10/06/2020
The owner of an earlier mark which had been recognised as famous in China was unsuccessful in an opposition to an EUTM application based on prior registrations of variants on that mark. However, they subsequently succeeded in a cancellation action, in which they alleged that the Registrant (originally from China) must have been aware of their mark and had acted in bad faith in registering it.
Bad faith is not relevant in EUTM opposition proceedings, but is a ground for post-grant invalidity of an EUTM registration. It is comparatively rare for an EUTM registration to be declared invalid on the basis that it had been filed in bad faith. However, this is what happened recently in respect of a registration of a mark containing Chinese characters, which had previously been opposed unsuccessfully.
On 5 February 2015, an individual named Wen Li filed EUTM Application No 13714316 for the mark YILI plus Chinese characters (below) for goods in Classes 29, 30 and 32 including dairy products, chilled desserts and non-alcoholic beverages.
“YILI” is a transliteration of the Chinese characters in the mark.
The application was opposed by Inner Mongolia Yili Industrial Group Co., Ltd., based on claimed confusing similarity to their prior EUTM Registration No 005793443 Yeale Logo (prior mark 1, shown below) and their rights in the EU under International Registration No 1097761 for a Logo containing Chinese characters (prior mark 2, shown below). Both prior registrations protected identical and/or very similar goods in Classes 29, 30 & 32,
Prior mark 1 : 
Prior mark 2: 
The arguments presented by the Opponent included a claim that the Chinese characters in prior mark 2 were identical to those in the opposed mark.
In dismissing the opposition, the Opposition Division commented that Asian languages are not considered to be widely spoken in the EU and that the Opponent had not provided evidence that would prove that a significant part of the relevant public could read and understand Chinese characters. Consequently, the Asian public in the EU could not be taken into account by the Opposition Division when comparing the signs, and the Chinese characters were considered as “figurative elements”. Because of the different stylisation of the characters in prior mark 2 and the opposed mark, the Division commented that it would be difficult for the relevant public to perceive similarities between these marks.
Inner Mongolia Yili appealed against the decision, but the Appeal Board upheld the rejection of the opposition and the mark proceeded to registration.
Inner Mongolia Yili then applied for a declaration of invalidity against the registration on the grounds of bad faith. As bad faith is not a ground for opposition, they could not have included this among the grounds of action at an earlier stage.
The invalidity application invoked Article 59 (1) (b) EUTMR, which reads:
Article 59
Absolute grounds for invalidity
- An EU trade mark shall be declared invalid on application to the Office or on the basis of a counterclaim in infringement proceedings:
…….. (b) where the applicant was acting in bad faith when he filed the application for the trade mark.
In support of their invalidity action, Inner Mongolia Yili claimed to be the primary milk and dairy products company in China and Asia. It submitted evidence to show that its marks 
and YILI are among the best known brands in China and had been issued Certificates of “well-known trade mark status” in China. The company argued that these marks would necessarily be known to Chinese residents and persons who have lived in or travelled to China.
Inner Mongolia Yili also claimed that Mr Li was of Chinese nationality before becoming resident in the UK and eventually obtaining British nationality some time between 2010 and 2016, giving rise to the presumption that he would be familiar with the leading brand for dairy products in China. The company further alleged that Mr Li had no business in the goods protected under his registration, submitting evidence of investigations into Mr Li’s activities which only identified online retail of imported magnets, plumbing parts and other low-cost hardware. The company argued that there was no commercial logic that would extend Mr Li’s actual commercial activities to the protected goods, giving rise to the presumption that his application had been filed in bad faith.
Mr Li denied that he had applied for the mark in bad faith, arguing that the fact that he had once had Chinese nationality did not mean that he knew about Inner Mongolia Yili. He claimed to have experience in the food industry through owning a restaurant between 2008 and 2009 and to have plans to set up a business in “YILI yogurt” in London.
The Cancellation Division reviewed the general principles underlying Article 59 (1) (b) EUTMR. There is no precise legal definition of “bad faith”, which is a subjective state based on the applicant’s intentions when filing an EUTM application. For a finding of bad faith there must be, first, some action by the EUTM proprietor which clearly reflects a dishonest intention and, second, an objective standard against which such action can be measured and assessed as being in bad faith.
As set out in the Opinion of Advocate General Sharpston (Opinion 12/03/2009, C-529/07, Lindt Goldhase, EU:C:2009:361, § 60), there is bad faith when the conduct of an applicant for an EUTM departs from accepted principles of ethical behaviour or honest commercial and business practices, which can be identified by assessing the objective facts of each case against those standards. All factors relevant to the particular case must be taken into account in making an overall assessment of whether an EUTM proprietor acted in bad faith. Good faith must be presumed until the opposite is proved.
