Archive | Trademarks RSS for this section

Will the U.S. Supreme Court Find Ban on Scandalous Trademark Registration Unconstitutional?

By Marie-Andrée Weiss

On 4 January 2019, the U.S. Supreme Court granted certiorari to rule on whether Section 1052(a) of the Trademark Act, which prohibits the registration of immoral and scandalous marks, is facially invalid under the First Amendment. The case is Iancu v. Brunetti, Docket No. 18-302.

In 2011, Erik Brunetti filed an application to register FUCT as a federal trademark, in connection with a clothing line. The U.S.P.T.O. examining attorney refused to register it, considering it to be the past tense of the verb “to fuck,” a vulgar term. The Trademark Trial and Appeal Board (TTAB) affirmed in 2014. Brunetti appealed. While the case was pending, the U.S. Supreme Court issued its Matal v. Tam decision, which found that that the disparagement clause of the Lanham Act violated the First Amendment, because it discriminates based on content.

On December 15, 2017, the U.S. Court of Appeals for the Federal Circuit reversed the TTAB’s holding, and held that Section 2(a) is an unconstitutional restriction on free speech. The court denied the request for a rehearing in April 2018 and in September 2018, Andrei Iancu, the Director of the U.S.P.T.O., filed a petition for a writ of certiorari, which was granted by the Supreme Court.

 

The Lanham Act prohibits registering immoral and scandalous marks

Section 2(a) of the Lanham Act prohibits registration of immoral and scandalous marks, a prohibition which was first codified by Section 5(a) of the Trademark Act of 1905. The U.S.P.T.O. considers that a mark is immoral or scandalous if a substantial composite of the general public would find it shocking to the sense of truth, decency or propriety, in the context of contemporary attitudes and the relevant marketplace (see for instance In re Mavety Media Group Ltd. at 1371).

The government argued unsuccessfully on appeal that Section 2(a) does not implicate the First Amendment because it is either a government subsidy program or a limited public forum and that, alternatively, if it is speech, it is merely commercial speech. Such speech was defined by the Supreme Court in Va. State Bd. Of Pharmacy, as speech which does “no more than propose a commercial transaction.” It warrants the use of the Central Hudson, four-part test, not the strict scrutiny test.

In Tam, the Supreme Court had used a “heightened scrutiny test.” The Federal Circuit applied the strict scrutiny test, and found that the government had failed to prove that Section 2(a) advances the interests it asserts and is narrowly tailored to achieve that objective.

Trademark as speech

The Federal Circuit found Section 2(a) regulates speech based on its expressive content, and as such, does not merely regulate commercial speech. Indeed, the Supreme Court had noted in Tam that trademarks “often have an expressive content.” The Federal Circuit Court gave several examples of trademark applications using “FUCK” to further a worthy cause, such as FUCK HEROIN, FUCK CANCER or FUCK RACISM.

Brunetti is using the FUCT mark in connection with clothing featuring, as described by the TTAB, “strong and often explicit, sexual imagery that objectifies woman and offers degrading examples of extreme misogyny.” The Federal Circuit Court judges wrote in conclusion that they found “the use of such marks in commerce discomforting, and are not eager to see a proliferation of such marks in the marketplace.” Yet, it is speech which must be protected by the First Amendment.

 

The Lanham Act does not define what is a scandalous or immoral mark

The Federal Circuit found that there is no “reasonable definition” of what is “scandalous” and “immoral” and thus Section 2(a) is not construed narrowly enough to be found constitutional. Obscenity is not protected by the First Amendment, and the Supreme Court has provided a definition of it in Roth v. United States, “material which deals with sex in a manner appealing to the prurient interest.” In a concurring opinion to Brunetti, Judge Dyk explained that rather than finding Section 2(a) unconstitutional, he would have limited the scope of the clause to obscene marks.

In his Respondent brief, Brunetti added another question for the Supreme Court, whether Section (2)(a) is unconstitutionally vague under both the First and the Fifth Amendment.

 

The Supreme Court is likely to offer a definition of what is an immoral or scandalous mark

The Director of the USPTO argued in its petition to the Supreme Court that Section 2(a) merely prohibits the registration of scandalous marks, such as those using vulgar terms and graphic sexual image. However, what is “vulgar,” or what is “graphic” is not easily agreed upon, especially in a country as big as the U.S., which is home to many different opinions and beliefs. For example, there are no “Do Not Cuss” signs in New York restaurants, but there are still some in the South.

