Magazine ASIPI vol. 6

In an increasingly regulated world, measures aimed at protecting consumers and safeguarding public interest may limit the exercise of intellectual property rights held by companies or individuals. In the trademark realm, these restrictions can take various forms, such as:

• Plain packaging
• Highly standardized packaging designs,
• Prohibitions on the use of trademarks and branding elements.
• Mandatory health warnings.

The following sections provide a brief explanation of each of these restrictions, supported by examples of their application in real-world scenarios.

PLAIN PACKAGING

Plain packaging removes distinctive elements of a brand, such as logos, specific colors, unique typography, and striking visual designs. Instead, products must be presented in uniform packaging with neutral colors and the brand name displayed in a standard format. This measure is generally used to discourage the use of certain products, such as tobacco.

This was the case of Australia in 2011, the pioneer in implementing generic packaging for tobacco products under the Plain Packaging Act Since then, cigarette packs must be of a neutral color, specifically olive green. They are also required to display images illustrating the health risks associated with tobacco use. Since its introduction, this measure has been adopted in countries such as France and the United Kingdom.

HIGHLY STANDARDIZED PACKAGING

A restriction closely related to plain packaging seeks to limit the shapes, sizes, materials, and other packaging characteristics, reducing the possibility of using innovative designs to stand out from competitors. Although less restrictive than plain packaging, this approach regulates aspects that could influence consumers’ purchasing decisions.

One practical example also involves tobacco, this time in Norway. In 2017, a law came into effect mandating standardized packaging for tobacco products in the country, including “snus,” small pouches of powdered tobacco. Since then, these products have been sold in uniform packaging, preventing them from appearing more attractive than other similar products.

PROHIBITIONS ON THE USE OF TRADEMARKS AND BRANDING ELEMENTS

Some regulations go beyond packaging design and completely prohibit the use of certain branding elements, such as logos, slogans, or images associated with a brand. These prohibitions aim to eliminate any emotional or aspirational connection that consumers may have with the product.

In Latin America, Chile and Mexico have implemented some of the strictest measures of this kind. For instance, in Mexico, the Official Mexican Standard NOM-051, implemented in 2020, requires products high in sugar, sodium, or saturated fats to include warning labels and prohibits the use of children’s characters and visual elements targeting children. This regulation has significantly impacted the food industry, which previously used such designs to attract a younger audience.

HEALTH WARNINGS

A prime example of this is the regulations introduced in various countries to warn consumers when food products are high in sodium, sugar, or saturated fats. Countries such as Canada, Mexico, and Colombia have implemented laws specifying which products must carry warnings on their packaging, including the size, design, and placement of these warnings.

On the other hand, we return to the case of tobacco. One of the clearest examples of these warnings is those legally required on tobacco packages in many countries. These warnings vary in format but generally feature striking images of the effects of tobacco on people’s health, accompanied by text referencing these effects. According to a report published this year by the Canadian Cancer Society, 138 countries currently mandate health warnings on cigarette packages.
With all these examples, it is easy to see how brand restrictions have become a global phenomenon. As part of government efforts, these regulations profoundly impact the relationship between brands and consumers. On the one hand, they reduce companies’ ability to differentiate their products and build brand loyalty. On the other hand, they prioritize public health objectives by limiting the appeal of harmful products.
While the outcomes vary by industry and country, these restrictions challenge brands to reinvent their connection with consumers, focusing on strategies that go beyond traditional packaging.

On the other hand, one of the main concerns for these seed and early-stage projects is raising capital for growth. Venture Capital (VC) is a useful route to achieve this goal. This is a form of financing where investors provide capital to startups in exchange for equity in the company. The goal of this type of investment is to obtain significant returns as the company grows.

In this regard, the purpose of this article is to provide an overview of how IP, especially patents, plays a crucial role when a startup seeks to raise capital through VC, and thus should be considered from the moment a tech startup is conceived by its founders. Prominent investors, advisors, and tech promoters in the medical devices field have indicated that IP is crucial when it comes to making investment decisions, to the point that they agree it would be challenging to invest without any form of IP. Thus, IP is indispensable when executing a VC investment in a startup, as it determines how difficult it will be for future competitors to replicate it. In other words, and with the risk of stating the obvious, the more difficult it is to replicate a startup’s business model, the greater the company’s chances of securing VC, and this is largely achieved through IP. This is backed by studies showing that having an ongoing patent application could reduce the time to secure an initial VC investment by 76%.

In light of the foregoing, the advantage of IP in seeking VC investment is only achieved when the startup founders manage the following factors: i) establishing a strategy from the outset that makes it difficult to replicate the startup’s core offering; ii) mitigating risks related to ownership and usage rights, ensuring that the IP is entirely owned by the startup; iii) obtaining advice on how the startup’s IP works, not only to meet the first two factors, but to have a clear pitch when presenting the project to investors. Despite this, and surprisingly, in early stages it is not a priority to specifically value the startup’s I when deciding on VC investment. This is due to a factor that is even more important than the IP itself: the feasibility of the business. Investors will assess whether the startup’s business model effectively addresses consumer needs and whether it could become commercially viable, which will represent the true value for investors.

Thus, in these early stages, instead of valuing the IP itself, investors conduct due diligence that seeks to answer questions such as: “How does this IP support and enable the company’s business plan, especially in current markets and products?; Wil this IP be relevant for the company’s expansion, including new products, markets, or potential pivots to other business models?; How will this IP help defend against competition and maintain or improve price and profit margins versus direct and indirect alternatives available to customers?”.

Following these guidelines, it is important to highlight that the Latin American market is currently celebrating success stories, especially in the fields of biotechnology and medical devices. In 2023, the investment group SOSV reported reinvesting in companies like NotCo and Stamm, gaining millions of dollars in profits, with Notco becoming a unicorn (a term used to refer to emerging companies valued at over USD 1 billion). Stamm, meanwhile, is an Argentine biotechnology company that is also part of the portfolio of the Argentine accelerator and investor Grid.X.

Another clear example is Ganesha Lab, the Chilean accelerator and investor focused on biotechnology. In 2023, this company launched a VC investment fund worth USD 10 million, directing some of these resources to Delee, a company that developed a tumor cell detector from blood samples. Additionally, Ganesha has in its portfolio Botanical Solutions, which, according to reports, was the Latin American health startup that received the most investment, with over USD 8 million. Furthermore, the Argentine accelerator and investor SF500 reports over USD 8 million in investments in its biotech companies portfolio.

On the other hand, Colombia is also not lagging behind when it comes to the VC investment atmosphere. The first capital raising report from Bogot in 2024 revealed that 35 investment rounds were completed in the country in the first half, totaling over USD 466 million. While most of these VC funds were directed towards fintech companies, which do not always base their business model on IP, this still indicates the possibility of obtaining funding for purely IP-driven companies, such as medical devices, pharmaceuticals, and biotechnology.
In conclusion, a well-managed IP strategy is a crucial asset that mustbe carefully protected by startups when seeking VC investment. Moreover, Latin America has experienced a favorable environment for the development of early-stage companies through the injection of capital through VC funding.