United States: Germany Adopts Administrative Trademark Cancellation Actions

On May 1, 2020 the last part of the German Trademark Law Modernization Act (Markenrechtsmodernisierungsgesetz – "MaMoG"), which contains practical relevant amendments to the procedural rules of the German trademark system, took effect. In particular, an administrative procedure for the revocation and the invalidation of trademarks based on relative grounds has been implemented, adding a new, cost-effective, and procedurally expedient tool to the range of possible methods of attacking adverse trademark registrations. It is expected that the amendments will be accompanied by a higher fluctuation of registrations and increases in demand for strategic counseling.

In this article, we will provide you with a short overview of the new types of proceedings available and highlight their strategical relevance and effects.

Background

With over 73,000 trademark applications per year, Germany is one of the most attractive markets for brand owners in the EU. The downside of the high demand is a rather crowded register.

In this regard, it has long been a disadvantage of the German trademark system that no administrative procedure was available for trademark revocation actions due to non-use and cancellation actions based on earlier rights. As a result, with respect to cancellation actions, if a trademark owner missed the opportunity to challenge an application during the opposition period, the possibility of challenging the mark was limited to a cancellation action before the ordinary courts. In light of the substantial costs associated with such action and the possibility of cost-shifting effects in case of defeat, many trademark owners were hesitant to pursue such actions and readily accepted potential harm throughout the existence of the conflicting third-party marks.

With the last part of MaMoG amendments having taken effect on May 1, 2020, this will likely change. MaMoG has implemented the European trademark law reform and the corresponding EU trademark law directive (2015/2436) for Germany. The vast majority of new provisions introduced by MaMoG already entered into force last year. Most notable in this context are:

• the abolishment of the requirement of graphic representation of trademarks (which paved the way for, e.g., hologram marks, sound marks, or multimedia marks); and
• the postponement of the commencement of the grace period, no longer starting on the date of application or priority respectively, but instead starting on the first day after the opposition period has ended.

The now-effective procedural amendments were carved out of the implementation package in 2019 in order to give the German Patent and Trade Mark Office (Deutsches Patent- und Markenamt – "DPMA") time to build up resources to handle the newly introduced administrative procedures efficiently and expeditiously.

Due to Covid-19 restrictions and associated general delays at DPMA, however, a bumpy start may well be expected.

New Provisions Implemented by MaMoG

Previously, cancellation of a trademark in an administrative proceeding before the DPMA was only possible in the case of absolute grounds for refusal (e.g., lack of distinctiveness). With the latest changes brought by MaMoG, cancellation actions based on additional absolute grounds and relative grounds have been introduced and are now structured into revocation and invalidity proceedings.

These administrative proceedings represent an addition to, rather than a replacement of, the existing possibilities to bring revocation and invalidity actions before the ordinary courts. Court proceedings continue to remain available as an alternative, but may not be brought alongside administrative proceedings. Both judicial and administrative decisions have inter omnes effect, meaning that the same action cannot be brought before one authority if the result of a previous action before the other authority is not as desired.

Revocation Proceedings

The registration of a trademark can be revoked and cancelled according to Sec. 53 of the German Trademark Act (Markengesetz – "MarkenG") for either (i) non-use (i.e., if it has not been used within a period of five years), (ii) development into a common name, (iii) deceptive use, or (iv) lack of trademark owner status.

The administrative revocation proceeding existed before, in that a trademark registration was cancelled if the applicant filed a simple, unsubstantiated application for revocation and the registration owner failed to oppose the application within two months of being notified. However, if the owner did oppose the application, the applicant's only remedy was to bring action before the ordinary courts.

Due to the changes brought by MaMoG, it is now possible to continue the dispute before the DPMA, provided that a continuation fee of EUR 300 is paid in addition to the EUR 100 application fee. It should be noted, however, that now, unlike before, the applicant will need to have already substantiated the grounds for revocation at the time of filing the application.

Invalidity Proceedings

The invalidity procedure based on relative grounds for refusal, i.e., conflicting rights arising from earlier marks, is an entirely new approach. Up to now, earlier rights could only be asserted in opposition proceedings or, following registration, in cancellation actions before the ordinary courts. The new administrative procedure requires, first, an application for invalidity based on rights deriving from an applied-for or registered trademark, a well-known trademark, a protected geographical indication or designation of origin, or other earlier rights. Second, the application requires a submission of substantiating grounds for invalidity and the payment of a fee of EUR 400. As in the revocation proceedings, if the owner of the challenged trademark takes no action within two months from its notification, the request will be granted and the trademark will be cancelled. If, however, the trademark owner files an opposition, the procedure will enter into the adversarial stage before the DPMA.

