O2 v H3G: Advertisers beware

Comparative advertising will be trade mark infringement if there is a likelihood of confusion

The European Court of Justice (ECJ) has declined to follow the opinion of Advocate General Mengozzi issued on 31 January 2008. In answer to questions referred from the UK Court of Appeal the ECJ has said that, in line with O2's reasoning but contrary to Hutchison 3G's submissions, the views of the Court of Appeal, the Commission and the Advocate General, the Trade Marks Directive is engaged in the context of comparative advertising. However, the ECJ has indicated that the test for likelihood of confusion under Art 5(1)(b) of the Trade Marks Directive and the test for confusion under Art 3a(1)(d) of the Comparative Advertising Directive (as amended) are one and the same and a "real world" test. This departure from the more academic comparison of "mark for sign" means that extraneous matter is relevant when considering similarity and likelihood of confusion in the context of a pure trade mark infringement case.

Background

In the summer of 2004, a new telecoms network provider Hutchison 3G (H3G) ran a comparative advertising campaign against a number of established network providers, including O2, using signs similar to each of the brands' visual imagery. In O2's case, its bubbles trade marks. Following an attempt to get an early reference to the ECJ, which was rejected by the Vice-Chancellor, the case went to trial.

The High Court found that O2 had made out a prima facie case of Art 5(1)(b) infringement under the Trade Marks Directive (TMD) as there was a likelihood of confusion but that H3G had complied with Article 3a of the Comparative Advertising Directive (as amended) (CAD) which leave afforded it a defence. H3G appealed the finding of Art 5(1)(b) infringement arguing that the only relevant legislation was CAD in the context of comparative advertising. O2 appealed the decision that H3G had a defence under CAD.

Questions referred to the ECJ

In the Court of Appeal, Jacob LJ agreed with the parties that the law was not acte clair and decided to refer three questions to the ECJ:

1. 'Where a trader, in an advertisement for his own goods or services, uses a registered trade mark owned by a competitor for the purpose of comparing the characteristics (and in particular the price) of goods or services marketed by him with the characteristics (and in particular the price) of the goods or services marketed by the competitor under that mark in such a way that it does not cause confusion or otherwise jeopardise the essential function of the trade mark as an indication of origin, does his use fall within either (a) or (b) of Article 5 [(1)] of Directive 89/104?
2. Where a trader uses, in a comparative advertisement, the registered trade mark of a competitor, in order to comply with Article 3a [(1)] of Directive 84/450… must that use be "indispensable" and if so what are the criteria by which indispensability is to be judged?
3. In particular, if there is a requirement of indispensability, does the requirement preclude any use of a sign which is not identical to the registered trade mark but is closely similar to it?'

In making the reference the Court of Appeal clearly set out its views on the way those questions should be answered. It thought the answer to the first question should be no because "there is simply no reasonable need for trade mark law to cover this kind of use [ie. use which does not jeopardise the function of the mark as an indicator of origin and where there is no confusion]." Jacob LJ went on to say that it is artificial to consider the mark for sign comparison devoid of the context in which it is used. In relation to the second question the Court of Appeal considered that there was no requirement of indispensability given the finding in Pippig which allowed a shop front and logo to be used in a comparative advert and the fact that the word "indispensable" is lifted from recitals to CAD and was not a basis for a restrictive interpretation. As to Question 3, the Court of Appeal heard that even if there was a requirement of indispensability, it would be permissible to use signs similar to and not identical to the mark as to find otherwise would be impractical.

The Advocate General considered that the conditions on which Article 5(1)(a) and (b) apply were "bristling with difficulties" but in answering the first question in the negative he sought to sidestep these by indicating that only CAD applied in the circumstances of a comparative advertisement. In considering the question regarding "indispensability" he gave the opinion that such a criteria should be excluded as even where use was not indispensable it was not possible to assume that unfair advantage had been taken and further, that it should also be excluded because of the requirement that the conditions needed for comparative advertising should be interpreted in the sense that would be most favourable to such advertising.

Outcome

The ECJ decided not to follow the opinion provided by the Advocate General and differed from the Court of Appeal in holding that CAD was not the only piece of legislation to be considered in the context of a comparative advertisement.

The TMD is engaged in the context of comparative advertising

In making its decision on the question of the interaction of the TMD and CAD, the ECJ held that Article 5(1)(a) and (b) could not be used to prevent comparative advertising as long as the advert in question complied with the conditions set out in Article 3a of CAD. However it went on to say that the TMD was engaged and where there was a likelihood of confusion under Article 5(1)(b) then it would not be possible to comply with the requirement that there be no confusion under Article 3a(1)(d) of CAD so the latter directive could not provide a defence to infringement.

Use of a competitor's sign in comparative advertising is use in relation to the third party's goods/services

The ECJ held that Articles 5(1) and (2) were to be interpreted as referring to use of a similar or identical sign in respect of the third party's goods or services and that use of such a sign in the context of a comparative advertisement could be construed in that sense. This is despite the contortion involved in trying to construe use of a sign similar to a competitor's trade mark as being in relation to the third party in circumstances where that third party was clearly using the sign to refer to its competitor's brand. The ECJ seems happy to create a fictional use of the sign in relation to third party goods in order to allow the TMD to apply to comparative advertising.

