ECJ judgment on Interflora v Marks & Spencer advertising keywords reference

Practical Law Legal Update 8-508-3637 (Approx. 8 pages)

ECJ judgment on Interflora v Marks & Spencer advertising keywords reference

by PLC IPIT & Communications

Background

The Trade Marks Directive (89/104/EEC, now replaced by consolidated directive 2008/95/EC) provides that the proprietor of a registered trade mark may prevent third parties from using in the course of trade any sign which is identical to his mark in respect of goods or services which are identical to those for which the mark is registered (Article 5(1)(a)).

Article 9(1)(a) of the Community Trade Mark (CTM) Regulation (40/94/EEC) and section 10(1) of the Trade Marks Act 1994 (TMA) provide such rights to the owners of CTMs and UK-registered trade marks.

Member states can also provide in their national law that the owner of a trade mark which has a reputation in that member state can prevent third parties from using, in the course of trade, a sign which is identical with, or similar to, the trade mark in relation to goods or services dissimilar to those for which it is registered, where the use of that sign without due cause takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the trade mark (Article 5(2), Trade Marks Directive). ECJ case law has established that this provision also applies where the goods or services are similar to, or identical with, those for which the mark is registered.

Article 9(1)(c) of the CTM Regulation and section 10(3) of the TMA provide such rights to the owners of CTMs and UK-registered trade marks.

Facts

High Court proceedings

The claimants (Interflora) operate the world's largest flower delivery network under CTM and UK trade mark registrations of INTERFLORA. The defendant, Marks & Spencer plc (M&S) is a large UK retailer which sells goods online, including flowers which it delivers in competition with Interflora.

Google Inc. and its subsidiaries (Google) operate an internet search engine and generate some of their revenue through a service known as Google AdWords, which consists of the display of a list of sponsored advertising links in a particular part of the search results page. Specific advertisements appear in response to the user typing in particular words (keywords). If more than one person purchases a particular keyword, Google auctions the order of the display for the relevant sponsored link and the highest bidder will achieve the highest position in the sponsored link section of the results page. The advertiser pays on a "cost-per-click" basis each time a user clicks on the hyperlink in its sponsored link and is directed to the advertiser's website.

M&S bought several keywords containing the mark INTERFLORA and close variations of it. Searching against these keywords generated a sponsored link to M&S's online flower-delivery service. Interflora brought proceedings against M&S alleging infringement under Article 5(1)(a) and Article 5(2) of the Directive. (There was also a second defendant, Flowers Direct Online Limited, who settled with the claimant in March 2009.)

Reference for preliminary ruling

The High Court adjourned the proceedings in May 2009 pending a reference to the ECJ on ten questions of law. Six of these were later eliminated because the ECJ had answered them in its judgment in the Google France reference in March 2010 (see Legal update, ECJ ruling in Google France AdWords case and Legal update, High Court withdraws some of the questions referred to ECJ in Interflora Google AdWords dispute). The remaining questions were:

Question 1: Where a trader which is a competitor of the proprietor of a registered trade mark and which sells goods and provides services identical to those covered by the trade mark via its website:

selects a sign which is identical … with the trade mark as a keyword for a search engine operator's sponsored link service,
nominates the sign as a keyword,
associates the sign with the URL of its website,
sets the cost per click that it will pay in relation to that keyword,
schedules the timing of the display of the sponsored link; and
uses the sign in business correspondence relating to the invoicing and payment of fees or the management of its account with the search engine operator,

but the sponsored link does not itself include the sign or any similar sign, do any or all of these acts constitute "use" of the sign by the competitor within the meaning of Article 5(1)(a) of the Trade Marks Directive and Article 9(1)(a) of the CTM Regulation?

Question 2: Is any such use "in relation to" goods and services identical to those for which the trade mark is registered within the meaning of Article 5(1)(a) of the Directive and Article 9(1)(a) of the CTM Regulation?

Question 3: Does any such use fall within the scope of either or both of:

(a) Article 5(1)(a) of the Trade Marks Directive and Article 9(1)(a) of the CTM Regulation; and

(b) Article 5(2) of the Trade Marks Directive and Article 9(1)(c) of the CTM Regulation?

Question 4: Does it make any difference to the answer to question 3 above if:

(a) the presentation of the competitor's sponsored link in response to a search by a user by means of the sign in question is liable to lead some members of the public to believe that the competitor is a member of the trade mark proprietor's commercial network contrary to the fact; or

(b) the search engine operator does not permit trade mark proprietors in the relevant member state … to block the selection of signs identical to their trade marks as keywords by other parties?

Advocate General's opinion

Advocate General (AG) Jääskinen gave his opinion on the reference in March 2011. For details of his recommendations, see Legal update, AG's opinion in Interflora v Marks & Spencer advertising keywords reference.

