UK: ECJ Finds Company Incorporation Does Not Constitute Trade Mark Use

Last Updated: 25 September 2007
Article by Isabel Davies and Tom Scourfield

The European Court of Justice recently handed down its judgment in Celine SARL v. Celine SA, confirming that unauthorised use of a trade mark as a company, trade or shop name does not amount to infringement as the purpose of a company, trade or shop name is not, of itself, to distinguish goods/services, but to designate a business which is being carried on. However, subsequent use of the mark in relation to goods/services would be an infringement if it affected the essential function of the mark.

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Background To Celine

The factual background concerned the use of the name ‘Celine’ by two organisations. The registered proprietor of the trade mark, Celine SA, claimed that Celine SARL’s use of the term as a shop name was an infringement of their trade mark. Before the French national court, Celine SA were successful, receiving damages and preventing use of the mark. Celine SARL appealed on the basis that a company or shop name did not constitute use within the meaning of Article 5(1) of the Trade Mark Directive, as it was not use in relation to goods or services. SARL also sought to distinguish their goods by claiming that there would be no confusion amongst members of the general public regarding origin, as they produce mens and womenswear, while SA concentrates on luxury clothing and accessories.

The Question Referred

The central question referred to the ECJ concerned whether unauthorised use of a trade mark as a company, trade or shop name could amount to infringement.

The Advocate General’s Opinion

Advocate General Sharpston considered that the mere adoption of a company or trading name identical or similar to an existing trade mark would not amount to infringement within the meaning of Article 5(1). Rather, to rely successfully on Article 5(1) a proprietor must establish two elements:

  1. that use of the sign distinguished relevant goods; and,
  2. that the third party’s use encroached on the essential function of the mark to designate origin of goods.

The Advocate General expanded on the latter point, stating that this criteria would be fulfilled if the use created the impression of a material link in trade between the owner of the trade mark and the third party goods. To assess this, consideration must be given to target consumers and whether they would interpret the sign as designating origin.

Accordingly, the mere adoption of a sign as a company name would fall outside the scope of Article 5(1), but any subsequent use of that sign in the course of trade would be likely to constitute trade mark use if the mark were being used in such a way as to interfere with the essential function to distinguish goods and services in the course of trade.

The right of the trade mark proprietor to prohibit such use was also considered in the context of Article 6(1) of the Directive, with useful guidance concerning what amounts to "honest practices" in this respect. According to the Advocate General, a crucial issue in Celine was knowledge. If a third party knew that the proposed mark was identical or similar to a registered trade mark, they could not be said to be acting in accordance with honest practices. Similarly, mere ignorance of the existence of a trade mark could not be interpreted to mean that the use was in accordance with honest practices. The Advocate General had recommended a general obligation on third parties to exercise reasonable diligence to uncover any potential conflict with existing marks. If a potential conflict was identified, to be in accordance with honest practices, a potential infringer should request permission for such use and comply with any reasonable conditions the proprietor may have to minimise the effect upon the mark.

The ECJ’s Ruling

The ECJ’s ruling followed the Advocate General in principal in relation to the concept of use, separating the issues of adoption of a name and subsequent trading, stating that the proprietor of a trade mark can only prevent its unauthorised use if it affects the essential function of the mark, to designate the origin of goods. The ECJ found that the purpose of a company, trade or shop name is not, of itself, to distinguish goods/services, but to designate a business which is being carried on.

The ECJ confirmed that it is only when the company, trade or shop name is used in relation to goods or services that this will amount to infringement, such as by affixing the company name to the goods which are marketed or using the company name in such a way as to suggest a link between the sign and the origin of the goods/services.

On that the facts, it was for the national court to determine whether the use made by Celine SARL of the mark was liable to affect the essential function of the mark.

The ECJ did not comment upon the more detailed guidance offered by the Advocate General in relation to honest practices, which would require a third party to consider potential conflicts with the name before incorporation. Instead, the court suggested the following factors should be taken into account in assessing whether the third party had acted fairly in relation to the legitimate interests of the proprietor:

  1. The extent to which the relevant public understood the use of the name as indicating a link between the owner of the mark and the third party’s goods;
  2. The extent to which the third party should have been aware of that fact; and
  3. Whether the mark had a reputation in the member state of registration, which the third party might profit from in marketing their goods.

Again, it was for the national court to make an assessment as to whether the behaviour of Celine SARL could be regarded as competing unfairly with the proprietor of the mark.

Comment

The decision of the ECJ offers a relatively narrow interpretation of trade mark use by determining that the mere act of incorporation does not interfere with the essential function. The decision provides little guidance as to when subsequent use of the mark by that company would constitute an act of infringement, leaving such an assessment as a question of fact for the national court to decide.

This is unlikely to be welcomed by trade mark owners, who may consider that allowing such companies to remain on the register may encourage infringement by others, who may mistakenly believe that the presence of such companies suggests that the marks may not be enforced.

It is interesting to note that the ECJ did not endorse the suggestion by the Advocate General that a third party should be required to exercise reasonable diligence in considering potential conflicts with the name before incorporating the company. Instead, the court provided a list of factors to take into account in assessing the conduct of the third party in relation to the proprietor’s legitimate interests.

Presumably, however, the ECJ’s ruling means that the state of the register at, for example, Companies House, will no longer be relevant in determining whether the mark is unique to the proprietor, as the mere existence of companies on the register is now largely irrelevant to issues of trade mark use.

Brand owners may also look to other remedies in relation to the use of their marks in a company name, such as passing off in the UK, or unfair competition elsewhere in Europe. From 1 October 2008, brand owners will also be able to object to misleading company names under s.69 Part 5 of the Companies Act 2006. This additional remedy now seems all the more important in light of the ECJ’s judgment.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 19/09/2007.

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