The Supreme Court of Brazil changed the rules for calculating the term of protection for patents and utility models

English The Supreme Court of Brazil changed the rules for...
- Advertisment -

This post has been written by Hiago de Borba Busch, partner at VilelaCoelho.

The Supreme Court of Brazil declared on 6 May 2021 that part of article 40 of Brazilian Law 9,279/96 (“IP Act”) is unconstitutional. This article sets forth the way patent and utility model terms are calculated in Brazil.

In a controversial judgment that changes patent protection in Brazil, the Supreme Court has ruled it is unconstitutional to grant patents and utility models with terms calculated from grant date (10 years for patents and 7 years for utility models), one of the two ways of calculating patent term according to the IP Act. Therefore, from this judgment onwards, patent and utility model terms can only be calculated from filing date: 20 years term for patents and 15 years term for utility models.

The impact of this decision cannot be underestimated as it will affect all patent and utility model applications moving forward as well as certain patents already granted, particularly patents in force with a term of 10 years from grant protecting pharmaceutical products and procedures, healthcare equipment and devices.

Understanding the case

The Brazilian Supreme Court issued this judgment in the action for declaration of unconstitutionality (Ação Direta de Inconstitucionalidade) number 5,529 brought in May 2016 by the Attorney-General of the Union (Brazil’s chief public prosecutor). On 6 May 2021 the Supreme Court, with favorable votes of the majority of its Justices (9 out of 11), ruled in favor of the plaintiff declaring that the sole paragraph of article 40 of IP Act, which provides a 10-year patent term (7-year utility model term) from grant date is unconstitutional. More information on the background of this case, what was at stake and parties involved, check my previous post here.

This decision did not come as a big surprise as it essentially confirmed the understanding set forth in a previous decision from 7 April 2021 in which a partial preliminary injunction relief was granted monocratically by Justice Toffoli (rapporteur) for urgency reasons due to possible effects of the contested provision over pharmaceutical patents that could hinder the fight against the COVID pandemic. The grant of such injunction relief caught many by surprise because arguably the main requirements for granting a preliminary injunction (periculum in mora and fumus boni iuris) didn’t seem to be met. The request from the Attorney-General for preliminary injunction came only in February 2021, almost a year after the pandemic hit Brazil, making it very difficult to justify periculum in mora as the alleged danger had been tolerated for a long time; and there was not a single medicine approved to treat or prevent COVID protected by a patent in force in Brazil, making it very difficult to justify fumus boni iuris. A short comment on the preliminary injunction decision can be found in my previous post here.

The judgment of this case was scheduled to begin on the en banc session of the Supreme Court of 7 April 2021. Nonetheless, in said first session only the preliminary injunction application was decided. The voting of the Justices on the merits of the case started only on the session of 28 April 2021, continuing along the sessions of 5 and 6 May 2021, when the majority of Justices decided for the unconstitutionality. Nevertheless, the Justices required additional time to decide on the effects of the decision and judgment was adjourned until, finally, on the session of 12 May 2021 the qualified majority (2/3) of the Justices decided to modulate the effects of the decision. The final judgment has not been published yet.

The challenged provision of the IP Act

Article 40 of IP Act, a provision that has been in force for 25 years in Brazil, establishes two ways to calculate the term of protection for patents and utility models:

Art. 40. A patent will have a term of 20 (twenty) years and a utility model a term of 15 (fifteen) years, counted from the filing date.

Sole Paragraph. The term shall not be less than 10 (ten) years for patents and 7 (seven) years for utility models, counted from date of grant, unless INPI is prevented from examining the merits of the application, due to proven pending judicial dispute or for reasons of “force majeure”.

According to this provision, the term of protection was the longest of: (i) 20 years from filing date for patents, and 15 years from filing date for utility models (caput of article 40); or (ii) 10 years from grant date for patents, and 7 years from grant date for utility models (sole paragraph of article 40). The rationale behind the sole paragraph of article 40 is obvious: to make up for the delays of the Brazilian Patents and Trademarks Office (“BPTO”) during the prosecution of patent and utility model applications, assuring that the proprietor will enjoy at least 10 years of protection for a patent or 7 years of protection for a utility model.

