Can a co-existence agreement tip the scales in favor of a finding of bad faith in an opposition action?

Is there any more elusive aspect of trademark law than the role of bad faith in connection with the right to registration? Kat friend Vivien Teo discusses a recent judgment in Singapore in which the claim was vigorously pursued, but ultimately rejected by the Hearing Officer.

How far will a co-existence agreement tip the scales in favour of establishing bad faith in an opposition action? The Intellectual Property 
Office of Singapore ("IPOS") deliberated this issue in Teraoka Seiko Co., Ltd v Digi International Inc. [2020] SGIPOS 1.

The Parties

Teraoka Seiko Co., Ltd (the "Opponent") is a Japanese company dealing inter alia, in electronic price-computing scales named 'DIGI'. Digi International Inc. (the "Applicant") is an American company engaged in a variety of business-critical machine-to-machine and Internet of Things connectivity products and services.

The Opponent successfully opposed the Applicant's Singapore trade mark application for  in Classes 9, 38 and 42, on three grounds under the Trade Marks Act on the basis of its prior mark in Class 9 covering "balance and scale, scale equipped with printer and printer". However, the Opponent failed on a fourth ground of opposition, that the Applicant's trade mark application was made in bad faith to circumvent a co-existence agreement between the parties.

In this post, we focus on the ground of bad faith. It is generally accepted that the threshold for proving bad faith is high, and the party alleging bad faith needs to show some nexus between the parties, such as by way of a pre-existing relationship. This case is interesting in that notwithstanding a pre-existing relationship between the parties, it was found that bad faith was not established.

History between the parties

The parties are familiar with each other, owing to a long history of disputes over their respective "Digi" marks, spanning 17 years. In 2002, in efforts to settle a series of trade marks disputes in Germany concerning the Opponent's mark and the Applicant's  (an earlier iteration of the Applicant's mark), the parties entered into a worldwide co-existence agreement (the "Agreement").

The Agreement contained the following key terms:

(1) The Applicant agrees not to attack the Opponent's registrations of , so long as the registration is for a list of goods and services specified in the Agreement, which included inter alia spring scales, electronic and electrical scales and parts of such goods and equipment therefore, namely digital or analog display devices, keyboards, writer and printer. It also included data-processing devices and computers, provided these do not include the uses by the Applicant stated in the next term.

(2) The Opponent agrees not to attack the Applicant's registrations of , so long as the registration is for a separate list of goods and services specified in the Agreement, which included inter alia data processing devices and computers such as micro-computer hardware for use in connection with multiple user systems and local networks, and software programmes brought on data carriers, provided these do not include the uses by the Opponent in the term above, namely in goods/services which concern weighing and/or measuring purposes or transfer of data connected to weighing and/or measuring processes.

Bad faith

The Opponent argued that the Applicant had acted in bad faith by refashioning   (the mark covered by the Agreement), into  (which the Opponent deemed as an even more similar mark to theirs), and applying to register that mark for a broader list of goods and services than what was provided for in the Agreement. The Applicant had also done so without first informing the Opponent.

In Singapore, the test for bad faith focuses on the following question: Based on what the Applicant knew at that time, would the registration here be seen as commercially unacceptable by reasonable and experienced persons in a particular trade? The Hearing Officer thus had to decide whether the facts indicated an intention by the Applicant to sidestep the Agreement, thereby acting in bad faith.

The Hearing Officer ruled that it did not. To hold the Applicant to such an obligation would be to stretch the Agreement beyond its express wording. Furthermore, no evidence was provided to prove that the parties shared such an understanding at the time the Agreement was made.

The Hearing Officer also distinguished the case law cited by the Opponent in support of its arguments - a decision by the UK Registrar of Trade Marks in Case O-006-17 Trade Mark Application No. 3134673 by Cold Black Label Ltd ("Cold Black Label") and a decision by the Australian Trade Marks Office in Ceravolo Premium Wines Pty Ltd v MA Kirkby TRPL Pty Ltd [2018] ATMO 43 ("Ceravolo").

In Cold Black Label, the applicant agreed, inter alia, not to sell beer cans with the same or confusingly similar appearance. It was held that even if the agreement prohibited use and not registration of similar marks, the application was made in bad faith because it was “plainly contrary to the spirit of the agreement” and the marks were so highly similar that the Applicant ought to have realised that.

In Ceravolo, the applicant had agreed not to use “Red Earth Child” or terms deceptively similar to the opponent’s “Red Earth” mark. The applicant subsequently applied for the registration of “OCHRE EARTH CHILD” without notifying the opponent. It was held that the applicant's deliberate secrecy in doing so indicated his insincere motivations for making the application. Although the marks were not similar, the crux of the issue is the knowledge of the applicant and whether the applicant knew he ought not make such an application.

Cold Black Label and Ceravolo both turned on the fact that the offending registrations were surreptitiously made not long after signing the agreement so as to circumvent it. In contrast, the present application was made about 14 years after the Agreement. During this period, the parties continued to file their respective applications (and in the case of the Applicant, applications for a variety of other 'DIGI' marks as well) and opposed each other's marks in various jurisdictions.

There was also no evidence to show that there was a practice or understanding between parties that they would inform each other prior to making applications. The Hearing Officer thus found, on the facts, that the parties were not bound by any common understanding that the Applicant had acted contrary to.

This decision demonstrates that when co-existence agreements are invoked to establish the ground of bad faith, the opponent must show that the application was made in contravention of the agreement or to circumvent it. It would not be sufficient to argue that the applicant failed to meet the opponent's unilateral expectation which fell outside of the agreement, especially where the opponent has not proved that the expectation was within the parties' contemplation when the agreement was made. Rather, the applicant must have breached a common understanding between the parties.

The conduct of the parties over the years is also key. This is especially so where there is no evidence to prove that such an understanding or practice between the parties existed.

Picture on the right is by an unknown artist and is in the public domain.

Picture on the left is by Enrico Mazzant and is in the public domain,
Can a co-existence agreement tip the scales in favor of a finding of bad faith in an opposition action? Can a co-existence agreement tip the scales in favor of a finding of bad faith in an opposition action? Reviewed by Neil Wilkof on Wednesday, March 18, 2020 Rating: 5

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