Searching questions remain

11th Feb 2021

Cameron Malone-Brown looks at how the UK’s exit from the EU may affect future adjudication on online advertising. EWHC 2564 (IPEC), Pliteq Inc & Another v iKoustic Ltd & Another, IPEC, 2nd October 2020.

Here, Amanda Michaels, sitting as a Deputy Judge in the IPEC, confirmed that use of a registered trade mark on the Google Dynamic Ad Service to attract consumers to a website might not be trade mark infringement, even where the consumers landing on the site are offered and purchase a competing product.

The decision raises interesting considerations around so-called “bait and switch” advertising strategies. It also adds to the growing body of UK case law around online advertising, which may be an area ripe for divergence following the conclusion of the Brexit transition period.

The decision

iKoustic Ltd (the Defendant) is a retailer of sound-proofing materials and enjoyed a successful stint as a non-exclusive distributor of products for Pliteq Inc (the Claimant). The goods in question were clips and mats for sound proofing, named the GENIEMAT and GENIECLIP (both registered trade marks). After several years of sales, the supply relationship concluded and iKoustic began trading its own versions of the clips and mats under its branding (“Mutemats” and “Muteclips”). iKoustic tried to sell the remaining branded goods back to the Claimant but was refused. As it still had a number of the branded GENIEMAT and GENIECLIP to sell through, iKoustic sold both the Claimant’s goods and its own through its website.

This dispute relates to a period of around a year during which the Defendant sold branded GENIEMAT and GENIECLIP products alongside its own competing products, without the consent of the Claimant. The Claimant’s key argument was that the Defendant used the Google Dynamic Ad Service to target consumers seeking GENIEMAT or GENIECLIP products to attract them to its website, only to then sell them the Defendant’s own goods (a “classic bait and switch”). The Google Dynamic Ad Service essentially scans its customers’ websites and advertises them when certain key words or phrases from the sites are searched. As the Defendant’s site featured the Claimant’s goods, a search for these trade marks would bring up an advert for the Defendant’s site. As such, the Defendant used the Claimant’s registered trade marks to sell its own goods and, in the eyes of the Claimant, this ought to be an actionable infringement.

Amanda Michaels provides a useful summary of the case law around bait and switch advertising, centred on the Honourable Mr Justice Arnold’s discussion in Och Ziff.1 The key issue with bait and switch as a basis for infringement or passing off is that it likely only constitutes initial interest confusion; that is to say, the behaviour of the would-be infringer may well cause confusion when initially generating interest, but at the point of sale there is no confusion as to the origin of the goods. In this case, both parties agreed that there was no confusion at the point of sale of the goods. Instead, the Claimant argued that the bait and switch advertising strategy had a negative impact on the functions of its earlier trade marks and took unfair advantage.

In finding against the Claimant, Ms Michaels held that the use of the earlier marks did indeed relate to the actual branded goods themselves, for which the Claimant’s rights were exhausted due to their prior sale within the EEA. There was also no reason why the Claimant might have opposed further commercialisation of the relevant goods by the Defendant, so the defence of exhaustion was not undermined.

Impacts compared

With commerce increasingly taking place online, courts need to respond quickly to the growing number of trade mark infringement cases in which various new and unfamiliar advertising methods are utilised to target an increasingly tech-savvy consumer. As noted in the Och Ziff decision, the efficiency of the act of online purchasing means that a consumer can very quickly leave a site and go elsewhere if the goods are not sufficiently desirable. With a physical shop, however, it may be more difficult for a consumer to go elsewhere once lured in (perhaps due to time constraints, location, the availability of similar shops and so on). Bait and switch advertising may therefore have a different impact on online consumer behaviour than on those attending brick-and-mortar stores.

In Google France2, misuse of ad words was held to be actionable where the online advertisements would prevent the consumer from ascertaining the correct origin of the goods or services or would create sufficient difficulty in doing so. This was readily applied in cases such as LUSH3, where ad words were used to indicate to the consumer that certain goods were available at a site, but where the goods offered at that site were not from the brand advertised. Where the potential infringer uses a mark in order to attract interest in its own goods but makes insufficient effort to avoid confusion or to highlight the disparity to consumers, Google France appears to apply neatly. 

Where there is a genuine reason for the use of the registered mark alongside similar goods, as was the case here, a more nuanced approach is required. In the present case, the Defendant sold through its old stock and generated traffic to its website by referencing the registered mark. This use of the registered mark (through the Google Dynamic Ad Service) was seemingly legitimate. At several points during the period of interest, the Defendant did not have a sufficient volume of goods to fulfil orders made for the goods bearing the registered trade mark, so it substituted its own goods. This substitution appears to have been made clear to the consumer, and a refund issued to address the variation in cost.

Problematic precedent?

As the Claimant noted, this may result in a problematic precedent. One might conceivably stock a small number of products in order to show a legitimate interest in using a registered trade mark in advertising. This number of goods may not be sufficient to fulfil an order, as was the case here. Nonetheless, the use of the registered mark will generate traffic to the website and potentially increase sales relating to similar goods. It is unclear when keeping a stock of branded goods might be considered token for the purpose of enabling the seller to legitimately engage in bait and switch advertising.

In this case, a single roll of branded insulating material (almost certainly not enough to fulfil an order) did not indicate illegitimate or token use, despite iKoustic using the registered mark in advertising. There was corroborating evidence indicating that the Defendant took steps to legitimately sell through its old stock, as well as to highlight to consumers that its stock was in short supply. As such, the risk of online traders hiding behind a token stock of branded goods was not discussed in detail but may well arise again in the near future. 

Divergence likely

With the end of UK’s Brexit transition period, new EU law no longer directly binds the UK. As such, it is likely that the treatment of intellectual property in the UK will diverge from the EU. This may happen relatively quickly: the UK is a common law jurisdiction, with IP specialist judges at every stage of appeal and specialist IP courts, so there is scope for judicial creativity.

As retail moves increasingly online, it seems likely that online infringement disputes will also become more commonplace. Increased opportunity for UK courts to rule on online trade mark infringement disputes could result in greater divergence from the EU as the UK develops its own case law.

Many online retailers welcomed the UK Government’s decision not to implement the “Copyright Directive” (EU Directive 2019/790). A key element of the Directive that has faced much scrutiny is the so-called “upload filter”, whereby intermediary websites hosting third-party content may face liability for copyright infringements, potentially requiring them to screen copyright abuses at the point of upload. Some fear that this may create barriers to trade, especially for new entrants to the online market. As such, the UK might provide preferable market conditions for online traders, stimulating competition and, presumably, IP litigation. Judicial discussion of new online tactics and strategies may allow the UK to diverge from the EU even more dramatically.  

When considering ad words, the UK courts have typically focused on the origin function of trade marks, which is not affected by bait and switch advertising. As new market conditions arise, we look forward to seeing how the UK courts address the nuances of online trade, especially in instances that do not turn on the more traditional origin function of marks.

1 [2010] EWHC 2599 (Ch)

2 [2010] C-236/08

3 [2014] EWHC 1316 (Ch)

Key points

  • There is still a way to go in clarifying what constitutes legitimate use of ad words.
  • “Bait and switch” advertising must go beyond initial interest confusion to constitute infringement.
  • The enforcement of trade marks online may become an area of considerable divergence from the EU

Cameron Malone-Brown is a Chartered Trade Mark Attorney at Potter Clarkson AB
[email protected]

 

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