Patent Rights Exhaustion in Mexico

Claudio Ulloa and Mariana Gonzalez

Exhaustion of intellectual property (IP) rights refers to the principle that once a copyrighted work, patented invention, or trademarked product has been sold or otherwise legally transferred to a buyer, the rights of the IP holder with respect to that specific item are "exhausted." In other words, the IP owner's control over the further distribution or use of that specific item is limited.

It's crucial to emphasize that when a product is introduced to the market, what's permitted is its marketing or distribution. However, this allowance should not be misconstrued as authorization for third parties to utilize the trademark on non-original items, modify the product, or produce their own goods using the other party's patents.

This principle is important in balancing the interests of IP holders with those of consumers and competition. However, it's essential to note that exhaustion of rights can be limited or subject to specific conditions depending on the jurisdiction and the nature of the IP involved.

In Mexico, the principle of international exhaustion of trademark rights is generally acknowledged, so when the first sale of a product happens in a foreign market, parallel import into Mexico is allowed. However, when it comes to patents, the law operates differently as we will explain.

As from November 5^th, 2020, the governing law managing any patent issue is the Federal Law for the Protection of Industrial Property (FLPIP). Article 57 Section III of the FLPIP, states that a patent is no longer enforceable against any person that commercializes, acquires, or uses a patented invention once it has been legally introduced to the Mexican market. It is important to note that the FLPIP refers explicitly to the Mexican market.

Moreover, Article 57 Section VII of the FLPIP states that a patent is no longer enforceable against a third party who, in the case of patents related to products consisting in living matter, uses, puts into circulation, or commercializes the patented invention, for purposes other than multiplication or propagation, after it has been lawfully introduced into trade by the patent owner or by the licensee. In other words, in the case of patents related to products consisting in living matter, a patent is enforceable against a third party who uses, puts into circulation, or commercializes the patented invention for multiplication or propagation (as is the case of seeds) even when it has been lawfully introduced into trade by the patent owner or by the licensee.

In January 2005, the Plenum of the Higher Chamber of the Federal Court of Administrative Justice issued the following opinion in relation to the exhaustion of the right conferred by a patent, which reaffirmed the application of Section II of Article 22 of the Industrial Property Law (now Section III of Article 57 of the FLPIP):

Registration No.: 40,326

Closed
Period: Fifth
Authority: Plenum
Source: R.T.F.J.F.A. Fifth Period, Year V. No.58. October 2005.
Report: V-TASS-221
Page: 454

LAW ON INDUSTRIAL PROPERTY

PATENTS. CASE IN WHICH THE USER OF AN INVENTION DOES NOT INFRINGE THE INDUSTRIAL PROPERTY RIGHTS OF THE OWNER. Where in the administrative dispute hearing, the aspect relating to the use of a patented article by a third party without the patent owner’s consent is the subject of the dispute, it is essential to specify which acts are alleged to have infringed the industrial property rights, as well as the person or transaction to which they are attributed, and should the person concerned endeavor to introduce lawfully acts performed by a person other than that examined during the administrative proceedings in which the challenged decision is upheld, as might be the case with the business from which the third party user concerned acquires the protected property, the supposed infringement committed by that provider, this may in no way imply extensive liability on the part of the user, since there are no legal grounds to sanction the person acquiring the property, if he uses it once it has been lawfully marketed, exclusively for the conduct of activities specific to his field, without it being marketed. (2) Hearing No. 8622/02-17-01-7/399/03-PL-10-04. Settled by the Plenum of the Higher Chamber of the Federal Court of Fiscal and Administrative Justice, at the session of January 14, 2005, by a majority of four votes in favor and three votes against. Presiding Judge: Guillermo Domínguez Belloc. Secretary: Gabriela Badillo Barradas. (Ruling approved at the hearing of January 17, 2005).

On the other hand, Article 55 of the FLPIP states that if the subject matter of a patent is a product, the rights conferred by the patent include the right to prevent others from manufacturing, using, selling, offer for sale, or importing the patented product without the consent of the patent owner.

Also, the same Article 55 of the FLPIP states that if the subject matter of a patent is a process, the rights conferred by the patent include the right to prevent others from using the patented process and using, selling, offer for sale, or importing the product directly obtained from the patented process without the consent of the patent owner.

This mention of importation of a patented product or the product directly obtained from the patented process as an exclusive right of the patent owner in Article 55 of the FLPIP, in addition to the absence of an express mention of exhaustion of rights upon importation in Article 57 Section III of the FLPIP and the explicit reference to the “Mexican market” in that same section, could be interpreted as a prohibition against parallel imports in the case of patents. Accordingly, based on the above rationale, Mexican law does not permit international exhaustion of rights, and therefore patent rights exhaustion is recognized solely at the national level, with implications limited to domestic jurisdiction.

Furthermore, Article 386 Sections V, VI, VII and VIII of the FLPIP state that it is an administrative infringement to manufacture a patented product without the consent of the patent owner or without having a license, as well as to use a patented process or offer for sale, put into the market or use products that incorporate a patented invention or that are obtained from a patented process, without consent of the patent holder or having a license.

Although use is usually interpreted as use within the Mexican territory, an interpretation consistent with Article 55 and 57 of the FLPIP implies that the offer for sale or to make available on the market must occur in Mexico, independent of the territory where the product is manufactured, because otherwise the exclusive rights of the patent holder would not be complied with. In this sense, importation could be considered a way to put into circulation products.

As such, importation into Mexico from any country of a patented product, or the product directly obtained from a patented process, for commercial purposes is not allowed without the authorization of the owner of the Mexican patent, even if such product was purchased abroad from the patent holder. In view of this, the owner of the Mexican patent could stop the importation and further acts such as sales, distribution, and use of the product.

However, it's important to consider that the treatment of this issue under the Mexican law could be considered ambiguous by some practitioners. Consequently, a defendant against infringement due to parallel import could potentially contest that Section III of Article 57 of the FLPIP refers to international exhaustion of patent rights, thus permitting such imports.

Therefore, it is important to consider that a patent rights exhaustion case involving parallel importation must be evaluated on a case-by-case basis since there are no court precedents supporting the above or other interpretations.