The Court of Justice of the European Union has found that a pub landlord, Ms Murphy, should not have been fined for screening Premier League matches in her pub using Greek broadcasts. On the contrary, the CJEU has stated that the relevant UK legislation, which prohibits the use of foreign decoder cards, is contrary to EU law. Such decoder cards are necessary for UK customers to unscramble encrypted foreign broadcasts.

The judgment is likely to lead to a change in how broadcast rights are sold, and could for example allow UK customers to receive Premier League broadcasts at knock-down prices from foreign providers.

The complex CJEU judgment, which runs to over 200 pages, must now be considered by the UK High Court, who had originally sought the CJEU’s guidance on the law. The High Court will need to apply the CJEU’s general findings to the specific facts in the case between the FAPL and Ms Murphy. But even though the ban on decoders is unlawful, Ms Murphy will not be immediately in the clear. As is explained in further detail below, the High Court will still need to decide whether the screening of foreign broadcasts infringes copyright law, despite having been lawfully decoded.

Copyright Issues

The Premier League contains 20 football clubs, each of which own one share in a company called “Football Association Premier League Limited”. FAPL is the vehicle through which the clubs operate the league, and it is responsible for filming the matches and granting broadcasting rights.

Broadcasters in Europe tend to operate on a territorial basis, because citizens of one member state are not often interested in receiving television from other member states. The absence of pan-European broadcasters means that FAPL grants the rights to televise matches on a similarly territorial basis, so that UK broadcasters can broadcast Premier League games to their customers in the UK, while French broadcasters can broadcast Premier League games to their customers in France, and so on.

So when a broadcaster is granted broadcasting rights by FAPL, it is always granted an exclusive right. The grant of an exclusive right enables a FAPL to charge a higher price to the broadcaster.That’s why, historically, a person in the UK who wished to watch televised Premier League matches needed a subscription from BSkyB (currently, BSkyB shares exclusivity with ESPN, so that a person who wishes to watch every televised match needs a subscription from both). In Greece, Premier League matches are exclusively available on “NOVA,” a service similar to “Sky” in the UK.

To protect the exclusivity of the rights, broadcasts of games are encrypted and the use of decoding devices outside the territory in which the broadcaster operates is restricted by UK legislation and FAPL’s licences with broadcasters. However, some UK restaurants and bars have nevertheless started to use foreign decoding devices in order to receive matches from foreign broadcasters for less than they would have to pay for Sky and ESPN. In a number of test cases, FAPL alleged:

1. the supply and use of decoding devices amounted to a breach of section 298 CDPA, which prohibits such acts; and
2. the screening of foreign broadcasts amounted to a communication to the public and an infringement of FAPL’s copyright in the matches (since a copy of the broadcast must be created in the decoder before it can be screened) in breach of sections 17 and 20 CDPA.

On the first point, the CJEU held that national legislation which prohibits the use of foreign decoder cards is contrary to the freedom to provide services and cannot be justified. For that reason, FAPL’s complaint under point 1 is bound to fail, though it will be interesting to see whether the High Court can interpret the legislation in any way that is compatible with the CJEU’s ruling.

On the second point, the CJEU conceded that FAPL was the owner of some intellectual property in what was broadcast (such as in the title sequences and logos), but pointed out the majority of what was broadcast – the matches themselves – were not intellectual creations classifiable as works within the meaning of copyright legislation. The CJEU held:

• The screening of FAPL’s copyright elements will constitute a ‘communication to the public’ within the meaning of the copyright legislation, meaning that the FAPL’s consent is necessary to do it. This suggests that a pub can still broadcast the match provided that it does not broadcasting FAPL’s copyright elements (by only broadcasting from kick-off or by obscuring FAPL logos, for example).
• The copying within the decoding device is a temporary, transient part of a technological process that does not amount to infringement.

It is perhaps not surprising that the CJEU found the copying within the decoding device not to infringe, as it had noted that such copying occurs in all modern television sets and, were it to infringe, would “paralyse” the spread and contribution of new technologies. Still, it appears as though FAPL’s claim might still succeed against Ms Murphy with the claim that she communicated a copyright work –FAPL’s title sequences and logo – to the public. But it will be several months before the High Court’s decision.

If you have any questions or wish to discuss how these issues may affect you, please let us know.

The facts of this case are now familiar to most. In brief, Interflora is suing Marks & Spencer over the latter’s use of INTERFLORA (a registered trade mark) as a Google AdWord. The High Court referred a number of questions to the Court of Justice of the European Union (“CJEU”), and on 24 March the Advocate General gave his opinion (see here). With the benefit of the Advocate General’s opinion, but without being bound by it, the CJEU has now delivered its judgment.

