Protecting trade secrets: Max Planck Institute on Commission's proposals

I still haven't got my head round the proposed directive on the protection of trade secrets. I thought there wouldn't be much exciting in it - but whether that turns out to be a fair assessment or not, there is a lot in Max Planck's comments on it to excite me. (Yes, I know they are not actually Max Planck's comments - see the entry in my Dictionary about the institute, or more accurately institutes as there are as many as 80 of them under the auspices of the Max Panck Gesselschaft) named after the man, and indeed the entry in it for the man himself.) What excites me is the suggestion that the directive should extend protection to prevent reverse engineering.
What? This is the most outrageously protectionist idea I can recall ever hearing of. The MPI has often struck me as viewing intellectual property as a Good Thing without considering whether a lack of protection might be a better thing. So the Institute says:

The use without restrictions of trade secrets obtained through reverse engineering appears problematic, in particular in sectors where – other than in the case of software – no intellectual property protection is available, although considerable investments are made in the development of new products. Notable examples include the cosmetic industry, which regularly invests quite heavily in the development of perfumes, but where the know-how generated thereby can be decoded with relative ease through reverse engineering.

The unrestricted use of such know-how raises concerns that it could pose a substantial threat to the companies concerned, eventually leading to market failure whereby such goods would no longer be produced. Accordingly, it must be assessed whether the existing (quite problematic) prohibition on advertising such products as imitations or replicas should be replaced by other measures that are directly aimed at protecting the relevant interests.

Perfumes? What a lousy example to use. As Ian Connor of Pinsent Mason says in Out-Law's commentary on the MPI paper, the evidence in the smell-alike cases showed that it was impossible to achieve an identical fragrance by reverse-engineering (and the fact that a cheap imitation couldn't use the expensive ingredients no doubt contributes to that). If there is an element of unfair competition in imitating fragrances, then it has to be dealt with as unfair competition: for goodness sake, don't try to bring trade secrets law to bear on it. In so far as trade mark law is part of the law of unfair competition, that approach has been tried, but just because it has failed doesn't mean that we need to try something else. And just because something isn't protected doesn't mean that there is a hole in the system that needs to be repaired.

I first encountered the idea of reverse-engineering in the context of the good old Morris Marina exhaust pipe - in other words, in the dispute that eventually gave us BL v Armstrong. Copyright was used to try to stop reverse engineering, because (unlike a smell-alike) you could  make a perfectly serviceable and accurate copy of an exhaust pipe by measuring the relevant dimensions. Did the House of Lords say "oh, here's something that isn't protected, let's see if we can find a way to make the law apply?" Not at all. In fact the starting point was the opposite: here was something that copyright did protect, even against reverse engineering, and their Lordships were pretty clear that they thought this was wrong. (Lord Templemann and Lord Bridge, as I recall, to the fore: two judges who for several years resisted every attempt to expand the scope of intellectual property protection, whether in exhaust pipes, bottle shapes (as trade marks: Re Coca-Cola), sound recordings (CBS Songs v Amstrad), plastic toy bricks (Lego v Tyco), or television show formats (Green v Broadcasting Corporation of New Zealand). The majority in the House of Lords (Lord Griffith going about it in a different way, if I remember correctly) resolved the problem in the consumer's favour by reference to the "non-derogation from grant" principle known to landlord and tenant law - an even more egregious example, it has to be said, of using one law to solve a deficiency in another than the MPI's wish to use trade secrets law to solve an unfair competition problem.

The law should only give protection where there is a good reason for it. That, I think, is the "evidence-based policy-making" that Hargreaves was so keen on, and which the government seems to have forgotten about even before the ink was dry on the Professor's work (hence the increase in copyright term for sound recordings, and perhaps likewise the latest bunch of copyright "exceptions", or permitted acts as they ought properly to be called). There are limits to intellectual property protection for good reason. Some matter remains unprotected deliberately - for the simple reason that there is no justification for protecting it. There would be no incentive for anyone to do anything that they were not already doing, just a supernormal profit to be taken at the expense of the consumer. Consumer welfare in the strict economic sense is not the be-all and end-all of the matter: when you analyse this stuff as property, human rights become engaged, and a property owner should not lightly be deprived of it. But in the case of reverse engineering we are talking about matter which is not protected by property rights, and which is in the public domain where anyone can use it. It is not confidential, and to impose a confidentiality-style obligation on would-be users would be a huge retrograde step and one that takes absolutism in intellectual property to new heights.

