Trade marks in bad faith ruling upheld: Chinese tyre distributor ‘threatened’ out of Bulgarian market

Trade marks in bad faith ruling upheld: Chinese tyre distributor ‘threatened’ out of Bulgarian marke

In a twist on the usual narrative, a Bulgarian company found to have been ‘taking advantage’ of a Chinese company operating in the EU, has had their registered mark struck out, on the grounds of bad faith.
 
In Case T 592/20, the General Court dismissed the applicant’s action and upheld the decision of the Fourth Board of Appeal. The Court noted that the contested mark and sign were identical, despite the figurative nature of the sign, and the goods covered by those signs were at least highly similar.
 
The Court went on to find that, in light of the evidence provided, and the chronology of events, it was practically impossible, first, that the applicant had no knowledge that the intervener was using the Chinese mark Agate through its distributor Omnifak in Bulgaria and, second, that it intended to ‘honestly use the mark in the course of trade’. Rather, the intention of the Bulgarian firm was found to be ‘hindering others’.

 

Background:

On 7 March 2017, the applicant, Univers Agro Ltd, filed an application for registration of an EU trade mark with the EUIPO, for the word mark AGATE in respect of Class 12 automobile tyres.
 
On 28 September 2017, the intervener, Shandong Hengfeng Rubber & Plastic Co. Ltd, the proprietor of a Chinese figurative mark including the word element ‘Agate’ (‘the Chinese mark Agate’), filed with the EUIPO’s Cancellation Division an application for a declaration of invalidity of that mark, on the basis that the Chinese mark Agate was being used in the course of trade in Bulgaria for tyres in Class 12. The Cancellation Division ruled in favour of the Chinese company, and the Fourth Board of Appeal’s decision of 27 July 2020 confirmed that the bad faith argument raised had been a valid one.
 
Following Koton, the General Court noted that the absolute ground for invalidity referred to in Article 52(1)(b) CTMR (now Article 59(1)(b) EUTMR) applies where an application is filed with the intention of undermining, in a manner inconsistent with honest practices, the interests of third parties, or with the intention of obtaining, without even targeting a specific third party, an exclusive right for purposes other than those falling within the functions of a trade mark. It is also necessary to examine, in the context of the overall assessment of the relevant circumstances of the particular case, whether the applicant for the contested mark had knowledge of the prior use by a third party. Therefore, the two issues here were prior knowledge of the earlier mark, and a dishonest intention.


Prior Knowledge

The applicant claimed that, contrary to what was found in the contested decision, it had no knowledge either of the existence of tyres imported under the mark AGATE or of the existence of the intervener and Omnifak before 14 March 2017, the date of publication of its application for registration, and that it was only after the registration of the contested mark that it was in a position to enforce its rights.

In addition, they argued that such a low number of tyres sold by Omnifak under the mark AGATE were imported into Bulgaria from 2014 – 2017 (less than 0.06% of all tyre imports) they could not have possessed prior knowledge of their competitors.

However, the Court found their lack of knowledge surprising, since they were both operating in the same city, Sofia, and emails exchanged between a Chinese manufacturer and the applicant’s representative suggested that the applicant ‘was already familiar with Chinese tyre manufacturers and the products offered by its competitors on the Bulgarian market’. The Court considered further evidence to substantiate this view, including proof of imports of 23,000 ‘AGATE’ tyres out of a total of 340,000 tyres imported from China into the Bulgarian market.
 
The applicant further argued that it took all due care to carry out, through the offices of a lawyer specialising in trade mark law, a search for earlier trade marks, in order to ascertain whether the mark AGATE was available ‘worldwide’. According to the conclusions of that report, there was no conflicting right in Europe or China, but only ‘in Japan, Russia and Mexico’ held by third parties. The applicant could not have been aware of the existence of the earlier Chinese mark, ‘as it did not appear on their search report’.
 
Ultimately, the Board of Appeal was entitled to presume that, at the time of filing the application for registration, the applicant had knowledge of the activities of its direct competitor in Bulgaria and, in particular, the marketing of tyres made in China under a mark highly similar to the contested mark.
 

Intention

In assessing intention, the Court considered five affidavits provided by third parties, which claimed they had been approached by agents of the applicant, and alleged that they had been encouraged to terminate their previous contracts with the Chinese company, to be re-agreed with the Bulgarian company.
 
The applicant challenged the veracity and reliability of these affidavits, especially after one party recounted. In response, the Court considered the factors for assessing the evidential value of a document, established in the case of Süd-Chemie v OHIM – Byk-Cera (CERATIX), T‑312/11, which held that it is necessary to take account of:

  • the person from whom the document originates;

  • the circumstances in which it came into being;

  • the person to whom it was addressed; and

  • whether, on its face, the document appears sound and reliable

In contrast to the above criteria, the Court found an internal affidavit, signed by an agent of the Bulgarian company, and notarised, to have very little probative or evidential value.
 
Some other factors which allowed the Court to infer a bad faith intention included the below.

  • The applicant did not provide any reasonable explanation concerning the extension of its commercial activities from the agricultural field to the tyre sector.

  • The marks were almost identical, and the convoluted backstory of how the applicant came to use the name Agate was largely overlooked.

  • An email, although admittedly not proven to have originated from the applicant, seeking €36 million for transfer of the mark in question, was still admissible as evidence, even if it was of very low probative value.

It should be noted that the Board of Appeal also took into account the short period between the filing of the contested mark and its registration, on 7 March and 21 June 2017 respectively and the enforcement measures that the applicant took on 6 July 2017. The Board determined that the applicant ‘was well prepared to target [the intervener and its distributor] and that it already knew about the use of the [Chinese] mark Agate’.
 

Conclusion

The General Court was satisfied that the requirements for bad faith had been met, namely, knowledge of use of an earlier mark by a third party and a dishonest intention behind seeking registration. The Court seemed to be aware of the fact that these bullying tactics had relied on the EU system to force a genuine Chinese competitor out of the market.
 
In one final desperate argument, the applicant tried to use the commercial strategy of the Chinese company as a defence, arguing that they had filed over 90 applications since 2009 in various countries and that it was hard to believe that they could have genuine use in Bulgaria, with an unprotected mark. The Court, however, recognised that such an argument is outside the scope and noted that the Board of Appeal did not and was not required to examine in detail, for the purposes of applying Article 52(1)(b) CTMR (now Article 59(1)(b) EUTMR), the intervener’s commercial strategy and specific intentions.
 
In the light of all the foregoing considerations, the Court rejected the applicant’s complaint and held that the Board of Appeal did not err in its overall assessment, in upholding the decision of the Cancellation Division and dismissing the action brought before it by the applicant.

Practice Points:

  • Evidence vs Statements - The court indicated that when it comes to documentary evidence, a stronger emphasis is placed on the evidential value of the of the content, rather than the statements themselves.

  • Chronology - A proven chronology can be an important factor in determining bad faith, especially when filing dates and infringement proceedings coincide within a short window.

  • Burden of Proof - Where an applicant substantiates a bad faith claim, a high burden of proof falls on the proprietor to demonstrate honest intention.

  • Probative Value - Any allegations as to the low or unreliable probative value of evidence must be demonstrated and, where possible, substantiated.

For more information, please contact Conor Courtney, Fernando di Blasi or your usual Kilburn & Strode trade mark advisor.

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