The latest case in the quest for clarification of trade mark law in relation to online use, particularly in relation to keywords (or "AdWords"), was handed down on 22 September.

The judgment is refreshingly clear and concise, drawing together a number of recent decisions of the Court of Justice of the European Union. It also provides further guidance in relation to the role of the other functions of a trade mark in double identity cases and introducing details of the "investment function". The Court rightly leaves a number of issues for the national court (the UK High Court), and the best guidance for brand owners will only be possible once we know which side of the line M&S's activities fall.

The factual background

Interflora Inc and another v Marks and Spencer plc and another: Court of Justice of the European Union in case C-323/09 - 22 September 2011

By way of a quick reminder, this case concerns "AdWords", the Google system (although similar systems are operated by other search engines) where economic operators can bid on keywords of their choosing (or suggested by Google). If an internet user enters that keyword into Google, a short advertisement written by the economic operator will appear in the "sponsored links" on the results pages.

In the present case, Marks and Spencer (or "M&S"), the well-known UK high street retailer which also offers online retailing services, bid on a number of keywords including "Interflora", which is a registered UK and Community trade mark of the flower delivery network Interflora. It was common ground between the parties that the mark "Interflora" had a substantial reputation in the UK and EU, and that M&S was not one of the independent companies in the Interflora network.

When a user enters "Interflora" into Google, an advertisement for M&S's flower delivery service appears in the sponsored links. The text of the advertisement is relevant, and one iteration was as follows:

"M&S Flowers Online

www.marksandspencer.com/flowers

Gorgeous fresh flowers & plants

Order by 5pm for next day delivery"

Mr Justice Arnold of the UK High Court referred ten questions to the Court of Justice of the European Union (CJEU) in the early stages of the case (before the trial), which were later whittled down to four. The Court's judgment summarised the recent judgments of the CJEU, and built upon these.

The Court of Justice's Judgment

Part 1: Double identity, and effects on the functions of the trade mark of use as an AdWord

So-called "double identity" cases, i.e. those which fall under Article 5(1)(a) of the Trade Marks Directive (formerly 89/104, now 2008/95), require use "in the course of trade". It is already established law that use of a trade mark as an AdWord is "use in the course of trade", following the Google France (C-236-238/08) and BergSpechte ([2010] ECR I-2517) cases. It is also use in relation to the advertiser's goods and services, even where the keyword does not appear in the advertisement itself (BergSpechte). However, this does not mean that the proprietor can necessarily prevent the use by the advertiser - it has to have an "adverse effect on one of the functions of the mark" (Google France and other cases).

L'Oréal v Bellure ([2009] ECR I-5185) and Google France clarified the position on this further, by saying that the provisions of Art 5(1)(a) enable the proprietor to rely on its exclusive right where there is, or is liable to be, an adverse effect on one of the functions of the trade mark. This is irrespective of whether the function concerned is the essential function of indicating the origin of the product or service covered by the trade mark or one of the other functions of the mark, such as that of guaranteeing the quality of that product or service or that of communication, investment or advertising. The basis for this "broadening" of the functions beyond the "essential function" of identifying origin finds its roots in the tenth recital to Directive 89/104 (as was) where it used the words "in particular" when referring to the origin function, and the use of the phrase "functions of the trade mark" in Arsenal.

The CJEU in this case commented that the court therefore takes into account that fact that a trade mark is often an "instrument of commercial strategy, used ... for advertising purposes or to acquire a reputation in order to develop customer loyalty". The extent to which these functions are relevant depends to some degree on the trade mark proprietor; it performs the other functions only if the proprietor uses the mark to that end. However, the CJEU held (contrary to the submission of the European Commission) that it is not just trade marks with a reputation which are capable of having functions other than that of indicating origin. This provides useful clarity to this area, as it had been the subject of some debate.

