"Hungarians" and Hungarians attack the CTM

The IPKat has been busily perusing an undated document which is being circulated through Europe's corridors of IP power by a body calling itself "the Hungarian delegation". It's called Ten good reasons for not distributing the OHIM’s surplus to “users” and, as its name suggests, this document argues against the refund to overcharged users of the Community trade mark system of the sums they should not have had to pay in the first place.

Right: "Charge!" But what about the overcharge ...?

The document reads as follows:

"Introduction

In its “Contribution to the study on the overall functioning of the trade mark system in Europe” the OHIM has once again put forward its proposal that “the remaining accumulated surplus [of the Office]… be returned to users themselves”. This paper is a response to that particular proposal and is deliberately limited to this, although the unsolicited and somewhat provocative “contribution” of the OHIM contains a number of other unacceptable and objectionable elements (such as the comments on the governing bodies or the one-sided, rather extreme views on genuine use). This document is just intended to put forward the ten most important reasons for not distributing the OHIM’s surplus to “users” [Why the use of quotation marks? Is it to suggest that the people who use the CTM system are not in fact users?].

1. Lack of political support

At the joint meeting of the Administrative Board (AB) and the Budget Committee (BC) held on 18 and 19 September 2008, the OHIM’s idea to return its surplus to applicants was discussed in depth and unanimously rejected [Might this not be a reflection on the composition and self-interest of the AB and the BC members, rather than on the merit of the proposal?]. By resubmitting that proposal the OHIM has, therefore, acted against the clear political will of the Member States. Before raising this issue again in a political context, such as that of the study on the overall functioning of the trade mark system in Europe, it should first have consulted the AB and the BC.

2. Illegality

No such refund is provided for by the applicable legislation [But, fortunately, over-charging was provided for ...]. The OHIM’s proposal cannot be implemented within the existing legal framework. It follows that “users” can have no legitimate expectation of this kind of refund [but it's no crime to recommend the enactment of amending legislation, is it?].

3. Lack of logic

Originally, it was foreseen that should the fees prove insufficient for the OHIM’s budget to be balanced, the OHIM would receive a subsidy from the general budget of the EU (i.e. no fee increases with a retroactive effect were envisaged to redress such a budgetary imbalance). This logic should work the other way round, too [It's not logic; it's a proposition that reciprocity should apply and it has no compelling effect]. Therefore, the remaining part of the OHIM’s accumulated surplus should be transferred to the EU’s general budget to be used preferably for IP-related purposes, rather than handing it out to all sorts of “users” [Why the somewhat derogatory jibe "all sorts"? Are we not talking about the businesses upon whose success the operation of the EU economy depends?].

4. No macroeconomic rationale

As about half of the CTM proprietors and applicants are not from Europe, returning the OHIM’s surplus to them would amount to a huge exercise of pumping European money into overseas companies – instead of using it in Europe’s own interests [Presumably the authors would be happy to tell any other trade mark-granting office that it was more than welcome to keep any Hungarian money that it had obtained through excessive charges].

5. No microeconomic rationale

What the OHIM proposes would never happen in the private sector. No company would ever pay back any money to its one-time consumers just because it made an unexpectedly high profit a few years ago [Really? They seem to manage it in the US. Look here, here and here for example]. Equally, it cannot be reasonably expected that those “users” that would receive a refund from OHIM would, at least partly, transfer it to the consumers of their goods and services sold under their CTM or CTMs concerned. (Please note that the OHIM’s applicants can by no means be compared to the shareholders of a private company. Should one be forced to draw such artificial parallels, one would rather compare them to the customers or clients of a company. The OHIM’s “shareholders” are the European Union and its Member States.)

6. Misconception of the role of the OHIM’s fees

Fees, in particular application and renewal fees, are not just there to simply cover the OHIM’s expenses, but they should also serve as the price one has to pay for a monopoly right covering a market of 27 states. This price should be commensurate with the effect the monopoly right can have on this market [If this were true, the fee would be vastly more!]. This element seems to have been totally neglected by the OHIM’s proposal for returning the surplus to “users”.