Strategic Aspects

With the newly added alternatives, it is now more necessary than ever to carefully weigh the advantages and disadvantages of the administrative and a judicial procedure and to select the most suitable action for the desired objective. Differences exist in a number of respects, a few of which we discuss below.

Costs and Cost-Shifting

Most notable, of course, are the differences in the costs of a proceeding and the cost-risk of the applicant.

Invalidity and cancellation actions before the ordinary courts can be expensive. With an average amount in dispute of around EUR 50,000 per challenged trademark, the plaintiff's costs, i.e., statutory court fees and statutory legal fees according to the German Attorney Remuneration Act (Rechtsanwaltsvergütungsgesetz – "RVG"), amount to approx. EUR 5,100. Since actual attorney fees are usually higher than the statutory fees according to RVG, this amount represents the minimum cost-risk. In addition, the German court system provides for cost-shifting. This means that the prevailing party will receive a cost award from the court for its statutory attorney fees and, possibly, patent attorneys' fees, each amounting to approx. EUR 3,500, which the defeated party will be required to bear. The overall cost-risk associated with a revocation or invalidity action for a single trademark in a first instance therefore may well rise to more than EUR 12,000.

Compared to this, administrative proceedings are fairly inexpensive. The DPMA charges a fixed fee of EUR 400 for each invalidity and revocation proceeding in the first instance. A possible appeal at the German Federal Patent Court (Bundespatentgericht – "BPatG"), which, too, is an administrative body, amounts to EUR 500. In addition, there is no cost-shifting in administrative proceedings per se. The basic rule is that the parties bear their own costs. Exceptions to that rule apply, e.g., where the administrative action was brought frivolously. However, this is rarely found to be the case (Sec. 63 MarkenG).

Cost-shifting can have a twofold effect: On the one hand, it increases the cost-risk for the plaintiff and therefore raises the hurdles to bringing an action at all. On the other hand, there is the chance of at least partial redemption of incurred costs. Potential plaintiffs/claimants should therefore carefully assess the strength of their case before deciding on their proceeding of choice.

Place of Jurisdiction and Competence

In trademark invalidity and revocation court actions, the place of jurisdiction is usually determined by the seat of the defendant. But the fact that many German companies have their place of business in rural areas sometimes leads to the disadvantage of ending up at a court with little expertise in trademark law. This can make it hard to predict the outcome of a first instance action, even where the chances of success seem good on the surface.

The administrative proceedings, on the other hand, will exclusively take place at the DPMA in Munich and will be facilitated by the Office's cancellation division, so that lack of expertise will likely be one less issue to worry about.

Oral Hearing

A revocation or invalidity action before the ordinary courts will always include an oral hearing. In contrast, administrative proceedings generally do not require that an oral hearing take place, except at the request of a party or where the DPMA deems it appropriate to explore the facts. This is the case for the first instance proceedings before the DPMA as well as for the appeal before the BPatG. The absence of an oral hearing, too, can be a significant cost-saver.

Burden of Proof

Court actions follow the principle that the party who asserts a fact beneficial to that party bears the burden of proof for that fact. The party then has to provide evidence that allows for so-called full proof (i.e., high degree of probability that the fact is true beyond reasonable doubt). The type of evidence allowed to be submitted in this regard is restricted, however, and does not include, for example, affidavits.

The DPMA, however, must conduct the investigations required to clarify the facts of the case ex officio. Although the parties to the proceedings are obliged to cooperate, the office is not bound to their contentions or offers of proof of evidence. Therefore, the office allows affidavits to be submitted in support of a party's contention and thereby reduces the effort of compiling and filing comprehensive information and data. Whereas this may be beneficial to an applicant in an invalidity action based on earlier company names or other rights obtained through use, the exact opposite is true in invalidity actions, where this instrument would make it easier for the adverse party to prove genuine use of its mark.

Outlook

The adoption of the administrative revocation and invalidity actions creates a potentially more cost-effective alternative to court proceedings. It is therefore entirely conceivable that we will see an increase on cancellation actions in the near future. Although they add several benefits, administrative actions will not, in every scenario, be a better choice than a court action. Potential claimants are well advised to carefully examine both possibilities to identify which is the appropriate instrument to achieve the individual goal.

Morrison & Foerster Research Assistant Hazal Koepp contributed to the writing of this alert.