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美国
MetaBirkins NFT found to infringe Hermes trademark
22 3 月 2023
- 知识产权
Summary
Artist Mason Rothschild created a collection of digital images named “MetaBirkins”, each of which depicted a unique image of a blurry faux-fur covered the iconic Hermès bags, and sold them via NFT without any (license) agreement with the French Maison. HERMES brought its trademark action against Rothschild on January 14, 2022.
A Manhattan federal jury of nine persons returned after the trial a verdict stating that Mason Rothschild’s sale of the NFT violated the HERMES’ rights and committed trademark infringement, trademark dilution, and cybersquatting (through the use of the domain name “www.metabirkins.com”) because the US First Amendment protection could not apply in this case and awarded HERMES the following damages: 110.000 US$ as net profit earned by Mason Rothschild and 23.000 US$ because of cybersquatting.
The sale of approx. 100 METABIRKIN NFTs occurred after a broad marketing campaign done by Mason Rothschild on social media.
Rothschild’s defense was that digital images linked to NFT “constitute a form of artistic expression” i.e. a work of art protected under the First Amendment and similar to Andy Wahrhol’s paintings of Campbell’s soup cans. The aim of the defense was to have the “Rogers” legal test (so-called after the case Rogers vs Grimaldi) applied, according to which artists are entitled to use trademarks without permission as long as the work has an artistic value and is not misleading the consumers.
NFTs are digital record (a sort of “digital deed”) of ownership typically recorded in a publicly accessible ledger known as blockchain. Rothschild also commissioned computer engineers to operationalize a “smart contract” for each of the NFTs. A smart contract refers to a computer code that is also stored in the blockchain and that determines the name of each of the NFTs, constrains how they can be sold and transferred, and controls which digital files are associated with each of the NFTs.
The smart contract and the NFT can be owned by two unrelated persons or entities, like in the case here, where Rothschild maintained the ownership of the smart contract but sold the NFT.
“Individuals do not purchase NFTs to own a “digital deed” divorced to any other asset: they buy them precisely so that they can exclusively own the content associated with the NFT” (in this case the digital images of the MetaBirkin”), we can read in the Opinion and Order. The relevant consumers did not distinguish the NFTs offered by Rothschild from the underlying MetaBirkin image associated to the NFT.
The question was whether or not there was a genuine artistic expression or rather an unlawful intent to cash in on an exclusive valuable brand name like HERMES.
Mason Rothschild’s appeal to artistic freedom was not considered grounded since it came out that Rothschild was pursuing a commercial rather than an artistic end, further linking himself to other famous brands: Rothschild remarked that “MetaBirkins NFTs might be the next blue chip”. Insisting that he “was sitting on a gold mine” and referring to himself as “marketing king”, Rothschild “also discussed with his associates further potential future digital projects centered on luxury projects such watch NFTs called “MetaPateks” and linked to the famous Swiss luxury watches Patek Philippe.
TAKE AWAY: This is the first US decision on NFT and IP protection for trademarks.
The debate (i) between the protection of the artistic work and the protection of the trademark or other industrial property rights or (ii) between traditional artistic work and subsequent digital reinterpretation by a third party other than the original author, will lead to other decisions (in Italy, we recall the injunction order issued on 20-7-2022 by the Court of Rome in favour of the Juventus football team against the company Blockeras, producer of NFT associated with collectible digital figurines depicting the footballer Bobo Vieri, without Juventus’ licence or authorisation). This seems to be a similar phenomenon to that which gave rise some 15 years ago to disputes between trademark owners and owners of domain names incorporating those trademarks. For the time being, trademark and IP owners seem to have the upper hand, especially in disputes that seem more commercial than artistic.
For an assessment of the importance and use of NFT and blockchain in association also with IP rights, you can read more here.
Summary
Phil Knight, the founder of Nike, imported the Japanese brand Onitsuka Tiger into the US market in 1964 and quickly gained a 70% share. When Knight learned Onitsuka was looking for another distributor, he created the Nike brand. This led to two lawsuits between the two companies, but Nike eventually won and became the most successful sportswear brand in the world. This article looks at the lessons to be learned from the dispute, such as how to negotiate an international distribution agreement, contractual exclusivity, minimum turnover clauses, duration of the contract, ownership of trademarks, dispute resolution clauses, and more.
What I talk about in this article
- The Blue Ribbon vs. Onitsuka Tiger dispute and the birth of Nike
- How to negotiate an international distribution agreement
- Contractual exclusivity in a commercial distribution agreement
- Minimum Turnover clauses in distribution contracts
- Duration of the contract and the notice period for termination
- Ownership of trademarks in commercial distribution contracts
- The importance of mediation in international commercial distribution agreements
- Dispute resolution clauses in international contracts
- How we can help you
The Blue Ribbon vs Onitsuka Tiger dispute and the birth of Nike
Why is the most famous sportswear brand in the world Nike and not Onitsuka Tiger?
Shoe Dog is the biography of the creator of Nike, Phil Knight: for lovers of the genre, but not only, the book is really very good and I recommend reading it.
Moved by his passion for running and intuition that there was a space in the American athletic shoe market, at the time dominated by Adidas, Knight was the first, in 1964, to import into the U.S. a brand of Japanese athletic shoes, Onitsuka Tiger, coming to conquer in 6 years a 70% share of the market.
The company founded by Knight and his former college track coach, Bill Bowerman, was called Blue Ribbon Sports.
The business relationship between Blue Ribbon-Nike and the Japanese manufacturer Onitsuka Tiger was, from the beginning, very turbulent, despite the fact that sales of the shoes in the U.S. were going very well and the prospects for growth were positive.
When, shortly after having renewed the contract with the Japanese manufacturer, Knight learned that Onitsuka was looking for another distributor in the U.S., fearing to be cut out of the market, he decided to look for another supplier in Japan and create his own brand, Nike.
Upon learning of the Nike project, the Japanese manufacturer challenged Blue Ribbon for violation of the non-competition agreement, which prohibited the distributor from importing other products manufactured in Japan, declaring the immediate termination of the agreement.
In turn, Blue Ribbon argued that the breach would be Onitsuka Tiger’s, which had started meeting other potential distributors when the contract was still in force and the business was very positive.
This resulted in two lawsuits, one in Japan and one in the U.S., which could have put a premature end to Nike’s history.
Fortunately (for Nike) the American judge ruled in favor of the distributor and the dispute was closed with a settlement: Nike thus began the journey that would lead it 15 years later to become the most important sporting goods brand in the world.
Let’s see what Nike’s history teaches us and what mistakes should be avoided in an international distribution contract.
How to negotiate an international commercial distribution agreement
In his biography, Knight writes that he soon regretted tying the future of his company to a hastily written, few-line commercial agreement at the end of a meeting to negotiate the renewal of the distribution contract.
What did this agreement contain?
The agreement only provided for the renewal of Blue Ribbon’s right to distribute products exclusively in the USA for another three years.
It often happens that international distribution contracts are entrusted to verbal agreements or very simple contracts of short duration: the explanation that is usually given is that in this way it is possible to test the commercial relationship, without binding too much to the counterpart.
This way of doing business, though, is wrong and dangerous: the contract should not be seen as a burden or a constraint, but as a guarantee of the rights of both parties. Not concluding a written contract, or doing so in a very hasty way, means leaving without clear agreements fundamental elements of the future relationship, such as those that led to the dispute between Blue Ribbon and Onitsuka Tiger: commercial targets, investments, ownership of brands.
If the contract is also international, the need to draw up a complete and balanced agreement is even stronger, given that in the absence of agreements between the parties, or as a supplement to these agreements, a law with which one of the parties is unfamiliar is applied, which is generally the law of the country where the distributor is based.
Even if you are not in the Blue Ribbon situation, where it was an agreement on which the very existence of the company depended, international contracts should be discussed and negotiated with the help of an expert lawyer who knows the law applicable to the agreement and can help the entrepreneur to identify and negotiate the important clauses of the contract.
Territorial exclusivity, commercial objectives and minimum turnover targets
The first reason for conflict between Blue Ribbon and Onitsuka Tiger was the evaluation of sales trends in the US market.
Onitsuka argued that the turnover was lower than the potential of the U.S. market, while according to Blue Ribbon the sales trend was very positive, since up to that moment it had doubled every year the turnover, conquering an important share of the market sector.
When Blue Ribbon learned that Onituska was evaluating other candidates for the distribution of its products in the USA and fearing to be soon out of the market, Blue Ribbon prepared the Nike brand as Plan B: when this was discovered by the Japanese manufacturer, the situation precipitated and led to a legal dispute between the parties.
The dispute could perhaps have been avoided if the parties had agreed upon commercial targets and the contract had included a fairly standard clause in exclusive distribution agreements, i.e. a minimum sales target on the part of the distributor.
In an exclusive distribution agreement, the manufacturer grants the distributor strong territorial protection against the investments the distributor makes to develop the assigned market.
In order to balance the concession of exclusivity, it is normal for the producer to ask the distributor for the so-called Guaranteed Minimum Turnover or Minimum Target, which must be reached by the distributor every year in order to maintain the privileged status granted to him.
If the Minimum Target is not reached, the contract generally provides that the manufacturer has the right to withdraw from the contract (in the case of an open-ended agreement) or not to renew the agreement (if the contract is for a fixed term) or to revoke or restrict the territorial exclusivity.
In the contract between Blue Ribbon and Onitsuka Tiger, the agreement did not foresee any targets (and in fact the parties disagreed when evaluating the distributor’s results) and had just been renewed for three years: how can minimum turnover targets be foreseen in a multi-year contract?
In the absence of reliable data, the parties often rely on predetermined percentage increase mechanisms: +10% the second year, + 30% the third, + 50% the fourth, and so on.
The problem with this automatism is that the targets are agreed without having available the real data on the future trend of product sales, competitors’ sales and the market in general, and can therefore be very distant from the distributor’s current sales possibilities.
For example, challenging the distributor for not meeting the second or third year’s target in a recessionary economy would certainly be a questionable decision and a likely source of disagreement.
It would be better to have a clause for consensually setting targets from year to year, stipulating that targets will be agreed between the parties in the light of sales performance in the preceding months, with some advance notice before the end of the current year. In the event of failure to agree on the new target, the contract may provide for the previous year’s target to be applied, or for the parties to have the right to withdraw, subject to a certain period of notice.
It should be remembered, on the other hand, that the target can also be used as an incentive for the distributor: it can be provided, for example, that if a certain turnover is achieved, this will enable the agreement to be renewed, or territorial exclusivity to be extended, or certain commercial compensation to be obtained for the following year.
A final recommendation is to correctly manage the minimum target clause, if present in the contract: it often happens that the manufacturer disputes the failure to reach the target for a certain year, after a long period in which the annual targets had not been reached, or had not been updated, without any consequences.
In such cases, it is possible that the distributor claims that there has been an implicit waiver of this contractual protection and therefore that the withdrawal is not valid: to avoid disputes on this subject, it is advisable to expressly provide in the Minimum Target clause that the failure to challenge the failure to reach the target for a certain period does not mean that the right to activate the clause in the future is waived.
The notice period for terminating an international distribution contract
The other dispute between the parties was the violation of a non-compete agreement: the sale of the Nike brand by Blue Ribbon, when the contract prohibited the sale of other shoes manufactured in Japan.
Onitsuka Tiger claimed that Blue Ribbon had breached the non-compete agreement, while the distributor believed it had no other option, given the manufacturer’s imminent decision to terminate the agreement.
This type of dispute can be avoided by clearly setting a notice period for termination (or non-renewal): this period has the fundamental function of allowing the parties to prepare for the termination of the relationship and to organize their activities after the termination.