Decision

The ECJ's answers to the referred questions did not follow the pattern of the questions themselves, but took the form of general statements of principle in relation to Article 9(1)(a) and Article 5(1)(b). They can be paraphrased as follows:

Article 9(1)(a) and Article 5(1)(b) entitle a trade mark proprietor to prevent competitors from using its registered trade mark as an advertising keyword, for goods or services identical with those that are covered by the registration, if such use is liable to adversely affect one of the functions of the mark.
Such use will have an adverse effect on the mark's function of indicating origin (the "origin function") if the keyword advertisement does not enable the reasonably well-informed and reasonably observant internet user (the User) to ascertain whether the advertised goods or services originate from the trade mark proprietor, from an undertaking economically linked to it, or from an entirely unconnected third party (or if the advertisement makes it difficult for them to do so).
Article 9(1)(c) and Article 5(2) entitle the proprietor of a trade mark that enjoys a reputation to prevent competitors from using it as an advertising keyword if this takes unfair advantage of the distinctive character or repute of the trade mark (free-riding) or causes detriment to that distinctive character (dilution) or repute (tarnishment). One example of dilution would be if the use contributed to turning the trade mark into a generic term.
However, the proprietor of a trade mark that enjoys a reputation cannot prevent others from using the trade mark as keywords in advertising that offers an alternative to that proprietor's goods or services, unless that advertisement offers a mere imitation of them, causes dilution or tarnishment, or adversely affects the functions of the trade mark.

The ECJ also dismissed an application by M&S to re-open the oral procedure on the basis of an alleged procedural error on the part of the AG.

The ECJ's detailed reasoning on each of the referred questions is set out below.

Infringement under Article 5(1)(a) and Article 9(1)(a)

Referring to Google France, the court started by saying that it was clear that use of a sign as a keyword constituted use in the course of trade, and that it was use in relation to goods and/or services, even if the sign did not appear in the advertisement itself.

The High Court proceedings from which the questions were referred involved a "double-identity" situation potentially covered by Article 5(1)(a) and Article 9(1)(a), because the defendant had used the claimant's registered mark "Interflora" as a keyword in relation to goods and services covered by that mark.

According to Google France, such use was preventable only if it was liable to have an adverse effect on one of the functions of the mark. There were differences between the parties as to which functions were protected, but the court said that it was settled law that this covered not just the origin function, but also all other functions, such as, for example, the function of guaranteeing quality. Case law had also taken into account the fact that a trade mark is often an instrument of commercial strategy used, for example, for advertising purposes or to acquire a reputation in order to develop consumer loyalty. The origin function was essential and always present when a trade mark was used, whereas other functions only came into play sometimes. Furthermore, there was no reason to suppose that only trade marks with a reputation were capable of having functions other than the origin function.

As to infringement under Article 5(1)(a) and Article 9(1)(a) through the use of third-party marks as advertising keywords, the court made the following points:

Adverse effect on origin function

Was the origin function adversely affected? The answer to this question depended on the appearance and content of the advertisement itself. As established in Google France, such use would have an adverse effect on origin function if the advertisement did not enable the User (as defined above) to ascertain whether the advertised goods or services originated from the trade mark proprietor, from an undertaking economically linked to it or from an entirely unconnected third party (or if the advertisement made it difficult for them to do so).
When a third-party trade mark was used as a keyword, the advertisement appeared immediately after the trade mark had been entered as a search term, and was displayed at a point when the trade mark was, in its capacity as a search term, also displayed on the screen. In view of this, there was scope for the User to be mistaken as to the origin of the advertised goods or services. If the advertisement suggested an economic link with the trade mark owner, there would be an adverse effect on the origin function. If the advertisement did not go so far as to suggest a link, but was so vague as to the origin of the goods or services that the User was unable to determine whether the advertiser was the trade mark proprietor, or was linked to that proprietor, there would similarly be an adverse effect on the origin function.
The fact that the search engine provider (in this case, Google) did not give trade mark proprietors the option of preventing third-party use of their marks as keywords was irrelevant when assessing whether the proprietor had consented to the keyword use. If the opposite had been the case - that the search engine did offer this option - then tacit consent might be implied if the proprietor did not exercise it. However, that was not the case here.
As to the national proceedings, the ECJ pointed out that if the facts showed that M&S advertisements led Users to believe that M&S's flower delivery services were part of Interflora's commercial network, because they did not allow those Users to determine whether M&S was economically linked with Interflora, then this would mean that the origin function of Interflora's mark would have been adversely affected. The facts would have to show, however, that it was the "User" who was misled (that is, the reasonably well-informed and reasonably observant internet user). The mere fact that there were some internet users who had difficulty grasping that there was no economic link would not be enough to support a finding of adverse effect. When carrying out its assessment, the national court might choose to assess, first, whether the User was deemed to be aware, as a matter of general knowledge of the market, that M&S's flower delivery service was not part of the Interflora network; and, second, if this was not generally known, whether the M&S advertisement enabled that User to tell that the M&S service did not belong to the Interflora network. The court added that one circumstance to be taken into account would be the sheer number and variety of retailers who did form part of that network, which might make it more difficult for Users to tell whether or not M&S was part of it.

