Brazil’s static filings, bustling service sector and backlog solution

On the rebound – after a three-year recession

Brazil has been rocked by economic and political turmoil over the last few years: a spate of corruption scandals that led to the impeachment of former president Dilma Rousseff has shaken the country, while the economy has suffered eight consecutive quarters of contraction – Brazil’s worst recession on record – along with record unemployment levels. It is unsurprising, then, that the country’s nation brand value fell from $820 billion to $798 billion in Brand Finance’s latest Nation Brands report. As a result, and despite the size of its population and economy, Brazil is ranked as only the second most valuable Latin American nation brand; it is bested by Mexico, which as we noted in our previous country data report (see “Mexico shows robust filing figures, as services overtake goods”, World Trademark Review 71) was also the strongest Latin American nation brand. For investors and those hoping to expand their presence in Latin America, Mexico’s appeal over Brazil can clearly be seen in the time that it takes to start a business in each country: eight days in Mexico compared to 80 in Brazil, according to data from the World Bank (although it is worth remembering that only five years ago the number for Brazil was 119 days).

That said, the outlook is bright for Brazil: growth finally resumed in 2017 and is expected to strengthen further throughout 2018 and 2019. As noted by the Organisation for Economic Cooperation and Development, unemployment has begun to decline, while inflation has fallen below the central bank’s target. This in turn has raised real incomes and allowed for lower interest rates that will hopefully aid the recovery of investment. The country is still threatened by political instability, especially as uncertainty shrouds the upcoming 2018 general election, but for the first time in a while there is good reason to be optimistic.

Figure 1: Top five brands in Brazil by brand value

Source: Brand Finance

*Data for 2016 not available

Bank brands lead the way; the fintech surge commences

Looking at the performance of the country’s top brands, there has been little growth in their brand value in recent years. The exception is Itaú, the country’s largest private sector bank and the biggest in Latin America by market capitalisation. Having secured the title of Brazil’s most valuable brand in 2017, its impressive 16.7% increase in brand value (to $8 billion) over the last year has cemented its position at the top of the food chain.

The signs are that Itaú will continue its upwards trajectory, having weathered the worst of the economic downturn and coming out the other side in good shape. The bank has its eyes set on long-term expansion in Latin America and is ready to tackle the challenge from financial technology (fintech) companies, which are an increasing presence on the local financial market. Bradesco – which broke into Brand Finance’s top 500 brands rankings last year – and Banco do Brasil have also made preparations on this front: the former launched its digital bank in October last year, while the latter opened a lab in Silicon Valley seeking to build connections with US fintechs in 2016.

Goldman Sachs estimates that there are over 200 fintechs in Brazil and that these have the potential to take away $24 billion in business from traditional banks over the next decade as they continue to win market share. However, as discussed in our banking data report (see page 14), fintechs are just one of myriad factors that bank brands need to consider as financial markets around the world undergo significant changes.

Beer brands also feature prominently, with both Brahma and Skol featuring among Brazil’s top 10 most valuable brands. The former’s jump in brand value by 18% saw it enter Brand Finance’s list of the top 500 most valuable global brands for the first time in 2018, while Skol was, by other measures, formerly considered to be Latin America’s most valuable brand back in 2015. Both brands are today owned by brewing giant Anheuser-Busch InBev.

Previously the leading brand in the country, Petrobras has seen its brand value hold steady in the last three years – an impressive feat considering that the state oil company was at the heart of the corruption scandals, which saw prosecutors order the suspension of contracts between Petrobras and its suppliers, 61% of the company’s employees lose their jobs over two years and the resignation of ex-Petrobras CEO Maria das Graças Foster. According to data from trademark management platform TrademarkNow, Petrobras has the largest trademark portfolio among the leading Brazilian brands, with over 2,300 active trademark applications. That it also applied for the most trademarks last year among the leading brands (over 150 trademarks in 2017) may have gone some way to helping it preserve its brand value.

However, analysts remain positive about the oil giant’s prospects, following its sudden string of promises and announcements at the close of 2017, concerning its plans for the future. It remains to be seen whether these promises, if realised, will be able to significantly boost its brand value in 2018 and whether it can reclaim the top spot from Itaú.

Figure 2: Applications by origin at the Brazilian Patent and Trademark Office

Source: INPI

"No magic solution" for INPI’s backlog

One challenge for brands eyeing market expansion in Brazil is the backlog at the Brazilian Patent and Trademark Office (INPI). It can take years for an application to make its way through the office even when no complications arise – in more extreme cases, it can take over a decade for an application to reach a final decision.

More recently, there has been talk that the government is expected to launch an emergency measure to eliminate the patent backlog by automatically granting 231,000 non-pharmaceutical applications. However, as Ricardo Pinho, partner at Guerra IP and president of the Brazilian Association of Industrial Property Agents (ABAPI), clarifies: “A lot of misinformation surrounds this issue. The number refers to pending patent applications that potentially fulfil the requirement to be included in a ‘fast track’ prosecution procedure where they would be granted without examination and, more importantly, this procedure would be temporary.”

On the trademark side, INPI claims that the backlog has been significantly reduced over the last year thanks to a slew of examiner hires in mid-2017. However, Pinho notes that “the quality of recent decisions rendered in relation to trademarks is very questionable, likely due to the lack of experience of the new examiners”.

