Law for the transparency, prevention and combat of improper practices in advertising contracting: Where are we?

Law for the transparency, prevention and combat of improper practices in advertising contracting: Where are we?

Almost one year ago, the decree issuing the Law for the transparency, prevention and combat of improper practices in advertising contracting (hereinafter, the “Advertising Contracting Law” or the “Law”); it entered into force on September 1^st, 2021.

In this newsletter, we will focus on the most relevant aspects that have arisen since the entry into force of the Law and on some issues pending of solution, clarification or regulation.

1. THE ADVERTISING CONTRACTING LAW. 

The Law is not appliable to the content of advertising; rather, it focusses on regulating the acquisition of advertising spaces by establishing obligations and restrictions on advertisers, agencies and media in those acquisitions. The main restriction is that it imposes a prohibition on agencies reselling advertising spaces and the only way in which an agency may acquire an advertising space is if it is acting on behalf of an advertiser.

The main obligations and restrictions established by the Advertising Contracting Law are summarized below, depending on the economic agent:

2. PROGRAMMATIC ADVERTISING AND TECHNOLOGY PLATFORMS.

The Advertising Contracting Law did not clearly regulate technology companies related to programmatic advertising (e.g. DSPs, SSPs, Ad Exchanges, etc.), since said Law only aimed at expressly regulating agencies, advertisers and media companies. In this sense, it is still pending that either the legislator or the Federal Commission of Economic Competition (authority in charge of addressing complaints for violations to the Law) issue guidelines that help to fill the gaps and clarify the gray areas created by the Law, so that technology companies can have certainty in its business operations.

While this happens, technology companies of programmatic advertising should: (i) analyze their operation in order to determine the way in which they could comply with the Law; (ii) based in their operation, design and implement a strategy which allows them to conclusively argue that they are outside the scope of the Advertising Contracting Law, and (iii) have duly protected (from an Intellectual Property perspective), the technology they use for the provision of their services.

3. INFLUENCERS.

Another concern that has arisen from the interpretation of the Advertising Contracting Law is whether an influencer falls within the scope of said Law. 

On one hand, there is the interpretation that an influencer may fall in the definition of “Media” set forth in the Law, which would result in: (i) the influencer having to comply with the obligations applicable to Media companies (e.g. sending the invoice directly to the advertiser, not giving any kind of commission/fees to the agencies, etc.), and (ii) the agencies that engage influencers for the performance of its clients’ campaigns, must be transparent about the costs of hiring the influencer as well as to comply with the other obligations that apply to agencies in the contracting of advertising spaces.

On the other hand, there is also the interpretation that an influencer should not be considered as Media, since the media is indeed used by the influencer to send the advertising message (e.g. a social media, a technology platform, etc.). 

Such interpretations create great uncertainty in the operation of agencies and technology platforms that work with influencers and that hire influencers through agencies and advertisers, so it is advisable to analyze in detail the influencers’ operation and hiring model in order to verify compliance with the Law.

4. CONSTITUTIONAL CONTROVERSIES.

Due to the harm that the Advertising Contracting Law may create in the competence of the Mexican Federal Institute of Telecommunications and the Federal Commission of Economic Competition, both institutions initiated Constitutional Controversies against the Law, before the Mexican Supreme Court of Justice.

1. Federal Institute of Telecommunications (“IFT” by its Spanish acronym).

IFT’s constitutional controversy was admitted on July 15th, 2021 and was assigned the file number 93/2021. In said proceeding, the IFT requested the Supreme Court that articles 1 and 11 of the Law are declared invalid; it also requested the suspension of the effects of said Law, but the suspension was denied. 

The parties in this controversy are the following: the Federal Executive Power and the Chambers of Representatives and Senators of the Mexican Congress, as the authorities who issued the Law. The Federal Commission of Economic Competition acts as an interested third party.

The response by the Chamber of Senators was filed extemporaneously. Likewise, it is known that there is an appeal (109/2021) filed by the IFT against the suspension denial, which was dismissed in session of May 18^th, 2022, due to a lack of legal basis.

To date, only the resolution is pending.

2. Federal Commission of Economic Competition (“COFECE” by its Spanish acronym).

COFECE’s constitutional trial was admitted on July, 2021 under file number 94/2021. COFECE challenges the decree through which the Advertising Contracting Law was issued, as well as its promulgation by Congress and the Mexican President. COFECE also requested the suspension of the effects of the Law, but the suspension was also denied. 

Coincidentally, in this file the response of the Chamber of Senators was also filed in an extemporaneous manner. In said file, there is an appeal (83/2021) initiated due to the refusal of granting the suspension of the effects of the Law. This appeal was dismissed in a session of October 13^th, 2021, due to a lack of legal basis.

To date, only the resolution is pending.

5. CONSTITUTIONAL APPEALS.

Due to the violations that the Advertising Contracting Law is causing to the constitutional rights of private parties, several constitutional appeals (juicios de amparo) were filed against the Law, mainly by advertising and media agencies and various associations.

