One of the worst things you can do to a bully is to not take part in the little bs drama they are trying to create. These kinds of people seek validation and satisfaction by pushing your buttons until you react.
The worst thing you can do to yourself is retort mentally or physically. Not only is this kid probably much more skilled in these arts than your little brother, but would also be able to make you or your brother look like the bully and himself the victim. This is a key strategy for a lot of bullies (kids and adults alike, and yes, there are a lot of adult bullies.)
My advise (which comes without any form of guarantee) is to make your brother understand the importance of keeping a level head at all times, avoid the kid as much as he can, and learn to laugh at himself when the bully tries to make a fool out of him. Like this:
Bully: You have an ugly nose!
Victim: Ha! Yeah, I guess you're right, I never noticed that about myself
If its a more private kind of bullying, like text messages, or email, show it to everybody when he is around and laugh at yourself in as honest a way as possible. Laugh with him.
This sounds like being a wimp, etc., but the bully will soon tire of it if he doesn't get the reaction he was hoping for and go look for it elsewhere. Always keep calm and take the high road. If it has the opposite effect and makes the bully try a more physical approach, great, a black eye is a small price to pay for outing the bully to every adult around.
There is practically no way you can win against someone like this by retaliating.
It sucks, its not just or right, but learning to defuse a situation like this will come in handy a lot in life whenever someone tries to create psychodrama.