The Good-Faith Prior Use Exception to Brazil’s First-to-File Rule: What Is a ‘Right of Precedence in Registration?’

Brazil is a first-to-file trademark jurisdiction, meaning that, as a general rule, rights in a trademark belong to the first party to apply for and successfully register the mark; however, there are a handful of exceptions to this general rule in the Brazilian Industrial Property Law (Law No. 9.279, May 14, 1996) (the IP Law), including a “right of precedence in registration” based on good-faith prior use of an unregistered trademark.

Specifically, Article 129, Paragraph 1, of the IP Law provides as follows:

Article 129–Ownership of a trademark shall be acquired by means of a registration validly issued in conformity with the provisions of this Law, and its exclusive use shall be assured to the owner . . . .

Paragraph 1–Any person who, in good faith, on the priority date or the filing date of the application, had been using for at least six months in Brazil an identical or similar mark to distinguish or certify identical, similar or related products or services, shall enjoy a right of precedence in registration.

Although a similar exception had been present in earlier 20th century Brazilian trademark legislation, it was absent from the Industrial Property Code (Law No. 5.772, Dec. 31, 1971), which had been in effect until the current IP law entered into force in May 1996.

The policy motivation behind all iterations of the exception, past and present, was to protect parties that had been using unregistered trademarks in good faith prior to the date of a formal application for the same or a similar mark by another party.

Semantics

On its face, Article 129, Paragraph 1, can only be successfully invoked by parties that (1) had been using a trademark (2) in good faith (3) for at least six months prior to the filing or priority date of a third party’s formal application with the National Institute of Industrial Property (INPI), in which the mark in question (4) is identical or similar to the third party’s mark and (5) was used on products or services which are identical, similar, or related to those covered by the third party’s application.

Significantly, the statutory language grants a “right of precedence in registration,” rather than a “right to register.” This semantic distinction led to a debate, both among legal commentators and in the courts, regarding when Article 129, Paragraph 1, could be invoked.

Understanding the debate requires familiarity with Brazilian trademark examination procedure. In Brazil, oppositions are filed prior to substantive examination of trademark applications, and the examiners consider oppositions during their own registrability analysis; however, the IP law also provides for post-grant substantive attacks on trademark registrations, including both administrative (with INPI) and judicial (in federal court) nullification actions, which can be filed within 180 days and five years of the date of registration of a mark, respectively. After its fifth anniversary, a trademark registration can no longer be nullified except in instances of bad faith.

Given the timing of oppositions and the fact that Article 129, Paragraph 1, provides only a “right of precedence in registration,” many legal commentators argued, and many courts found, that a party could only invoke this exception to the first-to-file rule before the third party’s formal application issued to registration, i.e., by filing an opposition against the third party’s application with INPI asserting its right to priority in registration and filing its own formal application for the mark. The rationale of this school of thought, formally adopted by INPI itself, was that once the third party’s application had issued to registration, the good-faith user’s “right of precedence in registration” ceased to exist and could no longer be invoked in either administrative or judicial nullification actions against granted registrations. From around 2012 on, the rationale was routinely applied by the Regional Federal Tribunal for the Second Region (TRF2), the first-level federal appellate court located in Rio de Janeiro, which is the jurisdiction where the vast majority of judicial nullification actions are filed, since the INPI, a necessary party to the actions, is located in Rio de Janeiro.

The opposing school of thought understood that where a party could satisfy the evidentiary requirements of Article 129, Paragraph 1, its “right of precedence in registration” included the ability to nullify, administratively and/or judicially, a third party’s registered trademark.

The Supreme Tribunal of Justice Weighs In

In December 2016, the Third Panel of the Supreme Tribunal of Justice (STJ), Brazil’s highest court for non-constitutional matters, issued a unanimous decision in special appeal National Institute of Industrial Property v. Padrão Grafia Industrial e Comercial Ltda, holding that Article 129, Paragraph 1, can be invoked for the first time in both administrative and judicial nullification actions against registered trademarks. Special Appeal No. 1.464.975 – PR (2014/0160468-6).

Seriprint Indústria e Comércio de Etiquetas Ltda filed an application with the INPI to register the composite mark PADRãO GRAFIA on May 29, 2000. The application was published for opposition purposes on August 22, 2000, and the 60-day deadline passed without oppositions being filed, the mark eventually issuing to registration on August 8, 2006.

On February 5, 2007, Padrão Grafia Industrial e Comercial Ltda filed an administrative nullification action with the INPI against the PADRãO GRAFIA registration based on Article 129, Paragraph 1, alleging good-faith prior use of PADRãO GRAFIA as a trademark.

With the administrative nullification action still pending before the INPI on August 8, 2011, the deadline to file a judicial nullification action, Padrão Grafia Industrial filed a judicial nullification action against the INPI and Serinpet Indústria that day, seeking to nullify the PADRãO GRAFIA registration based on Article 129, Paragraph 1. Padrão Grafia Industrial submitted evidence of use of its mark in the course of its business from 1997 to 2000, as well as proof that it had adopted “Padrão Grafia” as the distinguishing element of its commercial name in 1993. The INPI answered, arguing that Article 129, Paragraph 1, no longer applied after a trademark had issued to registration, and that the court had no power to declare Seriprint Indústria’s registration null since the administrative nullification action was still pending at the INPI.

