Bad faith baked in

The unusual background facts were slightly complicated, involving several transactions between apparently related corporate entities.

Unusual history

Krentin Hellas (Krentin) owned three Greek national registrations: MORFAT, MORFAT CREAMY and ELLO for food products covered under classes 29 and 30. These marks were highly reputed for bakery and confection products. Krentin surrendered these registrations or let them lapse between 2014 and 2017.

According to the facts, Krentin had also taken out several large bank loans over the years with three banks: Piraeus Bank, Eurobank Ergasias and National Bank of Greece (taken together, the Invalidity Applicants).

In 2014 and 2015, Neratax Ltd (Neratax) applied for EUTMs for the same or similar names, MORFAT, ELLO, ELLO CREAMY, MORFAT CREAMY and ELLO ERMOL, covering inter alia classes 29 and 30 (taken together, the Contested Marks). No oppositions were brought against the registration of these marks.

On 29th March 2016, at the request of Neratax, the EUIPO recorded over the Contested Marks an exclusive licence to Krentin, which was then cancelled at the request of Neratax on 13th April 2017. On 18th May 2017 the EUIPO registered a subsequent non‑exclusive licence granted to a family company having the same address as Krentin. This was still in force at the time of the current decision.

In June 2017, Krentin requested that it be declared insolvent on account of its financial difficulties. At an insolvency hearing Krentin’s creditors requested that the company be appointed a special administrator. This request was granted in April 2018 with the special administrators in the insolvency case being the same as the Invalidity Applicants in the present case.

On 2nd May 2018, Neratax registered with the EUIPO another non‑exclusive licence for the benefit of Zoepol Ltd, a company with the same address as Neratax. This licence was still in force at the time of the current decision.

The Invalidity Applicants claimed that Neratax had acted in bad faith when it filed the Contested Marks. In April 2020, the Cancellation Division upheld the applications for a declaration of invalidity, finding that Neratax had acted in bad faith when it filed the Contested Marks because this had been a coordinated strategy with Krentin to remove the high value of Krentin’s registrations from its assets so that they could not be sold by Krentin’s creditors. Neratax appealed.

In June 2020, the BoA dismissed the appeals. According to the BoA, based on the chronology of events, Neratax was acting in bad faith when it filed the Contested Marks. The BoA stated that it believed Neratax and Krentin created a “dishonest scheme” designed to transfer value out of the latter company.

GC judgment

In the present judgment, the GC upheld the decision of the BoA. According to the GC, the BoA was correct to find that the Contested Marks were a key part of a coordinated strategy between Neratax and Krentin.

The GC held that the IP rights contained in Krentin’s earlier national marks were prevented from forming part of Krentin’s assets when Krentin surrendered its rights in the marks. These rights were ultimately then licensed back to Krentin. Neratax provided no plausible explanation for this.

The GC understood that Krentin was in financial difficulty owing to the shrinkage of the local market and had increased its lines of credit between 2013 and 2016, facts of which Neratax was aware at the time of filing the Contested Marks. Again, Neratax did not put forward any arguments to dispute this fact.

The GC confirmed that the concept of bad faith cannot be called into question by the lack of evidence showing that actual harm was caused to the Invalidity Applicants or to the general public. An inference that harm was caused is sufficient to find bad faith.

Further, the Invalidity Applicants did not have the burden of proving that there was a link between Neratax and Krentin. Rather, owing to the history of events it was apparent that Neratax had filed the Contested Marks with an aim other than that of engaging fairly in competition. It was therefore up to Neratax to prove its good faith by showing that there was no link between it and Krentin, which it could not do.

Finally, Neratax and Krentin were known to each other prior to the filing date of the first Contested Marks (30th January 2014). The BoA pointed out that Neratax itself acknowledged the parties met and agreed to apply for the registration of the Contested Marks. This reinforced the conclusion that Neratax’s intention when it filed the applications for registration of the Contested Marks was dishonest and was an attempt to “hollow out the earlier national rights belonging to Krentin”, prior to any claim by its creditors, while ensuring that the marks remained protected in the EU.

This article was originally published on the CITMA website here.