An overview of Indonesia's legal environment

Amid increasing awareness of the significance of intellectual property (IP) in today’s digital economy, we have witnessed some promising developments in Indonesia’s IP regulatory framework in recent years.

Since 2014 the government has passed new laws on copyright, patents and trademarks. Although the mechanisms of IP enforcement and legal enforcement remain problematic, the Trademark and Geographical Indications Law No. 20 of 2016 (2016 Law) was warmly welcomed by Indonesia’s IP players. The new law includes specific provisions on geographical indications, which were previously scattered across separate regulations.

The long-awaited implementing regulation concerning trademark registration has also finally been issued. Minister of Law & Human Rights Regulation No. 67 of 2016 (Regulation 67) addresses several crucial issues, including the protection of well-known marks for both similar and dissimilar goods or services.

This article focuses on some of the possible practical implications resulting from the changes in light of the 2016 Law and Regulation 67, particularly those affecting trademark protection against bad-faith registrations and trademark “squatters”. Unfortunately, and despite many positives, the new law retains some of the flaws from its predecessor, which may perpetuate or even worsen the recurring issues of bad-faith registration and trademark squatting to the detriment of brand owners and the trademark protection system in Indonesia.

REGISTRATION CHANGES & POTENTIAL ISSUES: undefined The 2016 law simplifies the requirements and procedures for trademark registration, which now consists of two stages: the pre-substantive examination process and the substantive examination itself.

FILING DATE & PUBLICATION: Article 13 of the 2016 Law provides that a trademark application will be granted a filing date once all the minimum requirements are met. The application will then qualify for publication in the Official Gazette for two months. A written opposition (on relevant grounds under the law) may be raised during the publication period, after which the application proceeds to substantive examination. This is a significant procedural change, and in theory, should speed up the registration process. However, it may also present some practical issues and unwanted implications, particularly with regard to bad-faith registrations and trademark squatting.

Apparently, the first stage of application boils down to formalities only, and there may be few or no checks carried out on the substance of the application, or whether it has been made with a bona fide intent to use the mark in commerce.

Again, while this simplified process does benefit legitimate applicants, trademark squatters may also exploit it, resulting in more bad-faith registrations, which in turn compounds the backlog at the Directorate General of Intellectual Property, effectively blocking bona fide registrations.

Consequently, trademark owners must now routinely monitor the Official Gazette for any potentially offending applications and respond accordingly.

SUBSTANTIVE EXAMINATION: During the substantive examination stage, examiners rely mainly on Articles 20 and 21 to approve or refuse applications. Under Article 20, a mark is not registrable if:

• It contravenes state policy, laws and regulations, morality, religion, decency or public order;

• It is similar to, related to or merely describes goods or services listed in the application;

• It lists elements which may mislead the public concerning the origin, quality, type, size, kind or purpose of the goods or services, or it constitutes a protected plant variety for goods or services of the same type;

• It lists information which does not correspond to the quality, benefit or efficacy of the goods or services;

• It is non-distinctive; or

• It is a generic name or public symbol. Further, Article 21 categorises grounds for refusal of an application into the following:

• Similarity (whether essentially or entirely) to: ◊ Other registered marks or previously applied marks which have been approved for registration in the same category of goods or services; ◊ Well-known marks in the same category of goods or services; ◊ Well-known marks for dissimilar goods or services, subject to certain conditions; or ◊ Registered geographical indications;

• Constituting or imitating, without consent: ◊ Names or initials of famous persons, photographs or names of corporate bodies; ◊ Names or initials, flags, symbols or emblems of states or national or international bodies; or ◊ Signs or official stamps used by state or government bodies; and

• Bad-faith registrations.

EXAMINATION STAGE: Despite a few changes and additions, these provisions are almost identical to those of the old law, so the principles and grounds upon which the decision to approve or deny an application are already clear. However, since the pre-substantive examination stage deals only with each application’s formalities, articles 20 and 21 will unlikely be taken into consideration until the substantive examination stage. Hence, brand owners that fail to file an opposition during the publication stage must rely solely on the examiners’ application of the two articles in the substantive examination stage. In addition, Article 23 affirms that any opposition or rebuttal (raised during the publication stage) will serve as a consideration in the substantive examination.

