ECJ clarifes dilution test for well-known brands

Felicity Hide and Birgit Clark, Boult Wade Tennant

This article first appeared in the February 2009 issue of Managing Intellectual Property. Click here to read this article in PDF format.

In its decision of November 27 2008 the Court of Justice of the European Community (ECJ) clarified the dilution test for owners of well-known trade marks by answering the questions referred to it by the England and Wales Court of Appeal in Intel Corporation Inc v CPM United Kingdom Limited. The decision is generally seen as creating a more restrictive test for the owners of well-known marks. We set out its main points and look at the practical implications for brand owners.

Evolution of the Intel case
Compute chip maker Intel, which is the owner of several UK and Community trade mark registrations for Intel covering computers and related products, sought a declaration of invalidity against telemarketing company CPM's later UK trade mark for Intelmark covering marketing and telemarketing services. Citing the provisions of the UK Trade Marks Act which correspond to Article 4(4)(a) of Trade Marks Directive 89/104/EEC, Intel claimed that the use of the mark Intelmark would take unfair advantage of, or be detrimental to, the distinctive character or the repute of its earlier Intel trade mark despite its use on very different goods and services.

Intel's application was dismissed by the UK IP Office and the High Court. On further appeal to the Court of Appeal, Intel argued that its mark would be diluted by the use of CPM's Intelmark. The Court of Appeal established that the mark Intel had a "huge reputation" as a trade mark. The court further ruled that Intel was an "invented word with no meaning or significance beyond the products which it identifies" and "unique" because it had not been used on goods or services other than thos originating from the computer chip maker itself.

The Court of Appeal decided to stay its proceedings and referred the matter to the ECJ asking for clarification as to the extent to which a trade mark covering goods and services in one field can infringe a trade mark covering goods and servcies in another.

The ECJ's decision
The ECJ ruled that Article 4(4)(a) must be interpreted as meaning that whether there is a link between the earlier mark with a reputation and the later mark, and whether the use of the later mark takes unfair advantage of or is detrimental to the earlier mark, must be "assessed globally, taking into account all factors relevant to the circumstances of the case".

The court established that it was "tantamount" to the existence of such a link between the conflicting marks whether the later mark called the earlier mark with reputation to mind "for the average consumer who is reasonably well informed and reasonably obsrvant and circumspect".

The ECJ went on to say that the fact that an earlier mark has a huge reputation for certain specific types of goods or services was not necessarily enough to imply a link between two marks, nor was this enough to establish as a fact that the later mark would take unfair advantage or be detrimental to the earlier mark.

When assessing the existence of a link, the following factors have to be taken into account:
-the degree of similarity between the conflicting marks;
-the nature of the goods and/or services of the conflicting marks;
-whether their respective consumers overlap;
-the degree of distinctiveness of the earlier mark and whether the mark is unique or essentially unique; and
-the existence of the likelihood of confusion on the part of the public.

It is noteworthy that the ECJ has confirmed that it is irrelevant for the purposes of establishing detriment whether (or not) the owner of the later mark commercially benefits from the distinctive character of the earlier mark. It is also interesting that the ECJ appears to introduce "likelihood of confusion" as a decisive factor for proving the existence of a link. The reasoning behind this appears to be that proving a "link" is a lesser test than showing "confusion" and as such a link is necessarily established when there is a likelihood of confusion. Consequently, while confusion is not necessary, the required link will always be established where there is confusion.

The ECJ ruled that detriment to the distinctive character of a mark occurs when

     that mark's ability to identify the goods or services for which it is registered and used as coming from the proprietor of that mark is weakened, since use of the later mark leads to dispersion of the identity and hold upon the public mind of the earlier mark. That is notably the case when the earlier mark, which used to arouse immediate association with the goods and services for which it is registered, is no longer capable of doing so.

The ECJ further clarified that the use of a later mark may be detrimental to the distinctive character of an earlier mark with a reputation even if that mark is not unique. However, the Court also stated that the more unique a mark is, the more likely it will be that it is to suffer a blurring of its distinctive character. Furthermore, the Court established that even "a first use" of the later mark may suffice to be detrimental to the distinctive character of the earlier mark.

The ECJ partly disagreed with the Advocate General's opinion and followed the UK Court of Appeal's view by ruling that

     proof that the use of the later mark is or would be detrimental to the distinctive character of the earlier mark requires evidence of change in the economic behaviour of the average consumer of the goods or services for which the earlier mark was registered consequent on the use of the later mark, or a serious likelihood that such a change will occur in the future.

However, it is not clear from the ECJ's decision whether such a "serious risk" (which the ECJ has accepted as sufficient for a successful opposition under Article 4(4)(a) of the Directive) would also be sufficient to prove infringement under article 5(2) of the Directive, which is worded (almost) identically to Article 4(4)(a).

It is noteworthy that for the purposes of establishing detriment, it is the average consumer of the goods/services for which the earlier mark is registered who is relevant and whose economic behaviour mut be affected. By contrast, when considering the question whether the use of a later mark has taken (or is seriously likely to take) unfair advantage of the earlier mark, it is the consumer of the goods/services for which the later mark is registered (or applied for) who is relevant.

