Spain Espagne Spanien. Report Q192. in the name of the Spanish Group. Acquiescence (tolerance) to infringement of Intellectual Property Rights

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1 Spain Espagne Spanien Report Q192 in the name of the Spanish Group Acquiescence (tolerance) to infringement of Intellectual Property Rights Questions 1) The Groups are invited to indicate if their system of national law provides rules conferring an effect of the tolerance shown by the holder of an intellectual property right with regard to a third party who infringes his/her right. Does this effect of tolerance apply to all intellectual property rights (patents, designs, trade marks and other distinctive signs) or only to some? The Groups are also invited to provide the justifications put forward in their country for the introduction of this rule on the acquisition of rights as an effect of tolerance and to define its scope. In Spain the effect of tolerance is only expressly regulated in relation to distinctive signs: trademarks and trade names. The concept of tolerance was introduced in the Trademarks Act 2001 (the TA ). The preamble to the TA states that the incorporation of this concept is in order to complete incorporation into Spanish law of Directive 89/104/EEC relating to the approximation of the laws on trademarks, without any further explanation. Up until that point case law had rejected its application in some isolated cases (judgments of the Supreme Court of 23 March 1945 and 14 February 1970), although in Spanish law there are relatively similar concepts such as the prohibition of venire contra factum proprium or the penalising of unfair delay in the bringing of actions (applicable, in principle and in general, to all types of rights) which might in some cases give results similar to those of the concept of tolerance. Legal literature for its part had paid little attention to this concept and has not viewed its incorporation into Spanish law with any particular enthusiasm. Finally, the last question is to identify if the rules relating to the acquisition of rights through the effect of tolerance should be the same for different kinds of intellectual property rights. Do national laws make a distinction between intellectual property rights that have been registered and intellectual property rights which are simply conferred by use and not by registration? Spanish law in general does contain the distinction between intellectual and industrial property rights acquired by registration or deriving from use. The TA, however, requires the registration of the tolerated subsequent trademark for the tolerance to take effect. 2) The acquisition of rights by tolerance remains subject to conditions, in particular, in relation to the duration of this tolerance and the attitude expressed by the third party that is exploiting the prior intellectual property right without authorization. 1

2 The Groups are thus invited to indicate the duration necessary for tolerance to confer a right to a third party and deprive the holder of that intellectual property right of the possibility of acting against this third party. The question raised also involves discerning what the starting point of this duration is and the act that the holder of the right must carry out in order to interrupt this period. Is positive action by the owner of the prior right necessary in order to start calculating the tolerance period, or can this date also be assumed? Thus, the Groups are invited to answer the question of what the requirements are in order for tolerance to be considered to have been interrupted: is it necessary to initiate legal proceedings or is it sufficient to protest against the alleged infringement, for example, by means of a letter? The initial moment is that of the commencement of sufficient knowledge (see infra) on the part of the holder of the prior trademark of the use of the subsequent trademark. Interruption, like tolerance, is a question of fact. It may be proved by any legally valid means. The law does not impose formalities ad solemnitatis for the validity of the interruption of tolerance. The act which, in particular, the holder of the right may carry out to interrupt the tolerance is a claim of any kind, either judicial or extra judicial. From the time the claim is submitted the period is interrupted and the period of five years starts to run again from the beginning. The mere submission of an extra judicial claim may in some cases not be sufficient to interrupt the tolerance and generate a new period of five years, given that as stated above our view is that tolerance is a question of fact. This means that tolerance could be demonstrated, even despite extra judicial indications, if the other circumstances make it possible to discern a lack of real will to prevent the use of the subsequent sign. In the opinion of the Spanish Group the interruption (voluntary or otherwise) of the use of the subsequent sign, even without indication from the holder of the prior trademark, means that the period of five years necessary for a declaration of tolerance starts to run again from the beginning. 3) The tolerance supposes that the holder of the prior right is aware of the existence of the infringement to his right and accepts it in an intentional way. The question arises then of recognizing the degree of knowledge of the acts of infringement the holder of the former right must show in order for him to be considered to have accepted the conflictive exploitation. The question arises then of knowing which is the degree of knowledge of the acts of infringement which the holder of the former right must have to be considered as having accepted the litigious exploitation. Article 52.2 TA only provides that [the holder] has tolerated the use... with knowledge of the use. It is enough, then, for the holder of the prior trademark to know of the use of the subsequent trademark. We take the view, however, that not just any knowledge is enough, rather it must be sufficient for the prior holder to be able to determine that there is an infringement and, hence, to be able to take the decision to tolerate the infringement. This requirement does not specifically appear in the TA, nor does it derive directly from any decided case, but rather, in our opinion, from the Spanish trademark system. On the other hand some legal literature although there is no case law in this respect at the moment considers that the requirement of knowledge may be considered complied with where it is possible to prove the presence of certain circumstances from which it must or may 2

