On Business Names, ECJ says "Shop Around"

Businesses often search new brand names prior to launch. Less often do they search their shop and company names for conflicting earlier rights. Yet, it is clear from the recent ECJ decision in Céline SARL v Céline SA (C-17/06) that conflicts can and do arise between business names and trade marks. When should a business search its own prospective name? In the event of a conflict, how can infringement be avoided?

Vive la Différence

The risks involved in choosing a business name are often assumed to be low. As a result, business names are frequently selected without legal advice. E.U. law recognises that business names carry out a different function than brand names (distinguishing a trader as opposed to his goods), and consequently honest use of one’s own name, including a business name, is shielded from infringement under Article 6 (1) of the Harmonisation Directive.

The decision in Céline shows, however, that this defence is hardly absolute. There has long been a debate, in particular, as to the nature of “honesty” under the defence, and the ECJ’s approach in Céline has further dented the shield.

Céline

The facts of Céline illustrate how trade marks and business names can come into conflict, even after many years of use. In that case, Céline S.A. owned a French trade mark registration for CÉLINE for clothes and shoes, in force since 1928. Céline SARL, a local shop in Nancy trading since 1950, also operated under the name Céline in the sale of men’s and women’s clothing. Decades later, Céline S.A. learned of the conflict and sued for trade mark infringement. It won at first instance on the basis that the trade mark and shop name were identical, as were the goods for which the trade mark was registered and the shop name was in use. Under Article 5 (1) (a) of the Directive, there was no need to prove a likelihood of confusion in such cases of double-identity. The case was not as clear-cut as it seemed, however, and on appeal questions were referred to the ECJ on when a shop name could conflict with a registered trade mark in light of the own-name defence, and the circumstances in which the defence should apply.

Is Use of a Shop Name “Use in Relation to Goods”?

Despite the identity of the marks and goods, Céline SARL argued that its shop name could not infringe regardless whether the own-name defence applied, because Article 5 (1) (a) required “use in relation to goods.” Céline SARL contended that it was using Céline only to denote its shop and business - not the goods sold within it.

The ECJ hedged its answer. It held that where the use of a shop name does nothing more than denote the business being carried on, then the use was not, indeed, “use in relation to goods.” However, there were certain circumstances in which a shop name could be used in relation to goods, such as where the shop name was affixed to the goods, or was used in such a way as to establish a link in the public mind between the name of the shop and the goods.

The ECJ held that it was for the national court to determine whether a shop name was used in relation to goods, taking these factors into account.

When is Use of a Conflicting Shop Name “Honest”?

Céline SARL further argued that it enjoyed a defence to infringement because it had merely used its own name in accordance with honest business practices.

The ECJ had already affirmed in Anheuser-Busch ([2004] ECR I 10989) that use of a business name falls within the Article 6 (1) (a) “own-name” defence. The question, therefore, was how the national court should interpret the requirement that the use be “in accordance with honest practices.”

On this, the ECJ had already defined “honest practices” as a “duty to act fairly in relation to the legitimate interests of the trade mark proprietor” (Anheuser-Busch, para. 82). In Céline, the ECJ went further and outlined the factors to take into account in assessing such honesty. In particular, it identified the extent to which the shop name may have come, wrongly, to indicate a link with the brand owner, and whether the shop owner was aware of that. The extent to which the brand enjoyed a reputation from which the shop owner might profit was also relevant in determining whether use of a business name was “honest” under the defence.

Comment

For many, the Céline judgment represents a missed opportunity. Although it sets out a clear 4-part test for infringement (see this issue, “Hidden Use Claim Dissected in Vet.local”), it gives rather little guidance on how to apply it.

In particular, on the question of whether use of a shop or business name constitutes use in respect of goods or services, the ECJ’s clarity begins to dim. The judgment suggests that a shop name might be used in relation to the goods even where it is not affixed to the goods, provided it is used in such a way as to establish a link in the public mind between the shop name and the goods. However, it is difficult to understand what kind of shop name would not establish such a link, at least in the minds of actual customers who know that the shop sells certain goods. Moreover, it is not clear what kind of “affixing” amounts to use in relation to the goods. The shop name may not appear on sewnin or other integral labels, but if it appears on a sticker or swing tag with the price, or on a shopping bag, will that amount to use in relation to the goods, as opposed to use in relation to the business where the goods were purchased?

In spite of these shortcomings, though, the ECJ’s gloss on how to construe “honesty” under the ownname defence is helpful. Confusion in practice between a shop name and a trade mark, and the extent to which the shop owner is aware of it, are now clearly relevant when assessing whether a later conflicting shop name is shielded from infringement. It will not be enough for a business to say that it did not encourage such a link, or that there was no such link when the name was first adopted. It seems clear that the material time for assessing honesty is not just when the name was adopted, but also throughout the period of use.

Consequently, if a business becomes aware that its name is being wrongly associated with a prior trade mark, it is not in its interest to ignore it or to regard any resulting sales as a windfall. Merely denying the association to individual customers is unlikely to be enough to avoid infringement, particularly as not all the relevant public can be reached in this way. Advertising the fact that there is no link is likely only to draw the conflict to the attention of the brand owner. It is unlikely to be effective in avoiding continued confusion if the reason for the link is inherent in the shop or business name.

So what should a business do if it learns that confusion is developing between its name and a prior trade mark? That awareness may well mean that an “own-name” defence is unlikely to be available if an infringement action is brought. Certain actions may reduce the risk, including ensuring, as far as possible, that the shop name is not being used “in relation to goods” in the legal sense. This is problematic, though, and ultimately it may become necessary to weigh up the respective rights of the parties and determine whether changes to the shop or business name are warranted.

The ECJ offered no view on whether turning a blind eye to the possibility of a conflict and failing to conduct a trade mark search before adopting a business or shop name may scupper an “own-name” defence. Indeed, a general finding of that nature would probably go too far, since very small businesses may not have the resources at the outset to support exhaustive legal enquiries. Nonetheless, in cases where the resources were available and enquiries at the outset would have been reasonable, failure to make them could become a relevant factor.

There is, however, no doubt that conducting a trade mark search prior to using and investing in a new business or shop name is the best protection against possible conflicts with registered brands. This can help businesses avoid adopting names with potential problems and substantially reduce the scope for conflict and the costs and inconvenience of rebranding.

Once a clear name is adopted, company name registration does not, on its own, protect against encroachment by competitors. Businesses should not only look around, but look forward, and take advice on protecting their names as registered trade marks.