This minimum protection term was intended to be a “safety provision” to be applied in rare and extraordinary cases of delay by the BPTO, as under normal circumstances the BPTO should never take more than 10 years to grant a patent application or 8 years to grant a utility model application. Unfortunately, as widely known, in recent years there was a substantial increase of the backlog of the BPTO causing extreme delays in the prosecution of applications in Brazil. The delays were particularly significant in the period between 2011 and 2016, when the average time the BPTO was taking to decide an application surpassed 10 years. Due to such delays, the use of the “safety provision”, initially intended as an exception to the rule, became the rule. It was during this period, when the situation grew out of control by the BPTO, that the action for the declaration of unconstitutionality leading to this judgment was initiated.

It is important to mention, however, that these delays in prosecution are no longer a reality. As a result of the many measures taken by BPTO to tackle backlog and streamline prosecution time, the current number of applications taking more than 10 years to be prosecuted is very low. According to data from last year provided by the BPTO, the average prosecution time for applications to be decided was reduced to approximately 8 years and is expected to keep falling. This shows that, even if not declared unconstitutional, the sole paragraph of article 40 of IP Act would have returned to be a safety provision rarely applied anyway.

Why was the constitutionality of this provision challenged?

In a nutshell, the main argument sustained by the Supreme Court to declare the contended provision unconstitutional was that terms calculated from grant date (10 years for patents and 7 years for utility models) according to the sole paragraph of article 40 of IP Act were indefinite, which would be contrary to Article 5, XXIX of the Brazilian Constitution that expressly establishes that a patent term should be temporary. It was argued that, since the grant date cannot be determined upfront, i.e., until the patent or utility model prosecution is concluded, such provision would allow the term of protection to be “extended” indefinitely.

According to the view of several scholars and amici curiae that were heard in the proceedings, this main argument sustained by the Attorney-General, several other amici curiae and later adopted by the Supreme Court, is technically wrong. I agree with this view because the voided provision does not establish a “term extension”, nor an “indefinite” term as argued, but a different way to calculate the term based on a condition: the grant date. Most importantly, the Constitution says the term must be “temporary” and the terms calculated from grant date (10 years for patents or 7 years for utility models) are obviously temporary, and clearly not indefinite. It is true that, when an application is filed, it is not possible to determine when the term starts or ends, merely because no one knows if or when the application will be granted. However, once the condition is met, i.e., the application is granted, the term is both determined and temporary.

Furthermore, contrary to the understanding adopted by the Supreme Court in the ruling, such provision did not extend patent or utility model protection term in Brazil. The IP Act does not allow any term extension in a similar fashion of Supplementary Protection Certificate in the European Union or Patent Term Extension in the United States, even though the objective of sole paragraph or article 40 was similar: to compensate applicant for time of protection lost before patent and utility model rights can be enjoyed. Literally speaking, extending the term would require increasing the term initially granted. Such an increase was never allowed in Brazil. What this provision truly regulated was an alternative way to calculate the term of protection, not an extension of it. Patent term could be either 20 years from filing date or 10 years from grant date. Utility model term could be either 15 years from filing date or 7 years from grant date.  These periods could not be added. Therefore, contrary to what was argued and ruled in the judgment, patent protection was never more than 20 years.

This argument of “term extension” beyond 20 years is a misconception that unfortunately had a heavy weight and highly influenced the decision of the majority of the Justices of the Supreme Court. It is worrisome to see the representatives of our higher Court displaying such a lack of understanding of a crucial technical aspect of the IP Law. Unfortunately, it was not the only technical misconception in the ruling.