7. Exaggerated savings – better use of the surplus

The surplus is partly due to the exaggerated savings the OHIM has made to the detriment of the quality of its substantive work, in particular its examination practice, which has by now become so lenient and lax that “anything under the sun made by man” can be registered as a CTM [what a pity that OHIM applies the case law of the European Court of Justice and the General Court]. Thus, the surplus is partly due to the fact that the OHIM currently does not function as it should, namely as an institution exercising public authority and not as a “trade mark factory” trying to please its “clients” at any price, even to the detriment of the quality of examination and the underlying public interest [At the very least, the authors of this gratuitous and unjustified insult owe OHIM an apology]. Should there be a change to that management “philosophy” for the better, the OHIM could use its surplus for improving its operations through e.g.
- properly conducting examination as to absolute grounds,
- producing search reports by examiners instead of machines only,
- fully examining seniority claims,
- further developing its IT infrastructure, databases and their accessibility,
- revising its staff and recruitment policy, and
- surveying the satisfaction of all stakeholders.
In addition, the recent fee reductions only affected the “accession fees”, i.e. the fees to be paid for obtaining a CTM. But this approach is certainly one-sided, and it may lead to further tilting the balance in favour of CTMs at the expense of, and to the detriment of, national applicants and national trade mark proprietors. Therefore, a significant (namely, at least 40 %) reduction of the opposition fee and the so-called “cancellation fees” is absolutely called for and already overdue, as this would reduce the costs for parties most affected by the registration of CTMs, somewhat counterbalancing the effects of the fee reductions already carried out.

8. Danger of red tape

In view of the huge bureaucratic machinery proposed for allocating the EUR 50M Cooperation Fund, it is almost unthinkable how complicated and costly the framework for implementing the refund proposed by the OHIM could be – as the total amount to be returned would be EUR 300M. Unless, of course, the OHIM trusts private companies better than national offices [how many national offices would you trust?], and unless the applicable financial and budgetary regulations are less stringent in the case of distributing the income of an EU agency to private entities. In addition, there are a number of obvious practical difficulties that would stand in the way of a meaningful implementation of the OHIM’s proposal for that kind of refund [OHIM has all the necessary data on computer already, which should make the job quick and easy].

9. Favouring further CTMs – to the detriment of national trade marks

Flooding CTM proprietors with windfall profits [so giving back what you shouldn't have taken in the first place is a windfall -- or should that be a "windfall"?] in the form of retroactive fee refund would certainly, and unfairly, make the CTM system even more attractive to “users” – to the detriment of national trade marks [Heaven forfend that applicants might find CTMs attractive!]. In fact, it might deal a final, lethal blow to the national trade marks systems. One cannot, of course, be entirely sure that the OHIM could not live with that outcome.

10. Bad precedent, wrong incentive

Should the OHIM’s proposal for returning the surplus to “users” ever go through, it would set a bad precedent and create a wrong incentive. The biggest CTM owners would press the OHIM even harder for further savings and higher “profits” in order to obtain more refunds in future [Wrong way round: the Unilevers and Procter & Gambles of this world will scarcely notice a few thousand euros, but it can come in handy for small-time applicants]. That would certainly further distort the way OHIM operates and farther distance it from its original public mission".

The IPKat is truly disappointed that a document of this nature should be circulating. He finds it hard to believe that the Hungarians, whom he likes as individuals and respects as a nation, should have come up with this and hopes that it is a hoax or forgery of some sort, which the real Hungarian Patent Office will speedily denounce.

Meanwhile, there's more bad news from the Hungarian battle front, this time from the real Hungarian Patent Office. The IPKat's friend Ákos Süle (Bogsch & Partners) writes:

"After the decision of the Benelux Office for Intellectual Property ("BOIP") in ONEL/OMEL and the sympathetic statement of the Hungarian Patent Office (“HPO”) as reported by Class 46 and IPKat earlier, the HPO took a further step to join the new approach regarding the geographical extent of genuine use of a Community trade mark.

The HPO has adopted a new approach in its decision regarding the CITY INN/C CITY HOTEL opposition, in which it has not accepted genuine use of a CTM used in only one Member State (in this case the United Kingdom), even though all other use criteria have been fulfilled, namely the nature, time and extent of use as well as the use relating to goods/services for which the mark was registered. You may access an English summary of the decision here.

The HPO – in line with the BOIP decision – argues that the contradictory Joint Statement of the Commission and the Council is not legally binding (see Antonissen, C-292/89). The HPO also relies on Ansul (C-40/01) and La Mer (C-259/02), adding that PAGO is relevant only when assessing the repute of a trade mark and that, in such cases, the repute can typically not be analyzed, since the trade marks cannot be taken into account due to the (geographically) insufficient use of the mark.

The new practice will be presumably continued until a Hungarian Court will confirm or deny it. Hungarian Courts may certainly also raise a question for reference to the ECJ for preliminary ruling.

[Background: the HPO and the OHIM held a regional conference on the coexistence of the Community and national trade mark systems in Europe in November 2009. For those seeking a deeper understanding of this issue, see the presentations of Mr Edmond Simon, Director General of the Benelux Office for Intellectual Property and of Mr Mihály Ficsor, Vice-President of the Hungarian Patent Office]."