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Why Businesses Must Avoid Use of Unregistered Trademarks: Risks and Threats to Brand Protection in Nigeria

Why Businesses Must Avoid Use of Unregistered Trademarks: Risks and Threats to Brand Protection in Nigeria

by Gabriel Eze, Associate

Introduction

However well established a brand may be, it must  continue to adopt an intellectual property (IP) strategy that aligns with its business or organizational model and goals otherwise risks missing out on revenue opportunities. Today’s brands must have a winning strategy, leveraging on their IP portfolio to gain competitive global advantage. “This is why organizations must remain strategic and alert, making full use of all tools and technologies available to increase competitiveness, boost agility and enhance their market position.”1 This article seeks to determine the risks and threats in the use of unregistered marks in Nigeria—whether actual or potential. Highlighting relevant laws in Nigeria concerning this issue, it examines the legal implications of the use of an unregistered trademark in Nigeria and identifies the risks and threats associated with this. It concludes by advising the need for trademark registration in the best interest of businesses operating in Nigeria.

 

Brief overview of legal framework for unregistered marks in Nigeria

Unregistered marks are known as marks which are not registered in relation to goods or services, or in relation to a business. 

Trademarks in Nigeria are governed by the Trade Marks Act 19652 (the Act), the Trade Marks Regulations 1967, and the Merchandise Mark Act.3 The Trademarks, Patents and Designs Registry under the Commercial Law Department of the Federal Ministry of Trade and Investment, is responsible for trademark registration in Nigeria.

The Trade Mark Act, the principal legislation, recognizes both registered and unregistered trademarks, but it does not entitle the owner of an unregistered trademark to enforce any rights under the Act. In other words, unlike registered trademarks which enjoy statutory protection in Nigeria, unregistered trademarks do not. According to the Act, “[n]o person shall be entitled to institute any proceeding to prevent, or to recover damages for, the infringement of an unregistered trade mark; but nothing in this Act shall be taken to affect rights of action against any person for passing off goods as the goods of another person or the remedies in respect thereof.”4 

Therefore, for the proprietor of an unregistered trademark to enforce any right in the trademark, the proprietor is limited to the common law action of passing off. There are certain risks and threats associated with this.

 

Highlights on risks and threats associated with the use of unregistered marks in Nigeria 

The use of unregistered marks works finely in an instance where the use of the unregistered trademark predates the use or registration of the registered trademark (Principle of Prior Use). The principle is hinged on goodwill and reputation. In American Cyanamid Co. v. Vitality Pharmaceuticals Ltd.,5 the Supreme Court of Nigeria, relying on section 7 of the Trade Marks Act, held, per G. Karibi-Whyte, J.S.C. that “the proprietor or registered user of a trademark is not entitled to interfere with an existing trademark, even if, identical with, or nearly resembling its own if it has been in continuous use before the use of or registration of his own trademark.” 

While the court in American Cyanamid recognized unregistered trade marks in Nigeria, it is important to note two vital points: (i) Before a court will recognize an unregistered trademark in Nigeria, the court must have determined that the unregistered trademark has become well-known and enjoys goodwill in the relevant market where the trademark is in dispute; and (ii) the burden of proof of the unregistered trademark being well-known and having goodwill in the relevant market falls on the  shoulders of the proprietor making such claim. The same principle applies to businesses—putting them in certain risks as owners of the unregistered trademark. “For marks to work,  they have to be unique, rooted in solid legal foundations, and thoroughly protected to reduce risk and maximize commercial value.”6

There are a number of risks and threats that businesses are likely to face if they use  unregistered marks  in Nigeria. Below are six risks and threats businesses must avoid:

  1. Burden of Proof: Actionable in tort, a passing-off action is instituted to protect a brand that enjoys goodwill or brand recognition and reputation. This brand goodwill must be actual, not potential. When a brand enjoys such goodwill but is an unregistered trademark, any unauthorized person or entity as well as opportunist may attempt to pass off such brand as theirs or as being connected with theirs. Should this happen, it becomes a burden on the startup or business that originally owns such a brand to prove that it has indeed acquired such goodwill distinctively for its brand. To establish goodwill is particularly not seamless. Besides,  establishing goodwill alone by a claimant does not satisfy the requirements that constitute the tort of passing off.  In The Boots Company Limited v. United Niger Imports Limited,7 three ingredients of a successful passing-off action were listed as follows:
    • Proof that the name, mark, sign which the plaintiff claims ownership has become distinctive of his goods and is regarded by a substantial number of the public or persons involved in a trade in the relevant market as coming from a particular source;
    • That the defendants who are engaged in a common field have used a name, mark, sign so resembling to the plaintiff’s that it is likely or calculated to deceive or cause confusion in the minds of the common customer; and
    • That the use of the name, mark, sign is likely to cause or has caused injury, actual or probable, to the goodwill of the plaintiff’s business. 

    Note also that in cases where an infringement has been alleged by a party, all the ingredients of passing off identified above must be present and proved. This burden is heavy.

