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Brands Report 2010 Brand challenges and opportunities in the digital age
Brands Report 2010
Marks & Clerk Page 2
Foreword 3
Introduction 4
Doing business in the digital age 5
Cross-sector research – key findings 11
Counterfeiting and infringement online – 16 challenges and solutions
Recent developments and case law 19
Marks & Clerk contacts 24
Contents
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ForewordAs the saying goes, ‘actions’ speak louder than words. Perhaps nothing testifies to the commercial importance of brand as the evidence provided by the many high-profile battles we have witnessed in the European courts, involving giants such as Google, eBay, L’Oréal, and Louis Vuitton. In an age cluttered by more information, services, products and channels than ever before, creating and protecting a strong brand identity is essential for winning and retaining market share.
At the heart of the issues raised by these cases is the balancing act required by intellectual property and other aspects of our legal framework. Policymakers rightly recognise that these protections should not go so far as to give companies free rein to stifle legitimate competition, freedom of choice and value for money. At the same time there is the need, now stronger than ever before, to encourage investment in innovation, quality and reputation. There is a tension between freedom and fairness for which the law must account.
It is vital that IP law provides adequate and robust protections for brands so that companies may effectively tackle mimicry or abuse of their hard-won reputation. In the digital age, this need is all the stronger as the opportunity for abuse is so much greater. And, as the recent spate of disputes show, the rise of digital communication and new media raises challenging questions about how best to achieve this balance.
The boundaries of responsibility for online content are unclear. New ways of doing business, such as Google AdWords, test the limits and spirit of trade mark law. Sites such as eBay have created new distribution channels which, while convenient for consumers, are particularly vulnerable to counterfeiting.
In the courts we are, on the whole, seeing a sensible recognition of these challenges and of the value and investment made in brands. In my view, they are rightly evaluating criminal abuses such as that taking place through online marketplaces, and granting suitable protection to brands with repute that extend beyond simple customer confusion. A remaining challenge is defining the legal role of the intermediary such as Google and eBay which have the practical power to support the brand owner in the battle with opportunistic rivals who sail too close to the wind.
Yet the question at the heart of the matter is whether our current legal framework has managed to keep pace with the digital age. Where brand is king, is it correct that trade mark law in the UK boils down to confusion over the origin of goods? Should brands be afforded wider protections? Why are colours, shapes, the overall ‘look and feel’ of brands not better protected in the first instance from those often clearly and flagrantly looking to ride on the coat-tails of their investment and commercial success – particularly as it is these features that consumers use most when comparing goods?
It is clear in this more aggressive commercial landscape that the digital revolution is something of a double-edged sword for brands. What is also clear is that this tension between opportunity and threat is here to stay, and that our legal framework will need to adapt accordingly so as to continue to strike a healthy balance between fair and free competition in the marketplace. This simply cannot be achieved without paying due attention to the opinions and concerns of the very industries that will drive these changes in the future.
John NobleDirector, British Brands Group
John is Director of the British Brands Group. He is a Chartered Marketer whose marketing career started with British Airways before moving into marketing consultancy with Marketing Solutions. He then became Head of Marketing for Hamptons, the firm of estate agents, and held a senior marketing role with Bristol & West International.
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Welcome to the Marks & Clerk annual Brands Report 2010, exploring the theme of business in the digital age.
It seems that the promise of the dot.com era is finally being delivered and the full impact of the internet on business being felt. Many would argue that the digital revolution is now entering an advanced stage. It has transformed, and indeed is continuing to transform, the commercial landscape. Most recently, we have witnessed the explosion of new and social media – the growing influence of the blogosphere, as well as sites such as Facebook and Twitter – carrying numerous challenges, as well as opportunities, for businesses.
Our report is based on an industry survey of brand owners and those responsible for the commercial success and marketing of brands. It comprises the views of 266 UK businesses to provide a snapshot of how UK enterprise is approaching this new commercial reality, the principal concerns and challenges facing businesses, and the reaction of brand owners to recent commercial and legal developments in this area.
This report highlights the key findings of our survey, and is split into two parts. The first – doing business in the digital age – concerns the broad impact of the rise of digital commerce, and the various threats and opportunities this presents to brands online.
The second – counterfeiting and infringement online – deals more specifically with recent high-profile examples of the fall-out of the digital age in practice. Our analysis and the views of respondents explore areas such as the controversy surrounding Google’s AdWords service and the prolonged battles between eBay and luxury goods companies such as LVMH over counterfeit listings.
As always, we are extremely grateful to respondents, including members of the Anti-Counterfeiting Group, who took the time to participate in our research. We sincerely hope this report and the findings within it will be of interest to brand owners dealing with the challenges and opportunities of the digital age.
Pam WithersPartner, Marks & Clerk LLP
The research was concluded in May 2010 and is based on the views of 266 brand owners in the UK, as a result of their participation in an extensive online survey.
The research was a result of a cross-sector survey (see Fig 15 for breakdown) of mid-ranking to senior business executives responsible for brand ownership, marketing and protection.
Introduction
About the survey
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Doing business in the digital ageThe backdropThe internet now acts as a global network connecting a quarter of the world’s 6.7 billion people. According to a recent CBI report, an astonishing 113 billion internet searches were conducted in July 2009, up 41 per cent on July 2008.
The growth and reach of the internet is truly staggering. In the UK alone, the Centre for Retail Research reports that online sales in 2009 accounted for £38 billion worth of commercial revenue – in other words, 9.5 per cent of retail trade. Meanwhile, the social networking site Facebook now boasts over 400 million users – that is more than the entire population of Europe and indeed of any country, save India and China.
There is no doubt that the internet impacts on all our lives; it has certainly changed the way we do business in the most fundamental manner, in turn transforming the behaviour and expectations of consumers. Businesses large and small across almost all sectors can no longer afford to treat e-commerce and e-communication as a secondary or niche concern, and are increasingly looking at new ways of promoting themselves online and protecting their business interests and assets in the online environment.
This sentiment is reflected clearly by our survey respondents, who show considerable optimism about the future growth to be provided from the already maturing internet. A sizeable 93 per cent of participants believe the internet will provide a significant source of growth for their business over the next five years (Fig 1).
In particular, our respondents were nearly unanimous (94 per cent) in their belief that the internet is becoming a primary driver of business growth for SMEs, which historically have been slower to adapt to the online sphere (Fig 2). Yet in many respects the internet has simultaneously
levelled the playing field for small businesses by dramatically reducing the potential cost of market entry for new internet-based entrants. Successful internet stalwarts such as Net-A-Porter.com and ASOS.com are pertinent examples of where smaller companies have come to the fore and quickly established a market niche far above the expectation of conventional business start-up and expansion.
Additionally, 9 in 10 respondents feel that the maturity of the internet and digital marketing today allows for more online entrants to emerge and – crucially – to succeed, in contrast with the dot com era of old.
Initiatives such as Getting British Business Online recognise that the internet – particularly web 2.0 platforms such as social networks, blogs, and discussion forums – provides an easily accessible vehicle for customer interaction and collaboration. However, the comparative lack of regulation online simultaneously poses a number of challenges to businesses and governments alike, and must be balanced with the need for a level of business (and potentially consumer) protection that one would expect of offline trade.
