Court of Justice of The EU Ruled on Trade Marks Used Only to Indicate Quality Standards

Trade marks will not only be associated with the company they origin from, but might also be associated with certain quality or ethical standards. Certain associations are using their trade marks only to license it to producers who fulfill a certain standard. While some jurisdictions recognize such use of a trade mark as sufficient to maintain trademark protection, the European Union Trade Mark Regulation (EUTMR) does only mentioning the term “genuine use” of a trade mark. On 8 June 2017, the Court of Justice of the European Union (CJEU) has decided whether using a trade mark only to indicate certain quality or ethical standards can be seen as “genuine use”.

The Facts

The Verein Bremer Baumwolle (VBB), an association under German law, owns an individual European Union trade mark (EUTM) displaying a cotton flower. The VBB concludes license agreements under this trade mark with associated producers of textiles who oblige themselves to comply with certain quality standards concerning the cotton they use. The defendant, a German manufacturer of textiles, displayed this trade mark on its products without having an appropriate license to do so.

VBB sued the defendant for trade mark infringement. The defendant brought a counterclaim for declaration of invalidity of this trade mark. In first instance the Düsseldorf District Court found infringement , but the Düsseldorf Court of Appeals referred the case to the CJEU with the following questions: Is the use of a trade mark as a label for quality a “genuine use” in regards to an individual trade mark? Must such a trade mark be declared invalid, if the holder of said trade mark does not ensure the quality standard by carrying out periodic quality controls?

First Question

According to the CJEU, the essential function of a trade mark is to guarantee that all goods or services marked by the sign come from the same undertaking or economically linked undertakings. It might be a secondary purpose of a trade mark to ensure a certain quality, but the “genuine use” of a trade mark is only to guarantee that the goods origin from the same or an economically linked entity. Therefore, the proprietor is not using the trade mark in terms of the EUTMR, if it is only licensing the trade mark to ensure a certain quality. This is particularly relevant, because, if there is no “genuine use” of a trade mark for five years, the trade mark proprietor might face an application for revocation of its trade mark.

Second Question

In relation to the second question, the CJEU stated that an individual trade mark is not to be declared invalid, if the proprietor does not conduct quality controls on a regular basis. While this is a reason for invalidation of collective trade marks, it cannot be applied to individual trade marks because these trade marks are not designed to guarantee a certain quality standard. Individual trademarks might be declared invalid, however, if the public is made to believe that there will be quality controls while the trade mark proprietor never intended to conduct them.

Background

The judgment is apparently guided by the fact that the EUTMR provides two specific instruments to mark products that come from certain undertakings. There is the possibility to file a collective trade mark to display that the user of the trade mark is a member of a certain association that follows certain standards. Further, as of 1 October 2017, a certification trade mark could be used to show that certain standards are met. The CJEU apparently tries to ensure that individual trade marks cannot be used to circumvent the requirements for collective and certification trade marks.

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The EU Trademark Regulation (2015/2424/EU) (the “new Regulation”) amending the Community Trademark Regulation (the “old Regulation”) entered into force on 23 March 2016. Among other things, it brought about new rules concerning the transit of counterfeit trademark goods through the EU.

The Old Rules

The transit of goods was not specifically dealt with under the old Regulation. The latter contained only general provisions about the rights conferred by a Community Trademark, and what should be considered an infringement of a trademark. Section 9 para. 2 of the old Regulation listed infringement actions that could be prohibited by the trademark owner, including, for instance, affixing the sign to goods or to the packaging thereof, offering the goods, putting them on the market or stocking them for these purposes under that sign, among others. The transit of goods from countries outside the EU through the EU territory was not included in the list of infringement actions.

Based on Section 9 of the old Regulation, the Court of Justice of the European Union issued a few decisions according to which:

  • the mere transit of products containing the trademark or a similar sign did not per se constitute a trademark infringement. An infringement would only exist if the party having requested the transit (“the shipper”) took concrete actions to put the trademarked goods on the market, for instance, by selling or offering to sell the goods within the EU during transit (C-405/03, Class Unilever case);
  • in the absence of a trademark infringement, the customs authorities would not be entitled to take action pursuant to the Regulation (EC) No. 1383/03 (now Regulation (EU) No. 608/2013) on the customs enforcement of IP rights (C-446/09 and C-495/09, Philips/Nokia cases),
  • however, trademark owners were entitled to prevent the release for free circulation of trademarked goods into the EU without their authorization, even if the goods were not yet released for consumption, but instead were detained in a tax warehouse until the import duties were paid (C-379/14, Bacardi case).

The trademark owner was the one bearing the burden of proving the trademark infringement.

