Antitrust Law and Intellectual Property Rights in Brazil

The interaction between antitrust laws and intellectual property rights is a well-known and traditionally discussed topic worldwide. In Brazil, however, the experience is relatively recent and the main cases are currently under the analysis of the authorities.
Disputes involving both institutes are a recent phenomenon in Brazil, especially due to structural difficulties faced by innovators to enforce their intellectual property rights. Nevertheless, the Brazilian experience is showing that the enforcement of intellectual property rights is being intensified. Such a new scenario has, undeniably, created incentives for those who assert property rights as a result of their innovation, as much as for those who dispute third parties' property rights assertions.
Innovation is essential in the economic development process. The dynamic changes and innovation, fostered by the protection of intellectual property rights, are important drivers of the economic activity and productive gains and, in many cases, are the most important indicia of competition.
While antitrust laws shall prevent abuses of market power, intellectual property laws shall support innovation, even by creating or increasing innovators' market power. Although the objectives described may suggest an apparent conflict, a careful analysis further elucidates the rationality behind the balance between these two important social values.
Therefore, authorities worldwide have the important and complex challenge of balancing enforcement of antitrust and intellectual property rights. On the one hand, innovators shall receive a precise measure of protection of their investments, sufficient for creating and perpetuating the necessary incentives for future innovation. On the other hand, innovation shall serve the social purpose of promoting consumer welfare.
Enforcing antitrust laws to privilege short-term social welfare may undermine incentives for innovation, thus preventing long term dynamic efficiency. In view of that, authorities must be careful in balancing both aspects in their decisions, so to avoid promoting a distorted analysis of the effects of a case in the market.
Despite latest year's trials to construct a consistent body of jurisprudence, the Brazilian competition system still lacks the appropriate measure of legal certainty. In general terms, there are few guidelines that contribute to this regard as much as steers the administrative and judicial review. It is no different with respect to the subject matter. Although there is no consistent jurisprudence involving antitrust and intellectual property rights, the Brazilian authorities now have a great opportunity to define the limits and the interaction between these institutes.

Balancing antitrust and intellectual property laws

Antitrust laws shall follow the pure and distinctive purpose of promoting social or consumer welfare, which is achieved, under modern theory, through efficient allocation of resources (allocative efficiency). By allocative efficiency it shall be understood that the best way of distributing products and services to consumers is by maximising production and reducing the final price close enough to marginal costs. The way competition laws pursue such objectives is by avoiding inefficient market structures and preventing abuses of market power.
In turn, intellectual property rights shall promote innovation and technical development (dynamic efficiency), through three main objectives: creation and defence of the necessary incentives for innovation, reward to the innovator's achievements and guarantee that created innovation will be used, further promoting the natural process of cumulative innovation.
In order to achieve the first two objectives, intellectual property laws grant to the innovator a temporary exclusive property over his or her innovation, providing exclusive rights to use, to license its rights at the owner's discretion and to prevent unauthorised third parties from free-riding on the innovation. Such exclusive temporary right works, at the same time, as an incentive and a reward for the innovator. And finally, the third objective of intellectual property laws is achieved by the effective exploitation of the innovation. Once used, innovation is put to the service or availability of society and, therefore, social welfare is achieved.
In sum, intellectual property laws foster long-term dynamic efficiency by providing incentives to investments in the development of valuable goods, whereas antitrust laws tend to focus on the achievement of static allocative efficiency by preventing the inappropriate accumulation or exercise of market power with respect to the existing products or services.
In this regard, antitrust authorities shall intervene in abuses that prevent the dissemination of innovation, as well as abuses in which innovators try to prevent or distort competition by means of misuse of intellectual property rights. Antitrust authorities shall be careful in their decisions, since privileging short term allocative efficiencies may undermine incentives to innovate and long term benefits resulting from research and development.
The complementary feature of antitrust and intellectual property laws is very much consolidated in countries with an antitrust tradition. In Brazil, this interaction is still being tested and national and foreign companies must pay close attention to recent discussions that might affect enforcement of their intellectual property rights at the antitrust arena.

