Basic Patent Law in Brazil, and Recent Developments

International In-house Counsel Journal Vol. 1, No. 2, January 2008, 0 00 Basic Patent Law in Brazil, and Recent Developments RUSSELL BOLTWOOD Vice President, Licensing and Intellectual Property, UTStarcom, USA The largest country in South America by both geography and population, Brazil was discovered by Portuguese explorers in 1500. It remained a colony of Portugal until 1822, when Brazil declared its independence from Portugal. Initially, Brazil was constituted as an empire, but finally adopted a republic form of government in 1889. Since its formation as a republic, Brazil s political and governmental structure has been the subject of significant upheaval, with the country s military maintaining political control of the country for a substantial amount of time since 1889. Including the constitution put in place as part of the creation of the Empire of Brazil, the country has had a total of seven constitutions since its independence. In 1988, Brazil transitioned from military rule to a democratically-elected civilian government. That same year, the country adopted a new constitution which provides the foundation for its current legal and political institutions. This transition to democratic rule, along with the adoption of a new constitution, laid the political and legal foundation for Brazil s emergence as one of the world s largest and fastest-growing economies. Like many currently emerging economies, Brazil s past history of political economy was marked by strong currents of socialism and national self-reliance. In this context, Brazil s economy was fundamentally autarkic in nature, with little foreign import activity. As such, local companies enjoyed a market environment that for many years was essentially non-competitive, with little focus on the development or utilization of intellectual properties. Beginning in the early 1990 s, Brazil took steps to open its markets to foreign trade and greater market competition; these steps culminated with the accession of Brazil to the WTO in 1995. Accession to the WTO meant that Brazil would also need to consent to the various treaties that WTO members are subject to; these treaties included the Agreement on Trade-Related Aspects of Intellectual Property ( TRIPS ). Consent and adherence to TRIPS required Brazil to undertake an overhaul of its then-existing intellectual property laws; to this end, Brazil implemented Law 9.279 ( Law 279 ). Effective on May 15, 1997, Law 279 is now the basic patent law of the country. The purpose of this article is to provide the reader with a basic overview of Law 279, and to highlight some of the key differences between it 1 and the patent laws of other key jurisdictions. Finally, this article shall briefly discuss recent developments regarding Brazil s use of Law 279 as the basis for its issuance of compulsory licenses for the manufacture and distribution of drugs for treatment of Human Immunovirus ( HIV ), and the possible implications of these actions for foreign patent holders intending to utilize or exploit intellectual property rights in Brazil. 1 Law 9.279 is intended as a broad statutory scheme, covering the disclosure, registration, and enforcement of not only patents, but also industrial designs and trademarks. International In-house Counsel Journal ISSN 1754-0607 print/issn 1754-0607 online

2 Russell Boltwood Patent Law in Brazil While Brazil has received more recent notoriety for its rapid economic development, what is less-known is that Brazil possesses a fairly strong history of intellectual property jurisprudence. Brazil has for some time maintained a public policy interest in the value of patents to the country s economy: its first patent laws were enacted in 1809, and Brazil was a founding member of the 1883 Paris Convention. Despite its early development of patent jurisprudence, Brazil s intellectual property laws were nonetheless incongruent in key respects to the patent laws of other more developed countries, particularly in respect of both the strength of the country s intellectual property laws as regards to granting patent holders enforceable rights, and the mechanisms for patent enforcement within the country. Such incongruencies become more apparent with Brazil s movement towards a more open economy, as Brazil s membership in the WTO and other multinational trade organizations required that it take steps to harmonize its intellectual property laws with those of other member states. This was the essential genesis of the enactment of Law 279. The provisions of Law 279 are in some ways a microcosm of the policy concerns that form the basis of the final provisions of TRIPS. The basic thrust of TRIPS was to harmonize the substantive and procedural intellectual property laws of the WTO member states; however, the intellectual property interests of WTO member states vary drastically, depending on whether the member is a developed, or developing, country. Developed countries are net exporters of intellectual property, and net importers of royalty income derived from intellectual property; developing countries are arguably the opposite. As such, developing countries expressed great concern during the TRIPS negotiations that excessive royalty demands from developed countries would staunch the development of their economies, and deny these developing economies access to the technologies and products needed for development and social welfare. 