Can a trade mark become misleading because it is transferred to a new owner? It’s all a matter of tradition

The famous musical, "Fiddler on the Roof", is all about the complexities of tradition. Indeed, there is an entire song dedicated to it. But tradition can also play a role in trademark law. Former Guest Kat Peter Ling has visited the IPKat lair and shares with Kat readers the potential risk of transferring a registered trademark without the accompanying goodwill. Peter writes as follows:

The Supreme Court of Austria (Oberster Gerichtshof) recently rendered a remarkable (to this blogger) decision on the interpretation of Art. 58(1)(c) of the EU Trade Mark Regulation (EUTMR) in the context of how indications of tradition (in this case "since 1875") are perceived by the relevant public. The case has also potentially far-fetching implications regarding the valuation and the transfer of trademarks containing such indications.

In 1875, Jakob Pauscha founded Cooperage Pauscha ("Fassbinderei Pauscha"). The company engaged in the production of wooden casks, barrels and the like. The company was held and managed by the Pauscha family until its bankruptcy in 2010. At that point, the company and the Pauscha family parted ways. The assets of the bankrupt company were transferred to a newly founded entity, Pauscha Fassbinderei GmbH, which eventually also went bankrupt, this while K. Pauscha, the latest representative of the family, founded the plaintiff, a new cooperage firm.

Among the assets of the now insolvent Pauscha Fassbinderei GmbH was the EU trade mark 12315719 (the "Pauscha Mark"): The Pauscha Mark (along with the domain pauscha.at and machinery) were purchased by the defendant from the insolvent company. The defendant is an Italian competitor of the Pauscha’s business. The defendant manufactures casks and barriques in the Italian tradition of a family-owned business of coopers.

The defendant indicated on its website that it stands for "traditional craftmanship, manufacturing casks and barriques since 1875 […] The company Pauscha Austria – since 1875 follows the longstanding tradition of cooperage".

The plaintiff sued the defendant, requesting revocation of the Pauscha Mark under Art. 58(1)(c) EUTMR:

The rights of the proprietor of the EU trade mark shall be declared to be revoked on application to the Office or on the basis of a counterclaim in infringement proceedings:

(c) if, in consequence of the use made of the trade mark by the proprietor of the trade mark or with his consent in respect of the goods or services for which it is registered, the trade mark is liable to mislead the public, particularly as to the nature, quality or geographical origin of those goods or services.

The first and the second instance courts revoked the Pauscha Mark. The defendant appealed to the Supreme Court of Austria. The Supreme Court first stated that Art. 58(1)(c) EUTMR requires two things. First, the "liability to mislead" must relate to the nature, quality or geographical origin of the relevant goods or services. Second, this must be the consequence solely of the "use made of the trade mark.

The Supreme Court then referred to the decision C-259/04 Elizabeth Emanuel, where the CJEU set out the conditions under which the name of a person in a trade mark can be used, after the trade mark is transferred to an unrelated entity. Under the rule developed in Elizabeth Emanuel, it is not necessary that the relevant public is actually misled by the trade mark; potential deception is sufficient.

However, the mere fact that the relevant public assumes, incorrectly, that the original trade mark owner has contributed to the making of the relevant goods or services is not sufficient for a finding of deception, in particular if the business and the goodwill of the original trade mark owner were also transferred to the new trade mark owner.

The Supreme Court rejected the defendant's argument that the Pauscha Mark can, by omitting "since 1875", be used in a non-misleading way. As set out in Art. 58(1)(c) EUTMR, the trade mark as such must be "liable to mislead the public". Hence, the risk of misleading the public must result from the mark itself. Further elements that are actually used by the trade mark owner, but that are not part of the relevant trade mark, are not relevant.

The Supreme Court also disagreed with the defendant that since trade marks are freely transferrable and assignable, the fact that the same sign is used by an assignee does not lead the public to believe that the same business is being continued. While it is correct that incorrect assumptions by the relevant public about business continuity do not automatically lead to the revocation of the trade mark for being misleading, the situation is different when the relevant public incorrectly attaches a specific (high) quality to the business it thinks is still behind the trade mark.

The Pauscha Mark links the name "Pauscha" to the indication "since 1875". The relevant public (essentially winemakers) attaches specific perceptions of quality to such a long tradition of use of the mark. Winemakers understand that a company in the cooperage business for almost 150 years can rely on significant experience and know-how.

In addition, they assume that the company using the Pauscha Mark manufactures casks based on the tradition of workmanship of the Pauscha family. These qualities are decisive for the taste of the wine being matured in the cask. However, the defendant does not manufacture casks according to this tradition of manufacture, but rather according to a different, Italian tradition.

On this basis, the Supreme Court affirmed the revocation by the lower courts of the Pauscha Mark under Art. 58(1)(c) EUTMR.

Comment

The Austrian Supreme Court relied, inter alia, on a distinction between the facts of this case from those of the CJEU’s Elizabeth Emanuel decision. In Elizabeth Emanuel, the original trade mark owner voluntarily transferred her business, goodwill and trade marks to a competitor, while in Pauscha, the competitor acquired only the trade mark (without any goodwill being transferred) via a forced sale in bankruptcy.

It is hard to disagree with the Austrian Supreme Court that the use of the Pauscha Mark was liable to mislead clients. The indications on the defendant's website seemed to reinforce that the potential deception was not incidental and, indeed, perhaps actively sought by the defendant. This result is consistent with the CJEU's obiter dictum in Para. 50 of the Elizabeth Emanuel decision, that the national court needs to assess whether "there is an intention […] to make the consumer believe that" the original trade mark owner is still behind the goods distributed by the new owner.

Nonetheless, the Court's answer to the defendant's argument that the decision ultimately restricts the free assignability of trade marks containing an indication of tradition ("since 1875") seems too narrow. Pursuant to Art. 21 of the TRIPS Agreement, "the owner of a registered trademark shall have the right to assign the trademark with or without the transfer of the business to which the trademark belongs".

The decision of the Austrian Supreme Court results, for all practical purposes, in the virtual impossibility to assign any trade marks containing indications of tradition, except upon the transfer of the "business to which the trademark belongs". Purchasers of such trade marks will need to look twice at the valuation attached to such signs, especially when the trade mark is transferred without the underlying business.

Both pictures are in the public domain.