For those less familiar, hemp is a plant from the botanical class of Cannabis sativa cultivars. As recognized in the STJ decision, it is unsuitable for producing psychotropic substances if it contains less than 0.3% tetrahydrocannabinol (THC).Therefore, it cannot be considered proscribed under the Narcotics Law, making activities involving hemp lawful.

What happened?

On February 12, 2025, the STJ upheld its decision, within the context of a motion for clarification, requiring Anvisa to regulate and create the necessary rules for hemp-related activities  by May 19, 2025.

Anvisa and the Attorney General’s Office (AGU) requested a deadline extension of  12 months, citing the need for more time to meet all the requirements of the regulatory process.

What was decided?

In November 2024, the STJ issued a historic decision clearly differentiating psychoactive cannabis from hemp, allowing the economic exploitation of hemp for exclusively medicinal and pharmaceutical purposes. The main points of the decision include:

• With a THC content of less than 0.3%, hemp cannot be considered proscribed by the Narcotics Law, as it is unsuitable for producing psychotropic substances.
• In the absence of legal provision for the industrial use of hemp, the Brazilian State must establish public policies for its management.
• Anvisa’s rules prohibiting the importation of seeds and the domestic handling of Cannabis (in general) must be interpreted in accordance with the Narcotics Law, not encompassing hemp.
• It is lawful to grant health authorization for the planting, cultivation, industrialization, and commercialization of hemp by legal entities for exclusively medicinal and pharmaceutical purposes, with regulations to be issued by Anvisa and the federal government within six months from the STJ decision.
• Anvisa and the Federal Government are responsible for adopting guidelines to prevent the diversion or misuse of seeds and plants, ensuring the suitability of the legal entities involved.

Why is this important?

The STJ decision is a significant milestone, as it stipulates that Anvisa regulates hemp-related activities, providing the sector with more legal certainty to operate in Brazil and allowing the development of economic activities related to hemp in the country.

Who needs to know?

This is relevant to all those who may have activities related to hemp, such as farmers, breeders, agronomists, seed companies, fertilizer companies, agricultural pesticide companies, and other inputs, researchers, scientists, doctors, and the industry as a whole, especially pharmaceutical industries.

What are the next steps?

With the deadline set for May 19, 2025,  it is expected that the hemp regulation will be discussed in the upcoming public ordinary meetings (ROPs) of Anvisa’s Collegiate Board (DICOL) in the coming months. The regulated Cannabis sector should stay informed about these discussions and prepare for the forthcoming regulations.

Finally, it is important to clarify and distinguish that the activities related to hemp should not be confused with the June 2024 decision by the Supreme Federal Court (STF) regarding the presumption that individuals with up to 40 grams of marijuana or up to six plants are users, not drug dealers. In this case, “marijuana” is suitable for producing psychotropic substances and will not be addressed here.

Our Life Sciences & Healthcare team at Souto Correa is available for any questions about these topics and their possible developments through the email: lifesciences@soutocorrea.com.br.

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Such information will support the preparation of the Regulatory Impact Analysis (“RIA”) before CMED creates rules on specific aspects related to the pricing criteria for advanced therapy products.

According to CMED, there is a significant time gap between the current legal framework for drug pricing, published over 20 years ago (Law 10.742/2003 and Resolution 02/2004), and the marketing authorization rule for advanced therapy products (RDC 505/2021), resulting in these products being categorized as omitted cases by CMED.

Therefore, CMED recognizes that establishing criteria for pricing advanced therapy products will promote greater transparency, public integrity, and legal certainty, resulting in regulatory alignment with best regulatory practices.

Contributions to the Notice of Call will be made through this link and may be submitted between February 10 ^th and March 28 ^th, 2025. The RIA results and report will be published on the CMED website.

Our Life Sciences & Healthcare team is available if you have any questions about this matter and its possible developments via email: lifesciences@soutocorrea.com.br.

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Well! Looking back at 2024, we put our crystal ball to work, and our Life Sciences & Healthcare team has listed 17 relevant topics (and there could be more) that sectors regulated by the National Health Surveillance Agency (“Anvisa”) and the National Regulatory Agency for Private Health Insurance and Plans (“ANS”) should pay attention to.

For easy reference and access, the 17 topics are:

1. National development strategy for the Economic-Industrial Health Complex (“CEIS”): PDPs and PDILs

2. “Judicialização” of health

3. Anvisa’s administrative sanctioning procedures

4. Regulatory Sandbox: ANS and Anvisa

5. New composition of the Boards of Directors: Anvisa and ANS

6. Clinical trials

7. Pharmaceuticals’ price regulations

8. Plant-based products

9. Cannabis

10. GMPc inspections

11. Novel foods and ingredients

12. Tecnovigilance: the post-market of medical devices

13. Discount Cards

14. Financial Regulatory Mechanisms

15. Online Sales of Health Plans

16. Plan technical review

17. Health plan adjustments and pricing policies

1. National Development Strategy for the Economic-Industrial Health Complex (“CEIS”): PDPs and PDILs

Relaunched at the end of 2023, the Partnerships for Productive Development (“PDPs”) involve the transfer of technologies from private institutions to public laboratories, for the local production of medicines to reduce the vulnerabilities of the Brazilian Public Health System (also known as SUS). Although not an unprecedented subject in Brazil, the resumption of PDPs was guided by an audit by the Federal Audit Court (“TCU”) carried out in 2017 (but with results released in September 2023), in which indicated several gaps in the previous regulation that needed improvement, such as the provision of objective criteria to define strategic products, as well as the selection of partners.

Also, part of CEIS, it was also launched the Local Development and Innovation Program (“PDIL”). Unlike PDPs, which aim to transfer already known technologies from private laboratories, PDIL aims to foster the local development of innovative solutions.

In September 2024, the Ministry of Health (“MoH”) received 175 PDIL and 147 PDP proposals, which are currently under analysis. The announcement of the proposals that will be implemented is expected throughout 2025.

2. “Judicialização”of Health

In Brazil, the Judiciary also plays an important role in health issues, with patients often suing the government or insurers for the adjudication of their constitutional rights. This phenomenon in Brazil called “Judicialização” and it cost the MoH more than BRL 2 billion (US$ 317 million) in 2024 and private insurers BRL 15 billion (US$ 2.3 billion) over the last four years.

In September 2024, the Supreme Federal Court (STF) concluded the rulings on 2 themes of general repercussion[1],  addressing important issues:

• The obligation of the government to provide drugs not reimbursed by SUS, regardless of their cost (known as “Theme 6”).

• Which federative entity (Union, States or Municipalities) should bear the costs of the judicialization of health, in addition to aspects related to the passive procedural legitimacy of the Union in lawsuits related to the supply of medicines (“Theme 1234”).

Theme 6 (or Binding Precedent 61) defined stricter criteria to be observed by the Courts for the granting of medicines, thus expecting more difficulty for patients in accessing treatments. The highlights of such criteria are the need to establish the illegality of the negative Health Technology Assessment (HTA) decision of CONITEC/SECTICS (HTA authorities in Brazil), as well as to demonstrate high-quality scientific evidence, such as randomized clinical trials, systematic reviews or meta-analyses.

A topic that draws attention regarding Theme 1234 (or Binding Precedent 60) is the possible literal interpretation that drug suppliers must honor discounted prices proposed in HTAs before CONITEC, even in case of different conditions considering what was assessed during the HTA.

There are still definitions regarding the Themes, either due to Motions of Clarification filed against Theme 6, or due to the still pending creation of a national platform that will centralize court orders involving the acquisition of medicines by the SUS. On the one hand, given the criteria currently established for granting access to medicines, there is a perception that judicialization will require greater governance and organization. On the other hand, the first feeling for the plaintiffs is that “the bar has been raised” and could generate disproportionate consequences that will require review.

3. Anvisa’s Administrative Sanctioning Procedures

Open from December 20, 2024, to February 2, 2025, Public Consultation 1297/2024 discusses a proposed Resolution on the guidelines to be observed in Anvisa’s Administrative Sanctioning Procedures (also known as “PAS”), applicable to all sectors regulated by the Agency.

The initiative to regulate PAS was expected, especially due to the TCU audit concluded in 2020 related to the topic.

The draft proposed by Anvisa brings important changes to the current procedure that may affect the regulated sector, including:

• The express provision of “non-admission” of the suspensive effect of appeals filed against Anvisa’s precautionary measures.

• The regulation of the Conduct Adjustment Declaration (“TCAC”) within the scope of the PAS.

•  Greater clarity on the fine definition, with the publication of a table with minimum and maximum values ​​which considers (i) company size, (ii) nature of the infraction and (iii) risk for the public. However, the practical characterization of the risk and nature remains discretionary and linked to the officials involved in the analysis. Thus, adjustments are necessary to enhance the clarity of the proposed rule.

• The express provision that PAS is a responsive inspection. In other words, it must consider the proportional and efficient selection of administrative measures, the health risk involved, the precedents history of the offending company and the need to prevent or mitigate health risks.

This will certainly be a topic of great importance for the sector in scenarios where discussions of possible violations are taking place, as it provides greater predictability and proportionality to the penalties, although the proposal may be improved based on the best practices adopted by other regulatory agencies.

4. Regulatory Sandbox: ANS and Anvisa

In December 2024, through Normative Resolution 621, ANS regulated the Regulatory Sandbox in supplementary healthcare, through which ANS temporarily suspends or relaxes the obligation to comply with standards, to allow companies to test innovative products and services

The regulation establishes that the implementation of the regulatory sandbox will be linked to the proof of the need for a supervised environment, is focused on the development and assimilation of innovations in the supplementary health sector. Once these procedures are completed, temporary authorizations will be issued to participants, with an initial duration of up to 24 months, extendable for another 12 months. Admission will be formalized through the signing of a Specific Admission Term, which will define the conditions applicable to the period of implementation.

In turn, Anvisa published in September 2024 the Partial Report on Regulatory Impact Analysis on the Sandbox within its scope, opening a period for contributions in public consultation. In December 2024, Anvisa launched Directed Consultation 04/2024 – open until January 31, 2025 – which aims to receive contributions on the draft call for the selection of participants in the Regulatory Sandbox Pilot Project aimed at Personalized Cosmetic Products.

With such initiatives, to be improved throughout 2025, it is expected:

• Greater incentive for innovation in health.

• Faster and less costly development of new products and services.

• Maintaining the technical and regulatory rigor of agencies, so that they can fulfill their institutional missions of protecting the health of Brazilians, without hindering new realities.

5. New composition of the boards of directors: Anvisa and ANS

With interim members for almost one year and a half and currently with only two effective members, the Anvisa board of directors, which is composed of five  directors, has three professionals appointed by the President of the Republic. These appointments must be reviewedand approved by the Federal Senate in 2025.

Regarding ANS, it is worth mentioning the nomination of Mr. Wadih Nemer Damous Filho, current head of the National Consumer Secretariat (Senacon), who has been nominated for President of ANS.

There is still no news about the dates for the hearings of the nominees in the Federal Senate, a mandatory step for the appointments to be finalized.

6. Clinical trials

After nine years of discussion in the National Congress, Law 14.874 was published, regulating clinical trials in Brazil.

Previously treated as an infra-legal matter, the new law establishes rules to be followed in clinical trials, including the creation of the “National System of Ethics in Research involving Human Beings”, parameters for the protection and remuneration of research participants, and the responsibilities of the researcher and sponsor.

An important highlight was the President’s veto regarding the maximum period of five years for the post-study supply of experimental drugs, counting from the date they are commercially available in the country. This veto was criticized by sectors, such as patients’ associations and industry, given that maintaining post-study access for an indefinite period could discourage trials in Brazil, especially the one focused on rare and ultra-rare diseases.

The market awaits, in 2025, both the analysis of the vetoes by the National Congress and the regulation of the law aiming to bring greater clarity and detail to the national authority that will regulate the topic, as well as the obligations and procedures established.

7. Will the new drug price regulations arrive in 2025?

For years, the market has been discussing the anachronism of price regulation, governed by a 21-year-old  norm. Several proposals have already been presented and debated over the last two decades, without any concrete progress. On the other hand, with the exponential growth of biosimilars and gene therapies, it has become clear the impossibility of moving towards a sustainable healthcare model without regulation that provides predictable criteria in line with new technologies and contract models.

Additionally,, in December 2024, CMED held a public hearing to present a proposal to revise its internal regulations, currently outlined in Resolution 3/2003 and opened an opportunity for contributions.

The objectives of the review are, among other things, to update the competencies and attributions of the bodies that constitute CMED, to provide predictability to the entity’s processes, and to expedite analysis through mechanisms such as “block” decisions and virtual deliberations.

8. Plant-based products

Plant-based products are a worldwide reality, and Brazil is no different. These foods, made from plant raw materials that simulate the sensory and functional characteristics of animal products, have gained prominence in the Brazilian market due to the growing demand for sustainable and innovative alternatives.

After launching a public consultation on the subject in 2023, the Ministry of Agriculture (“MAPA”) held a public hearing in September 2024 to discuss the specific regulation of these products.

The meeting was widely attended by representatives of the regulated sector (animal and plant-based products) and government bodies, , with MAPA and Anvisa’s technical collaboration being a highlight.. During the event, topics such as labeling, identity and quality standards, and the regulatory requirements of these products were discussed.

After consensus adjustments at the event, MAPA has finished the regulation’s draft, which is now undergoing internal procedures for publication.

The expectation is that 2025 will bring the first formal regulation of the sector, establishing clear guidelines for the labeling, registration, and inspection of similar plant products.

9. Cannabis

The year 2024 brought important milestones for the cannabis market in Brazil, including a decision by the Brazilian Superior Court of Justice (“STJ”), which differentiated industrial hemp from psychoactive cannabis, allowing the economic exploitation of industrial hemp for medicinal and pharmaceutical purposes.

As a result of the STJ’s decision, MAPA is expected to publish regulations on industrial hemp in 2025, expanding its use beyond medicinal and pharmaceutical purposes.

In parallel, Anvisa is expected to review RDC 327, whichestablishes strict manufacturing and control standards for cannabis products, opening opportunities  for regulatory adjustments and greater integration between the demands of the pharmaceutical industry and the cannabis market.

10. GMPc Inspections

In recent years, Anvisa has sought support from state and municipal health departments to decentralize inspection and health monitoring activities, corroborating the commitment made more than five years ago through Normative Instruction 32/2019.

Additionally, the lack of human resources at Anvisa has been a challenge for meeting deadlines and perform inspections.

To address this, Anvisa published a series of ordinances delegating the authority to local inspection agenciesto verify compliance with Good Manufacturing Practices (“GMP”) for medical devices of classes III and IV (high and very high risks), and medicines (except medicinal gases).

The objective is for local authorities to be able to issue GMP reports and certificates for companies located in their jurisdictions. Local authorities in six states have already received this delegation.

The expectation is that in 2025 the publication of GMP Certificates and business operating authorizations (“AFEs”) will be faster and that there will be better harmonization between the inspections carried out by local authorities and Anvisa.

11. Novel Foods and Ingredients

Anvisa’s RDC 839/2023 came into force on March 16, 2024, and established:

• General Approvals for ingredients which, due to their manufacturing, study and approval characteristics, allow different companies to market them.

• Specific Approvals when the key information for evaluating the ingredient is confidential, granting exclusivity to the company that supported the ingredient’s approval with its dossier.

Anvisa has recognized that transparency is an essential rule for maintaining consumer confidence; however, it is equally important that companies protect their significant investments in R&D, formalized in the documents submitted for Anvisa’s approval.

