The recognition of the actions of the competitor associated with acquiring and using the exclusive right to the trademark as an act of bad faith competition

As I have repeatedly written in my articles related to the topic of an illegal use of the means of individualization, some dishonest companies, in order to increase a demand for their products and services, trying to minimize the cost of their efforts and tangible assets, use in their commercial activities someone else's trademarks, commercial designations, company names, thereby parasitizing on someone else's business reputation, fame and the brand attractiveness.

Certainly, such behavior leads to slowing down the business development, decreasing the quality of the products being sold in the commodity markets, has a negative impact on the reputation and income of the rights holders.

At the same time, with due eagerness and prudence of the right holders in such a situation, it is possible to fight actively against violators, bringing them to civil, administrative or criminal liability, creating a large number of precedents, what in turn will make the violators think about the appropriateness of such method of enrichment.

But there are the situations, in my opinion, which are much more negative for business than just the illegal use of the means of individualization without a permission of the right holders, which include the following example[1].

There are five companies that manufacture soap under the conventional designation “Chistyulya,” none of these companies do not register this designation as a trademark, and they feel themselves free in the commodity market, the products are in demand among the buyers and bring profit to these manufacturers.

Eventually, one of the manufacturers comes to a conclusion that being in the same boat is tightly for them five, and decides to get rid of the unnecessary competitors by registering the trademark “Chistyulya” to itself, thus obtaining a legal monopoly on this designation. After that, it begins to lodge statements of claim aimed at the defense of the exclusive right to this trademark against its former “fellow tradesmen.”

The remaining four manufacturers are biting their elbows in panic, and they do not know what to do, because the business built up during years is under threat, since the courts, when considering the statements of claim regarding the defense of the exclusive rights, point out to the fact that the plaintiff is a legal right holder until the registration of the trademark is recognized by Rospatent as invalid, and the very fact of filing a statement of claim to defend one’s rights is not an abuse of the right.

In this regard, the question arises: “What should they do?”

In my opinion, an adequate mechanism for suppressing such abuses is filing a statement with the Antimonopoly Authority or a statement of claim with the Intellectual Property Court to recognize the actions of the competitor associated with acquiring and using the exclusive right to the trademark as an act of a bad faith competition. 

The concept of a bad faith competition is set forth in Paragraph 9 of Article 4 of Federal law of 26.07.2006 No. 135-FZ “On Defense of Competition" (hereinafter referred to as the Law on Defense of Competition), according to which a bad faith competition is understood as any actions of economic entities (groups of persons) aimed at obtaining advantages, while exercising the business activity, that contradict the legislation of the Russian Federation, the customs of the business practices, the requirements of respectability, rationality and fairness, and have caused or capable of causing losses to other economic entities – the competitors, or have done or capable of doing harm to their business reputation.

Article 14⁴ of the Law on Defense of Competition sets a prohibition to the bad faith competition related to acquiring and using the exclusive right to the means of individualization of a legal entity, the means of individualization of products, works or services.

According to Paragraph 1 of this Article, the bad faith competition associated with acquiring and using the exclusive right to the means of individualization of a legal entity, the means of individualization of products, works or services (hereinafter referred to as the means of individualization) shall not be allowed.

To recognize the actions of the right holder associated with acquiring and using the exclusive right to the trademark (the service mark) as an act of a bad faith competition, the following circumstances shall be established:

• the fact of the use of the disputed designation by other persons before the date of filing an application for the registration of this designation as a trademark;
• the right holder's awareness of the fact of using such designation by other persons before the date of filing the application for its registration as a trademark;
• the existence of the competitive relations between the right holder and other economic entities at the date of filing the application for the registration of this designation as a trademark;
• the fact that the defendant has an intention (a purpose) to obtain by acquiring the exclusive right to such designation (an acquisition of a monopoly on it) illegitimate advantages due to the sole use of the well-known designation, to do harm to the economic entities – the competitors or to displace them from the commodity market by lodging the claims aimed at suppressing the use of the disputed designation;
• the fact of doing or a probability of doing harm to the economic entities – the competitors by lodging the claims for the termination of the use of the disputed designation.

At the same time, it is important to note that, while considering the cases of this category, the whole set of the above circumstances shall be established, since if at least one of the elements of the actions is not proved, the actions of the person regarding acquiring and using the exclusive right to the trademark cannot be recognized as an act of a bad faith competition.

When establishing the issue of a good faith acquisition of the exclusive right to the trademark, both the circumstances associated with the very acquisition of the exclusive right and the subsequent behavior of the right holder that indicates to the purpose of such acquisition shall be studied.

One of the circumstances that may indicate to the bad faith behavior of the person, who has registered the trademark, may be the fact that this person has known or should have known that the third persons (the third person), at the date of filing the application for the registration of the designation as a trademark, have been using legally the appropriate designation for the individualization of the products manufactured by them or the services rendered by them without the registration as a trademark, as well as the fact that such designation has become well-known among the consumers.

In this case, the right holder’s bad faith should be established first of all at the stage of filing the application for the registration of the designation as a trademark, since it is at that point, when the intention (the intent) of the bad faith competition regarding other market participants is implemented through the use of the exclusive right to the trademark that stipulates prohibiting other persons to use the identical or similar designations for the individualization of the products or services.

The right holder‘s subsequent behavior can only confirm or refute the fact that he has behaved in bad faith, when acquiring the exclusive right to the trademark.

Thus, if we come back to the situation described at the beginning of the article, through the prism of the legislation and the legal approaches of courts, we can come to a conclusion that there are the grounds for the recognition of the actions of the person, who has obtained the exclusive right to the trademark “Chistyulya” and has used that right to displace the competitors as an act of a bad faith competition.

Receiving the decision of the Antimonopoly Authority or the decision of the Intellectual Property Court is followed by a relatively simple procedure that is described in Paragraph 2 of Article 14⁴ of the Law on Defense of Competition, which states that the decision of the Antimonopoly Authority on a violation of the provisions of Part 1 of this Article in relation to the acquisition and the use of the exclusive right to the trademark shall be sent by the person concerned to the Federal Executive Authority on Intellectual Property for the recognition of granting the legal protection to the trademark as invalid.

Rospatent, having received the corresponding objection with the decision of the Court or the Antimonopoly Authority attached to it, must recognize granting the legal protection to the trademark pursuant to Subparagraph 6 of Paragraph 2 of Article 1512 of the Civil Code of the Russian Federation as invalid.