The European Court of Justice’s recent ruling on a seven-year fight between Google and LVMH could have significant effects on the use of trade marks in internet advertising. Legal Business examines the fallout from this landmark case
LVMH owns over 60 luxury global brands, including TAG Heuer watches and Louis Vuitton. The latter label, known for its monogrammed luggage, has just topped Millward Brown Optimor’s 2010 BrandZ Top 100 ranking of the world’s most valuable luxury labels for the fifth straight year, and is worth $19.8bn. Naturally, LVMH doesn’t take kindly to knock-off handbags flogged on street corners.
Counterfeit goods sold on the streets are a serious headache, albeit often a manageable one. But aside from obvious counterfeiters, the group is zealous in defending the integrity of its brands. In 2007, it sued Sony BMG and MTV Online after a Britney Spears video featured fake Louis Vuitton upholstery on the dashboard of a pink Hummer. But since 2003, it has been fighting a more formidable foe: Californian internet giant Google.
Seven years on, and it’s still fighting a battle that began in the French courts. Following a recent ruling by the European Court of Justice (ECJ), the battle looks set to continue, with Herbert Smith advising Google and French boutique Marchais de Candé acting for LVMH. With the implications for the use of trade marks in online advertising extending far beyond cheap copies, IP departments that specialise in advising brand owners are in the middle of a perfect storm.
Key facts
Herbert Smith’s Paris office on leafy Avenue Marceau is just three minutes’ walk from Louis Vuitton’s imposing flagship store on the Champs-Élysées, an ostentatious temple of high fashion and luxury branding. While Herbert Smith’s Paris residence may be more understated, Google found its own impressive flag bearer in IP and IT head Alexandra Néri.
Néri is believed to have met and clicked with Google representatives at an international IP event shortly after joining Herbert Smith in Spring 2003. Previously, she had been at Deloitte’s French legal arm Thomas & Associés, where she represented key pharmaceutical, technology and fashion clients, including AltaVista, EMI, Nina Ricci, Sony and Virgin. Her track record and natural charm obviously impressed. Néri, who declined to be interviewed for this article, began representing Google soon after LVMH discovered in early 2003 that sponsored links to websites selling imitation products appeared on Google when LVMH trade marks were typed in as keywords.
At the heart of the case is Google’s AdWords service, its marquee product that made up the lion’s share of its $23bn in advertising revenues in 2009. As well as allowing companies to promote their own wares, the system enables advertisers to purchase other businesses’ brand names as internet search engine terms (keywords), and so appear in the top-ranked sponsored links in search engine results. LVMH became aware in 2003 that Google had made available the keywords ‘LV’ and ‘Vuitton’, which were trade marks owned by the group. When LVMH found that imposters were selling imitation LVMH brands on their websites, and paying Google to display prominent links to these websites, it took umbrage. It decided to go after Google for trade mark infringement, arguing that selling sponsored links to websites misusing its brands made Google guilty of infringement as well. In 2006, the Paris Commercial Court agreed, ordering Google to pay E350,000, and ruling that its advertising business infringed LVMH trade marks, as well as those of two travel agencies.
Google’s final route to getting the decision reversed came before the Cour de Cassation, France’s highest court. The appeal threw up a number of key questions concerning European trade mark law, and so in 2008 the Cour de Cassation referred these questions to the ECJ, along with two other similar French cases against Google involving travel companies Luteciel and Viaticum and the online dating service CNRRH.
The questions dealt with the broad issue of whether Google could be prevented from selling keywords that correspond to trade marks in its AdWords service. It was the first time the highest court in Europe had been asked to clarify the rights of companies to stop search engines from distributing protected names as keywords.
The ECJ concluded in its judgment of 23 March this year that a brand owner is entitled to prohibit someone from advertising using a keyword identical to its trade mark if those goods and services being offered are identical to those for which the trade mark is registered. Therefore, unauthorised use of keywords by advertisers could amount to trade mark infringement. So far, so obvious.
However, as far as Google was concerned, the Court ruled that its AdWords system does not violate the rights of a brand owner when its trade marks are used by another to trigger adverts. In other words, Google’s use of brands as keywords does not amount to ‘use’ for the purposes of infringing trade marks.
‘The law is playing catch-up with technology. We now have an “average internet user” through whose eyes we must determine infringement.’
Isabel Davies, CMS Cameron McKenna
The ECJ though muddied the waters further, adding that the advertiser does infringe trade mark rights in some cases and that brand owners can demand that Google stop the use of their trade marks. Google will be liable for that infringement if it does not act quickly to stop the use.
