Ruling beyond legality: a new approach to interpreting the IP law?

The Brazilian industrial property legal system relies on two premises: adoption of the attributive system and respect for vested and acquired rights.

At the constitutional level, both industrial property and vested rights are protected as fundamental rights under Article 5, Sections XXIX (“the law shall ensure… property of trademarks, names of companies and other distinctive signs, taking into consideration the social interest and the technological and economic development of the country”) and XXXVI (“the law shall not injure the vested right, the perfect juridical act and the res judicata right”).

The Industrial Property Law (9.279/1996) confirms these premises, as rights in a trademark are acquired only through valid registration with the national patent and trademark office, on a first to file basis. Article 129 of the law states that “the property of a mark is acquired by means of registration, when validly granted pursuant to the provisions of this Law, and its exclusive use throughout the national territory is assured to the titleholder”.

However, the same law also safeguards the first to use right by means of specific exceptions that balance the effects of the attributive system:

• Good-faith prior users are granted a priority right to acquire ownership of a trademark, as per the requirements set out in Article 129(1): “Every person who, in good faith on the priority or filing date, has been using an identical or similar mark in this country for at least 6 (six) months to distinguish or certify an identical, similar or alike product or service shall have the right of preference for the registration.”
• A fraudulent filing is expressly excluded from trademark protection under Article 124 (XXIII): “The following shall not be registered as trademarks… signs that imitate or reproduce, wholly or in part, a mark of which the applicant could not be unaware because of his activity, and whose titleholder is headquartered or domiciled in national territory or in a country with which Brazil has an agreement or that assures reciprocity of treatment, if the mark is intended to distinguish an identical, similar or alike product or service likely to cause confusion or association with that other party’s mark.”

Further exceptions are set out in the Paris Convention and the Agreement on Trade-Related Aspects of IP Rights. As Brazil is a civil law country, such exceptions are allowed only because they are clearly set out in the applicable laws.

Nevertheless, in two recent decisions the courts have disregarded these principles, resulting in legal uncertainty in the IP arena.

The court’s decision in a case centred on the Gradiente Iphone demonstrated a new approach to legal interpretation

IPHONE case

The court’s decision in the IPHONE case clearly demonstrates a new approach to legal interpretation (for a case commentary, see Yann Basire and Karlo Fonseca Tinoco, “Nullité partielle de la marque ‘Gradiente iPhone’ au Brésil: la victoire d’Apple sur le droit des marques?”, Revue Mensuelle, LexisNexis Jurisclasseur, Paris, February 2014). Following this decision, the Brazilian Trademark Office must examine the applicant’s compliance with the legal requirements for trademark registration at the time of granting the decision, rather than its compliance on the filing date of the trademark application, thus turning the first to file system on its head. Acquired rights have been jeopardised by acquired distinctiveness.

On March 29 2000 – seven years before the first sale or advertisement of Apple Inc’s smartphone under the trademark IPHONE anywhere in the world – Brazilian company IGB Eletrônica SA filed an application for the composite trademark GRADIENTE IPHONE to cover mobile phones with, among other features, internet access. IGB used the mark in the Brazilian market during 2007, advertising and effectively selling such mobile phones under the GRADIENTE IPHONE trademark and logo.

The registration process for IGB’s trademark took eight years, as the application was opposed by third parties and the Trademark Office had a huge backlog at that time. The opponent was Brazilian company Telesp Celular, which owned the trademark E-FONE. By the time the examination of IGB’s application was expected, Telesp’s registration had been abandoned; but the Trademark Office suspended the examination pending a final decision in a forfeiture procedure filed against Japanese company Aiphone Co’s registration for the trademark AIPHONE. Cancellation for non-use took place in November 2007 and IGB’s trademark registration for GRADIENTE IPHONE was granted on January 2 2008.

Apple never opposed IGB’s trademark before the Trademark Office. The first US sale of an Apple smartphone under the IPHONE trademark occurred in June 2007 and the first trademark application for such mark in Brazil was filed in January 2007. In September 2008, when Apple launched its smartphone in Brazil, IGB had already acquired prior rights over the IPHONE mark arising from its filing, use and registration of the GRADIENTE IPHONE mark.

From 2007 to 2012 IGB suffered financial difficulties, forcing it to cease the manufacture and sale of its products. Once it became financially stable again in 2012, IGB relaunched its product in the Brazilian market, just before the end of the five-year period after which the GRADIENTE IPHONE mark would have been subject to a cancellation action for non-use.

Apple filed a nullity lawsuit against the Trademark Office and IGB, seeking to cancel the registration and to limit IGB’s exclusive rights in the GRADIENTE IPHONE mark by the disclaimer, “No exclusive rights on the expression ‘iphone’ isolated”. Apple based its suit on the lack of distinctiveness of the expression ‘iphone’ when considered in the context of IGB’s trademark as a whole; but claimed that the same expression would be distinctive enough to be part of Apple’s trademark due to the secondary meaning acquired as a result of the broad success and advertisement of its product since 2007.