3 be inferred that the holder of the prior right should have known of the infringing use. This could be equivalent to ignorant tolerance or what is the same thing tolerance without effective knowledge. This part of legal literature takes the view that the need for certainty in trade makes it necessary on this point to opt for an objective conception of good faith, which leads to silence in view of public use of which one could not or should not have been ignorant being interpreted as knowledge and as tolerance. It could, hence, be answered that knowledge must be sufficient in the sense of giving the holder of the prior right enough information to be able to conclude that there is an infringement of his rights; and, at the same time, that not knowing may not be negligent in the sense that, in certain circumstances, it may be considered that the holder should have known that his rights were being infringed. Can this knowledge be supposed or must it be proven in a positive way? Knowledge may be express or presumed. This is a question of fact which may be proved by any legally valid means, including, therefore, any presumptions which may be appropriate in any given case. In any event the answer given in the last paragraph of the previous section would also be applicable mutatis mutandis to the supposed knowledge referred to in this question. 4) In the same way, the Groups are invited to indicate the requirements which the third party exploiting the prior intellectual property right without the authorization of its holder must meet. Does this exploitation have to be carried out in good faith? According to the literal wording of article 52.2 TA which is difficult to argue around good faith is only required in the act of application for the registration of the subsequent trademark. In this sense it should be added that in the event of an application in bad faith not only would the possible tolerance of the holder of the prior right not come into play (article 52.2 TA), the subsequent trademark would also be affected by specific grounds of nullity (article 51.1.b) TA) for which it is provided that the declarative action of the said nullity is not subject to any limitation period (article 51.2 TA). And according to what criteria do the jurisprudence and the national law define this good faith? In the context of industrial property all conduct contrary to good faith is, in general, penalised (article 7 Civil Code or CC and article 5 of the Unfair Competition Act). Good faith is presumed (article 434 CC), and hence the burden of proof is on he who denies good faith, and is discharged by accrediting acts which show the existence of bad faith. According to case law good faith is hence defined sensu contrario. Bad faith may consist although it will not necessarily of knowledge of the existence of the prior third party right or of the attempt to take advantage of the reputation of another. The Supreme Court (judgment of 2 December 1999) in matters of nullity of trademarks states that the Trademarks Act does not define what is to be understood as bad faith for the purposes of applying for a distinctive sign, and hence the legal expression may refer to 1) both subjective bad faith, coloured by psychological elements, which in matters of distinctive signs must be understood in the sense of knowledge or inexcusable ignorance of the irregularity of the application due to infringement of any of the relative prohibitions set out in articles 12, 13 and 14 of the Trademarks Act (although inexcusability takes us to objective criteria); and 2) objective bad faith or conduct contrary to the standard of behaviour to be expected of he who acts in certain specific circumstances. 3

4 The requirement of good faith is, in definitive terms, a question of fact to be assessed by the courts. According to the repeated doctrine of the Supreme Court (among others the judgments of 6 March and 22 June 1995) the assessment of good or bad faith must be based on the judgment of conduct, being of a factual nature, and as a legal question, depends on the evaluation of that conduct deduced from the facts The Groups are also invited to indicate if the third party that exploits a prior intellectual property right without authorization must be unaware of the existence of this right in order to be considered to have acted in good faith or if knowledge of the prior right does not exclude good faith? Above all it must be recalled that knowledge of the prior right (insofar as it may indicate the presence of bad faith ) is only relevant at the time of the application for the subsequent registration. Such knowledge will not be relevant if it is only subsequent (mala fides superveniens) and only applies to the use and not to the application for registration. In order to determine whether the knowledge of the prior registration constitutes bad faith which is always a question of fact, as we have stated above it is necessary to examine the circumstances of each case. For these purposes legal literature distinguishes between cases of identical signs and of similar signs. Thus in cases of identical