UK COURT DIARY

Infringement Based On Unfair Advantage or Detriment What Does It Take To Win?

In two recent cases, the High Court has attempted to untangle some of the knots that vex the law of dilution. The strands it has disentangled are of great interest because they highlight the areas most fundamental to claims under Section 10 (3) of the Trade Marks Act 1994, namely proof of unfair advantage or detriment, and the nature of use “without due cause.” They offer essential guidance on what it takes to win an infringement action based on reputation and unfair advantage or detriment.

 

The Relevant Law

Dilution is a controversial and imprecise term in the U.K., but there is no more convenient short-hand for the principles underlying S. 10 (3), as well as Article 5 (2) of the Directive, on which it is based. Article 5 (2) entitles the proprietors of a registered mark to prevent unauthorised use of:

“…any sign which is identical with, or similar to, the trade mark in relation to goods or services which are not similar to those for which the trade mark is registered, where the latter has a reputation in the Member State and where 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.”

Following the ECJ’s well-known decision in Davidoff v. Gofkid [2003] FSR 28, Article 5 (2) is to be read as though the words “in relation to goods or services which are not similar to those for which the trade mark is registered” are scored out. Article 5 (2) therefore provides a cause of action regardless of the goods or services for which the later mark is used.

The amendment has been incorporated by amendment into S. 10 (3), and S. 5 (3), the provision in U.K. law that permits opposition based on registered marks with reputation.

 

Can Unfair Advantage or Detriment Be Inferred?

To make out a case under S. 10 (3) or S. 5 (3), a claimant or opponent must prove that the use of the sign “takes unfair advantage of, or is detrimental to, the distinctive character or the repute of the trade mark.” This present-tense language is in contrast to the probabilities allowed by the language of S. 10 (2), where use of a later identical mark for similar goods or services, or a similar mark for identical or similar goods or services, would infringe where, because of the identities or similarities, there is a likelihood of confusion which includes a likelihood of association.

Last July in Mastercard International Inc. v. Hitachi Credit (UK) Plc [2004] EWHC 1623 (Ch), Peter Smith J. took the opportunity to review the cases and to consider afresh whether the court or Registry is entitled to infer unfair advantage or detriment, or whether the positive language of S. 10 (3) and S. 5 (3) requires such effects to be proved.

 

Background

In Mastercard, Hitachi had applied to register CREDIT MASTER as a trade mark in the U.K. for financial services and also goods and services dissimilar to financial services. Mastercard, owner of numerous earlier registrations for or including MASTERCARD, opposed under S. 5 (3). It asserted a reputation in MASTERCARD for financial services; that the marks MASTERCARD and CREDIT MASTER were similar, due to the common word MASTER and conceptual similarities between CREDIT and CARD; and that therefore the use of the later mark would take unfair advantage of, or be detrimental to, the distinctive character or repute of the MASTERCARD marks.

The hearing officer dismissed the opposition on the basis that although there was a reputation in MASTERCARD, nevertheless MASTER on its own was not strongly distinctive, and the similarities between the marks were not sufficient for the average consumer to make any link between them that would result in taking unfair advantage of, or detriment to, the distinctive character or repute of the MASTERCARD mark. The hearing officer noted that S. 5 (3) “refers to use which ‘will’ be detrimental rather than simply a likelihood of risk of such damage.” He regarded Mastercard’s claim as “optimistic” without evidence that no, or few, other marks used MASTER, even only within the financial services market.

Mastercard appealed, arguing that given its proven reputation, any use of a mark incorporating MASTER would inevitably begin chiselling away at that reputation and the origin message of the mark. It argued that the hearing officer was therefore wrong to require actual proof of unfair advantage or detriment; they should have been inferred.

 

Judgment in Mastercard

Smith J. reviewed the authorities on this point. Although not considering inference specifically, the ECJ had nevertheless already considered the question of how Article 5 (2) was to be approached. In General Motors Corp. v. Yplon SA [C-375/97], Advocate-General Jacobs’ opinion, upheld by the ECJ, was that in order to avoid unduly broad protection for marks with a reputation, each element of Article 5 (2) must be assessed separately. The requirement to show unfair advantage or detriment was a positive one which could only be satisfied by evidence of actual detriment, or of unfair advantage. The precise method of proof was a matter for the national courts.

Yplon was applied by Pumfrey J. in DaimlerChrysler AG v. Alavi [2001] RPC 42, noting that Article 5 (2) was “concerned with actual effects, not risks or likelihoods.” In that case, Pumfrey J. recognised the possibility that the mere “presence of two similar marks where there was only one before” could be automatically detrimental to the distinctive character of the first. However, the judge preferred to come to no conclusion on that issue, which raised difficult questions.

Smith J. acknowledged the difficulties sensed by Pumfrey J., but noted that the learned judge had still regarded detriment and unfair advantage as actual effects which, under Article 5 (2) must be proved. Smith J. noted that in an OHIM Opposition Division case cited by Mastercard, Campomar SL; opposition by Nike International Ltd. [2000] ETMR 50, it appeared that damage had been inferred without actual proof. However, Smith J. noted the striking similarities between the marks and the fact that it had been shown in evidence that it was normal practice for owners of marks with a reputation to expand into marketing other products, such as perfumes and colognes, under the same marks. The learned judge did not regard Campomar as carving out a different legal principle to that expressed by the ECJ and endorsed by Pumfrey J.

