Elimination of bad faith registration

The Italian company GIEMME STILE SPA, a well-known manufacturer of high quality furniture (See Annex 1), holder of the international registration No 1054565 TM FRANCESCO MOLON, was refused legal protection in Ukraine on the basis of the existence of an earlier national registration No 60350 for “FRANCESCO MOLON”. GIEMME STILE SPA company has taken a decision to initiate a cancelation procedure against the opposed registration, which, according to the Law of Ukraine “On Protection of Rights to Marks for Goods and Services”, falls within the court’s jurisdiction.

In the course of the trial the owner of the bad faith registration used all possible means and ways to avoid the cancellation of the registration and to obstruct court proceedings.

The first instance court has made a wrong decision recognizing as appropriate the evidence of use of the trademark submitted by the defendant.

It should be noted that in countries where cases of cancelation of registration certificates are considered by court, and where there is no specialized patent court, the process is more complicated than in those states where such cases are handled by the State Service for Intellectual Property (Patent Office). In countries where there are specialized patent courts or this process falls within the responsibility of the Patent Offices, the cancellation of the registration is a usual procedure, which requires a fairly standard action and, accordingly, entails minimal costs for the client. Obviously, this is due to a narrow specialization of the authorities and highly qualified professionals, who are responsible for consideration of such cases. Such a system is more efficient, which allows, in fact, to minimize the costs and to protect the rights of the concerned parties, i.e. it complies with principles of the system of protection of intellectual property rights. In contrast, the similar proceedings in Ukraine are less predictable. Apart from broader specialization of judges having less experience in consideration of such cases, this is also due to the opportunity to maneuver in the legal field –according to the definition of “the use of the mark” stipulated by the Law of Ukraine “On Protection of Rights to Marks for Goods and Services”:

The use of the mark shall be recognized as follows:

– applying it on any product for which it is registered, on the package that contains this item, signboard, associated with it, a label, a badge, a tag, or other items attached to the product, storage of such goods to the said application of the mark aimed at offering it for sale, offering it for sale, distribution, import and export;

– use it while offering and provision of any services for which the mark is registered;

-its use in business documents or in advertising and on the Internet.

The trademark shall be recognized to be in use if it is applied in the form of the registered mark, as well as in a form, different from the registered mark by separate elements, only if it does not influence the overall distinctiveness of the mark.

A holder of the registration certificate may, on the basis of agreement, transfer to any person the right of ownership to the mark in relation to all or part of goods and services mentioned in the certificate of registration.

Furthermore, the owner of the registration certificate shall faithfully dispose of the rights that arise from holding the registration certificate.

Since production or provision of services under the license is also considered to be the use of the registered trademark, the practice shows that, first of all, the owners of the disputed (registered) rights use a sham license agreement in order to prove the use of the mark. In most jurisdictions of the world it is required that the licensing agreement should be concluded in writing. However, most countries accept optional registration of the license agreement with the Patent Office. Unlike, for example, Russia, Ukraine does not require mandatory registration of license agreements. In fact, the overregulation of legal relations, to which the requirement of compulsory registration of license agreements could be referred, can not be regarded as good practice. However, it should be noted that in countries where there is no clear mechanism of claiming costs reimbursements, the parties to the process can, practically with no consequences and responsibility, use backdated sham license agreements, complicating the case. Thus, the requirement of compulsory registration of license agreements, which is effective in Russia, has rather a positive effect, given the fact that since the end of 2011 the cancellation of registration certificates in Russia was transferred to court jurisdiction.

Contesting the defendant’s allegations about the proper use of the mark on the basis of a license agreement the following argumentation was used:

The fact of conclusion of the license agreement cannot be considered as sufficient proof of use of the trademark, as the conclusion of a license agreement is not identical to the term “use of the trademark” and is not related to the types / means of use of the mark set out in p. 4 Article 16 of the Law of Ukraine “On Protection of Rights to Marks for Goods and Services.”

The analysis of the provisions mentioned in paragraph 8 of Article 16 of the Law of Ukraine “On Protection of Rights to Marks for Goods and Services” and Article 1107 of the Civil Code of Ukraine gives grounds for concluding that the execution of a license agreement is a kind of disposition of intellectual property rights to a trademark, but not an action that can, certainly and indisputably, be recognized as use of the mark.

