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29 April 2015

Brands Update. April 2015

TRADEMARKS: Well-known mark by default

On 10 March 2015 a notification on the recognition of two trademarks as well-known for the goods in class 33 (sparkling wine, champagne, carbonated wine) ("Trademarks") was published in the Promislova Vlasnist’ official bulletin (SK: official Gazette of the Ukrainian Trademark and Patent Office). One of the major Ukrainian wine producers ("Producer") owns the aforementioned well-known Trademarks. The Trademarks include a word, which is protected in the EU as a geographical indication for sparkling wines produced in the Southeast Piedmont (Italy) ("Brand").

It is an unprecedented situation when the decision to recognise a trademark well-known is based on a default judgment. In our opinion, such practice may expose owners of well-known brands to significant legal risks. As a consequence, both management of legal risks associated with such practice and the development of a legal strategy for counteraction to such practice come to the fore.

Background

An unknown individual ("Claimant") filed a lawsuit with the court against the Producer seeking invalidation of one of the Trademarks and prohibition of the use of the Brand for the goods and labelling that is also protected as one of the Trademarks. The Claimant argued that he had bought two bottles of sparkling wine in the store mainly because of the Brand marking in the capital letters. Considering this, the Claimant had assumed that the wine was produced in one of the most ecologically clean regions of Italy. Later on, the Claimant found out that the wine purchased by him was produced in Odesa region (Ukraine), and not in Italy. In the Claimant's opinion, the Producer misled the consumers by placing improper information about the origin of the wine. As a result, according to the Claimant, the wine is a counterfeit and one of the Trademarks is subject to invalidation.

In its turn, the Producer filed a counter-claim asserting that the usage of the Trademarks is lawful and there are reasons to recognize them as well-known trademarks. In support of its arguments the Producer pointed out that it enjoys intellectual property rights in the Trademarks. Furthermore, it pointed out that the level of the Trademarks recognition is very high: more than 70 per cent (72.3 per cent) of respondents from major Ukrainian cities are familiar with them. Unfortunately, the court decision does not contain any information on the details of the consumer survey (by whom it was conducted, what questions were given to the respondents, in which form the results of the survey were presented to the court).

It should be noted that the default judgement was rendered by the court in the absence of both the Claimant and the respondents (the Producer and the State Intellectual Property Service of Ukraine). In addition, the Claimant filed a motion requesting the court to hear the case in his absence. The respondents were absent as well, though they had been duly notified regarding the date and the time of the court session. The court used the fact of such absence as a ground for hearing the case in absentia.

Having considered the case, the court has dismissed the initial claim of the Claimant. The court stated that the Claimant had not properly substantiated and proved the circumstances that would evidence the violation of his/her rights. In addition, the court held that actually, by filing such claim, the Claimant is seeking protection of interests of the respective consortium rather than his own right. As a result, the court is of the opinion that the Claimant is a not a subject competent to file such claim to the court.

In the same time, the counter-claim of the Respondent was sustained. On 31 March 2015, the court issued a default judgement to recognize the Trademarks as well-known. According to the Unified State Registry of Court Decisions of Ukraine it took effect on 11 April 2014.

Appeal and revision of the default judgement

In February 2015, the State Intellectual Property Service of Ukraine ("State Service"), as one of the respondents in the case, filed an application for revision of the default judgement. Specifically, the State Service claimed that it had not received the Producer's counter-claim regarding recognition of the Trademarks as well known.

However, the court denied the application, as it did not find arguments specified by the State Service in it as sufficient.

In addition, in March 2015 one of Ukrainian wine producers ("Company") filed an appeal against the default judgement. The Company argued that the decision in question violates its rights. In particular, the Company referred to the fact that in July 2014 it had filed an application for registration of the trademark containing the Brand, being the secondary word element. Consequently, the default judgment may be a ground for denial in such registration.

However, the court of appeal refused to the open the appeal proceedings on that basis that the Company's claims are unsubstantiated and not sufficient. In particular, it stated that the Company's reference to a potential rejection of its application for registration of the trademark is not a valid argument, as this issue was not considered during the hearing of the case in the court of the first instance and can be resolved in the future solely by the Ukrainian Patent and Trademark Office.

Likely impact

In our opinion, the practice of recognition of trademarks as well-known based on the default judgement has some legal risks. Specifically, this issue is relevant for collective trademarks and geographical indications that are connected with locations outside of Ukraine.

Firstly, there is a risk of "artificial" disputes, in which the claimant is not interested in the satisfaction of the claim and the claim is filed solely as a ground for filing of a counter-claim for recognition of a trademark as well-known. In such case court decision to recognise the trademark as well-known may be rendered on the basis of the minimum evidences supporting the arguments that the trademark is well-known and with formal participation of the parties, thus eliminating adversary nature of the litigation procedure. On the national level, that is for Ukrainian undertakings, it can result in situation where one undertaking takes an advantage of recognizing a certain foreign brand as well-known.

