Trade Mark Law and the Concept of Bad Faith

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Department of Law Spring Term 2020

Master Programme in Intellectual Property Law Master’s Thesis 30 ECTS

Trade Mark Law and the Concept of Bad Faith

A fair balance between the protection of exclusive rights conferred on the proprietor and free access to the European market?

Author: Mariia Shipilina

Supervisor: Kacper Szkalej

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ABSTRACT

The purpose of the research is the analysis of the concept of bad faith in the sphere of trade marks from the perspective of a fair balance of different interests of the trade mark proprietor and other undertakings in the European market. On the one hand, the starting point of European trade mark law is the protection of exclusive rights conferred on the owner of a registered mark.

On the other hand, Article 16 of the Charter of Fundamental Rights of the European Union guarantees the right to free access to the market. The research work analyses the scope of these conflicting rights and comes to the conclusion that the interests of trade mark law and market competition may have common ground despite different starting points between them. Bad faith behaviour in the market should also be assessed as an acute common issue. In that connection, the objective of the thesis is to examine how the balance of the interests is achieved in European trade mark legislation and in practice, whether this balance is fair when dealing with bad faith. Additionally, the thesis considers the issues of the definition of bad faith in European legislation and possible changes in the European trade mark system related to the concept of bad faith.

KEY WORDS

Bad faith, bona fide intention to use, fair balance, freedom to conduct a business, free-riding, good faith, re-filing, subjective intention, trade marks, use requirements.

ABREVIATIONS

CFR Charter of Fundamental Rights of the European Union [2012] OJ C 326/2

EU TM a European trade mark

EUIPO a European Union Intellectual Property Office (was known as OHIM until 23 March 2016)

EUTMD Council Directive 2015/2436 of 16 December 2015 to approximate the laws of the Member States relating to trade marks [2015] OJ L336/1

EUTMR Regulation (EU) No. 2017/1001 of the European Parliament and of the Council on the European Union trade mark [2017] OJ L 154/1

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MS Member State (of the European Union)

OHIM the Office for Harmonization in the Internal Market (Trade Marks and Designs)

TFEU Consolidated Version of the Treaty on the Functioning of the European Union [2010] OJ C 83/01

The CJEU Court of Justice of the European Union

The Paris Convention Paris Convention for the Protection of Industrial Property (20 March 1883)

The TRIPS Agreement Agreement on Trade-Related Aspects of Intellectual Property Rights, Marrakesh Agreement Establishing the World Trade Organization, Annex 1C, Legal Instruments-Results of the Uruguay Round, vol. 31 (15 April 1994) 33 ILM 81

TM a trade mark

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INTRODUCTION

A. The relevance of the issue

The institution of bad faith is not unique for European law and even jurisprudence in general.

Since ancient times philosophers and theologians have been dealing with the issue of definition and interpretation of this intricate notion. It seems, the main reason is the inconsistency and variability of moral norms, which are closely connected with bad faith. The notion of good and evil has been transforming and developing through the centuries and have been inevitably affecting the ethical aspect of the modern concept of bad faith.

Bad faith is one of the central concepts for European TM law. Despite the fact that the TM legal provisions do not define and elaborate bad faith, they refer to its notion in their wording.

For example, the frequently applied in legal practice Article 59(1)(b) implies bad faith as one of the grounds for invalidity of a registered TM. This article has a high significance for the development of European practice and the modification of the institution of bad faith in TMs.

Although the bad faith is rooted in ethics and moral notions, its economic influence on the internal European market also seems to be crucial. For example, it makes significant contribution to the formation of the balance between interests of different undertakings in the European market. On the one hand, the starting point of TM law is the maximum protection of rightholders’ interests. On the other hand, the objective of market competition is to guarantee free access to the European market for all bona fide enterprisers. In that connection, the concept of bad faith serves as an additional tool in the system of ‘checks and balances’ for the harmonisation of conflicting interests of enterprisers.

The problem of how to strike a fair balance between the opposing interests in the market is a matter of ongoing debates both in theory and in legal practice. The connection between exercising of intellectual property rights and proper functioning of a market is close. The scope of TM protection, honest or dishonest behaviour of the proprietor in relation to his competitors, – all these and other aspects that have an economic impact and facilitate forming of a robust or weak market. In that connection, it is a primary task for the European legislator and legal practice to elaborate a well-functioning system of the ‘checks and balances’ that is taking into account the interests of all parties in the market. The challenge is especially acute for the EU because its objective is the unification of 28 different national markets to form a single market.

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In other words, the issue of creating an optimally balanced European market has current importance and the influence of bad faith on various economic process in the field of TM is profound. Despite the fact that the legislator and the judicial system did a tremendous and impactful job, the bad faith concept needs a more careful assessment and elaboration.

B. Objectives

The thesis focuses on the assessment of the concept of bad faith from the perspective of the achievement of a fair balance of the different interests in the internal market. Therefore, the objectives of the research are (i) to establish which law is applicable and (ii) to assess this law and current legal practice from the perspective of achievement of the optimal balance.

The first objective encompasses, inter alia, the ambition to shed light on the meaning of bad faith and to find out the circumstances of its application in the EU TM system.¹ Further, it includes the attempt to understand which market interests are involved in the concept of bad faith and the scopes of the rights protecting these interests. The first part of the research work strives to address these key points.

The second set of objectives consists of an assessment of lex lata. Particularly, the main focus is on Article 59(1)(b) of the EUTMR, because this legal provision is central for bad faith in European TM law. Article 59(1)(b) refers to various models of dishonest behaviour as facets of bad faith in TM and, therefore, needs to be carefully examined. After the assessment of the current TM law, the important question of the research work – whether the system is well- balanced or not – is discussed together with the possibilities for improvement. In other words, the issue of lex ferenda should be considered. At the same time, the main idea is not to merely explore Article 59(1)(b), but to assess the EU system as a whole – in connection with other legal provisions of the EUTMR.

Additionally, it is essential to understand which path the legal practice follows nowadays, and which issues are acute. Does the CJEU (and other legal institutions, established by the EU in

1 It should be mentioned here that the concept of bad faith referred to in the EUTMR is not defined, delimited, or even described in any way in the legislation. (See, for example, Case T-167/15, Bundesverband Souvenir - Geschenke - Ehrenpreise v EUIPO - Freistaat Bayern (NEUSCHWANSTEIN) [2016], EU:T:2016:391, para 51).

