TABLE OF CONTENTS

1........... Introduction.................................................................................................................... 5

2........... Procedural Issues and Consultation of Interested Parties.................................................. 9

2.1........ Procedural issues............................................................................................................ 9

2.2........ External expertise and consultation of interested parties.................................................. 10

3........... Policy context, Problem definition and Subsidiarity......................................................... 12

3.1........ Background and context............................................................................................... 12

3.1.1..... Nature and size of the market concerned....................................................................... 12

3.1.2..... Development in numbers of trade mark applications....................................................... 12

3.1.3..... Impact of the reduction of CTM fees on demand........................................................... 13

3.1.4..... Users of the CTM system............................................................................................. 13

3.1.5..... Overview of legislative framework................................................................................. 14

3.1.6..... Systemic coexistence, extent of the links and interaction between the systems................. 15

3.1.6.1.. Systemic coexistence.................................................................................................... 15

3.1.6.2.. The extent of the links and interaction between the systems............................................ 16

3.2........ Problem definition......................................................................................................... 18

3.2.1..... Problem relating to divergent provisions of the existing regulatory framework.................. 18

3.2.1.1.. Non-harmonisation of trade mark procedures................................................................ 19

3.2.1.2.. Insufficient level of harmonisation as regards substantive law.......................................... 23

3.2.1.3.. Missing clear legal basis for cooperation........................................................................ 26

3.2.2..... Problem relating to the low level of cooperation between trade mark offices................... 27

3.2.2.1.. Insufficient technical facilities of national offices.............................................................. 27

3.2.2.2.. Lack of sustainable financing in medium to long term...................................................... 28

3.2.3..... Adverse effects............................................................................................................. 29

3.2.4..... Baseline scenario.......................................................................................................... 34

3.3........ The EU's right to act..................................................................................................... 39

4........... Objectives.................................................................................................................... 40

4.1........ General, specific and operational objectives................................................................... 40

5........... Identification of Policy Options...................................................................................... 41

5.1........ Divergent provisions of the existing regulatory framework.............................................. 41

5.1.1..... Approximation of trade mark laws and procedures........................................................ 41

5.1.2..... Missing clear legal basis for cooperation........................................................................ 43

5.2........ Cooperation capacity building....................................................................................... 43

5.2.1..... Technical facilities......................................................................................................... 44

5.2.2..... Funding in general......................................................................................................... 44

6........... Comparison of options and analysis of Impacts.............................................................. 45

6.1........ Divergent provisions of the regulatory framework: comparison of options....................... 45

6.1.1..... Approximation of trade mark laws and procedures – comparison of options.................. 45

6.1.2..... Missing clear legal basis for cooperation – comparison of options.................................. 46

6.2........ Divergent provisions of the regulatory framework: impact of the selected option on stakeholders 48

6.2.1..... Impacts as regards the approximation of trade mark laws and procedures...................... 48

6.2.1.1.. Trade mark users (including SMEs)............................................................................... 48

6.2.1.2.. National IP offices........................................................................................................ 49

6.2.1.3.. OHIM.......................................................................................................................... 51

6.2.2..... Impacts concerning the legal base for cooperation between IP offices............................ 53

6.2.2.1.. Trade mark users.......................................................................................................... 53

6.2.2.2.. National IP Offices....................................................................................................... 53

6.2.2.3.. OHIM.......................................................................................................................... 53

6.3........ Cooperation capacity: comparison of options................................................................ 54

6.3.1..... Technical facilities – comparison of options.................................................................... 54

6.3.2..... Funding........................................................................................................................ 54

6.3.2.1.. Financing in general – comparison of options................................................................. 54

6.3.2.2.. Financing from the OHIM budget – comparison of sub-options..................................... 56

6.4........ Cooperation capacity: impact of the selected option on stakeholders and mitigating measures 60

6.4.1..... Technical facilities/tools................................................................................................. 60

6.4.1.1.. Trade mark users.......................................................................................................... 61

6.4.1.2.. National offices............................................................................................................. 61

6.4.1.3.. OHIM.......................................................................................................................... 61

6.4.2..... Financing of cooperation............................................................................................... 62

6.4.2.1.. Trade mark users.......................................................................................................... 62

6.4.2.2.. National IP offices........................................................................................................ 63

6.4.2.3.. OHIM.......................................................................................................................... 63

6.5........ Interaction between selected options............................................................................. 64

6.6........ Further possible impacts of the selected options............................................................. 66

6.6.1..... Consumers................................................................................................................... 66

6.6.2..... EU budget.................................................................................................................... 66

6.6.3..... Social impact................................................................................................................ 66

6.6.4..... Environmental impact.................................................................................................... 66

6.6.5..... International.................................................................................................................. 66

7........... Choice of the legal instrument........................................................................................ 67

7.1........ Approximation of trade mark laws and procedures........................................................ 67

7.2........ Cooperation capacity building....................................................................................... 68

8........... Monitoring and Evaluation............................................................................................. 68

8.1........ Approximation of trade mark laws and procedures........................................................ 68

8.2........ Cooperation capacity building....................................................................................... 68

9........... Annexes....................................................................................................................... 69

9.1........ Annex 1: Glossary........................................................................................................ 69

9.1.1..... European Observatory on Counterfeiting and Piracy...................................................... 69

9.1.2..... Technical terms relating to trade marks.......................................................................... 70

9.2........ Annex 2: Proposals to be covered by the revision of the regulatory framework............... 72

9.2.1..... Approximation of trade mark laws and procedures (addressed in the problem definition) 72

9.2.1.1.. Principal procedural rules of the CTMR to become also part of the TM Directive........... 72

9.2.1.2.. Further substantive rules of the CTM Regulation to become part of the TM Directive..... 73

9.2.1.3.. Reduction of optional provisions in the TM Directive..................................................... 73

9.2.2..... Cooperation capacity building (addressed in the problem definition)............................... 73

9.2.3..... Amending or removing outdated provisions (not addressed in the problem definition)...... 73

9.2.4..... Clarifying legislation and removing ambiguities (not addressed in the problem definition).. 74

9.2.5..... Implementation of case law (not addressed in the problem definition)............................. 74

9.3........ Annex 3: Online services and degree of automation at national offices............................. 74

9.3.1..... Availability of online services......................................................................................... 74

9.3.2..... Degree of automation at national offices......................................................................... 75

9.4........ Annex 4: Overview of trade mark application and registration fees................................. 75

9.5........ Annex 5: Procedural issues – opinions of the Impact Assessment Board......................... 76

9.6........ Annex 6: Cost of cooperation activities.......................................................................... 78

9.7........ Annex 7: Summary of the main statements made by user associations............................. 81

9.7.1..... General position regarding the coexistence of the trade mark systems in Europe............. 81

9.7.2..... National trade mark systems......................................................................................... 81

9.7.3..... National offices and cooperation with OHIM................................................................ 82

9.7.4..... Community trade mark system...................................................................................... 82

9.8........ Annex 8: Findings of a Social Cost Benefit Analysis....................................................... 83

9.8.1..... Packet 1 projects......................................................................................................... 84

9.8.2..... Packet 2 projects......................................................................................................... 84

9.8.3..... Assumptions underlying benefit calculations................................................................... 86

9.8.4..... Comments on broader social impacts............................................................................ 87

COMMISSION STAFF WORKING PAPER

IMPACT ASSESSMENT

Accompanying document to the

Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL amending COUNCIL REGULATION (EC) No 207/2009 of 26 February 2009 on the Community trade mark and the Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL to approximate the laws of the Member States relating to trade marks (recast)

1. Introduction

1.1. Importance of trade marks and available systems of trade mark protection

Trade marks are indicators of business origin, distinguishing products and services of one company from those of another. They enable consumers to recognize a product as one which they have liked, or disliked, in the past and thereby allow them to make an informed choice when making the purchase or asking for a service. Trade marks are also essential marketing tools for modern business: They are the principal instrument used by businesses for advertising their products, and offer a guarantee that all the goods originating from the same producer have a certain quality. In a world of increasing consumer sophistication, branding, supported by trade marks, can assist businesses of all sizes in their quest for innovation and entry into new markets.

Trade marks are territorial rights. They guarantee a protection to their owners only in the territory of the country or countries concerned. In Europe, several systems for trade mark protection exist.

(a) National trade marks are registered by the intellectual property (IP) offices of Member States on the basis of a harmonised system. Currently, there are 24 national offices, and one regional office – the Benelux Office for IP (BOIP)[1] . National trade marks generally serve users seeking registration in one, or a limited number of, countries, as well as users that want to obtain much broader protection in geographical terms but are not able[2] or willing to opt for a Community trade mark.

(b) Community Trade Marks (CTM), available since 1996, grant their proprietors a unitary IP right with an equal effect throughout the entire EU. They are registered by a specialised EU agency, the Office for Harmonisation in the Internal Market (Trade Marks and Designs) (OHIM) which was established in 1994 in Alicante, Spain. The CTM does not replace national trade mark systems, but provides an additional legal framework ("a 26th regime") for obtaining trade mark protection in the territory of all 27 Member States.