The judgment is unlikely to require many businesses to change their practices, as it remains legitimate to use a third party’s trade marks as AdWords provided that consumers are not misled and no damage is done to the third party’s reputation. Trade mark infringement is only likely to occur if the use:

• does not enable reasonably well-informed and reasonably observant internet users, or enables them only with difficulty, to ascertain whether the goods or services advertised originate from the trade mark owner rather than a third party;
• substantially interferes with the trade mark owner’s ability to use its mark to acquire or preserve a reputation capable of attracting consumers and retaining their loyalty;
• contributes to turning the trade mark into a generic term; or
• takes unfair advantage of the repute of the trade mark, for example because it is used to advertise imitations of the goods or services of the trade mark’s owner.

Each of the above will be matter for national courts to decide, and they reflect the two ways in which the CJEU considered that the use of a third party’s trade mark as an AdWord might fall foul of trade mark law:

• by adversely affecting the trade mark’s functions; and/or
• by diluting or ‘free riding’ on the reputation of the trade mark.

The full reasoning of the CJEU is set out below.

The functions of a trade mark

The CJEU considered how the use of a third party’s trade mark as an AdWord might adversely affect the trade mark’s functions. It identified three such functions and dealt with each of them in turn.

Function 1: Indicating Origin

The CJEU held:

When used as an AdWord, a trade mark’s function of indicating origin is adversely affected if the resultant advertisement does not enable reasonably well-informed and reasonably observant internet users, or enables them only with difficulty, to ascertain whether the goods or services advertised originate from the trade mark owner rather than a third party.

In light of previous decisions, in particular Google France, this will come as no surprise, and is now a matter for the High Court to asses. But the CJEU has added the following parting comments. M&S’s advertisement appears immediately after a user has entered INTERFLORA as a search term. And the word INTERFLORA remains on the screen, in its capacity as a search term, at the same time as M&S’s advertisement is displayed. The CJEU clearly considers that users might incorrectly consider M&S to be part of Interflora’s commercial network, in which case they will inevitably be mistaken as to the origin of M&S’s offering. It remains to be seen whether the High Court will be steered by that observation.

Function 2: Advertising

The CJEU held:

Use of a third party’s trade mark as an AdWord does not have an adverse effect on the advertising function of the trade mark, even though it may cause the trade mark owner to pay a higher price per click than it might otherwise have had to. The use of a third party’s trade mark as an AdWord is merely intended to offer internet users alternatives to the goods or services of the owners of those trade marks.

Function 3: Investment

A trade mark may be used by its owner to acquire or preserve a reputation capable of attracting consumers and retaining their loyalty. The CJEU has held:

The owner of a trade mark cannot normally prevent a competitor from using its trade mark if the only consequence is to oblige the owner to adapt its efforts to acquire or preserve its reputation. But if such use substantially interferes with the trade mark owner’s ability to use its mark to acquire or preserve a reputation capable of attracting consumers and retaining their loyalty, then such use must be regarded as adversely affecting the trade mark’s investment function.

It is not yet clear how this will be interpreted by national courts. At the very least, it seems to indicate that a party cannot use someone else’s trade mark in relation to the same goods and services if such use affects the trade mark’s reputation. Ultimately, the High Court will need to decide whether M&S’s use of Interflora’s trade mark jeopardises Interflora’s ability to use the mark to maintain a reputation.

Dilution and ‘free riding’

The CJEU also considered dilution and ‘free riding.’

Dilution

Interflora argue that the use by M&S of the INTERFLORA trade mark as an AdWord will gradually persuade internet users that the word is not a trade mark but a generic word for a flower-delivery service. The CJEU held:

The use by a third party of another’s trade mark as an AdWord will be detrimental to the distinctive character of the trade mark if it contributes to turning the trade mark into a generic term. But that is only likely to happen if it can be established that such use is interfering with the trade mark’s function of indicating origin.

In other words, Interflora can have no complaint against M&S if its advert enables the reasonably well-informed and reasonably observant user to ascertain whether M&S’s offering is independent from Interflora’s.

Free riding

The CJEU acknowledge that where a trade mark owner’s mark is selected as an AdWord by a competitor, the purpose is to take advantage of the distinctive character and repute of that trade mark. The CJEU indicated that such a selection can, absent any due cause, be considered as unfair and one which the trade mark owner is entitled to prevent. That is particularly likely to be the case where the advertisement relates to goods that are imitations of the trade mark owner’s goods. But the CJEU went on:

Where the advertisement merely puts forward – without offering a mere imitation, without causing dilution and without adversely affecting the functions of the trade mark – an alternative to the goods or services of the owner of the trade mark, such use is likely to be fair competition and thus not without ‘due cause.’

If you have any questions or wish to discuss how these issues may affect you, please let us know.