In that connection, one of the issues of ongoing debates is the necessity of the bad faith’s definition in the EUTMR.

This question is also considered in the research work.

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the area of TMs) contribute to the establishment of the optimal balance between market competition and interest of rightholders when applying Article 59(1)(b)? Is the balance fair?

Should the court’s approach be improved and adjusted? All these issues should be taken into consideration in the thesis.

C. Method and materials

In this research work, the legal dogmatic method is used. Interpretation of statutory law is one of the starting points. As it was mentioned in the previous section, the author should establish which law is applicable and then assess it from the perspective of the balance of the interests on the market. Undoubtedly, Article 59(1)(b) of the EUTMR should be the central provision for interpretation. At the same time, other legal norms of the EUTMR closely connected with Article 59 should be briefly described and assessed. Among them: Articles 7 and 58 of the EUTMR. Moreover, the interpretation of case law that applies aforementioned legal provisions should be realised.

The application of the economic approach is an essential tool to analyse the issue under consideration. First of all, both opposing interests of the TM’s proprietor and enterprisers in the European market have economic nature including the monetary value of the TM itself. As Richard A. Posner fairly notes, “a trademark is a method of economizing on consumer search costs by providing a compact identifier of a particular producer’s brand”.² Shifting the balance towards one or another interest may influence the development of the internal market in the positive or the negative way. In that connection, the concept of bad faith should also be considered from economic perspective. If good faith behaviour of undertakings enhances competition and encourages the creation of a single, robust, and competitive market, bad faith behaviour should have the opposite effect. Acting in bad faith can hamper the access to the market for TM owner or other legitimate traders and can lead to stagnation.

The aforementioned methods are applied in conjunction with various sources. The legal provisions of international legislation concerning bad faith, e.g., of the Paris Convention, of the TRIPS Agreement, were explored. Moreover, the primary law of the EU – TFEU and the

2 Posner R, ‘Intellectual Property: The Law and Economics Approach’ (2005) 19 Journal of Economic Perspectives 57, 62

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CFR – was considered in the thesis. The main source, however, is the secondary law of the EU – the EUTMR and the EUTMD.

Besides statutory law, the legal framework for the thesis is the judgements of the CJEU and the General Court, and decisions of the EUIPO’s Board of Appeal. The significant part of the research is devoted to the assessment of the SkyKick judgement³ – “probably the most important referral in the EU trade mark field made over the past few years [original emphasis]”.⁴ To contribute to a better understanding of SkyKick, the author also briefly looks through national (UK) law. Other judgements and decisions, inter alia, L’Oréal⁵ and MONOPOLY,⁶ serve also as sources for the analysis or the research question.

Additionally, guidelines and working papers by the OHIM and an EUIPO, scholar works, and articles from law blogs and from online platforms are explored.

D. Structure

The main bulk of the research work consists of four chapters divided into sections and completed with both general and specific conclusions.

Chapter 1 “Interests of trade mark law and market competition. Bad faith behaviour as a common acute issue” contributes to the achievement of the first aforementioned objective – to establish which law is applicable. This purpose requires the ascertainment of (i) the market interests which are involved in the concept of bad faith and (ii) the scope of the rights conferred to parties having these interests. To succeed, the author should consider the issue of different interests of (i) TM law – the maximization of TM protection, and (ii) market competition – a guarantee of free access to the European market through the recognition of the freedom to conduct a business. Finally, it is necessary to answer the question whether the interests have common ground, and whether it is possible to strike a fair balance between them?

3 Case C-371/18 Sky plc and Others v Skykick UK Limited and Skykick Inc [2020] ECLI:EU: C:2020:45

4 Rosati E, ‘BREAKING: CJEU in Sky v SkyKick rules that a trade mark cannot be declared wholly or partially invalid on grounds of lack of clarity and precision of its specifications’ (The IPKat)

<http://ipkitten.blogspot.com/2020/01/breaking-cjeu-in-sky-v-skykick-rules.html> accessed 17 March 2020

5 Case C-487/07 L’Oréal v Bellure [2009] ECR I-05185

6 Kreativni Dogadaji d.o.o. v Hasbro, Inc. (Case R 1849/2017-2) Decision of the Second Board of Appeal [2019] OJ C 413

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The next chapter is constructed in the form of a question “What is bad faith in trade marks?”

and it also focuses on the first objective of the research, i.e., on the search for an applicable law. The chapter should explore the issues of the definition and meaning of bad faith in TMs – what is bad faith per se? Additionally, within the scope of the considered issue, several questions should be investigated, inter alia, the possibility to create a legal definition of bad faith in the EUTMR, and to unify the concept within the EU.

Chapter 3 “The behavioural spectrum of bad faith within Article 59(1)(b) of the EUTMR.

Analysis from the perspective of a balance of the interests” is concerned with the second objective of the thesis – the author should assess applicable legislation and current legal practice from the perspective of a fair balance of the market interests. First of all, the chapter should focus on the assessment of Article 59(1)(b) of the EUTMR. Analysis of this legal provision should be made in connection with Articles 7 and 58 of the EUTMR to figure out whether the system is well-balanced. Moreover, the analysis of European legal practice should be made case by case to contribute to the assessment of various bad faith facets. It is also necessary to cover the issue of the possible improvement of TM law – which changes could facilitate the formation of the optimal balance in the best way?

Chapter 4 “General assessment of the modern concept of bad faith in the EU – a fair balance?”

deals with the second objective of the thesis, but in a more general way, taking into consideration the problem of subjective intention when acting in bad faith. Moreover, it should centre in the issue of the current development and the future elaboration of the concept of bad faith in TMs.

Finally, the concluding assessments of the concept of bad faith in TMs should be made (in

“Conclusions”) – balance, or not a balance, that is the question.⁷

7 Inspired by William Shakespeare’s “Hamlet”.

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CHAPTER 1. Interests of trade mark law and market competition. Bad faith behaviour as a common acute issue

1.1. Conflict or collaboration? Overview

In the EU system of law, TM law (as a part of intellectual property law) and competition law have been traditionally pictured as each other’s opposites having conflicting aims.⁸ Whereas the primary purpose of the first is the protection of the rightholders’ legitimate interests, the second branch of law has a mission of the creation of the economically robust, unified, and harmonised European market through enhancing of the competition.