(c) Finally, international trade mark registrations are administered by the World Intellectual Property Organisation (WIPO), and secure protection in several countries, through the system of the Madrid Agreement and the Protocol to that Agreement. These trade marks can be obtained in a single procedure; however, once registered they do not become a single IP right, as the CTM, but split into a bundle of national and/or Community trade marks, depending on the choice of the applicant. International applications have limited added value within the EU and are more advantageous for users seeking trade mark protection in countries outside Europe and/or worldwide.

The national, Community, and international trade mark systems not only coexist passively but are closely interrelated with each other[3].

1.2. Political context

The trade mark system in Europe has undergone a significant development over the last 20 years. This process started with the harmonisation of national trade mark laws in 1989 and was followed by the creation of the CTM in 1994. Since then, it has not been subject to any major modifications[4].

The business environment, however, has changed significantly over the past two decades, notably with the expansion of the internet and other electronic business tools. The numbers of trade mark applications have been growing, both at national and Community levels[5], as are the numbers of trade mark users. Stakeholders increasingly demand faster, higher quality, more streamlined trade mark registration systems, which are more consistent, user friendly, publicly accessible and technologically up-to-date.

In 2007, when addressing the issue of the financial perspectives of OHIM, the Council[6] recognised that it was over a decade since the introduction of the CTM Regulation and the establishment of OHIM, and under the principles of better regulation, emphasised the need for an overall assessment of the functioning of the CTM system. It invited the Commission to start work on a comprehensive study on the overall functioning of the CTM system.

The Commission committed itself, in its 2008 "Small Business Act"[7], to make the CTM system more accessible to SMEs. Furthermore, the 2008 Communication on an Industrial Property Rights Strategy for Europe[8] stressed the Commission's commitment to effective and efficient trade mark protection and to a high quality trade mark system. It concluded that it was time for an overall evaluation which could form the basis for future review of the trade mark system in Europe, and the further improvement of cooperation between OHIM and national IP offices. As regards the international dimension, the Communication announced that the Commission would prepare the ground for the accession of the EU to the Singapore Treaty on the Law of Trademarks and encouraged Member States to ratify that treaty. In 2010, in the Communication on Europe 2020 strategy[9] under the Flagship Initiative: “Innovation Union”, the Commission committed to modernise the trade marks framework in order to improve the framework conditions enabling business to innovate. Finally, in its new IPR strategy for Europe[10], the Commission announced a review of the trade mark system in Europe, with a view to modernising the system both at EU and national levels, by making it more effective, efficient and consistent as a whole.

On the basis of interim results of a related Commission study (see section 2.2 below), the Competiveness Council adopted on 25 May 2010 conclusions on the future revision of the Trade Mark system in the EU[11]. The Council called on the Commission to present proposals for the revision of, respectively, the CTM Regulation, and the Directive approximating the laws of Member States relating to trade marks, and flagged up those issues which it would like to see addressed therein.

1.3. Scope of the impact assessment

The present impact assessment looks into the business needs of trade mark users in Europe and evaluates them against the current conditions resulting from the EU trade mark legislation. It deals with the CTM Regulation[12] and the Trade Mark Directive (TM Directive) and assesses the impact of their possible modification, as well as of other soft law measures. The analyses focus on major problems and shortcomings identified in the current system during a comprehensive fact finding and consultation process ("evaluation process", for details see chapter 2.2).

Accordingly, the scope of this report was shaped on the basis of these evaluation results which primarily revealed considerable incoherence between the trade mark systems in the EU, and the inefficient procedures, inappropriate practices and missing and/or outdated tools and instruments. Such shortcommings all negatively affect the access to trade mark protection, especially its speed and cost, as well as the legal certainty of trade mark users in general. All these findings demonstrated an urgent need for modernisation and streamlining of the European trade mark system, both at EU and national levels.

The report does not focus on the issue of OHIM financing as its primary content. In accordance with the commitment made in an earlier impact assessment[13], accompanying the 2009 Commission proposal for reduction of OHIM fees[14], the evaluation process encompassed an assessment of OHIM's fees and fee structure[15]. This assessment concluded that the current balance between the fees appears appropriate[16]. The study contractor noted in this context that the overall level of fees must be sufficient to cover the expenses of the present and any future tasks of the Office, and any payments made by the Office to the national offices. The level of fees should further suffice to establish and maintain an adequate reserve fund. In addition, it found that there is no objection in principle to fixing the fees at a level which takes into account additional considerations, such as facilitating a choice between CTMs and national trade marks, or the actual and potential value of the IP right granted by the Office. As long as the overall fee level is sufficient to cover the Office's operations, the legislature was considered to have substantial discretion to fix the level of each individual fee. The interests to be taken into account in this context include those of CTM applicants and proprietors, the interests of earlier rights owners, and also the interests of the EU as a whole and of its Member States in maintaining an adequate balance between their trade mark systems and the CTM system. A CTM renewal fee, substantially higher than the application fee, was regarded as entirely justified in view of the value of an existing and continuing registration valid in the whole EU, and the fact that it may contribute to preventing CTMs being renewed which are not used at all or are of only marginal value to their owners. Therefore, this report does not address OHIM fees as an issue per se, but does so in relation to identified problems or considered policy options (see chapter 6.2.1.3).

Where suitable, this report draws links to a recent impact assessment[17] which accompanied the 2011 proposal for a Regulation entrusting the OHIM with the European Observatory on Counterfeiting and Piracy[18]. It should be clarified, however, that whereas the Observatory Regulation aims at extending the current mandate of the Office by entrusting it with new competences in relation to IPR enforcement, the present impact assessment report looks into the core business of OHIM and national IP offices in the field of trade marks, notably their registration and administration. Accordingly, since the subject matter of these two initiatives is substantially different and not directly related, the number of potential common issues is limited.

Finally, the present impact assessment does not expressly scrutinize all possible amendments, in particular not those aimed at minor adaptations of existing provisions with little, or no, practical impact, nor those which would "clean" both pieces of legislation from obvious historical leftovers[19]. Nevertheless, an overview of the proposals for amending existing legislation is provided in Annex 2 (section 9.2).

2. Procedural Issues and Consultation of Interested Parties 2.1. Procedural issues

The preparation of this impact assessment was monitored by an Inter-Services Steering Group, composed of Directorates General Internal Market and Services (MARKT), Enterprise and Industry (ENTR), Joint Research Centre (JRC), Budget (BUDG), Secretariat-General and Legal Service. The Steering Group met on three occasions, on 30 June 2011, 20 July 2011 and 12 September 2011. The minutes of the last Steering Group's meeting were sent to the Impact Assessment Board (IAB).

A draft of this impact assessment was submitted to the IAB on 21 September 2011 and discussed at the Board's meeting on 19 October 2011. The IAB issued an opinion on 21 October 2011 finding that the draft report should be significantly improved in several important aspects. The report has been substantially revised, improved and extended in order to completely comply with the opinion of the IAB[20].

The revised draft of this impact assessment was submitted to the IAB on 10 Januar 2012. The IAB issued a second opinion on that revised draft on 3 February 2012, confirming that the report had been improved to a significant extent along the lines of the IAB's first opinion. The report has been further revised and improved in order to address the remaining points raised by the IAB.

After the second opinion of the IAB, the report was subject to further discussions with the DG BUDG as regards its parts dealing with financial matters and OHIM budget. Following the recommendations of the DG BUDG, some new elements were added to the final impact assessment, leading in part to changes in the originally preferred options (for details, see Annex 5, section 9.5).

The initiative to which this impact assessment relates to has been introduced into the Commission's agenda planning as 2011/MARKT/003.

2.2. External expertise and consultation of interested parties

The drafting of this impact assessment was preceded by an extensive evaluation and consultation process in which DG MARKT sought expertise of external specialists as well as views of interested parties.

The evaluation process started in 2008 with a "consultation on trade marks" carried out via the European Business Test Panel (EBTP)[21]. It aimed at gathering views of companies, including small and medium sized enterprises (SMEs)[22], about issues such as the added value of trade marks for companies, the awareness of the potential users, the costs of a trade mark, the relationship between the national and the CTM systems, the efficiency of the systems and the protection of trade marks.

The main component of the evaluation process was a comprehensive study[23] commissioned by the Commission from the Max Planck Institute for Intellectual Property and Competition Law in Munich, Germany, and carried out between November 2009 and February 2011. The study was based on a non-exhaustive set of evaluation questions[24] grouped around two main tasks: assessment of links between the CTM and national systems, and assessment of the functioning of the CTM system. The aim of the study was to identify potential areas for improvement, streamlining and future development of the trade mark system as a whole, both at Community and at national level. The study also established the potential for enlarging the scope of cooperation between OHIM and national IP offices.

