Arbitrability of IP Disputes in Brazil

Introduction

Twenty-six years have passed since the enactment of the Industrial Property Law (LPI)[2] and the Arbitration Act (LA).[3] Despite the recognition of the constitutionality of arbitration by the Federal Supreme Court[4] and some favourable binding precedents from the Superior Court of Justice (STJ), Brazilian courts are still sceptical about the use of arbitration to resolve certain types of disputes in Brazil. This is the case with disputes concerning IP rights.

According to Article 1 of the LA, ‘persons capable of contracting may use arbitration to settle disputes relating to disposable property rights.’ Recent amendments have introduced Article 1(1) and (2) to affirm, respectively, that ‘the direct and indirect public administration may use arbitration to settle conflicts related to disposable property rights’ and that ‘the competent authority or body of the direct public administration for the conclusion of an arbitration agreement is the same one that is responsible for the performance of agreements or transactions’.

This means that the use of arbitration to settle disputes related to IP matters is available not only to individuals but also to the federal entity responsible for granting titles and keeping records of industrial property rights in Brazil: the National Institute of Industrial Property (INPI).

The advantages that lead a party or even a public administration body to opt for arbitration are widely known and are addressed in other chapters of this Guide: flexibility of the procedure, short duration of the process, expertise of the judge, confidentiality, among other things. For disputes to be settled before an arbitral tribunal – and outside the federal and state courts – it is usually sufficient for the parties to formalise their agreement in that regard using an arbitration agreement before a dispute has arisen or a submission agreement after a dispute has arisen.

Although IP claims derived from contractual matters are more commonly brought and associated with arbitration, there does not seem to be any obstacle – legal or practical – to the use of arbitration to settle extra-contractual disputes in Brazil.

As the law and the jurisprudence regarding intellectual property in Brazil has grown and become highly specialised over the past 26 years,[5] it is now advisable for parties and their attorneys to properly analyse what would be the best use of those two fora – arbitration and the Brazilian judiciary – to solve a given dispute, including in the cost-benefit analysis, with regard to not only choosing one over the other but also the possibility of combining the two.

In this chapter, we will explore the regulatory framework for regulating IP rights in Brazil, as well as the challenges to the arbitrability of certain IP rights under Brazilian legislation and jurisprudence, the mechanisms envisaged to counter those challenges and the relevant factors involved in determining when in practice it is worth opting for arbitration proceedings under the Brazilian legal system.

IP rights protected within the Brazilian system

In Brazil, IP rights are protected by national legislation and international treaties, which are incorporated in the legal system in the form of decrees.

The main Brazilian legislative acts on the matter are:

  • the LPI;
  • the Copyright Law;[6]
  • the Cultivars Law;[7]
  • the Software Law;[8]
  • the Integrated Circuit Topography Law;[9]
  • the Biodiversity Law;[10]
  • the Civil Code;[11]
  • the Code of Civil Procedure;[12]
  • the Penal Code;[13]
  • the Code of Criminal Procedure;[14] and
  • the Federal Constitution.

The main international treaties on the subject in force within the Brazilian legal system are:

  • the Agreement on Trade-Related Aspects of Intellectual Property Rights (1994);
  • the Paris Convention for the Protection of Industrial Property (1883);
  • the Berne Convention for the Protection of Literary and Artistic Works (1886);
  • the Madrid Agreement Concerning the International Registration of Marks (1891);
  • the Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations (1961);
  • the Patent Cooperation Treaty (1970); and
  • the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks (1989).

Within this legal framework, three types of protected IP rights can be identified in Brazil:

  • industrial property – trademarks, patents and utility models, industrial designs, geographical indications, trade secrets, trade dress, business name and domain names, and prohibition of unfair competition practices;
  • copyright and related rights (e.g., software protection); and
  • sui generis categories – varieties of plants, topography of integrated circuits and traditional knowledge.

In general terms, protection of industrial property is governed by commercial law. As a rule, such protection requires registration with the competent federal entity and focuses on industrial activities and the prohibition of unfair commercial behaviour.

