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Selective Distribution and Online Marketplace Restrictions: the EU Coty Prestige case

By Giuseppe Colangelo

The online sales phenomenon – and all the issues deriving from vertical restraints – has attracted significant attention in recent years in several EU Member States. This attention arises mainly from a question regarding the extent to which restrictions limiting the ability of retailers to sell via online marketplaces are compatible with competition rules.

The findings of the recent E-commerce Sector Inquiry [COM (2017) 229 final] indicate that absolute marketplace bans should not be considered to be hardcore restrictions within the meaning of Article 4(b) and Article 4(c) of the Vertical Block Exemption Regulation (330/2010). However, as recalled by the Commission, this approach has been affirmed pending the CJEU’s decision in the Coty Prestige case.[1] Indeed, the Higher Regional Court of Frankfurt am Main essentially asked the EU Court of Justice (CJEU) whether a ban on using third party platforms in a selective distribution agreement is compatible with Article 101(1) TFEU and whether such a restriction constitutes a restriction of competition by object.

No wonder Coty was so anticipated. The judgment is expected to shape the future of EU e-commerce affecting online markets, the luxury industry and Internet platforms.

The request for a preliminary ruling has been submitted in the context of a dispute between a supplier of luxury cosmetics (Coty Germany) and its authorized distributor (Parfümerie Akzente), concerning the prohibition, under the selective distribution agreement, of the use of third-party undertakings for Internet sales. In particular, Parfümerie Akzente distributes Coty goods both at its brick-and-mortar locations and over the Internet. In the latter case, sales are carried out partly through its own online store and partly via the Amazon platform.

According to Coty, the selective distribution system is required in order to support the luxury image of its brands. In this respect, the selective distribution agreement, as it pertains to Internet sales, provides that the authorized retailer is not permitted to use a different name or to engage a third-party undertaking which has not been authorized. The dispute at issue arose when Parfümerie Akzente refused to sign amendments regarding Internet sales activity. They prohibited the use of a different business name and the recognizable engagement of a third-party undertaking which is not an authorized retailer of Coty Prestige. Thus, according to these amendments, the authorized retailer is prohibited from collaborating with third parties if such collaboration is directed at the operation of the website and is affected in a manner that is discernible to the public.

In response to the action brought by Coty to prohibit Parfümerie Akzente from distributing products via Amazon, the German court of first instance found that, in accordance with Pierre Fabre ruling (C-439/09), the objective of maintaining a prestigious image of the mark could not justify the introduction of a selective distribution system which restricts competition. Further, according to the national court, the contractual clause at issue constituted a hardcore restriction under Article 4(c) of the Regulation. It did not meet the conditions for an individual exemption, since it has not been shown that the general exclusion of Internet sales via third-party platforms entails efficiency gains that offset the disadvantages for competition that result from the clause. Moreover, the court considered such a general prohibition unnecessary, since there were other equally appropriate but less restrictive means, such as the application of specific quality criteria for the third-party platforms.

In these circumstances, the Oberlandesgericht Frankfurt am Main requests a preliminary ruling asking: (i) whether selective distribution networks aimed at preserving the image of luxury goods are caught by the prohibition laid down in Article 101(1) TFEU; (ii) whether, in the same context, Article 101(1) precludes a contractual clause which prohibits authorized distributors from using, in a discernible manner, third-party platforms for Internet sales, without consideration of whether there is any actual breach of the legitimate requirements of the manufacturer in terms of quality; (iii and iv) whether Article 4(b) and (c) of the Regulation must be interpreted as meaning that such a third-party platform ban constitutes a restriction by object of the retailer’s customer group or of passive sales to end users.

The questions reflect the diverging interpretations of Pierre Fabre by the national competition authorities and courts. Thus, the case provides the CJEU with the opportunity to clarify the meaning of Pierre Fabre.

 

Sidestepping Pierre Fabre

By answering the first question, the CJEU recalls that since Metro (C-26/76 and C-75/84), the Court has recognized the legality of selective distribution networks based on qualitative criteria. Notably, according to the conditions set by the case law to ensure the compatibility of a selective distribution network with Article 101(1) TFEU, resellers must be chosen on the basis of objective criteria of a qualitative nature, which are determined uniformly for all potential resellers and applied in a non-discriminatory manner; the characteristics of the product necessitate such a selective distribution network in order to preserve its quality and ensure its proper use; the criteria defined must not go beyond what is necessary.

In the context of luxury goods, it follows from the case law that, due to their characteristics and their nature, those goods may require the implementation of a selective distribution system in order to preserve their quality and to ensure that they are used properly. Indeed, as highlighted by the Copad judgment (C-59/08), the quality of luxury goods is not just the result of their material characteristics, but also of their allure and prestige. As prestige goods are high-end goods, the aura of luxury they emanate is essential in that it enables consumers to distinguish them from similar goods and, therefore, an impairment to that aura is likely to affect the actual quality of those goods. For these reasons, the characteristics and conditions of a selective distribution system may  preserve the quality and ensure the proper use of luxury goods. The CJEU in Copad held that the establishment of a selective distribution system which seeks to ensure that the goods are displayed in sales outlets in a manner that enhances their value contributes to the reputation of the goods, and therefore contributes to sustaining the aura of luxury surrounding them.

