Bad faith is en vogue. Or at least has been in the headlines of legal gazettes in 2019 and 2020. This is largely due to two highly significant decisions about what may constitute bad faith.
The EUIPO Board of Appeal's decision in Monopoly (R 1948/2017-2) and the Court of Justice of the EU's (CJEU) preliminary ruling in SkyKick (C-371/18) redefine the limits of what is possible within the European trademark system.
The Monopoly decision deals with the question of under which circumstances the refiling of an existing mark still qualifies as good faith when this is mostly driven by the desire to unjustifiably secure another five-year grace period.
Similarly, in respect of trademark specifications, the SkyKick decision provided some clarity about when overly broad terms that lack clarity and precision could be considered "inconsistent with honest practices" if there was no intention to use the mark on all of the applied-for goods.
The SkyKick decision had been eagerly awaited by trademark owners in the US and Europe. If the CJEU had followed the advocate general's interpretation of the law it would have meant disrupting the status quo for existing filing practices, thus shifting the European system more towards the one used in the US. This did not happen.
While the CJEU clarified what indicia "tend" to show dishonest intentions, it also held that bad faith cannot be presumed just because the applicant had no commercial activity corresponding to certain goods and services.
It therefore laid a considerable burden on those seeking to invalidate an existing registration, thus keeping (or even raising) a high threshold for establishing bad faith.
Unpleasant surprises
High standards are still applied to other relevant bad faith matters – namely those with a third-country dimension.
In a globalised world, companies increasingly seek outlets outside their home markets. One may therefore call it an unpleasant surprise abroad.
For example, in market 'A' (the US) a company successfully launches a new product using a new mark. This does not go unnoticed. Somebody else (the applicant) files a trademark application in market 'B' (the EU), thus blocking it there. Once the company realises (too late) its reaction is clear – "somebody has stolen my mark".
Sure, executing a global filing strategy at the right point in time, prior to the first launch, helps avoid these bad surprises. The reality, however, looks different.
Often small and medium-sized enterprises (but not only these) believe to have ticked all boxes when applying for their trademark in the EU, particularly those only operating in a handful of member states.
They would typically not instruct costly filings in white space markets (a market where a company has yet to launch a brand) before first knowing whether the launch in their home market was successful. However, mid-to-long-term hesitance may prove to be a crucial mistake. A trademark registered in only a few markets will at best be considered a regional asset, thus having a lower value for a potential buyer with global operations or ambitions.
Bad-faith burden
This leads to the question of what the owner of the "stolen" mark (the owner) can do about that and, more specifically, what in this context is considered fair competition and what would amount to bad faith.
A starting point for the overall assessment is whether three requirements are met:
First, the applicant has applied for an identical or at least similar mark;
Second, the applicant knew, or at least could have known, about the owner's mark. Nevertheless, as the CJEU held in Malaysia Dairy (C-320/12), the knowledge that a third party is using the mark abroad is not sufficient, in itself, to establish bad faith; and
Hardest therefore is the third requirement – proving the applicant's dishonest intention, a purely subjective factor.
The burden of proof will always be with the trademark owner. Gathering compelling evidence regularly proves to be an uphill battle when relevant facts date back to long ago or, as experience shows, when there is hardly any or no link between the applicant and trademark owner. Certain indicia may help, but not necessarily, since good faith is presumed until proved otherwise.
What owners should do
The EUIPO's guidelines on bad faith (Article 59 (1), EU Trademark Regulation) provide an overview of EU case law to build on, as does, at global level, the excellent compilation of cases by the TM5 Group.
The CJEU's landmark decision in terms of bad faith, Lindt (C-529/07), did provide some clarity but set a high bar.
In 2000, chocolate maker Lindt & Sprüngli managed to obtain protection for its chocolate bunny as a three-dimensional mark in the EU. An Austrian competitor (Hauswirth) had been using chocolate bunnies for decades. Lindt sued Hauswirth who, in return, claimed that Lindt had filed its trademark application in bad faith.
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From a practitioner’s perspective, it is highly desirable that IPOs and courts take a more determined and reality-driven approach against what some bluntly call ‘IP theft’. |
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In its 2009 decision, the CJEU established that bad faith as a subjective factor "must be determined by reference to the objective circumstances of the case". It went on to say that even in circumstances "when several producers were using, on the market, identical or similar signs for identical or similar products…, the applicant's registration of the sign may be in pursuit of a legitimate objective", without further elaborating on that.
Was there conclusive proof of a dishonest intention, of anti-competitive conduct? The ruling in Lindt left the fact-finding and the final decision to the local court, which could not identify illegitimate conduct on the part of Lindt and therefore dismissed Hauswirth's claims.
That does not mean that there is always an "excuse" for the applicant. Bad faith obviously exists where the applicant seeks to make unfair use of the residual good will of an old brand.
In Simca (T-327/12), the EU General Court (GC) held that "the real purpose…was to 'free-ride' on the reputation…and to take advantage of that reputation." Interestingly, as the GC held, the applicant "had worked for the intervener as an independent entrepreneur in the software field", a detail that certainly made claiming good faith more difficult.