Protection of copyright and related rights is governed by civil law. It does not require registration and aims at protecting artistic or scientific creations, as well as preventing plagiarism, precisely as a way of protecting intellectual activity.

Protection of sui generis categories is governed by specific infra-constitutional legislation, in consideration of the political agenda and the goods produced and marketed by Brazil, especially in the wake of the policy of fostering technological innovation in the environment and other areas, such as agribusiness.

Conflicts and consequences of IP infringement

Disputes over the ownership, authorship and paternity rights of a particular IP asset, especially in the case of co-authorship or collective works, as well as over the assignment and licensing of those assets (in particular, with regard to the restriction or return of those rights), are common in Brazil. Disputes can also arise in the case of counterfeiting by third parties with whom the IP owner does not have a contractual relationship.

Broadly speaking, IP disputes in Brazil can fall under one of three types:

  • disputes over the ownership of an intangible IP asset created through the registration granted by the responsible authorities;
  • conflicts arising from a contractual relationship, in which a particular contract will be primarily the law that governs the conflict; and
  • conflicts arising from a non-contractual relationship, which will be regulated through the application of the relevant legislation.

In disputes related to patents and trademark registrations, it is necessary to have the INPI as co-defendant. This is because the granting of a registration is characterised as an administrative act issued by the INPI.[15] This particularity of the Brazilian system not only gives federal courts the competence to rule on such matters[16] but also generates additional discussion about the arbitrability of such disputes.

Regarding the other two types of IP conflicts, disputes are usually related to the payment of royalties or indemnifications and will be tied to either contractual or extra-contractual circumstances.

Under Brazilian law, the IP asset is not only intended to ensure the individual rights or interests of its owner and licensors but also aimed at protecting the purchasers and consumers of products or services by providing them with the necessary elements to assess the origin and quality of those products or services. The law also aims to prevent the illegal diversion of customers and the practice of parasitic economic profit.

For this reason, the threshold for damages is usually lower in IP cases. The jurisprudence is clear and unified on the subject, and the exceptional rule of burden of proof applies in IP cases (in re ipsa): whereas in Brazil the principle of causality is the general rule, in IP matters once the IP right, its ownership and a violation is proven, damages are presumed. This exception applies to both pecuniary and non-pecuniary damages, since it is well-established in the jurisprudence that IP violations often negatively impact the reputation of the affected company (e.g., by discrediting and prejudicing the company’s reputation in the market).[17]

Arbitrability of IP issues in Brazil

As a general matter, the arbitrability of IP rights is accepted in Brazil; however, there is still resistance to the use of arbitration to resolve certain types of IP disputes. In this regard, we will analyse each set of arbitrability criteria within the specific IP rights framework.

IP disputes in Brazil generally take the form of:

  • legal actions requiring a comparison between products and equipment to assess a possible violation of an industrial property asset, which if established results in the nullity of the relevant registration before the INPI, after the statutory period for administrative opposition, with erga omnes effect; or
  • injunctive actions, which may or may not be combined with a claim for damages in re ipsa, based on the infringement of industrial property rights, for anticompetitive practices or for problems arising from contractual relationships (assignment, licensing, etc.), usually with a preliminary injunction to prevent further infringements pending resolution of the dispute or for the seizure of counterfeit products, combined with daily penalties that can exceed the value of the indemnity, with inter partes effect.

In the second type of action, the procedure takes place before the state courts, whereas in the first type of action, the procedure takes place before the federal courts as it requires the participation of the INPI (a federal agency) in the process.[18]

Disputes that may be submitted to arbitration in Brazil

As already mentioned in this chapter, the wording of Article 1 of the LA means that not only can individuals use arbitration to settle disputes related to IP matters but the federal agency linked to the custody of those assets (INPI) can also participate in arbitration proceedings.

Further, to be arbitrable, IP matters must possess the objective characteristics that are attributable to matters that can be submitted to arbitration, namely the possibility to be owned and to be waived (these criteria being cumulative).

