Last September 1st, a law came into force that seeks to make advertising contracting more transparent.
It regulates the commercial relations between the media (social networks, internet sites, newspapers, etc…), the agencies that place advertising in such media, and the advertisers (who pay for advertising, and hire the agencies for such purpose).
This law can be seen as one more episode of “the State interfering in the relations between private individuals”. And it probably is. But anyway. If the neo-liberals of the last administration regulated the purchase of airline tickets, it is not surprising that this government has passed a law to regulate the contracting of advertising.
The law is brief, it has only 13 articles (you can see it in its entirety HERE). It was published in the Official Gazette of the Federation on June 3, 2021, entering into force on September 1. The law highlights the following:
1 It prevents the resale of advertising spaces. Agencies may not acquire advertising space and then sell it. Agencies may only acquire advertising space by order and on behalf of the advertiser, within the framework of a contract of mandate. This could of course constitute a violation of the freedom of trade.
2 There must be a contract of mandate between the agency and the advertiser. This is considered healthy and necessary, thinking of the cases where the advertiser deposits to the agency the money that the latter must pay to the media. Since the law expressly stipulates that the media must send the invoice directly to the advertiser, even when the agency makes the payment.
Then, if the agency is going to receive the money to pay the media, and the media is going to send the invoice to the advertiser, the best way for the agency to justify that the advertiser’s deposit is not an income, is to prove with a contract of mandate that the money was to make a payment on behalf of third parties. In this way, the agency can avoid the deposit being computed as income for tax purposes.
3 The agency can only receive as consideration the fee agreed with the advertiser. Any discount granted by the media must be transferred in full to the advertiser. This is arguably one of the main purposes of the law.
4 The same person (individual or legal entity) may not provide services to both media and advertisers.
5 It regulates “Programmatic Digital Advertising”. This is defined as: Digital Advertising sold through automatized mechanisms, particularly through auctions in real time, which establish as main sales criteria the access to audiences with segmented profiles.
In the event that the agency acquires “Programmatic Digital Advertising” (by order and on behalf of the Advertiser, obviously), the agency must deliver to the advertiser during the following month after the broadcasting of the advertising spaces, various information regarding the result of the services provided. This information is detailed in article 7 of the law.
6 The agency must inform in writing to its client (the advertiser), any financial relationship with the media that the agency has, or the economic group to which it belongs.
7 This law also applies to advertising contracts made by a government agency (together with the General Law of Social Communication, and other applicable laws).
8 Infractions to the law: it contemplates fines between 2% and 4% of the income of the media or agency, depending on the infraction incurred. It is noteworthy that article 10, section I, paragraph a) establishes the possibility of sanctioning the advertiser if it has not entered into a contract of mandate with the agency. Therefore, it is important for advertisers to have this contract with their agency.
The responsible institution to sanction is the Federal Commission of Economic Competition (COFECE). This has serious constitutional flaws. So many, that COFECE itself filed before the Supreme Court of Justice a Constitutional Review against the law (which did not prevent its entry into force), which will have to be resolved at some point in time.
Appeals against the law? It would have to be assessed on a case-by-case basis. The agencies are the main ones that could be affected, and I have already mentioned that it could be due to the prohibition to resell advertising space. The deadline to file an appeal against this law would expire on October 15, or fifteen working days after the first act of application.