Nevertheless, TM law and market competition may have common ground when supporting the consumers’ welfare, for instance. One of the functions (along with communication, investment, and advertising) of TMs is to guarantee to consumers the origin of the goods or services, which serves the public interests.⁹ In that regard, TM law facilitates the drawing of the right connection between a particular product and its maker, providing the identification of a particular brand.¹⁰ In other words, TM law verifies that a consumer comprehends the quality of the product that he is buying.¹¹ The legal protection of a TM may encourage each undertaking to produce goods or services with unchangeable, or consistent, quality.¹² Consequently, such a quality allows it to obtain a steady position in the market and be distinguished from the competitors, that constitutes healthy competition. Hence, it might be concluded that TM law and market competition have overlapping interests, despite the difference in their starting points.

In Recital 3 of the EUTMR, the European legislator underlines the importance of creation of the unified European market through collaboration:

It is desirable to promote throughout the Union a harmonious development of economic activities and a continuous and balanced expansion by completing

8 Kerikmäe T, Protecting Human Rights in the EU: Controversies and Challenges of the Charter of Fundamental Rights (Springer 2014) 37.

9 Case C-487/07 L’Oréal v Bellure [2009] ECR I-05185, para 58

10 Posner R, ‘Intellectual Property: The Law and Economics Approach’ (2005) 19 Journal of Economic Perspectives 57, 62

11 Lemley M, McKenna M, ‘Owning Mark (et) S’ (2010) Michigan Law Review 137, 175

12 Landes WM, Posner RA, ‘Trademark Law: An Economic Perspective’ (1987) 30 The Journal of Law and Economics 265, 270

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an internal market which functions properly and offers conditions which are similar to those obtaining in a national market.

Hence, the legal act of TM law draws our attention to the necessity of elaboration of economic co-operation to build a common market system. In that connection, one may conclude that both of fields have the same interest – the establishment of a single, robust, and well-functioning internal market.

Both TM law and market competition, have a strong interest in preventing dishonest economic activity. Therefore, the problem of bad faith behaviour in the market is another common issue for these fields. For example, one of the facets of bad faith that may have negative consequences for TMs and competition is free-riding (taking unfair advantage of the distinctive character or the repute of the earlier registered TM).¹³ While free-riding is undoubtedly detrimental to the rightholder of a familiar to consumers TM (it creates an incorrect link between the quality expectation and the producer), this dishonest behaviour may also distort competition in the market. Indeed, taking unfair advantage among competitors gives free-rider more economic opportunities to launch his product successfully. The aforementioned allows to conclude that bad faith is a destructive element for both TMs and market competition.

However, the issue under consideration demands a careful analysis because one or another solution may shift a balance towards the interests of TMs or competition.

To comprehend how to create this optimal balance of the interests when dealing with bad faith, it is essential to provide the reader with starting points of TM law and the freedom to conduct a business as a crucial principle of market competition.

1.2. The scope of rights conferred on the proprietor of a European TM. Is the nature of trade marks monopolistic?

TM law, similarly to patent and copyright law, aspires to guarantee the protection of the rightholders. The primary purpose of the section is to perform the legal analysis of the scope of rights conferred on the owner of an EU TM. Besides, it should be examined whether such protection is unlimited or not.

13 Case C-487/07 L’Oréal v Bellure [2009] ECR I-05185, para 41

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The starting point for the issue is the legal provisions of the TRIPS Agreement and the EUTMR. Article 16 of the TRIPS Agreement confers on the TM’s owner the exclusive right to prevent all third parties from unauthorized use of its registered TM in the case of double identity and likelihood of confusion. According to Article 9(1) of the EUTMR, “the registration of an EU TM shall confer on the proprietor exclusive rights therein”. At the same time, the European legislator distinguishes the reputed and well-known TMs which enjoy extended protection.

Within the meaning of Article 9(2) of the EUTMR the proprietor of a European TM shall be entitled to prevent all third parties not having his consent from using in the course of trade, in relation to goods or services, any sign where there is (i) double identity, (ii) likelihood of confusion or (iii) extended protection of reputed or well-known TMs. In such a way, the European legislator distinguishes identical, similar or dissimilar signs, and the registration of a TM may be refused or declared invalid if a conflict with earlier registered signs takes place.

The concept of identity between TMs was elaborated by the CJEU in LTJ Diffusion v Sadas Vertbaudet, and must be interpreted strictly.¹⁴ The CJEU held that a sign is identical with the earlier TM where (i) it reproduces, without any modification or addition, all the elements constituting the TM or (ii) it contains differences so insignificant that they may go unnoticed by an average consumer.¹⁵ According to EUIPO’s Guidelines for Examination, while dealing with the likelihood of confusion the several interdependent factors should be assessed, inter alia, similarity of the goods and services and the relevant public.¹⁶

Technically, when assessing whether TMs are similar or dissimilar, the overall impression made by them should be taken into account. As the CJEU held in Sabèl v Puma, the global appreciation of the visual, aural or conceptual similarity of the marks, must be based on the overall impression given by the TMs, taking into consideration, their distinctive and dominant components.¹⁷

Hence, one may draw a conclusion that a proprietor enjoys the absolute protection afforded by a European TM in the case of double identity. In the case of the likelihood of confusion, it was

14 Case C-291/00 LTJ Diffusion v Sadas Vertbaudet [2003] ECR I-2799, para 54

15 ibid

16 EUIPO, Guidelines for Examination of European Union Trade Marks, Chapter 4, Comparison of signs (2017) para 1.1

17 Case C-251/95 Sabèl v Puma [1997] ECR I-6191, para 23

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pointed by Recital 11 of the EUTMR, that the appreciation of similarity should constitute the specific condition for such protection. In such a way, in the case of the likelihood of confusion, the protection does not emerge automatically like in the case of double identity. It makes such a TM vulnerable. Nevertheless, the general assessment of Article 9(2)(a) and Article 9(2)(b) of the EUTMR allows to conclude that the scope of TMs’ protection established by the European legislator is quite broad. That means the TM’s owner is entitled to prevent a third party from using that TM in the majority of cases due to the concept of the likelihood of confusion and flexibility of legal practice.