One situation which may give rise to a finding of bad faith is when a commercial entity has obtained some degree of legal protection by virtue of the use of a sign on the market, which a competitor subsequently registers with the intention of competing unfairly with the original user of the sign. The Cancellation Division noted that this is exactly what Inner Mongolia Yili alleged to be the position in the present case.
In such instances, the Court of Justice of the European Union (Decision 11/06/2009, C-529/07, Lindt Goldhase, EU:C:2009:361, § 48, 53) has stated that the following factors in particular should be taken into consideration:
(a) the fact that the EUTM proprietor knows or must know that a third party is using an identical or similar sign for an identical or similar product capable of being confused with the contested EUTM;
(b) the applicant’s intention of preventing that third party from continuing to use such a sign;
(c) the degree of legal protection enjoyed by the third party’s sign and by the sign for which registration is sought; and
(d) whether the EUTM proprietor in filing the contested EUTM was in pursuit of a legitimate objective.
The Cancellation Division then assessed the allegation of bad faith in the present case. It found that Inner Mongolia Yili had demonstrated, beyond dispute, that it is the leading producer of dairy products in China, widely known under the short form of “Yili”, and that its brand was among the top 23 most valuable brands in China prior to the filing of the contested registration. It further found that sufficient evidence from independent sources had been submitted which attested that Inner Mongolia Yili had not only been identified with the Chinese characters 伊利 but also with “YILI” for many years prior to the filing date of the contested registration. The two versions were considered to form a “comprehensive unitary brand”.
The Cancellation Division found that there was a natural commercial logic or trajectory for Inner Mongolia Yili to want to obtain protection in Europe for both the Chinese characters and YILI. By contrast, the Division could not see any such logic in Mr Yi’s application to register a trade mark throughout the EU for a proposed home-made yogurt business in London.
The Cancellation Division noted that Mr Li’s registered mark consisted of “YILI” plus the same Chinese characters used by Inner Mongolia Yili, although there are apparently many other options for transliterating “YILI” in Chinese. This was an important difference from the view taken by the Opposition Division, who had found that the Chinese characters were not identical because of the stylisation of the respective marks. It is important to understand that the Opposition Division needed to consider the perception of the relevant public in the EU, who could not be assumed to recognise and understand Chinese characters, whereas the Cancellation Division was considering Mr Li’s understanding of and intentions with regard to the mark. It was found that Mr Li had at least a basic understanding of Chinese.
The Cancellation Division could not see any commercial logic in Mr Li’s application for the contested mark, other than a deliberate intention to create an association with the famous trade name of Inner Mongolia Yili and thus to “piggyback off its attractive force”, and/or to prevent that company from pursuing its own business on the EU market. Indeed, Mr Li had opposed 4 EUTM applications by Inner Mongolia Yili for marks consisting of or containing “YILI”, based on his earlier registration.
The Cancellation Division did not consider it particularly relevant to the case whether or not Mr Li had or had not come from China as a young adult and had knowledge of Inner Mongolia Yili and its brand as a result. Evidence showed that Inner Mongolia Yili had a presence in the UK prior to the filing of the contested registration.
In any case, the Cancellation Division clarified that it is not essential for an invalidity applicant to possess enforceable rights in the EU prior to the filing of the contested EUTM in order for bad faith to be found. What is important is the invalidity applicant’s legitimate right to the mark.
The Cancellation Division held that the facts and evidence submitted allowed for the presumption that Mr Li must have known that Inner Mongolia Yili had been using the Chinese characters 伊利 and the transliteration “YILI” prior to filing his EUTM application. However, this would not in itself be sufficient for a finding of bad faith, for which there must also be a dishonest intention or other “sinister motive” in filing. In the present case, the Cancellation Division concluded that there was sufficient evidence that Mr Li’s only purpose was to block Inner Mongolia Yili from registering and perhaps also from using its own marks in the EU.
Accordingly, the Cancellation Division concluded that the contested registration should be declared invalid for all of the contested goods and awarded costs to Inner Mongolia Yili.
Opposition Proceedings No B2531468
Decision of the Fourth Board of Appeal of 14 September 2017 In Case R 2395/2016-4
Decision delivered 14/02/2020 in Invalidity number: 000024442 C
This article is for general information only. Its content is not a statement of the law on any subject and does not constitute advice. Please contact Reddie & Grose LLP for advice before taking any action in reliance on it.