The trial court agreed with Padrão Grafia Industrial and entered a final decision declaring Serinpet Indústria’s PADRãO GRAFIA registration null. The court found that Padrão Grafia Industrial had proven use of its mark prior to the date of Serinpet Indústria’s application, and that coexistence of the two marks was impossible because the two companies operated in the same market. The court rejected the INPI’s jurisdictional argument, noting that the Brazilian Constitution granted it authority to decide the case.

The INPI appealed to the regional federal appellate court, arguing again that Article 129, Paragraph 1, cannot be invoked after a mark has issued to registration, and that the courts have no authority to rule on the issue of nullification of a mark while an administrative nullification action regarding the same mark is still pending at the INPI. In its decision on the appeal, the appellate court summarily adopted the trial court’s reasoning, upheld the sentence, and rejected the INPI’s appeal.

The INPI then appealed to the STJ, arguing that the PADRãO GRAFIA registration could not be judicially nullified because it had been legally granted to Seriprint Indústria, that the “right of precedence in registration” had to be asserted by a good-faith prior user before the third party’s trademark issued to registration, and that it had exclusive jurisdiction to decide whether or not the PADRãO GRAFIA registration could be nullified based on Article 129, Paragraph 1.

After noting that three different panels of the STJ had already issued decisions between 2014 and 2016 finding that it was possible to judicially nullify trademark registrations based on Article 129, Paragraph 1, the Reporting Justice, Minister Nancy Andrighi, cited the fact that Article 5, item XXXV, of the Brazilian Federal Constitution guarantees access to the courts to defend individual rights which have been violated. After summarizing the first-to-file general rule and the good-faith prior use exception, the Minister then wrote:

Thus, it is understood that the IPL expressly protects he who has been regularly using a mark [which is the] object of a third party’s trademark application, guaranteeing to him, so long as certain requirements are observed, the right to register [the mark].

It should be noted that, if this right of precedence were invoked as an opposition against a trademark application-an administrative attack-the good-faith prior user must observe the deadlines, procedures and requirements of the IPL, above all [filing its own application for its mark].

However, if the interested party comes to assert this right after registration [of the third party’s mark], it can do so by means of an administrative nullification action (Articles 168 to 172 of the IPL [outlining procedures for administrative nullification actions]) or opt for the judicial route and file a judicial nullification action (Articles 173 to 175 of the IPL [outlining procedures for judicial nullification actions]).

The Minister then noted that Padrão Grafia Industrial had filed the lawsuit because the INPI was taking so long to enforce its “right of precedence in registration” at the administrative level, that both the trial and lower appellate courts had found clear evidence that Padrão Grafia Industrial had been using PADRãO GRAFIA as a commercial name and trademark for years prior to Seriprint Indústria’s May 2000 trademark application, and that the trial court had concluded that coexistence of the two marks was unviable because both companies operated in the same market segment. In closing, Minister Andrighi stated:

In light of this, therefore, established by the lower court judges-sovereign in their examination of the evidence -that [Padrão Grafia Industrial], in good faith, had been using the mark to designate an identical or similar product, more than six months before the trademark application was filed, requires [the rejection of the INPI’s appeal].

Despite Brazil being a civil law jurisdiction, the country’s most recent Civil Procedure Code, which went into effect in 2016, requires judges to either follow “jurisprudence or precedent” cited by the parties or explain in their decisions why the precedents can be distinguished or should not be followed.

An informal review shows that between December 2016 and September 2017, only one federal trial court, located in Rio de Janeiro, found that the Padrão Grafia decision was precedent to be followed and allowed a party to assert Article 129, Paragraph 1, for the first time in a judicial nullification action. During the same period, the TRF2 issued nine appellate decisions which continued to apply its rule that the claim was only available if the party had filed an opposition with the INPI.

In this scenario, the Third Panel of the STJ returned to the issue in September 2017 in another unanimous decision, this time in special appeal Chocolates Franz Indústria e Comércio Ltda ME v. National Institute of Industrial Property, expressly stating that the TRF2’s continued refusal to allow claims based on Article 129, Paragraph 1, when the party had not filed an opposition at the administrative level was “not in line with the jurisprudence of this Court.” Special Appeal No. 1.673.450 – RJ (2017/0055508-4).

Chocolates Franz filed its judicial nullification action against the INPI and JFC Franz Alimentos Ltda in federal court in Rio de Janeiro seeking to nullify JFC Franz’s two composite mark registrations for FRANZ ALIMENTOS covering “meats, poultry and eggs for consumption” in National Class 29.10/20 and related commercial services based on its commercial name rights and its good-faith prior use of FRANZ in relation to “the manufacture of chocolates, sweets, candies, and confectionery in general” since 1995, years before JFC Franz filed its applications in 1997. Losing at the trial court level, Chocolates Franz appealed to the TRF2, which, in a 2013 opinion, upheld the trial court’s decision, summarily dismissing Franz Chocolate’s good-faith prior use claim because the company had not filed oppositions against the FRANZ ALIMENTOS applications.