As regards well-known and reputed TMs, the European legislator affords them a privilege granting the extended scope of protection.

At the same time, the analysis of other legal norms of the TRIPS Agreement and the EUTMR may raise doubts about the monopolistic nature of rights conferred by an EU TM. According to article 17 of the TRIPS Agreement, “Members may provide limited exceptions to the rights conferred by a trademark, such as fair use of descriptive terms, (…).” Within the meaning of Recital 21 of the EUTMR, these exclusive rights should not entitle the proprietor to prohibit the use of a TM by third parties which are used fairly and in accordance with honest practices in industrial and commercial matters. Article 14 of the EUTMR refers to exceptions and limitations of the effects of European TMs, for example, referential use – the use of a TM to indicate the intended purpose of a product or service. Hence, there is no infringement, for instance, if a company A produces and releases to the European market spare parts for worldwide famous cars B, using B’s TM honestly for the indication that A’s product is compatible with any car B. Consequently, the TM’s rights become limited and vulnerable even if the protection of such a TM is strong.

In summary, it would be questionable to assume that the nature of the rights conferred by an EU TM is monopolistic. Although the proprietor of a TM, especially well-known or reputed, enjoys broad and strong protection, at the same time, this protection is compensated by exceptions and limitations, which are economic by their nature. In that regard, this system of TM rights’ protection can serve as evidence of following the essential principles of European law concerning conducting a business and harmonisation of the European market.

Considering the thesis issue, it is essential to underline that the strong but not absolute TM’s protection seems not to be an automatic guarantee of complying with the TM’s owner’s

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demands in the case of bad faith. The assessment of dishonesty and its consequences should be made from different perspectives, evaluating the interests of other market traders and consumers. In that connection, the significance of the freedom to conduct a business should be evaluated equally with the rights conferred on the TM’s proprietor.

1.3. The freedom to conduct a business as an essential principle of the functioning of the European market. The importance of free access to the market for all legitimate traders

Effective competition and economic integration are the preconditions to economic growth and stability, at the same time “more economic freedom would lead to greater consumer welfare”.¹⁸ The role of law in forming of a base for this is tremendous. The more harmonised law the EU has, the more properly functioning market can be created.

The freedom to conduct a business is a crucial principle of European legislation and has a long story: initially seen as a corollary to the fundamental right to property, it started to have a separate existence in the 1980s, achieving the status of a general principle of European law.¹⁹ Nowadays, the CFR recognises and guarantees the principle observance. According to Article 16 of the CFR, “the freedom to conduct a business in accordance with Community law and national laws and practices is recognised”. The legal provision has a high significance for the European legal order because the CFR is the first legally binding document to explicitly recognise the freedom to conduct a business in the EU.²⁰

Indeed, TFEU refers to some aspects of the principle, for instance, according to Article 119(1):

… the activities of the Member States and the Union shall include … the adoption of an economic policy which is … conducted in accordance with the principle of an open market economy with free competition.

18 Usai A, ‘The Freedom to Conduct a Business in the EU, Its Limitations and Its Role in the European Legal Order’ (2013) 14 German Law Journal 1867, 1870

19 See Groussot X, et al.,‘Weak Right, Strong Court’ (2014) Research Handbook on EU Law and Human Rights 01/2014 <https://ssrn.com/abstract=2428181> accessed 22 February 2020

20 Usai A, 1868

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Other legal provisions – Articles 101 and 102 of TFEU – serve the aims of competition law and prohibit abuse of a dominant position within the internal market.

In fact, there are ongoing debates about which economic rights and principles should be included in the freedom to conduct a business. Some legal scholars assume that Article 16 of the CFR “includes not only the freedom to operate a business but also the freedom to conduct a business, the freedom to enterprise and the freedom to contract”.²¹ There is also the opinion in literature that the freedom to conduct a business “is the object of a constitutional liberty representing a corollary (…) of the right of free economic initiative”.²² The latter, at the same time, is a derivative of the freedom of competition.²³ Hence, there is no common theoretical doctrine of how Article 16 should be interpreted.

The CJEU attempted to elaborate on the notion. In Sky Österreich the CJEU held that the protection afforded by Article 16 covers “the freedom to exercise an economic or commercial activity, the freedom of contract and free competition, as is apparent from the explanations related to that article”.²⁴ In fact, it is quite complicated task to define the scope and the meaning of Article 16 as any other fundamental principle. It seems that it comprises many economic rights, freedoms and principles serving the idea of establishment of the robust European market. They are working towards promoting and enhancing competition and are recognised by European legislation. In such a way, the general idea arising from the analysis of the wording of Article 16 is that the scope of freedom to conduct a business is boundless.²⁵ Nevertheless, it is important to comprehend that it does not have an absolute nature as it follows from Article 52(1) of the CFR.²⁶

The final aspect of the issue is the problem of application of Article 16 from the perspectives of the importance of the protection of intellectual property, i.e., Article 17(2) of the CFR.

According to the legal provision, “intellectual property shall be protected”.

21 Groussot X, et al., 4

22 Ghidini, G, Stazi A, ‘Freedom to conduct a business, competition and IP’ in Geiger C (ed), Research Handbook on HR and IP (Edward Elgar Publishing 2015) 410.

23 ibid

24 Case C-283/11 Sky Österreich GmbH v Österreichischer Rundfunk [2013] ECLI:EU:C:2013:28, para 42

25 It should be also mentioned, that freedom to conduct a business is connected with the four economic freedoms recognised by the EU in TFEU – free movement of goods (Title II), capital, services and people (Title IV).

26 According to this Article, “Any limitation on the exercise of the rights and freedoms recognised by this Charter must be provided for by law and respect the essence of those rights and freedoms.” In that connection, it may be concluded from the wording, that the CFR provides for eventualities of the exceptions from the considered right.