2 In consideration of these concerns, the drafters of TRIPS added several provisions to the treaty to provide developing countries with certain protections against possible excesses related to enforcement of patents within their countries. Key among these treaty provisions is an allowance for developing countries to maintain provisions for compulsory licensing of patents. As will be discussed later in this article, Law 279 contains provisions regarding compulsory licensing, and these provisions have been central to recent controversy regarding Brazil s use of compulsory licenses to compel lower pricing of HIV therapeutic drugs in the country. Qualification for Patent Applications Standing and Ownership Title 1, Chapter 1 of Law 279 provides guidelines regarding the basic qualifications for a party to be properly qualified to apply for a patent. While there is some suggestion in Law 279 that a party could claim patent rights without having been the first to file an actual patent application 3, it is generally understood that Law 279 provides that Brazil will follow the global majority rule of a first to file patent regimen, 2 For an exhaustive discussion of these policy imperatives, please see Changing the Patent System from The Paris Convention to the TRIPS Agreement The Position of Brazil, authored by Senhor Cicero Gontijo (Heinrich Boll Foundation, December 2005). 3 See Law 279, Article 6 ( Unless proven otherwise, the applicant is presumed to have the right to obtain a patent. )

and that at a minimum, the evidentiary presumption under the patent laws is that the first to file (or the assignee of the rights thereof) is the legal owner of the subject patent. 4 As a general matter, Law 279 provides that inventions created by employees with the means and resources provided by their employer are owned by the employer in the absence of any contravening agreement. If a contravening agreement exists, or if it can be shown that the invention was not developed with the use of employer resources, ownership of any resulting patent would inure to the individual employeeinventor. 5 As such, Law 279 appears to reverse the norms of patent ownership found in jurisdictions such as the United States, where in the absence of any agreement to the contrary, ownership of a given patent is attributed to the named inventors. 6 Although Law 279 may thus seem to possibly obviate the need for a specific agreement of assignment of patent rights, prudent legal practice always suggests that an agreement assigning an employee s rights of ownership to inventions at the time of inception of employment is wise. Subjects of Patent and Disclosure Patent Law, Brazil 3 Chapter 2 of Law 279 provides the basic rules and exclusions regarding the types of patents allowed, and the proper subject matters for patent applications. In contrast to U.S. provisions allowing for patents for the category types of process, machine, manufacture, or composition of matter 7, Law 279 provides for 2 basic patent types: inventions and utility models. 8 Inventions based on design are excluded from the patent filing provisions of Law 279, but are instead covered by a separate system of design registration addressed elsewhere in the statute. 9 Regarding inventions, patentability under Law 279 is allowed where the subjects...meet[s] the requirements of novelty, inventive activity and industrial application. 10 These statutory requirements track roughly with the requirements under United States law of novelty, non-obviousness and usefulness, respectively. 11 Of note, the use of the terminology of industrial application suggests an additional focus under Brazilian law on the idea of usefulness of an invention to the country s economic development, as opposed to an arguably broader application of the meaning of the term usefulness. A utility model is defined in Law 279 as an object of practical use, or part thereof, and is eligible for patent if...its capability of industrial application features a new shape or arrangement and involves an inventive act resulting in a functional improvement in its use or manufacture. While it seems that the standard for patentability of a utility model may be a lesser standard than that applicable to 4 See Law 279, Article 7 ( If two or more authors have independently divised the same invention or utility model, the right to obtain a patent will be assured to whoever proves the earliest filing regardless of the dates of invention or creation. ) 5 Interestingly, under Law 279 inventions made outside specific contracts and with resources provided by an employer are equally shared by employer and employee, but the employer retains exclusive working rights. These rights return to the employee if the patent s subject matter is not put to productive use within one year from the issuance of letters patent. 6 See 35 USC Sections 111, 115 116. 7 35 USC Section 101. 8 Law 279, Articles 8 9. 9 See Generally, Law 279, Articles 94 121. 10 Law 279, Article 8. 11 See 35 USC Sections 101 103.