Not just anything can be registered as a trade mark. A business will not be able to register a slogan, for example, unless it is capable of distinguishing one business from another. That is the essential purpose of a trade mark: it indicates the origin of the goods, so a customer knows that if a product is marked “JUST DO IT” or “VORSPRUNG DURCH TECHNIK” then it comes from Nike or Audi respectively. But is the slogan “KEEP CALM AND CARRY ON” capable of singling out one business in this way? The Community trade mark office clearly felt, when they accepted the mark for registration, that the slogan was capable in particular of picking out Keep Calm and Carry On Limited, a company established in the UK in 2009. The Community trade mark office took that view despite the slogan’s true origin being wartime Whitehall, and despite the fact that various other traders have been using the slogan extensively since its rediscovery in a box of books by a second hand bookseller from Northumberland. In our view the slogan is not capable of distinguishing one particular business, and the Community trade mark office was wrong to grant the registration. If we are right, then the trade mark is liable to be revoked. It should therefore come as no surprise that a third party has now applied to have the registration cancelled. Sixty years later than planned, it looks as though KEEP CALM AND CARRY ON is finally going to make it to the front line.

How this affects you

Although intended to protect children and organise pornography on the Internet by its identification via the url, the new domain names have the potential to affect all businesses that have no desire to have their brands associated with pornography, or to be held for ransom by cyber squatters who may seek to register .xxx domains that include a brand owner’s mark and then offer it for sale to the brand owner or another party, or use the domain name in a way that damages the brand owner’s business or reputation.

What you can do

To allay the fears of brand owners, ICM Registry will between 7 September 2011 until 28 October 2011 provide a “sunrise” registration period that allows any companies that are not active in the adult entertainment industry to register for an ‘opt-out’ for their trade mark. If this is granted, the domain name is blocked. This is a fairly sensible approach as it recognises that business won’t actually want to use or own these marks, but rather, stop others from using or owning them. Consequently, it will not be possible to use the trade mark as a .xxx top level domain for a period of at least 10 years.  A single payment, which will depend on which registrar is used (.xxx domains will be available through select accredited registrars), but which will generally be around $200, will need to be made. There are no annual renewal fees.

Some brand owners will be aggrieved at having to pay for something that they don’t actually want or need, and, in many cases when new domain name combinations are released, the best advice normally is that it is not necessary to register any more than you have already, provided that you have what you need to trade comfortably. Nevertheless, certain developments are worthy of a different approach, and in this case, it may be beneficial to take action. As well as cyber squatters, other parties may seek to create embarrassment by registering your brand as a .xxx domain, and creating a web page that you wouldn’t want your brand to be associated with. The likely cost of recovering a .xxx domain name, or taking action against a third party that uses that domain name in a way that damages your brand is likely to be significant (and we can’t think of how your brand would not be damaged), and so spending $200 or so per brand name is probably a small and cost-effective price to pay in the long run. 

Can any brand be blocked?

A word of caution is that realistically only brand owners with strong trade marks (by which we mean naturally distinctive trade marks such as invented words, or marks which are globally well known) will be able to block their brands during the “sunrise” period. Businesses with brands that are essentially dictionary words, geographic names, generic names or general surnames will not.

And if you don’t “opt out” now, you may still be able to block an offending domain name

If you decide not to protect your brand by registering a .xxx domain name, ICM Registry will be making available the “Rapid Evaluation Service”, which will provide similar remedies as those currently available under domain name dispute resolution procedures. Using the RES (the cost of which will be $1,300, plus your legal fees in preparing a complaint) will mean that you can have a domain temporarily suspended in less than a week, and later blocked permanently, if your claim is upheld.

Launch of generic top level domain names

On a final note, you may also know that the Internet Corporation for Assigned Names and Numbers (ICANN) recently approved the expansion of domain names to include virtually anything as a generic top-level domain names (gTLDs) (i.e. the letters after the final full stop, e.g. com, or .co.uk). It will therefore be possible for example to register .kempnerandpartners, so that this firm might use www.advice.kempnerandpartners. Those who wish to register a gTLD must submit an application to ICANN and pay an eye watering fee of $185,000.

Although this fee will be prohibitively expensive for many brand owners (and it is important to note that only 30% of that fee will be refunded if your application is unsuccessful), it is hoped that it will deter speculators and cyber squatters from registering generic domain names. 

On top of the registration fee, owners of these top level domain names will also have to pay an annual fee of $25,000. ICANN will begin accepting applications between 12 January 2012 and 12 April  2012. After the application deadline, ICANN will review each application and assess whether the proposed domain extension will be appropriate.

We can help you determine what trade marks you should consider registering for an “opt out”, so that they are blocked as a .xxx domain name, and also the procedure for registering a generic top level domain.

If you have any questions or wish to discuss how these issues may affect you, please let us know.

