Brazil: SEPs and FRAND – litigation, policy and latest developments

Legal and policy framework

SEP and FRAND from the perspective of patent law

Brazil is a country with an established civil law tradition. Under its statutory provisions, standard essential patents (SEPs) must be treated as any other patent granted by the Brazilian Patent and Trademark Office (BRPTO). There is no special treatment for SEPs, nor any limitations to the exclusionary rights granted to their holder. The Brazilian IP Law (Law 9.279 of 1996) does not require prior negotiation of licences or notice before the filing of a lawsuit seeking the enforcement of a patent. The FRAND commitment may be raised as a defence in patent enforcement lawsuits and is treated as a contractual obligation. In the case of foreign contracts, they will be interpreted according to the law of the country in which the obligations were constituted, and foreign law is treated as a matter of fact by Brazilian courts.

The Constitution of the Federal Republic of Brazil of 1988 establishes as fundamental (ie, cannot be changed or amended) the rights of inventors of industrial creations (article 5(XXIX)). The Brazilian IP Law provides that a patent constitutes the right of preventing unauthorised third parties from using, offering for sale, selling or importing any patented product or process (article 42). Indeed, the right to exclude is the essence of the protection conferred by patents in Brazil. The Brazilian IP Law also provides that courts must grant preliminary injunctions to stop patent infringement (article 209, section 1), which is the remedy chosen by law to provide effective patent protection, since there are no punitive or enhanced damages available at the end of the lawsuit.

SEP and FRAND from the perspective of competition law

The Constitution provides general protection for free competition in article 170(IV). The Brazilian Antitrust Law (Law 12.529 of 2011) establishes as antitrust violation any conduct that prevents the exploitation of industrial property rights or amounts to an abuse of industrial property rights (article 36, section 3 (XIV and XIX)).  

There is no provision under any Brazilian law establishing that the enforcement of an SEP constitutes an antitrust violation or any type of abuse of a dominant position. In fact, there is also no presumption of a dominant position for holders of SEPs.

Enforcement actions by the antitrust enforcer

The Brazilian antitrust authority (CADE) stated its position on the enforcement of SEPs in Brazil in the TCT v Ericsson case. TCT filed a representation before CADE complaining that Ericsson was committing antitrust violations, as well as sham litigation, by enforcing SEPs in Brazil. CADE rejected TCT’s claims and found that an SEP enforcement case is a private matter to be resolved in a private dispute, not warranting the interference of the government as it does not harm competition:

It is therefore noticeable that the facts presented before this authority are linked to a private relationship of the parties, which means that, although the Defendant’s acts may have impacted the economic activities of the Plaintiff and, possibly, the financials of the company, this is a result of reasonable grounds and arguments, and could not be interpreted as an infringement to the economic order, as it could not lead to anticompetitive effects on the market.^[1]

Significant precedents

Decisions and precedents arrived at in foreign jurisdictions have limited persuasive effect in Brazil. Judicial decisions rendered by Brazilian trial and appellate courts in patent enforcement lawsuits are not binding, and lawsuits are decided on a case-by-case basis. The great majority of decisions rendered by state courts handling the enforcement of SEPs consider that an essential patent does not detract from its holder the right to obtain the injunctive relief provided by the IP Law (article 209, section 1).

There are several examples of preliminary injunctions awarded to SEP holders in Brazil. The first-ever infringement lawsuit filed in Brazil regarding SEPs was the TCT v Ericsson case, where trial and appellate courts consistently granted injunctive relief to the patent holder enjoining the implementer from importing, manufacturing, offering and selling the accused handset devices in Brazil. The same outcome was reached in the Vringo v ZTE case, where the sales of the implementer’s accused infrastructure devices were banned.

In recent years, the number of SEP enforcement cases filed in Brazil has grown exponentially. Brazilian courts have consistently granted injunctive relief to SEP holders that managed to show strong evidence of infringement and that the implementer was causing irreparable harm by practising hold-out strategies – see, for example, BLU v Sony Ericsson, DivX v Netflix, G+ v Samsung.

