The term Joint Venture appeared in the United States of America and has been widely accepted worldwide. It is a concept with a very broad meaning, which, in essence refers to agreements executed between individuals or companies in order to undertake a joint project, in which the rules that will be applied to its operation are determined.

The main characteristic of the Joint Venture is its contractual nature. This figure is used to designate different forms of cooperation between individuals or legal entities in order to achieve a common objective through the contribution of resources, without the parties losing their legal autonomy. The application of this type of contract is wide; contracts for marketing, manufacturing, supply, sales, technology, exploitation of natural resources, among others.

The doctrine mainly distinguishes between two types of Joint Ventures: i) Joint Venture Corporation and ii) Joint Venture Agreement. The difference between these figures is that the former has the purpose of incorporating a company different from its members, while the latter excludes any type of corporate relationship.

Notwithstanding the type of Joint Venture chosen, an essential element is its duration. This means that it must necessarily be a contract of a consecutive nature – not of instantaneous enforcement – since this duration is the one that allows the parties to venture jointly.

In Ecuador, the Joint Venture is regulated by the “EIGHTH TITLE of BUSINESS COLLABORATION” of the new Commercial Code (“Cc”) that came into force in 2019. It provides for two figures: the “Joint Venture” (Articles 585 to 600) and the “Commercial Consortium” (Articles 601 to 607).

Article 585 of the Cc defines the Joint Venture as:

“A contract of associative nature, by means of which two or more persons, whether natural or legal, agree to operate a business in common for a specified period of time, agreeing to participate in the profits resulting from it, as well as to be liable for the obligations undertaken and for the losses incurred.”

 The following elements are worth highlighting:

1. Contractual nature
2. Associative nature
3. Two or more individuals or legal entities
4. Common business
5. Determined period of time
6. The parties participate in the profits and are liable for the obligations and losses.

It should be noted that the Cc only regulates the Joint Venture Agreement and does not refer to the Joint Venture Corporation or other types of Joint Venture. According to the provisions of the Cc the contract must be executed in writing, without the need for a public deed. Its termination must be carried out in the same way its constitution was executed. The instrument evidencing the termination decision shall detail the outstanding obligations and pending credits and the way in which the parties will be liable for them.

The contract must mainly establish:

1. The business purpose and the term of duration.
2. The internal rules regarding control and management, establishing the way in which the members will manage their interests.
3. The form of profit sharing.
4. The rules concerning the representation of the Joint Venture (i.e. whether a special attorney-in-fact will be appointed or whether the associates will represent it directly).
5. The way in which the parties will respond vis-à-vis third parties, for example, if the liability is joint and several or proportional to the contributions, or certain quotas.
6. How relationships between participants will be managed.
7. The rules concerning dispute resolution.

If the parties do not provide for or do not agree on any of the elements mentioned above, the contract will be governed by the provisions established in Cc. For example, in the event of failure to indicate the party’s liability vis-à-vis- third parties, they will be jointly and severally liable or, as the case may be, will act as joint and several co-creditors.

The specific difference between a company and a Joint Venture is that the latter is not a legal person. Since it is not a company with limited liability, but an association, the liability  towards third parties is not limited to their capital contributions, but depends on what its members agree. In addition, the completion of the Joint Venture occurs with the consent of the parties in a written document and is not subject to any additional formality, nor to the control of the Superintendence of Companies.

Although the Cc does not regulate other types of Joint Venture, this does not imply that other types of Joint Venture are not allowed in Ecuador, such as:

• Joint Venture Corporation through a new company: Two (or more) parties participate as shareholders with specific roles. In this case, with the creation of a new company, the liability via-a-vis third parties depends on the type of company adopted for this purpose, but in general the liability is limited to capital contributions.

• Joint Venture Corporation through an existing company: The company of one of the parties is used to develop the business and internal accounting is kept per business unit for internal control. The liability to third parties follows the rules expressed in point i) above.

• International Joint Venture: A figure characterized by individuals or companies from different countries. The legal figure that they adopt will depend on the agreements between the parties.