In addition to the expert analyses by the Max Planck Institute, which were complemented by an economic analysis of certain aspects of the CTM system by the institute INNO-tec[25], the study comprised a number of consultations with various stakeholders. First of all, a large online survey[26] among users of the CTM system was performed by the Institut für Demoskopie Allensbach, Germany (Allensbach survey). The survey was based on a random sample of 1,599 users, and data was collected between February and March 2010. Secondly, user associations were invited to express their views on all evaluation questions, and to make further observations and suggestions. In total, 19 organisations representing trade mark users at national, European and international level sent their contributions[27], making use of both listed evaluation questions and free submissions. Indeed, a number of issues that had not been part of the initial tender were eventually considered by the Commission's services on the basis of users' comments. Moreover, a hearing with 15 major user organisations was organised by the Max Planck Institute in Munich on 8 and 9 June 2010. The purpose of this meeting was to give user organisations the opportunity to express their main ideas on the study and to discuss with them topics raised in the call for tender[28]. Finally, the Max Planck Institute consulted all national IP offices[29] and OHIM, most of them by means of personal visits, the rest on the basis of a written questionnaire. The results of all these consultations, surveys and hearings[30] were taken into consideration in the final report of the Max Planck Institute and by DG MARKT when drafting the present impact assessment.

The conclusions of the study endorsed the need for greater coherence between the CTM and national systems and for further approximation of Member States' trade mark laws both within and beyond the current scope of the TM Directive. While many aspects of the present CTM system were confirmed as functioning well, the study made a large number of proposals for improvement and identified areas for strengthening cooperation between OHIM and national IP offices.

As a follow up to the study, DG MARKT held a number of bilateral meetings with user associations. Moreover, it organised a hearing with their representatives to seek their views on selected proposals of the study as well as to test some options identified as part of the impact assessment. The hearing took place on 26 May 2011 in Brussels and was attended by 18 user associations. Its results shaped and confirmed the preliminary analysis of the Commission.

Finally, it should be mentioned that the TM Directive was subject to transposition checks by the Commission following the expiry of the transposition deadlines. DG MARKT commissioned in 1997 a study on the conformity of the trade mark laws in the 15 old Member States with the Directive. The conformity of the laws of the 12 new Member States was assessed internally. Those studies did not reveal any significant problems in transposing the Directive. This result corresponds to the fact that there were no infringement procedures to be opened against Member States. Against this background, it is not surprising that the question of proper implementation of the Directive by Member States did not play any role in the above later evaluation process.

3. Policy context, Problem definition and Subsidiarity 3.1. Background and context 3.1.1. Nature and size of the market concerned

Europe's economy relies on powerful brands, requiring strong and effective trade mark protection. In the EU, the value of the top ten brands per country[31] amounts to almost 10% in relation to their GDP (PPP)[32]. The percentage is even higher in smaller countries with valuable brands where the figure can amount to over 30%[33]. As such, the economic value of trade marks serves as an indicator for the economic wealth of a country. The average value of the top ten brand values per Member State equals € 35 billion but amounts to € 145 billion in Germany and € 138 billion in the United Kingdom. Annual communication and advertising expenditure in Europe on brands of € 174 billion[34] benefits media as well as sport, arts and entertainment.

In microeconomic terms, trade marks are important and valuable business assets for companies across all sectors, and able to significantly increase in value as businesses expand and grow. With regard to international trade dimension, 48% of EU exports are upmarket branded goods[35].

3.1.2. Development in numbers of trade mark applications

The demand for trade mark protection is constantly high. In absolute terms, both CTM and national trade marks have grown between 1996 and 2008 (the most recent year for which data for all 26 offices are available). While the total number of trade mark applications in the 27 current EU Member States increased[36] by about 8% from 471,000 in 1996 to 509,000 in 2008[37], the numbers of CTM applications have more than doubled during a similar period from about 43,000 in 1996 to over 107,000 in 2012[38].

An overall global decrease in activity was witnessed from 2007 to 2009, reflecting prevailing economic conditions. In 2008, a total of 3.3 million trade mark applications were filed world-wide, representing a 0.9% decline compared to 2007. China was an exception, with 2009 showing a 21% increase in filings and more than a 50% increase in registrations compared with the previous year. However, indications are that with the economic recovery trade mark filings have started to grow again.

3.1.3. Impact of the reduction of CTM fees on demand

At the time of the Impact Assessment for the last CTM fee reduction in 2009, there was no evidence available for the previous 2005 fee reduction having led to an increase in volume of CTM applications. Therefore, the Commission proceeded from the assumption that the number of CTM applications would remain unchanged. According to the findings of INNO-tec, the fee reduction instituted in 2005 had a strong positive effect on demand for the CTM. The second fee reduction in 2009 was too close to the end of the available data series to be evaluated as to its effects by the institute. However, against the 2005 experience it cannot be excluded that the substantial fee reduction in 2009 also may have had an impact on the demand of CTMs besides possible other impacting factors (e.g. the start of economic recovery, increasing internationalisation of businesses or further efficiency improvements at OHIM)[39]. This is confirmed by the difference between the 90,000 CTM applications per year forecasted in the Impact Assessment for the last fee reduction and the current over 105,000 applications per year[40].

3.1.4. Users of the CTM system[41]

The 350,000 companies from 170 countries that have registered CTMs range from large multinationals to SMEs. From the beginning, the majority of the CTM applications originated from EU Member States. In recent years, these countries accounted for around 70% of total applications. Among the Member States, Germany, United Kingdom, Italy, Spain and France are the top filers. Among non-EU countries, the United States, Switzerland, Japan, Canada and Australia are the main users of the Community system.

The full integration of the 12 Member States that joined the EU between 2004 and 2007 is still a work in progress, including the use by companies from those countries of the European IP rights provided by OHIM. Thus, the 12 new Member States account for about 12% of the total GDP of the EU at Purchasing Power Parities (2009, Eurostat data) but they represented only 5% of CTM applications in 2010.

Looking at CTM owners by company size, it is clear from the chart below that the vast majority of new CTM owners are SMEs. The chart shows the composition of new CTM owners in each year, distinguishing between large-scale enterprises (LSE) and SMEs. In the early years of OHIM’s operation, a significant share of new owners were LSEs, more than 35% in 1996. In contrast, in recent years, the SMEs' share has been well over 95%. This indicates that there was an initial rush of big companies, already operating on a pan-European scale, to protect themselves to the maximum extent possible. By now, all the big multinationals already have their CTMs. Most of the recent growth comes from SMEs, once again reflecting the critical role such companies play in the development of Europe’s economy and their growing internationalisation at a much earlier stage in their evolution.

Figure 1: New CTM owners by company size

Source: OHIM data and classes of Allensbach Institute

3.1.5. Overview of legislative framework

The EU legislative framework is based on two main components, the Trade Mark Directive approximating the laws of Member States related to trade marks, and the Community Trade Mark Regulation.

The aim of the Trade Mark Directive[42] was to ensure that national trade marks registered with the Member States' IP offices were subject to the same substantive conditions of registrability[43] and enjoyed the same protection under the laws of all the Member States. It did not undertake a full-scale approximation of laws but harmonised only those (substantive) provisions of national law that most directly affected the functioning of the internal market, leaving expressly unharmonised the procedural rules concerning the registration, revocation and invalidity of trade marks[44].

Alongside and linked to national systems, the CTM Regulation[45] established a free-standing trade mark system which provides a single procedure for registering a unitary Community right having equal effect throughout the EU, instead of a separate procedure in each Member State leading to a bundle of national trade mark rights conferring protection only in their respective territories. The provisions of the CTM Regulation were further specified in three implementing Regulations[46], adopted as comitology measures in accordance with Council Decision 1999/468/EC.

3.1.6. Systemic coexistence, extent of the links and interaction between the systems 3.1.6.1. Systemic coexistence

The coexistence principle is expressed in the 6th Recital of the Preamble to the CTM Regulation and is one of the cornerstones of the European trade mark system. According to that principle, CTM law does not replace the law of the Member States on trade marks, but solely provides an additional legal framework for obtaining effective and efficient trade mark protection throughout the entire Union, with the result that the Community and national systems exist alongside each other.

However, coexistence does not mean that these systems merely exist in parallel, but rather that they should complement each other harmoniously, that is, in a way that allows each system to attain its specific purpose. This complementary relationship between the Community and national trade mark systems mainly manifests itself on two levels:

First, there is a significant degree of overlap between the two systems in terms of territorial coverage. Territorially, European trade mark systems are to a certain extent interchangeable in the sense that users may seek trade mark protection for the whole or part of the EU, by opting either for a CTM or for one or more national trade marks. In fact, the clear intention of the Community legislator has been that businesses should not be required to apply for registration of their trade marks as Community trade marks if they do not want protection of their trade marks at Community level (see 6th Recital at the end).