Some 88 per cent of respondents describe the digital age as a “double-edged sword” for businesses: that while brand promotion may well be made easier on the one hand, threats to brand integrity are on the other more numerous and difficult to protect against. Nearly three-quarters (73 per cent) feel that the character and speed of internet dissemination is such that brands are more likely to be exposed to inaccurate or unfair treatment online than offline. As easy as it is to publish on the internet – often under the inviting and distorting veil of anonymity – it is extremely difficult to “erase” negative comments and any damage done to a brand’s reputation. We are increasingly
93%of respondents believe the internet will provide a significant source of growth for their business over the next five years
The importance of the internet for small businesses is further highlighted by the initiative Getting British Business Online (GBBO). This is a joint initiative by Google, Enterprise UK, BT, e-skills UK and several other partners to help small businesses create their first website and help them understand the opportunities offered by the internet. They have set a target of helping 100,000 UK organisations establish their first website (for free) by the end of 2010.
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hearing “what goes on Facebook, stays on Facebook”.
The ease of access and lack of censorship combine to enable people to comment and share their views – positive or negative – about absolutely anything, at any time, from almost anywhere. For brand owners, this can have a huge impact on the reputation of their products or services. An early high-profile example of this was the adverse viral marketing campaign that followed the release of the “Super Size Me” documentary of 2004, criticising the nutritional content of McDonald’s meals. The campaign, conducted on a shoe-string, spurred McDonald’s to completely overhaul its approach to marketing and managing its brand reputation online.
The challengesThe growth of digital media, and lately social media in particular, has carved out a new opportunity for businesses. Some may be using the internet increasingly as a sales revenue channel, while others are working in earnest to deliver a striking digital marketing strategy to increase their online visibility and appeal. Social networking sites Facebook, Twitter and LinkedIn, video community sites such as YouTube, and blogs have all come together to provide an effective means of directly reaching thousands of potential customers. For respondents, however, they are optimistic that this is more than a marketing ‘nice to have’. Some 61 per cent believe that social media has or will become a substantial sales and revenue source for businesses, rather than simply a popular communication channel, within the next two years (Fig 2). The opportunity to increase margins as digital marketing techniques improve is enormous.
Brands are important assets that reflect the reputation of a company or product. They feed in to both customers’ understanding of value in
the marketplace and to their feelings of loyalty. Brands are no longer just trade marks or logos – badges differentiating one product or service from another, but are today more than ever associated with a degree of character, reputation and trust. Increasingly, brands must convey consistency and reliability, hand-in-hand with innovation and an awareness of social issues, to chime with the demands of the modern consumer.
Consumers are possibly just as likely to seek recommendations from their Facebook community of ‘friends’ as they are to conduct an anonymous internet search. Reviews and recommendations of products and services can be found everywhere online, from websites such as Tripadvisor to social media forum, Twitter. While ‘word-of-mouth’ has always existed as a potential counterweight to heavyweight advertising strategies, the internet has multiplied its power and efficacy beyond quantification. Yet with that shift, brand owners no longer have dominant control over their brand values and messages. Brands are constantly discussed, picked over, and judged online. Brand owners cannot plausibly boast of the merits of their products or services if this view is not supported by consumers online, whose unvarnished (and often anonymous) views will often prove only a scroll or couple of clicks away. Businesses today have to engage and be part of the dialogue by being proactive, while jealously guarding their brand reputation online and taking all the steps necessary to create value and support brand longevity.
The challenge to businesses, in short, is to harness these online opportunities to enhance their means of doing business, while at the same time using all of the tools and tactics available to them to protect their
73%of respondents feel that the character and speed of internet dissemination is such that brands are more likely to be exposed to inaccurate or unfair treatment online than offline
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brands and see off any threats to their reputation.
This conundrum is more than academic. Nearly two-thirds (64 per cent) of our research participants claim that the rise of the internet has been such that it is now harder for them to police and protect their brand effectively. 81 per cent believe the online environment fosters a “culture” whereby companies and individuals are more likely to exploit one another’s intellectual property, whether consciously or not (Fig 1). Of particular concern for almost two-thirds of respondents (64 per cent) was the ease with which rivals can copy ideas and editorial from the internet. This requires brand owners to become more proactive and increasingly adept at monitoring how their brands and content are exploited.
However, the challenges in terms of intellectual property and brand protection run far deeper than editorial plagiarising. In particular, over two-thirds (69 per cent) identify social media as being the next big threat to protecting their brands online. Our respondents are especially uncomfortable with the way in which valuable brands that enjoy trade mark protection can find themselves a victim of aggressive search engine optimisation strategies by rivals. Some 7 in 10 respondents (71 per cent) are not comfortable with sponsored links that relate to brands protected by trade marks being bid upon by rivals, with 63 per cent describing this as “not at all acceptable” in their view (Fig 3). Set in the context of the protection afforded to Google in the European courts and the protection of its search-advertising model, such discomfort is all the more striking. 58 per cent describe Google’s European dominance of the search-advertising market as too powerful (Fig 5).
In view of these challenges and the nature of the online marketplace, it is perhaps less surprising, though still sobering, that 81 per cent claim that intellectual property law has failed to keep up with the challenges posed by the rise of the internet (Fig 4).
The upshot of the ‘digital challenge’ is that brands are likely to react with increasing defensiveness. 57 per cent believe that if major brand owners start to feel their goods and services are at risk online, they will begin to seek out an array of IP protection for key products, to fight rivals on many fronts. Over half (55 per cent) believe that products may be restricted in terms of where they are distributed and sold, with over three-quarters (76 per cent) suggesting that any resulting damage will ultimately be borne by the paying consumer unless the law responds meaningfully to the challenges posed by e-commerce (Fig 5).
In addition, the online environment poses numerous threats to brand owners in the form of ‘cybersquatting’, whereby opportunists seek to anticipate and register valuable web domain names that trade mark holders will later desire, counterfeiting (fuelled particularly through online secondary auction sites such as eBay) and overall brand abuse. For example, disgruntled customers can set up “brandsucks.com” websites to air grievances at the click of a button.
The threats to brand protection in the digital age are varied and numerous – and will be examined in detail from both a market and legal perspective in the second half of this report.
New opportunitiesIt is not, however, all doom and gloom for brand owners. It is precisely because the internet is such a convenient and effective channel of communication that
81%of respondents believe the online environment fosters a “culture” whereby companies and individuals are more likely to exploit one another’s intellectual property, whether consciously or not
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many of the challenges posed by the digital environment exist. If managed appropriately, the internet offers tremendous opportunities for companies in terms of cost-savings and direct digital marketing.
Yes, social media sites can give rise to customers lashing out at companies and brands online. Paperchase and O² were both recent targets of highly-publicised negative viral media campaigns that began on networking sites such as Twitter. Yet new media and the blogosphere can also provide businesses with the opportunity to communicate and interact with their clients in a more genuine manner, exchanging views, increasing brand loyalty and potentially even enabling product and service improvement or development.