  2. Limitation in Enforcement: Although Nigeria operates a ‘first-to-file’ system, an unregistered trademark—however well-known—cannot afford grounds for opposition proceedings. In Nabisco Inc. v. Allied Biscuits Company Ltd,8 It was an appeal against the judgment of the Court of Appeal (Lagos Division) which allowed the appeal of Allied Biscuit Co. Ltd to that court. The proceedings originated from the applications of both parties for registration under the Trade Marks Act, 1965. The opponent (Allied Biscuits Co. Ltd) filed an application to register “RITZ” as a trademark after conducting searches in the Registry of Trade. The application was accepted. Thereafter, Nabisco Inc., the appellants made an application for the same “RITZ” to be registered as their own trademark. The application of the appellant was advertised in the Trade Marks Journal at the instance of the appellants (Nabisco Inc.). When the respondents noticed the advertisement they commenced opposition proceedings in the Trade Marks Registry. Afterwards, the court per E. O. Ogwu Egbu, J.S.C. (delivering the lead judgement) held as follows: “I accordingly accept the opponents evidence that the applicants intended to destabilise the Nigerian market and her economy. Only an unreasonable tribunal would fail to take judicial notice or cognisance of commercial law promulgations of his government.” As earlier mentioned, because Nigeria has a ‘first-to-file’ IP system, it becomes even more necessary for companies to speed up their decision-making process if they seek to gain significant share in Nigeria’s emerging market or increase its risks of missed opportunities. There is also the associated risk of reputational damage. According to the Trademark Ecosystem Report 2021, “56% of all respondents have changed a brand name because they suffered infringement. Reputational damage and customer confusion also inflict significant trauma on the bottom line of any organization” in no small way. Consequently, “when a trademark or brand is compromised, rebuilding trust with audiences takes time and makes heavy demands on multiple resources and fields of expertise within an organization, from marketing and PR to legal, sales and service.9 
  3. Jurisdiction Issue: An action for passing off seems a good option to take until one is ready to institute an action in court. The claimant is immediately greeted with the issue of the appropriate court to approach—whether the Federal High Court or the State High Court. It is trite that an action for infringement of registered trademarks should ordinarily be heard at the Federal High Court. But before this became trite, there had been conflicting positions even at the Supreme Court over the years on this issue. In 1988, the Supreme Court held in Patkun Industries Ltd. v Niger Shoes Ltd10 that the Federal High Court has jurisdiction in trademarks infringement and passing off actions flowing from the infringement of trademarks, whether they are registered or unregistered. But in Ayman Enterprises Limited v. Akuma Industries Limited & Ors,11 the Supreme Court overruled its previous decision in Patkun’s case in holding that passing off action for an unregistered trademark should be instituted in a State High Court since the right of action in a passing off did not arise from the infringement of any federal enactment. In its words, it held that “the jurisdiction of the Federal High Court to deal with actions on passing-off depends on the registration of trademarks as provided by Section 3 of the Trademarks Act … where the trademarks unregistered, as in the present case, then the cause of action for passing-off is in common law of tort and can now be brought in a State High Court.” The issue appears to have been settled recently. In 2007, the Supreme Court of Nigeria in Omnia (Nig.) v Dyktrade Ltd12 held that the Federal High Court has exclusive jurisdiction to hear and determine a claim for passing off whether the claim arises from the infringement of a registered or unregistered trademark. I strongly agree with the decision of the Supreme Court in Omnia’s case as it squarely aligns with section 251(f) of the Nigerian Constitution on jurisdiction of the Federal High Court  to hear and entertain IP matters in Nigeria.
  4. Legal Remedies available differ and may be inadequate: While the legal remedy for a successful passing-off action in the case of an unregistered trademark is limited to general and special damages under tort, the legal remedy in the case of a registered trademark affords the registered trademark owner room for better compensation. For example, in a trademark-infringement action, a successful claimant may request actual damages (e.g., from lost sales), defendant’s profits from sales made from using the infringed trademark, and request special injunctions and orders that may not be (easily) available or grantable in a passing-off action.
  5. Cost of Litigation and Length of Trial: Nigeria’s judicial system especially in the current Covid-19 period continues to witness an increasing delay in litigation. Since Nigeria does not have special courts created to entertain IP matters, this has further increased the burden on judges of the High Court that try IP matters in Nigeria. Such delays typically come with its attendant consequences, including delay in getting justice, avoidable and unforeseen litigation fees.
  6. Limitation in Licensing and other Means of IP Monetization: The owner of an unregistered trademark cannot maximize the benefits of trademark licensing. Besides, assigning a trademark—should this ever be the case in the future—without being a registered owner of the trademark will be problematic. No serious assignee or licensee of a trademark or any IP asset would be in a hurry to get into a licensing or assignment contract without evidence of registration. Licensing or assigning an unregistered trademark—however well-known such trademark is—comes with both business and legal risks that are best avoided.

