Luxury brands in Brazil: new technologies, opportunities and precautions

Trademarks are distinctive signs whose primary functions help identify the origin of goods and services and distinguish them from others that are either identical or similar. Under Brazilian law, all visually distinctive signs can be registered as trademarks.

Currently, trademarks can be registered in Brazil in line with the following categories:

• Nominative (a sign consisting of one or more words);
• Figurative (drawings, designs, symbols, figures, images or any other form of numeral or letter);
• Combined (a combination of nominative and figurative elements);
• Three-dimensional (a product or packaging’s distinctive three-dimensional shape).

However, trademarks for luxury brands are different. Besides providing consumers with an expectation of origin and quality, they also convey exclusivity, a sense of scarcity and prestige.

Therefore, a luxury item holds an intrinsic immaterial value, whose existence depends on maintaining its trademark’s high degree of distinctiveness. If this distinctiveness is diluted – in other words, the trademark’s power to attract consumers is affected due to wrongful acts that harm the trademark’s material integrity or reputation (in Brazil, such acts are defined under the Industrial Property Law, or LPI) – it can be extremely harmful to luxury trademarks.

Strategies for luxury brands

Therefore, it is crucial to create an adequate strategy to protect luxury trademarks and goods, fully exploring the possibilities provided for in Brazilian legislation. Depending on the specific case, it may be possible to register trademarks for multiple characteristics and uses of the same distinctive sign or to seek recognition as a highly renowned (alto renome) trademark. These measures expand the possibilities of protection.

Further emphasizing the need to protect luxury trademarks and goods, the Brazilian market had a turnover of USD 5.226 billion in 2020, according to the Brazilian Association of Luxury Companies (Abrael). Moreover, this is projected to increase by 3% by 2025, contrary to what many other markets are facing in light of the Covid-19 pandemic.

Piracy and illegal markets

Highly desired and outside many people’s price range, luxury goods are often subject to unauthorized exploitation and reproduction, an act the LPI defines as a civil and criminal offense.

Although clandestine, the market for pirated products in Brazil currently moves significant sums of money, both to the detriment of consumers (who may face quality problems, among other issues) and, above all, trademark owners. In a notable development, the expansion of e-commerce during the pandemic has further facilitated the flow of these illegal products.

Although pirated goods have the potential to harm all trademarks, luxury trademarks are especially vulnerable to devaluation and the loss of power to attract consumers. The circulation of pirated goods can affect both a luxury trademark’s reputation and exclusiveness, which are essential for maintaining the brand’s value.

As such, it is crucial to develop and implement procedures to protect the trademarks against piracy. This can take the form of monitoring the market (including digital markets and marketplaces), border control measures, joint efforts with customs agencies, and other judicial and administrative measures.

Luxury Trademarks, NFTs and the metaverse

The luxury goods market constantly seeks to stay as relevant as possible, which includes keeping up with new technologies. In this sense, some brands have even started to use non-fungible tokens (NFTs) and plan how they will position themselves in the metaverse.

Despite having several applications, NFTs have become particularly popular for facilitating the selling and collecting of digital items (and, therefore, have become a form of investment), as they consist of certificates that attest to the authenticity of a digital file.

The combination of the security the certificate provides and the great lucrative potential of this market has led companies to start investing. For the luxury goods sector, this has meant, among other examples, creating virtual designs, and photo and skins application filters that change the appearance of avatars in online games. These brands’ NFT collections can be made exclusively for the digital environment or produced for the real world as well.

With such technological advances in the digital environment and this shift toward tokenization, the metaverse has now entered as an important player. This virtual space allows users to interact with each other and even offers the ability to trade NFTs, providing new positioning opportunities for luxury brands, while renewing discussions about trademark infringements in parallel.

Metaverse Fashion Week

One such opportunity was Metaverse Fashion Week, a pioneering fashion event for NFT designs in a completely digital environment, held in March 2022. Some brands offered an innovative consumer experience by selling items via NFTs (with the possibility of purchasing items that exist in both digital and physical formats), presenting virtual displays of their physical collections and allowing users to try NFT wearables (digital clothing or accessories).

However, these innovations also have the potential to create new forms of trademark infringement. Therefore, luxury brands must seek to identify possible risks and potentially intensify protection against unauthorized trademark use. Although fashion items are already all-too-often the subject of piracy and trademark violations, making them available in an exclusively digital environment can further increase this risk, as copies can be made more easily.

Certain measures have already been adopted to address this issue. For example, there has been an increase in the number of applications for trademark registrations with the United States Patent and Trademark Office (USPTO) for products and services used exclusively in digital environments. Creating specific protection strategies for new technologies will be one of the main challenges in the coming years.

Upcycling

With companies’ and consumers’ increasing appreciation of ESG practices, sustainable production and consumption measures are becoming more and more prominent. This is the case of upcycling – the practice of reusing materials, such as discarded clothing, to produce new products.

Some luxury brands have also developed initiatives in this area. In one example, vintage pieces of clothing were reformulated for sale in a limited collection. Moreover, the expansion of upcycling has seen the practice adopted by other players in the market and by consumers themselves.

Despite the potential benefits it provides in terms of sustainability, upcycling can raise questions from an intellectual property perspective. This is especially the case if the reused materials display third parties’ brands and designs – which could happen when using a piece of fabric from a blouse printed with a logo to create a handbag, for example.

If materials bearing luxury trademarks are used, upcycling could result in trademark dilution (harm to the trademark’s material integrity or reputation), creating confusion as to the origin of the product. It could also lead to an undue association between the luxury trademark and the upcycled product, with the unauthorized use of its prestige, fame and reputation.

Therefore, the practice of upcycling requires careful planning in relation to partnerships and product flows to preserve trademarks’ strategic positioning. As a consequence, contractual arrangements may be necessary to ensure the rights of the parties involved.

For further information about trademark strategy, please see our special series Legal Challenges in Brand Positioning.