Copies and enlargements.

Unscrupulous operators in the EU's 10 new member states have been applying for trademark rights for well-known brands with a view to selling them back to their legitimate owners. Fortunately, they haven't been successful--at least so far. Andrea Jaeger-Lenz and Mark Robinson explain the main effects of the EU's expansion on intellectual property rights, and how a company can enforce its rights in the new territories.

On 1 May the European Union welcomed 10 new member states into the fold. With the accession of Cyprus, the Czech Republic, Estonia, Latvia, Lithuania, Malta, Hungary, Poland, Slovakia and Slovenia, the EU has become the world's largest interred market--home to about 450 million consumers.

As a condition of entry the new members must adopt the acquis communautaire--the entire body of EU legislation. By doing so, they should become more politically stable and affluent. Consequently, they should become more attractive both as export markets and as destinations for inward investment.

The populations of these countries have dedicated a relatively small proportion of their incomes to consumer purchasing in the past, so an significant increase in spending activity is forecast as the choice of products available to them widens. All European companies supplying goods or services should therefore have a keen interest in these new territories, but it's crucial for them to have unimpeded market entry and effective safeguards for their intellectual property.

The EU's enlargement will have three major effects in this area:

* the new member states will have to bring their domestic intellectual property laws in line with EU standards if they haven't already done so;

* EU-wide intellectual property rights such as the community trademark, the community registered design and the community unregistered design will extend automatically to the new states;

* the principles relating to the free movement or goods and the exhaustion of intellectual property rights within the EU will apply to trade in goods between the old and new member states.

Turning to the specific types of intellectual property rights that exist, the EU's enlargement will have the following effects.

Trademarks

All of the new member states have been offering national trademark protection for many years through national applications, but they have been required to their domestic laws to conform to the trademark harmonisation directive. Owners of trademarks in the new states (or of international trademarks with extension of protection to these countries) should check the changes to domestic laws in order to determine the impact these may have on the filing, licensing and management of their trademarks.

With regard to community trademarks (CTMs), it has been agreed as part of the accession deal that all pre-existing CTMs will be extended automatically to the new member states. But, in order to strike a balance between maintenance of the unitary nature of CTMs and recognition of local rights in these countries, the following principles have been adopted under article 124a of the Community Trade Mark Regulation:

* All CTMs applied for before 1 May cannot be challenged on any absolute grounds of refusal that exist in those states. For example, a CTM for the mark "XYZ" in relation to shoes that's applied for before 1 May cannot be refused or cancelled after that date for non-distinctiveness based on the fact that "XYZ" is a word that means "shoes" in, say, Slovenia. The CTM will be extended automatically to Slovenia despite that fact, but the owner of the CTM will not be able in prevent third parties from using the word "XYZ" for shoes in Slovenia.

* Prior rights established in a new member state before the date of EU enlargement will remain valid if acquired in good faith. For example, the holder of a prior right in the sign "ABC" for a mineral water brand in Latvia may challange the local use of the CTM "ABC" for the mineral water under Latvian national law. A successful challenge will not prevent the automatic extension of this CTM to all new states, but it will prevent it from taking effect in Latvia.

It is obvious that the EU's expansion presents a tremendous opportunity for sharp practice. Many individuals have started to apply for trademark rights for famous brands in the new states with a view to selling them back to the legitimate owners. A number of cases have already been decided by the trademark offices and courts of these countries, and their decisions have favoured the legitimate owners.

The situation is not so straightforward where the trademarks in question aren't internationally known. The legitimate owners of these trademarks may be able to use the "bad faith case study" compiled by the Office for Harmonisation in the Internal Market (http://oami.eu.int/enlargement/mechanisms.htm) when challenging unscrupulous applications before local trademark offices and courts.

Community designs

As is the ease with community trademarks, community registered designs will also be extended automatically to the new member states. Details are set out in article 110a of the Community Design Regulation. The mechanism for extension is parallel to that for CTMs, particularly with respect to absolute grounds of refusal and pre-existing rights acquired in good faith in the new states.