These criteria are usually present in IP disputes. Where there is no violation of public order, the arbitral tribunal has competence and jurisdiction to hear and decide the claim.[19]

Objective arbitrability of IP disputes in Brazil

IP conflicts can be submitted to arbitration in accordance with Article 1 of the LA and to the extent that IP rights are, as a rule, susceptible to being owned and waived, insofar as they are subject to economic appreciation and can be freely traded.

There are certain exceptions related to the possibility of waiving and freely trading intellectual rights, such as the author’s moral rights and other personality rights related to copyrights and related rights; however, such exceptions constitute a small portion of IP disputes and therefore do not affect the potential arbitrability of IP rights as a whole. It is, after all, possible to draft an arbitration clause or agreement that provides for the submission of a given dispute to arbitration, while excluding determinations regarding the protection of the author’s moral rights or other personality rights.

Even if that were not the case, to the extent that disputes over moral rights and other personality rights are not related to the ownership aspect of such rights, but rather to losses and indemnifications related thereto, such disputes would be arbitrable as relating to the economic and not the ownership aspect of the underlying rights. When a claim for indemnification arising from the infringement of an author’s moral rights or a claim for indemnification of non-pecuniary losses deriving from the violation of an IP right is at stake, the quantum due (loss of profits and emerging damages) is monetary in nature and arises from civil or criminal liability for contractual or legal tort.

Another point raised by critics of the objective arbitrability of IP disputes is the occasional claim for the declaration of nullity of an industrial property registration. Such criticism lies in the fact that any declaration of nullity of this type by the federal courts or by the INPI would have an erga omnes effect and, therefore, would be incompatible with the contractual – and inter partes – character of arbitration.

This criticism, however, is not an obstacle to the use of arbitration for IP matters, including for the purpose of obtaining a declaration of nullity of an industrial property registration granted by the INPI. This is because an incidental declaration of nullity, with a solely inter partes effect, is fully possible in the context of arbitration, as recently confirmed by the STJ.[20]

An inter partes declaration of nullity in the context of arbitration essentially amounts to an injunction against the infringing party, which is invariably a legal possibility in the field of arbitration.

On the subject, one scholar, Nathalia Mazzonetto, has provided the following clarification:

In fact, assuming that the arbitration decision will produce effects only inter partes, according to part of the doctrine, there is no reason to deprive the arbitrator of the power to decide on any invalidity of rights, since [with this decision] he/she would not be attacking the act of the state or in breach of public order, but simply attesting to the invalidity of the right between those parties, without reaching the registration itself.[21]

In the face of an arbitration award with an inter partes effect, what is at issue is the exploitation of the right (i.e., issues related to commercialisation, reproduction or imitation of the trademark by third parties, which depend solely and exclusively on the applicable ownership right) and what it would come to represent in relation to the parties that are present in the arbitration procedure. Such an arbitration award would not have an effect on the right itself, as established by the INPI in the context of industrial property registrations, which would remain valid and enforceable against third parties.

Furthermore, as ruled by the STJ,[22] as questions about trade dress, unfair competition and other similar claims do not involve registration before the INPI, and therefore do not affect the interest of the INPI, these claims can be brought before a private tribunal in the context of arbitration.[23]

Accordingly, within the Brazilian legal system, the requirement of objective arbitrability is met, provided that the parties’ choice of arbitration is duly formalised, by virtue of an arbitration clause or agreement, and provided that the claims that are made subject to an arbitration procedure are duly limited within this agreement.

Subjective arbitrability of IP disputes in Brazil

The subjective arbitrability of IP rights relates to the wording of Article 1 of the LA, which states that people capable of contracting may use arbitration to resolve disputes.

Although there may be criticism around arbitration proceedings involving public entities, in particular questioning the possibility of such entities entering into arbitration agreements in view of the relevant public interests they represent, the legislators of the LA have made a point of dismissing such doubts.

