Transparency in publicity contracting in Mexico, but at what cost?

Mexico
Available languages: ES

On June 3, 2021, the new "Law for Transparency, Prevention and Combat of Improper Practices in the field of Advertising Contracting" was published in the Official Gazette of the Federation, which for practical purposes we will call “Publicity Law". The Publicity Law came into force on 1 September 2021, but end of the day, what does this means?

The publication of the Publicity Law has not gone unnoticed, it has worried, not only the participants of the industry, but also the autonomous bodies related to it, such as the Federal Antitrust Commission (COFECE) and the Federal Institute of Telecommunications (IFT).

In this note we’ll give you a brief insight regarding what the new Publicity Law is about and what is happening now that it has already entered into force.

COFECE and IFT controversies

In this regard, COFECE filed a constitutional controversy before the Supreme Court of Justice of México (SCJN) against the Publicity Law, since the same law forces COFECE to perform functions which are not necessarily within its jurisdiction, in addition to imposing sanctions that are not necessarily justified from an economic competition and antitrust perspective. Despite COFECE's arguments, and the fact that the controversy was admitted, the SCJN did not grant the suspension of the Publicity Law.

Although the constitutional controversy was rejected, considering in view of the lack of clarity regarding the imposing of sanctions pursuant to the Publicity Law, on September 3 COFECE issued emergency provisions which set forth the rules for the imposition of sanctions according to the Publicity Law.

On the other hand, the IFT also decided to file a constitutional controversy before the SCJN, since it considers that the Publicity Law affects its sphere of competence, since the IFT should be the one to resolve competition issues related to broadcasting and telecommunications. This controversy was also admitted.

Participants

The Publicity Law considers the following industry participants.

  • Advertiser: They are the ones who intend to make their product known to the public.

  • Agency: They are the ones who oversee the advertising campaigns and hire the advertising space.

  • Media: They are the ones who disseminate advertising spaces by any means.

More notorious obligations

Advertiser

  1. They must enter into a mandate contract with the Agency so that the advertising space can be acquired on your account.

  2. They have the right to control the execution of the advertising campaign.

Agency

  1. They should not hire advertising space for resale.

  2. All contracted advertising spaces must result from a mandate agreement executed with the Advertiser

  3. Any discount granted by the Media must be fully transferred to the Advertiser.

  4. The Agency which provides services to Advertisers cannot simultaneously provide services to the Media.

  5. The Agency can make the payment to the Media, but the invoice must be delivered directly to the Advertiser.

Media

  1. They must clearly describe on the invoice for the Advertiser the amounts, including discounts granted.

  2. The Media must invoice the Advertiser directly and include the information required by the Publicity Law.

Consequences

The above obligations not only impose new legal burdens on market participants, but also involve new operational and commercial expenses. For example, now the Media must invoice directly to all clients (Advertisers) of the Agency, which is impractical in the operation. Even, in the case of the Agency, it´s entire business model is affected, because now it can only act as a representative.

Sanctions

Penalties under the Publicity Law depend on certain non-compliances mainly by the Agency or the Media, although the Advertiser may fall into non-compliance as well, and such penalties may be up to 2% to 4% of income, and in case of recidivism up to twice such amounts.

It is important to mention that the Publicity Law does not mention whether such income refers to annual or monthly, net or gross. In addition, in case of recidivism, it can reach up to double the percentages already mentioned.

The Publicity Law is not completely clear as to the imposition of sanctions, it only refers to the Federal Economic Competition Law. Because of this, COFECE issued the emergency provisions mentioned above in this note.

What defense is available?

The obligations set forth in the Publicity Law result in an undue interference in the business model of Advertisers, Agencies and Media, as well as their contractual relationships.

Although this law has different and varying degrees of impact on regulated entities, they have the possibility of challenging the Publicity Law through an amparo trial, which must be filed no later than October 18, 2021.[1]

We suggest that the Publicity Law be analyzed individually in order to identify the manner and degree of impact it may have, as well as to assess the convenience of challenging it through an amparo trial.



[1] The deadline considers the non-working days of the Judicial Power of the Federation.