IP in Business Transactions: Portugal overview

A guide to intellectual property law in Portugal. The IP in Business Transactions Q&A gives an overview of maintaining an IP portfolio, exploiting an IP portfolio through assignment and licensing, taking security over IPRs, IP and M&A transactions, and the impact of IP on key areas such as competition law, employees and tax.

This Q&A is part of the PLC multi-jurisdictional guide to IP law. For a full list of jurisdictional Q&As visit www.practicallaw.com/ip-mjg.

Nuno Cadima Oliveira, F Castelo Branco & Associados
Contents

Overview of main IPRs

1. Please give a brief overview of the main IPRs in your jurisdiction, including how they are protected (whether through registration or otherwise). Consider:
  • Patents.

  • Trade marks.

  • Copyright.

  • Design rights.

  • Confidential information.

  • Any other main IPRs that apply in your jurisdiction.

IPRs are divided in two main groups, industrial property rights and copyright.

The Code of Industrial Property (as approved by Decree-Law 36/2003 of 5 March) applies to industrial property rights (briefly defined as intellectual creations that have an industrial or a commercial purpose). The main industrial property rights are:

  • Trade marks.

  • Patents.

  • Utility models.

  • Topographies of semi-conductor products.

  • Industrial designs and models.

  • Awards.

  • Logotypes (business names and/or insignia), origin names and geographic indications.

Their full protection depends on registration with the Institute of Industrial Property. There is a degree of protection for industrial property rights in the period between the (mandatory) publication of a registration request in the Industrial Property Bulletin and the granting of the right to grant compensation, in cases of breach by third parties. This protection is also granted if, before publication of the request, a third party receives a notice containing information about the request and the registration procedure.

For trade marks, the owner of an unregistered trade mark that uses it for up to six months is granted a registration priority right that can be enforced against third parties for this period.

Owners of well known trade marks and prestigious trade marks can enforce these rights against the registration of similar trade marks (for prestigious trade marks, even if the services or products are neither identical, nor similar). These owners can intervene in the opposition procedure by presenting the registration request.

Copyright protection (governed by the Copyright Code, as approved by Decree-Law 63/85, of 14 March, and other related legislation for software and databases) does not depend on registration but only on the exteriorisation of the corresponding work (defined as exteriorised literary, scientific and artistic creations), which must be original.

For further information about the main IPRs, see Main IPRs: Portugal.

 

Maintaining IPRs

2. What facilities are available to conduct IP searches and obtain IP information on registered IP rights, for example to search:
  • Before an application to register an IPR.

  • After registration to maintain IPRs and monitor possible infringement?

The Institute of Industrial Property conducts searches on registered industrial property rights, on request by any interested party. Those searches can also be conducted by any party online (see www.marcasepatentes.pt).

There is no official and specific tool to monitor possible infringements of registered industrial property rights. Normally, local counsel conducts periodical searches online and analyses the relevant Industrial Property Bulletin, in which all requests and decisions concerning rights are published.

In relation to maintaining industrial property rights, despite the fact that the Institute of Industrial Property tends to send a notice to owners about the main actions that must be taken (such as renewal), related records and schedules are usually prepared by local counsel.

 
3. What steps must a business take to maintain the registration and status of its main IPRs (for example, registration renewal, using an IPR in a certain time period, and avoiding misuse of the IPR)?

Maintaining the registration of industrial property rights requires several main actions:

  • Registration renewal, at the different times applicable to each industrial property right (for example, trade marks must be renewed every ten years and utility models every six years).

  • Paying official administrative fees, especially renewal fees.

  • Ensuring an evidenced use of the industrial property rights, from certain dates (patents must begin to be explored within four years after the registration request) and within certain time periods (the use of a trade mark cannot be suspended for a period of five years).

  • Use of the industrial property rights according to their registered characteristics.

Details of renewal fees and other requirements are set out on the website of the Institute of Industrial Property (see, www.marcasepatentes.pt).

 
4. What steps can a business take to avoid committing an infringement of a main IPR and to monitor whether a competitor is infringing its IPRs?