signs for identical products or, as the case may be, similar products knowledge of the prior right at the time of the registration application for the subsequent trademark may be sufficient for the application to be considered to be in bad faith, there being although not in legal terms a kind of suspicion iuris tantum in this respect. On the other hand in cases of mere similarity between the signs, or of absolute disparity in their scope of application, there will be a presumption of good faith unless the circumstances of the case make it possible to conclude the contrary. Therefore knowledge of the prior right (at the time of the registration application for the subsequent trademark) does not in itself exclude good faith, although in certain circumstances, objective and subjective (some of which are described above), it may exclude it, such knowledge being considered equivalent to bad faith. 5) The Groups should also indicate if their legal system provides other conditions (such as for example, the value or the geographical extent of the infringing activity) which the exploitation of the second right by the third party must meet in order to be able to call upon the benefit of the tolerance of this right by the holder of the prior right. Another question relates to the conditions that have to be fulfilled by the use of intellectual property rights which are subject to tolerance. Do national laws impose conditions on this use relating to its importance, duration or continuous nature? By definition, and in the opinion of the Spanish Group, the activity of the subsequent holder must have characteristics which make it sufficient to be considered an infringement in accordance with the normal parameters of the law on distinctive signs. However this use, for the purposes of tolerance, must have occurred for at least a period of five consecutive years. Statute law does not explicitly stipulate any other condition, nor is there any case law which does so. As regards the type of use the Spanish Group considers that there are two possible interpretations concerning the conditions of use of the subsequent sign: that it must be a simple infringing use, or that such infringing use is insufficient and that what is required is use with a certain plus of the kind required to block an action for cancellation, in other words an effective and real use (article 39 TA). 4

5 6) If the system of national law provides for the acquisitive effect of tolerance, the question arises of identifying the consequences from the point of view of the rights of the third party who is benefiting from this tolerance. First of all, the question arises of discerning whether this third party may only continue the same exploitation as that which benefited from the tolerance of the holder of the prior right or if, on the contrary, he may modify the nature as well as the extent of the exploitation which he has undertaken. The Groups are thus invited to indicate if the jurisprudence and the legal provisions in their country limit the exploitation of the prior right by the third party to the possibility of continuing that exploitation under precisely the same conditions as the exploitation that benefits from tolerance (both from the point of view of the form, the sign, the model or the product that is the subject matter of a patent and from the territorial and economic extent of this exploitation). The TA does not clearly establish all of the effects of tolerance. The only two effects which it provides for are that the holder of the prior trademark may not, the period of tolerance having passed, apply for the nullity of the sign registered subsequently and tolerated or oppose the use of the same for the products or services for which it has been used. This is also in line with the Spanish trademark system which, like the Community system from which it derives, provides for the partial validity and/or nullity of trademark registrations. In cases of partial use use of the trademark by the subsequent holder only for some of the products or services registered for his own subsequent trademark tolerance only benefits the holder of the tolerated trademark for those products or services for which it has been effectively used, and its use may not be extended to products or services which, although registered, have not been used. In addition, the question arises of identifying if the intellectual property right benefiting from tolerance (trade mark or another distinctive sign, design or invention) can be transferred to another third party and if this other third party may also profit from the tolerance from which its predecessor took advantage. Thus, the question is to recognize if tolerance has an effect that is limited to the person who has benefited from it through the holder of the prior right or if the tolerance is attached to the sign, design or invention which has been used, independently of the person who has carried out this exploitation. The Groups should explain the solutions adopted on this subject by their national laws. Trademark rights acquired by tolerance occur in the Spanish trademark system linked to the existence of a registration which is not made untransferable in this particular case, and hence the general rule of transferability applies. This means, in the opinion of the Spanish Group, that the tolerated sign may be the object of transfer and of the other legal acts contemplated in trademark law in respect of distinctive signs as items of property. 7) In the same context, the question of the exhaustion of the right also intervenes. Indeed, if the products or the signs benefiting from the tolerance are put on the market, the question of the freedom of circulation of these goods arises, since they can hardly be regarded a priori as commercialised with the authorization of the holder of the prior right. In the opinion of the Spanish Group in view of the existence of a tolerated registration this is not a right intuitu personae but rather an ordinary trademark registration. For this reason the exhaustion of the right of the tolerated trademark in the European Economic Area occurs with the consent of its holder the consolidated subsequent holder, the consent or otherwise of the holder of the original trademark who, by his tolerance, has already permitted the consolidation of the tolerated trademark being irrelevant. 5