Therefore, companies should be free to choose between registering of their trade marks at national or Community level (or international level) and be able to combine those trade mark filings where appropriate, according to their specific business needs and strategic interests. In practice, it is not unusual for a growing undertaking, seeking to expand its business beyond a national or regional market, to escalate its trade mark protection by adding a CTM to its existing portfolio of national registration(s). Finally, it also happens frequently that a company aiming at a large market may have to opt for registering its trade mark several-fold at national level instead of having a single CTM. This is due to the unitary character[47] of a CTM, which does not allow the trade mark to be registered at all if there is an obstacle in any of the Member States (e.g. existence of an older identical or similar national trade mark[48], descriptiveness of a verbal trade mark in one of the EU languages[49]). In such a case, the number of parallel national trade marks depends on the company's business needs in geographical terms and may range from 1 to 25 (excluding of course the territory or territories where a ground of refusal exists).

Second, the systems are legally and organically linked and interact with each other in a variety of ways[50]. First of all, trade mark owners in the EU can use their national trade marks in opposition, cancellation or Court proceedings to prohibit the registration or use of a later identical or similar CTM and vice versa. Moreover, CTM owners may also choose to abandon their national registration and claim for the CTM the seniority[51] of the national trade mark which has been left to lapse, while keeping the same level of protection in the Member State in which the latter was registered. Equally, companies who choose, or are forced to, abandon their CTM, can transform their CTM into one or more national registrations, through the mechanism of conversion[52].

It should be stressed in this context that the above multi-filing practices of companies are natural in the trade mark field and form part of companies' business and/or branding strategies, which may differ on a case-by-case basis in accordance with the economic purpose of each trade mark filed. The multi-level trade mark system in Europe has been shaped against this reality. However, the choice of whether a company should opt for a CTM or a national mark should be driven by its business needs only and not by convenience considerations or other extraneous factors. The problems described below in the problem definition are not caused by the multi-filing itself, but are often due to legal and other distortions which result in a sub-optimal operation of the EU trade mark framework for businesses.

3.1.6.2. The extent of the links and interaction between the systems

There is ample evidence that users make extensive use of the above options and regularly exploit the links between the various systems, both when determining their trade mark strategies and when facing the need to protect or enforce their existing rights.

According to the Allensbach survey[53], 21% of SMEs and 30% of LSEs owning trade marks at OHIM, answered that their prevailing practice is to apply for both national and CTM protection, whereas around 20% of them (22% of SMEs and 17% of LSEs) answered that they had no prevailing practice or that it was impossible to say whether they use mostly the CTM or national systems. According to the INNO-tec report[54], 19% of Community trade mark applications filed at the OHIM by German applicants between 1997 and 2006, i.e. 15,440 trade marks, had also been filed as national trade marks in Germany.

Figure 2: Filing practice of SMEs and LSEs (among CTM users)

Source: Allensbach report

This practice is further attested by the fact that 93.216 CTM applications (roughly 10% of the total until May 2011) have been filed with a priority claim from a national filing[55]. Furthermore, a comparative search carried out by OHIM in the TM View database has shown that out of a sample of 666.527 CTM applications (verbal marks only), 174.795 (that is 26,3% of the sample) had also been filed as national marks[56].

The extensive interaction between the systems is also clear from a number of indicators: A query on the number of national rights used in opposition proceedings against CTM has revealed that at least 32% of the earlier rights used in opposition proceedings before the OHIM are national marks[57].

As regards seniorities and conversions, figures show that, from the inception of the CTM system, 256.056 seniority claims were filed with the OHIM until May 2011[58] and 3.171 conversion requests were made until the end of 2010[59].

While the above figures demonstrate the extent of a simultaneous use of CTMs and national trade marks, similar statistics about multiple registrations at national level are not available. However, contacts with stakeholders have confirmed that, as explained in the previous section "systemic coexistence" (3.1.6.1), it is a common practice for companies to seek trade mark protection in several Member States, notably when a CTM protection cannot be obtained due to existing absolute or relative grounds for refusal in a part of the EU.

The foregoing shows that, depending on its branding strategy, an undertaking wishing to market its products in the EU may opt for a CTM or one or more national marks, either alternatively or cumulatively, and that, in either case, it may be confronted with procedures pertaining to another system, even if its initial choice was to acquire a trade mark using a different regime. For instance, CTM filers must search national registries to ensure that there are no prior rights opposable to their application, whereas national filers must check the CTM register for the same reason.

Hence, in order to be able to make an informed choice and to be in a position to effectively protect their rights, companies need to have a sound overview of the rules and procedures applicable not only on Community level, but also in each and every Member State separately.

3.2. Problem definition

The two main problems identified in the context of this impact assessment relate first to divergent provisions of the existing regulatory framework and, second, to the low level of cooperation between trade mark offices.

3.2.1. Problem relating to divergent provisions of the existing regulatory framework

The consulation and evaluation exercise has revealed that the business environment in the trade mark field remains very heterogenous in spite of the partial harmonisation of national laws dating back to early 1990s. The level of harmonisation imposed by the TM Directive was quite low, focusing on a restricted number of substantive rules that were then considered to most immediately affect the functioning of the internal market[60], whereas an important number of areas, in particular relating to formal requirements and procedures, was left unharmonised. Moreover, the CTM Regulation was enacted several years after the Directive, which means that at the time the Directive came into being there was no 'common benchmark' against which the efficiency of national proceedings could be measured. By now, however, the procedures followed by OHIM have been in place for more than 15 years and are generally regarded as meeting business needs and expectations, in terms of timeliness, user-friendliness and quality.

As a result, the current landscape of EU trade mark law is still characterised by a wide divergence between national rules and procedures, both among themselves and in relation to the rules and procedures applied by the OHIM, while no attempt has ever been made to apply ‘best practice’ with regard to procedures.

As reported by user organisations[61] during the consultation process the existing divergencies between national systems are regarded as significant. These divergences are due to three main causes related to the regulatory framework:

· the fact that the TM Directive does not cover procedural aspects;

· the insufficient level of harmonisation as regards substantive law including optional provisions in the TM Directive; and

· the vague legal basis for cooperation.

There is a broad agreement among users of the trade mark systems in Europe that the present level of approximation between national trade mark laws, as well as with the CTM system, has not been sufficient. User organisations unanimously stated that further harmonisation of national trade mark laws, with regard to both substantive law and procedural issues, is needed.

At a political level also, the Council[62] appreciated the incoherence between the CTM and national regimes and called on the Commission to include in its proposals measures to make the TM Directive more consistent with the CTM Regulation and thus to further contribute to reducing areas of divergence within the trade mark system in Europe as a whole.

3.2.1.1. Non-harmonisation of trade mark procedures

Due to the fact that procedural aspects where left completely unharmonised, the existing gaps affect a variety of procedural areas, including the conditions for granting a filing date[63], the designation and classification of the goods and services for which protection is sought[64], the range of goods and services (number of classes) covered by a trade mark application[65], the extent of ex officio examination of grounds for refusal[66], the possibility of submitting observations by third parties[67], the existence or not of administrative procedures for opposing an infringing application or cancelling[68] a mark, the defenses of absence of genuine use available to trade mark owners in the context of such proceedings, the duration/renewal of the registration[69] and the option to divide a trade mark application or registration[70].

The following three important examples illustrate some practical problems caused by the incomplete harmonisation of rules and practices.

(a) Designation of goods and services and classification issues

Trade mark protection is always granted in relation to a specific set of goods and/or services. The goods and services for which protection is sought determine to a large extent the scope of protection afforded to the trade mark owner, and also affect other aspects of trade mark protection such as the claiming of priority and seniority, insofar that in those cases a double identity of signs and goods and services is required.

Article 28 of the CTM Regulation, in combination with Rule 2 of the CTM Implementing Regulation[71], imposes on the Office the obligation to apply the Nice Agreement[72] to the classification of goods and services, despite the fact that the European Union is not a party to that Agreement.

On the other hand, the TM Directive does not create the same obligation for Member States. Although all countries of the EU are parties to the Nice Agreement, with the exception of Cyprus and Malta, who apply the same system on a voluntary basis, there are no common rules in the Directive as to how that agreement should be applied in practice. What is more, Article 2 of the Nice Agreement expressly allows the contracting parties to give to the classification the effect that suits best the requirements of their legal system, by providing that the classification is not binding when determining the scope of protection afforded to the registration.

As a result of a lack of legal provisions in that regard, OHIM and national offices follow different rules and criteria for the classification of goods and services. This has led to the adoption of diverging classification practices across European IP offices to the detriment of consistence, clarity and legal certainty. In particular, different Member States regard various terms in the Nice Classification as not suitable, whereas others, including the OHIM, accept them all. Moreover, while OHIM and some national offices have been applying the Nice Classification by assuming that its class headings are exhaustive and encompass all the goods or services falling into a given class of goods or services ("cover-all" approach), the majority of the IP Offices consider these headings as merely exemplary, concrete terms covering only goods or services clearly encompassed by their specific meaning ("it-means-what-it-says" approach).