Whether or not the Supreme Court finds Section 2(a) unconstitutional, the court is likely to provide a definition of what is “scandalous” or immoral. ”

Advertisements

Hakuna Matata: Trademarks and Cultural Appropriation

By Marie-Andrée Weiss

Disney Enterprises has owned since March 2003 the HAKUNA MATATA trademark, registered in class 25 for t-shirts. Disney filed the application in August 1994, shortly after the U.S. release of its widely successful “The Lion King” animated movie, which has been adapted as a musical comedy. A live-action reimagining version of the animated movie, using CGI technology, will be released this year.

In the movie and the musical comedy, and, most certainly, in the upcoming film, a character is singing the “Hakuna Matata” song, urging the young Lion King not to worry. Indeed, “Hakuna Matata” means “no problems” or “no worries” in Swahili. An article written by Cathy Mputhia in November 2018 noted that “Hakuna Matata” is “widely used in East Africa.”

Disney now faces backlash over this trademark registration. An online petition published by Shelton Mpala is asking Disney to cancel the HAKUNA MATATA trademark arguing that its decision to register it was “predicated purely on greed and is an insult not only the spirit of the Swahili people but also, Africa as a whole.” The petition has gathered more than 180,000 signatures.

 

Can Hakuna Matata be registered as a trademark?

The online petition claims that “Disney can’t be allowed to trademark something that it didn’t invent.” If this would be true, thousands and thousands of trademarks would be cancelled.

Indeed, it is not necessary to create a term to able to register it as a trademark; unlike a work protected by copyright, a trademark can be protected even though it is not an original work. What matters is that it is distinctive enough, since the function of a trademark is to identify the source of a product or service. Trademarks which are arbitrary, fanciful, or suggestive can be protected without having to show secondary meaning. Generic trademarks cannot be protected.

Few people in the U.S. knew the “Hakuna Matata” expression before the release of The Lion King in 1994. Indeed, Google Ngram Viewer shows that the word was first used in the English language corpus in the Nineties.  However, as noted by The Guardian, “[t]he phrase was popularised in 1982 by the Kenyan band Them Mushrooms, whose platinum-selling single Jambo Bwana (Hello, Mister) featured the phrase hakuna matata.”

When the expression was trademarked in 1994, the U.S. public associated it with the movie, which was a blockbuster, complete with derivative products, some using the “Hakuna Matata” phrase. As such, this combination of words was an efficient trademark, because the general public believed that the phrase had been invented by Disney and thus perceived the trademark as being arbitrary or fanciful.

Disney’s trademark application stated correctly, however, that the two words have a meaning in another language and were not invented. As such, HAKUNA MATATA is a suggestive trademark, a term which “requires imagination, thought and perception to reach a conclusion as to the nature of the goods,” as explained by the Second Circuit in Abercrombie & Fitch Co. v. Hinting World.

Nevertheless, the public in East Africa perceives this trademark as a mere common phrase, and generic terms cannot be registered as trademarks.  Therefore, “Hakuna Matata” cannot be registered as a trademark in East Africa but can be in the U.S. or in other Western countries because the public there does not perceive it as a common expression. Research on WIPO’s Global Brand Database reveals that the term is registered as trademark almost only in Western countries, with a few exceptions such as Egypt, Thailand, and Korea.

Under trademark law, a term can only be registered if it is not commonly used in the country or geographical areas where it is registered. This practice, while legal, can be perceived by the country from which the term originated, however, as cultural appropriation.

 

Trademark and cultural appropriation

Even if it is legal to register “Hakuna Matata,” it may not be advisable. Cultural appropriation is now a well-known concept, but it had just started to be recognized when Disney registered the trademark in 1994, as shown by this Ngram Viewer.

Shelton Mpala told CNN that that he had started the petition “to draw attention to the appropriation of African culture and the importance of protecting our heritage, identity and culture from being exploited for financial gain by third parties.”

This issue is addressed by WIPO, which established in 2000 the Intergovernmental Committee on Intellectual Property and Genetic Resources, Traditional Knowledge and Folklore (IGC). The Committee’s mandate is to work towards reaching an agreement on one or more intellectual property international legal instruments which would protect traditional knowledge and traditional cultural expressions.

