European Community Trademark: Two Tracks, One Destination

In late June 2004, the European Community acceded to the World Intellectual Property Organization (WIPO) Madrid Protocol on the international registration of trademarks.

This development is likely to have a long-standing effect for U.S. trademark owners who wish to obtain trademark protection in the European Community. Indeed, since the inception of the European Community Trademark (CTM) system, U.S. applicants have positioned themselves as leaders in filing new CTM applications. According to recent statistics of the Office for Harmonization in the Internal Market (OHIM), U.S. trademark owners filed approximately 90,000 CTM applications, which constitutes close to 25% of all applications filed. For comparison, the second and third places taken by Germany and the United Kingdom, with 62,000 and 47,000 applications, respectively, are markedly behind the United States in CTM filings.

The question, therefore, is no longer limited to whether U.S. trademark owners should consider filing CTM applications, as compared with national applications in the Community countries (an issue vastly explored in recent years in publications).

Rather, prospective U.S. applicants for Community marks should now also decide whether to opt for a “regular” CTM application, namely, a direct application and registration with the OHIM, or to have the European Community designated as an extension of the Madrid Protocol International Registration (IR).

At first blush, it seems that the benefits derived from securing a CTM registration are equal, whether acquired directly with the OHIM or as an IR extension. Generally, this is correct since advantages of a CTM registration, in both cases, include examination on absolute grounds only (ie, there is no citation of prior trademark registrations or pending applications), issuance of Official Actions and litigation of oppositions before a single forum ' the OHIM, thereby eliminating the perils of having these issues reviewed by different national Trademark Offices, which would involve significant expenditures and possibly lead to inconsistent and contradictory decisions. Further, CTM protection is granted in all 25 Community countries, and use in any Community Country would defeat a non-use cancellation attack.

However, upon a closer look, there are several significant considerations, both procedural and substantive, that should be evaluated before choosing a conduit for CTM protection.

Cost Considerations

Perceptibly, a primary advantage of the Madrid Protocol is the cost-saving mechanism at filing, registration and, in the long-term maintenance of an IR. However, this general rule seems to be inapplicable in the case of IR extension to the Community.

The basic filing fee for a direct application with the OHIM is 975 EUR ($1200), and the registration fee is 1100 EUR (approximately $1350). Since the Madrid Protocol mechanism does not provide for payment of registration fees, the supposed saving of $1350 is unarguably a sound advantage. Yet, the European Community has decided in accordance with Article 8(7)(a) of the Protocol that, in connection with each request for territorial extension, it will not accept the standard low-cost schedule established by WIPO, and instead has declared that it wants to receive an individual fee for each IR extension request and for subsequent renewal of such extension.

The individual fee for designating the European Community was announced very recently. The charge is 1875 EUR ($2300), as compared with 975 EUR for a direct filing. The amount includes the filing and, since the Protocol does not prohibit it, the registration fees. The filing fee portion is 775 EUR and the registration portion ' not collected under the Madrid Protocol and therefore embedded in the individual designation fee ' is charged in full, namely 1100 EUR. The bottom-line economy in official filing/registration fees is thus only 200 EUR ($250).

Another consideration in extending an IR to the European Community is that this extension (as compared with a directly filed application) eliminates the need to retain a local trademark counsel, at least until the extension encounters an Official Action. This is a valid factor since the average filing fee for a CTM application, as charged by a Community counsel, varies between $1500 and $2000. On the counterbalance, however, is the fact though the OHIM does not follow the same stringent rules of examination as the UK or U.S. Trademark Offices (in the latter, up to 80% of all applications encounter an Official Action), a sizable part of the European Community applications, whether IR extensions or direct OHIM filings, receive an Official Action. In this scenario, no matter how small or technical the Action is, the applicant must retain a European Community counsel. As a matter of fact, most Community trademark practitioners charge a flat fee for being retained to reply to an Official Action, reaching 50% to 80% of the counsel's direct CTM filing fee (this, in addition to the time-billed fees for responding to the Official Action).

The above two factors ' the OHIM individual supplementary fee and the cost of a retainer, squander the pecuniary advantage of an IR extension over a direct CTM application.

