Shaking up the EU trademark system

Just think. Instead of applying for a Community trademark (CTM), you register a European trademark (ETM). You no longer deal with the Office for Harmonization in the Internal Market (OHIM), but with the EU Trademarks and Designs Agency. When you call the agency, you ask to speak to the executive director, not the OHIM president.

These are just some of the changes contained in a set of proposals aimed at shaking up the EU trademark system. Since the long-awaited and wide-ranging plans were leaked in February 2012 and then published one month later, trademark practitioners have been absorbing their details, considering their impact and preparing for a new era.

Back in 2008, the European Commission (EC) kicked off a review of Europe’s trademark system, charging Germany’s famous think-tank, the Max Planck Institute, to report on the state of play. It delivered its verdict in March 2011, ruling that the EU’s trademark system is solid but that the laws and practices in its member states must converge more.

Two years later, we have a clearer picture of how the commission wants to achieve harmonisation. The commission documents—a CTM regulation, recast trademark directive and new fees—seek to foster innovation and economic growth by making trademark registration more accessible and efficient. There will be lower costs and complexity, increased speed, greater predictability and legal security. This is a modernisation, not an overhaul.

CTM regulation

The rebranding of OHIM—it is referred to as ‘the agency’ throughout the CTM regulation—has had people laughing, says Verena von Bomhard, partner at Hogan Lovells LLP in Alicante, Spain. “It makes OHIM sound like the CIA (Central Intelligence Agency). Why the office needs to become ‘the agency’ in the legal text, I don’t know.”

But the aesthetic changes mask a more serious ideal, says Chris McLeod, director of trademarks at law firm Squire Sanders in London. “OHIM is quite an unwieldy name for somewhere to register trademarks and designs in the EU. Changing its name is good for transparency, clarity and access to the law.”

Indeed, boosting legal security is one of the central tenets of the CTM regulation. With this goal in mind, one of the most important proposals is to better protect so-called intervening rights. Let’s consider trademark A, registered for more than five years but which has never been genuinely used. When trademark B is registered, A can then be used against B if the former is put to genuine use.

The EC wants to put a stop to this and prevent A from attacking B, even after A has been put to genuine use.

“THERE IS A CLEAR JUSTIFICATION FOR DISCOURAGING COMPANIES FROM OBTAINING THREE CLASSES FOR THE PRICE OF ONE, A PRACTICE THAT CLUTTERS THE TRADEMARK REGISTER.”

“This proposal is pretty dramatic and very positive. At the moment, when you search for marks to register, you might see a mark but not worry about it because it is not being used. But if the earlier mark is subsequently used, it is revived and can be relied on from its filing date. All of a sudden, this right can be used against you. This is a big threat for trademark owners, and the proposals address this threat,” says von Bomhard.

In the attempt to widen the scope of what a trademark can cover, the commission wants to abolish the outdated requirement to produce a graphic representation of the applied-for sign. Its removal would open the door for the registration of sound, smell, video and music recording marks.

Turning to counterfeiting problems, the commission wants to change the procedures for dealing with ‘goods in transit’. Currently, goods moving through EU customs procedures are not in the EU by law, and therefore cannot infringe a trademark even if they are deemed counterfeit.

Brand owners must wait until the goods are flowing through the market before attempting to find them. The EC wants to force the importer/exporter of suspect goods to prove that they won’t be diverted on to the EU market; if they don’t provide evidence, the EU authorities could seize them.

Fees

Not only will this change have important practical implications for dealing with counterfeits, it will save trademark owners money. Reducing costs forms another part of the EC review’s raison d’être, and while the proposed fees have not been officially released, the earlier leaked drafts revealed planned cuts.

The basic CTM filing fee will be slashed from €1,050 to €925 but will cover only one class instead of three. Extra classes will cost €50 and €75. Online filing fees will be cut from €900 to €775, or €725 if the online classification database is used. Renewal fees will drop from €1,500 to €1,150, or from €1,350 to €1,000 if the mark was registered electronically.

“These changes are quite radical,” says McLeod, adding that there is a clear justification for discouraging companies from obtaining three classes for the price of one, a practice that clutters the trademark register.

“It’s a reasonable premise to try to stop this practice but if you drill down into the fees, it’s only €50 and €75 for classes two and three. I wonder how much of a discouragement that would represent to a large consumer goods company. The answer is: probably not much at all,” he adds.

“WHILE SOME MEMBER STATES WILL ALREADY BE IN A POSITION TO MEET THE NEW REQUIREMENTS, OTHERS WILL NEED TO IMPLEMENT SIGNIFICANT CHANGES TO MATCH THEM.”

