Trademark And Unfair Competition In The UK, Germany And Italy

By Laurence Cohen (London office), Boris Uphoff (Munich office) and Margherite Barié (Milan office)

Europe has grown up with different systems to protect acquired unregistered rights in trademarks, signs and get up (trade dress). In common law systems this protection has taken the form of an action against passing off, while in civil law systems it has taken the form of an action against unfair competition. The common law system can be viewed as allowing everything except that which is prohibited, while the civil law system prohibits everything except that which is allowed. The UK is a common law country, while Germany and Italy are civil law countries.

For over a decade the European Union (EU) has operated two parallel protection systems for protecting get up or trade dress against unfair competition: a system of trademark registration (which has been harmonised since December 1988 in theory and since about 1994 in actuality); and an unregistered trademark system based either on the law of unfair competition or on passing off, depending upon the jurisdiction in issue.

The registered trademark system is harmonised within Europe and is based on the EU Trademarks Directive 89/104/EC, which governs the harmonisation of national trademark laws, and Council Regulation 40/94/EC (the Trademark Regulation) pursuant to which the European Trademark is governed and the European Trademark Office was established in Alicante, Spain.

Registered rights are protected, once granted, from the date of the application. Grant of a Community Trademark and the marks of certain member states such as the UK may be opposed. Renewal fees must be paid, and the scope of the mark may be limited, or the mark may be expunged altogether for non-use.

The scope of protection by registration, common to the whole of the EU, is the right to prevent others from applying a mark, which is covered by the registration. This right is limited to three types of infringement:

• same mark, same goods;

• similar mark, similar goods coupled with likelihood of confusion, including association with the registered mark; or

• similar mark, dissimilar goods, but where the mark is so well known in a member state that use of the registered mark in the member state takes unfair advantage of the registered mark without due cause or is detrimental to the distinctive character or repute of the trademark.

The procedural consequences of infringement of a registered trademark anywhere in the EU are the same: namely an injunction and damages. Where the member states of the EU differ greatly is in their procedural law with regard to proving liability for infringement, time to trial, interim orders (such as seizure orders), obtaining proof (i.e., discovery) and treatment of damages. In addition there is a wide gulf between the national trademark offices which examine trademark applications before grant, such as the UK, and those who do not, such as France and, as far as potential third parties’ rights are concerned, Germany. However, these disparities can be avoided by opting for the unified applications procedure of the Community Trademark through the Office of Harmonization in the Internal Market (OHIM) in Alicante, Spain.

When the EU Trademarks Directive and the Trademark Regulation were enacted, they were not formulated to be a complete code relating to trademarks. Although both adopted a "first to file" regime consistent with pre-existing civil law practice, they also permitted pre-existing accrued rights to act as a bar to registration. Such rights included those rights existing under the law of unfair competition, under the law of passing off, as well as under copyright law. Cartoon characters, packaging design and logos are examples where copyright is likely to be an earlier right in time to a trademark application; not least because of the requirement to represent the trademark graphically.

Further, the Directive and the Regulation both specifically preserved national rights in unfair competition and passing off as separate and distinct causes of action, to be decided on their merits. As a consequence, registration of a trademark does not preempt an action in passing off or unfair competition. The English Court of Appeal confirmed this in July 2003 in Inter Lotto (UK) Ltd v Camelot Group plc. The coexistence of such similar rights can also lead to the consequence of mutually assured destruction when one party owns the registration and another the unfair competition or passing off rights, as happened in the Australian case of Campomar Sociedad Ltd v Nike International Ltd, where rights in the Nike trademark were split.

An action in the UK based on passing off can protect rights that an action based on registered trademarks cannot. This is because passing off protects goodwill, which is the attractive force bringing in business. Under EU laws it is possible to obtain registration of a trademark, even one to which no goodwill has yet inured. Also, although use is not a requirement for registration it is required as a basis for enforcing rights under a passing off cause of action.

The classic statement of the law of passing off was made by the English House of Lords in the case of Jif Lemon, where the subject matter was a plastic lemon containing lemon juice. The evidence established that when the public saw a plastic lemon containing lemon juice on a supermarket shelf, it thought only of Jif Lemon. Registration of a lemon colored plastic lemon for lemon juice, as a trademark, would have been impossible, because of the evidence acquired of distinctiveness of that get up or trade dress from the Jif case.

The Court summarised the elements of a passing off cause of action as follows:

• the claimant must have protectable goodwill in the subject matter such as get up or trade dress;

• the defendant must be trading off that goodwill in the sense that there is a misrepresentation or confusion as to the origin of the goods or services of the defendant and those of the claimants goods or services; and

• that misrepresentation must lead to damage.

Damage is an essential element of passing off; it can be damage to goodwill, lost sales or some combination.

It is frequently the case that trademarks infringement and passing off are brought as claims in a single action. The scope of an injunction available for passing off is different than that available for trademark infringement. The latter gives rise to an absolute injunction prohibiting further infringement of the trademark. The former gives rise only to a qualified injunction prohibiting marketing of the goods or services without clearly distinguishing them from those of the claimant. Sometimes this is a difference without a distinction; other times, it is not.

A major issue in English trademark and passing off law is the claim to damages. At the moment it is not clear whether damages are restitutionary, compensatory or based on the user principle. It is an open question as to whether a small business whose rights have been infringed by a large business must be paid a reasonable royalty by the large business on all uses of the mark or trade dress, even though that far exceeds the value of the right in the hands of the small business. This issue may be resolved shortly in a number of cases that are now before the English High Court.