Therefore, confidentiality petitions became essential in 2024 to ensure protections for trade secrets during and after the conclusion of the evaluation process.

The expectations for 2025 reflect the uncertainty about how confidential information will be safeguarded by Anvisa and how other information will be disclosed to the public.

A Public Consultation is expected to be opened in the first quarter of 2025 for a new Normative Ruling that will contain the specifications of novel ingredients not included in other lists.

Regarding Anvisa’s RDC 843/2024 and IN 281/2024, both brought updates and alignment of pre-market control of foods based on risk criteria, especially for regularization through (i) registration with Anvisa, (ii) notification with Anvisa, and (iii) communication to local health surveillance authorities.

The challenges especially impact on the food supplement categories, as the notifications have raised some practical questions and resulted in cancellations by Anvisa due to the lack of stability studies, the use of unauthorized ingredients, and other alleged non-conformities.

For 2025, the food industry needs to be attentive to the changes and the practical effects of these changes, remaining open to dialog with Anvisa and intensifying adaptation to the new standards and regulatory requirements.

12. Tecnovigilance: the post-market of medical devices

Issues involving post-market actions are increasingly present in the routine of companies, especially in the medical device sector. During Hospitalar in May 2024[2], inspectors from the Anvisa’s Technovigilance Management commented on some changes in the standard that would be proposed for the regulated sector.

The main objective is to harmonize the guidelines of the International Medical Devices Forum Regulators (IMDRF), including the possible implementation of specific post-market inspections focused on technovigilance procedures.

Even without specific regulatory changes, it is already possible to observe some inspections being carried out by Anvisa with the focus of evaluating the implementation of technovigilance in companies.

The promise for 2025 is the publication of a Public Consultation aiming to update post-market standards to reflect this new approach.

13. Discount Cards

One of the most significant developments stemming from the regulatory sandbox established by ANS concerns the regulation of discount cards within the scope of supplementary health care. This segment has shown significant growth in recent years, and now accounts for approximately 4 to 5 million users in Brazil.

The decision to advance the regulation of this matter was based on the understanding consolidated by the STJ in the judgment of the Internal Appeal (AREsp 2.183.704-SP), under the reporting of Justice Herman Benjamin. In this ruling, it was recognized that ANS has the authority to supervise and regulate discount cards, given the connection to the supplementary health care sector.

As highlighted by the decision, even though prepaid health cards as discount cards are not included in the definition of healthcare plans, they constitute a legal relationship between consumers and providers of medical services. This dynamic closely aligns with activities regulated by the legislation applicable to the supplementary health care sector, particularly regarding consumer protection and ensuring access to quality medical services.

Thus, throughout 2025, we should expect developments regarding the definition and regulatory parameters that will guide the operation of discount cards in Brazil.

14. Financial Regulatory Mechanisms

In 2025, the modernization of financial regulatory mechanisms stands out in the supplementary health care sector, as outlined in Public Consultation 145, promoted by ANS. Among the proposed changes, the establishment of limits for copayments and deductibles applicable to healthcare plans’ beneficiaries is notable, aiming to balance financial sustainability with consumer protection. The proposals include:

• A maximum copayment rate of 30% per procedure performed.
• A monthly cap of 30% of the contracted premium.
• An annual limit equivalent to 3.6 times the premium amount.

Additionally, the exclusion of certain procedures from copayments and deductibles is proposed, such as therapies for chronic diseases and hemodialysis sessions.

Although these changes aim to strengthen consumer protection and ensure greater predictability in the funding of services, they raise concerns about the financial impact on healthcare plans operators, particularly in high-risk portfolios. Moreover, the implementation of the new rules may foster litigation, worsening the scenario of disputes in the sector.

To mitigate adverse effects, it is expected that the implementation of these measures will occur gradually, accompanied by continuous monitoring of the operators and the market.

15. Online sales of health plans

The digitalization of the supplementary healthcare market has established itself as an irreversible trend. Since the enactment of Normative Resolution 413/2016, the ANS has regulated the electronic sales modality, establishing guidelines for operators to provide clear, precise, and accessible information to consumers. To date, the offering of health plans through digital platforms remains optional, coexisting with in-person channels.

The ANS’s new initiative aims to make online commercialization mandatory for health plan operators, seeking to expand consumer access, provide greater convenience during the contracting process, and align the sector with contemporary digital practices. Nevertheless, there is no indication that traditional channels, such as in-person sales, will be discontinued. On the contrary, the coexistence of diversified modalities is envisioned to ensure consumer freedom of choice and to respect different audience profiles.

While this mandatory measure represents a significant step toward modernizing the sector, it imposes important challenges, especially for operators that have not yet adopted digital sales. Technological adjustments, investments in team training, and compliance with specific regulatory requirements will be necessary.

Moreover, the obligation requires attention to information security, transparency in data provision, and ensuring the usability of digital platforms—crucial factors for maintaining consumer trust and the functionality of the model.

Considering this proposal, it is essential that the sector closely monitors regulatory developments, analyzes the obligations that will be imposed, and plans the necessary adaptations for its effective implementation.

16. Plan technical review

The ANS is planning to implement a methodology in 2025 aimed at the technical review of individual and family health plans. The initiative seeks to provide greater economic and financial balance to operators facing exceptional situations of imbalance, in addition to the annual adjustments calculated based on the Individual Plan Adjustment Index (IRPI).

The proposal includes the possibility of applying exceptional adjustments, conditioned on the operators proving economic imbalances that compromise the plan’s sustainability. To this end, ANS intends to develop objective, clear, and transparent criteria to regulate the procedures for requesting, calculating, and implementing these adjustments.

Among the points to be regulated are the documentary requirements, the economic and actuarial metrics that will support the evaluation of requests, as well as the limits for applying these adjustments to safeguard consumer rights.

The criteria and standards are still in the formulation phase and will be presented during public hearings promoted by ANS. The expectation is that the new regulation will be finalized and published by the end of 2025, with implementation scheduled for January 2026.

17. Health plan adjustments and pricing policies

Adjustments in health plans remain one of the most debated issues in the supplementary health care sector, representing one of the main factors driving litigation. Data presented by the Brazilian Institute for Consumer Defense (“Idec”), through Letter 59/2023/Coex, shows that, in an analysis of 113 judicial decisions issued by 11 courts between 2014 and 2017, the questioned adjustments averaged 89%. Moreover, in 75% of the cases analyzed, the Judiciary rejected the application of the adjustments, favoring the contracting parties.

In response to this scenario of disputes, ANS is starting the year with proposals to improve the regulation of adjustments applied to health plans. Among the main proposed changes, the following stand out:

• Prohibition of combining financial adjustment rates and claims ratio adjustments.
• Possibility of terminating collective contracts on their anniversary date.
• Grouping of collective contracts with fewer than 1,000 beneficiaries.

The proposals presented by ANS demonstrate an effort to mitigate conflicts related to adjustments and reduce litigation in the sector, seeking a greater balance between the financial sustainability of operators and consumer protection. However, these changes will also require adaptations by operators, especially in implementing stricter criteria for managing and calculating adjustments.

Our Life Sciences & Healthcare team is available if you have any questions about these topics and their possible developments via email: lifesciences@soutocorrea.com.br.

[1] Extraordinary Appeals 1.366.243 e nº 566.471.

[2] Organized by Informa Markets, Hospitalar is one of the most important business and healthcare content events in Latin America.

O post 17 Trends for the healthcare market in 2025 apareceu primeiro em Souto Correa Advogados.

Binding Precedent No. 61

The court-ordered provision of medication registered with ANVISA but not included in the Unified Health System (SUS) dispensing lists must observe the theses established in the judgment of General Repercussion Theme 6 (RE 566.471).

Theme 6 context

Although the established thesis states that the absence of a medication in the SUS lists prevents its provision by a judicial decision, there are exceptions, if the following cumulative requirements are met:

• Administrative refusal to provide: The medication must have been administratively refused, as per item ‘4’ of General Repercussion Theme 1234.

• Illegality or absence of incorporation request by Conitec: There must be unlawfulness in the act of not incorporating the medication by Conitec, failure to request incorporation, or delay in its evaluation, according to the deadlines and criteria provided in the legislation.

• Impossibility of substitution: There must be no possibility of substitution by another medication listed in the SUS and clinical protocols and therapeutic guidelines.

• Scientific evidence: The efficacy, accuracy, effectiveness, and safety of the medication must be proven based on evidence-based medicine, supported by high-level scientific evidence such as randomized clinical trials and systematic reviews or meta-analyses.

• Clinical indispensability: The clinical necessity of the treatment must be proven through a well-founded medical report, including a description of the treatment already performed.

• Financial incapacity: The patient must prove financial incapacity to bear the cost of the medication.

Relation to Theme 1234

Theme 1234 complements this discussion by addressing the passive standing of the Union and the jurisdiction of the Federal Court in demands for the provision of medications registered with ANVISA but not standardized by SUS. It establishes that administrative refusal to provide is one of the requirements for the court-ordered provision of these medications.

Details of Theme 1234

• Passive standing of the Union: The Union must be included as a defendant in actions seeking the provision of medications not incorporated into SUS public policies but registered with ANVISA. This means that the Union is responsible for responding judicially in these cases.

• Jurisdiction of Federal Courts: Demands related to medications not incorporated into SUS public policy but registered with ANVISA must be processed in the Federal Jurisdiction when the annual cost of the specific medication treatment is equal to or greater than 210 minimum wages. If the cost is between 7 and 210 minimum wages, the action will be judged in the State Court, with the Union reimbursing part of the expenses.

• Criteria for Defining Non-Incorporated Medications: Non-incorporated medications are those not included in SUS public policy, medications provided in PCDTs (Clinical Protocols and Therapeutic Guidelines) for other purposes, medications without ANVISA registration, and off-label medications (used outside approved indications) without PCDT or not included in the basic component lists.

It is expected that court decisions about medication provisions will be standardized with the STF’s Binding Precedent.

The Life Sciences & Healthcare team is monitoring the application of this ruling in the courts.

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It is the Merger Case No. 08700.006273/2023-87, through which Galo Holding S.A. (Galo Holding) acquired the corporate control of Atlético Mineiro S.A.F. (Atlético SAF), previously held by CAM. Galo Holding’s controlling shareholders also hold shareholdings in BMG Bank, MRV Construction, LOG Logistics Solutions, and Bank Inter.

CADE cleared the aforementioned transaction on September 20, 2023.

The transaction refers to an investment agreement among CAM, Galo Holding and Atlético SAF, through which CAM and Galo Holding will provide Atlético SAF with capital and exploration rights over MRV Soccer Stadium.

The rights transferred by CAM to Atlético SAF include sponsorship contracts, manufacturing and selling of soccer team’s goods, rights to run the MRV Soccer Stadium, men’s and women’s soccer teams and youth teams, as well as broadcasting rights and the soccer team’s intellectual property.

Relevant markets affected included:

1. “advertising, sponsorship and marketing rights for sporting events”; and
2. “professional practice of soccer”, which includes markets in which professional soccer teams buy and sell athletes (FIFA’s global transfer report).

Brazil leads the ranking of soccer teams with the largest fan bases in the world. In Brazil, soccer is the sport that most attracts private investments. With the enactment of Law No. 14.193/2021, which enabled soccer teams to migrate their legal structure from associations into SAF, it is expected that the transactional activity in this sector will rise exponentially in the coming years, driven by passions and emotions of a nation fascinated by soccer.

This expectation goes hand in hand with the issuance, by the Brazilian Securities and Exchange Commission (CVM, the Brazilian acronym), of the Guidance Opinion No. 41/2023, which allowed SAFs to file for registration with CVM so that SAFs may engage in equity and debt transactions in the Brazilian capital market, raising capital through different sources, such as debentures, structuring of investment funds, securitization, crowdfunding, and IPOs.

If you want to better understand how your business could benefit from this trend involving SAFs, please contact our team at Souto Correa.

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An agent in the context of the sale or purchase of goods, services, or both in Brazil is typically an intermediary with authority to negotiate the terms of sale or purchase on behalf of another person or entity (the “principal”) but not to buy goods for resale or contract with customers on its own account. In Brazil, this type of agent is called a commercial representative, and the term “agent” or “agency” as used in the remainder of this Note refers to an intermediary in the context of the sale or purchase of goods and services.

The appointment of an agent is a commonly used channel for the sale of goods and services in Brazil and has many benefits for a foreign principal, including that the principal benefits from the agent’s knowledge of local laws, trading conditions, and customs. However, counsel to a foreign principal planning to appoint an agent to sell its products or services in Brazil should consider a number of risks and requirements that may arise.]

This Practice Note discusses:

• Key legal and regulatory requirements governing the appointment of an agent to market goods and service on behalf of a foreign principal in Brazil, including:
  • legal formalities;

• tax requirements;

• competition laws; and

• product regulatory requirements and product liability laws.

• Key considerations for appointing an agent and structuring the agency relationship in Brazil, including:

• types of agents;

• relationship of the parties;

• import requirements;

• intellectual property issues; and

• online sales considerations.

• Key provisions in the agency agreement.

• Issues related to termination of the agency relationship in Brazil.

For an overview of agents and other participants in the global supply chain, see Practice Note, Global Supply Chain: Overview.

Governing Legislation and Regulation
Legal Framework

Agency agreements in Brazil are regulated by the following laws:

• Law No 4.886/1965 (Agency Law), which regulates the commercial representative (agent).

• Articles 710 to 721 of the Brazilian Civil Code (Law No 10 406/2002) (BCC).

If there is a conflict between the two laws, the Agency Law generally prevails over the provisions of the BCC (according to court practice and doctrine) since it is a specific statute. However, because the agent is deemed the more vulnerable party and the BCC is the more recent law, if there is a more favourable rule for the agent in the BCC, the BCC provision prevails (see Types of Agent for an exception to this rule).

In October 2019, a legislative proposal that could affect agency agreements (Bill No 5.761/2019), was presented to Brazilian Congress. The Bill intended to amend some provisions of the Agency Law related to the agent’s remuneration. However, the legislative proposal was withdrawn from the Chamber of Deputies in August 2021. Currently, there are no other legislative proposals regarding agency agreements.

There is no distinction between agency law for the sale of products and services and general agency law in Brazil. Any agency agreement is regulated by both the Agency Law and BCC, regardless of its object.

Legal Formalities and Due Diligence
Agent Registration

The BCC and the Agency Law regulate agency agreements (see Legal Framework). Generally, an agent must be registered with the Council of Commercial Representatives (CORE) to perform its activities (Article 2, Agency Law).

Historically, case law had consistently held that a lack of registration with the CORE is a mere irregularity and therefore the rules of the Agency Law still apply to an unregistered agent (see for example, REsp 1539465, STJ, 14/09/2016, Justice Moura Ribeiro; AC 70075363135, TJRS, 16th Civil Court, 08/11/2018, Judge Rapporteur Niwton Carpes da Silva; AC 0020848-43.2016.8.26.0100, TJSP, 20th Private Civil Chamber, 09/04/2018, Judge Rapporteur Maria Salete Corrêa Dias, TJMG, 10/03/2022, 12 th Private Civil Chamber, Judge Rapporteur Saldanha da Fonseca).

