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Published in the October 14, 2003 issue of Southeast Tech Wire.
Brazil: A Viable Alternative for Intellectual Property Outsourcing
By Robert A. West, Guillermo Wasserman and Renata Poroger
Outsourcing to Brazil Is a Good Alternative
Today, outsourcing intellectual property development often refers to the development of software. With highly qualified personnel available at lower cost in emerging economies, many companies in developed countries rely on foreign outsourcing for software development. The desired result is a more cost-effective concentration on their core business. In recent years, the number and size of companies specializing in outsourcing services has significantly increased outside North America and Western Europe.
When most businesses think of outsourcing to offshore companies, developing countries such as China and India come first to mind. These as well as many other offshore jurisdictions may raise substantial concerns about the protection of valuable intellectual property. China, for instance, has an extremely high piracy rate, despite the adoption of comprehensive laws based on western models. Enforcement of Chinese intellectual property laws remains unreliable. India presents similar issues.
Though mentioned less frequently, Brazil has become an appealing outsourcing jurisdiction in terms of technological standards, competitive pricing, and enforceability of intellectual property rights. In addition to a highly trained work force, Brazil has comparatively low labor costs, a very large internal market, and intellectual property protection legislation of long date substantially similar to that of Western Europe and the United States. Though Brazil does have unresolved piracy issues, these tend to relate more to consumer products.
There are a number of indications that Brazil possesses outsourcing conditions superior to those found in other developing countries. Brazilian enforcement of existing intellectual property protections is increasing and recognized as essential to Brazil's economic development. Internal economic pressures to expand exports, the increased use of Brazil as the South American base for foreign companies with operations in the sub-continent, and the strategic need of Brazil to come to an international agreement with respect to the enforcement of intellectual property rights in order to participate in the Free Trade Area of the Americas, all evidence a substantial evolution towards a highly competitive, technologically competent and secure business environment.
Brazil Is The World's Ninth Largest Economy
Notwithstanding its status as a "developing country," Brazil is a promising growth market. Based on the purchasing power parity criterion, Brazil ranks ninth among economies worldwide in its Gross Domestic Product ("GDP"),[1] which is predicted to be USD $1.24 trillion in 2003.[2] Brazil's economy exceeds that of any other South American country and it is quickly expanding its presence in international markets. In terms of political and economic stability, Brazil offers a much less risky environment than most other developing countries.
The Brazilian Software Market Rivals Those of China and India
The domestic Brazilian software market ranks seventh in the world. With sales for USD $7.7 billion in 2001, the Brazilian software market rivals those of India and China, which reported sales of USD $7.9 billion and USD $8.2 billion respectively for the same period.[3] The Brazilian government estimates that the commercialization of software and related products in Brazil will reach USD $9.2 billion in 2003. If this projection is met, software will account for 1.8% of Brazil's GDP, a key indicator of the development of the technology industry in the Brazilian market. In comparison, the software-related market has accounted for 1.7%, and 0.6% of India's and China's GDP, respectively.[4]
Enforcement of Intellectual Property Rights Is Key When Choosing an Outsourcing Jurisdiction
Intellectual property protection and its enforcement play a fundamental role in creating the necessary conditions for attracting the outsourcing of products and services with intellectual property components. When choosing a venue for this kind of outsourcing, companies should make sure that they have the ability to enforce and protect the intellectual property rights in the chosen jurisdiction. As a signatory of several fundamental intellectual property international treaties, with laws in place that meet the highest international intellectual property standards, and with substantial enforcement of intellectual property rights, Brazil provides greater protection of industrial and intellectual property than most developing countries and emerging economies. Brazilian intellectual property law is not a new untested add-on. These laws are simply receiving more rigorous application in the context of the emergence of Brazil's new role in the world marketplace as the home of companies such as Embraer which are international high technology leaders.
