Terms and conditions of the productive employment agreement

Terms and conditions of the productive employment agreement - CorralRosales - Lawyers Ecuador

In 2015 the fixed-term employment agreement, which allowed the hiring of employees for one-or two-years, was repealed from the Labor Code. As a result, the open-term agreement became the most widespread agreement for employment relationships covered by the Labor Code.

The open-term employment agreement grants the employee a high degree of stability, since it protects him/her in the event of unilateral termination and grants him/her the right to the payment of significant severance packages.

The pandemic caused by Covid-19, and its strong impact on the Ecuadorian labor market, made it necessary for the government to regulate new contractual mechanisms that make the hiring of employees more flexible, that adjust to the reality of each company and guarantee employment rights.

Since March 2020, the following types of agreements have been regulated: (i) agreement for work or services within the core business; (ii) emerging employment agreement; (iii) employment agreement for productive sectors, among others.

This article analyzes the employment agreement for productive sectors, also known as “productive employment agreement”, regulated by the Labor Ministry on October 30, 2020, through Ministerial Agreement MDT-2020-220. The regulation seeks to promote job creation in these sectors through a mechanism that allows them to cover the different needs of their activity.

Pursuant to Article 2 of the Organic Code of Production, Commerce and Investment (“COPCI”): “Productive activity shall be considered as the process by which human activity transforms inputs into lawful, socially necessary and environmentally sustainable goods and services, including commercial and other activities that generate added value.

As a consequence, this agreement may be implemented by companies whose purpose or activity is (i) to transform inputs into lawful goods and services; (ii) to generate commercial activities; and/or (iii) to generate added value.

The productive employment agreement subjects employment relationships to the following conditions:

  • Term: The term will be equivalent to the duration of the work, service or activity to be performed, up to one year, renewable once for the same term.

The employment relationship will be terminated upon completion of the work, the service or the established term, without the need of any other formality. The employer must pay the employee the proportional amounts corresponding to the thirteenth and fourteenth remunerations and vacations, without the payment of a resignation bonus or severance payment for unfair dismissal.

If at the end of the agreed term the employment relationship continues, the agreement becomes an open-termeagreement.

  • Trial period: It may provide for a trial period of up to 90 days.
  • Special working hours:
  • The 40 hours per week may be distributed in up to 6 days per week.
  • The parties may agree to increase the hours of the daily workday in exchange for additional rest days. In no case the workday shall exceed 12 hours per day.
  • If the activities performed require uninterrupted services, the parties may agree on consecutive working days, which may not exceed 20 consecutive working days.
  • Night shift: If more than 50% of the workday is performed between 6:00 a.m. and 7:00 p.m., the entire workday will be considered a day shift, i.e., night shift surcharge is not applicable.
  • Living expenses: When geographical characteristics limit the employee´s free mobility to their place of residence, the employer must provide employees with housing, food and transportation.
  • SUT registration: The employer has 15 days to register the employment agreement in the Labor Ministry online system “SUT”.
  • Severance: In the event of early termination by unilateral decision of the employer -before the culmination of the service or the expiration of the term- employees are entitled to the payment of a severance package for unfair dismissal.

In conclusion, the productive employment agreement is a flexible employment mechanism, since it allows to dynamize the labor market and with it the country´s economy. In turn, employers can hire employees in compliance with employment obligations, adjusting to their needs and without generating additional costs upon termination of the employment relationship.

Marta Gisela Villagómez
Associate at CorralRosales
mvillagomez@corralrosales.com

How to create effective Non-Disclosure Agreements?

How to create effective Non-Disclosure Agreements?

Competition among companies and the business opportunities, ventures, technologies and constant expansion into new international markets mean that companies must protect that which allows them to stand out and differentiate themselves from their competitors, meaning their information, their “singularities”.

This information and singularities can be of various kinds, for example: financial statements, data, processes, know-how, a specific material, recipes, a product, a strategy, a skill, some knowledge, a supplier, or a formula. In general, any business information that is confidential, sensitive, private and that they wish to keep secret because of the importance it represents for the viability of the business.

Non-Disclosure Agreements (“NDAs”) are documents that allow the protection of company information. An NDA gives those who sign it the security of being able to share information in the different stages of the commercial relationship (pre-contractual, contractual and post-contractual). That is to say, in the event that in the pre-contractual stage, it is decided not to continue with the commercial relationship, the information that has been provided will be protected. The same applies when the contractual relationship ends.

