IP, IT & Life Sciences

The “Grey Zone” in a Trademark Coexistence Agreement

Entering into a trademark coexistence agreement should be carefully assessed to avoid that, instead of solving an issue, it causes further trouble.

The key points of a trademark coexistence agreement

A trademark coexistence agreement (TCA) is a contract whereby two parties settle the use of their trademarks for avoiding a mutual infringement of trademark rights.

Entering into a TCA could be a solution if:

  • somebody files a trademark application that may affect the development of another’s business;
  • the business activity of a competitor who is active on a market may lead to confusion among consumers about other trademarks that are targeting the same market;
  • a company’s subsidiary is subject to a sale-purchase transaction or a company is split up into other entities, each wanting to use part of trademark portfolio of the company; and
  • there is a risk of a competitor looking to sue for using a sign similar to or identical with its trademark, for goods and services that are similar to or identical with those designated by the competitor’s trademark.

However, the conclusion of a TCA is not recommended if:

  • a party does not control the trademark rights or other rights agreed not to be exercised against the other party;
  • the TCA provisions conflict with national or EU laws (in some situations, the nullity of a TCA provision that infringes the law could even trigger the nullity of the whole TCA);
  • the business plan of a party is not finalised; or
  • the terms and conditions of the TCA are not clear, leading to impossibility to exercise specific intellectual property rights.

Any TCA should contain several compulsory elements, such as:

  • a clear identification of the parties;
  • a clear identification of the use of the respective trademarks (eg, as stand alone or in combination with other elements, in black and white or in colours, etc.);
  • where applicable, an express provision on the use of domain names and alphanumeric characters;1
  • a clear identification of the territory where the TCA is applicable;
  • the consequence for the trademarks’ non-use;
  • the procedure to add new elements to the trademarks (eg, new figurative elements, colours, logos, etc.)
  • the duration of the TCA;
  • the right to review the whole TCA or its termination conditions;
    a clear deadlock mechanism, especially for strategic business decisions; and
  • the applicable law and competent authority to judge disputes in case of breach;

The legal effect of a TCA

Overall, under Romanian law TCAs are binding and are taken into consideration by Romanian Courts and by Romanian State Office for Inventions and Trademarks.

As regards community trademarks (CTMs), the Office for Harmonisation in the Internal Market (OHIM)2 considers that a TCA is not binding for OHIM, but it may be taken into account, especially when the application of EU regulations3 and EU case law is deemed in compliance with the content of the TCA4 (“the findings of OHIM Board of Appeal are supported by the provisions contained in the coexistence agreement clearly intended by the parties to be legally binding and indicating that the parties themselves found no likelihood of confusion between the conflicting marks; see OHIM BoA decision no. R0024/2003-1).

Attention should be paid to the TCA’s enforceability of the chosen governing law and jurisdiction vis-a-vis the national laws of the parties because, in some cases, the TCA may be unenforceable.5

A sensitive aspect of the TCA is trademarks dilution. Market coexistence of similar trademarks could dilute them, diminishing their distinctive power and making the trademark rights difficult to enforce.

TCAs and competition rules

A TCA should comply with competition rules set forth in art. 101 (1) of TFUE and in the national legislation. A TCA may neither affect trade between EU member states nor restrict competition within the internal market.

Under section I(4) of Commission Communication 2014/C 291/016, a TCA could infringe EU competition rules if its effects impair trade between EU member states in a considerable manner, estimated either by the market share or by the turnover of the parties in relation to the goods and services provided under the trademarks subject to TCA.
The CJEU confirmed that a TCA could be “lawful and useful” if there is a “serious risk of confusion” between conflicting trademarks and if, by the TCA, the parties intend to settle a dispute in relation with such risk of confusion. However, a TCA infringes EU competition rules if its main goal is to divide the market or restrict competition (CJEU case C-35/83 BAT vs Commission).

Any restriction in the TCA would be assessed taking into account also the competition rules. Such restriction should be linked to the agreement, proportionate and indispensable for obtaining pro-competitive effects. For example, restrictions such as non-compete obligations for products other than the one covered by the TCA and indirect restriction of passive sales (masked as trademark exclusive use) breach EU and national competition rules.

Attention should be paid to the TCA’s enforceability of the chosen governing law and jurisdiction vis-a-vis the national laws of the parties because, in some cases, the TCA may be unenforceable.

1
Some companies choose to advertise their phone numbers in alphanumeric and such disclosure could infringe others trademark rights: eg, 0721 VODAFONE used by a competitor of VODAFONE.
2
The official EU authority carrying out the procedures for the community trademarks.
3
Regulation 207/2009 on community trademarks and implementing regulation.
4
OHIM examination guidelines Part C opposition, Section 2 Identity and Likelihood of confusion, chapter 7.
5
Under Romanian law, a contract executed under private signature needs a court decision to attest its enforceable title. In order to have effect in Romania, such decision issued by a court of a state not a member of the EU should comply with several compulsory conditions out of which (i) the judgment should be final under the law of the foreign state where it was rendered and (ii) there should be reciprocity between Romania and the foreign state in respect of the effects of the foreign judgment.
6
Notice on agreements of minor importance which do not appreciably restrict competition under Article 101(1) of the TFEU (De Minimis Notice)