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BRAZILIAN HIGH-TECH LITIGATION:

Law, Business & Policy

Thursday, May 12 – Washington, DC

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BRAZILIAN HIGH-TECH LITIGATION: Law, Business & Policy The George Washington University Law School

Litig igatin ing Standard Esse sentia ial l Patents

Carlos Aboim Partner at Licks Attorneys

Litigating Standard Essential Patents

Carlos Aboim, Partner of Licks Attorneys

Thursday, May 12 – Washington, DC

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• Brazil is the 5th largest country in the world (larger than the continental

U.S.)

• Brazil was a Portuguese colony from the year 1500 to 1822. The James

Monroe’s administration of the United States was the first to recognize Brazil's independence, followed by Portugal itself in 1825

• Brazil has a population of approx. 209 million people and the

world's seventh largest economy by nominalGDP (USD $1,42T in 2015);

• Internet penetration of 66.4% (2016), with the greatest number of

Facebook posts

Brazil – basic facts

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• and, of course…
• Host for the Olympic games in 85 days!

(we will not mention World Cup at this time...)

Brazil – basic facts

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Brazilian Market -Telecommunications in Brazil

3G – available to 95.8% of the population

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Brazilian Market -Telecommunications in Brazil

4G – available to 55.1% of the population

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But…

• 3G is really 1G, as operators are obliged to offer only 30% of the contracted speed
• 30% of transactions occur using “slips” that are paid at a local corner store or ATM

Brazil – basic facts

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Why Brazil?

• “The answer is simple. Brazil is equal to the rest of the South American market
• combined. If you can win Brazil, you will have an easier time winning other South

American markets. Those who can bring both relevant sector expertise and a deep understanding of the local environment will be positioned for big wins.”

(Brazil Startup Report - http://pt.slideshare.net/WorldStartupReport/brazil-startup-report-36443505?sf3496695=1 – accessed on July 20th, 2015).

Brazil – basic facts

Introductory analysis on “essential facilities doctrine” and enforcement of “de facto essential patents” in Brazil.

• General aspects
• Antitrust liability

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• There is no specific legal provision governing the enforcement of Standard Essential

Patents (SEP) or patents that are de facto essential (“essential patents”). Both will be subject to “essential facilities” liability (i.e. compulsory license) and antitrust liability.

• Compliance with technical standards is not required by law or regulations.
• There is no judicial decision establishing a framework for enforcement of SEPs (no

stare decisis).

• There is no limitation for the enforcement of SEPs in Brazil, but the enforcement

must be reasonableto prevent “essential facilities” liability (i.e. compulsory license) and antitrust liability.

Enforcement of essential patents and ex parte preliminary Injunctions -Background

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• Article 68 of the IP Statute (Statute # 9,279/96) states: “The patentee will have its

patent compulsorily licensed if he exercises its IPR in an abusively way, or it he uses it to practice an abuse of economic power, proven under the terms of the Law, by an administrative or judicial decision”.

• According to ¶1 of this article, the patent will also be subject to a compulsory

license when the patent subject matter is not explored in the Brazilian territory, or when its commercialization does not meet the market needs.

• The influence of the local industry and willingness of the government to take

action should not be underestimated.

Compulsory license limitations to the exercise of IPR

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Examples of cases regarding the application of the “essential facilities doctrine”:

• Companhia Petroquímica do Sul vs. Petroquímica Triunfo – 1998: CADE considered that

Petroquímica do Sul had reasonable economics reasons to not enter contracts with Petroquímica Triunfo, based solid economic justifications based on the opportunistic behavior of Petroquímica Triunfo in previous contracts.

• Globo vs. DirecTV – 2001: CADE considered that Globo’s signal was not essential for the

provision of services of cable TV. CADE ruled that DirecTV did not depend on Globo’s signal to subsist in the market.

• Embratel vs Telesp – 2002: Telesp was accused of offering competitive advantages to its

subsidiary “Telefônica”, harming Embratel in bids regarding long-distance calls. CADE ruled that there was an antitrust violation, based on the absence of reasonable basis for the difference in prices charged by Telesp from Embratel and Telefônica.

Enforcement of essential patents in Brazil CADE’s decisions

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Decisions rendered by CADE relating to de facto “essential patents”:

• Gradiente and Cemaz vs. Philips (Case # 08012.001315/2007-21) – May 13, 2009:
• The accusation claimed abuse of its dominant position, abusive pricing, denial of access

to essential technology, and discrimination of lawful players in the market.

• In regard to the alleged abuse of dominant position, CADE understood that there was no

antitrust violation, since the IP Statute allows the patentee to prevent others from commercializing the patent subject matter without its consent, and that there was no evidence that Philips failed to negotiate a license.