Before using any IPR, a business should make a search on the existing IPRs in the relevant market. Searches relating to industrial property rights can be made online (see Question 2).

Reliable searches on works protected by copyright may be difficult to carry out, since their registration is not mandatory. However, broader searches about the market can be made by specialists in the areas relating to the works.

 

Exploiting IPRs

5. What are the main steps in an IP audit in your jurisdiction to determine the content of an IP portfolio?

The easiest and most effective way to carry out an audit of an IP portfolio is conducting comprehensive due diligence, accompanied by a search made on the registration status of all existing industrial property rights.

 

Assignment

6. How can main IPRs be assigned (for example, in whole or part, with or without goodwill (in the case of trade marks), in relation to future rights, and with jurisdictional restrictions)?

All industrial property rights other than logotypes can be freely assigned in Portugal, with jurisdictional restrictions (such as restrictions to a certain territory or to specific products or services) and even if with future rights are assigned. Logotypes can only be transferred if the transfer would not lead consumers into error or confusion, or when the logotypes are used to identify a business as a going concern and are transferred with the underlying business.

Although the partial assignment of industrial property rights is possible under Portuguese law, it is not common. The most common (and not completely certain) example of this is the assignment of trade marks for only certain products and/or services.

Assignment of trade marks is only possible if it is not liable to mislead the public about the origin of the products or services or their essential characteristics.

The assignment of works that benefit from copyright (which can be partial or total) can only be made in relation to ownership rights, and not to the inherent moral rights, which are reserved to the creator.

Normally, goodwill is not expressly transferred with a trade mark, but there are ways to ensure the transferee benefits from the goodwill that follows the trade mark, through non-competition clauses in the relevant contract and obligations on the transferor to provide information to the market about the transfer.

 
7. What formalities are required to assign each of the main IPRs (for example, in writing, signed by both parties and registration)?

Assignment of industrial property rights must be made in writing (through a form sent to the Institute of Industrial Property) and registered at the Institute of Industrial Property. Registration is required to enforce the assignment against third parties.

The assignment of awards and logotypes depends on the formalities to transfer the underlying business carrying these assets.

Works protected under copyright can be partly assigned by contract (the signatures must be recognised by a notary or a lawyer). A complete assignment requires execution of a public deed.

Assignment of software is not subject to any specific formality, but execution of a contract is always advisable.

 
8. What main terms should be included in an assignment of IPRs?

In addition to usual standard clauses (such as the object, price, governing law and jurisdiction applicable to the assignment), it is also advisable to include provisions relating to:

  • Representations and warranties (by the assignor).

  • Co-operation obligations (for enforcement and registration purposes) to be complied with by the assignor.

  • Non-competition clauses.

In certain cases, assignors usually require a right of first refusal in future transfers of IPRs (to be enforceable at the end of the agreed term in a non-competition clause), or an interim period for a transition between a certain IPR and another (mostly with assignments of service trade marks).

For works protected under copyright, a partial assignment must include a description of the rights being assigned and the corresponding conditions for their use. Given that the partial assignment of works can be made temporarily, a term to reflect this should also be included.

 

Licensing

9. How can each of the main IPRs be licensed (for example, in whole or part, with or without goodwill (in the case of trade marks), and with jurisdictional restrictions)?

All industrial property rights can be licensed in whole or in part, with or without consideration, with territorial limits and for any duration up to their validity term.

For works protected under copyright, most licences are granted in relation to software since, for other works, there are other ways to grant authorisation for their use by third parties, such as edition and distribution contracts.

 
10. What are the formalities to license each of the main IPRs (for example, is registration required)?

All licences must be made in writing and, for industrial property rights, registered with the Institute of Industrial Property to be enforceable against third parties.

Licences for software do not require any specific formalities but, other than for mass licences purchased by the general public, a contract is advisable.

 
11. What main terms should be included in an IP licence?

In addition to usual standard clauses (such as the object, price, governing law and jurisdiction applicable to the licence), it is also advisable to include provisions relating to:

  • Representations and warranties (by the licensor).

  • Co-operation obligations (for enforcement and registration purposes) to be complied with by the licensor.