Legal and institutional framework

The Brazilian legal system has no specific statutes to regulate interaction between antitrust and intellectual property rights. As mentioned, there are no guidelines in this behalf.¹ In view of that, it shall be important to identify the general concepts of each legal framework, to better understand their limits when coexisting.
Law No. 8,884 (the Brazilian Competition Act) of 1994 is the main statute governing antitrust issues in Brazil. The governmental agency responsible for the enforcement of the Brazilian Competition Act is the Administrative Council for Economic Defence (CADE), a federal independent autarchy linked to the Ministry of Justice. CADE is assisted by two secretariats: the Secretariat of Economic Law (SDE), reporting to the Ministry of Justice, and the Secretariat of Economic Monitoring (SEAE), reporting to the Ministry of Finance. Together, these three bureaus constitute the Brazilian System of Competition Defence (SBDC).
Article 20 of the Brazilian Competition Act provides general rules to identify violations to the economic order by adopting the rule of reason. Such provision states that conduct which distorts competition or free enterprise is not unlawful per se, but only when it could, even potentially: (i) limit, refrain or in any way injure competition or free enterprise; (ii) control a relevant market of a certain product or service; (iii) increase profits on a discretionary basis; or (iv) constitute an abuse of a dominant position in a certain market. Therefore, conducts are analysed on a case-by-case basis.
Moreover, article 21 of the Brazilian Competition Act provides for a non-exclusive list of acts that, among others not included therein, will be deemed as a violation to the economic order,² including typical cartel conducts such as:

to set or offer, in any way, in collusion with competitors, prices and conditions for the sale of a certain product or service;

to obtain or otherwise procure the adoption of uniform or concerted business practices among competitors;

to limit or restrain market access by new companies;

to pose difficulties for the establishment, operation or development of a competitor company or supplier, purchaser or financier of a certain product or service;

to bar access of competitors to input, raw material, equipment or technology sources as well as their distribution channels; and

to prevent the free exploitation of industrial property rights and technologies by third parties.

Penalties for practising such illegal activities include corporate administrative fines that may vary from 1 per cent to 30 per cent of the companies' annual revenue, as well as personal administrative fines for the involved executives, varying from 1 per cent to 15 per cent of the applicable fine to the company.
In addition, intellectual property is mainly regulated by the Brazilian Intellectual Property Act (Law No. 9,279, of 1996), the Paris Convention and its Stockholm Revision and by several norms issued by the National Institute of Industrial Property (Instituto Nacional de Propriedade Industrial - INPI), and the Central Bank of Brazil. The Intellectual Property Act consolidated the various rules governing the subject and introduced changes to the current protection of industrial property rights in Brazil. The INPI is the federal agency in charge of regulating and registering patents, trademarks and industrial designs as well as of approving licensing agreements and any other agreements involving industrial property rights.
Finally, Law No. 8,137/90 (the Antitrust Criminal Act) sets forth provisions in connection with crimes against the economic order. The penalties under the Antitrust Criminal Act vary from two to five years' imprisonment or a fine. With regard to the Antitrust Criminal Act, it should be pointed out that its nature is formal; that is, the configuration of the illicit act does not depend on the result. Therefore, it is not relevant whether the action harms competition. Unlikely other jurisdictions, the Criminal Act does not distinguish between hard-core infringements and other kinds of antitrust violations. As described below, CADE has a brief curriculum vitae in investigations and decisions involving antitrust and intellectual property rights. Additionally, in some merger control cases, intellectual property rights have been the subject of discussions. In general, these were cases in which the parties acquired or shared intellectual property rights, the great majority of which were unconditionally approved by the authorities.
According to the current legal framework, the Brazilian authorities may investigate and impose penalties, for instance, to any case involving misuse of patent rights, tying arrangements involving protected goods, restrictions imposed by abusive licensing agreements (including cross-licensing agreements) and refusals to deal or cartel practices involving intellectual property rights (eg, patent pools).