Proudman J, however, found as fact that headlines require considerable skill to devise.  She also noted that the Court of Justice of the European Union, in the Infopaq case, had held that the requirement for infringement is that the words taken include “an expression of the intellectual creation of the author”.  Put another way, in order to infringe, the excerpt must “demonstrate the stamp of individuality reflective of the creation of the author or authors of the article”.  Proudman J accordingly held that copyright could subsist in the headlines themselves, and that in any case copying a headline could infringe copyright in the article to which the headline is attached.

The Court of Appeal has now upheld that judgment.  The impact on media monitoring services and their customers is obvious, but the wider implications are perhaps of more interest.  Proudman J’s judgment arguably went against over a century of case law on this issue.  Furthermore, Proudman J’s judgment was largely in the abstract – asking whether copyright is capable of subsisting in principle in headlines, rather than looking at individual headlines.  Disappointingly, the Court of Appeal did not consider this in any detail, merely upholding Proudman J’s decision that copyright would subsist in some of the headlines, and would otherwise subsist in the articles to which they relate. 

This, accordingly, may represent a significant widening of the scope of copyright protection for literary and certain other categories of works.  If the approach taken by Proudman J and the Court of Appeal is correct, we see no reason why it should not equally apply to alleged infringements of films, fixations of performances and fixations of broadcasts, all of which are specifically included in the Information Society Directive (and which was the basis for the Infopaq decision, on which Proudman J relied). 

We hope that the law will be clarified in the near future, either by a further appeal to the Supreme Court, or by subsequent cases.  If any such case were to look at individual copyright works rather than at categories of copyright works, we may yet get to find out where the line between infringement and non-infringement is now to be drawn for literary and other copyright categories. 

In the meantime, however, all businesses should be aware that copying another’s work, even if only a very small amount is taken, could potentially lead to copyright infringement, and that it is currently difficult to assess where the line is drawn between legitimate use and infringement.

If you wish to discuss the implications of this decision, or how it may affect you, please let us know.

Following a three year journey through the English Courts, the Supreme Court has now handed down its judgment.  The claims against Mr Ainsworth mostly failed, in an outcome that will not have been much of a surprise to IP practitioners in the UK.  However, the Supreme Court’s judgment does clear the way for a new category of claims in the English courts: claims for infringement of foreign copyright (including US copyright) against persons resident in the UK.

Lucasfilms’ claims for copyright infringement foundered on the different levels of protection afforded in the UK to functional designs and artistic works.  In brief, three-dimensional articles (and design drawings pertaining to them) can only be protected under design law, rather than copyright law, unless they can be said to be sculptures or works of artistic craftsmanship.  The key issue is the length of protection afforded: designs can be protected for a maximum of only 25 years (if registered) or 10 years (if unregistered), whereas copyright subsists for 70 years after the artist’s death.  Unless Lucasfilm was able to establish that the articles sold by Mr Ainsworth were sculptures or works of artistic craftsmanship, all rights in the articles would have long-expired.

The trial judge held that the articles were neither sculptures nor works of artistic craftsmanship.  The latter is an ill-defined category, and regrettably this case provides little clarification on that issue, as the claim that the articles were works of artistic craftsmanship was not pursued on appeal.  However, the claim that the articles were sculptures was considered by the Supreme Court.  The Supreme Court, after considering the history of English copyright law in some detail, concluded that the creator’s purpose is a key consideration.  Articles made primarily for a utilitarian purpose are not, in general, sculptures.  The Supreme Court rejected Lucasfilm’s argument that, as the film is set in an imaginary future, the armour/helmets were artistic rather than functional.  In the Supreme Court’s view, the position was no different than it would have been had the armour/helmets been created for, say, a film set in World War II.

The High Court also declined to enforce the US judgment.  The amount of this judgment provides a stark illustration of the radically different approaches of the US and English courts to damages in IP cases.  Mr Ainsworth admitted making no more than $30,000 of sales to customers in the US.  Despite this relatively low level of sales, the US Court ordered that Mr Ainsworth pay the astonishing amount of $20 million, representing $5 million for copyright infringement, $5 million for unfair competition (both calculated according to the amount Mr Ainsworth would have had to pay for a licence, rather than based on sales), and $10 million in punitive damages.  This amount is at least one thousand times higher than the largest amount which would be likely to be ordered by an English court (applying English law) in the circumstances.  The High Court declined to enforce any part of the US judgment, on the grounds of lack of sufficient presence by Mr Ainsworth in the USA at the date of the commencement (or service) of the US proceedings.  This part of the claim was abandoned prior to the Supreme Court hearing.