Box 1: Classification – real life examples and practical consequences

– An applicant requesting protection at OHIM for the heading of Class 15 ("musical instruments") is also deemed to have protection for "stands and cases adapted for music instruments" whereas these additional goods will not be protected in a Member State following a different practice, unless it is specifically enumerated in the specification. – A CTM application for the heading of Class 25 ("clothing, footwear and headgear") is deemed to also cover "belts", which would only be protected in a different system if the applicant takes the precaution to also indicate "belts"’ or at least "clothing accessories" when applying for protection. Practical consequences for the industry: – The same term is interpreted differently in different jurisdictions within the EU, which leads to undesirable fluctuations in the trade mark's scope of protection in different territories and makes it impossible to secure uniform trade mark protection throughout Europe. To avoid this, companies have to express the specification of their trade marks in different terms depending on the teritory of registration. – In the case of conflict between trade marks having been registered under different regimes, this does not only create a great deal of legal uncertainty about the meaning of the registration and, by extension, about its scope of protection, but also leads to unreasonable distortions when trying to enforce the same trade mark in different territories, or when claiming priority, seniority or conversion. The consequence for IP offices: – The acute legal controversy surrounding this area has the effect of rendering cooperation between OHIM and national offices in classification matters and/or the development of common tools and IT platforms near impossible. For instance, it is very difficult to create common classification databases if the acceptability of a given term is subject to different rules in different teritories. To remove the existing stalemate, the Appointed Person by the Lord Chancellor (United Kingdom) referred a preliminary ruling to the Court of Justice, aimed at clarifying the correct application of the Nice Classification to trade mark filings[73]. In its judgment of 19 June 2012 the Court of Justice indeed found that the TM Directive must be interpreted as meaning that it requires the goods and services for which the protection of the trade mark is sought to be identified by the applicant with sufficient clarity and precision to enable the competent authorities and economic operators, on that basis alone, to determine the extent of the protection conferred by the trade mark. Furthermore, it must be interpreted as meaning that it does not preclude the use of the general indications of the class headings of the Nice Classification, provided that such identification is sufficiently clear and precise. Finally, that an applicant for a national trade mark who uses all the general indications of a particular class heading of the Nice Classification must specify whether its application for registration is intended to cover all the goods or services included in the list of that class or only some of those goods or services. If the application concerns only some of those goods or services, the applicant is required to specify which of the goods or services in that class are intended to be covered.

(b) Number of classes of goods or services covered by a single trade mark application

There are different rules in place in the Union as regards class fees[74]. Thirteen national offices operate with a fee structure where the application/registration fee only covers one class of goods or services, so that an additional (class) fee has to be paid for any extra class. By contrast, the other 12 national offices follow the CTM system where the basic application fee for a CTM automatically includes three classes of goods or services regardless of whether that number of classes is applied for by the applicant or not. In the latter case the applicant is only charged an additional (class) fee for any further class of goods or services beyond the third.

As found in the MPI study[75], easy accessibility of trade mark protection is of key significance for the proper functioning of trade marks as an element of undistorted competition. The degree of accessibility is determined not only by the overall volume of prior rights, posing obstacles to protection of new signs, but, also, by the 'space' occupied by each mark in the register (which depends on the specific range of goods and services in respect of which the trade mark is registered).

The MPI study generally concluded that there is no sustainable documentation showing that access to trade marks is substantially impaired by congestion of registers[76]. However, it pointed to several features of the CTM system which tend to invite a certain amount of 'cluttering' and may, therefore, give rise to problems. One problem being that the basic application fee, covering three classes, encourages applicants to apply for a broader scope of protection than actually needed[77]. This is clearly corroborated by the experience of the Spanish IP office, where the move to a 'one-class-per-fee system' (basic application fee only covering one class of goods of services) has led to a significant drop in the average number of classes covered by new trade mark applications[78].

A basic application fee, including three classes, not only attracts unnecessarily broad specifications of goods and services for trade mark coverage, but also increases the likelihood of subsequent applicants finding access to trade mark protection barred by prior rights. This creates a problem between the CTM system and the national systems which operate with an application fee covering a single class only, as the CTM system can potentially obstruct national filings. Moreover, such an approach also poses an internal issue for the CTM system, as CTM applicants are confronted with an aggregated number of prior rights existing both at the Union level and under national law.

The MPI study favoured having all IP Offices in the Union operating with an application fee covering one class only, as this would ensure a balanced and harmonious trade mark system, and reduce the potential for cluttering the trade mark registers. The special hearing organised by DG MARKT on 26 May 2011, and subsequent written comments on the MPI study obtained thereafter, have revealed that this position is supported by the majority of user associations[79], provided that such a fee structure change would not involve an increase in fees (i.e. applicants would not have to pay more than they do now for a trade mark covering two or three classes).

(c) Ex-officio examination of relative grounds for refusal

Although the right to file an opposition to the registration of a later trade mark is in principle reserved for the holders of earlier rights, several national offices conduct, in addition, an ex-officio examination of relative grounds for refusal[80] concerning conflicts with earlier rights[81], by raising the relevant objection even if the rightholder chooses not to do so.

Box 2: Ex-officio examination of relative grounds – practical consequences

The ex-officio examination of relative grounds is generally perceived as creating several unnecessary hurdles to the registration of trade marks: – To the extent that such an objection may be overcome if the owner of the right gives its consent to the filing, it creates a complex and time consuming traffic in "letters of consent", whereby applicants need to contact the owner and request a clearence (which is not always granted for free), even if the owner would not have opposed the application of its own motion. Thus, companies are obliged to undergo unnecessary expenses and delays, not to mention that they often fall victims of extortion. – In some cases the owners of the earlier rights might have gone out of business or may have transferred the mark to a third company who does not yet appear on the register. In such cases, applicants will not be in a position to locate the owner in order to obtain a letter of consent and might not be able to get their registration, even though, in practical terms, there is no real conflict. Moreover, the earlier right on which the objection is based may not be used by its owner, which means that the office raises an objection on the basis of a right that could not have validly been relied on by its proprietor to prevent the registration or use of a later mark. Hence, the system gives rise to artificial disputes and distorts competition by erecting unjustified barriers to enter a market. – This approach gives rise to legal uncertainty, since offices applying the ex-officio system only raise objections on the basis of earlier registered rights, that have been filed for identical or similar goods and services. Accordingly, they cannot offer a guarantee that if an application successfully passes the ex-officio control, it will not subsequently be opposed on the basis of a mark which has acquired reputation in the marketplace and or on the basis of an earlier unregistered well-known mark. This, however, leads to an unacceptable duplication of procedures which are both time consuming and inefficient.

(d) Absence of uniform rules and procedures in opposition and cancellation:

The availability and nature of opposition and cancellation procedures at EU and national levels show major discrepancies. Proceedings may be administrative (at IP office) or judicial (at Courts) and may vary significantly in terms of length and complexity. Moreover, national rules not always offer the same range of defenses to trade mark applicants.

Box 3: Opposition and cancellation – examples and practical consequences

– In some Member States, trade mark applicants and owners cannot challenge the validity or opposability of the earlier rights relied upon against their trade mark in the same proceedings, with the result that they often need to lodge separate legal remedies to that effect, often in a different forum, with all the delay and expense that this may entail. – In a number of Member States it is only possible to contest the validity of a prior trade mark in court proceedings, which delays things even further and usually requires the appointment of a qualified lawyer to prosecute the case. Practical consequences for industry: – The above systems are exceedingly long, cumbersome and expensive. – In comparison, the administrative opposition and cancellation procedures, as applicable at OHIM and other national offices, are much simpler since the validity of earlier rights can be raised as a defense in the same proceedings and without need for professional representation. In practice, this means that a CTM applicant may successfully defend itself against an opposition and obtain its trade mark years faster and with considerably less expense than a national applicant.

3.2.1.2. Insufficient level of harmonisation as regards substantive law

(a) Non-harmonised issues

Further to the procedural aspects, a number of substantive law issues remain unharmonised, namely the protection of geographical indications, the rules applicable to trade marks as objects of property, and the provisions relating to collective trade marks[82].

Firstly, contrary to the CTM Regulation[83], the grounds for refusal contained in the TM Directive do not address conflicts with protected geographical indications (GIs). In consequence, there can be no guarantee that the levels of protection afforded to GIs by other instruments of EU law[84] are indeed applied in a uniform and exhaustive manner in trade mark examination throughout the EU, for instance, when applying absolute grounds for refusal.

