[Guest post] Standard Essential Patent Litigation in Brazil: A Short Story of Sharp Practices

The IPKat has received and is pleased to host this guest contribution from Katfriends Pedro Marcos Nunes Barbosa (Pontifical Catholic University of Rio de Janeiro; Denis Borges Barbosa Advogados) and Ryan Benjamin Abbott (University of Surrey; University of California, Los Angeles; Brown, Neri, Smith & Khan, LLP), who explore some questionable practices in Standard Essential Patent (SEP) litigation in Brazil and the lessons for patent owners, alleged infringers, experts, counsel, and Courts. Here is Pedro and Ryan's short essay:

Introduction

Patent litigation worldwide has some stable clichés. Patent owners try to obtain exotic exclusivity term extensions to postpone competition; questionable patent content is the subject of creative theory of equivalents argumentation;[i] infringers abuse de minimis theories of infringement; and stalling tactics are employed to avoid merits decisions or expedited procedures are used inappropriately.

These are long-standing litigation strategies disfavored by experienced Courts, from which new applications evolve from time-to-time and, if successful, become repeated worldwide.

This short essay explores some state-of-the-art grey strategies used in Brazil in SEP infringement cases.

Dubious Patent Owner Practice

Brazilian law contains a general prohibition on secrecy in litigation. Besides family law matters, or national defense issues (ex: article 75, Law 9,279/1996),[ii] cases require that, in the absence of a very high-level burden, information be made publicly accessible. This direct “sunlight” approach diminishes the availability of information asymmetry strategies, such as making a secret deal in Brazil while letting German litigants continue a dispute within the same patent family. As decisions in patent cases may be of significant public interest, procedural secrecy in patent litigation can come at the public’s expense (res publicae).

Brazilian Kat

Yet patent owners may opt for an unconstitutional approach (article 93, IX CRFB), while alleged infringers do not bother challenging this strategy. Respondents may want to avoid public knowledge of their conduct, or if a secret case results in a confidential deal, both parties may prefer not to disclose the existence of licensing or settlement. Either way, Judges should generally err on the side of public access, and eventually determine which documents have a legitimate reason to be maintained in secrecy without prohibiting public knowledge of the rest of a case.

A second questionable strategy used by patent owners in SEP cases concerns a false syllogism. The argument works as follows: (a) claimant’s patent X is a part of the technological standard Z, (b) respondent’s Y´s product adopts standard Z, (c) therefore, Y´s product violates X’s exclusivity rights.

This is a very concise, objective, compelling and false premise. Even if (a) and (b) are true, there is no certainty of (c). Numerous technological standards are associated with countless patents, but a standard may be adopted without infringing many of those patents. Patent pooling can also be used to require third parties to pay for unnecessary intellectual property rights.

A simple metaphor illustrates this phenomenon: (i) a standard—like 5G communications—can be as vast as the solar system, while patents can be as small as a comet or as huge as Jupiter, and (ii) the owner of Earth’s moon should not be able to dictate the behavior of a 5G user traveling between Mars and Venus. In fact, SEP adoption does not necessarily function under a poker-like “all-in” status, since only a small portion of exclusivity rights may actually be used.

This false syllogism can be convincing for certain Courts but has a specific goal: to improperly obtain injunctions that will force alleged infringers to negotiate or to be out of the market. No one has full autonomy to negotiate while the sword of Damocles hovers.

Poor Technical and Legal Expert Practices

Not only do some litigants behave poorly, so too do some professors, academics, and experts.

A variation of such conduct would be for a professor to agree with a legal theory in litigation without understanding the complexity of the case. Sometimes, a litigant wants to “rent” the reputations of well-known academic authorities who are experts in certain areas, but who do not understand a litigated technology. Some experts blindly adopt opinions drafted by the company (or law firm) that solicited their services, without a thorough and independent overview. For that matter, some experts now blindly adopt opinions drafted by AI.

Another problematic example is the submission of legal opinions in SEP cases by academics without a background in intellectual property law. Sometimes, experts are appointed by a Court in a technological context in which they have no background experience. SEP litigation is not a friendly zone for the merely academically curious. As in cooking, one should learn how to prepare toast before attempting to prepare beef Wellington.

Questionable Non-Patent Owners Practices

A first questionable practice by respondents in SEP cases involves adopting false syllogisms. The mythology found in the motions and petitions can be summarized as follows: “In SEP cases no injunctions (impeding technological use) could be rendered, since even default debtors shall only be sanctioned in payment orders, but not if an injunction is ordered.”

This argument is not always accepted, but from time to time convinces a less careful Court. In fact, Brazilian law contains no differentiation for standard technology patents. While one could correctly argue that a licensed—and royalty paying—party could not be subject to such injunctions,[iii] infringers have no right to decide if and when they may choose to pay for a patented technology.

In fact, if a Court order to stop infringement takes too long, and if the technology used is necessary for a standard, then besides the exclusivity rights violation itself, the infringer could engage in unfair competition with honest, licensed competitors. Since many markets are purely price determined, if the fixed cost is not borne by one of the players, then that player will automatically be able to sell at lower prices and realize the famous song from ABBA – “The winner takes it all”. By the time an injunction may ultimately issue it will be too late.

