The future of trade marks in the EU: OHIM speaks

One minute ago, at exactly 3pm Central European Time, corresponding to 2pm in snowy old England, the Office for Harmonisation in the Internal Market published its Contribution to the Study on the Overall Functioning of the Trade Mark System in Europe. This 38-page document (not as daunting as it sounds: the Annexes start at p.18) makes fascinating reading, not least because of the proposal to give €300m back to trade mark users by way of compensation for the years of excessive fees. In practice this could mean that getting on for quarter of a million trade mark owners might receive refunds of between €400 and €600 for each trade mark they registered.

As for the rest of the OHIM cash mountain, OHIM recommends keeping €50m for itself as a strategic reserve, while a further €50m has already been set aside for cooperation projects with national IP offices (on which see the OHIM Cooperation Fund, which will roar into action later this year).

Money is not everything, of course, and some of the OHIM's comments come in the form of proposed changes in the basic regulations covering the Community trade mark in the light of changes that have taken place since the previous century when the fax was king. Other proposals address OHIM governance and its relationship with national offices, and even substantive issues such as what constitutes genuine use.

Readers with a long memory may recall that the European Commission commissioned a study into the working of the European trade mark system at the request of the Council of Ministers way back in 2007. This task was entrusted to the Max Planck Institute (Munich) towards the end of last year and OHIM's Contribution is intended to assist that review.

OHIM is actually quite critical of its own governance system, since it enables representatives of national registries to influence the respective fee levels of OHIM and national offices, thereby affecting the organisation's competitiveness as well as resulting in the amassing of a huge reserve. Representation by users' groups and with greater involvement of the Commission is preferred, merging OHIM’s Administrative Board and Budget Committee.

The IPKat hopes to read this document more closely when the opportunity arises, but he's sure that many of his readers will beat him (and Merpel) to it and wil have lots of opinions of their own.

OHIM fees and SMEs

ECTA, the European Communities Trade Mark Association, appears to have broken ranks with the trade mark owners' organisations MARQUES and INTA over twin issues of (i) overcharging of applicants for Community trade marks and (ii) subsidising national trade mark granting authorities out of fees paid by applicants for Community trade marks. 

A letter, signed by ECTA's President Simon Reeves and Vice-Chair of the Law Committee Fabio Angelini, has been sent to Wubbo de Boer, António Campinos and Robert Ullrich (OHIM), Margot Fröhlinger (European Commission) and the heads of the European Union's regional and national trade mark offices which reads as follows:

"“How to better balance OHIM’s budget – the way forward”

The compromise solution as proposed at the last Joint Meeting of the Administrative Board and the Budget Committee of the OHIM

ECTA has now completed its analysis of the compromise solution and read with interest the comments expressed by Marques and INTA, as well as those formulated by BusinessEurope.

While there are some elements of commonality between ECTA’s assessment of the compromise solution and some of the ideas expressed in all three papers, ECTA’s
overall position differs.

...

The integration and development of the European Union (EU) internal market has been, and of course still is, one of the most important goals for the EU. The harmonization of national trade mark laws as well as the creation of the CTM system have been quite efficient instruments to assist the EU in reaching this goal. Particularly the latter has paved the way, or at least lowered the barriers, for a real and efficient free movement of goods all over the EU.

However, while freedom and efficiency undoubtedly serve the interests of industry as well as of EU consumers, the degree of success of the CTM has raised and continues to raise some concerns and certainly one of them is how to handle the budget surplus generated by the system.

It is ECTA’s belief that balancing OHIM’s budget is not a goal or an end in itself but rather a collateral result which may be achieved in many ways. The alternatives would be multiple and could go from lowering substantially OHIM fees to increasing the human resources item of OHIM’s budget.

However, ECTA doubts that any such option would constitute a proper solution to the problem because the real issue is not how to balance the budget, but rather which way is the most appropriate in a comprehensive framework which takes into account the peculiarities of the overall EU trade mark system characterized by the overlapping of two different and independent layers of protection, i.e. national systems and CTM system.

Accordingly, it is ECTA’s view that balancing the budget and handling the surplus cannot be properly dealt with unless by a solution which is first and foremost prompted by the need to create a proper balance between CTM and national trade marks.

There are different reasons why ECTA believes that it is necessary to adopt such a policy. While this paper is not the proper venue to deeply dwell on the particulars ECTA will offer some considerations that represent the views and the input of its membership, which encompasses trade mark professionals in industry and in private practice.