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As it was described in the previous section, there are different interests in the market – TM’s protection and the observance of the right to free access to the market. The intricacy arises when the interests of market participants are not balanced. For example, when a holder of a TM has an advantage over competitors via unlimited monopoly in the market on the basis of Article 17(2). This artificial protection may create an obstacle to the free access to the market for other legitimate traders which can lead, inter alia, to a price monopoly and economic stagnation. Therefore, a fair balance should be achieved where it is possible.

One excellent example of such an optimal balance is Article 18 of the EUTMR – “Use of an EU trade mark”. By establishing the revocation procedure because of non-use of the goods or services during the period of five years, the European legislator balances interests.²⁷ Looking from the TM right’s perspective, there is no damage to the rightholder’s commercial activity because he has no current interest in the use of this particular TM. Another possible scenario could be of course that the TM’s proprietor had an intention to use the TM later. However, if any registered TM would be protected for the entire default period of time without revocation possibility, it would provoke a distorted economic situation leading to depression of trade.

Namely, the protection of a TM that is not in use or has a lack of genuine use restricts market competition and the free movement of goods and services. Moreover, it creates, at the same time, a price monopoly for a particular brand. As appears from the above stated, it may lead to destructive consequences for the internal market and, therefore, such a TM should be revoked.

The analysis of the considered issue leads to the conclusion that despite different starting points of TM law and market competition, they may have common ground. In this connection, it could be possible to balance the interests of these fields of law. Dealing with bad faith, it should be born in mind that such dishonest behaviour is a common acute problem in both TMs and market competition. At the same time, the solution to the issue should be inferential, fair, and taking into consideration both interests – the protection of the legitimate interests of the TM’s owner and the right of other entrepreneurs to free access to the European market.

It is justified to explore the institution of bad faith in TMs before the analysis of the issue under consideration. That may contribute to a better understanding of the research question and lead to properly reasoned conclusions.

27 Here, Article 18 of the EUTMR refers to Article 58, that follows from the wording: “the EU trade mark shall be subject to the sanctions provided for in this Regulation”.

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CHAPTER 2. What is bad faith in trade marks?

Although several legal provisions of European TM legislation refer to bad faith, the concept is not defined by the European legislator for TMs.²⁸ While the concept of good faith is generally elaborated, the meaning of bad faith is indistinct and may vary from one legal order to another.

In that connection, the issue of bad faith’s definition in TMs seems to have current importance for a better understanding of how to apply the legal norms.

The legal provisions which deal with bad faith in TMs are Article 59(1)(b) of the EUTMR for an EU TM and Article 4(2) of the EUTMD for a national TM. In the first article, bad faith serves as one of the grounds for invalidity of an earlier registered EU TM. The second legal provision permits any MS to refuse the registration of a national TM if the application was made in bad faith. The accurate definition of bad faith may facilitate the correct application of the legal norms in practice. Moreover, it could contribute to the formation of a fair balance of the interests if articles would be applied by the courts in the right way. Since the main objective of the current research work is the analysis of the European legal order, the chapter is focusing on Article 59(1)(b) of the EUTMR. Besides, the legal provisions of the EUTMD are also explored from the perspective of the issue of unification (uniform interpretation) of the concept of bad faith within the EU.

Before the analysis of the issues of the definition and the unification mentioned above, the author begins with the question of the meaning of bad faith per se. The understanding of the basics, history, and the ways of interaction between two concepts – good and bad faith, in general, may serve as auxiliary tool to answer this question. In European TM law, two legal ideas of good and bad faith have been developing substantially since the publication of Lindt.²⁹ The chapter considers the role of Lindt and other judgements. There are still ongoing debates whether a particular behaviour of market actors should be assessed as an honest or dishonest practice in various circumstances. The last SkyKick judgement exemplifies the relevance of the issue. In this connection, the question whether case law makes a considerable contribution to the development of the concept or not is the final point of the chapter.

28 Bad faith is mentioned, inter alia, in Articles 59(1)(b), 61 of the EUTMR, Articles 4(2), 5(4)(c) of the EUTMD.

29 Case C-529/07 Lindt & Sprüngli AG v Hauswirth [2008] ECR I-08823

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2.1. Does the term ‘bad faith’ present a contrast to ‘good faith’ like black and white?

When dealing with bad faith, it is essential to mention the concept of good faith. Good faith (bona fides) and bad faith (mala fides) always were significant legal concepts in jurisprudence and legal history.³⁰ The concept of good faith is well established, while, as it was mentioned before, there is no precise statutory legal definition of the term of bad faith in law. Even legal dictionaries are reluctant to define bad faith.³¹ Nevertheless, it is important to understand how these concepts interact and why they often have been portrayed as each other’s opposites.

Both concepts have similar origins and were originally derived from the Twelve Tables (‘Lex Duodecim Tabularum’) of Ancient Rome.³² As a matter of fact, “Roman jurisprudence was a blend of Greek and native elements, and this double nature was faithfully reflected in the Twelve Tables code”.³³ In later centuries the notions of good and bad faith were the objects of adoption by international and European scholars like other legal notions and institutions of Roman law.

Nowadays, many international legal acts having European MSs among contracting partiers refer to the concepts of good and bad faith. For example, Article 6^bis(3) “Marks: Well-Known Marks” of the Paris Convention establishes that “No time limit shall be fixed for requesting the cancellation or the prohibition of the use of marks registered or used in bad faith.”

The concept of good faith is also mentioned in Article 31(1) of the Vienna Convention on the Law of Treaties: “A treaty shall be interpreted in good faith (…)”. The TRIPS Agreement uses the term of good faith in Articles 24, 48, and 58.

30 Mostert F, Wu G, ‘The Importance of the Element of Bad Faith in International Trade Mark Law and Its Relevance under the New Chinese Trade Mark Law Provisions’ (2017) 12 Journal of IPL and Practice 650, 650

31 For example, Law J, Martin, E, A Dictionary of Law (Oxford University Press 2009); Gader-Shafran R, Intellectual Property Law Dictionary (Law Journal Press, 2004); Groves P, A dictionary of intellectual property law (Edward Elgar Publishing, 2011), 25. The last-mentioned source defines bad faith as an “absolute ground for refusal of registration of a trade mark”. This definition has a reference to legislation, and it does not distinguish the essential features of bad faith.

