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Luxury brands, free-riding and the law
26th May 2009
A raft of cases, involving some of the world’s most renown
luxury brands, have been decided in recent weeks (or have appeals
due shortly), including “L’Oréal v Bellure”, “Google v LVMH”,
“L’Oréal v eBay” and “Copad v Dior”.
As a group, these cases appear to be very significant. From a
purely legal perspective, two fundamental issues appear intertwined
in most, if not all, of them. First is the question of defining the
scope of rights - if any - granted by a trade mark beyond its
essential function of indicating trade origin. And, second, is the
question of clarifying the circumstances in which a third party may
(or may not) lawfully gain commercial advantage by using a renown
brand in order to benefit from consumer interest in that brand
(“free-riding”).
Commercially, of course, the outcome of these legal questions
may well prove important in many sectors of the economy. However,
they are of particular significance for the luxury brands industry,
where maintaining the prestige and image of a brand, and keeping
control of its presentation to consumers, are so fundamental to
success.
Comparative advertising and “L’Oréal v
Bellure”
On 10 February 2009, the Advocate General (“AG”) gave his
opinion in “L’Oréal v Bellure”.
The case relates to the use by the defendants of comparison
lists which identified certain of the defendants’ perfumes
(typically sold at under £4 per bottle) by comparison with
particular brands of renown luxury perfumes sold under trade marks
owned by the claimants (typically sold at around £60 per bottle).
Furthermore, several of the defendants’ perfumes had packaging
which “winked an eye” at the packaging designs used by the
claimants, although it was accepted on the facts that, despite
these similarities in the packaging, few retailers or consumers
would be confused as to the origin of the product.
Commercially, of course, luxury brand owners are likely to have
serious concerns about comparative advertising, particularly if
they suspect that a third party is simply using their renown mark
in order to “free-ride” on consumer interest in it. Even aside from
cases involving inaccurate, unfair or unfavourable comparisons, the
fear is that such unauthorised use may give rise to significant
“brand damage”, such as, for example, tarnishing the aura of the
luxury brand by placing it in a “down-market” context.
From the perspective of EU law, the extent to which any
advantage gained by a third party comparative advertiser may be
regarded as lawful will depend, in large part, on the application
of the Trade Marks Directive (89/104/EEC) (“Trade Marks Directive”)
and the EU directive concerning misleading and comparative
advertising (84/450/EEC, as subsequently amended and consolidated)
(“MCA”). The interaction of these two directives is complex and a
number of legal questions remain outstanding, five of which were
referred to the ECJ in L’Oréal v Bellure. Although the ECJ’s ruling
remains pending at the time of going to press, the AG’s opinion, if
followed by the ECJ, could be highly significant. In addition to
some useful, if uncontroversial, remarks clarifying interpretation
of the two directives, the AG notably concluded that MCA Article
3a(1)(h):
- “prohibits an advertisement which alludes, explicitly or by
implication, bearing in mind its economic context, to the fact that
the advertiser’s product has been manufactured in such a way as to
imitate or reproduce a product protected by another person’s mark,
even where only one or more of the essential characteristics of
that product is alluded to; and,
- consequently, it does not prohibit an advertisement solely on
the ground that it states that the advertiser’s product has an
essential characteristic that is identical with that of a product
bearing a protected trade mark, including well known marks.”
The first point raises significant issues. For example, what
does “imitate or reproduce” mean in this context? In paragraph 82
of his opinion, the AG offers some clarification, commenting that
“the concepts of imitation and replica allude to the fact that, in
conceiving his own product, the manufacturer did not rely on his
own creative resources but attempted, only partly successfully, to
endow it with the same characteristics as a product bearing another
person’s trade mark or attempted, successfully, to endow it with
very similar characteristics (both situations constituting
imitations) or has actually succeeded in reproducing entirely the
characteristics of the latter product (replicas)”.
Although the AG’s comments cast some light, they do not resolve
in any detail what criteria are to be used to demonstrate
“imitation”; and this, given commercial realities in the luxury
brands industry, is often likely to be a central issue.
Consequently, it may often be uncertain in practice whether
comparative advertising can lawfully be used for a “look-at-me-too”
product that is presented, for example, with a “look and feel” that
is reminiscent of a renown brand.