Effectively, the Court has said that Google is only an information service provider under the EU E-Commerce Directive, and does not infringe any trade marks, it only creates the environment in which trade mark owners and advertisers do business.
‘The ECJ clearly states that Google does not itself “use” the trade marks of third parties by offering such trade mark as an AdWord to possible competitors and can therefore not be held liable for trade mark infringement,’ says Annick Mottet Haugaard, an IP partner at Belgium firm Lydian. ‘The significance of this decision for Google’s business in Europe is therefore paramount.’
However, some are scratching their heads at how AdWords cannot amount to ‘use’ of a trade mark, given the revenue that it generates for Google. Martin Delafaille, managing associate of the brands and designs group at Addleshaw Goddard, says: ‘It may seem perverse that a company, which in 2009 generated almost $23bn from advertising revenues, principally through the AdWords scheme, has under a technical interpretation been found not to be “using” the trade marks of others.’
It’s not all over yet. The ECJ has merely answered questions referred to it by the French courts and it will be for the Cour de Cassation to deliver a final verdict on Google. The French courts have a long track record in protecting the rights of brand owners.
Delafaille adds: ‘It is fair to say that the French courts have historically sided with Google’s detractors. Rather than finding Google liable for trade mark infringement, the French courts have previously called Google to account under the Civil Code principle of fault for not checking whether selected keywords do infringe third-party rights. The Cour de Cassation might find enough wriggle room in the ECJ ruling, which could lead to future clashes between Google and the French court.’
Clearly there’s more work in the pipeline for Google and Néri.
Say it with flowers
One internet-related trade mark dispute still pending before the European Court of Justice is Interflora v Marks and Spencer – a case that deals directly with the issue of using keywords to lead a consumer from one brand to a competitor. Type ‘Interflora’ into the search box on Google and you’ll see ‘M&S Flowers Online’ as the second sponsored link at the top of the page. Interflora has claimed that its advertising costs increased by around $750,000 between 2008 and 2009 and has lost sales as a result of M&S buying keywords through AdWords that are similar, or identical, to its own trade marks. The dispute in the UK courts, which sees Pinsent Masons for Interflora take on Osborne Clarke for Marks and Spencer, led the Chancery Court to refer a number of questions to the ECJ, similar to the AdWords case.
However, on 29 April Mr Justice Arnold reduced the number of questions referred to the ECJ from ten to four following the ECJ’s verdict in AdWords a week before. He stressed that questions one to four should remain for a verdict from the ECJ as ‘I am not convinced that the judgment in Google France provides as much clarity on the issues as is desirable’.
Tom Scourfield, a senior associate in CMS Cameron McKenna’s IP team, sums up the position: ‘The Google France decision provides helpful guidance, but is not the end of the issue. The Interflora referral will consider, for example, whether purchasing keywords can amount to unfair advantage or dilution. Infringement on the internet is about more than just confusion as to origin.’
Dramatis personae
Néri has acted for Google on a number of key matters since joining Herbert Smith, including what was recently a hammer blow to its plans to become the world’s virtual library. A French court ruled in December 2009 that it had breached copyright by making hundreds of book extracts available online as part of its Google Books arm. After Google received a E300,000 fine and a firm slap on the wrist, Néri had to stand by and hear the jubilant Serge Eyrolles, chairman of the French Publishers’ Association, crow in a statement: ‘This shows Google that they are not the kings of the world and they can’t do whatever they want.’
The level of vitriol directed at Google from certain areas of France was also made clear by Eyrolles in a press conference in September last year, when he said: ‘It is an infernal machine. It never stops. It is a disgrace. It is cultural rape.’
Harsh words, but Néri is fully capable of defending her client with vigour. Known to be charm personified but with characteristic Gallic passion when the need arises, she drolly described Eyrolles’ outburst, when speaking to The American Lawyer, as a ‘declaration from a Greek tragedy’.
But in the wake of the ECJ’s ruling on AdWords, radio silence has been in effect. And if Google’s representatives have said little, then Patrice de Candé, who represented LVMH in the case, has said even less. A name partner at Marchais de Candé, a small boutique practice located just a few minutes away from Herbert Smith and the Louis Vuitton store, de Candé didn’t respond to a request for an interview.
LVMH has proved to be a lucrative client for him, supplying roles on several high-profile cases. Among them, the company’s victory against eBay in 2008, where a Paris court found the auction site responsible for facilitating the sale of counterfeit Louis Vuitton products. After winning E39m in damages for LVMH, de Candé told The New York Times: ‘I’ve never seen such an amount of damages in French law in my 23-year career.’
