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Intellectual Property Rights Infringement in Mexico:
Why this is no longer an issue of informal commerce and how it has evolved
By Saul Santoyo and Jose Luis Ramos-Zurita
Uhthoff, Gomez Vega & Uhthoff, S.C.
What do Lady Gaga and “Los Tigres del Norte” -the famous Mexican norteño music band
ensemble-, have in common with notable people like Steve Jobs, René Lacoste, Carolina Herrera,
Coco Channel, Jean-Louis Dumas-Hermes, giant Swiss pharmaceutical company Hoffmann-La
Roche and even Mikhail Kalashnikov? If this was a pop quiz the answer would be easy: you can
find several of their products ready for sale at the same place, the very famous (infamous?)
neighborhood of Tepito in downtown Mexico City.
If you have the opportunity to visit the maze of narrow streets and alleys that conform Tepito, you
could easily buy Lady Gaga’s “The Fame Monster”, any or all of Los Tigres del Norte 30-plus
record discography, iPhones, iPads or the recent “Snow Leopard” operating system, boxes of
Tamiflu anti-viral and Xenical (Orlistat) weight-loss pharmaceutical drugs, designer sport shirts and
shoes, silk scarves and ties, women’s handbags and perfumes, and even customized AK-47
assault rifles, all of them readily available at incredibly low prices without the need to overcome
some of the most “inconvenient” purchase restrictions such as a physician-issued prescription or a
firearms permit.
Where else in the world can you find the products listed above and more, all at almost incrediblydiscounted prices and without any legal obstacles?, but the bad news is while all of such items are
very cheap, they are also fake goods that do not possess the quality, reliability and desired effects
of the original products, notwithstanding the fact that they are illegal and arrive at the final
consumers via a long trail of serious crimes that more often than not end up hurting the very same
people that buy them, a situation that repeats with more or less the same characteristics in the
“Silk Alley”1 of Beijing, some dark areas of Moscow2 and other equally infamous places in certain
Latin American countries (notably the border area3 between Argentina, Brazil and Paraguay).
The above shows only a small part of a much larger counterfeiting and piracy problem, one has
increasingly been recognized as one of the most serious global issues, and although this illegal
phenomenon is still underrated by some countries, the value of international trade in physical
counterfeited and pirated products represent a billionaire industry of at least USD$500 billion,
according to some rather-conservative estimations4.
Negative impacts of IPR infringement are wide-ranging, creating significant costs for governments,
international trade and economies. These costs have direct negative impacts on individual
businesses, employees and consumers.
IPR infringement causes huge economic losses not only for IPR holders but to all related legitimate
businesses, creating significant costs for Governments and economies5, as it affects international
trade by distorting prices, dissuades the creation of employment and discourages foreign
investments6. This problem also poses an incredible threat to health and safety of the general
population, and deters innovation and growth in much-needed areas that would help improve not
only abstract macroeconomic figures but several specific key areas of country development.
As a recently leaked discussion paper7 about the Anti-Counterfeiting Trade Agreement (ACTA)
circulated among industry insiders and government negotiators from the US, Japan, Switzerland,
Canada, the European Union, Australia, Mexico, South Korea, and New Zealand shows, such
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paper included all of these negative effects and added “verifiable significant loss of tax revenue” to
the litany of problems that are either linked or directly originated by this illegal-goods trade.
In this context and according to the International Monetary Fund8, Mexico is considered to have the
fourteenth-largest economy in the world, a position that is the result of high rates of economic
growth during the last two decades, but unfortunately it also shares the dubious distinction of being
included in the top-list of countries that produce and consume the largest amount of counterfeited
and pirated goods9.
Although notable evolution in public policies and reforms to an ever-modernizing legal system
resulted in attracting foreign investments and encouraged companies to establish successful
businesses within the country constitute key factors on the growth and evolution of Mexican
economy, its negative aspects have also propelled Mexico into becoming a “paradise” for
counterfeited and pirated items.
