Controversial SENADI proceedings highlight need to fight corruption within the authority

Bandera de Ecuador ondeando como foto principal del artículo publicado por la asociada de CorralRosales Katherine González en el medio online WTR

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DATE: 24-02-2022

CORRALROSALES IN THE NEWS:

-Katherine González

MEDIA:

WTR

The National Intellectual Rights Service (SENADI hereinafter) in Ecuador is in the news for the questionable decision made when registering a trademark. Our associate Katherine González has written about this specific case for WTR, an article that we summarize below.

 On 10 June 2020, Quirovara Tax Company SA applied for the mark DON BENJA (and logo) in Class 31, specifically “bananas and Musaceae.” On the other hand, Arbelaez Valencia Hermanos Coffee Roaster Mejía SA filed an Andean opposition based on the trademark DON BENJA, which covers the following goods of Class 31: “agricultural, horticultural, forestry products and grains not included in other classes; live animals; fresh fruits and vegetables; natural plant and flower seeds; animal feed; malt.”

 In November, SENADI began its unusual registrability study: rejected the Andean opposition, and granted, to everyone’s surprise, the registration of DON BENJA trademark for class 31, in favor of Quirovara company. In its resolution, SENADI:

  • Accepted that the marks were similar;
  • Accepted that the marks protected the same goods;
  • Acting ex officio, and against the applicable Andean law, reviewed a webpage and used this information to determine the main economic activity of the opponent, ignoring the goods listed in the registration certificate that was the basis of the opposition; and
  • Accused the opponent of trying to arbitrarily extend the protection of its trademark in relation to its commercial activity, again ignoring the basis of the opposition and the protection granted by the trademark.

Regarding the registrability of trademarks, Article 136 of Decision 486 of the Andean Community establishes as follows:

“Those signs whose use in commerce unduly affects a third party’s right may not be registered as trademarks, in particular where:

  • They are identical or similar to a trademark previously applied for registration or registered by a third party, for the same products or services, or for products or services in respect of which the use of the trademark may cause a risk of confusion or association (…)

SENADI´s resolution

On 8 December 2021, SENADI issued a resolution stating that an adequate trademark comparison had not been carried out, and requested the highest administrative Authority, through an ex officio review procedure, to decide whether the applied-for mark should be granted. This request implies that the parties were denied appeal rights, as the appeal authority would already have issued a decision.” Katherine states.

Seven days later, SENADI annulled the office action as being “inadmissible”. It found that it contravened Article 76 of the Constitution. The next day, on December 16, 2021, through Resolution No SENADI-2021-RS-14973accepted the voluntary cancellation of the trademark DON BENJA by Quirovara. The cancellation request had been filed only the day before

This situation is surprising, since, as mentioned by our associate, “Usually, the voluntary cancellation process takes between six and 12 months; however, in this case, this request was submitted and accepted within 24 hours.” She also adds that “It is noteworthy that the agent who filed the mark in dispute was the SENADI director deciding on the matter, who immediately resigned after the resolution became public.”

Conclusion

For González, this case highlights the urgent need for SENADI to:

  • Train its officials so that all actions are carried out in accordance with national and Andean regulations;
  • Strictly apply the legal norm requiring the processing of cases in a chronological order; and
  • Fight strongly against corruption.

“If these recommendations are applied, it is expected that the negative impact on users will decrease considerably, the quality of SENADI’s decisions will improve, and its reputation will recover”, she concludes.

If you want to read the complete news (under registration), click here

The ultra vires principle under Ecuador corporate law

Edificio alto de cristal y foto de Milton Carrera, asociado de CorralRosales, firma de abogados de Ecuador

The Latin phrase ultra vires (abuse of power) is applied in corporate law when a company exceeds the activities determined in its corporate purpose. The ultra vires principle implies that the company lacks the capacity to perform acts or contracts that are outside the scope of the corporate purpose.

 The doctrine states that the determination of the ultra vires condition of an act or contract is given by an element alien to them: the purpose of the company. Consequently, ultra vires acts or contracts do not have defects in their conformation nor were executed by administrators without sufficient capacity to bind the company.

Likewise, the doctrine establishes that the ultra vires principle has a double purpose: (i) it is a protection mechanism for creditors who, based on a principle of determination of the corporate purpose, have full knowledge of the scope of the activities of the company with which they contracted; and (ii) an instrument for the protection of shareholders who invest in a company in which the scope of action for the development of its business is determined.

 Article 3 of the Law on Companies, applicable to stock corporations and limited liability companies, states in its pertinent part that:

 “The corporate purpose of a company may, in general, include one or several lawful economic activities, except for those that the Constitution or the law prohibits or reserves for other types of entities. The corporate purpose must be clearly established in its articles of association or incorporation document

Morever, it provides that:

The acts or contracts executed or entered into in violation of this article shall not bind the company, but the administrators who have executed or entered into them, or the partners or shareholders who have authorized them, shall be personally and jointly and severally liable before third parties in good faith, for the respective damages and losses.”