The experienced examiners at the Directorate General of Intellectual Property Rights should easily spot blatant bad-faith registrations violating articles 20 and 21 during substantive examination, particularly where these involve registered marks, well known or otherwise. However, given the persisting backlog issue and potential influx of new registrations, bad-faith registrations may still slip through the cracks even at the substantive examination stage, especially where they attempt to imitate unregistered marks.

If a brand owner fails to file an opposition against an offending application within the prescribed time, it may have to opt for litigation, the outcome of which has thus far been rather unpredictable, even for cases involving similar or identical legal issues, some of which are discussed below.

It is thus prudent for brand owners to err on the side of caution by monitoring the Official Gazette regularly and acting swiftly and appropriately with regard to any potentially infringing applications during the pre-substantive examination stage.

UNREGISTERED MARKS: Indonesia is a civil law jurisdiction that follows a first-to-file system. Thus, registered marks enjoy stronger protection, while trademark protection accruing from common law rights and unfair competition practice is practically non-existent. However, there has been a promising shift when it comes to recognising – to a certain extent – the rights of owners of unregistered marks, particularly where the mark is well known.

In 2015 the owner of a foreign unregistered trademark successfully opposed a locally published trademark. The opposition raised Article 6(1)b of the previous trademark law (now contained in Article 21(1) of the 2016 law) on similarities to well-known marks as one of the grounds on which registration should be refused. The opposition also relied on foreign trademark registrations in various countries – a key element when it comes to protecting well-known marks, as cited in the article’s explanatory note.

Under the 2016 law, the first-to-file system still applies. As with the previous law, the exclusive rights to a mark are recognised and extended to registered marks only. That said, the 2016 law introduces another degree of protection for unregistered marks.

First, as with the old law, Article 76 allows owners of unregistered marks to file a cancellation lawsuit after submitting a petition to the minister of law and human rights. In addition, the article’s explanatory note further defines “owners of unregistered marks” as good-faith owners of unregistered marks or owners of unregistered well-known marks.

Moreover, the 2016 law adds a new paragraph – Article 83(2) – allowing the owner of an unregistered well-known mark to file a lawsuit against an alleged trademark infringer on the basis of a court decision. The explanatory note confirms that this particular paragraph is intended to provide protection for owners of unregistered well-known marks.

However, there are some concerns that this provision may not work as intended or may pose challenges in practice, since the legal standing of a brand owner in a lawsuit is questionable if the brand has not been registered in Indonesia.

It thus remains to be seen how this new provision will work in practice. Moreover, when it comes to protection for well-known marks for dissimilar goods or services, Regulation 67 requires registration as one of the conditions specifically for dissimilar goods or services. In any case, Regulation 67’s provisions on well-known marks-related matters will likely serve a key role in future cases involving unregistered marks.

As in most jurisdictions – both civil and common law – unregistered marks are considerably weaker from the standpoint of legal protection, and trademark registration is still a vital tool when it comes to protecting one’s brand. Certainly, this should be a priority for brand owners entering the Indonesian market. Although the 2016 law embraces unregistered marks, while they remain unregistered, there is a danger that potentially infringing registrations may escape the examiners’ scrutiny.

GENERIC MARKS: The 2016 law allows new applications for generic names derived from so-called genericised registered marks (marks that have become generic descriptors of the class of goods, such as aspirin or escalator, over time through usage and hence lost protection), provided that the applicant adds a distinguishing element to it (Article 22).

By comparison, in the US the parameters for genericness have been well established through numerous case precedents. Further, while a registered mark may be cancelled under US law due to genericide, the brand does not then become available for registration by other parties. In Indonesia, the new law does not require a cancellation proceeding before a genericised mark can be registered. The law also contains no further parameters or guidance on how and when a mark becomes generic, despite the lack of precedents in Indonesian case law.