There are several reasons that account for the explosive growth of the trade in IPR-infringing
goods in Mexico, part of the explanation could be traced back to the effect produced by changes10
on the Mexican economic system that started on the 1980’s, when Mexico adhered to the thenexistent General Agreement on Tariffs and Trade (GATT) and began opening the country’s
economy; this provoked significant economic growth and expanded the availability of articles that
had been previously restricted due to the former economic and foreign trade policies, because until
1986 Mexico had a closed and centrally planned economy which was overly protective of local
trade and manufacturers.
The above can be represented by the fact that until 1985, most middle-class kids11 were unable to
buy a pair of Nike shoes at any Mexican store and such items had to be acquired either abroad or
at flea markets or informal selling points that used to sell illegal imports, as was also the case with
electronic articles, candies, consumer products and apparel, to name a few examples; in short,
there was a newly formed demand that needed to be supplied, same and that was initially met by
street vendors and flea markets retailing contraband or stolen, albeit original, products.
With the uprising of China as a manufacturing powerhouse in the late 1990’s and the advent of the
“IP-powered economy” (particularly regarding the consumer-perceived value of desirable brands of
goods in several industry sectors), the outburst of counterfeited goods that are now available
almost anywhere in the world was ensued.
Furthermore, economic and social transition also provoked a transformation on the political
organization that freed space to citizens, economy and political parties, modifying the relationship
between government and society12, but as centralized power declined it also allowed the
expansion of criminal activities that were controlled and limited by traditional methods used by
previous government administrations
As an outcome of the above, the trade of counterfeited and/or pirated merchandises account
nowadays for approximately 8% of Mexico’s Gross Domestic Product (GDP), and some studies13
show that together with other high-impact illegal activities like illegal drug trafficking, this figure
grows to be almost 17% of the Mexican GDP, a measure that shows the enormous relevance of
the illegal activities associated with the trafficking of counterfeited and pirated goods.
Such above figures reflect the perception that most people have regarding this phenomenon: the
vast majority of the Mexican population thinks that buying pirated and/or counterfeited items is, at
the very best, a “necessary evil” since counterfeit items and the people that provide them provide
an alternative access to articles that otherwise would be reserved to the upper economic classes
2
due to the relative high prices of such goods, but this is not necessarily true since there are
counterfeited products that are neither expensive nor exclusive and, on the other hand, pose a
substantial threat to the consumers’ health and safety as this is the case of anything from
pharmaceutical drugs, mass-consumer products, cosmetics, processed foods, automobile parts,
airplane supplies and electrical/electronic components.
In addition to the above and contrary to the general belief that this illegal phenomenon is a
“victimless crime”, the truth is that counterfeited and pirated goods produce a direct damage not
only to the companies and/or individuals that suffer the illegal copying of their IP rights, but to the
economy and, as we shall see ahead, could be serving to finance much serious crimes that
seriously affect the general public, including illegal drug trafficking, high-profile assassinations and
outright social violence, weapons contraband, sexual slavery, kidnapping and, in some
documented instances, terrorism14.
The above-mentioned felonies contrast with the huge demand that counterfeited articles have
today in Mexico and the somewhat permissive attitude that the general public has regarding this
issue, as one of the most recent studies sponsored by the American Chamber of
Commerce/Mexico showed15 that an estimated 88% of the Mexican population has acquired, at
least once, a pirated and/or counterfeited product.
Furthermore, that same study also demonstrated that the most affected industry sectors are Music
and Film Industries (CD/DVD formats), clothing and footwear, software, accessories and luxury
items, cosmetics, cellular phones and electronic goods, toys, cigarettes and alcoholic beverages
and pharmaceuticals.
Taking into account the above-described facts, what is the true dimension of the problem and what
are the consequences of the “evolution” of the counterfeits/piracy trade into an industry, same that
has been constantly transforming from being little more than a relief valve for unemployed people
that sold small amounts of illegally-obtained products as a means of survival, into a series of huge
criminal networks with global outreach that raise enormous profits that are sometimes diverted into
more seriously dangerous activities.
