The Supreme Court has decided on a patent case for the first time this century. The Supreme Court constitutional challenge (ADI 5529) filed against the patent term adjustment has brought unfortunate news for patent owners. The patent term adjustment provision was considered unconstitutional and was subsequently revoked by the Brazilian Congress from the patent law (Law #14,195/2021). The court also urged Congress to enact a new patent term adjustment with more specific criteria.
The hearing ended on 12 May 2021 – after several days of debate by the Justices, it took five sessions to be concluded. As a result, Brazil – a country with one of the highest counts for patents pending examination and backlog (eight to 10 years on average to conduct the administrative procedure of a patent application) – had its patent term adjustment mechanism cut off from the patent legislation.
The provision was established by the sole paragraph of Article 40 of the IP Statute (Law 9,279/1996). It provided a rule guaranteeing a minimum validity term of 10 years for utility patents and seven years for utility model patents, protecting patent owners from the delays and inefficiency of the Brazilian Patent and Trademark Office (INPI).
Article 40. A utility patent will have a term of 20 (twenty) years and a utility model patent term of 15 (fifteen) years, counted from the filing date.
Sole [paragraph] The term will not be less than 10 (ten) years for utility patents and 7 (seven) years for utility model patents, counted from grant, except when the [INPI] is prevented from carrying out the substantive examination of the application, due to proven pending judicial decision or for reasons of force majeure
Brazil relies solely on the general patent term in force, which, from the filing date of the application, is:
- 20 years for utility patents; and
- 15 years for utility model patents.
The Supreme Court ruled the provision to be unconstitutional, with prospective effects in the form of a grandfather clause for all valid patents issued before the publication of the final hearing’s minutes, therefore limiting retroactive effects. However, there are two exceptions, for which retroactive effects will be applied:
- patents with pending invalidity lawsuits grounded on the unconstitutionality of Article 40, which were lodged until 7 April 2021; and
- patents granted under the now unconstitutional provision covering pharmaceutical products and processes and for equipment and materials “for use in healthcare” (not restricted to covid-19).
As such, patents granted after the Supreme Court’s final ruling, or within the scope of exception, will not benefit from the validity term provided for in the sole paragraph of Article 40.
ADI 5529 background
The constitutional challenge was filed in 2016 by the Federal Prosecutor’s Office, one of the government authorities entitled to file a constitutional case with the Supreme Court. The Federal Prosecutor’s Office argued that the sole paragraph of Article 40 worked as a tool to unduly extend patent terms in Brazil. It supported the application of the 20-year term from the filing date for all cases, grounded in the IP Statute and based on the World Trade Organisation’s (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (the TRIPs Agreement). Accordingly, it maintained that an automatic extension of the patent term affects society, consumers and the local industry. The Federal Prosecutor’s Office filed the constitutional challenge based on previous arguments developed by ABIFINA (an association of generic pharmaceutical industries).
In short, the main arguments presented are that:
- the provision increased the backlog and encouraged the filing of secondary patent applications in order to enhance patent protection;
- the delay was highly harmful to the primary public interest and contrary to the principles of administrative process efficiency;
- the provision rendered the patent validity term an indeterminate privilege, in detriment to the constitutional principles mentioned above;
- INPI’s inefficiency resulted in a transfer of burden from the state or public administration to society, violating the Constitution; and
- the extension provided for in the sole paragraph of Article 40 of the IP Statute defined different patent validity terms, depending on the delay of the examination of the application, in violation of the principle of isonomy.
On 24 February 2021, on the grounds of the covid-19 pandemic emergency and its impact on public health, the Federal Prosecutor’s Office filed a preliminary injunction request to immediately suspend the effects of the sole paragraph of Article 40 for newly granted patents.
Reporting-Justice Toffoli partially granted the preliminary injunction requested by the Federal Prosecutor’s Office, suspending the effects of the sole paragraph of Article 40 for newly granted patents covering pharmaceutical products and processes, and for medical equipment and materials for use in healthcare granted after 8 April 2021.
ADI 5529 constitutional challenge hearing
The decision on the preliminary injunctive relief issued by Toffoli unveiled his opinion that the patent term adjustment provision was unconstitutional. Following Toffoli’s opinion, the majority of the Supreme Court agreed to revoke the provision that allowed for a minimum 10-year patent term.
The Supreme Court recognised the unconstitutionality of the sole paragraph of Article 40. Toffoli concluded that the provision was effectively a “patent term extension” affording extra and undue protection to the patent owner. Moreover, the Supreme Court understood that such mechanism is arbitrary, allowing monopolies for an undetermined and excessive period, in violation of legal certainty. The Constitutional Principles of Efficiency of Public Administration (Article 37), the Economic Order Principles (Article 170) and the Fundamental Right to Health (Article 196) were also cited in the final decision.