Adverse effect on advertising function

Google France had established that use of a third-party mark as an advertising keyword did not affect the advertising function of the mark. It was true that it might have repercussions for the trade mark proprietor's use of its mark in advertising: for example, it might have to pay a higher price per click in order to ensure that its advertisement appeared above that of a competitor who was also using the mark as a keyword; it might also have to intensify its advertising efforts in order to maintain or enhance its profile with consumers.
However, this would not in all cases mean that there was an adverse effect on the advertising function of the mark. The aim of using third-party marks as keywords was generally to offer consumers alternatives to the goods or services of the trade mark proprietors, which was a practice inherent in commercial competition. It did not deny the proprietor the opportunity of using its mark effectively to inform and win over consumers.

Adverse effect on investment function

The "investment function" was the function of allowing the proprietor to acquire or preserve a reputation capable of attracting consumers and retaining their loyalty. It was distinct from the advertising function, although there was some overlap between the two.
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.
If the mark already had a reputation, and third-party use of it in relation to identical goods or services affected that reputation and thereby jeopardised its maintenance, there would be an adverse effect on the mark's investment function.
The trade mark proprietor would not be able to prevent third-party use as a keyword if it did not adversely affect the origin function, and if the only consequence of the third-party use was to oblige the trade mark proprietor to adapt its efforts to acquire or preserve a reputation. The fact that the keyword use prompted some consumers to switch to a competitor's goods or services was not itself a basis for finding that the investment function was adversely affected.

Infringement under Article 5(2) and Article 9(1)(c)

There were three types of damage which could be sufficient to support a finding of infringement under Article 5(2) or Article 9(1)(c): tarnishment, dilution and free-riding. The questions referred to the court concerned only dilution and free-riding. It made the following points:

Dilution

Dilution occurred when third-party activity weakened a mark's ability to identify the goods and services for which it was registered. A diluted mark would become incapable of creating an immediate association, in the minds of consumers, with a specific commercial origin. A trade mark proprietor was not required to wait until the end of the process of dilution (which would mean the total loss of the mark's distinctive character), but could seek relief if it perceived that third-party activity was reducing the distinctiveness of its mark.
Interflora claimed that M&S's use of "Interflora" as an advertising keyword was persuading internet users that the word did not specifically denote its own delivery service, but was rather a generic term denoting flower delivery services in general. However, the ECJ did not accept that this was necessarily the case; provided that the User could tell that the advertisement that appeared as the result of inputting "Interflora" as a keyword was not an Interflora advertisement, but was that of a competitor, there would be no reduction in the distinctiveness of the INTERFLORA mark. Instead, the use of the keyword by the competitor had merely alerted the User that there was an alternative service to that of Interflora.
Accordingly, if the national court were to find that there was no adverse effect on the origin function of the INTERFLORA mark, it would logically also find that there was no dilution of the mark either. Conversely, a finding that the origin function was adversely affected would necessitate an assessment by the national court of whether M&S's use of the mark as a keyword had had such an impact on the market for flower delivery services that the word "Interflora" had come to designate, in the minds of consumers, any flower delivery service.

Free-riding

Free-riding occurred when a third party made use of a sign, without due cause, so as to take unfair advantage of the distinctive character or repute of a trade mark.
An analysis of the nature of third-party use of marks as advertising keywords showed that it fulfilled most of the criteria of free-riding. The purpose of that use was to take advantage of the character and repute of the mark so as to give the advertiser a real advantage. However, the saving grace was in the proviso that the use should be "without due cause". Provided that the third-party advertiser was merely putting forward alternative goods or services, was not offering a mere imitation of the proprietors' goods or services, and was not causing tarnishment or dilution, nor adversely affecting the functions of the mark, then he was operating within the ambit of fair competition, and his use would not be "without due cause".

Comment

Much of this ruling consists of re-statements of existing ECJ jurisprudence. Perhaps the most significant part of it is the reference to substantial interference with a proprietor's use of a mark to acquire or preserve a commercial reputation (the so-called "investment function"). This is a new formulation which may give Interflora additional scope in its claims before the High Court. However, the general tenor of the ruling seems to indicate that the outcome of national proceedings based on this guidance will be fact-dependent, particularly as regards the court's assessment of the notional internet user's state of knowledge of the market. Given that most internet users these days are well aware of the practice of using keywords and sponsored links, and that most advertisements carry the name of the advertiser anyway, it may prove difficult for brand-owners to succeed in infringement proceedings based on keyword use. Interflora is in the rare (and perhaps unfortunate) position of being more able than most to demonstrate a likelihood of damage to the origin function of the INTERFLORA mark, since - as the ECJ has pointed out in its ruling - its network includes numerous and diverse separate undertakings, so that it is not too much of a stretch to imagine that M&S might have opted to become one of them.

The true effect of this ruling on trade mark law in the UK will not be clear until the High Court comes to apply the guidance, as the ECJ has for the most part declined to comment on the application of these principles to the facts of the Interflora proceedings.

Case

(1) Interflora Inc. (2) Interflora British Unit v (1) Marks & Spencer plc (2) Flowers Direct Online Ltd, Case C-323/09, 22 September 2011.

ECJ judgment on Interflora v Marks & Spencer advertising keywords reference | Practical Law