From the definition of a trademark, its main function is “to distinguish goods and services of the owner of the mark from homogeneous goods and services of others.” (Article 1 of the Law of Ukraine “On Protection of Rights to Marks for Goods and Services.”) The very essence and nature of intellectual property rights, which is the subject of this dispute, is seen from its name, “the sign for the goods and services.” The conclusion of the License Agreement itself is not the reason for the emergence of goods and services, but only an act of disposal of registered rights, which is also not a reason for the emergence of a product or service and cannot be considered as a proof of the existence of a product or service, namely, the fact of the actual use of the mark, without the existence of the product or service. Therefore, it would be correct to assert that the direct evidence of use of the trademark are the circumstances of use of the mark referred to in paragraphs 2.3, which reads as follows: “the use of it during offering any services [related] for which the mark is registered, its use in business documents or in advertising and on the Internet “can be considered as proof of the fact of use of the mark only on condition that the fact of existence of the products or services is indisputable. Such evidences were not submitted by the defendant.

As follows from the text of the Law, the use of a mark shall be fair and, therefore, there is an opposite form of use, – improper and unfair use. In connection with the aforesaid wording that defines the use of the mark, it should be noted that by giving the definition regarding the use of the mark, the law does not specify in which case the use is appropriate, and in which case it cannot be regarded as such. In principle, these are obvious solutions. As noted above, the nature of the object of law is in its name – the mark for goods and services. Accordingly, these ways of use of the mark, as the use on the Internet and in business documents can not be considered as evidence of use of the mark without proof of existence of a product or service. Thus, in the case of unauthorized same use of the mark, these means, of course, will be regarded as the use of the trademark, in the sense of the cited provisions of law. For example, the use of a mark under which the manufacturer produces the products, in advertising of the service center or shop. These are DIFFERENT circumstances in which the same definition of the use of the trademark has the opposite meanings:

1. IT IS NOT an appropriate USE of the trademark without the existence of a product or service.

2. IT IS unlawful USE without the consent of the owner of the registered rights in trials aimed at stopping the infringement, when a person who is not a manufacturer of products (services), uses (without the manufacturing of a product or service) another’s trademark to promote his sales, service, etc.

Further evidence presented by the defendant, also required assessment in the light of the above provisions of the law on the use of the mark.

The second most common evidence that the owners of the disputed rights usually present, is the above-cited methods – Internet posting of information about the range of products (services) and business correspondence. Both methods do not allow either to date precisely the changes made on the website or to define a date when a paper or electronic document was created. Along with the license agreement, they are not evidences, irrefutable proof of the existence of product or service. During the proceedings for TM FRANCESCO MOLON case, for example, the defendant informed of registration of the domain names – francescomolon.com.ua and francescomolon.ua, with the information on the product range being available on these websites (See Annex 2).

The third proof, which is used by unfair owners of the rights, are images of products, made in the image editing software with overlaying the image of the mark. They were also submitted by the defendant during the trial (See Annex 3).

Fourth, the most sophisticated way of evidence, is to provide a single sample marked with a trademark, and in most cases simply applied to the product of other, unidentified manufacturer.

All of the above evidence can not be considered as indisputable evidence of the existence of products, as noted above, and, therefore, confirm the fair use of the mark – the obligation imposed by Law on the owner of the registered rights (Article 17).

However, the above-mentioned evidences formally comply with the definition of the use of the mark set forth in the law. However, due to the lack of skills, lack of understanding of the nature of the trademark as an object of right the acceptance of aforesaid evidences can lead to a miscarriage of justice. But the worst thing is that the formal compliance of evidences with the provisions of the trademark law that defines the methods of trademark use provides a way for recurrence of such errors, and it cannot be justified by the lack of sufficient skills of the person who issues a ruling. In fact, understanding the differences in the use of the mark in good faith and in bad faith should be one of the criteria defining the competence of the officer in charge of the case, – an examiner of the patent office or a judge.

Along with the already mentioned methods of proof of trademark use, there is a wide variety of evidences, which are indeed indisputable. If they could be submitted, the above cited indirect evidences may be considered as appropriate and accepted as such.

Let’s take a closer look at the state of arguments used for FRANCESCO MOLON case.

During a production process every enterprise has a certain number of different documents that can undoubtedly testify manufacturing of the products even in small volumes, but not as a single sample, and entering of products into turnover. Namely, these documents may be:

1. Acts of acceptance of material assets gained as a result of the manufacturing process.

2. Acts of acceptance for storage of material assets produced by company.

3. Contracts with the distributors of manufactured goods.

4. Bank statements showing payments between distributors and manufacturers.

5. Strict accounting forms (the power of attorney), which are provided by the consignee. The accounting forms, by the way, provides for indication of the number of received items.

6. Certificate of conformity.

7. Bar codes assigned to products.

8. Order and production of labels or packaging of products with indicating the ordered quantity.

It’s very easy to submit the above mentioned proof in case of real existence of products and use of the mark in good faith, and they may be regarded as indisputable, reliably confirming the indirect evidences.

