AN EXAMPLE OF DUE DILIGENCE OF A COMPANY PARTNER: A CASE OF CANCELLATION OF THE TRANSFER OF THE TRADEMARK
Attorney HALDUN BARIŞ
In 2021, with the investigation initiated against the general manager of our client company for “trademark infringement“, we learned that one of the partners of the company transferred the trademark used by the client company to his own company several years ago. We on our part, filed a lawsuit regarding the “cancellation of the trademark transfer“. In this concrete case, one of the company’s partners, through the former manager, who he authorized and cooperated with by granting him the power of attorney, transferred the company’s trademark to his own personal company for a symbolic fee. Years later, he sent a warning to the company asking that the trademark should not be used and immediately filed a complaint and led to the initiation of criminal proceedings against our client.
During the prosecution phase, the case of “cancellation of the trademark transfer”, which we filed in the Sivas Civil Court of First Instance, was made a pending case. In the lawsuit we filed in Sivas Civil Court of First Instance, our main arguments were that the transfer of the company partner was made with malice, that a significant value of the company could not be transferred without the approval of the partners, and that the transfer contradicted the due diligence rule of the company partner and the attorney. In addition to various high judicial decisions on the subject, we also added the following European Court On Human Rights’ decision regarding our petition:
“In the concrete case, European Court on Human Rights based its determination that Mr R acted maliciously when making the application on the documents submitted by the LLR-G5 company. As it is understood from these documents, although Mr. R is the company manager, he has registered the core element of the company’s trade mark in his own name without informing and consulting the company itself. Mr. R has knowingly placed his personal interest above the interest of the company and knows that he can seriously harm the company by preventing the company from operating using this tademark. Although the “intention” evaluation at the time of the application is a subjective concept, it is possible to reach a conclusion as a result of the evaluation of the objective conditions of the situation. Accordingly, all tangible conditions such as (i) the concrete actions of the applicant by virtue of his/her position, (ii) the level of awareness of the previous use of the trade mark in question, (iii) the contractual, pre-contractual and post-contractual relationship with the applicant for invalidity, (iv)mutual rights and obligations, (v) the obligation of loyalty and honesty by virtue of his/her current or previous duty within the company, and (vi) the conflicting table of interests as regards to the tademark are taken into account. “(https://curia.europa.eu/juris/document/document.jsf?) (European Court of Human Rights decision dated 16 JUNE 2015 T306/13)
The case was finalized in our favor. I submit to the benefit of our colleagues that the reasoning part of the decision made by the local court is very important:
Based on the reasons of “taking action without taking the decisions required to be taken by the competent bodies of the plaintiff company and misuse of the power of attorney”, The 2. Notary of Sivas province requested the cancellation of the trademark transfer with registration number 2012 … with the invalidity of the trademark transfer agreement made with the transaction dated March 2, 2020 and the defendant’s attorney claimed that the transfer transaction was in accordance with the procedure.
Evidently, according to the provisions of the Turkish Code of Obligations regulating the representation and power of attorney, the power of attorney agreement is largely based on the mutual trust of the parties. Most of the attorney’s responsiblities arise from this element of trust, his obligation to act in accordance with the interest and will of the attorney. In the Turkish Code of Obligations numbered 6098 (TBK), the duty of loyalty and due diligence is accepted as the principal debt of the attorney, and in Article 506, it is stated that “The attorney shall perform the attorney’s responsibilities in person
Ankara Bar Association, Seyhan Law Office, 14.06.2023
. However, in cases where the attorney is authorized to do so or when there’s no other choice or the practice makes it possible, the attorney may pass the job to someone else. The attorney is obliged to carry out the his duties with loyalty and due diligence, taking into account the legitimate interests of the client.
In determining the responsibility of the attorney arising from the due diligence factor, the behavior of a prudent attorney who works in a similar field is taken as a basis. “
On the other hand, if the person who makes the contract with the proxy has good intentions within the context of Article 3 of the Turkish Civil Code No. 4721 (TMK), that is, if he does not know that the proxy is abusing his power or if he does not have the opportunity to know despite the care expected from him, his contract with the proxy is valid and binding. Even if the proxy misuses his/her power of attorney, this issue remains an internal problem between the proxy and the client and cannot be effective on the rights earned by the proxy and client. However, if the third party has an interest in the attorney and cooperates with the attorney, or if the attorney is malicious and knows or needs to know that the attorney has abused his/her power of attorney, the fact that the attorney is not deemed to be bound by the contract should be considered as a natural result of the rule of honesty written in Article 2 of the Turkish Civil Code. Since the aforementioned article of the law is mandatory, it must be taken into consideration by the judge (ex officio). On the contrary, encouraging bad intent would at least be to turn a blind eye on it. However, in all contemporary legal systems, malice has not been defended and has always been condemned. As a matter of fact, lots of scientific opinions as well as practices in this regards have developed and gained certainty. (District Court of Ankara 7. Civil Chamber no. 2018/966E-2020/698 K)
When the information in the above-mentioned regional court decision and the scope of the file are evaluated together, it is seen that the trademark “…” with the trademark number 2012 …. registered on 06/08/2013, which is the subject of the lawsuit, was transferred to the defendant company, where the plaintiff company’s official was his/her own official, for a very small and unacceptable fee of 250.00 TL, that the said transaction was clearly an abuse of power of attorney, that the defendant company had a malicious intent is crystal clear, It was decided to cancel the transfer process subject to the lawsuit by considering that it will not bind the plaintiff company in accordance with the article 2. of the Turkish Civil Code “
SİVAS 3. CIVIL COURT OF FIRST INSTANCE (IN THE CAPACITY OF INTELLECTUAL AND INDUSTRIAL RIGHTS CIVIL COURT) E. 2021/505 K. 2023/379
On the other hand, I believe it would be useful to share here the high judicial decisions we have submitted to the file in order to set a precedent for the case:
“because the trademark subject to the lawsuit includes the trade name of the plaintiff company and is vital for the company to continue its existence, and the decision regarding the acceptance of the lawsuit on the grounds that the transfer of the said trademark of the plaintiff to the defendant company by İlhan, who is the manager in both companies, cannot be considered compatible with the obligation of loyalty and due diligence, the cancellation of the transaction regarding the transfer of the trademark”Eser İnşaat ve Ticaret A.Ş. + Figure”, and the cancellation of the registration of the transfer in Turkish Patent Institute were approved by our chamber upon the appeal of the defendant’s attorney.” Supreme Court of Appeals 11. CIVIL DEPARTMENT E. 2010/9098 K. 2010/10255 T. 14.10.2010;
“If there is no article in the articles of association of the company stating that trademark transfer works will be dealt with and if the said trademark is important for the company’s activity, it is accepted that the transfer of the trademark can be made by the decision of the board of partners” Court of Cassation 11. HD dated 13.02.2006, 2005/1362 E. and 2006/1253
According to the provisions of the law and the articles of association of the company, as a rule, it is necessary to accept that the director authorized to represent the company may dispose of a company’s assets. However, if it is determined that this asset is the only asset owned by the company and is of vital importance for the company to continue its existence, a decision must be taken from the board of shareholders in order for the said commitment to transfer to be valid. In fact, although the issue explained has been accepted by the court, there has not been sufficient research and examination to make a judgment within this framework. Because, as it is understood from the letter sent by Turkish Patent Institute that the plaintiff company has another trademark registered in the same classes other than the trademark subject to the lawsuit, there has not been a suitable examination as to whether the trademark in question is of vital importance for the plaintiff company to continue its existence. ” Supreme Court of Appeals 11. HD E. 2013/1107 K. 2014/7690 T. 18.4.2014