In a 2018 precedent, however, one of the sections of the Superior Court of Justice (STJ) held that the lack of registration with the CORE does not prevent an agent from receiving commissions, but the provisions of the Agency Law do not apply

(including with regard to indemnification), and the case should be interpreted based on the BCC (REsp 1678551, STJ, 3rd Section, 06/11/2018, Justice Paulo de Tarso Sanseverino). This precedent has been endorsed in 2022 in a recourse questioning supposing diverging views of the STJ’s private law chambers. However, the decision stated that the STJ has a unanimous view on the matter considering the current rulings on the matter by the Court (EDcl no Resp: 1678551, Justice Antonio Carlos Ferreira, 08/02/2002). See further, for example Resp 1698761, STJ, 3rd Section, 09/03/2021, Justice Ricardo Villas Bôas Cueva; AgInt no AREsp: 1543568, STJ, 4th Section, 10/05/21, Justice Raul Araújo; AgInt no AREsp: 665999, STJ, 4th Section, 21/06/2021, TJSP, 20 th Private Civil Chamber, 22/07/2021, Judge Rapporteur Roberto Maia; AC: 00012761820218260168, TJSP, 17 th Private Civil Chamber, 13/09/2021, Judge Rapporteur Afonso Bráz.

In summary, even though historically registration in the CORE was not required to apply the Agency Law, as of 2018 a relevant change has taken place. Currently, in a dispute involving an agent in Brazil that is not registered with the CORE, the agent will have a much lower chance of success in obtaining rights under Agency Law (for example, the termination indemnification under Article 27 j of the Agency Law). In this regard, to reduce costs in case of an eventual termination, a supplier should expressly exclude the application of the Agency Law and align with the prospective agent that it should not register with the CORE.

Further, before entering into an agency agreement in Brazil, a supplier should conduct preliminary due diligence and vetting of the prospective agent. It is common that the supplier requires the agent to provide the below documents, both from the agent’s legal entity and its main shareholder’s (natural persons), including:

• Serasa or Boa Vista credit ratings/reports (can be obtained online).

• Updated certificate from the commercial registrar (certidão simplificada).

• The latest version of the agent’s articles of association.

• The following governmental certificates that attest to the tax and social security regularity:

• federal tax and liabilities clearance certificate (Certidão Conjunta Negativa de Débitos relativos a Tributos Federais e à Dívida Ativa da União);
  • municipal tax clearance certificate (Certidão Municipal de Débitos Imobiliários e Mobiliários) from the cities where the agent conducts its business/is registered; and
  • state tax clearance certificate (Certidão Estadual de Débitos Inscritos e não Inscritos) from the states were the agent conducts its business/is registered.

• If the agent has employees, the following certificates:

• Joint Labor Debts Clearance Certificate (Certidão Conjunta Negativa de Débitos Trabalhistas); and

• -Government Severance Indemnity Fund for Employees Clearance Certificate (Certificado de Regularidade do Fundo de Garantia do Tempo de Serviço).

Many of these certificates can be obtained online, but they are all written in Portuguese.

There are also relevant online resources that can be useful, such as UpMiner reports that can conduct a comprehensive public records search, and include keyword Google searches for compliance-related matters.

Language of Agreement

An agreement does not need to be executed in Portuguese or any other particular language to be considered valid or enforceable in Brazil. However, it must be accompanied by an official Portuguese translation when submitted to a Brazilian court. This also applies to any other document presented in court (Article 192, Brazilian Civil Procedure Code – CPC).

It is common for agreements executed between a Brazilian party and a party from a different country to be written in two languages (in two columns), with a clause providing that one of the versions prevails in the event of inconsistencies or divergence.

Execution Formalities

There are no execution requirements for the agreement to be valid and enforceable in Brazil. If the parties choose to have a written agreement, it is recommended that the parties initial all pages of the agreement and sign at the end. It is common for the parties’ signatures to be notarised, but it is required for the validity of the agreement. The agreement does not necessarily need to be written.

The agent needs no formal authorisation from the principal to perform the agreement. The agreement’s terms and conditions are sufficient to regulate its activities.

However, for the agreement to be enforceable directly through execution proceedings, without the need to produce evidence (so the contract is deemed an enforceable title), it must be signed in the presence of two witnesses. If the agreement is executed abroad and enforced in Brazil, it must be apostilled, according to the manner specified in the Hague Apostille Convention (if the foreign country is also a member). A Portuguese sworn or court-appointed translation must also be apostilled.

Registration Formalities

Although the agent must register with CORE (see Agent Registration), the agency agreement does not need to be registered to be valid and enforceable.

Authority of Agent

In an agent and principal relationship, the agent arranges offers and purchase orders from customers on behalf of the principal. The agent can only participate in the execution of the actual sales if the principal has expressly authorised this. It is common in Brazil for an agent to have as their sole responsibility the marketing of products and services on behalf of the principal. The agent transmits any orders to the principal who then closes the deals directly with the clients.

The parties can indicate in the agency agreement if the agent has the authority to conclude contracts on the principal’s behalf. The agent’s powers to bind the principal must be expressly agreed by the parties (Article 710, sole paragraph, BCC).

However, even without written authorisation granting the agent the power to enter into contracts on the principal’s behalf, it would be difficult for the principal to argue that it is not bound by a transaction concluded by the agent in its name if both:

• The agent consistently and habitually concludes contracts on the principal’s behalf.

• The principal accepts the transactions entered into by the agent on its behalf, without restriction.

This is based on the principle of good faith and a principle known as the “appearance theory.” Therefore, the parties should expressly regulate the agent’s powers to bind the principal in the agency agreement. The principal should also monitor the agent’s day-to-day transactions, to make sure the agent is not actually concluding (without the principal’s authorisation) contracts on its behalf, as otherwise there is a risk the principal may be bound by the agent’s actions (even where the agreement expressly disallows the agent to act in the principal’s name).

Liability of Agent for Sales Contracts

The agent can be personally liable for any problems in relation to essential activities under its responsibility in the conduct of its business, such as failure or delay in delivery when the agent was responsible for arranging the transportation. The agent is also personally liable for illicit conduct performed against the principal’s orders.

The general rule is that the agent does not conclude transactions in its own name (see Authority of Agent). In this context, the agent would only incur contractual liability itself to a customer in case of fraud, misconduct, or if the agent acts beyond the powers granted by the principal (Article 29, Agency Law and Article 712, BCC). However, even in this instance, the principal can be held jointly liable, and, in parallel, the principal can seek indemnification from the agent, if the principal is (unduly) held liable by the customer for acts solely attributable to the agent.

If the agent acts in its own name (which is not common) then all the relevant contractual rules apply as the agent would be acting in the capacity of a party to the agreement. If there are manufacturing defects attributable to the principal, such claims could still be made against the agent (see Product Regulatory Requirements and Product Liability Laws). If the agent acts outside the scope of the powers that were granted or practices acts of misconduct or negligence, the principal may terminate the agency agreement for cause (Article 35c, Agency Law) (see Terminating the Agency Agreement).

Agent’s Duties Implied by Law

Article 712 of the BCC states that the agent must act with diligence and observe the instructions given by the principal. This duty is derived from the general duty to act with good faith under the Article 422 of the BCC. Under Brazilian law, good faith is a general principle applicable to any type of contract, including agency agreements. If the agent acts in accordance with the principal’s orders or instructions and within the limits of the contract, then the agent complies with its legal duty to act with diligence and, ultimately, with good faith.

An agent must also:

• Supply detailed information to the principal regarding the business under its care.

• Dedicate itself to expanding the business.

• Promote sales of the principal’s products or services.

• Register with the CORE (see Agent Registration).

The general duty to present reports regarding the agent’s activity is set out in Article 28 of the Agency Law. The parties should set out in the contract the time and manner in which the information must be provided. In the absence of such a provision in the contract, it must be presented when requested by the principal (Article 28, Agency Law).

The following actions by the agent are considered a breach of its duties:

• Harming, intentionally or by negligence, the principal’s interests.

• Helping or facilitating, by any means, the performance of the profession (that is, of an agent) by those who are forbidden, prevented or unsuitable to exert it.
• Promoting or facilitating unlawful business, as well as any transactions, which may undermine the interests of the Tax Authority.

• Violating professional secrecy rules.

• Not reporting or presenting to the principal any accounts, receipts, or documents that may have been given to the agent for any purpose.
• Refusing to present its professional identification card, when requested.

(Article 19, Agency Law.)

Principal’s Duties Implied by Law

A principal must pay the agent’s commission within 15 days from the receipt of payment of the relevant sales invoice by the third- party buyer (Article 32, Agency Law). For more information on an agent’s remuneration, see Regulation of Agent Compensation.

Bribery and Corruption

Brazilian law does not specifically regulate acts of private corruption. However, secret commissions could generate, for example, tax penalties if they are not duly declared and the applicable taxes paid.

The issue of corrupt gifts in violation of the law only arises where national or foreign public entities, politicians, and public officials are involved (– Anti-corruption Law (Law No 12,846/2013) and Law on Conflict of Interests (Law No 12,813/2013)). In these cases, the principal can be held liable for the agent’s acts, depending on the circumstances, if these gifts are given to obtain a benefit for, or in the interest of, the principal (Article 2, Law No 12,846/ 2013). Further, under the Anti-corruption Law, the principal can be held accountable regardless of proof of guilt.

Regulation of Agent Compensation

An agent is entitled to remuneration once the third-party customer pays for the relevant good or service (Article 32, Agency Law) (see Principal’s Duties Implied by Law). The agent must present a commission invoice to the principal so it can make the corresponding payment.

While the law does not set any other rules specifically related to payment (such as minimum or maximum amounts), it does provide that the principal cannot change any terms of the agency agreement that would result in a direct or indirect reduction of the agent’s average remuneration obtained over the last six months of the agreement (Article 32, paragraph 7, Agency Law). The principal cannot, for instance, alter the agreement to reduce the agent’s percentage commission rate unless it increases the territory or gives the agent other means to maintain its average remuneration (see for example TJSP, AC 1012279-23.2018.8.26.0405, 18th Chamber of Private Law, 18/06/2019, Judge Rapporteur Ramon Mateo Júnior; TJSP, AC 0086504-02.2012.8.26.0224, 24th Chamber of Private Law, 17/12/2019, Judge Rapporteur Salles Vieira – both regarding reduction in commissions).

Tax and Exchange Control

If the agent acts as an intermediary for the principal by, for example, obtaining or forwarding requests or proposals, or other acts necessary to mediate between the principal and a third-party buyer, the principal will not be regarded as carrying on business for tax purposes in Brazil. However, if the agent (resident or domiciled in Brazil) of a legal entity domiciled abroad can enter into agreements or sales on the principal’s behalf in Brazil, the foreign entity will be regarded as carrying on business for tax purposes in Brazil. The applicable tax rate imposed on the foreign entity is based on its gross revenues, plus 20%.

There are also rules on the determination and taxation of income earned in Brazil by branches, agencies, or representatives of foreign companies authorised to operate in the country. An agent or representative of a foreign company authorised to operate in Brazil could, in theory, be treated as a branch of that legal entity and may be required to pay income tax on the entity’s behalf.

Withholding tax is levied on remittance monies, the amount of which varies depending on the activity involved. Where an agent acts as an intermediary for a foreign principal, the remittance of monies abroad and the withholding or other tax payable arises when products or services are imported by a Brazilian company. If the goods or services are purchased directly from a foreign company, that company issues an invoice to the customer and the withholding or other tax payable depends on the type of the imported product or service.

Under an agency relationship, the agent receives a commission for the services provided to the principal. The agent must pay the following taxes in Brazil on that commission:

• Income tax.

• Services tax.

• Social security contributions, such as:

• Contribution for the Social Integration Programme (Contribuição ao Programa de Integração Social)(PIS); and

• Federal Contribution for Social Security Financing (Contribuição para o Financiamento da Seguridade Social) (COFINS).

There are no difficulties in a domestic agent making payment to a foreign principal, either in local currency or in the currency of the principal’s country. However, the Brazilian Central Bank requires both:

• A written agreement in relation to a payment to a foreign principal.

• A declaration concerning the specific purpose of the payment.

A bank only transfers a foreign payment when the proper documents, including the proof of payment of the applicable taxes, if any, are presented.

Competition Laws
Exclusive Sales Territory

Brazilian law does not prohibit a principal from appointing an agent as its sole and exclusive agent in a territory (exclusivity) or the imposition of territorial or customer restrictions. In fact, under Article 711 of the BCC, there is a presumption of territorial exclusivity applicable to both principal and agent, if there is no contrary arrangement in the agency agreement (see Types of Agent).

In this context, there is no assumption that exclusivity is itself illegal or breaches competition rules. Exclusivity may be deemed as a breach of antitrust law where the claimant can prove by a preponderance of evidence standard that the exclusivity was used in an abusive manner and the defendant is deemed a dominant player in a relevant market, however. The Brazilian antitrust authority (BAA) assumes that a party holds a dominant position if it has at least 20% of the market share in the relevant markets (Article 36, paragraph 2, Brazilian Competition Law).

Issues that are considered when evaluating the legality of an exclusivity arrangement include:

• Whether it causes harm to consumers or the market as a whole.

• The level of economic dependency.

As market dominance is not an antitrust issue by itself, both dominant and non-dominant players may enter into exclusive and selective agency arrangements, as long as those agreements do not lead to market foreclosure or any material limitations or harms to competition (which is subject to a case-by-case analysis).

Pricing and Other Practices

Resale price maintenance, refusal to deal, and the imposition of minimum or maximum prices may be prohibited or restricted if any of the below conditions are present:

• The principal has market power or a dominant position in the relevant market (or is part of a group of resellers or an economic group).
• Such practices somehow limit or damage competition.

The relevant market can be determined by assessing:

• The relevant product or service being offered (duly identified in its segment and when compared with its competitors).

• The principal’s market share in comparison to its competitors.

• The territory in which it carries out its activities.

• The actual power it exerts.

According to BAA decisions, an arrangement entered into by a principal and an agent may be considered anticompetitive in relation to transactions carried out with third parties if either:

• The principal has a dominant position.

• The effects of the arrangement can cause harm to competition in the form of higher prices, lower quality, market foreclosure, refusals to deal, or artificial limitations to input.

The following need special attention:

• Resale prices, discounts, terms and conditions of payment, minimum or maximum order quantities, profit margins, and any other sales conditions related to business with third parties (Article 36, paragraph 3, IX, Brazilian Competition Law).
• Tying (Article 36, paragraph 3, XVIII, Brazilian Competition Law).

• Refusal to deal (Article 36, paragraph 3, XI, Brazilian Competition Law).

• Allocation of markets or clients (Article 36, paragraph 3, I, c, Brazilian Competition Law).

There is a rebuttable presumption of a dominant position whenever an entity with at least 20% of the relevant market share imposes the above measures. Although the BAA will not necessarily find a breach in these circumstances, it may take other measures, for example, shifting the burden of proof onto the investigated company. The BAA makes a decision based on a detailed case-by-case analysis, taking into account the principal’s market position and the BAA’s view of whether or not these practices limit or damage competition.

Minimum Sales Targets

A principal can establish minimum sales targets for the agent. It is recommended that these targets are expressly set out in the agency agreement or in another document executed by the parties (it is relevant as a matter of burden of proof in case of eventual litigation). The relevant document must also state the consequences of a failure to meet sales targets (for example, contractual breach, termination, or loss of exclusivity).

However, establishing sales targets can be used by agents as corroborating evidence of the existence of an employment relationship between the agent and the principal under the Consolidation of Labor Laws (CLT). Setting of targets in isolation does not create an employment relationship. However, this can be an important element in evaluating the level of subordination of the agent to the principal, which is one of the principal characteristics of employment (see Employment Risks).

