Type : Focus Paper
A number of our previous Focus Papers have dealt with the evolving legal issues surrounding on-line brand use, particularly advertising and use of Google's AdWords.
It is difficult to deny the importance of Google's search engine and related tools to businesses in the modern era. The search engine is often the first point of call for consumers seeking goods or services. With some research suggesting that over 90% of users choose a link listed on the first page of a search results screen1, businesses are also keen to try and achieve a high placement in these searches.
The recent New Zealand High Court decision of InterCity Group (NZ) Ltd v Nakedbus NZ Ltd  NZHC 124 (InterCity Case) is New Zealand's first case dealing with competitor trade mark use in respect of online advertising as Google AdWords and keywords. We look at the InterCity Case below and what it adds to the developing law in this area.
The InterCity Case
The case involved the two largest long distance bus companies in New Zealand, Nakedbus NZ Ltd (Nakedbus) which was established in 2006 and InterCity Group (NZ) Ltd (InterCity), which evolved from the bus service of the New Zealand Railway Corporation.
InterCity and Nakedbus were described in the judgment of his Honour Justice Asher (Judgment) as "Two Fierce Competitors"2. Prior to Nakedbus entering the relevant market, InterCity held approximately 95% of the relevant market. Nakedbus had made inroads into this market, now holding approximately 35% of it and the competition between the two businesses described as "intense"3.
Issues in dispute
The dispute between the parties centred around Nakedbus' use of the term "inter city" (and similar terms) as keywords in the Google AdWords service, as well as displaying in the resulting advertisements themselves. InterCity contended that this conduct amounted to an infringement of its INTERCITY trade mark (InterCity Trade Mark) (a well-known trade mark in New Zealand) as well as passing off and misleading and deceptive conduct under the New Zealand Fair Trading Act 1986 (FTA).
The background and evidence
The founder of Nakedbus was Hamish Nuttall, who was also the chief executive (Mr Nuttall) and gave evidence in the proceedings. It was contended that Nakedbus commenced its use of the term "inter city" from the time of its launch and also intentionally used parts of names of other competitors in the content of its online advertisements (and on its website) to target competitors.
Prior to these proceedings, there had been a history of disputes between Nakedbus and InterCity. In September 2006, InterCity had challenged Nakedbus' use of its InterCity Trade Mark in Nakedbus' online advertising and on its website. This resulted in Nakedbus ceasing such use at that time, apparently to avoid a costly dispute.
In October 2006, a statement appeared on the Nakedbus website, which was said to have been required by InterCity, disclaiming any relationship between the two businesses. This was disputed by InterCity and at its request this too was removed.
In approximately July 2007, a further dispute arose concerning Nakedbus' uses of the term "inter city" as meta-tags and keywords. Despite assurances from Nakedbus that any such conduct had ceased, it seems to have continued throughout 2008.
In 2009, use by Nakedbus of the term "inter city" in comparative advertising gave rise to a further dispute between the parties. It was alleged by InterCity that, at that time, a representative of InterCity provided an undertaking to stop marketing the Nakedbus business through use of the term "intercity" or similar and to use "city to city" instead. This was later denied by Nakedbus and in any event Asher J determined in the InterCity Case that, if it was given, it was not an enforceable undertaking in any event.4
In November 2011, InterCity commenced proceedings against Nakedbus as a result of its use of the words "inter city" on a large billboard. Ultimately, it appears that those proceedings were resolved.
It seems the last straw for InterCity, giving rise to the current proceedings, arose in October 2012, when it was discovered that Nakedbus was using the term "inter city" to generate Google ads, as well is in their content. It was alleged that Nakedbus was using approximately 87 different keyword variants including the term "inter city" in its Google AdWords campaign. The use of the term "inter city" in the offending advertisements was generally of the following nature:
As to use of the term "inter city" in the Google AdWords campaign and as a keyword, there was no doubt that Nakedbus was using in this manner. Indeed, the evidence suggested that, but for this use, Nakedbus would achieve minimal organic results if a search for "inter city" (or similar) was conducted by a user on the Google search engine.5
Asher J determined that there was "use in the course of trade" by Nakedbus pursuant to section 89(1) of the New Zealand Trade Marks Act 2002 (TMA). He noted that:
I have no doubt that Nakedbus was, when it purchased keywords, using the mark in the course of trade, in the sense of using it as part of its commercial activity to advance its trade.14 The real issue is whether "use" in the second sense found in s 89(2) took place.6
His Honour also found that Nakedbus had used an identical, or similar, sign to the InterCity Trade Mark, which was likely to deceive or confuse. However, importantly, section 89(1) of the TMA is subject also to section 89(2) which is in the following terms:
(2) Subsection (1) applies only if the sign is used in such a manner as to render the use of the sign as likely to be taken as being use as a trade mark.
