You snooze (for 40 years) you lose – HABITAT mark (un)enforced in bad faith

Judicial reliance on the principle of bad faith in connection with trademarks can take many forms. A particularly unusual application of the principle recently occurred in a case in Israel, as reported by Kat friend Adar Ortal.

“The District Court of Tel Aviv has ruled in Habitat Ltd. and Avraham Majerowicz vs. CAFOM, Habitat International S.A et al that the trademark HABITAT, registered in Israel in multiple classes more than 40 years ago by a local furniture and houseware retailer, should be cancelled on the ground that it was registered in bad faith, since it was done with the knowledge that HABITAT was an "international mark" that enjoyed "international goodwill." Nevertheless, the District Court ruled that the local retailer will be permitted to continue use of the HABITAT mark in commerce since the holder of the international mark, i.e. Habitat International S.A. and other affiliated companies ("Habitat International"), had acted in bad faith in not seeking to enforce its rights in the mark for over 40 years. In so ruling, the District Court has favored the interest of the parties over that of the public and disregarded the basic notion of likelihood of confusion under trademarks law.

Habitat International is a retailer of household furnishings. It opened its first store under the mark HABITAT in 1964 in London. By 1969, Habitat International had opened eight more stores in the UK and one in Canada and by 1976, it had more than 30 stores worldwide, but none in Israel. Mr. Majerowicz is a furniture retailer who opened a furniture and houseware store in Israel in 1972 under the name "Habitat". In 1976, Mr. Majerowicz sought to register the mark HABITAT in Israel but only then discovered (according to him) that the mark had already been registered by Habitat International in 1973. He thereupon successfully filed a non-use cancellation proceeding against the then-existing registrations. At the time, Habitat International did not file any arguments against cancellation of the mark.

Continuously since 1972, Mr. Majerowicz has used the HABITAT mark in Israel in conjunction with furniture and household retailing activities. On or about 2016, Mr. Majerowicz became aware that Habitat International was contemplating entering the furniture market in Israel under the HABITAT mark. Accordingly, he sued Habitat International, seeking a preliminary injunction on the ground of anticipatory infringement. Habitat International counter-claimed that Habitat Ltd. and Mr. Majerowicz should be enjoined from using Habitat International's well-known mark and that the registration of the HABITAT mark should be cancelled on the ground of bad faith.

In ruling that Mr. Majerowicz had acted in bad faith, the District Court pointed to two major grounds. First, Section 39(a1) of the Israel Trademarks Ordinance [New Version], 1972, provides that "a notice of cancellation of a trademark based on claim that the trademark was registered in bad faith may be submitted at any time". Second, and despite the fact that Habitat International had neither established goodwill nor operated in Israel in 1976 (the year that Mr. Majerowicz filed the HABITAT trademark application in Israel), he was aware of Habitat International and its world-wide operations under the mark. Therefore, the District Court concluded that Mr. Majerowicz had acted in bad faith in registering the mark. It should be noted that the District Court did not set out the test for determining bad faith but rather analyzed the specific facts at hand and then concluded, without more, that they constituted bad faith.

Nevertheless, the District Court ruled, without providing any guidance as to the applicable legal standard, that Habitat International may not enjoin Mr. Majerowicz from using the mark HABITAT in Israel because it is not a well-known mark, nor had it established any goodwill in Israel. Since Habitat International, in bad faith, has not enforced its rights in the mark, it is not entitled to enjoin Mr. Majerowicz from using the mark in Israel, the court concluding as follows:

"Even if it is a legitimate business interest not to enforce trademark rights in Israel whilst there is no business decision to enter into the Israeli market, such decision has its price, especially considering the fact that the defendants had been aware of Mr. Majerowicz's activities in Israel. Such conduct constitutes bad faith and exploiting the [local] trademark, now that it has acquired goodwill by the plaintiffs, constitutes unjust enrichment."

At this stage you might be wondering: what about likelihood of confusion? Did the District Court ignore such a basic notion of trademark law? The answer is "kind of". The District Court noted that "the public's interest should be taken into account but it should not undermine the parties' interests". That said, the District Court asked the parties to seek to reach settlement on the manner of use of the HABITAT mark in Israel. He ruled that if no such settlement is reached within 90 days of the decision, the defendants shall be permitted to use "HABITAT INTERNATIONAL” in their advertising material, and the mark "HABITAT" on the products themselves", while Mr. Majerowicz will be permitted to use the mark HABITAT (in Hebrew). We are already confused… what will happen in practice? If Habitat International registers the mark HABITAT in Israel (since the registration in favor of Mr. Majerowicz will presumably be cancelled), will it nevertheless be disallowed to enforce its rights against Mr. Majerowicz pursuant to the District Court's ruling? This remains to be seen as the District Court's ruling is, to our understanding, being appealed to the Israel Supreme Court.

The upshot is that if you are the holder, or its representative, of a mark used in a number of countries, and you are contemplating entering the Israel market, the instant case might be a bleak peek into your future. That is so, unless you make sure that the mark is not being used or registered in Israel and that you seek to enforce your rights sooner than later.

A final note: This is not the first time that an international brand has sought to enter the Israeli market, only to discover that a local business has already taken over such brand. Examples include the Versace, Saks [Fifth Avenue], and Roots, each of whom has had to confront the "hijacking" of its mark by local businesses.”

Image at top left is by Helen Crook, contributed by Kalory.co.uk and licensed under the Creative Commons Attribution-Share Alike 4.0 International license