The Supreme Court did, however, uphold the High Court’s decision that Lucasfilm could bring a claim against Mr Ainsworth in the English Courts for infringement of US copyright.  This would be on the basis of Mr Ainsworth’s sales to US customers.  This raises the interesting question of which country’s law would apply to assessment of damages.  The Rome II Regulation (which post-dates the infringements in this case, but would apply to new infringements) states that the law of the country in which the infringement takes place should apply to the assessment of damages.  We believe, however, that the English courts would, in a case such as this where the level of sales was small, be extremely reluctant to award damages calculated on the US basis (i.e. looking at what the global licence fee would be, rather than calculating royalties based on actual sales).  It is possible that the English court would decline to adopt the US approach, on the basis that it is contrary to public policy, although we shall have to wait for the first actual case to see.  If the English law of damages was applicable, it would probably not be worthwhile for Lucasfilm to pursue its claim further in the UK.  In other circumstances, though, if significant levels of sales are made to US customers, such a claim may be worthwhile (albeit probably resulting in a far lower level of damages than would be achieved in the US courts).

This decision, therefore, is primarily of concern to businesses based in the UK but who make significant levels of sales to customers in countries in which they have no real business presence.  Formerly, many thought that this gave rise to no meaningful liability in respect of sales of copyright infringing items – the only remedy was thought to be litigation in the foreign courts, which was often unlikely to be enforceable in the UK.  However, it is now clear that claims can now be brought in the English courts for copyright infringement taking place elsewhere.

If you wish to discuss the implications of this decision, or how it may affect you, please let us know.

eBay has up until now declined to take proactive steps to prevent sales of counterfeit goods, citing i) the fact that it does not store or even see the items being listed, and acts as a mere intermediary between the buyer and seller; and ii) the enormous number of items listed at any time. eBay does offer a number of remedies to aggrieved brand owners, including the Verified Rights Owner (VeRO) program, which permits brand owners to demand that suspicious listed items be removed, and details of the seller be disclosed. However, brand owners continue to complain that eBay takes insufficient steps to prevent the listing of counterfeit items, and there have been a number of lawsuits around the world brought against eBay by brand owners.

In 2007, L’Oreal commenced proceedings against eBay in the English High Court alleging infringement of a number of its well-known trade marks including Lancome, Garnier and Tresor. The case was heard before Arnold J in March 2009. The judge held that a number of legal issues regarding European trade mark law required clarification from the Court of Justice of the European Union (“CJEU”). The CJEU has now provided its ruling, which is long and complex, and it may be months or even years before its full implications are understood. However, in brief:

•  EU law applies to all articles listed on eBay where the listing is targeted at consumers in the EU. This is so even if the trader and items are outside the EU. Whether or not a listing is targeted at consumers in the EU is to be decided by a national court on the facts;
•  Samples of products made available to distributors e.g. as testers are not, unless it can be shown otherwise, put on the market by the brand owner. Brand owners can therefore oppose further marketing of such samples;
•  Brand owners can oppose sale of repackaged goods where the repackaging either removes essential information (e.g. legally required lists of ingredients), or damages the image of the product and reputation of the trade mark;
•  If an internet marketplace merely enables its customers (as part of their commercial activities) to display registered trade marks on the marketplace website, that does not constitute trade mark use (and hence cannot lead to trade mark infringement ) on the part of the marketplace;
•  The situation may be different where the marketplace operator plays an active role which gives it knowledge of, or control over, items sold on the marketplace e.g. optimising the presentation of the online offers for sale or promoting those offers. In such circumstances, the operator could be liable for trade mark infringement if customers use the marketplace to sell infringing items;
•  Also, the situation may differ where the operator was aware of facts or circumstances on the basis of which a diligent economic operator should have realised that the online offers for sale were unlawful and, in the event of it being so aware, failed to act promptly to remove the data concerned from its website or to disable access to them.

It is the latter decision that will cause most concern to eBay and other online marketplace operators. What constitutes “awareness of facts and circumstances” will have to be decided by national courts, on the facts of each case, but it could lead to eBay being required to take a more pro-active stance rather than relying upon notification by brand owners. The decision will therefore be welcomed by brand owners affected by online sales of infringing goods.

If you wish to discuss the implications of this decision, or how it may affect you, please let us know.

The Report is thin on specifics, but nevertheless offers a fresh approach. Whether the Government will agree to support the proposals, including a so called ‘Digital Copyright Exchange’, described further below, is not yet known. It estimates that the economic impact of implementing the recommendations in the Report would be an additional 0.3 per cent to 0.6 per cent to annual GDP growth. That may not sound much but it represents between 5.5 and 7.9 billion pounds a year.

Background

In November of last year David Cameron launched a review of the UK’s IP framework with a mandate to examine how to ensure that it does the best possible job in encouraging innovation and growth.  IP rights (mainly patents, copyright, design rights and trade marks) incentivise innovation through the reward of a monopoly for innovative investment, yet overly rigid rules and procedures can act as barriers to innovation. In this context, the majority of productivity, growth and job creation in the UK during the last decade has come from innovative small and young firms. The question was whether the IP system was doing enough, or hindering their development. Mr Cameron, having being told by executives of Google that they could not have started their company in Britain because of UK copyright law, asked the Review to consider whether the UK’s IP framework needed to be adapted to “make them fit for the Internet age” and in the interests of encouraging both innovation and growth.

