Fighting Trademark Squatters: Bad Faith Invalidation at Indonesia’s Commercial Court (Article 21(3))

Indonesia’s first-to-file system creates a structural vulnerability that trade mark squatters have long exploited: register a foreign brand name first, then either block the legitimate owner or demand a transfer payment. The primary legal weapon available to victimised brand owners is Article 21(3) of Law No. 20 of 2016 on Marks and Geographical Indications (the Trademark Law), which provides that an application shall be refused if it is submitted by an applicant in bad faith. When a bad faith registration has already been granted, the mark can be invalidated through proceedings at Indonesia’s Commercial Court (Pengadilan Niaga).

The Legal Framework: Article 21(3)

Article 21(3) states simply: “An application is refused if it is submitted by an applicant in bad faith.” The Trademark Law does not provide a detailed definition of “bad faith,” but its Elucidation explains that bad faith includes actions by an applicant who has an intent to imitate, copy, or follow the trade mark of another party for the purpose of their own interest, to the detriment of consumers or to create unfair business competition.

During the DGIP’s substantive examination, examiners may refuse applications that are clearly filed in bad faith — particularly where the mark is identical or nearly identical to a well-established or well-known mark. However, in practice, identifying bad faith during examination is challenging, as the DGIP relies primarily on the register and available evidence rather than investigating the applicant’s subjective intent. Many bad faith registrations therefore proceed to registration and must be challenged afterwards.

Post-Registration Invalidation: Articles 76 and 77

When a bad faith registration has been granted, the legitimate brand owner can file an invalidation lawsuit at the Commercial Court under Article 76 of the Trademark Law. The grounds for invalidation include violations of Articles 20 and 21 — encompassing both the absolute grounds (non-distinctiveness, descriptiveness) and the relative grounds (similarity with prior marks, well-known marks, and bad faith).

The critical provisions regarding timing are found in Article 77:

• Article 77(1): An invalidation lawsuit must generally be filed within five years from the date of the trade mark registration.
• Article 77(2): Where the invalidation is based on bad faith, or the mark contravenes state ideology, laws, morality, religion, decency, or public order, the lawsuit may be filed without any time limitation.

This unlimited time period for bad faith invalidation is one of the most powerful provisions available to foreign brand owners. Even if a squatter’s registration is decades old, it can be challenged if bad faith is proven.

Proving Bad Faith at the Commercial Court

Because the Trademark Law does not define bad faith in detail, the Commercial Court relies on a combination of statutory indicators, case law, and circumstantial evidence. The key factors the court considers include:

• Knowledge of the prior mark: Evidence that the applicant was aware of the legitimate owner’s mark before filing. This can be established through industry connections, prior business dealings, travel to the mark’s home market, or the mark’s international visibility.
• Degree of similarity: Filing a mark that is identical or near-identical to a foreign brand, particularly one with no independent creative justification, is strong circumstantial evidence of copying.
• No legitimate commercial purpose: The applicant has no independent business reason for adopting the mark and no history of use or preparation for genuine commercial activity under it.
• Pattern of squatting: Evidence that the applicant has filed multiple marks corresponding to foreign brands suggests a systematic strategy of squatting rather than independent creation.
• Demand for payment: An offer to sell, transfer, or license the mark back to the legitimate owner is strong evidence of dishonest intent.
• Prior relationship: If the squatter was a former agent, distributor, licensee, or business partner of the legitimate owner, the inference of bad faith is particularly strong.

Unregistered Mark Owners: Article 76(2)

A notable feature of the Indonesian system is Article 76(2), which allows owners of unregistered marks to file invalidation lawsuits — provided they first submit a trade mark application to the DGIP. This means that a foreign brand owner who has never registered in Indonesia can still challenge a squatter’s registration, as long as they file their own application before commencing the court proceedings.

This provision is particularly important for brands that have been squatted before they had an opportunity to file in Indonesia. It provides a pathway to enforcement that does not require a pre-existing Indonesian registration.

The Commercial Court Process

Invalidation lawsuits are filed at the Commercial Court (Pengadilan Niaga), which has specialised jurisdiction over intellectual property disputes. The process involves:

• Filing the lawsuit: The plaintiff must submit the claim with supporting evidence to the Commercial Court with jurisdiction over the defendant’s domicile.
• Trial proceedings: The Commercial Court examines evidence, hears witnesses, and considers the arguments of both parties.
• Decision: The Commercial Court renders a decision on the validity of the registration.
• Appeal: The losing party may file a cassation appeal directly to the Supreme Court (Mahkamah Agung). There is no intermediate appellate court for Commercial Court decisions.

Strategic Recommendations

• Gather evidence of the squatter’s knowledge: The most effective bad faith cases demonstrate that the squatter knew of the legitimate mark before filing. Collect evidence of the mark’s international presence, industry exposure, and any connections between the squatter and the brand owner.
• Act quickly, but remember there is no time limit: While prompt action is always advisable, the unlimited filing period under Article 77(2) means that even old registrations can be challenged on bad faith grounds.
• File your own Indonesian application: Under Article 76(2), unregistered mark owners must file their own application before commencing invalidation proceedings. Do this as early as possible.
• Document the squatter’s pattern: If the squatter has filed multiple marks corresponding to foreign brands, compile this evidence. Pattern evidence is highly persuasive in bad faith cases.
• Engage experienced Indonesian IP counsel: Commercial Court proceedings require deep knowledge of Indonesian procedural law and evidentiary standards. Local expertise is essential.

Common Mistakes

• Assuming bad faith is impossible to prove: While challenging, circumstantial evidence — identical copying, no legitimate use, demand for payment, pattern filing — can build a compelling case.
• Waiting beyond five years to challenge (for non-bad-faith grounds): If the invalidation is based on similarity with a prior mark (rather than bad faith), the five-year time limit under Article 77(1) applies strictly.
• Neglecting to file an Indonesian application first: Unregistered mark owners must file their own application before commencing court proceedings under Article 76(2).
• Paying the squatter without exploring legal options: While commercial settlement is sometimes pragmatic, paying squatters emboldens further squatting. Evaluate the legal options before negotiating.

Key Takeaway

Article 21(3) and the associated invalidation provisions under Articles 76 and 77 provide foreign brand owners with a genuine legal pathway to fight trade mark squatters in Indonesia. The unlimited time period for bad faith invalidation is a powerful tool, and the ability of unregistered mark owners to commence proceedings (after filing their own application) ensures that even brands without a prior Indonesian registration can seek redress. However, proving bad faith requires careful evidence gathering and skilled litigation at the Commercial Court. The most effective strategy combines proactive registration with vigilant monitoring and a readiness to enforce when squatting is detected.