4 Russell Boltwood inventions under Brazilian law, there remains a significant amount of uncertainty regarding the meaning and application of this definition to utility model applications. Law 279 significantly modified prior Brazilian patent jurisprudence in regard to the effect of disclosure of an invention prior to patent application. Under prior law, loss of novelty of an invention could be attributed to public disclosure of the inventive subject matter prior to the filing of an application for invention. With the advent of Law 279, public disclosure of the content of the invention in the twelve months before the filing of a patent application does not necessarily affect novelty. If disclosure of inventive subject matter is affected by the inventor, by a third party who obtained the subject matter directly or indirectly from the inventor or from acts performed, or by the National Institute of Industrial Property [INPI], such disclosures are specifically excluded from the state of the art of the inventive subject matter, and as such are not grounds for a denial of patentability. 12 Law 279 provides a two-pronged regimen regarding matters that are considered unpatentable under the ambit of its provisions. These two prongs focus on a) inventive subject matters that are unpatentable by reason of not being the subject of invention per se; and b) inventive subject matter that is statutorily excluded from the coverage of Law 279 for public policy or other reasons. The approach to nonpatentability under Law 279 contrasts with similar provisions in United States law, in that the United States approach generally eschews the statutory specification of particular inventive disclosure categories (e.g., Law 279 s specific prohibition on patents of computer programs and therapeutic or diagnostic methods ) in favor of decisional prohibitions on matters that lack requisite novelty, non-obviousness and/or usefulness. United States law also avoids any broad, statutory prohibition on patent matters which may be deemed offensive to public policy. Under Article 10 of Law 279, the following categories are deemed to not be the subject of inventions on the apparent basis of being per se subjects of non-inventiveness, and are thus unpatentable: i Discoveries, scientific theories and mathematical methods; ii Purely abstract concepts; iii Schemes, plans, principles or methods of a commercial, accounting, financial, educational or advertising nature or for games of chance or surveillance; iv Literary, architectural, artistic and scientific works or any aesthetic creation; v Computer programs per se; vi Presentations of information; vii Rules for games; viii Techniques and methods for operations or surgery and methods for therapy and diagnosis practiced on the human body; ix All or part of natural living beings and biological materials found in nature and isolated therefrom, including the genome or the germ plasm of any natural living being, and any natural biological processes. Article 18 of Law 279, in turn, provides that the following categories are statutorily prohibited subjects of patentability (viz., prohibited as subjects of patent, even if the subject matter is still per se a subject of invention): i Anything contrary to morality, decency or public safety, order and public health; 12 Law 279, Article 12.

ii Substances, materials, compunds, elements, or products of any kind, including the modification of their physical and chemical properties and the processes for obtaining or modifying them, when they result from the transformation of the atomic nucleus; and iii Living beings, in whole or in part, except for transgenic microorganisms meeting the three requirements of novelty, inventive activity and industrial application in accordance with Article 8 and which are not mere discoveries. The above-described prohibitions on patentable subjects are quite broad, and arguably prohibit patent activity on a wide variety of inventive areas which are currently most topical in other jurisdictions. With the exception of recent events relating to HIV-related drug patents, however, it appears that these prohibitions have not had any significant effect on the ability of inventors to gain letters patent in Brazil in most key inventive areas, including biotechnology, communications, semiconductors, and chemical and materials engineering. As such, the general thrust of these prohibitions appears to be focused on inventions which fundamentally lack requisite novelty, inventive activity and industrial application, as opposed to the prohibitions acting as a complete bar to invention in the enumerated categories. Patent Filing Procedure Patent filing procedures within Brazil are similar to filing procedures found in other major jurisdictions. Patents may be filed with either the INPI directly, or by National Phase election under the Patent Cooperation Treaty ( PCT ), upon which the patent is then examined by INPI. In the absence of any actions taken by the applicant to expedite prosecution (see below), the prosecution process, including correspondence with INPI regarding office actions, normally takes 4 to 6 years before letter patent are issued. As provided by Article 40 of Law 279, invention patents possess a term of twenty years from the original date of filing, while utility patents are effective for fifteen years from the date of filing. Counsel for patent applicants in Brazil should be aware of the following key procedural filing points within the jurisdiction: i ii iii Patent Law, Brazil 5 Pharmaceutical patent applications are subject to examination by not only INPI, but also by the National Health Agency ( Ministerio da Saude ). 13 This additional examination, along with the political sensitivity surrounding pharmaceutical patents within Brazil, warrants careful attention by patent counsel when choosing to apply for a pharmaceutical patent in Brazil. Because of the lengthy time involved in patent prosecution, counsel for a Brazilian patent applicant should familiarize herself with those provisions under Brazilian law available to expedite prosecution. In particular, a patent application which claims priority in a foreign jurisdiction where the patent has already been issued may receive expedited review in Brazil, by filing with INPI a copy of the patent granted in the country of claimed priority, along with a Portuguese translation of the patent claims. 14 When considering the cost and effort involved in filing a patent in Brazil, counsel should make sure to take into consideration the incidental costs of 13 See Brazilian Law 10.196, February 2001. 14 See INPI Act 152/99 (2000).

