The Rights conferred by a Community Trade Mark, Objections and Counterclaims, Aspects of unfair Competition and Exhaustion

Dr. Dorothea Hofer, Prüfer & Partner GbR, Munich, Germany

I. Details of the model case

We are writing the year 2006.

America Inc. is the owner of the Community trade mark (CTM),

Irokko,

filed on 1.1.1999 and registered since 1.1.2000 for the goods musical instruments, in particular percussion instruments made of tropical wood. The CTM has been used throughout the years in the form  Irokko_Perc. for wooden drums in the UK. 

The presumed infringer, Iroko Ltd., has its seat in Turkey and a small business subsidiary in Germany, established in 1998.  However, there has been no substantial business activity emerging from this German subsidiary until 1.1.1999 and the name Iroko Ltd. had no more than local meaning. Since the year 2005 Iroko Ltd. has expanded its business activities and sells wooden drums not only in Germany, but also in the UK, Austria and Benelux . The drums are marked as follows:

Iroko

Infringement proceedings are pending before the Community trade mark court in Frankfurt, Germany.

II. The rights of the proprietor of a Community trade mark

The effects of a CTM are governed solely by the Council Regulation (EC) No 40/94 of 20 December 1993 on the Community trade mark (hereinafter referred to CTMR). This is laid down in Art. 14 (1) CTMR. Complementary application of national law relating to infringement is provided for (Art. 14 (1) CTMR). It is interesting that the provisions of the CTMR do not include any direct claims to prevent infringement of a CTM, such as a claim to cease and desist1.  Therefore, the effects of a CTM as laid down in Arts. 9 to 13 CTMR which define the scope and limit of protection forming the basis for the rights conferred by a CTM whereas the infringement of these rights is punished by sanctions as laid down in Art. 98 (1) CTMR. 

1.         The Community trade mark confers exclusive rights to its proprietor, namely to prevent third parties not having the consent of the proprietor from using in the course of trade

a) an identical sign for identical goods or services;

b) an  identical or similar sign for identical or similar goods or services if there exists a likelihood of confusion including the likelihood of association between the sign and the trade mark;

c) an identical sign or a similar sign for goods or services which are not similar to those for which the Community trade mark is registered, if the Community trade mark has a reputation and use of the sign takes unfair advantage of or is detrimental to the reputation of the Community trade mark

(Art. 9 (1) CTMR). In particular the following activities are considered as infringing the exclusive right: affixing the sign to the goods or their packaging, offering the goods or services, putting the goods on the market, stocking, importing them to or exporting them from the territory of the European Union (EU) and using the sign on business papers or in advertising (Art. 9 (2) CTMR).

2.         The criteria to be applied in assessing a similarity of the Community trade mark and the infringing sign or a similarity of the goods or services in question are the same as the relative grounds for refusal which are examined in opposition or invalidity proceedings. The Community trade mark court deciding on these questions shall apply the provisions of the CTMR. As a consequence, it has to consider the principles in assessing the similarity of  goods and of trade marks developed in the case law of the Office for Harmonization in the Internal Market (in the following OHIM) and the European Court of Justice. However, we expect that the Community trade mark courts will be influenced by the established case law in the member state where they are located, respectively. In our model case, the Community trade mark court in Frankfurt, Germany, might be influenced by the case law of the German Federal Supreme Court, Germany. It is established practice in Germany that the overall impression of a trade mark may be dominated by one distinctive component of the trade mark2,3 and that in case of a word and design mark the design usually is considered to have less weight.

Referring to our model case, the Court might take the following considerations in view of a likelihood of confusion:

The goods in question are identical.

The CTM consists of the word Irokko only. The mark used by the presumed infringer consists of the word Iroko  and of a graphic component representing a drum. For the goods in question the graphic component is descriptive and not distinctive per se. Further, from a phonetic point of view the graphic component usually plays no role. Thus the Court may assume that the only distictive component of the potentially infringing mark is the word Iroko which is similar to the CTM from a phonetic and a graphic point of view.

III. Limitation of the effects of a CTM

1.         Pursuant to Art. 12 CTMR a CTM shall not entitle the proprietor to prohibit a third party from using in the course of trade

a)   his own name or address;

b)   indications concerning the kind, quality or other characteristics of the goods or services;

c)   the CTM where it is necessary to indicate the intended purpose (accessories or spare parts)

provided use is made in accordance with honest practices in industrial or commercial matters.

In our model case the presumed infringer raises the following objection: the word Iroko is a technical term designating a tropical wood of the African Iroko tree. The drums marked with the potentially infringing sign are made from this Iroko wood. Therefore, the word Iroko is only an indication concerning the quality of the product. The proprietor responds that even if the term Iroko is a technical term which is descriptive for the goods in question, the presumed infringer makes use of that term in a trade mark like manner thus creating confusion among the public because the public believes that there is a commercial connection between the CTM proprietor and the presumed infringer.

