Brazil general election: The IP regime under the far right

On October 28, Brazilian citizens voted in round two of one of the most contentious general elections the country has ever seen. With current president Michel Temer mired in controversy related to corruption charges, and his predecessor Dilma Rousseff impeached in 2016, frustrated voters first cast their ballots in a crowded race of 13 candidates on October 7, leading to a run off between the top two—Jair Bolsonaro, who won 46% of the vote in round one, and Fernando Haddad, who received 29%.

Bolsonaro—a far-right candidate representing the Liberal Social Party (PSL)—retained his lead, winning the October 28 election with 55.1% of the vote, against 44.9% for Haddad, election officials said. He will take office on January 1, 2019. The win is historic for a number of reasons and represents a sharp turn to the right following 16 years of rule by the left-wing Workers’ Party.

While Bolsonaro’s positions on most issues that will affect IP are unknown, he has publicly stated his desire to return Brazil to military rule, among other statements that could spell trouble for the business world. As the country now braces for a potential sea change, its significant backlog of patents, and potential solutions under a new administration, loom large for the IP community.

According to World Intellectual Property Organization (WIPO) statistics, the Brazilian Patent and Trademark Office (INPI), which operates under the country’s Ministry of Industry, Foreign Trade and Services, received 30,033 patent applications in 2016 and granted only 533.

A report delivered to presidential candidates this year by the Brazilian National Confederation of Industry (CNI), the largest representative of domestic business interests in the country, put the existing backlog at more than 225,000 unexamined patent applications, and CNI estimates that this number will rise to 350,000 by 2029.

The report added that the average time to grant for patents is ten years, but this can exceed 13 years in certain sectors, such as pharmaceuticals and telecommunications. Many in the IP community put the average pendency even higher, at 14 to 16 years. Such timings are clearly unsustainable for industry, and some patent applicants resort to suing INPI in court in order to get quicker examinations. In an even more worrying trend, others increasingly choose not to file patents in Brazil at all.

Playing catch-up

The trouble may have begun when Brazil updated its IP law to comply with the TRIPS Agreement in 1996, resulting in an influx of applications for technologies, such as pharmaceuticals, that previously had not been patentable. As filings increased, INPI’s resources did not.

“When I headed the office from 1999 to 2003, the backlog was about six years,” says José Graça Aranha, former INPI president and now regional director for WIPO’s branch office in Brazil. “Now, it often takes up to 15 years to get a patent granted,” he adds.

Graça Aranha says that statistics show pendency rates began significantly increasing in 2007/2008. INPI did not return requests for comment on this article to confirm that claim.

"We prefer to have bad decisions than none at all." Ricardo Pinho, president of the Association of Industrial Property Agents

The situation was similar for trademarks until recently, when INPI made a push to comply with Madrid Protocol timing requirements following a November 2016 announcement that it would join the Madrid System. By streamlining certain aspects of the trademark registration process and hiring more examiners, the office managed to knock its average timing of four years to grant trademarks down to 24 months as of December 2017, according to INPI’s 2017 Activity Report.

At the end of 2017, the number of trademark applications pending first examination was 358,776, down from 421,941 in 2016, and the office believes it is on track to get to the Madrid requirement of 18-month maximum pendency for trademarks by December this year.

The trade-off for this marked improvement, however, is that the quality of decisions may have suffered along the way.

“The quality of decisions now is questionable, but we prefer to have bad decisions than none at all,” says Ricardo Pinho, president of the Association of Industrial Property Agents (ABAPI), Brazil’s oldest IP organisation dedicated specifically to IP professionals. Pinho says that the examiners who were hired to help reduce the backlog had to be trained “on a very expedited basis”, which he believes has resulted in inconsistent and lower quality examinations.

Walter Palmer, partner at Pinheiro Palmer Advogados in Rio de Janeiro, adds that “there has been an unmistakable change for the worse since the push to comply with Madrid timings”. Palmer recalls that the former director of trademarks at INPI once remarked that, at the time, examiners had 15 minutes to examine a trademark application.