Therefore, once the Metro criteria are met, a selective distribution system designed primarily to preserve the luxury image of those goods is compatible with Article 101(1) TFEU. This outcome is not challenged by Pierre Fabre. The assertion contained in paragraph 46 of that case (“The aim of maintaining a prestigious image is not a legitimate aim for restricting competition and cannot therefore justify a finding that a contractual clause pursuing such an aim does not fall within Article 101(1) TFEU”) is confined to the context of that judgment and consequently does not alter the settled case law. Notably, that assertion is related solely to the goods at issue (“the goods covered by the selective distribution system at issue in that case were not luxury goods, but cosmetic and body hygiene goods”) and to the contractual clause in question in Pierre Fabre (a general and absolute ban on Internet sales). Therefore, the selective distribution system in its entirety was not at issue.

The same line of reasoning guides the CJEU’s answer to the second question, which is related to the lawfulness of a specific clause prohibiting authorized retailers from using, in a discernible manner, third-party platforms for Internet sales of luxury products.

The contractual clause must be evaluated in light of the Metro criteria. The CJEU recalls that it indisputable that the clause at issue: i) pursues the objective of preserving the image of luxury and prestige of the contractual goods; ii) is objective and uniform; iii) is applied without discrimination to all authorized retailers. Therefore, the lawfulness of the third-party platforms prohibition is a matter of proportionality. Hence, an assessment is required as to whether such a prohibition is appropriate for preserving the luxury image of the contractual goods and whether it goes beyond what is necessary to achieve that objective.

As regards the appropriateness of the prohibition at issue, the CJEU considers the contractual clause justified by the need to preserve the luxury image of the products in light of three arguments. Indeed, the third-party platforms ban is coherent with the aim of: i) guaranteeing that the contract goods will be exclusively associated with authorized distributors; ii) monitoring the qualitative criteria according to which the products are sold (the absence of a contractual relationship between the supplier and third-party platforms prevents the former from being able to require compliance with the quality conditions imposed on the authorized retailers); iii) contributing to the high-end image among consumers (those platforms constitute a sales channel for goods of all kinds, while the chief value of a luxury good lies in the fact that it is not too common).

With regard to the question of whether the prohibition goes beyond what is necessary to achieve the objective pursued, the clause at issue is clearly distinguished from the one sanctioned in Pierre Fabre, since it does not contain an absolute prohibition on online sales. Indeed, authorized retailers are allowed to distribute the contract goods online via their own websites and third-party platforms, when the use of such platforms is not discernible to consumers.

The CJEU also relies on this argument to answer the third and fourth questions raised by the referring court. Even if the clause at issue restricts a specific kind of Internet sale, it does not amount to a restriction within the meaning of Article 4(b) and (c) of the Regulation, since it does not preclude all online sales, but only one of a number of ways of reaching customers via the Internet. Indeed, the contractual clause even allows, under certain conditions, authorized retailers to advertise on third-party platforms and to use online search engines. Moreover, it is not possible ex ante to identify a customer group or a particular market to which users of third-party platforms would correspond. Therefore, the content of the clause does not have the effect of partitioning territories or of limiting access to certain customers.

In summary, in line with the position expressed by the Commission in the Sector Inquiry, the CJEU states that absolute marketplace bans should not be considered as hardcore restrictions since, contrary to the restriction at stake in Pierre Fabre, they do not amount to prohibition on selling online and do not restrict the effective use of the Internet as a sales channel.

 

Some open issues

Despite the clarity of the CJEU’s findings, there is a matter of interpretation related to the potential limitation of the judgment solely to genuine luxury products. Indeed, the CJEU also distinguishes Coty from Pierre Fabre on the grounds that the latter did not concern a luxury product: “the goods covered by the selective distribution system at issue in [Pierre Fabre] were not luxury goods, but cosmetic and body hygiene goods. … The assertion in paragraph 46 of that judgment related, therefore, solely to the goods at issue in the case that gave rise to that judgment and to the contractual clause in question in that case”.

In that respect, the wording of the CJEU is unfortunate. First, the proposed exclusion of cosmetic and body hygiene products from the luxury landscape is far from convincing. Further, the uncertainty about the scope of the ruling may generate litigation over the prestige of some goods, since national enforcers may adopt different approach and manufacturers would seek protection against online marketplace sales for products whose luxury features are questionable. Indeed, the CJEU does not define the notion of luxury, but relies on Copad, stating that the quality of such goods is not just the result of their material characteristics, but also of the allure and prestigious image which bestow on them an aura of luxury. That aura is essential in that it enables consumers to distinguish them from similar goods.

A few days after the Coty judgement, the German Federal Court of Justice, in evaluating ASICS’s online restrictions, stated that sports and running shoes are not luxury goods.[2] Previously, on 4 October 2017 the District Court of Amsterdam, referring to the Opinion of Advocate General Wahl in Coty, reached a different conclusion about Nike shoes and ruled in favor of Nike in an action against a distributor (Action Sport), which had not complied with the selective distribution policy.[3]

A narrow interpretation of the Coty judgement would be at odds with the settled case law, which holds that it is the specific characteristics or properties of the products concerned that may be capable of rendering a selective distribution system compatible with Article 101(1) TFEU. As pointed out by the Advocate General, the CJEU has already made clear that irrespective even of whether the products concerned are luxury products, a selective distribution system may be necessary in order to preserve the quality of the product. In the same vein, according to the Commission’s Guidelines, qualitative and quantitative selective distribution is exempted regardless of both the nature of the product concerned and the nature of the selection criteria as long as the characteristics of the product necessitate selective distribution or require the applied criteria. It is the properties of the products concerned, whether they lie in the physical characteristics of the products (such as high-quality products or technologically advanced products) or in their luxury or prestige image, that must be preserved.

