Public purchases in a state of emergency

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By Ministerial Agreement No. 00126-2020 of March 11, 2020, the Ministry of Health declared a state of sanitary emergency in Ecuador due to the COVID-19 virus pandemic. Subsequently, by Executive Decree No. 1017 of March 16, 2020, the President of the Republic declared a state of emergency throughout the national territory. Consequently, various resolutions and administrative provisions have been established to regulate public management and the relations between the Public Administration and those administered.

In this context, the National Public Procurement Service – SERCOP issued the regulations applicable to the state of exception and emergency, in order to coordinate actions to fulfill its purposes and, in particular, guarantee the rights of suppliers to avoid discretion of contracting entities during public procurement processes due to emergencies.

The following is a summary of the regulations issued by SERCOP:

  • Memorandum No. SERCOP-SERCOP-2020-0012-C of March 16, 2020 contains the following recommendations for suppliers and contracting entities:
    • Procurement will be prioritized to guarantee the normal operation of public services and emergency procurement. Special service stations with health safety measures are established to receive offers.
    • In the case of non-priority procedures, it is recommended to cancel or declare them void, depending on the status of the procedure.
    • In the absence of conditions to carry out the pre-contractual stage of planned procurement procedures, entities are encouraged not to publish them.
    • If there are contracts in the contractual execution stage, the administrator must fully comply with the functions established in the respective contracts.
    • Although recommendations do not include it, the legal provisions on unforeseen events and force majeure are applicable to public contracts. The act of authority that declared the state of emergency in the territory of Ecuador, which suppressed and limited the rights of people, among them economic operations and activities and mobility, except in certain excepted cases, constitutes an event of force majeure. These acts of authority are spearheaded by Executive Decree 1017 but include others such as Ministerial Agreement 126-2020, which establishes the health emergency and the constant provisions of the National Emergency Operations Committee (“COE”). In turn, these force majeure events originate from an unforeseen event and its effects, which go beyond the decreed state of emergency, such as the COVID-19 virus declared by the World Health Organization as a pandemic, which has also been ratified by the government of Ecuador. These events constitute extraordinary and irresistible unforeseen events, which have placed the population of Ecuador (and the world) in an emergency situation, making it impossible for the normal development of the usual commercial and productive activities of the public and private. Likewise, they have placed current obstacles to the execution of contractual relationships, which clearly exceed the control and predictability of the parties, and which could be alleged as long as they generate real and verifiable effects with the purpose of exempting the fulfillment of contractual obligations or the termination of contracts according to each case.
    • SERCOP guarantees service for procedures, claims and complaints through telematic means. Face-to-face trainings will be rescheduled.
  • Memorandum No. SERCOP-SERCOP-2020-0013-C of March 17, 2020 establishes the guidelines for submission of offers during the health emergency, and provides that contracting entities in the different contractual procedures, in a compulsory way, will indicate in the field of observations in the form, that the offers and validations can be received by the following means: physical, Courier (regular mail) or email, also indicating in the form the institutional mailing address to receive them.
  • Resolutions Nos. RE-SERCOP-2020-0104 of March 19, 2020 and RE-SERCOP-2020-0105 of April 6, 2020, which reform Resolution No. RE-SERCOP-2016-0000072, of August 31 2016, which contains the Codification and update of resolutions issued by SERCOP. These resolutions, the main aspects of which are listed below, should apply to contracts in an emergency as of March 20, 2020:
    • The contracting entity must expressly declare that there is an impossibility to carry out common procedures to overcome the emergency situation, qualifying this situation through a motivated administrative act that must be published on the PUBLIC PURCHASES Portal, and that will constitute a requirement which enables to continue with the emergency contracts.
    • The term of the emergency declaration may not be greater than 60 days unless a new Executive Decree is issued extending the state of exception.
    • For the procurement of works, goods or services in emergency situations, including consultancy, a direct and objective relationship must be verified between the emergency situation and the urgency of carrying out a procurement procedure to supply a current and emergency need that has arisen as a result of the aforementioned situation. For all emergency procurement, prior certification of budget availability will be necessary.
    • Emergency purchase will be made through a selection of suppliers in an agile, fast, transparent, and simple way, seeking to obtain the best costs. For this purpose, the entity or central governing body may consolidate the demand of all bodies or entities of any nature to carry out a single selection procedure.
    • In emergency procurement for the acquisition of drugs, medical devices or supplies, biochemical or diagnostic reagents, and other strategic goods in health, or the provision of health services or funeral; The analysis of the market offer will be considered fulfilled when the contracting entities publish their contracting needs on their institutional website; and, based on the proposals they receive, select the ones that best suit institutional interests. For these contracts, the supply and demand that exists on the market at that date will be considered as an indispensable parameter.
    • In emergency procurement carried out directly by the contracting entity (acquisition of goods abroad), verification of the absence of national production or supply will not be required, nor will import authorization by SERCOP.
    • All contracts, purchase orders or invoices generated within the framework of the emergency declaration must be done in writing through physical or electronic means. Contracting entities may improve the instruments using transmission of data messages in accordance with the provisions of the Electronic Commerce, Electronic Signatures and Data Messages Act. When in emergency contracts is impossible to access to notarial services, the contracting entity, in an exceptional and provisional manner, will endorse with administrative officials those enabling documents necessary for the signing of the contracts. The establishment of consortiums by private means will be allowed, which will be formalized by public deed once the notarial services have been restored. The contracts that by provision of the law require to be protocolized will be executed from their subscription and will be protocolized later. Currently, some notaries may protocolize these contracts.
    • For contracts in an emergency, SERCOP may, at any time, initiate the necessary control actions to guarantee compliance with the issued regulations.
    • The norms that regulate the temporary association to make corporate purchases between contracting entities will not be applicable to cases of centralized (corporate) purchases of emergency.
    • In the event of emergency declarations issued and published by the contracting entities until before the validity of the Resolutions, they will be forced to comply with and adapt to their provisions.
  • Memo No. SERCOP-SERCOP-2020-0014-C of March 26, 2020 reiterates, within the framework of the regulations issued by the state of emergency and health emergency, the obligation of the contracting entities to implement electronic signature in public procurement procedures; which will allow the opening of a new way of communication with citizens in a more agile way and will reduce the processing time of the procurement procedure, safeguarding and guaranteeing the safety of citizens.