One of the IGC’s background briefs noted that “[t]he current international system for protecting intellectual property was fashioned during the age of enlightenment and industrialization and developed subsequently in line with the perceived needs of technologically advanced societies.”

 

Could a bar to register traditional knowledge and traditional cultural expressions be in the future?

Can this practice be regulated, and how? Cathy Mputhia suggested in her article that “relevant governments or communities [could] apply for expungement of already granted trademarks,” but noted that “there are certain thresholds that ought to be met for expungement of marks that contain heritage.”

These “expungement thresholds” will probably not be legal, but societal. If such expungement occurs for HAKUNA MATATA, it will be a business decision made by Disney designed to protect the company’s public image by acknowledging that the trademark hurts too many Africans.  In this regard, Shelton Mpala chose a possible viable path towards his desired result.

One can imagine that a party could petition the TTAB to cancel the HAKUNA MATATA trademark registration under Section 2(a) of the Lanham Act which prohibits registration of immoral, scandalous, and disparaging marks. However, seems unlikely, as the U.S. Supreme Court held in 2017 in Matal v. Tam  that Section 2(a)’s prohibition to register disparaging marks violates the First Amendment. The Court may soon rule similarly about scandalous and immoral marks, as it has accepted to review the In Re: Brunetti case, after the Federal Circuit held that the First Amendment also protects registration of such marks.

Section 2(b) of the Trademark Act bars the registration of a mark which consists of or comprises the flag or other insignia of the US, or any state, or municipality or foreign nation. Could the law be amended one day to add symbols of traditional knowledge and traditional cultural expressions? This would require a WIPO treaty protecting them, and the very hypothetical U.S. accession to the treaty.

A Study in Trademarked Characters

By Marie-Andrée Weiss

The characters created by Disney, Marvel, and LucasFilms are valuable intellectual property and are protected both by copyright and by trademark. However, a recently decided case in the Southern District of New York (SDNY), Disney Inc. v. Sarelli, 322 F.Supp.3d 413 (2018), demonstrates that preventing the unauthorized use of such characters may not be as easy as expected.

In this case, Plaintiffs are Disney Enterprises, Marvel Characters and LucasFilm, all of which own copyrights and trademarks in many of the most famous characters in the world, such as Mickey Mouse, Hulk, and Chewbacca. These characters were first featured in movies like Frozen, The Avengers or Star Wars, and are now licensed or featured in derivative products such as comic books, video games, or theme parks. Their exploitation is highly lucrative.

When visiting Plaintiffs’ theme parks, one has a chance to meet the characters “in person.” This experience is also offered by Characters for Hire, a New York company offering, as the name implies, character hiring services. The company’s principal owner is Nick Sarelli (Defendant). Characters for Hire offers a service wherein actors dressed in costumes entertain guests during birthday parties or corporate events. For example, actors have allegedly dressed as Mickey, Elsa and Anna from Frozen, Captain America and Hulk from The Avengers, and Luke Skywalker and Darth Vader from Star Wars.

The contracts Defendants provided to their clients contained disclaimer language, stating, for example, that Defendants do not use trademarked and licensed characters. The contracts also warned clients that the costumes may differ from those seen in movies “for copyright reasons,” adding that “[a]ny resemblance to nationally known copyright character is strictly coincidental.”

These disclaimers did not appease Plaintiffs, who sent several cease and desist letters to Defendants before filing a federal copyright and trademark infringement suit and a New York trademark dilution suit.

While Judge Daniels from the SDNY granted Defendants’ motion for summary judgment and dismissed Plaintiffs’ claim for trademark infringement on August 9, 2018, he denied the motion to dismiss the copyright infringement claim and the trademark dilution claim.

 

The descriptive fair use defense failed

Plaintiffs claimed that the use of their trademarked characters to advertise and promote Defendants’ business, along with their portrayal by costumed actors, was likely to confuse consumers as to the origin of the services.

Defendants argued that their use of Plaintiffs’ characters was descriptive and nominative fair use, and that there was no likelyhood of confusion.

Descriptive fair use is an affirmative defense to a trademark infringement suit, as Section 33(b)(4) of the Trademark Act allows “use… of a term or device which is descriptive of and used fairly and in good faith [but] only to describe the goods or services of such party, or their geographic origin.” In other words, a defendant can use plaintiffs’ trademarks in a descriptive sense, or to describe an aspect of his own good or service.