 

Nothing beats trademark registration, regardless of how big or small your brand is.

Trademark registration  exclusive ownership on businesses. The hallmark of registration is the bundle of exclusive rights that is granted under the law. Section 5 of the Act grants exclusive right on a registered user of a mark, including the right to exclusive use of the mark in relation to the products and services. This means that businesses have the right to prevent others from using an identical or confusingly similar trademark for the same goods or services or description of goods or services in respect of which the first trademark was registered. Basically, the business enjoys the monopoly of use that comes with registration if it is registered. This will put the business in a better legal position to prevent or address the unauthorized use of the mark by third parties. 

Some big brands tend to ignore other marks of their business because they erroneously believe their established trade names would cover for other unregistered marks. This is wrong. And dangerously so.

Registering other marks of a brand—however well-established—presents a fine and safer opportunity for brands or businesses to own them as house marks. This has become very necessary in an age where brands compete to set their identity apart from the competition. So apart from the legal rights that will be granted to startups or businesses upon registration, knowing the specific registerable identifiers will place it in the public consciousness as an authority in the market.

 

Conclusion

While big brands or startups may choose to proceed with the use of unregistered marks in Nigeria without registration they cannot absolve themselves of the attendant consequences and liabilities that accrue—ranging from loss of revenue to negative impact on strategic partnerships, licensing roadblocks to lost rights, inability to move into new markets legally to reduced customer loyalty and increased customer confusion. 

In the event of an infraction by a third party, it is likely that the unregistered trademark might have gained goodwill and reputation in the Nigerian market thereby entitling a proprietor to institute an action in passing off. Notwithstanding, this is not advisable. We consider them serious risks. Making your startup brand a valuable intangible asset starts with having a trademark strategy. This should finely align with your business goals and risks. Early in the game, big brand or small brand, always consult an IP lawyer or law firm to help with IP portfolio assessment and IP monetization. This is part of what I do at Infusion Lawyers.

  1. The 2021 Trademark Ecosystem Report: Global insights into the optimization of trademark value, protection and technology, Clarivate, 2021, 3
  2. Trade Marks Act Cap T 13 Laws of the Federation of Nigeria 2004
  3. Caps M10 LFN 2004
  4. Section 3 of the Act
  5. 34 NIPJD [SC 1991] 12/1989
  6. The 2021 Trademark Ecosystem Report: Global insights into the optimization of trademark value, protection and technology, Clarivate, 2021, 7
  7. [1977] 1 A.N.S.L.R 144
  8. 41 NIPJD [SC. 1998] 257/1990
  9. The 2021 Trademark Ecosystem Report: Global insights into the optimization of trademark value, protection and technology, Clarivate, 2021, 18
  10. 31 NIPJD [SC. 1988] 189/1987
  11. 46 NIPJD [SC. 2003] 116/1999, Re-examined in SC. 176/2003
  12. 43 NIPJD [SC. 2000] 57/1995

9 Comments

9 thoughts on “Why Businesses Must Avoid Use of Unregistered Trademarks: Risks and Threats to Brand Protection in Nigeria
  1. This is very nice Gabriel. Really enlightening.
    More grease to your elbow.

  2. Enlightening. Thanks, Gabriel!

    1. My pleasure, Ebere. I’m glad the piece meets your needs.

  3. Welldone, dear Gabriel.

    1. Thank you for your kind wishes, Amarachi.

  4. This is finely done, as always. Well done, Gabriel.
    I think the primary limiting factor especially for startups in registering their trademarks, apart from the knowledge of it’s importance, is the finance to see it through.
    Are there any options that small businesses can explore to ensure that they register their trademarks early, and at the same time be able to bear conveniently the financial cost?

    Also, being a startup whose business name is not popular yet, let alone it’s trademarks, I think it is also a challenge and a fear of whether it is not too early to go for the registration. Keep in mind that in it’s fledgling state, the business’s primary concern is to be stable and viable.

    How can these concerns be addressed, in order for startups to take advantage of that which you have beautifully presented in this article?

    1. Thanks a lot, Paul for your kind remarks.

      Regarding your first question, I presume that we are referring to startups who genuinely face financial constraints, not startups that simply relegate legal or IP matters to the bottom of the budget, if included at all. For financially-constrained startups, there are a few ways they can minimize the the undue use of their brands through contractual arrangements but such ways are obviously limited because they do not apply to third parties. And as I tried to point out in my piece above, relying on a passing-off action to protect your unregistered mark is highly risky. So I would advise that you either register the mark or take adequate steps to not use the mark publicly until you are ready to protect it under the Trademarks Act.

      On your second question, it is advisable to register your mark as early as possible as long as the mark is distinctive. While some distinctiveness may be achieved through use, word, icon, sign, symbol, etc may in itself be distinctive, and consequently qualify for registration. So I advise that startups trademark their brand early in the game.

      1. Once again, thank you very much.

        I think your response does justice to the concerns I have raised.

        It’s always a mind-enriching time when your work is read. God bless you.

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