Likewise, the current provisions of the CTM Regulation fall short from offering the same degree of protection as other instruments of EU law. Specifically, the prohibitions included in Article 7(1)(j) and (k) of the CTM Regulation apply only to trade marks filed for ‘the same type of product’, contrary to Articles 13 and 14 of Regulation 510/2006 and Article 45 (2) of Regulation 479/2008, which afford protection also in the case of ‘the same class of product’, a ‘comparable product’ or even against any other kind of product ‘insofar as using the name exploits the reputation of the protected name’. Similarly, Article 7(1)(k) of the CTM Regulation can be invoked only against marks which ‘contain’ or ‘consist of’ a GI, but not against applications reproducing the protected indication in translated form or merely ‘evoking’ the same, contrary to Articles 13 and 14 of Regulation 510/2006.

This, however, stands at apparent odds both with Article 164 of the CTM Regulation, which provides that the protection afforded to GIs under Regulation 510/2006 ‘shall not be affected’ by its provisions, and with the established case-law of the Court of Justice, which requires that existing rules of Union law protecting GIs are given full effect in proceedings relating to the registration of trade marks[85].

Second, apart from some basic rules concerning licensing[86], and unlike the CTM Regulation[87], the TM Directive does not comprise provisions regarding other aspects of trade marks as objects of property, such as transfers[88] or rights in rem. In consequence, vital aspects of the commercial exploitation of trade marks are regulated poorly or differently accross the EU.

Indicatively, the TM Directive does not contain rules dealing with matters such as (a) the transfer of trade mark rights separately from the owner’s business[89], (b) the inclusion of the company’s trade marks in the transfer of the entire undertaking, (c) the requirement, present in the CTMR, that trade mark assignment must be made in writing, and (d) the possibility for trade marks to form the object of rights in rem or to be levied in execution. In addition, the conditions for a licensee to bring infringement actions are different in the CTM Regulation and the TM Directive, in that the latter does not allow licensees to intervene in infringement actions brought by the proprietor, so as to be able to claim their own damages.

Box 4: Transfers and Licensing – example

Company A is a producer of food-stuffs based in Member State X. It produces five different products, marketed under five distinct brand names. Two of these trade marks are protected as CTMs while the remaining three as national marks in all Member States.

Due to the lack of harmonisation of the legal norms relating to transfers and licensing, the following risks may occur:

(i) In order to enhance its growth, Company A decides to merge with and into Company B. Althought all its CTMs are automatically transferred to the new company, its national marks will only be included in the assigment if the national law so stipulates, or if express provision is made in the merger agreement.

(ii) Company A markets its products across the EU through locally based licensees-distributors, one in each Member State. Company C launches a range of competitive products in a number of Member States, imitating the marks of Company A. The conditions under which A’s licensees can take preventive action against Company C differ, depending on whether the infringed right is a CTM or a national mark, with the risk that some of the actions brought by A’s licensees may be rejected as inadmssible.

Third, while the CTM Regulation encompasses a set of specific provisions regarding the collective marks but not certification marks, the TM Directive refers to such rights but leaves this type of trade mark protection unharmonised in most of its aspects[90].

Collective marks (whether or not with elements of guarantee or certicication) designate goods which share specific common characteristics (like provenance from a specific locality), or which satisfy particular manufacturing or quality standards. Indications of this kind are protectable as trade marks in a number of Member States and have proven particularly successful in protecting the economic value inherent in such commercial instruments.

To the extent, however, that collective and certification marks are recognised as particular types of trade mark rights only in some Member States and their protection can differ substantially from one legal system to another, industry cannot be offered with a uniform level of protection for such indications throughout the EU.

For instance, OHIM objects to applications for collective marks which, in reality, are either guarantee or certification marks[91], despite the fact that the same signs would have been registered as trade marks e.g. in the Benelux, on the assumption that “certification marks in the sense that one individual entity unilaterally sets standards with which the goods shall comply if they carry the mark, cannot constitute Community collective marks in the sense of the CTMR”[92].

Moreover, the possibility of invoking a national certification mark in opposition proceedings against a later CTM application is significantly complicated on a technical level by the total absence of provisions specifically regulating this type of mark in the CTM Regulation itself.

These substantive issues were omitted during the first harmonisation round of the laws of the Member States. However, both the Study[93] and user associations (which were explicitely asked for their opinion in the above mentioned special hearing organised by DG MARKT on 26 May 2011) have expressed the view that the relevant provisions related to these issues are important and should therefore be approximated as well, in order to achieve a harmonious system of trade mark protection in Europe.

(b) Optional provisions in the TMD

Moreover, problems arise from the fact that the current Directive, contains several provisions which are only optional for Member States. In practice, this has also led to deviations from the CTM system and from the general need to align as much as possible the CTM Regulation with the TM Directive in all crucial areas of substantive trade mark protection.

These voluntary provisions concern rules directly affecting the system of absolute[94] and relative[95] grounds for refusal, like the possibility to refuse registration to signs applied for in bad faith and the possibility to provide for protection of marks with reputation against dissimilar goods and/or services[96].

Box 5: Gaps in protection due to the optional character of rules

Company A is the holder of national trade mark N in Member State X, which has aquired a substantial reputation in that territory. Company B applies to register the similar sign N1 for dissimilar goods, both as a CTM and as a national mark in Member State X, in an attempt to take unfair advantage of the reputation of mark N. Company B also applies to register the sign N1 in Member States Y and Z, to which Company A was planning to expand its business, in apparent bad faith.

The current lack of harmonisation of the relevant legal norms within the EU leads to the following unsatisfactory results:

Firstly, although Company A can validly oppose the filing of the mark N1 as a CTM under Article 8 (5) of the CTM Regulation (which extends to national marks with a reputation), it cannot prevent the registration of the sign N1 as a trade mark in Member State X (that is, in its home territory), unless the legislation of that State voluntarily protects reputed marks.

Secondly, although Company A can cancel the registration of the sign N1 as a CTM and also in State Y, on the ground that it was filed in bad faith, it cannot validly challenge the registration of the same sign in Member State Z, if the latter has chosen not to transpose the relevant provisions of the TM Directive.

As part of the MPI study, the contractor was asked to gather evidence and analyse whether there is a need for harmonising these optional elements. During the consultation phase, Member States did not much comment on this issue[97]; only France was explicit in this regard while being supportive of further, mandatory harmonisation regarding specific optional disposals. On the other hand, user organizations identified the optional provisions in the TM Directive as an important reason for persisting divergences between the national systems[98] and suggested that the currently optional provisions of the TMD should be made mandatory[99]. Also the MPI in its conclusions[100] preferred to remove a number of these optional provisions.

3.2.1.3. Missing clear legal basis for cooperation

This driver has clear links with the second identified problem, the low level of cooperation (see below). It is presented here because of its regulatory nature. The CTM Regulation does not contain a clear legal base for cooperation. Such a gap has been observed in cooperation programmes with national offices since 2005, and most recently, with the Coooperation Fund. In fact, the current legal base for cooperation activities is very vague in the CTM Regulation[101] and non-existent in the Directive. This causes difficulties for national IP offices to participate in any cooperation projects and also to justify use of financial and/or human resources. In the case of OHIM, the inappropriate legal base has led to some problems when validating its expenditure on cooperation in budgetary terms.

3.2.2. Problem relating to the low level of cooperation between trade mark offices

The second main problem to be addressed within this impact assesment report is the low level of cooperation between the trade mark offices in Europe. As explained previously in the context part, there are many links between the CTM and national regimes with direct consequences for both trade mark users and IP offices, which require a certain level of complementarity between the two systems. To achieve and ensure this complementarity, OHIM and national IP offices should cooperate closely. At present, however, both the missing legal base for cooperation, as already mentioned in the context of the first problem, and other unfavourable circumstances, which are to be specified in the following, under 3.2.2.1 and 3.2.2.2, seriously hinder specific and targeted cooperation. Additionally, the existing level of legislative approximation also has an influence on the extent IP offices cooperate with each other. In fact, it is clear that the more divergences exist in the regulatory framework, the less IP offices feel encouraged and able to cooperate with each other. This means that all problem drivers analysed in this impact assessment report are largely interconnected with each other.

3.2.2.1. Insufficient technical facilities of national offices

The first main driver (besides a lack of clear legal basis) being responsible for the low level of cooperation between trade mark offices are the insufficient technical facilities, particularly IT equipment, at some national offices. The lack of technical facilities prevents successful implementation of the envisaged cooperation projects.

In this context one must refer to the available data on the state of IT developmement at trade mark offices in Europe, bearing in mind that the availability of electronic services at OHIM and national offices, as well as the level of automation of their internal processes, significantly influence their effectiveness and efficiency both internally and vis-à-vis their users. The available data were obtained in 2009 in the context of launching the Cooperation Fund. OHIM carried out, with the assistance of the consultancy Gartner, an extensive evaluation of the current state of art in IT at national offices. The evaluation assesssed the degree of process automation (back office) as well as the availability of online services that are provided to users (front office).