The test for "likelihood of confusion" and "confusion"

The phrase "does not cause confusion" was included in the first question referred for a specific reason. Confusion is not necessary for Art 5 (1)(a) and the test under Art 5(1)(b) is "likelihood of confusion" which may mean something other than actual confusion so it is clear that reference was being made by the Court of Appeal to the particular requirement that there be no confusion under Art 3a(1)(d) of CAD and the question was designed to flush out the answer that if there was no confusion under CAD then could there be no likelihood of confusion under TMD?

The ECJ stated explicitly that the same interpretation must be given to the term "confusion" used in Article 5(1)(b) of Directive 89/104 and Article 3a(1)(d) of CAD. This is in direct conflict with the approach taken in the High Court where Lewison appeared to apply two different tests for confusion. Firstly, he held that there was a likelihood of confusion for the purposes of Article 5(1)(b) when making a mark for sign comparison including the 'super' subscript and voiceover but he then went on to hold that there was no confusion for the purposes of Article 3a(1)(d) where he applied a completely contextual analysis involving the whole advertisement.

In light of the ECJ's endorsement of Lord Justice Jacob's more complete contextual analysis it appears that the Court of Appeal will look to over-rule the High Court's factual finding of a likelihood of confusion on the basis that the wider test should have been applied. They may also find grounds to do this on the basis that Lewison J also took a different approach to the question of which services the sign was used for when he held that H3G's use was use in relation to O2's services but could still fall foul of Article 5(1)(b). This is in line with the reasoning in BMW (Case C-63/97) though doubt has been cast on that approach in later cases. In the Court of Appeal judgment, Jacob LJ says "If the answer [to the first question] is "yes" so that H3G's use falls within Art 5(1) then the question of whether it has a defence arises." It is clear that the question of infringement is still up for debate despite the ECJ announcing that there was no likelihood of confusion whilst straying from its remit to make a finding of fact on the issue.

Indispensability

Whilst the ECJ declined to provide guidance on the contested requirement of "indispensability" for use of trade marks in comparative advertising, it did say that the importance of promoting comparative advertising in the interests of the consumer meant that it was not incumbent upon the advertiser to use its competitor's exact trade mark but that a similar sign was permissible.

Comment

This decision will be a relief to many brand owners who would have been faced with the prospect of no private right of action for trade mark infringement in the UK in the context of comparative advertising had the ECJ endorsed the approach of the Advocate General. However, although it is clear that the TMD is engaged in an Article 5(1) scenario where there is a likelihood of confusion, it may not bite on infringement under Article 5(2) where use of the sign without due cause is detrimental to the distinctive character of the mark but nonetheless the conditions under CAD are satisfied. Despite indications at times that the ECJ is starting to give credence to the idea that the key function of a trade mark may extend past indication of origin, it appears that in the context of comparative advertising at least, brands will remain at risk of dilution. Practically speaking, it is likely that advertisers will want to avoid distorting a competitor's mark in future given the risk that there will be a likelihood of confusion and an action for trade mark infringement.

The difficulty with the test for confusion championed by the ECJ is that it moves away from the more academic test which excluded superfluous matter. This is despite the Arsenal case which indicated that such extraneous matter could be ignored given the potential for a likelihood of confusion if the sign is seen later without qualifying aspects such as information that the goods were "unofficial". Quite where this leaves us in the context of marks which have not been used at all is unclear. The shift towards what has been described as a 'real world' analysis in the way in which trade mark and sign comparisons should be conducted will impact on pure infringement cases in future, potentially making it harder for trade mark owners to protect their brands from infringement by similar signs, in the face of additional matter which will serve to lessen the likelihood of confusion.

Some of the questions referred in L'Oreal v Bellure have now been answered but brand owners will need to wait a little longer to discover amongst other matters, the ECJ's take on the meaning of taking unfair advantage in the context of a comparison list where a product under a well-known mark is compared to a competitor's product and whether this relates to the reputation of the well-known mark. It will also be interesting to see how the ECJ will react to the last question in which the Court of Appeal is asking with regard to Article 5(2) TMD whether use takes unfair advantage of the trade mark's reputation in circumstances where the essential function of the mark (i.e. origin guarantee) is not at stake, there is no risked or actual tarnishing or blurring, no harm to sales or other commercial interest but the third party making use of the sign gets a commercial advantage from his use of it.

Given the confusion over the test for "likelihood of confusion" one wonders whether the ECJ will in future be asked to consider the question of infringement where there is a likelihood of confusion as a result of seeing only part of an advertisement due to initial but waning interest. In this case it would have been particularly relevant given that the first instance decision found that it would be possible to be confused having seen the first portion of the advertisement where the super and voiceover served to exacerbate the impression that it was a commercial by O2.

This analysis was written by Suzanna Magee, solicitor in Wragge & Co's IP team.