Facts of the Case
The U.S. company Interflora Inc. operates a worldwide flower-delivery network. The network consist of local florists. Customers can order flowers by telephone or internet, and those orders will then be carried out by the florist-network member that is established closest to the place of delivery. Interflora Inc. registered the trademark INTERFLORA in the United Kingdom as well as a Community trade mark. The trademarks are considered to have substantial reputation in the United Kingdom as well as elsewhere in the European Union.
Marks & Spencers, a big well-known retailer in the United Kingdom also offers the sale and delivery of flowers that can be ordered online which activity is thus in competition with Interflora. For this service, Marks & Spencers uses Google's 'AdWords' referencing service and selected as keywords the mark 'Interflora' and close variations to that mark such as the words 'Interflora delivery', 'Interflora flowers' and Interflora.com'. When internet users enter the name 'interflora' as a search term in the Google search engine, the Marks & Spencers advertisement for its own flower delivery service was shown.
In proceedings on the alleged trademark infringement claim by Interflora against Marks & Spencers, the High court of Justice of the United Kingdom referred a number of questions to the ECJ concerning the use by a competitor in the scope of an internet search engine of AdWords that are identical to another party's trademark, without such other party's consent, which questions have now been answered.
Adverse effect on the functions of a trademark - includes the investment function
Following its earlier judgments in the 'Google' and 'Bergspechte' cases, the ECJ emphasized that when a party is using a sign that is identical to another party's trade mark in relation to goods and services that are identical to those for which that trademark is registered, the trademark owner is only entitled to prevent such use if the use may cause an adverse effect to one or more of the essential "functions" of a trademark, such as the function to indicate the origin or the advertisement function.
As the ECJ already made clear in its earlier judgements, the function of indicating the origin is adversely affected if the online advertisement that pops up when internet users using the trademark as a search term, as a result of the selection of that trademark by the advertiser as an AdWord, if the advertisement does not enable (or only with difficulty) the reasonably well informed and observant internet users, to ascertain whether the goods or services concerned in the advertisement originate from the trademark owner or from an undertaking that is economically linked to that trademark owner in a certain way, or to the contrary, originate form a third party. In addition to its judgment in the Google-case, the ECJ now also decides that the national court may include in its assessment on that aspect, to what extent the internet users' awareness of the general knowledge of the market plays a role.
In respect of the so-called 'advertisement function' it was already ruled that such function is not adversely affected by the use of other parties' trademarks as AdWords in the scope of a search engine service. In this respect the ECJ in this Interflora judgment considers that also the fact that by the advertisers' use of AdWords identical to another party's trademark, the costs per click for such trademark owner are increased, does not hinder the trademark owner's ability to use its trademark to win customers for its goods or services.
However, for the first time, the ECJ has now also considered that the trademark's investment function can be at stake in these circumstances. This is the case, according to the ECJ, if the trademark use by the advertiser substantially interferes with the trade mark owner's possibility to use its trademark to acquire or preserve a reputation capable of attracting consumers and retaining their loyalty. In case of use of trademarks that already enjoy a reputation, such investment function is adversely affected where the advertisers' use affects such reputation and jeopardises its maintenance. However, in the ECJ's view this is not already the case if as a consequence of the advertisers' use of the reputed trademark some consumers may switch from choosing the advertiser's goods in stead of the trademark owner's goods. If the advertiser's use is in a fair manner and does not affect the function of indication of origin, than the trademark owner cannot prevent that use, even if the situation requires that the trademark owner has to adapt its efforts to acquire or to preserve its reputation and thus to attract its customers.
Protection against dilution and 'free-riding'
Furthermore, the ECJ has further clarified the scope of protection for reputed trademarks in respect of use of such reputed trademarks by competitors as an AdWord in connection with a search engine service. For INTERFLORA being a reputed trademark, the national court in the United Kingdom had asked the ECJ whether the use by Marks & Spencer is likely to result in causing detriment to the distinctive character (dilution) of the INTERFLORA trademark and /or in taking unfair advantage of that trademark ('free-riding').
As far as the question on dilution is concerned, the ECJ decides that advertising that is based on the use of the reputed trademark as an AdWord is detrimental to the distinctive character of the reputed trademark if, for example, such use contributes to turning that trademark into a generic term. However, the ECJ is of the opinion that, contrary to Interflora's arguments, that the selection of the reputed trademark as an AdWord within an internet search engine service in itself does not necessarily contribute to such a development. The test will be whether Marks & Spencers' use enables the reasonably well-informed and reasonably observant internet user to tell that the service offered by Marks & Spencer is independent to the service of Interflora. If so than it could not be argued that the use by Marks & Spencers supports the dilution of the distinctiveness of the INTERFLORA trademark into a mere generic term as alleged by Interflora. It is, however, up to the national court to determine whether this is the case.
Whether the advertiser is also taking unfair advantage of the reputed trademark under these circumstances, such that it can be opposed by the trademark owner depends on the question whether such use occurs without 'due cause'. It is the ECJ's view that there is use without due cause, and thus 'unfair' use, if the internet advertiser offers for sale, through the use of the reputed trademark as an AdWord, goods that are an imitation of the goods of the trademark owner.
But the ECJ points out that where such internet advertisement provides the internet user an alternative for the goods or services of the trademark owner and does not adversely affect the functions of the trademark nor causes dilution or tarnishment, 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". Again it is up to the national court to determine whether in a particular case the use by the internet advertiser of the reputed trademark in connection with an offer for alternative goods or services is indeed being made without due cause and is taking unfair advantage of the distinctive character or the repute of the trademark.
Although further guidance has been given on the (non)permitted use of (reputed) trademarks in connection with internet advertisements, the ECJ's decision leaves much to decide by the national court. It makes it clear for owners of reputed trademarks that their trademark claims against internet advertisers require well-founded reasoning on why in a certain case there is an adverse effect of the trademark's investment function. Furthermore, one must come with solid grounds for the argument that the advertisement at stake will not enable the reasonably well-informed and observant consumer to distinguish the goods or services offered by such advertiser from those offered by the trademark owner. 'Free-riding' on another party's trademark is still not allowed unless there is a due cause for that trademark use and it has become clear now that such due cause can be the offering of alternative goods or services not being imitations, provided that the internet advertiser refrains from causing dilution or tarnishment and from affecting the functions of the reputed trademark.