From a tax standpoint, even if the Joint Venture does not have a legal personality, it must comply with its tax obligations in accordance with the scope of its contract. Thus, article 98 of the Internal Tax Regime Law (Ley Orgánica de Régimen Tributario Interno) stipulates that -for tax purposes- the Joint Venture Agreement is considered as a company, so it must be registered in the Single Taxpayer Registry (Registro Único de Contribuyentes (RUC)). In the case of a Joint Venture Corporation, tax obligations go hand in hand with the type of company adopted.

In the antitrust field, it shall be noted that the Joint Venture is subject to antitrust legislation, since its creation may require prior authorization by the antitrust authority or be sanctioned pursuant to the provisions of the Organic Law for the Control of Market Power (Ley Orgánica de Control de Poder de Mercado) and its Regulation.

In conclusion, the Joint Venture should be conceived as a useful legal figure that can provide solutions at a time when it is necessary to be practical, dynamic, and creative with resources. Although its practicality is high, it is essential to carry out a legal analysis, case by case, in order to determine if it is the best legal instrument for the business. In any case, careful planning and communication, reflected in a contract that adequately captures the parties’ will, is key.

María Isabel Torres
Asocciate at CorralRosales
mtorres@corralrosales.com

The Congress gave way to the partial objection issued by the Executive Branch, thus approving the “Law that Reforms Various laws to Reinforce the Prevention and Combat of Illicit Commerce in order to Strengthen the National Industry and Promote Electronic Commerce.” In addition, the law foresees reforms in intellectual property matters.

In particular, this reform includes provisions regarding (i) intellectual property crimes, their punishment and handling, expanding the punishable acts, and (ii) the border measures proceedingds

I. Intellectual Property Crimes

The Executive Branch veto sought to correct certain inconsistencies and drafting errors in the text approved by the Assembly. As a result, it details criminal conducts in a much better way, the conditions that must be taken into account to assess the existence of the crime and how these crimes are to be treated and judged.

The reform of the criminal law establishes that, for these behaviors to be considered crimes, they must include several elements that would differentiate it from a “simple” infringement of intellectual property rights as it conditions its sanction to the infringement happening in knowledge, that it has a lucrative purpose, and that it is on a commercial scale.

These conditions include criminal offense and penalizing whoever manufactures, commercializes, or stores labels, stamps, or containers containing trademarks or denominations of origin registered in the country.

It also sanctions whoever separates, starts, replaces, or uses labels, stamps, or containers that contain registered trademarks in the country to use them in goods of different origin, fills containers identified with trademarks belonging to a third party with spurious goods; stores, manufactures, uses, offers for sale, sells, imports or exports goods covered by apatent, utility model, industrial design, a plant variety (including its material for reproduction, propagation or multiplication) or a layout design.

It also includes possible infringements -which from our experience, will make up the vast majority of intellectual property criminal actions- against whoever stores, manufactures, uses, offers for sale, sells, imports or exports a product or service that uses an unregistered trademark identical or similar to one registered in the country; the competitive connection between the infringing goods or services and those identified by the registered trademarks must be clear.

In addition, the law eliminates the condition of a minimum amount to constitute a crime, clarifying that to consider the offending conduct a crime (on a commercial scale), the magnitude, economic value, quantity, and impact on the market must be considered. It also specifies that in foreign trade cases, it is regarded as a crime when the goods are valued at more than 50 unified basic salaries (SBU) – US $ 20,000 to date – stating that the cost of the original product must be taken into account for this appraisal.

Regarding the sanctions, the law establishes an incarceration sentence of 6 months to 1 year, confiscation (of the seized goods), and a fine of 8 to 300 SBU (US $ 3,200 to US $ 120,000 to date). In addition, the following are reinstated as an aggravating factor for the criminal offense: (i) having received a warning of the offense; (ii) that health-related goods cause damage to health; and (iii) that the crime is committed concerning unpublished works.