Clutter: Planck's New Constant

The Max Planck Institute’s Study on the Overall Functioning of the European Trade Mark System was published on 8 March. It has taken me a while to get to this – and I haven’t yet read all 278 pages – so these thoughts are liable to be added to, changed, or dropped. Watch this space!

It was commissioned (appropriately enough) by the European Commission, and it is one element of the Commission’s overall evaluation of what it insists on calling the European trade mark system. (See my separate posting on that.)

The purpose of the Commission’s evaluation of the trade mark system is to provide an assessment of how the system is working and to identify potential areas for improvement. It also considers the potential for enhanced co-operation between OHIM and the national offices, and evaluates the distribution of a proportion of the renewal fees paid for CTMs – a particularly touchy subject between national offices and the Community one. The Commission is free to choose not to follow recommendations in the Study, and some of them are certainly controversial: it will bring forward its ideas for legislative change in the autumn. The general tone of the Study, and its recommendations, would lead to greater cohesiveness between the Community and national trade mark systems – and several recommendations involve making optional provisions in the Directive mandatory (including the extended anti-dilution protection afforded to marks with a reputation).

The Study begins by canvassing the views of relevant stakeholders in the Community and national systems (I will call them collectively the systems, to save me becoming over-excited about the misuse of the word “European”). I’m glad they didn’t waste time with irrelevant stakeholders, though if they are stakeholders surely they are relevant by definition. The MPI organised two hearings with representatives of these stakeholders – but I have a feeling that when you examine the identities of the stakeholders you’ll find that they all have a vested interest in the continuation of the trade mark system pretty much as it is.

It also collected information from national trade mark offices, and the Benelux regional office (BOIP) which I hope will not feel offended if I don’t single it out for special mention every time I use the expression “national offices”. Finally, a representative survey among users of the CTM system was conducted by the Institut für Demoskopie Allensbach in February and march 2010.

The Study draws a number of conclusions from its survey of the field and makes many recommendations. A recurring theme throughout the study, and an expression for which I for one am indebted to the Institute, is “cluttering”. Such is the extent to which it is used that it should be regarded as a new Planck’s Constant.

The recommendations include:

Dividing up the spoils

Sharing out the half of OHIM’s renewal fees that had already been earmarked for the national offices, so all national offices get a minimum plus a top-up amount depending on the number of applications and international registrations dealt with by them. With a surplus of €400 million, this is a significant issue, especially as national offices might feel that this is money that has been taken from them by the parallel system in Alicante.
The requirement for graphical representation should be removed from the Directive and the Regulation. This will allow the development of new types of representation, while not detracting (although it’s not clear how you could do that without detracting) from the level of certainty for “non-traditional” marks prescribed by the Court of Justice (not, note, the European Court of Justice, though it it commonly so-called) in Case C-273/00, Sieckmann.

Classification

This is a hot potato currently before the Court in Case C-307/10, IP TRANSLATOR. The main problem in this area is that OHIM will insist on treating an application for everything in a class heading as covering everything in the class, even though there will be stuff in the class that isn’t mentioned in the class heading. Practices in national offices vary (and one of the Study’s most useful contributions is to tell us what each national office is doing). Overwide specifications, whether using class headings or otherwise, lead to cluttering of the register and firmer action than recommended by the Study should be taken. The Study offers a classic SOTBO: OHIM and national offices should agree a common approach. It suggests (more helpfully) that applicants should be required specifically to claim goods or services which might not be understood to fall under a class heading – giving the example of “software” in class 9.

How many classes?

