Israel: A Trademark Owner Sued His Licensee …But Eventually Lost His Trademark

Managing a licensing business can be sometime challenging for a trademark owner.

In a licensing agreement, a trademark owner (the licensor) receives royalty payments in exchange for allowing another party (the licensee) to use his mark.

One of the risks of trademark licensing is losing control of the brand. Sometimes a licensor may find himself giving up control on material elements of his brand, such as packaging, costs, distribution in discount markets and more.

There could be also other risks such as fraud reports and losing the ability to police the licensee’s activities.

A recent case in Israel (Management Europe Meeting International v. Forum Publishing) shows that there might be another serious risk, which is losing a trademark registration as a consequence of a legal conflict with the licensee.

Here are some basic facts of the case:

Management Europe Meeting International (MEM) is the owner of the Israeli trademark PRODUCT OF THE YEAR. Forum Publishing (Forum) has signed a license agreement with MEMI (a sublicensee of MEM) for the use of the mark in Israel.

In accordance with the license agreement Forum is obligated to pay royalties to MEMI for the use of the mark PRODUCT OF THE YEAR, that allows certain manufacturers to label the mark on their product packaging for marketing purposes.

After several years a conflict erupted between MEM and Forum.

Eventually, MEM has sued Forum in the Israeli Court asking for a declaratory judgment that the license is no longer valid due to lack of trust and bad faith behavior of Forum’s manager. Alternatively, MEM has claimed that the license agreement is no longer valid since the license period has ended and not renewed.

It should be noted that those claims have been denied by the Israeli Court who decided that there were no grounds to cancel the license agreement and that there is no evidence for such a lack of trust.

The trademark owner has also raised an unusual claim in order to attack his licensee. MEM claimed that the license has never been recorded at the Trademark Office, therefore the license was not valid, and the result is that Forum has no license to use the mark.

Can a trademark owner cancel an existing trademark license by claiming that the License wasn’t recorded in the Trademark Office? 

Let’s understand the context. Why does a trademark owner need to record a license at the Trademark Office?


Let’s understand the context. Why does a trademark owner need to record a license at the Trademark Office?

According to the Israeli law (Section 41 of the Trademark Ordinance) any trademark registration that has not been in use by its proprietor for a period of three consecutive years (from date of registration) can be cancelled on the ground of lack of use. Actual commercial use in the market is required in order to meet the use requirements.

According to the Israeli case law, using the mark in Israel only by a local licensee (and not by a trademark owner) will not be considered to be “use” by the proprietor, unless the license was recorded at the Trademark Office.

In the case of A.L. 364/74 Samuel Davidovich v. Miromitt Metal Works 27 Ashkelon Ltd., PD 29 (1) 703 (9.1.75), The Supreme Court has ruled that a trademark license that wasn’t recorded is simply not valid, but the contractual license may be still valid and binding.

It is important to mention that this claim is generally raised by third parties to attack trademark owners in invalidation cases (in a lack of use claims) and not against licensees.

In the case of Management Europe Meeting International v. Forum Publishing, it was the first time that a brand owner itself has raised this claim against his licensee in order to support his claims that the license should be canceled.

Unfortunately, not only that the claim was rejected by the Jerusalem District Court, but the Court has acknowledged the fact that the license indeed wasn’t recorded in the Trademark Office and ruled that the trademark is not valid!

 

“Therefore, and in accordance to the Davidovitch case law, since the trademark in the country (Israel Y.S) is not registered on the name of the Defendant it’s not valid…” 

   


This is clearly a precedent decision since no party has challenged the validity of the registration and still the Judge took the liberty of declaring the registration as not valid.

This is clearly a precedent decision since no party has challenged the validity of the registration and still the Judge took the liberty of declaring the registration as not valid. 

This is for sure a fatal result for the trademark owner, who tried to cancel a license but ends up in cancelling his own registration.

I guess this is the classic case of a brand owner who “cuts off one’s nose to spite one’s face” in the fight against his licensee.

