Brazil’s Superior Court of Justice Rules Infringement Courts Can Hear Invalidity Arguments

Over the past decade, Brazil has seen an increase in patent litigation, as the local economy grows and stabilizes. With more companies eyeing Brazil as a strategic country for the protection of IP, the patent system becomes more scrutinized and more complex patent cases are filed.

On June 12, 2024, the Superior Court of Justice (Superior Tribunal de Justiça, or STJ), Brazil’s highest court with jurisdiction over non-constitutional matters, issued a ruling allowing invalidity defenses on an industrial design infringement lawsuit. Although the case involves industrial design, the court’s opinion contains non-precedential statements that are applicable to patent cases.

This ruling aligns with ongoing discussions among Federal and State Courts in Rio de Janeiro, which have formed a working group, coordinated by Federal Judge Marcia Barros, to discuss potential cooperation in matters of intellectual property. On August 2, 2024, the working group organized a seminar with the participation of academics, representatives from the Instituto Nacional da Propriedade Industrial (INPI)/ Brazilian Patent and Trademark Office (BRPTO)), and leading lawyers, to discuss cooperation proposals, including how to improve the interface between infringement and invalidity disputes.

Background and Legal Framework

As a rule, Brazil has a bifurcated system for patent litigation, whereby infringement lawsuits fall under the jurisdiction of state courts while federal courts have jurisdiction to hear patent invalidity challenges.

This split derives from personal jurisdiction rules set forth in the Brazilian Constitution, establishing that federal courts have power over disputes involving federal agencies, including INPI, which is a mandatory party in invalidity lawsuits, as per Article 57 of the IP Statute (Law #9,279/96). This statutory provision also reinforces that invalidity challenges must be brought before a federal judge.

It has long been a point of contention, however, whether the law also allows for a claim of patent (or industrial design) invalidity to be made as a statement of defense in an infringement lawsuit before a state court.

At the core of this discussion is Article 56, paragraph 1, of the IP Statute, which states that “patent invalidity may be argued, as any time, as a statement of defense.” Article 118 establishes that Articles 56 and 57 applies to industrial design disputes. The apparent contradiction between Articles 56, 57 and 118 has given rise to divergent interpretations in case law.

The Superior Court of Justice Ruling

The STJ decided an en banc motion filed against a decision rendered by the Fourth Panel of the STJ (Appeal #1.332.417/RS), which had denied the possibility of alleging invalidity of an industrial design in an infringement lawsuit, as a statement of defense.

According to the Brazilian Code of Civil Procedure (Código de Processo Civil – CPC), when a ruling rendered by a Panel in an appeal to the STJ diverges from another ruling rendered by a different Panel, the losing party can file a motion to have the case re-heard by a larger group of Justices.

The hearing on the motion lasted two days. Reporting Justice Nancy Andrighi wrote the principal opinion affirming that the statutory provision of Article 56, paragraph 1, of the Brazilian IP Statute, combined with Article 118, expressly authorizes the defendant in an industrial design infringement lawsuit to claim invalidity as a statement of defense. Thus, there would be no violation of the federal courts’ jurisdiction since “the participation of the BRPTO in [an infringement lawsuit] wouldn’t constitute a statutory requirement.”

The opinion further observes that whereas the judgment rendered in an invalidity lawsuit would affect third parties (that is, have erga omnes effects), an acknowledgement of invalidity of the industrial design within the context on an infringement lawsuit would only apply to the parties involved in that dispute as a premise to dismiss the claim of infringement.

Impact of the STJ decision

Defendants in infringement cases can now argue invalidity as a statement of defense, without the need for a separate federal action. This makes it easier and potentially less costly for defendants to challenge the validity of patents they are being accused of infringing.

However, bringing forth a claim of invalidity in an infringement lawsuit will give standing for the patent owner to file a federal action seeking a declaratory judgment of validity. Because federal courts have erga omnes jurisdiction, the state court shouldn’t be allowed to handle the invalidity claim any longer in this case; otherwise, there is a risk of conflicting decisions being rendered.

Likewise, if the alleged infringer presents a claim of invalidity in an infringement suit before state court and, at the same time, files an invalidity lawsuit in federal court, the state court should also deny hearing the claim of invalidity.