6 Possible problems of proof stand out as regards the existence of consent in cases in which it is difficult to determine whether a product has been marked by the holder of the original trademark or by the holder of the tolerated trademark, in cases where these are identical. It should thus be discerned if the tolerance is limited to the acts of the exploitation carried out by the person who benefits from it initially or if the tolerance also extends its effects to the third parties that bought products, in particular, for their export abroad. This question is included in the previous one. Although again there is no specific regulation of the point in Spanish law, in our opinion tolerance extends to third parties, preventing nullity and infringement proceedings in respect of the registered sign within the scope of the tolerated use. The question undoubtedly arises, in substantive terms, of what should be the position of the law in respect of uses subsequent to the end of the period of tolerance which differ to a large extent from the use which gave rise to the tolerance; for example, the acquisition of the sign by larger undertakings, especially rivals, or those capable of making the sign well known or spreading it geographically in a manner different to that which initially gave rise to the tolerance. Once again there is no specific regulation on this point. The opinion of the Spanish Group is that given in the preceding paragraph that it is irrelevant based on the principle of certainty in trade. 8) The acquisition of rights through the effect of tolerance also raises the question of the definitive and irrevocable character of the acquired right. One can indeed ask the question of whether it is not possible to call into question the effects of tolerance, for example, by means of a regulation that organizes the coexistence of the two rights. The Groups are thus invited to indicate if such a regulation is possible in their national systems and how it might be organized. The application of tolerance means the co existence of two or more rights which will not always be peaceful. The absence of detailed regulation in the TA means that possible conflicts between holders will have to be resolved in the courts, in a system, such as the Spanish system, in which tolerance has no legal tradition. Any gradual work of interpretation which may be carried out by the Court of Justice of the European Communities will be important in this respect. The Industrial Design Act of 2003, which implements in Spanish law Directive 98/71/EC of 13 October 1998 on Community drawings and models, contains in article 50 regulations on the co existence of a prior right and a subsequent right in the same way as in the law on patents in the sense of requiring that the exploitation of the prior right must be in the same form and with the same purpose as that for which the prior exploitation was begun or prepared. It also limits the right based on the prior use, which may not be the object of licences of exploitation and which may only be transferred with the undertaking or section of the undertaking within which the exploitation began or the preparations were carried out. This regulation (although in a different area, that of the right of pre use) indicates that fuller regulations in the law on distinctive signs may be necessary. 9) Lastly, the Groups are invited to give their appreciation on the operation of the mechanism of the acquisition of rights by means of the effect of tolerance in their country. And the Groups are also invited to indicate if the rules in their country, as they exist, could be used as a basis for possible international harmonization. As has been stated, Spanish law is excessively brief and, in the opinion of the Spanish Group, insufficient per se to be used as a basis for a possible international harmonisation. 6

7 II) Proposals for harmonization The Groups are invited to formulate suggestions on the possible international harmonization of laws of intellectual property in the field of the effect of the tolerance of acts of infringement. These suggestions should be founded on the evaluation that the Groups make of the legal system of their country, so as to base future harmonization on the legal solutions which appear to be the most effective and easiest to implement. 10) First of all, the Groups should formulate an opinion as to the intellectual property rights which could be damaged by the effect of tolerance of an infringement. Does this tolerance have to take effect with regard to all intellectual property rights or only for some (for example, for distinctive signs)? The Spanish Group takes the view that the regulation of tolerance in Spanish trademark law is the result of a compromise reached at Community level in relation to the different conceptions of the Common Law system and the continental legal systems. The concept of tolerance, moreover, has only been accepted at Community level in relation to trademark rights and not in relation to rights over designs or copyright nor does its absence in Spanish law seem to provoke serious dysfunctions. The Spanish Group takes the view that the long civil law tradition in relation to the concept of the period of limitation is, in the immense majority of cases, an adequate legal tool for other intellectual property rights. Perhaps greater experience in relation to the concept of tolerance may, in the long term, bring to light advantages which, for the moment, escape Spanish legal opinion. 