Toffoli’s opinion also invoked the doctrine of an ‘unconstitutional state of affairs’ regarding the patent granting procedure and validity term in Brazil, which supposedly represents the failure of the Brazilian government to implement policies to guarantee fundamental rights (eg, the right to health). He argued that the alleged unconstitutional state of affairs would justify an intervention by the Supreme Court because the executive branch was unable to solve the problems of the patent system.
Toffoli’s opinion was followed by eight justices that delivered opinions with similar conclusions: Justices Nunes Marques, Alexandre de Moraes, Edson Fachin, Rosa Weber, Cármen Lúcia, Ricardo Lewandowski, Gilmar Mendes and Marco Aurélio.
Chief Justice Luiz Fux and Justice Luís Roberto Barroso were the only justices to deliver opinions supporting the constitutionality of the challenged provision.
Regarding the decision’s effects application, the Supreme Court applied prospective effects, in the form of a grandfather clause, to all valid patents granted before the publication of the final hearing minutes, limiting retroactive effects. Therefore, only patents granted after the Supreme Court’s final ruling will not benefit from the validity term provided for in the sole paragraph of Article 40.
However, Toffoli’s opinion established two exceptions, determining the application of ex tunc (retroactive) effects:
- for patents with pending invalidity lawsuits grounded on the unconstitutionality of Article 40 that were lodged until 7 April 2021; and
- for patents granted under the now unconstitutional provision covering pharmaceutical products and processes and for equipment and materials “for use in healthcare” (not restricted to covid-19).
Regarding the latter, on the grounds of legal certainty, Toffoli’s opinion stressed that the concrete effects produced by valid patents during the term that exceeded the 20 years from filing will be preserved. This means that third parties cannot seek compensation or damages for the extended term of the patent.
As a result of the decision, the special rule enforcing a 10-year term (for utility patents) or a seven-year term (for utility model patents) from the grant date will no longer be in force in Brazil.
Impact of decision
The preliminary injunction issued by Toffoli provided that the “decision will take ex tunc effect… on patents granted with term extension corresponding to pharmaceutical products and processes and equipment and/or materials for use in healthcare” (page 82, 7 April 2021) (see Figure 1). In the Supreme Court’s final hearing (12 May 2021), the justices decided that the unconstitutionality should be retroactive for those specific patents.
For the prospective enforcement of the preliminary injunction (for pending applications, INPI Gazette 2324) and for the retroactive enforcement of the final ruling (for patents in force, INPI Gazette 2628), INPI defined specific parameters to conduct its review. Since the final ruling (14 May 2021) established that the unconstitutionality decision effects are to be immediate for pending applications and new applications, the preliminary injunction’s previous parameters have been overcome.
INPI’s parameters for reviewing patents have been applicable since 14 May 2021 (INPI Gazette 2628). According to INPI:
for the group of patents corresponding to pharmaceutical products and processes and to equipment and/or materials for use in healthcare that will be analysed by [INPI], to reissue the letter patent or to declare the patent’s extinction, the following selection parameters were applied:
- Patents sent for ANVISA’s prior approval analysis;
- Patents with IPC classification A61B, A61C, A61D, A61F, A61G, A61H, A61J, A61L, A61M, A61N; H05G (medical technology according to WIPO);
- Patents with IPC classification A61K/6, C12Q/1, G01N/33, G16H;
- Patents with published lawsuits rulings ([INPI] code 19.1);
- Certificates of Addition granted.
The following definitions must be considered by INPI when applying the decision:
- Pharmaceutical products and processes – patents that comply with Article 229-C of the IP Statute (the prior approval analysis conducted by the Brazilian Health Regulatory Agency (ANVISA)). If ANVISA indicates that a patent does not comply with the provision, INPI will manually revise the application of the ADI 5529 retroactive effects and the patent might be removed from this group.
- Equipment and materials ‘for use in healthcare’ – encompasses medical technology and human healthcare as defined by INPI.
- Medical technologies – patents with at least one of the following international patent classifications (IPCs): A61B, A61C, A61D, A61F, A61G, A61H, A61J, A61L, A61M, A61N or H05G, regardless of whether the mentioned IPC is the main IPC.
- Human healthcare – all patents having at least one of the following IPCs: A61K 6, C12Q 1, G01N 33 and G16H, will be considered related to human healthcare. However, ANVISA has returned some applications classified as G16H (under Code 7.7) to INPI with no prior-approval analysis. According to INPI, those patents will be manually reviewed to confirm whether they will be affected by ADI 5529.
Brazilian patent term provision tradition
The sole paragraph of Article 40 was in line with the Brazilian patent system tradition, which reaches back 200 years, as almost every patent statute since the first Brazilian Constitution (1824) had a similar provision. The sole paragraph of Article 40 was added to the IP Statute with the aim of protecting the applicant from being punished due to INPI’s inefficiency, since between the filing date and the date of the actual grant of the patent, a considerable period could elapse.