IGB counterargued that:

• the lack of distinctiveness claimed by Apple was inconsistent with Apple’s own attempts worldwide to register such expression as its exclusive and proprietary trademark;
• when the GRADIENTE IPHONE was registered in January 2008, Apple’s smartphone had not even been launched in Brazil; and
• the use of the expression ‘iphone’ in association with the GRADIENTE trademark did not deprive it of distinctiveness, since the descriptive expression for a mobile phone connected to the Internet would be ‘smartphone’.

In addition to these arguments, as a defendant the Trademark Office argued that the fulfilment of the legal conditions for registration must be analysed retroactively (ie, as of the filing date), and that IPHONE was a distinctive expression which could be registered by IGB as a trademark, regardless of its association with other word elements.

In September 2013 the first-instance judge of the Rio de Janeiro 25th Federal Chamber ruled that the GRADIENTE IPHONE registration should be annulled and reissued by the Trademark Office with the disclaimer, “Non-exclusive rights on the expression IPHONE isolated”, so that IGB’s rights to such trademark were limited accordingly (Case 0490011-84.2013.4.02.5101). This decision relied on the argument that industrial property rights protection derives from the anti-unfair competition legal system and, in this particular case, two main circumstances had to be taken into consideration: the Trademark Office’s delay in examining the application; and the wide market share and public awareness achieved by Apple’s IPHONE trademark over the years.

The judge disregarded IGB’s validly acquired rights, stating that: “although the creation of trademarks must be supported and protected… when it comes to possible conflicts, such as the present case, I do not acknowledge such protection as absolute. It is certain that the defendant did not file its application in bad faith… and I shall not question whether the judicial recovery procedure the defendant went through prevented it from using the trademark or not… but the defendant’s free use of IPHONE, with no restrictions, would deeply damage the plaintiff… The fact that the Trademark Office took almost eight years to conclude the registration procedure does not allow it to retroact to the facts and circumstances back on the filing date…. The protection to intellectual property is very important but not an end in itself, mainly when it comes to rising products and markets.”

The Court of Appeals reporting judge and the second appellate judge held the same understanding and confirmed the first-instance decision. The third appellate judge confirmed the first-instance ruling, but based his ruling on slightly different grounds. On the one hand, he emphasised that Brazil has indeed adopted the attributive system for the acquisition of industrial property rights and avowed that “to expect that the Trademark Office should consider, by the moment of examination, the dimension the iPhone market achieved between 2000 and 2008, and not retroact to the factual scenario by the time of the filing, would mean to fully ignore the legal system of industrial property and the fact that the Trademark Office, as an authority of the Public Administration, is bound to act strictly in accordance with the legality principle”.

On the other hand, he concluded that ‘iphone’ was a descriptive and generic expression which was not subject to exclusive ownership; thus, neither Apple (regardless of the acquired distinctiveness of its product) nor IGB could impede third-party use of the expression, provided that there was no likelihood of consumer confusion. In practice, IGB could use IPHONE only in the context of its composite trademark registration for GRADIENTE IPHONE, while Apple could use IPHONE per se.

This decision has been appealed and is pending before the Superior Court of Justice.

SPEEDO case

The 31st Federal Chamber recently ruled in another interesting case based on analogous reasoning (Case 0810763-09.2010.4.02.5101).

The facts in this case were unique. In 1964 Australian company Speedo Knitting Mills filed an application before the Brazilian Trademark Office for its SPEEDO composite trademark. The trademark registration was cancelled for non-use in 1976, following a forfeiture request filed by a Brazilian company, which further assigned its rights to an affiliate, now called Multisport Indústria e Comércio Ltda. Multisport filed its own trademark application in 1976 and obtained registration in 1983. The Australian company neither objected to the application nor sought nullification of the registration. In contrast, from 1977 the parties developed a friendly partnership which involved, among other initiatives, the execution of successive cooperation agreements whereby Multisport committed to pay royalties for the disclosure of Speedo’s manufacturing and commercial know-how.

This cooperation continued and evolved for almost 30 years and many other Multisport trademark registrations followed. The vast amount of documentation which the parties put before the court revealed some attempts by Speedo to buy the Brazilian trademarks in the 1980s, as well as more assertive offers in the 1990s following the merger of Speedo International and the Pentland group. However, the parties maintained a friendly contractual relationship until the end of 2006, when the last agreement expired.

In 2010 Speedo International Ltd and Speedo Holdings filed suit seeking the adjudicated transfer of ownership, or alternatively the nullity of more than 100 Multisport trademark registrations for SPEEDO and combined signs. The plaintiffs founded their case on:

• the applicability of Article 6bis of the Paris Convention, on the grounds that in 1976 Multisport would have filed its first trademark application in bad faith and that SPEEDO would be well known in Brazil as the Australian company’s trademark;
• acts of unfair competition by Multisport; and
• protection of the Speedo trade name under Article 8 of the Paris Convention.