His Honour noted the difference in wording of the Australian and European Trade Marks Acts as to the concept of "use as a trade mark" and cautioned the application of the body of law in respect of Google adword trade mark disputes in those jurisdictions, given that each relied on the terms of their own statutory instrument.
As to the wording of the TMA, Asher J determined that:
"the approach in New Zealand turns on the concept of a notional third party taking the use as use as a trade mark."7.
He further went on to consider the requisite notional consumers and noted that:
"I consider that if a significant number of normally informed and reasonably attentive internet users are likely to take the use of the sign as being used as a trade mark, that will be sufficient for the purposes of s 89(2)".8
Ultimately, in the circumstances of the conduct by Nakedbus, the use of the sign was really invisible to the identified consumer (and all consumers), only evident to Nakedbus and Google itself. As his Honour put it "if the "use" could not be seen by the consumer it could not be "taken as" anything, let alone "taken as being used as a trade mark"9.
This determination seems to have been driven, in part, by the evidence presented in the case as to what his Honour described as "the reasonably attentive internet user"10. His Honour additionally noting:
"But it has not been shown in evidence that a consumer would know or understand the use of keywords, and I am not prepared to assume an awareness of how they are used. Insofar as the use of the keyword was an act that was not seen or known or understood by the consumer, there was no use of the sign "likely to be taken as being used as a trade mark"".11
This is perhaps a surprising position, given the increasing prominence of keywords and the perception that consumers are "savy" and understand, for example, the difference between organic and paid search results. One might expect that consumers and internet users are, by now, more familiar with the keyword concepts and how trade marks are used in the background by Google and brand owners.
As a result of the above, InterCity failed in its claim of trade mark infringement, insofar as use of the term "inter city" (and similar) was occurring behind the scenes in respect of the Google AdWord campaigns, includng as keywords.
As to use of the term "inter city" by Nakedbus in the content of the advertisements (or on its website), his Honour however found that there was use likely to be taken as use as a trade mark. Asher J did not accept that the use was likely to be generic or descriptive, or that consumers searching for that term would likely be searching for the term in this generic sense (as contended for by Nakedbus). More likely, consumers would be searching for the business attached to the InterCity Trade Mark.12 The fact that his Honour also considered that Nakedbus was very well aware of the InterCity Trade Mark being well known, that there was evidence of Nakedbus' intentional use of the InterCity Trade Mark and the evidence of actual customer confusion, did not assist the position contended for by Nakedbus.13
Accordingly, as to use of the term "inter city" in the content of the various advertisements and website use, Nakedbus was found to be infringing the InterCity Trade Mark.
Passing Off & Misleading and Deceptive Conduct
Finally, his Honour considered the claims for passing off and misleading and deceptive conduct under the FTA and determined that Nakedbus had also engaged in such conduct. As to the conduct which was misleading and deceptive, his Honour noted that:
"The conduct is buying the keyword "intercity" so that the Nakedbus advertisement responds to it featuring the words "inter city", and displaying an advertisement and website when a significant number of consumers will be misled into thinking they are dealing with the bus company "InterCity". I am satisfied that the displays will lead normally informed and reasonably attentive internet users into error. They will think when they click that they are accessing ICG buses, whereas they will be accessing those of its competitor".14
There was no determination, however, that absent the use of the InterCity Trade Mark in the content of the offending advertisements (or on the website), that his Honour would have found the act of buying and using of the keyword "inter city" would have been sufficient for InterCity to suceed in claims for passing off or breaches of the FTA. Given his Honour's analysis in respect of trade mark infringement and the views expressed as to the relevant consumers likely absence of requisite knowledge of what is occurring with the InterCity Trade Mark behind the secenes, it seems unlikely (at least on these facts) that it would have been sufficient.
It has been reported in the New Zealand media that the Judgment is under appeal. We will keep you updated on developments in this regard.
Comparing the position in the United Kingdom and Australia
It is interesting to briefly compare the views adopted by the New Zealand High Court (in its first determination of an online Google AdWords and keyword trade mark issue) against some recent decisions in the United Kingdom and Australia (which have also been reviewed in our recent Focus Papers)
Trade Mark Infringement - The Interflora Case
The position adopted in New Zealand might be contrasted to the UK decision of Interflora Inc v Marks and Spencer Plc (Interflora Case)15. Marks and Spencer was held to have infringed Interflora's trade mark by bidding for and using Interflora's registered trade mark, INTERFLORA. It was determined in that case that the Marks and Spencer sponsored advertisements which resulted when "INTERFLORA" was searched in the Google search engine, did not enable consumers to ascertain whether the services offered in those advertisements originated from Interflora, a member of Interflora's network or from an unrelated third party.