Regarding copyright, the same conditions described before apply. In addition, the following actions are sanctioned with the penalty mentioned in the previous paragraph: alteration or mutilation of a piece of work; the registration, publication, distribution, communication, or reproduction of a foreign work as one’s own; unauthorized reproduction or in a number greater than the authorized number of the work, provided that the damage is greater than 50 SBU (US $ 20,000 to date); public communication of works or phonograms; introduction to the country, storage, offering for sale, sale, lease or circulation of illicit reproductions of works, by any means; unauthorized retransmission of radio broadcasting, television and in general any signal that is transmitted through the radioelectric spectrum; manufacture, import, export, sale or lease of devices, systems or software that allow deciphering an encrypted satellite signal carrying programs or telecommunications in general.

The reform makes an essential clarification about certain conditions on the crime, such as the precise meaning of the term “commercial scale” and how to assess the appraisal of the goods.

The law also includes provisions on the destination of the seized goods, which may be considered donations to cover social needs by the State or destroyed. An expert report issued by an expert duly accredited by the Judicial Council is needed. The expert has to establish whether the goods must be destroyed or render useless.

Finally, the law includes conciliation as a dispute resolution mechanism.

In conclusion, the reform is positive because it seeks greater agility in processing and prosecuting intellectual property crimes.

II. Border Measures

After almost five years of a legal vacuum in this matter, the Executive Branch veto, also corrected the inadequate text approved by the Legislature returning the “mixed” system to the country for the execution of border measures. It allows the National Customs Service of Ecuador (SENAE) to be the first filter of infringing goods entering or exiting the country, suspending the customs process provisionally, which has to be confirmed by the local intellectual property office.

The reform empowers SENAE to: (i) suspend the customs procedure for goods that, in any way, violate intellectual property rights, (ii) alert the holders of these rights, and (iii) provide adequate information to act in these cases.

The suspension of the customs process will initially be five days. During these five days, this suspension must be communicated to the importer, the right holder, and the local intellectual property office. After that, it will have three days to decide on a resolution.

The law maintains the obligation to provide sufficient information to the intellectual property authority about the infringing goods and the conditions of the infringement, and the possibility of inspecting the goods involved.

The authority may sanction the offender with a cash penalty ranging between 1.5 and 142 SBU (US $ 600 to 56,800 to date).

Per the regulations of the Andean Community, the reform provides that the right holder may bring either an administrative, civil, or criminal action when the adoption of the border measure has been confirmed. Although there is a contradiction with the Andean supranational norm regarding the term to bring it (10 days), the Andean Law prevails. The holders of intellectual property rights will have a predominant performance in these cases since they must participate actively, both in the criminal proceedings and in the cases of border measures, accompanying the authorities through all the steps.

The law maintains the possibility of requiring the person requesting the adoption of a border measure to provide a guarantee that will be proportional to the possible economic and commercial impact generated by the suspension to protect the importer or exporter from a possible case of abuse of rights.

This reform corrects elements that have caused a notable increase in intellectual property infringements in Ecuador and led to actions against retailers or small merchants. Unfortunately, these elements were leaving importers or wholesalers who are the primary beneficiaries of the illicit trade unpunished.

The reforms will come into force after its publication in the Official Registry.*

*This reform is in force since August 27, 2021.

Eduardo Ríos
Asocciate at CorralRosales
eduardo@corralrosales.com

The small amount is a public procurement procedure regulated in the Organic Law of the National Public Procurement System (hereinafter, the “LOSNCP”), the Regulation to the LOSCNP (hereinafter, the “Regulation”), and the Codification and Updating of Resolutions issued by the National Public Procurement Service (hereinafter, the “Codification”).

Public entities^[1] can make direct contracts with suppliers through the small amount as long as they meet the following requirements:

• The object of the contract must be: (i) the acquisition of standardized goods or services^[2], which do not appear in the electronic catalog^[3]; (ii) the acquisition of non-standard goods or services; or (iii) the contracting of works, solely and exclusively for the repair, remodeling, adaptation, maintenance or improvement of an existing construction or infrastructure. In no case can consulting services be hired^[4].

• In the year, the amount of the contract must not exceed the value that results from multiplying the coefficient 0.0000002 by the Initial State Budget for the corresponding fiscal year. In 2021, this value is $ 6,416.07.

