The starting point was that keyword advertising was not inherently or inevitably objectionable from a trade mark perspective. On the contrary, ECJ case law recognised that, as a general rule, keyword advertising promotes competition.

The question was whether, on the specific facts, Interflora had established that M&S had infringed the trade marks. Arnold J had to consider M&S's advertisements in context from the perspective of the reasonably well-informed and reasonably observant internet user, initially as at 6 May 2008, when the use of disputed keywords containing the marks had begun.

Interflora submitted that the evidence showed that many internet users in the UK do not appreciate the distinction between the natural search results and the paid advertisements on Google's search engine return pages. Arnold J considered that this was something that was likely to have changed over time, and that internet users were now more likely to be aware both that there was a distinction and the broad nature of the distinction than they were in May 2008. Considering all the evidence, however, he concluded that, even now, a significant proportion of internet users in the UK did not appreciate that, unlike the natural search results, the advertisements appeared on the search engine return pages because the advertisers had paid for the advertisements to be triggered by a keyword consisting of or related to the search term entered by the user.

Arnold J noted that the Court of Appeal had rejected two attempts by Interflora to adduce direct evidence of consumer reaction to M&S's keyword advertising (see Legal update, Court of Appeal re-emphasises test for consumer evidence to be of real value). He noted that M&S had not attempted to adduce any direct evidence of consumer reaction to its keyword advertising even though, as Interflora pointed out, M&S was well placed to do so, since it had records of all consumers who had purchased flowers from its website. The judge said that M&S's failure to adduce such evidence did not mean that it should be inferred that the evidence would have assisted Interflora, but it did mean that M&S could not rely on such evidence to rebut the conclusions which Interflora said should be drawn from the evidence which was before the court.

Arnold J noted that the ECJ's judgment in response to the referred questions established that there were three particular factors to consider in assessing whether M&S's use of the signs enabled reasonably well-informed and reasonably observant internet users, or enabled them only with difficulty, to ascertain whether M&S's flower delivery service originated from Interflora, or an undertaking economically connected with Interflora, or originated from a third party:

In addition to these factors, Arnold J also considered various the other matters relied on by the parties, including that:

The second proposition involved an acceptance by Interflora that consumers who were initially confused by the M&S advertisement ceased to be confused after they had clicked through to the M&S website. Interflora submitted that this did not detract from Interflora's case because, among other things, such initial interest confusion was sufficient to establish Interflora's case under Article 5(1)(a)/Article 9(1)(a). Arnold J said that he understood counsel to be relying on Och-Ziff Management Europe Ltd v OCH Capital LLP [2010] EWHC 2599 (Ch) (see Legal update, High Court finds infringement and passing off in OCH trade mark claim), in which he held that initial interest confusion could be relied upon to establish a likelihood of confusion under Article 5(1)(b) of the Directive and Article 9(1)(b) of the CTM Regulation. Arnold J accepted that initial interest confusion was equally relevant to show an adverse effect on the origin function of the trade mark for the purposes of Article 5(1)(a)/Article 9(1)(a).

Arnold J concluded that, taking into account all of these factors, as at 6 May 2008, the M&S advertisements did not enable reasonably well-informed and reasonably attentive internet users, or enabled them only with difficulty, to ascertain whether the service referred to in the advertisements originated from Interflora, or an undertaking economically connected with it, or originated from a third party. On the contrary, as at 6 May 2008, a significant proportion of the consumers who searched for "interflora" and the other signs in issue, and then clicked on M&S's advertisements displayed in response to those searches, were led to believe, incorrectly, that M&S's flower delivery service was part of the Interflora network. He concluded that this was still the case even now. Therefore, M&S had infringed the marks under Article 5(1)(a) and Article 9(1)(a).

Google France had established that the use of a third-party mark as an advertising keyword did not affect the advertising function of the mark. The ECJ, in answering the referred question in Interflora, said that in addition to its origin function, and its advertising function, a trade mark could also be used by its proprietor to acquire or preserve a reputation capable of attracting consumers and retaining their loyalty - the "investment function". This function was distinct from the advertising function, although there was some overlap between the two. The ECJ said that, if a third party's use of a mark for goods or services identical with that for which it was registered were to interfere substantially with the proprietor's use of the mark to acquire or preserve such a reputation, that use would adversely affect that mark's investment function, which the trade mark owner could prevent under Article 5(1)(a). It noted that, where the trade mark already enjoyed such a reputation, the investment function was adversely affected where use by a third party of a sign identical with that mark in relation to identical goods or services affected that reputation and thereby jeopardised its maintenance, and the trade mark owner could prevent such use (paragraph 83, L'Oréal v eBay; Legal update, ECJ rules on L'Oréal v eBay reference). However, the ECJ said that a trade mark owner could not, in conditions of fair competition that respect the trade mark's function as an indication of origin, prevent a competitor from using a sign identical with that trade mark in relation to identical goods or services, if the only consequence was to oblige the trade mark owner to adapt its efforts to acquire or preserve a reputation capable of attracting consumers and retaining their loyalty. Likewise, the fact that that use might prompt some consumers to switch from goods or services bearing that trade mark could not be successfully relied on by the trade mark owner.

