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UNITARY PATENT

In 2012 Member States and the European Parliament agreed on the "patent package" - a legislative initiative consisting of two...

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Study on CTM System Rolls Toward a Conclusion

Major changes could be in store after the Max Planck Institute concludes its year-long study of the functioning of the CTM system in November. The study, organised by the European Commission, is intended to identify ways in which the CTM system can be improved, streamlined and developed for the benefit of its users.

It is likely that many of the MPI's eventual recommendations will find their way into an amended CTM Regulation and Implementing Regulation, and its deliberations are therefore of keen interest to brand owners and advisors internationally. 

The Study

The MPI has carried out a broad consultation of interest groups, including brand owner groups, professional associations and national IPOs throughout the EU. OHIM has also provided its own views on what works and what does not within the current CTM legislative and procedural framework.

The issues examined include some that have already aroused comment and controversy over the years since OHIM opened its doors. Set out below are some of the hotter topics raised in the consultation, together with a few of our own comments: 

Is the CTM Register becoming "cluttered" and, if so, what can be done about it?

The CTM system has enjoyed phenomenal success, with over 500,000 marks registered. Some consultees, however, have expressed concern about the concomitant rising costs of searching and clearing marks for use in EU countries. The typical breadth of CTMs contributes to the difficulty; the absence of requirements for intent to use or proof of use to secure registration, and OHIM's active encouragement of the use of broad class headings, have contributed to the prevalence of wide claims and unease in some quarters as the number of CTMs rises and it becomes increasingly difficult to clear new marks for use in national markets. 

Some consultees have suggested scrapping OHIM's attractive "three classes for the price of one" approach and introducing class fees for each class above the first. There is also widespread support for a re-think of whether the use of general class headings should be encouraged. Both could reduce the temptation for registrants to stray too far from the goods and services of actual commercial interest when drafting specifications. Certainly OHIM's "class heading covers all goods" approach badly needs review, and it may well get it even before the Commission has an opportunity to turn the MPI consultation results into new law as a result of the UK-IPO's pending IP TRANSLATOR reference (see article entitled "ECJ to Rule on OHIM Class Heading Practice" in this edition of Make Your Mark ). 

Should use in just one EU member state be sufficient to sustain a CTM in the face of a non-use challenge?

The recent Benelux and Hungarian decisions challenging this approach have led to demands for clarity, but the issue has yet to reach the ECJ and the Commission may well get there first. 

National IPOs have argued that use in a single EU member state should not sustain a CTM, and that such limited use warrants national, rather than pan-EU, protection. Whilst national offices can hardly be regarded as fully objective on this point, they may have a point in light of the size of the expanded EU and the minor economic significance of some of its members. Moreover, the wording of the current CTMR appears to envisage conversion in some cases where genuine use has been proved in a member state, which would appear to suggest that use in one country may not necessarily be enough. 

Ironically, for now, that same provision is likely to continue to encourage many brand owners with limited geographical interests to use the CTM system. In essence, the perceived benefit outweighs the unquantifiable risk that someone, at some point, might mount a non-use challenge and force conversion in the one place where use has been made. The fact that conversion is available in that one country is enough comfort to convince many brand owners to try their luck with a CTM rather than turning to national protection first. National offices may not, therefore, gain as much as hoped from clarification of the law in the manner advocated.

Should the definition of a registrable trademark be expanded?

There is broad support for modification of the CTMR to permit the filing of non-word marks in electronic form, provided that any expansion of the definition of registrable mark is not exhaustive, since it is likely to change over time as technology develops. 

Should OHIM continue to examine priority applications?

OHIM has expressed reservations about the need to devote resources to examining priority claims, especially since it is not able to examine the most fundamental condition, namely that the priority basis was a first filing in a Convention country. 

Should the Commission agree, OHIM would not be the only trade mark office no longer to examine priority claims, and, as in other such offices, the validity of such claims would have to be considered and disputed by third parties, if at all.

Should OHIM retain the optional national searches?

There is widespread recognition, including within OHIM, that only around 3% of applicants are now using the optional national searches, and that with such low take-up the searches probably have no continuing place within the system. 

The poor quality of the OHIM-procured searches means that those who wish to establish availability in specific EU countries continue, as they always have, to instruct their own searches independently in the markets of actual commercial interest. Amendment of the CTMR to drop the national searches would streamline the system to no disadvantage of CTM right holders and applicants.

Should OHIM continue to notify applicants and registrants of later, potentially conflicting CTMs?

In its response to the study, OHIM has suggested that it drop the CTM search that it currently conducts for all new applications, and cease notifying existing CTM holders and applicants of later conflicting CTMs. 

This makes sense, since the CTM searches have never been fully comprehensive and the "watch notices" generated by OHIM in many cases simply duplicate what brand owners are receiving from their own commercial watch providers. Moreover, they cover only CTMs and therefore paint only a partial picture; brand owners must be concerned about relevant national applications as well. 

Even if OHIM retains this service, applicants will still need to subscribe to commercial watches if they are serious about protecting their marks against encroachment in the EU. Dropping the CTM search and notifications probably would not, therefore, substantially prejudice users of the CTM system.

Should the opposition term for CTMs be reduced from 3 months to 2?

OHIM would like to reduce the opposition term from 3 months to 2, on the basis that electronic communication now enables earlier right holders to learn more quickly about later conflicting CTMs and to decide on potential oppositions. This reduction would, it argues, speed up the registration process for the 85% or so of CTM applications that are unopposed. 

Paradoxically, though, such a plan, if adopted, is likely to raise the opposition rate and thus slow the registration process for applicants whose marks would not have been opposed had would-be opponents had more time to consider or to negotiate a deal with an applicant before the opposition term expired. 