In particular, in order to avoid misunderstandings such as the one that arose between Blue Ribbon and Onitsuka Tiger, it can be foreseen that during this period the parties will be able to make contact with other potential distributors and producers, and that this does not violate the obligations of exclusivity and non-competition.
In the case of Blue Ribbon, in fact, the distributor had gone a step beyond the mere search for another supplier, since it had started to sell Nike products while the contract with Onitsuka was still valid: this behavior represents a serious breach of an exclusivity agreement.
A particular aspect to consider regarding the notice period is the duration: how long does the notice period have to be to be considered fair? In the case of long-standing business relationships, it is important to give the other party sufficient time to reposition themselves in the marketplace, looking for alternative distributors or suppliers, or (as in the case of Blue Ribbon/Nike) to create and launch their own brand.
The other element to be taken into account, when communicating the termination, is that the notice must be such as to allow the distributor to amortize the investments made to meet its obligations during the contract; in the case of Blue Ribbon, the distributor, at the express request of the manufacturer, had opened a series of mono-brand stores both on the West and East Coast of the U.S.A..
A closure of the contract shortly after its renewal and with too short a notice would not have allowed the distributor to reorganize the sales network with a replacement product, forcing the closure of the stores that had sold the Japanese shoes up to that moment.
Generally, it is advisable to provide for a notice period for withdrawal of at least 6 months, but in international distribution contracts, attention should be paid, in addition to the investments made by the parties, to any specific provisions of the law applicable to the contract (here, for example, an in-depth analysis for sudden termination of contracts in France) or to case law on the subject of withdrawal from commercial relations (in some cases, the term considered appropriate for a long-term sales concession contract can reach 24 months).
Finally, it is normal that at the time of closing the contract, the distributor is still in possession of stocks of products: this can be problematic, for example because the distributor usually wishes to liquidate the stock (flash sales or sales through web channels with strong discounts) and this can go against the commercial policies of the manufacturer and new distributors.
In order to avoid this type of situation, a clause that can be included in the distribution contract is that relating to the producer’s right to repurchase existing stock at the end of the contract, already setting the repurchase price (for example, equal to the sale price to the distributor for products of the current season, with a 30% discount for products of the previous season and with a higher discount for products sold more than 24 months previously).
Trademark Ownership in an International Distribution Agreement
During the course of the distribution relationship, Blue Ribbon had created a new type of sole for running shoes and coined the trademarks Cortez and Boston for the top models of the collection, which had been very successful among the public, gaining great popularity: at the end of the contract, both parties claimed ownership of the trademarks.
Situations of this kind frequently occur in international distribution relationships: the distributor registers the manufacturer’s trademark in the country in which it operates, in order to prevent competitors from doing so and to be able to protect the trademark in the case of the sale of counterfeit products; or it happens that the distributor, as in the dispute we are discussing, collaborates in the creation of new trademarks intended for its market.
At the end of the relationship, in the absence of a clear agreement between the parties, a dispute can arise like the one in the Nike case: who is the owner, producer or distributor?
In order to avoid misunderstandings, the first advice is to register the trademark in all the countries in which the products are distributed, and not only: in the case of China, for example, it is advisable to register it anyway, in order to prevent third parties in bad faith from taking the trademark (for further information see this post on Legalmondo).
It is also advisable to include in the distribution contract a clause prohibiting the distributor from registering the trademark (or similar trademarks) in the country in which it operates, with express provision for the manufacturer’s right to ask for its transfer should this occur.
Such a clause would have prevented the dispute between Blue Ribbon and Onitsuka Tiger from arising.
The facts we are recounting are dated 1976: today, in addition to clarifying the ownership of the trademark and the methods of use by the distributor and its sales network, it is advisable that the contract also regulates the use of the trademark and the distinctive signs of the manufacturer on communication channels, in particular social media.
It is advisable to clearly stipulate that the manufacturer is the owner of the social media profiles, of the content that is created, and of the data generated by the sales, marketing and communication activity in the country in which the distributor operates, who only has the license to use them, in accordance with the owner’s instructions.
In addition, it is a good idea for the agreement to establish how the brand will be used and the communication and sales promotion policies in the market, to avoid initiatives that may have negative or counterproductive effects.
The clause can also be reinforced with the provision of contractual penalties in the event that, at the end of the agreement, the distributor refuses to transfer control of the digital channels and data generated in the course of business.
Mediation in international commercial distribution contracts
Another interesting point offered by the Blue Ribbon vs. Onitsuka Tiger case is linked to the management of conflicts in international distribution relationships: situations such as the one we have seen can be effectively resolved through the use of mediation.
This is an attempt to reconcile the dispute, entrusted to a specialized body or mediator, with the aim of finding an amicable agreement that avoids judicial action.
Mediation can be provided for in the contract as a first step, before the eventual lawsuit or arbitration, or it can be initiated voluntarily within a judicial or arbitration procedure already in progress.
The advantages are many: the main one is the possibility to find a commercial solution that allows the continuation of the relationship, instead of just looking for ways for the termination of the commercial relationship between the parties.
Another interesting aspect of mediation is that of overcoming personal conflicts: in the case of Blue Ribbon vs. Onitsuka, for example, a decisive element in the escalation of problems between the parties was the difficult personal relationship between the CEO of Blue Ribbon and the Export manager of the Japanese manufacturer, aggravated by strong cultural differences.
The process of mediation introduces a third figure, able to dialogue with the parts and to guide them to look for solutions of mutual interest, that can be decisive to overcome the communication problems or the personal hostilities.
For those interested in the topic, we refer to this post on Legalmondo and to the replay of a recent webinar on mediation of international conflicts.
Dispute resolution clauses in international distribution agreements
The dispute between Blue Ribbon and Onitsuka Tiger led the parties to initiate two parallel lawsuits, one in the US (initiated by the distributor) and one in Japan (rooted by the manufacturer).
This was possible because the contract did not expressly foresee how any future disputes would be resolved, thus generating a very complicated situation, moreover on two judicial fronts in different countries.
The clauses that establish which law applies to a contract and how disputes are to be resolved are known as “midnight clauses“, because they are often the last clauses in the contract, negotiated late at night.
They are, in fact, very important clauses, which must be defined in a conscious way, to avoid solutions that are ineffective or counterproductive.
How we can help you
The construction of an international commercial distribution agreement is an important investment, because it sets the rules of the relationship between the parties for the future and provides them with the tools to manage all the situations that will be created in the future collaboration.
It is essential not only to negotiate and conclude a correct, complete and balanced agreement, but also to know how to manage it over the years, especially when situations of conflict arise.
Legalmondo offers the possibility to work with lawyers experienced in international commercial distribution in more than 60 countries: write us your needs.
In this internet age, the limitless possibilities of reaching customers across the globe to sell goods and services comes the challenge of protecting one’s Intellectual Property Right (IPR). Talking specifically of trademarks, like most other forms of IPR, the registration of a trademark is territorial in nature. One would need a separate trademark filing in India if one intends to protect the trademark in India.
But what type of trademarks are allowed registration in India and what is the procedure and what are the conditions?
The Office of the Controller General of Patents, Designs and Trade Marks (the Registry) is the government body responsible for the administration of trademarks in India. When seeking trademark registration, you will need an address for service in India and a local agent or attorney. The application can be filed online or by paper at the Registry. Based on the originality and uniqueness of the trademark, and subject to opposition or infringement claims by third parties, the registration takes around 18-24 months or even more.
Criteria for adopting and filing a trademark in India
To be granted registration, the trademark should be:
- non-generic
- non-descriptive
- not-identical
- non–deceptive
Trademark Search
It is not mandatory to carry out a trademark search before filing an application. However, the search is recommended so as to unearth conflicting trademarks on file.
How to make the application?
One can consider making a trademark application in the following ways:
- a fresh trademark application through a local agent or attorney;
- application under the Paris Convention: India being a signatory to the Paris Convention for the Protection of Industrial Property, a convention application can be filed by claiming priority of a previously filed international application. For claiming such priority, the applicant must file a certified copy of the priority document, i.e., the earlier filed international application that forms the basis of claim for priority in India;
- application through the Madrid Protocol: India acceded to the Madrid Protocol in 2013 and it is possible to designate India in an international application.
Objection by the Office – Grounds of Refusal
Within 2-4 months from the date of filing of the trademark application (4-6 months in the case of Madrid Protocol applications), the Registry conducts an examination and sometimes issues an office action/examination report raising objections. The applicant must respond to the Registry within one month. If the applicant fails to respond, the trademark application will be deemed abandoned.
A trademark registration in India can be refused by the Registry for absolute grounds such as (i) the trademark being devoid of any distinctive character (ii) trademark consists of marks that designate the kind, quality, quantity values, geographic origins or time or production of the goods or services (iii) the trademark causes confusion or deceives public. A relative ground for refusal is generally when a trademark is similar or deceptively similar to an earlier trademark.
Objection Hearing
When the Registry is not satisfied with the response, a hearing is scheduled within 8-12 months. During the hearing, the Registry either accepts or rejects the registration.
Publication in TM journal
After acceptance for registration, the trademark will be published in the Trade Marks Journal.
Third Party Opposition
Any person can oppose the trademark within four months of the date of publication in the journal. If there is no opposition within 4-months, the mark would be granted protection by the Registry. An opposition would lead to prosecution proceedings that take around 12-18 months for completion.
Validity of Trademark Registration
The registration dates back to the date of the application and is renewable every 10 years.
“Use of Mark” an important condition for trademark registration
- “First to Use” Rule over “First-to-File” Rule: An application in India can be filed on an “intent to use” basis or by claiming “prior use” of the trademark in India. Unlike other jurisdictions, India follows “first to use” rule over the “first-to-file” rule. This means that the first person who can prove significant use of a trade mark in India will generally have superior rights over a person who files a trade mark application prior but with a later user date or acquires registration prior but with a later user date.
- Spill-over Reputation considered as Use: Given the territorial protection granted for trademarks, the Indian Trademark Law protects the spill-over reputation of overseas trademark even where the trademark has not been used and/or registered in India. This is possible because knowledge of the trademark in India and the reputation acquired through advertisements on television, Internet and publications can be considered as valid proof of use.
Descriptive Marks to acquire distinctiveness to be eligible for registration
Unlike in the US, Indian trademark law does not generally permit registration of a descriptive trademark. A descriptive trademark is a word that identifies the characteristics of the product or service to which the trademark pertains. It is similar to an adjective. An example of descriptive marks is KOLD AND KREAMY for ice cream and CHOCO TREAT in respect of chocolates. However, several courts in India have interpreted that descriptive trademark can be afforded registration if due to its prolonged use in trade it has lost its primary descriptive meaning and has become distinctive in relation to the goods it deals with. Descriptive marks always have to be supported with evidence (preferably from before the date of application for registration) to show that the trademark has acquired a distinctive character as a result of the use made of it or that it was a well-known trademark.
Acquired distinctiveness a criterion for trademark protection
Even if a trademark lacks inherent distinctiveness, it can still be registered if it has acquired distinctiveness through continuous and extensive use. All one has to prove is that before the date of application for registration:
- the trademark has acquired a distinctive character as a result of use;
- established a strong reputation and goodwill in the market; and
- the consumers relate only to the trademark for the respective product or services due to its continuous use.
How can one stop someone from misusing or copying the trademark in India?
An action of passing off or infringement can be taken against someone copying or misusing a trademark.
For unregistered trademarks, a common law action of passing off can be initiated. The passing off of trademarks is a tort actionable under common law and is mainly used to protect the goodwill attached to unregistered trademarks. The owner of the unregistered trademark has to establish its trademark rights by substantiating the trademark’s prior use in India or trans-border reputation in India and prove that the two marks are either identical or similar and there is likelihood of confusion.
For Registered trademarks, a statutory action of infringement can be initiated. The registered proprietor only needs to prove the similarity between the marks and the likelihood of confusion is presumed.
