BRAZILIAN HIGH-TECH LITIGATION: Law, Business & Policy

BRAZILIAN HIGH-TECH LITIGATION: Law, Business & Policy Thursday, May 12 Washington, DC Scan to download this presentation or to receive link via e-mail

Litigating Standard Essential Patents Carlos Aboim Partner at Licks Attorneys B RA ZILIAN HIGH-TECH LITIGATION: Law, Business & Policy The George Washington University Law School

Litigating Standard Essential Patents Carlos Aboim, Partner of Licks Attorneys Thursday, May 12 Washington, DC

Brazil basic facts Brazil is the 5th largest country in the world (larger than the continental U.S.) Brazil was a Portuguese colony from the year 1500 to 1822. The James Monroe s administration of the United States was the first to recognize Brazil's independence, followed by Portugal itself in 1825 Brazil has a population of approx. 209 million people and the world's seventh largest economy by nominal GDP (USD $1,42T in 2015); Internet penetration of 66.4% (2016), with the greatest number of Facebook posts 4

Brazil basic facts and, of course Host for the Olympic games in 85 days! (we will not mention World Cup at this time...) 5

Brazilian Market - Telecommunications in Brazil 3G available to 95.8% of the population 6

Brazilian Market - Telecommunications in Brazil 4G available to 55.1% of the population 7

Brazil basic facts But 3G is really 1G, as operators are obliged to offer only 30% of the contracted speed 30% of transactions occur using slips that are paid at a local corner store or ATM 8

Brazil basic facts Why Brazil? The answer is simple. Brazil is equal to the rest of the South American market combined. If you can win Brazil, you will have an easier time winning other South American markets. Those who can bring both relevant sector expertise and a deep understanding of the local environment will be positioned for big wins. (Brazil Startup Report - http://pt.slideshare.net/worldstartupreport/brazil-startup-report-36443505?sf3496695=1 accessed on July 20 th, 2015). 9

Introductory analysis on essential facilities doctrine and enforcement of de facto essential patents in Brazil. General aspects Antitrust liability

Enforcement of essential patents and ex parte preliminary Injunctions - Background There is no specific legal provision governing the enforcement of Standard Essential Patents (SEP) or patents that are de facto essential ( essential patents ). Both will be subject to essential facilities liability (i.e. compulsory license) and antitrust liability. Compliance with technical standards is not required by law or regulations. There is no judicial decision establishing a framework for enforcement of SEPs (no stare decisis). There is no limitation for the enforcement of SEPs in Brazil, but the enforcement must be reasonable to prevent essential facilities liability (i.e. compulsory license) and antitrust liability. 11

Compulsory license limitations to the exercise of IPR Article 68 of the IP Statute (Statute # 9,279/96) states: The patentee will have its patent compulsorily licensed if he exercises its IPR in an abusively way, or it he uses it to practice an abuse of economic power, proven under the terms of the Law, by an administrative or judicial decision. According to 1 of this article, the patent will also be subject to a compulsory license when the patent subject matter is not explored in the Brazilian territory, or when its commercialization does not meet the market needs. The influence of the local industry and willingness of the government to take action should not be underestimated. 12

Enforcement of essential patents in Brazil CADE s decisions Examples of cases regarding the application of the essential facilities doctrine : Companhia Petroquímica do Sul vs. Petroquímica Triunfo 1998: CADE considered that Petroquímica do Sul had reasonable economics reasons to not enter contracts with Petroquímica Triunfo, based solid economic justifications based on the opportunistic behavior of Petroquímica Triunfo in previous contracts. Globo vs. DirecTV 2001: CADE considered that Globo s signal was not essential for the provision of services of cable TV. CADE ruled that DirecTV did not depend on Globo s signal to subsist in the market. Embratel vs Telesp 2002: Telesp was accused of offering competitive advantages to its subsidiary Telefônica, harming Embratel in bids regarding long-distance calls. CADE ruled that there was an antitrust violation, based on the absence of reasonable basis for the difference in prices charged by Telesp from Embratel and Telefônica. 13

