Argentina: Licensing Trademarks And The Benefits From Recording Such Agreements In Argentina

Last Updated: 14 December 2016
Article by Mariano Municoy

License agreements have become an important legal tool available for business partners located in the same or in different countries to appropriately secure their own economic interest and legal rights involved in their transactions. Given the growing importance of licensing of intellectual property rights (IPR) and particularly the value of trademarks in a world dominated by intangible assets, in this column we are going to tackle some of the most relevant factors to bear in mind when dealing with these sorts of agreements in Argentina, which may also include other agreements such as franchising, and distribution agreements. Although the terms of a license are mostly set up and binding for the parties who agree to it, we also will discuss some of the issues related to the agreement's enforcement against third parties that may be infringing those rights.

No Mandatory Formalities in Argentina

According to the Civil and Commercial Code (CCC) as well as Argentine trademark law No. 22,362 (TM law), the license of a trademark is an agreement "per se" and not subject to any specific formal requirement in order to be valid and binding for the parties. It is worth pointing out that the CCC became effective in August 2016 and has no provision similar to Article 1193 of the former Civil Code, which: (1) established that with regard to proving the validity of the agreement, agreements having a commercial value higher than $10,000 had to be solidified in writing, and (2) prohibited the use of witnesses in order to prove the existence of the agreement. Therefore, a current license agreement is binding for the parties as of the date of its execution without the need to comply with any other requirement in Argentina.

License of Unregistered Trademarks

In Argentina, as it happens in most other civil law jurisdictions, trademark rights are acquired based on the first-to-file system instead of the first-to-use system in place in the United States and other common law jurisdictions.

Unregistered or "de facto" marks, however, have been increasingly protected by federal judges for the past couple of decades but the scope of such protection varies according to the particular legal standards that are applied on a case by case basis. Thus, although licensing unregistered trademarks is an uncommon legal strategy, in certain cases, it may be an unexpected consequence imposed by business realities, especially considering today's exponential growth of commercial digital activities on the Internet and such.

Overall, it is worth pointing out that for most industries there is no local general or particular law prohibiting the license of unregistered trademarks. The risks and problems of doing so, however, clearly outweigh the benefits so at least filing a trademark application before entering a license agreement is preferred from both the legal and business points of view.

Recordal of Licenses with INPI

Recording a trademark license agreement with Instituto Nacional de Propiedad Industrial (INPI), which is the Argentine Trademark and Patent Office, is not necessary for the contract to have full effects for its parties. Regarding whether such recordal would provide "erga omnes" or "towards all" effects against third parties taking into account resolution No. 114 issued by INPI in 2014, most scholars and practitioners believe that it is still not possible to enforce the content of a recorded license against third parties with no relationship with the parties. This is a major difference from some other Latin American countries where this sort of recordal is necessary for them to have "erga omnes" consequences.

The situation is different regarding the recordal of assignment or transfer of marks, which, according to Article 6 of the TM Law, is necessary in order for that act to have "erga omnes" effects and thus to be enforceable against third parties. Despite the limited benefits of recording a license agreement with INPI, it still provides certain benefits, such as facilitating the proof of its existence as well as the date of its execution.

In any event, the most important benefit derived from the recordal of a license agreement arises in cases of license agreements between foreign and local parties, as then they may be able to claim important tax benefits. The tax treatment of payments to non-residents originating from international transactions with intangible assets is regulated by Sections 13 and 93 of local Income Tax Law (hereinafter ITL) as well as by the Law of Transfer of Technology (hereinafter LTT) dated from 1981 (Law No. 22,426). [Section 13 ITL regulates the nonrebuttable presumptions applying to determine the local net income originated in the exploitation of: movies, video and audio works recorded abroad; radio and TV transmissions originated abroad; as well as any foreign means to broadcast, reproduce, transmit and diffuse images and sounds.]

