Bad faith in trade mark applications

Legal Insight

August 2024

Thanasis Ioannou, LL.M.

Summary: Registering a trademark, whether at the national or EU level, is a legitimate and commercially beneficial practice for businesses. It protects a company’s investments in continuously improving the quality of its products or services and creates a clear association in consumers’ minds between the products and services offered under the specific trademark and the business responsible for their production and offering. However, in certain cases, this initially legitimate business practice can, under specific surrounding circumstances, devolve into an act that contravenes the honesty and good morals of business transactions. When bad faith is present, both the registration and the maintenance of such a trademark in the register are intolerable, as they do not serve the purposes of trademark law but rather undermine the interests of third-party competitors or even the competitive process itself in a specific sector. The goal of this article is to delineate the concept of bad faith trademark filing, to outline the main indicators of bad faith as highlighted by case law, and to present the legal consequences that accompany the finding of bad faith by either the relevant intellectual property authority or the competent civil court at the time of the trademark application. At the end, there will be a mention of the legal remedies available when one’s interests are affected by the bad faith filing of a national or EU trademark.

1. Introduction

Bad faith is an autonomous concept of EU law that must be interpreted uniformly across the European Union. In light of the complete absence of a legislative definition of bad faith either in the national trademark law (Law 4679/2020) or in the EU Trademark Regulation (2017/1001), the interpretative approach to the concept by both EU and national courts becomes invaluable for both lawyers handling trademark cases and entrepreneurs monitoring the market and ensuring the protection of their business interests against unfair practices by their competitors. Advocate General Sharpston, in her opinion in the Lindt Goldhase case, attempted to define the bad faith filing of a trademark as a practice that deviates from the commonly accepted principles of honest and ethical behavior within the context of business transactions. This deviation from the standard of honest transactional behavior is expressed as an abuse of trademark law and the institution of trademark filing, as while the bad-faith applicant appears to be engaging in a seemingly legitimate and lawful trademark registration, the purposes pursued through it do not align with the fundamental principles governing trademark law.

2. Crucial Time for Establishing Bad Faith

The crucial time when bad faith must be present in order for the relevant absolute ground of invalidity to apply and lead either to the rejection of the trademark application or to the annulment and cancellation of the registered trademark is the time of filing the trademark application. However, evidence that relates either to the time preceding the filing or the time following it may also be relevant to the judgment of whether the trademark was filed in bad faith. Specifically, the prior registration of an identical trademark in an EU Member State, at the EUIPO, or in a third country generally supports a finding of bad faith. Conversely, the use of the trademark by the applicant after its filing will generally suffice to exclude the applicant’s bad faith at the time of filing.

3. Indicators and Counterindicators of Bad Faith

The CJEU, in the “STYLO&KOTON” case, ruled that the absolute ground of invalidity due to bad faith filing is established when “converging indications show that the holder of an EU trademark filed the trademark application not with the intention to participate in fair competition, but to undermine the interests of third-party competitors in a way that does not comply with honesty in transactions, or to acquire an exclusive right for purposes that do not fall within the functions of the trademark and, in particular, its fundamental function of origin.” Therefore, determining the bad faith of the trademark holder at the time of filing requires a comprehensive assessment of all relevant factors of the specific case. In this context, EU case law has developed a non-exhaustive list of indicators and counterindicators of bad faith.