A second questionable practice by defendants in SEP cases concerns a discourse “revolution”, a true 180º change in practice direction. Many times, the current litigating parties were contractual partners for years; a brawl started at the license renegotiation phase. Although no significant changes were made to the licensed product, the licensee simply decided not to continue payment. In some cases, the argument is that the patent is faulty[iv] or the technology useless,[v] and in other cases that there was never any actual technological use, only an unthoughtful royalty payment for years.

Although this story could hypothetically be true, it can also be a tactic to delay or avoid payment. Changing minds about the quality[vi] of the licensed technology after so many years can be more a sign of opportunism than of honest thinking.

A third questionable practice by defendants in SEP enforcement cases concerns Fair, Reasonable and Non-Discriminatory (FRAND) licensing . In Brazil, accused infringing parties may interpret FRAND guidelines as charity. For such parties, FRAND means paying a couple of cents if and as they choose, even if the technology implemented is patented and at the heart of their product. Market prices, what the competition is paying, innovation costs—nothing can convince the technology user of the importance of an honest royalty. Even when profit margins are high (which can be the case with cell phones and high-tech communication products), it is not unusual for infringers to argue that they only want to pay “peanuts”, and that such salty treat is what FRAND means.

Conclusions

For cynical litigators, patent disputes are not as simple as a Star Wars movie, where the Jedi are good and the Sith are evil. Sharp, uncivil, and borderline unethical practices can be employed by all comers.

Since SEP enforcement litigation cases are trending upwards worldwide, a few lessons from recent litigation trends in Brazil might be helpful for good faith parties, technicians and Courts. For example, Courts should:

1. not accept procedural secrecy, and not allow information asymmetry to be used as a holdup in other jurisdictions while the same patent family is litigated;
2. (not give attention to an avalanche of legal and technical opinions from unqualified experts, or to opinions used as “rental” practices;
3. expedite the procedures of nominating expert evidence by experienced professionals without conflicts of interest;
4. aware of lobbying attempts, as some litigants employ multiple firms and big names or family members related to public authorities; and
5. be careful about being influenced by foreign decisions concerning the same parties and the same patent family. Besides the known Paris Convention Independent Principle (Article 4, bis), Patent Offices often take different approaches to technological demands. Some Offices are strict and will only allow narrow claims, while others allow broad claims. The same use by the accused party could amount to patent violation in Country X, but not in Country Y.

SEP enforcement litigation has not reached a mature phase in Brazil. There is still much emphasis on aggressive behavior and/or language in motions and the use of hardball tactics; whereas elegance, methodology, good manners and technique could be more effective in the long term. These considerations are not just relevant to patent owners, but also to alleged infringers, experts, counsel, and even Courts.

Pedro Marcos Nunes Barbosa – Professor at the Pontifical Catholic University of Rio de Janeiro. Leading Partner of Denis Borges Barbosa Advogados. pedromarcos@dbba.com.br

Ryan Benjamin Abbott – Partner at Brown, Neri, Smith & Khan, LLP. Professor of Law and Health Sciences at the University of Surrey School of Law and Adjunct Associate Professor at the University of California, Los Angeles David Geffen School of Medicine. ryan@bnsklaw.com

[i] There can only be patent infringement if the essentiality of the technical innovation found in the patent claim is used in the accused product/process: GARCIA, Balmes Vega. Contrafação de Patentes: Violação de Direitos de Propriedade Industrial com ênfase na área Químico-Farmacêutica. São Paulo: Ltr, 2004, p. 66.

[ii] BARBOSA, Pedro Marcos Nunes & BARBOSA, Dênis Borges. Patentes. Código da Propriedade Industrial Conforme os Tribunais. Volume 1. 3a Edição, Rio de Janeiro: Lumen Juris, p. 1082.

[iii] “In the Brazilian law, the FRAND commitment is not a waiver to the rights pertaining to a party, one of which is the use of the procedural remedy of interdiction. It is simply an unilateral offering, of pollicitatory nature, aimed at an offeree who fully accepts the terms of the offering. Against this one, who accepted the offering and adjusted to it, the patent owner lacks the right to interdict. But not against the others” BARBOSA, Dênis Borges. Patents, technical standards and FRAND license offerings under Brazilian law. Ensaios e estudos de Propriedade Intelectual 2014-2015. Volume 2. Patents. Rio de Janeiro: IBPI, 2014, p. 127.

[iv] “The recognition, by others, of the validity of patent rights, as evidenced by the presence of licensees paying royalties ("putting their money where their mouth is"), is deemed by the courts to be a "secondary indicia of patentability" (a good thing!)” POLTORAK, Alexander I. & LERNER, Paul J. Essentials of Licensing Intellectual Property. Canada: By John Wiley & Sons, Inc 2004, p. 3.

[v] “To be patentable, however, an invention must not only contain patentable subject matter but also be novel, nonobvious. and useful” ABBOTT, Ryan Benjamin. The reasonable robot: Artificial Intelligence and the law. New York: Cambridge University Press, 2020, p. 76.

[vi] “In general, people pay more for something stronger, and this certainly applies to licensed technology. Protection was identified as the most important factor, which makes sense. Regardless of any other characteristics and benefits of an invention, if patent protection is considered weak the royalty rate cannot be high” PARR, Russell L. Royalty Rates for Licensing Intellectual Property. New Jersey: John Wiley & Sons, 2007, p. 26.