With Reporting Justice Minister Nancy Andrighi again writing for the court, the Third Panel upheld the rejection of Chocolates Franz’s request to nullify the FRANZ ALIMENTOS registrations. Nonetheless, Minister Andrighi took the opportunity to make clear that the STJ had “already recognized the possibility of the right to precedence [based on good-faith prior use] to be exercised after the mark has issued to registration, whether before the INPI [an administrative nullification action] or by the judicial route [a judicial nullification action]” and, as mentioned, inform the TRF2 that its decision was “not in line with [that] jurisprudence.” Reminding that the court’s concern was the constitutional right to access justice, Minister Andrighi clarified that:

. . . the fact that the system adopted by the Brazilian judicial order is attributive of the right, in which the property and exclusive use [of a trademark] are acquired only by registration, does not mean that the exception to this rule-the right to precedence in registration-must suffer excessive restrictions and limitations which, in the ultimate analysis, make the use of the institution unviable.

Thus, the interpretation which must be made of Art. 129, paragraph 1 , . . . cannot be understood to be a restriction on the means for the exercise of the right, impeding the earlier good-faith user from seeking the Judicial Power in the face of harm or threat to its right.

The rule is exceptional only because it modifies the logic that the right is granted to the owner by the INPI, but not because it only can be exercised by this or that route, such that the grounds adopted in the appellate decision under review to negate the appellant’s right to precedence cannot survive.

Minister Andrighi made clear, however, that “Art. 129, paragraph 1, . . . must be systematically interpreted, taking into consideration, above all,” whether there is an actual conflict between the two competing marks:

If, by chance, coexistence [of the marks] is possible, there is no reason for one to have precedence over the other, in that each can occupy its own space. If, however, coexistence is not possible and only one can occupy a determined space, who has precedence must be evaluated.

Since the record showed that Chocolates Franz used its mark in relation to “chocolates, sweets, and the like” while JFC Franz used its mark in relation to “meat, derivatives and the sale of goods,” the court found that “principle of specialty of trademarks” applied and that the two companies’ marks could coexist without causing consumer confusion or undue association. For this reason, there was no reason to analyze whether Chocolates Franz had a right to precedence in registration under Article 129, Paragraph 1.

An informal review shows that since Chocolates Franz was handed down in September 2017, one federal appellate court, the Regional Federal Tribunal for the Fourth Region, and four federal trial courts, all located in Rio de Janeiro, have found that Padrão Grafia and/or Chocolates Franz were precedent to be followed and allowed a party to assert Article 129, Paragraph 1, for the first time in a judicial nullification action. During the same period, the TRF2 issued one decision which, without any mention of either Padrão Grafia or Chocolates Franz, applied its rule that the claim was only available if the party had filed an opposition with the INPI; two decisions which do not expressly mention Padrão Grafia or Chocolates Franz, but stated that even if it were possible to assert Art. 129, Paragraph 1, for the first time in a judicial nullification action, there were no grounds for nullifying the trademark registrations which were the objects of the lawsuits; and three decisions which acknowledge the existence of Padrão Grafia or Chocolates Franz and the STJ’s position regarding Art. 129, Paragraph 1, but distinguished the cases at issue. Perhaps significantly, in the most recent of these decisions issued on August 9, 2018, the TRF2 finally expressly stated that Chocolates Franz is “precedent.”

The Padrão Grafia and Chocolates Franz decisions make clear that, rather than being available only during oppositions against pending trademark applications, the “right of precedence in registration” can be asserted by a good-faith prior user for the first time in a judicial nullification action against a granted registration in court and in an administrative nullification action against a granted registration at the INPI; however, the decisions also make clear that the party seeking the “right of precedence in registration” must show that it actually used the sign in question as a trademark for at least the required six months before the priority date of the third party’s registration, and, further, that there is actually a possibility that consumers will be confused or unduly associate the two marks if they are allowed to coexist.

While the TRF2 has shown resistance to following Padrão Grafia and Chocolates Franz, and may continue to distinguish and decline to apply the precedents when it can, at least one other regional federal tribunal has already followed Padrão Grafia, and federal trial courts in Rio de Janeiro are following the decision with increasing frequency.

Though the Padrão Grafia and Chocolates Franz decisions broaden the protection afforded to good-faith prior users of unregistered trademarks in Brazil, they do create a degree of legal uncertainty during the first five years of a trademark registration’s life in Brazil before the statute of limitations runs on judicial nullification actions (lack of legal certainty was one of the main policy reasons behind the TRF2’s adoption of the opposite stance). For this reason, as part of clearing their marks in Brazil for both registration and use, trademark applicants should consider taking steps to identify good-faith prior users of identical or similar unregistered marks in relation to identical, similar, or related goods or services.

Although every effort has been made to verify the accuracy of items in the INTA Bulletin, readers are urged to check independently on matters of specific concern or interest. Law & Practice updates are published without comment from INTA except where it has taken an official position.

© 2018 International Trademark Association