In said constitutional appeals, the main claims alleged were related to violations to constitutional rights of the right to free economic competition, freedom to work, legal security, equality, among others.

Many constitutional appeals have already been decided by the judges in a favorable manner; in many cases the judges have decided that the Advertising Contracting law is unconstitutional in its entirety. However, many more constitutional appeals are still pending to be decided due to several factors, including the high workload of the courts and the pandemic caused by SARS-COV2.

6. OFFICIAL REPORTS.
   1. COFECE. Emergency provisions for the processing and filing of complaints about possible infringements to the Advertising Contracting Law (the “Emergency Provisions”) . 

Due to the fact that the Law grants COFECE competence to know and initiate proceedings resulting from the Law, said Commission prepared Emergency Provisions in connection thereto.

Without taking the approach (for now) to analyze the validity of said provisions, we may say that these provisions were issued with the purpose of setting forth the rules to be followed in such proceedings which, in summary, state that:

“1. The investigations for infringements to article 10 of the [Advertising Contracting Law] will start by a complaint and will be in charge of the Investigative Authority.

2. Complaints filed by persons who have no legal interest in the matter, will not be admissible, in terms of article 2 of the Advertising Contracting Law. 

3. In terms of the Federal Law of Economic Competition these investigations may take up to 5 periods of 120 business days each.

4. Once the investigation is concluded and, if there are elements of probable responsibility, the defense staged granted by law will proceed, through a proceeding developed in the form of a trial, where the evidence and arguments of those summoned will be heard and analyzed. 

5. Finally, the Plenary will resolve whether or not the conduct proves the infringement to article 10 of the [Advertising Contracting Law] and, if it is the case, will impose the applicable sanctions.”  

2. Taxpayer’s Protection Agency (“PRODECON” by its Spanish acronym). 

One of the issues that has caused a lot of uncertainty in the Advertising ecosystem, has been the one related to the obligation of media companies to “send the invoice for the purchasing of advertising spaces, directly to the advertiser, even when the agency makes the payment on its behalf”, contained in article 6 of the Advertising Contracting Law. The foregoing, given the fact that by establishing “send to the advertiser” and not “generate in the name of the advertiser”, it can be interpreted that the media company could still invoice the agency which acquires the advertising spaces and just send a copy of such invoice to the advertiser.

In this regard, criterion 13/2021CTN/CS/SASEN (approved at the 10^th ordinary session of November 26^th, 2021) by PRODECON, clarifies the opaque legal language used in article 6 of the Advertising Contracting Law, by considering that in said operation, for tax purposes, the requirements for “payment of expenditures through third parties” referred in article 41 of the Regulations of the Income Tax Law, related to the rule 2.7.1.13 of the Miscellaneous Tax Resolution, are met. 

The aforementioned means that for PRODECON exists, in the Advertising Contracting Law, an obligation for the agencies to pay the contracted advertising spaces (on behalf and by order of advertisers) through trackable financial means and to request to the media that the invoice is issued using the name of the advertiser, with all the relevant tax requirements, as the advertiser is the final owner of the business (transaction), that is, of the acquisition of the advertising space.   

3. IFT’s recommendations.

In the Official Report P/IFT/1711211660, of the ordinary session of November 17^th, 2021, the IFT recommended to abrogate (eliminate) the Advertising Contracting Law or, reforming it, in order to regulate the transparency of the sector, but not the aspects of economical competition it intends to.

Grosso modo, IFT argues that it is wrong that the Law assumes the existence of commercial practices that constitute an undue advantage for certain economic agents because, in order to declare such situation, an investigation proceeding established in the Federal Law of Economic Competition should have been followed by the jurisdictional body, which did not happen. 

Likewise, IFT pointed out that the Law particularly limits the actions of the agencies in the sale of the advertising spaces imposing regulatory burdens on them without a valid legal justification. It considers that the foregoing is a distortion to the process of competition and free concurrence in the sale of advertising spaces in media corresponding to the Telecommunications and Broadcasting sectors.

7. BILL TO REFORM THE ADVERTISING CONTRACTING LAW. 

There is a legislative initiative to reform articles 5 and 6 and to add a subparagraph XI to the article 3 of the Law.

The initiative intends to introduce the “figure” of “media representative/agent” defining it as the “Physical or legal person whose corporate purpose is the representation of the media in order to manage advertising contracts on its behalf. It is generally a company of the same economic group and helps to optimize the commercial and administrative operations, including billing and collection”.

With this addition a media representative would be allowed to send the invoice directly to the advertiser and deliver the information related to the broadcasting of the advertising campaign. 

This initiative is currently pending an opinion of the Chamber of Senators.

If you require more information regarding the way in which the Advertising Contracting Law may impact you or to verify compliance with it, please contact the following persons:

Luis López Linaldi – Partner 

luis.linaldi@s-l.mx

Christian Parra – Associate 

christian.parra@s-l.mx