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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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Transfer of Earlier Rights Trips Up Nike

Nike’s slogan, "Just do it," has a wider resonance now to those with brand interests in Europe. The ECJ recently ruled to uphold OHIM’s decision to bar the company from appealing an unfavourable opposition decision, following Nike’s failure to file timely and sufficient evidence of its acquisition of the earlier right on which the proceedings had been based.

The decision tells a cautionary tale to those acquiring rights on which pending OHIM proceedings are based (OHIM v Nike International Ltd., Case C-53/11 P). Failure to prove the transfer sufficiently and in good time and to apply for substitution as a party can deprive an assignee of standing to appeal, and ultimately of some of the value of its new acquisitions.

On Your Marks

The case began in 2006, when DL Sports & Marketing Ltda. opposed a CTM application for R10 by Aurelio Muñoz Molina, based on an identical nonregistered mark used in the course of trade.

DL’s eyes were not on the ball and it may perhaps have been distracted by negotiations to sell a portfolio of trademark rights to Nike. Whatever the reason, DL failed to file evidence of the existence and validity of the earlier non-registered mark pleaded. Nike entered the scene before the opposition was decided, and it informed OHIM that it had acquired various trademark and industrial property rights from DL and had been instructed to pursue the opposition.

However, it did not take any steps to address DL’s failure to substantiate the right relied on in the opposition. Consequently, the Opposition Division rejected the opposition on the basis that the earlier right had not been substantiated. Nike appealed, but the First Board of Appeal rejected the claim as inadmissible because Nike had not proved that it had acquired the earlier right on which the opposition had been based and had not, therefore, proved that it had locus standi to appeal.

On a further appeal Nike appeared to score a slam dunk, however, when the General Court found that the Board should have informed Nike that the evidence of the transfer filed during the opposition proceedings was insufficient because it did not refer to the unregistered mark pleaded, and should have given Nike an opportunity to remedy the deficiency before deciding on the admissibility of the appeal.

In so finding, the Court relied on a provision of OHIM’s own Opposition Guidelines, which provided that OHIM must suspend opposition proceedings for two months where a new owner of an earlier pleaded national right informs the Office that it has taken assignment of the right but fails to provide adequate evidence of the transfer, in order to allow the new proprietor to file more adequate evidence.

ECJ Goes on Defence

OHIM appealed the ruling, however, and Nike’s star was quickly on the wane. The ECJ found that the General Court had placed undue reliance on OHIM’s Opposition Guidelines. It noted that decisions on the registration of marks as CTMs were governed by the CTM Regulation, not by OHIM’s Guidelines, which have no legal force.

In the Court’s view, the Regulation and related Implementing Rules were clear that the onus was on Nike to assess the adequacy or otherwise of the evidence of transfer that it had filed. The Board of Appeal was under no obligation to inform Nike that there was any doubt as to Nike’s standing, nor to grant Nike a term within which to put those doubts to rest by filing submissions or further evidence. Instead, Nike was obliged to comply with the requirement, set out in Article 59 CTMR, to file its written grounds of appeal within four months of notification of the decision under appeal. Any deficiency in Nike’s proof of standing to appeal as a party adversely affected by the decision had to be put right within that 4-month term. There was no obligation on the Board to notify Nike that something might be awry, and no discretion to allow Nike further time to comply with the basic, essential requirement of proof of standing.

This ruling, the Court held, did not infringe Nike’s right to be heard, since Nike had had an opportunity to remedy the deficiency of its evidence relating to the transfer and to prove thereby its standing to appeal. The onus, however, had been on Nike to perceive the weakness of its position and to step forward with better evidence of the transfer before the 4-month period for filing grounds of appeal had expired. This Nike had failed to do.

Comment

Even if Nike had won this case, it is hard to see what it would have gained other than time.

Although Nike’s appeal against the opposition decision might have been admitted if the ECJ had ruled differently, it remains the case that neither DL nor Nike had substantiated the earlier pleaded non-registered right within the term set by OHIM. Although Nike had acquired DL’s trademarks (which presumably included the relevant non-registered right) while the term for substantiating the rights was still open, there is no evidence in the judgment that Nike took any steps itself to meet the deadline. OHIM’s strict approach to substantiation of rights within the allocated terms is well-known and there is nothing in the judgment to suggest that the Board of Appeal could or should have allowed substantiation at that late stage.

Others in the market for buying and selling brands, however, can learn from Nike’s experience. Where intellectual property rights are transferred, it is an essential part of the due diligence process to establish what proceedings are underway in relation to those rights, what deadlines exist, whether or not those deadlines have been met, and who is responsible for dealing with them. Strict attention to these matters can avoid necessary actions falling through the cracks of a transfer deal and depriving an assignee of some of the value of the transfer.

In addition, those acquiring registered trademark rights should ensure that rights in any relevant unregistered marks, too, are transferred, including any related business goodwill or other rights acquired through use and the right to take action for infringement of such rights. Failure to do so can deprive an assignee of a potentially valuable remedy against third party infringers or applicants, as in this case, for identical marks. A clear strategy and action plan are essential protection during brand transfers, and although too late for Nike, may help others to avoid being left at the starting post.