In disputes filed by implementers before federal courts seeking to limit the rights granted by SEPs, the decisions confirmed that the law does not discriminate essential patents. According to Federal Judge Márcia Maria Nunes de Barros, ‘There is no legal provision that the essentiality of a patent has been recognized or declared, the Brazilian PTO must make such a note in the respective register.’^[2]

Brazil is a pro-patent jurisdiction where, since 2012, FRAND commitments do not prevent the grant and enforcement of injunctions and preliminary injunctions in the great majority of the lawsuits seeking the enforcement of SEPs.

FRAND

As mentioned, Brazil has no statutory provision setting forth different legal requirements for the enforcement of FRAND-encumbered patents. A FRAND defence takes place in the context of breach of a foreign contract. The implementer, as a third-party beneficiary, might bring a claim of breach of the commitment between the SEP owner and the SSO, where the implementer has the burden of proof.

Brazilian courts do not apply foreign facts automatically and foreign law (statutory and case law) is treated as a matter of fact. Brazilian courts treat foreign decisions as arguments for persuasion, but they do not broaden the legal requirements for enforcement or the right to exclude established in the Brazilian IP Law.

According to the Brazilian antitrust agency and judiciary, enforcement of FRAND-encumbered patents is a private matter.

Remedies

Injunctions

Injunction is the specific remedy provided by Brazilian law in the face of patent infringement (article 42 of the IP Law) and SEP cases are no different. The FRAND commitment does not prevent the SEP owner from seeking and obtaining preliminary and permanent injunctions. It falls to the implementer to prove that the SEP owner breached its FRAND commitment, but even then such breach would not result in a limitation of the SEP owner’s right to exclude.

The Brazilian Superior Court of Justice, which is the highest court in Brazil for matters concerning federal law, has explicitly decided that, due to political circumstances in Brazil, an injunction is the only adequate remedy against patent infringement of any kind:

It is notorious that Brazil did not adopt the punitive system of civil reparations. [… Brazil] succeeded in establishing the prevalence of preliminary injunction, aimed at achieving the result equivalent to compliance of the protected right. This is because it is understood that preliminary injunction is the most effective way to protect […] legal interest, since subsequent reparation is not capable of restoring the parties to the real status quo ante.[...]At the same time, it established the judge’s duty to avoid irreparable damages or damages that would be difficult to repair, pursuant to article 209 of the aforementioned law.^[3]

The Brazilian IP Law (article 209, section 1) further establishes that:

The judge may, during the course of the proceedings itself and in order to avoid damage that is irreparable or difficult to repair, provisionally order the suspension of the violation, or of the act that gives rise to it, prior to summons for the defendant, and in case he considers it necessary, order the posting of a cash bond or a fidejussory guarantee.

This means that a preliminary injunction must be entered every time a patent (including SEPs) is found to be infringed.

Damages

The IP Law establishes that any patent holder has ‘the right to recover damages as compensation for losses caused by acts that violate industrial property rights’ and that such compensation must ‘be determined using the most favourable criterion to the aggrieved party’.

However, as there are no punitive or enhanced damages according to Brazilian statutes, the compensation for damages is limited to past acts that could not be prevented with a preliminary injunction, for example, acts of infringement practised before an injunction has been entered or acts practised before the patent was granted – the IP Law provides for compensation of damages caused by infringement while the patent application was being prosecuted by the patent office up to five years prior to the filing of the lawsuit.

Calculation of FRAND rates

Brazilian courts have never been asked to set a global FRAND rate or to declare if an offer is FRAND. SEP infringement lawsuits filed in Brazil seek the grant of the remedy established by the local law, namely, preliminary and permanent injunctions, as well as compensation for past damages.

Market

Brazil is the world’s sixth most populated country and fourth largest smartphone market behind China, India and the United States. As South America’s largest country, Brazil’s population accounts for half of the continent. Combined with a 46 per cent smartphone penetration rate, Brazil is a key market for both app developers and original equipment manufacturers, and numbers are likely to continue to soar in the years ahead.^[4]

When it comes to internet use, Brazil is a globally significant leader. According to recent statistics, Brazil had 178,100,000 internet users in June 2022, which represents a penetration of 82.8 per cent in a population of 215,016,658. In other words, it is in the national interest to ensure legal security regarding the IP sphere as it will further enhance economic interests.