The starting point is that a proper balance between CTM and national trade marks helps small and middle seized enterprises (SMEs) within the EU and benefits the system as a whole.

It is quite apparent that the CTM is particularly suited to those large companies whose activities encompass several or most EU member states. On the contrary, a national trade mark registration, or few more in the relevant markets of reference are, in most cases, more than enough for an average SME whose output does not and will likely never justify a market horizon wider than that. The fact is that in the EU, the industrial fabric is by and large composed more of the latter (SMEs) than the former (large entities).

While some overlapping is unavoidable, i.e. both systems are used to protect the same trade marks for the same markets, the reality is that both routes are necessary and perform a vital role in order for the European trade mark system to function well.

At the moment it seems, however, as though the CTM system is slowly but firmly eroding and endangering the existence of the national systems, mainly as a result of financial considerations. This is due to the simple realisation that by one CTM an enterprise obtains protection in all 27 member states at a fraction of what it would otherwise cost.

Therefore, on the one hand, many companies who would not need a CTM, apply nonetheless for it because it is already a cheaper alternative to national registrations. On the other hand, larger and richer companies pursue aggressive registration strategies which, aided by the perhaps now too long 5 years’ use period, ultimately narrow more and more the number of available signs, and effectively stifle competition because of the implied threat of litigation which lies in any registered sign, even though not yet in use.

The result is that while to any single SME, the long-term economic effects of choosing a CTM over a national registration may seem minuscule, because they consider one CTM at the time, looking at the whole rather than at the part, it seems evident that the multiplying effect of these individual choices puts a formidable stress on the EU system of protection of IP rights and ultimately increases the overall costs in an exponential way.

With a Register so overfilled with CTMs, many of which may not be in use, clearing a new trade mark is more and more expensive which means that only large and financially rich companies may afford them, which also means that SMEs basically risk the future economic viability of their goods/services when they register a CTM upon the chance that no one along the way will sue them. However, the situation is not favourable for large companies either, since they must face increasing costs which are in turn passed, ultimately, to consumers.

In addition, this phenomenon would only be exacerbated by the proposed reduction of the CTM fees to 1,000 Euro, equivalent to a cost of 37.04 Euro per country for the first 10 years of validity of the registration, which is much lower than the current corresponding fee in any of the 27 countries of the EU, and the more so if you take into account that for up to three classes, the cost is the same.

Any trade mark administrator of any SME interested in registering a trade mark would have extreme difficulty in explaining to his/her management why he/she chose to file more expensive national registrations when he/she could have filed for a CTM.

ECTA wonders why in order to address or treat/cure what is, after all, a benign problem like that of a budget surplus (a constant deficit would be a serious problem), the solution proposed might have the effect of increasingly challenging the viability and survival of national registrations and ultimately jeopardizing the CTM system.

ECTA is of the opinion that the most useful approach is that of optimizing the reallocation of resources among Trade mark Offices. ECTA understands that one of the agreed proposals to address the budget surplus is by allocation of some of it to the national offices.

This compromise solution is agreeable to ECTA if encompassed in a policy aimed at maintaining a reasonable balance between the CTM fees and the national TM fees to the ultimate benefit of the users. To encourage this result, ECTA suggests that part of the surplus is deposited in a stabilization fund which would be transferred, proportionally, to national offices in exchange for a reduction of their TM filing fees.

This solution would benefit on the one hand national offices, which could see the number of national applications increase, and on the other it would benefit SMEs, which would have a cheaper and competitive alternative to consider. Ultimately, this continuous transfer of resources should stabilize the competition between the two systems as a whole and equilibrium would be reached to the benefit of the whole trade marks system in Europe.

It is important, however, to ensure that any transfer of OHIM surplus to national offices be utilized by the national offices and not for other purposes within each member states and therefore it should be clearly contemplated that the surplus must be utilized firstly to decrease national fees and secondly to enhance quality of the services offered by national offices so as to foster innovation all over the EU.

Finally, ECTA is not against a reasonable reduction of OHIM fees. However, for the above-mentioned reasons, it considers that a possible reduction of OHIM fees should not focus exclusively on application and registration fees, but preferably extend to a number of official fees, including renewal fees and particularly opposition and appeal fees, which are the most advantageous alternative to costly and time-consuming Court proceedings.

