Client Alert

Supreme Court preliminary injunction bars the 10-year patent term for new patents covering pharmaceutical products and devices for healthcare use
Injunction granted by Justice Toffoli has immediate effect impacting almost 3k pharma-related applications. Almost 13K pending patent applications shall be directly affected in Brazil soon.

The Brazilian Supreme Court was scheduled to hear the 2016 constitutional challenge to the SOLE PARAGRAPH OF ARTICLE 40 of the 1996 Brazilian Industrial Property (IP) Statute on April 7, 2021. The case was not heard during the April 7 session, as the Court got delayed deliberating another case. The case was included in the April 14, 2021 session.

After the Supreme Court announced the new hearing date, Reporting-Justice Toffoli partially granted a preliminary injunction (PI) requested on February 24, 2021, by the Federal Prosecutor's Office (FPO) to suspend the effect of the Sole Paragraph of Article 40 for newly issued patents covering pharmaceuticals product and process, and for medical equipment and materials for the use in healthcare granted after April 8. The preliminary injunction does not impact the issued patents covering the same subject matter or newly issued patents claiming other subject matter. The PI will remain in effect until the Supreme Court issues the Court´s final ruling on the merits, which could happen as soon as next Wednesday, April 14.

Most relevant, Reporting-Justice Toffoli also anticipated his 86 page report and opinion on the merits, yet to be presented in the Supreme Court during April 14's en banc session, after the FPO, Attorney-General, and amici curiae oral arguments. The PI ruling is the last section of the 86-page document.

In his opinion regarding the merits, Justice Toffoli recognized that the Sole Paragraph of Article 40 of the Brazilian Intellectual Property (IP) Statute is unconstitutional. Justice Toffoli’s opinion regarding the effects of the rule establishes a grandfather clause to all existing patents granted before the publication of the final hearing minutes, limiting the unconstitutionality’s impact to its ex nunc effects and prevents its application from being retroactive.

However, Justice Toffoli’s opinion carves out two exceptions. The ruling will have retroactive effects (ex tunc) (i) for ongoing litigation at trial and appellate courts, in which the constitutionality of of the Sole Paragraph of Art. 40 of the 1996 Brazilian IP Statute is one of the grounds for invalidity, and (ii) for all patents covering pharmaceutical products and processes and for medical equipment and materials for use in healthcare.

The unconstitutionality of the Sole Paragraph of Article 40, the grandfather clause’s application, and its two exceptions, as per Justice Toffoli’s opinion, will be declared if confirmed by the majority of the Supreme Court (at least six Justices).

Two different Licks Attorneys’ briefs represented AB2L (Brazilian Association of Lawtechs and Legal techs) appearing as amicus curiae and were quoted and highlighted on pages 48 and 49 of the opinion. Justice Toffoli affirms that the impact of ADI #5529 for all economic sectors was brought to the case by AB2L. It was the only amicus curiae in favor of the constitutionality quoted in the opinion. Licks Attorneys is honored to represent AB2L assisting the Brazilian Supreme Court in the most important patent law litigation ever to reach Brazil courts.

On April 8, Justice Toffoli issued a supplementary decision on the PI to clarify the scope of the preliminary injunction granted the day before. In view of the “high complexity of the case” reflected in the opinion, “clarifications about the concrete impacts of the PI” were needed. He emphasized that the application’s scope was restricted to patents covering pharmaceutical products and processes and medical equipment and materials for use in healthcare. Regarding the PI application over time, the Reporting-Justice reinforced the limitation of retroactive effects (ex nunc): the PI does not have the effect of invalidating the acts already practiced by the BRPTO based on the challenged provision in the past.

Summary of Justice Toffoli's Opinion

Justice Toffoli anticipated his opinion on the merits, and recognized that the Sole Paragraph of Article 40 of the 1996 Brazilian Intellectual Property (IP) Statute is unconstitutional, on the grounds of six main arguments, yet to be confirmed by the Supreme Court full bench, summarized as follows:

The sole paragraph of article 40 would be a “term extension” that affords extra protection to the patent owner. The effective protection would begin with the filing. In his opinion, the Brazilian Patent System would be overprotective.

