IN THE UK OFFICE

TELEPHONE TAKES ON MOUSE in Three-D Shape Marks Dispute

In an important decision on the comparison of shape marks, the High Court recently upheld the UK-IPO in allowing an opposition by Direct Line Insurance plc to U.K. trade mark application no. 2372783 of its competitor, Esure Insurance Ltd.

The decision under S. 5 (3) of the Trade Marks Act 1994 is good news for Direct Line, who otherwise would have lost following Lindsay J.’s finding that the hearing officer had made an error of principle in connection with the S. 5 (2) (b) ground.

 

BACKGROUND

The case began when, on 10 September 2004, Esure applied to register a three-dimensional shape mark in the form of a computer mouse on wheels for Class 36 services, including insurance.

Direct Line opposed under SS. 5 (2) (b), 5 (3) and 5 (4) (a) of the Trade Marks Act 1994, relying on its earlier U.K. and Community registrations for two- and three-dimensional shape marks comprising a telephone on wheels.

At the hearing, the opposition was upheld under SS. 5 (2) (b) and 5 (3) on the basis of Direct Line’s U.K. registration no. 2000821 for a three-dimensional red, black and white telephone on wheels (not limited as to colour) in respect of “insurance services, financial services and credit card services.” Esure appealed.

 

DIRECT LINE’S USE AND ESURE’S ENTRY INTO THE MARKET

A relevant factor in the UK-IPO’s decision and the deciding factor in the appeal was the distinctive character and reputation of Direct Line’s earlier red telephone on wheels, launched in 1990 and established prior to the filing of Esure’s application in September 2004.

At the outset, Direct Line’s red telephone on wheels was unusual and distinctive in respect of a new direct-to-the-consumer approach to selling insurance. By the time Esure introduced its computer mouse on wheels in August 2004, Direct Line had established itself as the U.K. market leader for motor insurance and a leading provider of home insurance.

Esure had originally used a blue and orange logo depicting a man sitting inside a bubble. Its new computer mouse made its debut in a television advertisement in which a telephone line was physically cut to encourage customers to cut out the phone and go on-line. Direct Line sued, but the parties settled. Esure then created wheels for its computer mouse and this device (following some modification) became the subject of the trade mark application filed on 10 September 2004, which Direct Line opposed.

In May 2005, Direct Line introduced its own computer mouse on wheels. Like the Direct Line telephone, the mouse was red and appeared in television advertisements as a ‘friend’ of the red telephone on wheels device.

 

DIRECT LINE’S SURVEY EVIDENCE

Before the UK-IPO, Direct Line had filed evidence from two mini-surveys and a full-scale survey in support of its opposition.

In the surveys, groups of respondents were shown variations of a two-dimensional computer mouse on wheels. These included a red version (Direct Line’s colour), an orange and blue version (Esure’s colours) and a black and white version. Analysis of these surveys showed that the largest number of respondents associated the red version with Direct Line. By contrast, the largest number of respondents associated the orange and blue version with Esure. Finally, the most popular reply to questions asked in relation to the black and white version was Direct Line, followed by Esure.

The case before the UK-IPO did not turn on the survey evidence because the hearing officer considered it flawed as a result of uncertainty as to the impact of Direct Line’s advertising campaign featuring its own computer mouse on wheels, which ran prior to and during the time when the surveys were conducted.

 

TEST FOR SIMILARITY OF MARKS

Since the survey evidence was not of assistance and the services were identical, the hearing officer had decided the case on the basis of a more straight-forward comparison of marks and assessment of whether that similarity gave rise to the effects required to prohibit registration under S. 5 (2) (b) and/or S. 5(3).

Esure’s counsel submitted that the marks were not similar overall. The hearing officer, however, disagreed. He held that the test was whether there was visual, aural or conceptual similarity, and, if so, whether this was sufficient (together with other relevant factors) to create a likelihood of confusion (direct or indirect, but not mere association) for the purposes of S. 5 (2)(b) and a likelihood of association for the purposes of S. 5 (3). He noted that under ECJ case law, a lesser degree of similarity between marks may be offset by a greater degree of similarity between goods or services. On appeal, the judge took a slightly different approach, finding that there was a minimum threshold requirement for similarity (albeit a low one) which had to be crossed in order to give rise to a likelihood of confusion. The case did not turn on this point, however.

Esure had argued before the UK-IPO that two marks are not necessarily similar just because they share a common element. The hearing officer had agreed, but considered that in this case the common element, the wheels, was significant because its juxtaposition with an electronic device was so unusual. The common element was deemed to give rise to similarity, albeit not necessarily sufficient similarity to create the effects necessary to succeed under SS. 5 (2) (b) and 5 (3).