In a recent amendment to the LA, Brazilian legislators expressly included language making clear that ‘the direct and indirect public administration may use arbitration to settle conflicts related to disposable property rights’ and that ‘the competent authority or body of the direct public administration for the conclusion of an arbitration agreement is the same one that is responsible for the performance of agreements or transactions’.[24]

In this context, provided that a public entity is legitimately entitled to analyse, grant and conclude agreements related to IP, it also has standing to participate in arbitration proceedings concerning IP rights.

Accordingly, what remains to be discussed is the capacity in which the entity would be integrated into the procedure, especially in cases where it is decided that the public entity has no direct interest in participating in the dispute.

From the outset, it should be clarified that even if an arbitration clause has been included in an agreement between private individuals, the relevant public entity (e.g., the INPI) could still spontaneously intervene in the case, pursuant to Article 3 of the LA. Accordingly, the effects of the arbitration clause would extend to the public entity.

In this regard, the intervention of third parties whose rights and interests are affected by the arbitration proceedings is explicitly permitted under the arbitration rules of several specialised chambers, including those pertaining to, for example, the Brazilian Intellectual Property Association.[25]

Furthermore, although a portion of the INPI’s intervention before the courts takes place in the form of a mandatory joinder as a co-defendant in the procedure,[26] in arbitration, it is also possible for the arbitral tribunal to simply issue a letter to the INPI ex officio, informing it about the procedure and granting a deadline for the INPI to join the procedure or present an opinion on the case.

In this context, under Brazilian law, the INPI does not have the discretion to ‘accept or not be bound by the arbitration procedure’. Alhough an arbitral tribunal does not have the power to make demands against the INPI, Brazilian law does have the power to impose obligations on the public entity, and Article 57 of the LPI expressly determines that the INPI ‘will intervene’ – and not ‘may intervene’ – in any procedure that deals with matters relating to the annulment of industrial property registrations.[27]

Consequently, if the INPI does not reply to the letter sent by the arbitral tribunal, it will be understood that there has been a tacit waiver of the exercise of these prerogatives by the INPI within the scope of the arbitration procedure, without this implying, in any way, a formal defect.

This means that, although the effects of the arbitration clause may touch upon the interests and prerogatives of the INPI, the continuation of the arbitration will not depend on the INPI’s agreement to join the arbitration procedure.

The INPI is the entity responsible for safeguarding and registering industrial property rights in Brazil, and it has a direct interest in procedures that may result in a declaration of nullity of a registration. At the end of the day, the administrative act of granting – or denying – a request for registration by the INPI may be at stake if the arbitration award contains determinations that directly impact its obligations regarding registration. This would give the INPI the interest and standing (or even the legal obligation) to intervene in the arbitration procedure.

However, the STJ has recognised that the INPI has an active co-defendant position[28] when it comes to an action that involves the possible declaration of nullity of a registration. In this sense, the INPI may join the proceedings at any time, and it will act impersonally and impartially, defending the validity of its own actions.

Since the INPI may not act as a party, but rather as an assistant to the arbitral tribunal, it can participate in the arbitration and is not restricted to disputes brought before state or federal courts.[29]

Finally, some have argued that matters that are dealt with before the state courts are subject to arbitration, whereas those that are dealt with before the federal courts are not. This, however, is not correct.

The separation of the roles and competences of the federal and state courts is an administrative organisation matter of the Brazilian judiciary that does not exist in the sphere of arbitration. This means that the arbitrator, in practice, would combine the competences and roles of the federal and state court judges in Brazil and be able to decide the same issues that any of those courts would decide, with or without the INPI present at the procedure.

Accordingly, provided that the relevant arbitration clause or agreement is duly signed by the parties, and that a third-party can intervene in the procedure, the requirement of subjective arbitrability for IP matters is also fulfilled under the Brazilian legal system. Whether the INPI is a signatory to the arbitration clause upon which the arbitration procedure is based is irrelevant, given the possibility of summoning the public entity to join the procedure or provide an opinion.