Other consultees, including the UK-IPO, are also sceptical. Although the UK-IPO itself recently reduced the opposition term for UK applications to 2 months, that term can be extended to 3 months, and common experience suggests that this allows more oppositions to be settled before the need for filing. 

Should OHIM's system on costs in contested proceedings be revised?

In its consultation response OHIM accepted that the level of costs awards provided for in the CTMR are unrealistic, and are more of an irritation for parties than anything else. The costs of collection vastly outweigh the value of most awards, and OHIM submitted that the CTMR should be amended either to make costs awards more meaningful, or to abolish them altogether.

The current system is indeed crying out for change. Although differences of opinion on the appropriate level of costs in CTM proceedings are inevitable, their current, absurdly low level makes them an irrelevance. They pale into insignificance when compared with the real costs of proceedings, and are virtually never worth enforcing when a losing party fails to pay. The scale of costs needs complete re-working to make costs awards reflect a real and fair contribution to a victor's expenditure, or else costs recovery in OHIM proceedings should be dropped entirely.

Should CTM files be open to public inspection before publication?

In its consultation response, OHIM expressed doubt about any continuing justification for keeping CTM files closed to public inspection until after publication.

This depends, however, on who you are. An applicant testing the waters with a borderline registrable mark that is ultimately refused before publication may well prefer to keep the examination report and his reply under wraps. An interested competitor mining for information on OHIM's approach to another company's marks would, on the other hand, welcome greater pre-publication openness. Either would take the alternate view when, inevitably, the shoe is on the other foot. 

Probably pre-publication confidentiality is of greater overall benefit in maintaining the attractiveness of the system for businesses, though, and in our view should be retained. 

Should CTM specifications be limited to pre-approved lists of terms?

Controversy surrounds OHIM's proposal to streamline examination by requiring applicants to draft their specifications by using only terms recognised by OHIM in a standard, pre-approved list, which would presumably be updated on a regular basis.

Others have expressed alarm over the prospect of such a system, however, which could never fully keep pace with developing technology, would complicate the process of preparing an application, and would prevent applicants from expressing the scope of the sought-for protection in their own words, which is arguably the best approach to preventing unnecessary "cluttering" of the Register. We agree.

Should seniority claims continue to be examined?

OHIM has questioned whether there is any continuing need to examine seniority applications and favours dropping this requirement in the interest of administrative efficiency. 

Some, however, have commented that CTM users may be reluctant to allow national registrations to lapse in reliance on CTM seniority claims that have not been examined and upheld as valid. In reality, though, seniority examination is already fairly limited and is confined to checking whether the claims are for the same mark, the same goods, and in the name of the same proprietor. This is not enough on its own to ensure that it is safe to allow national rights to lapse, since seniority claims can become invalid later where the identity of owner is split and not re-unified before the national rights lapse. 

Consequently, regardless whether seniority examination is retained, CTM users will need to continue to satisfy themselves, with the benefit of professional advice, that it is safe to allow national registrations to lapse.

Should bad faith and absolute grounds of objection be grounds of opposition?

Many have expressed the view that it should be possible to file oppositions based on absolute grounds, including bad faith. 
Such a move would almost certainly raise the opposition rate. However, it could provide a useful counterbalance to the occasional inevitable lapse in examination, and could prevent applicants who filed in bad faith from acquiring a registration capable of being enforced against others. It is not at all clear that OHIM itself seriously entertains this proposal, but the Commission should.

Should OHIM be continued to be required to provide certified copies?

OHIM wonders whether there is any continuing need for it to have to provide certified copies on request, bearing in mind that print-outs of registration certificates can be taken directly from its website. 

However, some registries internationally require certified copies in support of priority claims, and the Office is therefore bound to, and should, continue to provide them to ensure that those relying on a CTM for priority are not scuppered for failure to comply with local formalities. 

Should proof of use be sought earlier in opposition proceedings? Should a term for requiring it be introduced in invalidity and revocation proceedings?

Another proposal put forward by OHIM is that applicants should be required to submit requests for proof of use earlier in opposition proceedings, namely by the end of the cooling-off period. Currently such requests do not have to be made until the end of the term for filing an applicant's facts, evidence and arguments. 

The opposition process could indeed be quickened if this proposal were adopted, since opponents could then submit proof of use at the same time as their own facts, evidence and arguments. This seems a sensible approach, as is OHIM's proposal that a similar requirement for early proof of use requests be introduced in cancellation proceedings, too.

Should provision for keeping some parts of a file or evidence confidential be maintained?

OHIM has suggested jettisoning the capability of parties to keep some parts of a file or evidence confidential, failing which the materials will not be taken into account in decisions.

This, however, seems harsh, since parties sometimes need to file commercially sensitive documents and information that may be disclosed to other parties in the proceedings under strict agreed terms of confidentiality, but which could damage them commercially if it was made broadly available to anyone inspecting the Register. Consequently, despite the additional administrative resources required to handle requests for confidentiality, this is an option that should remain available in appropriate circumstances.

Should clear rules be introduced on the territory in which acquired distinctiveness must be proved? 

This is a highly controversial area. Following Bounty, it is generally accepted that non-distinctive shape marks must be proved to have acquired distinctiveness across all EU member states, and the difficulties this causes are immense. 

English-language word marks, too, sometimes raise similar difficulties, since some English is spoken across the entire EU. It is difficult to imagine legislation that could decide this point fully, however, and this is arguably an issue that is better left to the European courts.

The MPI study is expected to be concluded in November, following which the wait for its conclusions and recommendations will begin. The fruits of this unprecedentedly broad consultation on the CTM system will be eagerly anticipated.