Such evidences were not provided for the FRANCESCO MOLON case. Taking into account the ways of use of the mark, which may be considered as such in violation of rights, i.e. use of the mark without the production of goods, the court erroneously denied the claim for early cancellation of the certificate on the ground of non-use (See Annex 4).

The Court of Appeal showed sufficient qualification during the appeal hearing, pointing out a mistake to the first instance court, revoked the decision and satisfied the claim. During the hearing of the case at the Court of Appeal the defendant used a fourth of the above cited evidences – he submitted a single sample of the product with a label with the words FRANCESCO MOLON (See Annex 5). Despite a seemingly sophisticated approach, the effect was the opposite one. Providing none of the above-mentioned document in support of the indirect evidences, but seriously insisting that a presented single sample of a product of unknown origin with a crudely pasted low-quality label confirms the existence of products, a representative of the defendant, on the contrary, stressed the ambiguity of his argument. The first instance court ruling was reversed, the claim was satisfied in full (See Annex 6).

We should look at another aspect of the case, further complicating its consideration. In the first instance court, the defendant intentionally ignored the scheduled hearings and after the issue of a default judgment appealed to the Court of Appeal, on the ground that his absence did not allow him to defend his rights. Of course, the appeal was satisfied. It was a thoughtful move to delay the proceedings to the maximum extent, which sometimes occur in such cases. Rescheduling of a hearings due to the absence of the defendant, consideration of the appeal, the return of the case to the trial court and its re-consideration took about 5 months. The purpose of the defendant was to delay the process for more than 9 months, which are provided for the issue of the final refusal decision following the provisional refusal for the international application. The deadline for filing a response is 3 months and it may be extended for six months. After 9 months, the Office shall issue a final decision. Due to the fact that the foreign representative of the applicant needs some time to consult with lawyers in the country where provisional refusal is issued, the applicant needs time to evaluate the information and decide how to proceed, then some time is required for notarization of the Power of Attorney, preparing the lawsuit and initiation of the court proceedings, accordingly, about half the time can be spent on organizational issues. After the issue of the final decision, the defendant made a statement: as the final refusal decision to grant protection to the rights was issued for the international application then there’s no matter of dispute in the proceedings due to the lack of international registration, therefore, the claim cannot be satisfied. It should be noted that this argument is also used by owners of the rights registered not in good faith, and there are sometimes attempts of such manipulations in the proceedings regarding trademark cases. The following arguments were submitted in response.

Regarding the marks registered in accordance with the Madrid Agreement, the Office conducts a similar examination for compliance with the requirements for granting legal protection set out in paragraph 1 of Article 5 and Article 6 of the Law (3689-12), according to the requirements set out in paragraph 4.3 of the Rules, which are the same as for trademarks applied for registration in Ukraine directly.

If the trademark does not meet the requirements for granting right protection, instead of the notification referred to in paragraph 4.5.1 of the Rules, the first decision on refusal to grant right protection is issued with stating the reasonable arguments, against which the owner of the mark may send a reasoned objection.

The relevant notification of examination in correspondence with the International Bureau of WIPO is called Provisional Refusal of Protection, a partial or total refusal in registration. The type of the refusal, total or partial, is specified in paragraph 5 of the appropriate notification (See Annex 7).

For the international application, the applicant shall be given a period of three months from the date of issue of the decision by the Patent Office to file a reasoned response with the arguments in favor of the registration of a mark that are taken into account when issuing the final decision, as indicated in paragraph 9 of the notification.

In case of disagreement of the examination with the arguments provided in favour of registration of the mark, or if the registration, which prevents the acquisition of rights has not been cancelled by a court within the deadline set up for the examination of applications, a decision to refuse registration of the mark is issued. The relevant notification in correspondence with the International Bureau of WIPO is called Refusal of Protection – the refusal to grant protection (registration) (See Annex 8).

According to the defendant, the notification of the Refusal of Protection issued by the Examination is a “cancellation of the international registration.” This statement is not true and is a misinterpretation of an international agreement. Madrid Agreement Concerning the International Registration of Marks stipulates the following, p.4. Article 6:

In the case of voluntary or ex officio cancellation, the Office of the country of origin shall request the cancellation of the mark at the International Bureau, and the latter shall effect the cancellation. In the case of judicial action, the said Office shall send to the International Bureau, ex officio or at the request of the plaintiff, a copy of the complaint or any other documentary evidence that an action has begun, and also of the final decision of the court; the Bureau shall enter notice thereof in the International Register.