For such a defense to succeed in the Second Circuit, a defendant must prove that the use was made (1) other than as a mark, (2) in a descriptive sense, and (3) in good faith (Kelly-Brown v. Winfrey at 308). This defense failed in the present case, as Defendants had not made a descriptive use of Plaintiffs’ marks. Instead, Judge Daniels found that their ads “were specifically designed to evoke [Plaintiff’s marks] in consumers’ minds…”

 

The nominative fair use defense also failed

Defendants also claimed that they used Plaintiffs’ marks to describe their own products. Such nominative fair use is a defense to a trademark infringement suit if such use “does not imply a false affiliation or endorsement by the plaintiff of the defendant” (Tiffany v. eBay at 102-103). But this nominative fair use defense also failed, as Defendants used Plaintiffs’ marks to identify their own service, which is hiring out characters for parties, rather than Plaintiffs’ trademarked characters.

 

Defendants’ use of characters was not trademark infringement

Judge Daniels used the eight-factor Polaroid test used by the Second Circuit in trademark infringement cases to determine whether Defendants’ use of Plaintiffs’ marks were likely to confuse consumers.

While Plaintiffs’ marks are undoubtedly strong (first factor), the similarity of the marks (second factor), weighed only slightly in Plaintiffs’ favor because Defendants used different names for their characters than Plaintiffs’ trademarked character names, e.g., “Big Green Guy,” “Indian Princess,” and “The Dark Lord” instead of Hulk, Pocahontas and Darth Vader.

The third and fourth Polaroid factors, the proximity of the goods and services, and the possibility that the senior user will enter the market of the junior user, were found to weigh in Defendants’ favor. There was no evidence that Plaintiff has plans to expand into the private entertainment service industry.

The fifth Polaroid factor, evidence of actual confusion, also weighed in Defendants’ favor, as there was no evidence that Defendants’ customers used the names of Plaintiffs’ trademarked characters when referring to Defendants’ services in online reviews or otherwise. Plaintiffs could not provide a survey proving customers’ confusion either.

Judge Daniels found the sixth factor, Defendants’ intent and evidence of bad faith, to also be in Defendants’ favor, since Defendants had put customers on notice that their services were not sponsored by or affiliated with Plaintiffs by using altered versions of Plaintiffs’ characters’ names and by removing Plaintiffs’ characters’ names in their online reviews.

The seventh Polaroid factor, the quality of Defendants’ products, was also in Defendants’ favor, as Defendants’ services, being of a lesser quality than Plaintiffs’, makes it likely that consumers will not be confused as to the source of the services.

The eighth Polaroid factor, consumer sophistication, also was in favor of Defendants, as Plaintiffs did not prove the sophistication level of Defendants’ relevant consumers.

Balancing these eight factors, the SDNY found no likelihood of consumer confusion and denied Plaintiffs’ motion for summary judgment on their trademark infringement claim.

 

Trademark dilution

Plaintiffs chose to claim trademark dilution under New York trademark dilution law, Section 360-1 of New York Business Law, and not under the Federal Trademark Dilution Act. This choice may have been made because the New York law does not require a mark to be famous to be protected, and a plaintiff only needs to prove the mark’s distinctiveness or secondary meaning.

Judge Daniels found that there was a genuine issue of fact as to whether Defendants’ use of Plaintiffs’ marks is likely to dilute Plaintiffs’ marks by tarnishment. A court will have to determine if Defendants provide services of poor quality.

 

Copyright

Plaintiffs argued that Defendants had “copied and used the images, likenesses, personas, and names of Plaintiffs’ characters…to promote and advertise its services online.” Defendants argued in response that the characters in which Plaintiffs own copyrights are based on prior works that are part of the public domain.

Both parties will have more chances to pursue their arguments as Judge Daniels denied the motion for summary judgment on copyright infringement. He found that Plaintiffs had presented as evidence screenshots from Defendants’ website and videos allegedly published by Defendants which had not been properly authenticated. More specifically, they had not been authenticated by someone “with personal knowledge of reliability of the archive service from which the screenshots were retrieved,” citing Specht v. Google, a 2014 Seventh Circuit case.

It is likely that the parties will settle out of court.

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.

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.