Brazil: Considerations On Due Diligence In The Trademark Area

In corporate transactions it is extremely important to conduct a prior and detailed investigation over juridical aspects related to the target company before the closing of any deal. This investigation is known as due diligence. The primary purposes of a due diligenceare to survey the company's assets and rights, as well as to indicate the contingent legal liabilities and risks involved in the intended transaction, providing the interested company with the main legal aspects involving the target company.

In the current globalized market focused on information and technology, the intellectual property became one of the main legal aspects analyzed by the persons in charge of the transactions, in view of the high amounts and strategic significance that intangible assets may reach, specially trademarks. The purpose of this article is to provide an overview of the main aspects to be examined in relation to trademarks during the performance of a due diligence in light of the Brazilian laws.

In Brazil, trademarks are valid for ten (10) years as of the registration issuance by the Brazilian Patent and Trademark Office ("BPTO"), extendable for equal and successive periods. Trademarks can be presented in the following forms: (i) word mark, when expressed just by letters; (ii) device mark, when represented by drawings or symbols; or (iii) compound mark, when characterized by the combination of letters and drawings.

When reading a due diligence report on intellectual property aspects, one should first observe the kind and number of trademarks registrations and/or applications existing under the target's portfolio, either in Brazil or abroad. Quite often companies fail to apply for trademarks before the BPTO, and distinctive signs highly important for their business are used indiscriminately and without any protection.

In addition, Brazil has adopted the first-to-file system, that is, the right to exclusively use a trademark and to prevent any third parties from using it are only granted upon a registration validly issued by the BPTO, and not as a result of the use thereof, as it happens in the United States, for instance. Therefore, companies interested in closing a transaction in Brazil should consider that trademarks applications are nothing but the expectant of rights, and, in this case, it is not possible to calculate and remit royalties in the event they are licensed to third parties.

Therefore, depending on the complexity and significance of the trademarks for the transaction, it is advisable to conduct a detailed due diligence report, which should establish the status of each trademark process and respective chances of success in eventual administrative proceedings, such as oppositions and administrative nullity processes filed by third parties. Details on the payment of fees related to the trademark registrations issuance and renewal shall also be analyzed in order to verify which trademarks will be maintained and which will be waived according to the target company's business plan.

Furthermore, it shall also be observed whether the trademarks are effectively used by the target, considering that according to Law 9,279/96 ("Brazilian Industrial Property Law"), the registration become extinct by forfeiture, upon request by any person with legitimate interest, if after five (5) years from its issuance, on the date of such request (i) the use of the trademark has not been initiated in Brazil; or (ii) the use of the trademark has been interrupted for more than five (5) consecutive years, or if, within the same term, the trademark has been used in a modified form that implies alteration in its distinctive character. Therefore, it is advisable to request copies of the tax bills, invoices, proposals or any other documents that may evidence the effective use of the trademarks over referred period after the registration issuance.

Finally, on analyzing the information established in due diligence reports, the company's management should consider that recent applications for trademark registrations, as well as recent developments may not be evidenced in an independent search before the BPTO's database, because that information depends on the updating of the weekly issues of the Industrial Property Magazine.

If possible, it is important to request the target to provide a full report with all information related to the target's trademarks, such as copies of oppositions, administrative nullity processes, court certificates, lawsuits, notices, license agreements, receipt of payment of the renewal of the trademarks, and opinions of the target's legal counsels on significant aspects of the trademarks, either in Brazil or abroad.

Considering the foregoing, in order to close a transaction, it is particularly necessary to analyze the following aspects as regards to the target's trademarks: (i) the number and type of registrations and applications; and (ii) the nature of contingent liabilities possibly existing in such portfolio, such as questionings, suits filed by third parties and forfeiture due to lack of use. Also, should the transaction involves transfer of control or corporate restructuring, it shall also be considered the existence of possible restrictions in trademark license agreements and other contracts involving intellectual property rights, should that be the case.

Tatiana Campello Lopes is partner and Vivian Sapienza Cardozo is associate of the Intellectual Property Department of Demarest e Almeida Advogados.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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