‘For Google’s business the decision is highly significant because Google can’t be held liable for [direct] trade mark infringement.’
Alexander von Mühlendahl, Bardehle Pagenberg
Google itself has kept its counsel since the judgment. Senior litigation counsel for EMEA, Harjinder Obhi, a former Bristows associate, opted to provide reaction to the ruling on an official Google blog posting. Part of the blog, posted on the day of the judgment, read: ‘Some companies want to limit choice for users by extending trade mark law to encompass the use of keywords in online advertising. Ultimately, they want to be able to exercise greater control over the information available to users by preventing other companies from advertising when a user enters their trade mark as a search query. In other words, controlling and restricting the amount of information that users may see in response to their searches.’
Perhaps the relative silence from all parties and their legal advisers since the day of the verdict from the ECJ reflects that the case remains delicately balanced. Few IP experts interviewed believe that the Cour de Cassation will favour Google, even when taking the ECJ verdict under consideration. The EU’s competition forces are also massing against Google. The search engine giant is facing a preliminary anti-monopoly probe by the European Commission into its dominant position in online browsing and digital advertising. The investigation follows allegations that Google demotes competing websites to the lower echelons of customers’ search results. As a result, any jubilant claims of victory in this case could put an army of noses out of joint in Brussels.
Are they worth it?
A number of cases are pending that could have a profound effect on the future of trade marks used in advertising. These cases may well have prevented the European Court of Justice from providing definitive answers in Google v LVMH. Interflora v Marks and Spencer (see box, ‘Say it with flowers’) is one case, but two more are also important.
L’Oréal, Lancôme and others v eBay
This case deals with L’Oréal’s attempts to prevent the sale of counterfeit and grey market perfumes and cosmetics via eBay. In May 2009, the UK High Court handed down judgment in this test case, finding that eBay was not liable for the sale of infringing or counterfeit products on the auction site. This was one of five cases raised by L’Oréal across Europe. The cases in France and Belgium have been decided in favour of eBay, the case in Germany was decided in favour of L’Oréal and the Spanish case remains outstanding. But, similar to the question posed in Google v LVMH, the issue of whether eBay’s use of sponsored links to direct people to listings for infringing products amounts to trade mark infringement has been referred for further guidance from the ECJ.
Rosetta Stone v Google
This case could clarify the US position over AdWords. Language software company Rosetta Stone issued a lawsuit in 2009, claiming that Google had profited from selling sponsored ads for the term ‘Rosetta Stone’ to software piracy companies, which then sold sub-standard products under the Rosetta brand. On 30 April 2010, a judge from the US District Court for the Eastern District of Virginia ruled that Google’s AdWords did not infringe on the Rosetta Stone trade mark. The software company is considering an appeal, but for the time being this case closes the door on pursuing Google for direct trade mark infringement through AdWords.
Battle not war
The answer to the question of who has emerged victorious from this case is as opaque as the ECJ’s judgment, which, as can be the nature of the Court’s rulings, is unsatisfying to say the least.
Certainly, both sides claimed victory. Obhi said: ‘The Court confirmed that Google has not infringed trade mark law by allowing advertisers to bid for keywords corresponding to their competitors’ trade marks. It also confirmed that European law that protects internet hosting services applies to Google’s AdWords advertising system. This is important because it is a fundamental principle behind the free flow of information over the internet.’
Meanwhile, LVMH senior executive vice-president Pierre Godé said in a press release: ‘This decision represents a critical step towards the clarification of the rules governing online advertising… we are committed to working with all parties, including Google, to eradicate illicit online practices and to promote a framework that fosters the continued growth of the digital economy.’
A score draw, it would seem. But in ruling that Google’s AdWords does not make ‘use’ of a trade mark for infringement purposes, the ECJ has given Google a real boost.
‘The Cour de Cassation might find enough wriggle room in the ECJ ruling, which could lead to future clashes between Google and the French court.’
Martin Delafaille, Addleshaws
‘For Google’s business the decision is of course highly significant because Google can’t be held liable for [direct] trade mark infringement,’ says Alexander von Mühlendahl, partner at German IP specialist Bardehle Pagenberg Dost Altenburg Geissler and a former vice-president of the Office for Harmonization in the Internal Market (Trade Marks and Designs) between 1994 and 2005. ‘For trade mark law, other than confirming previous rulings that in order to infringe the alleged infringer must use the mark for his own goods or services, the Google judgment has added little, if anything. The situation as regards contributory or secondary infringement remains entirely unsettled, the ECJ referring the issue to the respective national legal systems.’