As a result of all this, the CJEU in this case decided to provide some guidance on the interpretation in relation to the trade mark's function of indicating origin, its advertising function and its "investment" function, a function that has been referred to in passing in the past but not explored in detail.

Indication of origin

The Google France case made it clear that the origin function of a trade mark is adversely affected if it does not "enable reasonably well-informed and reasonably observant internet users, or enables them only with difficulty, to ascertain whether the goods or services referred to by the advertisement originate from the proprietor of the trade mark ... or, on the contrary, originate from [an unconnected] third party".

When applying this test, it is very relevant that the user will have just entered the trade mark as a search term. Where the third party's advertisement suggests that there is an economic link with the proprietor, the conclusion "must be" that there is an adverse effect on that mark's function of indicating origin. The same conclusion must be drawn if the relevant internet users are not able to determine without difficulty whether or not the advertising relates to the proprietor's goods and services.

As the CJEU is not permitted to decide the outcome of a particular reference, it simply provided some useful pointers then left it to the national court to decide the case on the basis of the evidence. If internet users, which it repeatedly said must be "reasonably well-informed and reasonably observant", were led to believe, incorrectly, that M&S's flower delivery service was part of Interflora's commercial network, then the origin function should be found to be adversely affected (and an infringement finding would follow).

The CJEU added that "the fact that some internet users may have had difficulty grasping that the service provided by M&S is independent from that of Interflora is not a sufficient basis for a finding that the origin function has been affected", unless those internet users are reasonably well-informed and observant. In order to decide this, the CJEU said, the court must decide whether the relevant user is generally aware that M&S's service is not part of the Interflora network (a question for evidence) and whether M&S's advertisement enabled the user to realise that the service was not part of the Interflora network (again, one for evidence).

The CJEU instructed the national court to "determine whether or not the use of words such as 'M&S Flowers' ... is sufficient to enable [the relevant user] who has entered search terms including 'Interflora' to tell that the flower-delivery service offered does not originate from Interflora". Seeing how the national court approaches these questions on the facts of this case will provide very useful guidance to brand owners and advertisers in relation to future activity.

Advertising function

The CJEU gave this short shrift, as it was dealt with clearly in Google France and Bergspechte. It added the comment that the "mere fact" that the trade mark proprietor is obliged to "intensify its advertising in order to maintain or enhance its profile with consumers is not sufficient basis, in every case, for concluding that the trade mark's advertising function is adversely affected". It added that internet advertising on the basis of keywords has as its aim, as a general rule, "merely to offer internet users alternatives to the goods or services of the proprietors of those trade marks".

In a clear re-statement of the CJEU's views on this subject, it said that the use by the third party of an AdWord which is also a trade mark "does not have the effect of denying the proprietor of that mark the opportunity of using its mark effectively to inform and win over consumers".

Investment function

In its first exposition of this function, the CJEU defines the investment function as being the ability "to acquire or preserve a reputation capable of attracting consumers and retaining their loyalty". It may overlap with the advertising function, but it is distinct, as a reputation is not only based on advertising, but "also various commercial techniques".

The investment function is adversely affected where the use by a third party of the trade mark with a reputation in relation to identical goods or services affects that reputation and thereby jeopardises its maintenance, and the trade mark proprietor must be able to prevent such use.

However, in "conditions of fair competition that respect the trade mark's function as an indication of origin", the trade mark proprietor cannot prevent a competitor from using the trade mark if the only consequence of that use is to oblige the proprietor of that trade mark to adapt its efforts to acquire or preserve a reputation capable of attracting consumers and retaining their loyalty. Likewise, simply because some consumers may switch to the third party is not reason enough for the proprietor to be able to prevent such advertising. Whether M&S's actions jeopardise the maintenance by Interflora of a reputation capable of attracting consumers and retaining their loyalty is another question for the High Court.