Many businesses, from McDonald’s to Dell, have already changed, or are in the process of changing, their strategy as a result of the digital evolution. They are pulling away from mass marketing in favour of new online techniques that allow them to ‘tell the story’ of their brand in a much more personal, targeted manner, and often for a fraction of the cost of big traditional marketing and advertising campaigns.
There are also instances of brands focusing on issues of customer trust and aligning their businesses more closely with customer values, off the back of greater online engagement. In the last five years, we have seen a significant increase in ‘cause related’ marketing, whereby companies share information as to what actions they are undertaking to minimise packaging waste, reduce reliance on carrier bags, increase recycling, promote fair trade ingredients, and achieve a reduction in carbon emissions – to name but a few. By engaging in these activities as part of the promotion of the brand, companies show a connectedness with their customers and greater responsiveness to their needs.
Respondents to our survey are not slow to identify the opportunities that underlie the digital age. In particular, 1 in 5 respondents (20 per cent) state that social networking sites such as Twitter and Facebook have already become an important sales channel for businesses, rather than just a communication tool (Fig 2). In view of the relative newness of these channels, such a claim is impressive. There is a clear belief that businesses are beginning to wake up to the commercial opportunities and know-how afforded by these ostensible ‘social’ networks, and that the owners of these sites are themselves looking to capitalise on their creations more effectively in turn.
In the past, traditional marketing enabled companies to control communications about their brands in a centralised fashion. They have now lost that luxury. However, in its place, the companies most likely to succeed in today’s more challenging environment will recognise and embrace the new technologies at their disposal to manage corporate reputation effectively. Search optimisation, the use of corporate blogs and new media contributions, and using links online to better target customers are all part of that story. The new techniques of brand journalism or brand narrative are largely a response to the success of bloggers, who are arguably slowly eroding the power and influence of traditional print media. Quality company blogs, for instance, enable businesses to disseminate messages about their brands in an environment that is accessible to their customers and in a language that is understood by them – especially those of a younger demographic.
Behavioural advertising is not new and is used extensively in certain sectors such as banking and financial services. However, the Yahoo!/Nectar initiative is the first time online and
20%of respondents state that social networking sites such as Twitter and Facebook have already become an important sales channel for businesses, rather than just a communication tool
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The key steps involved in protecting a brand are still based around registration of the key trade marks and logos associated with the brand in the business’ home market, export markets, and territories where products are sourced.
Just over a third of our respondents (35 per cent) confirmed that they obtain trade mark protection in all major markets for their products (Fig 7). This is a dispiriting drop from the 41 per cent of last year’s Brands Report when we would have hoped to see an increase. Protection in countries where products are merely sourced – although often overlooked – is imperative as a means of guarding against counterfeiting, and gives companies extra comfort and protection to sourcing products from the most appropriate locale.
The additional level of protection afforded by brand mitigation services are consistently under utilised by those who took part in our research. A quarter of respondents (24 per cent) subscribe to a monitoring service to check how their trade marks are being used in the marketplace. Monitoring services allow business owners to check, comprehensively, for sites including those set up for the sole intention of undermining brands; those initiating cybersquatting; and those making bids for marks corresponding to others’ trade marks. Such services also help locate sales of counterfeit products, and can save companies substantial amounts of money and time in the process.
Given the strong views expressed about brand protection in our research, such figures are an indication that businesses are simply not dedicating enough of their time or budget to protecting their brand’s integrity online. Despite respondents’ concern, it is notable that only around a third (36 per cent) claim that management is spending more time on brand protection, suggesting that
offline behaviour has been merged and in such a far-reaching manner. In turn, legal developments and privacy concerns may require new codes of conduct to be introduced to deal with these kinds of advertising initiatives, given the issues that could arise in relation to data protection.
The double-edged nature of online advertising is highlighted sharply in our own research. Of the 6 in 10 (62 per cent) of respondents who indicate that they spend money on search engine optimisation, less than a third (32 per cent) currently bid on Google sponsored keywords to boost their web presence. Nonetheless, a more marked 57 per cent state that they would consider paying for their company name to appear as a sponsored link against the name of a rival; and yet, when asked about the practice and the potential of bidding against a valued brand protected by a trade mark, 71 per cent were uncomfortable with the concept (Fig 6a). In short, it is clear that the ethics, as well as the strategy, of digital brand awareness is also in a stage of evolution.
Protecting brands onlineAt the time of our 2009 Brands Report, which focused on the economic fare of brands during the recession, the extent of the impact on trade mark filings was not yet known. WIPO (the World Intellectual Property Organisation) recently released its 2009 filing figures which confirm that international trade mark filings under the Madrid System were down 16 per cent in 2009.
Countries highlighted as having a marked decline in the filing of international trade mark applications last year included the UK, with filings down 13.3 per cent. These figures are cause for serious concern. With the growth of the internet, this could potentially mean that unprotected brands are even more vulnerable.
In a recent initiative announced in early 2010, internet search engine Yahoo! is teaming up with the loyalty scheme Nectar to assist in better targeting customers with relevant advertisements by tracking online and offline shopping habits. By linking their databases, they hope to track patterns in customers’ shopping habits and offer tailored, behavioural marketing. It is reported that Cadbury has signed up as the system’s first trial-user of the services. Customers are being offered incentives to ‘opt in’ to the scheme, which has so far seen 20,000 customers sign up in the hope that online advertising will at least become more relevant to them.
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their worries are not translating into sufficient consideration at a business level. Just under half (46 per cent) state that management would only ever get involved were a specific brands-related crisis to arise (Fig 8).
Use of traditional protection for intellectual property rights, together with utilisation of new technologies online can and do help. However, businesses should also look to engage themselves online, so as to minimise any risks to their brand and to maintain reputation in the face of online detractors. As online media continues to drive brand perception, utilising search optimisation techniques and engaging with customers in online forums can only help brand owners maintain their position.
More traditional means of litigation and suing for trade mark infringement need to be used when appropriate. Used badly or defensively, this can backfire by creating negative publicity. The key to staying ahead of the game usually involves the use of services to monitor brand names online, but companies may further benefit from making staff responsible for monitoring their brands online themselves, with the authority and ability to respond quickly and proportionately to any problems that arise. A number of larger companies have now appointed dedicated personnel to undertake this kind of role – for example, Ford Motor Company currently has a Head of Social Media who notably has his own social media marketing blog. For most companies, this role is likely assumed within the marketing team.
Free competition vs. trade mark infringement It is clear that the impact of the internet on how we conduct business has led to a corresponding shift in how we protect and promote brands online. The lack of restriction and
regulation of the internet, and its role in enabling communication, is such that IP rights must be respected and have credence online for the positives of e-commerce to outweigh the negatives in the long run.
Intellectual property rights can be used to stop misuse of trade marks or logos, to stop misappropriation of brands and to stop the sale of counterfeit goods. Clear infringements will always be caught by the laws protecting IP rights and such infringements will continue to be stopped on application to the court for the appropriate remedies. But does the law do enough?
Strikingly, when it comes to trade mark infringement, three-quarters (74 per cent) of respondents think that trade mark law ought to protect the multiple functions of a trade mark rather than just the simple (‘essential’) ‘indicator of origin’. Historically, trade mark law in the UK rests on customer confusion about the source of the goods.
