Misrepresentation in the Assignment of a Trademark

A trademark is an independent object of intellectual property, the exclusive right to which the right holder can dispose of at his own discretion, including transferring it to another person. However, the possibility of such a transfer is not unconditional. The current Russian legislation restricts the alienation of a trademark in cases where a change of the right holder can form a wrong idea among the consumer about the product, its manufacturer or place of production.

Therefore, before entering into an alienation agreement, it is important to assess how the transfer of a trademark to another person may affect its perception by consumers.

Grounds for misleading the consumer

The main rule in this case is paragraph 2 of Article 1488 of the Civil Code of the Russian Federation, according to which the alienation of the exclusive right to a trademark under a contract is not allowed if it may cause misleading the consumer about the product, its manufacturer or place of production.

According to the legal position of the Judicial Chamber for Economic Disputes of the Supreme Court of the Russian Federation, set out in the ruling dated 10.02.2017 No 305-ES15-4129, in relation to paragraph 2 of Article 1488 of the Civil Code of the Russian Federation, misleading is understood as cases when information about the goods contained in the trademark, transferred to the new owner, may create a distorted image of the product or its manufacturer, which can affect the consumer's decision.

Therefore, for the application of the above article, it is not necessary that consumers have already been actually misled. The very possibility of such a misconception arising as a result of the transfer of the exclusive right to a trademark is important.

An indicative list of grounds on which Rospatent may regard the alienation of a trademark as misleading to the consumer is presented in Rospatent Order No 186 dated 29.12.2009 "On Approval of Recommendations on the Verification of Agreements on the Disposal of the Exclusive Right to the Results of Intellectual Activity or Means of Individualization".

Thus, paragraph 3.3.7 of the Order of Rospatent, among other things, indicates the following grounds.  

Partial alienation of the right to a trademark

It follows from paragraph 1 of Article 1488 of the Civil Code of the Russian Federation that the exclusive right to a trademark can be transferred not only in relation to all goods/services for which it is registered, but also in relation to their part. In this case, it is necessary to take into account the homogeneity of the goods, the rights in respect of which are transferred to the acquirer and remain with the right holder.

For example, if the right holder owns a trademark in relation to the goods in Class 21 of the Nice Classification, "teapots, cups", and subsequently plans to alienate the exclusive rights to the trademark only in relation to the goods "cups", and retain the goods "teapots", the consumer may assume that different products under the same designation still come from the same manufacturer, which will mislead him.

When establishing homogeneity, it is possible to be guided by the legal position set forth in the Resolution of the Plenum of the Supreme Court of the Russian Federation dated 23.04.2019 No 10 "On the Application of Part Four of the Civil Code of the Russian Federation" (hereinafter referred to as Resolution No 10), where paragraph 162 states that the homogeneity of goods is established based on the fundamental possibility of an ordinary consumer of the relevant product having the idea that these goods belong to the same manufacturer. At the same time, the court takes into account the type (type) of goods, their purpose, the type of material from which they are made, the terms of sale of goods, the range of consumers, complementarity or interchangeability, and other circumstances.

Preservation of similar trademarks

Since the right holder has the right to register several similar trademarks for similar goods, the risk of misleading the consumer may also arise when the right holder transfers one trademark, but retains the exclusive right to another trademark similar to the one alienated to the point of confusion and registered for identical or similar goods and services.

For example, the right holder owns the exclusive rights to the trademarks "Snezhok" and "Snezhochek" for goods of class 28 of the Nice Classification. If the right holder plans to transfer the exclusive right to the trademark "Snezhok" and retain the exclusive right to the trademark "Snezhochek", then as a result, goods from different manufacturers may appear on the market under designations that the consumer may perceive as related.

When assessing the similarity of trademarks, we can again refer to Resolution No 10, which states that similarity is established based on the results of a comparison of a trademark and a designation, including graphic, sound and semantic criteria. When assessing similarity, the general impression of trademarks that are associated with each other as a whole, despite individual differences, is taken into account.

Preservation of similar industrial designs

A similar situation may arise if the trademark reproduces an industrial design or is confusingly similar to it.

For example, if the right holder owns the trademark "Drovenki", as well as an industrial way that protects the packaging design of any product with the verbal element "Drovenki", then the separation between the right holder and the acquirer of the exclusive rights to the trademark and industrial design may also mislead the consumer when selling the goods.

Accordingly, the alienation of the exclusive right to a trademark requires an assessment not only of the portfolio of trademarks held by the right holder, but also of other intellectual property objects, in particular, industrial designs.  

Similarity to the company name

Often, trademark owners register a company under a certain company name and then begin to register identical or similar trademarks.

For example, the right holder is Severnaya Zvezda LLC, which has registered the Severnaya Zvezda trademark. If such a trademark is transferred to an independent acquirer, and the trade name remains with the right holder, the consumer can continue to associate the products under this trademark with the original right holder.

At the same time, the Order of Rospatent indicates that, along with the degree of similarity between a trademark and a trade name, it is necessary to take into account the degree of popularity of the trademark owner in the market of certain goods/services.  

Place of production of goods and geographical elements

From 2023, paragraph 2 of Article 1488 of the Civil Code of the Russian Federation directly provides for the possibility of misleading the consumer not only about the product or its manufacturer, but also about the place of production.

For example, if the right holder has registered a trademark that includes an indication of a certain place of production or sale of the goods and decides to alienate it to the purchaser who is located or produces the relevant goods in another geographical area, then in this case there may be a possibility of misrepresentation.

At the same time, a special restriction is provided for trademarks that include, reproduce, or imitate a geographical indication or appellation of origin protected in Russia. Thus, according to paragraph 3 of Article 1488 of the Civil Code of the Russian Federation, the alienation of the right to such a trademark is allowed only if the acquirer has an exclusive right to the relevant geographical indication or appellation of origin of the goods.

Individual elements of trademarks

When alienating trademarks, it is also necessary to pay attention to individual elements that are included in them and are related only to the right holder of the trademark.

Such elements include, for example, the date of foundation of production, indication of the place of production, appellation of origin of goods, information about awards, marks of conformity, designations protected by copyright.

For example, if the right holder has registered a trademark that contains the inscription "Since 1950", which shows the date of foundation of the right holder, then the transfer of such a trademark to a newly created acquirer can potentially form an erroneous impression of the manufacturer's history in the consumer and mislead him.

The practical consequence of the existence of the fact of misleading consumers during the alienation of trademarks may be as follows. Since the alienation of trademarks is subject to state registration with Rospatent, if, during the consideration of the application, Rospatent establishes circumstances indicating the existence of a risk of misleading consumers, the administrative body may send a notice of the need to remove the relevant obstacles and, in the absence of the necessary actions, refuse state registration.

Thus, the legal verification of a trademark alienation transaction should not be limited to checking the validity of the registration and the scope of the exclusive right. It is also necessary to assess the risk of misleading consumers due to such alienation.