Keyword advertising and the L’Oréal v. eBay ruling

A couple days ago, the ECJ gave judgement in L’Oréal v. eBay. L’Oréal had sued eBay because some eBay-sellers offered L’Oréal counterfeit goods for sale. Some sellers also offered goods that were not intended for sale (such as tester or dramming products) or goods bearing L’Oréal trademarks intended for sale in North America and not in the European Economic Area. L’Oréal also submitted that eBay is liable for the use of L’Oréal trademarks in sponsored search results. eBay used L’Oréal trademarks in both the advertisement’s text and as a keywords to trigger  the advertisement. One of the questions before the ECJ was: is eBay’s use of L’Oréal’s trademarks in sponsored search, use in the sense of Article 5(1) of the Trademark Directive? In other words: is eBay’s trademark use actionable?

Trademark use in keyword advertising

The ECJ differentiates between two types of use by eBay. If eBay advertises to promote its own service of making an online marketplace available to sellers and buyers of products, then that use is not in relation to goods or services identical with, or similar to L’Oréal products. eBay ‘s online auction service is in no way related to L’Oréal perfumes, cosmetics or hair-care products. eBay’s trademark use is thus at the very most actionable under Article 5(2) of the Trademark Directive, which protects trademarks with a reputation (and does not require trademark use in relation to identical or similar goods or services).

However, in so far as eBay uses L’Oréal trademarks to promote its customer-sellers’ offers, then there is use  related to goods or services identical with those for which L’Oréal trademarks are registered. The ECJ compares the products offered by eBay-sellers with L’Oréal’s products. According to the ECJ, eBay’s advertisements create an obvious association between the trade-marked goods which are mentioned in the advertisements and the possibility of buying those goods through eBay. Even though eBay itself does not offer the infringing products for sale, the ECJ held that eBay’s use falls within the scope of Article 5(1) of the Trademark Directive.

This is in line with the EJC’s earlier decision in UDV North America  v. Brandtraders, in which the ECJ considered trademark use by an intermediary. UDV was the proprietor of the Community trademark Smirnoff Ice. Brandtraders operated a web site on which traders could anonymously place advertisements and negotiate the sale of goods. Brandtraders, in its own name but on behalf of another company, entered into a contract of sale of bottles of Smirnoff Ice with a buyer for which it used the SMIRNOFF trademark. The ECJ explained that the fact that a third party uses a sign in relation to goods that are not his own goods, does not by itself mean that such use is not covered by Article 5 of the Trademark Directive. Brandtraders was considered to have used the sign in such a way that a link was established between the sign and the goods marketed by Brandtraders.

Use in relation to goods and services is not enough to constitute trademark use in the sense of Article 5(1) of the Trademark Directive. Trademark use should be liable to have an adverse effect on one of the functions of the trademark. Whether eBay’s use affects the functions of L’Oréal’s trademarks is decided based on the result of the black box created by the ECJ in its Google France v. Louis Vuitton and Portakabin v. Primakabin decisions:

94. As regards, finally, whether the use of a keyword corresponding to a trade mark is liable to have an adverse effect on one of the functions of the trade mark, the Court has made clear in other cases that there is such an adverse effect where that advertising does not enable reasonably well-informed and reasonably observant internet users, or enables them only with difficulty, to ascertain whether the goods or services referred to by the advertisement originate from the proprietor of the trade mark or from an undertaking economically linked to it or, on the contrary, originate from a third party (Google France and Google, paragraph 99; and Case C‑558/08 Portakabin and Portakabin [2010] ECR I‑0000, paragraph 54).

Conclusion: Nothing new here!

No more trademarks on Australian cigarette packages

An interesting read on about Australian draft legislation that promises to be a landmark in the global fight against tobacco.

EARLIER this month the Australian government released draft legislation that promises to be a landmark in the global fight against tobacco. If passed, from January 2012 cigarettes and hand-rolling tobacco will have to be sold in plain, unappealing olive-brown packs plastered with large, graphic health warnings. The only thing distinguishing one brand from another will be the name written in a standard font on the top, bottom and front of the pack, below the health warning. This is a world first.

The legislation also proposes that cigarettes themselves should be completely plain. That means no branding, no coloured or flavoured papers, no gold-banded filters and no different gauges like slimline and mini cigarettes.

So, no more trademarks on Australian cigarette packages. The tobacco industry fights back:

Within hours of the announcement, British American Tobacco and Imperial Tobacco declared they would challenge the decision in courts and seek billions in compensation on the grounds of “seizure of intellectual property”. The government’s own advice is that the legislation will survive the challenge, a position supported by senior legal commentators. Mark Davison, professor of law at Monash University in Victoria, described the industry’s argument as “so weak, it’s non-existent”. He told The Australian newspaper: “There is no right to use a trademark given by the WTO [World Trade Organization] agreement. There is a right to prevent others using your trademark but that does not translate into a right to use your own trademark.”

Although I don’t smoke and I think we should try to ban smoking as much as we can, I can feel the industry’s pain. There is probably a lot of good will attached to the cigarette brands. Now that tobacco advertising bans are growing, there will be no more ways left for cigarette brands to distinguish themselves. I never read about an explicit right to using a trademark, but a ban on using a particular trademark on packages and in advertisements renders that trademark completely useless. In my view, such a ban does conflict with the foundations of trademark law: to allow entrepreneurs to distinguish themselves and guarantee a certain level of quality to consumers. From a trademark law perspective, a ban on using trademarks on cigarette packages is not the way to go.

Another thought. How long until trademarks for products that pose major health risks can no longer be registered? Will trademark law become a tool to regulate all sorts of unwanted commercial speech?

Research: Free-riding on Another’s Brand is not Always Beneficial

I stumbled upon some interesting research on free-riding on trademarks that has just been published. Femke van Horen wrote her PhD thesis on ‘Breaking the mould on copycats: What makes product imitation strategies successful?‘ (PDF). Van Horen comes to the counter-intuitive conclusion that not all forms of free-riding are beneficial to the free-rider. Below is the abstract:

Consumer product companies and retailers often imitate the appearance (or “trade-dress”) of a leader brand to profit from the positive associations attached to the leader brand. Such a copycatting strategy is deliberate and frequently used, as evidenced by the plethora of copycats one can find in the supermarket. Despite the frequent use of such product imitation strategies, it is however less clear when they are successful and why. This dissertation sheds new light on this important question and demonstrates that the effectiveness of a copycat strategy is not only determined by package similarity, but is highly dependent on where the copycat is sold (e.g., in which store) and how it is positioned on the supermarket shelf (e.g., next to the leader brand or not). Furthermore and in contrast to the current opinion, this dissertation shows that high similarity copycats can backfire and reduce consumer’s liking of copycats, whilst subtler forms of copycatting can free-ride more effectively on the leader brand’s equity. Because this dissertation examines the mechanisms underlying copycat effectiveness beyond consumer confusion (where consumers accidentally purchase the copycat instead of the leader brand) are examined, the subsequent findings are an important supplement to the existing literature.