Strategic considerations

The Brazilian IP Law is consistent about the duties of holders and implementers of intellectual property rights, as well as the availability of injunctive relief as the main remedy against patent infringement. There is no requirement of prior notice to the implementer before the filing of a patent infringement lawsuit. The bifurcated system allows for infringement lawsuits focused on straightforward evidence of patent infringement, in which FRAND contentions may be raised as a matter of defence consistent with alleged breach of a foreign contract.

There are concrete ways for SEP holders to fight hold-out through the remedies available in Brazil. NPEs are not discriminated against, and the importance of innovation fostered by IP is well recognised. In addition, there are no ‘Huawei framework’ requirements or presumptions of dominant positions in relation to SEPs. Infringement of one independent claim is enough for courts to grant injunctive relief, as proven by recent cases.

In most SEP cases infringement is established over the relevant part of the standard. There is no discovery, depositions, cross examinations, hot-tubbing, company personnel involvement or jury trials regarding patent litigation. The decisions are rendered by judges. There are no juries, only bench trials. In invalidity lawsuits, the BRPTO is a mandatory co-defendant and there is no automatic stay of infringement lawsuits, which would be treated as an exception.

With a large middle-class population, a pro-market government and a sizeable domestic market,^[5] Brazil already owns one of the largest markets worldwide and is becoming increasingly relevant in global patent disputes.

2023 Case Law

The Brazilian judiciary relevance as venue for patent infringement disputes is swiftly increasing, including the ones dealing with SEP/FRAND contentions. Brazil has continental dimensions and is one of the largest digital markets in the world – as evidenced by the number of searches on Google.com. Brazilian law provides for effective remedies to protect the rights of patent owners, encouraging good faith negotiations leading to settlements.

Recent preliminary injunctions

The Rio de Janeiro State Court recently granted a preliminary injunction to prevent Oppo from commercialising mobile phones that implement the technology protected in Nokia’s PI 0109043-7 patent, related to the AMR-WB standard. The court stated that, had the injunction not been granted, Nokia could have faced irreparable harm, considering the rapid pace of innovation in the telecommunications field and the need to keep its investments. It was undisputed that the parties had a previous licence, which had recently expired. Despite failing to engage in meaningful negotiations to obtain a new licence, Oppo informed the court that it ceased sales of its devices in Brazil, in compliance with the court’s order.

More recently, a preliminary injunction was granted against TCL on an infringement case filed by Philips also before the Rio de Janeiro State Court. TCL, described by the court as ‘frequently sued before Brazilian courts for patent infringement’, was enjoined from equipping its devices with the technology protected by Philips’ PI 031552-8 patent, related to the HEVC standard.

Although preliminary injunctions are highly relevant due to their potential to have implementers engaging in meaningful negotiations, the fast discovery phase performed by an unbiased court-appointed expert also leads to a relevant ‘settlement opportunity’. The expert presents their report on infringement, which is not binding but is very persuasive for a final decision on the merits at trial level.

Going forward

In 2023 alone, three expert examinations have been conducted in key IT patent disputes. In WSOU v ZTE, VoiceAge v HMD et al and DivX v Netflix, three different unbiased experts found infringement of patents related, respectively, to the 4G, EVS and HEVC standards. Recently, WSOU and ZTE settled their worldwide dispute and engaged on a worldwide patent licencing agreement soon after a court expert found for infringement, showing the importance of this milestone in Brazilian procedures for global disputes.

Notes

^[1] https://www.levysalomao.com.br/files/publicacao/anexo/20150803144519_the-dominance-and-monopolies-review---law-business-research---2015---amp.pdf.

^[2] SJRJ Processo No. 0037510-53.2015.4.02.5101. 13ª Vara Federal. Juíza Federal Márcia Maria Nunes de Barros, j 11/05/2015.

^[3] Special Appeal No. 1.315.479/SP, reporting Justice Marco Aurélio Bellizze, ruled on 14 March 2017.

^[4] https://www.flurry.com/blog/country-profile-the-brazilian-smartphone-market/ Country Profile: The Brazilian Smartphone Market | Flurry.

^[5] santandertrade.com/en/portal/establish-overseas/brazil/foreign-investment#:~:text=Extensive%20natural%20resources,are%20important%2C%20low%20external%20debt.