The New Regulation

Under the new Regulation, trademark owners are now expressly allowed to oppose the transit of goods bearing without authorization the EU trademark or a sign essentially similar, even if the goods are not released for free circulation or intended to be put on the European market. This new rule is codified in Section 9 para. 4 and also specifically addressed in Recital No. 16 of the new Regulation. Trademark owners may further contest other customs situations such as transhipment, warehousing, free zones, temporary storage, inward processing or temporary admission. Customs authorities are entitled to take the actions laid down in the Regulation (EC) No. 608/2013 on the customs enforcement of IP rights, such as detaining shipments suspected to infringe a EU trademark.

However, Section 9 para. 4 also establishes that such a right of the EU trademark owner shall cease to exist if, during the proceedings to determine whether the trademark has been infringed according to the Regulation No. 608/2013,  the shipper provides evidence that the trademark is not protected in the country of final destination. According to Recital No. 17 of the new Regulation, this rule is intended to strike a balance between fighting counterfeiting and the need to protect the free trade of legitimate goods.

New Challenges for Trademark Owners?

At first glance, the new rules seem to strengthen the rights of trademark owners. However, the changes might also create difficulties, especially in cases in which the final destination of the goods is not declared in the customs declaration. In this case, in practice, the trademark owner will not know whether or not it is entitled to have the customs authority detain the shipment. If it decides to have the shipment seized and start infringement proceedings, it will run the risk that the shipper declares a country of destination in which the trademark is not protected. This might expose the trademark owner to the risk of liability towards the shipper.

iStock_000019326034_LargeThe EU Trademark Regulation (2015/2424/EU) amending the Community Trademark Regulation entered into force on 23 March 2016 (the “new Regulation”). The new Regulation is part of the EU trademark reform legislative package that also includes the replacement of the existing EU Trademarks Directive (2015/2436/EU). Some of the main changes brought about by the new rules are briefly outlined below.

Name Changes

In order to adapt the terminology to the Lisbon Treaty, Community Trademarks (CTM) are now called European Union Trademarks (EUTM), and the Office for Harmonization in the Internal Market (OHIM) has been re-named the European Union Intellectual Property Office (EUIPO).

New “One-Fee-per-Class” System for Applications

Until recently, the basic application fee covered up to three classes of goods or services. If the applicant wished to register the trademark in one class only, it still had to pay the basic fee. The new Regulation now introduced a new “one-class-per-fee” structure. Additional fees must be paid for each class beyond the first.

The basic fee for an electronic application covering up to three classes under the old rules amounted to EUR 900. The fee for each additional class was EUR 150. Under the new Regulation, the basic fee for one class is EUR 850. The fee for two classes corresponds to EUR 900, and for three classes, EUR 1,050. The fee for each subsequent class remains EUR 150.

These new fees also apply to the renewal of trademarks, which under the old rules amounted to EUR 1,350 up to three classes and EUR 400 for each subsequent class.

Opposition, cancellation and appeal fees have also been reduced.

New Scope of Protection for Class Heading Designations

It used to be common practice of trademark applicants to use class headings of the Nice Classification to designate the goods or services for which protection was sought. Class headings, in effect, were considered by the OHIM to protect all of the goods and services within a particular class (the so-called “class-heading-covers-all” approach).

A decision by the Court of Justice of the European Union (CJEU) dated 19 June 2012 changed this approach. The Court decided that an applicant using the general indications of a particular class heading must specify whether its application is intended to cover all of the goods or services included in the alphabetical list of the particular class, or only some of those goods or services (C-307/10, “IP Translator”, para. 61). This decision thus limited the “class heading-covers-all” approach to cases in which the applicant clearly expressed the intention to cover all of the goods or services in a particular class.

This principle has now been adopted by the new Regulation, according to which the use of class headings shall be interpreted as including only the goods or services clearly covered by the literal meaning of the indication or term used (Article 1(28) No. 5 of the new Regulation, amending Article 28 No. 5 of the Regulation 207/2009/EC).

This new rule entered into force on 23 March 2016. However, owners of trademarks applied for before 22 June 2012 that utilize the entire class heading of at least one Nice class are given the opportunity to declare to the EUIPO until 24 September 2016 that they would like to add further goods and services to their registration in order to conserve the originally intended scope of protection. This may compensate for the narrowing of scope otherwise caused by the new interpretative practice. If no such declaration is filed, the registration will only cover the goods and services that fall within the literal meaning of the terms used.

The potential amendments to the trademark register following trademark owners’ declarations might lead to disputes between such owners and undertakings having registered identical or similar signs at a later date for specific goods or services within the class. The solution of such cases is likely to depend to a great extent on the circumstances of each case.

Conclusion

The new rules will have a significant impact on EUTM owners and undertakings seeking to apply for trademark protection in the EU. Future blog entries will deal with some of the further changes accomplished by the new Regulation, concerning, for instance, anti-counterfeiting provisions of the new Regulation, and the possibility to protect as trademarks signs that are not capable of being represented graphically, such as, potentially, tastes or scents.