Germany has two different types of protection for brand names, logos and product designs: registered rights such as trademarks and unfair competition claims against counterfeiting. The rules under German trademark law are similar to those in the UK. However, the remedies under German unfair competition law are slightly different from those available under the UK passing off law.

In addition to claims under trademark law, German case law on unfair competition has developed the animal of "slavish counterfeiting." Even without a registered right, one has a cause of action if:

• the technical features of a product or service or its design are copied one-to-one;

• the counterfeiting causes a likelihood of confusion because customers think the copy was an original; and

• the counterfeiter acted in bad faith, such as by using confidential information from the manufacturer of the original.

The "slavish counterfeiting" action is a strong weapon against "me-too" products. Think of a Coke tin in the typical red and white colours and a swoosh pattern. Consumers will likely confuse such a product with the original even if the registered trademark "Coca Cola" is not on the tin. As there is a likelihood of confusion, the manufacturer of the original would have an easy case against the counterfeiter. Another good example is a company’s industrial tool, which a competitor copies by using confidential drawings from a former employee of the company. In such a case, the company could sue even without having a patent or another registered right protecting its tool.

A practical advantage to consider when contemplating a counterfeiting case is that in German unfair competition litigation, the plaintiff can choose the forum. Plaintiffs tend to gravitate to the court having the strictest view on companies that attempt to exploit their competitors’ goodwill, such as those sitting in Hamburg and Cologne. These courts are known to grant ex parte injunctions against counterfeiters within a day or two.

The downside of any sort of infringement litigation in Germany is that the plaintiff is only entitled to a modest "reasonable damages" award. Punitive damages are unknown in this jurisdiction, and the courts do not normally award more in damages than the infringer would have paid had he obtained a license at an average market price. Realizing this, some counterfeiters deliberately risk being sued, although they should not forget that trademark and patent infringement are criminal offences in Germany.

Just as in the UK and Germany, Italian trademark law is subject to the EU Trademarks Directive and the EU Trademarks Regulation summarised above.

In Italy, the domestic protection of trademarks falls within the ambit of the Royal Decree No. 929 of 21 June 1942 as amended (Italian law) providing the right of the relevant owner to make exclusive use of the trademark within Italy for 10 years from filing, indefinitely renewable as long as the mark remains in use.

According to Italian law, the owner of a registered trademark has the right to prohibit third parties from using a sign identical or similar to the trademark for certain goods and services without the owner’s consent.

The scope of the trademark protection under Italian law is to avoid a likelihood of confusion among consumers over the products or services of the trademark owner and those bearing an infringing mark. By this, the Italian legal system grants protection to any trademark, which serves the purpose of indicating the origin and quality (particularly for the so-called "special trademarks") of the products and goods with which they are identified. Further, trademarks are also protected in the light of their autonomous value, which is an advertising value representing the communication and investment value for enterprises and consumers. Under Italian law, trademarks possess such value, separately and aside from products or services with which they may be identified. Marks that act as certificates of geographic origin, also known as "application controllée," are particularly strong in Italy. Examples include Parma Ham, Parmesan Cheese and Chianti Wine.

The remedies provided under the Italian legal system for the protection of trademarks are divided into two different categories: restraining remedies, such as "description" (which in common law terms functions as "discovery" of what the defendant has been doing); seizures and pre-trial injunctions; and ordinary remedies such as final injunctions, recovery of damages and destruction of the materials used to commit the trademark infringement. Court decisions are published and may be required to be advertised.

Like its sister jurisdictions, when confronting trademark infringement allegations, Italian courts usually evaluate the likelihood of confusion arising between the defendant’s goods or services and those of the owner of a trademark.

Recent case law provides the following guidance on the likelihood-of-confusion test under Italian law:

• Courts must take the relevant trademark’s context of use (and not just the terms set out in the registration) into consideration when assessing whether it requires protection against the alleged infringement. The context to be considered will usually include associated advertising and the reputation of the mark.

• In accordance with the decisions of the Italian Supreme Court, courts will analyse the relevant trademark as a whole, rather than the separate elements making up the mark. Courts should also attempt to assess the mark from the perspective of the target consumers.

• Any assessment should take into account the fact that in addition to indicating the origin of a particular product or service, marks also have a value that is separate from the products and services to which they relate. This value stems from the fact that marks have the power to attract the interest of consumers. Under Italian law this power of attraction is now protected by the concept of risk of association, which should be included within the test for risk of confusion. This concept is similar to the goodwill associated with a mark in connection with passing off actions in the UK.

• Confusion that occurs before sale is included when assessing risk of confusion.

Under the Italian legal system, a trademark owner also can rely on the protections provided by the Italian unfair competition rules. Infringement of registered trademark and unfair competition are separate and distinct causes of action.

Also, since unfair competition is aimed at protecting consumers against confusion over the business activities of different entrepreneurs (more than against confusion regarding specific products), in order to rely on the protections provided by both Italian trademark law and unfair competition law, it is necessary to establish that the alleged infringement has been effectively used and that, as a result of such use, there exists a likelihood of confusion among consumers regarding the business activities of the registration holder and those of the competitor.

Laurence Cohen, a London based partner, provides a wide range of intellectual property advice for a large variety of corporate and commercial businesses. Dr. Boris Uphoff is a partner in Munich and focuses on intellectual property and litigation. Margherite Barié is a partner in the Milan office of McDermott Will & Emery/Carnelutti and specializes in IP and civil dispute resolution, including patent and trademark infringement, unfair competition, copyright, commercial law and related issues.