Another central argument that influenced the decision, which is also, in my view, a misconception, is that a patent or utility model application itself confers some sort of protection to the applicant during prosecution. According to the rationale behind this argument, applicants are protected even before the grant date because article 44 of IP Act provides that damages could be claimed for unlawful exploitation of the invention occurred before application is granted, meaning that this conferred an “extension” of the protection in addition to the protection term calculated from grant date. According to this argument, a patent that was granted after 15 years of prosecution would have 35 years of protection: 15 years during prosecution + 10 years from grant date.

With all due respect, this argument is an abomination and another example of lack of basic understanding of how intellectual property works, not just in Brazil, but everywhere in the world. It is a basic concept of patent law that patent or utility model rights become effective only when the application is granted. Although a lot could be said to make the point, let me briefly mention 4 reasons why this argument should not have prevailed:

(i) The objective of obtaining a patent or utility model is enjoying a term of exclusivity in the market. What is pursued by the applicant is to be the only one exploiting the invention or to choose the terms in which third parties can be authorized to exploit the invention (right to grant a license).

(ii) Only if and after a patent or utility model is granted, its proprietor can claim damages. That is clear from article 44 of IP Act. An applicant cannot prevent a competitor exploiting an invention that is object of an application, nor seek damages before the application is actually granted. As well noted by Justice Barroso, one of the two Justices with dissenting opinions, by filing a patent application one does not acquire any right, but rather a mere expectation of acquiring the right.

(iii) Although the law allows patent holder to, if and after the patent is granted, seek damages suffered not only since the grant date, but also after the application was published, there is a 5-year statute of limitation (article 225 of IP Act) that considerably limits the scope of any damages claim.

(iv) The amount of damages awarded is frequently far from the amount of royalties that the proprietor could have obtained in a normal license negotiation. Not to mention that collection of the awarded damages often requires a lengthy enforcement proceeding. Thus, while the infringer immediately benefits from the unlawful act, the proprietor will have to spend significant resources and time to eventually recover damages that often do not make it whole for the loss. Therefore, it is obvious that the possibility of eventually obtaining damages is not the aim of any patent applicant. Damages are an imperfect and insufficient way to compensate the proprietor that has been illegally deprived from his rights.

Understanding the effects of the ruling

In Brazil, the effects of a declaration of unconstitutionality are retrospective (ex tunc) by default. Nonetheless, to avoid legal uncertainty and to preserve the effects of consolidated situations, the Supreme Court has modulated the effects of this decision establishing that it should have prospective (ex nunc) effects, i.e., starting from the date the judgment has been published (13 May 2021). Therefore, the decision will only impinge on new patents and utility models granted after this judgment, excluding patents and utility models that have been granted before the ruling with a term calculated according to the voided provision (10 or 7 years from grant). However, this limitation of the impacts of the decision (ex nunc effects) has two exceptions:

(i) Patents or utility models that have been granted with term calculated from grant date and which the constitutionality of the term was already under judicial dispute before the preliminary injunction was granted in this case (7 April 2021);

(ii) Patents that have been granted with 10-year term from grant date protecting pharmaceutical products and procedures, as well as over healthcare equipment and devices. The injunction relief granted on 7 April 2021 already ruled that these patents could not benefit from the sole paragraph of article 40 and enjoy a 10-year term of protection from the grant date.

Consequently, the decision will be applied with retrospective (ex tunc) effects over any patent granted with 10-year term from grant date that fall under any of these exceptions. In such cases, the term of the patents will be adjusted and calculated according with the 20-year term from filing date. If the 20-year term from filing date is not over yet, than the patent will continue in force for the reminder of the term. However, if this period has lapsed, the patent is now expired. Nevertheless, the judgment expressly excluded from the retroactive effects all consolidated situations that have already fully produced its effects. It remains to be seen how the Courts will interpret what qualifies as a consolidated situation, but it is expected to encompass license agreements that have been executed and judgements that have already been enforced.