The other grounds for the abolition of registration are not prescribed by the Agreement. Furthermore, according to paragraph 2 of Article 6 it is stated: “Upon expiration of a period of five years from the date of the international registration, such registration shall become independent of the national mark registered earlier in the country of origin”.

Ukraine is not a country of the origin of the mark, that is, the country in which a national application was filed (basic application), on the basis of which the international application was filed. Thus, any decision of the national office, including Ukrainian, can not result in an “abolition” of the international registration. National offices, acting within a scope of their powers, conduct an examination of applications and, if the protection is granted, should make the relevant record in the National Register. The powers of the Office in the field of protection of rights to trademarks for goods and services are specified in Art. 2 of the Law of Ukraine “On the Protection of trademarks for goods and services.” The powers concerning the abolition of international registrations in general, which are beyond the national jurisdiction are not specified in this Article of the Law.

Such powers are not provided by the Madrid Agreement as well. According to paragraph 1 of article 5 of the Agreement it is stated that:

In countries where the legislation so authorizes, Offices notified by the International Bureau of the registration of a mark or of a request for extension of protection made in accordance with Article 3 ter shall have the right to declare that protection cannot be granted to such mark in their territory.

As the international registration No 1054565 was not in effect in Ukraine, it was impossible to cancel it by notifying the office of “that protection cannot be granted to such mark in their territory” (that is, providing notification of the refusal to register (Refusal of Protection) , as the Defendant states.

Furthermore, the statement of the national Office that “protection can not be granted to the trademark” does not show a “lack of the subject-matter of the dispute”, as it is claimed by the Defendant. According to paragraph 1 of Art. 5 of the Agreement it is provided for that: … Offices shall have the right to declare that protection cannot be granted to such trademark…

The law of Ukraine “On Protection of Rights to Trademarks for Goods and Services” stipulates:

TRADEMARK – a designation by which the goods and services of one person differs from the goods and services of others.

P. 4. Art. 5 of the Law of Ukraine “On Protection of Rights to Trademarks for Goods and Services” reads as follows:

The extent of protection that is granted shall be determined by the image of the mark and the list of goods and services.

The reference to the fact that the scope of protection is determined by the number of the international registration (certificate, application) is not included in any national law or the Agreement. Therefore, we conclude that the subject matter of the dispute is not the number of the international registration, the refusal to grant protection for which, according to the Defendant, is the “absence of the subject matter of the dispute”. The subject of the dispute is an obstacle to the Plaintiff’s intention to acquire the right to trademark FRANCESCO MOLON, the registration of which belongs to the Defendant. The refusal in registration issued by the Patent Office in accordance with the provisions of the Madrid Agreement shall in no way affect the validity of the national registration, which violates the rights of the plaintiff and is the subject of this dispute.

Acquisition of rights by the plaintiffs is possible in two ways: under the national procedure and the international application. The possibility of acquiring the right through the international application is stipulated by Article 3 ter [Request for “territorial extension”] of the Madrid Agreement:

(1) Any request for extension of the protection resulting from the international registration to a country which has availed itself of the right provided for in Article 3bis must be specially mentioned in the application referred to in Article 3(1).

(2) Any request for territorial extension made subsequently to the international registration must be presented through the intermediary of the Office of the country of origin on a form prescribed by the Regulations. It shall be immediately registered by the International Bureau, which shall notify it without delay to the Office or Offices concerned. It shall be published in the periodical bulletin issued by the International Bureau. Such territorial extension shall be effective from the date on which it has been recorded in the International Register; it shall cease to be valid on the expiration of the international registration of the mark to which it relates.

As seen from the provisions of this Article, there are no obstacles regarding the extension of the registration into Ukraine. The plaintiff will take the foreseen opportunity immediately after the cancellation of registration, which violates the rights, prevents obtaining legal protection, which is confirmed by the refusal notification (Refusal of Protection) of the national office, to which Defendant refers.

Therefore, in order not to interrupt the process of the acquisition of the rights to which the Defendant intends to refer, citing “a lack of the matter of the dispute” and to prevent the possible similar registrations (applications) by others during the consideration of the complaint, the plaintiff filed an application (№ m 2012 13659) for registration of a mark under the national procedure (See Annex 9). The mark and the list of goods and services, which define the scope of rights and, in particular, the subject of the dispute are identical to the image of the mark and the list of International Registration No 1054565. Thus, we consider the Defendant’s assertion that there is no subject of the dispute to be groundless.