6 Russell Boltwood filing, which at minimum will include the costs of Portuguese translations, Brazilian consulate legalization of filing materials, sworn translations, and notarization of filing materials. Enforcement Provisions Law 279 affirmatively states the rights of patent holders to enforce their patents against infringers. This affirmative statement stands in contrast to prior law, where the right of enforcement against infringers was presumed from criminal provisions stated elsewhere in Brazil s prior intellectual property laws. Under Article 42 of Law 279, a patent entitle[s] its owners the right to prevent third parties from manufacturing, using, offering for sale, selling or importing [a] a product that is the subject matter of a patent[, or b] a process, or product directly obtained by a patented process. Article 42 also specifically provides for liability for parties proven to have contributed to the infringement of a patent. Notably, Article 42 specifically provides that in instances where a process patent is the subject of alleged infringement, the burden of proof of non-infringement is put upon the alleged infringer, as opposed to the patent holder assuming the burden of proof of infringement. Departing again from prior law, Article 43 of Law 279 provides a listing of activities statutorily exempted from allegations of infringement, as follows: i Acts practiced by unauthorized third parties privately and without commercial purposes, provided they do not result in damage to the economic interests of the patentee; ii Acts practiced by unauthorized third parties for experimental purposes, regarding studies or for scientific or technological research; iii The preparation of medicine according to a medical prescription for individual cases, executed by a qualified professional, as well as to a medicine thus prepared; iv A product manufactured in accordance with a process patent or a product that has been placed on the internal market directly by the patentee or with his consent; v Third parties who, in the case of patents related to living matter, use, with no economic purposes, the patented product as the initial source of variation or propagation for the obtaining of other products; and vi Third parties who, in the case of patents related to living matter, use, market, or sell a patented product that has been lawfully introduced onto the market by the patentee or its licensee, provided that the patented product is not being used for commercial reproduction or propagation of such living matter. While these exemptions from enforcement are arguably within the scope of exemptions found in the patent laws of other jurisdictions 15, there remains a paucity of interpretive authority and judicial application of these exemptions to actual controversies within Brazil. As such, these exemptions would appear to present significant ambiguities to a patent holder seeking to enforce her patents within Brazil. Article 44 of Law 279 provides for the basic right of a patent holder to receive compensation for the unauthorized use of the subject matter of a patent. Compensation may be measured under Brazilian law on the basis of actual loss to the 15 See, e.g., French Intellectual Property Code (1992), art. 613 5, D.

