Interflora, Inc. and Interflora British Unit v Marks and Spencer Plc and Flowers Direct Online Ltd* (Arnold J [2009] EWHC 1095 (Ch); 22.05.09)

In this “AdWords” case, Arnold J decided to refer questions to the ECJ. Although a number of national courts around Europe had already requested preliminary rulings from the ECJ on a number of the issues arising out of Google AdWords, it was felt that these would not necessarily provide the answers needed to settle this dispute. Arnold J declined to order the First Defendant (“M&S”) to undertake to cease bidding on the Interflora Signs as keywords during the period for which the proceedings were stayed.

The First and Second Claimants (collectively referred to as “Interflora”) operate a flower delivery network. M&S’s activities include the sale and delivery of flowers, in competition with Interflora. Shortly before the hearing, Interflora and the Second Defendant, Flowers Direct, settled their dispute.

Interflora owns a UK trade mark and CTM for the word mark INTERFLORA (“the Marks”), registered in respect of various goods and services including natural plants and flowers, advertising services for florists and information services relating to the sale of flowers.

Google derives revenue from advertising, principally by means of a service called “AdWords”. When a Google search is carried out both “natural” links (links to websites assessed to be relevant by the search engine’s algorithm) and “sponsored links” are displayed. Sponsored links are paid for by the website operator. On 5 May 2005, Google changed its policy in the UK to allow third parties to bid for keywords registered as trade marks without restriction, including for use in relation to goods or services for which the trade marks are registered (Google’s policy is different for other Member States). M&S admitted that it purchased the keyword INTERFLORA and a number of variations (collectively termed the “Interflora Signs”). These keywords triggered the appearance of M&S’s sponsored link at the second highest position in the results page, immediately after Interflora’s own sponsored link.

Interflora claimed that the Marks were infringed both by acts committed by M&S (for which M&S were primarily liable) and by acts committed by Google (for which M&S were liable as joint tortfeasors). Google was not a party to the dispute. The acts committed by M&S included selecting the Interflora Signs as keywords, associating those keywords with M&S’s URLs and using the Interflora Signs in business correspondence relating to the invoicing and payment of fees and/or the management of an AdWords account. The acts committed by Google included presenting a search results page containing M&S’s sponsored link in response to a user entering an Interflora Sign.

Interflora claimed that these acts were an infringement within the meaning of Section 10(1) and, in the alternative, Section 10(3). M&S denied that any of the acts complained of fell within the scope of these sections. In relation to the acts which Interflora said had been committed by Google, M&S denied that Google were primarily liable and that, in addition, Google was protected by Articles 12-15 of Directive 2000/13/EC (the E-Commerce Directive). Finally, M&S denied joint liability.

M&S applied to stay the proceedings pending the ruling of the ECJ upon the six existing references (from the Cour de Cassation C-236/08, C-237/08 and C-238/08; from the Oberster Gerichtshof C-278/08; from the Hoge Raad der Nederlanden C-558/08 and from the Bundesgerichtshof C-91/09). On an adjournment, Arnold J invited the parties to consider whether questions should be referred to the ECJ. When the hearing resumed, Interflora submitted that questions should be referred to the ECJ, but that the consequential stay should be conditional upon M&S undertaking to cease bidding on the Interflora Signs as keywords during the stay.

It was common ground that guidance from the ECJ would at some point be necessary to resolve the dispute. Arnold J commented that the issues as to whether there was “use” and if so whether it was “in relation to” identical goods and services were matters of considerable difficulty given the present state of the ECJ’s jurisprudence. Further, Arnold J felt that there was a real possibility that the ruling by the ECJ on the existing references would not clearly resolve all the issues of law arising in the present case and if the case proceeded to trial it was likely that the trial judge would conclude that guidance from the ECJ was required. Thus, the choice came down to making a reference now, or leaving it to the trial judge to make a reference. If a reference was made now, it would reduce the delay in resolving the dispute and may obviate the need for trial altogether, or at least reduce its scope. Although the facts had not been fully determined, Arnold J was satisfied that the factual situation was sufficiently clear to enable the questions of law which arose to be posed and answered. Accordingly, Arnold J concluded that the better course was to make a reference now.

Regarding Interflora’s contention that M&S should be required to cease bidding on the Interflora signs during the stay, Arnold J noted that this amounted in substance to an application for an interim injunction. Arnold J held that this was not justifiable, for two reasons. Firstly, Interflora had delayed in commencing proceedings for almost 7 months and had only asked for M&S to be restrained in this way after M&S applied for a stay. Secondly, Interflora had not suggested that M&S should be so restrained pending trial if the case were to simply proceed to trial in the ordinary way.

Arnold J has given the parties the opportunity to address him orally before finalising the questions, allowing them time to consider his judgment in L’Oréal v eBay (see below) which was also handed down on 22 May 2009.