The following are some of the elements that must be included in the NDA for it to be effective:

  • Ownership of the information. It must clearly identify who is the owner of the confidential information that will be shared with the other party and how it is protected.
  • Detail, limitation and scope of the information to be shared. Within the agreement it is important to state what type of information will be shared between the parties so that it can be properly identified and individualized, thus providing certainty for the parties. The scope of the confidentiality obligation refers to the information that will be covered by this agreement, its characteristics, the areas involved that handle it and know it, identification, the level of care of the information, its treatment once the NDA is terminated.
  • The recipient party must be clear about the scenarios under which it is authorized and may disclose confidential information. This may occur, for example, in the case of its own employees, its suppliers or in response to a requirement made by a competent authority.
  • The term during which the agreement will be in force must be specified, which means, the time that the confidential information will be shared and the period during which the obligation to maintain the confidentiality of the information will be in force. The term of the obligation to maintain the confidentiality of the information is usually agreed for several years and may even exceed the commercial relationship between the parties or be indefinite. The term will depend on the nature of the information.
  • The penalty, fine or sanction to be imposed on the parties in case of breach of their obligation to maintain in reserve and confidentiality the information they have come to know must be quantified and respond mainly to the importance and sensitivity of the information that has been shared and to the damages caused against one of the parties.
  • Non-confidential information. All information that will not be considered confidential and therefore is not protected by the NDA should be noted. An example of this type of information is the one that can be found in public records of free access.
  • Conflict resolution. Adequate mechanisms should be established to provide a prompt remedy in the event of a possible breach by any of the parties. It is advisable to establish a contractual domicile. Arbitration is considered to be more agile than the ordinary administration of justice.

It is necessary to take into account that each case has its peculiarities and therefore the NDA must be designed for specific situations.

Darío Escobar
Associate at CorralRosales
descobar@corralrosales.com

Enforceability and validity of shareholder agreements

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Shareholders’ agreements are defined as those agreements entered into by some or all of the shareholders of a company in order to complete, define or modify their internal relations and the application of the rules stipulated in the bylaws. By means of these agreements the shareholders can regulate a great diversity of matters, without contravening the corporate bylaws, but determining their application to specific cases within the life of the company.

There are three types of shareholders’ agreements:  

  1. Relationship agreements: these regulate the reciprocal relationships of the shareholders directly and are therefore characterized by the fact that they have no repercussions whatsoever on the company. Some examples include pre-emption rights, drag or tag along clauses, joint sale rights, lock up obligations, among others.
  2. Attribution agreements: shareholders undertake certain obligations in order to grant advantages to the company. The most common attribution agreements include financing obligations from shareholders, but they may also include non-compete obligations, or similar.
  3. Organizational agreements: these regulate the organization, operation and decision-making within the company, such as, agreements on the management structure, on the dividend policy, on the power of a shareholder to request the dissolution and winding-up of the company if certain conditions are fulfilled, etc. These agreements are usually arranged through vote syndications.

Traditionally, the problem with respect to shareholders’ agreements revolves around two main issues: (i) their enforceability vis-à-vis the company, i.e., whether or not the agreement binds the company; and (ii) the matters that may be regulated by means of these agreements.

  1. The enforceability of shareholders’ agreements

Shareholders’ agreements have a contractual nature, and therefore are law for the parties in accordance with article 1561 of the Civil Code, but, naturally, they do not bind those who do not enter into them. Since the company in general does not enter into the shareholders’ agreement, it is considered as a third party thereof. This derives in its unenforceability against the company, the shareholders who have not entered into it, and its managers, which can significantly complicate its overall enforceability.   

Prior to the entry into force of the Companies Modernization Law, in December 2020, the law expressly provided for this unenforceability by stating that:  

Agreements between shareholders which establish conditions for the negotiation of shares shall be valid. However, such agreements shall not be enforceable against third parties, notwithstanding any civil liabilities that may arise, and in no case may they harm the rights of minority shareholders.”[1]

As a consequence, the company was left outside the scope of such agreements. The most common example is the recordation of a transfer of shares in the company’s Registry of Shares and Shareholders, when the transferability of said shares was limited by a shareholders’ agreement. Since the latter does not bind the company, the recordation is fully valid and the only remedy available to the injured party is to lodge a civil action for damages against the shareholder who breached the agreement.  

In February 2020, with the introduction of the Simplified Stock Corporation (S.A.S.), the regulation of shareholders’ agreements shifted, as their enforceability against the S.A.S. is established, as long as the company is notified of the agreement:

(…) shall be complied with by the company when they have been submitted in the offices where the management of the company operates. Otherwise, despite their validity inter partes, such agreements shall become unenforceable for the simplified stock corporation.[2]

Subsequently, with the Law of Modernization of Companies, the regulation of the S.A.S. regarding shareholders’ agreements was extended to corporations and limited liability companies, so that they are obliged to respect such agreements when they have been notified of them. Thus, going back to the example mentioned above, the legal representative of the company will not be able to record a transfer of shares if it violates a shareholders’ agreement. In this way, the new regulation solves the problem of the unenforceability of these agreements.