Additionally, SERCOP maintains on its website an updated list of products and services needs in the state of emergency along with delivery conditions. They can be found in the following link:

https://www.compraspublicas.gob.ec/ProcesoContratacion/compras/EMG/EmgRegistros.cpe

It is essential that SERCOP efficiently apply in practice the provisions of the regulations issued and carry out the necessary control management for its effective compliance.

Ricardo Mancheno
Senior Associate at CorralRosales
rmancheno@corralrosales.com

El Comercio – Contractual unforeseeability resulting from the pandemic

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DATE: 12-06-2020

CORRALROSALES IN THE NEWS

-Ramón Paz y Miño
-Mateo Zavala

MEDIA: El Comercio

Novedades Jurídicas, the legal supplement of El Comercio, publishes an article by our Senior Associate Ramón Paz y Miño and our Associate Mateo Zavala in which they explain the contractual unforeseenness arising from the health crisis caused by Covid-19. In the “new normality”, the dispute resolution clauses incorporated in contracts will be triggered in the absence of agreements and, therefore, ordinary justice or arbitration will be used.

“In recent decades, the theory of unforeseeability – which is an ideal mechanism for facing adverse effects in the execution of contracts – has acquired greater importance and relevance in the legal world, with the exception of Ecuador, where little or nothing has been said on the matter,” our lawyers put into context in their article.

As they point out, contractual unforeseenness is incorporated in several legislations, such as in Argentina and Colombia, where the objective is to preserve the survival of a contract legally entered into by the parties and where compliance has been affected by external factors beyond their control, which could not be foreseen during the contract negotiation stage.

“In addition to ensuring the full force of the contract, the theory of unforeseeability seeks to ensure fairness in the contractual relationship and to avoid excessive costs for one of the parties, which could affect the performance of the obligations”, explain the authors of the article.