The main indicators of bad faith are:

• The identity or similarity of the signs: The similarity need not be so great as to create confusion between the earlier and later trademarks, and the identity or similarity of the respective signs may not alone suffice to establish bad faith.
• Knowledge of prior use of an identical or similar sign: This knowledge usually exists when the later and earlier trademark holders were engaged in some form of commercial collaboration (e.g., distribution, agency, franchising agreement), when the earlier trademark enjoys a reputation in the market, or when the earlier trademark has been used for a long time in the relevant market. In the latter two cases, it is difficult to argue that the filing of a trademark application for a sign that is identical or very similar to an earlier trademark, which has also been used for a long period in the relevant sector, is merely coincidental.
• Fraudulent intent on the part of the trademark holder: This is a subjective factor related to the internal state of mind of the applicant, and thus, any fraudulent intent possibly underlying the filing of the trademark application can only be proven based on indicators that suggest such intent. Such indicators are typically found in cases where:
  • a) Trademark applications serve no other purpose than to force the later applicant to pay the trademark holder a significant sum of money either for the transfer of the trademark or for the abandonment of claims arising from the trademark;
  • b) Trademark applications aim to appropriate the reputation of an earlier trademark, even if its protection has expired;
  • c) The applicant has no intention whatsoever to use the trademark for the goods or services listed in the trademark application;
  • d) The applicant was previously involved in some form of commercial collaboration with the person requesting the cancellation of the trademark, which might involve post-contractual non-compete obligations;
  • e) The applicant, by re-filing their trademark, seeks to artificially extend the five-year grace period for commencing the actual use of the trademark, to avoid its cancellation due to non-use. However, the filing of an improved version of an earlier trademark by the applicant is a legitimate business strategy.
  • f) Someone files multiple national trademarks to artificially and arbitrarily extend the 6-month priority period for filing an EU trademark application, whose priority will relate back to the time of the first national trademark application. To clarify this strategy, we provide the following simple example: Suppose an entrepreneur successively files, with a time interval of two or three months, the trademark A in Germany, France, Spain, and Italy. This way, they secure the ability to later file the sign A as an EU trademark before the EUIPO, claiming the priority of the last national trademark application in Italy, even if by that time the 6-month priority period from the first national trademark application in Germany has already expired. Consequently, the priority of the EU trademark to be secured by this applicant will relate back to the time of filing the trademark application in Italy, even though the 6-month priority period from the filing in Germany has already expired, flagrantly circumventing the rule on claiming priority for an EU trademark based on an earlier national trademark application.
• The circumstances under which the contested trademark was created, the commercial logic underlying its filing, and the sequence of events leading to that filing. Under this perspective, the General Court ruled in the BIGAB case that the realization of turnover for products bearing the BIGAB trademark in an increasing number of Member States during the period preceding the EU trademark application constituted a legitimate commercial motive for securing that trademark also at the EU level.
• The nature of the trademark: If the trademark consists of the shape of the product being distinguished, which is dictated by technical specifications, the registration may impede the marketing of similar products by competitors. For instance, as the CJEU ruled in the Lindt Goldhase decision, because the introduction of automatic wrapping methods led to the standardization of the form and appearance of packaging in which chocolate bunnies were marketed, the filing by an Austrian company of a three-dimensional trademark consisting of a gold-colored chocolate bunny, which closely resembled the bunnies marketed at the time by a multitude of its competitors, was made in bad faith to the extent that it could prevent its competitors from marketing the chocolate bunnies they produced.
• The degree of inherent or acquired distinctiveness of the trademark of the applicant for cancellation, as well as the extent of its reputation even if it is residual. Specifically, in the Simca case, the EU General Court, after recognizing that the historic trademark Simca had enjoyed widespread reputation in the past and retained a residual reputation in the automotive sector at the time of filing the identical contested trademark Simca, proceeded to annul the latter due to the bad faith of the applicant, as it was found that their intent was to exploit for their benefit the reputation of the historic trademark in the automotive market.
• Cancellation due to bad faith filing of the national trademark on which the priority of a subsequent EU trademark is based.

