an additional 10 years. According to RWS Group, early in 2014 the Chinese government introduced changes to its intellectual property system, including reforms to the trademark law and the establishment of more IP courts. As explained by the Standing Committee of National People's Congress, an amendment in 2013 focused on creating multiple measures to facilitate trademark registrations, further safeguarding the fair and competitive market order and strengthening protections to exclusive trademark rights.

Counterfeit goods are very prevalent and a major concern for manufacturers in China.Counterfeit goods are a major concern for manufacturers in China.

3. Trade names and slogans

  • Mexico: Slogans and trade names may be registered in Mexico. While trade names don't require registration, businesses must record and publish them. According to PwC, the U.S. registered 373 slogans in Mexico in 2014.
  • China: In China, a company can register and license company names, brand names, slogans and trade names both within the country and worldwide.

4. Patents

  • Mexico: Largely a result of Mexico's robust IP laws, PwC's data showed the U.S. had 4,514 registered patents in the country in 2014. In Mexico, a company using the product may register patents for inventions that are new, non-obvious and have meaningful industrial applications. Patent registration in the country lasts 20 years and must be licensed on privately negotiated terms. It is important to note that according to Chambers and Partners, Mexico's participation in the TPP grants more patents, extends the terms of protection, provides more privileges to patent holders and increases penalties for infringements.
  • China: Patent applications in China must undergo exhaustive review that can take up to three years upon receipt. Patent rights are enforced starting the date of publication in the Patent Gazette and the terms vary depending on the invention. IPWatchdog reported in 2015 China released the "Draft 4th Amendments to the Chinese Patent Law" for public comments, which were due by Jan. 1, 2016. Most notably, the amendment would include an increase of potential statutory damages from $155,000 to $776,000.

5. Intellectual trade secrets

  • Mexico: While there is no registration process for protecting trade secrets in Mexico, individuals who attempt to gather this information can be subject to penalties. Additionally, Law360 reported the TPP has the potential to advance trade secret protections in a number of countries, including Mexico.
  • China: Trade secret protections in China are far looser, and it is the responsibility of individual companies to enforce these rules. However, Law360 noted the U.S. has taken extensive diplomatic strides in the past year to combat economic espionage committed by China and protect trade secrets.

IP law enforcement in Mexico and China
Of course, IP protections in either country are only meaningful if the correct enforcement measures are in place. When considering manufacturing in Mexico or China, it is important to businesses to know if their innovations are protected. 

"Manufacturers in Mexico can be confident in the countries commitment to protecting their IP rights."

Manufacturers in Mexico can be confident in the country's commitment to protecting their IP rights. It makes sense, too, because as a rapidly emerging economic world power, Mexico has a keen interest in encouraging the growth of its industrial sector. For one, it's participation in multiple free trade agreements and treaties including NAFTA and the TPP illustrates its commitment to protecting intellectual property. As far as enforcement is concerned, The Mexican Institute of Industrial Property is responsible for implementation of all industrial and intellectual property laws. In response to IP theft, the Mexican government will implement permanent or provisional sanctions, and arrest is also a possibility.

Despite progressive moves by China to create higher standards for IP protection and curtail counterfeit activities, the level of enforcement in China has not created the standards of protection needed to earn the confidence of manufacturers. In China there are no criminal penalties specifically directed at the exporter of counterfeit goods, and government often is associated with counterfeit activity.

Due to the advanced level of enforcement and the country's participation in various international agreements, manufacturers in Mexico are safer than those in China as far as IP is concerned, adding to the offshoring advantages of expanding there.

The Offshore Group: You Manufacture ... We Do The Rest.

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