 Therefore, it is established that these acts or contracts do not bind the corporation, but the administrators who performed them, and even the shareholders who authorized them, must respond for the damages caused. The latter because the purpose of the doctrine is the protection of the third party in good faith that contracts with a company assuming that it does so within its corporate purpose.

However, some trends in modern corporate law deviate from the ultra vires principle by limiting the operational capacity of the company when what is sought is to allow companies to perform all lawful acts or acts permitted by law.  In this sense, the unnumbered article of the Law on Companies, titled “contents of the incorporation document”, paragraph 6, when referring to the simplified stock corporation, establishes that, among other requirements, it must include:

a clear and complete statement of the activities foreseen in its corporate purpose, unless it is expressed that the company may perform any lawful commercial or civil activity”. 

In this way, the simplified stock corporation may opt for an undetermined corporate purpose, which means a radical change to the traditional corporate approach.

In conclusion, the ultra vires principle is currently applicable to stock corporations and limited liability companies, but not to simplified stock corporations, which have opted for an indeterminate object.  We do not find a valid argument why this flexibility recognized to the SAS has not been extended to stock corporations and limited liability companies.

Milton Carrera
Associate at CorralRosales
mcarrera@corralrosales.com

Investments in Ecuador: implications of Law of Economic Development and Fiscal Sustainability

Inversiones en Ecuador - Implicaciones de la Ley de Desarrollo Económico y Sostenibilidad Fiscal - CorralRosales

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DATE: 07-02-2022

CORRALROSALES IN THE NEWS:

-Andrea Moya

MEDIA:

LexLatin

The new article published by LexLatin, where you can read the interview to Andrea Moya, our partner and leader of the tax area of the firm, discusses investments in Ecuador: implications of the Law of Economic Development and Fiscal Sustainability.

Objective of the Law of Economic Development and Fiscal Sustainability

Moya explains that the main objective of this Law, which is the only project of the Lasso administration that is in force, is to provide the State with additional resources with which to reduce the fiscal deficit and organize public finances. She adds that “temporary wealth taxes were established, a tax regime was created to regularize assets abroad, the income tax that will affect the highest income earners was increased (…) and certain elements of the same tax were simplified. These elements include the elimination of tax incentives for investments in basic industries, prioritized sectors and public-private alliances that had been created in previous years”.

What are the main challenges of the Law of Economic Development and Fiscal Sustainability, considering that we still have to deal with the pandemic?

Our partner answers this question by placing special emphasis on the fact that “it is important to distinguish the medium- and long-term objectives proposed by the Law, such as the organization of public finances in the face of current issues such as the pandemic”. To this she adds that the reduction of the fiscal deficit, ”is expected to boost the economy with the creation of quality employment, which is the greatest need of Ecuador”.

What are the main regulatory changes in customs and foreign trade that are implemented with this Law?

For Moya, the key is the exclusion of the value of freight for the calculation of customs duties. This was done to reduce its impact on the cost of imported goods and to curb the effect of the significant increase in freight rates in the world market. In addition, this Law, “includes reforms to reduce the time of administrative processes in charge of the Customs Authority, implement technological systems for customs control and the implementation of advance consultations to provide security to the importer on the treatment that will be given to the goods.

In this same area, the Government is negotiating several trade agreements with the objective of facilitating access to international markets for exports.

If you want to read the full article, click here

Acquisition of pharmaceuticals and strategic health goods

Boletín de CorralRosales sobre fármacos y bienes estratégicos de salud - Foto de medicamentos, laboratorio

Through Executive Decree No. 337 issued on January 27, 2022, published in the Official Register (Fourth Supplement) No. 630 of February 1st, 2022, the Law of the National Public Procurement System Regulations (hereinafter the “Regulation”) were amended replacing the Section related to the “ACQUISITION OF PHARMACEUTICALS AND STRATEGIC HEALTH GOODS”. The purpose of this reform is to achieve greater controls, have adequate planning, guarantee the quality of public expenditure, and avoid shortages of health units that are part of the Integral Public Health Network (IPHN).
The main aspects of this reform are:

1.    In order to select and incorporate the supplier of pharmaceuticals or strategic health goods (hereinafter the “Supplier”) in the electronic catalog of the public procurement portal (hereinafter the “Portal”), the corporate reverse auction procedure will be used.

2.    The entities of the IPHN, together with SERCOP, will select the Supplier that will be included in the Portal. The purchase orders will be generated in the Portal for the acquisition of the health goods they require on an independent and periodical manner.

3.    Once the selection procedure is completed, SERCOP will award the selected suppliers, with whom it will enter into a framework agreement that gives the supplier the right and obligation to be included in the Portal’s electronic catalog. If the framework agreement is not signed, the selected supplier will be declared as a failed awardee.

4.    Once the Supplier is enabled in the Portal, the entities will be able to make direct public purchases by generating the corresponding purchase orders.

5.    For the acquisition of pharmaceuticals, it will be necessary that such goods are included in the current National Plan for Basic Medicines, or their acquisition must be authorized according with the provisions issued by the National Health Authority.

