Are Trademarks on AM Auto Parts Legal Hurdles for Taiwan Makers?

2008/08/25 | By Quincy Liang

More and more carmakers stamp their trademarks in external body-parts, once for advertising but especially to keep at bay competition from replacement parts makers.

To delve into such issue, CENS interviewed Mr. Klaus Jungmann, managing director of the German spare-parts distributor, Cosmos Autoteile.

Founded in Essen, Germany 50 years ago, Cosmos, about 25 years ago, began specialising in body and lighting parts for German cars, and now sells such components in Germany through its headquarters and four branches, as well as exporting worldwide.

Klaus Jungmann, managing director of Cosmos Autoteile

Trademark Savvy

After years of dealing with trademark issues, studies and litigations, Jungmann has become an expert in the field of trademarks. He illustrates his point with the simple example of the Lacoste polo shirt embroidered with the famous crocodile logo. Hundreds of small manufacturers in the Far East, especially mainland China, sew on imitation crocodile logos on their shirts. "These shirts are fakes," he says. And to put a finer point on the issue, he says, "But if a defective logo on a genuine Lacoste shirt is replaced by an imitation, this in no fake for the shirt remains a Lacoste product. The owner of the trademark lost nothing financially. The fake logo still distinguishes a genuine Lacoste shirt from a pirated product by an unauthorized maker. So the key function of a logo or trademark is to separate genuine products from fakes or knockoffs."

According to Jungmann, these factors have been integrated in the new European trademark laws and the famous "spare-part exemption." The trademark laws in Europe have been evolving for about 100 years; the first law in Germany was published as early as 1876 when, with industrialization, trademarks became an important economic issue.

With the creation of a unified market in the European Union (EU), differences in trademark laws in the same economic-union became a big barrier for free trade. Therefore after years of preparation, the European Commision promulgated in December 1988 the regulation 89/104 and obliged all EC-members to change individual laws according to these regulations, which have been done by about 1995.

"The most relevant part in this subject is the 'sparepart paragraph' or article No. 6 of the 89/104-regulations," Jungmann claims. The legislator wanted to avoid misinterpretations and so gave a detailed description. The original text of the english version is:

Article 6

Limitation of the effects of a tradmark

1. The trademark shall not entitle the proprietor to prohibit a third-party from using, in the course of trade,

a) his own name;

b) indications concerning the kind, quality, quantity, intended purpose, value, geographical origin, the time of production of goods or of rendering of the service, or other characteristics of goods or services;

c) the trademark where it is necessary to indicate the intended purpose of a product or service, in particular as accessories or spare parts;

Legal If Honest

Jungman says that the article specifically allows uses of trademarks as long as honesty is shown in industrial or commercial practices.

The German legislator created a new article 23 in his law which refers explicitly to all important details in the article No. 6 of the EC-regulations.

"According to the different judgements by various national courts in Europe, and especially by the European Court in Luxemburg," Jungmann says, "a trademark can legally be used on auto parts if the usage is done honestly. But a grey area exists between honesty and 'necessity': if a car's original wheel covers have an emblem, it would be unattractive to replace one cover without the emblem. Or, if an emblem is part of an original radiator grill, is it honest or possible to replace the grill, without the emblem, supplied by a non-OEM (original equipment manufacturer)? The key here is that the emblem is used honestly."

In other words, honest practice here means that everyone along the different distribution stages, including final consumer, must be shown clearly an auto part is not from an OEM but aftermarket (AM) maker, Jungmann stresses. Such distinction must be obvious on both parts and packaging.

Misrepresentation by AM Makers

"Many legal problems have resulted from AM auto parts makers' dishonesty in the form of misrepresentation or even deception-they tried to give the impression of OEM parts by either using wrong packaging or OEM logos or trademarks on the backside," Jungmann points out.

However, when the new trademark law became effective in Europe, most auto parts makers worldwide, including those in Europe, had been so intimidated by past experiences that they continue to avoid such products today. Furthermore, the managing director adds, carmakers ignore the new legal situation and continue to threaten everyone with costly litigation.

Legal fee liabilities differ in various EU countries according to local laws; but in Germany, for instance, the losing party is liable for all legal expenses.

So in most cases small companies are obliged to accept terms set out by

"big brother," the managing director says, with another problem being that often the judiciary and also lawers lack relevant experience with the new law.

Winning Cases

Cosmos has been involved in several litigations related to emblems on automotive parts in the past, and the company has won each case, Jungmann says.

In 1998, BMW tried to block Cosmos from selling BMW kidney-shaped grilles. "We fought the case based on Article 23 of the new German trademark law, and BMW backed off," Jungmann says, backing his story by showing a letter written by the company's lawyer to BMW on October 1, 1998.

In 2002, Jungmann continues, the custom office at the Frankfurt airport confiscated a consignment shipped from Taiwan containing samples of replacement grilles for VW and Audi cars. These grilles, however, had no emblems but some items where shaped to incorporate emblems.

VW and Audi lost the cases at the Frankfurt district court, which ruled by referring to the Article 23 of the new German trademark law. VW accepted the judgment, but Audi has filed for an appeal.

According to Jungmann, shortly before the court's decision, Audi's top management learned about the intended final judgment against Audi and decided to withdraw the appeal to avoid a judgment that might lead to negative publicity for carmakers. "The intended judgment is included in the court transcript,"Jungmann says.

VW and Audi had to pay full legal fees, over 50,000 euros, Jungmann says, because the automakers sued for very high damages to intimidate Cosmos.

In 2006 Cosmos battled in court against DB - Opel, and again Audi, but the carmakers backed down when they realized that Jungmann is totally savvy about the legal playground.

Taiwan is a major supplier of AM auto parts, but makers on the island need to pay more attention to IP issues.

Noteworthy Case in Italy

Another noteworthy legal judgment in Italy was the case of Fiat versus ISAM, which sold radiator grilles with the Fiat emblem. ISAM took the case to the highest court in Rome, which ruled for the distributor.

According to Jungmann, the judgment was based on the Article 6 of the EC regulations in conjunction with other arguments. The core spirit of the judgment, says Jungmann, is that the function of a trademark is to distinguish one product from another, or the "typical function" of a trademark. The function of trademarks on replacement parts, however, is not to distinguish a Mercedes-Benz from a BMW, but to indicate the intended purpose of a product. As such, it has an "atypical function."

How to Stay Honest

Aftermarket auto parts makers are obliged to consider the following when their products show copies of carmaker's logo or emblem:

1. Adopting the carmaker logo or emblem is necessary to recreate the same esthetic effect as the original part (see the wheel cup or radiator grille).

2. Packaging must clearly show, during all distribution steps until final customer, product is not made or distributed by the carmaker, but AM supplier.

3. No other detail of the OEM part may be copied, incuding production schedules, name, or brand of carmaker on the backside of product; while AM makers are advised to show on backsides of products name or brand of applicable manufacturer.

"Taiwan manufacturers can actually develop, produce many interesting auto parts by adhering to the above tips and relevant regulations," Jungmann says confidently. "Such advice is valid for exports to the EU but may also help in countries with restrictive legislations outside the EU."

All unified European laws, like the trademark law, as well as all judgements of the European Court, Jungmann says, can be downloaded in all European languages at www.europa.eu/index.