“The changes have more of an effect on smaller companies and individuals, as an extra €50 or €75 might have an impact on their budgets. It’s not the answer to the ring fencing practice (three classes for the price of one)—to address this, we arguably need higher fees for any class beyond the first one. This would make people consider whether they actually want the extra classes.”

In the wider context of convergence, the fee reductions are likely to be unpopular with national offices because they would bring the base CTM filing fee even closer to national prices.

“The comparison between national marks and CTMs becomes unbalanced,” says McLeod. “There might be not much point in going national and I think national offices will see more of a drop-off than they have already.”

This drive away from national offices would surely be a paradox. The commission’s proposals are seeking to achieve harmonisation, not polarisation.

David Stone disagrees. As a member of Marques’ study task force, Stone has been following thecommission consultation closely and has penned a useful guide to the documents. He says the CTM fee cuts will not alter the balance between national offices and OHIM, and that small and medium-sized enterprises (SMEs) in particular will continue to pick the offices that suit their strategies best, including using the Madrid system where appropriate.

“There are still millions of SMEs that want only local protection and it is important they have that. I don’t see the current fee proposals changing how SMEs do business,” he says.

Directive

Stone believes that some of the most important of the proposed reforms are contained in the recast trademark directive, which will directly affect member states’ laws. The directive mirrors the CTM regulation to some degree, including the provisions on certification marks and goods in transit, but it also contains specific plans for harmonising national laws and procedures, making them more consistent with the CTM system.

While some member states will already be in a position to meet the new requirements, others will need to implement significant changes to match them.

Crucially, the commission wants to abolish relative grounds examination proceedings and replace them with efficient opposition proceedings. The relative grounds system is maintained today by 12 member states, including Bulgaria, Greece and Portugal.

When examining a trademark application, the offices assess it on the grounds of potentially conflicting earlier rights—and may object to it based on these earlier rights. In the remaining offices and at OHIM, this process is not observed. Instead, trademark owners watch the register for incoming applications, enforcing their rights if they want to.

“THE PERFECT SYSTEM WOULD BE TO PAY A SMALLER FEE TO OBTAIN AN OPINION BEFORE FILING. I DON’T THINK ANYONE IS HURT BY THAT.”

“The idea is that the trademark owner is responsible for enforcing his rights if he wants to, and if he doesn’t, the earlier right doesn’t unnecessarily block the new registration,” says von Bomhard. “This idea is in the proposed directive and would remove a system that causes headaches,” she says.

Another “smashing” proposal, she says, will allow rights owners to apply to cancel other marks at national offices, rather than going to court. “You have to go to the courts and start a fullyfledged civil litigation, which is very costly, and it can be hard to get rid of these marks. So, the proposal is to introduce efficient and inexpensive proceedings that offices, not the courts, will handle. This is the state of play at OHIM, and will save lots of money and headaches.”

Stone adds: “In the states where you have to go to court, having administrative proceedings that carry fewer costs and delays will make a huge difference to users of the system. It will make it easier to clear new trademarks for launch—and that has to be a good thing.”

What’s missing?

Given the largely positive reaction to the proposals covering both the CTM regulation and directive, there is still room for some concern and uncertainty. What will rights owners be unhappy about, and what is missing from the documents?

In its effort to stop trademark owners ‘testing’ their CTM applications for faults, the commission wants to abolish the one-month window between filing applications and paying fees. As OHIM’s examinations become increasingly speedy, applicants often receive reports flagging any errors with their application before the window closes. Essentially, they have time to correct any faults before burning a sizeable hole in their pocket.

“Abolishing the one-month period could be a problem,” says von Bomhard. “If you pay and file simultaneously but subsequently notice an error, then paying another set of filing fees is unfortunate. Asking an examiner’s opinion makes a lot of sense: why can’t people test the system? The perfect system would be to pay a smaller fee to obtain an opinion before filing. I don’t think anyone is hurt by that.”

Stone notes that nothing in the commission’s proposals suggests that the inconsistency of OHIM’s examinations and decision-making will be addressed, or that there will be any harmonisation procedures for converting a CTM to a national application. “Once national offices convert a CTM to a national mark, practices are widely inconsistent,” he says.

It has to be said that these grievances are firmly in the minority and reflect the impossibility of catering for all needs. By and large, trademark owners will be happy.

The proposals, if adopted in their current form would create wide-ranging improvements to the EU’s trademark system. There will be greater legal certainty, more streamlining and higher efficiency wrapped in a convergence drive laid down in the law.

How the changes actually play out is another matter, of course. As von Bomhard notes: “The changes are courageous, but whether they become reality, we will have to see.”