• Sony Corporation, Philips, Panasonic, Hitachi Consumer Eletronics, Samsung and

Cyberlink (Case # 08012.008810/2009-23) – June 26, 2011:

• Pool of essential patents for running and reproduction of Blu-Ray discs, as well as DVD

and CD format is Blu-ray devices.

• CADE understood that the pool brought competitive benefits to the markets involved,

that it did not reduce the competition in the final markets, and that it promoted access to essential patents, imposing the non-discriminatory licensing.

Enforcement of essential patents in Brazil CADE’s decisions

Enforcement of essential patents and ex parte preliminary injunctions

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• There is no specific legal framework for the enforcement of “essential patents”.
• But the enforcement must be reasonable, as there is a growing concern about IPRs

and antitrust.

• The enforcement of “essential patents” is a regular patent infringement lawsuit.

The particularities of the enforcement of an “essential patent” will come to light in the arguments for request of an injunction. Why the preliminary injunctions to protect IPR in Brazil are so important?

• Injunctive relief is the only adequate remedy.

How to perform a reasonable enforcementand also

• btain an ex parte preliminary injunction in Brazil?

Enforcement of essential patents and ex parte preliminary injunctions (Background)

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• Legal requirements - Art. 300 of the Brazilian Civil Code of Procedure:

(i) risk of irreparable harm (ii) likelihood of the plaintiff’s claims on the merits

• Preliminary injunctions can be granted ex parte (that is, before the service of the

complaint) Article 209, paragraph 1st, of the IP Statute: “The judge may, so as to avoid irreparable damages or damages that would be difficult to recover, grant an injunctive order to suspend the violation or act that has such in view, before summoning the defendant, upon, if necessary, the deposit of a bond.”

• Liability for the Plaintiff who request a preliminary injunction: Article 302 of the

Brazilian Code of Civil Procedure provides for strict liability for damages caused by the injunctionin case the final decision on the merits is unfavorable.

Enforcement of essential patents and ex parte preliminary injunctions

(General legal requirements)

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• Hardship to obtaining compensation in Brazil for patent infringement:
• “the restitution in integrum should reach, independently from the effective

peeve, all the economic advantage achieved by the infringer, due to the illicit and in the case of counterfeit, the indemnity of the loss of profits should be correspondent to the profits obtained by the infringer, that profited from a right that did not belong to him and, therefore, should refund what was

• btained, in terms of counterfeit profit” (AC 237.462.4/6, Court of Appeals of

São Paulo, 2nd Panel of Private Law, reporting judge Cezar Peluso, 04/02/2003).

• “The indemnity for moral damages should be correspondent to the profits
• btained by the infringer and to the infringement itself, limited by the principle
• f reasonability and, on the other hand, should serve as propaedeutic to the

infringer.” (REsp n 582047, Superior Court of Justice, 3rd Pane , Reporting Judge Massami Uyeda, j. 17/02/2009, DJ 04/08/2009)

• But… in Brazil there are no punitive damages, no treble damages for willful

infringement, or any kind of enhanced damages in the statute… Evidence of the actual harm is required, otherwise there would be “unjust enrichment” and, for instance, evidence of loss of market share and loss profits is usually hard to accomplish.

Ex parte preliminary injunctions Irreparable harm

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• In general, Courts often grant preliminary injunctions based on prima facie

evidence acknowledging the importance of the injunctive relief as the primary remedy for the protection of IP rights. It is also the main remedy for the ones that can be accused of infringement, as preliminary injunctions on declaratory lawsuits

• f non-infringement (“inter partes”) and on invalidity lawsuits before federal courts

(“erga omnes”) are also available.

As a result...

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• The defendant’s competitors in the market acknowledge the patent and pay

royalties (allowing he defendant to keep commercializing would give rise to unfair competition).

• The defendant is an unwilling licensee. Refusal to initiate good faith negotiations to
• btain a license. Preconditions and roadblocks to stall negotiations (affidavits

reflecting negotiationsand judicial decisions abroad, if available).

• The defendant has no relevant assets in the Country, making the monetary relief

even more inadequate (the level of obsolescence of the technology may also be relevant).