Current challenges and applicable remedies

The challenges to the effective submission of IP disputes to arbitration in Brazil lie essentially in two arguments:

  • the violation of public order, owing to the alleged extension of the subject matter of the arbitration clause or arbitration agreement to matters going beyond the inter partes effect of the contractual instrument; or
  • the subject matter, or at least a portion of it, being qualified as a non-disposable right (e.g., the author’s moral rights and the exercise of other personality rights).

However, these arguments should not prevent the initiation of arbitration under Brazilian law.

Regarding the first point, the most recent jurisprudence of the STJ has confirmed that it is possible to incidentally declare the nullity of industrial property registrations, with an inter partes effect. Consequently, no violation of public order arises related to a possible request for a declaration of nullity of a given industrial property registration by an arbitral tribunal with inter partes effect.

Regarding the second case, it is possible for an arbitral tribunal to issue a partial award excluding from the arbitral jurisdiction the determination of rights that concern public policy or that do not qualify as disposable rights, such as the determination of the moral rights of the author.[30]

In practice, there should, therefore, be no obstacle to submitting IP disputes to arbitration in Brazil.

International arbitration and exequatur

As an additional remark, an international arbitral award and its enforcement in Brazil may be challenged via a claim of violation of public policy as international arbitral awards depend on ratification by the STJ (exequatur).

The exequatur constitutes an authorisation granted by the STJ for an international arbitral award to be valid and effective in Brazil and is a necessary prerequisite to the enforcement of international arbitral awards in Brazil.

Although IP treaties facilitate a certain degree of standardisation and validation of decisions between signatory states, allegations of violation of public policy may be upheld, depending on what is considered as public policy in the specific case. This is because foreign law may differ from the Brazilian legislation, both in material and procedural aspects.

It is therefore key to consider, from the outset, in which countries the party that submits an eventual IP conflict to arbitration intends to execute the award and to give due consideration to the public policy criteria relevant to each specific case to avoid possible denial of exequatur and enforcement in the future.

Convenience of submitting a specific conflict to arbitration

As a final note, it is necessary to assess in each specific case, and with due caution, whether it is appropriate to submit certain disputes to alternative dispute resolution methods, or to federal or state courts in Brazil.

Within this context, attorneys and parties submitting issues to arbitration or courts in Brazil should take into consideration the following seven variables:

  • the parties involved (disputes between individuals versus the interests and compulsory participation of the INPI);
  • the jurisdiction and applicable law (domestic contracts versus international contracts);
  • confidentiality concerns (private procedure versus lawsuit under court secrecy);
  • whether there will be a preliminary injunction (considerations regarding the efficiency of the preliminary injunction in arbitration proceedings);
  • the degree of specialisation required (potential specialisation of arbitrators, or judges and courts);
  • the duration of the process (considerations regarding the time that a dispute may take in arbitration proceedings or before the courts); and
  • the budget (total cost of arbitration versus the cost of lawsuits before the courts, including the time spent in each proceeding).

Conclusion

IP rights in Brazil are governed by commercial and civil law provisions, as well as several more specific pieces of infra-constitutional legislation[31] and several well-known international treaties that have been incorporated into the Brazilian legal system.

Industrial property rights, which are closely related to commercial law and depend on registration with the competent authority, present a greater challenge to arbitrability because of the necessary participation of the INPI in the arbitration procedure (subjective aspect) and of the possibility of a registration being declared null with erga omnes effects (objective aspect).

On the other hand, copyright and related rights, which are closely related to the field of civil law and do not depend on registration before the competent authority, present a greater challenge to arbitrability because, as a rule, they involve non-disposable (personal) rights.

Notwithstanding the above, with the exception of the limitations mentioned in this chapter, it is possible to use arbitration to obtain a final decision regarding an IP dispute in Brazil. It is equally possible, under the Brazilian legal system, for judicial and arbitral measures to coexist, in particular for the granting of an emergency or provisional measure, or for the judiciary to enforce an order from an arbitral tribunal.[32]

However, without prejudice to this possibility, it is always advisable to carry out a cost-benefit analysis of the possible alternatives (arbitral or judicial, or both), taking into consideration the elements relevant to the specific case.

