Bad faith unleashed

Bad faith is probably one of the most wide-ranging concepts in trade mark law. According to the CJEU in Sky and Others, it applies to any situation--

“where it is apparent […] that the proprietor of a trade mark has filed the application for registration of that mark not with the aim of engaging fairly in competition but with the intention of undermining, in a manner inconsistent with honest practices, the interests of third parties, or with the intention of obtaining, without even targeting a specific third party, an exclusive right for purposes other than those falling within the functions of a trade mark, in particular the essential function of indicating origin […].”

The development of the bad faith doctrine and the cases in which it has been applied are summarised here. In its recent decision Neratax v EUIPO – Intrum Hellas and Others (ELLO ERMOL, Ello creamy, ELLO, MORFAT Creamy and MORFAT), the General Court added a new facet. Bad faith also applies where companies act in a coordinated way to try to prevent trade marks from being part of the insolvency assets of their owner.

Background

The Greek company Krentin was the proprietor of three Greek word marks ‘MORFAT’, ‘MORFAT CREAMY’ and ‘ELLO’ for foodstuffs in Nice Classes 29 and 30. Krentin, who had been in financial difficulties for many years, took out loans with banks, including National Bank of Greece, Ergasias, and Piraeus Bank. In order to keep Krentin’s trade mark rights from potentially being part of the insolvency assets, Krentin, together with two other companies, Neratax and a family company, which had control over Krentin, devised and executed the following plan:

Krentin did not renew the word mark ‘ELLO’ in 2014 and surrendered its word marks ‘MORFAT’ and ‘MORFAT CREAMY’ in 2017.

Between 2014 and 2016, Neratax registered the EU word marks ‘MORFAT’ and ‘ELLO’ and the following three EU figurative marks:

These trade marks covered differing goods and services, including various foodstuffs, retail services for foodstuffs and “transmission and sending of information electronically through websites or based on internet websites”, in Nice Classes 29, 30, 35, 38.

Since 2016, Neratax had been registering various licenses granted to Krentin, the family company (which had control over Krentin), and the Greek company Zoepol LTD (which had the same address as Neratax).

In 2017, Krentin filed an application before a Greek court requesting that it be declared insolvent. Its creditors successfully filed a request that Krentin be subject to an extraordinary procedure of special administration in order to avoid insolvency.

In 2019, Piraeus Bank, Eurobank Ergasias and National Bank of Greece filed applications for declarations of invalidity of Neratax’ EU trade marks on the basis of bad faith. EUIPO granted the applications. The Board of Appeal rejected Neratax’ appeals.

The General Court’s decision

The General Court confirmed the Board of Appeal’s decisions. It held that the chronology of the events suggested that:--

“[…] the applicant’s intention when it filed the applications for registration of the contested marks was the dishonest intention of hollowing out the earlier national trade mark rights belonging to Krentin, prior to any claim by its creditors, while ensuring, by means of equivalent EU trade marks, that they were protected. As that dishonest scheme is incompatible with honest practices and does not show that the applicant had the intention of engaging fairly in competition, the Board of Appeal was right in finding that it was acting in bad faith when it filed the applications for registration of the contested marks […].”

The Court found that Neratax did not provide any plausible explanation regarding the commercial logic underlying the applications for registration of the contested marks. It could not prove that it supplied the foodstuffs covered by the contested marks or carried out a commercial activity other than owning the marks and licensing them to Krentin or companies having close links to it.

Neratax’ argument, namely that Krentin was still solvent on the filing dates of its EU trade marks and that several banks increased the lines of credit between 2013 and 2016, was rejected. The Court reasoned that the increases in the lines of credit suggested that Krentin was already in financial difficulty. The Greek court, with which Krentin filed its insolvency application, confirmed in its decision to appoint a special administrator that Krentin had experienced financial difficulties since at least 2015.

Neratax’ contention that no harm was caused to the three banks, which filed the invalidity applications, or to the general public, was also rejected because, according to the General Court, the concept of bad faith does not require evidence of actual harm being caused.

Finally, the General Court took into account that Neratax, Krentin and the family company, which controlled Krentin, were in contact with each other in 2014 and had agreed to file the contested EU trade marks. This reinforced the finding of bad faith because it showed the intention to concoct a common and dishonest plan, namely--

“to ‘export’ the rights in the earlier national marks in the form of EU trade marks in order to avoid the ‘risk of expropriation’ of those marks […].”

Comment

It cannot be said that Neratax and the other ‘conspirators’ had no intention of using the EU trade marks in question. To the contrary, it seems that they wanted them to fulfil their main function as an indication of origin – just not under the control of an insolvency administrator, Krentin’s creditors or a potential buyer of the marks.

Accepting bad faith in such a case shows how broad this concept is in its application. Any potential damage that is caused to any third party can give rise to a claim of bad faith. This concept goes beyond the trade mark functions, which are one of the pillars of the EU trade mark system. In this matter, bad faith supplements the provisions on insolvency law and provides a sharp sword to cut down trade marks applied for in order to harm creditors.

The consequence of a successful invalidity application based on bad faith is the cancellation of the trade mark. This allows Krentin’s creditors to clear obstacles from registering Krentin’s former trade marks once again, but they still face the uncertainty of other similar marks having been filed (in good faith) by third parties in the meantime. In the circumstances of this and similar cases, it would be beneficial for the invalidity applicant not to cancel the bad faith application but to have it assigned to her/him by way of a decision from EUIPO.

A model could be the claim for assignment of a trade mark registered by an agent without the authorisation of the principal in Art. 21 of Regulation (EU) 2017/1001. The principal has the choice between invalidating the trade mark or requesting its assignment. Applying this concept to bad faith applications would improve the situation of the persons affected and lead to fair results.