Overall, Section 93 ITL establishes different non-rebuttable presumptions over the net income obtained by the non-resident transferring technology and trademarks to Argentina. Said presumptions also generate the effective withholding tax rates that are to be retained by the local party in regard to the payments to non-residents originating from:

  • Section 93 (a)(1)—technical assistance, engineering, or consultant services;
  • Section 93(a)(2)—licensing and/or assignment of patents and other industrial rights such as trademarks, industrial designs, etc, which are not included in Section 93(a)(1); and
  • Section 93 (c)—licensing and/or assignment of certain copyrights including software but not those mentioned in Section 13 ITL.

Briefly, when both parties (the local and the non-resident one) comply with the requirements set forth by the ITL and the LTT and a license agreement is recorded with INPI then they can obtain the benefits of a smaller effective rate regarding their due local income tax and the possibility to deduct certain expenses from their due local income tax.

Recordal of the Trademark Rights with Customs

Since 2007 it is possible to record granted trademark rights with the Argentine Customs under a system called "Asientos de alerta," which is a voluntary procedure to help trademark owners and public officials fight against international illicit trade and particularly counterfeiting. Once a trademark is recorded with Customs, the local representative (appointed by the trademark owner with Customs) is informed of any importation or export of goods bearing the same or a similar mark carried out by an unauthorized party and suspected of infringing the recorded trademark rights. Once notified about the transaction, the trademark owner is given the chance to inspect the goods, which in the meantime are retained for the term of three working days.

If trademark fraud is detected or suspected, the corresponding judicial and administrative procedures may be initiated by the trademark owner and/or by Custom's Officials (given that they have the public duty to denounce any illicit trade or goods that they know of). This procedure with Customs is independent from the act of recording license agreements with INPI, but in the real world there may be situations where their use overlaps. In any case, both provide trademark owners with maximum legal certainty and control over their business interest and legal rights, so their use should be carefully considered.

Importance of Entering into a License When Trademarks Are Owned by a Foreigner

If the licensed mark is owned by a foreign company or individual who exclusively licenses it in Argentina to another entity or individual, it may happen that a third party files a cancellation action alleging the lack of use of the mark by its owner. Then, depending on the terms of the license agreement, both the licensor and the licensee may be able to defend the trademark from the cancellation action by proving that the mark had been genuinely used in Argentina within the required period,1 as long as the licensee is authorized to do so, which might be assumed in cases of related companies (foreign parent and local subsidiary).

Thus, having a license agreement in writing is very useful in order to avoid the risks and costs of proving the existence and scope of such authorization. Likewise, according to local case law, the owner of a mark can benefit from the use performed by a licensee to repel a cancellation action as long as the registered and the used trademarks are the same (very small variations of the used mark may still benefit the owner of the registered and licensed mark attacked by a cancellation action for lack of use).

Last but not least, the authorization should be granted before the cancellation action is filed.

Observance of Antitrust Regulations When Drafting License Agreements

The compliance with local antitrust regulations, which are not set forth in trademark but in antitrust law No. 25.156, is a factor becoming more and more relevant due to growing numbers of antitrust actions brought up by local authorities as well as by third parties.

Although there has not been a case dealing directly with anticompetitive conduct directly involving the license of trademark rights, it is worth mentioning the existence of some cases that indirectly tackled transactions with such rights, particularly when conducting legal analysis of merger and acquisitions, which go beyond the space available herein.

Yet, bearing in mind the potential infringement of antitrust regulations is a must when drafting license agreements of trademark and other IPR.

Conclusion

For all of these reasons, keeping the terms of a license agreement in written form is always advisable in order to avoid eventual problems for the parties involved, including enforcing and defending trademark rights against third parties. In those cases in which a foreign entity or individual owing a trademark filed or registered in Argentina is interested in receiving tax benefits related to the local income tax, then the license agreement must be recorded with the Direction of Transfer of Technology that depends on the INPI. The same happens when a local licensee wants to enjoy certain accounting and tax benefits.

Footnote

1. Anytime after the fifth year counted from the registration date but always before a cancellation action is filed

Originally published by The Licensing Journal, November/December 2016.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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