Maintenance Cost

Though years away from when an application is filed, the cost of maintenance should be included in the trademark budgeting. Notwithstanding the fact that an IR is renewed by paying a single renewal fee to WIPO, Article 8(7)(a) of the Protocol empowers each member-country to declare that it will not accept the standard renewal fee established by the Protocol, and instead specify an individual fee it wishes to receive for renewal of an IR territorial extension. The individual renewal fee for a European Community registration under an IR extension will be 2300 EUR ($2800), virtually identical to the 2500 EUR fee in a directly registered Community trademark. This in effect eliminates possible cost savings, should the Community have adopted the WIPO schedule of fees, and erases the fiscal advantage of the Madrid Protocol in the mark's maintenance.

Scope of Protection

A paramount consideration in seeking trademark registration is the specification of goods and services encompassed by the mark. Unlike United States trademark applicants, the European Community applicants do not have to declare actual use of the mark or an intent to use, and wide specifications are allowed. This, in turn, creates a situation where a U.S. trademark owner who opts for territorial extension of an IR registration based on the U.S. registration or application must restrict the list of goods and services in the Community extension to those in the basic U.S. mark. An important factor to be kept in mind by the prospective applicants is that the vast majority ' 23 out of 25 ' of European Community countries are continental Civil Law jurisdictions, affording a special weight to the theory of trademark rights derived from registration. Unlike the U.S. or UK Common Law legal theory, which recognizes trademark rights based on use, and despite a recent drive in the Civil Law jurisdictions to bridge the gap between the systems with respect to recognition of use-based rights, the importance of having a trademark registration in continental Europe cannot be overestimated. Thus, a wider scope of goods and services covered by a CTM registration may be decisive weight in a possible trademark conflict.

Also to be considered is the continuous dependency of an IR territorial extension in the Community on the scope of protection in the United States. For example, if the IR is based on the U.S. application and the specification in the latter is eventually restricted, this restriction also should be reflected in each IR extension, including the European Community. Further, if the U.S. specification is amended while the mark is registered, this amendment should be entered in all IR extensions as well.

Central Attack

Another limitation of an IR extension to the European Community (or any other country) is the issue of vulnerability to a central attack. Rejection of the trademark owner's U.S. basic application or revocation of such U.S. registration (on any grounds) within the IR's first 5 years of existence will invalidate the Community extension. In consideration of the fact that up to 80% of the U.S. applications encounter Official Action and many applications never mature to registrations, as well as the fact that in many cases trademark owners stop using the mark post-registration and do not file a Section 8 Declaration, such invalidation of the U.S. mark equally leads to termination of the European Community IR extension.

Moreover, the possibility of a central attack opens to third parties new horizons for invalidation of the contested Community marks involving, along the way, jeopardy to the basic U.S. registration. A possible development may occur when a third party opposes a Community extension of the U.S.-based IR, and such U.S. mark is still a pending application or a registration within the 5-year period of IR existence. In this instance, if the Community opposition is dismissed, the opposer may well oppose the U.S. application or seek its invalidation, depending on the U.S. mark's status. If this home country attack is successful, the owner will also lose all national extensions under the IR.

Moreover, if the owner of the cancelled registration eventually decides to transform the mark into national applications, as described below, that same third party would have another chance to oppose the transformed Community application once it is republished. The above scenario, though not too likely, is still possible in case of a wide-scale European or transnational trademark conflict, with the claimant/opposer willing to defend its rights with no regard to the cost. Under such circumstances, the applicant may find itself a defendant in three transoceanic litigations, with soaring costs and the endangerment of its home-country registration.

Transformation

The Madrid Protocol allows transformation of cancelled IRs into national trademark applications designated by the owner. However, a national Trademark Office receiving the transformed application is not compelled to automatically accept it. OHIM plans that each application will be examined de novo. Thus, though OHIM is guided by the principles of harmonization, the fact that the mark is reviewed again always carries a risk that a new Official Action may issue and additional costs in connection with services of a local counsel would be incurred. Additionally, an IR transformation to the regular CTM application track will also necessitate payment of a new filing fee to the OHIM. If the IR is transformed while the Community extension is still pending, the registration part (but not the application part) of the filing fee, namely 1100 EUR, will be returned to the applicant, but transformation after registration of the Community extension does not entitle the owner to any fee reimbursement, and any pecuniary savings attained during the IR extension filing and registration will be eroded.