      2. Matters regulated by shareholders’ agreements

The Law on Companies, when regulating shareholders’ agreements for S.A.S. (extended to corporations and limited liability companies), includes the following as matters that may be regulated by means of such agreements: 

the purchase or sale of shares, the preference for acquiring them or for increasing the capital stock, the restrictions for transferring them, the exercise of voting rights, the person who is to represent the shares at the meeting and any other lawful matter[3]

In order to establish what is understood by “any other lawful matter” it is necessary to consider not only the general law of obligations and the fundamental principles of private law, but also the mandatory rules contained in the Law on Companies. Consequently, it is not possible to agree, for example, on the transfer of shares by means of a private document, a quorum for attendance at general meetings lower than that established by law or the bylaws, or to regulate procedures for capital stock increase or dissolution and winding-up of the company.

In this regard, the Corporate Governance Standards issued by the Superintendence of Companies (although not binding, it is advisable to follow them to ensure good corporate practice), establish that shareholders’ agreements:

(…) should not bind or limit the exercise of the voting rights of any member of management on the Board of Directors, who shall faithfully fulfill their duty of loyalty and due diligence to the company, over and above private interests.”[4]

Therefore, the fact that the abovementioned article of the Law on Companies follows a numerus apertus system does not mean that all agreements entered into by the shareholders (lawful from the point of view of the law of obligations) are to be considered valid.

[1] Art. 191 of the former Law on Companies.

[2] Unnumbered article titled “Shareholders’ agreements” of the Law on Companies

[3] Ibid.

[4] Paragraph 6 of the section entitled “SHAREHOLDERS’ RIGHTS AND EQUITABLE TREATMENT” of the Corporate Governance Standards.

Sofía Rosales
Associate at CorralRosales
srosales@corralrosales.com

SENADI ignored the existence of renowned marks through an appeal resolution

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The Court of Justice of the Andean Community, a supranational body with competence to ensure compliance with Andean regulations, their uniform application and interpretation in the member countries, in the exercise of its power to interpret Decision 486 of the Andean Community, has repeatedly defined the figure of a renowned trademark or also known as highly renowned. Thus, it has expressly said that: “The notorious trademark regulated in Decision 486, which we can call an Andean notorious trademark, is that which is notorious in any member country of the Andean Community (…). The renowned trademark, for its part, is not regulated in Decision 486, but due to its nature, it receives special protection in all four member countries. “[1] Departing from the interpretation of the Andean Court, the National Service of Intellectual Rights (SENADI), in an appeal resolution, expressly ignored the existence of this figure, arguing that it is not specifically provided for in the Andean regulations.

The renowned trademark, whose special protection has been repeatedly recognized by the Court of Justice of the Andean Community, presupposes its knowledge by not only the specific consumers of the product or service in question, but that this level of knowledge is extended to the general public, even to those who do not consume the products or services protected by the trademark. The special protection on this type of trademarks seeks to prevent third parties’ illicit use of the prestige they possess.

An example of the special protection that the Andean regime grants to highly renowned trademarks is shown in the evidentiary field. Thus, it has been expressly established through numerous preliminary rulings that the renowned trademark does not need to be proven, since it is comparable to what is commonly known as a well-known fact.

Although this special protection is not expressly regulated in Decision 486 of the Andean Community or in the Organic Code of the Social Economy of Knowledge, Creativity and Innovation, as it has been expressly recognized by the Court of Justice of the Andean Community, through preliminary rulings, it forms an integral part of the Andean community law, to which Ecuador is subject to.

In the case at hand, a person applied for the registration of the trademark PIZZAS DEL VALLE[2], to protect the services of bars, cafes, restaurants, catering (international class 43 services). Against this request, a third party, owner of the DEL VALLE trademark, filed an opposition based on the similarities between the signs and the renowned nature of its trademark. In first instance, SENADI just focused on comparing products and services, and concluded that the trademark applied for was registrable. There was no pronouncement on the highly renowned name argued by the opponent.

The opponent filed an appeal in which, among other arguments, he insisted on the absence of a pronouncement on the argument of the highly renowned trademark. On this issue, SENADI pointed out: “As for the appellant’s allegation regarding the highly renowned DEL VALLE trademarks, Community legislation does not recognize the existence of this figure, but only that of notoriety (…)”[3] Within the same decision, it also pointed out that: “this Court denotes the fact that once the file has been reviewed, it has not been verified that the holder has provided sufficient material to verify the veracity of his statements in accordance with the factors stipulated in the regulations, having only limited itself to pointing out that said trademarks are easily recognized by the general consumer.

The aforementioned Resolution is contrary to the Andean regulations and specifically to the binding preliminary rulings of the Court of Justice of the Andean Community regarding the protection of trademarks in the member countries.

This type of decision confirms the need for the intellectual property offices of the member countries to implement permanent updating programs on the development of Andean community law. This would not only avoid damage to users due to an erroneous interpretation of the regulations and lack of application of binding rulings, but it would also raise the level of the decisions issued, so that, in addition to solving a conflict, they become a source of reference, for lawyers and users on intellectual property issues.