The community unregistered design will also be extended to the new states. By their nature, these rights are less tangible than the registered community designs. For this reason, it's crucial for owners to ensure good practice in keeping records of their designs--dates of first exhibitions in trade fairs etc--to prepare for potential litigation.

Owners of pre-existing registered or unregistered designs in the new states should ascertain the impact that changes in their domestic laws will have on the filing, licensing and management of such registered or unregistered designs.

Copyrights and database rights

The new member states were required to modify their domestic legislation to conform with the applicable European directives. Although the domestic law of each state is harmonised under such directives, there is no EU-wide intellectual property, right protecting copyrights and databases.

A company with business activities that are protected by this type of right should check changes to the relevant domestic legislation in the new states to understand what impact these changes may have on them.

Patents

As with copyright and database rights, there is no EU-wide patent right, although it has been the subject of discussion within European institutions for more than three decades. National patent protection in the new member states was previously available to varying degrees. In particular, some of the new states had patent protection only for particular manufacturing methods. As a consequence, the holder of a patent in an old member state may still invoke its patent rights to prevent the importation into that country of a product made or marketed in one of the accession countries if equivalent patent protection was unavailable when the product was marketed in that new state. This is a specific derogation to the principle of free movement of goods.

Free movement of goods

Generally speaking, the principle of exhaustion of rights will he extended automatically to include the accession countries. Products that are put on the market in the new states with the agreement of the intellectual property right owner will therefore be able to circulate freely throughout the EU.

Because a product sold in at new state may well he priced lower for such markets, there will be an incentive for third parties to resell these goods into the old states, where prices will be higher. Intellectual property owners should therefore review their distribution agreements and seek advice on what can be done to limit parallel importing on a case-by-case basis. Various aspects will need to be examined--pricing, branding, packaging, labelling, design and quality, for instance. But the obligation to comply with competition law may limit the options available.

Also, licensing and distribution agreements will have to he reviewed where the relevant territory has been defined as "the European Union" or "the European Community". The boundary changes could lead to conflicts with existing agreements that have the new member states as their territories. In such circumstances, solutions will have to be found to accommodate the interests of the respective licensees and distributors.

Enforcement

Intellectual property owners will need to deal not only with parallel imports but also with the trade in counterfeit goods. Even though the eastern and south-eastern European countries joining the EU have generally brought their intellectual property legislation up to standard, adherence to the law and enforcement in these states is still rather patchy.

EU-funded training programmes for enforcement officers such as judges and customs officers are under way, but with varying degrees of success. Counterfeit products have a dramatically high market share in most of the new states' markets. The influx will speed up through the EU's new eastern borders, which are considered to be especially insecure. The civil courts, particularly in the former communist countries, have little experience of intellectual property litigation. In the Soviet era, such cases were virtually non-existent and the relevant legislation had only started to be adapted to the standards of the World Intellectual Property Organisation and the agreement on trade-related aspects of intellectual property rights in the 1990s.

Intellectual property infringement actions in these countries may take more than two years to reach a first-instance court decision. The fight against counterfeit goods is therefore a tough one. Often the most effective mad cost-efficient way to curb the influx of fakes and forgeries is to enlist the help of the customs services. This will be even more applicable from 1 July, when Regulation (EC) No 1383/2003 replaces Council Regulation (EC) No 3295/94 and takes effect throughout the EU. This new law extends the power of customs officials to a greater range of intellectual property rights, makes the system more accessible for right holders and provides a more effective legal weapon against the counterfeiters.

Companies should now review their intellectual property portfolios to identify potential problems in the new member states. They should also conduct searches for prior rights in these markets that may represent barriers to their entry. Firms that are likely to suffer from the trade in counterfeit goods should ensure that the seizure motions are in place in the new states and co-operate with customs authorities to ensure that they are enforced. Distribution policies should be reviewed with a view to the exhaustion of intellectual property rights in the extended EU. Licensing and distribution agreements should be reviewed as well and, where necessary, amendments should be made in order to avoid disputes.

Andrea Jaeger-Lenz is a partner in the Hamburg office of Latham & Watkins and Mark Robinson is an associate in the law firm's London office (www.lw.com)