Since the BAA has not thoroughly assessed a significant number of antitrust complaints regarding agents, there is a lack of certainty or predictability in these cases. Therefore, it is important to consider the general principles and guidelines of the Brazilian Competition Law and decisions involving similar agreements, such as distribution agreements.

Non-Compete Covenants

If the relationship between the parties is of a commercial nature, the parties can agree to and enforce a non-compete covenant during the term of the agency relationship. Article 711 of the BCC presumes that the agent will not engage in any business that is similar to that of the principal within the same territory. Brazilian law does not specify which activities can be restricted, allowing the parties to freely agree on such matters. In the absence of written clauses, the courts conduct a case-by-case analysis into whether the activity can harm the principal’s businesses or to mislead customers. Activities such as selling, marketing, or manufacturing products similar to those of the principal are likely to be included in these restrictions.

Post-termination restrictions are more controversial. They may be allowed if the agent has been duly compensated. To minimise the risk of the courts finding this type of clause abusive and, therefore, unenforceable, the parties should expressly define:

• The activities subject to restrictions.

• The geographical area of the non-compete obligations.

• The period of time in which they are enforceable (up to five years is usually deemed acceptable, depending on the term of the agency relationship and other elements to be assessed on a case-by-case basis).

Product Regulatory Requirements and Product Liability Laws

Under the Consumer Defense Code (CDC), the principal and the agent are responsible for ensuring that products can be sold in Brazil and that the products comply with regulatory requirements issued by several regulatory bodies, such as:

• The National Sanitary Authority (ANVISA), which regulates all products and services that may affect public health (Law No 9.782/1999).

• The National Telecommunications Agency (ANATEL), which is responsible for the national telecommunications policy and for ensuring the enforcement of consumer rights by telecom companies (Law No 9.472/1997).
• The National Institute for Metrology, Standardization, and Industrial Quality (INMETRO), which is charged with introducing standards to ensure the quality and the safety of products and services provided in Brazil (Law No 5.966/1973).

Both the principal and agent are jointly responsible for any product recalls. Suppliers cannot make available on the market a product or service that is known to present harm or danger to health or safety (Article 10, CDC). A supplier that becomes aware that a product or service already on the market is harmful or dangerous must immediately notify the proper authorities (Article 10, first paragraphemic, CDC).

Any clauses in an agency agreement seeking to exclude or limit a supplier’s liability for product compliance, product recalls, or damages to consumers are null and void (Article 51, I, CDC), even if the parties to the contract agreed to include such clauses (Article 25, CDC). However, if the consumer is a legal entity, liability may be limited but not excluded, in certain justifiable situations (Article 51, subsection I, CDC). The courts tend to be quite restrictive in recognising this exception.

Under Article 34 of the CDC, agents and suppliers are jointly and severally liable towards the consumer in product or service liability claims. Because of the joint and several liability between agents and suppliers, the consumer can sue all parties in the supply chain for product defects (Article 18, CDC).

The general rule according to the CDC is objective liability, which does not depend on the proof of fault of the agent or the manufacturer. Therefore, one understanding is that, where the customer is the final recipient of the product or service, the agent can be personally liable for defects in the product or service.

The agent is considered as part of the chain of supply, meaning that the customer can seek compensation from the agent and from the principal, because of the joint and several liability between them (Articles 18 and 34, CDC). The statute also states that the provider will be held responsible for the defects in the quality and safety of goods and services even if it is not aware of them (Article 23, CDC). Therefore, since the agent only acts on behalf of the principal (Article 710, BCC), it is common for the agreement to stipulate an indemnity due from the principal to the agent if the agent is sued for product defects (see Indemnification and Insurance).

Appointing an Agent and Structuring the Agent Relationship

Types of Agents

Both the Agency Law and the BCC define the relationship between agent and principal as one where the agent (either a legal entity or natural person) must promote the principal’s product or service on behalf of that principal (or multiple principals) within a specified territory by presenting offers or proposals to the client. The key characteristic of the agency agreement is that the agent only acts as an intermediary, but does not generally conclude any agreements with clients on behalf of the principal. In return, the agent receives remuneration, which is usually a commission or equivalent payment based on the sales concluded through the agent’s intervention or within the agent’s territory (in the case of an exclusive agency agreement).

Although agents generally do not have the authority to conclude contracts on behalf of the principal, the parties can indicate in the agency agreement if the agent has the authority to conclude contracts on the principal’s behalf. The agent’s powers to bind the principal must be expressly agreed by the parties (Article 710, sole paragraph, BCC) (for details, see Authority of Agent).

Agents with authority only to introduce customers to the principal (often referred to as marketing and introduction agents), are not considered agents, under the Agency Law or the BCC.

Under the Agency Law, the agent is known as “commercial representative” and the principal “represented party” (representado), or they can also be referred to as contractor and contracting party (contratado e contratante). Under the BCC, the principal is known as “offeror” (proponente) and the agent as “agent.”

Under the Agency Law, the term “exclusive” primarily means that the agent is entitled to commission for all the business conducted in the territory defined in the contract. Therefore, the principal can still directly market or sell to customers in that territory, but the agent is entitled to commission, even if it did not participate in the transaction (Article 31, Agency Law). The parties can agree to total or partial exclusivity of the territory and the duration of the exclusivity (Article 27(e), Agency Law).

Legislation does not clearly specify whether exclusivity is automatic or not. Under Article 711 of the BCC, if not expressly agreed otherwise, the principal cannot appoint other agents in the agent’s territory. The agent also cannot work in the same territory for other principals that sell products of the same type as the principal’s products. This presumption of exclusivity can be contractually changed by the parties. The STJ has also recognised the presumption of exclusivity in cases where there is no express provision stating the contrary in the agency agreement but there is proof (by other means, such as witness testimony) that the agent acted with exclusivity (see for example REsp 1634077, STJ, 3rd Section, 09/03/2017, Justice Nancy Andrighi; AC 10129777720188260001, TJSP, 14 th Private Civil Chamber, 27/03/2020, Judge Rapporteur Melo Colombi).

By contrast, there is no presumption of exclusivity under the Agency Law in the absence of express agreement by the parties. Despite the express provision in the BCC and the precedents from the STJ, lower courts tend to interpret the exclusivity presumption restrictively or even apply the rule under Article 31 of the Agency Law, a situation where the conflict between the BCC and the Agency Law is not uninformedly resolved (see, for example AC 70075586677, TJRS, 15th Civil Court, 25/04/2018, Judge Rapporteur Otávio Augusto de Freitas Barcellos; TJSP; AC 1000382-10.2017.8.26.0477, TJSP, 16th Chamber of Private Law, 08/11/2018, Judge Rapporteur Coutinho de Arruda).

The agency agreement can also define bilateral exclusivity. This means that the agent can only market and sell the principal’s goods in the specified territory.

The term “sole” agency is not generally recognised in Brazil. This type of arrangement is usually referred to as an exclusive agreement under the Agency Law, with the agent being entitled to payment of a commission if the principal sells in the agent’s territory. However, the principal can retain the right to make direct sales in the context of an exclusive agreement, without paying a commission to the agent, or even a reduced commission.

Brazil recognises the term “non-exclusive” agency agreement. In a non-exclusive agreement, the principal can appoint other agents and directly market and sell to clients in the specified territory, as well as appoint other agents in the same territory, without being obligated to pay commissions to an agent when that agent did not participate in closing a deal in its designated territory.

Del Credere Agents

Brazilian law prohibits del credere guarantees by agents. Therefore, clauses where the agent must guarantee the debts of customers that it finds for the principal are null and void.

Employment Risks

There is a risk that an agent could be considered an employee of the principal. In Brazil, an individual who provides services on a regular basis for compensation, under the orders or co-ordination of a company, may be considered that company’s employee.

This risk derives from the “principle of reality” applied to labour law matters under which facts prevail over form. Therefore, any agreement signed by the parties is superseded by the reality of their day-to-day dealings (Articles 9 and 442, CLT). An agent who claims recognition of an employment relationship may be considered an employee by the labour court if a relationship of subordination exists between the agent and the principal.

In these cases, one of the principal factors in determining if an employment relationship exists is the level of subordination of the agent to the principal. Evidence to support the existence of an employment relationship may include situations where the principal has control over the agent’s work schedule and working hours, and the existence of performance targets. Although permitted in agency relationships, the imposition of sales targets is likely to be considered as evidence of subordination if the agreement can be terminated or the agent loses exclusivity if the targets are not met.

In addition to subordination, the following factors must be present for an employment relationship to exist:

• Personal nature of the relationship of the parties (the agent is hired specifically because of their personal characteristics).
• The agent is dependent on the principal.

• Continuity (as opposed to the agent being hired occasionally, therefore, relying on the contract).

• The agent is paid a salary (or any other form of habitual compensation).

If an employment relationship is established (dependent on a judicial ruling in this respect), the principal must comply with all obligations related to the employment relationship (including, for example, 13th salary, 1/3 additional for paid vacation, and mandatory pension fund payment).

Import Requirements

Generally, the agent does not receive the products directly, as the agent’s activity is usually limited to intermediating orders and therefore the principal sends the products directly to the customers. In this case, the principal is responsible for payment of customs duties. However, the parties can agree otherwise, in which case the agent may be held responsible for payment of the corresponding duties.

If the agent is responsible for importing the goods, the agent must pay customs duties corresponding to that import when registering the Import Declaration for customs clearance which are, normally, as follows:

• State Value Added Tax on Sales and Services (ICMS). The rate depends on the Brazilian state to which the goods will be imported.
• Import Tax. The rate depends on the NCM code under which the product is classified.

• Excise Tax (IPI). The rate depends on the NCM code under which the product is classified.

• PIS/PASEP-Import (Federal Contribution for the Social Integration Program levied on imports). The rate is normally 2.1%.
• COFINS-Import (Federal Contribution for Social Security Financing levied on imports). The rate is normally 10.65%.

In addition to these customs duties, there is also the additional tax for the renewal of the merchant marine (AFRMM), which is a tax levied on sea freight fees on imports. The rate is 25% (on freight fees).

For customs clearance, the importer must present the following documents to the Brazilian Federal Revenue Service for assessment:

• Original copy of the Bill of Lading (BL), Air Waybill (AWB), or equivalent document.

• Original copy of the invoice signed by the exporter.

• Packing List, if applicable.

• An authorisation from government regulatory agencies, if applicable.

• Depending on the country of origin of the goods, other documents may be required due to applicable bilateral treaties signed between the countries (if any).

According to Information Siscomex-Import No 0017/2020 and No 0018/2020, any documents used in customs clearance that are digitalized under Law No 13.874/2019 (Economic Liberty Law) and Decree No 10.278/2020 have the same legal effects as the original documents. In this case, hard copies of these documents are not required to be presented.

Intellectual Property IssuesBrazilian customs authorities do not require the importer to be registered as the owner or the user of the trademark to import the goods bearing the trademarks. However, the import of goods bearing unauthorised trademarks (counterfeit goods) is not allowed and is also a crime under Article 190 of Law No 9.279/96 (Industrial Property Law).

Under Article 130 of the Industrial Property Law, the owner of a trademark registration or application cannot, among other restrictions:

• Prevent traders or distributors from using distinctive signs that are their own, together with the product’s brand, in their promotion and commercialisation.
• Prevent accessory manufacturers from using the brand to indicate the destination of the product, provided that fair competition practices are followed.
• Prevent the free circulation of products placed on the internal market, by themselves or by others with their consent.

• Prevent the citation of the brand in speech, scientific, or literary work or any other publication, if it does not have a commercial connotation and without prejudice to its distinctive character.

The agent usually has, depending on the nature of the agency agreement, the right to present themself as the principal’s representative. On the other hand, the agency agreement does not automatically grant the agent the right to use the principal’s trademarks. The agency agreement should therefore address such intellectual property (IP) issues.

For the enforcement of trademark rights against a third party by a licensee, such as a contract manufacturer, the corresponding trademark license agreement must be registered with the Brazilian Patent and Trademark Office (PTO). Alternatively, the licensee can obtain a specific authorisation from the trademark owner.

The agent does not gain rights in a trademark or other IP rights by selling the principal’s trademarked products on behalf of the principal in Brazil.

Online Sales Considerations
Consumer Concerns

The commercial aspects of online transactions are subject to the general contract rules set out in the BCC, which has no express provisions regarding online trade. However, other statutes can also apply to online sales, depending on the nature of the parties involved, the products/services that are offered, and especially who the final purchaser of the product is (if they are considered consumers, for example), such as:

• The Brazilian Internet Civil Framework (Law No 12,965/2014) which provides principles, guarantees, rights, and duties for using the internet in Brazil.
• The Brazilian General Law for Protection of Personal Data (Law No13,709/2018).

• The Brazilian Online Sales Decree (Decree No 7,962/2013).

In addition to these statutes that have specific rules regarding online sales, which apply to agents and suppliers alike, the rules of the CDC may also apply, regardless of the nature of the network, whether online or otherwise.

Under the Brazilian Online Sales Decree, companies selling online must make available, in a prominent and easy-to-view place, relevant information such as the company’s name, physical address, and CNPJ enrolment (tax ID), as well as information about a consumer’s right to withdraw from the sale, which can be exercised within seven days of receipt of the product or service.

Competition Concerns

The Brazilian Competition Law does not provide specific considerations about online sales, a trait that is quite frequent when it comes to consumer affairs. However, parties active as online agents to intermediate the purchase and sale of products and services must be aware of recent cases affecting Most Favoured Nation (MFN) clauses in the travel and leisure markets.

On 27 June 2016, the Forum of Brazilian Hotel Operators (FBHO) filed a complaint before BAA based on potential anticompetitive effects on consumers and hotels caused by MFN clauses entered into and enforced by online travel agencies such as Booking, Decolar.com and Expedia. By enforcing those MFN clauses, the defendants were able to get the most favorable commercial conditions offered by hotels to users.

According to the complaint, the defendants prohibited hotel operators from offering prices lower than those provided on Booking, Decolar.com, and Expedia platforms to encourage consumers to book through the online travel agency.

The case was settled on 29 March 2019, since Booking, Decolar.com, and Expedia agreed to stop the above commercial practices and allow hotel operators to offer lower prices in direct negotiations with customers (that is, cutting double margins and passing on cost savings and efficiencies to consumers). To reduce incentives for freeriding, if a hotel operator is found via the platform, but the transaction is completed by bypassing the online travel agency, hotel operators cannot charge lower prices and circumvent the MFN price clauses.

The need for attention to MFN and price parity clauses is in line with recent European Commission guidelines published due to cases analyzing similar practices by Booking and other online platforms.

The Agency Agreement

Agency agreements generally address many issues, including those related to the terms for the supply of goods and services between the principal and end-user customers. While all the provisions in the agency agreement are important, those specific to the agency relationship that foreign counsel should pay particular attention to include the following provisions.

Marketing, Promotion, and Advertising

There are no immediate implications of an agent spending its own money on advertising. The default position is that any costs related to the agent’s activity will be borne by the agent (Article 713, BCC). Such costs might include advertising of the products, participation in business fairs, and other marketing related activities. This is usually set out expressly in the agency agreement, although the parties are free to stipulate otherwise.

Competition law implications arise whenever a party demands or grants exclusivity in relation to advertisements in mass media, which is prohibited under Article 36, paragraph 3, VI of Law No 12.529 /2011.

Stocking of Principal’s Products

Under Brazilian law, no provisions require agents to store the principal’s products, nor is it common practice, but this may be stipulated by the parties in the agreement. The parties may include this obligation, as well as the conditions in which the goods are to be stored and the party responsible for bearing storage costs.