Practical implications for the Intel case
The decision is generally regarded as a tightening of the dilution test for owners of well-known trade marks and it is at this point difficult to predict how the ECJ's answers will affect Intel's UK invalidity action. The Court of Appeal will now apply the ECJ's guidance to the findings of fact established by the lower court. However, as Intel did not provide any evidence in the UK proceedings demonstrating a change in consumers' economic behaviour, our view is that the UK Court of Appeal may well find in favour of CPM.

Change in consumer's economic behaviour
It will aslo be interesting to see how the various national courts will apply the ECJ's guidance on the interpretation of Article 4(4)(a), particularly with regard to proving a change in the consumers' economic behaviour. While the ECJ's decision has answered many questions, new hurdles have been created for the owners of well-known marks, most notably the requirement of proving a change in the consumer's economic behaviour.

How to prove a change in the consumer's economic behaviour
Unfortunately, the ECJ's reasoning does not include a definition of this requirement, which leaves brand owners in a difficult position: what exactly do they need to prove? In the absence of any direct references in the Directive itself, it has been suggested that this requirement could be interprested in the light of Article 2(e) of the Unfair Commercial Practices Directive (Directive 2005/29/EC), which rules that a misleading advertisement will be seen as materially distoring the economic behaviour of consumers if it causes them to take a transactional decision which they would not have otherwise taken. It seems noteworthy in this context that both the Misleading Advertisement Directive as well as the unfair Commercial Practices Directive focus on the behaviour of the consumers of the later mark, whereas the Intel decision requires a change in the economic behaviour of the consumers of the earlier mark.

All this does leave room for much speculation, perhaps too much room, and some observers already predict that another reference to the ECJ seeking further clarification on this question will be inevitable. In the meantime, brand owners face the difficult task of proving that a change in their consumers' economic behaviour was caused by the use of the later mark. Proving such a change will clearly not be easy, especially since the ECJ has given little guidance on how such a change in economic behaviour, or a serious likelihood of a change, can be shown. It appears unlikely that evidence of falling sales numbers or of a lower turnover alone will suffice because these figures can be affected by numerous, often unrelated, factors. Proving a change in economic behaviour will be even more difficult in cases where it is alleged that a "first use" caused "actual and present" detriment of this nature. In such cases, brand owners will most likely have to base their arguments on a hypothetical future effect on its consumers. The decisive factor will be whether such a hypothetical risk of dilution crosses the threshold to a "serious risk" of future harm.

It can at this point only be speculated that the evidence required will be comparable to proving a "likelihood of confusion" through evidence of actual confusion and by means of consumer survey evidence. Survey evidence might, for example, refer to the distinctiveness of the earlier mark and include hypothetical questions about the later mark: to what degree does it call the earlier mark to mind?

 Some helpful guidance on the standard of survey evidence required can, perhaps, be deduced from the Court of First Instance's (CFI) decision in the TDK case (Case T-477/04: Aktieselskabet af 21. November 2001 v OHIM: TDK Kabushiki Kiasha (TDK Corp)). In this decision, which dealt with an opposition under Article 8(5) of Council Regulation 40/94, the CFI took the following factors into consideration, when deciding whether the use of a later mark applied would take unfair advantage of the distinctive character or the reputation of the earlier mark: the intensity, the duration and the geographical coverage of the use of the earlier mark, sales figures, the amount of investment in the marketing of the earlier mark both in effort, time and money. The CFI also found it decisive that the reputation which the earlier mark had accrued was perceived by a substantial part of the public not only as relating to the manufacture of certain goods and services but also as reflecting a more general, detached goodwill arising from sponsorship activites. Overall, brand owners will most likely have to aim to provide prima facie evidence of a "serious risk", which goes beyond the hypothetical. 

Alternative routes for famous brand owners
The question arises whether there are any alternative routes that brand owners might be able to take in order to protect marks with reputation. Article 4(4)(a) of the Directive sets out three different types of harm: detriment to the distinctive character (dilution) as well as unfair advantage of the distinctive character or repute of the earlier mark and detriment to the repute. It can, of course, be argued that ECJ's decision in Intel only refers to "dilution", particularly because the ECJ did not expressly state that the "economic effect" requirement equally applied to the other two types of harm. To avoid the pitfalls of having to prove a change in the consumers' economic behaviour, brand owners might consider avoiding the "dilution" head altogether and might instead base their claim on one of the other two types of harm, especially since behaviour that causes detriment to the distinctive character of a mark will, in most cases, also take unfair advantage of the earlier mark's distinctive character and/or repute.

While the ECJ's Intel decision has clarified the dilution test for owners of well-known marks, it has also raised further questions and created new hurdles for brand owners seeking to defend the uniqueness of their brand from death by a thousand cuts. Faced with the stark choice of attempting to furnish evidence of a serious future risk of change in their consumers' economic behaviour or waiting until the damage has already been done, it looks likely that brand owners will avoid dilution claims and look to other provisions of the Directive.