On June 3, 2021, a new Law was published in the Mexican Official Gazette, related to transparency and lawful practices in the advertising industry. This new law will enter into force on September 1, 2021 and includes provisions that directly affect the business and activities of advertisement agencies, media owners and advertisers.
A general summary of the Law can be explained as follows:
- The purpose of the law is to implement legal mechanisms to avoid unlawful practices in the advertising industry. However, in doing so, the new Law is banning certain conducts that are common practice in such industry.
- For example, the new Law includes a provision that prohibit agencies to acquire, on their own right, advertising inventories with the purpose of re-selling them to clients on a later date. Specifically, the Law requires that agencies only acquire ad spaces once they have been instructed to do so by clients.
- Furthermore, the Law requires agencies to draft written agreements for each project or acquisition of ad spaces. The conditions for consideration and payment for such services must be expressly stated in the agreement, and the agencies cannot receive any additional compensation other than the one expressly stated in the agreement. Essentially, these prohibitions prevent agencies from engaging in principal transactions, in the manner that is done presently.
- The new Law also includes some provisions enlisting the characteristics of invoices related to these services. The provisions are aimed at strengthening the tax controls of the advertising industry.
- Additionally, this new Law prohibits the owners of media to grant discounts agencies. Essentially, it is indicated that any discount offered by the media owner to the agency must be carried over to the client of the agency.
- Moreover, the Law prohibits media owners to give any incentives or payments in kind to agencies. In other words, this prohibition prevents agencies and media owners to enter into barter agreements, in the way they have been carried out so far in our country.
- The Law prohibits that a single entity provides services both to media owners and to clients seeking to advertise their goods or services, with the purpose of avoiding conflicts of interests and unlawful practices related to them. As an alternative, the Law allows that separate companies belonging to the same economic group engage in these activities.
- The Law includes penalties for non-compliance of these provisions, which include fines of 2% or 4% of the agencies and media owners revenue, and it is mentioned that such penalties would be independent of any “civil” or “criminal” responsibility related to any illegal activities. However, the penalties are ambiguous and not precisely defined, which creates some uncertainties regarding the contingency for agencies, as the consequences of not complying with the provisions do not seem to be clearly stated.
- Finally, it should be noted that the Law is brief and was approved without significant discussion in Congress or with representatives of the advertisement industry, which has caused that its text is unclear and ambiguous at certain provisions. Therefore, there is still some speculation on the specific legal implications it may have, as there is some room for interpretation.
Considering these implications, it may be possible to explore legal alternatives to contesting the validity of this Law via an Amparo Lawsuit, which is a legal action aimed at invalidating the Law on grounds of constitutionality of the challenged provisions.
In our opinion, this Law violates some provision of both Mexico’s Federal Constitution and the International Treaties, particularly related to rights such as freedom of commerce, freedom of contracts, labor rights and legal certainty (as it includes a number of provisions that are ambiguous or unclear, in the least).
We consider that it is essential to explore legal options available in connection with this new Law, as it will likely bring important changes in the business of agencies, because its implementation would ban common practices in the advertisement industry and jeopardize income sources of agencies.
Moreover, it is important that agencies and media owners prepare for the implementation of this Law, to adjust existing agreements in compliance with the new provisions, and to negotiate future contracts related to advertisement.
This summary includes a general overview of the new Law, but we remain at your service to address any specific questions or topics in which you would like to receive a more comprehensive opinion.