The end of cover trademarks?

December 2013 | PROFESSIONAL INSIGHT | INTELLECTUAL PROPERTY

Financier Worldwide Magazine

A well-known strategy – used by some companies to continue using distinctive signs deemed ‘key’ for their business without being accused of infringing third party trademarks – has been to register as trademarks the signs they use even if they are aware that these signs conflict with earlier trademarks owned by other companies.

The registration of conflicting signs is possible in practice due to the vast number of existing registrations, the limitations of the alert systems and the inevitable subjectivity applied by Trademark Offices when assessing the degree of similarity between trademarks. Once these conflicting signs have been registered, the registration itself acts as a ‘shield’ against infringement claims of earlier trademarks.

This strategy, which is based on the Latin principle qui iure suo utitur nemine laedit (i.e., who uses his own right harms nobody), may be on its last legs in Europe.

The trademark system in the European Union comprises two layers. National trademarks coexist with Community (EU-wide) trademarks. National trademarks are granted by the relevant Trademark Office or Trademark Registry in each Member State, and have effects only in that country. Community trademarks are granted by the Office of Harmonization for the Internal Market (OHIM), based in Alicante, Spain; these trademarks are effective throughout the European Union. The granting and enforcement of national trademarks is ruled by the national legislation of each Member State, but these national legislations have been harmonised at a European level through successive Trademark Directives. In turn, the Trademark Directives provide a regulation which in many respects is identical to the one provided for Community trademarks in the corresponding EU Council Regulation on Community Trademarks. Therefore, although there may be certain differences between countries in their legislation of national trademarks, the doctrine of the European Court of Justice is binding for all Member States.

In the case of Spain, both the Supreme Court and the Community Trademark Court of Appeal of Alicante have traditionally supported the doctrine of the inmunidad registral, which meant that a party could not be found liable for infringing an earlier trademark if the sign used by said party was also protected by a trademark registration granted in its favour. Obviously, if the infringer’s cover trademark was invalidated, he would no longer be able to use that sign in the future, but at least he would not have to compensate the other party for the damages caused during the time the cover trademark was in force.

The ruling from the Alicante Community Trademark Court of Appeal of 17 February 2012 (case Dunlop) meant a certain evolution in this doctrine. The Court in the Dunlopcase understood that, in cases where it could be proven that the later trademark owned by the infringer had been applied for in bad faith, the infringer could then be found liable, provided that the plaintiff had brought an action for invalidation of the later trademark (nullity action) together with the infringement action. The reason is that, in these circumstances, the later trademark was a fiction used in bad faith by the infringer to cover an act which he was perfectly aware was illegal.

As a further step in the evolution of this doctrine, the Supreme Court issued a judgment on 4 April 2012 (case DKNY) whereby the requisite of bad faith was no longer necessary. In order to make an infringer liable for the use of a sign protected by a trademark which conflicts with an earlier trademark, it is enough that the claimant requests the annulment of the later trademark simultaneously to exercising the infringement action. This is because the Spanish Trademark Act (and, similarly, the EC Regulation on Community Trademarks) stipulates that, once a trademark has been invalidated, it is deemed not to have been effective from the outset. The same reasoning is repeated in other later rulings, such as the Supreme Court judgment of 20 July 2012 (case El Rano).

The final evolution of this doctrine comes, though, from two recent rulings issued by the European Court of Justice (ECJ). As a result of a referral by the Community Trademark Court no. 1 of Alicante in the Celaya Emparanza case, the ECJ issued an important judgment on 16 February 2012 which would weaken even further the effectiveness of cover registrations. In this case, there were no trademarks involved, but rather industrial designs, which are governed by a similar system (i.e., a twofold protection via harmonised national designs and EU-wide Community designs granted by the OHIM). The Alicante Court referred to the ECJ the question of whether a party who uses a later Community design registered in his name remains protected until such time as that design is declared invalid. And the ECJ ruled that the right to prevent use by third parties of a Community design extends to any third party, including the third party holder of a later registered Community design which does not produce on informed users a different overall impression. Further, the ECJ remarked that this finding is unconnected with the intention or conduct of the third party (i.e., regardless, thus, on whether the infringer had applied for his design in bad faith or not). And this ECJ ruling is, as we say, binding for all EU Member States.