The challenged provision excludes the patent protection’s temporary nature, as provided by the Constitution (Art. 5, XXIX). As the BRPTO does not comply with the administrative procedure deadlines, the final term of a patent in Brazil would not be determinable due to the backlog and its pendency.

The Sole Paragraph of Article 40 is arbitrary. It has an automatic application by "extending" the term of patents in Brazil, allowing monopolies for an undetermined and excessive period, in violation of legal security. The opinion quoted the following constitutional provisions: Principle of Efficiency of Public Administration (Art. 37, caput), Economic Order Principles (Art. 170), and the Fundamental Right to Health (Art. 196).

The Sole Paragraph of Article 40 establishes a significant disadvantage compared to the international scenario regarding access to drugs. Justice Tofoli concluded that Brazil would be isolated from the international community, as it would be the only country to predict the “extension of the term” indiscriminately and automatically.

The Sole Paragraph of Article 40 would raise drug prices in the Brazilian market by creating monopolies; it would cause damages to the consumers. It would also create a market barrier for generic drugs.

The opinion recognizes an "unconstitutional state of affairs" regarding the validity of patents in Brazil. Justice Toffoli lists four specific reasons: (i) the delay of the BRPTO in analyzing the patent applications; (ii) the “additional” term granted by the Sole Paragraph of Art. 40, Brazilian IP Statute; (iii) the longer patent term in Brazil compared to other jurisdictions; and (iv) the BRPTO’s inefficiency in solving its problems. All those reasons are related to the BRPTO’s misconducting the administrative procedures regarding patent applications.

What is the Real Impact of the Preliminary Injunction (immediate effect)?

The statute controlling the procedure before the Supreme Court does not allow a preliminary injunction to have retroactive effects (it has ex nunc effects). It will be applicable only for pharmaceutical patents granted from April 8 onwards until the Supreme Court's final ruling.

PI is restricted to all patents covering pharmaceutical products and processes and medical equipment and materials for use in healthcare. The broad reference to “for use in healthcare” is not defined by the Reporting-Justice. The opinion does not restrict the scope of PI’s application to Covid-19 related patents.

The PI does not affect pending invalidity challenges based on constitutional grounds related to the ADI.

What is the Impact of Reporting-Justice Toffoli's Final Opinion if confirmed by the majority of the Supreme Court?

Justice Toffoli indicated that he will recognize the unconstitutionality of the provision with ex nunc effects in his opinion to be presented at the hearing date, with a grandfather clause to all valid patents issued before the publication of the final hearing minutes, limiting retroactive effects. Thus, only patents granted after the Supreme Court’s final ruling will not be allowed to benefit from the Sole Paragraph of Article 40 of the 1996 Brazilian Intellectual Property (IP) Statute. The special rule of the ten-year term (utility patents) or seven-year term (utility model patents) from grant will no longer be in force in Brazil.

However, Justice Toffoli’s opinion established two exceptions, determining the application of ex tunc (retroactive) effects:

(i) for lawsuits in progress, in which the constitutionality of the Sole Paragraph of Art. 40 of the Brazilian IP Statute is one of the grounds. The Justice did not specify the extension of this exception’s applicability, which may cause legal uncertainty for patent holders.

(ii) patents granted under the challenged provision covering pharmaceutical products and processes and for equipment and materials “for use in healthcare” will have their terms adjusted/reduced by applying the general rule (20-year or 15-year from filing). There is a risk of patents being annulled due to this determination.

Under these two exceptions, the opinion replaces the ten years from grant patent term issued by the BRPTO under the Sole Paragraph of Article 40 by the general rule of the 20 years from filing set Article 40, header. Many patents will be deemed expired or have their validity term severely shortened by the ruling. If confirmed, it is not clear if the ruling will be self-implementing or if a new issuance procedure by the BRPTO will be required.