In both the cases, a court may grant relief of injunction and /or monetary compensation for damages for loss of business and /or confiscation or destruction of infringing labels etc. Although registration of trademark is prima facie evidence of validity, registration cannot upstage a prior consistent user of trademark for the rule is ‘priority in adoption prevails over priority in registration’.
Appeals
Any decision of the Registrar of Trademarks can be appealed before the high courts within three months of the Registrar’s order.
It’s thus preferable to have a strategy for protecting trademarks before entering the Indian market. This includes advertising in publications and online media that have circulation and accessibility in India, collating all relevant records evidencing the first use of the mark in India, taking offensive action against the infringing local entity, or considering negotiations depending upon the strength of the foreign mark and the transborder reputation it carries.
Summary – The company that incurs into a counterfeiting of its Community design shall not start as many disputes as are the countries where the infringement has been carried out: it will be sufficient to start a lawsuit in just one court of the Union, in its capacity as Community design court, and get a judgement against a counterfeiter enforceable in different, or even all, Countries of the European Union.
Italian companies are famous all over the world thanks to their creative abilities regarding both industrial inventions and design: in fact, they often make important economic investments in order to develop innovative solutions for the products released on the market.
Such investments, however, must be effectively protected against cases of counterfeiting that, unfortunately, are widely spread and ever more realizable thanks to the new technologies such as the e-commerce. Companies must be very careful in protecting their own products, at least in the whole territory of the European Union, since counterfeiting inevitably undermines the efforts made for the research of an original product.
In this respect the content of a recent judgement issued by the Court of Milan, section specialized in business matters, No. 2420/2020, appears very significant since it shows that it is possible and necessary, in case of counterfeiting (in this case the matter is the counterfeiting of a Community design) to promptly take a legal action, that is to start a lawsuit to the competent Court specialized in business matters.
The Court, by virtue of the EU Regulation No. 6/2002, will issue an order (an urgent and protective remedy ante causam or a judgement at the end of the case) effective in the whole European territory so preventing any extra UE counterfeiter from marketing, promoting and advertising a counterfeited product.
The Court of Milan, in this specific case, had to solve a dispute aroused between an Italian company producing a digital flowmeter, being the subject of a Community registration, and a competitor based in Hong Kong. The Italian company alleged that the latter had put on the European market some flow meters in infringement of a Community design held by the first.
First of all, the panel of judges effected a comparison between the Community design held by the Italian company (plaintiff) and the flow meter manufactured and distributed by the Hong Kong company (defendant). The judges noticed that the latter actually coincided both for dimensions and proportions with the first so that even an expert in the field (the so-called informed user) could mistake the product of the defendant company with that of the plaintiff company owner of the Community design.
The Court of Milan, in its capacity as Community designs court, after ascertaining the counterfeiting, in the whole European territory, carried out by the defendant at the expense of the plaintiff, with judgement No. 2420/2020 prohibited, by virtue of articles 82, 83 and 89 of the EU Regulation No. 6/2002, the Hong Kong company to publicize, offer for sale, import and market, by any means and methods, throughout the European Union, even through third parties, the flow meter subject to the present judgement, with any name if presenting similar characteristics.
The importance of this judgement lies in its effects spread all over the territory of the European Union. This is not a small thing since the company that incurs into a counterfeiting of its Community design shall not start as many disputes as are the countries where the infringement has been carried out: it will be sufficient for this company to start a lawsuit in just one court of the Union, in its capacity as Community design court, and get a judgement against a counterfactor who makes an illicit in different, or even all, Countries of the European Union.
Said judgement will be even more effective if we consider that, by virtue of the UE Customs Regulation No. 608/2013, the company will be able to communicate the existence of a counterfeited product to the customs of the whole European territory (through a single request filed with the customs with the territorial jurisdiction) in order to have said products blocked and, in case, destroyed.
Summary – What can the owner (or licensee) of a trademark do if an unauthorized third party resells products with its trademark on an online platform? This issue was addressed in the judgment of C-567/18 of 2 April 2020, in which the Court of Justice of the European Union confirmed that platforms (Amazon Marketplace, in this case) storing goods which infringe trademark rights are not liable for such infringement, unless the platform puts them on the market or is aware of the infringement. Conversely, platforms (such as Amazon Retail) that contribute to the distribution or resell the products themselves may be liable.
Background
Coty – a German company, distributor of perfumes, holding a licence for the EU trademark “Davidoff” – noted that third-party sellers were offering on Amazon Marketplace perfumes bearing the “Davidoff Hot Water” brand, which had been put in the EU market without its consent.
After reaching an agreement with one of the sellers, Coty sued Amazon in order to prevent it from storing and shipping those perfumes unless they were placed on the EU market with Coty’s consent. Both the Court of First Instance and the Court of Appeal rejected Coty’s request, which brought an appeal before the German Court of Cassation, which in turn referred the matter to the Court of Justice of the EU.
What is the Exhaustion of the rights conferred by a trademark
The principle of exhaustion is envisaged by EU law, according to which, once a good is put on the EU market, the proprietor of the trademark right on that specific good can no longer limit its use by third parties.
This principle is effective only if the entry of the good (the reference is to the individual product) on the market is done directly by the right holder, or with its consent (e.g. through an operator holding a licence).
On the contrary, if the goods are placed on the market by third parties without the consent of the proprietor, the latter may – by exercising the trademark rights established by art. 9, par. 3 of EU Regulation 2017/1001 – prohibit the use of the trademark for the marketing of the products.
By the legal proceedings which ended before the Court of Justice of the EU, Coty sought to enforce that right also against Amazon, considering it to be a user of the trademark, and therefore liable for its infringement.
What is the role of Amazon?
The solution of the case revolves around the role of the web platform.
Although Amazon provides users with a unique search engine, it hosts two radically different sales channels. Through the Amazon Retail channel, the customer buys products directly from the Amazon company, which operates as a reseller of products previously purchased from third party suppliers.
The Amazon Marketplace, on the other hand, displays products owned by third-party vendors, so purchase agreements are concluded between the end customer and the vendor. Amazon gets a commission on these transactions, while the vendor assumes the responsibility for the sale and can manage the prices of the products independently.
According to the German courts which rejected Coty’s claims in the first and second instance, Amazon Marketplace essentially acts as a depository, without offering the goods for sale or putting them on the market.
Coty, vice versa, argues that Amazon Marketplace, by offering various marketing-services (including: communication with potential customers in order to sell the products; provision of the platform through which customers conclude the contract; and consistent promotion of the products, both on its website and through advertisements on Google), can be considered as a “user” of the trademark, within the meaning of Article 9, paragraph 3 of EU Regulation 2017/1001.
The decision of the Court of Justice of the European Union
Advocate General Campos Sanchez-Bordona, in the opinion delivered on 28 November 2019, had suggested to the Court to distinguish between: the mere depositaries of the goods, not to be considered as “users” of the trademark for the purposes of EU Regulation 2017/1001; and those who – in addition to providing the deposit service – actively participate in the distribution of the goods. These latter, in the light of art. 9, par. 3, letter b) of EU Regulation 2017/1001, should be considered as “users” of the trademark, and therefore directly responsible in case of infringements.
The Bundesgerichtshof (Federal Court of Justice of Germany), however, had already partially answered the question when it referred the matter to the European Court, stating that Amazon Marketplace “merely stored the goods concerned, without offering them for sale or putting them on the market”, both operations carried out solely by the vendor.
The EU Court of Justice ruled the case on the basis of some precedents, in which it had already stated that:
- The expression “using” involves at the very least, the use of the sign in the commercial communication. A person may thus allow its clients to use signs which are identical or similar to trademarks without itself using those signs (see Google vs Louis Vuitton, Joined Cases C-236/08 to C-238/08, par. 56).
- With regard to e-commerce platforms, the use of the sign identical or similar to a trademark is made by the sellers, and not by the platform operator (see L’Oréal vs eBay, C‑324/09, par. 103).
- The service provider who simply performs a technical part of the production process cannot be qualified as a “user” of any signs on the final products. (see Frisdranken vs Red Bull, C‑119/10, par. 30. Frisdranken is an undertaking whose main activity is filling cans, supplied by a third party, already bearing signs similar to Redbull’s registered trademarks).
On the basis of that case-law and the qualification of Amazon Marketplace provided by the referring court, the European Court has ruled that a company which, on behalf of a third party, stores goods which infringe trademark rights, if it is not aware of that infringement and does not offer them for sale or place them on the market, is not making “use” of the trademark and, therefore, is not liable to the proprietor of the rights to that trademark.
Conclusion
After Coty had previously been the subject of a historic ruling on the matter (C-230/16 – link to the Legalmondo previous post), in this case the Court of Justice decision confirmed the status quo, but left the door open for change in the near future.
A few considerations on the judgement, before some practical tips:
- The Court did not define in positive terms the criteria for assessing whether an online platform performs sufficient activity to be considered as a user of the sign (and therefore liable for any infringement of the registered trademark). This choice is probably dictated by the fact that the criteria laid down could have been applied (including to the various companies belonging to the Amazon group) in a non-homogeneous manner by the various Member States’ national courts, thus jeopardising the uniform application of European law.
- If the Court of Justice had decided the case the other way around, the ruling would have had a disruptive impact not only on Amazon’s Marketplace, but on all online operators, because it would have made them directly responsible for infringements of IP rights by third parties.
- If the perfumes in question had been sold through Amazon Retail, there would have been no doubt about Amazon’s responsibility: through this channel, sales are concluded directly between Amazon and the end customer.
- The Court has not considered whether: (i) Amazon could be held indirectly liable within the meaning of Article 14(1) of EU Directive 2000/31, as a “host” which – although aware of the illegal activity – did not prevent it; (ii) under Article 11 of EU Directive 2004/48, Coty could have acted against Amazon as an intermediary whose services are used by third parties to infringe its IP right. Therefore, it cannot be excluded that Amazon may be held (indirectly) liable for the infringements committed, including on the Marketplace: this aspect will have to be examined in detail on a case-by-case basis.
Practical tips
What can the owner (or licensee) of a trademark do if an unauthorized third party resells products with its trademark on an online platform?
- Gather as much evidence as possible of the infringement in progress: the proof of the infringement is one of the most problematic aspects of IP litigation.
- Contact a specialized lawyer to send a cease-and-desist letter to the unauthorized seller, ordering the removal of the products from the platform and asking the compensation for damages suffered.
- If the products are not removed from the marketplace, the trademark owner might take legal action to obtain the removal of the products and compensation for damages.
- In light of the judgment in question, the online platforms not playing an active role in the resale of goods remain not directly responsible for IP violations. Nevertheless, it is suggested to consider sending the cease-and-desist letter to them as well, in order to put more pressure on the unauthorised seller.
- The sending of the cease-and-desist letter also to the platform – especially in the event of several infringements – may also be useful to demonstrate its (indirect) liability for lack of vigilance, as seen in point 4) of the above list.
Quick summary – Poland has recently introduced tax incentives which aim at promoting innovations and technology. The new support instrument for investors conducting R&D activity is named «IP Box» and allows for a preferential taxation of qualified profits made on commercialization of several types of qualified property rights. The preferential income tax rate amounts to 5%. By contrast, the general rate is in most cases 19%.
The Qualified Intellectual Property Rights
The intellectual property rights which may be the source of the qualified profit subject the preferential taxation are the following:
- rights to an invention (patents)
- additional protective rights for an invention
- rights for the utility model
- rights from the registration of an industrial design
- rights from registration of the integrated circuit topography
- additional protection rights for a patent for medicinal product or plant protection product
- rights from registration of medicinal or veterinary product
- rights from registration of new plant varieties and animal breeds, and
- rights to a computer program
The above catalogue of qualified intellectual property rights is exhaustive.