 

THE APPROACH TO S. 5 (2) (b)

In accordance with established practice, the hearing officer had considered normal and fair use of Esure’s trade mark and the effect of use of the later mark in any colour, including red. Esure’s mark was not in fact limited to any colours and red was a feature of Direct Line’s mark as registered.

Direct Line’s mark was regarded as highly distinctive. This factor, coupled with the identity of services, counterbalanced the lower degree of similarity between the marks.

Influenced by this finding, the hearing officer had concluded that there was no likelihood of direct confusion between the marks due to the differences between them, but that there was a likelihood of indirect confusion arising from the visual and conceptual similarities. There was a risk that consumers would perceive Esure’s mark as a progression of Direct Line’s well-known telephone on wheels.

In the appeal before the High Court, however, the judge referred to the ruling of the ECJ in Marca Mode (C-425/98). In his view, Marca Mode emphasized the need for an assessment of the evidence before the Court. A likelihood of confusion could not be presumed on the basis of a likelihood of association between a later mark and a prior, highly distinctive mark. It had to be supported by evidence. In this case, the judge considered the survey evidence unreliable, and in his view there was no further evidence to demonstrate a likelihood of confusion. He concluded that the hearing officer had made an error of principle in finding a likelihood of confusion under S. 5 (2) (b).

 

THE APPROACH TO S. 5 (3)

Despite this finding, however, Direct Line prevailed. The appeal ultimately turned on S. 5 (3), under which the primary question was whether the average consumer would make a mental link between the marks.

The judge concluded that an average consumer would make such a link, even if Esure’s mark was used in colours other than red, because Esure’s advertisements featuring a computer mouse on wheels brought Direct Line to mind. He found that the link was enough to give rise to the required unfair advantage and detriment under S. 5 (3) because Esure’s mark rode on the back of Direct Line’s reputation and diluted the distinctiveness of Direct Line’s mark.

Whilst the judge agreed with the hearing officer’s finding under S. 5 (3), he considered that the hearing officer’s test had been too stringent. In the judge’s view, where the earlier mark was a highly distinctive mark with a reputation, and where similarity of marks had been established, it could sometimes be presumed that unfair advantage and/or detriment would occur. The question, in his view, was whether there was “a non-hypothetical future risk of detriment or unfair advantage”. The judge found that there was such a risk in this case.

The onus was on Esure to prove that it had due cause to use its mark despite these effects. Esure failed to do so. A possible comparative advertising defence also failed inter alia on the basis that Esure was not using its competitor’s mark to make a fair comparison between the rival services, but was rather using its own, similar mark.

 

CROSS-EXAMINATION OF WITNESSES

Before the UK-IPO, Direct Line’s counsel had invited the hearing officer to comment on whether Esure’s extensive cross-examination of Direct Line’s witnesses had been useful.

The hearing officer referred to Alliance & Leicester PLC’s Trade Mark Application [2002] RPC 29 for guidance, and observed that “cross-examination is not automatic but should be allowed within reason…..Cross-examination will be refused where the request is ‘gravely oppressive’. This includes where there is nothing to test because the evidence manifestly goes nowhere.”

Where an expert witness was concerned, the hearing officer considered that cross-examination should be conducted in order to obtain information which is helpful to the tribunal in the decision-making process. It should not, however, be used as an opportunity to extract an opinion on the similarity of two marks. This was not a main issue on appeal, but is nonetheless a useful point for practitioners.

 

COMMENT

The finding of similarity of marks in this case is interesting given the visual differences between them.

Ultimately, however, it was the conceptual similarity arising from the unusual and distinctive combination of the wheels element with an electronic device, coupled with direct line’s reputation in its mark, that led to the refusal of Esure’s application by both the UK-IPO and the High Court.

This is an encouraging decision for owners of distinctive marks who are considering opposing marks that include visual differences, but which nevertheless clearly borrow a distinctive element or concept from the earlier mark.

The hearing officer’s comments on Direct Line’s survey evidence serve as a reminder of the difficulties involved in planning and conducting such surveys. Whether a survey may be unduly influenced by factors such as a concurrent advertising campaign that could undermine the credibility of the results is yet a further issue to be considered when planning a market survey. This is particularly important given the comments of the appeal judge on likelihood of confusion under S. 5 (2) (b) and the requirement for persuasive evidence to establish it.

The judge’s comment that unfair advantage and/or detriment under S. 5 (3) may sometimes be presumed is intriguing. The wording of the Act suggests that these are elements that an opponent must prove, and the Court of First Instance has taken a strict line on this in OHIM appeals. The developing schism is undesirable and the issue was recently referred to the ECJ in Intel Corporation Inc. v CPM United Kingdom Limited (C-252/07). The eventual outcome will hopefully settle the differences between the English courts and the CFI on just how much a reputation on its own can prove.