patentee, unjust enrichment to the infringer, or by calculation of imputed license fees due and owing to the patent holder. Of note, Article 44 specifically provides that while compensation may be received for infringement from the date of a patent application to its grant, compensation may also be received where an infringer exploited an inventive idea in advance of the application date, where the infringer had knowledge of the intent of the patent holder to file for a patent. Finally, by virtue of Brazil being a member of the PCT, priority dates of patents filed in other jurisdictions which are filed in Brazil under National Phase procedures set the date from which compensation may be received for infringement of such patents in Brazil. Patent Licensing Under Law 279 Patent Law, Brazil 7 Perhaps the greatest notoriety attributable to Brazilian patent law relates to the Brazilian government s use of the threat of issuance of compulsory patent licenses in respect to its negotiations with several foreign drug makers over the pricing of HIV therapeutic drugs. The legal basis for these recent actions lies within the voluntary and compulsory licensing provisions found in Articles 61 through 74 of Law 279. The basic thrust of the public policy underlying Brazil s patent licensing laws is to promote quick and efficient commercialization of patented inventions, while at the same time preserving the government s right to intervene as may be deemed necessary to staunch potential abuse of the monopoly power granted to patent holders. Article 62 of Law 279 generally provides that patent licenses within Brazil are subject to registration with INPI. There is some suggestion in Law 279 that license registration is not mandatory 16 ; further, Law 279 does not provide for any mechanism through which portions of a license (such as licensing fees or royalty rates) may be kept confidential for competitive or other reasons, such as the U.S. Securities and Exchange Commission s procedures for redaction of confidential portions of filed contractual exhibits. However, as prior Brazilian patent law required registration of licenses as a condition precedent to judicial enforcement, prudent practice suggests that a licensor at least seriously consider INPI registration. Articles 64 through 66 of Law 279 enable a licensor to request INPI to assist in the publication and promotion of a patent license for commercial exploitation by the general public, ostensibly as a method to forestall or avoid the prospect of compulsory licensing. These articles also provide an arbitral mechanism whereby INPI may decide, at the request of the licensing parties, any disputes related to level of consideration to be received by the licensor. The articles provide further incentive to licensors to employ INPI in licensing activities, by granting a participating licensor a fifty percent reduction in patent annuity fees for patents covered by a license promoted by INPI. Compulsory licensing is covered by Articles 68 through 74 of Law 279. 17 Compulsory licenses may be issued under Law 279 18 for patents of at least 3 years in maturity from grant if any of the following conditions arise: 16 Law 279, Article 62 in relevant part provides that [a] license agreement need not be recorded with the INPI for the purpose of validating a proof of use 17 Additional provisions of Law 279 relevant to the issue of compulsory licensing include Article 10 (Exclusions from Patentable Inventions and Utility Models); Article 18 (Non-Patentable Inventions and Utility Models); and Article 75 (Patents of Interest to National Defense). 18 Article 70 of Law 279 also provides a regimen for compulsory licensing where one patent s commercialization is dependent on the licensing of a related patent.

8 Russell Boltwood i. The subject of the patent matter is not sufficiently exploited commercially, unless it is economically unfeasible to do so; ii. The commercialization of the patent does not meet the market needs ; or iii. The patent holder is shown by administrative or court decision that she has exercised her rights under the patent in an abusive manner or by means of abuse of economic power 19 A patent holder subject to a compulsory license may avoid this outcome if the patentee can show: i. A justification of non-use for legitimate reasons ; ii. Proof that serious and effective preparations for exploitation of the patent have been carried out; or iii. A justification that lack of manufacture or commercialization of the patent is due to legal obstacles. 20 If there is a showing that a compulsory license is issuable under Brazilian law, the licensee must nonetheless demonstrate a legitimate interest in the subject matter of the patent, and also must show that it possesses the technical and economic capacity to carry out the efficient exploitation of the subject matter of the patent 21 When issued, compulsory licenses are non-exclusive, with no right of sublicensing allowed. 22 The HIV Therapeutics Issue The first case of HIV was recorded in Brazil in 1982. By the end of 2005, 620,000 Brazilians were living with HIV. While the Brazilian government has made substantial progress since 1982 towards prevention and treatment of HIV among its citizenry, the disease remains a prominent concern in regard to public health within the country. Against this backdrop, in recent years the Brazilian government has utilized the threat of issuing compulsory patent licenses pursuant to Law 279, in relation to its negotiations with multinational drug makers as to the pricing of HIV therapeutics for the Brazilian market. The statutory basis for these actions rests in Article 71 of Law 279: In cases of national emergency or public interest, declared in an act of the Federal Executive Authorities, insofar as the patentee or his licensee does not meet such demand, a temporary ex-officio non-exclusive compulsory license for the exploitation of the patent may be granted, without prejudice to the rights of the respective patentee. In some cases, the threat of compulsory licensing caused drug makers to make significant concessions as to the pricing of their HIV therapeutics. In other instances, the Brazilian government has in fact issued compulsory licenses for the patents underlying the drugs that were the subject of negotiation. 23 19 See Law 279, Article 68. The abuse must be ascertained in a court or administrative court decision; typically, the Conselho Administrativo de Defensa Economica ( CADE, the Brazilian equivalent of the United States Federal Trade Commission) retains primary jurisdiction in such matters. 20 See Law 279, Article 69. 21 See Law 279, Article 68. 22 See Law 279, Article 72. 23 In the most recent development, in May 2007 the Brazilian government issued a compulsory license as to patents underlying the drug Efavirenz, an HIV therapeutic drug developed by Merck & Company. See http://www.msnbc.com/id/18490388.

