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Sunday, 25 January 2009

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.


Anonymous said...

Merpel is right. Moreover, applying for national trade marks results in a fragmented internal market, in which trade marks are available in some countries but not in others. The EU should not promote such fragmentation resulting from the policy favored by ECTA.

Importantly, an SME who initially believes that a national trade mark suffices, may later on realize that by not applying for a CTM, somebody else was able to obtain similar national trade marks in other countries, thereby preventing this SME from exporting its own products labelled with its own trade mark to those other countries. It would be unwise to for the EU to promote a system in which SMEs will be trapped, especially because indeed, SMEs play a crucial role in the EU's economy.

National trade mark offices should finance themselves. There should be no tax on Community trademark applicants in order to finance national trade mark systems. If there is insufficient demand for the services of national trade mark offices because their very existence is incompatible with the internal market, so be it.

Anonymous said...

I say leave the fees as they are and use any surplus to increase manpower and reduce the chronic backlog in Opposition decisions

Anonymous said...

One of the things that strikes fear into the heart of a UK-based trade mark lawyer is the prospect of an emerging class of savvy, internationally aware CTM specialists operating from a low-cost base in Eastern Europe. So I am quite sympathetic to ECTA's viewpoint on a personal-pocket level.

However, this cannot be a legitimate motive for promoting policies to put the CTM system "out of reach" of SMEs and MMEs (which is what can be read between each of ECTA's lines). The CTM Registry is called the 'Office for Harmonization of the Internal Market' specifically to remind us all that the CTM, rather than being the result of an unsanctioned Brussellian jolly is part of the overall EU mandate to create a single free-flowing market in Europe.

ECTA's concerns (both explicit and implicit) seem to have lost sight of this context.

Competition between trade mark specialists in different EU countries (however painful on a personal level) is a symptom of a single market.

A register clogged with trade marks from every corner of the EU(although it makes clearance terribly frustrating at times) is a symptom of a single market.

If anything, an affordable CTM system actually has a democratising effect: a two-man Romanian IT consultancy can make themselves just as much of a nuisance as Microsoft or Sony!

Can you imagine anything less appealing than a stratified European IP community populated by thousands of SMEs, with a handful of national rights, struggling under the heals of a few multinational despots armed with CTMs?

A final point: trade mark protection (like all law) is a public good and therefore provided as a public service by the state. To actively take measures to stimulate demand for such a good is as insane as suggesting that the NHS start spreading anthrax to boost patient numbers.

Okay, rant over.


Anonymous said...

OHIM has created a "special backlog taskforce group" (weird name) in order to reduce the chronic backlog in Opposition decisions. However, the special group will not last more than 1 year. Bravo!!! And then what? The statistic are clear, year after year the number of CTM Applications and Oppositions are increasing. And with the fee reduction won't change this trend. So it's only a mirage to believe that WDB's magic trick will help increasing the level of consistency of the opposition decisions and reduce the backlog.
The CTM Taliban, LOOOL

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