Nearshoring and Other Reasons to File Patents in Mexico

Companies that have activity overseas need to decide on the countries where patents need to be filed and which patents should be filed in those countries.

The decision is typically made by weighing, through structured tools or by heart and experience, the need to protect the intellectual property in that determined country. These factors for a given country include market size, local manufacturing capacity, competitor’s presence and the strength of the intellectual property system at large and for patents specifically, including patent prosecution and litigation, along with other internal factors unique to each company or industry sector.

Regarding market drivers, the main reason to file for patents and to obtain intellectual property rights in Mexico is its strategic geographic location. This is the main reason behind the nearshoring trends toward Mexico by many companies, an advantage of Mexico as a hub when problems arise in other markets, such as the tension between US and China. 

Mexico is expected to grow in investment throughout all industries. Currently, there are several industries with an active presence in Mexico that may easily regain or expand their capacity. These include the pharmaceutical industry, where Mexico is already within the Top 15 countries (Top 10 if Europe is consolidated). The automotive industry is another industry with a long-standing presence in Mexico that is taking advantage of the country’s geographic position, a position that has recently been strengthened by the announcement of the new Tesla manufacturing facility in Mexico (Monterrey, Nuevo Leon). Other industries that have been around and are mounting the wave of nearshoring are textile, electronics, telecom, food and energy, and more significantly, aerospace.

But beyond the nearshoring trends, Mexico is often underestimated regarding the intellectual property system. Mexico belongs to the most relevant treaties in intellectual property, including the Patent Cooperation Treaty, the Hague Agreement (designs) and the Madrid Protocol (trademarks). The main concern with Mexico is typically the ability to enforce IP rights in general. The litigation system changed dramatically in Mexico as of November, 2020, when the new Federal Law for the Protection of Industrial Property (FLPIP) entered into force with new possibilities for accessing civil courts without the need to wait for a decision from the Mexican Institute of Industrial Property (IMPI) on infringement of an IP right, a complaint that was made before.

But, beyond the proceedings, from a strategic perspective, and particularly for patents, a Mexican patent is a settlement tool rather than litigation tool as explained below.

Patent enforcement in Mexico has very low activity. Unfortunately, statistics are not available for patents alone, but estimates are typically that no more than 50 inter-parte actions yearly are brought for patents. Before rushing into thinking that this is because the enforcement is weak, the causes need to be viewed through three perspectives:

1. Weak local patenting activity: Roughly 95% of patent filings in Mexico are foreign. Most high-profile litigation happens abroad and is settled for Mexico without a local action, but it does change the value of settlements.

2. Dissuasive effect of damages: Until 2020 (before the FLPIP), Mexico had statutory damages of a minimum 40% of selling price to the public. The new law, following agreements from the United States-Mexico-Canada treaty (USMCA) changed to include other standards for damages, but the 40% rule still stands, although it is expected to be more difficult to get. The taxation and accounting contingency alone for the parties involved is a settlement driver even if Mexico only is involved.

3. Difficult proceedings perception: Mexican law, before the FLPIP of 2020, required an administrative infringement procedure before the Mexican patent office, with two instances of appeal, and based on that decision, a separate civil proceeding was necessary with yet another two instances of appeal. This promoted early settlement and typically led to negotiations once the infringement was decided. As explained above, the new law enacted in 2020 now makes it possible to start civil actions directly for infringement generally for IP including patents.

The outcomes of the implementation of the new FLPIP provisions in general are still building as the law is applied to more cases, and the USMCA negotiations made it a law fully compliant with international standards for protection and enforcement of intellectual property rights and patents. On the downside, civil courts have no experience in dealing with IP infringement cases, even less with patents. Furthermore, nullity actions are kept within the administrative procedure at IMPI, so in practice, the convenience of using the civil procedure as an alternative is still under exploration.

In conclusion, Mexico is a relevant marketplace for many industries. The Mexican intellectual property system in general, and more specifically the patents system, has the necessary tools to secure the interests of nearshoring investors. Mexico should be considered as a key country for patents covering both manufacturing technologies and final products or services across several industries.