Conditions for the application of the Patent Box
A taxpayer may apply the preferential 5% rate on the condition that he or she has created, developed or improved these rights in the course of his/her R&D activities. A taxpayer may create intellectual property but it may also purchase or license it on the exclusive basis, provided that the taxpayer then incurs costs related to the development or improvement of the acquired right.
For example an IT company may create a computer program itself within its R&D activity or it may acquire it from a third party and develop it further. Future income received as a result of commercialization of this computer program may be subject to the tax relief.
The following kinds of income may be subject to tax relief:
- fees or charges arising from the license for qualified intellectual property rights
- the sale of qualified intellectual property rights
- qualified intellectual property rights included in the sale price of the products or services
- the compensation for infringement of qualified intellectual property rights if obtained in litigation proceedings, including court proceedings or arbitration.
How to calculate the tax base
The preferential tax rate is 5% on the tax base. The latter is calculated according to a special formula: the total income received from a particular IP is reduced by a significant part of expenditures on the R&D activities as well as on the creation, acquisition and development of this IP. The appropriate factor, named «nexus», is applied to calculate the tax base.
The tax relief is applicable at the end of the calendar year. This means that during the year the income tax advance payments are due according to the regular rate. Consequently in many instances the taxpayer will recover a part of the tax already paid during the previous calendar year.
It is advisable that the taxpayer applies for the individual tax ruling to the competent authority in order to receive a binding confirmation that its particular IP is eligible for the tax reduction.
It is also crucial that the taxpayer keeps the detailed accounting records of all R&D activities as well as the income and the expenses related to each R&D project (including employment costs). The records should reflect the link of incurred R&D costs with the income from intellectual property rights.
Obligations related to the application of the tax relief
In particular such a taxpayer is obliged to keep records which allow for monitoring and tracking the effects of research and development works. If, based on the accounting records kept by a taxpayer, it is not possible to determine the income (loss) from qualified intellectual property rights, the taxpayer will be obliged to pay the tax based on general rules.
The tax relief may be applied throughout the duration of the legal protection of eligible intellectual property rights.In case if a given IP is subject to notification or registration procedure (the expectative of obtaining a qualified intellectual property right), a taxpayer may benefit from tax relief from the moment of filing or submitting an application for registration. In case of withdrawal of the application, refusal of registration or rejection of the application , the amount of relief will have to be returned.
The above tax relief combined with a governmental programme of grant aid for R&D projects make Polish research, development and innovation environment more and more beneficial for investors.
Startups and Trademarks – Get it right from the Start
As a lawyer, I have been privileged to work closely with entrepreneurs of all backgrounds and ages (not just young people, a common stereotype on this field) and startups, providing legal advice on a wide range of areas.
Helping them build their businesses, I have identified a few recurrent mistakes, most of them arising mainly from the lack of experience on dealing with legal issues, and some others arising from the lack of understanding on the value added by legal advice, especially when we are referring to Intellectual Property (IP).
Both of them are understandable, we all know that startups (specially on an early stage of development) deal with the lack of financial resources and that the founders are pretty much focused on what they do best, which is to develop their own business model and structure, a new and innovative business.
Nevertheless it is important to stress that during this creation process a few important mistakes may happen, namely on IP rights, that can impact the future success of the business.
First, do not start from the end
When developing a figurative sign, a word trademark, an innovative technology that could be patentable or a software (source code), the first recommended step is to look into how to protect those creations, before showing it to third parties, namely investors or VC’s. This mistake is specially made on trademarks, as many times the entrepreneurs have already invested on the development of a logo and/or a trademark, they use it on their email signature, on their business presentations, but they have never registered the trademark as an IP right.
A non registered trademark is a common mistake and opens the door to others to copy it and to acquire (legally) rights over such distinctive sign. On the other hand, the lack of prior searches on preexisting IP rights may lead to trademark infringement, meaning that your amazing trademark is in fact infringing a preexisting trademark that you were not aware of.
Second, know what you are protecting
Basic mistake arises from those who did registered the trademark, but in a wrong or insufficient way: it is very common to see startups applying for a word trademark having a figurative element, when instead a trademark must be protected “as a whole” with their both signs (word and figurative element) in order to maximize the range of legal protection of your IP right.
Third, avoid the “classification nightmare”
The full comprehension and knowledge of the goods and services for which you apply for a trademark is decisive. It is strongly advisable for startup to have (at least) a medium term view of the business and request, on the trademark application, the full range of goods and services that they could sell or provide in the future and not only a short term view. Why? Because once the trademark application is granted it cannot be amended or added with additional goods and services. Only by requesting a new trademark application with all the costs involved in such operation.
The correct classification is crucial and decisive for a correct protection of your IP asset, especially on high technological startups where most of the time the high added value of the business arises from their IP.
On a brief, do not neglect IP, before is too late.
The author of this post is Josè Varanda
According to the article 20 of the Italian Code of Intellectual Property, the owner of a trademark has the right to prevent third parties, unless consent is given, from using:
- any sign which is identical to the trademark for goods or services which are identical to those for which the trademark is registered;
- any sign that is identical or similar to the registered trademark, for goods or services that are identical or similar, where due to the identity or similarity between the goods or services, there exists a likelihood of confusion on the part of the public, that can also consist of a likelihood of association of the two signs;
- any sign which is identical with or similar to the registered trademark in relation to goods or services which are not similar, where the registered trademark has a reputation in the Country and where use of that sign without due cause takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the trademark.
Similar provisions can be found in art. 9, n. 2 of the EU Regulation 2017/1001 on the European Union Trademark, even if in such a case the provision concerns trademarks that have a reputation.
The first two hypotheses concern the majority of the brands and the conflict between two signs that are identical for identical products or services (sub a), so-called double identity, or between two brands that are identical or similar for identical or similar products or services, if due to the identity or similarity between the signs and the identity or affinity between the products or services, there may be a risk of confusion for the public (sub b).
By “affinity” we mean a product similarity between the products or services (for example between socks and yarns) or a link between the needs that the products or services intended to satisfy (as often happens in the fashion sector, where it is usual for example that the same footwear manufacturer also offers belts for sale). It is not by chance that, although the relevance is administrative and the affinity is not defined, at the time of filing the application for registration of a trademark, the applicant must indicate the products and / or services for which he wants to obtain the protection choosing among assets and services present in the International Classification of Nice referred to the related Agreement of 1957 (today at the eleventh edition issued on 01.01.2019). Indeed, following the leading IP Translator case (Judgment of the EU Court of Justice of 19 June 2012, C-307/10), the applicant is required to identify, within each class, the each good or service for which he invokes the protection, so as to correctly delimit the protection of the brand.
Beyond the aforementioned ordinary marks, there are some signs that, over time, have acquired a certain notoriety for which, as envisaged by the hypothesis sub c), the protection also extends to the products and / or services that are not similar (even less identical) to those for which the trademark is registered.
The ratio underlying the aforementioned rule is to contrast the counterfeiting phenomenon due to the undue appropriation of merits. In the fashion sector, for example, we often see counterfeit behaviors aimed at exploiting parasitically the commercial start-up of the most famous brands in order to induce the consumer to purchase the product in light of the higher qualities – in the broad sense – of the product.
The protection granted by the regulation in question is therefore aimed at protecting the so-called “selling power” of the trademark, understood as a high sales capacity due to the evocative and suggestive function of the brand, also due to the huge advertising investments made by the owner of the brand itself, and able to go beyond the limits of the affinity of the product sector to which the brand belongs.
In fact, we talk about “ultra-market” protection – which is independent of the likelihood of confusion referred to in sub-letter b) – which can be invoked when certain conditions are met.
First of all, the owner has the burden of proving that his own sign is well-known, both at a territorial level and with reference to the interested public.
But what does reputation mean and what are the assumptions needed? In the silence of the law, the case law, with the famous General Motors ruling (EC Court of Justice, 14 September 1999, C-375/97) defined it as “the sign’s aptitude to communicate a message to which it is possible linking up also in the absence of a confusion on the origin”, confirming that the protection can be granted if the trademark is known by a significant part of the public interested in the products or services it distinguishes.”
According to the Court, among the parameters that the national court must take into account in determining the degree of the reputation of a mark are market share, intensity, geographical scope and duration of its use, as well as the investments made by the company to promote it.
Of course, the greater the reputation of the brand, the greater the extension of the protection to include less and less similar product sectors.
The relevant public, the Court continues, “is that interested in this trademark, that is, according to the product or service placed on the market, the general public or a more specialized public, for example, a specific professional environment”.
Furthermore, the reputation must also have a certain territorial extension and, to this purpose, the aforesaid decision specified that the requirement met if the reputation is spread in a substantial part of the EU States, taking into account both the size of the area geographical area concerned as well as the number of persons present therein.
For the EU trademark, the Court of Justice, with the decision Pago International (EC Court of Justice, 6 October 2009, C ‑ 301/07) ruled that the mark must be known “by a significant part of the public interested in the products or services marked by the trademark, in a substantial part of the territory of the Community” and that, taking into account the circumstances of the specific case, “the entire territory of a Member State” – in this case it was Austria – “can be considered substantial part of the territory of the Community”. This interpretation, indeed, is a consequence of the fact that the protection of an EU trademark extends to the whole territory of the European Union.
In order to obtain the protection of the renowned brand, there is no need for the similarity between the signs to create a likelihood of confusion. However, there must be a connection (a concept taken up several times by European and national jurisprudence) between the two marks in the sense that the later mark must evoke the earlier one in the mind of the average consumer.
In order to be able to take advantage of the “cross-market” protection, the aforementioned rules require the trademark owner to be able to provide adequate evidence that the appropriation of the sign by third parties constitutes an unfair advantage for them or, alternatively, that damages the owner himself. Of course, the alleged infringer shall be able to prove his right reason that, as such, can constitute a suitable factor to win the protection granted.
Moreover, the owner of the trademark is not obliged to prove an actual injury, as it is sufficient, according to the case law, “future hypothetical risk of undue advantage or prejudice“, although serious and concrete.
The damage could concern the distinctiveness of the earlier trademark and occurs, “when the capability of the trademark to identify the products or services for which it was registered and is used is weakened due to the fact that the use of the later trademark causes the identity of the earlier trade mark and of the ‘corresponding enterprise in the public mind”.
Likewise, the prejudice could also concern the reputation and it occurs when the use for the products or services offered by the third party can be perceived by the public in such a way that the power of the well-known brand is compromised. This occurs both in the case of an obscene or degrading use of the earlier mark, and when the context in which the later mark is inserted is incompatible with the image that the renowned brand has built over time, perhaps through expensive marketing campaigns.
Finally, the unfair advantage occurs when the third party parasitically engages its trademark with the reputation or distinctiveness of the renowned brand, taking advantage of it.
One of the most recent examples of cross-market protection has involved Barilla and a textile company for having marketed it cushions that reproduced the shapes of some of the most famous biscuits, marking them with the same brands first and then, after a cease and desist letter, with the names of the same biscuits with the addition of the suffix “-oso” (“Abbraccioso”, “Pandistelloso”, etc.). Given the good reputation acquired by the brands of the well-known food company, its brands have been recognized as worthy of the aforementioned protection extended to non-related services and products. The Court of Milan, in fact, with a decision dated January 25, 2018, ruled, among other things, that the conduct perpetrated by the textile company, attributing to its products the merits of those of Barilla, has configured a hypothesis of unfair competition parasitic for the appropriation of merits, pursuant to art. 2598 c.c. The reputation of the word and figurative marks registered by Barilla, in essence, has allowed protecting even non-similar products, given the undue advantage deriving from the renown of the sign of others.
The author of this article is Giacomo Gori.