32 Mostert F, Wu G, 650

33 Steinberg M, ‘The Twelve Tables and Their Origins: An Eighteenth-Century Debate’ (1982) 43 Journal of the History of Ideas 379, 386

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European TM law refers to the concept of bad faith in the EUTMR in relation to an EU TM.

According to Article 59(1)(b) of EUTMR, if the applicant was acting in bad faith when he filed the application for the trade mark, an EU TM should be declared invalid.

In the case of a lack of legal definitions in the existing legislation, one may rely on the guidelines from legal practice. The long-expected SkyKick decision could be an excellent example. It made a considerable contribution to clarification and elaboration of bad faith in TMs. In Paragraph 74 the CJEU held that,

… in accordance with its usual meaning in everyday language, the concept of

‘bad faith’ presupposes the presence of a dishonest state of mind or intention (emphasis added), ….

The court also interprets one of the possible models of bad faith behaviour in TMs. For instance, bad faith is constituted when the proprietor of a TM files the application having no objective of fairly engaging in a competition, “but with the intention of undermining, in a manner inconsistent with honest practices, the interests of third parties”.³⁴ Although the idea of the court in SkyKick is not new and unique – it was ‘inspired’ by the previous Koton judgement³⁵ – the significance of SkyKick for the development of bad faith concept for TM law is indisputable.

A similar idea concerning bad faith is supported by EUIPO’s Guidelines for Examination and by Advocate General Sharpston in Lindt: one way to describe bad faith is “conduct which departs from accepted principles of ethical behaviour or honest commercial and business practices”.³⁶

Regarding the concept of good faith, it is mentioned in Article 14(2) of the EUTMR. According to the legal provision, limitations of the effect of an EU TM “shall only apply where the use made by the third party is in accordance with honest practices in industrial or commercial matters” (emphasis added). Although, it seems not to be a legal definition of good faith, the wording serves as a starting point to comprehend the concept.

34 Case C-371/18 Sky plc and Others v Skykick UK Limited and Skykick Inc [2020] ECLI:EU: C:2020:45, para 75 35 Case C-104/18 P Koton Mağazacilik Tekstil Sanayi ve Ticaret v EUIPO [2019] EU:C:2019:724, para 46

36 EUIPO, Guidelines for Examination of European Union Trade Marks, Part D, Cancellation, Section 2, Substantive provisions (2015) para 3.3.2

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In view of the aforementioned, good and bad faith should be considered as honest and dishonest commercial practices, respectively.

Referencing other sources to compare general definitions of good and bad faith, one can come to a similar conclusion about their opposing nature. Although these definitions are not specific for TMs, they may contribute to a better understanding of the concepts for TM law. For example, the general definition of bad faith elaborated by the UK³⁷ and mentioned by the Cancellation Division of the OHIM in working papers was recommended for the application by European practice. According to its wording, “bad faith can be considered to mean

“dishonesty which would fall short of the standards of acceptable commercial behaviour observed by reasonable and experienced men in the particular area being examined [original emphasis]”.³⁸ This definition contains two essential elements – (i) generic term dishonesty and (ii) the indication that this dishonesty is unconformable to the standards of acceptable commercial behaviour. Both of these characteristics are included in the definitions of bad and good faith previously discussed. Although the definition under consideration is broad, it corresponds to the economic nature of TMs and may be considered as a starting point for the institution of bad faith in TMs.

The legal dictionary’s approach could also provide a basis for examination of good and bad faith. Even though these definitions are more general and not specifically elaborated for TMs, they may contribute to a better understanding of the issue.

According to one of legal definitions, bad faith is determined as “a dishonest act by not fulfilling legal or contractual obligations, misleading another, entering into an agreement without the intention or means to fulfill it, or violating basic standards of honesty in dealing with others” (emphasis added).³⁹ Undoubtedly, this definition is more applicable for contract law, however, it also defines bad faith like dishonesty which is in conflict with generally accepted standards.

37 Gromax Plasticilture Ltd v Don and Low Nonwovens Ltd [1998] EWHC Patents 316, [1999] RPC 367 para 47

38 See OHIM, ‘Bad faith case study (Final version)’ (31 January 2003)

<http://euipo.europa.eu/en/enlargement/pdf/badfaithCS3101> accessed 4 March 2020

39 Hill G, Hill K, ‘Law Dictionary’ (Fine Communications, 2020)

<http://dictionary.law.com/Default.aspx?selected=21> accessed 5 March 2020

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As regards good faith, it is generally defined by a legal dictionary as “honesty”. Additionally, the dictionary underlines that “an act carried out in good faith is one carried out honestly”.⁴⁰ Hence, it may be concluded that good faith is always connected with honest activity in all spheres of law, including TM law.

As is obvious from the foregoing, bad and good faith can be considered as opposing concepts because they reflect the notion of dishonest and honest commercial practice – like black and white – respectively. In that connection, it becomes an acute issue for TM law to draw a boundary line between different kinds of behaviour by establishing special criteria to unmask the undertaking’s real purpose to obtain TM protection.

The final point of this chapter is the issue of the distinction of the concept of bad faith in TMs from the concept of unfair competition. There is no clear understanding in legal literature of how the notions correlate with each other. As the OHIM noticed, the first is broader than the last, because bad faith may emerge in situations where there is no competition between the TM’s proprietor and the bad faith applicant.⁴¹ For instance, when an applicant has the intent to unfairly exploit the reputation of the legitimate owner’s TM.⁴² However, the point of view seems to be vulnerable, because even in this situation, the principle of honest competition is undermined. Let us take free-riding as an example. Taking unfair advantage in the market distorts the fair balance of the competition system – when a free-rider uses a sign familiar to the relevant public, he automatically obtains a privileged position in the market in comparison to his competitors. Consequently, bad faith concept should be considered in a broader context than the relationship “the holder of a TM versus the person acting in bad faith”, the assessment should be made in a general way, taking into consideration all interests in the market.

To summarise, the notions of bad and good faith in TMs seem to present a contrast like black and white. In that connection, nowadays it seems an essential issue for the EU to establish a boundary between black and white for TMs in all possible ways. Maybe one of the solutions could be the exact definition of bad faith in European TM legislation?