There are no legal provisions that regulate whether the agent bears the cost of insuring the principal’s property at its own expense. If the agent undertakes to store the principal’s goods, the agreement should expressly define the term of delivery of those goods from the principal to the agent. If Incoterms® Rules are used, responsibility for insurance costs depends on the specific Incoterm rule the parties choose. The parties can also determine who bears the insurance costs once the goods are delivered to the agent.

The agent is not legally obliged to give the principal access to its premises to inspect the agent’s bookkeeping or to inspect stock. The parties can decide this in the agreement.

The agent is not obliged, under statute, to stock certain or specific volumes of a product and deliver that product to the customer. Therefore, the parties can agree on this type of provision in the agency agreement.

After-Sales Services Obligations

After-sale product/service support is not provided by agents in Brazil according to Agency Law and BCC. Typically, agency agreements do not cover this kind obligation. On the other hand, the so-called concession agreement for vehicles is a specific type of contract, close in its nature to the agency agreement, in which agents (concessionários) must offer after-sale product/ service support to its clients. Concession agreements for vehicles are ruled by Law No 6.729/1979. Therefore, there is specific legislation requiring agents to provide after-sales support in the resale of vehicles by agents, but this is not applicable to other agency agreements.

Agent Commission

The agent is entitled to commissions for all deals it concludes in the territory for which it is responsible. If the agent has exclusivity in relation to this territory, this right applies even if the principal or third parties close the deals directly with the clients (Article 31, Agency Law).

The amount of the commission is calculated based on the total value of the products (Article 32, paragraph 4, Agency Law), which should include applicable taxes over the amount invoiced to the client (on the issue of the mandatory use of the gross value of the invoices as a basis for commissions, see AC 70066355918, TJRS, 13/07/16, Judge Rapporteur Otávio Augusto de Freitas Barcellos; AC 0012115-45.2011.8.26.0462, TJSP, 36th Civil Chamber, 11/09/2017, Judge Rapporteur Hélio Nogueira; AgInt nos EDcl no AREsp 269.483/SP, 4th Cahmber, STJ, 29/09/2016, Justice Maria Isabel Gallotti; and AC 16848801, TJPR, 04/04/2018, 12nd Private Civil Chamber, Judge Rapporteur Antonio Domingos Ramina Júnior).

Agents must be paid commission within 15 days after the final customer pays the relevant invoices to the principal, if the agent presents in a timely manner the invoices related to the services provided before payment (Article 32, Agency Law).

Despite the express prohibition of payments in foreign currency in force in Brazil and the set-off of the difference between foreign currency and local currency, payments can be agreed to in foreign currency when related to contracts that refer to the import or export of goods (Article 318, BCC and item I, Article 2, Decree No 857/69). This is only applicable if the foreign currency is converted into local currency at the applicable exchange rate on the payment date.

Generally, when the agency agreement is terminated, the agent’s right to commission also terminates, even if the commission relates to business introduced to the principal during the term of the agreement. Statutory indemnification is paid precisely as a form of liquidated damages for matters such as this. However, if the parties wish to include a provision allowing or disallowing for payments of commissions after termination, this would be valid under Brazilian law.

If the principal terminates the agreement without just cause or if the agent terminates the agreement due to breach of the principal, the agent will receive commission for deals it initiated (even if not concluded) before termination, plus the indemnification provided in the Agency Law (see Terminating the Agency Agreement).

If termination was for cause (due to a breach of the agent), the agent will only receive compensation for the services actually rendered to the principal until termination (Article 717, BCC). However, it is not common for courts to award damages in such instances to agents. In relation to commission, the agent will only receive payments related to deals concluded during the term and for which payment was received by principal.

Whenever the principal grants the agent exclusivity, the agent receives commissions even when the principal or third party makes a direct sale to customers in the territory, as if the agent closed the deal (Article 31, Agency Law). In this context, the agreement can provide that the commission paid to agent will be lower. However, it should be expressly included in the agreement from the onset, to avoid the agent claiming that its average proceeds were unduly reduced. There is no restriction on excluding commission payments for sales by previous agents that are concluded after the current agent’s appointment.

Brazilian law does not regulate the agent’s right to retain commission from sale proceeds. Usually, the principal receives payment from the customers and sends the agent its corresponding commission. The agreement could stipulate that the agent receive payment on the principal’s behalf and sends the payment to the principal after deducting its commission. Article 37 of the Agency Law regulates the principal’s right to retain commission from the agent if these two requirements are present:

• Just cause for the termination of the contract (including those established in Article 35 of the Agency Law).

• Damage suffered by the principal.

Only under these circumstances the principal can set off or deduct from payments of commission due to the agent (see AgInt no AREsp 1309230/PR, 4 th Chamber, STJ, 04/10/2018, Justice Luis Felipe Salomão).

If the agent collects payments for the principal, there is no equivalent of the common law concept of holding the payments in trust in the Brazilian legal system. As agents do not usually receive payments on the principal’s behalf, the problem of separating bank accounts also does not frequently arise. However, the parties can create an investment fund or even an escrow account for the principal’s benefit if the parties wish to establish separate funds to collect money from sales.

Under Article 28 of the Agency Law, the agent must provide detailed information about the progress of the business at the principal’s request or as established in the contract. The parties can establish a bilateral obligation to keep accounts and records

of all transactions held during the agreement. Ownership of the records is not specifically regulated by law, but it can be freely agreed on by the parties.

The access to the courts in any dispute between the parties concerning matters related to the agreement cannot be excluded. Therefore, parties cannot agree to refer disputes over the value amount of commissions due to the principal’s auditor for settlement. The dispute must be resolved in court or in arbitration, in accordance with the parties’ contractual choice of forum (see Choice of Law and Forum).

For more information on legal requirements related to the agent’s commission in Brazil, see Regulation of Agent Compensation.

Term of the Agreement

When the agency agreement has a fixed term (for new agents), the term usually agreed is one to two years. The parties can also establish the agreement for an indefinite term. Any renewal (expressly in writing or tacit) of a fixed-term agreement is automatically deemed to be for an indefinite term (Article 27, paragraph 2, Agency Law).

The required notice period for termination of an indefinite term agreement is at least 90 days. If the required notice is not given and the agreement has been in force for more than six months, the agent is awarded specific indemnification of one third of the remuneration (commissions) received in the three months before termination (in addition to any other indemnification that may be due).

In relation to fixed-term agreements, any termination before the end of the term is deemed a breach and generates indemnification rights for the agent.

For more information on terminating agency agreements, see Terminating the Agency Agreement.

Compliance with Laws and Principal’s Policies

Anti-bribery or anti-corruption clauses are common in all types of commercial contracts. These clauses normally survive the term of the agreement, for a duration that is to be determined in court according to the specifics of the particular relationship between the parties. Brazilian law does not specifically regulate these clauses in relation to agency agreements.

All legal entities incorporated in Brazil (including branches and subsidiaries) must abide by the Anti-Corruption Law No 12,846/13 (see Bribery and Corruption). Therefore, parties to any contract, including agency agreements, must comply with the Brazilian Anti-Corruption law, whether a clause is expressly included in the agreement or not. In addition, if a company is held liable under the terms of the Anti-Corruption Law, the existence of an effective compliance programme will be considered to mitigate any applicable penalty.

Confidentiality and Protection of Personal Data

The Agency Law and the BCC do not address confidentiality in agency agreements. However, based on the principle of freedom of contract, the parties can negotiate this issue. It is highly recommended (and typical) that the agency agreement includes a confidentiality clause, because of privacy and ethical reasons.

The confidentiality obligation may remain effective after the termination of the agreement, allowing the principal’s information and even contractual arrangements to be kept confidential.

Regarding personal data, the Brazilian framework for data protection includes:

• General Data Protection Law (LGPD) (Law No 13.709/2018).

• Law No 12.965/2014, which settles several restrictions regarding the international transfer of personal data.

The LGPD has a whole chapter regarding the international transfer of personal data (chapter V). Article 33 of the LGPD provides that international transfer of personal data is only allowed on the cases explicitly provided by items I through IX of this Article.

Item I of Article 33 was inspired by the GDPR and provides that personal data cannot be transferred to countries or organisations that do not provide the protection level established by the LGPD, or higher. However, this provision may be overlooked if the controller offers and proves guarantees of compliance in accordance with the principles and the rights of the data subject and the regime of data protection provided in by LGPD. Whether a country’s protection level reaches the necessary requirements established by LGPD will be determined by National Data Protection Authority (ANPD) under Article 34.

Ever since the publication of the LGPD in 2018, agency agreements have been addressing the protection of personal data. They generally provide that all parties agree to comply with all applicable legislation on information security and privacy and protection of Personal Data, including (whenever and wherever applicable) the Federal Constitution, the Consumer Defense Code, the Civil Code, the Marco Civil da Internet (Federal Law No 12,965/2014), its regulating decree (Decree No 8,771/2016), the LGPD, and other sectoral or general rules on the subject.

In the agreement clauses addressing the protection of data, it is common for the parties to establish a limitation of liability between the parties, under which each party is solely liable for the data it handles.

Indemnification and Insurance

The parties are allowed to negotiate indemnification provisions in agency agreements based on the principle of freedom of contract. Therefore, the parties can agree on the indemnity due and over which causes.

It is not usual for the agency agreement to provide indemnity due from the principal to the agent, even if the agent is sued for product defects, since the agent is a mere intermediator on the sales.

If, however, the agency agreement contains these indemnification duties, to successfully claim under an indemnity, the aggrieved party must:

• Prove the damages suffered and their extent.

• Demonstrate a solid causal link between the other party’s act and the damages or losses.

“Damage” to property in an indemnity can include harm to intangible property. These damages must be stipulated in the agreement or claimed and duly proven in court.

For agency agreements subject to the Agency Law (that is, agents registered with CORE, see Agent Registration), in case of breach of the agreement and termination of the agreement, the agent can only claim the amount under the Agency Law (Article 27, paragraph 1). These are deemed liquidated damages and a way to limit the liability in case of termination (see Agent’s Rights to Compensation on Termination or Failure to Renew).

For agency agreements not subject to the Agency Law, any form of indemnification in case of breach by either party is subject to the general liability rules under the BCC. In general, there are no restrictions on such liabilities, except in case of limitation of liability clauses, or if the case involves third parties, especially consumers.

It is uncommon for an agent in Brazil to obtain insurance to cover personal or product liability, or for either party to require that the other party maintains any form of insurance.

Limitation of Liability

There are no legal provisions that specifically regulate liability limitations and exclusions in agency agreements. General contract law applies in this case.

The duty to indemnify (even if contractual) derives from statute. Contractual liabilities can be limited under the agreement. If there is no limitation of liability clause in the agreement, contractual liability will be limited to the extent of the actual damages suffered (Article 389, BCC). Under Article 944 of the BCC, the indemnity is measured by the extension of the damage. If there is an excessive disproportion between the damage caused and the fault of the agent, the judge can reduce the indemnity proportionally.

To measure the indemnity, it is necessary to calculate the losses and damages actually suffered. These damages consist of:

• Direct damages, which are those proven to be directly caused by the breaching party.

• The profits the aggrieved party reasonably lost due to the damage as a direct and immediate consequence.

(Article 402, BCC.)

Lost profits must be sufficiently proven in court. This is usually a difficult task, as the aggrieved party must:

• Produce evidence of the profits it normally would have earned.

• Demonstrate a causal link between the breaching party’s actions and the failure to achieve those profits.

Punitive damages are not permitted under Brazilian law.

Regarding tort (non-contractual liability), gross negligence and willful misconduct are classified as illegal acts under Brazilian law, demanding adequate compensation. This liability can never be excluded contractually (Article 186 and 927, BCC).

Moreover, the agency agreement cannot limit or exclude product liability to the final customer. Both the agent and the principal (and any other parties in the supply chain), are jointly and severally liable for any consumer claims related to the purchased products (Article 12, CDC; see also Product Regulatory Requirements and Product Liability Laws). Therefore, the courts do not enforce any limited liability clauses that exempt one of the parties’ responsibilities to the consumer for product defects.

A clause in a consumer contract that precludes, limits, or exonerates the obligation to indemnify for vices or defects of the services or products is prohibited under Article 25 of the CDC. The CDC also provides that the warranty of a product or a service does not depend on an express term, and excluding this warranty with a contractual clause is prohibited (Article 24, CDC). These clauses will be considered abusive and declared null and void by courts, even f agreed by the parties (Articles 24, 25, and 51, CDC).

However, there is an exception to this general rule. If the consumer is a legal entity, the supplier’s liability can be limited, but not excluded, if the limitation clause is visible, that is, the written in bold and capital letters (Article 51, I, CDC). Whether the clause is enforceable depends on the circumstances of each case and the consumer’s business activities. Even this exception only applies if the situation justifies the limitation of liability. Brazilian courts tend to be restrictive in accepting this exception, ruling on a case-by-case basis.

It is not common for agency agreements subject to Brazilian law to contain limitation of liability clauses, as they are not as generally used as in common law jurisdictions. However, they can be used and are enforceable to the extent they do not contravene certain statutory limitations (CDC and BCC provisions), or the indemnification and payments are provided for under the Agency Law, if the agent is registered with CORE.

Choice of Law and Forum

Agreements executed and performed in Brazil (that is, for goods or services sold in the Brazilian territory) are generally governed by Brazilian law and the local courts will be deemed to have at least concurrent jurisdiction to deal with the case, if also submitted to a foreign court. Under Article 39 of the Agency Law, the forum for resolving disputes should be the city where the agent is domiciled. However, there have been several precedents (in Brazil) where the choice of other locations by the parties to resolve disputes (the STJ deems this a case of relative jurisdiction) have been accepted, if the change in location does not greatly hinder the agent’ ability to defend itself in court or have access to the judiciary (see for example: REsp 1076384/DF, 4th Chamber, STJ, Justice Antonio Carlos Ferreira, 18/06/2013).

Further, Article 12 of the Decree Law No 4.657/42 provides that Brazilian courts have jurisdiction over cases in which either:

• The respondent is domiciled in Brazil.

• The obligations assumed in the contract will be executed in the Brazilian territory.

The matter of choice of forum is not uniformly treated by the courts. For example, several recent precedents by the TJSP have deemed the provision of the Agency Law as a case of absolute jurisdiction that may not be changed by the parties (see for example: AI 2237248-89.2017.8.26.0000; 11th Chamber of Private law, TJSP, Judge Rapporteur Renato Rangel Desinano, 11/10/2018).

There are some isolated precedents where courts have allowed a foreign choice of governing law in international transactions over Brazilian law. However, most case law does not support this, and the application of a foreign governing law varies depending on the court’s interpretation.

The parties can elect a different governing law and jurisdiction by submitting any disputes arising from the agreement to arbitration. The parties can choose the law applicable to the arbitration proceedings, if the foreign law or its provisions does not violate public policy and good moral values (Article 2, paragraph1, Arbitration Law (Law No 9,307/1996)).

Terminating the Agency Agreement
Legal and Contractual Obligations on Termination

Under Article 27C of the Agency Law, agency agreements can be entered into for a pre-established period or for an undetermined period. Despite this differentiation in the law, the period of the agreement does not usually impact the formalities or remedies on termination. That is because, an agency agreement does not qualify as an employment contract or a non-equal contractual relationship, and for that reason the principle of freedom of contract applies to agency agreements. This means that a party is not obliged to remain bound by the contract if they do not want to, but termination may lead to remedies.