Brazil Meets International Standards of Intellectual Property Protection
Brazil is a signatory of several conventions, treaties, and agreements that define basic, internationally-accepted standards of intellectual property protection,[5] including, among others, the Patent Cooperation Treaty, a Global Protection System Treaty enabling a single international registration filing to have effect in any of the relevant signatory States. As a member of the Strasbourg Agreement Concerning International Patent Classification, Brazil conforms to the classification treaty that creates classification systems to organize information concerning inventions into indexed, manageable structures for easy retrieval. Brazil is a signatory of the Agreement on Trade-Related Aspects of Intellectual Property Rights ("TRIPS").[6]
National Protection in Pace with Many Developed Countries
Inspired by the Paris Convention of 1884, Brazil enacted its first intellectual property law in 1887. In 1970, Brazilian Law No. 5648 created the National Industrial Property Institute ("INPI"),[7] the Brazilian governmental office responsible for the formulation and implementation of industrial property laws. The INPI, also known as the Brazilian Patent and Trademark Office, analyzes requests for patent and trademark registration and examines contracts for the transfer of technology. Copyright protection is handled by the Coordinator of Copyright from the Ministry of Culture.[8]
In May of 1996, approximately one year after signing TRIPS, the new Industrial Property Law No. 9279/96 (the "Patent Law") came into force. This law brought Brazil's patent and trademark regime up to par with the international standards specified in TRIPS. Intellectual Property protection includes Copyright Law No. 9610/98 (the "Copyright Law"), Software Law No. 9609/98 (the "Software Law "), and several other secondary laws.[9]
Trademark rights may only be derived from the registration of the trademark with the INPI, and the user of an unregistered trademark will have no rights even if the trademark has been used in Brazil for years. The registration of the trademark is effective for ten years and can be subsequently renewed for additional ten-year periods. Both the request for registration and the registration itself can be assigned to third parties. According to Brazilian law, infringement of a registered trademark is a criminal offense.[10]
An invention or utility model is entitled to patent protection. These rights allow the owner of the patented invention or utility model to impede third parties from manufacturing, selling, using, or importing the patented invention or utility model, or goods obtained from the patented process. If an invention or utility model results from the work of an employee or a contracted party, the patent right will belong exclusively to the employer or contracting party. Patents for inventions and utility models are granted for twenty and for fifteen years respectively. The infringement of patent rights is a criminal offense.[11]
Copyright protection does not depend on registration. The protection is granted to the work from the first date of its existence. The economic rights of the author are enforceable for seventy years after his or her death. Although the copyright of a work for hire does not belong to the employer or the party that contracted a person or company to do the work, under Copyright Law total or partial assignments of the copyright to third parties are permitted. Penalties for violation of copyrights can be civil or criminal.[12]
Brazil Provides Special Protection to Software
Brazil was the first country in Latin America to enact legislation specifically designed to protect software by copyright.[13] The rules for the protection of software as well as the penalties for noncompliance with such rules are established in the Software Law. The Software Law grants software-related rights protection for a period of fifty years after publication or creation of the software. These protections do not depend upon registration. Citizens of other foreign jurisdictions are entitled to Brazilian software protection if their own country provides similar protection for Brazilians and foreigners residents in Brazil.
Unless the contracting parties agree to the contrary, the Software Law provides that the rights derived from a computer program developed during an employment or contractual relationship will belong exclusively to the employer or the party that contracted to have the services performed.
As a general matter, the Patent Law excludes the protection of software. However, in certain cases, patents of software have been granted on the grounds that no invention can be excluded from patent protection if the necessary requirements for granting a patent are met. Accordingly, software that modifies technical functions of the computer in which it is executed can be patented.
Foreign Arbitration Is Now Enforceable in Brazil
Crucial to the enforcement of intellectual property rights are timely dispute resolution mechanisms in the judicial system. Conflicts involving intellectual property rights in Brazil have been solved on a case-by-case basis, and the Brazilian courts have been, as a general rule, sensitive to the existence of intellectual property rights of plaintiffs. Additionally, alternative dispute resolution techniques, such as arbitration, are gaining terrain in Brazil and are now regarded as an efficient, quick, and cost-effective means to resolve intellectual property disputes.
Arbitration is often an ideal means of intellectual property protection that helps to avoid the risks associated with the enforceability of rights in foreign jurisdictions. In May of 2002, Brazil ratified the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) which facilitates the enforcement of foreign arbitration awards. However, such awards would only be effective in Brazil after completing an "Exequatur" proceeding before the Brazilian Supreme Court[14] which would normally take between eight and eighteen months.