We are not aware of any decision of a Community trade mark court interpreting the meaning of  "honest practices in industrial or commercial matters". According to German national trade mark case law the use of a descriptive indication if it is similar to a trade mark or the use of a trade mark to indicate a specific purpose is excluded from the benefits of the right conferred by the trade mark if such use is made in a trade mark like manner4,5. The European Court of Justice which is the highest instance in view of questions of interpretation of  European law has decided in the case Bayerische Motorenwerke AG (BMW) and BMW Nederland BV vs. Ronald Karel Deenik6  on the interpretation of Art. 6 of the First Council Directive 89/104/EEC of 21 December 1989 which corresponds to Art. 12 CTMR:

²Art. 5 to 7…… do not entitle the proprietor of a trade mark to prohibit a third party from using the mark for the purpose of informing the public ……, unless the mark is used in a way that may create the impression that there is a commercial connection between the other undertaking and the trade mark proprietor…..²

Also in other member states of the European Union it is established law that the use of descriptive indications is not admissible if the indication is used in a trade mark like manner and collides with a trade mark.

In our model case the presumed infringer uses the term Iroko  in a optically emphasized manner and placed on the goods in a trade mark like manner. Thus an attempt to profit from the protection which is enjoyed by the CTM is made which is contrary to honest practices. Therefore, the Community trade mark court in Frankfurt might come  to the conclusion that Art. 12 b) CTMR is does not limit the effect of the CTM.

IV. Objections and counterclaims to be raised by the presumed infringer

1.         To defend himself the presumed infringer has the following possibilities:

a)      He can file a counterclaim  for revocation or for a declaration of invalidity of the CTM with the Community trade mark court (Arts. 96, 50, 51 CTMR).

An interesting aspect of this possibility is the following: In case the Community trade mark court where the infringement proceedings are pending has jurisdiction for the territory of the member state in which the court is situated (Arts. 93 (5), 94 (2) CTMR) , this court may nevertheless decide on the revocation or validity of the CTM for the territory of the European Union as a whole. 

b)      He can file a request for revocation or for declaration of invalidity with the OHIM (Arts. 50 (1), 51 (1) CTMR).
However, in this case the Community trade mark court shall treat the CTM as valid (Art. 95 (1) CTMR. Of course, it is at the discretion of the Community trade mark court to suspend the proceedings until the OHIM has decided on the request.

c)      He can raise the objection relating to revocation or invalidity of the CTM in the infringement proceedings if he does not file a counterclaim. The objection however is admissible only if it is based on revocation due to lack of use or based on an earlier right of  the presumed infringer (Art. 95 (3) CTMR).

In this case the Community trade mark court will not decide on the revocation or validity of the CTM but will dismiss the law suit filed by the proprietor, if the objection is justified.

2.         In the following the main grounds for revocation and invalidity will be discussed:

a)         The main ground for revocation is, that the CTM has not been used genuinely in connection with the goods and services within a continuous period of five years (Art. 50(1)a) CTMR). To fulfil the requirement of genuine use of the CTM it is required

·                   use within the EU,

·                   use in the registered form or in a form differing from the registered form if the distinctive character is not altered thereby,

·                   use by the proprietor or with his consent.

Genuine use means use to a legally relevant extent. It is the preliminary opinion of the OHIM7 that use in one or two member states will be sufficient to fulfil this requirement.

In our model case the presumed infringer raises the objection in relation to revocation of the CTM because he is of the opinion that the form in which the CTM has been used  Irokko_Perc. alters the distinctive character of the CTM. However, the Court may reject the objection, since the addition of _Perc. is recognized by the public as abbreviation for the descriptive term "Percussion" which is not detrimental to the distinctive character of the CTM. In addition, the CTM has been used in the UK to a substantial extent which is sufficient for being considered as use within the EU.

b)         Main grounds for invalidity are:

·              The absolute ground for invalidity where the CTM was registered although it should have been rejected due to descriptiveness or lack of distinctiveness (Arts. 51(1)a), 7 CTMR); absolute grounds for invalidity cannot be the basis for an objection raised by the presumed infringer in the infringement proceedings but can only be the basis for filing a counterclaim.

·              The relative ground for invalidity where there is an earlier trade mark or an earlier right within the EU (Art. 52(1) (a) to (c), 8 CTMR).

In our model case the presumed infringer files the counterclaim based on the absolute ground for invalidity that the term irokko is not protectable as it is understood by the public immediately as small alteration of the descriptive word iroko and therefore is be descriptive by itself.

The Court may reject the counterclaim since Art. 7(1)c) CTMR excludes only such trade marks from registration which consist exclusively of descriptive indications and not variations of descriptive indications.

Further, the presumed infringer objects that the CTM is invalid due to his earlier right based on the company's name Iroko Ltd. which he has been used since 1998 in Germany. However, Art. 8 (4) CTMR requires that the sign used in trade which is claimed to be an earlier right has more than local significance. In our model case the company’s name Iroko Ltd. had local meaning in a small part of Germany only. Thus the objection will be rejected.