11) The Groups are also invited to give their opinion as to the nature of the tolerance, if it were to be the subject of international harmonization: is it to be limited to being a means of defence in the event of infringement proceedings or should it confer a right pertaining to the second user by date? The Spanish rules are a little ambiguous in this respect, although the interpretation we consider more plausible is that, in Spanish law, this is a right definitively acquired by the subsequent holder. The opinion of the Spanish Group, having analysed all of the questions referred to, is that, in the event of international harmonisation, it would be preferable to design tolerance fundamentally as a means of defence and for its effects to be the object of adequate and more detailed regulations, both as regards the prior holder and third parties. 12) The Groups are also invited to formulate suggestions as to the conditions (such as: duration, extent and value of the second exploitation by date, the knowledge of the infringement by the holder of the prior right etc.) which the tolerance should fulfil in order to produce legal effects in the event of possible international harmonization of intellectual property rights. The lack of experience in our system in relation to the concept of tolerance prevents us from making suggestions of sufficient weight on these conditions. 13) Finally the Groups can formulate any additional opinions as to the possible international harmonization of the rules of intellectual property rights on the conditions and effects of the acquisition of rights by means of the effect of tolerance. Lack of experience makes it too risky to venture an opinion in this respect. In any event we think that specific regulation of the effects of tolerance, in the event of the international harmonisation of the concept, would be desirable. 7

8 Summary Under Spanish law the effect of tolerance is only directly contemplated with respect to distinctive signs: trade marks and trade names. There are other legal institutions, such us the general prohibition of venire contra proprium, which may produce similar effects, but are not entirely equivalent. Tolerance was introduced in Spanish trade mark law as a consequence of Spain implementing EU Directive on Trade Marks. Tolerance is different from the statute of limitation for the bringing of infringement or cancellation actions, which also applies to intellectual property rights, although the effect will in most cases be similar. The effect of tolerance consists of barring the owner of a prior trade mark from objecting to the use, by a third party, of a subsequently registered sign which would otherwise infringe the prior trade mark rights. It likewise impedes the cancellation of the subsequent trade mark registration. In both cases, tolerance takes effect only with respect to those products or services for which the second trade mark has been used and not for all products or services for which it was registered. Use must have been uninterrupted for a period of at least five years. The effect of tolerance also requires that such use by the third party of the secondly registered trade mark be consented by the owner of the earlier registration. Consent in turn requires knowledge of the infringing use and lack of objection, whether express or implied, by the earlier trade mark owner, to such use. Consent or tolerance are matters of fact and may be proven through any means of evidence valid in law. Use should be sufficient for the earlier trade mark owner to know of, and consent to, the infringement. Immaterial uses should possibly not give rise to tolerance. The second sign must have been registered. Tolerance does not apply to unregistered signs. Registration must have been made in good faith and the effect of tolerance will apply even if its subsequent use is made in bad faith provided that registration was not. Registering a sign identical to the earlier trade mark for identical products or services may equal bad faith, but it may not necessarily be so: bad faith is a question of fact and needs to be proven by the owner of the earlier sign. Tolerated registered signs may be freely transferred to third parties who will benefit from tolerance acquired with respect to those products and services used and tolerated to the benefit of the transferor. It is unclear whether significant alterations in use (eg quantitative) may not benefit from the tolerance acquired. The effect of tolerance has been accepted by the Spanish trade mark community in a fairly neutral way. The Spanish system has traditionally followed the Civil law principles around the statute of limitation, which, in the eyes of the Spanish Group, serves very similar purposes. There are not in Spain any precedents applying the effect of tolerance and the existing legislation is extremely limited. The experience of the Spanish Group is thus very limited. The Spanish Group would have a favourable view about prospects of international harmonisation of the effect of tolerance for intellectual property rights. The Spanish Group would also believe that a complete regulation of, inter alia, its effects vis à vis third parties and subsequent acquirers of the tolerated sign should be necessary. Tolerance implies co existence of at least two identical or confusing sings and co existence requires, by its very nature, regulation. Detailed regulation of other elements inherent to the effect of tolerance, eg, scope of use, would equally be appropriate. The Spanish Group is also of the view that, contrary to the current provisions of the EU Directive, the effect of tolerance should be construed as a defence rather than as an acquired right. 8