Reform Bill for the Law of Transparency, Prevention and Combat of Improper Practices in Advertising Contracting in Mexico

June 2, 2021

On November 11, 2020, Senator Ricardo Monreal Ávila, a member of the political party National Regeneration Movement (MORENA), presented a bill for consideration regarding the “Law of Transparency, Prevention, and Combat of Improper Practices in Advertising Contracting,” which was approved by the two legislative chambers, on April 30, 2021, establishing the following:

The bill argued that the media has an incentive to remunerate agencies, so that they favor them when making selection decisions, which could be directly via sales commissions, or indirectly via the sale of advertising spaces, pricing them below the market average for later resale, resulting in fictitious consultancy contracts as well as higher prices than the market. For this reason, agencies may find it difficult to identify indirect remuneration as payments that “favor” the selection of media in the design of an advertiser’s campaign, given the lack of transparency in the advertising market.

The foregoing generally implies a conflict of interest on the part of the agencies. They have an incentive to “select” (or suggest the selection) of the media outlets that give them the highest payout, even though it may not be in the best interest of the advertiser that hired them in the first place. These practices can distort the functioning of the advertising market as a whole with the engagement of commercial practices that constitute an undue advantage in favor of certain sectors.

The proposal consists of the following:

• The agency will not be able to buy spac eto later resell to advertisers.
• The agency will only be able to buy the spaces that an advertiser orders.
• The agency can only receive compensation that has been agreed to by an advertiser.
• If the agency receives a discount from the media company, it will have to be passed on to the advertiser.
• Neither the agency nor a contracted third party can receive compensation, commission, or financial benefit from the media company.
• The agency that provides services to an advertiser may not provide services at the same time to a media company.
• The media company will have to issue the invoice directly to the advertiser and not to the agency, although the invoice can be paid by the agency.
• The media company will have to comply with transparency obligations with advertisers: dates and location of the campaign, ad format, unit prices, and rates including any discounts offered by the media company.
• The agency must inform the media company as soon as possible of the advertiser’s identity.
• The agency must give detailed reports to the advertiser during the month following the ad distribution.
• The agency must inform the advertiser about the financial relationships it has with a certain medium.
• The Law will apply to acts, contracts, agreements, or procedures, whatever the name or denomination that is given, that two or more of the economic agents enter into.
• The Law establishes infractions ranging from:

A fine up to the equivalent of two percent of their income:

1. a) The advertiser or the agency that does not enter into a contract,
2. b) The medium that does not deliver the invoice and associated information directly to the advertiser under the terms of the Law,
3. c) The agency that does not deliver the information established by law.

A fine of up to the equivalent of four percent of its income:

1. a) The agency that acquires advertising space on its own for subsequent resale to an advertiser;
2. b) The agency that recommends to an advertiser, or hires on its behalf, a medium with which it has a financial relationship, if it deliberately communicates false or distorted information to the advertiser about the characteristics of the referred medium or alternative media companies;
3. c) The agency that, acting on behalf of an advertiser, receives any remuneration, commission or benefit in kind from any person other than said advertiser;
4. d) The medium that provides remuneration, commission or benefit in any kind to an agency that acts on behalf and order of an advertiser or to third parties used by the agency for the provision of services to the advertiser; and
5. e) The agency that directly provides services to a medium in terms contrary to what is indicated in the Law. In the event of recidivism, a fine of up to double the amounts indicated in this article may be imposed.

• Complaints derived from the provisions of the Law will be substantiated and processed by the Federal Economic Competition Commission following the procedures provided by the Federal Economic Competition Law.
• The administrative sanctions referred to in the Law will be without prejudice to the civil and criminal responsibilities that may apply.
• The provisions established in this Law are applicable regardless of the place of establishment of the agency, if the advertiser has residence in Mexico and the advertisement is broadcast in the national territory.
• The Law will enter into force 90 days after its publication in the Official Gazette of the Federation.

The publication of the Law in the Official Gazette of the Federation and the issuance of the Regulations to the Law are pending.

Certain associations in the advertising sector pointed out in the media that they oppose the legislative reform, stating that since the start of the initiative, there has been “ignorance” on the part of the legislators, who seem unaware of the effect of the legislation on their ability to compete, as well as their employment in general.

FOR FURTHER INFORMATION ON THE CONTENT OF THIS NEWSLETTER, PLEASE CONTACT:

Luis Schmidt

Partner

Luis Schmidt joined OLIVARES in 1991, became a partner in 1995, and has almost 40 years of legal experience, with a specialization in copyright in the business of entertainment and culture. He has represented the world’s leading companies in the music, film, television, book publishing, fine art, design, folklore, and software.

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ASSOCIATES

• Guillermo Treviño
• Mauricio Llanes
• José Manuel Santin

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