Yet the overwhelming view of those three-quarters of respondents is that in their minds trade mark infringement should apply even when there is no possibility of public confusion – for instance when a rival is seen to exploit or tarnish the original brand (Fig 9). This reinforces the current view of European trade mark law taken in a number of recent cases on the Continent, most notably L’Oréal vs. Bellure. In this case, smaller rival Bellure was found to have infringed L’Oréal’s trade marks even though its target markets were different and there was little chance of public confusion at point of purchase.
Notably, only a quarter (26 per cent) believe that the level of protection afforded to brand owners should have anything to do with the size and strength of the brands. Instead, for our respondents, the issue is about fairness and commercial damage, and they are simply
uncomfortable that rivals should be able to ride on the coat-tails of other brands (aside from traditional confusion or origin).
In the context of the 93 per cent that express a desire to see further harmonisation of European copyright and trade mark laws, big questions remain over the face of IP protection online, and the adequate support for brands in the digital age (Fig 10).
With this in mind, we turn to the specific instances concerning brand owners in the digital age.
74%of respondents think that trade mark law ought to protect the multiple functions of a trade mark rather than just the simple (‘essential’) ‘indicator of origin’
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Cross-sector research – key findings
Views on business in the digital age
Extent to which the internet is becoming one of the primary drivers of business growth for smaller businesses
Extent to which the internet fosters a culture whereby companies and individuals are more prone to exploit others’ intellectual property, whether consciously or not
Extent to which it is more likely brands will be subject to unfair or inaccurate treatment online, rather than offline because of the nature and speed of the internet
Strongly agree Agree Disagree Strongly disagree
45.1%
27.7%
22.2%
49.2%
53.1%
50.6%
5.7%
19.2%
25.7% 1.5%
Figure 1
Timescale in which social media will become a substantiated sales and revenue source for businesses, rather than a popular communication channel
It has already become an important sales channel – 19.9%
Within 12 months – 15.8%
Within 24 months – 26%
Within 5 years – 16.3%
Never – for most businesses, social media will remain principally a communication tool rather than revenue source – 19.4%
Figure 2
Extent to which bidding on a rival’s brand name as a keyword in online search advertising is acceptable in the name of healthy competition
To a large extent To some extent Not at all
Where the name is NOT protected by a trade mark
Where the name IS protected by a trade mark
20.3%
6.3%
50% 29.7%
31.1% 62.6%
Figure 3
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View on who should be held legally responsible where respondents are not comfortable with the practice of bidding on rivals’ brands names
The search engine – 15.9%
The advertiser – 23.2%
Both – 60.9%
Figure 6b
Extent to which respondents are comfortable with rival businesses making commercial use of a brand owner’s name using Google AdWords
Highly comfortable – it’s a free market – 8.1%
Comfortable – 21.8%
Not that comfortable – 38.6%
Uncomfortable – it is not right that others benefit at the expense of a competitor’s brand – 31.5%
Figure 6a
View on whether IP law has kept up with the challenges posed by the rise of the internet
Yes
No
19%
81%
Figure 4
Views on counterfeiting and IP law
Extent to which Google’s dominance within the European online search market puts it in too powerful a position
Extent to which the changing nature of counterfeiting due to e-commerce necessitates stronger IP protection
Extent to which damage to brands will ultimately be borne by the paying consumer if the law does not respond to the challenges of e-commerce
Strongly agree Agree Disagree Strongly disagree
13.5%
24.7%
20.6%
44.4%
62.9%
55.3%
4.1%38%
10.6% 1.8%
22.4% 1.8%
Figure 5
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Territories in which respondents seek to obtain trade mark protection
Time senior management is devoting to brand protection compared to two years ago
Our home market – 33.5%
All our major markets – 34.8%
All territories in which our products/services are sold – 19.1%
All territories in which our products/services are sold, plus any territories where we manufacture – 12.6%
Management is spending more time looking at brand protection – 36.1%
Management has less time. They are far too busy with the day to day concerns of the business to worry about the brand – 18.3%
Management would only get involved in this area if a competitor or counterfeiter were undermining the position of the business – 45.7%
Figure 7 Figure 8
Should trade mark infringement only apply in cases where the public would be likely to confuse the brands in question
Yes, trade mark infringement should be solely about whether there is a possibility for confusion in the public mind
No, there is a case for trade mark infringement sometimes applying when there is no possibility of public confusion, for instance when a rival is seen to exploit or tarnish the original brand
26%
74%
Figure 9
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Areas in which IP protection would benefit from revisions to better reflect the needs of the digital age
Further harmonisation of European trade mark and copyright law, to increase efficiency and consistency
Legislation enacted to spell out the distinct responsibilities of brand owners and online commercial entities
Stricter conditions and penalties imposed on secondary markets (e.g. eBay) to fight counterfeiting
Consistent and stiffer penalties levied directly on infringers
46.4%
48.2%
44.6%
65.3%
46.4%
47.6%
46.4%
32.4%
7.1%
4.2%
8.9%
2.4%
Figure 10
To a large extent To some extent Not at all
Likelihood that social media could become the next big threat to brand owners in protecting their brands online
Highly likely – 22.6%
Likely – 46.2%
Unlikely – 30.3%
Not at all likely –1%
Figure 11
Extent to which eBay ought to be liable for the distribution of counterfeit goods on its site
To a great extent – eBay is responsible for transactions on its platform – 24%
To some extent – eBay ought to demonstrate significant investment to protect others’ intellectual property – 62.3%
Not at all – eBay is just a platform and it is down to brand owners to police counterfeiting – 13.7%
Figure 12
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Breakdown of respondents business by products/services
Consumer products/services (e.g. retail, fashion, electronics, consumer goods) – 29.7%
Industrial products (e.g. manufacturing equipment, business technology, infrastructure, construction tools) – 23.8%
Business-to-business services (e.g. professional services, financial services, consultancy) – 32.6%
Public services (e.g. public sector, media, not-for-profit, education) – 14%
Figure 15
Should major brands be able to put restrictions on distributors as to where their goods and services can be sold
Yes – this is an important means of protecting brands globally
No – such a measure is anti-consumer and distorts pricing
62%
38%
Figure 13
Extent of agreement with the proposals put forward by some major governments to block internet access to those that repeatedly infringe copyright
Agree strongly – 35.9%
Agree – 47.7%
Disagree – 9.2%
Disagree strongly – 7.2%
Figure 14
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With the continuing growth and significant reach of the internet as a tool for doing business, brand owners’ concerns about counterfeiting and infringement online are rising.
Both our research and the wider marketplace reflect the increased frustration many brand owners have felt over how to deal with the (often inadvertent) assistance that the internet can give to counterfeiters in particular. Also of concern is the continuing growth of business models for generating revenue over the web, such as Google’s AdWords service, which some commentators have argued violates the spirit of intellectual property protection. The concerns of policymakers to promote fair and free competition also have to be considered.