In general, termination can occur in two ways:

• Termination with cause. The principal can lawfully terminate the agency agreement for the reasons established in Article 35 of the Agency Law (these include the agent’s lack of care in complying with obligations under the

agreement; acts that affect the principal’s commercial image, especially those that discredit its trademark, products, or the principal itself; breach of, or lack of compliance with, any of the obligations under the agreement; unappealable conviction of the agent for a serious crime; and force majeure).

• The case law is inconsistent as to whether Article 35 of the Agency Law is an exhaustive list of just causes for terminating the agency agreement. For example, when the contractually stipulated targets are not met and this non-compliance is duly documented, case law has accepted this breach as allowing for termination with cause, if

termination is carried out in good faith and not in an abusive manner (see for example AC 0027004-34.2004.8.06.0000, TJCE, 4th Chamber of Private Law, 16/10/2018, Judge Rapporeur Raimundi Nonato Silva Santos and AC

1009443-61.2019.8.26.0011, TJSP, 18th Chamber of Private Law, 01/12/2020, Judge Rapporteur Israel Góes dos Anjos).

• Article 36 of the Agency Law also lists situations in which the agreement can be lawfully terminated by the agent. These include:
  • the reduction of activity (territory) of the agent in breach of the agreement;

• the direct or indirect breach of the exclusivity obligation in the agreement;

• the practice of abusive pricing in the agent’s territory with the exclusive means to prevent its regular activity;

• non-payment of the agent’s compensation when it is legally due; and

• force majeure.

• Besides the reasons established by law to lawfully terminate the agreement, the agreement itself usually includes the steps for termination, such as notice, as well as other reasons for termination, or expressly defines actions that are deemed to be a fundamental breach of the agreement. For example, violation of anti-corruption regulations is typically deemed as a fundamental breach.
• Termination without cause. When terminating without cause, the principal must give the agent the required notice of termination and the agent has the right to compensation (for further information, see Agent’s Rights to Compensation on Termination or Failure to Renew). Regardless of the principal’s freedom of contract, in general, there are no other obligations other than compensation and payment of commission that arise from termination. Termination procedures can be stipulated by the parties in the agency agreement. In case of termination without cause the required period for termination is at least 90 days (Article 720, BCC). Lack of compliance with this provision will result in obligation

of indemnification by the breaching party (see for example AC 0186728-97.2010.8.26.0100, TJSP, 33th Chamber of Private Law, 20/05/2019, Judge Rapporeur Leonardo Grecco and AC 0048488-49.2018.8.21.7000, TJRS, 20th Chamber of Private Law, 31/07/2019, Judge Rapporteur Carlos Cini Marchionatti).

There are no specific provisions in Brazilian law regarding the handling of any remaining inventory being held by the agent on behalf of the principal, so this should be properly addressed in the agency agreement. It is not common for an agent to hold inventory for principal (see Stocking of Principal’s Product), but if it does, any such inventory is the property of the principal on termination, and should be returned or sold, accordingly. In general, the parties can establish the rules related to inventory and the term for selling stock and repurchasing in the agreement.

Agent’s Rights to Compensation on Termination or Failure to Renew

If the principal terminates an indefinite term agreement without just cause, it must give the agent the required notice of termination (see Term of the Agreement). The BCC also stipulates that indefinite term agreements cannot be terminated until sufficient time has elapsed for the agent to recover their investments made to execute the agreement (Article 720, BCC). Therefore, the parties should include information in the agreement on the approximate amount invested by the agent (if any) and a provision estimating the time to recover that investment.

Even if adequate prior notice is given, the agent is entitled to receive indemnification equivalent to 1/12 of the total remuneration paid during the term of the agreement, adjusted for inflation (Articles 27, paragraph 1 and 33, paragraph 3, Agency Law). If the agent claims that it should have received commissions for other sales not paid during the term of the agreement (such as sales made by the principal within the agent’s exclusive territory) those amounts should also be included in the indemnification calculation.

The calculation of this indemnification takes into account all commissions paid (or that should have been paid) to the agent during the term of the agreement (adjusted for inflation). According to case law, the statute of limitations for this type of case does not impact the period that can be claimed for in relation to the indemnity. It only affects the time limit for filing a claim for indemnification, which is five years from the date of the termination of the agreement. If the claim is regarding insufficient payment of commissions, the statute of limitation runs from the date the commissions should have been paid.

If the agreement has a fixed term, while it is not a legal requirement, it is advisable to give 90 days’ prior notice of any termination of the agreement (Article 27, paragraph 1, Agency Law). On termination of a fixed-term agreement, the agent must receive indemnification equivalent to the monthly average of the remuneration obtained until the date of termination, multiplied by half the number of months of the agreement term. If a fixed-term agreement succeeds another within a period of six months, the latter agreement will be converted to an indefinite term agreement (Article 27, paragraph 3, Agency Law).

There are no formalities for lodging a complaint for indemnification. If any of these situations occur, the principal must make the relevant payment. If no payment is made, the agent can claim the amount of indemnification due in court or in arbitration proceedings.

It is common for the parties to sign a bilateral termination document (distratos), in which the agent releases the principal from any further liability in return for indemnification specified in the document.

If the supply of a product is discontinued because the supplier ceases manufacturing that product, the agent will not have any rights to compensation. This is permitted even if it reduces the agent’s average remuneration. If, however, the supplier decides to stop selling certain products or services through the agent, while choosing to continue selling the product through other means, even directly, the agent can claim compensation if this change leads to a reduction of their commissions earned on average during the last six months of the agreement’s term. This reduction is strictly prohibited (Article 32, paragraph 7, Agency Law and Article 715, BCC), which gives the agent cause for termination under Article 36 of the Agency Law. (For more information, see Regulation of Agent Compensation.)

On termination with cause by the agent due to the principal’s breach, the agent is equally entitled to indemnification of 1/12 of the total remuneration paid during the entire term of the agreement, adjusted for inflation (Article 27, paragraphs 1 and 33, paragraph 3, Agency Law).

Competition Law Issues Related to Termination

Brazilian antitrust case law has not yet developed to a stage where discussions affecting agency agreements are thoroughly analysed, including the termination stage. As such, the rationale applicable to distribution agreements is mostly applied in the context of agency agreements as well. For more information, see Competition Laws.

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Franchising is an arrangement in which franchisors, in exchange for an upfront payment or a series of payments, grant franchisees the right to operate a business and sell or distribute goods and services identified with the franchisors’ trademarks, trade names, and other intellectual property. Unlike in agency and distribution arrangements, franchisors typically exercise significant control over or provide significant assistance in, the franchisee’s business by requiring them to operate according to franchisor requirements.

Franchising can have many benefits for a foreign supplier, including the ability to expand and capture new markets quickly with limited capital expenditure. However, foreign counsel advising suppliers planning to establish a franchising arrangement in Brazil should consider the risks and requirements that may arise.

This Note considers the following aspects of franchising:

• Common types of franchising arrangements in Brazil.

• Key legal and regulatory requirements governing franchising arrangements in Brazil, including:

• industry codes;

• competition law;

• tax and currency regulations;

• product regulatory requirements and product liability laws; and

• legal formalities.

• Important considerations when appointing a franchisee in Brazil, including laws governing:

• employment;

• intellectual property; and

• real property.

• The typical structure of a franchise agreement in Brazil.

• Issues related to termination of the franchising relationship in Brazil.

Franchising Arrangements
Legal Definition of Franchising

Brazil’s new Law No. 13.996/19 (known as the Franchise Law) entered into force on 27 March 2020, revoking the previous Franchise Law.

Law No. 13.996/19 governs the business franchise system in which a franchisor authorizes a franchisee to use trademarks and other intellectual property (IP) assets by contract:

• Always associated with the right of exclusive or non-exclusive production or distribution of products or services.

• Also associated with the right of use of methods and systems for the implementation and administration of a business or operating system developed or owned by the franchisor.
• Through direct or indirect remuneration.

• Without characterizing the relationship between the franchisor and the franchisee as a consumer relationship (as regulated by Law No. 8.078/90) (the Consumer Defence Code) or an employment relationship in relation to the franchisee or its employees, even during the training period.

When a distribution, joint venture (JV), or licensing agreement has the characteristics of a franchise agreement as defined by Law No. 13.996/19, there is a risk that local courts may consider that agreement a franchise agreement. The main consequence is that “the franchisor” will not have complied with the obligation to disclose the main legal and commercial information about the franchise offered to the potential future franchisee. This obligation must be performed before the parties execute the franchise contract. Failure to comply with this obligation can lead to the annulment of the contract and reimbursement or compensation for the values paid.

Overview of Franchising

All tradable goods and services can be franchised in Brazil, and franchising is very common. There are many Brazilian-owned franchises and many foreign franchises in the country. Brazil is the leading country in South America with respect to the number of franchises, followed by Argentina and Colombia (International Trade Administration, U.S. Department of Commerce). The franchising market has shown strong signs of recovery after the losses suffered due to the novel coronavirus disease (COVID-19) pandemic. Franchise revenues increased from BRL167 billion in 2020 to BRL185 billion in 2021, almost matching the 2019 result of BRL186 billion (the Brazilian Franchising Association (BFA)).

For the second year in a row, the home and construction sector led the growth of the Brazilian franchising sector with an increase of 19.3%. The health sector was the second largest, with an increase of 10.5%. The expansion of both the construction and health sectors was not affected during the pandemic years. On analysis of 2021 alone, the entertainment sector recorded the highest increase compared with the numbers from 2020, with an increase of 21.2%. This sector has not yet reached the results of 2019.

Methods of Franchising

Common local and international franchising methods are:

• Direct franchising.

• Master franchise agreements.

• Area development agreements.

• Unit or multi-unit franchises.

• Multi-brand and combination franchising.

A JV agreement is not part of a typical contractual structure to establish a franchise. If the parties to a JV agreement wish to enter into a franchising relationship within the scope of the partnership, they must do so by means of an additional franchise agreement.

Governing Legislation and Regulation

Brazil’s new Law No. 13.996/19 (known as the Franchise Law) entered into force on 27 March 2020, revoking the previous Franchise Law. Law No. 13.996/19 is intended to enhance business opportunities and provide more security for the players in the market.

Law No. 13.996/19:

• Makes explicit that the relationship between franchisor and franchisee does not constitute:

• a consumer relationship; or

• a labor relationship between the franchisee’s employees and the franchisor, even during the franchisee’s training period.

(Article 1.)

• Specifies that state-owned companies and non-profit organizations can also adopt the franchise model, not only private companies (paragraph 2, Article 1).
• Expressly mentions the possibility of an international franchise relationship in which the parties can opt to deal with potential disputes arising from the contract in a foreign jurisdiction. For example, a Brazilian franchisee that contracts with a foreign franchisor can choose a foreign jurisdiction for any disputes that arise (Article 7).
• Expressly refers to the possibility of including an arbitration clause in the franchise agreement (paragraph 1, Article 7).

Other Related Laws and Regulations

Even though Law No. 13.996/19 aims to regulate franchise agreements, it does not provide all the obligations and remedies to govern this complex type of contract. Provisions of the Civil Code (Código Civil) (Law No. 10406/2002) related to contracts, in general, may apply. Case law must also be taken into consideration.

The National Institute of Industrial Property (INPI) is the regulatory authority with jurisdiction in connection with its franchising regulations. The INPI is the official governmental entity responsible for IP rights in Brazil. It is a federal autonomous agency of the Ministry of Industry, Foreign Trade, and Services. The INPI’s regulations are mandatory for the following:

• Remittance of royalties abroad.

• Tax deductibility of payments by a Brazilian company.

• Making the agreement effective before third parties (erga omnis effect), so that third parties cannot claim to be unaware of the existence of the franchise agreement.

Therefore, certain requirements imposed by the INPI regulations have an impact on the terms of franchise disclosure documents and franchise agreements when the parties need or opt to register the franchise agreement with the INPI.

Parties can decide on the law and jurisdiction that will govern the franchise agreement and disputes arising from it. Dispute resolution through arbitration is also possible if the requirements imposed by the applicable laws for the validity of the arbitration are observed.

Voluntary Franchising Codes

The BFA has a Franchise Auto-Regulation Code (BFA Code) which mainly provides guidelines that govern the conduct and behavior of franchisees, franchisors, and third parties related to the franchise. Although the BFA Code is soft law, meaning it is not mandatory according to Brazilian law but that compliance with its provisions is mandatory if parties want to maintain BFA membership status. Either way, dealers need to adopt good rules of corporate governance to make their business more profitable.

It is common practice for the biggest and most well-known franchisors to incorporate the BFA Code by reference in their franchise contracts.

Competition Laws

In general, exclusive dealing, territorial restrictions, or any other obligation agreed between the franchisee and franchisor are allowed. Every limitation imposed on the franchisee must be disclosed in the franchise offering circular (Law No. 13.996/19). This obligation is necessary to protect the franchisee from the franchisor unexpectedly imposing mandatory approved suppliers or from new and unexpected franchisees competing in the same territory. However, resale price maintenance and any other anti-competitive practices are prohibited (Article 36, Law No. 12.529/11 (known as the Brazilian Antitrust Law)).

Limitation of consumers’ rights cannot be imposed. Law No. 8.078/90, which protects consumers, is mandatory law and prohibits any practice or clause that might in any way affect customers’ rights.

The imposition of minimum or maximum prices between franchisor and franchisee is generally allowed and valid. However, according to Brazilian antitrust law, price imposition is prohibited (the franchisor can suggest specific prices, but it is prohibited from imposing them), since the practice can affect the competition system. If the franchising contract provides for penalties to be applied if the franchisee does not adopt the suggested prices, the sanctions are considered mechanisms to enforce the suggested prices and are therefore invalid.

Restrictive covenants concerning geography and competition are allowed and enforceable under Brazilian law if previously provided for in the franchise offering circular (Article 3, Law No. 8.955/94).

Restrictions after the contractual term are also enforced if provided for in the franchise offering circular (Article 3, XIV, Law No. 8.955/94). However, case law is not harmonized and never allows restrictions longer than five years after termination, in analogy to Article 1.147 of the Civil Code, which restricts non-compete clauses between buyer and seller for five years. In practice, it is common to provide for non-compete clauses that extend for two or three years after the termination of the franchising contract.

There are no specific competition implications in licensing IP rights under Brazilian law. However, if the licensing agreement has the purpose of reaching, or results in, a dominant and anti-competitive market position, that agreement may be considered illegal under Law No. 12.529/11.

For more information on competition issues, see Practice Note, Competition Considerations for International Distribution and Supply Agreements.

The parties cannot waive the rights and obligations of Law No. 13.996/19 if they chose Brazilian laws and regulations to govern the franchise agreement.

Tax and Currency Regulations
Tax Overview

The revenues from a franchising agreement earned by a Brazilian franchisor are subjected to corporate taxation (IRPJ, CSLL, PIS, and COFINS) according to the regime adopted by the franchisor.

In addition, the Federal Supreme Court (STF) has recently decided that tax on services (ISS) should be levied on the total revenues arising from a franchising agreement, in the future and for the past five years.

A foreign franchisor can be considered a business carrying on activities in Brazil but is rarely identified and verified as such by the Brazilian tax authorities. It is also possible for the franchisor to incorporate a company in Brazil, and that Brazilian company will be the franchisor.

Withholding Tax

Since 1996, dividend payments to partners and shareholders have been exempt from income tax, even when they are located in tax haven countries (Article 10, Law No. 9.249/05).

Withholding income tax (IRRF) is levied at 15%, or at 25% if the franchisor is located in a tax haven. Depending on how the remittance is characterized it may be taxed:

• CIDE (Contribution for Intervention in the Economic Domain) at 10%.