“I imagine it may be even less now,” Palmer says. “The examiners are young and inexperienced, working without any supervision or quality control, and under enormous time pressure, so they’re churning out decisions as quickly as they can.”

This has led to a notable increase in rejections, which the judiciary is left to sort out.

“If your trademark is at all similar to another in the same class, you’re going to have a rejection, even when the specifications are extremely clear,” Palmer says. “Even appellate decisions lately have been very rushed. Eventually, the office is going to become a rubber stamp and the judiciary is going to have to pick up the slack.”

Still, it’s an improvement over protracted waiting periods, Barreto says: “When the application is in limbo, you can’t appeal or take any action at all.”

Palmer concedes this point and says that it was taking seven years before the changes to get an initial decision for an unopposed trademark. However, timings are still in the range of five to seven years when all is said and done, Palmer adds. “Yes, you’re getting a decision more quickly now, but you’re looking at the same timings because you have to appeal and take it through the courts.”

A simpler approach

Part of the solution to the trademark backlog was a decision implemented in 2016 to publish all applications with a general disclaimer, rather than individualised disclaimers directed to the elements of the mark at issue. The general disclaimer states simply that the protection conferred by the registration is limited by the relevant provisions of the trademark law. This means that any uncertainty about a particular mark’s scope must be clarified by the courts.

A more drastic proposal to expedite backlogged patent applications would involve granting certain pending applications without substantively examining them. The Ministry of Industry, Foreign Trade and Services backed the draft plan, which was published by INPI in 2017 and opened for public comment from July 27 through August 21, 2017.

"The country had a similar policy in place in the 1980s, before the new IP law was implemented, and the world didn't end." Otto Licks, Licks Attorneys

While most agree it’s not ideal, the simplified allowance procedure has a better chance of being implemented than legislation, since it does not require congressional approval—although it, too, is currently on hold until it can be presented to new President Bolsonaro.

Fabiano Barreto, policy and industry specialist, industrial policy unit at CNI, says his organisation supports this approach.

“It’s a drastic, but quick, solution that would involve publishing all eligible pending applications for opposition and then dealing with the regular flow of applications via hiring and other traditional solutions,” Barreto says.

Pinho agrees. “Apparently, this is the only feasible way to eliminate the backlog,” he says, but adds that it is “totally undesirable, because our concern is that patents granted without examination may weaken the patent system and the ability of owners to enforce their rights”.

Under the simplified allowance procedure, applications that have been filed, published, or requested to be published or examined before or within 30 days of the date on which the amended patent statute is published (which will require approval by the president) will automatically result in a notice of acceptance. This will be published in INPI’s Official Gazette (applicants can choose to opt out of the simplified allowance procedure by making an official request within 90 days of receiving the notice of acceptance).

If it goes unchallenged, a notice of allowance will be published within 90 days after the notice of acceptance. Applications already under substantive examination with at least one published office action, as well as divisional applications, certificates of addition, and applications related to pharmaceutical products and processes are not eligible for the procedure.

Otto Licks of Licks Attorneys, who has summarised and written on the simplified procedure in depth, is in favour of the plan as the best solution to reduce the backlog. Licks points out that the country had a similar policy in place in the 1980s, before the new IP law was implemented, and “the world didn’t end”.

Keeping the money

Barreto stresses that the simplified allowance procedure should be undertaken in conjunction with granting INPI financial autonomy, a measure that CNI and other groups have been urging the government to consider for years. The 1996 IP law includes a provision to allow INPI to keep all of its user fees, but so far, the government has continued to transfer all of the office’s funds to the Federal Treasury, returning only the amount needed to meet expenses for the following year.