It is important to note that Iroko Ltd. has still the possibility to invoke a claim for infringement of its company’s name by the use of the CTM in Germany and under German trade mark law (Arts. 106 (1), 107 CTMR).  

3.         The question of  whether the rights conferred by the CTM are unenforceable due to statutory limitation is not dealt with in the CTMR. This is an issue of national law (Arts. 14 (1), 97 CTMR). Therefore, the Community trade mark court in Frankfurt will examine according to national German trade mark law upon request by the proprietor of the CTM  whether the rights conferred by the CTM are probably unenforceable due to statutory limitation. The term for statutory limitation is three years from the time of obtaining knowledge of the infringement (Art. 20 (1) German Trade Mark Act).  There is no statutory limitation in the present case.

VI. Sanctions

1.         The only sanction to be issued by a Community trade mark court is to prohibit the  presumed infringer from proceeding with the infringing activities (Art. 98 (1) CTMR). There is no claim to damages in the CTMR. Such claim has to be considered by the respective Community trade mark court under national law (Art. 98 (2) CTMR).

 2.        The rights conferred by a CTM shall prevail against third parties from the date of publication of registration. However, reasonable compensation may be claimed already after publication of the application. The Court may not decide upon the merits of the case until publication of the registration (Art. 9 (3) CTMR confirmed by Decision of the Community trade mark court Düsseldorf8)

VII. Result of our model case

After examination of the above claims, counterclaims and objections the Community trade mark court in Frankfurt may come to the conclusion that there is an infringement of the CTM and will issue a decision prohibiting use of the infringing sign based on Art. 98 (1) CTMR.  Since the Community trade mark court in Frankfurt has jurisdiction for the whole territory of the EU in accordance with Arts. 92 (1), 94 (1) CTMR it must apply the principles of each country of the EU in which the infringement took place, i.e. the UK, Austria and the Benelux countries with respect to a claim to damages,  a possible claim to information and rendering of accounts or to information about the distribution channels and origin of the infringing products, a possible claim to publication or a claim to destruction of the infringing articles or other claims1.

IIX. Aspects of unfair competition

Trade mark infringement is often coupled with acts of unfair competition.  According to Art. 14 (2) CTMR the CTMR shall not prevent actions concerning a CTM being brought under the law of the Member States relating in particular to unfair competition. As far as Germany is concerned the provision of Community trade mark courts raises the following problem which might be also present in other Member States. The district court of Cologne on Germany is known for having extensive experience and practice in matters of unfair competition and for deciding often in favour of the trade mark proprietor. However, the district court of Cologne is not nominated as Community trade mark court. Thus, if claims based on the Act against Unfair Competition will have to be filed in addition to claims based on trade mark infringement, the trade mark proprietor is forced  to go before a court which is probably not as experienced in matters of unfair competition.

Further, if in our model case America Inc., the proprietor of the CTM in addition bases the law suit on Section 1 of the German Act against Unfair Competition, attention should be paid to the relatively short term for statutory limitation in matters of unfair competition which is only six months from the date of obtaining knowledge of the infringement.

IX. Exhaustion of Rights conferred by a CTM

The topic of exhaustion of rights is very important from an economic point of view, since it it connected with the problem of parallel imports. Exhaustion means that the proprietor of a trade mark is not entitled to prohibit use of goods marked with the trade mark which he himself has put on the market or which have been put on the market with his consent. Parallel import means the import of goods marked with the trade mark which have been put on the market by the proprietor or with his consent outside the territory in which the trade mark is valid and which are afterwards reimported into the territory in which the trade mark is valid without the consent of the proprietor. Such goods are often manufactured much cheaper outside the territory in which the trade mark is valid and parallel import effects the price structure in the territory of the trade mark.

In accordance with Art. 13 (1) CTMR the exhaustion of the CTM is confined to the territory of the EU. The corresponding provision in the  First Council Directive 89/104/EEC of 21 December 1989 is Art. 5 which also confines exhaustion to the territory of the EU. It was the question whether the Member States are allowed to implement an international exhaustion  in their respective trade mark acts. In the decision Silhouette9 the European Court of Justice ruled that the Member States are not allowed to extend the principle of community wide exhaustion (more precisely the principle of exhaustion within the territory of the European Economic Community (EEC) which includes in addition to the Member States of the EU the countries Norway and Iceland) to international exhaustion.

Therefore, trade mark proprietors of national marks in the Member States and of  Community trade marks can presently prevent parallel imports of their products from outside the EEC or the EU, respectively. However, the question whether the regulations concerning exhaustion will be amended in order to allow international exhaustion is still under discussion. A working document10 concerning pro and contra arguments of international and community wide exhaustion has been prepared by the offices of the European Commission which shall be the basis for further discussion within the Council of the EU.