How to avoid the lapse of a trade mark

August 2, 2017: while the Hollywood press first reported the news that NBC is working on a reboot of Miami Vice, all the way across the Atlantic, a German court issued a decision ordering the cancellation of Ferrari’s German registration of the “Testarossa” trademark, for lack of use—talk about timing.

Sure enough, many will recall that the classic cop drama from the 1980’s saw one of its two main characters—Don Johnson as James “Sonny” Crockett—drive a genuine, white 1986 Ferrari Testarossa. In fact, close-up shots were so common in the TV show that the famous sports car rapidly earned a prime spot in its own right.

Against the backdrop of such renewed media interest in the cult TV series, the news of the order against Ferrari rapidly spread throughout general and specialist (legal) press. The debate was sparked: how could such an iconic trademark be cancelled? Interestingly enough, the judgment rendered by the Düsseldorf Regional Court (the Court) simply made a (rather) strict application of a principle that is common to most trademark legislations.

Let’s look at the factual and legal arguments behind the reasoning of this much talked-about decision. But first some context: the decision in question is a first instance judgment issued at a national, district-court level. The relevant proceedings have been started by a German toy manufacturer, Mr. Hesse, who had previously filed an application for the registration of a (nearly identical) “Testa Rossa” German trademark for products within the same class. Mr. Hesse demanded that the prior registration of the “Testarossa” trademark by the Italian luxury sports car manufacturer be declared lapsed for lack of use, and therefore, be cancelled.

Ferrari appears to have stopped its production and distribution of the Testarossa models in 1996. But the question is—has it stopped using the relevant trademark too? The Court where the claim was lodged ultimately thought so.

When it comes to trademark protection, most jurisdictions—including Germany—set out a limit in terms of actual use. In a nutshell, the general principle is, trademark holders cannot maintain their exclusive rights in an IP asset unless they prove to have an actual legal and economic interest in it—that is, unless they prove they have used it to identify the products it was registered for in a reasonably recent timeframe.

In the case at hand, the German judges have found that the defendant failed to provide sufficient evidence as to the actual nature of the use that was made of the challenged trademark. In short, the findings of the Court were based on the non-substantial and non-distinctive character of the alleged use.

In its defense, the Maranello-based company essentially argued that, contrary to the plaintiff’s claim, it had continued to use the “Testarossa” trademark in at least three different circumstances: (i) in the context of communication and advertising activities; (ii) in the market of second-hand motor vehicles; and (iii) in the provision and distribution of maintenance services and spare parts. All of these arguments were dismissed by the Court on what can overall be described as an analytic assessment, carried out in the light of a strict interpretation of both legislative provisions and prior case law.

First, the Court argued that the use of a trademark shall be deemed as right-preserving only insofar as it complies with its distinctive function, having regard to the origin of the goods it identifies. So, although communication and advertising activities may qualify as such, they must be analyzed on a case-by-case basis with a view to assessing the actual nature of the underlying use. In the case at hand, according to the Court, the use of the “Testarossa” trademark by the defendant only served a descriptive function in that it was used to merely indicate the (old) models of cars with the same name.

Second, following the reasoning of the Court, the exhaustion of the rights conferred by trademark prevents any use from having an actual nature in the context of any second-hand market. From that perspective, trademark holder’s rights are exhausted after the first sale, which in the case at hand dates back to the 1990’s, and cannot be linked to the resale of used vehicles.

As to the business of maintenance and spare parts, the Court started by saying that—just like with the first line of defense—this kind of use could theoretically be suitable for purposes of legal preservation of the trademark. However, the Judges went on and stressed the non-serious nature of such use by the defendant; they did so from two different perspectives. On the one hand, the analytic assessment of the trade-volume of such products and services returned very low results, both in terms of units and revenues, even considering the inherently limited extent of such a niche market. On the other hand, the fact that only a fraction of the spare parts aimed at the Testarossa model were actually marketed under the “Testarossa” trademark did not amount to actual use. In fact, it appeared they were largely marketed under the umbrella trademark “Ferrari”. Overall, these factors led the Judges to conclude that the scope of the use of the “Testarossa” trademark in maintenance and spare parts was very limited and therefore insufficient to avoid its lapse.

For all the above reasons, the Court upheld the plaintiff’s claims and ordered that the “Testarossa” trademark be cancelled from the German trademark office. That being said, what must be stressed is that the Court did not issue a definitive judgement and, as such, this could be overturned in second instance. Also, parallel proceedings are pending before the EUIPO, which has instead partially upheld Ferrari’s defenses so far and whose final decision will likely impact national decisions too.

But what would happen if a similar claim was filed in Italy? Just like in Germany, Italian law requires actual use of a trademark by its right holder (or by an authorized third party) in order for it to enjoy the protection granted following the registration procedure. Save for the existence of legitimate impeding grounds, rights in a trademark lapse whenever the latter of: (i) it is not used within five years from its registration; or (ii) it is not used for more than five consecutive years.

In Italy, the party who objects the lapse, for lack of use, of a prior trademark must prove it. Considering the troublesome nature of a similar burden of proof, which consists of negative facts, evidence can be offered by any means—including mere presumptions. These can be rebutted by the holder of the prior trademark, who shall either prove the actual use of the objected trademark or the existence of a legitimate impeding ground. The evidentiary aspect of a cancellation claim for lack of use is definitely delicate—one that the German court has duly taken into consideration, and rigorously so.

What is interesting to note here is the reiterated reference by the Düsseldorf judges to the origin-indication purpose of the trademark. This can be traced back to the principle underlying the lapse for lack of use rule all throughout Europe. Indeed, the rationale of such a rule is also linked to the lack (or loss, if any) of distinctive character of a trademark whenever it is not actually used.

This is the principle that appears to be at the heart of a strict yet literal interpretation of the law, as the one made by the German judges. Ferrari may have lost a battle to it, yet not the war.

Meanwhile, two general considerations can be drawn from the commented decision to the benefit of economic operators in Europe:

1) Actively use the trademark portfolio you wish to keep alive. Commercials, campaigns, relaunches, remakes—distinctiveness of a trademark cannot but fail if no goods or services are designated through it on the relevant market;

2) Keep track of any use you make. From press coverage to accounting all the way through to R&D projects—records are crucial with a view to evidentiary purposes.

Direction for use, one may say. Better safe than sorry.

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