Probably because this ECJ judgment was issued in the context of Community designs, the Spanish Supreme Court continued to apply its own doctrine to the trademark cases dealt with in the months following this ECJ doctrine (as we have seen in the DKNY and El Rano cases). After all, unlike trademarks, designs are not subject to a period of opposition by third parties prior to their granting, which makes it much easier to register cover designs as a shield against infringement.

However, a new important milestone came on 21 February 2013. On this date, the ECJ issued its ruling on the FCI case. This case resulted also from a referral by the Community Trademark Court no. 1 of Alicante, but this time it involved Community trademarks. In the FCI judgment, the ECJ confirmed its previous doctrine issued in theCelaya Emparanza case, and extended it to Community trademarks. The Court reasoned that: (i) the Community Trademark Regulation does not provide any exception to the ius prohibendi of the trademark owner in favour of the proprietor of a later trademark; (ii) the provisions of the Regulation must be construed in light of the priority principle (i.e., the ‘first-come, first-served’ principle which rules Trademark Law); and (iii) a different solution would entail a significant weakening of the rights of the trademark holder, which could compromise the preservation of the essential functions of a trademark.

As a result of the above, the ECJ ruled that the exclusive right of the proprietor of a Community trademark to prohibit third parties from using, in the course of trade, signs identical with or similar to its trademark (i.e., the so-called ius prohibendi of the trademark holder) extends to a third party proprietor of a later registered Community trademark, without the need for that later trademark to have been declared invalid beforehand.

One question remains unsettled, however: is this doctrine also applicable when one of the trademarks involved is a national trademark? The ECJ ruling in the FCI case does not address this question. This has prompted some authors to state that the FCI doctrine would not apply, for instance, to national cover trademarks in Spain, because, unlike the Community Trademark Regulation and the Trademark Directive, the Spanish Trademark Act affords the trademark owner not only a ‘negative’ right of exclusion (ius prohibendi) but also expressly recognises a ‘positive’ right to use the trademark (ius utendi), as has been confirmed by the Supreme Court in past rulings.

However, the truth is that the Community Design Regulation also contemplates explicitly the right to use (ius utendi); nevertheless, the ECJ came to rule in the Celaya Emparanza case that the ius prohibendi of the priority design must prevail over the ius utendi of the later design.

A recent judgment of the Alicante Trademark Court of Appeal issued on 18 April 2013 (case Converse) seems to clear the path confirming the applicability of the FCIdoctrine to Spanish cover trademarks. As this Court said in this judgment, the possibility that the holder of a national trademark is subject to the ius prohibendi of the priority owner, and the holder of a Community trademark is not, would create a severe distortion in the trademark system, since both regulations (Trademark Act and Community Trademark Regulation) come from the same European legal source (the Trademark Directive), and both titles (national and Community trademarks) produce the same effects.

Nevertheless, in a new judgment (case Canarias Radio) issued on 24 July 2013 (i.e., after the FCI and the Converse rulings), the Supreme Court still maintains its previous DKNY doctrine that cover trademarks cannot prevent infringement unless the party exercising the infringement action requests the cancellation of said cover trademarks.

The fact that this new ruling does not make any reference to theFCI and Converse rulings leads us to think that the Supreme Court was not aware of these recent judgments at the time it passed the judgment. Anyway, the truth is that this question will not be entirely settled at a European level until the ECJ confirms the applicability of the FCI doctrine to national trademarks.

Álvaro de Castro is an IP lawyer at Gómez-Acebo & Pombo Abogados, S. L. P. He can be contacted on +34 91 582 93 09 or by email: adecastro@gomezacebo-pombo.com.

Álvaro de Castro

Gómez-Acebo & Pombo Abogados, S. L. P.