Notwithstanding this and other points left open by the AG, the
AG’s opinion may prove welcome for luxury brand owners because
overall, his interpretation of the MCA seems likely, in relevant
circumstances, to enhance the prospects of successfully challenging
or deterring comparative advertising of copycat products.
The use of trade marks as adwords: Google v
LVMH
The case of “Google v LVMH” also relates to the boundary between
lawful and unlawful competitive advertising, but does so in the
context of online advertising.
As many readers will be aware, this is perhaps the latest and
most high profile case in a growing body of litigation relating to
the sale by Google and other search engines of words (including
trade marks) as search terms (“adwords”) to potential advertisers,
irrespective of whether, in the case of a trade mark, such
advertiser has any rights in the mark in question.
The “adword litigation” has led to a number of apparently
conflicting decisions, across and within many jurisdictions,
including the EU. Consequently, the extent to which trade mark
rights can be used to prevent various forms of competitive online
advertising practice remains unclear in key respects. As a result,
a number of commentators are hoping that the AG (whose opinion is
pending at the time of going to press) and ECJ will answer not only
the questions referred, but also take the opportunity to address a
number of related issues including:
- defining the meaning of “use” of a trade mark in this
context;
- defining the extent to which such “use” may held liable to
affect the essential and any other function(s) of a trade
mark;
- determining the application of the eCommerce directive and
scope of responsibilities (if any) of search engines in respect of
trade marks being used as search terms;
- suggesting what account should be taken, in relevant cases, of
circumstances where adwords which are identical to or similar to
trade marks may have been used in connection with counterfeit or
illegal goods.
Online Marketplaces and liability for illegal products:
L’Oréal v eBay
One reason why achieving clarity in relation to “adwords” is
pressing is because of the huge, and ever-growing, importance of
online shopping. And online marketplaces, notably eBay, represent a
central part of this phenomenon.
Like Google, eBay has been embroiled in litigation spanning many
jurisdictions with leading luxury brands, notably over the sale via
its platforms of counterfeit and illegal products. The decisions to
date, as in the case of Adwords, have differed depending on both
the particular facts in issue and on the application of local
law.
Broadly, the decisions in favour of eBay - most notably in
“Tiffany v eBay” in the USA - have typically held that, first, eBay
acted as a mere conduit for postings on its site and, second, that,
through its Verified Rights Owners programme (“VeRO”), it had
responded appropriately by removing items notified to it by brand
owners as counterfeit. Consequently, the burden of “policing” sales
of counterfeit branded goods was treated as resting principally
with the brand owner.
On the other hand, luxury brands have also had successes, most
notably in “LVMH v eBay”, where the court awarded a significant sum
in damages to LVMH (just under EUROS 40million) and did so on
significant grounds. It held eBay had liability as a broker; that
its role implied knowledge and control of the information
transmitted on its sites; that eBay ought to check vendors who sell
regularly; and, notably, that eBay was liable for damage to the
integrity of selective distribution networks. This last point is
particularly important. Luxury brands are increasingly concerned
about the sale of grey market goods online (that is, genuine
branded products being sold through unauthorised channels). Such
sales pose a significant risk to the selective distribution
networks that are fundamental to both the image and business models
of luxury brands.
In this context, the most recent rulings in the L’Oréal v eBay
litigation (during May 2009 in Paris and London) appear
significant, if unofficial reports circulating in the media are
correct.
Initial reports appear to suggest eBay won both cases. Reports
of the Paris ruling, for example, suggested it was a victory for
eBay on the basis it fulfilled the scope of any “obligation” on it
to try to prevent the sale of fake goods. However, the outcome
seems more subtle: the Court also invited the parties to a judicial
mediation to seek to resolve the anti-counterfeiting measures that
should be implemented and it stayed proceedings on the issue of
eBay’s liability for illicit offers / listings and the question of
damages. Similarly, although initial reports of the decision in
London concentrated on the finding that eBay was not liable for the
sale of counterfeit goods on its website, significant caveats again
apply: reportedly the court accepted L’Oréal’s argument that eBay
could do more to prevent counterfeiting and it gave guidance on
appropriate anti-counterfeiting measures, including filtering
auction lots and requiring sellers to disclose their name and
address in listings.