However, the mentioned ambiguity does not seem to have a significant impact in practice. Indeed, whether or not an online marketplace ban should be considered as hardcore restrictions within the meaning of Article 4(b) and (c) of the Regulation does not depend on the nature of products. Since, according to the CJEU’s finding, absolute marketplace bans are not hardcore restrictions, a case-by-case analysis of effects will be required for both luxury and non-luxury goods.

[1] Coty Germany GmbH v. Parfümerie Akzente GmbH (C-230/16).

[2] Case KVZ 41/17.

[3] Case C/13/615474 / HA ZA 16-959.

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International Investment Tribunal Accepts Jurisdiction over Trademark Dispute involving US-company

By Gabriel M. Lentner

Background

On 13 December 2017, an international investment tribunal delivered its decision on expedited objections, accepting jurisdiction to hear the trademark dispute in the case of Bridgestone v Panama. The dispute arose out of a judgment of the Panamanian Supreme Court of 28 May 2014, in which it held the claimants liable to a competitor to pay US $5 million, together with attorney’s fees, due to the claimants’ opposition proceedings regarding the registration of a trademark (”Riverstone”). The claimants argued that the Supreme Court’s judgment weakened and thus decreased the value of their trademarks (“Bridgestone” and ”Firestone”). The tribunal rejected most of the expedited objections raised by Panama. The decision is particularly interesting because it is the first detailed exploration of the question whether and under what conditions a trademark and license can be considered covered investments.

 

Trademarks are investments

On this issue, the tribunal first followed the text of the definition of investment under the applicable investment chapter of the United States—Panama Trade Promotion Agreement (TPA) (Article 10.29 TPA). It held that the investment must be an asset capable of being owned or controlled. The TPA also included a list with the forms that an investment may take, including ”intellectual property rights”, as many BITs do (paras 164 and 166). However, the TPA also requires that an investment must have the ”characteristics” of an investment, giving the examples of commitment of capital or other resources; expectation of gain or profit; assumption of risk (para 164). The tribunal also noted that other characteristics, as those identified in the case of Salini v Morocco, are to be found, such as a reasonable duration of the investment and a contribution made by the investment to the host state’s development. In this respect, the tribunal held that “there is no inflexible requirement for the presence of all these characteristics, but that an investment will normally evidence most of them” (para 165).

In deciding this issue, the tribunal reviewed the way in which trademarks can be promoted in the host state’s market. The tribunal found that ”the promotion involves the commitment of resources over a significant period, the expectation of profit and the assumption of the risk that the particular features of the product may not prove sufficiently attractive to enable it to win or maintain market share in the face of competition.” (para 169) However, the tribunal noted that “the mere registration of a trademark in a country manifestly does not amount to, or have the characteristics of, an investment in that country” (para 171). According to the tribunal, this is because of the negative effect of a registration of a trademark. It merely prevents competitors from using it on their products and does not confer benefit on the country where the registration takes place. Nor does it create any expectation of profit for the owner of the trademark (para 171).

The exploitation of a trademark is key for its characterization as an investment (para 172). This exploitation accords to the trademark the characteristics of an investment, by virtue of the activities to which the trademark is central. It involves a “devotion of resources, both to the production of the articles sold bearing the trademark, and to the promotion and support of those sales. It is likely also to involve after-sales servicing and guarantees. This exploitation will also be beneficial to the development of the home State. The activities involved in promoting and supporting sales will benefit the host economy, as will taxation levied on sales. Furthermore, it will normally be beneficial for products that incorporate the features that consumers find desirable to be available to consumers in the host country.” (para 172)

 

Licenses are investments, too

Another way of exploiting a trademark is licensing it, i.e. granting the licensee the right to exploit the trademark for its own benefit (para 173). The tribunal then brushes aside the following counter-argument raised by Panama:

“Rights, activities, commitments of capital and resources, expectations of gain and profit, assumption of risk, and duration do not add up an ‘investment’ when they are simply the rights, activities, commitments, expectations, and risks associated with, and the duration of, cross-border sales.” (para 175)

The tribunal responded that Panama did not provide any authority for this argument and only rebuts that the “reason why a simple sale does not constitute an investment is that it lacks most of the characteristics of an investment.” (para 176 It further noted that ”[i]t does not follow that an interrelated series of activities, built round the asset of a registered trademark, that do have the characteristics of an investment does not qualify as such simply because the object of the exercise is the promotion and sale of marked goods.” (para 176).

The problem with this argument is that it is precisely the point raised by Panama that the legal requirement for characteristics of investments were developed to distinguish an investment from a mere cross-border sale of goods. Arguably, the tribunal did not explain how the characteristics related to the trademarks at issue differ from those related to the marketing of ordinary sales of goods.

Against this background, the finding of the tribunal that trademark licenses are also investments is even less convincing. Here the tribunal refers to the express wording of Article 10.29(g) of the TPA, which provides that a license will not have the characteristics of an investment unless it creates rights protected under domestic law of the host state (para 178). After reviewing the arguments and expert testimony presented during the proceedings, the tribunal concluded that the license to use a trademark constitutes an intellectual property right under domestic law (para 195), and is thus capable of constituting an investment when exploited (para 198). It reasoned that ”[t]he owner of the trademark has to use the trademark to keep it alive, but use by the licensee counts as use by the owner. The licensee cannot take proceedings to enforce the trademark without the participation of the owner, but can join with the owner in enforcement proceedings. The right is a right to use the Panamanian registered trademark in Panama” (para 195).

In conclusion, it will be interesting to see how future tribunals will deal with this question and react to the precedent set in this case.

