The European Union Trade Mark Reform

The suggested reform would bring administrative, legal and procedural changes.

The Commission of the European Union made on 27 March 2013 public its long awaited proposal to reform the Trade Mark System within the Union. The “legal package” comprises the recast of the 1989 Directive (codified as 2008/95/EC) approximating the laws of the Member States relating to trade marks (the Directive), the revision of the 1994 Regulation (codified as 207/2009/EC) on the Community trade mark (the Regulation), and the revision of the 1995 Commission Regulation (2869/95) on the fees payable to the Office for Harmonization in the Internal Market (OHIM) (the Fee Regulation).

The proposal is a result of the study on the overall functioning of the European Trademark system made by the Max Planck Institute for Intellectual Property and Competition Law in Munich (MPI) and  presented 3 March 2011.

The suggested changes can be divided into three groups, first an administrative one concerning OHIM, i.e. its name, administration and tasks. This group  also includes financial matters. The second group comprises substantive legal changes, and the third procedural ones. It is a quite generally held view, that the revision of the Regulation as such is considered quite moderate, while there are some more substantial changes both regarding the status of OHIM and the Directive. The latter is taking the harmonization quite a step further.

It is well known that the surplus of OHIM has been the object of many debates during the last years, soI will not discuss it at any length here despite it, most likely, being one of the most important triggers of the reform.

Name changes

The name of OHIM is proposed to be changed to the “European Union Agency for Trademarks and Designs”. This is of course well in line with the change of “European Community” to “European Union” in the Lisbon treaty. The new name is under all circumstances more adequately reflecting its main tasks despite the recent inclusion of the “Observatory” and the possibility of mediation.

The proposal to transform the Community Trade Mark into the European Trade Mark is consequently not in line with the above. It should thus be named the European Union Trade Mark, and the Regulation the “European Union Trade Mark Regulation”.   

The role of the Commission is strengthened by allowing it to have two voting representatives both on the Management Board and the Budget Committee of the Agency compared with one non-voting member at present. The Commission will also be able to make proposals for the appointment of the Executive Director and other important positions within the Agency.

It is also interesting to note that the Commission alone, i.e. without the participation of the Member States, in thirteen instances will be deciding upon matters related to the Regulation. In combination with making the already quite well functioning cooperation between the Agency and the Member States mandatory, it is quite obvious that the Commission has seen a need to increase its control. This is finally accompanied by the proposal to channel a possibly remaining structural surplus, i.e. after a maximum of 10 % of the annual income of the Agency has been used for grants to the industrial property offices of the Member States, to the general European Union budget.

Whether or not this consolidation of powers to the Commission will be approved by the Parliament remains to be seen. It is also somewhat unclear how the handling of the money will serve the trade mark community, which of course is the contributor to the surplus.

Counterfeit goods put in spotlight

The trade mark system within the Union has been functioning quite well. This concerns particularly the CTM with respect to which the high annual number of applications for registration (some 100 000), and the sizeable surplus of OHIM (approxim. 600 million euros) , speak for themselves. There has thus not been an urge to revise the Regulation in any great detail.

In reviewing the proposal, some general features emerge. Firstly, some of the developments occurring in the surrounding society and court practice are being codified into the Regulation and Directive. Secondly, the pursuit of counterfeit goods is being stepped up, and thirdly, there is an effort to converge the procedural rules regarding the CTM and the National trade mark laws.

The proposal allow, in addition to collective marks,the registration of certification or guarantee marks as well. This is well in line with requirements on sustainability within industry, ecological farming, etc. The certifying organization would be the proprietor of the mark. Interestingly enough this proposal concerns only the Regulation, since the Directive makes the inclusion voluntary.

A second example would be the abandoning of the requirement that a trade mark, in order to be registrable, has to be graphically represented. Taking into account the rapid technological development one can only express surprise that it has taken so long to catch up in this respect. On the other hand this is not as simple as it sounds. There is no doubt that OHIM will be well resourced to handle new types of marks, but whether the National Patent and Trade Mark Offices (NPTO), mostly handling applications made by SMEs, will be is questionable. Even the public must be able to determine the exact subject of protection. This suggestion has accordingly been criticized by some Non-governmental organizations (NGOs).

Classification of goods and services

A third example is the codification of the IP Translator decision of 19 June 2012. The case concerns classification of goods and services. It is of great importance that there is clarity as to the identification and uniform use of the Nice system throughout the Union, particularly when there is some difference regarding the local interpretation of the decision.

The Commission has not, however, incorporated case law establishing that the advertising, communication and investment functions of a trade mark can be protected. On the contrary by proposing that use in a so called double identity case, i.e. when both the trademark and the goods or services are identical, must also adversely affect the origin function, it has reversed it. This is of course contrary to how industry is both treating and perceiving trademarks.

The Commission has neither seized the opportunity to establish that a trade mark is a positive right, i.e. an actual right to use a mark, not just an exclusive right preventing third parties from using the same. This goes against recent common understanding and is also contrary to the acceptance that a trade mark is a property right, which is also strongly emphasized by the European Economic and Social Committee in its recent opinion.

The Commission disregards also the own name defense for companies, which has been established in the case law of the Court of Justice of the European Union (CJEU). Why there should be a difference between companies and individuals, i.e. personal names, is not explained.   

