The decision is the result of a local company, Gradiente Eletronica, registering the name in 2000, seven years before the US firm.
A spokesman for Apple declined to comment.
But the Institute of Industrial Property told the BBC it understood Apple was pursuing an appeal.
The INPI added that its decision only applied to handsets, and that the California-based company continued to have exclusive rights to use the iPhone name elsewhere including on clothing, in software and across publications.
Apple can also continue to sell iPhone-branded handsets in what is Latin America’s biggest market – however, Gradiente has an option of suing for exclusivity.
INPI added that Apple had argued that it should have been given full rights since Gradiente had not released a product using the iPhone name until December 2012.
The Manaus-headquartered company now sells its Android-powered iPhone Neo One for 599 reals ($304; £196).
Bloomberg previously reported that the chairman of Gradiente had said: “We’re open to a dialogue for anything, anytime… we’re not radicals.”
Apple’s most recent financial results revealed its cash reserves had grown to $137bn (£88bn).
The firm’s manufacturing partner, Foxconn, currently produces iPhone 4 models among other equipment at its facilities in Brazil.