印度 
欧洲 
波兰 
墨西哥 
德国 写信给 Mattia
International distribution agreements | 7 lessons from the history of Nike
25 2 月 2023
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意大利
- 契约
- 分销协议
- 知识产权
- 商标和专利
Summary
Artist Mason Rothschild created a collection of digital images named “MetaBirkins”, each of which depicted a unique image of a blurry faux-fur covered the iconic Hermès bags, and sold them via NFT without any (license) agreement with the French Maison. HERMES brought its trademark action against Rothschild on January 14, 2022.
A Manhattan federal jury of nine persons returned after the trial a verdict stating that Mason Rothschild’s sale of the NFT violated the HERMES’ rights and committed trademark infringement, trademark dilution, and cybersquatting (through the use of the domain name “www.metabirkins.com”) because the US First Amendment protection could not apply in this case and awarded HERMES the following damages: 110.000 US$ as net profit earned by Mason Rothschild and 23.000 US$ because of cybersquatting.
The sale of approx. 100 METABIRKIN NFTs occurred after a broad marketing campaign done by Mason Rothschild on social media.
Rothschild’s defense was that digital images linked to NFT “constitute a form of artistic expression” i.e. a work of art protected under the First Amendment and similar to Andy Wahrhol’s paintings of Campbell’s soup cans. The aim of the defense was to have the “Rogers” legal test (so-called after the case Rogers vs Grimaldi) applied, according to which artists are entitled to use trademarks without permission as long as the work has an artistic value and is not misleading the consumers.
NFTs are digital record (a sort of “digital deed”) of ownership typically recorded in a publicly accessible ledger known as blockchain. Rothschild also commissioned computer engineers to operationalize a “smart contract” for each of the NFTs. A smart contract refers to a computer code that is also stored in the blockchain and that determines the name of each of the NFTs, constrains how they can be sold and transferred, and controls which digital files are associated with each of the NFTs.
The smart contract and the NFT can be owned by two unrelated persons or entities, like in the case here, where Rothschild maintained the ownership of the smart contract but sold the NFT.
“Individuals do not purchase NFTs to own a “digital deed” divorced to any other asset: they buy them precisely so that they can exclusively own the content associated with the NFT” (in this case the digital images of the MetaBirkin”), we can read in the Opinion and Order. The relevant consumers did not distinguish the NFTs offered by Rothschild from the underlying MetaBirkin image associated to the NFT.
The question was whether or not there was a genuine artistic expression or rather an unlawful intent to cash in on an exclusive valuable brand name like HERMES.
Mason Rothschild’s appeal to artistic freedom was not considered grounded since it came out that Rothschild was pursuing a commercial rather than an artistic end, further linking himself to other famous brands: Rothschild remarked that “MetaBirkins NFTs might be the next blue chip”. Insisting that he “was sitting on a gold mine” and referring to himself as “marketing king”, Rothschild “also discussed with his associates further potential future digital projects centered on luxury projects such watch NFTs called “MetaPateks” and linked to the famous Swiss luxury watches Patek Philippe.
TAKE AWAY: This is the first US decision on NFT and IP protection for trademarks.
The debate (i) between the protection of the artistic work and the protection of the trademark or other industrial property rights or (ii) between traditional artistic work and subsequent digital reinterpretation by a third party other than the original author, will lead to other decisions (in Italy, we recall the injunction order issued on 20-7-2022 by the Court of Rome in favour of the Juventus football team against the company Blockeras, producer of NFT associated with collectible digital figurines depicting the footballer Bobo Vieri, without Juventus’ licence or authorisation). This seems to be a similar phenomenon to that which gave rise some 15 years ago to disputes between trademark owners and owners of domain names incorporating those trademarks. For the time being, trademark and IP owners seem to have the upper hand, especially in disputes that seem more commercial than artistic.
For an assessment of the importance and use of NFT and blockchain in association also with IP rights, you can read more here.
Summary
Phil Knight, the founder of Nike, imported the Japanese brand Onitsuka Tiger into the US market in 1964 and quickly gained a 70% share. When Knight learned Onitsuka was looking for another distributor, he created the Nike brand. This led to two lawsuits between the two companies, but Nike eventually won and became the most successful sportswear brand in the world. This article looks at the lessons to be learned from the dispute, such as how to negotiate an international distribution agreement, contractual exclusivity, minimum turnover clauses, duration of the contract, ownership of trademarks, dispute resolution clauses, and more.
What I talk about in this article
- The Blue Ribbon vs. Onitsuka Tiger dispute and the birth of Nike
- How to negotiate an international distribution agreement
- Contractual exclusivity in a commercial distribution agreement
- Minimum Turnover clauses in distribution contracts
- Duration of the contract and the notice period for termination
- Ownership of trademarks in commercial distribution contracts
- The importance of mediation in international commercial distribution agreements
- Dispute resolution clauses in international contracts
- How we can help you
The Blue Ribbon vs Onitsuka Tiger dispute and the birth of Nike
Why is the most famous sportswear brand in the world Nike and not Onitsuka Tiger?
Shoe Dog is the biography of the creator of Nike, Phil Knight: for lovers of the genre, but not only, the book is really very good and I recommend reading it.
Moved by his passion for running and intuition that there was a space in the American athletic shoe market, at the time dominated by Adidas, Knight was the first, in 1964, to import into the U.S. a brand of Japanese athletic shoes, Onitsuka Tiger, coming to conquer in 6 years a 70% share of the market.
The company founded by Knight and his former college track coach, Bill Bowerman, was called Blue Ribbon Sports.
The business relationship between Blue Ribbon-Nike and the Japanese manufacturer Onitsuka Tiger was, from the beginning, very turbulent, despite the fact that sales of the shoes in the U.S. were going very well and the prospects for growth were positive.
When, shortly after having renewed the contract with the Japanese manufacturer, Knight learned that Onitsuka was looking for another distributor in the U.S., fearing to be cut out of the market, he decided to look for another supplier in Japan and create his own brand, Nike.
Upon learning of the Nike project, the Japanese manufacturer challenged Blue Ribbon for violation of the non-competition agreement, which prohibited the distributor from importing other products manufactured in Japan, declaring the immediate termination of the agreement.
In turn, Blue Ribbon argued that the breach would be Onitsuka Tiger’s, which had started meeting other potential distributors when the contract was still in force and the business was very positive.
This resulted in two lawsuits, one in Japan and one in the U.S., which could have put a premature end to Nike’s history.
Fortunately (for Nike) the American judge ruled in favor of the distributor and the dispute was closed with a settlement: Nike thus began the journey that would lead it 15 years later to become the most important sporting goods brand in the world.
Let’s see what Nike’s history teaches us and what mistakes should be avoided in an international distribution contract.
How to negotiate an international commercial distribution agreement
In his biography, Knight writes that he soon regretted tying the future of his company to a hastily written, few-line commercial agreement at the end of a meeting to negotiate the renewal of the distribution contract.
What did this agreement contain?
The agreement only provided for the renewal of Blue Ribbon’s right to distribute products exclusively in the USA for another three years.
It often happens that international distribution contracts are entrusted to verbal agreements or very simple contracts of short duration: the explanation that is usually given is that in this way it is possible to test the commercial relationship, without binding too much to the counterpart.
This way of doing business, though, is wrong and dangerous: the contract should not be seen as a burden or a constraint, but as a guarantee of the rights of both parties. Not concluding a written contract, or doing so in a very hasty way, means leaving without clear agreements fundamental elements of the future relationship, such as those that led to the dispute between Blue Ribbon and Onitsuka Tiger: commercial targets, investments, ownership of brands.
If the contract is also international, the need to draw up a complete and balanced agreement is even stronger, given that in the absence of agreements between the parties, or as a supplement to these agreements, a law with which one of the parties is unfamiliar is applied, which is generally the law of the country where the distributor is based.
Even if you are not in the Blue Ribbon situation, where it was an agreement on which the very existence of the company depended, international contracts should be discussed and negotiated with the help of an expert lawyer who knows the law applicable to the agreement and can help the entrepreneur to identify and negotiate the important clauses of the contract.
Territorial exclusivity, commercial objectives and minimum turnover targets
The first reason for conflict between Blue Ribbon and Onitsuka Tiger was the evaluation of sales trends in the US market.
Onitsuka argued that the turnover was lower than the potential of the U.S. market, while according to Blue Ribbon the sales trend was very positive, since up to that moment it had doubled every year the turnover, conquering an important share of the market sector.
When Blue Ribbon learned that Onituska was evaluating other candidates for the distribution of its products in the USA and fearing to be soon out of the market, Blue Ribbon prepared the Nike brand as Plan B: when this was discovered by the Japanese manufacturer, the situation precipitated and led to a legal dispute between the parties.
The dispute could perhaps have been avoided if the parties had agreed upon commercial targets and the contract had included a fairly standard clause in exclusive distribution agreements, i.e. a minimum sales target on the part of the distributor.
In an exclusive distribution agreement, the manufacturer grants the distributor strong territorial protection against the investments the distributor makes to develop the assigned market.
In order to balance the concession of exclusivity, it is normal for the producer to ask the distributor for the so-called Guaranteed Minimum Turnover or Minimum Target, which must be reached by the distributor every year in order to maintain the privileged status granted to him.
If the Minimum Target is not reached, the contract generally provides that the manufacturer has the right to withdraw from the contract (in the case of an open-ended agreement) or not to renew the agreement (if the contract is for a fixed term) or to revoke or restrict the territorial exclusivity.
In the contract between Blue Ribbon and Onitsuka Tiger, the agreement did not foresee any targets (and in fact the parties disagreed when evaluating the distributor’s results) and had just been renewed for three years: how can minimum turnover targets be foreseen in a multi-year contract?
In the absence of reliable data, the parties often rely on predetermined percentage increase mechanisms: +10% the second year, + 30% the third, + 50% the fourth, and so on.
The problem with this automatism is that the targets are agreed without having available the real data on the future trend of product sales, competitors’ sales and the market in general, and can therefore be very distant from the distributor’s current sales possibilities.
For example, challenging the distributor for not meeting the second or third year’s target in a recessionary economy would certainly be a questionable decision and a likely source of disagreement.
It would be better to have a clause for consensually setting targets from year to year, stipulating that targets will be agreed between the parties in the light of sales performance in the preceding months, with some advance notice before the end of the current year. In the event of failure to agree on the new target, the contract may provide for the previous year’s target to be applied, or for the parties to have the right to withdraw, subject to a certain period of notice.
It should be remembered, on the other hand, that the target can also be used as an incentive for the distributor: it can be provided, for example, that if a certain turnover is achieved, this will enable the agreement to be renewed, or territorial exclusivity to be extended, or certain commercial compensation to be obtained for the following year.
A final recommendation is to correctly manage the minimum target clause, if present in the contract: it often happens that the manufacturer disputes the failure to reach the target for a certain year, after a long period in which the annual targets had not been reached, or had not been updated, without any consequences.
In such cases, it is possible that the distributor claims that there has been an implicit waiver of this contractual protection and therefore that the withdrawal is not valid: to avoid disputes on this subject, it is advisable to expressly provide in the Minimum Target clause that the failure to challenge the failure to reach the target for a certain period does not mean that the right to activate the clause in the future is waived.
The notice period for terminating an international distribution contract
The other dispute between the parties was the violation of a non-compete agreement: the sale of the Nike brand by Blue Ribbon, when the contract prohibited the sale of other shoes manufactured in Japan.
Onitsuka Tiger claimed that Blue Ribbon had breached the non-compete agreement, while the distributor believed it had no other option, given the manufacturer’s imminent decision to terminate the agreement.
This type of dispute can be avoided by clearly setting a notice period for termination (or non-renewal): this period has the fundamental function of allowing the parties to prepare for the termination of the relationship and to organize their activities after the termination.