The Report, by Professor Ian Hargreaves of Cardiff University and published on 18 May, concludes that the UK’s current IP system is falling behind what is needed and makes 10 specific recommendations covering policy initiatives, copyright and patents.

Policy Initiatives

Hargreaves emphatically argues that, historically, UK IP policy has followed a flawed pattern of extending IP rights despite there being no evidence of clear economic benefit. Whereas that policy has undoubtedly benefitted established IP owners, the effect had been to hinder the development and opportunities of the small and innovative firms that are the core drivers of the British economy. To realign the UK’s stance on IP policy, Hargreaves argues that future policy should be evidence-based and founded on sound economic grounds, rather than being stuck to the rigid rules of protection and enforcement that have traditionally held sway.

Hargreaves also rightly identified that UK digital businesses can only thrive to their full potential if a solid international framework were put in place. That international framework should be actively shaped by the UK Government, with a particular emphasis on supporting greater IP harmonisation in Europe and pressing for a single EU patent and single EU patent court, discussions on which have dragged on in Europe for well over a decade.

Copyright

Proposed Digital Copyright Exchange

The current failings in the IP system are especially apparent in the area of copyright, with the law (principally covered by the Copyright, Designs and Patents Act 1988 (as amended)) struggling to keep up with the technological developments that have occurred over the past two decades.

Although the Report’s recommendation to legally allow “format shifting” (e.g. transferring music from CD to an mp3 player) has garnered much press comment, the most radical recommendation relates to the licensing of copyright works.

Although digital creative industries rank third in exports (behind advanced engineering and financial and professional services) and are undoubtedly important to the UK economy, they are handicapped by a matrix of licensing inefficiencies and statutory restrictions. The Report gave the example of the BBC taking almost 5 years to assemble the rights necessary to launch its iPlayer service, whilst other media players reported that licensing discussions are inconsistent, with some users denied licences without clear explanation. Google, for one, also claimed small digital businesses are being forced to change their products to avoid using copyrighted materials because of the difficulty associated with getting permissions.

Hargreaves suggests that a solution to the problem would be the creation of a Digital Copyright Exchange, a “one stop shop” for the clearance of all digital rights where licences in copyright can be easily bought and sold.   The Review calls on the government to appoint a senior figure to oversee its design and implementation by the end of 2012, and to implement a package of incentives and disincentives to encourage rights holders to take part. One incentive would be to provide for greater damages for infringement of works available through the licensing exchange than for other works.

Although many have welcomed the recommendation, there is some scepticism as to whether this bold change will ever happen, not least because it will require the Government to put its full weight behind it and give companies incentives to sign up. Will this be regarded as sufficiently important to be a priority in the legislative timetable?

Orphan Works

The review also found that the UK system for dealing with “orphan works” (copyright protected works whose author cannot be found) seriously hinders innovation. Because the copyright owner cannot be identified and located, orphan works are not, for example, available for use by filmmakers, archivists, writers, musicians, and broadcasters. In addition, there are vast quantities of historical and cultural records such as period film footage, photographs and sound recordings that cannot be incorporated in contemporary digital works for fear that a copyright owner may reappear and sue them for damages.  Such works therefore remain commercially unavailable.

The Report concluded that the issue of orphan works cannot be deferred any longer and proposes that the Government should legislate to enable the mass licensing of orphan works, and a clearance procedure put in place for use of individual works. In both cases, a work should only be treated as an orphan work if it cannot be found by a search of the databases involved in the proposed Digital Copyright Exchange.

“Fair Use” exceptions

The issue that attracted most press attention when the Review was first announced was David Cameron’s somewhat controversial suggestion that Britain might adopt a “fair use” limitation on copyright, like that used in the US. In the US, the concept of “fair use” is a defence to copyright infringement which builds on certain general principles, through case law, to develop permitted uses of copyright works.

Although noting the flexibility that a “fair use” defence might provide under UK law, the Report indicates that Government lawyers advised that significant difficulties would arise in any attempt to implement an open-ended exception into European law. Instead, again looking at what economic benefits could be by extending copyright exceptions, Hargreaves has recommended that private individuals should legally be able to “format shift” content they have bought and that there should be a broad exception for library archiving. Copyright law should also no longer impede non-commercial research by blocking text and data mining of scientific literature, or the creation of parody works. 

The creative industries have, perhaps unsurprisingly, roundly welcomed Hargreaves’ rejection of a US style “fair use” system which, they argued, would seriously affect their businesses. 