In its defence, the defendant cited:

• the valid and undisputed acquisition of its industrial property rights over the SPEEDO trademark;
• the fact that the plaintiffs produced no evidence as to the well-known status of the SPEEDO trademark in Brazil in 1976;
• the contradictory behaviour of the plaintiff as a consequence of both its inaction to challenge Multisport’s ownership and use of the trademark for 30 years and the concrete partnership built to exploit the local market.

The judge clearly declared that the plaintiffs could not present evidence of the well-known status of the SPEEDO trademark among sportswear consumers in Brazil in 1976, and conceded that the absence of such legal condition would not allow filing of the nullity claim at any time (as per Article 6bis(3)).

With regard to the bad-faith requirement, the judge confirmed that Multisport had succeeded in its non-use cancellation action and acquired the trademark rights in accordance with all applicable legal rules. On the other hand, the judge criticised Multisport’s decision to exploit its trademark in the same markets as Speedo International outside Brazil, and held that this behaviour would demonstrate its bad faith.

Analysing the plaintiffs’ behaviour and the long-term relationship between the parties, the judge declared that “all documents brought to the files indicate that a very convenient alliance, for both sides, occurred and benefited all parties with earned profits over almost 30 years”. The judge added that given Multisport’s valid prior rights, the plaintiffs “were fully aware that the best to do was to invest in the defendant company, to take profit and… to induce the Brazilian consumer to the belief of purchasing Speedo International’s products”. He also stated that the Brazilian sportswear market was undeveloped in the 1970s, and that “Speedo International considered the company it now calls usurper a trustworthy partner with whom it could earn profits”, concluding that only in the 1990s – when this market became more attractive – did the new titleholder, Pentland, become bothered by the fact of not owning the Brazilian trademark. Multisport’s arguments regarding Speedo’s contradictory behaviour were fully upheld.

However, the judge reached an unexpected conclusion when examining the nullity claim regarding the defendant’s large portfolio of SPEEDO trademark registrations, dividing it into three groups:

• trademark registrations granted more than five years before the suit was filed in 2010;
• trademark registrations filed up until December 31 2006 (while the parties were still in a contractual relationship); and
• trademark registrations filed from January 2007 after the parties’ split.

Regarding the first group, the judge decided to “suspend the effects” of his own acknowledgement of Multisport’s bad faith and considered that the statute of limitations for a nullity action against such registrations had lapsed. Article 6bis did not apply, given the absence of evidence on the well-known status of the SPEEDO trademark, and the registrations were maintained.

In regard to the second group, the nullity claim was rejected in view of the plaintiffs’ contradictory behaviour; thus, the registrations were also declared valid.

Notwithstanding, irrespective of Multisport’s acquired rights in all such registrations, the judge declared that all of the defendant’s registrations filed after the parties’ split (the third group above) were null and void. In addition, based on the argument that the co-existence of different owners for SPEEDO in Brazil and abroad would prevent such a trademark from performing the function of identification of source of the respective goods, the court required the Trademark Office to reject any renewal requests filed by Multisport for all of its remaining registrations (including those that the same judge declared valid, as explained above).

In practical terms, the decision means that the defendant would lose all of its rights, including those that are no longer subject to nullity claims, during a ‘transitional period’, as named by the judge.

This decision, which has no precedent in Brazilian case law, is currently under appeal and gives rise to multiple questions:

• Can the regular exercise of a legal prerogative (ie, seeking cancellation for non-use in order to register the same trademark for the same products) be considered bad-faith evidence for the application of Article 6bis of the Paris Convention?
• Can regularly acquired rights in a sign (protected from nullity under the statute of limitations) be disregarded in order to allow the nullity of later registrations for the same sign?
• Do the courts have the authority to rule on renewal of a regularly acquired trademark right?
• Does renewal of a valid registration imply the new examination of registrability requirements and conditions?
• Is a prohibition on renewal equivalent to a declaration of nullity after the statutory time limit has expired?

Comment

An analysis of these recent cases reveals that new grounds have been introduced into the court’s decision-making process which go beyond a strict civil law perspective. In both cases the court acknowledged the existence of prior valid rights. However, legitimate trademark owners have been deprived of the full exercise of their prior rights, since the effects of their valid registrations have been limited for the future (in the IPHONE case in terms of the scope of exclusivity, and in the SPEEDO case in terms of duration).

The decisions indicate that Brazilian courts, despite working in a civil law system, might be sensitive to circumstances that are not per se covered by legal exceptions to the attributive system. The impact that this has on legal certainty and on the protection of acquired rights remains to be seen in the Brazilian case law scenario.