  • Clauses about exclusivity.

  • The possibility of sub-licensing.

  • Confidentiality.

  • In certain cases, non-competition clauses (undertaken by the licensor).

It is also common to include end of contract provisions (return of materials and stopping the use of rights).

 

Taking security

12. Is security commonly taken over IPRs? If yes, which types of IPRs are commonly secured? What problem areas commonly arise (for example, problems valuing the secured IPR assets, or when enforcing the security)?

In Portugal, it is only common to take security over IPRs in acquisitions and other relevant transactions and normally on behalf of banks (to guarantee financings), where the beneficiary intends to be secured by all the debtor's assets.

The most commonly secured IPRs are trade marks and patents.

The main problems in securing IPRs in Portugal are that:

  • The IP portfolio of an entity giving security is usually not up to date. Often it is not possible to immediately ascertain what IPRs are owned by a certain entity, or their current status (in relation to registration and use requirements). Sometimes, conducting searches is not enough for this purpose (if the entity owns unregistered works protected by copyright).

  • Valuing IPRs is not easy in Portugal.

 
13. What are the main security interests taken over IPRs? How are they created (for example, in writing) and how are they perfected (that is, made enforceable against third parties, for example by registration)? Consider:
  • Patents.

  • Trade marks.

  • Copyright.

  • Design rights.

The main security interest taken over patents, trade marks and industrial designs is a pledge in writing, which should be registered to be enforceable against third parties.

The main security interest taken over works protected by copyright is also a pledge in writing. However, this cannot be registered to be enforced against third parties.

 

M&A

14. What IP-related due diligence is commonly carried out in:
  • A share sale?

  • An asset sale?

Share sale

In share sales, IP due diligence is quite comprehensive and aims to ascertain:

  • Whether a company's whole IP portfolio is up to date.

  • Possible weaknesses in the protection of IPRs owned and used by the company.

  • If the company has contingencies in relation to infringement of third party IPRs.

Asset sale

In an asset sale, IP due diligence has the same goals (see above, Share sale), but is limited to the asset being sold and to the status of the IPRs to be assigned with it.

In addition, IP due diligence with this scope tries to identify the IPRs that must be assigned with the asset.

 
15. What IP-related warranties and/or indemnities are commonly given by the seller to the buyer in:
  • A share sale?

  • An asset sale?

Share sale

Normally, a buyer is granted warranties about the existence, registration and compliance of all IPRs owned by the company. The seller also grants a warranty concerning non-violation of third party IPRs.

It is also common to include indemnities about breach of the warranties related to IPRs.

Asset sale

In an asset sale, the warranties and indemnities are generally the same as for a share sale (see above, Share sale), but limited to the IPRs being assigned.

In the transfer of a business bearing a registered corporate name that includes the name of the seller, the seller must give his consent to maintaining the name on the corporate name.

 
16. How are the main IPRs transferred in:
  • A share sale?

  • An asset sale?

Share sale

In a share sale, the main IPRs are not actually transferred to the new shareholders, as they continue to be directly owned by the target company.

Asset sale

In an asset sale, a list of all transferred IPRs is attached to the sale and purchase agreement. Sometimes the parties execute separate documents for the specific transfer of the IPRs (with a few basic conditions), for registration purposes only.

 

Joint ventures

17. Is it common for companies to set up joint ventures in your jurisdiction to develop projects that heavily involve IPRs? If yes, please briefly outline the main IP-related provisions that should be included in the joint venture agreement.

Joint venture projects are common in certain areas of business, such as IT, telecoms, engineering and, in general, projects to create goods and services for export.

The main concerns regarding IPRs in joint ventures are:

  • The clear identification of each party's own IPRs.

  • The degree of participation and use of IPRs in the joint venture and its terms and conditions (such as granting licences to use IPRs, consideration and term).

As joint ventures often create new IPRs, it is important to govern the use of IPRs, and their ownership, even beyond the joint venture.

On termination of the joint venture, the parties must ensure that:

  • Their own IPRs (used in the joint venture) remain intact (as to their ownership and characteristics).