Ownership Restrictions

U.S. trademark owners who wish to obtain trademark protection in the European Community through the Madrid Protocol vehicle also should be aware that an IR may be assigned only to a party who is a national or a domicile in one of the Madrid Protocol member countries. Thus, a U.S. trademark owner will be unable to assign the IR to a third party, including foreign subsidiaries, in the non-member countries, including the NAFTA members ' Mexico and Canada.

Limited Geographic Interest

Another concern that must be reckoned with is that a U.S. trademark owner who wishes to develop a new brand name for the European market only (whether a new line of cosmetics, a car model name, or a pharmaceutical to be marketed under a specific commercial name designated for Europe only) will not gain any advantage in the Madrid Protocol mechanism. In such case, the only viable procedure would be to file a direct CTM application with the OHIM.

Summary

It seems that though in the long term a Madrid Protocol International Registration extended to a vast number of countries as part of a global trademark program carries significant advantages in prosecution and maintenance, these advantages may be lost in cases of a limited territorial IR extension to examining jurisdictions with a high individual fee system (eg, Japan, European Community). In these instances, it may be advisable to proceed with direct filings in the jurisdictions of interest, foregoing the Madrid Protocol option. Much also will depend on the vulnerability of the basic U.S. mark, which may expose the entire fleet of global IR extensions and destroy not only the cost benefits but also jeopardize the trademark rights. Thus, the trademark owner may consider an IR global protection only after filing the Section 8 and 15 Declarations for its U.S. registration, and the U.S. mark has become incontestable.

On balance, whether it is the advantage of a possible cost savings and ease of maintenance (one assignment/one renewal approach) or the disadvantages of a narrow scope of protection and vulnerability to central attack, the prospective applicant should carefully consider all available options with its counsel and lay down a strategy most suitable for the specific trademark program.

In late June 2004, the European Community acceded to the World Intellectual Property Organization (WIPO) Madrid Protocol on the international registration of trademarks.

This development is likely to have a long-standing effect for U.S. trademark owners who wish to obtain trademark protection in the European Community. Indeed, since the inception of the European Community Trademark (CTM) system, U.S. applicants have positioned themselves as leaders in filing new CTM applications. According to recent statistics of the Office for Harmonization in the Internal Market (OHIM), U.S. trademark owners filed approximately 90,000 CTM applications, which constitutes close to 25% of all applications filed. For comparison, the second and third places taken by Germany and the United Kingdom, with 62,000 and 47,000 applications, respectively, are markedly behind the United States in CTM filings.

The question, therefore, is no longer limited to whether U.S. trademark owners should consider filing CTM applications, as compared with national applications in the Community countries (an issue vastly explored in recent years in publications).

Rather, prospective U.S. applicants for Community marks should now also decide whether to opt for a “regular” CTM application, namely, a direct application and registration with the OHIM, or to have the European Community designated as an extension of the Madrid Protocol International Registration (IR).

At first blush, it seems that the benefits derived from securing a CTM registration are equal, whether acquired directly with the OHIM or as an IR extension. Generally, this is correct since advantages of a CTM registration, in both cases, include examination on absolute grounds only (ie, there is no citation of prior trademark registrations or pending applications), issuance of Official Actions and litigation of oppositions before a single forum ' the OHIM, thereby eliminating the perils of having these issues reviewed by different national Trademark Offices, which would involve significant expenditures and possibly lead to inconsistent and contradictory decisions. Further, CTM protection is granted in all 25 Community countries, and use in any Community Country would defeat a non-use cancellation attack.

However, upon a closer look, there are several significant considerations, both procedural and substantive, that should be evaluated before choosing a conduit for CTM protection.

Cost Considerations

Perceptibly, a primary advantage of the Madrid Protocol is the cost-saving mechanism at filing, registration and, in the long-term maintenance of an IR. However, this general rule seems to be inapplicable in the case of IR extension to the Community.