The assessment revealed that the level of IT equipment is still low. The figure 3 demonstrates the availability of e-services at individual national offices (first chart) and their degree of automation (second chart and figure 4). These overviews show that only five offices provide more than 50% of their services online and that a majority of offices are still far from being automated, whereas none of the considered standard processes (TM examination, opposition, cancelation, similarity search etc.) is fully automated at more than seven national offices.

Figure 3: Availability of online services[102] & degree of automation[103] at national offices

Source: OHIM data (2009), based on self-assessment of national offices

Figure 4: Degree of automation

Source: OHIM data (2009), based on self-assessment of national offices

3.2.2.2. Lack of sustainable financing in medium to long term

The second major driver is that most national offices do not possess the necessary financial resources required to develop, launch and run, in the long term, common tools (for example, joint trade mark databases with online search facilities). This is often the consequence of the vast majority of offices not having statutory financial autonomy enabling them to deploy resources without direct intervention from other governmental authorities. Due to such dependency, priorities cannot be fixed by the offices’ management without considering domestic conditions or limitations set by ministerial authorities, which may influence the work plans of the national offices. As a result, offices may be led to concentrate resources on inmediate domestic interests, as opposed to spending resources to fulfil cross-border business needs resulting from the functioning of the Internal Market.

For reasons of subsidiarity, the lack of financial autonomy of national IP offices is not tackled by this impact assessment, as it is for Member States to determine their institutional structures[104].

However, it should be stressed that it is the lack of sustainable financing in medium to long term which represents the main problem in this context. Already today, the experience with the Cooperation Fund and other common projects has demonstrated the difficulty of some national offices to take part in these activities. This situation may worsen in the future due to economic turmoil, with the result that national offices will not be able to join all of these cooperation initiatives, because of lacking resources, and, in the worst case, abandon already running projects.

3.2.3. Adverse effects

Given the legal and other links between the CTM and national systems (see the context part "systemic coexistence" above), all trade mark applicants in Europe have to be familiar with both national and CTM legal systems to cope, for example, with possible opposition procedures.

Moreover, as explained in the context part above, many enterprises, including SMEs, make use of several systems in parallel, i.e. they opt for both the CTM and national protection, and/or register a number of national trade marks, as part of their company's branding strategy.

Finally, users of a single national system may also be negatively affected by the current situation. Indeed, the differences between the existing regimes, for example, the availability of certain procedures and tools, legal certainty as well as speed of registration, lead to an unlevel playing field which is to the detriment of all users of the European trade mark system, regardless of the geographical scope of trade mark protection they seek to obtain.

As a result of the above described current situation (see chapters 3.2.1.1 – 3.2.2.2), a company, planning its branding strategy, already faces a multitude of unevenly regulated regimes, which present applicants with different degrees of accessibility, difficulty, predictability[105] and speed in obtaining trade mark protection.

Similarly, when facing the need to enforce its rights or defend itself against alleged infringement, a company is faced with an overcomplicated regulatory framework which may give rise to legal uncertainty and increases dependency on external consulting. Moreover, since it is outdated in some areas[106], the trade mark system in Europe does not provide, from the users' perspective, effective and efficient solutions which respond adequately to their expectations. However, even in case where trade mark offices already render advanced e-services, their tools and other practices often differ from each other[107]. In addition, trade mark offices neither work with coordinated (examination) guidelines, nor the same quality and performance standards. This influences their decision making practice, results in inconsistencies and negatively affects coherence, integrity and reliability of the European trade mark system as a whole.

Therefore, it is clear that the negative effects resulting from the divergent regulatory framework are further aggravated by the lacking convergence of practices, tools and decision making at trade mark offices in Europe.

Overall, the missing common tools and other reasons for incoherence in administrative practices are summarised in the below figure 5.

Figure 5: Missing common tools and other problems

Problem || Examples

Missing common tools || Common seniority database

Online search facilities for trade marks of all IP offices in the EU

Common classification database

Tool on similarity of goods and services

Discrepancies in tools and practices || Non-harmonised quality/performance standards

Non-harmonised forecasting methodology

Inconsistencies in decision making || Discrepancies in examination guidelines

Few common trainings

Source: consultations with stakeholders and OHIM Cooperation Fund

Box 6 shows that the number and scope of practical implications due to the heterogenity and divergences in trade mark tools and practices (including decision making) may be significant for a trade mark applicant/owner.

Box 6: Examples of divergences in trade mark tools and practices

When seeking trade mark protection for two identical trade marks at two IP offices the applicant will probably have to deal with different application forms (not always available in other languages than the language of that country), provide different information and data, face various classification practices (including use of two different lists of goods and services), experience a different speed of procedures and thus an overall length of the registration process as well as uneven quality of office's decision (which directly impact the risk of future invalidation of such a trade mark), and face many other differences.

Furthermore, the below case study (box 7) demonstrates how costly, lengthy and burdensome in terms of administrative procedures launching a new trade mark for a company may be, in particular for a SME, notably because of missing trade mark databases and common searching tools. The significant extra cost related to clearance of prior rights, under current circumstances inevitable because of lacking alternative solutions[108], appears unjustified in today's digital society.

Box 7: Case study – lack of search facilities

An Italian starter company F wants to sell its products EU-wide and has decided to protect its goods with two Community trade marks. Before applying for the CTMs the company would like to check whether identical or similar trade marks already exist at both Community and national level to avoid later oppositions against its application ("clearance"). The company has to check the 26 registers one by one. At OHIM and several national IP offices, trade mark registers are available online. In other offices, registers have not been (fully) digitalized yet, and are therefore less accessible for searches. This task is further complicated by the fact that some trade mark registers are available only in the respective national language. Given the complexity of such a task, the company F would not be capable of performing it on its own and needs to engage one or, more often, many external consultants which implies substantial additional cost. To avoid cost and delay (the company is pressed to launch the product on the market to get a head start over competitors) the company decides to take the risk of applying for a CTM without clearing for prior rights. It pays 1800 EUR for the filing of two CTM applications. Unfortunately for the company, trade marks similar to the applications already exist in two Member States and their owners raise an opposition against the company’s applications. The company engages a TM attorney (cost) to evaluate the situation and decides to abandon one of its CTM applications (in spite of the fact that it cannot recuperate the paid fee of 900 EUR) and to defend the other one. Even though a professional representation is not obligatory in opposition proceedings, the company does not feel able to deal with the procedure on its own and hires a law firm (further extra money). At present, the opposition procedure is still pending. The trade mark in question has not been registered yet and company F has not put its goods on the market.

Thus, the low level of harmonisation of trade mark laws and procedures as well as the limited convergence of practices and tools at IP offices due to the low level of cooperation have a series of significant adverse consequences for industry: higher costs and delays; legal uncertainty; risk of unsustainable relationship between the CTM and national systems; limited accessibility of the trade mark systems.

First, there is a direct increase in costs, because industry is obliged to: (a) increase inhouse expertise so as to be in a position to internalise the knowledge necessary for effectively dealing with the various aspects of the system in all Member States, (b) seek expensive professional advice, often in the form of an international network of external consultants, especially when the issues involved require local legal expertise, and (c) develop and maintain overcomplicated data management tools in order to manage its trade mark portfolio efficiently, in particular since it has to deal with divergent rules as regards registration and renewal fees, term of protection, calculation of renewals, transfers, licensing, professional representation etc.

Second, the low level of harmonisation also raises costs indirectly, because legal uncertainty often encourages companies to resort to unnecessary multi-filing practices in case one kind of trademark protection proves to be easier to obtain or more efficient than another. Indeed, the research conducted by the institute INNO-tec has confirmed such practice by revealing that it is often cheaper for companies to apply for several trade marks, hoping that one will be registered, than to undertake an exhaustive search for all possible conflicts between marks on the OHIM and on national trade mark registers within the EU. As a result, firms often apply for more than one CTM at a time when they seek to ensure that they will have at least one trade mark in the register for a new product or service[109]. In addition the complexity and lack of transparency of the system leads to considerable delays in developing an appropriate trade mark strategy and, thus, slows down the marketing of new products and services and hampers the competitiveness of the company to a significant extent.

Third, the lacking harmonisation of trade mark procedures[110] as well as the limited use of IT tools contribute to appearance of delays in registration and other proceedings. The consultations with national offices revealed that the average time for registration varies considerably: trade mark protection can be obtained within the limits of 3 to 6 months in the "fastest" offices whereas it may take up to several years in others[111]. Similar results were obtained for average times of opposition and cancellation procedures[112]. As for users, they repeatedly emphasised[113] the importance of processing times for the protection of their IP rights. For example, a trade mark registration within a year or a year and a half which is currently the average across the EU may be perceived as being excessively long from the perspective of a company's marketing strategy where delays of several weeks or months significantly matter. Accordingly, not only the currently "slowest" but all IP offices should aim at decreasing the speed of their processes.