  • Termination of the use of these IPRs by the other party is properly regulated.

  • All relevant information (know-how and trade secrets) remains confidential.

In certain cases, the parties should also consider reciprocal limitations on the use of their own IPRs, to minimise the impact of competition on the activities to be developed in the joint venture.

 

Competition law

33. Please briefly outline the main provisions of your national competition law that can affect the exploitation of the main IPRs.

The main relevant provisions of national competition law (Law 18/2003 of 11 July 2003, amended by Decree-Law 219/2006 of 2 November 2006) (Competition Law) are:

  • Articles 4 and 5, which apply to licences of IPRs. Article 4 regulates restrictive practices in the national market. Anti-competitive practices are null and void. Article 5 allows the weighing of anti-competitive effects and pro-competitive benefits resulting from a concrete restrictive practice (economic justification).

  • Article 6, which applies where the owner of IPRs abuses its dominant position in the market.

 
19. Please give brief practical examples of national competition law issues that can arise in the exploitation of the main IPRs (such as problematic licence terms) and briefly outline any possible solutions to manage them.

IPR licences can include clauses that are problematic under the Competition Law. For instance, the following clauses may violate Article 4 of the Competition Law:

  • Granting the licensee absolute territorial protection.

  • Requiring the licensee to buy other products from the licensor as a condition to granting the licence (tie-in).

  • Enabling the licensor to set the licensee's selling prices, terms and conditions.

A refusal to grant an IPR licence may be a refusal to give access to an essential facility and, if made by a company holding a dominant position in a market, can breach Article 6 of the Competition Law. If a licensor holding a dominant position in the market charges excessive or unfair prices, the licensor is abusing its position in breach of Article 6 of the Competition Law.

These issues can only be solved on a case-by-case basis.

 
20. What exclusions or exemptions are available for national competition law issues involving the exploitation of the main IPRs (for example, are parallel exemptions available)?

Article 4 of the Competition Law can be declared not to apply to an IPR licence, if the licence does all the following (Article 5, Competition Law):

  • Contributes to the improvement of production or distribution of goods or services or to the promotion of technical or economic progress.

  • Allows consumers a fair share of these benefits.

  • Does not impose on the undertakings concerned any restraints which are not indispensable to the attainment of these objectives.

  • Does not give such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.

EU block exemptions (for example, the technology transfer block exemption) also directly apply to national competition law issues.

 

Advertising

21. Please briefly outline the extent to which advertising laws impact on the use of third party trade marks.

The relevant advertising laws are the Portuguese Advertising Code, Decree-Law 57/2008, of 26 March (which establishes the regime applicable to unfair consumer trade practices) and the Code of Conduct for Advertising issued by the Advertising Self-Regulatory Civil Institute (ICAP), the Portuguese member of the European Advertising Standards Alliance (EASA). This is based on the International Chamber of Commerce's International Code of Advertising Practice.

ICAP normally deals with advertising disputes, rather than courts. Although its decisions only bind its registered members, the fact that all major media groups (holding TV networks, newspapers, radio and magazines) are members of ICAP makes it almost impossible to maintain an advert declared unacceptable by ICAP. Its members must comply with its rulings and not broadcast unacceptable advertising.

All advertising is regulated by a basic principle of truthfulness.

In relation to the use of third party trade marks, issues arising from advertising laws include the following:

  • Trade marks must not be used in a manner that may mislead the consumer regarding the commercial origin of a product or service.

  • References in advertising that may denigrate or diminish a competitor's trade mark are not allowed.

  • Using a third party trade mark in an unjustified manner and/or taking illegitimate advantage of the reputation of a third party trade mark is not allowed in advertising.

 

Employees and consultants

22. Who owns each of the main IPRs created by an employee in the course of his employment? Is compensation payable in relation to employee IPRs? What main steps can an employer take to ensure it owns each of the main IPRs (for example, by including an assignment of IPRs clause in the employment contract)?

Under the Copyright Code, IPRs created by an employee in the course of his employment are considered the property of the employee. However, both parties can agree on a different outcome, such as the acquisition by the employer of all the IPRs created by the employee.