Arnold J agreed with M&S that it was not easy to understand exactly what the ECJ meant by the "investment function" and how it differed from the "advertising function". Nevertheless, it was necessary to try and give effect to what the ECJ had said. Arnold J thought that some light was shed on the distinction the ECJ was making between the advertisement and investment functions by the cross-reference to L'Oréal v eBay. In the paragraph cross-referred to, the ECJ was considering whether a trade mark owner could rely on the trade mark to oppose the sale on eBay of genuine cosmetics and perfumes without their packaging. The ECJ said that the owner could do so if either the consequence of the removal of the packaging was that essential information was missing or the owner established that "the removal of the packaging has damaged the image of the product and, hence, the reputation of the trade mark". Bearing that in mind, Arnold J concluded that, in Interflora, the ECJ was saying that, if the third party's keyword advertising adversely affects the reputation of the trade mark, as for example where the image the trade mark conveys is damaged, then there is an adverse effect on the investment function. He found that there was no evidence that M&S's keyword advertising had an adverse effect on the reputation of the INTERFLORA marks, so that there was no adverse effect on the investment function.

Interflora argued that M&S's use of 'Interflora' within a referencing service gradually persuaded internet users that the word was not a trade mark designating the flower-delivery service provided by florists in the Interflora network, but was a generic word for any flower-delivery service, so that there was detriment to the trade marks' distinctive character (dilution) contrary to Article 9(1)(c) and Article 5(2).

However, the ECJ said that the selection of a sign which was identical with or similar to a trade mark with a reputation as a keyword within an internet referencing service did not contribute to a trade mark becoming a generic term if it enabled the reasonably well-informed and reasonably observant internet user to tell that the goods or services offered originated not from the trade mark owner but, on the contrary, from a competitor. In such cases, the trade mark's distinctiveness was not reduced by that use, the latter having merely served to draw the internet user's attention to the existence of an alternative product or service to that of the trade mark owner.

Arnold J concluded that it was clear from this that, if Interflora failed to establish their case of effect on the origin function under Article 5(1)(a) and Article 5(2), then Interflora's case on dilution must equally fail.

The judge said that the ECJ in Interflora had accepted that an advertiser who selected a trade mark with a reputation as a keyword, and thereby obtained custom from consumers instead of the trade mark proprietor, obtained a real advantage from the mark's distinctive character and repute without compensating the proprietor mark for such use. It said that this must be considered to be an unfair advantage in the absence of due cause. However, it also said that, if the advertisement offered an alternative to the goods or services of the proprietor without (i) offering a mere imitation of those goods or services or (ii) causing dilution or tarnishment of the trade mark or (iii) adversely affecting the functions of the trade mark, then "as a rule" the use constituted fair competition and thus was not "without due cause".

Arnold J said that this represented a significant development in the ECJ's case law under Article 5(2) and Article 9(1)(c). What the ECJ had done was to recognise an important limitation upon the very broad principle which it had apparently enunciated in L'Oréal v Bellure.

Interflora did not suggest that M&S has offered a mere imitation of its services, or that the trade marks had been tarnished. Therefore, if Interflora failed to establish an adverse effect on the functions of the trade marks under Article 5(1)(a) and Article 9(1)(a), they could only succeed under Article 5(2) and Article 9(1)(c) if they could establish that the present case was an exception to the general rule stated by the ECJ. Interflora argued that M&S's use of the signs took unfair advantage of the distinctive character and repute of the marks and was without due cause because M&S had deliberately targeted Interflora and Interflora was unable to fight back. It argued that it would be both costly and pointless for Interflora to bid on "marks and spencer", while bids on "marks and spencer flowers" would not be cost effective since there are far fewer searches for "marks and spencer flowers" than for "interflora". Arnold J rejected this argument. All it amounted to was that M&S is in a different market position to Interflora because it is a general retailer selling a wide variety of goods and services whereas Interflora is a specialist in flower delivery. This was not sufficient to deprive M&S of due cause for its keyword advertising.

Interflora Inc and another v Marks and Spencer plc and another [2013] EWHC 1291 (Ch), 21 May 2013 (Arnold J; Michael Silverleaf QC and Simon Malynicz (instructed by Pinsent Masons LLP) for the Claimants; Geoffrey Hobbs QC and Emma Himsworth QC (instructed by Osborne Clarke) for the First Defendant).