IP owners may be awarded with more than the minimum rule of 40% of infringing products’ sales

July 9, 2019

A Circuit Court recently observed that industrial property owners can be awarded with actual damages plus 40% of infringing products sales as punitive damages.

The Mexican IP Law, Article 221 bis, provides that damages awarded to the claimant shall be no less than 40% of the sales of the infringing product at the price of sale to consumers (the 40% rule).

As commented in our newsletter of May 2018, the Mexican Supreme Court essentially ruled that to be entitled to damages, further to demonstrating an IP infringement beyond shadow of appeal, claimants must demonstrate suffered harm and a causal nexus between the IP infringement and such suffered harm.

Based on an analysis of punitive damages in the US legal system, the Circuit Court reasoned that the 40% rule seems to apply the principle of punitive damages in the Mexican legal framework. Therefore, the Circuit Court commented that Judges can impose both compensatory damages for loss suffered, provided that the requirements established by the Supreme Court are met, and the 40% rule as punitive damages.

 

At first sight, this may seem like a more favourable interpretation of the IP Law for claimants. Conversely, the text of the ruling is ambiguous, and the proposed interpretation of the Law may mean that the court has unlimited discretion to determine the amount of compensatory damages, further to imposing the 40% rule.

According to the Mexican legal system, this Circuit Court precedent is not binding and, thus, we consider that the application of the rule of 40% continues. This reassures any claimant that it is guaranteed to this minimum, as long as it meets the test above. Nonetheless, extensive expertise to claim damages in Mexico is always advisable, since navigating the rules and venues to claim damages derived from the violation of IP rights in Mexico has been a problem for many years.

In light of this decision and the recent approval of the USMCA that provides minimum standards to claim damages, OLIVARES considers that the IP Law requires urgent amendments to provide better guidelines, including the definition, nature, origin and types of damages that can be claimed and recovered and the methods for doing so. This is to avoid loose interpretations by the courts, which would require lengthy and strenuous civil litigation to be contested.