Power vacuum, political inexperience/incapacity, the incipient demand of consumer products by
the lower-income Mexican population, and of course the breakout of China as a mega source of
substandard and cheap products, were way too far appealing for organized crime to let this
business opportunity pass.
According to several papers and press reports that have addressed the connection16 between
organized crime and the trafficking (production, distribution and sale) of counterfeit and pirated
goods17 is fueled by several factors:
a) The high profit/low risk ratio these activities represent;
b) The large amount of resources needed to effectively combat this matter given the wide
presence of counterfeited items in the Mexican market; and
c) The social prevalence and, in some cases, tolerance or acceptance of IPR-infringement
goods commerce, as a means of satisfying diverse necessities.
Regarding the first of the above-mentioned facts it is very important to bear in mind that an
example can be found in several of Mexico’s City flea markets or in, some downtown areas, right
on several informal selling stands right on the street: the total cost18 a gentlemen’s silk tie bearing
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counterfeit “Hermes” designs has an average price of MXP$350.00 (equivalent approx. to
USD$27.50), but that same tie was purchased wholesale in Guangzhou, China for approx.
USD$4.50, a price that includes transportation and import costs; this represents USD$23.00 of
profit that equal a revenue of 610% that is obtained free of taxes, in cash, and with minimum risks
involved because counterfeiters normally use a relatively elaborate scheme of ghost intermediaries
and paper-front entities that prevent them from facing an indictment should a shipment be detected
and seized by Mexican authorities.
Following the above, it is important to point out that while counterfeiting in a large scale (be it
importing, transporting, distributing, housing, producing and selling counterfeits) is deemed a
serious Federal Crime by Mexican Law, there is a limited amount of resources -human and
otherwise- to combat this phenomenon that can be observed almost everywhere in the country
(Mexico is considered to be among the largest markets where IPR infringing goods are either
manufactured, imported, distributed, or sold, only behind China, Russia and some other Asian
countries), which adds to the fact that there are other serious issues such as the escalade in
violence recently generated by the combat to organized crime and drug trafficking, a situation that
has consumed a significant amount of the available government assets devoted to the combat of
criminal activities.
In direct connection to the above-referred facts and as stated before, in the late 1980’s Mexican
informal economy changed from selling illegally imported or smuggled -but original- goods into
importing, distributing, manufacturing and selling IPR infringing items in a large scale, a change
that was noticed and seized by organized crime syndicates, same that were coming out of a
profound transformation process themselves, as the recent political and social changes of
Mexico19 helped in the perceived growth that is allegedly one of the factors of the crime-related
violence our country has experienced recently in some areas, specially in the northern portion of
the territory.
Another aspect, that is important to explain the increasing participation of organized crime
syndicates on the trade of counterfeit goods, is the historical shortcomings of the Mexican justice
system, some of which motivate the general public to refrain informing authorities if a person has
been the victim or has seen a crime due to the lengthy and cumbersome procedures, lack of trust
in authorities, plus the fear of retaliation from criminals, together result in that an estimate of only
22% of criminal conducts are actually informed to the authorities20, and out of such figure less than
1% of criminals gets sentenced21, due to several factors that include corruption and lack of
proficiency of State Prosecutors22, which adds to numerous cultural issues that hinder the
enforcement of property rights in general23.
All of the above facts motivated a recent and increasing involvement of organized crime syndicates
in the traffic of counterfeited and pirated goods24, a change that some authors see as “natural” due
to the extent and effective power that some of such organizations regarding illegal activities in
certain areas25 and a result of the recent changes in security and public policies, notably the “war
against drugs” of President Felipe Calderon, which has forced criminals to move towards “lower
profile” illegal activities26 while still obtaining a huge profit out of their illicit businesses27.
Notwithstanding the severity and complexity of these issues, there is hope for IPR holders that are
affected by counterfeiting activities in Mexico and are willing to take the necessary steps to protect
and enforce their property, as several recent cases demonstrate:
One of such examples is what the U.S. government called as “Operation Holiday Hoax” 28, which
on December, 2009, resulted in the seizure in Mexican territory of more than 272 tons of
counterfeit goods performed by Mexican Government officials with the aid of intelligence provided
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by U.S. Customs officers; this operation also provided the information to further advance in the
investigations regarding criminal networks of counterfeiters and bootleggers that used
sophisticated methods to import and distribute fake goods into Mexico, the U.S. and several other
Latin American countries.