However, Lewis Silkin partner Simon Chapman feels that Google shouldn’t break out the champagne just yet. ‘Google are lauding the result as a victory for them, however the AdWords program will not be of much value if advertisers use of it is heavily restricted,’ he says. ‘Google has also said that the Court confirmed that European law relating to internet hosting services protects them. That is just not right. The ECJ have said that Google’s involvement in the AdWord program must be looked at by the national court and a decision made as to whether its activities, including its involvement in the production of text for the advertisement and/or the selection of keywords, is neutral.’
It seems that the issues are set to continue, as the ECJ has referred the facts back to the national courts to decide. This fight is ongoing.
‘Google has won a partial victory, but the war is far from over,’ confirms Andrew Tibber, a senior associate at Burges Salmon. ‘The ECJ’s ruling essentially puts the final decision back in the hands of the Cour de Cassation. As others have remarked, we can only speculate as to which party the French court is likely to favour in an action by French claimants against a US defendant.’
Future proof
The fact that there are still unanswered questions from this decision means that IP lawyers throughout Europe are divided as to whether existing European trade mark law sufficiently encompasses internet advertising. After all, the EU Trade Marks Directive, which is the basis for trade mark regulation throughout Europe, still predates the internet’s arrival to the mainstream despite being updated since. Others argue that the basic principles of trade mark law can be adapted to fit any circumstance, regardless of whether the issues take place in a real or virtual environment.
‘As always, the law is playing catch-up with technology,’ says Isabel Davies, chair of the TMT group at CMS Cameron McKenna. ‘We now have an “average internet user” through whose eyes we must view the online world to determine infringement.’
Others feel the law is not the issue, it is just that it cannot be easily applied to all circumstances. ‘Thanks to its high level of abstraction, the European trade mark legislation should provide all necessary regulations for internet advertising,’ says Marc Groebl, a partner in Howrey’s Munich office. ‘But the question of how the courts apply the law, for instance to the liability of search engine providers, leaves a number of open questions for the European courts. In the meantime, brand owners will be forced to take action against every single competitor – often located outside the EU – possibly breaking the law.’
IP litigation veteran Larry Cohen, a partner at Latham & Watkins in London, argues that the ECJ went as far as it could under existing law. He says that the relationship between internet service providers, search engines and trade mark owners comes down to a matter of policy. The only way to implement that policy is through new legislation, and he feels that it will be many years before European trade mark legislation is looked at again. ‘The courts have tried to steer a middle course between overzealously protecting trade mark owners and not policing at all,’ he says.
‘I think what the ECJ is doing is inching forward,’ says Paul Walsh, head of the brands practice at Bristows. ‘We’ve got legislation that predates the internet, and the ECJ here has issued a judgment that, unusually for the ECJ, decides as little as possible. This is because the court has so many references pending from a raft of internet cases and that tells you that the legislation isn’t working: it is unable to answer questions that didn’t exist in 1989. You don’t want to go ahead and set out some definitive decision on trade marks and the internet now. You want to do as little as possible, as the chances are you’ll get it wrong.’
‘A decision against Google could have changed the way the internet works, which would have had serious economic implications,’ says another experienced campaigner, Anna Carboni of Wilberforce Chambers, who will join Powell Gilbert in the autumn. ‘So there’s quite a strong sense that a policy decision lies behind the outcome.’
David Evans, director of Collas Day IP, argues that the law is way behind the reality of the situation. ‘Search advertising is constantly changing and is likely to shift again with the entry of Apple into the market with their iAds offering,’ he says. ‘This will mark a move from search-based advertising to one that is based around mobile technology and apps. As a result, the court rulings on the use of trade marks in online advertising may well be outdated within a short time.’
Google might be off limits, but infringing advertisers are fair game. A trade mark can be infringed in a sponsored link advertisement if an internet user cannot identify the origin of the advertised goods and services, and the Interflora case will perhaps clarify this situation (see box, ‘Say it with flowers’, page 32). Brand owners will be monitoring third-party AdWords closely, and IP teams will be busy assessing attack plans. There will inevitably be more ‘take down’ requests winging their way to internet service providers in future.
‘A consequence of this decision may be a proliferation of litigation against advertisers,’ says Powell Gilbert partner Simon Ayrton. ‘To a great extent, the decision places the onus on brand owners to monitor the situation and take action against advertisers where the ad text does not make it sufficiently clear that the advertiser is unconnected with the brand owner. In practice, this could require a brand owner to bring a large number of actions in order to prevent the misuse of its marks, unless of course it is able to deal with the problem more centrally by taking action against the search engine provider.’
The issues surrounding this case look set to rumble on. But for the time being, advertisers beware. LB