Enforcement of essential patents in Brazil CADE s decisions Decisions rendered by CADE relating to de facto essential patents : Gradiente and Cemaz vs. Philips (Case # 08012.001315/2007-21) May 13, 2009: The accusation claimed abuse of its dominant position, abusive pricing, denial of access to essential technology, and discrimination of lawful players in the market. In regard to the alleged abuse of dominant position, CADE understood that there was no antitrust violation, since the IP Statute allows the patentee to prevent others from commercializing the patent subject matter without its consent, and that there was no evidence that Philips failed to negotiate a license. Sony Corporation, Philips, Panasonic, Hitachi Consumer Eletronics, Samsung and Cyberlink (Case # 08012.008810/2009-23) June 26, 2011: Pool of essential patents for running and reproduction of Blu-Ray discs, as well as DVD and CD format is Blu-ray devices. CADE understood that the pool brought competitive benefits to the markets involved, that it did not reduce the competition in the final markets, and that it promoted access to essential patents, imposing the non-discriminatory licensing. 14

Enforcement of essential patents and ex parte preliminary injunctions

Enforcement of essential patents and ex parte preliminary injunctions (Background) There is no specific legal framework for the enforcement of essential patents. But the enforcement must be reasonable, as there is a growing concern about IPRs and antitrust. The enforcement of essential patents is a regular patent infringement lawsuit. The particularities of the enforcement of an essential patent will come to light in the arguments for request of an injunction. Why the preliminary injunctions to protect IPR in Brazil are so important? Injunctive relief is the only adequate remedy. How to perform a reasonable enforcement and also obtain an ex parte preliminary injunction in Brazil? 16

Enforcement of essential patents and ex parte preliminary injunctions (General legal requirements) Legal requirements - Art. 300 of the Brazilian Civil Code of Procedure: (i) risk of irreparable harm (ii) likelihood of the plaintiff s claims on the merits Preliminary injunctions can be granted ex parte (that is, before the service of the complaint) Article 209, paragraph 1 st, of the IP Statute: The judge may, so as to avoid irreparable damages or damages that would be difficult to recover, grant an injunctive order to suspend the violation or act that has such in view, before summoning the defendant, upon, if necessary, the deposit of a bond. Liability for the Plaintiff who request a preliminary injunction: Article 302 of the Brazilian Code of Civil Procedure provides for strict liability for damages caused by the injunction in case the final decision on the merits is unfavorable. 17

Ex parte preliminary injunctions Irreparable harm Hardship to obtaining compensation in Brazil for patent infringement: the restitution in integrum should reach, independently from the effective peeve, all the economic advantage achieved by the infringer, due to the illicit and in the case of counterfeit, the indemnity of the loss of profits should be correspondent to the profits obtained by the infringer, that profited from a right that did not belong to him and, therefore, should refund what was obtained, in terms of counterfeit profit (AC 237.462.4/6, Court of Appeals of São Paulo, 2nd Panel of Private Law, reporting judge Cezar Peluso, 04/02/2003). The indemnity for moral damages should be correspondent to the profits obtained by the infringer and to the infringement itself, limited by the principle of reasonability and, on the other hand, should serve as propaedeutic to the infringer. (REsp n 582047, Superior Court of Justice, 3rd Pane, Reporting Judge Massami Uyeda, j. 17/02/2009, DJ 04/08/2009) But in Brazil there are no punitive damages, no treble damages for willful infringement, or any kind of enhanced damages in the statute Evidence of the actual harm is required, otherwise there would be unjust enrichment and, for instance, evidence of loss of market share and loss profits is usually hard to accomplish. 18

As a result... In general, Courts often grant preliminary injunctions based on prima facie evidence acknowledging the importance of the injunctive relief as the primary remedy for the protection of IP rights. It is also the main remedy for the ones that can be accused of infringement, as preliminary injunctions on declaratory lawsuits of non-infringement ( inter partes ) and on invalidity lawsuits before federal courts ( erga omnes ) are also available. 19

But what additional evidence will enhance the chances of a preliminary injunction in the enforcement of essential patents? (1/2) The defendant s competitors in the market acknowledge the patent and pay royalties (allowing he defendant to keep commercializing would give rise to unfair competition). The defendant isan unwilling licensee. Refusal to initiate good faith negotiations to obtain a license. Preconditions and roadblocks to stall negotiations (affidavits reflecting negotiations and judicial decisions abroad, if available). The defendant has no relevant assets in the Country, making the monetary relief even more inadequate (the level of obsolescence of the technology may also be relevant). 20

But what additional evidence will enhance the chances of a preliminary injunction in the enforcement of essential patents? (2/2) Absence of harm to consumers (there will be no shortage of products and the protection the IPR will ensure fair competition and innovation) The defendant is a member of the SSO (in case of a SEP) and is well aware of honest practices regarding licensing, but still refuses to negotiate The patent (in case of a SEP) was submitted as essential to the SSO during the elaboration ofthe standard The defendant (in case of a SEP) refused to submit the setting of a FRAND royalty to a court or to arbitration Evidence about the reputation of the defendant (in support of the argument that monetary damages in the end of the lawsuit will be inadequate) 21

