CTM Reform: Evolution or Revolution?
Daniel R Bereskin
The European Commission, acting under the direction of the Council of Ministers, is currently engaged in a detailed study of the Community Trade Mark (CTM). The Max Planck Institute (MPI) in Munich, Germany, has been retained by the Commission to consider a broad range of subjects affecting the Community Trade Mark system and to report to the Commission.
Although some changes have been made to the Community Trade Mark Regulation (CTMR) since 1996, when CTMs were introduced, the current study could result in far more significant changes. As a result, a number of organisations have already made detailed submissions to the MPI, including OHIM, INTA, ITMA, ECTA, Marques, AIM and ICE.
The CTMR is a registration-based system, like those of each of the 27 nations currently comprising the EU. Although it is unlikely the Commission will reconsider whether the CTM should remain a registration-based system, it is suggested that the idea is at least worthy of consideration, given the geographical extent of the EU and the profound political, linguistic, economic and cultural differences between its nations. The concept of the CTM being a unitary mark effective throughout the EU remains, for many trademark owners, an elusive if not unattainable goal.
This article deals with two contentious issues that will hopefully be considered by the MPI and the Commission, namely reducing the amount of “dead-wood” CTMs and defining what is meant by “genuine use in the Community”. Both issues have already provoked sharp divisions of opinion among intellectual property organisations, practitioners and scholars.
CTM Dead Wood
A significant problem with the current CTM system is that it encourages over-claiming of the specifications of goods and services. As the law now stands, the doctrine of bad faith cannot be invoked even in a case of deliberate over-claiming. Furthermore, by allowing applicants to claim class headings – and to claim up to three classes for a single filing fee – CTM owners are able to obtain overly broad protection for at least the first five years. After five years, they are required to prove “genuine use in the Community” in order to justify injunctive and other relief – but as will be discussed, no one knows with certainty what this term means.
A prominent UK jurist, Lord Justice Jacob of the Court of Appeal of England and Wales, expressed his consternation with over-claiming in CTM applications as follows (David Kitchin and David Llewelyn, Kerly’s Law of Trade Marks and Trade Names (13th ed, 2000), preface, pp viii–ix):
It is apparent from the specifications of goods being allowed by OHIM that owners are being allowed to register for ranges of goods or services far wider than their use, actual or intended. This causes the Office massive unnecessary work-hours spent ploughing through long specifications to find out whether, buried in there, are goods or services of which the mark is descriptive. Even more seriously these overbroad registrations are likely to hamper trade. And of course they may put up costs for anyone seeking registration of a mark or contemplating using it. The problem needs resolution. Sooner, rather than later, rules will have to be developed to stop this nonsense. It is not good enough to say that there can be later part-cancellation of wide specifications for non-use. Who would bother with the expense and time involved when they want to get on with their business?
Far from encouraging launches of new trademarks, the CTM arguably impedes them – especially by small and medium size enterprises (SMEs). Moreover, unlike the USA where proof of use in commerce is required between the fifth and sixth years following registration, the CTMR contains no such requirement. Also, whereas in the USA and Canada anyone can petition for cancellation for non-use before the USPTO or the Registrar of Trade Marks three years from the date of registration, in the case of the CTM a registration can be only attacked for non-use five years from the date of the registration.
Allowing a CTM to be enforced throughout the EU during the initial period of five years from the registration date – without restriction as to the number of classes covered or any requirement of bona fide intention to use – gives protection to the CTM that is often in excess of what is reasonably necessary. This tends to impede commerce and forces other traders to make decisions involving some risk, which larger enterprises can afford more easily than SMEs. The situation worsens as time goes by and the amount of dead wood increases.
Genuine Use in the Community
In the writer’s view, use in a single EU country does not constitute “genuine use in the Community”. EU law requires free movement of goods within the Community, ie, trade between EU nations. It is hard to justify granting EU-wide rights for a trademark that is not used or known except in a single country after five years. It is proposed that the use of the CTM in or between at least two EU countries should be an essential condition for proving “genuine use in the Community”. The size of the countries or the volume of trade is not decisive provided it is genuine – ie, use is in the ordinary course of trade and involves either the transfer of property in, or possession of, goods bearing the CTM between two or more countries, or advertising services provided to entities in two or more countries.