This sort of cluttering could also be reduced if the Community system were not so generous as to allow applications in three classes for the basic fee. The Study suggests that separate fees – application and renewal fees – should be payable for each class.

Acquired distinctiveness

This should be assessed not on a state-by-state basis, as the General Court requires at present, but across the EU. The result will be to allow more marginal trade marks onto the register, which is hardly a step forward and will lead to cluttering. This appears to apply only to non-traditional marks. Why not all? The study also recommends "in accordance with the spirit underlying Article 6quinquies(C) of the Paris Convention, the length of time of an unchallenged and substantial use of a sign should be taken into account for the establishment of acquired distinctiveness”.

Relative grounds

There should be no change from the way OHIM deals with relative grounds – conflicts between registered trade marks and new applications – because it doesn’t have the resources to carry out a proper examination (as opposed to just a search) and work out whether to refuse applications. How can this be squared with the €400 million surplus? This despite 48 per cent of proprietors favouring the change – not an absolute majority, but more than were of the opposite view.

Prior unregistered rights

Relative grounds based on unregistered rights should be limited to nationwide rather than purely local rights.
The mandatory search of the OHIM register for prior registrations should be retained. The Study reports that many stakeholders like it. However, OHIM should be free to offer pre-filing search services in co-operation with national offices – on payment, naturally, of a fee.

Bad faith

OHIM should not start examining bad faith ex officio as a ground for refusal, but it should be a mandatory ground for refusal or cancellation in national offices – which cannot possibly promote consistency.
Even fewer proprietors wanted to change the opposition period from three to two months (as the UK has already done), and the Study thought this was not enough to warrant a change.

Non-use

Should the period of non-use after which a registration is vulnerable to challenge be reduced from five years to three? A trade mark which clutters up the register depletes the stock of available trade marks and may even foreclose the market to new entrants. Although there is an almost infinite variety of trade marks available to be used, the CTM system is already up to number 9 million and something (not all granted trade marks, certainly, but it’s still a very large number which tends towards infinity) and in any case an entrant to the market from outside the EU with an established brand is hugely vulnerable to foreclosure.

The Study also rejects the introduction of declarations of use, despite the fact that they would have massive decluttering power.

Promotional activities outside he core area of a trade mark’s registration should be regarded as a form of genuine use.

Infringement

Clutter is also the product of the extension of what amounts to infringement, but far from reversing this trend the Study suggests rewriting the Regulation and the Directive to accommodate the Court’s lawmaking in cases like Case C-292/00 Davidoff v Gofkid.

Genuine useGenuine use requirements are the second big area of controversy (along with classification issues – probably the bigger of the two) and also before the Court in ONEL/OMEL . The Study recommends that there should be no requirement that a CTM be used in more than one Member State: but by what logic can it be called a Community trade mark if it is in fact nothing of the sort? The Study recognises that there will be difficulty in enforcing a CTM against a later national trade mark in a distant part of the internal market from where the CTM is in use – a co-existence rule to deal (under carefully defined conditions) with conflicts between CTMs and later national trade marks is suggested.

Priority claims

The present system of "confining the examination [of priority claims] to requiring the necessary documentation for inclusion in the files and the congruence between what is documented and what is claimed" is not up for change, because it keeps costs down.

Extended protection

Trade marks that meet the criteria for extended protection, against dilution, based on their reputation – which are now coming to be referred to as “reputation trade marks” - should be regarded as well-known trade marks and accorded the protection of Article 6bis of the Paris Convention. That might be helpful, because no-one has ever had the faintest idea what constituted a well-known mark before. If you are lucky to have a well-known mark, it will enjoy protection against likelihood of confusion as well as against unfair use of, and detriment inflicted on, their reputation or distinctive character, irrespective of whether they are registered or not in the territory where protection is sought.

The meaning of “unfair advantage” is also something that could usefully be clarified, leading to more certainty about the extended protection for reputation marks.