Patents

The Report indicated that the most striking aspect of the patent system has been the worldwide increase in the number of patent applications over the last few years, leading to delays and backlogs at many patent offices. Hargreaves recommends that the Government take a lead role in promoting international efforts to cut backlogs and manage the boom in patent applications by “work sharing” with patent offices in other countries.

A significant proportion of these pending patents relate to computer and IT technology, industries where innovation builds cumulatively on previous inventions, rather than fields such as drug development, where upfront costs are high. Hargreaves noted that “patent thickets” had developed in these industries, by which he meant a dense web of overlapping rights that a company must hack its way through to commercialise new technology.  The Report notes, for example, that a current generation smart phone may well be covered by hundreds of patents owned by tens of rights holders. The resulting “patent thicket” leads to a market crowded with patents of overlapping scope. It is often unclear where the boundaries of protection afforded by one patent lie with comparison with another, which ultimately hinders further innovation.

The Report notes that various attempts to tackle this issue have developed in the market, namely cross licensing, patent pools and open technology standards, but that the cost of participation in such schemes is prohibitive for SMEs. Hargreaves recommends that the Government investigate ways of limiting the adverse affects of patent thickets, including working with international partners to establish a patent fee structure set by reference to innovation and growth rather than solely by reference to patent office running costs. The structure of patent renewal fees might be adjusted to encourage patentees to assess whether to maintain lower value patents, so reducing the density of patent thickets.

Importantly, the Review also argued that the Government should ensure that patents are not extended into sectors, such as non-technical computer programs and business methods, without clear evidence of benefit. To do so would exacerbate an already delicate situation, given the pace of change in the digital world and the strongly sequential nature of innovation in computer programs.

Conclusion

Professor Hargreaves’ Report, which is the fourth IP review in six years, has been generally welcomed by practitioners and the creative industries. The Government has indicated that it will now fully study the Report, but how far they will actually implement it is still up for debate.

On 24 March the Advocate General (“AG”) rendered his opinion on the questions referred. The AG’s opinion is not binding on the CJEU, but is followed in a majority of cases. As we explain below, whilst (in dealing with two separate heads of infringement) the AG’s opinion was favourable to M&S (and, by extension, other AdWord users) on one, and favourable to Interflora on the other, Interflora only needs to win on one in order to score an overall victory.

The AG dealt with two issues. First, the position under Article 5(1)(a) of the Trade Marks Directive/Article 9(1)(a) of the CTM Regulation i.e. use of an identical sign in respect of identical goods/services for which the mark is registered. This was previously considered by the CJEU in the Google France case. The AG repeated what was said in Google France:

“The proprietor of a trade mark is entitled to prohibit such conduct … in the case where that ad does not enable an average internet user, or enables said user only with difficulty, to ascertain whether the goods or services referred to in the ad originate from the proprietor of the trade mark or an undertaking economically connected to it or from a third party.”

However, the AG also noted that:

“in the case of a trade mark such as INTERFLORA which identifies a well-known commercial network of independent enterprises providing a special uniform service, i.e. delivery of flowers according to a standard procedure, the display of the name of another enterprise in a sponsored link is in my opinion likely to create the impression that the enterprise mentioned in the ad belongs to the network of undertakings identified by that trade mark.”

Accordingly, he recommended that the CJEU should hold that:

“An error concerning the origin of goods or services arises when the competitor’s sponsored link is liable to lead some members of the public to believe that the competitor is a member of the trade mark proprietor’s commercial network when it is not. As a result of this the trade mark proprietor has the right to prohibit the use of the keyword in advertising by the competitor in question.”

In our view, the AG probably went beyond the scope of the referral when saying that the sponsored link “is in my opinion likely to create the impression that the enterprise mentioned in the ad belongs to the network of undertakings identified by that trade mark.” The CJEU is not supposed to make findings of fact, and ought to leave that to the national courts. However, in the trade mark case of Arsenal v Reed, the ECJ itself arguably went beyond the scope of the referral and made a finding of fact. When the case was returned to the High Court, Laddie J refused to apply the finding, but was overruled on this by the Court of Appeal. If the CJEU makes a finding of fact that M&S’s use of INTERFLORA is, in the circumstances, likely to cause confusion, the likelihood is that this will be binding on the parties when the matter is remitted to the High Court.

In such circumstances, it would still be open to other AdWord users, in subsequent proceedings, to provide their own evidence to contradict the allegation of confusion (findings of fact in one case are not automatically binding in others), but it could be an uphill struggle. Even if no finding of fact is made, if the CJEU adopts the AG’s recommended legal analysis, that is clearly still favourable to Interflora.

The AG then dealt with the position under Article 5(2) of the Trade Marks Directive/Article 9(1)(c) of the CTM Regulation i.e. use of an identical or similar sign to a trade mark with a reputation, where that use takes unfair advantage of or is detrimental to the distinctive character or repute of the mark. The AG said that in his opinion, no such unfair advantage/detriment could occur unless the registered trade mark is used in the advert in the sponsored link, and advised that the CJEU holds that the law is as such. M&S does not use the term “interflora” in its ads. Accordingly, this part of the opinion is favourable to M&S (although, as we say above, Interflora only needs to win on one argument).