Furthermore, the collaboration between IPR holders and government agencies helped Mexican
Customs Authorities obtain the 2010 “Yolanda Benitez Award” presented by the World Customs
Organization (WCO) 29,30, due to the success on enforcing and protecting IP rights on Mexican
borders, same that resulted in record-setting seizures in the last few months.
As the last two examples show, Mexican legal system provides several options to effectively
enforce and protect IP rights, depending on the specific characteristics of the case at hand, i.e.
how the infringement was and/or is still being done and the goals that the legitimate owner
pursues, same that should include the means to put an immediate stop to the infringement
conducts and establish the basis for the recovery of the damages suffered.
In order to effectively deal with this matter, IP owners must first realistically determine the risks and
actual threats that piracy and counterfeiting present to their businesses, since each product and/or
service has unique characteristics that should be addressed specifically, and thus this assessment
should be done on a case by case basis.
Once the potential or actual damages caused by counterfeiting activities are identified, it is
mandatory to assess, from a cost/benefit point of view, the results that are to be achieved, either
by attacking one of the many aspects of the problem at a time, or by designing a comprehensive,
tailor-made anti-counterfeiting program that may last for several months or years, or even be an
all-out permanent effort based on the close collaboration of the competent government authorities.
Eventually, the enforcement and protection efforts should provide positive results that should allow
the IP owner to reinstate control of the market place with their genuine products. Still, it is
important to mention that, even when reaching this goal, IP owners should continue to monitor the
presence of counterfeits and enforcing their IP rights, thus adopting a zero-tolerance campaign
towards counterfeiters.
If you wish to know more about available enforcement options and maybe take actions to protect
your IP rights, we can only recommend to seek professional counsel and, as said before, establish
a commitment with one of your company’s most valuable assets: your IP rights portfolio.
1
“In
the
land
of
counterfeit”.
Jeffrey
Sheban,
The
Columbus
Dispatch
http://www.dispatch.com/live/content/local_news/stories/2007/11/25/Fake_1.ART_ART_11-25-07_A1_8E8I5ID.html
November
25th,
2007.-
2
“Russians
able
to
fake
it
like
no
one
else”;
Kim
Murphy,
The
Seattle
Times
July
15,
2006
.http://seattletimes.nwsource.com/html/nationworld/2003128478_fakerussia15.html
3 “The Tri-Border Area: a profile of the largest illicit economy in the Western Hemisphere”, Rachel Brown, Task Force on Financial Integrity & Economic
Development blog, June 15, 2009.- www.financialtaskforce.org/2009/06/15/the-tri-border-area-a-profile-of-the-largest-illicit-economy-in-the-westernhemisphere/
4
5
“Illicit: How Smugglers, Traffickers and Copycats are Hijacking the Global Economy”, Moises Naim; Doubleday, 2005.
“The Economic Impact of Counterfeiting and Piracy”, OECD, June 4th, 2007, DSTI/IND(2007)9/PART4/REV1
6
“The Economics and Management of Global Counterfeiting”, Derek Bosworth and Deli Yang, Paper submitted to the Sixth World Congress on Intellectual
Capital and Innovation, September 2002.
7
Decision of the European Parliament to transparent the negotiations and state of play on ACTA.- www.europarl.europa.eu/sides/getDoc.do?pubRef=//EP//TEXT+MOTION+B7-2010-0154+0+DOC+XML+V0//EN&language=ES
8
http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)
5
9
“2010 Special 301 Report on Intellectual Property Rights”; United States Trade Representative, April 2010
10
.
Started by president Miguel de la Madrid in 1984 and later continued by president Carlos Salinas de Gortari until 1994, Mexico changed its public
policies in economy, trade and legal matters via signing a number of international treaties and agreements such as GATT, TRIPS, NAFTA and amended its
Constitution and several Federal Laws to comply with its new internationally acquired commitments.