International scenario
The IP statutes of several countries establish similar mechanisms (eg, the United States, Japan, South Korea, Mexico, Malaysia, New Zealand, Nicaragua, Peru, Singapore and the European Union, among others). China recently amended its IP statute to establish such a mechanism, and Canada is following the same path.
Separation of power
From the executive branch, INPI was already addressing a solution to its pendency and patent backlog. In July 2019, the Ministry of Economy and INPI adopted a plan to tackle examination pendency. Recent INPI data from 2021 shows that there are 60,057 regularly filed duly pending patent applications in Brazil waiting for a decision. A significant reduction from the situation in 2019. This indicates that INPI’s plan was already proving to be an extraordinary success. From the legislative branch, several draft bills had already been proposed in the National Congress, discussing the revocation of the sole paragraph of Article 40. The patent term adjustment provision was a political choice when the IP Statute was being enacted, and it was within the National Congress’ attribution to decide whether to revoke it.
TRIPs Agreement violation
The TRIPs Agreement violation – the grandfather clause exception for pharmaceutical processes and products, and medical device patents – represents discriminatory treatment for the sector. The restriction of the unconstitutionality to a specific sector (pharmaceutical) is a matter of non-discrimination, a fundamental right provided for in Brazilian Constitution (Article 5) and in the TRIPs Agreement (27.1). With this in mind, Brazil may be subject to trade sanctions imposed by the WTO.
Impacts on pending applications
There are at least 9,832 duly filed utility patent applications pending and awaiting examination by INPI with a delay of more than 10 years (see Figure 2). There are also at least 398 duly filed utility model patent applications with a delay of more than eight years pending assessment by INPI (total of 10,230 pending applications). The decision does not grandfather via the prospective effect. As a result, there is a substantial impact on all industrial sectors, since these pending applications will be granted with insufficient protection under the term provided for in Article 40 of the IP Statute.
Effects on the pharmaceutical industry
Effects are even more severe for the pharmaceutical and medical device industries, which have seen their patents be excluded from non-retroactive effects application – at least this is the case for part of the industry. If, on one hand, the portion of the pharmaceutical industry dedicated to the commercialisation of generic and biosimilar drugs is the real winner, it is the portion of the industry that invests large amounts in research and development, develops new technologies and provide innovations to society that suffers the full blow.
Non-technical and broad reference to goods for use in healthcare
Toffoli’s opinion affirmed that the objective criteria to define the scope of these patents is within INPI’s responsibility and had already been used by the patent office since the preliminary injunction partial granting. The criteria were defined in the INPI Gazette 2626, issued on 4 May 2021. However, among the patents already granted in compliance with the restrictions set by the preliminary injunction decision issued by the reporting justice, patents that are not directly related to human healthcare can be identified. Therefore, applicants should carefully review their portfolio to consider the potential impacts of the Supreme Court decision on their business in Brazil.
Comment: emergency exit for ADI 5529?
There is no doubt that the decision on ADI 5529 is a backlash against the Brazilian patent system – it heightens insecurity, leaves questions unanswered and fails to bring solutions for INPI’s backlog and pendency. Although the Supreme Court’s decision was a blow to the legal certainty of patent owners and applicants in Brazil, there is still hope for the Brazilian patent system.
First, a new set of patent term adjustment rules may be voted for by the legislative branch. The Supreme Court decision does not limit the possibility of proposing bills on the subject. Congress will observe that one of the main points of discussion by the justices was that the unconstitutional provision was applied automatically. Different mechanisms may be considered by the legislators to fill the gap created by the Supreme Court and recover the protection for patent applications that suffer from INPI’s pendency.
Second, INPI’s examination backlog is continually decreasing, as a plan has been adopted to solve it using foreign research reports in Brazilian examination. INPI still has serious structural problems, which will be resolved only with further investment and good governance. While this continues not to be the case, applicants must rethink their patent prosecution strategies to identify every opportunity to expedite their Brazilian patent applications.
Patent prosecution highway programmes and administrative fast-track options are already in place and should be considered as a main tool to avoid INPI’s inefficiency. Applicants should also consider the judicial fast-track, through which the applicant seeks a judicial order to compel INPI to start examination of one or more patent applications immediately. This option is well accepted by the courts, which consider the pendency time unreasonable and frequently order INPI begin examination within 60 days.
Also, the recent publication of Law #14,195/2021 (August 27, 2021) revoked Article 229-C from the Brazilian Patent Statute. The Article established Brazilian’s FDA (ANVISA) prior approval as a step in the patent prosecution administrative procedure, which caused many delays in patent applications. The revocation can potentially benefit pending applications, reducing pendency times in the procedure – and, consequently, help to improve INPI’s backlog.
Douglas Leite assisted in the preparation of this chapter.
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