EGC Denies Xiaomi, Inc., EU Trade Mark Registration for “Mi Pad”

By Paul Opitz

The Third Chamber of the General Court of the European Union (EGC) ruled on 5 December 2017 that the Chinese smartphone maker Xiaomi, Inc., may not register the EU word mark MI PAD for its tablet computers, since it is likely to be confused with Apple’s iPad. (Xiaomi, Inc., v. European Union Intellectual Property Office, Case T-893/16)

 

Procedural background

In April 2014, Xiaomi, Inc., (Xiaomi) filed an application for registration of an EU trade mark with the European Union Intellectual Property Office (EUIPO) to register the word sign MI PAD. Registration was sought for Classes 9 and 38 of the Nice Agreement concerning the International Classification of Goods and Services, which correspond to the descriptions of inter alia portable and handheld electronic devices and telecommunication access services.

In August 2014, Apple Inc., (Apple) filed a notice of opposition to registration of the mark in respect of all the goods and services in the applied classes. The opposition was based on Apple´s earlier EU word mark IPAD, which was filed in January 2010 and registered in April 2013, covering goods and services in the same classes. The relative grounds relied on in the opposition were those of identity with, or similarity to an earlier trademark, currently set out in Article 8 (1) (b) of Regulation 2017/1001. This opposition was upheld by the Opposition Division in December 2015, which rejected Xiaomi´s application.

Thereafter, Xiaomi filed an appeal with EUIPO against the Opposition Division´s decision, which was again dismissed in September 2016 on the grounds that the marks MI PAD and IPAD were highly visually and phonetically similar and could lead to a confusion of the relevant public. This decision by the EUIPO was now contested by Xiaomi.

 

Decision of the General Court

First, the Court established some background on the scope of decisions concerning the relative ground of similarity. According to settled case law, the risk that the public may believe that goods come from the same undertaking or economically-linked undertakings constitutes a likelihood of confusion. Also, this likelihood must be assessed globally and taking into account all factors relevant to the case (Laboratorios RTB v OHIM – Giorgio Beverly Hills, Case T-162/01). For the application of Article 8 (1) (b) of Regulation 2017/1001, a likelihood of confusion presupposes both that the marks are identical or similar and that the goods which they cover are identical or similar (Commercy v OHIM – easyGroup IP Licensing, Case T-316/07).

 

The relevant public

The Court referred to the decision of the Board of Appeal and emphasized that the goods in question are aimed at both the general public and professional consumers with specific knowledge. Regarding the relevant public´s level of attention, the Court elaborates that although the purchase price of some goods covered by the mark are relatively high, most electronics aimed at the general public are, nowadays, relatively inexpensive and have short lifespans. Therefore, they do not require any particular technical knowledge and leave the level of attention between average and high. Secondly, the Court upheld the Board of Appeal’s finding that the relevant territory is the European Union as a whole.

 

Comparison of the signs

At first, the Court notes that a global assessment of the likelihood of confusion must be based on the overall impression of the signs, including the visual, phonetic, and conceptual similarity. In the case at issue, the comparison of the marks must be carried out by considering each mark as a whole, since there are no dominant elements. The Court holds that the marks are visually highly similar, since the earlier trade mark IPAD is entirely reproduced in the mark MI PAD. Moreover, they coincide as to the letter sequence “ipad” and differ only as to the presence of the letter “m” at the beginning. Phonetically, the marks are also highly similar, referring to the pronunciation of their common syllable “pad” and of the vowel “I”. The latter will be likely be pronounced as the first person singular possessive pronoun “my” in English and thereby similar to the “I” in Apple’s iPad. The Court clarifies that even minor differences in pronunciation due to the letter “m” are not capable to offset the overall similarities. Conceptually, the English-speaking part of the EU understands the common element “pad” as a tablet or tablet computer, which makes it only weakly distinctive and sufficient for a finding of similarity (Xentral v OHIM – Pages jaunes, Case T-134/06).

 

The likelihood of confusion

For determining the likelihood of confusion, the interdependences between the similarity of the marks and that of the goods covered must be examined. The court states that the visual and phonetic differences resulting from the presence of the additional letter “m” are not able to rule out a likelihood of confusion as a result of the overall similarities. Neither are the conceptual differences resulting from the prefixes “mi” and “I” sufficient to remove this likelihood created by the common element “pad”. Taking into account that the goods in question are identical, the conceptual similarities overweigh the discrepancies.

In conclusion, the Court could not exclude the possibility that the public might believe that both tablets come from the same undertaking or economically-linked undertakings. Hence, the Court rejected and dismissed the applicant’s plea in law.

U.S. Company Pursues International Investment Arbitration against Panama over Trademarks

By Gabriel M. Lentner

The U.S.-based Bridgestone Licensing Services, Inc. and Bridgestone Americas, Inc.  lodged a claim against Panama over trademarks at the International Centre for Settlement of Investment Disputes (ICSID).

The claim relates to a decision rendered by the Supreme Court of Panama concerning Bridgestone’s trademarks in Panama and is based on the Panama-US Trade Promotion Agreement (TPA). The arbitral tribunal is currently dealing with “Expedited Objections”.

A key issue in this dispute is whether the ownership of the FIRESTONE trademark and rights to sell, market and distribute BRIDGESTONE and FIRESTONE branded products in Panama constitute “investments” under Art 10.29 of the TPA, as argued by the claimants. Under this provision the term “investment” is defined as “means every asset that an investor owns or controls, directly or indirectly, that has the characteristics of an investment, including such characteristics as the commitment of capital or other resources, the expectation of gain or profit, or the assumption of risk.  Forms that an investment may take include: … (f) intellectual property rights; (g) licenses, … and similar rights conferred pursuant to domestic law” In a footnote it is clarified that “Among the licenses, authorizations, permits, and similar instruments that do not have the characteristics of an investment are those that do not create any rights protected under domestic law.”