Part 2: Marks with a reputation - Article 5(2) of the Trade Marks Directive

It was common ground that the "Interflora" trade mark had a reputation. For such marks, when considering Art 5(2) of the Directive, it is not necessary for the proprietor to show a likelihood of confusion (see L'Oréal v Bellure). The types of injury against which this article is designed to provide protection are detriment to the distinctive character of the mark ("dilution"), detriment to the repute of that mark ("tarnishment"), and unfair advantage taken of the distinctive character ("free riding"). Just one is enough for infringement. This judgment concentrated on dilution and free riding.

Dilution

At the end of the process of dilution, the trade mark is no longer capable of creating an immediate association, in the minds of consumers, with a specific commercial origin. The CJEU said that the proprietor must be able to prevent all use of a sign identical with or similar to a trade mark which reduces the distinctiveness of the mark, without being required to wait for the end of the process of dilution, i.e. the total loss of the trade mark's distinctive character.

The CJEU said that mere use of the trade mark as an AdWord does not necessarily contribute to dilution, especially if the use is "merely served to draw the user's attention to the existence of an alternative product or service to that of the proprietor". Therefore, the test for the High Court will be whether M&S's use enabled the reasonably well-informed and reasonably observant internet user to tell that the service promoted by M&S is independent to that of Interflora. If so, Interflora cannot argue that such use has contributed to turning the trade mark into a generic term. It will all depend on the clarity of the text of the advertisement, and we look forward to hearing the High Court's views as to where the line should be drawn.

Free riding

There is no question that the selection of the trade mark as an AdWord is taking advantage of the distinctive character and repute of the trade mark. The third party advertiser will be hoping that a large number of consumers using that keyword to carry out an internet search will see the third party's advertisement displayed on their screens. This is likely to lead to a real advantage for the advertiser, as it may well lead to increased visits to their website and sales.

However, is such advantage with due cause? If not, the CJEU says, the advantage is "unfair". The Court tried to illustrate the two sides of the line. It is likely to be "unfair" if the third party advertiser selects AdWords corresponding to trade marks with a reputation in order to offer for sale goods which are imitations of the goods of the proprietor.

However, if the advertiser is not offering a "mere imitation", is not causing dilution or tarnishment, and is not adversely affecting the functions of the trade mark, but is offering an alternative to the goods of the trade mark proprietor, it "must be concluded that such use falls, as a rule, within the ambit of fair competition in the sector for the goods or services concerned and is not without due cause".

An aside: Google's role and requirement for proprietors to be active

Google is not a party to this case, and the CJEU noted in its judgment that it is irrelevant to the questions it had to decide whether Google had permitted trade mark proprietors to prevent the selection of a sign identical with that trade mark as a keyword. In fact, the court agreed with the Advocate General that only the opposite case could have legal consequences. If such a service were offered by Google, and proprietors fail to take advantage of it, there could be "tacit consent".

It will be interesting to see how this develops, and brand owners would be well-advised to take a fresh look at the way they deal with Google on this issue, especially in light of Google's recent change of policy in this area. Following the Google France decision, Google will now carry out "a limited investigation as to whether a keyword (in combination with particular ad text) is confusing as to the origin of the advertised goods and services". Following this judgment, it is possible that if a proprietor does not do this, they could be seen as having given consent. Note that Google will still not stop trade marks being used as AdWords in the EU.

Comment

For the parties to this dispute, there is a lot still to play for, as so much was left (rightly) to the national court to decide. Once the High Court has ruled on whether M&S has fallen the right side of the line, brand owners and advertisers will be in a better position to know how to deal with the issue of AdWords in future.

Following this judgment, it is quite possible that advertisers will be able to engage in "free competition" using a trade mark belonging to another, but there are so many hurdles to get over that before more guidance is received on how those hurdles will be assessed, they would be well-advised to continue to approach with caution. In addition, brand owners should reconsider their dealings with Google and other search engine providers in light of the warning about "tacit consent" arising from inaction, especially in light of Google's policy allowing brand owners to raise complaints.