The focus of the courts on bolstering anti-counterfeiting
measures suggests that luxury brands may well be making significant
progress in the overall war against counterfeit and illegal goods
sold online. The reason is that, in reality, consumer demand means
online marketplaces seem likely to remain highly significant for
the foreseeable future. If that is the case, then strategically,
the best approach to brand protection may not be to attempt to
destroy the large, well-funded and technically sophisticated online
marketplaces (such as eBay) but instead to seek incrementally ever
higher standards. In this context, the recent decisions are very
helpful in moving online marketplaces towards enhanced monitoring,
transparency, and improved anti-counterfeit strategies and
technologies (including smart processing of information, notably
relating to vendor details).
Selective distribution - Copad SA v Dior
On 23 April 2009, the ECJ handed down its ruling in the case of
“Copad v Dior”. It did so in terms which may represent a
significant milestone for luxury brands seeking to protect their
selective distribution networks.
The background to Copad v Dior is that Dior licensed SIL to
manufacture and distribute luxury corsetry bearing Dior’s trade
mark. The licence sought to protect Dior’s selective distribution
channels by expressly prohibiting, among other things, sales by SIL
to wholesalers, discount stores, and mail order companies (among
others). In breach of its obligations, however, SIL sold products
bearing the Dior mark to Copad, a discount store business.
The fundamental legal question raised by this case is whether,
in this situation, a brand owner can only bring a claim against the
manufacturer for breach of contract or may also be able to bring a
trade mark infringement claim against the manufacturer and/or the
manufacturer’s customer? The ECJ’s full ruling contains a number of
implications that are significant for the drafting of licence
agreements and for the interpretation of Trade Marks Directive
articles 7 and 8. What is significant, from a wider luxury brand
protection perspective, is the interpretation the ECJ gave to the
wording of Trade Marks Directive art 8(2). The ECJ construed the
provision as meaning that:
“the proprietor of a trade mark can invoke the rights conferred
by that trade mark against a licensee who contravenes a provision
in a licence agreement prohibiting, on grounds of the trade mark's
prestige, sales to discount stores of goods such as the ones at
issue in the main proceedings, provided it has been established
that that contravention, by reason of the situation prevailing in
the case in the main proceedings, damages the allure and
prestigious image which bestows on those goods an aura of
luxury”.
The emphasis placed here (and elsewhere in the ruling) on the
protection of the aura of luxury, as being “essential” to such
luxury brands, and on the role of context in helping consumers
identify luxury brands in the marketplace, is potentially very
important. The ECJ showed its willingness to recognise that
maintenance of an aura of luxury may be a right that is protectable
under trade mark law. If this approach is followed and developed in
future cases, Copad v Dior may come to represent a notable
milestone in increasing the scope of protection afforded to the
proprietors of trade marks. As such, the decision will be warmly
welcomed by proprietors of luxury brands seeking to protect and
enhance selective distribution networks.
Conclusions
As noted, many of the cases discussed in this article are
ultimately concerned with determining the scope of rights, if any,
granted by a trade mark beyond its essential function of indicating
trade origin. This issue was identified by the AG in L’Oréal v
Bellure as a major area of uncertainty and as requiring urgent
clarification by the ECJ. Although, disappointingly, the AG left
the question unresolved, it is to be hoped the ECJ will take the
opportunity shortly to address it in detail.
Of course, the ECJ’s recent decision in Copad v Dior may
indicate a degree of judicial movement, at least within the EU,
away from the idea of trade marks based exclusively on their
original essential function towards recognition of wider
proprietary rights that may be protectable. In this context, the
pending “adwords” decision in LVMH v Google may prove particularly
interesting.
A number of the decisions discussed above suggest brand owners
are achieving, incrementally, a number of successes in asserting
proprietary rights in relation to trade marks and in protecting
their brands from being tarnished by association with inferior
surroundings, and/or copycat, fake and illegal products. However, a
significant degree of caution is needed. As noted, a number of key
judgments and appeals are outstanding. Further, many of the cases
discussed have a distinctively “European” (rather than American)
bias in the balance struck between, on the one hand, the rights of
a brand owner and on the other, the operation of the free
market.
The importance of cases like Tiffany v eBay and the recent
L’Oreal v eBay decisions should not be underestimated, especially
in an industry where the brands and business models involved are
global in nature. And in this context, what luxury brands need more
than anything is a greater degree of certainty, consistency, and
collaboration, across global jurisdictions concerning the scope of
available brand protection.
This article reflects the position as at 26 May 2009. Further
developments on a number of the cases highlighted in this article
are expected imminently.
This article was first published in Trademark
World
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