The last 12 months have seen these issues come to a head in the courts following a string of high-profile cases concerning major internet players such as Google and eBay, and luxury goods giants such as LVMH and L’Oréal. The extent to which trade mark law is available to brand owners to assist in the battle against online infringement and to quash online distribution networks for counterfeit goods has been an area of particular uncertainty. National courts across Europe and state courts across the US have applied the law inconsistently, while such differing outcomes have only made it harder for brand owners to be certain of the relief to which they should be entitled.
With various recent decisions has come some clarity, which will be welcome given that there remains a general sense that IP law has some way to go before it can adequately catch up with the digital revolution. A sizeable 81 per cent of respondents believe that IP law has simply failed to succeed in keeping up with the challenges posed by the rise of the internet. In particular, almost 9 in 10 (88 per cent) claim that the
changing nature of counterfeiting as a result of the rise of e-commerce necessitates stronger intellectual property protection (Fig 5). When asked to balance the benefit to consumers of lower prices and cross-border e-commerce with that of counterfeiting and IP infringement online, over half (55 per cent) of brand owners feel the benefits failed to outweigh the detriment to brands. This suggests that a finer balance needs to be achieved.
What follows is an assessment of our survey respondents’ reactions to the various legal developments of the last year, as well as their views on the underlying issues within. A more detailed analysis of some of the decisions is included in the last section of the report.
Google AdWordsGoogle – one of the great success stories of the internet age – relies heavily on its groundbreaking ‘AdWords’ system for online search advertising to generate revenue. Google is, by some margin, the most used search engine in the world, dominating almost all major territories except China.
Using this position, Google has built up an advertising business whereby advertisers may pay for sponsored links to appear alongside organic search results in response to the entry of certain search terms or keywords. Controversially, Google does not restrict advertisers’ ability to select ‘keywords’ that correspond to trade marks owned by competitors. For instance, typing ‘Interflora’ into Google will bring up a sponsored link for ‘M&S’ flower delivery service. The attraction here is obvious – advertisers are able to effectively hijack interest in their competitors so as to potentially draw those customers to their own site offering a (usually) competing product.
The service led to a series of high-profile cases against Google
Counterfeiting and infringement online – challenges and solutions
81%of respondents believe that IP law has simply failed to succeed in keeping up with the challenges posed by the rise of the internet
“The survey results illustrate so clearly just how much of a threat the internet now poses to industry, and we must also think of the millions of consumers who now shop online, and the risks they run.
Industry is trying to resolve some of the key issues of liability for counterfeits online by negotiation at several levels, as legislation – even if government accepts that it is necessary – would take years to implement, so an agreed protocol with ISPs and online trading platforms such as eBay would be preferable. Time is of the essence!”
Ruth Orchard Director-General, The Anti-Counterfeiting Group
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in which brand owners argued that this practice amounted to trade mark infringement under European law. This culminated in a judgment from the Court of Justice of the European Union in March 2010 that was favourable to Google while accepting use of a trade mark as a sponsored keyword could amount to trade mark infringement on the part of the advertiser.
While only 16 per cent of those uncomfortable with the keyword-bidding practice think that Google should be held solely legally responsible for this perceived mis-use of trade marks, a clear majority (61 per cent) believe both the search engine and advertiser ought to be held legally responsible (Fig 6b). Furthermore, respondents are almost split 50:50 over whether internet users have the commercial nouse to differentiate between organic and sponsored search results, which raises an interesting question in relation to customer confusion and the potential power of search advertising to mislead.
As concerns the potential commercial rival, a clear majority of 7 in 10 (71 per cent) respondents registered discomfort with the notion of competitor businesses making commercial use of brand owners’ names in this manner (Fig 6a). Over 6 in 10 (63 per cent) feel that the practice is entirely unacceptable where the rival’s name is protected by a trade mark (Fig 3). This attitude notably softens in cases where the keyword in question is a rival’s brand name but is not protected by a trade mark: a mere 30 per cent claim this is unacceptable commercial practice in their eyes. Such a contrast underlines the value that brand owners attach to having a trade mark – and their belief that their most commercially important brands, for which they have sought protection through the intellectual property system, ought to
be safeguarded from the exploits of rivals.
The complexity of this issue for all concerned is highlighted by the apparent contradictions felt by brand owners. Well over half (58 per cent) of respondents who spend money on sponsored keywords would consider bidding on the name of a competitor as a sponsored keyword. A major question for brand owners is exactly where the search advertising model will end. The clear advantage of tailoring advertisements to an audience actively in pursuit of a particular service or item is undeniable. Google’s move into the smartphone arena and the continuing growth of diverse internet content providers, such as Twitter, suggest that the challenges to brands posed by search-advertising are likely to intensify.
A likely means by which these content providers will cash in on their user-flows is through some sort of targeted online advertising system that uses the personal details or entries of users to target adverts appropriately. It is quite possible that the controversy surrounding the use of trade marks in the Google AdWords service may spread in some form or another to the wider web as search and online advertising become an increasingly essential revenue stream for social and new media. Soberingly, almost 7 in 10 (69 per cent) of respondents predict that social media will present the next big threat to brand owners (Fig 11).
eBayThe widespread availability of counterfeit goods on the internet remains one of the main battlegrounds between online marketplaces promoting free trade and brand owners. Recent court cases between eBay and various other parties have hinged on the question of to what extent eBay – and if not eBay then
who – is legally responsible for the sale of counterfeit items on the site. eBay has repeatedly maintained that its anti-counterfeiting system, VERO – whereby brand owners can alert the administrator to a counterfeit or infringing listing which will then be removed – is a sufficient measure on its part. eBay has further argued that the agenda of brand owners is to establish an anti-competitive floor for pricing and to use an attack on eBay to fuel a restriction on where their goods and products are sold. Such ‘back door’ selective distribution arrangements have consistently been positioned as anti-consumer by the online marketplace throughout its legal battles.
Correspondingly, in November 2009, a French court fined eBay 1.7m Euros for selling prohibited LVMH goods on its site in breach of an earlier ruling. The issue was distribution of LVMH luxury goods on eBay, rather than whether or not they were counterfeit.
However, the flexing of selective distribution rights could provide a useful, albeit controlling, means for brands to protect themselves online. By using the rights afforded to major brand owners to restrict the distribution of their goods, it becomes far easier for them to monitor counterfeit items appearing. Safe in the knowledge that legitimate goods should not be made available to the likes of eBay sellers, the appearance of any product on a site such as eBay is swiftly flagged as counterfeit or infringing item. In essence, one could argue that brand owners are using all the tools at their disposal, including selective distribution rights, to help crack the bigger problem of legitimacy.
Perhaps in reflection of the problems such marketplaces pose to brands, our survey respondents take a more hostile view towards eBay and the threat of counterfeiting.
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While over two thirds (66 per cent) have no objection to the e-retailer commercially benefiting from brands, almost a quarter (24 per cent) thought eBay “greatly” responsible for abuses on its site. A majority of 62 per cent, however, took the slightly more moderate view that eBay must demonstrate a degree of substantial investment to protect others’ intellectual property on its site (as eBay would claim VERO does). Only 14 per cent accepted that eBay is ‘platform-neutral’, absolving it of any such responsibility (Fig 12).
