Foreign Trademark Owners’ Combat Against Local Partners Acting In Bad Faith

Foreign Trademark Owners’ Combat Against Local Partners Acting In Bad Faith

Foreign companies commonly enter into business partnership relations with local distributors or licensees in order to have a presence in the Turkish market. However, that kind of business enterprise may turn into an impasse for companies when they realize that their trademarks have been already registered by local distributors. In normal circumstances, it is expected from a foreign trademark owner to register all its industrial rights on its own behalf, before the local authorities, on time. Further, in well-prepared business frameworks, license and distributor agreements stipulate in detail that all rights arising out of trademarks shall belong to the licensor party, and the local licensee shall not be able to claim any rights on the proprietorship.

However, in some cases, companies do make mistakes in the assessment of the Turkish market’s potential and fail to register their trademarks before the Turkish Patent Institute on time. Also local distributors may act in bad faith and lead their business partners to believe that their trademarks would be protected in Turkey if they register it under their own names. Consequently, right holder companies end up with a situation where they find out that their own trademarks have been registered in the name of the local partners. If the commercial relation somehow develops negatively and a dispute arises between parties, local parties acting in bad faith start abusing their ad-hoc ownership of trademarks and use it as a bargaining tool to receive compensation from their foreign partners, and in some cases even try to prevent or cease their partners’ entry or product/service sales to the country.

There are some facilities in the trademark legislation that may be applied to prevent and/ or cancel such bad faith registrations. Pursuant to Article 8/2 of the Trademark Decree No. 556, upon opposition by the trademark owner, a trademark shall not be registered where a commercial agent or representative of the owner of the trademark has applied for registration in his own name without the owner’s consent and without a valid justification. If the trademark is somehow registered, due to reasons such as the trademark owner has not become aware or failed to oppose, the trademark owner still has a chance to challenge the bad faith registrations by applying Article 17 of the Decree. Pursuant to such Article, if the registrant has no valid reason to obtain the registration in its name, the trademark owner shall be entitled to request the transfer of the trademark.

Further, as there is no consent or knowledge of the foreign company regarding the trademark registration, claim on local distributor’s bad faith should be taken into consideration. Existence of bad faith is generally decided upon the following criteria: i) whether the person and/or company who filed the application was acquainted with the trademark in question or if they were in a position to learn of the existence of the trademark ii) whether there was a justifiable reason when the registration was filed. Pursuant to Article 35 of the Decree, like all other legal grounds oppositions based on bad faith claims shall be submitted within three months from the publication date of application. Therefore, if a foreign company realizes that the local distributor is acting in bad faith in due time within the application process, the registration can be prevented.

However, if the trademark owner fails to submit an opposition in due time or if the Turkish Patent Institute cannot be convinced due to the lack of explicit evidence such as an agreement, notwithstanding, trademark owners should still consider to initiate litigation proceedings to reclaim their trademarks. In that respect, trademark owners can refer to some other legal provisions, such as Article 20 of the Commercial Code, whereby they can argue that the local partners/ distributors are aware or should be aware of the trademark owner’s commercial activities and the genuine proprietorship on the trademark, as they operate in the same sector. Accordingly, the Court of Appeal have precedents where it stated that a merchant should know and also follow the ongoing developments, inventions and trademarks within the relevant business field and this duty is not limited to national territory.

Due to ongoing significant improvements in the economic and legal environment, the attraction to the Turkish market is constantly rising. As the new foreign investment entering into Turkey increases, it is anticipated that there will be further court precedents on this issue, thus the awareness of the commercial circles and right holders shall improve. In the meantime, it is highly recommended to foreign trademark owners to have distribution agreements with local distributors/partners before initiating their business in Turkey which would stipulate the provisions on the trademark ownership issue in details. Surely, in parallel, timely registration should be performed, by making use of improved conditions such as international registration systems, which has made trademark registration easier and less costly.