There is positive news, though. INPI continues to make progress with regard to Brazil’s accession to the Madrid Protocol (despite concerns over how prepared INPI is for this) and is focusing attention on the Brazilian Congress, where it is hoped that a law will be passed to grant administrative and financial autonomy to the office. Valdir Rocha, the practice leader of the IP group at Veirano Advogados, agrees that this may be the key to reducing the backlog. “There is no magic solution, but if the office was granted autonomy, it could use its revenues to hire independent examiners for a few years to drastically reduce the backlog,” he explains. “As it is, the budget is not sufficient to hire new public officials as examiners and part-time examiners from the private sector cannot be hired due to regulations of public service here.“

The number of trademark applications at INPI has remained fairly stable over the last few years, with the vast majority of filings coming from domestic applicants.

Due to the perennial backlog, an increase in application numbers becomes a double-edged sword. For example, in 2013 the office experienced one of its highest numbers of trademark applications in the last decade but also a drastic dip in registrations. With the number of filings that year being four-and-a-half times greater than registrations, this would have contributed significantly to the trademark backlog. The high number of filings that year can likely be explained by the fact that Brazil was still growing and not yet in recession; meanwhile, the low registration numbers were undoubtedly linked to the small number of trademark examiners at the time – in 2014 over 70 examiners were hired, explaining the surge in registrations.

 

Figure 3: Registrations by origin at the Brazilian Patent and Trademark Office

Source: INPI

Figure 4: Applications by goods and services – 2017

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Source: INPI

A sprawling and rapidly growing service sector

In terms of sectors, the balance between trademarks for goods and services is skewed heavily towards the latter. In 2010 service marks made up 52% of trademark applications and this figure has gradually climbed every year since. By 2017 service marks accounted for just shy of 60% of all filings, which is a far higher proportion than other major branding jurisdictions (see Figure 4).

Over the last few decades, Brazil’s service sector has expanded rapidly at the expense of its manufacturing equivalent; the service industry today contributes more to Brazil’s gross domestic product (GDP) than any other sector. This can partly be attributed to the fact that it is easier and less expensive to start a professional service company in Brazil compared to an industrial or commercial business. Many of the 14 million unemployed have also attempted to open their own businesses, which has contributed to the growing importance of the service sector. However, this trend also owes something to Brazil’s major industries, which are principally focused on services as well (eg, banks, insurance companies and telecommunications).

Figure 5 shows the spread of trademark filings in Brazil across all 45 Nice classes compared to the global averages for each class. Classes 35 to 45, for service marks, are generally much higher than the average, with Classes 35 (advertising and business) and 41 (education, entertainment and sports) being significantly higher.

Figure 5: Percentage of filings by trademark class – 2017

Rocha explains: “Brazil has always had a creative and growing advertising industry, winning numerous awards at the Cannes Lion International Festival of Creativity every year. For many years, foreign advertising companies produced commercials in Brazil for a variety of reasons, including its ethnic diversity, inexpensive production costs and sunny weather. The prominence of Class 41 filings can be at least partially credited to Brazil’s thriving sports scene, with an extensive market for gyms and outdoor sports, especially outdoor and water sports. Pinho adds that Classes 35 and 41 correspond to professional services that can be provided for individuals or small groups of professionals and that there is a tendency for retailers to file their trademarks in Class 35 in order to cover their commercial relationship with consumers and clientele, which is considered to be a service by some local trademark practitioners.

Looking within and without – where applicants are filing

When it comes to where Brazilian applicants are filing, countries in the Americas dominate the list (see Figure 6). Paraguay is by far the preferred destination of choice for trademark owners, followed by Argentina in distant second place. As noted by Robert Reading, director, custom and managed solutions at CompuMark, the volume of filings is relatively stable despite an apparent dip in some of the figures, as many of the countries do not provide completely up-to-date application information and so may be affected by a late release of data. However, Reading does point out that the Chinese register appears to be showing no growth in filings from Brazil, even though China has expressed its intent to focus on cooperation with other so-called ‘BRICS’ countries (Brazil, Russia, India, China and South Africa) and the fact that there has been a dramatic increase in filings into China from other major countries around the world.

Figure 6: Brazilian filings by foreign IP offices

Source: Compumark

In terms of where foreign filings are coming from, proximity plays less of a role (see Figure 8). The top eight countries filing into Brazil are a healthy mix from the Americas, Europe and Asia, demonstrating the potential that rights holders around the world see in Brazil. While the United States is demonstrably the most prominent filer in Brazil, there has been a slow decline since its peak in 2012. Meanwhile, filings from the other seven countries have mostly remained consistent, although there was a slight uptick in 2016.

Looking ahead

Things finally seem to be looking up for Brazil. Although the country is still mired in political uncertainty and has only just begun recovering from a long series of economic contractions and scandals (not to mention extremely high unemployment figures), the fact that the economy has begun growing again will certainly be welcome news for brand owners hoping to break into or expand their presence in the market. From a trademark perspective, INPI’s backlog continues to be the elephant in the room. However, there are also reasons for cautious optimism here as the office fights for administrative and financial autonomy, which commentators believe may be the critical step needed to make significant headway on the problem.