Brazil, one of Latin America’s leading economies, is grappling with the complexities of standard-essential patent (SEP) licensing. Brazilian courts are the most recent jurisdiction to experience an influx of SEP licensing disputes that challenge their understanding of being pro-innovation and pro-patent. ACT | The App Association partnered with Legal Grounds Institute in Brazil for a discussion that dissected global trends and identified parallels experienced in the rapidly developing Brazilian SEP landscape to support national policymaking.

In a conversation conducted by Legal Grounds Institute, Dr. Enrico Bonadio, reader in intellectual property law, City University of London, and Priya Nair, App Association senior intellectual property policy counsel, provided important background to the SEP licensing ecosystem.

Understanding SEPs and the Role of FRAND Licensing

Our speakers emphasized the importance of distinguishing between regular patents and SEPs when considering enforcement. A regular patent provides a legal monopoly for a limited period, allowing the holder of a patent the ability to exclude others from its invention. A SEP is different from a regular patent because it supports a technical standard essential for broad technology use (e.g., 5G, Wi-Fi, HVEC). This places SEP holders in a unique position to control who can use a standard by virtue of their patent’s necessity.

In recognition of the inherent market power SEP holders have and to support a competitive standards environment, standard-setting organizations (SSOs) have SEP holders commit to license their voluntarily contributed essential patents on fair, reasonable, and non-discriminatory (FRAND/RAND) terms to mitigate the potential abuse of their dominant position in the market. However, the lack of definition around what FRAND means has essentially allowed SEP holders to manipulate this ambiguity to demand excessively high licensing fees, leading to an unbalanced standards system.

Abuses of Power

Both speakers discussed common ways SEP holders abuse their position of power. One mechanism used frequently is the systematic seeking of injunctions against a willing licensee. Some courts around the world neglect to assess the validity and essentiality of a patent, nor the licensee’s willingness, before determining infringement and subsequently awarding an injunction. SEP holders strategically use court systems that do not use proportionality assessments or implement mechanisms to determine if an injunction aligns with the principles of equity. This tactic pressures licensees into a supra-FRAND license if they cannot agree with the initial offer terms they believe are unfair and, most importantly, not FRAND-compliant.

Hold-Up vs. Hold-Out

Other tactics to know are called the SEP “hold-up” and the “hold-out. A hold-up is when a patent holder uses their dominant position in a market to attain supra-FRAND terms by excluding a willing licensee from using a standard. Alternatively, a hold-out is a theoretical concern that suggests licensees might prolong the license negotiation process in bad faith. However, as our speakers highlighted, patent hold-out theories are largely unproven, as it is unlikely that licensees who invest time and resources into products built on a standard would have reason to prolong negotiations without merit.

In contrast, patent hold-up behaviors are well-documented and prevent a real barrier to SEP licensing. Recently, some SEP holders have applied additional pressure on licensees by seeking injunctions in multiple jurisdictions, showing at least one UK judge an instance when the SEP holder is acting in bad faith outside their FRAND commitment.

Brazil’s Emerging SEP Jurisprudence

Dr. Bonadio provided insights from his developing research into the emerging Brazilian SEP jurisprudence and identified similar trends that have been experienced in other jurisdictions. He noted that Brazilian courts currently treat SEP cases as if it is a regular patent dispute, applying either preliminary or final injunctions that do not adequately consider SEP holders’ voluntary FRAND commitments.

For instance, while preliminary injunctions in Brazil are assessed based on the impact on the defendant’s business and public interest as mandated by Article 300(3) of the Civil Procedure Code, final injunctions are issued almost automatically upon a finding of infringement. While Brazilian courts have not made a distinction for SEP cases, Dr. Bonadio recognized that the state court in Rio de Janeiro represents the first instance where a Brazilian court has considered the willingness of the alleged infringer in the pending SEP case in the case DivX vs. Gorenje. In this case, a preliminary injunction was granted and subsequently lifted, with the court imposing a bond instead. Similar decisions have been made in both DivX vs. Amazon and Dolby vs. TCL.

Conclusion

Brazil’s approach to SEP licensing policy has significant implications for its role in the global tech ecosystem. By adopting insights from the United States, European Union (EU), and United Kingdom (UK), Brazil can create a fairer SEP licensing landscape that fosters competition and bolsters its innovative economy. While it is encouraging to see Brazilian courts start to identify SEP licensor behaviors that threaten innovation, Brazilian courts and the Instituto Nacional da Propriedade Industrial (INPI) should consider implementing SEP licensing policies that draw from these international examples. Potential solutions include developing national guidance on FRAND-based remedies, proportionality tests like those in the United States and EU, and regulatory interventions for a balanced FRAND-encumbered SEP licensing landscape, as seen in the EU.

If you missed our engaging discussion on the developing Brazilian SEP landscape, find the recorded link here.