40 Law J, Martin E, ‘A Dictionary of Law’ (Oxford University Press, 2009) <https://www-oxfordreference- com.ezproxy.its.uu.se/view/10.1093/acref/9780199551248.001.0001/acref-9780199551248-e-

1708?rskey=yeBQDe&result=1810> accessed 5 March 2020

41 OHIM, ‘Bad faith case study (Final version)’ (31 January 2003)

<http://euipo.europa.eu/en/enlargement/pdf/badfaithCS3101> accessed 4 March 2020

42 ibid

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2.2. Should bad faith be defined by the European legislator?

“Like a banker, bad faith is no doubt easier to recognise than to define.”⁴³ Indeed, that is a complex task for any legislator to formulate a universal definition that would be neither broad nor narrow. Moreover, this problem becomes more complicated for the European legislator because he should take into account the features of all Member States’ legal orders. Thus, the question arises whether this definition should be set in stone to provide the law enforcement practice with clear instructions and guidelines.

Before the problem analysis, it should be mentioned that the notion of bad faith is not unique for European and international law. Since ancient times plenty of philosophers and theologians have been dealing with the problem of definition and interpretation of this intricate substance.⁴⁴ It seems the main reason is the inconsistency and variability of moral norms during various historical periods. The notion about good and evil has been transforming and developing through the centuries that inevitably affected the ethical elements of the modern concept of bad faith. Although nowadays we have more or less formulated general concept of bad faith in the area of philosophy, there are still difficulties to determine it in the legal sphere. Here, the impossibility to adopt the philosophical approach can be explained by the difference in the purposes of law and morality. Moreover, for various branches of law in jurisprudence, the concept of bad faith can work differently. For example, the application of the concept alters slightly for contractual and for constitutional law. In summary, it seems that it is an unavailing task for the legislator to formulate a universal definition of bad faith for law as a whole.

The logical question is whether it is (i) possible and (ii) necessary to define bad faith specifically for TM law or not. The first question could be answered affirmatively based on Lindt in which the CJEU made an attempt to define bad faith through the description of three factors that should be assessed. Although, these factors are specific to Lindt and may vary on the case by case basis, the establishment of criteria indicating bad faith may serve as a basis for the development of a legal definition.

As regards the second question, the European practice has a strong interest to harmonise the TM legislation concerning bad faith because 28 national markets should be unified.

Consequently, on the one hand, the European legislator should determine that notion in the

43 Case C-529/07 Lindt & Sprüngli AG v Hauswirth [2008] ECR I-08823, Opinion of AG Sharpston, para 35

44 ibid

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EUTMR. Moreover, because of their economic nature, it seems easier to define bad faith for TMs than for other areas of intellectual property like copyright.

On the other hand, when dealing with the definition of bad faith it should be born in mind that every case is unique. Hence, the necessity of taking into consideration all circumstances of a particular case and assessing bad faith individually may create an obstacle for formulation of a general definition of this concept. Consequently, it seems not possible to apply a unified definition for every single case.

Moreover, as it was mentioned before, bad faith is rather a moral than an economic concept.

Since the EU was initially established for creation of a single market, the harmonisation of European law should have an economic orientation. In that connection, the intervention of the EU into the field of law that refers to moral notions seems to be not acceptable. It would be better for some legal concepts to stay as components of legal doctrines instead of being included by the European legislator in the number of legal definitions.

2.3. Is bad faith an autonomous concept of EU law? Unification of the concept

Not only there is no legal definition of the concept of bad faith in the EUTMR and the EUTMD, but it is also unclear how the concept should be interpreted in legal practice. Moreover, the issue of whether bad faith is an autonomous concept of the EU law or not is quite debatable.

Referring to TFEU, where the legal instruments and acts of the EU are defined, it could be concluded that a directive and a regulation have a different effect. While a regulation has general application and “it shall be binding in its entirety and directly applicable in all Member States”, a directive “shall be binding, as to the result to be achieved, upon each Member State to which it is addressed”.⁴⁵ Regulations – being directly applicable – should never be transported by the national legislator into the national legal order. In that connection, the emphasis of the necessity in the unified concept of bad faith as a European autonomous concept seems to be an idea of the EUTMR.

45 TFEU Art. 228

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However, in Malaysia Dairy, the CJEU considers not the EUTMR, but the EUTMD. As the court noticed, the legal provisions of the EUTMD make no express reference to the law of the MSs in respect of that concept.⁴⁶ In Malaysia Dairy, the question whether the concept of bad faith within the meaning of the EUTMD (that time Article 4(4)(g) of Directive 2008/95) is a concept of the EU arose,

Is the concept of bad faith … is … a concept of European Union law which must be given a uniform interpretation throughout the European Union?⁴⁷

In the judgement, the CJEU held that the concept of bad faith is an autonomous concept of EU law, which must be given a uniform interpretation in the EU.⁴⁸

Undoubtedly, Malaysia Dairy that was pronounced in accordance with the general objectives of TM law (particularly, the aim of harmonisation of the European legislation), has a high legal significance. Some scholars underline that ultimately the CJEU confirmed the most relevant role of the EUTMD – achieving harmonisation of the TM rules within the EU.⁴⁹ Moreover, they assume that it affirms the importance of a uniform application of European law, by harmonising legal concepts even if the EUTMD does not seek maximum harmonisation.⁵⁰

On the one hand, the harmonisation of the TM legislation within the EU is an essential issue for the European legislator – it pursues the aim of the creation of a single, competitive, and properly functioning internal market. On the other hand, it is debatable that such a harmonisation should be reached through the unification of the concept of bad faith that refers to moral notions. As it was mentioned, the EUTMD shall be binding, as to the result to be achieved, upon each MS to which it is addressed. However, it should leave to the national authorities the choice of form and methods.⁵¹ That means, legal traditions of every MS should be taken into consideration. Moreover, the EUTMD regulates the legal order concerning a national TM. Consequently, when European law meets the sphere of ethics and morality, the invasion into the domestic legal policy should be minimal, because the main objectives of the

46 Case C-320/12 Malaysia Dairy Industries Pte. Ltd v Ankenævnet for Patenter og Varemærker [2013]

EU:C:2013:435, para 26

47 ibid, para 17

48 ibid, para 29

49 Schwarcz J, ‘Bad Faith in Trade Mark Cases Decided by the Court of Justice of the European Union’ (2015) 1 Revista Romana de Drept European 115,124

50 Schnepper EB, ‘Dairy in Denmark: Bad Faith and Compliance with the European Interpretation’ (2014) 9 Journal of IPL and Practice 11, 12

51 TFEU Art. 288

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European harmonisation should be predominantly economic – the EU was established as an economic community.