6.    Procedures for the acquisition of pharmaceuticals and strategic health goods:

6.1.    Electronic Catalog: IPHN contracting entities will acquire pharmaceuticals and strategic health goods through this procedure.

6.2.    Exceptionally and in accordance with the provisions of the Regulation, acquisitions may be done through the following procedures:

6.2.1.    Institutional Reverse Auction, as long as the pharmaceuticals or strategic health goods are not available in the electronic catalog under centralized acquisition models.

6.2.2.    Single Supplier of Pharmaceuticals when the manufacturer or supplier is unique in the market and provided that it is not available in the electronic catalog. This will be verified through a market study.

6.2.3.    Acquisition through international organizations or agreements as long as their acquisition optimizes public procurement, guaranteeing the quality, safety and efficacy of pharmaceuticals and strategic health goods to be acquired.

6.2.4.    Direct import when special medications are required for specialized treatments that are not included in the Portal’s electronic catalog.

6.2.5.    For the cases foreseen above, if there are no established procedures for the acquisition, it will proceed in accordance with the legal regulations of the country in which the pharmaceuticals or strategic health goods are contracted, or the commercial practices or business models of international application; or, failing that, respective procedural agreements will be previously subscribed under centralized procurement models.

7.    IPHN procuring entities should perform adequate planning processes for the acquisitions.

8.    Acquisitions will be subject to quality, safety, efficacy, technical data sheets, random post-registration controls, in the places of manufacture, storage, transportation, distribution and traceability. The traceability system will consist of the individual and unequivocal identification of each unit of pharmaceuticals or strategic health goods to be delivered, which will allow monitoring throughout the entire distribution chain.

9.    In order to carry out selection procedures for corporate purchase, an Inter-institutional Committee will be formed composed of the highest authorities or delegates of the SERCOP, Ministry of Public Health, IESS, ISSFA and ISSPN.

10.    All entities, public or private, that participate in the execution of the Decree must ensure the protection and confidentiality of patient data.

11.    When the Supplier does not comply with the purchase orders for pharmaceuticals and strategic health goods generated in the electronic catalog tool by the IPHN entities, the values derived from the execution of the guarantees will be deposited in the SERCOP account to be distributed among the health subsystems of the IPHN.

12.    All medical devices, supplies or goods that currently appear in the catalogs of standardized goods and services, and that could be declared strategic health goods, must maintain this category until the termination of the respective framework agreements.

13.    Until the SERCOP signs the framework agreements with the Suppliers for the acquisition of medicines and strategic health goods whose reference budget does not exceed the coefficient of 0.0000002 of the initial State budget (US$7,099.68), the contracting entities of the IPHN may carry out low value procedures if it is not possible to use any of the procedures established in the Law of the National Public Procurement System on a timely manner. 

14.    Until SERCOP, together with the Interinstitutional Committee, carries out the process of cataloguing medicines and strategic health goods, the IPHN contracting entities may acquire them through the exceptional processes established in the Regulation through centralized or decentralized acquisitions, guaranteeing the supply of these products.

Ricardo Mancheno - Foto en blanco y negro

Specialist in Government Procurement
Ricardo Mancheno, partner at CorralRosales
rmancheno@corralrosales.com
+593 2 2544144

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NOTE: The above text has been prepared for informational purposes. CorralRosales is not liable for any loss or damage incurred as a result of acting or failing to act on the basis of the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm in Quito / Guayaquil, Ecuador.

CORRALROSALES

Compliance plan regarding the implementation of the Data Protection law in controlled entities

Imagen para boletín legal de CorralRosales, firma de abogados de Ecuador. Aparece una imagen oscura con destellos más claros

Through resolution SB-2021-2126 subscribed on December 2, 2021, and published on the Official Gazette 604 of December 23, 2021, the Superintendence of Banks (hereinafter the “Superintendence”) reformed the “Regulations on managing operating risk” (hereinafter the “Regulations”) applicable to “banks, financial service entities and ancillary service entities.”

This reform updated the Regulations to consider the risks arising from the entry into force of the Data Protection Law on May 26, 2021.

Article 23 of the Regulations establishes that controlled entities must “(…) generate plans and programs that allow them to comply with provisions of the Data Protection Law.”

It is relevant to note that in the first transitory provision of the Regulations, the Superintendence states that “(…) it is the controlled entities responsibility to present to the Superintendence of Banks, until March 31, 2022, a compliance plan in relation to all obligations recognized on the Data Protection Law.”

Rafael Serrano, asociado de CorralRosales, con traje y corbata. En el fondo, una parte de Guayaquil (Ecuador)

Specialist in Data Protection
Rafael Serrano, partner at CorralRosales
amoya@corralrosales.com
+593 2 2544144

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Click here and subscribe.

NOTE: The above text has been prepared for informational purposes. CorralRosales is not liable for any loss or damage incurred as a result of acting or failing to act on the basis of the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm in Quito / Guayaquil, Ecuador.

CORRALROSALES