Moreover, following the logic of the Defendant, for the refusal to satisfy the claim it just necessary to delay the consideration of the case for the period, which is longer than that foreseen by the legislation for the examination of applications. This, in particular, has been implemented by the Defendant, who did not appear at the hearings of the case at the first instance court, and secured the attendance of a representative only after the issuance of the first decision. This approach to the resolution of the dispute is the manipulation of the rules of law, and does not allow the protection of the rights of plaintiff, as required by law.

The above argumentation was taken into consideration by the court. The defendant’s statement on the lack of the matter of the dispute as a result of the end of examination of the application was not considered as a ground for denying the claim. Of course, this decision is consistent with the provisions of the law, as well with the essence of the law.

And finally, it should be explained why it is called “The elimination of bad faith registration …” and not, for instance, “The early cancelation of the registration”. The problem is that the owner of opposed registration, except for the rights to the registration for Francesco Molon, registered for goods in classes 11, 20 and services in class 35 (See Annex 10), is the owner of approximately 400 registrations of marks, under which different products or services known to certain extent are presented in various countries of the world. Therefore, for protection of the client’s rights three possible options were under consideration:

1. Recognition of registration as unfair, known in the worldwide as bad faith registration. In the legal field of Ukraine the use in bad faith is the term closer to the concept of unfair competition than to bad faith – the opposite as defined by Trademark Law –use in good faith. Use in bad faith is more familiar and clearer to lawyers, judges and experts in light of the provisions of the law on unfair competition. The difference is that unfair competition is aimed at gaining profit from varying degrees of parasitism on the reputation of another person, who is a fair user of rights, while use in bad faith in light of the provisions of the Law “On Protection of Rights to Trademarks for Goods and Services” means the abuse of rights. And the abuse, which is not just through the use of rights registered in good faith, but not used for some reasons, but with the aim to receive compensation from a third party trying to acquire the rights in good faith to a similar or identical object of the right, namely, thoughtful, deliberate creation of obstacles (by registration of rights) for entities who, probably, will enter the Ukrainian market, or for some reason delayed the registration of their rights.

This scenario of protection of rights was not chosen due to the lack of clear criteria for definition of bad faith registration in case law and a certain difficulty in understanding of this aspect of trademark rights, which is less common in the jurisprudence. However, we’re convinced that this aspect of the law is not more difficult to understand than the concepts of use, non-use, and also must be easily identifiable by the court. Despite the seemingly extensive and obvious evidence – about 400 (!) registrations of marks used in other countries, this method of protection was not chosen. The absence of clear practice of considering such cases, the uncertainty of the concept of bad faith registration and bad faith concept in legislation hamper the substantiation of decisions in the legal field.

2. Recognition of registration to be not in compliance with the requirements of the protection of rights. The appropriate requirements are directly determined by article. 6 of the Law “On the Protection of trademarks for goods and services.” Due to a clear wording of the law and the vast practice of its application, this ground is very often used for cancellation of registrations, including those registered in bad faith. As the owner of a registration made sales in Ukraine, this option was also considered as a possible way to protect the rights of the company. However, this option was a fallback position if the defendant was able to prove the use of the mark in the process of early cancellation of the registration on the ground of non-use.

3. Cancelation of registration on the ground of non-use. This option rights was chosen to protect the rights of GIEMME STILE SPA because it is less complex than the other two options. This is due to the fact that it is quite easy to prove the actual use of the mark, but it is just as difficult to present conclusive evidence of the existence of real products or services, if the mark is not used. Apart from clear criteria for the appropriate use of the mark facilitating the legal basis for decisions in the processes for cancelation of registration on the ground of non-use the burden of proof of trademark use lies on the defendant. This reduces the amount of required evidence, which should be prepared and it is the simplest option in terms of justifying the claim, and furthermore it is less expensive for the client. If there is such an opportunity, i.e. a three-year period from the date of abusive registration expired, in most cases, obviously, it is preferable to protect the rights using this least complex but effective way of protection.

Using as an example the case of protection of rights of the Italian company GIEMME STILE SPA we analyzed the methods of protection, which could be used when confronted with bad faith registration. During the procedure of early cancellation of the registration certificate, the IPR GROUP attorneys reached all objectives aimed at protection of the rights of the principal, though facing the maximum difficulties, which are possible in such cases.

The article investigates the possible ways to eliminate bad faith registrations, the particular features of the legal field complicating and accompanying protection and exercise of rights of intellectual property owners.

Obviously, the topic of bad faith registration is highly relevant for discussion by experts. The definition of bad faith registration in legislation, recommendations and practice of judicial recognition of the respective registrations as such will improve the current legal environment; strengthen the effectiveness of the existing legislation in the field of intellectual property.

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