Preliminary injunctions Ericsson v. TCL (State Court - 2013) The risk of the delay relies on the fact that the continuity of the manufacture and commercialization of the cell phone devices will bring irreparable harm to the plaintiff, seeing as there is no way of verifying the amount of harm that will be caused to it, given the absense of knowledge about the quantity of cell phones that are available to the consumer, or about to be commercialized, or that are being manufactured in the Appellant s [TCT] factories. "On the contrary, the appealed decision analyzed TCT's arguments, having concluded that there is, indeed, a risk to irreparable harm to Ericsson, especially considering that TCT is a company with headquarters in China, without a branch in Brazil, which would make the execution more difficult. Appeal: with regard to the allegation that the appellee is not entitled to an injunctive relief based on a single patent the protection to intellectual property exists with this goal, i.e. excluding others that are not duly authorized by the patentee the infringement of a single patent does foreclose manufacturing and commercialization of a certain product, as corroborated by judicial decisions. (Interlocutory appeal # 0009772-31.2013.8.19.0000) 22

Preliminary injunctions Vringo vs. ZTE (State Court - 2014) "The preliminary injunction, under the terms of article 273 of the Code of Civil Procedure, is an important mechanism to ensure the delivery of a timely and adequate legal protection, if there is an unequivocal evidence and likelihood of the claims, in order to grant protection to the protected good, and abbreviate, even if temporarily, the practical effects of the definitive decision". "the Trial Judge was logical and had good sense, when, aware of the fast technological development of the modern society and of the numerous possibilities regarding the extension of the litigation, she foresaw that the eventual recognition of the sought right, already supported, if delayed, will cause an irreparable harm to the plaintiff's assets". 23

Preliminary injunctions rejection of the bond Vringo vs. ZTE (State Court - 2014) Trial Court: Therefore, prudence recommends the rejection of the bond or the deposit of royalties, as ZTE requests, because it would simply mean a temporary and precarious solution to a dilemma that requires a permanent solution as soon as possible. Appeal: In a nutshell, the discussion gravitates around the alleged lack of authorization by the patentee for the manufacturing, importation, use and commercialization of equipment for celular mobile telecommunication, which was developed by the Finnish Nokia, consisting in an operation called relocation......fulfilling such equipment the technical specifications of the international 3GPP standard, which is mandatory for the entire industry". as pointed by the trial judge, it is not possible to grant the posting of a bond in this procedural moment it is indeed not possible to ascertain the damages allegedly suffered by the appellee, with the need for production of technical evidence and analysis of the contracts between the appellant and third parties, particularly carriers. (interlocutory appeal # 0000068-23.2015.8.19.0000) 24

Leading case before the Superior Court of Justice (STJ) in Brazil Vringo v. ZTE Decision issued on November 5 th, 2015 by Reporting Justice Paulo Sanseverino: In summary, the appeal is against the grant of an ex parte preliminary injunction, since the evidence was unilaterally presented by the appellee, without prior hearing of the defendant In this sense, in what refers to the arguments brought by the appellant, the appealed decision is not arbitrary or tautological, as it was issued in light of solid evidence, even if unilaterally produced, and grounded on constitutional provisions and specific legislation, in nothing revealing partiality or injustice. On the contrary, the reasoning of the magistrate a quo has logic and common sense, as it considered the fast technological progress experienced by modern society and the several possibilities to extend the dispute, the magistrate foresaw that if the recognition of the right was delayed, it would result in an effective irreparable risk to the Plaintiff. On the other hand, the appellant did not present a sole argument capable of explaining that its technology does not infringe the appellee s patent 25

Enforcement of injunctions Measures to enforce the preliminary injunction: Astreintes (daily fines) seeking to compel the infringer to comply with the injunction, usually set between USD 10k and USD 50k Provisional execution of the daily fine in the event of non-compliance Search and seizure Issuance of an official notice to custom authorities to prevent importation of infringing products (ITC like proceeding) Issuance of official notices to carriers informing the injunction Actual picture of the sealing of telecom equipment by court-experts. 26