Bridgestone argues inter alia that its licenses are to be considered intellectual property rights and therefore covered investments. In addition, they contend that these licenses create rights protected under Panamanian law, since they concern trademarks registered in Panama.

Panama on the other hand challenges these arguments stating that Bridgestone does not have an “investment” within the meaning of the ICSID Convention (Art 25) and the TPA. Rather, Panama views the activities of Bridgestone as ordinary commercial transactions outside the scope of investment arbitration. More specifically responding to the Claimant’s argument, Panama disputes that the three licenses at issue do have the characteristics of an investment as they do not create any rights protected under Panamanian law.

Still pending, this case as it adds to the growing number of international investment disputes involving intellectual property rights (see cases of Philip Morris v Australia and Philip Morris v Uruguay, Eli Lilly v Canada). There is still a lot of uncertainty in this area of law and hence it will be interesting to see the final outcome and the reasoning of the tribunal dealing with the issue of investment and IP.

Ninth Circuit: Using a Trademark as a Verb Is Not Automatically Generic Use

By Marie-Andrée Weiss

The United States Court of Appeals for the Ninth Circuit ruled on 16 May 2016 that ‘google’ is not a generic term for a search engine, and thus the famous California company did not suffer the costly indignity of having its trademarks cancelled through genericide. The case is Elliott v. Google, 2:12-cv-01072.

Plaintiffs had registered 763 domain names, each incorporating the word ‘google’ along with the name of a another brand (googledisney.com), of a person (googlebarackobama.net) or a place (googlemexicocity.com). This business plan did not fare well with the famous search engine company, which successfully asked the National Arbitration Forum to transfer all these domain names to Google.

Plaintiffs then filed a suit in the United States District of Arizona claiming that ‘Google’ “is, or has become, a generic term universally used to describe the action of internet searching with any search engines” (Complaint, p. 2), and asked the court to cancel Google’s trademarks. Indeed, the Lanham Act, 15 U.S.C. § 1064(3), provides the right to petition for the cancellation of mark if it “becomes the generic name for the goods or services, or a portion thereof, for which it is registered.”

The parties filed cross-motions for summary judgment on the issue of whether the GOOGLE marks were generic: while Plaintiffs claimed that Google is a generic term because a majority of the public use it as a verb, Google argued that use of a trademark as a verb use is not automatically generic use. On 11 September  2014, the United States District of Arizona granted summary judgment for Google. Plaintiffs appealed to the United States Court of Appeals for the Ninth Circuit, which affirmed.

 

The Google trademarks

As mentioned in the original complaint, ‘Google’ comes from the term ‘googol,’ meaning a 1 followed by 100 zeros. Google holds a trademark registration for GOOGLE in class 9 for “computer hardware; computer software for creating indexes of information, indexes of web sites and indexes of other information resources” and another one in class 38 for  “[p]roviding electronic mail and workgroup communications services over computer networks; providing multiple user access to proprietary collections of information by means of global computer information networks.”

 

Generic trademark and genericide

Needless to say, if a mark becomes generic, it is quite costly for the company that invested a lot in developing goodwill towards its brand.  A generic term cannot serve as a trademark because it cannot serve as identifying the source of a product or service. Several famous marks, among them aspirin, cellophane, and thermos, fell victim of their success and became generic because they were used by the general public to designate the genus of their product, not just a particular brand. This is ‘genericide’.

 

The primary significance test

Plaintiffs had the burden of proving the genericide since they applied for the cancellation of the GOOGLE trademarks, and a registered trademark is presumed to be valid. They argued on appeal that the district court had misapplied the primary significance test, which was coined by the Supreme Court in its 1938 Kellog Co. v. National Biscuit Co. case:  a mark is not generic if “the primary significance of the term in the minds of the consuming public is not the product but the producer.” As noted by the Ninth Circuit, quoting Ty Inc. v. Sofbelly’s Inc., “a trademark only becomes generic when the “primary significance of the registered mark to the relevant public” is as the name for a particular type of good or service irrespective of its source.”

Plaintiffs argued that the district court had framed the inquiry as to whether the primary significance of ‘google’ to the consuming public is a generic name for search engines, whereas it should have inquired whether the public primarily uses ‘google’ as a verb. The Ninth Circuit disagreed with this argument for two reasons: genericide always relates to a particular good or service and using a trademark as a verb is not automatically generic use.

 

Genericide always relates to a particular good or service

For the Ninth Circuit, the District Court “properly recognized the necessary and inherent link between a claim of genericide and a particular good or service” (p. 9). The Court reasoned that failing to consider this would prevent some arbitrary marks to be protectable, giving as example IVORY which is arbitrary as applied to soaps, but would not be so for product made from the tusks of elephants.

The Ninth Circuit found that Plaintiffs’ “evidence was “’largely inapposite to the relevant inquiry under the primary significance test because [the Plaintiffs] ignor[e] the fact that a claim of genericide must relate to a particular type of goods or service’” (p. 13).

 

Using a trademark as a verb is not automatically generic use

Also, “verb use does not automatically constitute generic use” (p. 10). Plaintiffs had argued that a word can only be used as a trademark if it is used as an adjective. The Ninth Circuit disagreed, noting that it had found in Coca-Cola Co. v. Overland, Inc. that the mere fact that customers ordered “a coke” did not prove what they were thinking, a mark or a cola beverage, and more evidence was required about the customer’s inner thought process. Therefore, the use of a trademark as a noun may or may not be using it as a trademark (p. 11).