The current situation suggests that the theory of contractual unforeseeability will be used in more than one case in Ecuador. The absence of an express rule that regulates it does not prevent its application, which will make it possible to use reasonability criteria for contractual relations due to events that generate an imbalance between the contracting parties. “This does not mean that the validity of legal security is ignored, much less the reliability and effectiveness of the system, but seeking other solutions will ensure that the performance is fair,” add Paz y Miño y Zavala.

If you want to read the full article, click here

Aula Magna – The Ecuadorian Intellectual Property Office (or SENADI according to its Spanish acronym) rejected ex-officio the registration of a mark because it considered that it was applied for in order to perpetrate an act of bad faith

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DATE: 13-05-2020

CORRALROSALES IN THE NEWS: 

-Katherine González

MEDIA: Aula Magna

Through Resolution No. SENADI_2019_RS_19814, the Ecuadorian IP Office rejected the application to register the mark KRUSELINGS in Class 28, for being similar to a globally well-known mark. Therefore, it was considered that the registration was sought in bad faith so as to mislead consumers. 

A mark is any sign capable of identifying goods or services in the market. For the purposes of registration, the community and national legislation establish a series of grounds for irregistrability that must be reviewed by the intellectual property offices, in order to avoid the acceptance for registration of signs that do not comply with the minimum requirements of a mark or that affect the rights of third parties.

One of the most well-known grounds for refusal which tends to be the most common ground for denying a mark at the Ecuadorian IP Office and in general at the IP Offices around the world is when a mark is similar to a prior application or registered mark[1]. However, another of the grounds to deny a mark is when it has been applied for to mislead consumers or to perpetrate an act of unfair competition or in bad faith according to the articles 135 and 137 of the Decision 486 of the Andean Community and the article 362 of the National IP Law.

The KRUSELINGS Case:

An Ecuadorian natural person applied for the mark KRUSELINGS in March 2019, covering “games, toys; gymnastic and sporting articles not contained in other classes; decorations for Christmas trees” in Class 28.

The mentioned application was not opposed by third parties. However, when issuing its decision, the Ecuadorian IP Office considered that the applied-for mark was confusingly similar with a mark well-known globally, and therefore that the application fell within the grounds for refusal since consumers would be deceived, in addition to establishing that it was an application made in bad faith.

Within its decision, the authority made it clear that despite there not being a prior application or registration similar to KRUSELINGS in Ecuador, the relevant grounds are directed at protecting the general interest, particularly consumers.

These types of decisions are aligned with global trends in the protection of intellectual property, most notably in trademarks. In particular, a Board Resolution of the International Trademark Association[2] (INTA) has established indicators to help trademark authorities determine whether a trademark application has been made in bad faith, from which we cite the two most relevant to the current case:

  • If the mark has been applied-for primarily to appropriate a trademark well-known in other jurisdictions or to disrupt the business of a competitor;
  • If the trademark was applied for with the intention of creating confusion regarding the source, sponsorship, affiliation or endorsement of the goods or services of the applicant;

In the mentioned resolution, INTA arrived at the conclusion that “the possibility of arguing and demonstrating bad faith should be used as a tool to defeat the piracy of trademarks and other clear cases of misappropriation of trademarks”.

The decision in the case of KRUSELINGS signals progress in the protection of intellectual property in Ecuador, since arguing bad faith previously, at least in opposition proceedings, was almost always rejected or ignored, leading in many cases to the acceptance of the registration of marks that infringed the rights of third parties, under the sole pretext that the mark was not registered or applied for in Ecuador.

If you want to read this article in Spanish, click here.


[1] Article 136 section a), Decision 486 of the Andean Community
[2] Board resolution: September 22, 2009

LexLatin – BASIC ASPECTS OF CANNABIS IN ECUADOR: CONSIDERATIONS FROM AN INTELLECTUAL PROPERTY AND REGULATORY PERSPECTIVE

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DATE: 19-05-2020

CORRALROSALES IN THE NEWS: 

-Francisco Gallegos

MEDIA: LexLatin

In Ecuador, the use of cannabis is punishable, except in the case of personal consumption of quantities less than those established by the relevant law. At the end of last year, non-psychoactive and hemp cannabis were excluded from substances classed as subject to control, as will be explained further on, decriminalizing their use for medical or therapeutic ends (the exclusion thereby not extending to cannabis for recreational use).

