26 September 2011

Brand-Bidding Backed by ECJ

Since 2008 when Google gave UK advertisers the green light to bid for competitors’ trademarks, a fierce debate has raged about whether Google’s Adwords service facilitates trademark infringement. With the recent ruling of the European Court of Justice in the on-going dispute between Interflora and Marks & Spencer, the courts have inched a step closer to clarifying the issue.

The Background

For those who have missed the maelstrom, the case arose out of Google’s Adwords service which allows individuals to ‘bid’ for use of particular keywords. If those keywords are entered into Google’s search engine, the internet user will be directed to the successful bidder’s ‘sponsored link’. When Interflora discovered that M&S had bid for its registered trademark, INTERFLORA, it began an action in the High Court in London to sue the retail giant for trademark infringement. However the action was delayed when the Court referred questions to the European Court of Justice (ECJ).

The Ruling

In effect, the High Court asked the ECJ whether a trademark owner has the right to prevent a competitor (promoting the same goods or services) from using its trademark to direct an internet user to the competitor’s link. In a decisive ruling, the ECJ held that a trademark owner may only prevent a competitor from using its trademark in that way if the competitor’s use of the mark is “liable to have an adverse effect on one of the functions of the trademark.” 

Adverse Effects on Trademarks

To illustrate its meaning, the court examined the three functions of a trademark in turn: 

i.        Function of Indicating Origin: The court acknowledged that the key function of a trademark is to indicate to the public the origin of the goods or services being promoted. A competitor’s use of a trademark will adversely affect this function if the advert to which the internet user is directed does not enable a reasonably well informed and observant user to assess whether the goods or services belong to the trademark owner or to the competitor. 

ii.       Advertising Function: The court held that the capacity of a trademark to advertise goods or services is not affected by the Adwords service, since it does not prevent the trademark owner from using his mark to inform and win over consumers.

iii.     Investment Function: The court recognised that a trademark may also be used to “acquire or preserve a reputation capable of attracting consumers and retaining their loyalty” – in other words to generate what is known as ‘goodwill’. However, it concluded that if the only consequence of using a competitor’s trademark as a keyword is to make it more difficult for the trademark owner to generate goodwill (rather than to “substantially interfere…” with this function), that does not amount to adversely affecting the investment function of the trademark.

Despite both sides claiming victory, it looks like the main winner of the ruling is Google, since the court held that the act of bidding for words protected as trademarks per se does not amount to infringement. The High Court is expected to make a ruling in 2012 as to whether in this particular case M&S’s use of the INTERFLORA trademark have had or is liable to have adverse effects on the trademark in question.

Further reading

Case C-323/09: Interflora Inc., Interflora British Unit v Marks & Spencer plc, Flowers Direct Online Ltd

Interflora Inc v M & S Plc [2009] EWHC 1095 (Ch)

by Katey Dixon