Responding adeptly to Brazil’s trade mark system

Often clients, unaccustomed to Brazil, fret about the wrong problem, such as the backlog. Alternatively, they try to solve a problem with the wrong solution, like drafting a standard licensing agreement outside Brazil for use worldwide. Take, for example the backlog. For a very long time fretting about trade mark rights in Brazil centred on the delays of the Brazilian Patent and Trademark Office (BPTO) rather than its technical performance.

However, in all likelihood, the problem of backlog is about to be solved as the BPTO released its 2018 goals and is officially aiming for an 18 month window from application to outcome for trade marks with or without obstacles. Currently this window is 30 months. The goal of the BPTO is to become a signatory to the Madrid Protocol by 2019. In the past couple of years it has reduced its backlog to 15% and is working for a further reduction of 11.7% in this year alone.

This actual and planned improvement in productivity unfortunately, was not supported by improvement in the quality of the technical aspects of the decisions that are rendered by the BPTO. For example, trade mark conflict decisions are still perfunctory, 3D marks are rarely granted, secondary meaning is refused and very strict rejection decisions based on absolute grounds are given too often.

Appeals

As a result of these challenges, judicial appeals have become, in a way, a part of the Brazilian trade mark prosecution process and are often seen as a better alternative to the filing of administrative appeals. Many clients, at first, have an extreme reaction to the word litigation and have the initial, almost automatic response of rejecting this solution completely, seeking alternatives.

However, here is the good news. While technically judicial appeals are litigation, they are a less challenging form of litigation. The Brazilian legal system is mostly based on written motions. Judicial appeals consist of very straightforward proceedings, with no hearings or discovery phases at trial level and the rendering of a decision in approximately 18 months, therefore keeping costs to a fraction of what most people consider to be the cost of litigation.

Most of these judicial appeals are filed at the Federal Court of Rio de Janeiro, and those filed in Rio de Janeiro are exclusively handled by four judges who are specialised in IP matters. As a result of this specialisation, and the fact that the judges show no deference to the BPTO’s decisions, the decisions rendered by the courts at trial level consist of more robust analysis in comparison to those rendered by the BPTO. In fact, the courts perform a factual analysis of the cases where the BPTO does not. In trade mark disputes, the courts not only compare the marks but also take into consideration the customer profiles, the actual likelihood of confusion as well as any other relevant evidence.

There is also strong case law supporting secondary meaning which, as a result, is widely accepted in courts. In other words, depending on the particulars of the case, it might be worth and, surprisingly, more cost-effective to use the judicial appeal.

Creating effective agreements

Registering a trade mark is not the end of the process. As every client knows, trade mark prosecution is not an abstraction. It is the basis for revenue streams. And, therefore, once trade mark rights are secured, it is time to monetise them. However, too often, valuable benefits are left on the table as comfortable solutions from outside Brazil are requested by clients both in the drafting and recording of agreements.

Most clients monetise their IP assets in Brazil by using a Brazilian partner. As a result, they are obliged to record their agreements before the BPTO. The recording of these agreements is mandatory as without such recording the Brazilian partner is prohibited from remitting royalties and deducting tax from the royalties that have been paid.

Worse, without the recording, the agreement is not enforceable against third parties and the Brazilian partner is also not capable of enforcing the rights of the trade marks involved in the agreement. Fortunately, the recording of agreements at the BPTO is very simple. The recording procedure as well as the aspects analysed were modified last year in the Normative Act 70/2017 and currently these agreements must be recorded within 40 days or less.

However, drafting these agreements is where clients find themselves making an error. It seems obvious that an agreement drafted under foreign law would not be an effective tool in Brazil, but surprisingly this situation is often encountered. In an effort to save money, companies step over dollars to pick up dimes by forcing standard agreements drafted elsewhere on local partners. Local partners typically do not find this objectionable.

Standard agreements are most likely to be perceived as adhesion contracts by the Brazilian judges, even among sophisticated, represented parties. They are very difficult to enforce and, in drastic situations can be redrafted by courts. It is not uncommon for a local partner to intentionally breach a standard foreign contract to achieve this very redrafting under Brazilian law by a Brazilian judge.

However, it does not have to be this way. Brazilian judges enforce well-drafted contracts and they are especially eager to provide litigants with the plethora of unique contract rights that can be found in Brazilian law and included in a contract. Localisation of agreements is the best way to go. With localisation, which can be an adaptation of the standard agreement rather than a complete redraft, it is possible to explore the combination of royalties available in the local jurisdiction, address risks that require local solutions, anticipate revenue limitations and tax implications and include penalty clauses which are fully enforceable in Brazil but not found in many foreign jurisdictions.

Brazil is a dynamic country with a developed trade mark system. It has its problems, like every country but solving the right problem with the right solution pays enormous dividends.

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