CHANGES IN THE INPI’S CONTRACT REGISTRATION PROCEDURE

The Brazilian patent and trademark office (Instituto Nacional da Propriedade Industrial, the “INPI”) has been responsible for the registration of technology supply agreements and similar contracts for over four decades. The current president, Professor Dr. Luiz Otávio Pimentel, has brought in several new rules on regarding such registration in the last few months, imposing substantial changes to its procedure.

Since its inception in the 1970s, such agreements have been subject to INPI’s analysis within a system of controls and limitations to the flow of royalties and payments abroad, initially established by Normative Act No. 15/1975. Based on subsequent regulations, INPI has interpreted and enforced the tax and exchange legislations related to royalties. Thus, they would, for example, veto or impose clauses to these contracts, limit the amount of royalty fees and limit the duration of payments, often requiring amendments to make them compliant to their understandings of Brazil’s industrial and technological policies. Even after the Normative Act was repealed in 1993, the subsequent regulations continued to indicate that such policies could still apply to contracts under their responsibility.

On April 11, 2017, Normative Instruction No. 70/2017 by INPI determined that they would no longer analyze the compliance of such agreements to tax and exchange legislations after July 1, 2017. It was not yet clear, however, what would become of the registration procedure after such changes took place, since all fiscal, exchange and industrial property laws applicable to the agreements remained unchanged. On July 7, 2017, INPI adopted new rules of procedure for the registration of contracts through Resolution No. 199/2017 (the “Resolution”). It may still take some time for the adaptation to the new rules and maturation of understandings regarding them, but we believe that, at least in some cases, there will be significantly more flexibility for the registration of contracts in the future.

Agreements subject to registration
The Resolution states that the following agreements are subject to registration by  INPI:

Industrial property rights license and sublicense agreements: allow the effective use and exploitation of industrial property rights and applications by third parties, i.e trademarks, patents, industrial designs and integrated circuit designs registered by INPI;

Assignment of industrial property rights: transfers the ownership of industrial property rights by act of the rights’ holder;

Franchise agreement: aim to grant access to a business model to a party temporarily by means of authorizing the use of trademarks, exploitation of patents, provision of technical assistance services, among others, in accordance with a specific law and subject to the previous disclosure of a franchise offering circular (viz. Law nº 8.955/1994);

Knowledge acquisition agreements (know-how transference):

(i) Technology supply agreement: aims to supplying knowledge and technology that are not protected by industrial property rights, or to providing technological information for producing certain goods and services

(ii) Technical and scientific assistance service agreement or invoice:  

aims to providing techniques, methods of planning and programming, as well as research, studies and projects intended for rendering or executing specialized services intended for the client’s main activities.

Some technical and scientific services are exempted from registration by INPI. The current version of the list of exempted services is contained in Resolution 156/2015.  They are: acquisition of goods, including logistics services; services rendered abroad without the presence of technicians from a Brazilian company or the delivery of documents or reports; preventive maintenance services provided on equipment or machines of any nature; repairing, adjustment, calibration, revision, inspection, and recovery of any kinds of equipment or machines; supervision of repairs, assembly, disassembly, installation and start-up of operations of any kind of equipment or machines; homologation and certification of the quality of products; financial counseling; commercial counseling; legal counseling; public bidding counseling; marketing; any other kind of counseling rendered remotely and without the delivery of documents; technical support, maintenance, installation, implementation, integration, deployment, customization, adaptation, certification, migration, configuration, parameterization, translation or localization of software; end-user training and other software training; end-user software licensing; software distribution; delivery of single copy of software by any means.

Copyrights and software rights agreements are also exempted from registration, since they are subject to different laws.

Substantial changes

With the adoption of the Resolution, the terms of the duration of technology supply agreements and technical and scientific assistance service agreements have changed. The Resolution states that the deadlines agreed on by the parties shall be kept unchanged. The contract must only set a specific term of duration, otherwise an amendment shall be required to include it. Previously, the maximum duration accepted for the registration of the technology supply agreements was five years, with only the possibility of one single renewal for a maximum of another five years, if the parties could justify the need for this renewal due to improvements in the supplied technology. As for technical services, the maximum duration of the registration depended on its compatibility with the execution of the services.

These changes in terms of duration shall not affect industrial property license agreements, since their term depend on the respective validity of the registration of the licensed rights, without other limitations by applicable law. This category also includes franchise agreements which duration shall be dependent on the validity of the rights that shall be used or exploited by the franchisee.

Another relevant change to the procedure is related to the declared value of the contract in the registration certificates issued by INPI. The INPI shall no longer explicitly impose a limit to the maximum amount of any payable fees in the registration certificates of agreements between related parties, though this does not mean that current remittance and deductibility limits are no longer applicable.

Consequences
The Resolution states clearly that any information regarding contractual amounts, payments and duration that are reproduced in the registration certificates, shall be only a declaration of the parties’ agreements under their sole and exclusive responsibility. Since the new INPI rules came into effect, the Central Bank of Brazil has also stopped requiring INPI’s approval for payments of royalties abroad when they are based on regularly issued registration certificates (viz. Internal Regulation nº 3.837/2017).

It is worth mentioning that, notwithstanding the INPI’s lack of enforcement of tax and exchange legislation at the registration of the contracts, these laws are still in full force and effect, so the parties are still bound to them for remitting contractual payments abroad and deducting them as operating expenses. In a way, the parties’ responsibilities as to the compliance of their agreed terms to the Brazilian laws has increased, since now it is required for the parties themselves to check the compatibility of the agreements to the fiscal and exchange legislation at risk of being penalized. In addition, commercial banks are expected to tighten their control of contractual terms when accepting exchange operations, since they are jointly liable for such compliance with exchange regulations over remittance of values abroad.

Tax and exchange legislation
We emphasize once again that nothing has changed in the tax and exchange substantive legislations related to royalties, which is regrettable since such laws and regulations are dating from as early as the 1950s and 1970s, and they are no longer in line with the regulatory advances brought in by INPI, which push forward the liberalization process that the country has been through in last few decades.
Comparative chart
Aspect How it was How it is now
Duration INPI enforced their own understandings of tax legislation to define maximum terms of duration in the Registration Certificate INPI shall not interfere in the term defined by the parties when issuing Registration Certificates
Payments INPI enforced their own understandings of tax and exchange legislation to define payable fees in the Registration Certificate INPI shall not interfere in the fees defined by the parties when issuing Registration Certificates
Subject matter INPI issues lists of technical services that are exempted of registration Unchanged
Exchange Exchange operations for the remittance of royalties abroad was subject to approval by the INPI of data entered by the parties in the exchange system (SISBACEN) Once the contract has been registered by the INPI, the exchange operation is not subject to new approval
Tax deductibility Possibility of deductions of up to 5% of the net contractual sales from income tax Unchanged
Remittance limitation In case of related parties, the remittances are limited to the deductible amount of up to 5% Unchanged
Fiscalization The Federal Revenue and the Central Bank of Brazil enforce compliance with tax and exchange legislations during the performance of the registered agreements Unchanged

Questions?

The lawyers of our Intellectual Property Law practice are at your service if there are still any doubts related to the new rules for registration of contracts with the  INPI

Dr. Karin Klempp Franco, LL.M.

kklempp@rothmann.com.br

Luiz Fernando Plastino Andrade

landrade@rothmann.com.br

Lívia Cristina de Moraes Santos

lmoraes@rothmann.com.br

© Rothmann Sperling Padovan Duarte Advogados

 

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