Brands & Trends. February 2017

UNFAIR COMPETITION: FAILED ATTEMPT TO WASH OUT THE COMPETITORS

The main advantages of the unfair competition law are flexibility and non-exhaustive list of practices that may actually be qualified as unfair competition. Trademark law is more conservative in this respect. The dispute addressed below may be a good illustration of defence by producers of competing products against IP infringement claims by employing the mechanisms of protection against unfair competition. While the decision in the dispute is not yet final, a round won by the competitors is a valuable contribution to the development of alternative instruments and mechanisms of rightprotection.

TM owner wins the first round. Competitors win the second one

The first round was in favour of the trademark owner. The court has found that (i) the trademarked shape of a washup (3D mark, as illustrated above) ("Trademark") is not a form required to achieve a certain technical result; and (ii) though the form points to natural (real) state of a product, it has acquired sufficient distinctiveness due to its long use before filing a trademark application.

In 2015, a group of Ukrainian legal entities ("Claimants") active in producing and distribution of washups and Ukrainian large retailers received cease-and-desist letters from the holder of exclusive license in the Trademark ("Defendant"). The Defendant was seeking ceasing the production and sale of the washups because such production and sale allegedly infringed the exclusive intellectual property rights in the licensed 3D mark. In his C&D letters to the retailers, the Defendant also warned about criminal liability that allegedly may arise if retailers continue to purchase and sale washups produced by the Claimants.

Such pressure on competitors by the Defendant triggered filing of six unfair competition claims by the Claimants to the Kyiv Regional Office of the Antimonopoly Committee of Ukraine ("AMC").

The results of the unfair competition round were not favourable for the trademark owner and holder of the exclusive license. The AMC qualified the competitors' active enforcement of IP rights in the said 3D mark as unfair competition.

What is wrong with IP rights enforcement?

Having reviewed the claims filed by the Claimants, the AMC established the fact of unfair competition in the Defendant's actions and recommended the Defendant to cease the unfair competition practices. However, the Defendant refused to follow written recommendations of the AMC claiming that they were unjustified and unreasonable, mainly because it enjoys IP rights in the Trademark. On this basis, the AMC launched a full-scale unfair competition investigation against the Defendant.

Late in 2016, the AMC found the Defendant guilty of violating Article 1 of the Law of Ukraine "On Protection against Unfair Competition" that stipulates a general ban on any actions in the competition when they contradict trade and other fair business practices.

In its final decision the AMC pointed out that production of washups does not fall within any type of actions qualifying as exploitation of a trademark within the meaning of the Ukrainian Trademark Law. The AMC referred to the decision of the Higher Commercial Court of Ukraine in which it is stated that "… The form of goods shall be protected as a design. More specifically, a trademark shall not be simultaneously a shape of the product and an image of the shape of the product for which it was registered". The AMC's position was supported by an expert evidence. The AMC also stated that the same rights holder owns a design patent for the shape of the washup, but it was not licensed to the Defendant (SK: the trademarked shape differs from the shape for which the design patent was obtained).

Since there is no infringement of intellectual property rights, the AMC established that actions of the Defendant were actually aimed at limitation of the competition on the respective market and should be therefore qualified as unfair competition practices.

Having considered the case, the AMC imposed a fine on the Defendant for the above unfair competition practices.

For more information, please contact Oleksandr Padalka or Oleg Klymchuk.