The limits to outsourcing - Honesty in commercial dealings


Outsource Professional Services Ltd, the successor of Outsource2India Ltd, a German company, has recently lost its appeal to the Court of Justice of the European Union (CJEU) against Flatworld Solutions Pvt Ltd, an Indian company*. The CJEU has held that Outsource registered its European Union trade mark for the Outsource2India logo (see image) in bad faith, knowing that Flatworld had used its own Oursource2india logo (see image). 

But surely Outsource2India is a descriptive term for services like ‘business administration’, ‘office functions’, ‘receiving, processing and handling of orders’ and ‘temporary employment agencies’ outsourced to India? And any person providing outsourcing of such services to India should be able to use the term freely and also register their own unique logo version of it? That is what Outsource did and obtained a registration for their logo. Was there any mal-intention especially if it had applied for registration of a mark which included figurative elements that Flatworld had never used?

Outsource applied for its logo in June 2007 and it was registered in 2008. Flatworld applied for its logo in 2010 and it was registered in 2011.

Flatworld was successful in its 2013 cancellation action on the basis that it was using its own logo since before 2007 in Germany and that Outsource had subsequently applied for its logo in bad faith/with dishonest intentions of appropriating the term. Outsource appealed successfully but Flatworld appealed further to the General Court (GC) and won again. Outsource then appealed to the CJEU), the highest European Court.

As the GC had explained in its judgement, the EU trade mark registration system follows a ‘first-to-file’ principle. If a party only uses a non-registered mark, that by itself cannot preclude an identical or similar mark being registered by another. That Flatworld had previously used its non-registered mark outsource2india did not by itself preclude registration of Outsource's logo. But regardless of whether Flatworld had any formal earlier trade mark rights compared to Outsource's EU registration, it was apparent that Outsource was, at the time of filing the application for registration, acting in bad faith, and the registration of its logo was declared invalid.

It is necessary to examine the intention of a party to determine if it acted in bad faith when filing its application to register a trade mark, and the Court has to take into account a number of circumstances. While the CJEU set aside some of the reasoning of the GC as to bad faith, it held that other factors were sufficient to suggest bad faith.

The evidence suggested that Flatworld had been contacted in November 2006 for collaboration with a partner established in Germany. In December 2006 Flatworld was told of the creation of a company for that purpose in Germany named ‘Outsource2India Ltd’, though Flatworld had not consented to its formation. Outsource told Flatworld that it wished to use Flatworld’s sign containing the element ‘outsource2india’ in its website. Flatworld expressed its doubts about Outsource's collaboration proposals and some of its conduct, and it finally informed Outsource, in May 2007, that it saw no prospect of collaboration. The parties agreed that Outsource would not use Flatworld's outsource2india sign and not use Flatworld's website in its commercial dealings. From November 2006 to May 2007, Outsource had systematically presented its use of Outsource2India as being linked to its proposed collaboration with Flatworld. Outsource was aware that Flatworld was already using in Germany a similar sign for the same services, that could be confused with Outsource's logo. This is because Flatworld had ‘offered and provided, from 2006, its outsourcing services, under the name of its non-registered mark, to client companies established in the European Union and, more particularly, in Germany’.

It is not a requirement that the party alleging bad faith own an earlier identical or confusingly similar mark. The Court recognised the potentially descriptive nature of the element ‘outsource2india’, that Flatworld did not have any exclusive rights to the term and that Outsource2India may well have been registered by a competitor of Flatworld. But none of that prevented the Court from concluding that Outsource had acted in bad faith by seeking, in these particular circumstances to exploit the word Outsource2India on the coat-tails of Flatworld's use of it. Outsource2India, a company governed by German law created with the objective of cooperating with Flatworld, acted in bad faith by requesting, shortly after Flatworld refused such cooperation, registration of an EU trade mark specifically containing that element, used by Flatworld in its commercial activities.

When ownership of a trade mark is disputed it is useful to assess any history between the parties to see if either acted below the honest commercial practices threshold. It could be a basis to cancel a wrongful registration even if there is no formal registration in place. However, it is also useful to evaluate whether the challenger should have its own registered protection in place bearing in mind the first to file principle of EU trade mark protection.

*Case C‑528/18 P decision of 13 November 2019

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It is not a requirement that the party alleging bad faith own an earlier identical or confusingly similar mark. When ownership of a trade mark is disputed it is useful to assess any history between the parties to see if either acted below the threshold of honest commercial practices.

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