Licks Attorneys' Comments on the Reporting-Justice's Opinion

Justice Toffoli's decision is heavily anti-patent and confusing regarding its impacts on the Brazilian patent system.

The unconstitutionality ruling was primarily grounded in the doctrine of “unconstitutional state of affairs” regarding Brazil’s patents’ procedure and term. It has been used not only in Brazil but also by Colombia’s Constitutional Court. By invoking this doctrine, the Supreme Court acknowledges the failure of both the Legislative and Executive branches of government to enforce public policies against violation of fundamental rights (in ADI #5529, the right of health), thus justifying a judicial intervention. It is related to the United States’ structural injunction remedy.

Constitutional Jurisdiction Statute (Law #9.868/99) and the Supreme Court Case Law provides the possibility of restricting effectiveness over time of Supreme Court decisions, as applied by Justice Toffoli in defining ex nunc and ex tunc effects. However, the exemptions in Justice Toffoli’s opinion do not follow the case law technique for carving out this possibility. It deals with the merits of the case and not how the Court’s decision will be applied over time.

The restriction of the constitutionality to a specific sector (pharmaceutical) is a matter of non-discrimination, a fundamental right provided in Brazilian Constitution (Art. 5, caput) and on TRIPs (27.1). Further, by carving out "ongoing litigation" without fixing time or legal parameters based on the Civil Code Procedure will cause legal uncertainty, contrary to the effect expected by this type of judicial mechanism. We have already identified new invalidity lawsuits just filed to take advance of Justice Toffoli’s exception to the grandfather clause.

The non-technical and general reference to goods “for use in healthcare” also brings uncertainty to the ruling’s extension, as the opinion does not define it. This is one of the critical aspects of the applicability scope of Justice Toffoli’s opinion.   It is not limited to Covid-19 products – either for the PI granted or in the anticipated opinion on the merits.

A significant gap in Justice Toffoli’s opinion relates to pending patent applications. There are at least 12.705 duly filed regularly pending patent applications with a pendency time of over ten years awaiting examination before the BRPTO (12.168 utility patents applications and 537 utility model). Apparently, the opinion does not grandfather those applications in the ex nunc effect. In other words: there will be a substantial impact for all sectors. Justice Toffoli’s opinion brings severe legal uncertainty to the scenario.

Regularly pending utility patent applications with a pendency time of over ten years, per technical area

All 537 utility model applications shall be designated to the utility model art unit.

Regularly pending utility patent applications with a pendency time of over ten years, per applicant’s country

As mentioned above, the non-technical and broad reference to goods “for use in healthcare” brings uncertainty to the ruling’s extension. Currently, there are only 2,935 utility patent applications related to the pharmaceutical area.

Regularly pending utility patent applications with a pendency time of over ten years, per applicant’s country in the pharmaceutical area (pharmaceuticals and biopharmaceuticals)

It should be noted that 1,914 pending utility patent applications (according to the BRPTO database) would be immediately declared extinct if they are granted under the general rule of the 20 years from filing set by Article 40.

Regularly pending utility patent applications with a pendency time of over 20 years, per technical area

Regularly pending utility patent applications with a pendency time of over 20 years, per applicant’s country

Next Steps

ADI #5529 was included in the April 14, 2021 session. As the Supreme Court agenda is quite full on that day, there is a new postponement risk for ADI #5529 hearing. The granted PI will be in force until the final ruling. Oral arguments to be presented by the FPO, the General-Attorney, and the amici curiae will occur in a future hearing, even after the anticipation of the Reporting-Justice’s opinion.

Licks Attorneys is actively engaged in all aspects of the case before the Supreme Court, with four partners scheduled to present oral arguments during the April 14, en banc hearing session. The firm represents associations covering a broad spectrum of patent owners in different arts. The latest developments about the case can be found at the firm’s specially developed website: https://www.lickslegal.com/information-about-the-brazilian-patent-system. For more information, contact info@lickslegal.com

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