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Trademark transfer without the shareholders’ consent: the ELBE ENGINEERING case

The Tartu County Court has upheld a claim that a trademark transfer and disposal transaction were null and void under Article 181(3) of the Commercial Code (Civil Case No 2-22-4383, 15 February 2023).

Plaintiff’s claim

TK and HE are members of the management board of the plaintiff (Estonian company Elbe Tuning Parts OÜ). The plaintiff’s main areas of activity are the production and sale of spare parts for vehicles on the global market via its online shop, as well as the provision of vehicle repair services. With the knowledge of both the shareholders and the members of the management board, the plaintiff registered the trademark ELBE ENGINEERING.

Through the Estonian Patent Office’s public database, TK became aware that HE, as a member of the plaintiff’s board, had transferred the trademark to defendant OÜ Elbe Engineering, which is wholly owned by HE.

The plaintiff’s shareholders had not given their consent to the transfer of the trademark. The plaintiff did not have exact information about the date of the transfer transaction, as HE had not informed the other board member or the accountant before or after the transaction. The plaintiff’s board member had transferred the trademark to an entity with an economic interest equal
to his own (ie, the defendant). For expropriation, the shareholders’ consent is necessary and, since there was no consent, the transaction was void based on the first sentence of §181(3) of the Commercial Code.

It also turned out that HE had transferred the trademark to the defendant free of charge. Thus, the defendant had been unjustly enriched, having received a trademark registered by the plaintiff on the basis of a free and frivolous transaction, the related costs of which were borne solely by the plaintiff. Since trading in trademarks is not part of the plaintiff’s economic activity, and the disputed trademark was transferred to HE by another member of the management board significantly below the market price (free of charge), the consent of the other shareholder was required for the transfer of the trademark.

Defendant’s response

The defendant did not accept the claim and requested that it be dismissed in its entirety. During the registration of the trademark, negotiations took place between TK, HE, the plaintiff and the defendant to organise joint activities, within the framework of which the parties planned to cooperate through the plaintiff. To this end, a shareholders’ agreement was due to be prepared, but was not concluded due to later disagreements. During the negotiations and during the preparation stage of the cooperation, TK and HE planned to use the plaintiff for joint activities, in which TK would contribute certain financial resources,and HE would contribute his intellectual property and that of its company Elbe Engineering OÜ – including the trademark ELBE ENGINEERING.

Decision

The court established that there was no dispute that:

Exclusive rights in a registered trademark may be exercised only by an entity entered in the register as the proprietor of the trademark, unless otherwise provided in the Trademarks Act. The draft shareholders’ agreement submitted to the court did not show such an arrangement – or any other arrangements – from which it could be concluded that the parties had reached the type of agreement alleged by the defendant.

As regards the trademark, Clause 7(7)(18) of the draft shareholders’ agreement provided that the shareholders must enter into a written agreement for the transfer of any trademarks belonging to the private limited company (ie, the plaintiff). Given that the contested trademark had been granted legal protection more than eight months before the planned conclusion of the shareholders’ agreement, it was not plausible that, if the parties had such an agreement, it would not have been reflected in the contract. The evidence submitted to the court did not indicate any agreement that the plaintiff should transfer the trademark to the defendant in the event of non-cooperation. Thus, the defendant’s claims that the plaintiff fulfilled its obligation to the defendant were not substantiated.

According to §50(1) of the Trademarks Act, a written request by the applicant, trademark owner or other entitled party shall be the basis for entering the transfer of a trademark in the register. If the request is submitted by the new proprietor of the trademark or the entity to whom the rights conferred by the trademark have been transferred, a document certifying the surrender or transfer of the rights shall be appended to the request.

§181(3) of the Commercial Code regulates situations whereby a board member’s right of representation is limited with the aim of avoiding conflicts of interest that may arise when making a transaction. This is a limitation of the board member’s right of representation arising from the duty of loyalty, according to which the board member may enter into a transaction with himself only if a superior body (ie, the shareholders) consented to the transaction. If there is no such consent, the transaction is void. It is a limitation of the right of representation arising from the law, and its validity does not depend on its presence in the articles of association of the private company or its entry in the commercial register.

In the present case, HE was a member of the management board of the plaintiff and of the defendant; HE represented 50% of the plaintiff’s shareholding and 100% of the defendant’s shareholding, and the plaintiff was not a shareholder. One of the principles of commercial law is that shareholders must be guided by the interests of the private limited company, and not by their own personal interests or by the interests of any of the companies that they control when making decisions concerning the private limited company.

The plaintiff’s field of activity was the production and sale of vehicle spare parts and repair. Making a transaction involving the trademark through which the plaintiff had so far offered its goods and services and on which it had based its sales activities could not be considered as a transaction made in the daily economic activities of the plaintiff. Thus, the court found that the transfer transaction required a decision of the plaintiff’s shareholders or the subsequent approval of the transaction by another shareholder.

The court concluded that the trademark transfer and disposal transaction made by HE on behalf of the plaintiff were null and void due to the lack of decision by the plaintiff’s shareholders and the subsequent non-approval of the transaction by TK as other shareholder of the plaintiff. The court thus upheld the plaintiff’s’ claim.’

Anneli Kapp, Patendibüroo KÄOSAAR

This article first appeared in WTR Daily, part of World Trademark Review, in February/2023. For further information, please go to www.worldtrademarkreview.com.

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