1 June 2011CopyrightAlysson H. Oikawa

IP licensing in Brazil: what you need to know

Despite the implications of the recent international economic breakdown, Brazil remains one of the leading developing markets to attract foreign capital. It is frequently referred to as a country that has the capacity to expand the internal market for goods and services, while exerting a dominant position as a global supplier of raw materials.

With the upcoming 2014 FIFA World Cup and 2016 Olympic Games, this fast-growing economy is expected to be boosted by ever-greater investment. In this positive outlook, licensing becomes an attractive alternative to enter local production chains and reach Brazilian consumers.

Licensing generally refers to the agreements under which the owner of an IP right grants authorisation to use without an effective transfer of ownership. It provides many financial benefits for the foreign owner, since a large proportion of investment in production and distribution is sustained by the local licensee. A licensor may grant a licence in Brazil to practically any intangible asset, including patents, industrial designs, trademarks, plant varieties and copyrights.

The current Brazilian IP legislation was enacted in the mid-1990s to meet the most recent requirements of the TRIPS agreement.

In addition to the WTO, Brazil is party to major international IP treaties, including the Paris Convention for the Protection of Industrial Property, the Patent Cooperation Treaty (PCT), the Berne Convention for the Protection of Literary and Artistic Works, the Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations, the UPOV Convention and the WIPO Convention.

Among federal laws, ministerial decrees and normative acts, there are many diverse norms that need to be understood to make licence agreements enforceable and to enable the resulting payments of royalties.

Official approval for technology transfer agreements

The Brazilian Industrial Property Law presents the general provisions on technology transfer agreements, which are further regulated by Normative Act No. 135 of 1997 of the National Institute of Industrial Property (INPI).

Normative Act No. 135 specifies the following categories of agreements that involve transfer of technology: licence of rights (use of trademarks or exploitation of patents or industrial designs), acquisition of technological knowledge (supply of technology and rendering of technical assistance services) and franchise agreements.

Licensing agreements that involve transfer of technology must be submitted for INPI approval. Government endorsement is not a condition for the licence to be valid or even effective between the contracting parties. Nonetheless, the agreement will only become binding upon third parties after the approval is published in the INPI’s Official Gazette.

This has a definite impact on the enforceability of the licensed rights and exclusivity clauses by the local licensee. The INPI’s approval is also mandatory for the remittance abroad of payments and the tax deduction of such payments.

INPI performs a discretionary examination of technology transfer agreements, often applying interpretations that are internally consolidated but not found in any established legislation. One example imposes limitations on payments of fees, at least with respect to agreements between local subsidiaries and the foreign company with majority stake.

Based on a complex set of tax rules with origins in the late 1950s, INPI restricts the remittance of payments to between 1 and 5 percent above the fixed price per unit sold or in relation to net sales. These percentages were originally established for the purposes of tax deduction and may vary in accordance with the industry or technology area involved.

The BIPL prescribes that both the rights holder and the applicant may enter into a licensing agreement. However, payments will only be allowed after the licensed right has been duly patented or registered by INPI. Moreover, although our legal system generally accepts that the parties are free to determine the term of the licence, INPI will only approve it for the period of validity of the licensed industrial property right.

In the case of trademark registrations, successive recordation amendments will be necessary for each renewal. Agreements involving the transfer of know-how (non-patented technology) must have a maximum term of five years, which may be extended for another five years, provided that technical justifications are accepted by INPI.

INPI adopts a more liberal approach in the examination of franchise agreements, when compared to other technology transfers. For instance, unlike with basic trademark or patent licences, it is possible to include applications in a royalty-bearing franchise agreement. This is acceptable because remuneration on franchise agreements is not restricted to the licence itself.

Rather, the franchisee is expected to pay initial affiliation fees, advertising fees and other periodical charges for the use of the system or in return for technical assistance and other services effectively rendered by the franchisor.

Agreements not subject to prior government scrutiny

The Brazilian Copyright and Neighbouring Rights Law determines that the economic rights over a work of authorship may be wholly or partly transferred by means of licence agreements. The same applies to phonograms, performances and broadcasts. In contrast, the moral rights of the author are inalienable and irrevocable, meaning they cannot be licensed or waived.

Copyright protection in Brazil is not subject to registration, notice or any other formality. The granting of copyright is automatic upon creation of an original work of authorship, even if the work is not fixed in a tangible medium. Nonetheless, optional registration is still recommended to demonstrate the date of creation of the work.

Specifically in relation to the licensing of computer programs, provisions are found in the Brazilian Software Law. This law determines that licences relating to software of foreign origin must clearly state responsibility for payments of taxes and charges. The validity of licences of software per se does not depend on prior official registration. However, technology transfer agreements involving software will be subject to the approval of INPI.

It is also possible to negotiate authorisations to use one’s image, likeness, voice and name (commonly referred to in other jurisdiction as ‘rights of publicity’). These individual assets fall under the category of personality rights, which are protected under several bodies of Brazilian law, namely the Federal Constitution and the Civil Code.

Although the validity of copyright and software licences and of authorisations deriving from personality rights does not depend on prior official registration, it is advisable that such agreements are entered in the competent registry of deeds and documents. Furthermore, if copyright or software licences are agreed between a foreign licensor and a related local subsidiary, transfer pricing restrictions may apply.

General dispositions affecting international agreements

The Brazilian Civil Code provides for two major principles in relation to contractual relationships: the freedom to negotiate shall be based upon and limited by social purposes; and during the conclusion and performance of the contract, the parties must observe the principles of honesty and good faith.

These general rules may serve as the basis to redress perceived inequalities or rewrite provisions viewed as being abusive. In other words, when Brazilian law is applicable, a local court may analyse the purposes and conditions of the agreement based on circumstances other than the written dispositions.

Following provisions set by Decree Law No. 4,657 of 1942, legal commentators understand that the parties are not free to choose the governing law of the licensing arrangement. Due to the risks affecting choice of law rules, it is recommended that the parties agree to arbitration instead of resorting to the courts.

Pursuant to the Brazilian Arbitration Law, parties may freely choose the rules of law to be applied in arbitration, as long as there is no violation of good customs and public order. Arbitration proceedings may be conducted in any jurisdiction. If, however, the arbitration clause in a given agreement makes reference to the rules of a particular arbitral institution or specialised entity, the arbitration shall be instituted and conducted in accordance with such rules, unless otherwise agreed by the parties.

Court judgments or arbitral awards from other jurisdictions are enforceable in accordance with local norms and international treaties. Brazil is party to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

If one of the parties is a non-resident, the respective signature in the licensing agreement will have to be confirmed by a notary public in accordance with the norms of that jurisdiction. The notarisation will have to be further legalised by the local Brazilian consular representation. Legalisation may be dismissed in agreements with parties resident in countries with which Brazil has signed co-operation treaties in judiciary matters.

As a final note, foreign owners should bear in mind that they must appoint and retain an attorney who is duly qualified and domiciled in Brazil, and with powers to represent them in administrative and judicial proceedings, including receipt of summons. Non-compliance may result in the cancellation of the local IP right by the competent authorities.

Alysson H. Oikawa is a Brazilian copyright and trademark attorney and an associate at Bhering Advogados. He can be contacted at: bhe@bheringadvogados.com.br

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