As Esther B. Schnepper writes, the court in Malaysia Dairy “signals to the Member States not to maintain a liberal implementation of Community law”.⁵² The economic nature of TMs may contribute to mandatory transportation of the legal provisions of the EUTMD into the national legal order in contrast with, for example, copyright. However, again for bad faith, this implementation should be optional because the concept refers to moral notions. The liberal transportation may contribute to harmonisation better than the compulsory unification.

Although the unification is good for legal certainty and predictability, the interest of the EU and its MSs should be balanced in an optimal way.

2.4. The role of courts in the development of a unified concept of bad faith.

Is Lindt a general catch-all provision?

Since it appears to be a complicated task to create a legal definition of bad faith in the sphere of TMs or provide the uniform implementation of the concept by MSs, it may be possible to establish a single practice concerning dishonest behaviour. Well-balanced and consistent case law policy may facilitate the harmonisation of the European legal order in relation to bad faith in TMs.

As it was mentioned, the Lindt and other judgements made their considerable contribution to the comprehension and forming of the concept of bad faith in the European TM legal order. In that connection, the questions (i) whether the CJEU should be considered as a policymaker for bad faith in TMs or not, and (ii) should Lindt as the first judgement that established criteria for bad faith indication be assessed as a general catch-all provision, may arise.

According to some commentators, the case law of the CJEU “shaped market integration, the balance of power among EU institutions and the constitutional boundaries between (…) national competences [original emphasis]”.⁵³ It seems to be convincing for TMs, taking into

52 Schnepper EB, 12-13

53 Saurugger S, Terpa F, The Court of Justice of the European Union and the politics of law (Palgrave Macmillan 2017) 1.

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consideration their economic nature. At the same time, it is essential to raise the questions (i) whether only the CJEU should be a policymaker for the institutions connected with morality and ethics (ii) and does the CJEU’s intervention into internal policy concerning the concept of bad faith have a scope.

The first general idea that comes to mind is that the scope of authority of the CJEU should not be in conflict with the internal policy and the legal order of the MSs when a dispute concerns moral notions. In other words, it seems that there are spheres of social life, for which the court should not be completely responsible. That means, establishing a particular legal order and certain provisions which affect the internal domestic policy, the CJEU should give MSs scope for variations.

The solution can also be found in cooperation and collaboration between the national courts and the CJEU. Both should actively participate in the interpretation and policy making in relation to the development of moral notions such as bad faith. The cooperation should be not only on the vertical level but also on the horizontal one. That means, on the one hand, that the CJEU should act as a coordinator in the process of the legal interpretation of the concept of bad faith. On the other hand, the national courts should have a dialog and cooperate with each other.⁵⁴

However, it is unclear whether the national courts may directly interfere in the process of interpretation of bad faith. In the aforementioned Malaysia Dairy judgement, the court held that bad faith is an autonomous concept of EU law. In that connection, the possibility of a dialog between the CJEU and national courts seems to have vanished.

To conclude, when the case law deals with the concepts connected with the fields of morality and ethics, it is hard to say how the making of policy should be organised. While it is impossible to create a single approach in relation to bad faith’s application, the case law may serve as guidelines for practice. That way of looking at the issue was used in the Lindt judgement.

54 On the issue under consideration, the President of the CJEU, Koen Lenaerts, delivered a speech in 2017. Koen Lenaerts fairly highlighted the role of the CJEU as the co-guardian of the authority of EU law in interaction with national courts. He also clarified that in spite of the fact that the legal interpretation is the autonomous function of the CJEU, the national courts must take part in the legal interpretation, and their recommendations should be taken into account by the CJEU. ‘The Court of Justice of the European Union as the guardian of the authority of EU law’<https://www.youtube.com/watch?v=YBN4AODcKMQ> accessed 14 March 2020

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It is essential to remind a reader that Lindt was the first progressive case that made its contribution to the clarification of bad faith in TMs. With a large number of cases in the field of TMs flooding the CJEU every year, “it comes as a surprise that the first bad faith case either one of them was asked to adjudicate upon only appeared in 2007”.⁵⁵

The question was considered whether the application by Lindt&Sprüngli had been made in bad faith in order to prevent the competitors from the use of a sign – the three-dimensional shape of chocolate Easter bunny. These bunnies have been being produced by the plaintiff and the defendant in similar shape for decades before Lindt&Sprüngli has registered the TM. The CJEU held that the overall assessment should be conducted and all the relevant factors, or criteria, should be taken into account when dealing with bad faith. Particular attention should be paid to these three factors:

(i) knowledge – whether the applicant knows or must know that a third party is using an identical or similar sign for an identical or similar product capable of being confused with the sign for which registration is sought;

(ii) intention (or subjective intention) – the applicant’s intention to prevent that third party from continuing to use such a sign;

(iii) degree of protection – the degree of legal protection enjoyed by the third party’s sign and by the sign for which registration is sought.⁵⁶

At the same time, the factors are non-exhaustive, which may be concluded from the wording ‘in particular’. It means the list is open, and factors can vary from case to case. In more recent cases this line was supported. For example, in COLOURBLIND, the General Court underlines that “the factors (…) are only examples drawn from a number of factors which can be taken into account in order to decide whether the applicant for registration was acting in bad faith”.⁵⁷

The factors were also elaborated by other judgements. It was suggested by the court in GRUPPO SALINI to take into consideration, inter alia, “the commercial logic underlying

55 Schwarcz J, 117

56 Case C-529/07 Lindt & Sprüngli AG v Hauswirth [2008] ECR I-08823

57 Case T-257/11 Pangyrus v OHIM — RSVP Design (COLOURBLIND) [2015] ECLI:EU:T:2015:115, para 67

Trade Mark Law and the Concept of Bad Faith

Department of Law Spring Term 2020

Master Programme in Intellectual Property Law Master’s Thesis 30 ECTS