L’Oréal S.A. & Ots v eBay International AG & Ots* (Arnold J; [2009] EWHC 1094 (Ch); 22.05.09)

This was one of a number of test cases brought by L’Oréal in courts around Europe which raised issues regarding the liability of eBay Europe for trade mark infringements committed by its users and whether eBay Europe itself committed infringement by using trade marks in relation to infringing goods. Arnold J decided to make a reference to the ECJ and will hear further submissions from the parties in due course on the precise formulation of the questions.

The four Claimants in the action were all referred to as “L’Oréal”. The First, Second and Third Defendants were subsidiaries of eBay, Inc. (referred to as “eBay Europe”). The Fourth to Tenth Defendants were individuals who were alleged to have sold infringing products through eBay Europe. The marks in issue were L’Oréal’s 14 UK trade marks and 2 CTMs (the “Trade Marks”) which were either word marks or barely stylised word marks, except for CTM 4046785 which was a device mark. L’Oréal divided the marks into two classes: the “Lancôme Marks” consisting of LANCÔME, RENERGIE, DEFINICILS and AMOR AMOR and the “Link Marks” which consisted of DEFINICILS together with the remaining Trade Marks not included in the first group.

L’Oréal made three principle allegations against eBay Europe:

a. eBay Europe were jointly liable for infringements of the Trade Marks committed by the Fourth to Tenth Defendants (who were liable under Article 5(1)(a) of the Trade Marks Directive). L'Oreal did not allege that eBay Europe were primarily liable in respect of the offer for sale or sale of the goods in question.

b. eBay were primarily liable for the use of the Link Marks (i) in sponsored links on third party search engines and (ii) on the website (“the Site”), in both cases in so far as such use was in relation to infringing goods. It was admitted by eBay that they had purchased keywords consisting of the Link Marks from Yahoo!, MSN and Google. This had the effect that a search on, say, Google using a Link Mark caused a sponsored link to the Site to appear. If the user clicked on this sponsored link, he was taken to a display of search results on the Site. Use of the Link Marks on the Site arose from the Site enabling users to browse and search for items and refine their search including by reference to a list of brand names.

c. If the court found that Forth to Tenth Defendants had committed infringements, L’Oréal were entitled to an injunction against eBay Europe to restrain future infringements by virtue of Article 11 of Directive 2004/38/EC (the Enforcement Directive), even if eBay were not themselves liable for trade mark infringement.

Arnold J held as follows:

1) The Fourth to Tenth Defendants had infringed the Trade Marks. In the case of the Fourth to Eighth Defendants, the goods they sold were put on the market in the USA and L’Oréal did not consent to those goods being put on the market within the EEA. In the case of the Ninth and Tenth Defendants, the goods they sold were counterfeits.

In so finding, Arnold J set out the six conditions which the ECJ had established for a finding of infringement under Article 5(1)(a) of the Trade Marks Directive as follows:

(i) there must be use of a sign by a third party;

(ii) the use must be in the course of trade;

(iii) it must be without the consent of the proprietor of the trade mark;

(iv) it must be of a sign which is identical to the trade mark;

(v) it must be in relation to goods or services which are identical to those for which the trade mark is registered; and

(vi) it must affect or be liable to affect the functions of the trade mark, in particular its essential function of guaranteeing to consumers the origin of the goods or services.

Arnold J rejected eBay’s submission that Article 5(1) is confined to use by a third party of a sign in relation to the third party’s goods. Article 5(1) extends to use by a third party of a sign in relation to the trade mark proprietor’s goods as is clear from the wording of Article 7 and cases such as BMW v Deenik C-63/97.

Arnold J commented that the ECJ’s case law was unclear in relation to whether and if so what the sixth condition added to the fifth condition (see list above); if the sixth condition did add something, it was unclear whether damage to functions other than the origin function could be relied upon to support a claim under Article 5(1)(a), and if so in what circumstances; and if damage to functions other than the origin function could be relied on, it was unclear what the relation was between Article 5(1)(a) and Article 5(2) in double identity (identical sign and identical goods) cases. He suggested that the difficulty would be dispelled if it were recognised that the sixth condition added nothing to the fifth.

2) Whether the sale on the Site of testers and dramming bottles (large containers from which small 5 ml aliquots can be taken for supply to consumers as free samples) which were not intended for sale to consumers amounted to an infringement of the Trade Marks depended upon questions of interpretation of Article 7(1) as to which the law was unclear. L’Oréal submitted that the judgment of the Bundesgerichtshof in Case I ZR 63/04 Perfume Tester Bottles reported in English at [2009] ETMR 9 in which it was held that in similar circumstances the trade mark rights were exhausted under Article 7(1) was wrong and both parties made submissions based on the ECJ’s decision in Peak Holding AB v Axolin-Elinor AB, Case C-16/03 to support their differing points.