The conclusion is that a trademark owner needs to be very careful in managing disputes against his licensees.


Important: Trademark owners need to make sure to record their license.

Also, trademark owners need to make sure their license is recorded at the trademark Office.   

It will be interesting to know how the invalidity of the registration will affect the contractual relations between the parties. It might surely affect the ability of the licensor to negotiate new licensing deals. 

Disclaimer:
Nothing in the above shall be considered as any legal advice or any legal opinion whatsoever. This is just an informative article. We strongly recommend consulting with a professional attorney in such matters.

 

Legal 500 Recommendation as a Leading Intellectual Property Firm for 2017

Legal 500 2017 Recommendation: 

Yossi Sivan & Co. Law Offices has been recommended by the LEGAL 500 2017 edition as an Israeli leading firm in the Intellectual Property Disputes category:

Yossi Sivan & Co. has ‘extraordinary knowledge and expertise in trade mark and copyright litigation’. The ‘practical and personable’ Yossi Sivan has extensive experience of IP cases involving international clients…” 

Foreign Brand Owner was allowed to manage TM Opposition without Posting a Guarantee

Generally, the Israeli case law requires foreign companies to post guarantee before managing a litigation, including Trademark Oppositions.

A very important decision of the Israeli IP Commissioner enabled a Nederland company to manage a Trademark Opposition against a local applicant without posting a guarantee, based on its wide reputation, evidence of extensive commercial activities in Israel and the valuable registrations.

Lifestyle Equities CV a Nederland company has filed an Opposition to a trademark application filed by David Ivgi as shown below:

Lifestyle Equities CV has claimed that the requested mark is confusingly similar to their well-known and registered mark “Beverly Hills Polo Club” as shown in the below logo:

Lifestyle Equities CV has claimed that the requested mark features a polo rider on a running horse and a circle element confusingly similar to Lifestyle Equities CV’s mark.

Ivgi requested that Lifestyle Equities CV post a bank guarantee to cover the expected costs should the Opposition be denied, according to the applicable law concerning corporations.

Ivgi’s Claims:

Ivgi has claimed that Lifestyle Equities CV is a Dutch  entity and therefore it would be very difficult to collect the expenses from them, should the opposition be rejected.

Ivgi also claimed that the chances of Lifestyle Equities CV prevailing were extremely small given the visual differences between the marks, therefore a guarantee must be posted.

In addition, Ivgi claimed that Lifestyle Equities CV didn’t prove actual assets in Israel since it has failed to file an affidavit to support its claims.

Ivgi also claimed that the burden of proof lies on Lifestyle Equities CV to prove that it has enough financial capabilities.

Lifestyle Equities CV’s claims:

Lifestyle Equities CV has claimed that Ivgy’s motion must be rejected and that Ivgi is acting in bad faith trying to register this mark.

Regarding the guarantee, Lifestyle Equities CV has claimed that the Trademark Registrar has a wide discretion not to order a guarantee to cover the expenses and that actually Ivgi did not prove that Lifestyle Equities CV would have difficulty in covering the expenses if their opposition was denied.

Lifestyle Equities CV has also claimed there is no need for posting a guarantee in light of their financial capabilities and the fact the Lifestyle Equities CV was a foreign entity was not by itself a ground for requesting a guarantee.

Lifestyle Equities CV has further claimed that since it owned the well-known Beverly Hills Polo Club fashion brand, who has a very high financial value there is no risk of not covering the expenses.

Lifestyle Equities CV further claimed to have valuable assets in Israel based on the high royalties collected from its licensees in various categories.

In addition to that, Lifestyle Equities CV has claimed that it has shown a good chance of winning the opposition case.

Lifestyle Equities CV further argued that the requirement of posting a guarantee was undermining their basic (constitutional) ownership property rights to access the judicial system in Israel, relative to local companies.

Lifestyle Equities CV further claimed that Lifestyle Equities CV is a Dutch company and the Nederland is a signatory of The Hague Treaty of 1954.