The primary significance test directed plaintiffs to provide evidence that that the primary significance of the GOOGLE trademarks is a general name for search engines, not a trademark identifying a particular search engine. The Ninth Circuit agreed with the district court which had found that, while the verb ‘google’ is indeed used to refer to searching on the internet, regardless of the search engine used, this fact alone cannot support a jury finding of genericide under the primary significance test, as it does not prove “how the public primarily understands the word itself, irrespective of its grammatical function, with regard to internet search engines” (p. 14).

 

How to prove that a mark has become generic

Plaintiffs also argued on appeal that the district court impermissibly weighted the evidence presented by Plaintiffs when granting summary judgment to Google. The Ninth Circuit disagreed, because, while Plaintiffs’ had presented admissible evidence that the majority of the public used ‘google’ as a verb, this was not enough to survive summary judgment, as it cannot alone prove genericide.

Plaintiffs had presented three surveys as evidence. Two were excluded by the district court because they had been conducted by Plaintiffs’ counsel, and “a valid survey design typically requires graduate training or professional experience in survey research” (p. 15). The third survey was a “Thermos survey,” that is a survey using open-ended questions, in our case, asking respondents how they would ask a friend to search something on the internet. The majority answered by using ‘google’ as a verb, and the survey was admitted as evidence that a majority of the public uses google as a verb meaning searching the internet.

Plaintiffs also gave examples of alleged generic use of ‘google’ by media and consumers, but they failed to convince both the district court and the Ninth Circuit, because Plaintiffs did not provide evidence that the use was indeed generic in the mind of the media and the consumers.

Plaintiffs had also offered expert testimony by three experts who all were of the opinion that ‘google’ is generic when used as a verb. However, this finding alone is not enough to prove genericide. Plaintiffs’ dictionary evidence did not prove either that ‘google’ is a generic name for internet search engines, only proving it is generic when used as a verb.

Plaintiffs also tried to prove that Google itself was using ‘google’ in a generic sense, presenting as evidence an email from Google cofounder Larry Page encouraging its recipients to “keep googling!” Generic use of a mark by its holder can support a finding a genericide, but the email was found by the court to be yet another example of the use of ‘google’ as a verb and did not prove that Larry Page had a particular search engine in mind (p. 19).

Finally, Plaintiff claimed that there was no efficient alternative for ‘google’ as a name for the act of searching the internet, but the Ninth Circuit drily noted that Google’s competitors do not use ‘google’ to refer to their own services (p.20).

‘Google’ may have become a verb, but this alone does not prove that GOOGLE is a generic mark. Keep googling.

Is Adidas too Aggressive at Enforcing its Three Stripe Trademarks?

By Marie-Andrée Weiss

Adidas owns multiple trademark registrations in the European Union and the U.S. for its famous three stripe design, and it fiercely protects them. It has filed, and won, several trademark infringement suits, and regularly sends cease-and-desist letters asking brands to stop selling shoes or clothes bearing stripes.

In February 2017, Adidas filed a notice of opposition with the U.S. Patent and Trademark Office Trademark Trial and Appeal Board (TTAB) to the registration of a mark that Tesla Motors was seeking to register for articles of clothing. The mark would have consisted of “three equal length horizontal stylized lines in the manner of a stylized number 3.” The trademark has since been abandoned after an inter-partes decision by the TTAB.

On 17 February 2017, Adidas also filed a trademark infringement and dilution suit against competitor Puma North America Inc. in the district court of Oregon. Adidas claimed that Puma’s new model of soccer cleats, which bear four diagonal stripes on each side, infringes on the Adidas trademark as it is likely to cause consumer confusion as to the source of the footwear. Adidas voluntarily dismissed the case on 28 February  2017, likely following successful negotiations with Puma.

On 14 February 2017, the Barcelona Football Club abandoned its application to register a mark in class 28, for sporting articles, following a notice of opposition filed by Adidas on 31 October 2016, and an inter-partes decision by the TTAB. The abandoned mark consisted of “a square containing seven vertical stripes. The 1st, 3rd, 5th and 7th stripes from the left are blue, and the remaining three stripes are garnet.”

On 17 March 2017, Adidas filed a trademark infringement and dilution suit in the Eastern District of North Carolina, against fashion company Juicy Couture, which came to fame some 15 years ago for creating a velour tracksuit. Adidas claimed that some jackets and pants, bearing stripes on their sleeves and sides, infringe several of its trademarks.

Adidas has won or settled all of the trademark infringement cases it has filed. Will the streak ever end?

The scope of the three-stripe trademark

What exactly do the Adidas trademarks protect? Are all three stripes claimed by Adidas under the trademark? Are all stripes on shoes and clothing, regardless of the number of stripes, claimed by Adidas?

Adidas owns several federal trademark registrations in the U.S. for a mark consisting “of three parallel stripes applied to footwear,  the stripes are positioned on the footwear upper in the area between the laces and the sole,” (see here, here, or here). Adidas also owns trademarks for clothing bearing the three stripes (see here) and even for verbal trademarks using the term “3 stripes,” such as the trademark “THE BRAND WITH THE 3 STRIPES.” Does that mean that Adidas has a monopoly for just about every trademark featuring three stripes, every trademark featuring two or four stripes, or even for clothing featuring any number of stripes?

The February 2017 complaint against Puma stated that Adidas has been using the three-stripe trademark on shoes since 1952 and on apparel since 1967. While easily recognizable, Adidas’s three-stripe trademark is also simple: three stripes, often shown diagonally on the sides of shoes, on the sleeves of a training jacket, or the sides of training pants, shorts, or shirts. The three stripes are all of the same width when seen together, but this width varies from trademark to trademark. The distance between each stripe also varies.