Proponents of these actions by the Brazilian government cite the drug companies monopoly pricing power (derived from their patent rights), the relative poverty still existing within Brazil, and the urgency of the HIV epidemic in Brazil as factors supporting the government s issuance of compulsory licenses. Opponents of these actions note that as Brazil s gross domestic product is one of the largest in the world, the country possesses enough in wealth and resources to purchase the products at market prices, and that the use of the compulsory license provision of Law 279 constitutes little more than overriding arms-length price negotiations. Opponents of these actions further state that without proper recognition of their patent rights by the Brazilian government, they will be less inclined to introduce improvements on existing HIV therapeutics to the Brazilian market. Whatever the correct view may be, it is nonetheless notable that the Brazilian government s use of Article 71 to issue compulsory licenses is not necessarily limited to pharmaceutical patents; to the extent that the law allows for compulsory licenses to be issued on the basis of public interest, it is arguable that a broad interpretation of Article 71 may lead to the use of compulsory licenses in other key industries, such as communications, semiconductors, biotechnology, and chemical and materials engineering. As these issues are evolving now in Brazil, counsel for patent holders intending to utilize or exploit their intellectual property rights in Brazil would be well-advised to closely monitor the developments in the HIV therapeutics cases, whether or not the patent rights of concern relate to pharmaceutical products or not. Conclusion Patent Law, Brazil 9 Brazil s economy has come a long way in a relatively short time. In less than 20 years, the country has moved from being a closed political and economic nation to becoming one of the world s leading economic powers. Despite these changes, Brazil still faces intermediate-term challenges in terms of political reform and social welfare, challenges which are reflected by the provisions of Law 279 and its application. For both companies and counsel who intend to commercialize intellectual property assets within Brazil, it is essential to understand not only the country s basic intellectual property law provisions, but also to stay abreast of political development in Brazil relating to intellectual property. Russell Boltwood joined UTStarcom in December 1997 as its first Director of Law and Human Resources. He oversaw the Company s legal and human resources functions through its successful IPO in 2000, as well as through its expansion into China, India, Japan, Europe and South America. In 2007, Russell was promoted to Vice President, Licensing and Intellectual Property, and presently oversees the Company s patent and intellectual property licensing matters. Russell holds a B.A. in Economics from the University of California, Berkeley, a J.D. from Golden Gate University in San Francisco, and is a graduate of the Executive Program at Stanford University s Graduate School of Business in Palo Alto, California. Russell is a member of the State Bar of California, and is the co-author of Corporate Counsel Beware: Economic Espionage Is On the Rise, an article published in the May 2000 edition of the California Bar Journal.

10 Russell Boltwood UTStarcom is a global leader in the manufacture, integration and support of IPbased, end-to-end networking and telecommunications solutions. The company sells converged broadband wireless and wireline products, an integrated IPTV solution, and a comprehensive line of handset and customer premise equipment to operators in both emerging and established telecommunications markets worldwide.