[1] Preliminary ruling 07-IP-2020 of May 8, 2020.

[2] Procedure SENADI-2018-61769 of August 29, 2018.

[3] Resolution No. OCDI-2020-1042 of December 23, 2020.

Katherine González H.
Associate at CorralRosales
katherine@corralrosales.com

New technologies and the transformation of the legal sector

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The application of technologies in the field of law is increasing in the world. The legal technology landscape (legaltech) comprises different categories of technology solutions. This article describes the various technologies that are expected to generate significant changes in legal services in the coming years: (i) Big Data Analytics; (ii) Artificial Intelligence; and (iii) Blockchain.

Big Data Analytics is a technology that allows you to analyze large amounts of data. It applies particularly to judicial activity since time and resources are saved in processing and analyzing information. For example, in a trial in which it is necessary to review several years’ emails, these can be analyzed with programmed software, in much less time and at a reduced cost. Big Data Analytics significantly reduces legal processes document analysis.

Besides, this technology can locate patterns of behavior of judges, courts, and other lawyers allowing to establish the probabilities of success in a judicial process more efficiently, the arguments of the claim, the value of damages that can be claimed, among other aspects. Therefore, the implementation of legal analytics is expected to make judges, arbitrators, and lawyers more efficient. 

 Artificial Intelligence is a technology aimed to replicate the human thought process/analysis, allowing machines to delegate tasks or make decisions. Artificial intelligence algorithms feed on a massive amount of data, which is why they use other technologies, such as the Internet of Things and Big Data, to obtain the expected results. The automation and application of Artificial Intelligence systems mainly replace more routine, repetitive, or mechanized tasks.

Some services offered by companies that use Artificial Intelligence are (i) solutions that automate the drafting and comparison of contracts and other legal documents; (ii) analysis and prediction of trial results; (iii) automation of legal investigation processes.

Blockchain is a technology that allows the shared recording of information. This registry has specific characteristics such as immutability, transparency, traceability, decentralization, publicity, distribution. It allows to carry out transactions of any type transparently, reliably, and securely without the need for an intermediary.

This technology is being implemented to register information. Some areas that will experiment significant change are real estate titles, apostilles, and other documents that require registration and/or certification. Blockchain will most likely replace some of the work that notaries and registrars do.

Another application of this technology is smart contracts, which are blockchain technology-based agreements automatically executed when they meet the stipulated conditions. These contracts are not yet used on a large scale, but their implementation will transform business transactions.

Adopting these technologies will bring benefits such as reducing time, costs, and risks in providing legal services improving access to justice. Similarly, suppose these technologies are used for data analysis, along with artificial intelligence. In that case, it could lead to obtaining more consistent sentences in judicial processes, reducing the chances of bias and corruption, providing greater legal certainty.

Lawyers must be prepared to use these technologies, as their adoption implies a transformation in the way services are provided. It is difficult to visualize all the changes coming with the implementation of Big Data Analytics, Artificial Intelligence, and Blockchain. Law firms must reaffirm that their objective is to provide services efficiently and transparently to benefit all citizens.

María Isabel Torres
Associate at CorralRosales
mtorres@corralrosales.com

Case highlight: CorralRosales´s Brand Protection Team has made history once again in the fight against counterfeiting

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Great news for Ecuador

The National Service of Intellectual Property Rights (SENADI) confirmed the adoption of border measures on the import of a container with more than 600,000 counterfeit goods of different marks, especially cell phone accessories and packaging, which would have been ready to be assembled and distributed across our country.

Customs in Manzanillo, Mexico, warned about the existence of a container in transit, with Guayaquil as its final destination, which contained suspicious goods corresponding to counterfeit goods of the best-known cell phone marks. CorralRosales followed the container’s route, which included previous transit through Cartagena de Indias-Colombia and the Port of Callao-Peru, constantly making sure that the cargo was not released at these ports or that it returned to its origin, which would have prevented the border measure.

Prior to the arrival of the container at the Port Terminal of Guayaquil, CorralRosales requested the National Customs Service of Ecuador to allow them to carry out an inspection in order to determine its origin and, especially, whether or not it contained counterfeit goods. Once the verification was completed, the local IP office (SENADI) was asked to adopt a border measure to prevent the nationalization of the container, as it contained counterfeit products, which was accepted by the IP authority. The process continues through an ongoing Administrative Action. Infringers may face a fine of up to US$ 56,800 once the Administrative Action is concluded, as well as the definitive seizure of the goods.

The historic decision made by IP authorities and the actions of CorralRosales guaranteed the intellectual property rights of the owners of the affected marks, as well as the rights of potential consumers of the counterfeit goods, as possible damage to electronic equipment was prevented and even catastrophes were avoided, such as fires and more*.

