Unilever decision discourages technical development

The Superior Court of Justice recently issued a decision which reversed 40 years of economic policy and which may significantly discourage business and technological development in Brazil.

The decision by judge rapporteur Justice Francisco Falcão in a case involving multinational Unilever was doubly ineffective as it neither resolved nor developed a highly controversial issue in the legal field: the operating limits of the Brazilian Patent and Trademark Office (BPTO) in the registration of technology transfer agreements involving the remittance of payments abroad.

The BPTO was created in 1970, during the military dictatorship. During its early days, agreements were not accepted if containing any contractual clause that the BPTO considered to be onerous to the Brazilian party to the contract. In 1996 this law was significantly amended to remove the BPTO's legal duty to regulate technology transfers and to establish better conditions for the negotiation and use of patents. Today, the BPTO's principal purpose is to enforce nationally the rules that regulate industrial property, taking into account its social, economic, legal and technical function.

The Superior Court of Justice issued its decision in a special appeal (REsp1200528), which originated from a writ of mandamus brought by Unilever against the BPTO on the grounds that by registering technology transfer agreements between Unilever companies in Brazil and abroad, certain clauses were altered unilaterally, changing these agreements from being onerous to gratuitous. According to Unilever, the BPTO made technology transfer impossible by impeding the initially estimated remuneration. It also claimed that from 1996, the BPTO no longer had the powers to intervene in what had been freely agreed between companies.

Although this argument would be upheld by a large number of Brazilian jurists, the judge rapporteur stated that the 1996 legislative alteration removed only the BPTO's power to judge the advisability and potential of the contract; it maintained the power to repress clauses that it believes to be abusive. Therefore, the maintenance of the generic concept of attending to social, economic, legal and technical functions is sufficient to justify the BPTO's intervention in private agreements.

No detailed knowledge of the legislation is required to infer that such inflexibility is ill suited to the current reality. Brazil, along with the rest of the world, is experiencing a new period of economic and industrial development. In this complex economic context, merely legalistic practices cannot be sustained if they do not consider the economic and financial equation which the contractual parties believe to be correct.

However, Brazilian judicial decisions are failing to consider that technological production requires a substantial investment of time, money and labour. Further, this effort will incorporate the property of the developer of the technology, who will be the legitimate holder of a legal asset that only it can decide how to use. Therefore, does it make sense that the owner of foreign technology, when negotiating with Brazilian companies, should supply its technology without a fair return? Is this the logic of a modern economy?

As a result, a negotiation between equals ends up becoming a negotiation in which the technology owner is at a disadvantage, because the restrictions are imposed and are non-negotiable. Is this the type of policy that will encourage technological innovation in Brazil? How long should the public authorities intercede in agreements between private companies in favour Brazilian industry?

The answers to these questions do not lie solely in the preparation of laws and programmes to encourage innovation, as the effectiveness of these is hampered by the lack of quality technical centres. Faced with these difficulties, international technology transfer agreements, which are more flexible, would be an efficient way to train Brazilian technicians through the acquisition of knowledge developed abroad.

Therefore, the recent Superior Court of Justice decision reinforces the BPTO's role as a regulating agent and supervisor of technology transfer negotiations when the BPTO operates as a fiscal authority, particularly in the case of remitting funds abroad. However, at present the flexibility of technology transfer policies appears to be some way off.

This is an Insight article, written by a selected partner as part of IAM's co-published content. Read more on Insight

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