In this sense, case law of the Sao Paulo State Court of Appeals affirms that if there is an ongoing invalidity lawsuit before a federal court, the state court shouldn’t conduct an independent analysis of validity, but wait for the result of that dispute (e.g., Appeal # 1008081-96.2017.8.26.0624.)

Federal and State Courts are Willing to Cooperate on Validity Discussions

The case law of the STJ leading up to this ruling shows courts are concerned with contrasting outcomes of the bifurcated system. Namely, the so-called burden imposed on alleged infringers to file a new action to challenge the validity of patents.

Such concerns are shared by lower courts. In 2023, as part of broader efforts by courts sitting in Rio de Janeiro to improve judicial cooperation, a working group was created with the goal of seeking solutions for IP matters. This working group is coordinated by Federal Judge Marcia Nunes de Barros; other members are Federal Judge Laura Bastos Carvalho, Rio de Janeiro State Judge Paulo Assed, and clerk Raineri Ramalho.

The working group promoted an academic seminar in early August. The first panel discussed cooperation between courts, universities, and the BRPTO. The BRPTO’s President, Mr. Júlio Cesar Moreira, was part of this panel and highlighted the importance of integration between the patent office and courts, “to avoid the problems we face when we receive notice of [new invalidity] lawsuits.” He also defended the regulation of the profession of patent attorneys.

The second panel discussed innovation and the possibilities for cooperation in IP. This panel delved into labor and criminal issues related to IP disputes, with the participation of the BRPTO’s chief federal attorney, Mr. Antonio Cavaliere. One of the panelists, Professor Christiano Fragoso (UERJ – State University of Rio de Janeiro), criticized the lack of a statutory provision in the criminal code for trademark infringement. Given the importance of IP for the economy, Professor Fragoso argued that the law must undergo changes to establish sanctions proportional to the gravity of crimes against intellectual property rights.

The third panel, moderated by Judge Assed, discussed the bifurcated system. Ms. Elizabeth Kasznar, IP litigator, talked about the so-called risks in the granting of preliminary injunctions, “since they are provisional and granted under pressure, without the analysis of the merits.” On his turn, Professor Pedro Barbosa (PUC-Rio – Pontifical Catholic University) focused on the issues related to publicity of lawsuits and values assigned to the matter, claiming that it isn’t uncommon for the plaintiff to place the case under seal to maximize the changes of a preliminary injunction. He thus argued that “the most prudent this to do is to separate the relevant documentation [that should be protected] and keep the rest [of the dockets] fully public.”

Finally, the fourth panel, moderated by Judge Carvalho, discussed production of evidence in cooperation. One of the topics discussed was the creation of unified list of experts that would be used by state and federal judges when deciding whom to appoint for unbiased technical examinations. Professor Allan Rocha de Souza (UFRJ – Federal University of Rio de Janeiro) stressed, in this regard, that “there is a disconnect much more common than one might think between the expertise of court-appointed experts and the object of examination.”

Another topic discussed on this panel related to the possibilities of cooperation between state and federal courts in the production of evidence in infringement and invalidity cases. Ms. Tatiana Alves, patent litigator, observed that ordering a joint court-appointed expert examination may not be possible when infringement and invalidity lawsuits are not in the same stage. Furthermore, Ms. Alves stressed that although there is a point of contact between infringement and invalidity, the scope of the production of evidence is not the same.

Looking Ahead

The STJ ruling raises several important questions that will have to be clarified by the court in the future. Although for now this decision has opened the doors of state courts to claims of industrial design (and patent) invalidity, there is a chance the court might restrict the scope of this interpretation in the future. After all, the STJ didn’t venture into a deeper examination of the risks of conflicting decisions and the legal uncertainties this understanding might generate.

One important point to highlight is that, in Appeal #1.332.417/RS, the only option left for the defendant in that infringement lawsuit was the claim of invalidity. Because the industrial design had already expired, the defendant couldn’t file an invalidity lawsuit anymore. According to Article 56, an invalidity lawsuit can only be brought before federal courts during the term of the patent (or industrial design). Therefore, this case creates specific fact-pattern that could lead to distinguishing in other pending cases.

Regardless, the initiatives from lower courts seeking to increase cooperation in IP disputes, especially between federal and states courts, means change in paradigms of IP litigation in Brazil. Understanding these changes will be paramount for those who have Brazil as a relevant jurisdiction for patent activity.

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Author: alexeynovikov
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