11
This situation actually happened to both authors, as in 1985 they were 13 and 11 years old, respectively
12
“Otra explicación”, Luis Rubio quoting Marcelo Bergman’s investigations regarding social changes and criminality in Mexico and Latin America, Reforma
Newspaper, Editorial pages, August 29, 2010 edition.
13
“El Sistema de Propiedad Intelectual en México: Logros y Retos”, White paper of the American Chamber of Commerce/Mexico, May 2010, Mexico.
14
“The links between intellectual property crime and terrorist financing”, Text of public testimony of Ronald K Noble, Secretary General of Interpol, before
the United States House Committee on International Relations One hundred eighth congress, July 16th 2003.
15
American Chamber of Commerce/México, “3ª Encuesta de Hábitos y Consumo de Productos Pirata y Falsificados en México”, November 2009, Mexico.
16
“Godfathers and Pirates: Counterfeiting and Organized Crime”, Wolfgang Hetzer, European Journal of Crime, Criminal Law and Criminal Justice, Vol.
10/4, 303–320, 2002.
17
“Crimen Organizado y Piratería”, Clausio Ossa Rojas, Revista de Derecho Informático Alfa-Redy, No. 049, agosto 2002.
18
Based on the information obtained in the course of the different case-matters handled by the authors and on direct interviews to several street vendors in
Mexico City.
19
20
Op. cit. Luis Rubio.
Cuaderno 8 del ICESI: “Victimización, Incidencia, y Cifra Negra en México”, ICESI, A.C.; México, 2009.- www.icesi.org
21
“Estadísticas de seguridad pública y eficiencia en México”, Arturo Arango, Cristina Lara, Et. Al; Colegio de Investigadores en Seguridad Pública en
México.- www.seguridadpublicaenmexico.org.mx/crisada/estadistica/eficiencia.htm
22
“Mas detenidos y menos sentenciados, la Corte no “encubre” a criminales”, Jesús Michel Narváez, El Sol de México, August 29, 2010.www.oem.com.mx/elsoldemexico/notas/n1742556.htm
23
“Violación de los derechos de propiedad”,
economico/2010/10/04/violacion-derechos-propiedad
Isaac
Katz,
El
Economista,
October
4th,
2010.-
http://eleconomista.com.mx/foro-
24
“Los Zetas y La Familia, también metidos en en piratería, contrabando y tala clandestina”, La Crónica de Hoy, September 27, 2008.www.cronica.com.mx/nota.php?id_nota=387643
25
“La
Violencia
y
el
crimen
organizado
en
México”,
http://politicamexico.suite101.net/article.cfm/la-violencia-en-mexico
Carmen
Esthela
Prieto;
Suite
101,
September
10,
2010.-
26
“Piratería crece y se diversifica ante la crisis”, Francisco Gómez y Maria de la Luz González; El Universal, March 1st, 2009.www.eluniversal.com.mx/notas/580396.html
27
“Lava
dinero
a
través
de
la
piratería,
el
crimen
organizado”,
Uno
Más
Uno,
July
www.unomasuno.com.mx/index.php?option=com_content&view=article&id=2135:lava-dinero-a-traves-de-la-pirateria-el-crimenorganizado&catid=115:justicia&Itemid=514
16,
2010
.-
28
“Operation Holiday Hoax nets more than $26 million worth of counterfeit goods”, U.S. Immigration and Customs Enforcement Press Release, December
14, 2009.-http://www.ice.gov/pi/nr/0912/091214washingtondc2.htm
29
“Mexico was awarded the 2010 WCO Yolanda Benitez Trophy”, World Customs Organization Press Release, June 26th, 2010.http://www.wcoomd.org/press/default.aspx?lid=1&id=220
30
“WCO awards Mexican government”, Mexico The News, October 5th, 2010.- http://thenews.com.mx/articulo/wco-awards-mexican-govt-10625
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