Enforcement of injunctions Ericsson v. TCL (State Court) In light of the defendant s resistance to fulfil the granted injunction, which has been, on the contrary, expanding the commercialization of the device, the request for immediate execution of the daily fines to secure the effectiveness of the judicial order is granted. That being, the defendant must deposit BRL 6.500.000,00 in fifteen days, in the terms of art. 475-J of the Code of Civil Procedure. Vringo v. ZTE (State Court) Before the indications of failure to comply with the injunction that emanates from the manifestation of Oi [carrier]... I reconsider the decision to grant the claimed measures inspection and sealing of equipment, as suggested by the plaintiff [ ]. 27

Affirmative defenses against the enforcement of SEPs in Brazil

Possible defenses in patent infringement lawsuits - Patent invalidity lawsuit Must be filed before Federal Courts, as the BRPTO must join the complaint Court-appointed expert s report is an indispensable evidence due to the technical complexity involved in the patent invalidity analysis Nullity may not be applicable to all of the claims, a condition for partial nullity being that the subsisting claims constitute subject matter that is patentable per se article 47 of the IP Statute Nullity of a patent will produce erga omnes effect as from the filing date of the application article 47 of the LPI 29

Possible defenses in patent infringement lawsuits - Patent invalidity lawsuit According to article 56, 1, of the Brazilian IP Statute: nullity of a patent may be argued, at any time, as matter for defense. Superior Court of Justice understand that the patent nullity cannot be claimed in the infringement proceedings. Reason for that: patent infringement lawsuits are filed before State Courts, while invalidity lawsuits have to be filed before Federal Court, with the statutory requirement for the participation of the BRPTO (Brazilian PTO). THEREFORE In Brazil the patent enforcement system is dual, divided in patent infringement and patent invalidity. It means that, in a patent infringement proceeding, defendant cannot allege patent invalidity. Possibility of staying the infringement lawsuit: The State Judge can order the stay of the infringement proceedings until the patent invalidity lawsuit is decided. Controversial matter: there are some who understand Judges and scholars that the infringement lawsuit can only be stayed if it was filed after the invalidity lawsuit. 30

Affirmative defenses against the enforcement of SEPs ZTE v Vringo and the BRPTO (2015 Federal Court of Appeals) Firstly, although the plaintiff sustains that the defendant refused to negotiate a FRAND license, with reasonable royalty terms, from the analysis of the documents brought to the records, in particular the ones from docket pending before the Fifth Business Court of Rio de Janeiro, it can be verified that there is no proof that the plaintiff had been effectively willing to negotiate such licensing only been doing so, under the terms it considers fair, after the filing of the lawsuit before the State Court. There is also no evidence in the records that Vringo acted in disagreement with the FRAND terms (fair reasonable and nondiscriminatory terms) in any possible negotiation of licensing and payment of royalties. (Case # 2015.51.01.037510-8) 31

Affirmative defenses against the enforcement of SEPs TCL v Ericsson and the BRPTO (2015 Federal Court of Appeals) Federal Prosecutor s Office ( Ministère Public ): It is important to mention that the standardization is important to guarantee interoperability and adequate operation of telecommunication networks, given that the holders of patents, in order to have their technologies incorporated in standards, commit to license them on fair, reasonable and non-discriminatory terms (FRAND). ( ) The appeal must be rejected, as it intends to curtail Ericsson s right to sue and its patent rights, which are protected by Article 5, paragraphs XXIX and XXXV, of the Brazilian Federal Constitution. ( ) There isno irreparable harm, asthe attempts to negotiate already took several years. Reporting appellate judge denied the injunction on appeal based on lack of evidence of abuse of the right to use. (Case # 2015.00.00.001579-4) 32

The TCT v. Ericsson antitrust case Worth noting in CADE s decision to close the preliminary investigation against Ericsson: Ericsson is entitled to file lawsuits to enforce patents Ericsson s lawsuits seem reasonable given the long period of unfruitful negotiations and the many licensing agreement entered by Ericsson with other players in the industry CADE recognized the inexistence of an exclusionary anticompetitive practice CADE mentioned that matters involving negotiations of a licensing agreement and patent infringement are generally a matter of Contract and Patent Law, and only exceptionally will concern Competition Law CADE will not intervene in commercial disputes that do not have an overall impact over a relevant market Any harm suffered by TCT results from a reasonable commercial dispute and does not result in effects over the market, and therefore is not an antitrust violation 33

Thank you! Carlos Aboim carlos.aboim@lickslegal.com T +55-21-3550-3703 M +55-21-998063014