In particular, in order to avoid misunderstandings such as the one that arose between Blue Ribbon and Onitsuka Tiger, it can be foreseen that during this period the parties will be able to make contact with other potential distributors and producers, and that this does not violate the obligations of exclusivity and non-competition.
In the case of Blue Ribbon, in fact, the distributor had gone a step beyond the mere search for another supplier, since it had started to sell Nike products while the contract with Onitsuka was still valid: this behavior represents a serious breach of an exclusivity agreement.
A particular aspect to consider regarding the notice period is the duration: how long does the notice period have to be to be considered fair? In the case of long-standing business relationships, it is important to give the other party sufficient time to reposition themselves in the marketplace, looking for alternative distributors or suppliers, or (as in the case of Blue Ribbon/Nike) to create and launch their own brand.
The other element to be taken into account, when communicating the termination, is that the notice must be such as to allow the distributor to amortize the investments made to meet its obligations during the contract; in the case of Blue Ribbon, the distributor, at the express request of the manufacturer, had opened a series of mono-brand stores both on the West and East Coast of the U.S.A..
A closure of the contract shortly after its renewal and with too short a notice would not have allowed the distributor to reorganize the sales network with a replacement product, forcing the closure of the stores that had sold the Japanese shoes up to that moment.
Generally, it is advisable to provide for a notice period for withdrawal of at least 6 months, but in international distribution contracts, attention should be paid, in addition to the investments made by the parties, to any specific provisions of the law applicable to the contract (here, for example, an in-depth analysis for sudden termination of contracts in France) or to case law on the subject of withdrawal from commercial relations (in some cases, the term considered appropriate for a long-term sales concession contract can reach 24 months).
Finally, it is normal that at the time of closing the contract, the distributor is still in possession of stocks of products: this can be problematic, for example because the distributor usually wishes to liquidate the stock (flash sales or sales through web channels with strong discounts) and this can go against the commercial policies of the manufacturer and new distributors.
In order to avoid this type of situation, a clause that can be included in the distribution contract is that relating to the producer’s right to repurchase existing stock at the end of the contract, already setting the repurchase price (for example, equal to the sale price to the distributor for products of the current season, with a 30% discount for products of the previous season and with a higher discount for products sold more than 24 months previously).
Trademark Ownership in an International Distribution Agreement
During the course of the distribution relationship, Blue Ribbon had created a new type of sole for running shoes and coined the trademarks Cortez and Boston for the top models of the collection, which had been very successful among the public, gaining great popularity: at the end of the contract, both parties claimed ownership of the trademarks.
Situations of this kind frequently occur in international distribution relationships: the distributor registers the manufacturer’s trademark in the country in which it operates, in order to prevent competitors from doing so and to be able to protect the trademark in the case of the sale of counterfeit products; or it happens that the distributor, as in the dispute we are discussing, collaborates in the creation of new trademarks intended for its market.
At the end of the relationship, in the absence of a clear agreement between the parties, a dispute can arise like the one in the Nike case: who is the owner, producer or distributor?
In order to avoid misunderstandings, the first advice is to register the trademark in all the countries in which the products are distributed, and not only: in the case of China, for example, it is advisable to register it anyway, in order to prevent third parties in bad faith from taking the trademark (for further information see this post on Legalmondo).
It is also advisable to include in the distribution contract a clause prohibiting the distributor from registering the trademark (or similar trademarks) in the country in which it operates, with express provision for the manufacturer’s right to ask for its transfer should this occur.
Such a clause would have prevented the dispute between Blue Ribbon and Onitsuka Tiger from arising.
The facts we are recounting are dated 1976: today, in addition to clarifying the ownership of the trademark and the methods of use by the distributor and its sales network, it is advisable that the contract also regulates the use of the trademark and the distinctive signs of the manufacturer on communication channels, in particular social media.
It is advisable to clearly stipulate that the manufacturer is the owner of the social media profiles, of the content that is created, and of the data generated by the sales, marketing and communication activity in the country in which the distributor operates, who only has the license to use them, in accordance with the owner’s instructions.
In addition, it is a good idea for the agreement to establish how the brand will be used and the communication and sales promotion policies in the market, to avoid initiatives that may have negative or counterproductive effects.
The clause can also be reinforced with the provision of contractual penalties in the event that, at the end of the agreement, the distributor refuses to transfer control of the digital channels and data generated in the course of business.
Mediation in international commercial distribution contracts
Another interesting point offered by the Blue Ribbon vs. Onitsuka Tiger case is linked to the management of conflicts in international distribution relationships: situations such as the one we have seen can be effectively resolved through the use of mediation.
This is an attempt to reconcile the dispute, entrusted to a specialized body or mediator, with the aim of finding an amicable agreement that avoids judicial action.
Mediation can be provided for in the contract as a first step, before the eventual lawsuit or arbitration, or it can be initiated voluntarily within a judicial or arbitration procedure already in progress.
The advantages are many: the main one is the possibility to find a commercial solution that allows the continuation of the relationship, instead of just looking for ways for the termination of the commercial relationship between the parties.
Another interesting aspect of mediation is that of overcoming personal conflicts: in the case of Blue Ribbon vs. Onitsuka, for example, a decisive element in the escalation of problems between the parties was the difficult personal relationship between the CEO of Blue Ribbon and the Export manager of the Japanese manufacturer, aggravated by strong cultural differences.
The process of mediation introduces a third figure, able to dialogue with the parts and to guide them to look for solutions of mutual interest, that can be decisive to overcome the communication problems or the personal hostilities.
For those interested in the topic, we refer to this post on Legalmondo and to the replay of a recent webinar on mediation of international conflicts.
Dispute resolution clauses in international distribution agreements
The dispute between Blue Ribbon and Onitsuka Tiger led the parties to initiate two parallel lawsuits, one in the US (initiated by the distributor) and one in Japan (rooted by the manufacturer).
This was possible because the contract did not expressly foresee how any future disputes would be resolved, thus generating a very complicated situation, moreover on two judicial fronts in different countries.
The clauses that establish which law applies to a contract and how disputes are to be resolved are known as “midnight clauses“, because they are often the last clauses in the contract, negotiated late at night.
They are, in fact, very important clauses, which must be defined in a conscious way, to avoid solutions that are ineffective or counterproductive.
How we can help you
The construction of an international commercial distribution agreement is an important investment, because it sets the rules of the relationship between the parties for the future and provides them with the tools to manage all the situations that will be created in the future collaboration.
It is essential not only to negotiate and conclude a correct, complete and balanced agreement, but also to know how to manage it over the years, especially when situations of conflict arise.
Legalmondo offers the possibility to work with lawyers experienced in international commercial distribution in more than 60 countries: write us your needs.
In this internet age, the limitless possibilities of reaching customers across the globe to sell goods and services comes the challenge of protecting one’s Intellectual Property Right (IPR). Talking specifically of trademarks, like most other forms of IPR, the registration of a trademark is territorial in nature. One would need a separate trademark filing in India if one intends to protect the trademark in India.
But what type of trademarks are allowed registration in India and what is the procedure and what are the conditions?
The Office of the Controller General of Patents, Designs and Trade Marks (the Registry) is the government body responsible for the administration of trademarks in India. When seeking trademark registration, you will need an address for service in India and a local agent or attorney. The application can be filed online or by paper at the Registry. Based on the originality and uniqueness of the trademark, and subject to opposition or infringement claims by third parties, the registration takes around 18-24 months or even more.
Criteria for adopting and filing a trademark in India
To be granted registration, the trademark should be:
- non-generic
- non-descriptive
- not-identical
- non–deceptive
Trademark Search
It is not mandatory to carry out a trademark search before filing an application. However, the search is recommended so as to unearth conflicting trademarks on file.
How to make the application?
One can consider making a trademark application in the following ways:
- a fresh trademark application through a local agent or attorney;
- application under the Paris Convention: India being a signatory to the Paris Convention for the Protection of Industrial Property, a convention application can be filed by claiming priority of a previously filed international application. For claiming such priority, the applicant must file a certified copy of the priority document, i.e., the earlier filed international application that forms the basis of claim for priority in India;
- application through the Madrid Protocol: India acceded to the Madrid Protocol in 2013 and it is possible to designate India in an international application.
Objection by the Office – Grounds of Refusal
Within 2-4 months from the date of filing of the trademark application (4-6 months in the case of Madrid Protocol applications), the Registry conducts an examination and sometimes issues an office action/examination report raising objections. The applicant must respond to the Registry within one month. If the applicant fails to respond, the trademark application will be deemed abandoned.
A trademark registration in India can be refused by the Registry for absolute grounds such as (i) the trademark being devoid of any distinctive character (ii) trademark consists of marks that designate the kind, quality, quantity values, geographic origins or time or production of the goods or services (iii) the trademark causes confusion or deceives public. A relative ground for refusal is generally when a trademark is similar or deceptively similar to an earlier trademark.
Objection Hearing
When the Registry is not satisfied with the response, a hearing is scheduled within 8-12 months. During the hearing, the Registry either accepts or rejects the registration.
Publication in TM journal
After acceptance for registration, the trademark will be published in the Trade Marks Journal.
Third Party Opposition
Any person can oppose the trademark within four months of the date of publication in the journal. If there is no opposition within 4-months, the mark would be granted protection by the Registry. An opposition would lead to prosecution proceedings that take around 12-18 months for completion.
Validity of Trademark Registration
The registration dates back to the date of the application and is renewable every 10 years.
“Use of Mark” an important condition for trademark registration
- “First to Use” Rule over “First-to-File” Rule: An application in India can be filed on an “intent to use” basis or by claiming “prior use” of the trademark in India. Unlike other jurisdictions, India follows “first to use” rule over the “first-to-file” rule. This means that the first person who can prove significant use of a trade mark in India will generally have superior rights over a person who files a trade mark application prior but with a later user date or acquires registration prior but with a later user date.
- Spill-over Reputation considered as Use: Given the territorial protection granted for trademarks, the Indian Trademark Law protects the spill-over reputation of overseas trademark even where the trademark has not been used and/or registered in India. This is possible because knowledge of the trademark in India and the reputation acquired through advertisements on television, Internet and publications can be considered as valid proof of use.
Descriptive Marks to acquire distinctiveness to be eligible for registration
Unlike in the US, Indian trademark law does not generally permit registration of a descriptive trademark. A descriptive trademark is a word that identifies the characteristics of the product or service to which the trademark pertains. It is similar to an adjective. An example of descriptive marks is KOLD AND KREAMY for ice cream and CHOCO TREAT in respect of chocolates. However, several courts in India have interpreted that descriptive trademark can be afforded registration if due to its prolonged use in trade it has lost its primary descriptive meaning and has become distinctive in relation to the goods it deals with. Descriptive marks always have to be supported with evidence (preferably from before the date of application for registration) to show that the trademark has acquired a distinctive character as a result of the use made of it or that it was a well-known trademark.
Acquired distinctiveness a criterion for trademark protection
Even if a trademark lacks inherent distinctiveness, it can still be registered if it has acquired distinctiveness through continuous and extensive use. All one has to prove is that before the date of application for registration:
- the trademark has acquired a distinctive character as a result of use;
- established a strong reputation and goodwill in the market; and
- the consumers relate only to the trademark for the respective product or services due to its continuous use.
How can one stop someone from misusing or copying the trademark in India?
An action of passing off or infringement can be taken against someone copying or misusing a trademark.
For unregistered trademarks, a common law action of passing off can be initiated. The passing off of trademarks is a tort actionable under common law and is mainly used to protect the goodwill attached to unregistered trademarks. The owner of the unregistered trademark has to establish its trademark rights by substantiating the trademark’s prior use in India or trans-border reputation in India and prove that the two marks are either identical or similar and there is likelihood of confusion.