The basic filing fee for a direct application with the OHIM is 975 EUR ($1200), and the registration fee is 1100 EUR (approximately $1350). Since the Madrid Protocol mechanism does not provide for payment of registration fees, the supposed saving of $1350 is unarguably a sound advantage. Yet, the European Community has decided in accordance with Article 8(7)(a) of the Protocol that, in connection with each request for territorial extension, it will not accept the standard low-cost schedule established by WIPO, and instead has declared that it wants to receive an individual fee for each IR extension request and for subsequent renewal of such extension.

The individual fee for designating the European Community was announced very recently. The charge is 1875 EUR ($2300), as compared with 975 EUR for a direct filing. The amount includes the filing and, since the Protocol does not prohibit it, the registration fees. The filing fee portion is 775 EUR and the registration portion ' not collected under the Madrid Protocol and therefore embedded in the individual designation fee ' is charged in full, namely 1100 EUR. The bottom-line economy in official filing/registration fees is thus only 200 EUR ($250).

Another consideration in extending an IR to the European Community is that this extension (as compared with a directly filed application) eliminates the need to retain a local trademark counsel, at least until the extension encounters an Official Action. This is a valid factor since the average filing fee for a CTM application, as charged by a Community counsel, varies between $1500 and $2000. On the counterbalance, however, is the fact though the OHIM does not follow the same stringent rules of examination as the UK or U.S. Trademark Offices (in the latter, up to 80% of all applications encounter an Official Action), a sizable part of the European Community applications, whether IR extensions or direct OHIM filings, receive an Official Action. In this scenario, no matter how small or technical the Action is, the applicant must retain a European Community counsel. As a matter of fact, most Community trademark practitioners charge a flat fee for being retained to reply to an Official Action, reaching 50% to 80% of the counsel's direct CTM filing fee (this, in addition to the time-billed fees for responding to the Official Action).

The above two factors ' the OHIM individual supplementary fee and the cost of a retainer, squander the pecuniary advantage of an IR extension over a direct CTM application.

Maintenance Cost

Though years away from when an application is filed, the cost of maintenance should be included in the trademark budgeting. Notwithstanding the fact that an IR is renewed by paying a single renewal fee to WIPO, Article 8(7)(a) of the Protocol empowers each member-country to declare that it will not accept the standard renewal fee established by the Protocol, and instead specify an individual fee it wishes to receive for renewal of an IR territorial extension. The individual renewal fee for a European Community registration under an IR extension will be 2300 EUR ($2800), virtually identical to the 2500 EUR fee in a directly registered Community trademark. This in effect eliminates possible cost savings, should the Community have adopted the WIPO schedule of fees, and erases the fiscal advantage of the Madrid Protocol in the mark's maintenance.

Scope of Protection

A paramount consideration in seeking trademark registration is the specification of goods and services encompassed by the mark. Unlike United States trademark applicants, the European Community applicants do not have to declare actual use of the mark or an intent to use, and wide specifications are allowed. This, in turn, creates a situation where a U.S. trademark owner who opts for territorial extension of an IR registration based on the U.S. registration or application must restrict the list of goods and services in the Community extension to those in the basic U.S. mark. An important factor to be kept in mind by the prospective applicants is that the vast majority ' 23 out of 25 ' of European Community countries are continental Civil Law jurisdictions, affording a special weight to the theory of trademark rights derived from registration. Unlike the U.S. or UK Common Law legal theory, which recognizes trademark rights based on use, and despite a recent drive in the Civil Law jurisdictions to bridge the gap between the systems with respect to recognition of use-based rights, the importance of having a trademark registration in continental Europe cannot be overestimated. Thus, a wider scope of goods and services covered by a CTM registration may be decisive weight in a possible trademark conflict.

Also to be considered is the continuous dependency of an IR territorial extension in the Community on the scope of protection in the United States. For example, if the IR is based on the U.S. application and the specification in the latter is eventually restricted, this restriction also should be reflected in each IR extension, including the European Community. Further, if the U.S. specification is amended while the mark is registered, this amendment should be entered in all IR extensions as well.