This action was possible thanks to the international cooperation of our partners and the coordination between the public and private sectors, which allowed the most important border measure in the history of Ecuador.

CORRALROSALES

“Simple” electronic signature, certified electronic signature, and scanned signature in contracts

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The COVID-19 pandemic has forced companies to adapt to the digital age through the use of Information Technologies (TIC’s) to guarantee the continuity of their operations, such as contract signing. The electronic signature has gained particular importance as a useful tool to avoid the parties’  physical concurrence when entering a contract. Also, it streamlines the process and improves document management.

Some people may confuse the electronic signature with the handwritten signature scanned and embedded in an electronic document; also, the electronic signature certified by an accredited local entity should not be confused with one that does not have said certification. 

This article analyzes the “simple” electronic signature, the certified electronic signature, and the scanned signature to differentiate them and determine the contract’s legal effects.

For the analysis, we assume a  contract between private parties that is not subject to any solemnity.

  1. “Simple” electronic signature and certified electronic signature

The electronic signature is regulated by the Law of Electronic Commerce, Signatures and Data Messages (hereinafter, “LCE”). It defines it as: “[…] the data in electronic form consigned in a data message, attached or logically associated with it, and that can be used to identify the owner of the signature with the data message, and indicate that the owner of the signature approves and acknowledges the information contained in the data message. “[1]

According to article 15 of the LCE, the electronic signature must meet the following requirements for its validity:

” a) Be individual and be linked exclusively to its owner;

b) That allows to verify the authorship and identity of the signatory unequivocally, through technical verification devices established by this law and its regulations;

c) That its method of creation and verification is reliable, safe and unalterable for the purpose for which the message was generated or communicated;

d ) That at the time of the creation of the electronic signature, the data with which it is created is under the exclusive control of the signatory, and,

e) That the signature is controlled by the person to whom it belongs. “[2]

The electronic signature has the same validity and  legal effects recognized in a handwritten signature (or physical signature).

The LCE does not use the denomination digital signature and electronic signature like in other countries to differentiate the electronic signature certified by an accredited entity before the competent authority in Ecuador (hereinafter, “Certified Electronic Signature”) from that electronic signature that does not have said certification (hereinafter, “Simple Electronic Signature”). The LCE calls both “electronic signature ”.

The electronic signature certificate is not a requirement for the validity of the electronic signature. According to the LCE, said certificate simply consists of “ […] a message that certifies the link of an electronic signature with a specific person, through a verification process that confirms their identity.”[3] and it is used mainly to “[…] certify the identity of the owner of an electronic signature […]”[4]

Consequently, the Simple Electronic Signature and the Certified Electronic Signature are valid. The difference between one and the other is in the presumption of legitimacy that the law grants to the Certified Electronic Signature when it is presented as evidence in a legal process:

“Art. 53.- Presumption. – When an electronic signature certified by an accredited information certification entity is presented as evidence, it will be presumed that it meets the requirements determined by law, and that consequently, the electronic signature data has not been altered since its issuance and that it belongs to the signatory ”. [5] (highlighted out of text)

It should be noted that the parties can agree to the use of electronic signatures generated through tools such as DocuSign, AdobeSign, among others. They do not necessarily have a local certification but are useful; they are within reach of any person, national or foreign, and expedite business.

When electronic signatures have a certificate issued and accredited by a foreign entity, it is possible to revalidate it[6] before an accredited Ecuadorian entity[7], with the same value as a local certificate. Notwithstanding this, the parties may agree to the use of electronic signatures and certificates that are not accredited. That agreement will be legally valid[8].

In short, if the Simple Electronic Signature meets the requirements provided for in the law, and its use is agreed between the parties, it can be used to sign contracts and it cannot be deprived of legal effects because it does not have a local electronic signature certificate. However, it will not enjoy the presumption of legitimacy that the LCE grants to the Certified Electronic Signature.

  1. Scanned Signatures

The Scanned Signature is only a facsimile of an original handwritten signature (hereinafter “Scanned Signature”). All a person has to do is scan their handwritten signature or that of a third party contained in a physical document to generate it and incorporate it into an electronic document.

The Scanned Signature is not regulated in the LCE, but it can be valid as long as the parties acknowledge such validity and it is part of a data message [9](eg in a document attached to an email). This is due to the principle of autonomy of the will and in view of the fact that data messages and documents incorporated by reference have the same legal value as written documents, as provided by law. In order to guarantee the validity of the Scanned Signature, it is important to observe the provisions of the LCE when sending, receiving and keeping the data message that contains the signed contract.

In conclusion, the Scanned Signature produces binding effects, provided that: (i) the parties so agree; (ii) the signed document is part of a data message and (iii) it is possible to access said data message, for later consultation. However, since this type of signature is not generated through a system that guarantees its authenticity, authorship and integrity, it cannot be considered an electronic signature.