Taking these authorities into account, Smith J. held that the requirement to prove actual detriment or unfair advantage under Section 5 (3) (and therefore S. 10 (3) also) was clear. If the court were simply to infer those consequences upon proof of reputation alone, the remaining words of the section would be redundant. If that had been the intention behind the drafting of Article 5 (2), then the presence of those words would be puzzling indeed. Mastercard’s appeal was rejected.

 

What Is Use “Without Due Cause”?

Even where a claimant or opponent proves actual unfair advantage or detriment, that is not the end of the matter. He must also show that the use of the later mark is, or would be, without due cause, in order to succeed in a S. 10 (3) dilution-type claim. The meaning of these words was considered recently by Geoffrey Hobbs QC, sitting as Deputy Judge in Electrocoin Auomatics Ltd. v. Coinworld Ltd. and Others [2004] EWHC 1498 (Ch).

In that case, Electrocoin sued for infringement of its registered trade marks BAR-X and OXO in respect of games and gaming services in Classes 9 and 41. The defendants had marketed slot machines under the trade marks BEAR X and BIG BEN. The claim to infringement was chiefly in respect of the use of BEAR X and the symbols X and O on the slot machine reels.

The infringement claim was partly based on S. 10 (3). Mr Hobbs QC referred to such infringement as “cross-pollination,” where the marks are identical or so similar that, given the reputation of the earlier mark, the use of one is liable to influence the economic effect of the other on people who have been exposed to both, so that unfair advantage or detriment is likely to ensue. The reputation required was achieved when a significant part of the public concerned with the registered goods and services knew the mark.

As to the words “without due cause,” Mr Hobbs QC noted the judgment of Neuberger J. in Premier Brands v. Typhoon, in which the question was defined as not one of the defendant’s good or bad faith, or commercial reasons, but rather “whether the proprietor of the protected mark should be required to subordinate his own interests to those of the defendant” in relation to use of the later mark.

In this case, the infringement claim relating to the alignment of the symbols on the slot machine reels failed on the basis that it was not use capable of infringing. Their intermittent appearance when the machine was played was use in the course of trade, but not use for the purpose of distinguishing Coinworld’s machines. On Mr Hobbs QC’s interpretation of the still controversial ECJ decision in Arsenal, only use for the purpose of distinguishing goods could infringe. (This was more precise than the old “trade mark use” test; as Mr Hobbs QC himself observed, “to state that a registered proprietor may prevent a third party from using ‘the trade mark as a trade mark’ is as good as saying nothing at all.”)

Even if the S. 10 (3) claim had not failed on the basis that the use was not capable of affecting the essential functions of the trade mark, Mr Hobbs QC held that it would have failed on the ground that the use of the random reel alignments conformed to bona fide and established practices of the trade. The distinctiveness of the claimant’s registered OXO trade mark depended on its recognisably not conforming to those norms. Therefore, the interests of the trade mark owner should be subordinated to the interests of the defendants in using the random reel alignments.

The case for infringement was therefore rejected.

 

Comment

Both Mastercard and Electrocoin referred to and developed existing authorities on the issues of detriment and unfair advantage, and the nature of use without due cause. Neither was particularly ground-breaking, because the development of the authorities on both issues has so far been fairly consistent. Nevertheless, the incremental progress made in confirming the need to prove actual effects, and the relevance of bona fide and established trade practices in assessing whether use is with due cause, are important signposts for practitioners assessing cases under S. 10 (3) or S. 5 (3).

There are still unanswered questions, particularly on how detriment and unfair advantage can be proved. Some can be tackled on the basis of pure common-sense; for example, in the case of an as-yet unused mark, actual detriment or unfair advantage cannot be shown, and proof of a probability of such damage must therefore suffice. It is difficult to see the English courts imposing a Federal Dilution Act-style interpretation, to the effect that only once the damage has taken place can an injunctive remedy be sought.

Nevertheless, questions remain as to the precise manner in which detriment or unfair advantage of different types can be shown, and the answer is likely to vary in each case. In Campomar, for example, OHIM was influenced by evidence of diversification amongst companies with famous brands. In Mastercard, the hearing officer would have liked to have seen evidence that there were no, or few, other brands, in the financial services field which incorporated the element MASTER.

There will be other cases, however, where the damage has not yet taken place but the reputation of the earlier mark is so over-arching that the damage can be argued as inevitable, and capable of being inferred. Mastercard shows that the English courts recognise this prospect. However, it also shows that reliance on inference should be a last resort; even in the case of famous brands, the ECJ’s call to assess each element of Article 5 (2) separately and strictly echoes resoundingly, and is likely to be modified only in cases where to do otherwise would be clearly unjust. Brand owners cannot afford to skimp on evidence when building a case on dilution.