Microsoft is reported to have settled its dispute with British Sky Broadcasting Group plc ("Sky") over its SkyDrive cloud storage service and will change the name of its SkyDrive product.

In a decision of the High Court at the end of June, Sky succeeded in its claim that Microsoft's use of SkyDrive in relation to cloud storage services and software infringed Sky's registered trade marks and amounted to passing off.

For those who are not familiar with the product, Microsoft's SkyDrive provides users with an online storage facility for documents, photos and the like accessed via the internet. SkyDrive features as a start-up tile on Windows 8, and SkyDrive apps are available for Xbox and other platforms.

In the court action, Microsoft had relied on UK and European Community (CTM) trade mark registrations for the word "SKY", registered for a range of goods and services including "computer software", "transmission of text, messages, sound and/or pictures", "telecommunications" and "electronic data storage services for personal use". Sky was able to establish that as a result of similarity between the marks SkyDrive and SKY, and similarity or identity between the goods and services for which SkyDrive was used by Microsoft and the goods and services for which SKY was registered, there was a risk the average consumer, when confronted with Microsoft's goods and services, might believe they were from a source connected with Sky.

In a strongly worded decision, the Judge held that there was every reason to conclude there is a likelihood of confusion in the average consumer. In reaching this finding, the Judge considered the average consumer would see SkyDrive as two words. She took into account that "drive" is a descriptive term and concluded that "Sky" must be seen as the dominant element of the sign.

Microsoft had argued that "sky" is a metaphor for "internet", and had attempted to counterclaim for invalidity of Sky's registrations on the basis that SkyDrive is descriptive of cloud storage services. However the Judge found no evidence to support this.

Sky was also able to establish that its mark had a reputation and that use of SkyDrive would cause dilution to the SKY brand. Relying upon goodwill generated across its entire business, and specifically its broadband business and digital content storage and management services represented by its set-top boxes, Sky also persuaded the Judge that Microsoft's use of SkyDrive amounted to passing off.

Unusually for trade mark cases, a small number of examples of real life confusion had come to light. The Judge considered it significant that a number of people who had encountered SkyDrive had contacted the Sky helpline when they encountered problems with the product.

The outcome of the court case was perhaps not as surprising as Microsoft's decision to adopt "SkyDrive" as the name of its cloud storage service, in the face of the SKY brand.

Before adopting a new trade mark, it is advisable to undertake clearance searches, both to check that the proposed mark will not conflict with an existing registered trade mark, and to minimise the risk of encroaching upon the reputation and goodwill of another trader in a manner that could lead to an action for passing off. For most companies the scope of searching is a pragmatic compromise between risk and cost. It is known that Microsoft undertook legal clearance for "Windows Live SkyDrive" in the Spring of 2007.

Sky's trade mark registrations should at that time have sounded a warning of the potential for conflict. SKY was registered for computer software and for broadband related services (such as e-mail). The Judge held that the file storage, management and sharing software for which SkyDrive was being used was identical to, or closely connected with, these goods and services.

When carrying out clearance searches it is a good idea to keep in mind all of the various ways in which a mark might be used. At the outset, Microsoft may not have realised that what began as use of "Windows Live SkyDrive" would become over time use of "SkyDrive" as a stand alone brand. Whilst the High Court held that Sky's trade marks were infringed by use of "Windows Live SkyDrive" as well as by SkyDrive on its own, the separation of SkyDrive from Windows branding cannot have helped their case. Even before SkyDrive was given its independence, there were situations where consumers encountering SkyDrive would not have been aware it was a Microsoft product, such as links to SkyDrive in e-mails.

It is easy to see why it would be tempting to think that by extension of the "cloud" analogy, the word "sky" should be seen as descriptive for cloud storage, or at least as a trade mark that is only weakly distinctive and should not be considered to dominate SkyDrive. However, was it wise to place so much reliance on this?

The Judge did not accept that "sky" is allusive of the internet or cloud storage, but even if that had been accepted, there must have been a risk that because Sky is so well known, an association with Sky and its services had supplanted any initial descriptive significance.

It seems probable that Microsoft underestimated the risk of a dispute developing because they believed Sky was in practice operating in a different field. When SkyDrive was adopted in 2007, at least some of Microsoft's marketing team had no knowledge of Sky other than as a broadcaster. In fact, Sky had also been an internet service provider since 2006, and by 2010 its broadband service was being used by over 3 million households. Sky was ahead of the game in registering its marks for new areas of business.

This decision illustrates the importance of making a realistic assessment of the risks prior to adopting a new mark, and of not underestimating the potential for businesses to move towards each other in fast moving areas of technology, creating conflicts where none had previously existed.

First published in V3.co.uk, August 2013