Article 332 of the Codification provides that, during the year, the contracting entities may consolidate their needs and carry out a single contract for a small amount or carry out several such amounts for the same good or service, but the amount of the consolidated contract or the total amount of individual contracts may not exceed the maximum value indicated. 

These contracts may or may not be part of the annual planning that public entities are obliged to carry out^[5]. But, in any case, the “small amount” tool must be used within the COMPRAS PÚBLICAS Portal^[6] (www.compraspublicas.gob.ec) to publish: the needs of goods, works or services, the information of the public servant responsible for the hiring, the email in which they will receive the offers of the interested suppliers, and the maximum delivery time of said offers.

To participate in a contract for a small amount, suppliers do not need to be registered in the RUP^[7]. Suppliers will be selected under the following criteria^[8]:

1. In standardized goods and services, the supplier that offers the lowest price must be chosen.

1. In non-standard works or goods and services, the supplier that offers the best technical, financial, and legal conditions must be chosen, without the lowest price being the only selection parameter.

Once the contracting has been carried out, the contracting entities must publish its relevant information on the COMPRASPUBLICAS Portal. This information and that which, at any time, is required by^[9] the National Public Procurement Service (hereinafter, “SERCOP”), will serve for this body to identify if there are non-compliance with the requirements applicable to this figure or if it was used to circumvent^[10] other hiring procedures. If there are non-compliances, SERCOP will inform the competent control bodies so that they can initiate the corresponding actions.  

There are special or exceptional cases^[11]in relation to this type of contracting for a small amount, such as the acquisition of medicines.

The LOSCNP does not expressly foresee the acquisition of medicines for a small amount, however this is possible under numeral 2 of article 54.2. of the Law^[12], since medicines can be classified as standard goods. 

The Regulation develops this figure as follows:

“Art. 85.4.- Application of small amounts.- In duly justified and exceptional cases, contracts for the acquisition of medicines and strategic goods, the amount of which is equal to or less than multiplying the coefficient 0.0000002 of the Initial State Budget, will be carried out for a very small amount , in accordance with the provisions issued by the SERCOP for this purpose, and provided that the good is not available in the virtual repertoire for direct purchases enabled in the PUBLIC SHOPPING Portal.

The acquisition of medicines by this procedure will be within the current National Basic Medications Table. “^[13] (highlighted out of text)

Although the Regulation uses the name “virtual repertoire” and not “electronic catalog” as happens in small amounts for other standardized goods, the fundamental requirement is the same: the good must not be available on the COMPRASPUBLICAS Portal for direct purchases. Additionally, the Regulation clarifies that only the medicines that appear in the current National Basic Medicines Table may be purchased.

Therefore, the small amount of medicines comes when the good: (i) is not available in the virtual repertoire enabled in the COMPRASPUBLICAS Portal (hereinafter, the “Directory”); (ii) is included in the current National Basic Medicine Chart; and (iii) the amount of the contract does not exceed the established limit.   

Reforms^[14] to the Regulation and Codification provide that the contracting entities of the Integrated Public Health Network^[15] (hereinafter, “RPIS”) have the obligation to contract storage and distribution and delivery or dispensing services of medicines, prior to their acquisition (hereinafter, the “Services”).  

So far, the Services have not been contracted by the RPIS. However, when this happens and the SERCOP communicates it^[16] on the COMPRASPUBLICAS Portal,  Chapter II of Section III of Chapter II of Title VIII of the Codification will come into force. It contemplates specific regulations that all public entities must comply with to acquire medicines for a small amount. Among the new provisions, the following stand out: 

1. The circumstances are established for the small amount to proceed, according to the contracting entity: 

1. For RPIS entities, it proceeds when the medicines are not available in the Directory. In this case, the contracting of the Services is not mandatory, so the cost of the delivery-receipt of the medicines must be included in the acquisition.

• For other public entities, it is appropriate if the medicine has not been contemplated in the annual planning or, if it has been included, it does not constitute a constant and recurring requirement during the year, that can be consolidated in a contract whose amount exceeds the maximum allowed.

