The Brazilian Supreme Court decided this month that the 10-year patent term adjustment provision is unconstitutional.
The most important patent law case to ever to reach the Brazilian Supreme Court brought bad news to patent owners. The case (#5529) was about Article 40 (sole paragraph of Law #9.279/1996 - IP Statute), which established a rule protecting patent applicants against the incapability of the Patent Office by guaranteeing a minimum validity term of ten years (for utility patents), or seven years (for utility model patents) counted from the grant. Brazil has one of the highest patent examination pendency in the world (8 to 10 years in average to examine a patent application).
The constitutional challenge was filed in 2016 by the Federal Prosecutor's Office (FPO), which is entitled to bring a constitutional case to the Supreme Court. The FPO argued that the provision extends patent validity terms in Brazil and therefore this affects society, consumers, and the local industry. It, however, defended the application of the 20-year term from the filing date for all cases because of the IP Statute and the TRIPS Agreement. The FPO brought this claim based on a previous case by ABIFINA (an association of generic pharmaceutical companies).
After five hearings and following the opinion of the Reporting Justice Dias Toffoli, the Supreme Court judges ruled that the patent term adjustment provision is unconstitutional and thus revoked. The court made the decision on May 12 but published it on May 14.
The decision will apply to patents granted after the date the decision was published and ex nunc (retroactive) to: (a) patents under ongoing litigation on the grounds of the unconstitutional provision filed before April 7 2021; (b) patents for pharmaceutical processes and products and medical devices (not restricted to COVID-19). Third parties cannot seek compensation or damages for the “extended” term of the patent.
Among the court’s reasons, Justice Toffoli assumes that the provision represents a “term extension” affording extra and undue protection to the patent owner. The court’s view was that such mechanism is arbitrary, allowing monopolies for an undetermined and excessive period, in violation of legal certainty.
Brazilian patent term tradition ends: The sole paragraph of article 40 was in line with the Brazilian patent system tradition. Almost every patent statute since the first Brazilian Constitution (1824) had a similar provision.
Pressure on Congress: With this decision, the Supreme Court sent a message to Congress that it should find ways to solve the issues at the Brazilian Patent Office. Congress will also be under pressure to pass another patent term adjustment bill soon.
TRIPS Agreement violation: The grandfather clause exception for pharmaceutical processes, products and medical device patents represents discriminatory treatment for the sector. The obligation of non-discrimination is provided for in the TRIPS Agreement (27.1). With the Supreme Court’s decision, Brazil may be subject to trade sanctions imposed by the WTO.
Pending applications: There are at least 10,167 duly filed patent applicationswith a delay of over ten years awaiting examination and at least 412 duly filed utility model applications with a delay of over eight years. They will all be granted with insufficient protection. Technical fields like telecommunications, agriculture, electrics, electronics, and pharmaceutical will be severely affected.
Impact on the pharmaceutical industry: The effects are acute for the pharmaceutical and medical device industries and related areas. Companies involved in generics and biosimilar drugs would benefit from this decision, whereas innovator companies that invest large amounts in R&D will be at a disadvantage.
Although the Supreme Court's decision was a blow to the legal certainty of patent owners and applicants in Brazil, there is a very promising horizon ahead. Moreover, the general validity term provision (20 years for patents and 15 years for utility models, counted from the filing date) is still in force.
With the decision, there is some pressure on the National Congress to rethink the system and pressure in the Patent Office to do a better job. Even though the examination backlog is constantly decreasing, with the measures being taken, there are still serious structural problems, which will only be solved with more investment and good governance.
While waiting for improvements, applicants will have to rethink their patent prosecution strategy to identify every opportunity to expedite their Brazilian patent applications.
Patent Prosecution Highway programmes and administrative fast-track options are already in place and should be considered to avoid Patent Office delays. Applicants should also consider the so-called judicial fast-track, through which the applicant seeks a judicial order to compel the Patent Office to start the examination of one or more patent applications immediately. This legal option is well accepted by the courts, which deems the pendency time unreasonable and frequently orders the Patent Office to start examination within 60 days.
The Supreme Court’s decision should not discourage multinational IP owners from treating Brazil as one of the important jurisdictions in their global patent strategy. With a well-designed patent prosecution strategy, companies should be able to reap the advantages of the Brazilian market, including its IP protection and enforcement landscape.