The “goods in transit” issue is reflecting the harsher attitudes against counterfeit goods within the EU. The Commission is proposing that counterfeit goods in transit are infringing regardless of the goods being compliant in the country of origin or the country of destination, or both. This means that goods can be stopped in the EU. The proposal also includes a possibility to stop small consignments, when counterfeit goods from outside Europe are addressed to private persons, not acting in a commercial capacity, within the Union. The latter can in some cases, it is claimed, be a health and safety issue or adversely affect law-abiding manufacturers and traders.

Harmonized procedure

It is proposed that an application for a CTM should be submitted only to OHIM and not also to the NPTOs. Furthermore, the fee has to be paid in connection with the application in order to obtain a filing date. A separate fee has to be paid for each class in addition to the first, although these are very modest. This proposal reflects to some degree the idea proposed in the MPI study that the current right to obtain three classes for one fee should be abandoned, thus decreasing the amount of “unnecessary” filings.  

The matter of trade mark sanctions and their possible uniformity has been left for future deliberations. This issue would probably have been just an additional “obstacle” for the reform going further.

The procedural rules in the recast Directive are more or less in line with the revised Regulation, which is aimed at lowering transaction costs. This concerns, among other things, additional fees for each class, classification rules, duration and renewal of registrations. It is also proposed that there should be no ex officio examination of prior rights. Member states are in addition required to have an opposition procedure before the NPTO as well as an administrative cancellation procedure, to mention a few additional proposals.

Are SMEs forgotten?

Besides the codification, anti-counterfeit measures and procedural convergence, there are a couple of other features, or rather the relative silence surrounding them, which I would like to explore. First of all it concerns innovation and secondly the promotion of SMEs. These are closely linked since it is claimed that a considerable part of innovation is taking place by the SMEs. It is worthwhile remembering that the SMEs count for more than 95 % of all companies within the EU, representing approximately half of the total turnover.

If we believe in economic incentives, rendering an innovator a property right is important. Knowing he or she will be able to defend his or her rights against an intruder, but also against expropriation or otherwise get adequately compensated, will make a difference and function as an incentive for innovation. A trade mark should thus also be explicitly accepted as a positive property right. Although the Commission is talking about the reform fostering innovation it is not reflected with respect to this.

The proposal to abolish the ex officio examination of prior rights is neither serving SMEs. It is quite obvious that the security gained by the authorities handling the examination will be lost. In addition, it can be foreseen that the number of oppositions will increase, which will increace costs. What is presumed to be saved up front will be more than lost with increasing oppositions and litigation, which in turn will affect the SMEs particularly.

Are we going towards one system?

The suggestion to include a provision in the Directive according to which marks must be refused if they are descriptive or non-distinctive in any of the EU languages is, if realized, going to be very burdensome for the NPTOs, but particularly detrimental to the SMEs operating only nationally. If one was inclined to be a little bit provocative one could claim that this suggestion in combination with abolishing the ex officio examination of prior rights is eroding the principle of coexistence between the two systems, and in the long run paving the way for just one, i.e. the CTM.

The same can be claimed with respect to the proposal to leave genuine use dependent on case law. It should not be too difficult to comprehend that the CTM and the national trade mark systems have different purposes serving different categories and sizes of business entities. The business is either domestic or intra-state, but not necessarily global. This realization should lead to at least requiring an intra-state connection for a CTM. I understand that the requirement of use in a certain pre set number of member states, in order to increase predictability, is inadequate because the geographical size or the number of inhabitants, potential consumers, vary to quite some degree, but a requirement on cross-border economic activity should be quite realistic and practicable.

To leave this issue to be developed by the CJEU reflects to some degree, I think, the inherent tension between civil and common law, that is embodied in EU law. Those who come from civil law jurisdictions tend to think that legislation usually represents clarity, while proponents of common law find that courts are better equipped to take into account changes in the surrounding society. It is also an easy way out for the legislator to leave an issue to be settled by the courts.

All in all it seems as though the “legal package” is influenced, and this is of course no surprise, by the role of the Commission. This is reflected in the proposed increased control of OHIM, and the emphasis on the CTM at the expense of the national trade mark systems. A rebalancing will most likely be undertaken by the Parliament and the Council.

Timetable for the Reform

The deliberations in the Parliament on the reform will start on September 3rd. Whether or not the Reform will be adopted before the parliamentary elections in 2014, remains to be seen. It might be that sharing the funds accumulated by OHIM will drive the Council, i.e. the Member States, to come to an agreement on the other issues as well. On the other hand the continuing financial crisis in the EU is a distracting factor, which needs a lot of attention, wherefore there might not be any rush, particularly taking into account that the existing system works quite well. Under all circumstances the coming fall will continue to be a very busy period for European trade mark circles.

http://ec.europa.eu/internal_market/indprop/tm/
Proposal for a Directive of the European Parliament and of the Council to approximate the laws of the Member States relating to trade marks (Recast) COM (2013) 162 final, 27.3.2013.

Proposal for a Regulation of the European Parliament and of the Council amending Council Regulation (EC) No 207/2009 on the Community trade mark COM (2013) 161 final, 27.3.2013: http://ec.europa.eu/governance/impact/ia_carried_out/docs/ia_2013/com_2013_0161_en.pdf

Study on the Overall Functioning of the European Trade Mark System, presented by the Max Planck Institute for Intellectual Property and Competition Law, 15.02.2011, Munich, pp 1-290.: http://ec.europa.eu/internal_market/indprop/docs/tm/20110308_allensbach-study_en.pdf

 

Dr. Max Oker-Blom
Adj. professor
Hanken the School of Economics