1. The contracting entities, through electronic means, may invite various suppliers, whether natural or legal persons, national or foreign, as well as their associations or consortiums. In the invitation, the entities must include the technical specifications of the medicine and the delivery conditions.

1. The entities must have at least three offers, prior to selecting the supplier. If this is not possible, the entity must justify that it carried out all the actions and requirements necessary for this purpose.

1. Invited providers, who do not necessarily have to be registered in the RUP, must necessarily present the medicine’s marketing authorization.

Until these regulations come into force, the provisions developed at the beginning of this article must be applied. Notwithstanding this, the SERCOP has established that, during this transition period, the contracting entities of the RPIS may carry out various small amounts of medicines in the year and their total amount may exceed the maximum value, provided that“… due to external factors, outside of the contracting entity duly justified, the contracting cannot be consolidated to use a contracting procedure under a common or special regime, other than the Small Amount. “^[17]. 

Additionally, as of August 10, 2021, according to the fifth^[18]  and tenth^[19] reformed provisions of the Organic Law Reform of the Organic Criminal Code on Anti-Corruption, all public entities must obtain a prior report of relevance and favorability from the State Comptroller General to celebrate the small amount and any other contract under the LOSCNP.  

In conclusion, the acquisition of medicines for a small amount is exceptional and is subject to specific requirements. However, the dispersion of the applicable norms and their constant reforms generate confusion and an inappropriate use of this figure. For this reason, suppliers must be duly informed to avoid risks in the conclusion or execution of contracts, as well as in subsequent controls by the competent bodies.

^[1] When speaking of “public entities”, reference will be made to those provided for in article 1 of the LOSCNP.

^[2] According to Article 42 of the Regulation, standardized goods and services are “… those whose characteristics or technical specifications… are homogeneous and comparable under equal conditions”.

^[3] In accordance with numeral 3 of article 6 of the LOSNCP, the electronic catalog is the registry of standardized goods and services published on the COMPRASPUBLICAS Portal for direct contracting.

^[4] Codification and Updating of Resolutions issued by the National Public Procurement Service, Official Registry 245, January 29, 2018, Art. 330, no. 4.

^[5] Organic Law of the National Public Procurement System, Official Registry 395, August 4, 2008, Art. 22.

^[6] The COMPRASPUBLICAS Portal is the Official Computer System of Public Procurement of the Ecuadorian State, as provided in numeral 25 of article 6 of the LOSCNP.

^[7] Numeral 29 of article 6 of the LOSCNP, defines the Unique Registry of Suppliers or RUP as “… the Database of the suppliers of works, goods and services, including consulting services, authorized to participate in the procedures established in this Law . “

^[8] Codification and Updating of the Resolutions issued by the National Public Procurement Service, Official Registry 245, January 29, 2018, Art. 336.

^[9] Regulation to the Organic Law of the National Public Procurement System, Official Registry 588, May 12, 2009, Art. 60.

^[10] Numeral 2 of article 330 of the Codification provides that “Contracts for Small Amounts must not be used as a means of circumventing pre-contractual procedures.”.

^[11] For example: leasing of goods, acquisition of fuels in operations of the entity, purchase of air tickets, contracting of travel agencies, acquisition of spare parts or accessories, among others.

^[12] “Art. 52.1.-Contracts of a small amount.- It may be contracted under this system in any of the following cases: […] 2.-Contracts for the acquisition of goods or provision of standardized services, except consulting, which do not appear in the electronic catalog and whose amount is less than multiplying the coefficient 0.0000002 of the initial budget of the State of the corresponding fiscal year… ”

^[13] Regulation to the Organic Law of the National Public Procurement System, Official Registry 588, May 12, 2009, Art. 85.4.

^[14] In this regard, Executive Decree No. 1033, published in Official Registry No. 208 of May 21, 2020, Section II of Chapter VII of Title III of the Regulations was amended; Resolution No. RE-SERCOP-2020-0111, published in the Official Registry Special Edition No. 1078 of September 28, 2020; and Resolution No. RE-SERCOP-2021-0114 published in Official Registry No. 432 of April 15, 2021.