As things now stand, a company resident in Malta can obtain a CTM that is used and known only in Malta, and is potentially able to block a company in the UK from using a similar mark for similar goods or services. It is unlikely that the Maltese company would assert its rights against geographically remote entities when it has no commercial interest in doing so; but then the question is whether it makes sense to deprive another entity, one that has the will and capability to use the mark throughout most of the EU, from doing so without the benefit of a CTM. In short: a system that restricts the enforceability of a CTM to the areas in which the trademark has been used or made known, or areas where the unauthorised use of the CTM or a confusingly similar mark would unfairly harm the trademark owner, would seem better than the current system.
The trademark system in the USA has evolved since the enactment of the Lanham Act in 1946. As with the CTMR, the rules concerning territoriality are not clearly spelled out in the Lanham Act, thus resulting in decades of jurisprudence. Hopefully the CTM can avoid this fate.
The following is a brief synopsis of USA law in relation to the territorial reach of federal trademark registrations.
Synopsis of USA Las in Respect of Territoriality
A domestic applicant must have a bona fide intention to use the mark in commerce in the USA in association with the goods/services specified in the application, and is entitled to register only after use of the trademark in commerce has commenced. Under the Lanham Act, although a trade mark registration confers exclusive rights to the use of a registered trademark, such rights are enforceable only when unauthorised use has caused or is likely to cause confusion or dilution. Therefore, trademark rights in the USA depend significantly on the nature and geographical extent of the use or notoriety of the trademark.
In the USA, following the decision in Dawn Donut, the owner of a registered trademark, who was first to use the mark in commerce, is generally not entitled to enjoin a good-faith second user of the mark in a market that is geographically remote from that of the registrant. This remains the case unless and until the registrant demonstrates use or notoriety of the registered mark in or near the market of the second user; or else demonstrates that use of the trademark will likely be expanded into the area of the second user or that the use of the mark by the second user would constitute unfair competition, eg, by tarnishing the reputation of the registered trademark.
The rationale for the Dawn Donut rule is that there can be no likelihood of confusion if the registered mark is not sufficiently known to prospective purchasers in the same area as that of the second user. This does not mean that the second user obtains permanent rights to the use of the mark; on the contrary, once the registrant expands its use of the mark to the area of the second user, or such expansion becomes likely, the registrant is entitled to enjoin the second user from using the mark.
Dawn Donut thus recognises the divisibility of a geographically large market like the USA, while protecting the ability of the registrant to eventually use the registered mark in the same area as that of the second user.
Dawn Donut was decided in 1959 when market conditions were very different from those of today. The ubiquity of the internet, television and other forms of modern communication increasingly erodes geographical boundaries. Doubts have therefore been expressed as to whether the Dawn Donut rule should be applied as an absolute, or whether geographical remoteness should instead be considered as only one of the factors in determining likelihood of confusion – or, indeed, whether Dawn Donut should continue to be applied at all. In addition, some trademarks – especially those that have achieved a national reputation – would likely be protected against tarnishment or other forms of unfair competition in a geographically remote area, on the ground that the trademark owner could suffer significant damage if the unauthorised use is permitted to continue unabated.
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The present CTM system is in serious need of substantial reform. Fine-tuning changes are unlikely to affect the serious amount of dead wood on the CTM register, and the situation is bound to worsen as time goes on.
The present system is particularly disadvantageous to other traders and the public when it is realised that many CTMs consist of ordinary dictionary words that are suggestive – or even highly suggestive – of the character or quality of the associated goods or services and which, in theory at least, are used in only a small region within a small country. Taking such words out of the common vocabulary throughout the EU, when usage is restricted to a single country, is hard to justify.
The five-year period should also be reconsidered. Successful businesses today move quickly. Three years should be ample to protect a trademark from an expungement attack based on non-use.
All that being said, it is very advantageous to have a central register of trademarks that can be easily and inexpensively consulted by anyone interested in adopting a new trademark in any country or region of the EU; a standard set of rules governing the validity and enforceability of the CTM throughout the EU; and a common jurisprudence. Without reform, there is a risk that trademark owners will increasingly opt out of the CTM, eg, by procuring an international registration and designating only those countries of particular interest to them. A motivation for this is to reduce the possibility of opposition, which at present is a serious and costly problem for many CTM trademark owners. Conversely, if the CTMR is properly reformed, a CTM could become an even more important asset to trademark owners than it is today.