Among the permitted uses are the possession of products that contain or are derived from cannabis for therapeutic, palliative or medicinal use, or whose use has medicinal objectives. In the same way, the law provides for the investigation, production, cultivation, distribution and sale of the substance, provided that the relevant government permits and approval are obtained and in accordance with the relevant requirements.

The reform will enter into force from June 21, 2020 and has as its overriding aim the elimination of punishments, excluding from control the possession of products for medicinal or therapeutic use that contain a non-psychoactive active ingredient or hemp (CBD), understood as the cannabis plant or any part thereof whose dry weight delta-9-tetrahydrocannabinol (THC) content is less than 1%, provided that there is a diagnosis of suffering from an illness or pain that merits its use. In relation to THC, the ingredient in marijuana that produces the psychotropic effect, this continues to be a controlled substance, if not found within the aforementioned parameters.

From a regulatory point of view, the National Agrarian Authority must issue the regulations relating to the importation, cultivation, planting, harvesting, selling, industrialisation and even exportation of non-psychoactive cannabis or hemp, within 120 days of the law entering into force. The regulation and control of the planting, cultivation and harvest will be the responsibility of the National Health Authority. To date there is no specific detail as to the relevant powers.

At this moment in time, according to the relevant decisions handed down by the Andean Community on the matter, the only CBD products eligible for marketing authorizations are cosmetic products for topical use, provided that they are contained within the international lists of ingredients that may be used within cosmetics and complying with the corresponding restrictions and conditions of use. Human consumption goods are not permitted. One must await the issuance of regulations from the competent authorities.

Moreover, it will be necessary to consider the final text of the Health Law that will also contain provisions as to the regulation of medical and therapeutic use cannabis and its derivatives. The draft law is currently awaiting its second reading.

From an intellectual property perspective, it is worth remembering that the relevant law does not specifically consider use of the word cannabis in the registration of a trademark; however, it is very important to keep in mind that Article 134 of Decision 486 of the Andean Community in its final section provides that the nature of the good or service to which a mark relates, will in no circumstances be an obstacle to registration.

This might mean that granting or refusal of an application for a trademark that includes the term “cannabis”, any derivative of or expression that refers to cannabis in the mark itself or within its coverage comes down simply to the individual criteria of the responsible IP Office examiner, given that, being a restricted product, it could lead to objections. To date there are differing opinions, without any clear position on the matter. In any event, the number of accepted cannabis trademark applications is much higher than those which have received official objections or oppositions from third parties.

Nevertheless, there are both cases of granted cannabis trademark applications, as well as applications which have received official objections. Therefore, it is very important to take care with the wording of the applied-for goods or services, with the aim of reducing the possibility of receiving an official objection. In the same way, it will be very important to consider the mark’s word elements as well as the elements making up the graphical part of the label, keeping in mind the absolute grounds for refusal as provided for by Article 135 section p) of Decision 486, corresponding to Article 360 section 18 of the Knowledge, Creativity and Innovation Law, also known as the Ingenuity Law, which provides for the refusal of marks contrary to law, morals, public order or decency.

At the start of this year, the Ecuadorian IP Office or SENADI as it is known locally according to its Spanish acronym, had processed a limited number of trademark applications and even fewer patent applications. It is reckoned, since there are no exact official figures, that a high proportion of such trademark applications have been accepted, in contrast with the patent applications whose application process is significantly longer.

It is important to point out that various associations of producers of hemp and its derivatives have been formed, as well as groups that lobby for the therapeutic use of cannabis in Ecuador, even some that have the support of the Public Defender’s Office, as an alternative means for those that suffer from catastrophic or chronic illnesses, such as palliative care against pain, epilepsy and other oncological or brain impairment problems.

CorralRosales has actively participated in various international forums about the different opportunities and challenges brought about by the use of cannabis for therapeutic and medicinal aims. The firm has also provided legal and regulatory advice for what is a nascent industry in Latin America.

If you want to read this article (in spanish), click here