Employers generally include a clause in employment contracts stating that all IPRs created by the employee are the property of the employer, and that the salary paid already includes compensation for transfer of the ownership of the IPRs.

 
23. Who owns each of the main IPRs created by an external consultant? What main steps can a business take to ensure it owns each of the main IPRs (for example, by negotiating an assignment of IPRs)?

The position for consultants is similar to that for employees (see Question 22).

When parties do not define the ownership of the IPRs in advance, the rights are deemed owned by their intellectual creator. This means that unless parties agree differently, the IPRs are owned by the external consultant and not by the company which hired the consultant's services.

The service contract should include a clause stating that the company will be the owner of any IPRs created by the service provider. This clause should also state that the fee (paid for services rendered by the service provider) includes payment for the transfer of any IPRs created by the service provider during and under the service contract.

 

Tax

24. What are the main taxes payable by a licensor on the licensing of the main IPRs (for example, withholding tax on royalty payments)?

Income tax

Royalties received by a resident company are considered income and included in the company's taxable profits, and subject to corporate income tax at a normal rate of 12.5% on the first EUR12,500 and 25% above that, plus a maximum of 1.5% municipal surcharge. (As at 1 March 2011, US$1 was about EUR0.7.)

Royalties received by a resident individual are considered professional income, if received by the original holder of the IPRs, or as capital income, if not received by the original holder of the IPRs. In both cases, this income is included in the person's overall individual income and subject to income tax at progressive rates up to 42%.

Royalties relating to copyright for literary, artistic and scientific works received by the original resident individual holder, are only considered taxable professional income in relation to 50% of the royalties, up to EUR30,000, together with income from the sale of the IPRs. If this income is over EUR60,000, special relief rates are also available.

Withholding tax

Royalties paid to resident entities (either companies or individuals) are subject to withholding tax at a 15% rate. The tax withheld is taken into account in the final tax payable. The withholding tax only applies to 50% of the royalties if they relate to copyright for literary, artistic and scientific works received by an original resident individual holder.

The payment of royalties to non-resident entities (either companies or individuals) is subject to a definitive withholding tax at a 15% rate, which can be reduced to a minimum of 5% under applicable double-tax treaties.

Portugal has adopted the regime set out in Directive 2003/49/EC on interest and royalty payments (Interest and Royalty Directive), with a transitional period of eight years. This states that qualifying interest and royalties paid between certain associated companies of different EU member states will be subject to withholding tax at a 10% rate until 30 June 2009, a 5% rate until 30 June 2013, and tax exempt after 30 June 2013.

VAT

The licensor must also account for Value Added Tax (VAT) at the normal rate of 23% on the royalties, which should be borne by the licensee.

 
25. What are the main taxes payable by a seller on the disposal of the main IPRs?

Income tax

Income received by a resident company from the sale of IPRs is included in its taxable profits as capital gains, and subject to corporate income tax at a normal rate of 12.5% on the first EUR12,500 and 25% above that, plus a maximum of 1.5% municipal surcharge.

Income received by a resident individual in relation to the sale of IPRs is considered professional income, if received by the original holder of the IPRs, or as capital gains, if not received by the original holder of the IPRs. In both cases, the income is included in the overall individual income and is subject to income tax at progressive rates up to 42%.

Income received in relation to the sale of copyright for literary, artistic and scientific works, received by an original resident individual holder, is considered taxable professional income only in relation to 50% of the royalties, up to EUR30,000, together with income from the royalties of the IPRs. If this income is over EUR60,000, special relief rates are also available.

Withholding tax

Income received in relation to the sale of IPRs by original individual resident holders of these IPRs is subject to withholding tax at a 15% rate. This withholding tax only applies to 50% of the income if relating to the sale of copyright for literary, artistic and scientific works.

VAT

The sale of IPRs is subject to VAT at the normal rate of 23% of the sale price, which should be paid by the buyer.

 

Cross-border issues

26. What international IP treaties is your jurisdiction party to?

In addition to all the applicable EU legislation, as a member of the EU, Portugal is a party to the following main international IP treaties:

  • WTO Agreement on Trade-Related Aspects of Intellectual Property Rights 1994 (TRIPS).