Familiar faces
This leads to a large group of bad-faith cases that are characterised by a prior relationship between the parties.
Most of the time the parties would be one single entity or part of the same group of entities but would then split up to later face each other as competitors. Sometimes the parties would be formally separate entities from the start but closely cooperate due to long-standing business relationships. In any event, one party could assume what the other's plans were or at least could be. One would expect such cases to be relatively clear-cut, but this may not necessarily hold true.
A good example for that is the K-Swiss v Künzli case. Künzli, a Swiss shoe manufacturer, began using five vertical stripes already in the 1950s. In the 1970s, Künzli (later K-Swiss) split off but continued using the same five-stripe design in the US, registering the logo as a trademark in the US and other markets, including Germany. Künzli missed this opportunity, even though it had been operating in Germany for some time.
In 2004, K-Swiss took Künzli to court to prohibit further sale of Künzli's five-stripe shoes in Germany. In 2012, the Upper District Court of Düsseldorf confirmed the lower court's decision upholding K-Swiss's claims. Künzli changed the branding in Germany by using four "Klötzli" (small cubes) plus the Swiss flag.
In Neymar (T-705/17), the GC made proving an applicant's bad faith a less challenging exercise by focusing on the "commercial logic underlying the filing" and "the chronology of events leading up to that filing".
A Portuguese individual filed an EUTM application for 'Neymar' in December 2012. However, it was not until 2013 that the football star, whose talent had already been recognised internationally, joined FC Barcelona. The GC explained why the applicant's excuse "Neymar was unknown in Europe" at the time of filing was unfounded, leading it to the same conclusion as the CJEU in Simca.
However, it appears that something else finally gave the court the certainty it needed – namely the applicant's parallel EUTM application for 'Iker Casillas', then Real Madrid's goalkeeper.
Playing dumb
So, all good? Not really. What if the applicant acts a bit more diligently (particularly by not "diversifying" risk through parallel trademark applications) and just claims that they "had no idea, I just thought it was a great name"? What if there is no prior relationship and, more generally, if fewer facts are known?
While a greater focus on "commercial logic" is a step forward to facilitate establishing bad faith it does not mean making use of presumptions in the owner's favour. This corresponds to the CJEU's view on overly broad terms for trademark specifications in SkyKick. From this perspective, Neymar and comparable cases decided by the EUIPO (including Alexander Wang (R 3135/2014-2)) remain outliers.
Or, in simple terms: as an owner, I may count myself lucky if the applicant acts, for everybody to see, inconsistently. If, on the contrary, there are hardly any compelling indicia the applicant might get away with its excuse.
There is something on the owners' wish list – a reality check. A mark registered in bad faith typically has a serious impact on commercial plans, de facto representing a block. It needs no explanation that, particularly in cases with a third-country dimension, trademark examiners cannot be expected to take a deep dive in application proceedings to verify whether the applicant might act in bad faith.
Still, if there is a competitive relationship, either existing or – often in a case with third-country dimension – just potential, it is not acceptable to overstretch the requirements in establishing proof of bad faith. The burden of proof should be made less onerous.
In cancellation proceedings, IP offices and courts should accept presumptions of bad faith in cases where there is no reasonable answer to the question "what else (other than impeding a competitor's brand to enter the market) should have been the reason to file an application for the competitor's mark?".
Reason for hope
The world has become more globalised, and with that the problem becomes a bigger and truly global one, making it even more difficult for owners to establish bad faith. Two German decisions, however, give rise to hope, at least as far as courts are concerned.
The first, a judgment by the Upper District Court of Hamburg (5 U 22/17) is about competitors manufacturing fine chemicals for use in shipbuilding.
In 2015, a Netherlands-based company filed applications for three marks ('Bemitte', 'Resitite' and Revitite') as EUTMs. These all closely resembled 'Remitite', a trademark and company name of a South Korean competitor whose products had previously been displayed at a fair in Germany.
The court found that all filings had been made in bad faith aiming at preventing the Korean competitor from entering the European market. The court stressed that there was "no rationale" for the applicant's contentions.
As if to justify its position, the court copied and pasted a paragraph taken from Akademiks, a 2008 judgment by Germany's Federal Court of Justice (I ZR 38/05).
In 1999/2000, Akademiks, a US-based fashion brand, successfully launched its first products in the US. It was not before 2002/2003 that the company protected the mark in the EU.
However, in 2001, a German wholesaler had registered the mark in Germany and started distributing Akademiks-branded hip-hop clothing there. While Akademiks' actions were dismissed in the first two instances, the court held that the US was the designated market for the relevant goods so the launch there would "not have gone unnoticed".
The court went on to say that it was readily recognisable for the wholesaler that the 'Akademiks' mark "was going to come to Germany". The court considered the wholesaler's conduct to be anti-competitive and therefore qualified it as bad faith.
Bad faith will remain a hot topic. From a practitioner's perspective, it is highly desirable that IPOs and courts take a more determined and reality-driven approach against what some bluntly call "IP theft".
