If the franchisor fails to grant the franchisee the license to use the trademark, the essential technical knowledge for its exploitation, a truthful report on the current status of the company or, failing that, provides incomplete or falsified information that is indispensable for the correct execution of a franchise agreement, such conduct, According to the Federal Law for the Protection of Industrial Property, such conduct is configured as an administrative infringement deserving of severe sanctions, such as the imposition of fines of up to two hundred and fifty thousand units of measurement and updating, including the temporary or definitive closing of the infringing establishment, measures that must be imposed through a procedure of administrative declaration of infringements.
However, despite the forcefulness and strictness with which the Federal Law for the Protection of Industrial Property penalizes these conducts within the framework of a franchise contract, the reality shows that these infringing practices are much more frequent than could be imagined in principle.
Consequently, friction and disagreements between franchisor and franchisee are not exceptional situations, but recurring scenarios that often lead to the activation of an administrative infringement procedure.
Against this background, the question arises as to how to prevent the illegality committed in the execution of a franchise agreement from inevitably leading to an administrative infringement proceeding, but in spite of this, it is imperative to point out that, although the commission of an infringing conduct may be subject to sanction according to the criteria of the sanctioning authority under the Federal Law for the Protection of Industrial Property, the degree of sanction, whether minimal or severe, is always present.
However, the same legislation provides for an alternative justice mechanism that allows the parties to resolve their differences without the need to escalate the conflict to extreme consequences: conciliation.
Pursuant to the aforementioned Federal Law for the Protection of Industrial Property, in administrative infringement proceedings, the Mexican Institute of Industrial Property (IMPI) must at all times seek to conciliate the interests in dispute. Under such case, in the event of any conflict arising from the execution of a franchise agreement, the administrative authority is inclined, in the first instance, to promote an understanding between the parties before imposing a strict sanction for the infringing conduct.
Conciliation is an alternative dispute resolution method that is used in various areas and whose primary purpose is to promote dialogue between the parties in conflict, through the intervention of an impartial third party, called conciliator, which seeks to reach an agreement that is satisfactory to both parties without resorting to a lengthy and costly jurisdictional process. In the specific context of an administrative declaration of infringement proceeding related to a franchise agreement, the IMPI assumes the role of conciliator, with the power to intervene at any stage of the process.
Either party may request conciliation and the opposing party is obliged to respond within a certain period of time and, in the event of accepting conciliation, the latter may choose to adhere to the initial proposal or formulate a counter-proposal, which must be duly notified to the opposing party for its analysis and response.
If the parties agree on the initial proposal, the conciliation agreement must be formalized within a maximum period of five working days and in the event that a counterproposal is presented, IMPI will summon the parties to a negotiation meeting at its facilities, in which minutes will be prepared reflecting the development of the dialogue and the positions assumed by the intervening parties.
During this session, IMPI will summarize the dispute, encourage the exchange of positions and facilitate the construction of an equitable agreement.
If no agreement is reached at the first meeting, the parties may request a second and final negotiation session; however, in case of unjustified non-attendance of any of the parties, the defaulting party will be sanctioned in accordance with the applicable regulations, and if both parties are absent, the conciliation will be considered rejected. On the other hand, if the agreement is reached before the second meeting, the conciliation agreement may be submitted directly to IMPI for its formalization.
It is important to point out that the conciliation does not stop the processing of the administrative infringement proceeding, which means that it continues its course in parallel, likewise, if an agreement is reached and a conciliation agreement is formalized, it will have the effect of res judicata and may be executed procedurally, as long as a resolution on the merits of the controversy has not been issued.
The agreement resulting from the conciliation between the franchisor and the franchisee not only puts an end to the administrative declaration of infringement procedure, but also acquires binding and enforceable force.
However, it is extremely important to emphasize that this conciliation procedure is only applicable in the area of administrative infringements and not in matters related to nullity, forfeiture or cancellation of industrial property rights.
That said, it is pertinent to question the applicability of other alternative dispute resolution methods, such as negotiation or mediation within the framework of a franchise agreement, i.e., is it possible to resort to other alternative justice mechanisms to resolve disputes between franchisor and franchisee?
The answer is clearly affirmative, inasmuch as alternative means of dispute resolution are perfectly viable to settle disputes arising from a franchise agreement, however, when the dispute involves an infringing conduct that falls under an administrative infringement pursuant to article 386, section XXV, and article 245 of the Federal Law for the Protection of Industrial Property, IT IS NOT RECOMMENDABLE THAT THE PARTIES OPT FOR MECHANISMS OTHER THAN THE CONCILIATION PROVIDED FOR IN SUCH LEGISLATION:
"Article 386.- The following are administrative offenses: (...) XXV.- Failure to provide the franchisee with the information referred to in Article 245 of this Law, provided that the term for doing so has elapsed and it has been requested".
"Article 245.- A franchise shall exist when with the license to use a trademark, granted in writing, technical knowledge is transmitted or technical assistance is provided, so that the person to whom it is granted may produce or sell goods or render services in a uniform manner and with the operating, commercial and administrative methods established by the owner of the trademark, tending to maintain the quality, prestige and image of the products or services which it distinguishes.
(…)
The lack of truthfulness in the information referred to in the preceding paragraph shall entitle the franchisee, in addition to demanding the nullity of the contract, to demand the payment of damages caused by the breach. This right may be exercised by the franchisee for one year from the execution of the contract. After this period has elapsed, the franchisee will only have the right to demand the nullity of the contract".
In other words, if the conflict is about an administrative infringement that must be substantiated before the IMPI and the parties attempt to resolve it by means of a conciliation agreement entered into outside the legally established procedure, such agreement will lack validity and enforceability since the formal and substantive requirements set forth in the law in reference have not been met.
Therefore, any dispute that does not derive from an administrative infringement in the context of a franchise agreement may be resolved through the intervention of a private mediator or conciliator, otherwise, in cases where the dispute is subject to an administrative declaration of infringement proceeding, the only suitable way to reach a conciliatory agreement with legal effects is through conciliation before the IMPI.
Likewise, it is essential to emphasize that, although conciliation should be the priority alternative mechanism for the resolution of conflicts derived from infringing conduct subject to an administrative proceeding before the IMPI, it is no less true that, in those cases where the controversy revolves around the veracity of the information, other methods of conflict resolution may be used.
However, its application will be relevant only when the alleged damage does not derive from the administrative procedure of declaration of infringement, but from the claim for damages between the franchisor and the franchisee.
In conclusion, conciliation between the franchisor and the franchisee constitutes a highly effective mechanism for the resolution of disputes arising between them; however, it is imperative to evaluate with meticulous precision the legal viability of the conflict submitted to conciliation, since, if such scrutiny is not observed, the resulting agreement could be invalid because it contravenes public policy provisions.