For Registered trademarks, a statutory action of infringement can be initiated. The registered proprietor only needs to prove the similarity between the marks and the likelihood of confusion is presumed.
In both the cases, a court may grant relief of injunction and /or monetary compensation for damages for loss of business and /or confiscation or destruction of infringing labels etc. Although registration of trademark is prima facie evidence of validity, registration cannot upstage a prior consistent user of trademark for the rule is ‘priority in adoption prevails over priority in registration’.
Appeals
Any decision of the Registrar of Trademarks can be appealed before the high courts within three months of the Registrar’s order.
It’s thus preferable to have a strategy for protecting trademarks before entering the Indian market. This includes advertising in publications and online media that have circulation and accessibility in India, collating all relevant records evidencing the first use of the mark in India, taking offensive action against the infringing local entity, or considering negotiations depending upon the strength of the foreign mark and the transborder reputation it carries.
Summary – The company that incurs into a counterfeiting of its Community design shall not start as many disputes as are the countries where the infringement has been carried out: it will be sufficient to start a lawsuit in just one court of the Union, in its capacity as Community design court, and get a judgement against a counterfeiter enforceable in different, or even all, Countries of the European Union.
Italian companies are famous all over the world thanks to their creative abilities regarding both industrial inventions and design: in fact, they often make important economic investments in order to develop innovative solutions for the products released on the market.
Such investments, however, must be effectively protected against cases of counterfeiting that, unfortunately, are widely spread and ever more realizable thanks to the new technologies such as the e-commerce. Companies must be very careful in protecting their own products, at least in the whole territory of the European Union, since counterfeiting inevitably undermines the efforts made for the research of an original product.
In this respect the content of a recent judgement issued by the Court of Milan, section specialized in business matters, No. 2420/2020, appears very significant since it shows that it is possible and necessary, in case of counterfeiting (in this case the matter is the counterfeiting of a Community design) to promptly take a legal action, that is to start a lawsuit to the competent Court specialized in business matters.
The Court, by virtue of the EU Regulation No. 6/2002, will issue an order (an urgent and protective remedy ante causam or a judgement at the end of the case) effective in the whole European territory so preventing any extra UE counterfeiter from marketing, promoting and advertising a counterfeited product.
The Court of Milan, in this specific case, had to solve a dispute aroused between an Italian company producing a digital flowmeter, being the subject of a Community registration, and a competitor based in Hong Kong. The Italian company alleged that the latter had put on the European market some flow meters in infringement of a Community design held by the first.
First of all, the panel of judges effected a comparison between the Community design held by the Italian company (plaintiff) and the flow meter manufactured and distributed by the Hong Kong company (defendant). The judges noticed that the latter actually coincided both for dimensions and proportions with the first so that even an expert in the field (the so-called informed user) could mistake the product of the defendant company with that of the plaintiff company owner of the Community design.
The Court of Milan, in its capacity as Community designs court, after ascertaining the counterfeiting, in the whole European territory, carried out by the defendant at the expense of the plaintiff, with judgement No. 2420/2020 prohibited, by virtue of articles 82, 83 and 89 of the EU Regulation No. 6/2002, the Hong Kong company to publicize, offer for sale, import and market, by any means and methods, throughout the European Union, even through third parties, the flow meter subject to the present judgement, with any name if presenting similar characteristics.
The importance of this judgement lies in its effects spread all over the territory of the European Union. This is not a small thing since the company that incurs into a counterfeiting of its Community design shall not start as many disputes as are the countries where the infringement has been carried out: it will be sufficient for this company to start a lawsuit in just one court of the Union, in its capacity as Community design court, and get a judgement against a counterfactor who makes an illicit in different, or even all, Countries of the European Union.
Said judgement will be even more effective if we consider that, by virtue of the UE Customs Regulation No. 608/2013, the company will be able to communicate the existence of a counterfeited product to the customs of the whole European territory (through a single request filed with the customs with the territorial jurisdiction) in order to have said products blocked and, in case, destroyed.
Summary – What can the owner (or licensee) of a trademark do if an unauthorized third party resells products with its trademark on an online platform? This issue was addressed in the judgment of C-567/18 of 2 April 2020, in which the Court of Justice of the European Union confirmed that platforms (Amazon Marketplace, in this case) storing goods which infringe trademark rights are not liable for such infringement, unless the platform puts them on the market or is aware of the infringement. Conversely, platforms (such as Amazon Retail) that contribute to the distribution or resell the products themselves may be liable.
Background
Coty – a German company, distributor of perfumes, holding a licence for the EU trademark “Davidoff” – noted that third-party sellers were offering on Amazon Marketplace perfumes bearing the “Davidoff Hot Water” brand, which had been put in the EU market without its consent.
After reaching an agreement with one of the sellers, Coty sued Amazon in order to prevent it from storing and shipping those perfumes unless they were placed on the EU market with Coty’s consent. Both the Court of First Instance and the Court of Appeal rejected Coty’s request, which brought an appeal before the German Court of Cassation, which in turn referred the matter to the Court of Justice of the EU.
What is the Exhaustion of the rights conferred by a trademark
The principle of exhaustion is envisaged by EU law, according to which, once a good is put on the EU market, the proprietor of the trademark right on that specific good can no longer limit its use by third parties.
This principle is effective only if the entry of the good (the reference is to the individual product) on the market is done directly by the right holder, or with its consent (e.g. through an operator holding a licence).
On the contrary, if the goods are placed on the market by third parties without the consent of the proprietor, the latter may – by exercising the trademark rights established by art. 9, par. 3 of EU Regulation 2017/1001 – prohibit the use of the trademark for the marketing of the products.
By the legal proceedings which ended before the Court of Justice of the EU, Coty sought to enforce that right also against Amazon, considering it to be a user of the trademark, and therefore liable for its infringement.
What is the role of Amazon?
The solution of the case revolves around the role of the web platform.
Although Amazon provides users with a unique search engine, it hosts two radically different sales channels. Through the Amazon Retail channel, the customer buys products directly from the Amazon company, which operates as a reseller of products previously purchased from third party suppliers.
The Amazon Marketplace, on the other hand, displays products owned by third-party vendors, so purchase agreements are concluded between the end customer and the vendor. Amazon gets a commission on these transactions, while the vendor assumes the responsibility for the sale and can manage the prices of the products independently.
According to the German courts which rejected Coty’s claims in the first and second instance, Amazon Marketplace essentially acts as a depository, without offering the goods for sale or putting them on the market.
Coty, vice versa, argues that Amazon Marketplace, by offering various marketing-services (including: communication with potential customers in order to sell the products; provision of the platform through which customers conclude the contract; and consistent promotion of the products, both on its website and through advertisements on Google), can be considered as a “user” of the trademark, within the meaning of Article 9, paragraph 3 of EU Regulation 2017/1001.
The decision of the Court of Justice of the European Union
Advocate General Campos Sanchez-Bordona, in the opinion delivered on 28 November 2019, had suggested to the Court to distinguish between: the mere depositaries of the goods, not to be considered as “users” of the trademark for the purposes of EU Regulation 2017/1001; and those who – in addition to providing the deposit service – actively participate in the distribution of the goods. These latter, in the light of art. 9, par. 3, letter b) of EU Regulation 2017/1001, should be considered as “users” of the trademark, and therefore directly responsible in case of infringements.
The Bundesgerichtshof (Federal Court of Justice of Germany), however, had already partially answered the question when it referred the matter to the European Court, stating that Amazon Marketplace “merely stored the goods concerned, without offering them for sale or putting them on the market”, both operations carried out solely by the vendor.
The EU Court of Justice ruled the case on the basis of some precedents, in which it had already stated that:
- The expression “using” involves at the very least, the use of the sign in the commercial communication. A person may thus allow its clients to use signs which are identical or similar to trademarks without itself using those signs (see Google vs Louis Vuitton, Joined Cases C-236/08 to C-238/08, par. 56).
- With regard to e-commerce platforms, the use of the sign identical or similar to a trademark is made by the sellers, and not by the platform operator (see L’Oréal vs eBay, C‑324/09, par. 103).
- The service provider who simply performs a technical part of the production process cannot be qualified as a “user” of any signs on the final products. (see Frisdranken vs Red Bull, C‑119/10, par. 30. Frisdranken is an undertaking whose main activity is filling cans, supplied by a third party, already bearing signs similar to Redbull’s registered trademarks).
On the basis of that case-law and the qualification of Amazon Marketplace provided by the referring court, the European Court has ruled that a company which, on behalf of a third party, stores goods which infringe trademark rights, if it is not aware of that infringement and does not offer them for sale or place them on the market, is not making “use” of the trademark and, therefore, is not liable to the proprietor of the rights to that trademark.
Conclusion
After Coty had previously been the subject of a historic ruling on the matter (C-230/16 – link to the Legalmondo previous post), in this case the Court of Justice decision confirmed the status quo, but left the door open for change in the near future.
A few considerations on the judgement, before some practical tips:
- The Court did not define in positive terms the criteria for assessing whether an online platform performs sufficient activity to be considered as a user of the sign (and therefore liable for any infringement of the registered trademark). This choice is probably dictated by the fact that the criteria laid down could have been applied (including to the various companies belonging to the Amazon group) in a non-homogeneous manner by the various Member States’ national courts, thus jeopardising the uniform application of European law.
- If the Court of Justice had decided the case the other way around, the ruling would have had a disruptive impact not only on Amazon’s Marketplace, but on all online operators, because it would have made them directly responsible for infringements of IP rights by third parties.
- If the perfumes in question had been sold through Amazon Retail, there would have been no doubt about Amazon’s responsibility: through this channel, sales are concluded directly between Amazon and the end customer.
- The Court has not considered whether: (i) Amazon could be held indirectly liable within the meaning of Article 14(1) of EU Directive 2000/31, as a “host” which – although aware of the illegal activity – did not prevent it; (ii) under Article 11 of EU Directive 2004/48, Coty could have acted against Amazon as an intermediary whose services are used by third parties to infringe its IP right. Therefore, it cannot be excluded that Amazon may be held (indirectly) liable for the infringements committed, including on the Marketplace: this aspect will have to be examined in detail on a case-by-case basis.
Practical tips
What can the owner (or licensee) of a trademark do if an unauthorized third party resells products with its trademark on an online platform?
- Gather as much evidence as possible of the infringement in progress: the proof of the infringement is one of the most problematic aspects of IP litigation.
- Contact a specialized lawyer to send a cease-and-desist letter to the unauthorized seller, ordering the removal of the products from the platform and asking the compensation for damages suffered.
- If the products are not removed from the marketplace, the trademark owner might take legal action to obtain the removal of the products and compensation for damages.
- In light of the judgment in question, the online platforms not playing an active role in the resale of goods remain not directly responsible for IP violations. Nevertheless, it is suggested to consider sending the cease-and-desist letter to them as well, in order to put more pressure on the unauthorised seller.
- The sending of the cease-and-desist letter also to the platform – especially in the event of several infringements – may also be useful to demonstrate its (indirect) liability for lack of vigilance, as seen in point 4) of the above list.
Quick summary – Poland has recently introduced tax incentives which aim at promoting innovations and technology. The new support instrument for investors conducting R&D activity is named «IP Box» and allows for a preferential taxation of qualified profits made on commercialization of several types of qualified property rights. The preferential income tax rate amounts to 5%. By contrast, the general rate is in most cases 19%.
The Qualified Intellectual Property Rights
The intellectual property rights which may be the source of the qualified profit subject the preferential taxation are the following:
- rights to an invention (patents)
- additional protective rights for an invention
- rights for the utility model
- rights from the registration of an industrial design
- rights from registration of the integrated circuit topography
- additional protection rights for a patent for medicinal product or plant protection product
- rights from registration of medicinal or veterinary product
- rights from registration of new plant varieties and animal breeds, and
- rights to a computer program
The above catalogue of qualified intellectual property rights is exhaustive.