[1] Ecuador, Law of Electronic Commerce, Signatures and Data Messages, Official Register Supplement 557, April 17, 2002, Art. 13.

[2] Ibidem, Art. 15.

[3] Ibidem, Art. 20.

[4] Ibidem, Art. 21.

[5] Ibidem, Art. 53.

[6] Ibidem, First General Provision.

[7] Ecuador, Regulation to the Electronic Commerce Law, Signatures and Data Messages, Official Registry 735, December 31, 2002, Art. 16.

[8] Ecuador, Electronic Commerce Law, Signatures and Data Messages, Official Registry Supplement 557, April 17, 2002, Art. 28.

[9] According to the Electronic Commerce Law, a data message “[…] It is all information created, generated, processed, sent, received, communicated or filed by electronic means, which can be exchanged by any medium. The following electronic documents, electronic records, electronic mail, web services, telegram, telex, fax and electronic data exchange will be considered as data messages, without this enumeration limiting its definition. “

Mario Fernández García
Associate at CorralRosales
mfernadez@corralrosales.com

Regulatory improvement based on the identification, review, and elimination of market entry barriers

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The Superintendency of Market Power Control (SCPM) published the “Methodology for the identification, review, and elimination of regulatory barriers” on November 5, 2020. It will serve as a guide to remove regulatory barriers to promote the participation of various operators in the market.

The Constitution establishes the principle of the prevalence of public interest over private interest as a guide for state and social activity and recognizes the right of people to develop economic activities, individually or collectively, in accordance with the principles of solidarity, social and environmental responsibility and the power of State intervention in economic activities to promote forms of production that ensure the welfare of the population and discourage those that violate their rights or those of nature.

State intervention through the regulation of economic activities is legitimate as long as it achieves a balance of these guarantees and powers, in the sense that the regulatory restrictions imposed on the entry and permanence of economic operators in the different markets are useful, reasonable, proportionate, and sufficient to guarantee public interest but not constituting an entry barrier for the development of efficient markets.

The methodology developed by the SCPM is intended to promote free competition and market efficiency, by verifying the legitimacy of regulatory barriers and, based on this analysis, the subsequent proposal for regulatory improvements or their elimination.

The procedure comprises two phases: on the one hand, the test of legality, in which the authority’s faculties to issue the regulation under analysis are verified, and then the coherence of said regulation with the law in force, in consideration of the hierarchy of the norms determined in the Constitution. If it is determined that the regulation is illegal in the first phase, either because the authority did not have the faculty to issue it or because it contradicts a regulation of higher hierarchy, the SCPM must propose its elimination.

If the regulation passes the test of legality, in the second phase, the SCPM must weigh the reasonableness and proportionality of the restriction it imposes, against the protected legal good: the public interest. For this analysis, the SCPM must determine, in the following order:

  • The appropriateness of the measure imposed by the regulation to achieve the purpose it pursues. That is, if the means employed – the restriction imposed – is indeed useful to protect the public interest.
  • The need for the measure: At this point, it must be determined if there are less restrictive alternative measures useful to achieve the goal.
  • The proportionality of the measure in the strict sense: In other words, the weighting aimed at balancing the degree of restriction imposed by the regulation and the importance of the legal good that it seeks to protect.

If, after this analysis, the SCPM determines that the rule that imposes the entry barrier is not reasonable, it will propose improvements or elimination, as appropriate.

Several countries in the region have recently initiated regulatory review processes to implement improvements to eliminate regulatory entry barriers that imply illegitimate restrictions on competitiveness. Colombia issued the Anti-paperwork Law in 2019. In Peru, citizens can report regulatory barriers that they consider illegitimate to the antitrust authority and its decision regarding, for example the non-applicability of such regulation (with general or particular effect, depending on the case) is binding on the administrative authorities that issued such regulation.

In Ecuador, the review of regulatory barriers is carried out solely by order of the Superintendent of Market Power Control or the Technical General Intendant, either: (i) ex officio (ii) based on a request of a public administration entity, or  (iii) in application of a recommendation issued by the SCPM study divisions. However, in the introduction of the Methodology for the identification, revision, and elimination of regulatory barriers, the Superintendent of Control of Market Power expressly encourages the public to collaborate to identify regulations that fall under these parameters. Since there is no specific procedure for the public to request the review of regulatory barriers, the request would be based on the petition right guaranteed in the Constitution.

We will have to wait for the practical application of the “Methodology for the identification, review, and elimination of regulatory barriers” to determine if the recommendations made by the SCPM have a sufficient ground of legality and reasonableness so that the corresponding authorities are compelled to implement them.