Furthermore, some 6 in 10 (59 per cent) go on to say that eBay’s current measures (VERO) fail to go far enough in combating abuses of this nature on the site. Additionally, our respondents broadly sympathise with brand owners who aim to take up the fight with eBay directly. Some 63 per cent of respondents feel that taking action against eBay is the only real means brand owners have of dealing with counterfeiters using the site, given that policing individual items on the site is “unreasonably difficult”. Well over half (62 per cent) of respondents argue that selective distribution, which would control distribution channels and prevent the likes of eBay selling certain products at all, is an appropriate means for these companies to protect their brands. However, a significant minority of 38 per cent feel that such measures are anti-consumer and distort pricing (Fig 13).
Other digital challenges to brand ownersOther issues of particular concern that emerged from our research are those of repeated copyright threats by consumers and the problem of ‘cybersquatting’.
The issue of fair usage of domain names has become an increasing focus of attention in the media. Domain trolls or ‘cybersquatters’ refer to entities that acquire a
Separately, respondents’ views were also explored with reference to the recent proposals by the British and French governments to block internet access to users who repeatedly violate copyright law (for example, through the illegal downloading and distribution of music, films etc.). Strikingly, a clear majority of 84 per cent support this idea – albeit that the UK has recently moved away from such a notion (Fig 14). In the media, the prospect of denying internet access has even fuelled discussion over whether internet access should constitute a human right.
The future In general, our survey respondents were clear in their verdict that the lines for brand owners need to be more clearly drawn, not just for the future health of industry but also the consumer. Almost all respondents (96 per cent) suggest that brands are likely to become increasingly aggressive in tackling online infringement with respect to these new digital challenges, with three-quarters suggesting consumers will ultimately bear the cost (Fig 5). Above all, they argue for consistent and stiffer penalties to be levied directly on infringers in the courts (91 per cent).
As to the increasing defensiveness of brand owners, 6 in 10 (58 per cent) respondents foresee major brands seeking out a wider array of intellectual property protection for key products so that they are better equipped to fight rivals on a number of fronts. 40 per cent think this will extend to wider and more unusual trade mark protection, covering aspects of the brand such as colour and overall ‘look and feel’.
However, their ideal agenda is one involving far-reaching legal reform. 93 per cent of respondents call for further harmonisation of European trade mark and copyright law, in order to increase efficiency and
domain name corresponding to a trade mark, usually in the hope of selling it back to the brand owner for a profit at a later date. A clear majority of respondents (7 in 10) do not support this activity. To put this in context, they are more comfortable with secondary marketplaces like eBay benefiting from brands commercially, or for rivals to utilise aggressive comparative advertising strategies online. Clearly, entirely opportunistic commercial advantage such as that of cybersquatting is the most objectionable in the eyes of brand owners, over the more subtle interplay of free and fair competition raging within e-commerce as a whole and currently being examined across the courts.
Plans are also afoot internationally by The Internet Corporation for Assigned Names and Numbers (ICANN) to open up domain names further in the near future. In so doing, we face the prospect of anything from .xxx to .microsoft or .apple domains. This raises a particular question about whether trade mark owners ought to enjoy special rights. The vast majority of our respondents (85 per cent) feel that in this scenario bidding wars for domain names corresponding to a trade mark would be unacceptable, and that the brand owners in question should have special first rights to the domain name. Their expectation is in line with the currently adopted procedure which has developed in recognition of commercial needs. Historically, brands have enjoyed a “sunrise” period which allows trade mark owners to apply early for domain names reflecting their marks ahead of the “landrush” period where no prior trade mark rights are required. Recently companies such as Japanese electronics manufacturer, Canon, have publicly stated the value they see in (and intention to adopt) a .canon domain as soon as ICANN opens up the internet further.
96%of respondents suggest that brands are likely to become increasingly aggressive in tackling online infringement
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consistency across Europe for brand owners. 96 per cent wish to see legislation enacted to clearly spell out the distinct responsibilities of brand owners and online commercial entities such as Google and eBay (Fig 10).
In short, while predicting increased aggression on the part of brand owners themselves, our research clearly shows that in the minds of brand owners, the law also has some important catching-up to do to continue to be fit-for-purpose.
affect or is likely to affect the functions of a trade mark.
In the Louis Vuitton case, the use of signs corresponding to trade marks as keywords had the object and effect of triggering the display of advertising links to sites on which goods or services are offered which are identical to those for which the trade marks are registered.
“in the course of trade”The first requirement to be considered by the Court was whether Google was using the sign “in the course of trade”, which means use that occurs in the context of commercial activity with a view to economic advantage and not as a private matter.
It was common ground that Google, when storing keywords for its clients, was engaging in commercial activity with a view to economic advantage and that the service supplied by Google is not supplied only to the trade mark owners but also to its competitors and counterfeiters. The Court concluded that Google was operating in the course of trade when it allowed advertisers to select keywords and it displays its clients’ adverts in response to those keywords. What the Court did not accept was that Google was actually itself “using” the trade mark in the course of its commercial operation. The Court found that Google allowed its client to use signs which are identical with or similar to the trade marks without itself using those signs. The Court went on to clarify that the fact that Google was being paid to offer this service did not change the Court’s finding that Google was not “using” the sign itself.
Once it had made this determination, the door on holding search engine operators liable for trade mark infringement as a result of the sale of trade marks as keywords was firmly closed. It is a requirement of every type of trade
This final section provides a more detailed analysis of recent key developments and cases.
Sponsored keywords – some clarity at last?One of the main areas of concern for brand owners is the use of their trade mark-protected brands by competitors or counterfeiters as sponsored keywords in search engines.
A number of brand owners had brought actions against search engine, Google, claiming that the use, as a keyword in a search engine, of a sign which corresponds to a trade mark, and without consent having been given by the brand owner, amounts to trade mark infringement. The question of whether this amounts to trade mark infringement by the search engines and/or the third-party advertisers is one that was particularly unclear, especially under European law, until a recent decision from the Court of Justice of the European Union (formerly the ECJ) clarified the position in Europe at least in respect of the liability of the search engine.
The case before the Court of Justice was in fact three joined cases brought by brand owners, including Louis Vuitton.
Looking first at whether the sale of sponsored keywords to a third party amounted to trade mark infringement by the search engine operator (in this case Google), the Court first went back to basics to review the requirements for trade mark infringement. Under European trade mark law, a trade mark owner can prohibit third parties from using, in the course of trade, signs identical with, or similar to, their trade mark in relation to goods or services identical with, or similar to those for which the trade marks are registered. It is well established in trade mark law that the exercise of this right by trade mark owners must be reserved to cases in which a third party’s use of the sign
Recent developments and case law
58%of respondents foresee major brands seeking out a wider array of intellectual property protection for key products so that they are better equipped to fight rivals on a number of fronts
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mark infringement that the alleged infringer must be using a sign that is identical with or similar to the trade mark. If there is no use, there is no infringement. This is also the case with the extra levels of protection afforded to trade marks with a reputation.