Case laws involving antitrust and IP in Brazil

The most important and recent case under scrutiny of the SBDC was brought by the Association of Independent Auto-parts Producers (ANFAPE) against three of the biggest original equipment manufacturing (OEMs) in Brazil.³ In short, the ANFAPE alleges that OEMs abuse their market power by legally enforcing their intellectual property rights (industrial designs of external auto parts) against independent auto parts manufacturers. Such rights aim at inhibiting the production and sale of counterfeit copies of protected products in the market.
It shall be mentioned that all judicial decisions related to the issue have confirmed OEMs' intellectual property rights, thus ordering seizure measures of mis-copied products and preventing the defendant from continuing to produce 'pirate' copies of the OEM's protected industrial designs.
The SDE recently issued its report on the case, concluding that the protection granted to the OEMs' industrial designs was in compliance with the Intellectual Property Act, validly registered before the INPI. The SDE concluded that, although intellectual property rights may represent a restriction to independent auto parts manufacturing companies, such restriction did not foreclose the auto parts market since such companies could develop their own alternative and similar auto parts without copying the protected products.
In balancing its assessment of the case, the SDE recognised that the protection given by intellectual property rights is a trade-off by which society agrees to grant exclusivity to innovators, who will have, in exchange, incentives to innovate. This trade-off is legitimate and, except in case of abuses, shall prevail. The SDE's dismissal of the case, according to Brazilian law, triggers an ex officio review of the case by CADE. A final decision is expected in the coming year.
Although the case described above can be considered as the first case in which the interaction between antitrust and intellectual property laws is in the centre of the debate, CADE has decided some other cases that tackle the subject.
With respect to merger control, CADE has unconditionally approved almost all the cases it has decided, including those involving intellectual property rights. An important precedent that brought an interesting solution with respect to a merger involving trademarks and consumer fidelity was the acquisition of the toothpaste producer Kolynos by its competitor Colgate.⁴ In this case, based on the trademark and strong fidelity identified with respect to consumers' choice of their toothpaste, CADE decided to suspend the use of Kolynos' trademark in connection to toothpaste for four years. The new trademark used by Colgate is now one of the main trademarks in the Brazilian toothpaste market, and Colgate has decided not to adopt the former name again for marketing reasons.
Besides, there have been uncontroversial decisions that recognise the Competition Authorities' jurisdiction to analyse and approve, under article 54 of the Brazilian Competition Act, agreements regarding the acquisition of contracts for the use of trademarks,⁵ franchising agreements or technology transfer agreements,⁶ know-how confidentiality clauses,⁷ and non-compete clauses involving intellectual property issues.⁸ The Brazilian antitrust authorities also scrutinised a series of franchising agreements, ultimately considering several clauses as unacceptable in those specific cases.⁹
Another interesting issue was discussed in an advisory opinion requested by the Ministry of Health in 1999, in which CADE stated that compulsory licensing cannot be granted directly by the competition authorities. Under CADE's opinion, it may only recommend the INPI to adopt such proceeding as a punitive measure.¹⁰ In another decision involving the same subject matter, CADE analysed a request for granting compulsory licence of trademarks, but has denied it based on the fact that there was neither market domination, exclusion or elimination of effective or potential competitors through the elevation of barriers to entry into the market, nor any other form of violation to free competition.¹¹
In general terms, CADE's case law illustrates its understanding that problems involving intellectual property rights' infringements, which are limited to private claims with no anti-competitive effects in the market, should not be assessed by the SBDC.¹² These cases must be subjected to judiciary scrutiny instead.

Conclusions

The analysis of the interaction and limits between antitrust and intellectual property rights is in a preliminary stage in Brazil. The case described which involves a discussion of the protection of industrial design of auto-parts and the prevention of unauthorised production of copies of such products by third parties in the aftermarket will certainly serve as the first important precedent for drawing such lines.
The Brazilian economy is growing and such development has motivated an increase in the protection of intellectual property rights and its enforcement by private companies. Due to this new scenario, it is likely that new claims will be brought concerning the use and misuse of such rights.
The Brazilian Competition Act will play an important role in this scenario. It will prevent the abuse of intellectual property rights and, at the same time, it will help the Intellectual Property Act to protect inventors' rights and maintain the incentives for innovation and technical development.
There are no guidelines in Brazil that outline the limits of intellectual property and the abuse of these rights. There are no definitions that can guide Brazilian antitrust authorities in the analysis of cases involving IP, nor that can assist private parties in the use of their rights.

In this regard, it would be helpful to have guidelines to provide certainty in the business environment in Brazil and attract more investments in industries with more value added. It is also important to understand how the Brazilian authorities will define the relevant market for innovative industries, how they will treat the issue of market power when intellectual properties are granted and how they will predict market behaviour whenever dealing with highly dynamic and technological markets. Obviously, more important than a good guideline is the actual application of the law and the auto parts case should represent a good starting point.

Notes

1 The Brazilian Association for Intellectual Property (ABPI) has recently issued a guideline for assessing Technology Transfer Agreements and Licensing of Intellectual Property Rights from an antitrust perspective. Such guideline is not binding and was not incorporated by any governmental agency.
2 For the configuration of the acts mentioned in article 21 as a violation to the economic order, it is necessary to determine that the act in consideration is also capable to match at least one of the rules stated in article 20.
3 Preliminary Investigation No. 08012.002673/2007-51.
4 Concentration Act No. 27/94 and Concentration Act No. 08012.005846/1999-12.
5 Concentration Act No. 08012.000409/00-36.
6 Concentration Act No. 100/96.
7 Concentration Act No. 08012.001856/02-45, Concentration Act No. 08012.000317/99-12, and Concentration Act No. 08012.0002266/99-46.
8 Concentration Act No. 08012.001409/01-13.
9 Vote in Consult No. 0039/99.
10 Consult No. 31/99.
11 Concentration Act No. 47/95.
12 Inquiry No. 7/87, Inquiry No. 30/87, Preliminary Investigation No. 26/68, Preliminary Investigation No. 08000.022244/94-36, and Preliminary Investigation No. 08000.024891/95-45.