  • WIPO Paris Convention for the Protection of Industrial Property 1883 (Paris Convention).

  • Convention Establishing the World Intellectual Property Organisation 1967.

  • WIPO Madrid Agreement Concerning the International Registration of Trade Marks 1891.

  • WIPO Nice Agreement Concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks 1957.

  • The Geneva Act 1999 of the Hague Agreement Concerning the International Registration of Industrial Designs.

  • Lisbon Agreement for the Protection of Appellations of Origin and their International Registration 1958.

  • European Patent Convention 1973.

  • Budapest Treaty on the International Recognition of the Deposit of Microorganisms for the Purposes of Patent Procedure 1977.

  • Patent Cooperation Treaty 1970.

  • WIPO Berne Convention for the Protection of Literary and Artistic Works 1886 (Berne Convention).

  • WIPO Copyright Treaty of Geneva 1996.

  • Universal Copyright Convention as signed at Geneva 1952.

  • WIPO Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organisations 1961.

  • WIPO Performances and Phonograms Treaty of Geneva 1996.

 
27. Are foreign IPRs recognised in your jurisdiction? Please briefly outline any relevant recognition or registration procedure for each of the main IPRs.

Copyright

Given that protection only depends on the exteriorisation of works (see Question 1), no recognition procedure exists. Portugal is also a party to the Berne Convention, which determines that protection is granted to creators in the entire territory of the Berne Convention. However, registration is always advisable to prove these rights and enforce them against third parties.

Trade marks

Foreign trade marks are only protected if they are registered in Portugal. However in the ownership rights of well-known trade marks and prestigious trade marks can be invoked against registration of similar trade marks (see Question 1). Counterfeiting and imitating unregistered prestigious trade marks is also forbidden.

Portugal is party to the Paris Convention. Owners of a registered trade mark in a country that is party to the Paris Convention can enforce a priority right for its registration in Portugal (to be made in a registration request), provided that the original registration was made no more than six months before filing the registration request in Portugal.

Patents

Portugal is a party to the European Patent Convention, so patents granted under the European Patent Convention are recognised in Portugal. However, the interested party must provide, to the Institute of Industrial Property, a Portuguese translation of the contents of the patent, the new characteristics of the patent (claimed by the owner) and the corresponding drawings.

Provisional protection is granted after publication according to the European Patent Convention, and only on the date the Institute of Industrial Property makes available to the public a Portuguese translation of the new characteristics of the patent (claimed by the owner) and the corresponding drawings.

A similar regime applies to patents granted under the Patent Cooperation Treaty.

Portugal is party to the Paris Convention. Owners of a registered patent in a country party to the Paris Convention can enforce a priority right for its registration in Portugal (to be made in a registration request), provided that the original registration was made no more than 12 months before filing the registration request in Portugal.

 

Reform

28. Please briefly summarise any proposals for reform and state if they are likely to come into force and, if so, when.

It is likely that Portugal will adhere to the London Agreement (formally known as the Agreement on the application of Article 65 of the EPC), although whether Portugal adopts the EPO official language or if Portugal will require claims inserted in patent requests filed before the EPO to be still translated into Portuguese is not yet certain.

Portugal is also close to adhering to the single EU Patent enhanced co-operation mechanism, which is to establish rules applicable for the filing of a single patent application for several EU member states, without having to file any additional applications in each country.

 

Contributor details

Nuno Cadima Oliveira

F Castelo Branco & Associados

T +351 21 358 75 00
F +351 21 358 75 01
E nco@fcblegal.com
W www.fcblegal.com

Qualified. Portugal

Areas of practice. IP; corporate and commercial law.

Recent transactions

  • Advising a major national pharmaceutical client on cross border asset purchase operation.
  • Representing a national higher education establishment in several injunction and judicial proceedings regarding IPR infringement, both in Portugal and abroad.
  • Advising a multinational client on software protection from infringement by a third party.

For more details of recent transactions, publications, and so on, see full PLC Which lawyer? profile here.


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