• PIS (Social Integration Program) and COFINS Contribution to Social Security Financing) at 9.25%.

• ISS (Tax on Services) varying between 2% and 5% depending on the municipality.

Currency Regulations

To pay royalties to a foreign franchisor, the franchising contract must be registered at the INPI. There is no express limit in Brazilian Law on the amount of royalties that can be paid. However, income tax deductions for royalty payments may be limited to 5% of the franchisee’s revenue, depending on the product or the activity (Law No. 4.131/62).

In addition, the registration certificate of technology contracts must indicate the following: “The INPI did not examine the contract in light of tax legislation, taxation, and remittance of capital abroad.” (Article 13, item XI, Normative Ruling No.

70/2017.) Normative Ruling No. 70/2017, therefore, terminated the INPI’s prerogative to analyze the provisions of technology contracts in terms of compliance with local tax legislation, taxation, and the remittance of capital abroad, so guaranteeing the application of the freedom of contract principle on these matters.

There is no currency exchange limitation in operation in Brazil.

Product Regulatory Requirements and Product Liability Laws

With regard to obligations between the franchisee and franchisor, it is advisable, but not mandatory, that the franchise agreement indicates the party responsible for ensuring that products comply with regulatory requirements. In relation to consumers, the franchisor and franchisee are jointly liable for product defects and damage caused to consumers, but the franchise agreement can stipulate that one of the parties indemnifies the other for amounts paid to consumers arising from defects and damages. This language is usually found in franchise agreements but the party responsible for paying indemnities to the other, the franchisor or franchisee, will depend on who is responsible for providing the product.

Legal Formalities
Registration, Licensing, and Consents

No registration or special requirements are necessary, other than the filing of the franchise agreement with the INPI and registration with the Central Bank of Brazil for the following purposes:

• Remittance of royalties abroad.

• Tax deductibility of payments by the Brazilian company.

• Making the agreement valid before third parties, so that third parties must recognize the legal authority of the franchising agreement.

Certain requirements imposed by the regulations issued by the INPI also have an impact on the terms of franchise disclosure documents and franchise agreements. For example, if franchise fees and royalties under the franchise agreement will be remitted to a franchisor abroad, registration with the INPI is mandatory and therefore those amounts will only be payable after INPI has granted registration. The franchise agreement and the franchise disclosure documents must also indicate the INPI application or registration numbers, or both for the applicable trademarks under the franchise agreement, among several other requirements.

Disclosure Requirements

When setting up a franchise system, Article 2 of Law No. 13.996/19 requires the franchisor to provide to the franchisee candidate, in writing and at least ten days in advance of the date of signature of the franchising agreement, a franchise offering circular disclosing all of the following:

• A brief corporate history of the franchisor organization and the full name or corporate name of the franchisor and of all the companies with which it is directly connected, and their respective trading names and addresses. Law No. 13.996/19 does not provide a definition of directly connected, but usually, franchisors report companies that they control or with which they are under common control. When applicable, the Brazilian Taxpayers Registry (CNPJ) number must be provided.
• The franchisor company’s balance sheets and financial statements for the last two years.

• An accurate report regarding all ongoing court proceedings involving the franchisor, its parent companies, sub- franchisors, and owners of trademarks, patents, and copyrights relating to the franchise. This report must indicate which court proceedings, if any, specifically concern the franchising system or may directly prevent the franchise operation.
• A detailed description of the franchise and a general description of the business and the activities to be performed by the franchisee.
• The ideal franchisee profile, describing the previous experience, education level, and other characteristics that are mandatory or preferable.
• The requirements concerning the direct involvement of the franchisee in the operation and administration of the business.
• The specifications as to:

• the estimated initial investment required for the acquisition, installation, and start-up of the franchise;

• the initial membership fee or franchise fee; and

• the estimated value of facilities, equipment, initial stock, and payment terms.

• Clear information about periodic taxes and other amounts payable by the franchisee to the franchisor or third parties referred, detailing the underlying bases and their remuneration or the purpose for which they are intended, indicating, specifically, the following:
  • periodic remuneration for the use of the system, brand, or other IP rights;

• periodic remuneration to be given in exchange for services actually rendered by the franchisor to the franchisee (royalties);
  • equipment rental or real estate rental;

• advertising fees or similar; and

• minimum insurance.

• A complete list of all franchisees, sub-franchisees, the sub-franchisors’ network, and details of who left within the last 24 months, with names, addresses, and telephone numbers.
• Regarding the territory, specification of the following:

• whether the franchisee is guaranteed exclusivity or preference over a certain territory of operation and, if so, under what conditions;
  • whether the franchisee is allowed to sell goods or provide services outside its territory or to export; and

• whether there are rules of territorial competition between self-owned units (operated by the franchisor) and franchised units (operated by the franchisee).

• Clear and detailed information on the franchisee’s obligation to purchase goods, services, or inputs needed for implementation, operation, or management of the franchise only from specific approved suppliers, including a complete list of these suppliers.

• An indication of what is effectively provided by the franchisor to the franchisee, in respect of:

• support;

• network supervision;

• services;

• incorporation of technology innovations into the franchise;

• training of the franchisee and franchisee’s employees, specifying duration, content, and costs;

• franchise manuals;

• guidance in the analysis and selection of the venues where the franchise will be installed; and

• layout and architectural patterns for the franchisee’s premises.

• The status at the INPI of trademarks and other IP rights whose use is to be authorized by the franchisor, including:

• their application and registration numbers;

• the classes and subclasses in which they were filed or granted; and

• if they involve plant varieties, their current status with the National Protection of Plant Variety Service.

• The status of the franchisee after the expiration of the franchise agreement, in relation to:

• know-how regarding the product, process, or management technologies; and

• confidential information and industrial, commercial, financial, or business secrets to which the franchisee may have access in view of the franchise.

• The standard contract model and, if appropriate, also the pre-standard franchise agreement adopted by the franchisor, with full text, including its annexes and expiration date.
• An indication of the existence or non-existence of assignment or succession conditions, and a description of those conditions, if any.
• An indication of situations that would result in penalties, payment of fines, or indemnifications, and the respective amounts, as determined in the franchise agreement.
• Information on whether there are requirements for minimum quotas for purchases by the franchisee directly from the franchisor or from third parties specified by the franchisor, and information on the possibility of (and conditions for) the franchisee to refuse products or services required by the franchisor.
• An indication of the existence or non-existence of a board or association of franchisees of the chain, with information on its attributes, powers, and mechanisms of representation to the franchisor, and details of the management skills and monitoring of the application of existing funds.
• An indication of conditions for limitation of competition between the franchisor and franchisees, and among franchisees themselves during the term of the franchise agreement, and details of the territorial scope and duration of the restrictions, and any penalties applicable in the event of breach.

• An indication of the contractual term and renewal conditions.

• Details of the time and place for the receipt of the franchisee’s application, and for the opening of the envelopes, in the case of public entities. Franchising by public entities generally requires a bidding process, although exceptions may apply. The opening of envelopes is a formal part of the bidding process, in which the proposals of potential franchisees are opened for analysis on a date and at a time previously specified.
• Failing to provide the offering circular ten days before the execution of the franchise agreement may result in the annulment of the franchise agreement and the reimbursement, by the franchisor to the franchisee, of all fees paid by the franchisee to the franchisor or third parties indicated by the franchisor.
• There is abundant case law on the lack of provision of the offering circular by the franchisor or missing information in the offering circular. However, local courts tend to reject a franchisee’s claims for annulment of the franchise agreement when they have operated the franchise for many years.

Other Legal Formalities

Brazilian law allows foreign franchisors to enter into a franchise agreement with Brazilian franchisees directly, without any subsidiary or a branch office in Brazil. However, it is necessary to take the issues and procedures involving the protection of IP into account, including trademarks, copyright, patents, and designs.

Foreign companies can set up branches and subsidiaries in Brazil. However, formal approval from the government is required in advance (Normative Ruling No. 7/2013, as updated by Normative Rulings No. 25/2014, No. 49/2018, and No. 59/2019, Business Registration and Integration Department (Departamento de Registro Empresarial e Integração)).

Several documents are needed to obtain approval to set up branches and subsidiaries in Brazil:

• A corporate resolution approving the setting up of a Brazilian branch or subsidiary.

• The articles of association or bylaws.

• A list of shareholders.

• A certificate of regularity, issued by the tax authorities and commercial registry of the country of origin.

• A corporate resolution appointing a Brazilian legal representative of the company and power of attorney giving it the power to act on behalf of the foreign company.
• An affidavit from the company legal representative promising to obey Brazilian laws and any conditions of the authorization set out by the federal government.
• The company’s most recent balance sheet.

• Evidence of payment of government fees.

Once the federal government grants the authorization, the foreign company’s branch or subsidiary must be fully in compliance with Brazilian laws, including registration with the relevant authorities, for example, the Board of Trade of the state in which it is established.

All documents must be presented in Portuguese. Any text in a foreign language will not be taken into consideration by Brazilian courts or government officials. All references to monetary values must be made in Brazilian reais.

Many franchisors opt to establish a wholly-owned subsidiary (most commonly a limited or joint-stock corporation) to avoid the need to register the franchise agreement with the INPI for the purpose of remitting royalties abroad. If the franchisee pays franchise fees and royalties into the franchisor’s bank account in Brazil, registration of the franchise agreement with the Brazilian Patent and Trademark Office (PTO) is not required. The franchisor can remit dividends from its subsidiary to its headquarters abroad.

JV agreements are not typically used to establish a franchise due to the risks arising from a lack of offering circular (see Legal Formalities). The parties can enter into a franchise agreement in addition to a JV agreement. Both will work in accordance with the particulars of the deal between the franchisee and franchisor.

A branch office does not consist of a new corporate entity formed in Brazil, and therefore it is not usually an option chosen by franchisors.

Appointing a Franchisee

Foreign franchisors planning to establish a franchising system in Brazil should bear in mind considerations relating to employment, IP, and real property.

Employment Considerations

The relationship between the franchisee and franchisor is commercial. Both parties are considered independent entrepreneurs. Law No. 13.996/19 specifically states that the franchise does not result in an employment relationship between the franchisor and franchisee, or between the franchisor and the franchisee’s employees.

Under Brazilian employment law, the situation is the same. The franchisee and their employees would not usually be considered the franchisor’s employees. In Brazil the general rule is that, for an employment relationship to exist, the relationship must meet the following requirements:

• Subordination. The employee works under the employer’s supervision, is subject to orders, and has no autonomy to make decisions on their own.
• Habit. The employee provides services to the employer on a regular and continuous basis.

• Remuneration. The employee is compensated for the services they provide through the payment of a salary.

• Personality. The services are carried out by a specific person.

(Article 3, Law-Decree No. 5.452/43 (known as the Consolidation of Brazilian Labor Laws).)

However, there is a risk that the labor courts may consider an employment relationship exists if a franchisee or (more likely) its employees bring a claim and can show that the relationship meets these requirements.

In addition, to properly guarantee their position, the franchisor must not interfere in the employment relationship between the franchisee and its employees.

Notwithstanding the foregoing, the Franchise Law enacted in 2019 includes express language stating that the franchise agreement does not result in an employment relationship, even between the franchisor and the franchisee’s employees.

Therefore, if the requirements for the characterization of an employment relationship are not met, the franchisor will not be considered an employer in relation to the franchisee or the franchisee’s employees.

Intellectual Property (IP) Considerations
IP Rights Granted

Trademarks are the most licensed IP right under franchise agreements, along with know-how, copyrighted materials, for example, the franchise manual, and access to the franchisor’s systems. Patents, designs, and software are also licensed, although less often. IP rights are licensed to franchisees within the scope of the franchise agreements.

The customs authorities do not require the importer to be registered as the owner or the user of the trademark to import the goods bearing the trademarks. However, goods bearing unauthorized trademarks are considered counterfeited goods, and their importation is a crime under Article 190 of Law No. 9.279/96 (known as the Brazilian Industrial Property Law).

Usually, the franchise agreement will state that franchisee will be held harmless from disputes on the validity of the IP rights granted to them within the scope of the franchise agreement. If a franchisor’s trademark is not registered in Brazil, franchisees should obtain legal assistance to check the possible risks of infringing third parties’ IP rights.

Protection of Franchisor’s IP

Trademarks are protected under Law No. 9.279/96. Trademarks are granted on a first-to-register basis for a ten-year term. Trademark rights are renewable indefinitely.

The most important provision in the franchise agreement is the payment of royalties to the franchisor in consideration for the licensing of the trademark to the franchisee. The franchisee does not acquire any trademark automatically by selling goods and services bearing the relevant trademark. Registration is required to acquire any trademark rights.

Termination provisions are also important. They usually provide for the franchisee to immediately cease the use of the trademark in any activity, establishment, or product on termination of the franchise.

The term of a franchise agreement must match the term of registration with INPI of any trademark used under the agreement.

In Brazil trademark notices are not commonly used, the trademark owner usually imposes all obligations to be observed by the licensee or franchisee within the scope of the relevant agreement between the parties.

Goodwill

At least two provisions are usually made concerning goodwill:

• The agreement provides for a formal waiver by the franchisee of the right to claim goodwill, so that goodwill resulting from use of the franchise belongs to the franchisor.
• The franchisor usually requires the franchisee to take responsibility for any behavior or act that could negatively affect the goodwill of the trademark.

It is very unusual for franchisors to compensate franchisees on termination of the franchise agreement for their development of goodwill during the franchise, but such an arrangement is possible.

Enforcement of IP Rights

The IP asset must be valid in Brazil for the franchisor or franchisee to enforce it.

Trademark rights are acquired when the INPI grants their registration, although certain exceptions under Law No. 9.279/96 (Law on Industrial Property) enable enforcement of well-known trademarks registered abroad.

Copyrights are regulated by Law No. 9.610/98 (known as the Copyrights Law) and can be exercised in Brazil regardless of registration. Law No. 9.610/98 states that ideas are not entitled to protection. Protection is provided in relation to how ideas are expressed, and originality is a main requirement. A franchisor can therefore enforce its copyrights without registration if they meet the requirements for validity.

A franchise agreement must be registered with the INPI to make it valid against third parties. The franchisee can use the certificate of registration issued by the INPI to enforce its IP rights against infringing third parties.

If an agreement is not registered with the INPI, the franchisee can alternatively obtain a specific authorization from the franchisor to enforce IP rights against third parties. This type of enforcement usually starts with a cease-and-desist letter against the infringer and, if it is not effective, a lawsuit can be filed requesting an interim injunction at the beginning of the litigation to interrupt the damages being caused.

Use Restrictions

Franchise agreements license, not assign, IP rights to the franchisee. The franchise agreement grants the franchisee a temporary right to use the franchisor’s IP. Therefore, franchise agreements usually require the franchisee to cease use of all of the franchisor’s IP granted under the agreement on termination.

Franchise agreements also typically state that during the term of the agreement the franchisee can use the franchisor’s IP strictly in accordance with the provisions of the agreement and all other types of use must be previously approved in writing by the franchisor.

During the franchise agreement, the franchisor may also prohibit the franchisee from disclosing any confidential information or know-how to third parties or from using the franchisor’s know-how in any activity outside the scope of the franchise agreement.

Brazilian law does not provide clear guidance for restrictions after the expiration of the franchise agreement. Franchisors must disclose in the franchise circular offering any after-expiration obligations of the franchisee regarding:

• The franchisor’s know-how accessed during the agreement.