^[15] “… Made up of the set of public institutions that provide health services and which are known as << health subsystems >>, made up of the MSP, the IESS, the Social Security Institute of the National Police (ISSPOL) , ISSFA and the Complementary Health Network ”. Ecuador Constitutional Court of Ecuador, “Sentence No.: 679-18-JP / 20 and accumulated”, in Judgment No.: 679-18-JP and accumulated, August 5, 2020, 17.

^[16] Codification and Updating of the Resolutions issued by the National Public Procurement Service, Official Registry 245, January 29, 2018, Twenty-fifth Transitory Provision.

^[17] Codification and Updating of Resolutions issued by the National Public Procurement Service, Official Registry 245, January 29, 2018, Twenty-eighth Transitory Provision, no. 3.

^[18] “… In the event of determining the relevance and favorability … the rest of the procedure established for this purpose in the law may be continued on a regular basis …”

^[19] “… The Office of the Comptroller General of the State will issue a report of relevance, as a prerequisite for the signing of the public procurement processes determined in the law on the matter, by public sector entities and agencies …”

Mario Fernández García
Asocciate at CorralRosales
mfernandez@corralrosales.com

CorralRosales will participate in the next seminar organized by the Inter-American Association of Intellectual Property (ASIPI), titled “Beyond a year of change“, which will take place from May 23 to 25, 2021.

The most important Intellectual Property association in Latin America is organizing this event, which will be held online through an innovative platform, in which all members will be able to participate free of charge.  

The academic program will address current topics, as well as networking activities, which will involve a high level of participation.

Academic Program

Sunday, May 23 2021

• 09:00h. – 12:00h. EST-USA: Administrative Council Meeting (for ASIPI members only)

Monday, May 24 2021

• 08:00h. – 09:00h. EST-USA: ASIPIfit
• 10:00h. – 10:20h.  EST-USA: Opening
• 10:20h. – 10:50h. EST-USA: Opening Keynote Speaker – How Will AI shape the future of the IP system?
• 11:00h. – 12:15h. EST-USA: Key Note Panel: Social platforms and freedom of speech, what is the right balance and should social platforms be entitled to censor speech?
• 14:30h. – 16:00h. EST-USA: New road ahead for patentability of a new wave of technologies
• 14:30h. – 16:00h. EST-USA: Trademarks as a living organism
• 16:30h. – 17:30h. EST-USA: ASIPI CLUB: Brainstorm IP
• 16:30h. – 17:30h. EST-USA: ASIPI CLUB: Regions and Gastronomy
• 16:30h. – 17:30h. EST-USA: ASIPI CLUB: Books
• 17:30h. – 18:30h. EST-USA ASIPI CLUB: Movies/series
• 17:30h. – 18:30h. EST-USA: ASIPI CLUB: Wine
• 17:30h. – 18:30h. EST-USA: ASIPI CLUB: E-sports and videogames
• 19:00h. – 20h. EST-USA: Bingo

Tuesday, May 25 2021

• 08:30h. – 09:00h. EST-USA: ASIPIfit
• 10:00h. – 11:00h. EST-USA: CEJ Meeting/ Working Committee Presidents and Secretaries and Special Commissions
• 11:30h. – 12:30h. EST – USA: Key Note Panel: New Intellectual Property Issues for Tech Startups in Latin America
• 14:15h. – 15:45h. EST-USA: The new reality of the justice system
• 14:15h. – 15:45h. EST-USA: Compulsory Patent Licenses in the Context of the COVID 19 Pandemic
• 16:00h. – 17:30h. EST-USA: The new music industry
• 16:00h. – 17:30h. EST-USA: The new vision for law firm management, what’s next?
• 17:45h. – 18:30h. EST-USA: Non-Fungible Token’s – The New Crypto Storm
• 18:30h. – 18:30h. EST-USA: DJ Closing

CorralRosales Will participate as a golden sponsor, register and don´t miss it! You can do so by clicking here.