Although eBay Europe accepted that the sale of unboxed products which lacked a list of ingredients and/or a best before date contravened the Cosmetics Products (Safety) Regulations 2004, it submitted that did not constitute ipso facto a legitimate reason for L’Oréal to oppose further commercialisation of the goods. In this, eBay Europe relied upon Boehringer II, and upon the subsequent decision of the Court of Appeal in Boehringer Ingelheim KG v Swingward Ltd [2008] EWCA Civ 83, [2008] ETMR 36 and the opinion of Advocate General Stix-Hackl in Zino Davidoff, Joined Cases C/415/99 and C-416/99. In relation to the latter, Arnold J was of the opinion that the questions which were referred by Laddie J and considered by the Advocate General, but not the ECJ, remained questions on which guidance from the ECJ was required.

Although these questions were academic so far as the acts committed by the Fourth to Tenth Defendants were concerned, they were potentially relevant to the question of what relief, if any, to which L’Oréal were entitled.

3) In relation to the infringements committed by the Fourth to Tenth Defendants, Arnold J was in no doubt that it would be possible for eBay Europe to do more to prevent or at least minimise sales of counterfeit and other infringing products on the Site. However, this did not mean that they were legally obliged to do so. The issue of whether eBay Europe were liable as joint tortfeasors was most acute in relation to non-EEA goods, particularly in the case of the International Site Visibility facility which provided a specific mechanism for foreign sellers to target UK buyers. Nevertheless, the facility was capable of being used in a manner which did not infringe third party rights. Given that (i) eBay Europe were under no legal duty to prevent infringement and (ii) facilitation with knowledge and an intention to profit was not enough, eBay were not liable as joint tortfeasors (either by procurement or by participation in a common design).

4) Whether eBay Europe had infringed the Link Marks by use in sponsored links and on the Site in relation to infringing goods again depended upon a number of questions of interpretation of the Trade Marks Directive upon which guidance from the ECJ was required. Arnold J considered the issues under the following headings:

(i) Use? Arnold J was of the opinion that there was “use” of the signs in question in that the sponsored links constituted advertisements placed by eBay Europe falling within Article 5(3)(d) of the Trade Marks Directive albeit that they were displayed to the user by Google in response to a search request. Further, there was also “use” on the Site, although this was more like a heading in classified advertising and less like the actual advertisement itself. However, due to the current uncertainty over this and related questions in the Interflora v M&S case (see above), he was not able to say that this was acte clair.

(ii) In relation to? Arnold J considered that there was some degree of nexus between the use of the sign in the sponsored link and the purportedly infringing goods in that clicking on the sponsored link lead the user directly to listings for goods by reference to the sign which included the infringing goods. In the present state of the ECJ’s jurisprudence, it was arguable that this constituted use “in relation to” infringing goods.

(iii) In the course of trade? eBay Europe did not dispute this if there was use of the signs in the UK (see below).

(iv) In the United Kingdom? It was common ground that the mere fact that a website is accessible in the UK does not mean that an advertisement on that website constitutes use of that sign in the UK. It has to be aimed or targeted at consumers in the UK (Euromarket Designs v Peters [2001] FSR 288) and 800-FLOWERS [2000] FSR 697 (affirmed [2001] EWCA Civ 721, [2002] FSR 191). Where both price and postage were stated in sterling, and it could be inferred that the sellers were either UK sellers or non-UK sellers who had registered on the Site, the listings were clearly targeted at UK consumers. Less clear was the situation where the price was stated in sterling, in italics, indicating that it had been converted from a foreign currency “from eBay international sellers”. However, it appeared that this was not due to a worldwide search, but due to a country-specific package (a predecessor of International Site Visibility) and therefore Arnold J held that the listings were clearly targeted at UK consumers. It was immaterial that the sellers relied upon eBay to convert their prices into sterling rather than doing it themselves. Arnold J held that he would have come to the same conclusion even if the results had appeared following a worldwide search.

(v) Infringing use? Arnold J considered that L’Oréal was right when it submitted that the sponsored links infringed where they related to listings for non-EEA goods. Class International v Unilever Case C-405/03, Montex Holdings v Diesel Case C-281/05 and the judgment of the Court of Appeal in Eli Lilly v 8PM Chemists [2008] FSR 12 were distinguishable as being cases on the transit of goods under customs procedures. Again, however, the law was not acte clair.

5) Whether eBay Europe came within the hosting defence in Article 14 of Directive 2000/31/EC (the E-Commerce Directive) was another matter upon which guidance from the ECJ was needed.

6) As a matter of domestic law the court had power to grant an injunction against an intermediary such as eBay Europe by virtue of the infringements committed by the Fourth to Tenth Defendants. However, the scope of the relief which Article 11 of the Enforcement Directive required national courts to grant in such circumstances was unclear and thus another matter upon which guidance from the ECJ was required.