Many famous brands – both local and foreign – have been widely used by the general public in Indonesia to describe certain classes of goods, from food to electronics, which in turn may expose these brands to genericide and make it appear that they are available for registration. Thus, brand owners – particularly owners of famous brands – must now actively develop the means or enhance existing measures to educate the public (as Lego and Xerox have done) to prevent their trademarks from becoming generic.

PROTECTION OF WELL-KNOWN MARKS: A number of lingering issues currently pose substantial challenges for owners of well-known marks in Indonesia, affecting both identical or similar goods and dissimilar goods. Firstly, there was a regulatory gap in the trademark regime which significantly diminished protection for famous marks, particularly for dissimilar goods or services, leaving their fate mostly to the discretion of the courts.

Secondly, Indonesia has a long history of trademark squatting; that is bad-faith registrations of well-known marks by locals for the purpose of selling them back to legitimate owners once these enter the Indonesian market. These so-called trademark entrepreneurs hold portfolios of foreign marks with no intention of using them in actual commercial activities. In the early 1990s it could cost brands between $10,000 and $100,000 to buy back their own marks, depending on their popularity.

Some foreign brand owners ended up paying this cost to avoid lengthy and costly legal battles, while others fought back in court. As the case law and substantial prior registrations in the trademark registry indicate, trademark squatting remains an issue, especially for famous foreign brands.

Lastly, there is the litigation challenge. Since the breakthrough Tancho case in 1972, several landmark decisions have set strong precedents for well-known marks, thereby making the argument as to whether a disputed brand is famous and whether the local registration was made in bad faith relatively straightforward, particularly for well-known marks concerning goods or services of the same kind, for example Nike, Giordano, Cannonmate and Cornetto. Some court decisions concerning bad-faith registration of dissimilar goods have also upheld Article 16(3) of the World Trade Organisation’s Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) to fill the regulatory gap (e.g., Morgan and Nokia). Unfortunately, from time to time we still find controversial and opposed decisions over similar cases which deviate from the established precedents.

SUPREME COURT DECISIONS: Two cases exemplifying the unpredictability of the courts when it comes to disputes over well-known marks involve German automobile company BMW and Italian luxury fashion brand Prada.

In the first case, BMW filed a cancellation lawsuit against registration of the trademark “BMW Body Man Wear” in class 25 (clothing articles). As the court of first instance, the Commercial Court ruled that the local mark had essential similarities to the German BMW brand, and the registration had thus been made in bad faith to freeride on the well-known status of the BMW brand. However, the Supreme Court overturned this decision and declared that the local defendant had committed no trademark infringement on the basis of a 2015 Supreme Court circular.

The circular maintains that any cancellation lawsuit that arises from alleged essential similarities to well-known marks involving dissimilar goods or services should be dismissed given the absence of any relevant implementing regulation – under the old trademark law – for such matters. The Supreme Court then further found that “past Supreme Court precedents of cases involving trademark dispute of dissimilar goods should no longer be upheld”.

The enforceability of a Supreme Court circular is controversial in and of itself among Indonesian legal scholars and practitioners, and its application in trademark disputes negates the TRIPs provision.

Nevertheless, another decision made by the Supreme Court upheld the Commercial Court’s decision, which ruled that the local registration of the mark “The Rich Prada” (in class 43 for a hotel) was essentially similar to the well-known mark Prada and thus liable to create confusion. There was a dissenting opinion; one of the judges sided with the local plaintiff, which argued that the Italian brand Prada is a well-known mark for fashion items, which are not similar to the hotel and restaurant services provided by The Rich Prada – hence, there could be no confusing similarity between the two. Given these inconsistencies, brand owners should always take preventative measures to protect their trademarks lest they get involved in burdensome litigation.

TRADEMARKS IN THE LAW: In IP law, well-known trademarks generally enjoy broader protection covering not only identical goods or services (e.g., infringing use of the Rolex trademark in timepiece products) but also extending to dissimilar goods or services (e.g., infringing use of the Rolex trademark beyond timepiece products, for instance, in home appliances). Previous Indonesian trademark laws contained no clear guidelines on the protection of well-known marks for dissimilar goods or services, as this was intended to be dealt with by a separate government regulation. However, that regulation was never issued, and the resulting gap has led to some inconsistent court decisions.