"The office should be self-funded and autonomous to make it more self-sufficient." Fabiano Barreto, CNI

“The INPI funds are transferred to the central government each year, and the following year the government returns a much lower amount to the office,” says Luiz Edgard, president of the Brazilian Association of Intellectual Property (ABPI).

“The government asks for detailed expectations of expenses for the next year and INPI needs to justify every item,” he adds.

For this reason, ABPI, CNI and ABAPI all support a bill proposed in 2017 by Senator José Agripino to allow “the resources coming from the services carried out by INPI to be reinvested in the institute itself”.

Along with several other pending IP bills (see box), the proposal is being held up by some IP stakeholders as a crucial step in eliminating Brazil’s backlog.

“INPI operates at a surplus, but all the money goes to the treasury and doesn’t necessarily come back,” says CNI’s Barreto. “The office should be self-funded and autonomous to make it more self-sufficient and able to meet deadlines on par with other offices,” he adds.

“Foreign companies end up giving up on their patent applications because of the delay, and even give up on applying for patents in Brazil altogether,” said the economist Antonio Márcio Buainain at a Senate hearing held in June to discuss the issue. The hearing was led by Senator Paulo Paim, who is sponsoring one of the pending bills.

Edgard, who was also at the Senate hearing, says that the office must be able to keep all of its funds in order to hire more examiners to tackle the huge backlog once and for all and to improve overall operations.

In an effort to educate the general public on the effects of the backlog and insufficient funding for INPI on the Brazilian economy, ABPI has recently taken an active role, publishing several articles in mainstream newspapers and testifying in Congress this year.

“ABPI wants to let Brazilian society know why the office needs to keep these funds,” says Edgard. “Without new systems, computers, and more examiners, it will take a miracle to get rid of the backlog.”

Palmer agrees: “The only solution for INPI is money, but they don’t get it, and they’re not going to get it. It’s not a priority for anyone.”

A fundamental shift

While the chances of such a bill passing are slim in any scenario, Graça Aranha warns that financial autonomy is not a silver bullet. “That alone will not solve all the problems,” he says, explaining that something more fundamental, along the lines of an ideological shift, is needed.

“It is so important that the government recognises the importance of INPI and the contributions it can bring to the business environment. Patents being granted in a reasonable timeframe will no doubt improve the economy, but some people in the government think that IP is good only for foreign companies.”

Hiring isn’t necessarily the answer either, says Graça Aranha. “INPI does not need to hire examiners; they have 300 patent examiners,
that’s more than enough. It’s not plausible to think that hiring 3,000 or 10,000 examiners will do the job—what happens to them when the backlog is gone?”

However, all agree that something must be done to incentivise investment and ensure protection of IP rights in Brazil, or the country may soon become irrelevant to IP strategies.

“At the INTA Annual Meeting in Seattle in May I was speaking with colleagues around the world and they were saying they’re not filing in Brazil any more,” says Pinho.

“It’s too hard to get IP rights granted and the decisions are inconsistent.”

Holding out hope

Despite his view that a sea-change is still needed, Graça Aranha says that the elections have been good for IP. “It’s an opportunity to talk about INPI and for the candidates to look at the problem and recognise the need to improve the business environment.”

In this respect, Bolsonaro may be IP owners’ best bet. Palmer says that, based on what is known about his stance toward business, the new president is “less likely to meddle in the economy in ways that are negative for industry, and less likely to nationalise whole industries”.

However, Brazil’s democratic institutions are not as strong as those in countries like the US, so some of the threats Bolsonaro and his family have made—such as abolishing the Supreme Court and restoring a dictatorship—are worrying, Palmer adds.

Still, with several IP bills and the simplified allowance procedure under consideration, it will be a fresh start for IP once the new administration settles in, Barreto says.

“We are quite confident that there is a good momentum. The IP bills pending in Congress show that, even right now, at a delicate moment in the economy, people are discussing IP issues. They understand that it brings more jobs, more money, and more investment.”

Whether the country’s new president agrees—and acts—remains to be seen.

Fact file