• The deployment of competitive activities by the franchisee.

However, there is no clear provision regarding the enforceability of non-compete clauses (Article 2, item XV, Law No. 13.996/19). Brazilian case law provides that restrictions on the use of the franchisor’s know-how by the franchisee are valid, but may not, in general, be enforced for more than five years. It is common practice to include non-compete clauses that are valid for two or three years from the termination of the franchising contract (see Competition Laws).

Real Property Considerations

There are no legal restrictions regarding the form of real estate ownership or leasing used in a franchising situation by a franchisee in Brazil, irrespective of the franchisee’s or franchisor’s nationality. Only rural real estate has restrictions regarding deals with foreign buyers.

Law No. 13.996/19 regulates franchises in which the franchisor subleases a commercial plot to the franchisee for operation of the franchised business, providing that in these cases:

• Either party can file lease renewal court claims (a claim that aims to enforce the extension of the lease agreement provided that some requirements are met). Before Law No. 13.996/19 came into force, only the sub-lessee (in this case the franchisee) was entitled to file the renewal lawsuit when the real estate was subleased in its entirety.
• The lease and sublease agreements cannot provide for the exclusion, on their renewal, of the franchisee and franchisor’s prerogative to file a lease renewal claim, except in the event of breach for non-payment of the lease agreements or the franchise agreement.
• The rental price to be paid by the franchisee to the franchisor can be higher than the amount paid by the franchisor to the property owner of the commercial premises, provided that:
  • this fact is clearly set out in the franchise offering circular; and

• the rental amount paid by the franchisee to the franchisor in excess of the rent paid by the franchisor to the property owner does not result in an excessive burden on the franchisee.

The Franchise Agreement
Legal Formalities

Franchise agreements will be fully enforceable under Brazilian law if both these formalities are met:

• The franchisor must have made the franchise offering circular available to the franchisee at least ten days before the formation of the franchise agreement or any payment by the franchisee to the franchisor, with all the required

information provided (see Disclosure Requirements). If the franchisor disregards this requirement, the franchisee can seek a judicial declaration that the contract is null and void, and also demand the reimbursement of all payments it has made to the franchisor, or a third party specified by the franchisor for affiliation to the franchise system or for royalties purposes. The amount to be reimbursed must be duly adjusted (Article 2, paragraph 2, Law No. 13.996/19).

• Franchise agreements that have effect exclusively in the Brazilian territory must be written in Portuguese and governed by Brazilian law. International franchise agreements must be written in the Portuguese language, or the franchisor must provide a sworn translation.

The parties can choose one of their countries of domicile as the jurisdiction of the agreement. If a specific jurisdiction is provided by an international franchise agreement, the parties must establish and maintain a legal representative or attorney:

• Duly qualified and domiciled in that jurisdiction.

• With powers to represent them administratively and judicially, including powers to receive a judicial summons.

In relation to offering circulars, there are cases where the courts have rejected franchisee claims that the franchise agreement must be declared null and void due to the lack of a franchise offering circular where:

• The franchisees failed to prove that the lack of the franchise offering circular resulted in actual damages.

• A considerable period had elapsed from the execution of the franchise contract and the claim to have it declared null and void. The delay, therefore, indicated acceptance of the contract despite the lack of an offering circular.

In April 2019, the São Paulo State Court of Appeals issued an official statement (Enunciado IV) that reflects the prevailing interpretation of the matter at that court (which is one of the most relevant in the country in terms of volume of potential claims), stating that:

“Non-compliance with the formality provided by Article 4 of Law 8.955/94 [the previous Franchise Law in force at the time the official statement was issued] may entail the nullity of the franchising contract, provided that it has been claimed by the plaintiff within a reasonable period of time and provided that the actual loss is duly proved.”

However, the Superior Court of Justice recently ruled on a franchise agreement in the laundry industry, holding that the franchisor breached its duty of good faith and its duty to inform by omitting relevant information which would have allowed the franchisee to make an informed decision on the franchise agreement. It held that the breach of important pre-contractual duties by the franchisor can give the franchisee a claim for contractual termination and recovery of damages. The Superior Court of Justice granted early termination of the franchise agreement and indemnities to the franchisee, based on:

• The fact the franchisor omitted to inform the franchisee of the failure of the previous franchisee in the same region.

• The court’s expert opinion that it was highly unlikely that the franchisee would be able to recover the investments imposed by the franchisor.

(RESP No. 1.862.508-SP, Official Gazette Dec 18, 2020.)

Rights and Obligations Generally

Franchisees are usually granted the following rights, which are not mandatory, but must be set out in the offering circular:

• To use the franchisor’s trademark or other IP.

• To be an exclusive distributor of the franchisor’s goods or services in a restricted area (according to the franchise circular offering).
• To use the franchisor’s technology, software, and know-how.

• To provide a uniform to its employees, and to use other types of distinctive property.

• To receive training sessions and submit its employees to training sessions related to the product or service to be provided.
• To receive technical manuals related to the implantation and operation of the franchise.

• To receive architectural standards and projects to be followed when setting up its business unit.

It is usual for the franchisor to grant exclusivity in matters relating to the territory and term of the franchise. Exclusivity does not have any prima facie competition implications regarding the relationship between the franchisor and franchisee. However, to comply with competition law, exclusivity must:

• Be limited in territory, object, and term.

• Not have the specific purpose of competition limitation.

• Not involve resale price maintenance, which is not permitted by Law No. 12.529/11 (see Competition Laws).

(Article 36, Law No. 12.529/11.)

The franchisor’s main obligation is to provide the franchisee with the franchise offering circular. Brazilian law also requires the franchisor to grant the franchisee a license to use its trademark or IP rights, technology, software, and know-how (Article 1, Law No. 13.996/19).

Payment Considerations

Fees payable vary significantly in accordance with the commercial sector of the franchise. Franchise agreements usually specify an initial fee and monthly royalties, although other fees, for example, customer care, training, and inspection fees, a loyalty program charge, and software license fees may apply.

When initial fees and royalties are payable to a local bank account owned by the franchisor, the parties can agree on their amount and when they are due without restrictions. When initial fees and royalties are payable to a franchisor abroad, the franchisor cannot impose payment before the franchise agreement is registered with the INPI (see Legal Formalities, Registration, Licensing, and Consents).

Term of the Agreement

The franchisor is free to suggest the term of the contract. Although both parties may negotiate it, the franchise contract will usually be the franchisor’s standard form contract and therefore the franchisor usually determines its duration.

The term must be sufficient for the amortization of the investments required from the franchisee. In addition, the term of franchise agreements must not run past the expiration date with INPI of any trademark used under the agreement (INPI’s Normative Ruling 199/2017).

It is common practice to provide for a five-year term, with the possibility of renewal if either of the parties so requests, with a reasonable notice period. It is also common that after an initial determined period of validity, the franchise contract can be extended for an undetermined period. In this situation, it is also necessary to stipulate a notice period for a party to terminate unilaterally (see Terminating the Franchise Agreement).

Considering the scale of investment required, a test period is not common. An alternative is to establish a shorter initial term (for example one year) and the possibility of further extension.

The term must be set out in the franchise circular offering, to avoid any allegations of nullity or invalidity from the franchisee.

Franchisees usually have the right of renewal, sometimes dependent on a performance requirement. Some franchises notoriously charge for renewal, but it is not common.

Operation and Compliance

Franchisors typically provide an operations manual to franchisees that details the standards, systems, and requirements that franchisees are expected to use and meet. The operations manual usually indicates requirements to be observed by the franchisee in relation to the franchise’s trademarks, branding, advertisements, software, technology, procedures, designs, policies, and interior and exterior signage. Operation manuals usually do not apply for a specific term. Franchisors commonly reserve their right to change them “from time to time” and state those modifications must be observed by the franchisee. There are no express legal restrictions preventing franchisors from imposing modifications on a mandatory basis. However, a franchisee can claim violation of the Civil Code good faith obligations if the franchisor imposes, for example, significant modifications shortly after the franchise agreement is executed without clear provision for these changes in the franchise agreement or the offering circular. Good faith provisions in the Civil Code aim to ensure security, loyalty, and reciprocal trust in contractual relationships.

Data protection and anti-corruption requirements are usually determined by the franchise agreement, not the operations manual.

Liability and Remedies

One of the franchisor’s main risks is granting the right to operate a franchise to a franchisee that does not have the necessary experience or means to operate the franchise in accordance with the franchisor’s expectations. Even when the franchisee appears to have the necessary expertise, it frequently, due to different factors, fails to meet the franchise’s standards. That failure damages the reputation of the brand and may expose the franchisor to joint liability to consumers for damages caused by the franchisee.

It is therefore very important that the franchise agreement includes a standalone guarantee agreement, by which the franchisee provides adequate assets, for example, real estate, to cover possible indemnities to be paid to the franchisor.

As franchise agreements or forms may be deemed adhesion contracts, according to Brazilian laws, the adhering party must have the opportunity to express its unwillingness to enter into the agreement or form, and the terms and conditions of the agreement or form must be written in a clear and easily understandable manner. In addition:

• Provisions representing limitations to the signatory’s rights must be written in an easily visible manner that can be immediately and easily comprehended.
• Provisions imposing a waiver of rights resulting from the nature of the agreement or form by the adhering party may be considered null and void.

However, the São Paulo Court of Appeals recently ruled that:

“In spite of the fact that the franchise agreement is an adhesion agreement, its clauses should not, for this reason alone, have their validity questioned. … Disparities in bargaining power and market power between the parties have little to do with the very concept of a contract of adhesion. The adhesion contract is formed in a unique way, between parties that cannot or do not want to waste time negotiating contractual clauses, under penalty of making it unfeasible.”

(Appeal No. 10039421720188260576 SP, Official Gazette Oct 4, 2021.)

Therefore, limitation of liabilities provisions should not be invalidated by local courts.

Indemnification and Insurance

Indemnification provisions under franchise agreements are common, including in relation to product liability claims (see The Franchise Agreement, Liability and Remedies and Product Regulatory Requirements and Product Liability Laws).

Franchise agreements typically require franchisees to maintain insurance, usually covering an amount per occurrence for commercial general liability and other coverage including:

• Liquor liability coverage.

• Automobile liability coverage.

• Business interruption.

• Employer’s liability insurance.

• Employment practices liability.

• Professional errors and omissions.

Disputes, Choice of Law, and Forum

Local law does not restrict resolution of franchising disputes by litigation, arbitration, or mediation. Franchising disputes are usually litigated or arbitrated (see Governing Legislation and Regulation) when the extrajudicial negotiations do not succeed.

The parties can choose one of their countries of domicile as the jurisdiction of the agreement. If a specific jurisdiction is provided by an international franchise agreement, the parties must establish and maintain a legal representative or attorney:

• Duly qualified and domiciled in that jurisdiction.

• With powers to represent them administratively and judicially, including powers to receive a judicial summons.

Law No. 13.996/19 expressly refers to the possibility of including an arbitration clause in the franchise agreement (paragraph 1, Article 7).

Article 105, I, i of the Federal Constitution and Article 35 of Law No. 9.307/96 (known as the Arbitration Law) state that decisions issued by foreign courts must be ratified by the Superior Court of Justice (STJ) to produce effects in Brazil.

Terminating the Franchise Agreement

The franchise agreement can be terminated with cause for any breach of contract (Article 475, Civil Code). Breach of the following statutory obligations may result in termination:

• For the franchisee, if the franchisor does not:

• guarantee the franchisee the use of the trademark, other IP rights, or know-how; or

• provide the franchisee with the franchise offering circular at least ten days in advance of the signature of the franchise agreement.

(Article 475, Civil Code and Articles 1-2, Law No. 13.996/19.)

• For the franchisor, if the franchisee:

• does not pay the franchise fee and the royalties (Article 475, Civil Code and Article 1, Law No. 13.996/19); or

• acts or adopts any conduct or practice that could damage the trademark or the product which is the subject matter of the contract.

In addition to statutory obligations, franchise contracts usually provide for termination on any breach of agreed quality or sales performances to protect the franchisor’s trademark and market value.

If the franchise contract is valid for an undetermined period, it typically provides for the possibility of unilateral termination by either party by prior notice. The applicable law does not provide for the term of the notice period, but rather gives a general guideline that unilateral termination is only effective after a term compatible with the nature of the business and of the investments made to run it has elapsed (Article 473, Civil Code).

Law No. 13.996/19 does not provide for termination of a franchising agreement, or for any compensation for termination. Therefore, there is no pre-liquidated (legal) compensation triggered by the termination of a franchising agreement.

For any of the parties to be entitled to compensation for termination, the other party must have failed to comply with its obligations and consequently must have caused damage to the aggrieved party. For example, if the franchising agreement is valid for a determined period, any unjustified early termination would constitute a breach and therefore the terminating party would be liable to pay compensation (except if both parties had mutually agreed to the termination). In this situation, the compensation would be equivalent to either:

• The damages and losses incurred by the franchisee (to be duly demonstrated through evidence).

• Any pre-liquidated damages provided by the contract.

However, if the contract is for an undetermined period, both parties are entitled to terminate unilaterally without cause, provided that reasonable prior notice is given. The contract usually determines the minimum prior notice. The franchise agreement must draw attention to the fact that a unilateral early termination by the franchisor will only be effective if the investments made by the franchisee have already been amortized. Otherwise, the franchisor will be prevented from unilaterally terminating the contract or the franchisee will be entitled to compensation due to an abusive and abrupt termination.

It is quite common for franchisees to seek damages related to the losses incurred due to failure to succeed commercially with a franchise. However, the courts are usually very restrictive and do not grant any type of compensation, stating that the parties are independent and that the franchisor is not liable for the franchisee’s failure. In these cases, the causal link between the conduct of the franchisor and the losses incurred by the franchisee must be proved.

The franchise agreement usually provides for the franchisee to immediately cease the use of the trademark in any activity, establishment, or product on termination of the franchise.

For non-compete covenants and their competition law implications see Competition Laws.

For the franchise premises after the franchise has been terminated see Real Property Considerations.

Whether a franchisor or a new franchisee can establish direct relationships with a former franchisee’s clients will depend on the terms of the franchise agreement. The franchisee must include provisions in the franchise agreement restricting the franchisor’s takeover of clients or proving compensation. However, franchisors rarely accept those provisions (see Intellectual Property (IP) Considerations, Goodwill).

Other Considerations

To decide on the best arrangement for the remittance of franchise fees and royalties abroad the franchisor should assess:

• The costs of establishing a subsidiary in Brazil.

• The legal costs related to the registration of franchise agreements with the INPI.

There are purposes other than the remittance of local profits abroad for establishing a subsidiary but depending on the number of franchise agreements to be registered with the INPI, the establishment of a subsidiary may make sense for this reason alone. However, sometimes it is more advantageous, due to specific legal or corporate aspects that apply to franchisors’ entities, to register franchise agreements with the INPI and therefore receive payments as franchise fees and not as dividends of the local subsidiary.

The registration of agreements with INPI may be in the parties’ interest for other purposes, specifically, to make the agreement valid between third parties and for tax deductibility.

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In an article published by Thomson Reuters – “Commercial Real Estate in Brazil: overview”, the multi-disciplinary team presents the most relevant points for companies and individuals who intend to invest and understand the main aspects of the Brazilian Real Estate market. With language accessible to all audiences, including non-lawyers, the content details the competitive environment and the laws and regulations that govern the topic. For further information, please click here.

O post Commercial Real Estate in Brazil: overview apareceu primeiro em Souto Correa Advogados.