On the contrary, the main counterindicators of bad faith are:

• The extension of the protection of a national trademark by filing the same sign also as an EU trademark since it constitutes a legitimate business practice.
• The filing of a trademark application for a multitude of goods and services, as it is a lawful pursuit for businesses to secure trademarks not only for the goods and services they provide at the time of filing the trademark but also for goods and services in which they intend to expand their activities in the future.
• The choice of the holder of multiple national trademarks to file only one of them also as an EU trademark.
• The reputation of a trademark at the national level generally justifies the holder's interest in securing it also at the EU level.
• The filing of an application for the cancellation of an earlier trademark on which the opposition against the applicant's trademark application is based, while the opposition is still pending, does not demonstrate bad faith on the part of the latter at the time of filing the opposed trademark application
  
  

4. Procedural Issues

Under national trademark law, bad faith filing constitutes an absolute ground of invalidity that either prevents the registration of a sign in the trademark register or leads to the annulment and cancellation of a registered trademark from that register. Therefore, bad faith filing can support an absolute ground of invalidity in both an opposition against a trademark application, filed within three months from the publication of the decision accepting the trademark application on the website of the Ministry of Development and Investments, and an application for the cancellation of a registered trademark, which is indeed without a deadline and cannot be countered by the defense of acquiescence, which we discussed in a previous article. However, the scope of bad faith filing as an absolute ground of invalidity is not limited to proceedings before the Industrial Property Organization, as a defendant in a trademark infringement lawsuit or the respondent to a request for interim measures seeking the temporary prohibition of the use of the trademark in question can, in defense, file a counterclaim or counterapplication for the invalidity of the trademark respectively, arguing that the plaintiff's or applicant's trademark is invalid because it was filed in bad faith. If the counterclaim for invalidity is upheld, the lawsuit will be dismissed, while after the finality of the relevant decision, the trademark will be subject to cancellation from the trademark register.

At this point, it is worth noting that the burden of invoking and proving the facts from which it can be reliably inferred that the applicant acted in bad faith at the time of filing the trademark lies with the party filing the opposition, the applicant for cancellation, and the counterclaimant filing a counterclaim for invalidity in a trademark infringement lawsuit, respectively. This means that the applicant's good faith is initially presumed. However, when the objective circumstances of the case are sufficient to overturn the presumption of good faith, the applicant or holder of the contested registered trademark must argue and prove that their trademark filing served a legitimate business logic to avoid the rejection of their trademark application or the cancellation of their registered trademark.

Regarding the extent of the rejection of the trademark application or the cancellation of the registered trademark in the event that the competent intellectual property authority or the competent civil courts find that the holder filed the contested trademark in bad faith, this may cover either all the goods and services for which the applicant seeks or has achieved (in the case of a registered trademark) the registration of the trademark or only some of them. Thus, if, for example, bad faith lies in the attempt to create the impression in the consumer public that the applicant is in any way associated with the holder of the earlier identical trademark, the rejection of the application or the cancellation of the trademark will generally be total. However, if bad faith manifests itself as a lack of intent to use the trademark for only some of the goods or services for which registration is sought or has been achieved, the rejection of the application or the cancellation of the trademark will be partial and will be limited to those goods and services for which there is no intent of actual use of the trademark.

5. In Lieu of a Conclusion

The preceding analysis demonstrates that the establishment of bad faith filing as an absolute ground of invalidity is vital for the elimination of distortions and phenomena of circumvention of trademark law to the benefit of the applicant’s competitors and the overall proper functioning of competition in the market. Moreover, bad faith filing indirectly affects other institutions of trademark law, such as the weakening due to acquiescence and the cancellation due to non-use of the trademark. Specifically, the provision of Article 12 of Law 4679, which indirectly establishes a five-year extinguishment period for filing remedies against a later trademark that infringes an earlier trademark or distinctive sign of the substantive system, does not apply when the filing of the later trademark was done in bad faith. Furthermore, given the legal provision of a five-year grace period for the commencement of actual use of the trademark after its registration, invoking bad faith filing is the only means of canceling and removing the trademark before the expiration of this five-year period when the applicant filed the trademark solely to exclude their competitors from using identical or similar trademarks for identical or related products, without any intention of actual use of the trademark.