In the USPTO Design Search Code Manual, category 26 is for “geometric figures and solids.” 26.17 is for “lines, bands, bars, chevrons and angles” and 26.17.01 is for “straight line(s), band(s) or bar(s).” 26.17.05 is the code for “horizontal line(s), band(s) or bar(s).”

The design search codes for the trademark which Tesla sought to register were 26.17.01 and 26.17. A recent search in the TESS database for a mark with a 26.17. 01 code yielded 89,266 records and a search for marks with the 26.17.05 code yielded 81,820 records. Amongst the 26.17.05 results, 14 were filed by Adidas.

The mark which Tesla sought to register was described in the application as consisting of “three equal length horizontal stylized lines in the manner of a stylized number 3.” Yet the stripes were not similar to Adidas stripes, which are cut in a neat angle. Tesla’s stripes were cut on the side in a soft curve, resembling a Japanese wood beam or roof. The Barcelona Football Club was trying to register as a trademark the stripes which are seen on its own logo, which is itself a registered trademark! Indeed, many sports teams around the world sport stripes on their uniforms. A stripe is a stripe is a stripe. Yet Adidas opposed these two trademark registrations.

Is Adidas going too far?

This is not the first time that Adidas sued a company over the use of stripes on shoes or clothing, even if more or less than three stripes are featured. Adidas sued several European retailers in the late nineties over the use of two stripes on the side of sports clothes, which eventually led to the European Court of Justice ruling in 2008, in Adidas AG and Others v. Marca Mode CV and Others, that Adidas’ competitors could not “be authorized to infringe the three-stripe logo registered by Adidas by placing on the sports and leisure garments marketed by them stripe motifs which are so similar to that registered by Adidas that there is a likelihood of confusion in the mind of the public” (at 32).

While there may be a need for signs which do not have a distinctive character, such as stripes, to be available for competitors, this need “cannot be taken into account in the assessment of the scope of the exclusive rights of the proprietor of a trade mark” (ruling of the Court). The European Court of Justice thus chose to protect the public against any likelihood of confusion.

U.S. fashion manufacturers also encounter legal difficulties when using stripes on garments, and their frustration is mounting. On 3 March 2017, fashion retailer and manufacturer Forever 21 filed a complaint against Adidas, asking the Central District Court of California for a declaratory judgment of non-infringement of trademark. Forever 21 claims that Adidas is now “essentially asserting that no item of clothing can have any number of stripes in any location without infringing Adidas trademarks.” Forever 21 is “[t]ired of operating with a cloud over its head with regard to its right to design and sell clothing items bearing ornamental/decorative stripes” and “has decided that enough is enough… This matter is ripe for a declaratory judgment.” However, Forever 21 voluntarily dismissed the case on 13 March 2017.

Stripes are never out of fashion, and fashion designers frequently use them on the side of pants or jackets. Is this infringement? Forever 21 had claimed that “Adidas should not be allowed to claim that Adidas, alone, has a monopoly on striped clothing.” The retailer filed the suit after receiving yet another cease and desist letter sent by Adidas, this time asking Forever 21 to stop selling clothes bearing four stripes, including a sports bra, tee shirts and pants. Forever 21 claimed that “[a]ny use of stripes on clothing sold by Forever 21 is ornamental, decorative, and aesthetically functional.”

Adidas had sent a similar letter to Forever 21 in June 2015, which claimed that a sweat shirt featuring Snoopy, with stripes on its cuffs, bottom and collar, was infringing. However, varsity jackets, or letterman jackets, traditionally sport stripes in similar places, and Forever 21 indeed described its Snoopy shirt as featuring “generic varsity-style stripe pattern.” Is Adidas too aggressive in enforcing its mark?

A need to police the mark

These cease and desist letters illustrate what trademark owner must do to avoid losing their rights through failure to control use. Section 45 of the Trademark Act states that a mark is abandoned when “any course of conduct of the owner, including acts of omission as well as commission, causes the mark to… lose its significance as a mark.” This includes failing to adequately police the mark against third-party use. Also, the three-stripe mark is famous, thus making trademark dilution another concern for Adidas. In fact, even just the appearance of dilution is a concern, since trademark owners only need to prove a likelihood of dilution, not actual dilution, after the enactment of the Trademark Dilution Revision Act of 2006. Adidas does not want its three stripes to strike out. But is it the general public which ends up losing?

After many twists and turns, the CJEU holds that the Rubik’s cube trademark is invalid

By Marie-Andrée Weiss

The First Chamber of the Court of Justice of the European Union (CJEU) held on 10 November 2016, that the famous Rubik’s cube cannot be registered as a three-dimensional mark because its shape performs the technical function of the goods, a three-dimensional puzzle. The case is Simba Toys GmbH & Co. KG v. EUIPO, C-30/15 P.

 

The validity of the Rubik’s cube trade mark was challenged by a competitor

British company Seven Towns Ltd., acting on behalf of Rubik’s Brand Ltd., filed in April 1996 an application for registration of a Community trade mark at the Office for Harmonisation in the Internal Market (OHIM), now named the European Union Intellectual Property Office (EUIPO), for a three-dimensional sign, the famous Rubik’s cube. The mark was registered in April 1999 and renewed in November 2006.

A few days later, competitor Simba Toys applied to have the trade mark declared invalid under Council Regulation 40/94, which has been repealed and was replaced by Council Regulation 207/2009. The CJEU considered the case to be still governed by Council Regulation 40/94. Articles 1 to 36 are the same in both Regulations, and so the case is relevant under current EU trademark law.

