June 25, 2016

Criminal Liability of Corporate Entities and Intellectual Property Offenses

By: Manuel Morante

On June 18, 2016, the New Criminal Justice System entered into effect in Mexico, which consists of a number of regulatory norms including reforms to the Federal Criminal Code and the National Criminal Procedural Code, as well as new laws added to the Mexican legal system.   

It is worth noting that the main changes to the Mexican criminal justice system is the establishment of criminal liability for corporate entities.  In consideration of the foregoing, the principle societas delinquere non potest has been discarded as an outdated legal doctrine characterized by a deeply engrained criminal legal doctrine, since this principle does not contemplate a corporate entity as criminally liable for acts committed by its members or representatives.  

Accordingly, Article 11 of the Federal Criminal Code establishes that whenever any member or representative of a legal entity, or any association, corporation or enterprise of any kind, with the exception of State institutions, commits a crime using the means provided by same entities to such end, in such a way that said crime is committed in the name of or under the protection of the corporate representatives or benefitting said corporate entity, the judge may, in cases exclusively defined by the law, order the suspension of such association or the dissolution thereof, if deemed necessary in the interest of public safety. 

This new legislation effectively makes legal entities criminally liable for crimes committed in their names or on their behalf, or in the benefit thereof, or using media provided by them, whenever a lack of organizational oversight has been determined.  This is independent of the actual or legal criminal liability incurred by its representatives or administrators. 

Moreover, in respect to the last point mentioned, on June 17, 2016, Article 11-bis was added to the aforementioned criminal legislation. The new article stipulates, pursuant to the National Criminal Procedural Code, that some or more legal consequences provided in said legislation may be imposed on legal entities when they have been party to acts of copyright infringement, as set forth in Article 424-bis and Article 223 of the Federal Criminal Code and the Industrial Property Law.

The offenses listed in Article 223 of the Industrial Property Law are as follows:

  1. Repetition of conduct of managerial wrongdoing (LPI, 223, Section I)
  2. Falsifying trademarks (LPI, 223, Section II)
  3. Producing, storing, transporting, introducing into the country, distributing or selling, on a commercial scale and with ill intent, items which display falsifications of trademarks protected by this Law, as well as knowingly providing or supplying in any form raw or other materials intended for the production of objects which display falsifications of trademarks (LPI, 223, Section III)
  4. Offenses related to revealing trade secrets to a third party (LPI, 223, Sections IV to VI)

Moreover, Article 424-bis of the Federal Criminal Code outlines the following types of offenses:

  1. Copyright offenses with the intent to defraud, or carry out unauthorized commercial speculation. (CPF, 424-bis, Section I)
  2. Offenses associated with technologically disabling copyright management systems. (CPF, 424 Bis, Section II)

Therefore, members or representatives of a corporate entity may generate criminal liability for their organizations when they commit any of the offenses against intellectual property described above.  

On a cautionary note, criminal liability on the part of legal entities does not extinguish in the event of restructuring, mergers, acquisitions or spin-offs.  In such cases, sanctions may be transferred to varying degrees depending on the relationship the new corporation has with said legal entity that was originally liable for the offense. 

Neither does criminal liability extinguish by virtue of the apparent dissolution of the legal entity when said entity continues its economic activity and maintains the substantial identity of its customers, providers, employees, or any other part significantly relevant thereto.

Legal entities shall be criminally liable only when committing the offenses outlined in the catalog contained in the federal criminal legislation (that is, in Article 11-bis of the Federal Criminal Code) and provisions thereof as stipulated by federal entities. 

The National Criminal Procedural Code establishes that one or more of the following sanctions may be applied to legal entities with their own legal capacity:

  1. Monetary sanctions or fines;
  2. Seizure of equipment, goods or products related to the offense;
  3. Publication of the sentence;
  4. Dissolution, or
  5. Any other measure expressly determined in the criminal legislation pursuant to the precepts established therein. 

Moreover, said National Code stipulates that legal entities, with or without their own legal capacity, that have committed or participated in the carrying out of the criminal offenses or unlawful acts against intellectual property as set forth in Article 11-bis of the Federal Criminal Code may be subject to one or more of the following legal consequences:

  1. Suspension of its activities;
  2. Closure of its branches or locations;
  3. Ban on carrying out future activities related to those which said legal entity used to carry out or participate in such offense;
  4. Temporary suspension of its right to participate in public sector procurement activities, whether directly or through any agent acting on its behalf;
  5. Court oversight to ensure the protection of the rights of its employee or creditors, or
  6. Public reprimand or incident report.

If you need any additional information, please do not hesitate to contact us.