To illustrate the magnitude and potential impact of such ruling with respect of the first exception (patents under judicial dispute), according to information available in the proceedings, before the preliminary injunction relief was granted by the Supreme Court on 7 April 2021, there were about 12 litigation cases in which the constitutionality of 21 patent terms were being challenged. All those patents can have their terms recalculated as explained above. However, patents object of new cases filed thereafter, about 73 cases involving 119 patents, will not benefit from this exception and their terms will remain unaltered.

Concerning the second exception (pharmaceutical and healthcare patents), according to information available in the proceedings, there were 30,648 patents in force with the term calculated from grant date based on the now voided provision. Nonetheless, only 3,435 of those patents are related to pharmaceutical sector (roughly 11% of the total) and will be retroactively impacted and have its terms recalculated as explained above. The other 27,213 patents in force with 10-year term from grant date (roughly 88% of the total) will not be affected and their terms will remain the same ones as granted.

While the number of patents and utility models already in force that will be affected is relatively limited, the real impact of this decision cannot be underestimated. The most pervasive impact of the ruling will be noticed on future patent and utility model applications. From now on, all patent and utility model applications, no matter how long the prosecution procedure takes, can only be granted with term calculated from filing date (20 years in the case of patents and 15 years in the case of utility models). Consequently, the BPTO will be granting several patents and utility models with most (if not all) their term of protection already lapsed, leaving a short period of protection to be actually enjoyed by the proprietor, or even possibly without any protection term available at all.

While the BPTO is still struggling to tackle its enormous backlog and reduce the duration of prosecution of applications, this ruling will have obvious effects on thousands of patents and utility model applications filed many years ago, when the applicants were lying on different rules: particularly the now voided “safety provision”, which guaranteed that no matter how long the BPTO takes to prosecute an application, applicants could count on a minimum term of protection (10 for patent or 7 years for an utility model from grant date).

To give a sense of how many applications will be affected, according to the information provided by the BPTO in the proceedings, there were almost 9,000 applications that have been filed more than 10 years ago that, if granted before this decision, would enjoy a 10-year (patent) or 7-year (utility model) term of protection from grant date. And this number did not include all other applications that soon will be crossing the mark of 10 or 8 years in prosecution.

Final remarks

It is undeniable that the “safety provision” set forth in the sole paragraph of article 40 of IP Act to minimize the negative effects of delays in prosecution time by the BPTO was a solution far from ideal. In fact, it should have been replaced by a different solution that did not leave the patent or utility model term undetermined by the time an application is filed, such as the previously mentioned solutions provided for in the European Union and the United States.

Having said that, however far-from-perfect such “safety provision” was, it was not, in my view, unconstitutional by any means for the reasons previously outlined. The solution should have been a new law or an amendment of the IP Law. That is why I believe the appropriate venue for such debate was the Parliament, not the Supreme Court.

Moreover, the level of legal uncertainty that this ruling has generated is unprecedented. Many patents or utility models may no longer benefit from any protection at all, not to mention the amount of litigation in the years to come around the ruling and its modulated effects.

This decision has affected the sensitive balance that must exist in the intellectual property system in order to foster innovation and I am afraid it will generate undesired consequences to the Brazilian economy. Hopefully the Brazilian Government will act quickly to restore the broken balance by amending the IP Act and, equally importantly, finally providing the necessary resources for the BPTO to execute its mandate with the expected agility, prosecuting the applications in a timely fashion and, consequently, eliminating the need for “safety provisions” to be applied.

Lvcentinvs
Desde la Asociación de Antiguos Alumnos del Magister Lvcentinvs y la Universidad de Alicante (España), información actualizada sobre los avances en materia de propiedad intelectual y de Derecho internacional privado para juristas europeos e iberoamericanos.

6 COMENTARIOS

DEJA UNA RESPUESTA

Por favor ingrese su comentario!
Por favor ingrese su nombre aquí

Time limit is exhausted. Please reload CAPTCHA.

Este sitio usa Akismet para reducir el spam. Aprende cómo se procesan los datos de tus comentarios.

LO ÚLTIMO

Must read

- Advertisement -

Quizá también te gusteRELACIONADOS
Recomendados para ti