Conditions for the application of the Patent Box
A taxpayer may apply the preferential 5% rate on the condition that he or she has created, developed or improved these rights in the course of his/her R&D activities. A taxpayer may create intellectual property but it may also purchase or license it on the exclusive basis, provided that the taxpayer then incurs costs related to the development or improvement of the acquired right.
For example an IT company may create a computer program itself within its R&D activity or it may acquire it from a third party and develop it further. Future income received as a result of commercialization of this computer program may be subject to the tax relief.
The following kinds of income may be subject to tax relief:
- fees or charges arising from the license for qualified intellectual property rights
- the sale of qualified intellectual property rights
- qualified intellectual property rights included in the sale price of the products or services
- the compensation for infringement of qualified intellectual property rights if obtained in litigation proceedings, including court proceedings or arbitration.
How to calculate the tax base
The preferential tax rate is 5% on the tax base. The latter is calculated according to a special formula: the total income received from a particular IP is reduced by a significant part of expenditures on the R&D activities as well as on the creation, acquisition and development of this IP. The appropriate factor, named «nexus», is applied to calculate the tax base.
The tax relief is applicable at the end of the calendar year. This means that during the year the income tax advance payments are due according to the regular rate. Consequently in many instances the taxpayer will recover a part of the tax already paid during the previous calendar year.
It is advisable that the taxpayer applies for the individual tax ruling to the competent authority in order to receive a binding confirmation that its particular IP is eligible for the tax reduction.
It is also crucial that the taxpayer keeps the detailed accounting records of all R&D activities as well as the income and the expenses related to each R&D project (including employment costs). The records should reflect the link of incurred R&D costs with the income from intellectual property rights.
Obligations related to the application of the tax relief
In particular such a taxpayer is obliged to keep records which allow for monitoring and tracking the effects of research and development works. If, based on the accounting records kept by a taxpayer, it is not possible to determine the income (loss) from qualified intellectual property rights, the taxpayer will be obliged to pay the tax based on general rules.
The tax relief may be applied throughout the duration of the legal protection of eligible intellectual property rights.In case if a given IP is subject to notification or registration procedure (the expectative of obtaining a qualified intellectual property right), a taxpayer may benefit from tax relief from the moment of filing or submitting an application for registration. In case of withdrawal of the application, refusal of registration or rejection of the application , the amount of relief will have to be returned.
The above tax relief combined with a governmental programme of grant aid for R&D projects make Polish research, development and innovation environment more and more beneficial for investors.
Startups and Trademarks – Get it right from the Start
As a lawyer, I have been privileged to work closely with entrepreneurs of all backgrounds and ages (not just young people, a common stereotype on this field) and startups, providing legal advice on a wide range of areas.
Helping them build their businesses, I have identified a few recurrent mistakes, most of them arising mainly from the lack of experience on dealing with legal issues, and some others arising from the lack of understanding on the value added by legal advice, especially when we are referring to Intellectual Property (IP).
Both of them are understandable, we all know that startups (specially on an early stage of development) deal with the lack of financial resources and that the founders are pretty much focused on what they do best, which is to develop their own business model and structure, a new and innovative business.
Nevertheless it is important to stress that during this creation process a few important mistakes may happen, namely on IP rights, that can impact the future success of the business.
First, do not start from the end
When developing a figurative sign, a word trademark, an innovative technology that could be patentable or a software (source code), the first recommended step is to look into how to protect those creations, before showing it to third parties, namely investors or VC’s. This mistake is specially made on trademarks, as many times the entrepreneurs have already invested on the development of a logo and/or a trademark, they use it on their email signature, on their business presentations, but they have never registered the trademark as an IP right.
A non registered trademark is a common mistake and opens the door to others to copy it and to acquire (legally) rights over such distinctive sign. On the other hand, the lack of prior searches on preexisting IP rights may lead to trademark infringement, meaning that your amazing trademark is in fact infringing a preexisting trademark that you were not aware of.
Second, know what you are protecting
Basic mistake arises from those who did registered the trademark, but in a wrong or insufficient way: it is very common to see startups applying for a word trademark having a figurative element, when instead a trademark must be protected “as a whole” with their both signs (word and figurative element) in order to maximize the range of legal protection of your IP right.
Third, avoid the “classification nightmare”
The full comprehension and knowledge of the goods and services for which you apply for a trademark is decisive. It is strongly advisable for startup to have (at least) a medium term view of the business and request, on the trademark application, the full range of goods and services that they could sell or provide in the future and not only a short term view. Why? Because once the trademark application is granted it cannot be amended or added with additional goods and services. Only by requesting a new trademark application with all the costs involved in such operation.
The correct classification is crucial and decisive for a correct protection of your IP asset, especially on high technological startups where most of the time the high added value of the business arises from their IP.
On a brief, do not neglect IP, before is too late.
The author of this post is Josè Varanda
According to the article 20 of the Italian Code of Intellectual Property, the owner of a trademark has the right to prevent third parties, unless consent is given, from using:
- any sign which is identical to the trademark for goods or services which are identical to those for which the trademark is registered;
- any sign that is identical or similar to the registered trademark, for goods or services that are identical or similar, where due to the identity or similarity between the goods or services, there exists a likelihood of confusion on the part of the public, that can also consist of a likelihood of association of the two signs;
- any sign which is identical with or similar to the registered trademark in relation to goods or services which are not similar, where the registered trademark has a reputation in the Country and where use of that sign without due cause takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the trademark.
Similar provisions can be found in art. 9, n. 2 of the EU Regulation 2017/1001 on the European Union Trademark, even if in such a case the provision concerns trademarks that have a reputation.
The first two hypotheses concern the majority of the brands and the conflict between two signs that are identical for identical products or services (sub a), so-called double identity, or between two brands that are identical or similar for identical or similar products or services, if due to the identity or similarity between the signs and the identity or affinity between the products or services, there may be a risk of confusion for the public (sub b).
By “affinity” we mean a product similarity between the products or services (for example between socks and yarns) or a link between the needs that the products or services intended to satisfy (as often happens in the fashion sector, where it is usual for example that the same footwear manufacturer also offers belts for sale). It is not by chance that, although the relevance is administrative and the affinity is not defined, at the time of filing the application for registration of a trademark, the applicant must indicate the products and / or services for which he wants to obtain the protection choosing among assets and services present in the International Classification of Nice referred to the related Agreement of 1957 (today at the eleventh edition issued on 01.01.2019). Indeed, following the leading IP Translator case (Judgment of the EU Court of Justice of 19 June 2012, C-307/10), the applicant is required to identify, within each class, the each good or service for which he invokes the protection, so as to correctly delimit the protection of the brand.
Beyond the aforementioned ordinary marks, there are some signs that, over time, have acquired a certain notoriety for which, as envisaged by the hypothesis sub c), the protection also extends to the products and / or services that are not similar (even less identical) to those for which the trademark is registered.
The ratio underlying the aforementioned rule is to contrast the counterfeiting phenomenon due to the undue appropriation of merits. In the fashion sector, for example, we often see counterfeit behaviors aimed at exploiting parasitically the commercial start-up of the most famous brands in order to induce the consumer to purchase the product in light of the higher qualities – in the broad sense – of the product.
The protection granted by the regulation in question is therefore aimed at protecting the so-called “selling power” of the trademark, understood as a high sales capacity due to the evocative and suggestive function of the brand, also due to the huge advertising investments made by the owner of the brand itself, and able to go beyond the limits of the affinity of the product sector to which the brand belongs.
In fact, we talk about “ultra-market” protection – which is independent of the likelihood of confusion referred to in sub-letter b) – which can be invoked when certain conditions are met.
First of all, the owner has the burden of proving that his own sign is well-known, both at a territorial level and with reference to the interested public.
But what does reputation mean and what are the assumptions needed? In the silence of the law, the case law, with the famous General Motors ruling (EC Court of Justice, 14 September 1999, C-375/97) defined it as “the sign’s aptitude to communicate a message to which it is possible linking up also in the absence of a confusion on the origin”, confirming that the protection can be granted if the trademark is known by a significant part of the public interested in the products or services it distinguishes.”
According to the Court, among the parameters that the national court must take into account in determining the degree of the reputation of a mark are market share, intensity, geographical scope and duration of its use, as well as the investments made by the company to promote it.
Of course, the greater the reputation of the brand, the greater the extension of the protection to include less and less similar product sectors.
The relevant public, the Court continues, “is that interested in this trademark, that is, according to the product or service placed on the market, the general public or a more specialized public, for example, a specific professional environment”.
Furthermore, the reputation must also have a certain territorial extension and, to this purpose, the aforesaid decision specified that the requirement met if the reputation is spread in a substantial part of the EU States, taking into account both the size of the area geographical area concerned as well as the number of persons present therein.
For the EU trademark, the Court of Justice, with the decision Pago International (EC Court of Justice, 6 October 2009, C ‑ 301/07) ruled that the mark must be known “by a significant part of the public interested in the products or services marked by the trademark, in a substantial part of the territory of the Community” and that, taking into account the circumstances of the specific case, “the entire territory of a Member State” – in this case it was Austria – “can be considered substantial part of the territory of the Community”. This interpretation, indeed, is a consequence of the fact that the protection of an EU trademark extends to the whole territory of the European Union.
In order to obtain the protection of the renowned brand, there is no need for the similarity between the signs to create a likelihood of confusion. However, there must be a connection (a concept taken up several times by European and national jurisprudence) between the two marks in the sense that the later mark must evoke the earlier one in the mind of the average consumer.
In order to be able to take advantage of the “cross-market” protection, the aforementioned rules require the trademark owner to be able to provide adequate evidence that the appropriation of the sign by third parties constitutes an unfair advantage for them or, alternatively, that damages the owner himself. Of course, the alleged infringer shall be able to prove his right reason that, as such, can constitute a suitable factor to win the protection granted.
Moreover, the owner of the trademark is not obliged to prove an actual injury, as it is sufficient, according to the case law, “future hypothetical risk of undue advantage or prejudice“, although serious and concrete.
The damage could concern the distinctiveness of the earlier trademark and occurs, “when the capability of the trademark to identify the products or services for which it was registered and is used is weakened due to the fact that the use of the later trademark causes the identity of the earlier trade mark and of the ‘corresponding enterprise in the public mind”.
Likewise, the prejudice could also concern the reputation and it occurs when the use for the products or services offered by the third party can be perceived by the public in such a way that the power of the well-known brand is compromised. This occurs both in the case of an obscene or degrading use of the earlier mark, and when the context in which the later mark is inserted is incompatible with the image that the renowned brand has built over time, perhaps through expensive marketing campaigns.
Finally, the unfair advantage occurs when the third party parasitically engages its trademark with the reputation or distinctiveness of the renowned brand, taking advantage of it.
One of the most recent examples of cross-market protection has involved Barilla and a textile company for having marketed it cushions that reproduced the shapes of some of the most famous biscuits, marking them with the same brands first and then, after a cease and desist letter, with the names of the same biscuits with the addition of the suffix “-oso” (“Abbraccioso”, “Pandistelloso”, etc.). Given the good reputation acquired by the brands of the well-known food company, its brands have been recognized as worthy of the aforementioned protection extended to non-related services and products. The Court of Milan, in fact, with a decision dated January 25, 2018, ruled, among other things, that the conduct perpetrated by the textile company, attributing to its products the merits of those of Barilla, has configured a hypothesis of unfair competition parasitic for the appropriation of merits, pursuant to art. 2598 c.c. The reputation of the word and figurative marks registered by Barilla, in essence, has allowed protecting even non-similar products, given the undue advantage deriving from the renown of the sign of others.
The author of this article is Giacomo Gori.