ECTA also wonders about the actual advisability of consolidating CTM fees in one payment. There are practical considerations such as that the current system, with two separate payments – the initial application fee and subsequent registration fee – is more equitable for applicants, in particular for SMEs. Given the difficulties and the costs of clearing new applications prior to filing, many applicants simply file their CTMs and wait to learn whether or not oppositions are filed and if they are, many simply withdraw and abandon the mark or convert into national applications. With the proposed system, the SMEs would have to pay the full fee which would be wasted in the above scenario. In addition, it does not seem fair that a trade mark whose registration is granted and remains valid for 10 years should pay the same fee as a trade mark whose registration is refused.

A change in the relative proportions of the application fee and the registration fee might nevertheless be acceptable, proportionally increasing the registration fee for the grant of the registration/right and reducing the initial application fee. This system would balance the cost/benefit equation and make applications more attractive, while at the same time trying to ensure that only trade marks whose use is actually of interest would be validated.

...".

The IPKat, who has been following this debate with interest, notes that the diversion of funds from OHIM to national offices is being argued in very positive terms, highlighting the benefits to be obtained rather than on any detriments or grievances. He is also pleased to see some arithmetic being employed, since actual figures make for stronger arguments than mere assertions. He still isn't clear about whether the fact that there are so many CTMs on the register is such a dreadful thing though: there are so many more goods and services than there used to be, and with increasingly international trade, particularly online, the register is bound to get more crowded whatever fee policy is adopted -- but the only other marks that will concern the individual applicant are those that are close enough to raise a ground of opposition, which is only those marks on the register that are closest to his own.

Merpel, however, is less sympathetic to ECTA's position. This looks, to the untutored eye of a fictional cat, like an acute case of national agents -- who do not pay the fees themselves -- protecting their own interests in national filings. She is particularly incensed at the manner in which ECTA talks of "a benign problem like that of a budget surplus". From the point of view of OHIM, having too much money is a benign problem, in that having too little money to enable it to discharge its functions is a malignant problem.  But from the viewpoint of Community trade mark applicants -- who do not consist uniquely of fat-cat megacorporations but contain many SMEs too -- it looks like a tax on Community trade mark applications.

OHIM fees fudge: the MARQUES response

On Monday the IPKat posted the compromise solution for resolving the OHIM fee crisis (see here for background and details). In response to the document in question, ”How to better balance OHIM’s budget – the way forward” (this being the compromise solution as proposed at last week’s Joint Meeting of the administrative Board and the Budget Committee of the OHIM), MARQUES -- the Association of European Trade Mark Owners -- makes the following statement (the key passage being highlighted by the IPKat):

"The proposed compromise will result in a significant reduction of the fees for registering a Community trade mark (CTM). The proposal is that the combined cost of applying for and registering a CTM would be reduced from €1,750 to around €1,000. In future there will be one application fee and no registration fee, which will reduce administration both for OHIM and applicants. MARQUES welcomes this reduction as well as the proposal to put the fees together into one.

Users have been supporting the concept of an automatic review procedure according
to which the OHIM would set the future fees in consideration of financial results of
past years and future budget planning and which could result in both reduction and
increase of fees. However, the compromise solution proposes a regular biannual review by the Commission. While this mechanism is more bureaucratic than the original proposal, MARQUES accepts it as a compromise on the basis that the lengthy discussion and debate that have been experienced in the past can be avoided to a
much greater extent.

A Cooperation Fund will be established using 50 million Euros of the OHIM surplus
for use by the national offices of member states for various projects for the benefit of users. The nature and scope of these projects has yet to be decided but it will be in close consultation with users and such projects will be carefully audited. However, greater flexibility will be sought than was the case with previous cooperation funds.

MARQUES would approve of the creation of a Cooperation Fund on the basis that
users are directly involved in judging the projects that are approved as worthy recipients of funding.

The creation of a reserve fund of around 190 million euros is foreseen. While
MARQUES feels that the amount is quite large, it appreciates that OHIM needs some kind of reserve in order to hedge against reverses in the future.

Finally, the compromise solution includes a proposal to distribute to the National Offices of Member States an amount equivalent to 50% of the renewal fees. It is foreseen than this money will replace the Cooperation Fund in due time and the plan is to ensure that the funds would be used for purposes closely related to protection, promotion and enforcement of trade marks and designs. Again, users will be closely consulted about this.

It is more difficult for MARQUES to accept this part of the compromise solution in view of the fact that MARQUES has consistently spoken against diversion of fees, both on the OHIM level as well as on the national level. MARQUES has conducted research that demonstrates that in a number of Member States national fees are diverted into national state budgets. MARQUES is very concerned that diversion of
CTM fees to national offices will result in a corresponding decrease of the budgets of these particular offices, which will make the problem of diversion on a national level even worse.