Improvement of Enforceability of Intellectual Property Rights in Brazil
Worldwide, software piracy dropped 10% between 1994 and 2002, according to the Business Software Alliance, a software piracy watchdog group comprised of leading American software firms. The same source reports that Brazil's software piracy declined 22% during the same period, from 77% to 55%.[15] The current piracy rate in Brazil is estimated at 56%,[16] still high if compared to the 24% of the United States [17] and the 35% of Western Europe [18] in 2002. However, Brazil's piracy rate compares very favorably to China's 92% rate, to India's 70% rate, and to the similarly high piracy rates of other popular outsourcing destinations.
In 2001, Brazil established a inter-ministerial committee to combat piracy. In the first two months of 2003, Brazilian authorities seized 147,000 units of illegal software, equivalent to 41% of the total software seized in 2002.[19] Moreover, the state of São Paulo, Brazil's most important industrial and economic region, created a new division within the police force to deal specifically with piracy and related crimes.
Recently, the Brazilian Superior Court of Justice unanimously imposed a fine in an amount corresponding to 3,000 times the value of pirated software pursuant to the Copyright Law.[20]
Brazil has also recently enacted a new law amending the Penal Code and the Penal Procedure Code.[21] This law, that modified certain provisions in the Brazilian penal legal system for the investigation and punishment of copyright-related crimes, has upgraded the violation of copyright from misdemeanor to a crime of a minimum two-year imprisonment.
In Brief
Brazil has become an attractive alternative when choosing an outsourcing venue for the development of services or products with a substantial component of intellectual property. As the seventh largest software market in the world, Brazil has a substantial internal market and a strong growing economy with a low-cost, well-qualified labor force.
Brazil's legal system is moving in step with international intellectual property protection standards. As a general matter, a foreign contracting company can intervene, protect, and enforce its intellectual property rights related to software developed in Brazil with reasonable commercial certainty. In addition, foreign arbitration awards are now enforceable in Brazil, and have become a plausible alternative to enforce intellectual property rights there. Clearly, there is a basis for the often heard prediction that Brazil will become one of our most important trading partners in the short term.
Notes
[1] This ranking was based on the 2000 GDP of USD$ 1.13 trillion. See www.eco.unicamp.br/artigos/artigo231.htm.
[2] See www.economist.com.
[3] See www.amcham.com.br/update/update2003-04-01d_dtml
[4] See the article "Tesouro Escondido" published in the Brazilian magazine "Exame" in June 23, 2003 or see www.softex.com.br
[5] The Paris Convention on Protection of Intellectual Property, as of July 7, 1884; the Madrid Agreement for the Repression of False or Deceptive Indications of Source on Goods, as of October 3, 1896; the Berne Convention for the Protection of Literary and Artistic Works, as of February 9, 1922; the Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations, as of September 29, 1965; the Convention for the Protection of Producers of Phonograms Against Unauthorized Duplication of Their Phonogram, as of November 28, 1975; the Nairobi Treaty on the Protection of the Olympic Symbol, as of August 10, 1984, and the Patent Law Treaty, as of June 1, 2000.
[6] See www.wipo.org.
[7] See www.inpi.gov.br (address - Praça Mauá 7, 18 andar - Centro, 20081-240, Rio de Janeiro - RJ, Brasil).
[8] See www9.cultura.gov.br/diraut/diraut.htm (address - Esplanada dos Ministérios, Bloco B, 4 andar, 70068-900 Brasilia - DF, Brasil).
[9] These laws can be accessed at the website www.planalto.gov.br.
[10] For more information, see the Brazilian website www.inpi.gov.br.
[11] For more information, see the Brazilian website www.inpi.gov.br.
[12] For more information, see the Brazilian website www.cultura.gov.br/diraut/diraut.htm
[13] See www.infojus.com.br/area1/euryluna4.html
[14] Law 9307/96.
[15] See website www.bsa.org.
[16] See www.global.bsa.org/brasil/press/newsreleases//2003-03-29.1565.phtml?type=policy.
[17] See www.global.bsa.org/globalstudy/northamerica/us.phtml.
[18] See www.global.bsa.org/globalstudy/westerneurope.
[19] See www.global.bsa.org/brasil/press/newsreleases//2003-03-29.1565.phtml?type=policy.
[20] See Resp 443119 (NVL Software e Multimidia Ltda./ Reinaldo de Paula Machado), decision published on June 30, 2003.
[21] Law 10695/03 published on July 2, 2003.
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