In the InterCity Case, Asher J noted (as to his finding that that there had been no use by Nakedbus of the InterCity Trade Mark in terms of section 89(2) of the TMA) that:
"I accept that this interpretation could mean that in New Zealand the plaintiff in the Interflora litigation, where there was no appearance of the trade mark at issue in the competitor's advertisement, might be left without a remedy because the complained of actions in purchasing the keyword trade mark were all invisible to the consumer (although there might be remedies in passing off and breach of the Fair Trading Act). The difference lies in the broader scope of protection afforded by the European legislation to trade marks, which considers actionable acts that cause detriment to the mark's function. I am bound to apply s 89(2) and the requirement which requires an assumption of use by a trade mark by the notional third party. For this reason the second cause of action fails."16
Likewise, this is likely to be the position in Australia in respect of trade mark infringement one suspects, where there is no actual use of the infringed trade mark within the content of the infringing advertisements themselves, or in the content of a website for example, but only behind the scenes in a keyword or meta-tag sense. In Complete Technology Integrations Pty Ltd v Green Energy Management Solutions Pty Ltd17, Kenny J determined there was no trade mark infringement arising from use of a trade mark as a meta-tag. Similar to the Google AdWords and keywords, meta-tags are not displayed but used to index and increase the ratings of websites.
The position in the UK arising from the Interflora case was, however, also driven by its facts. In particular, use of the infringed trade mark as a keyword (given the nature of the INTERFLORA trade mark and how it was used in business) meant that the overall effect of the use of the INTERFLORA trade mark as a keyword and sponsored link, was likely confusion of reasonable consumers. Largely, this was because of the very particular nature of Interflora's business structure and set up. Interflora's network was structured so that it traded with large retailers and that its member florists traded under their own names. Because of these facts, Justice Arnold in that case found that the average reasonably well-informed and reasonably observant internet user would not have been aware that Marks and Spencer was, in fact, a competitor of Interflora and not part of Interflora's network.
Misleading and Deceptive Conduct
In relation to passing off and misleading and deceptive conduct, the InterCity Case reveals an approach similar to that taken to date by the Australian Courts in relation to Google Adword and online advertising disputes.
For example, in the Australian Competition and Consumer Commissioner v Trading Post Australia Pty Ltd18 (Trading Post Case), Nicholas J (in the original proceedings dealing with the conduct of the Trading Post) determined that the advertisements in issue, which used the relevant trade mark within their content, conveyed various actionable misrepresentations.
The decision of the Federal Court in Lift Shop Pty Ltd v Easy Living Homes Elevators Pty Ltd19 considered use of the words "lift shop" in online advertising by Easy Living Pty Ltd (Easy Living) a competitor of Lift Shop Pty Ltd (Lift Shop). Buchanan J found the relevant use by Easy Living in that case was generic or descriptive use. As such, there was no actionable conduct and Lift Shop's action failed. Again, this case relies on its own facts and had the use by Easy Living not been of a descriptive or generic term, then it is likely the decision would have applied reasoning similar to the Trading Post Case and as adopted in the InterCity Case and use would have been misleading or deceptive.
The relevant case law in Australia (and now New Zealand) suggests a real difficulty for brand owners to successfully contend for trade mark infringement arising from use of their trade marks by competitors as Google AdWords or keywords, in circumstances where such use does not involve the display of the relevant trade mark in the relevant advertisements or website content.
What is less clear, perhaps, is the boundaries for passing off and misleading and deceptive conduct in these situations. It seems clear that use of a trade mark (so long as it cannot be determined to be descriptive or generic use) is likely to give rise to a strong claim for passing off or misleading and deceptive conduct on behalf of the brand owner whose trade mark is being used. Absent such use evident to the internet user and consumer on the face of the advertisement or website, will an Australian Court be willing to determine that there may, nevertheless, be conduct which is misleading or deceptive? In the InterCity Case, Asher J pointed to relevant conduct (giving rise to a breach of the FTA) as the buying and displaying of the InterCity Trade Mark (in the relevant ads or website). Perhaps this indicates that absent the use, the mere bidding or buying of keywords or Google AdWords would have been insufficient.
The law in this area continues to develop and we will keep you updated with further cases of interest.
2Para 1 of Judgment
3Para 2 of Judgment
4Para 36 of Judgment
5Para 53 of Judgment
6Para 66 of Judgment
7Para 76 of Judgment
8Para 82 of Judgment
9Para 85 of Judgment
10Para 82 of Judgment
11Para 86 of Judgment
12Paras 125, 126 and 130 of Judgment
13Eg Paras 135-154 of Judgment
14Para 222 of Judgment
15(Case C-323/09)  ECR 1-8625
16Para 87 of Judgment
17 FCA 1319
18 FCA 1086, (2011) 197 FCR 498
19 FCA 900
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.