Central Attack

Another limitation of an IR extension to the European Community (or any other country) is the issue of vulnerability to a central attack. Rejection of the trademark owner's U.S. basic application or revocation of such U.S. registration (on any grounds) within the IR's first 5 years of existence will invalidate the Community extension. In consideration of the fact that up to 80% of the U.S. applications encounter Official Action and many applications never mature to registrations, as well as the fact that in many cases trademark owners stop using the mark post-registration and do not file a Section 8 Declaration, such invalidation of the U.S. mark equally leads to termination of the European Community IR extension.

Moreover, the possibility of a central attack opens to third parties new horizons for invalidation of the contested Community marks involving, along the way, jeopardy to the basic U.S. registration. A possible development may occur when a third party opposes a Community extension of the U.S.-based IR, and such U.S. mark is still a pending application or a registration within the 5-year period of IR existence. In this instance, if the Community opposition is dismissed, the opposer may well oppose the U.S. application or seek its invalidation, depending on the U.S. mark's status. If this home country attack is successful, the owner will also lose all national extensions under the IR.

Moreover, if the owner of the cancelled registration eventually decides to transform the mark into national applications, as described below, that same third party would have another chance to oppose the transformed Community application once it is republished. The above scenario, though not too likely, is still possible in case of a wide-scale European or transnational trademark conflict, with the claimant/opposer willing to defend its rights with no regard to the cost. Under such circumstances, the applicant may find itself a defendant in three transoceanic litigations, with soaring costs and the endangerment of its home-country registration.

Transformation

The Madrid Protocol allows transformation of cancelled IRs into national trademark applications designated by the owner. However, a national Trademark Office receiving the transformed application is not compelled to automatically accept it. OHIM plans that each application will be examined de novo. Thus, though OHIM is guided by the principles of harmonization, the fact that the mark is reviewed again always carries a risk that a new Official Action may issue and additional costs in connection with services of a local counsel would be incurred. Additionally, an IR transformation to the regular CTM application track will also necessitate payment of a new filing fee to the OHIM. If the IR is transformed while the Community extension is still pending, the registration part (but not the application part) of the filing fee, namely 1100 EUR, will be returned to the applicant, but transformation after registration of the Community extension does not entitle the owner to any fee reimbursement, and any pecuniary savings attained during the IR extension filing and registration will be eroded.

Ownership Restrictions

U.S. trademark owners who wish to obtain trademark protection in the European Community through the Madrid Protocol vehicle also should be aware that an IR may be assigned only to a party who is a national or a domicile in one of the Madrid Protocol member countries. Thus, a U.S. trademark owner will be unable to assign the IR to a third party, including foreign subsidiaries, in the non-member countries, including the NAFTA members ' Mexico and Canada.

Limited Geographic Interest

Another concern that must be reckoned with is that a U.S. trademark owner who wishes to develop a new brand name for the European market only (whether a new line of cosmetics, a car model name, or a pharmaceutical to be marketed under a specific commercial name designated for Europe only) will not gain any advantage in the Madrid Protocol mechanism. In such case, the only viable procedure would be to file a direct CTM application with the OHIM.

Summary

It seems that though in the long term a Madrid Protocol International Registration extended to a vast number of countries as part of a global trademark program carries significant advantages in prosecution and maintenance, these advantages may be lost in cases of a limited territorial IR extension to examining jurisdictions with a high individual fee system (eg, Japan, European Community). In these instances, it may be advisable to proceed with direct filings in the jurisdictions of interest, foregoing the Madrid Protocol option. Much also will depend on the vulnerability of the basic U.S. mark, which may expose the entire fleet of global IR extensions and destroy not only the cost benefits but also jeopardize the trademark rights. Thus, the trademark owner may consider an IR global protection only after filing the Section 8 and 15 Declarations for its U.S. registration, and the U.S. mark has become incontestable.

On balance, whether it is the advantage of a possible cost savings and ease of maintenance (one assignment/one renewal approach) or the disadvantages of a narrow scope of protection and vulnerability to central attack, the prospective applicant should carefully consider all available options with its counsel and lay down a strategy most suitable for the specific trademark program.