Fourth, legal uncertainty increases the exposure to legal risks, especially if a company, due to reduced budget or time pressure[114], decides not to forego an exhaustive EU wide priority search (which, due to the current lack of transparency and search facilities, can prove quite costly) before securing trade mark rights. Moreover, and more importantly, the diversity of prior rights opposable to a later trade mark in different territories may lead to strategic errors and could result in: (a) loss of trade mark rights (and of the expense that was incurred in order to secure them in the first place); (b) civil or even criminal liability and, by extension, high litigation costs and attorney fees; (c) the eventual need to redeploy the company’s marketing schemes and suffer additional costs, in case a given product has to be withdrawn from a specific territory or has to be re-branded in order to avoid legal conflict with existing rights of third parties.

Fifth, the different standards applicable in different jurisdictions lead to an increased danger of forum shopping, since companies are often tempted to use one system instead of another, not on the basis of their marketing needs, but rather on the basis of convenience criteria like the ease or speed with which trade mark registration can be obtained in a particular territory[115]. For example, it may be known among trade mark users that the examination practice is more rigorous in one Member State than in another, and that, consequently, the trade mark protection can be obtained more easily (or at all) at the latter IP office. The same is valid for the diverging classification practice of trade mark offices[116], which ,not only involves a great deal of legal uncertainty but may also encourage such forum shopping[117]. Moreover, the average time for registration and/or availability of an administrative opposition and cancellation proceedings, including their quality and speed, may play a role when deciding on the use of one trade mark system or another. Since all the above considerations significantly matter for a branding strategy, they may be eventually more important from the applicant's perspective than the territorial coverage originally intended. As a possible consequence thereof, the situations of some national offices might become unsustainable as they may not be able to keep pace with the development elsewhere in Europe. This would go against the intention of the EU legislator whereby national trade mark systems shall not be replaced by the CTM regime. Consequently, the fundamental principle of coexistence (including harmonious complementarity and free choice) between CTM and national trade mark system, which is so much supported by trade mark users, could be put at risk.

The above mentioned deficiencies not only limit the accessibility of the systems of trade mark protection, involve a great deal of legal uncertainty to cope with, and put the complementary relationship between the CTM and national trade mark systems at risk, but obviously also distort the level playing field for companies, with further negative consequences on the competitiveness of EU companies and the competiveness of the EU as a whole.

It should also be noted that the above effects are more accute for SMEs and individual applicants, who are less capable of hiring expensive teams of international professional consultants to cater for their filing needs. This leads to discrimination and artificial barriers, since small companies find it increasingly difficult to compete with big multinationals. Characteristically, the INNO-tec report has come to the conclusions (a) that, overall, larger firms are more likely to convert a trade mark application into a registered trade mark and (b) that, already by 2003, large firms were less likely to face oppositions to CTM applications than smaller firms[118].

3.2.4. Baseline scenario

Without appropriate changes the current sub-optimal conditions for European businesses and the under-developed complementarity between the various trade mark systems are not likely to improve. On the contrary, the existing divergences and inconsistencies at IP offices in terms of practices and tools are likely to increase to the detriment of trade mark users.

It is true that there have been some promising attemps to find practical solutions for facilitating cooperation between OHIM and national trade mark offices.

Since 2005, a scheme for bilateral cooperation agreements between OHIM and national offices has been in place. These arrangements are aimed at financing specific information and advice services, relating to the CTM, provided by national offices, and may cover costs related to fairs, exhibitions and publications as well as organisation of seminars and workshops. In 2005, when the scheme started, 13 national offices participated; in 2011, all 25 offices were involved in some of the eligible actitivities.

The bilateral agreements have represented the first structured effort to enhance cooperation between OHIM and national offices. However, their bilateral nature and the kind of activities included in the agreements mean that their contribution to enhanced convergence is limited. Therefore, many multilateral[119] cooperation projects have been launched in 2010/2011 as part of the € 50 million OHIM Cooperation Fund. The creation of the Fund was agreed by OHIM governing bodies and the management of the Office, in September 2008, together with other measures, aimed at better balancing OHIM’s budget[120]. The funds which stem from a budgetary surplus of OHIM are available for common actions between OHIM and national offices and should be used for the projects closely related to harmonization and the protection, promotion and/or enforcement of trade marks and designs[121]. In legal terms, the Cooperation Fund is a line in OHIM operational budget; accordingly, any related expenditure is governed by the Financial Regulation of the Office[122]. In addition, an advisory body (Management Board) has been established in order to assist the President of the Office, who is the authorising officer, on matters relating to the Cooperation Fund. The OHIM governing bodies (i.e. the Administrative Board and the Budget Committee[123]) are regularly informed, both by the Office and by the Management Board, about the selection of projects and their implementation. Finally, users are associated with the operation of the Fund.

The Cooperation Fund initiatives include, for example, the project TMView, aimed at providing online search facilities connecting trade mark databases of national IP offices and of OHIM[124], and the Euroclass project, used for establishment of a common classification database. The Cooperation Fund is also aimed at developing common software tools and at contributing to achieving full automation and e-business administration at all European IP offices (for the state of play in this area see chapter 3.2.2.1 above). The trade mark users very much welcome the initiatives under the Cooperation Fund and emphasise the importance of their quick and full implementation[125].

At the same time, this recent experience reveals the clear shortcomings of the current legal, technical and financial framework for cooperation, as described above, and also confirms the shortcomings of cooperation achieved on a voluntary basis. It has to be stressed in this context that any common project can bring the desired results only if all IP offices participate. As an example, the common databases for searching purposes can be mentioned. Given the unitary character of a CTM (see explanation in box 7) such databases are useful only if they enable a trade mark applicant to check upfront all relevant registers with all possibly conflicting rights. Even though the preparation of the Cooperation Fund work programme followed a bottom-up approach, seeking views of all stakeholders, and having the support of both national offices and users, eventually only three out of 18 projects have been joined by all IP offices. As for the other multilateral projects[126], the participation rates vary between 10 and 20 offices per project with a significantly lower implementation rate. Moreover, the involvement in a particular initiative depends at present on the choice of the office in question. Therefore, it cannot be guaranteed that those offices that would most benefit from a particular project will indeed participate.

It follows from all the above that despite existing cooperation initiatives, sustainable benefits are not secured. The current baseline thus has a double cost: the cost of possibly wasting the money and effort already invested in these projects and the loss of possible benefits if existing cooperation initiatives remain optional, uncoordinated and unsustained.

It should be added that with regard to bilateral cooperation agreements between OHIM and national offices, it has taken 6 years to involve all EU offices in a bilateral mechanism representing a total investment of € 7 million. Because of the reasons explained above (see under 3.2.2.2), this mechanism is not sustainable per se, and therefore, results cannot be expected to stay. Such investment will definitively be lost without more stringent cooperation obligations.

As far as the Cooperation Fund is concerned, OHIM has conducted a “cost-benefit” analysis (CBA) of the investment represented by the various activities included. Details are to be found in Annex 8, which contains an explanation of how estimates for potential benefits generated by the Cooperation Fund projects have been derived and the underlying assumptions. In assessing benefits, the method applied was the “social cost-benefit analysis” which offers a methodoloy for “monetising” benefits which are not purely financial (such as improved service by a governmental institution).

Given the fact that these benefits will not materialise in the absence of further EU action, they are presented within the impact analysis of the relevant policy solution(s) (see sections 6.4.1.1. and 6.4.1.2.).

Some benefits of this programme are being generated already. For example, TMView: since its entry into service until March 2011, it has been used to search for 471,683 trade marks, meaning, in a 12-month period, some 257,282 trade marks.

The cost of searching this number of trade marks through a commercial provider[127] would have been more than € 500,000. This is part of the benefit derived from TMview: a reduction of approximately € 2 per trade mark searched. In other words, TMview could already serve to save businesses, in one year, € 0,5 million when searching for 0,25 million trade marks. It should be noted that this is a very conservative estimate since it ignores the fact that usage of TMView is increasing as more and more countries are added to the tool (all 25 EU IP offices are projected to be in the tool by the end of 2012), thus making the tool more useful and increasing the savings business can realise by using it.

The first-cut CBA indicated, that over a period of 10 years (starting from the first investment), the investment in the Cooperation Fund projects could yield some € 73 million in benefits for both users and IP offices. These benefits were monetised based on benefits that are most valuable for end users, such as reduced processing times or greater predictability in the service received. The CBA assessed the value that users would attribute to the improvements deriving from the projects in monetary terms, using a "willingness to pay approach".

The analysis identifies the following as the major benefits: improvement in efficiency (avoidance of errors in offices); enhanced IP protection for end users (easy to define a strategy and track portfolio); saving in legal fees; full range of business improvements possible via standardized procedures, improved transparency and predictability; easy access to information and improved consistency across the members of the network. Each project of the Fund has been analysed in how it contributes to yielding these expected benefits (for example, the Future software project of the Fund could yield some € 45 million in real