For instance, Ikea lost to a local manufacturer of ceramic tiles using the brand Ikema (registered in class 19). The Supreme Court simply pointed to the absence of the government regulation on well-known marks concerning dissimilar goods and declined to apply Article 16(3) of TRIPs to fill the legal void.

Another example concerns the Baby Dior brand, where luxury goods company Christian Dior lost a trademark cancellation lawsuit against the locally registered (in classes 12 and 20) Baby Dior mark. The local defendant claimed that the brand was an acronym for “Benar-benar Ada, Bagus, Yahud, Dia Itu Orang Riang”, which translates as “it really exists, good, extraordinary, he is a jovial person”.

2016 PROVISIONS: Unlike the old law, the 2016 law clearly states that similarity (either essentially or entirely) to well-known marks for dissimilar goods or services is a ground for refusal (Article 21(1)c), whereas the old law stated merely that refusal might also extend to dissimilar goods and services (subject to certain conditions). The new law still requires certain conditions to be met and similarly passes on the matter to an implementing regulation, although this has in fact been issued. Previously, there was no clear guideline governing the protection of well-known brands of dissimilar goods or services apart from Article 16(3) of TRIPs, which is not always upheld.

REGULATION 67: Although long overdue, the newly issued Regulation 67 is very welcome, given its significance. It provides further details on the 2016 law’s provisions concerning registration, including issues related to well-known marks, particularly matters relating to bad-faith registration based on similarities to registered trademarks or well-known trademarks.

As to determination of well-known marks, in addition to several new provisions, the regulation incorporates the provisions of the 2016 law and some paragraphs from the World Intellectual Property Organisation’s joint recommendation concerning the protection of well-known marks.

Similar to this, Regulation 67 provides that one of the factors in determining whether a mark is well-known is the degree of knowledge or recognition it enjoys in the relevant sector of the public, whether at the level of production, promotion, distribution or sale of goods or services bearing the well-known mark. The regulation then further sets out the factors to be considered in determining whether a mark is well known, as follows:

• The degree of knowledge or recognition in the relevant sector of the public;

• Sales volume and profit gained from goods or services through use of the mark;

• The brand’s market share in relation to the distribution of goods or services;

• The geographical extent of use of the mark;

• The duration of use of the mark;

• The intensity and promotion of the mark, including investment in promotion;

• Registration or application for registration of the mark in other countries;

• The degree of success of trademark law enforcement, particularly recognition of the mark as a well-known mark; and

• The brand value gained from reputation and quality assurance of the goods or services bearing such brand. These factors will also be considered in determining refusal of an application due to similarities to well-known marks for both identical or similar goods or services and dissimilar goods or services.

FURTHER REQUIREMENTS: For dissimilar goods, Article 19(3) sets out two additional requirements: the well-known mark owner’s written opposition to the application at issue and registration of the wellknown mark. Prior registration is thus paramount for mark owners if they are to argue their case against potentially infringing applications for dissimilar goods or services. Otherwise, there may be little to no basis for the examiners to deny potentially infringing applications filed in different classes despite any bad-faith red flags. Although this regulation should end the uncertainty caused by the Supreme Court circular, brand owners that fail to register their marks and file an opposition against the offending application may stand little chance for success in litigation against infringers, as the judges will mainly consider those two requirements when deciding on the case.

CONCLUSION: The 2016 law and Regulation 67 introduce some long-awaited improvements which may enhance the regulatory framework for trademark prosecution and protection in the country, particularly for new businesses, thanks to a simpler registration and publication process.

However, some flaws do still remain which, if left unchecked, may perpetuate issues of bad-faith registrations and trademark squatting. Considering the potential extra challenges and burdens for owners of trademark, and without going into the litigation challenge as seen from the existing precedents, it remains challenging to protect brands in Indonesia.

Given this, brand owners now need to devise additional measures and improve their IP asset protection and management systems in order to keep their trademarks in good legal standing in Indonesia and to avoid the risk of finding themselves on the wrong side of the law and losing their brands altogether.