How does this affect you?

As we say above, the AG’s opinion is not binding, and the CJEU may therefore adopt a different legal analysis. On the assumption that it follows the AG’s opinion, however, the decision may be interpreted by the English courts as applicable only to the fairly unusual facts of the case (i.e. a commercial network of independent enterprises trading under a common name). It may, on the other hand, be interpreted more expansively. Our recommendation at this stage is that:

• AdWord users bidding on a name of a commercial network should consider gathering some evidence to explore whether their use of a competitor’s registered mark as Google AdWords does, in fact, lead members of the public to believe that there is a connection between themselves and their competitor. In the first instance, this could be done as an informal survey, following which further, more formal evidence may be required; and
• If you are part of a commercial network trading under a common name, and are concerned about competitors bidding on that name, whereas it may be premature to commence proceedings pending the CJEU’s ruling, it would be worthwhile putting those competitors on notice of your intention to sue, pending a favourable ruling.

If you wish to discuss the implications of this decision, or how it may affect you, please let us know.

In trade mark law, the use of a sign similar to a registered trade mark, in relation to goods or services identical or similar to those for which the mark is registered, can constitute infringement if there is a likelihood of confusion on the part of the public. The position where the public is confused at the time of purchase is clear enough, but what about the situation where consumers are confused by a defendant’s conduct at the time of interest in a product or service, but that confusion is corrected by the time of purchase (for example, by the display of clear information about the seller at a checkout point)? Such a situation, which may arise through use of confusing advertising and promotional materials, is termed “initial interest confusion” in US trade mark law. Until recently, however, its applicability in England was unclear.

Post-sale confusion

In other circumstances, there may be no confusion at the time of purchase, but confusion on the part of the public (not necessarily the purchaser himself) arises later. So if goods bearing a mark are sold with a disclaimer explaining that there is no connection with the owner of the mark, the purchaser is unlikely to be confused but confusion could arise later when other members of the public who have not seen the disclaimer see the goods. This is termed “post-sale confusion” in US trade mark law, and again its applicability to English law was unclear until now.

The UK position

“Initial interest confusion” and “post-sale confusion” have both been recently considered by the Patents Court judge Mr Justice Arnold. Arnold J was, prior to becoming a judge, a leading barrister at the IP Bar, and his decisions are therefore of considerable authority.

In the first case, Och-Ziff Management v Och Capital, Arnold J held that initial interest confusion is actionable under English trade mark law. Specifically, he held that

“… confusion arising from an advertisement is capable of causing damage to the trade mark proprietor even if such confusion would be dispelled prior to any purchase. Although there will be no diversion of sales in such circumstances, there are at least two other ways in which the trade mark proprietor may be damaged. The first is that a confusing advertisement may affect the reputation of the trade marked goods or services. It is irrelevant for this purpose whether the defendant’s goods or services are objectively inferior to those of the trade mark proprietor. The second is that such confusion may erode the distinctiveness of the trade mark.”

In the second case, Datacard Corporation v Eagle Technologies, decided on 14 February 2011, Arnold J quoted the ECJ in Arsenal v Reed, in which the Arsenal football club brought proceedings against a seller (Mr Reed) of merchandise such as scarves bearing the sign “Arsenal”. Mr Reed relied in part on a disclaimer at the point of sale. The ECJ held that

“there is a clear possibility in the present case that some consumers, in particular if they come across the goods after they have been sold by Mr Reed and taken away from the stall where the notice appears, may interpret the sign as designating Arsenal FC as the undertaking of origin of the goods.”

Applying this and other authorities, Arnold J concluded that post-sale confusion can be relied upon as demonstrating the existence of a likelihood of confusion.

How could these cases affect you?

Arnold J has arguably extended (or at least clarified) the English law approach to confusion. As a result, businesses using others’ trade marks, or signs similar to others’ trade marks to promote their own goods/services, should:

• ensure that nothing creates a misleading impression as to the origin of goods/services. In addition to the goods themselves, and point of sale materials/store interiors etc, it includes websites, advertisements, brochures and other materials which might be seen by customers prior to purchase. Any such misleading materials may be actionable, even if any misconceptions on consumers’ parts are dispelled before the purchase is made; and
• consider how their goods will be used after sale. If information or parts will become detached, you should ensure that the signs on the remaining parts will not lead to confusion of the public. Point of sale disclaimers will generally not protect you. And of course, from your point of view, if third parties (your competitors) are getting this wrong now, we now have another string to the bow to stop them.

If you wish to discuss the implications of this decision, or how it may affect you, please let us know.