Clearly this result is very unhelpful in the battle by brand owners against online infringement and counterfeiting. The Court did say that the role of Google in creating the technical conditions necessary for the use of a sign and being paid for that service for permitting its clients to make use of a sign in this way would have to be examined from the angle of particular rules of law other than trade mark infringement. This leaves the door open for brand owners and their legal advisors to consider other ways in which Google may be held responsible for the use of trade marks by third parties in sponsored keyword search engine results.
However, it was not all bad news for brand owners in the recent Google case. The Court also looked at the question of whether the use of trade marks in the Google search engine was trade mark infringement by the individual advertisers.
In contrast to the Court’s findings in relation to Google, the Court was completely clear that the selection by a third party of a keyword identical with a trade mark which has the object and effect of displaying an advertising link to a site on which that third party offers goods and services for sale is ‘use’ by the advertiser in the context of commercial activity.
“in relation to goods or services”As the advertisers satisfied the first requirement of “use in the course of trade” the Court then went on to consider the next requirement – whether the use being made was “in relation to goods or services”. Trade
mark law sets out a non-exhaustive list of the types of conduct that constitute “use in relation to goods or services” such as affixing the sign to goods or packaging, importing or exporting goods under the sign and the use of the sign in advertising.
The Court clarified that the fact the sign used by the third party for advertising purposes does not appear in the ad itself cannot mean that the use falls outside the concept of ‘use’ in relation to goods or services. The Court went on to find that where a sign identical with a trade mark is selected as a keyword by a competitor with the aim of offering internet users an alternative to the goods or services of that proprietor, there is use of that sign in relation to the goods or services of that competitor.
The Court pointed out that it must be appreciated that the list of types of conduct that amount to “use in relation to goods and services” was drawn up before the “full emergence of electronic commerce and the advertising produced in that context.” The Court conceded that “it is those electronic forms of commerce and advertising which can, by means of computer technology, typically give rise to uses which differ” from those expressly set out in trade mark law. It is interesting to see the Court acknowledge the fact that the current trade mark law was drafted at a time before the full emergence of the internet and to accept that this must be taken into consideration where possible when considering questions concerning the internet.
“use liable to have an adverse effect on the functions of the trade mark”In relation to the question of infringement by advertisers, the Court then went on to consider whether the use made by the advertisers would be likely to have
an adverse effect on the functions of a trade mark. The functions of a trade mark include not only the so-called “essential function” which is to guarantee to consumers the origin of the goods and services, but also its other functions such as guaranteeing the quality of the goods or services and those of communication, investment or advertising. In the case of search engine sponsored keywords, the relevant functions to be examined were described by the Court as “the function of indicating origin and the function of advertising.”
Looking first at the function of indicating origin, this depends on the particular manner in which the advertisement is presented. The Court considered that the function of indicating origin would be adversely affected if the advertisement does not enable a normally informed and reasonably attentive internet user, or enables them only with difficulty, to ascertain whether the goods or services referred to by the advertisement originate from the brand owner, from a connected party or an unconnected third party.
The Court speculated that in a situation where the advertisement in question appears immediately after entry of the trade mark as a search term by the internet user and the advertisement is displayed at a point where the trade mark is also displayed as the search term, the internet user may be mistaken as to the origin of the goods or services in question.
Turning to the question of adverse effect on the advertising function of a trade mark, the Court was looking for uses that adversely affect the brand owners use of its mark as a factor in sales promotion or as an instrument of commercial strategy.
While initially making some helpful comments about how the fact that other people are allowed to use a trade mark as a sponsored keyword in a search engine could drive up
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the price per click that the brand owner will have to pay to secure the top position in the list of sponsored search results, the Court went on to state that such repercussions of the use by a third party do not themselves constitute an “adverse effect” on the advertising function of the trade mark.
Again, demonstrating a reasonable understanding of the particular situation provided by the internet and also working hard to consider the reality of the use made by internet users of search engines etc., the Court considered in detail the practical effects of an internet user entering a trade mark into a search engine.
In particular, the Court considered the natural search engine results that appear alongside the sponsored results. The Court speculated that the home page and any advertising pages of the brand owner would appear in the natural results and usually towards the top of the results (if not at the top). Because of this, the Court claimed that “the trade mark is guaranteed, irrespective of whether or not that [brand owner] is successful in also securing the display, in one of the highest positions, of an ad under the heading ‘sponsored links’.” On this basis, the Court concluded that the use was not liable to have an adverse effect on the advertising function of the trade mark.
The repercussions for brand owners?The question of whether there is infringement by the advertiser has therefore been left open. It will be infringement where the advertisement does not enable the internet user, or only enables that user with difficulty, to ascertain the true origin of goods or services advertised.
Brand owners may be discouraged by the findings of the Court, at least with regard to Google, and continue to be frustrated by the increased burden on them to tackle each issue
of infringement with the individual advertisers. However, it is certainly a move in the right direction that the Court is considering in detail and from a very practical viewpoint, the way in which the internet is used and how trade marks can and cannot be used to restrict activities on the internet.
The repercussions of this decision for brand owners means that they must take action against individual advertisers, if they can demonstrate that there is an adverse effect on the functions of their trade mark. It removes the option of taking one single action against the search engine operator. The findings in this case also relate (to a certain extent) to the use of trade marks as search terms linked to a listing in online auction platforms such as eBay and will add to the difficulties faced by brand owners in the unauthorised use of trade marks to promote counterfeit and genuine products on such auction platforms. A recent development which may confound issues further is that Twitter has recently launched “Resonance” a new paid-for advertising service. It will be interesting to see if this leads to any disputes.
Selective distribution agreementsThe difficulties faced by brand owners in seeking to protect and control use of their trade marks on the internet has led brand owners to try whatever means possible to assist them in their fight against competitors and counterfeiters and the tools they use. One area where there have been a couple of helpful court decisions is in the field of selective distribution.
A selective distribution agreement is a system in which a supplier agrees to supply only approved distributors who meet specified minimum criteria, and the distributors themselves agree only to supply end users or other distributors or dealers within the approved network.
Selective distribution agreements are popular with luxury brand owners as they use them to control the way their exclusive products are sold. However, as selective distribution agreements are likely to discourage price competition among retailers, there are potentially competition law issues. There is currently an exemption under European competition law for selective distribution agreements (a “block exemption”), provided they meet the requirements of the block exemption.
Luxury brand owners have had some success recently enforcing the terms of selective distribution agreements, and in one high profile case in 2009, eBay was fined 1.7m Euros for failing to prevent the sale of LVMH products on its site after an injunction had been granted by a court in France.
LVMH, like many luxury brand owners, supplied goods to distributors by way of a selective distribution agreement and successfully argued to the French Commercial Court that online sales degraded the product’s image. eBay argued that the fine and the original injunction were an abuse of “selective distribution” and were anti-competitive. For luxury brand owners, the fine and injunction can been seen as a victory for selective distribution and a company’s ability to control where its goods are sold – which in turn protects the quality of the brand.
In the LVMH and eBay case, the Commercial Court in Paris issued eBay with an injunction after finding that online sales of LVMH products on eBay degraded the product’s image. The Commercial Court also fined eBay for unlawful sales of items in breach of the selective distribution agreements between LVMH and specialist dealers. At LVMH’s request, the Commercial Court reviewed eBay’s compliance with the injunction at the end of 2009. The Commercial Court
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way in the form of the new block exemption of vertical agreements that is due to come into force from summer 2010.