The Hague Treaty of 1954 prevents discrimination against foreign companies in relation to local companies, therefor the fact that Lifestyle Equities CV is a Dutch company cannot by itself justifies posting a guarantee.

The Decision

The IP Commissioner, Mrs. Yaara Shoshana Caspi, has accepted Lifestyle Equities CV’s claims that it should not be discriminate just based on the fact the it’s a Dutch company.

Lifestyle Equities CV has managed to show a considerable financial capability, even without submitting clear evidence such as financial reports.

Lifestyle Equities CV has proved (based on its evidence) a wide commercial activity in Israel, that it has valuable brand and that its brand is well known around the world.

The Commissioner further ruled that Lifestyle Equities CV’s trademark registrations in Israel are valuable enough and considered to be a tradable asset.

In addition, the Commissioner has ruled that there is a certain similarity between Lifestyle Equities CV’s mark and the requested mark and that Lifestyle Equities CV’s claim that this could confuse customers is not baseless.

The IP Commissioner has decided that there wasn’t reasonable chance that Lifestyle Equities CV could not cover the expenses and she actually suspects the sincerity of his claims.

Finally, Ivgi’s motion was denied and costs of 1500 Shekels were awarded to Lifestyle Equities CV.

Lifestyle Equities CV was represented by Yossi Sivan & Co. law Offices

Trademark Registration Procedure in Israel

Registration of a trademark in Israel provides the owner a right of exclusive use of the registered mark for the registered goods or services. A trademark is registered by the Patent Authority at the Trademarks Registry.

A trademark application is made by filling out an application form and paying the registration fee. The application form specifies the name of the owner, the requested mark and the goods or services for which the mark is intended. A separate application must be made for each NICE Classification goods or services class.

Once an application is made, it will be examined by a Trademark Office’s examiner. The examiner will decide whether the mark is eligible for registration based on the Trademarks law and regulations. The examiner may issue an Office Action if he objects to the registration of the mark on any of the grounds set forth in the Trademarks Ordinance. The examiner may also condition the registration of the mark on a waiver by the applicant. The examination process takes approximately one year, assuming there are no Office Actions or Objections.

After an application is accepted for registration it is published on the official Trademarks Journal and it is open for opposition for three months. If no oppositions are filed the application will be registered and will be valid for 10 years from the date of the application. The registration may be perpetual subject to the renewal of the registration.

Section 29 of Trademarks Ordinance, Interference Procedure

Section 29 of the Trademarks Ordinance is designed to deal with cases of conflicting trademark applications. When two separate applications are made by different applicants for marks that are identical or similar such as to cause confusion, for the same goods or goods of the same kind, the Trademarks Registrar may issue an Interference Procedure according to Section 29.

There are two ways to resolve cases of conflicting applications; the first is by an agreement between the two applicants. Once the Trademarks Registrar issues an Interference Procedure the conflicting applicants have three months to reach an agreement. Such an agreement must receive approval by the Trademarks Registrar. Alternatively, if no agreement is reached, the Trademarks Registrar will decide which application prevails or whether the two applications can co-exist.

When deciding which application to accept, the Trademarks Registrar will take into account considerations of good faith in filing the applications, the extent of use of the respective marks and, the date of filing the respective applications (in order of importance).

Trademark Opposition Proceedings

Once a trademark application is accepted for registration by the Trademarks Registrar, it is published in the official Trademarks Journal. Following such publication, any person may, within 90 days of the publication, file an opposition to the application.

The most common grounds for opposition is that an identical or confusingly similar mark is already registered. However, it is possible to base an opposition on any grounds that may render the application not eligible for registration, for example, that the mark is generic or descriptive and thus cannot be registered as a trademark.

Once an opposition is filed, an adversarial proceeding is carried out before the Trademarks Registrar. The Trademark Registrar will decide, upon evidence by both parties, whether the application should be registered. The Registrar’s decision may be appealed to the Supreme Court.