Ana Samudio
Associate at CorralRosales
asamudio@corralrosales.com

Arbitration in investment contracts

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The economic crisis, worsened by the pandemic, has forced Ecuador to place greater emphasis on its interest in attracting national and foreign investment. Several measures and mechanisms have been designed to achieve this objective. Among these mechanisms, the investment contract draws the attention of several investors since it offers stability in tax incentives[1] and, tax stability for contracts that exceed US $ 100 million, and large-scale mining projects. Another feature of the investment contract, which attracts investors, is the possibility of using arbitration as a dispute resolution mechanism.

In August 2018, the Law for Productive Development, Attraction of Investments, Employment Generation, Stability and Fiscal Balance amended the Code of Production, Trade and Investment (COPCI) in order to force the State to agree to arbitration to resolve disputes generated in investment contracts[2] and also to agree to arbitration in investment contracts that exceed US $ 10 million[3].

The first unnumbered article included after article 16 of the COPCI provides: “Investment contracts.- The Ecuadorian Government shall agree to national or international arbitration to resolve disputes generated through investment contracts, in accordance with the Law.”

As a general rule, in order for two or more parties to be able to submit their disputes to the arbitration jurisdiction, the manifestation of that will is required. Unless stipulated in international instruments, article 42 of the Arbitration and Mediation Law requires the express authorization of the Office of the Attorney General for an entity of the Ecuadorian public sector to submit to international arbitration. In light of this, it is worth asking, could the Attorney General refuse to accept arbitration as a mechanism for the resolution of disputes in investment contracts? In an investment contract without an arbitration clause, is the State obliged to submit to arbitration a dispute arising from that contract?

In cases of disputes between investors and countries with legal provisions similar to those mentioned above, investment arbitration case-law favors arbitration. In the award of jurisdiction for the case of Tradex Hellas S.A. v. Republic of Albania, the arbitration tribunal considered that the consent of the State to submit disputes to arbitration jurisdiction was included in its legislation, when it stated:

“… although consent by written agreement is the usual method of submission to ICSID jurisdiction, it can now be considered as established and not requiring further reasoning that such consent can also be effected unilaterally by a Contracting State in its national laws the consent becoming effective at the latest if and when the foreign investor files its claim with ICSID making use of the respective national law. Therefore, the 1993 Law together with Tradex’s Request for Arbitration must be considered as sufficient consent (…).”[4]

In the case Zhinvali Development Ltd. v. the Republic of Georgia the court found that despite the absence of a written arbitration agreement between the parties, the Georgia Investment Law contained a written offer to submit the dispute – among others – to the jurisdiction of ICSID, and that this constitutes written consent:

“Here, at the time that the Claimant filed its Request for Arbitration on December 3, 1999, there was (a) no bilateral investment treaty in force between Ireland and Georgia and (b) no written agreement between the Parties that submitted disputes to ICSID jurisdiction. Accordingly, the question becomes whether Article 16(2) of the 1996 Georgia Investment Law, in spite of Article 19 of the earlier 1994 Georgia Concession Law, did constitute Georgia’s written offer to submit this dispute to ICSID, which offer was later accepted by the Claimant when it commenced this arbitration.”[5]

In the case of Southern Pacific Properties (Middle East) Limited v. the Arab Republic of Egypt[6], the arbitral tribunal concluded that the phrase “shall be resolved”, referring to disputes, is a mandatory provision.

In light of these arbitration awards, the provision contained in the first unnumbered article included after article 16 of COPCI has two characteristics. The first is a mandatory provision for the State and, the second is an offer to submit to arbitration, which can be made effective at the time of initiating an arbitration procedure.

In conclusion: there are solid legal grounds for determining that any dispute arising from an investment contract should be submitted to arbitration jurisdiction, even if the respective contract does not contain an express convention on that matter.

[1] Specifically, stability in the exoneration of the Tax on the Outflow of Foreign Currency for the distribution of dividends and importation of capital goods for the term of the contract

[2] First unnumbered after article 16 of the COPCI

[3] Second unnumbered after article 16 of the COPCI: “Arbitration.- For investment contracts that exceed ten million dollars of the United States of America, the State must agree to national or international arbitration in law, in accordance with the law. […] ”

[4] Decision on Jurisdiction Tradex Hellas SA v Republic of Albania, ICSID ARB /, 1996

[5] 94/2Zhinvali Development Ltd. v. Republic of Georgia ICSID Case No. ARB / 00/1, 2001

[6] Southern Pacific Properties (Middle East) Limited v. Arab Republic of Egypt, ICSID Case No. ARB / 84/3,

Jimmy Rodríguez
Associate at CorralRosales
jirodriguez@corralrosales.com

Protection of Test Data for Medicines and Agricultural Chemicals

prueba-protection-of-test-data-for-medicines-and-agricultural-chemicals

Test data is the necessary information required by the health Authority to approve the marketing of a medicine or agricultural chemical product in order to guarantee its safety and efficacy. This information is protected by intellectual property regulations to avoid possible unfair commercial use. Ecuador has signed several international instruments that impose the obligation to guarantee the protection of this data. Internal regulations have developed this protection.