But what additional evidence will enhance the chances of a preliminary injunction in the enforcement of essential patents? (1/2)

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• Absence of harm to consumers (there will be no shortage of products and the

protection the IPR will ensure fair competitionand innovation)

• The defendant is a member of the SSO (in case of a SEP) and is well aware of

honest practicesregarding licensing, but still refuses to negotiate

• The patent (in case of a SEP) was submitted as essential to the SSO during the

elaboration ofthe standard

• The defendant (in case of a SEP) refused to submit the setting of a FRAND royalty to

a court or to arbitration

• Evidence about the reputation of the defendant (in support of the argument that

monetary damages in the end of the lawsuit will be inadequate)

But what additional evidence will enhance the chances of a preliminary injunction in the enforcement of essential patents? (2/2)

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Ericsson v. TCL (State Court - 2013)

“The risk of the delay relies on the fact that the continuity of the manufacture and commercialization of the cell phone devices will bring irreparable harm to the plaintiff, seeing as there is no way of verifying the amount of harm that will be caused to it, given the absense of knowledge about the quantity of cell phones that are available to the consumer, or about to be commercialized, or that are being manufactured in the Appellant’s [TCT] factories”. "On the contrary, the appealed decision analyzed TCT's arguments, having concluded that there is, indeed, a risk to irreparable harm to Ericsson, especially considering that TCT is a company with headquarters in China, without a branch in Brazil, which would make the execution more difficult.“

• Appeal: “…with regard to the allegation that the appellee is not entitled to an injunctive

relief based on a single patent… …the protection to intellectual property exists with this goal, i.e. excluding others that are not duly authorized by the patentee… the infringement

• f a single patent does foreclose manufacturing and commercialization of a certain

product, as corroborated by judicial decisions.”

(Interlocutory appeal # 0009772-31.2013.8.19.0000)

Preliminary injunctions

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Vringo vs. ZTE (State Court - 2014)

"The preliminary injunction, under the terms of article 273 of the Code of Civil Procedure, is an important mechanism to ensure the delivery of a timely and adequate legal protection, if there is an unequivocal evidence and likelihood of the claims, in order to grant protection to the protected good, and abbreviate, even if temporarily, the practical effects of the definitive decision". "the Trial Judge was logical and had good sense, when, aware of the fast technological development of the modern society and of the numerous possibilities regarding the extension of the litigation, she foresaw that the eventual recognition of the sought right, already supported, if delayed, will cause an irreparable harm to the plaintiff's assets".

Preliminary injunctions

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Vringo vs. ZTE (State Court - 2014)

Trial Court: “Therefore, prudence recommends the rejection of the bond or the deposit of

royalties, as ZTE requests, because it would simply mean a temporary and precarious solution to a dilemma that requires a permanent solution as soon as possible.”

Appeal: “In a nutshell, the discussion gravitates around the alleged lack of authorization

by the patentee for the manufacturing, importation, use and commercialization of equipment for celular mobile telecommunication, which was developed by the Finnish Nokia, consisting in an operation called relocation... ...fulfilling such equipment the technical specifications of the international 3GPP standard, which is mandatory for the entire industry". “…as pointed by the trial judge, it is not possible to grant the posting of a bond… …in this procedural moment it is indeed not possible to ascertain the damages allegedly suffered by the appellee, with the need for production of technical evidence and analysis of the contracts between the appellant and third parties, particularly carriers.”

(interlocutory appeal # 0000068-23.2015.8.19.0000)

Preliminary injunctions – rejection

• f the bond

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Vringo v. ZTE

• Decision issued on November 5th, 2015 by Reporting Justice Paulo Sanseverino:

“In summary, the appeal is against the grant of an ex parte preliminary injunction, since the evidence was unilaterally presented by the appellee, without prior hearing of the defendant…” “In this sense, in what refers to the arguments brought by the appellant, the appealed decision is not arbitrary or tautological, as it was issued in light of solid evidence, even if unilaterally produced, and grounded on constitutional provisions and specific legislation, in nothing revealing partiality or injustice. On the contrary, the reasoning of the magistrate a quo has logic and common sense, as it considered the fast technological progress experienced by modern society and the several possibilities to extend the dispute, the magistrate foresaw that if the recognition of the right was delayed, it would result in an effective irreparable risk to the Plaintiff.” “On the other hand, the appellant did not present a sole argument capable of explaining that its technology does not infringe the appellee’s patent…”

Leading case before the Superior Court of Justice (STJ) in Brazil

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• Measures to enforce the preliminary injunction:
• Astreintes (daily fines) – seeking to compel the infringer to comply with the

injunction, usually set between USD 10k and USD 50k

• Provisional execution of the daily fine – in the event of non-compliance
• Search and seizure
• Issuance of an official notice

to custom authorities to prevent importation of infringing products (ITC – like proceeding)

• Issuance of official notices to carriers

informing the injunction

Enforcement of injunctions

Actual picture of the sealing of telecom equipment by court-experts.