Article 7(1)(e)(ii) of Council Regulation 40/94 prevents registration as a trademark of a sign, such as the Rubik’s cube product, “which consists exclusively of… the shape of goods which is necessary to obtain a technical result.” The CJEU had held in the 2002 Koninklijke Philips Electronics NV v. Remington Consumer Products Ltd. that a sign consisting exclusively of the shape of a product cannot be registered as a trademark if the essential functional features of the shape are attributable only to a technical result (Philips § 79 and § 80).

Simba Toys argued that the Rubik’s cube mark should be declared invalid under the grounds [absolute ground for refusal] that the mark is the shape of the goods necessary to achieve a technical result. According to Simba, the Rubik’s cube black lines are attributable to technical functions of the three-dimensional puzzle.

The OHIM dismissed Simba’s application for a declaration of invalidity and the Second Board of Appeal of OHIM affirmed the dismissal in September 2009, reasoning that the shape of the trade mark does not result from the nature of the Rubik’s cube itself. On 25 November 2014, the General Court dismissed the action for annulment as unfounded. Simba appealed to the CJEU.

 

What are the essential characteristics of the Rubik’s cube trade mark? 

The essential characteristics of three-dimensional signs are the most important elements of the signs, Lego Juris v. OHIM, C-48/09, § 68 and 69. They must be properly identified by the competent trademark registration authority, Lego Juris v. Ohim § 68, which must then determine whether the essential characteristics all perform the technical function of the goods (General Court § 41). The General Court identified the essential characteristics of the Rubik’s cube trademark is a “cubic grid structure,” that is the cube itself and the grid structure appearing on each of its surfaces (General Court § 45). Simba did not challenge this finding on appeal at the CJEU.

 

Do the essential characteristics of Rubik’s cube perform the technical function of the goods?

Under Article 4 of Regulation 40/94 and Regulation 207/2009, any sign capable of being represented graphically can be a trade mark, unless, under article 7(1)(e)(ii) of both Regulations, the sign consists exclusively of the shape of goods which is necessary to obtain a technical result.

Article 7(1) grounds for refusal to register a mark must be interpreted in light of the public interest underlying them. The public interest underlying Article 7(1)(e)(ii) is to prevent the use of trademark law to obtain a monopoly on technical solutions or the functional characteristics of a product (General Court § 32, citing Lego Juris v. OHIM, § 43). Advocate General Szpunar explained further in his Opinion that allowing such marks to be registered would give the registrant “an unfair competitive advantage” and thus trade mark law cannot be used “in order to perpetuate, indefinitely, exclusive rights relating to technical solutions” (AG Szpunar Opinion § 32 and § 34).

For the General Court, Article 7(1)(e)(ii) applies only if the essential characteristics of the mark perform the technical functions of the goods “and have been chosen to perform that function.” It does not apply if these characteristics are the result of that function (General Court § 53). Simba argued in front of the CJEU that the General Court erred in this interpretation of Article 7(1)(e)(ii).

Simba claimed that the black lines of the cube performed a technical function (General Court § 51). But the General Court found that an objective observer is not able to infer by looking at the graphic representation of the Rubik’s cube mark that the black lines are rotatable (General Court § 57). The General Court held that Simba’s “line of argument… [was] essentially based on knowledge of the rotating capability of the vertical and horizontal lattices of the Rubik’s cube. However, it [was] clear that that capability cannot result from the black lines in themselves or, more generally, from the grid structure which appears on each surface of the cube… but at most from [an invisible] mechanism internal to that cube” (General Court § 58). Therefore, the grid structure on each surface of the cube “d[id] not perform, or are not even suggestive of, any technical function” (General Court § 60). The General Court concluded that registering the Rubik’s cube shape did not create a monopoly on a technical solution and mechanical puzzles competitors could also incorporate movable or rotatable elements (General Court § 65).

But, for AG Szpunar, the General Court erred in its analysis as it should have taken into account the function of the Rubik’s cube, which is a three-dimensional puzzle consisting of movable elements. He noted that in both the Philips and the Lego Juris cases, the competent authorities had analyzed the shape of the goods using additional information other than the graphic representation (AG Szpunar Opinion § 86). While the competent authority does not have to concern itself with hidden characteristics, it must nevertheless analyze “the characteristics of the shape arising from the graphic representation from the point of view of the function of the goods concerned” (AG Szpunar Opinion § 88).

The CJEU followed its AG’s Opinion on this point and found that the General Court should have defined the technical function of the actual goods, namely, the three-dimensional puzzle, and it should have taken this into account when assessing the functionality of the essential characteristics of that sign (CJEU § 47). The General Court “interpreted the criteria for assessing Article 7(1)(e)(ii) . . . too narrowly”(CJEU § 51) and should have taken into account the technical function of the goods represented by the sign when examining the functionality of the essential characteristics of that sign (CJEU § 52). Failing to do so would have allowed the trademark owner to broaden the scope of trademark protection to cover any three dimensional puzzles with elements in the shape of a cube (CJEU § 52).

This case confirms, after Pi-Design AG v. Bodum, that the CJEU takes the view that the essential characteristics of a trade mark must not be assessed solely by the competent authority based on visually analyzing the mark as filed, but that the authority must also identify the essential characteristics of a sign, in addition to the graphic representation and any other descriptions filed at the time of the application for registration. This is necessary to protect the public interest underlying Article 7(1)(e)(ii), which is to ensure that economic operators cannot improperly appropriate for themselves a mark which incorporates a technical solution.