When we talk about intellectual property, we usually think exclusively about patents, trademarks and copyrights, however, there are some other modalities that are also part of intellectual property, such as, for example, test data. The importance of its protection lies in avoiding the use, by unauthorized third parties, of valuable information about the research and development process of a novel product, activities that demand a considerable economic and human effort on the part of its creators.

Test data is often associated with patents; however, these are figures that, although both are closely related to the development of drugs and agrochemicals, the test data has independent protection.

The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) established a minimum standard of protection to prevent unfair commercial use of test data[1]. Similarly, Decision 486 of the Andean Community provides for this special protection “against any disclosure, except when necessary to protect the public, or unless measures are adopted to guarantee data protection, against any unfair commercial use.[2]

In the Trade Agreement between the European Union and its Members on one hand and Colombia, Peru and Ecuador on the other, the protection of undisclosed information is included within the intellectual property rights.[3]

In the aforementioned international instruments, although the protection of test data is established as an obligation for the Members, a specific period of time is not foreseen for its material protection, which is therefore regulated by each State. However, in the case of Ecuador, the Organic Code of the Social Economy of Knowledge, Creativity and Innovation establishes:

 “Article 508.- Test Data.- Test data or other undisclosed data on safety and efficacy of pharmaceutical products and agricultural chemical products, in accordance with the provisions of Article 27 number 7 of the Organic Law of Market Power Control, when the information contained in the data meets the following conditions:

  1. a) It is secret in the sense that it is not, as a body or in the precise configuration and assembly of its components, generally known or easily accessible to people introduced in the circles in which the type of information in question is normally used;
  2. b) It has a commercial value because it is secret; and
  3. c) Has been subject to reasonable measures, in the circumstances, to keep it secret, taken by the person who legitimately controls it.

 Article 509.- Exclusivity of test data.- When the competent authority requires as a condition to approve the commercialization of pharmaceutical or agricultural chemical products that contain new chemical entities, the presentation of test data or other undisclosed information on safety and efficacy, whose elaboration demands a considerable effort, will be granted an exclusivity period of five years from the date of marketing approval for pharmaceutical products, and ten years for agricultural chemical products. “

Thus, Ecuador has provided a period of five and ten years of exclusivity for the protection of test data on drugs and agricultural chemicals, respectively.

The National Service for Intellectual Rights -SENADI- has reiterated that, although the Agency for Regulation and Control of Phytosanitary and Zoosanitary and the Agency for Regulation, Control and Sanitary Surveillance are the entities in charge of defining the requirement to submit test data prior to granting a marketing authorization and to define its deposit and safeguard procedures, the test data protection system remains in force and that said protection is without a doubt a modality of Intellectual Property.[4]

On August 21, 2020, the State Attorney General’s Office issued a statement regarding agrochemical products expressly stating that, since the Agency for the Regulation and Control of Phytosanitary and Animal Health – AGROCALIDAD- is the competent Authority to approve the commercialization of agricultural chemical products, it is also responsible for granting the period of exclusivity when it has required the submission of test data on their safety and efficacy.[5]

This protection system and the corresponding establishment of a period of time for the exclusivity of the test data guarantees that, at least during that period, any interested party who intends to market a medicine or agrochemical product with a new chemical entity, must carry out their own studies and trials that prove its effectiveness and efficacy. Thus, avoiding the use of test data that have already been developed by a third party. Hence, it is vitally important that the public entities called upon to intervene in this protection system work in an integrated manner to ensure compliance with these international and national provisions.

[1]Article 39 (…) 3. Members, when they require, as a condition for approving the marketing of pharmaceutical products or agricultural chemical products that use new chemical entities, the submission of undisclosed tests or other data, the preparation of which requires considerable effort , will protect that data against any unfair commercial use. In addition, Members shall protect such data against disclosure, except where necessary to protect the public, or unless steps are taken to ensure the protection of data against unfair commercial use. ”

[2] “Article 266.- The Member Countries, when they require, as a condition to approve the commercialization of pharmaceutical products or agricultural chemical products that use new chemical entities, the presentation of undisclosed test data or other, whose elaboration involves a considerable effort, will protect those data against any unfair commercial use. In addition, Member Countries will protect this data against any disclosure, except when necessary to protect the public, or unless measures are adopted to guarantee the protection of the data, against any unfair commercial use. The Member Countries may take the measures to guarantee the protection enshrined in this article. ”

[3] “5. For the purposes of this Agreement, intellectual property rights include: (…)

  1. j) protection of undisclosed information. “

[4] Official Letter No. SENADI-DG-2019-0402-OFLetter

[5] Official Letter No. OF-PGE-09818

Katherine González H.
Associate at CorralRosales
katherine@corralrosales.com

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