It is highly desirable that measures are taken to promote financial independence of
all National Offices, and until this is fully implemented, it is equally important that it is ensured that any funds transferred from OHIM to national offices are used to increase the abilities of an office to improve its services to users and to society.

MARQUES notes that the distribution criteria for the 50% renewal fees are to be defined in a way which would guarantee a minimum amount for each Member State.

MARQUES assumes that the totality of these minimum amounts could not at any
time exceed the 50%.

MARQUES would have strong expectations of any office that were to receive means
as proposed by the compromise solution. Some of these expectations could also be met through applications to the Cooperation Fund and would include the following items:
- Offices will create and maintain electronic databases which are made available
for free on-line searching over the Internet
- Offices will create and maintain databases for rights that have been claimed
as seniorities
- Offices will make the data freely and fully available to the TMView project
- Offices will work to develop the EuroClass system of agreed classification
terms
- Offices will have options for on-line filing with credit card payment facilities
- Offices will put in place and encourage electronic communication with users,
OHIM, EPO and WIPO so as to cut back on paper, inefficiencies and duplication
of work and manual updating of data
- Offices will display transparency in their accounts and will specify their income
and expenses in a way that will i.a. disclose the origin of income
- Offices will demonstrate an understanding of their dual role, i.e. to register
rights efficiently and with cost-effective procedures on the one hand and to
promote the value of IP towards companies and society in general on the
other hand
- Offices will work with users, both local and European, to improve communication
and services

The remainder of the current OHIM surplus is to be used in the interests of users and the Commission is being asked to study this issue in consultation with users.
MARQUES welcomes this initiative and will be pleased to participate in the study.
MARQUES has been informed that the compromise solution would bring the OHIM’s budget into balance and trust that any future change in CTM or RCD fees would not
spark similar procedures.

With the above statements in mind MARQUES would be willing to support the compromise solution and to work in a positive spirit with all parties involved to ensure that the proposals are implemented in an appropriate way".

STOP PRESS! OHIM fee scandal comes closer to resolution

The IPKat has just received a Press Release from MARQUES, the Association of European Trade Mark Owners, that is so hot it is absolutely sizzling! It contains information concerning the Extraordinary Joint Meeting of the Administrative Board and the Budget Committee of the OHIM [=Office for Harmonisation in the Internal Market], which took place on the Thursday and Friday of last week (while the MARQUES conference was in full swing). The Press Release goes as follows:

"How to better balance OHIM’s budget – the way forward”

MARQUES has actively participated in the debate regarding the CTM [=Community trade mark] fees since years before the first reduction in 2005. MARQUES supported the compromise to make the national searches undertaken in connection with CTM applications voluntary and accepted the set-up of the so-called cooperation agreements between the OHIM and the national offices which resulted in 2007 in a transfer of 1.8 million € to national offices for services performed in connection with the CTM and the RCD [=Registered Community design].

Notwithstanding the 2005 measures the surplus of the OHIM continued to grow.
MARQUES continued to push for benefits to industry, including a further reduction of fees, and to speak against diversion of fees, whilst at the same time taking the initiative to create the Trademark Users’ Forum that has met twice a year since 2005. The Forum focuses on supporting the work of national offices by analysing the needs of businesses and identifying relevant services in an attempt to bridge the gap between users and national offices on a European level.

The above extraordinary meeting was announced and discussed at the opening of
the MARQUES Annual Conference last week, and MARQUES wishes to inform
members, delegates and other interested parties of the compromise solution that is
being put forward as a result of the meeting.

You can find the summary on the MARQUES website at http://www.marques.org/downloads/summary_joint-meeting.pdf and at the OHIM website at http://oami.europa.eu/ows/rw/news/item803.en.do

MARQUES will study the compromise in order to take a position later this week".

The compromise solution is contained in a two-page communique. Its main bit is as follows:

"On the abovementioned proposed package of budgetary measures, the results of the discussions are the following:

- As regards to the proposed fee reduction a new very straightforward proposal
emerged during discussions, which would not only substantially reduce the fees,
but simplify the fee structure and result in a significant reduction of administrative burden in relation to the handling of fees. This would consist of concentrating the impact of the fee reduction on the current registration fee, and bringing the combined value of the application and registration fees down to around €1,000 [this is welcome, says the IPKat, and 1,000 is a nice round sum that's easy for simple souls like CTM applicants to remember].