Further, this situation can complicate the protection of IP rights for foreign rights holders. Customarily, they are not parties to such legal proceedings and can learn about them by chance and much later. However, once bona fide brand owner gets information about such default judgment, he has good chances to appeal such judgement on condition of taking proper procedural actions in a timely manner.

At this moment, the only conclusion for foreign rights holders is that they should diligently monitor the use of their IP rights by non-affiliated third parties and be ready to protect their brands through both administrative and court proceedings by initiating them as soon as practicable.

COUNTERFEIT: A high-minded alternative to destruction

The most recent developments of the case law on combating counterfeit on the customs border of Ukraine demonstrate that counterfeit goods detained by the customs may be, for example, transferred to charity institutions under an agreement between the rights holders and the owners of goods, instead of being destructed.

Specifically, Odesa customs have found 5,500 colouring albums and 1,200 sets of colour gel pens during customs clearance of the goods which were imported from China by a Ukrainian company ("Owner of goods"). These goods were labelled with a combined trademark which was recorded with the Customs Registry of IP Rights.

According to the provisions of the Customs Code of Ukraine, the relevant customs institutions of the State Fiscal Service of Ukraine are authorized to suspend customs clearance of goods if there are suspicious of IP rights infringement. Also, the rights holders and the owners of goods may agree on restoration of the infringed IP rights by either destructing counterfeit goods in accordance with a simplified procedure or removing a mark from the goods.

In this particular case, the rights holder and the Owner of goods found another solution for restoration of  the infringed IP rights – by entering into the Agreement on amicable settlement of the claim between the rights holder and the importer. This agreement stipulated the granting of permission for customs clearance of the goods containing elements of IP infringement for the purpose of the further transfer of the goods for charity, instead of further distribution.

The rights holder notified the respective customs authorities regarding aforementioned agreement and granted his consent for customs clearance of such goods. The counterfeit goods were cleared and delivered to the "Odesa-Mama" Centre for Assistance to Migrants and Participants of the Antiterrorist Operation (NGO). The given situation is an unparalleled example of combating counterfeit in Ukraine.

It is worth noting that Ukrainian laws do not contain special provisions regulating amicable settlement of such claims between rights holder and importer. Consequently, now such agreements can be concluded on the basis of the freedom of agreement principle and subject to compliance with general requirements of the laws with respect to conclusion of agreements.

COUNTERFEIT: A day when the rights holder may destroy counterfeit

One of the commercial courts by its recent decision ruled not only to seize of the counterfeit, but also to transfer the seized items to the rights holder for further disposal. To some extent, this approach may become an alternative to destruction of the counterfeit by state authorities when the rights holder has only a limited rights to monitor and verify the fact of destruction of the counterfeit.

Under the facts in the case, the customs applicant presented a shipment of toys for the customs clearance. The customs decided to suspend customs clearance of the goods due to alleged infringement of IP rights, namely, the characters of the famous cartoon, which are registered with the Customs Register of Intellectual Property Rights. The rights holder was notified about such suspension of goods and acknowledged that they were imported with the infringement of its IP rights.

The rights holder further filed a motion for an injunctive relief to the court and later on a claim for protection of exclusive property rights by recovering damages for IP rights infringement. The Claimant also submitted a motion for the seizure of the counterfeited goods and transfer thereof to the rights holder for further delivery to an orphanage.

The respondent (importer) denied the claim. Particularly, the respondent asserted that the seller (non-resident) is still the owner of the shipment due to the fact the goods are still not cleared by the customs. In addition, the respondent provided the court with a letter from the seller who confirmed a mistake made by the manager responsible for loading of the container. In this regard, the respondent asserted that the goods should be returned to the seller as they were delivered by mistake.

When granting the claim, the court relied on s. 52 of the Law of Ukraine "On Copyright and Related Rights" which stipulates that the seized counterfeit copies of works, video recordings, broadcasts may be transferred to the rights holder at his request. If the rights holder does not require such transfer, the counterfeit copies must be destroyed in accordance with the procedure prescribed by the state authorities.

Since the claimant (rights holder) filed a motion for the seizure and transfer of the counterfeited goods, the commercial court arrived to the decision to grant this motion.

Furthermore, the court disagreed with the respondent. The court pointed out that the ownership to the goods is confirmed by the evidences available in the case files. Furthermore, the court emphasized that under provisions of the Customs Code of Ukraine the declarant shall have the right to carry out physical inspection of the goods in order to verify their compliance with the description (information) specified in the shipping documents, as well as take samples under the permission of the customs authorities.

Currently, such mechanism of counterfeit transfer to the rights holder is available only for holders of copyright and related rights. Ukrainian laws do not provide such mechanism for other IP objects. Despite this, the device trademarks (e.g., logos, graphics, original phrases and words) and some designs (e.g., labels) may enjoy protection under the provisions of the copyright law.

Finally, we believe that the court did not pay sufficient attention to the issue of what law is applicable to the relationship between the seller and the respondent. Consequently, the rights holders will need to pay a particular attention to the ownership of goods while preparing their position for the court in similar cases.

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