Selective distribution agreements are potentially anti-competitive as they reduce intra-brand competition. However, where they meet certain criteria (set out in the block exemption) they are exempted from the prohibition against anti-competitive agreements. New rules approved in Brussels on “vertical” agreements including (selective distribution agreements) could allow brand owners to be more restrictive in their agreements in relation to online sales. This would appear to tally with the sentiment expressed by respondents to our survey in which 62 per cent agree that major brands should be able to put restrictions on distributors as to where their goods and services can be sold (Fig 13).
Under the new rules, a supplier may require quality standards for the use of an internet site to resell its goods, just as they may require standards for a shop or for advertising and promotion in general. In selective distribution agreements, a supplier may require its distributors to have a ‘bricks and mortar’ shop or showroom before engaging in online distribution. Furthermore, according to the rules, an outright ban on online sales may be “objectively necessary” and “not considered a hard core restriction if it does not restrict competition that would take place in its absence”.
These new rules will help luxury brand owners, who have lobbied hard to have more control over their products being sold online and at discount prices. Some online retailers have expressed concern over the rules and claim that the ‘bricks and mortar’ clause will allow discrimination against purely internet-based businesses. These provisions are seen on one level as trying to redress the balance between online resellers,
merely gave rise to a contractual liability on the part of the licensee.
In order to be able to claim that this amounted to trade mark infringement rather than having to rely on breach of contract, Dior had to convince the Court that its licensee had contravened a provision in the licence regarding the quality of the goods manufactured. The Court accepted that “the quality of luxury goods was not just the result of their material characteristics but also of the allure and prestigious image which bestowed on them an aura of luxury. That aura emanating from the goods was essential in that it enabled consumers to distinguish them from similar goods. An impairment to that aura of luxury was likely to affect the actual quality of the goods.”
The Court held that the characteristics and conditions of a selective distribution system could preserve the quality and ensure the proper use of such goods. The restrictions in a selective distribution system contribute to the reputation of the goods and contribute to sustaining the aura of luxury surrounding them. It was conceivable that the sale of luxury goods by the licensee to third parties that were not part of the selective distribution network might affect the quality of those goods.
The emphasis in the Court’s ruling on the protection of the aura of luxury as being essential to luxury brands and particularly the way in which that aura of luxury helps consumers identify luxury brands in the market place is important for luxury brand owners. The Court recognised that this is protectable under trade mark law and, as such, this case, if followed, increases the protection available for proprietors of luxury brands when using and protecting selective distribution agreements.
The new block exemptionFurther assistance in the field of selective distribution may be on the
found more than a thousand LVMH products had appeared on eBay since the injunction. Consequently, the Commercial Court imposed upon eBay the 1.7m Euro fine.
The scope of the injunction enforced by the French Commercial Court is very wide – it even prohibits an individual reselling genuine LVMH products they receive as a gift and which are unwanted. There has been speculation that such a decision is unlikely to be followed by other national courts in Europe given its restrictive nature. French courts are traditionally seen as being more protective of luxury brands given the dominance of luxury brands in the French economy. eBay has also indicated that it will appeal the decision and a further hearing is expected this summer.
There is some further encouragement for luxury brand owners that selective distribution agreements could provide an effective tool against online retailers in a decision of the Court of Justice of the European Union from 2009. A selective distribution agreement was effectively enforced between Christian Dior Couture and one of its licensees. The agreement in question contained a clause that “in order to maintain the repute and prestige of the trade mark the licensee agrees not to sell to wholesalers, buyers’ collectives, discount stores, mail order companies, door-to door sales companies …without prior written agreement”. The licensee, in breach of the agreement, sold goods bearing the Christian Dior name to a company outside the selective distribution network that operated discount stores.
Dior brought an action against its licensee and the discount store for trade mark infringement. There was a dispute as to whether the contravention of the licence agreement did not constitute infringement but
62%of respondents agree that major brands should be able to put restrictions on distributors as to where their goods and services can be sold
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such as eBay and Amazon, and brand owners concerned about the action taken by these platforms to police the sale of counterfeit goods.
Amazon has claimed that it has nothing to gain from the sale of counterfeit goods and has urged brand owners to work with distributors to ‘embrace’ the internet. Time will tell the extent to which the new rules will affect websites, such as Amazon and eBay, who are able to expose brand owners to millions of customers online. Brand owners will have to weigh up the advantage of access to these customers against a requirement for ‘bricks and mortar’ premises. The conclusion to be drawn is that the way forward for brand owners and internet resellers is probably one of compromise.
There is some evidence of a shift in willingness of brand owners to avail themselves of the various “notice and take down” services operated by many of the online resellers, with both Calvin Klein and luxury jewellery brand owner, Richemont stating that they are working with online resellers to police counterfeits on sale on their platforms. It seems that at least some brand owners consider it the most effective way to protect their trade marks and have accepted that the cost of monitoring these platforms is a cost that the brand owner is going to have to bear. However, brand owners would undoubtedly like to see a continuing improvement in the notice and take down and other services provided by the online marketplaces.
It is also interesting to note that Richemont has recently bought Net-a-Porter, the highly successful online designer fashion retailer. Richemont is looking to enter into the online market in a way in which it can exploit the massive online customer base but remain in control of the sales. Many advisors consider online sales to be key to the onward development of luxury brands and it appears that the
concerns over sales on the internet have not put luxury brands completely off the idea of internet sales outright. What will be key to them is the degree of control over such sales that they have, in order to maintain the legitimacy of the claim to be luxury goods and not to undermine the luxury shopping experience.
ConclusionThe commercial importance of the internet for all types of brand owner is unassailable, yet the problems faced by brand owners remains a real concern. The ability of brand owners to deal with online infringements and counterfeiters is a serious problem, yet they may be becoming more prepared to compromise and work with online secondary marketplaces and search engines to address the problems, while also exploring the other options available to them such as using selective distribution agreements.
Recent legal developments show that despite the European decision regarding Google’s liability for the use of trade marks as sponsored keywords, the cornerstone to dealing with online issues of infringement and counterfeiting remains intellectual property protection in general, and trade mark protection in particular.
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Marks & Clerk contactsIf you would like more information about the survey or this report, contact the authors from our trade marks team.
Pam WithersPartner, Trade Mark AttorneyMarks & Clerk LLPManchester OfficeT: +44 (0)161 233 5800E: [email protected]
Kirsten Gilbert Partner, Solicitor Marks & Clerk Solicitors LLP London Office T: +44 (0)20 7420 0250 E: [email protected]
About Marks & ClerkThe Marks & Clerk group is recognised as a world leader in intellectual property. Our patent attorneys, trade mark attorneys and solicitors offer a comprehensive range of services – covering patents, trade marks, designs and copyright – from obtaining protection worldwide and portfolio management to enforcement and litigation. The extent of our resources means we are able to offer expertise covering an exceptionally diverse range of technologies and commercial sectors.
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