Transit

For the purposes of infringement, use of a trade mark should include use anywhere in the territory of a Member State or (for a CTM) the EU – including custom-free zones, which means a change from the current position. If goods are counterfeit within the meaning of the TRIPS agreement and would be infringing in the country of transit (or the EU) it should be possible to take action against them. This is another controversial matter currently before the Court in Cases C-446 and C-495, Nokia and Philips.

Sanctions
The Regulation might benefit from saying something about sanctions for infringement, but perhaps (the Study concludes) that’s a matter for the Enforcement Directive (2004/48) which is currently under review. However, it does say that it thinks that Community Trade mark Courts should be able to grant Community-wide injunctions in all cases where they are requested – on which, see the DHL case.

Empire-building
The report also recommends that a role for OHIM in the counterfeiting field be considered. This seems to be part of an inexorable and undesirable process by which intellectual property offices arrogate to themselves roles well outside their natural jobs of maintaining registers of who owns what (and, perhaps, making sure that no-one claims what someone else owns, or has rights over something that they shouldn’t have).

Consistent decision-making
The study found substantial room for improvement in consistency of decision-making between OHIM and the national level, evidenced by the proportion of users who expressed dissatisfaction.

A misnomer - or trade mark imperialism?

The Max Planck Institute’s Study on the Overall Functioning of the European Trade Mark System is misnamed. It is not about any - "the" or "a" - European trade mark system: if it were, it would be a work of fiction and the whole project would be ultra vires and the UK Independence Party or someone would be challenging it in the Court of Justice (not, note, the European Court of Justice, nor the Court of Justice of the European Union, which institution includes the Court of Justice in which such a constitutional challenge would be brought). It is concerned with trade marks in the European Union, a large part of Europe but by no means its entirety; and a political unit, not a geographical or cultural one.

I find it extraordinary that the Commission, who should know a great deal better, should continue - arrogantly? -  to refer to it as European, when it is about trade mark law in the European Union. Are there expansionist forces at work here? Or is it just sloppiness? What do the Swiss think, or Icelanders, Norwegians, Belorussians, Ukrainians, Moldovans, Serbs, Croatians, Albanians – even Manxmen, Monegasques, Channel Islanders, and all the other non-EU Europeans? I hope to see some comments posted here ... even if they tell me I am wrong.

Good. Now I can get on with looking at what the Study says about trade mark law.

Max Planck's English

Before I comment on the Max Planck Institute’s Study on the Overall Functioning of the European Trade Mark System, I have to get two things off my chest, and if I do it now I might be more constructive with what I say about the substance of the document. Also, as separate comments they stand a better chance of coming to the attention of those to whose attention they should come. 

First, I am frankly appalled at the quality of the writing, about which I haven't seen anyone else say anything. As a taxpayer, I should not be expected to accept work of this quality. And my dismay is compounded by the discovery that the English version is the only version offered on the French and German-language versions of the Commission's website. So, a German institute prepared the document in English, in which form it is offered to speakers of all the other European Union languages. If only it were good English.

Brits must take great care before criticising the linguistic skills of other nationalities, I know, but this document is so badly rendered into English that there are points at which its meaning disappears. Apparently it came in below budget, but how much better if that money had been spent on a professional translation. It would surely have been perfectly practicable to have a literate native English-speaker polish it up before publication. Sentences like:

Development of IT tools dedicated to support national authorities in the fields of the combat to counterfeiting such as image searchable IT tools (para 1.57)

are inexcusable, but we can read past the incorrect prepositions, wrong parts of verbs and lackof punctuation to uncover the meaning. Likewise:

The Hungarian office has indicated that despite of …

Words like “trasferreded” should not have slipped through the net, “do” does sound like “due” if you learnt English from Hollywood films, “easy-friendly” might be a useful neologism, and the battle to preserve the word “datum” by ensuring “data” remains plural has probably been lost already. “Eventually” is a false friend to most non-native speakers of English.

When a document is so badly presented, one begins to wonder whether it is equally slipshod in substantive areas. I don't think it is - although there is much to criticise - but it would have greater credibility if it were written in good English. At least - so far - I have not been unable to understand what it is trying to say.