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• Ericsson v. TCL (State Court)

“In light of the defendant’s resistance to fulfil the granted injunction, which has been, on the contrary, expanding the commercialization of the device, the request for immediate execution of the daily fines to secure the effectiveness of the judicial order is granted. That being, the defendant must deposit BRL 6.500.000,00 in fifteen days, in the terms of art. 475-J of the Code of Civil Procedure.”

• Vringo v. ZTE (State Court)

“Before the indications of failure to comply with the injunction that emanates from the manifestation of Oi [carrier]... I reconsider the decision… …to grant the claimed measures… …inspection and sealing of equipment, as suggested by the plaintiff […].”

Enforcement of injunctions

Affirmative defenses against the enforcement of SEPs in Brazil

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• Must be filed before Federal Courts, as the BRPTO must join the complaint
• Court-appointed expert’s report is an indispensable evidence due to the technical

complexity involved in the patent invalidityanalysis

• Nullity may not be applicable to all of the claims, a condition for partial nullity

being that the subsisting claims constitute subject matter that is patentable per se – article 47 of the IP Statute

• Nullity of a patent will produce erga omnes effect as from the filing date of the

application– article 47 of the LPI

Possible defenses in patent infringement lawsuits - Patent invalidity lawsuit

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• According to article 56, ¶1, of the Brazilian IP Statute: “nullity of a patent may be

argued, at any time, as matter for defense”.

• Superior Court of Justice understand that the patent nullity cannot be claimed in

the infringement proceedings. Reason for that: patent infringement lawsuits are filed before State Courts, while invalidity lawsuits have to be filed before Federal Court, with the statutory requirement for the participation of the BRPTO (Brazilian PTO). THEREFORE  In Brazil the patent enforcement system is dual, divided in patent infringement and patent invalidity. It means that, in a patent infringement proceeding, defendant cannot allege patent invalidity.

• Possibility of staying the infringement lawsuit: The State Judge can order the stay
• f the infringement proceedings until the patent invalidity lawsuitis decided.
• Controversial matter: there are some who understand – Judges and scholars – that

the infringement lawsuit can only be stayed if it was filed after the invalidity lawsuit.

Possible defenses in patent infringement lawsuits - Patent invalidity lawsuit

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Affirmative defenses against the enforcement of SEPs

• ZTE v Vringo and the BRPTO (2015 – Federal Court of Appeals)

“Firstly, although the plaintiff sustains that the defendant refused to negotiate a FRAND license, with reasonable royalty terms, from the analysis of the documents brought to the records, in particular the ones from docket… …pending before the Fifth Business Court of Rio de Janeiro, it can be verified that there is no proof that the plaintiff had been effectively willing to negotiate such licensing – only been doing so, under the terms it considers fair, after the filing of the lawsuit before the State Court. “There is also no evidence in the records that Vringo acted in disagreement with the FRAND terms (fair reasonable and nondiscriminatory terms) in any possible negotiation of licensing and payment of royalties.”

(Case # 2015.51.01.037510-8)

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Affirmative defenses against the enforcement of SEPs

• TCL v Ericsson and the BRPTO (2015 – Federal Court of Appeals)
• Federal Prosecutor’s Office (“Ministère Public”): “It is important to mention that

the standardization is important to guarantee interoperability and adequate

• peration of telecommunication networks, given that the holders of patents, in
• rder to have their technologies incorporated in standards, commit to license them
• n fair, reasonable and non-discriminatory terms (FRAND). (…) The appeal must be

rejected, as it intends to curtail Ericsson’s right to sue and its patent rights, which are protected by Article 5, paragraphs XXIX and XXXV, of the Brazilian Federal

• Constitution. (…) There is no irreparable harm, as the attempts to negotiate already

took several years.”

• Reporting appellate judge denied the injunction on appeal based on lack of

evidence of abuse of the right to use. (Case # 2015.00.00.001579-4)

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• Worth noting in CADE’s decision to close the preliminary investigation against

Ericsson:

• Ericsson is entitled to file lawsuits to enforce patents
• Ericsson’s lawsuits seem reasonable given the long period of unfruitful negotiations and

the many licensing agreement entered by Ericsson with other players in the industry

• CADE recognized the inexistence of an exclusionary anticompetitive practice
• CADE mentioned that matters involving negotiations of a licensing agreement and

patent infringement are generally a matter of Contract and Patent Law, and only exceptionally will concern Competition Law

• CADE will not intervene in commercial disputes that do not have an overall impact over

a relevant market

• Any harm suffered by TCT results from a reasonable commercial dispute and does not

result in effects over the market, and therefore is not an antitrust violation

The TCT v. Ericsson antitrust case

Thank you!

Carlos Aboim carlos.aboim@lickslegal.com T +55-21-3550-3703 M +55-21-998063014