In light of the growth of specialised jurisprudence on the matter and the existing limitations regarding the arbitrability of certain aspects of IP rights, it is generally faster and more effective in Brazil to resort directly to the courts to resolve extra-contractual issues, whereas it is generally faster and more effective to resort to arbitration to resolve contractual issues, especially highly technical and complex ones.


Notes

[1] Marcelo Junqueira Inglez de Souza is a partner, and Ana Carolina Nogueira is an associate at Demarest Advogados.

[2] Law No. 9,279 of 14 May 1996.

[3] Law No. 9,307 of 23 September 1996, as amended by Law No. 13.129 of 26 May 2015 (LA).

[4] Federal Supreme Court (STF), Ratification of Foreign Judgment No. SE 5.206-ES AgRg, Judge-Rapporteur Sepúlveda Pertence, Full Panel, 12 December 2001.

[5] Not only were sub-chambers and specialised courts created to deal with IP matters but important issues were also settled, such as the possibility of incidental declaration of nullity of an industrial property registration with inter partes effect, and the application of the in re ipsa modality to damages owing to the infringement of industrial property rights.

[6] Law No. 9,610 of 19 February 1998.

[7] Law No. 9,456 of 25 April 1997.

[8] Law No. 9,609 of 19 February 1998.

[9] Law No. 11,484 of 31 May 2007.

[10] Law No. 13,123 of 20 May 2015.

[11] Law No. 10,406 of 10 January 2002.

[12] Law No. 13,105 of 16 March 2015.

[13] Decree-Law No. 2,848 of 7 December 1940.

[14] Decree-Law No. 3,689 of 3 October 1941.

[15] Article 114, Code of Civil Procedure; and Binding Precedent No. 950 of the Superior Court of Justice (STJ).

[16] Article 109, Federal Constitution.

[17] STJ’s Binding Precedent No. 227.

[18] STJ Binding Precedent No. 950.

[19] Under Brazilian law, the arbitral tribunal also has at least the prerogative to rule on whether it is competent to process an IP issue (competence–competence principle).

[20] STJ decision, ‘Para Terceira Turma, ação de nulidade de patente é prejudicial externa apta a suspender ação de indenização’, 27 February 2020.

[21] Nathalia Mazzonetto, Arbitragem e propriedade intelectual: aspectos estratégicos e polêmicos. São Paulo, Saraiva, 2017, pp. 134–135.

[22] STJ, Special Appeal No. REsp 1.527.232 (Binding Precedent No. 950), Judge-Rapporteur Luis Felipe Salomão, Fourth Panel,13 December 2017.

[23] STJ Binding Precedent No. 950.

[24] Article 1(1) to (2), LA.

[25] Articles 38 and 62, Brazilian Intellectual Property Association’s Arbitration Rules.

[26] Mazzonetto, pp. 122–130.

[27] STJ, Special Appeal No. REsp 1.281.448, Judge-Rapporteur Nancy Andrighi, Third Panel, 5 June 2014.

[28] STJ, Special Appeal No. REsp 1.775.812, Judge-Rapporteur Marco Aurélio Bellizze, Third Panel, 19 March 2019.

[29] Caio de Faro Nunes. ‘IP Arbitration in Brazil: What is the Current Scenario?’, Kluwer Arbitration Blog, 10 May 2020, http://arbitrationblog.kluwerarbitration.com/2020/05/10/ip-arbitration-in-brazil-what-is-the-current-scenario (accessed 2 November 2022).

[30] Article 23(1), LA.

[31] In Brazil there are two higher courts, the STF and the STJ, which have different areas of competence and powers: the STF deals with issues related to the Federal Constitution, whereas the STJ deals with issues that pertain to other laws apart from the Federal Constitution, which are usually referred to as ‘infra-constitutional legislation’ (i.e., laws that are below the level of the Federal Constitution, as the Federal Constitution is considered the main piece of legislation in Brazil).

[32] STJ, Special Appeal No. REsp 1.586.383, Judge-Rapporteur Isabel Gallotti, Fourth Panel, 5 December 2017.

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