- Furthermore, as an alternative to the proposed automatic reduction mechanism of fees, Member States considered a regular biannual review of the financial situation of the Office by the Commission to be more appropriate in order to making the necessary proposals in the commitology [the IPKat couldn't find this word in his dictionary: it must be Eurospeak ...] procedure with a view to balancing the Office’s budget.

- Member States have supported the proposal of distributing to the National Offices of Member States an amount equivalent to 50% of the renewal fees in accordance with distribution criteria to be defined in a way which would guarantee a minimum amount for each Member State. It should be specified, in the Council Regulation 40/94, that the transfer of 50% of renewal fees should be done in a way that would ensure that the funds would be available to the Member States’ National Offices and would be used for the purposes closely related to the protection, promotion and/or
enforcement/combat counterfeiting of trade marks [the IPKat's sure that the Member States are pleased to see this money repatriated, but wonders what the businesses whose money it used to be it may be feeling. Merpel asks, can anyone tell her what national offices have done in the past hundred years to combat counterfeiting, and what difference this injection of cash is likely to make to that objective?].

- The vast majority of Member States have supported the proposal to allocate around 190 million euros to the Reserve Fund and to create a Cooperation Fund. This Cooperation Fund would be established with an allocation of 50 million euros and would phase out once the repartition [the WHAT? Repatriation, perhaps?] of renewal fees is in force. It should be specified that the funds for cooperation should be available to the Member States National Offices, and would be used for the projects closely related to harmonization and the protection, promotion and/or enforcement of trade marks and designs. Users should be associated with the operation of this fund in an appropriate way. The structure of the fund should be as light as possible and its access should be facilitated and avoid unnecessary administrative bureaucracy.

- Member States supported the idea of using the remaining surplus in the interests of users, and asked the Commission to study this issue in consultation with users within the context of the overall evaluation of the trade mark system to be conducted by the Commission.

Member States and the OHIM top management agreed that from the discussions held in this meeting, sufficient support was gathered around a number of basic elements, identified above, that should be included in a package of budgetary measures aiming at guaranteeing a balanced budget for OHIM in the future and took the decision to inform the European Commission accordingly, by way of formal joint letter from the Chairmen of the AB and BC and the President of the OHIM, to be considered within its forthcoming initiatives in this field".

The IPKat feels that this whole episode has been a wretched one from start to finish and he hopes that it will soon be resolved. Merpel just feels really vexed. How much, she wonders, has been spent in flights, hotel rooms, hospitality and the usual niceties that will have been indulged in while people have been shuttling around Europe in search of a solution to a problem that should never have been allowed to happen? And how much good could have been done with those resources in the meantime?

OHIM fees: time for a price reduction?

“Think Small First”: a "Small Business Act" for Europe is the catchy short title for a 21-page document, the Communication From the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions, adopted by the Commission this Wednesday.

Right: not everyone in OHIM is excited about it becoming more accessible. This design for the new OHIM Building was favoured by some of the office's less extrovert staff members

It says, at page 13:

"the Commission will make the Community Trade Mark system more accessible, in particular by significantly reducing Community Trade Mark fees as part of a comprehensive solution to the financial perspectives of the Office of Harmonization for the Internal Market (OHIM)".

Good news, says the IPKat. We've been lobbying for the fee reduction for a long time. Good news, says Merpel: making the system more accessible presumably means shifting OHIM from Alicante to a place that has a realistic selection of business flights.

The full version of the Small Business Act (82 pages) can be found here

Today's the day

Today's the day we begin to put the world right, it seems. The IPKat is delighted to learn that João Tiago Silveira (right), the Portuguese Secretary of State for Justice, will be in Brussels today to participate in the Competitiveness Council. João is going to take the opportunity to request, under "Any Other Business" in the Competitiveness Council agenda, that the Commission comply with the Council Conclusions of May 2007: immediately to propose a reduction of the fees related to the application, registration and renewal of Community trade marks.

CTM fees have become an increasingly important matter for Portuguese as well as European SMEs, since all will benefit considerably from the proposed reduction of fees. Applications for registration of Community trade marks made by Portuguese nationals rose a remarkable 21.2% from 2006 to 2007. The present unjustifiable high fees have given OHIM an unwanted surplus of more than 300 million euros, a pile of money that is growing at the rate of one million euros per week. OHIM has itself called for fees for Community trade marks to be reduced for the benefit of traders and ordinary consumers in the Community.

How to pronounce João (for English-speakers) here, here and here
How to rob Community trade mark applicants here