27 Sep, 2019

Lessons from the latest EU court ruling against the three stripe mark of Adidas

Written & Reported By Shray Mehta, Law & Policy Group Intern – School of law, University of Mumbai

Abstract
Disputes over trademark infringement in the footwear and apparel industry are common nowadays, out of many; Adidas stays a major suing party in a majority of cases as the company treats its stripes very seriously. Three-stripe mark has for long been used as a mark to differentiate Adidas from other products in the market. The company has aggressively tried to protect this mark over the years by actively engaging in litigation and suing various brands worldwide. Adidas by way of protecting its three stripe trademark not only sues those who infringe their trademark by using three lines, but this brand even goes to the extent of suing other designs which carry two or four stripes (Chambers, 2017). Lately, the General Court of the European Union confirmed the invalidity of the Adidas EU trademark which consists of three parallel stripes applied in any direction as Adidas could not prove that that mark acquired a distinctive character, throughout the territory of the European Union. This research paper shows how important it is for brands to strategize for increased trademark protection, explains the concept of niche markets and its relevance, issues which Adidas might face due to the recent ruling on its three stripe mark in Europe and its global implications while focussing on a hypothetical situation as in case the dispute had taken place in India.

Keywords: well-known, niche markets, Trademark Rules, permissible variations, Distinctiveness
Introduction

The company has always tried to have a strong hold over its registered mark which is basically because; the mark is so simple that in case a similar mark is used by other companies it could lose its distinctiveness and staying power in the market. Various international brands such as H&M (Hennes & Mauritz), Puma, Sketchers, Forever 21, Payless, etc. have called this approach of Adidas as aggressive and judicial decisions against them, unjustified as the usage of stripes in designs becomes very limited for them. In a 2008 court filing where Adidas sued payless it was noted that Adidas pursued at least 325 infringement matters, including 35 lawsuits and 45 settlement agreements in the United States alone (Brettman, 2015). But sometimes getting hands into litigation in order to sue parties can even boomerang on the plaintiffs, and this is exactly what happened to the company.

Coming to the present case we are going to start with a chronology of events in order to have a better understanding, it was in 2014, when Adidas successfully registered the three-stripe design with the European Union Intellectual Property Office (EUIPO). This trademark was applicable to clothing, footwear and headgear (as it was sought for in class 25 of the Nice Classification system concerning the International Classification of Goods and Services for the Purposes of the Registration of Marks) (Rosati, 2019).

In 2016, following an application for declaration of invalidity which was filed in December 2014, by a Belgian company named Shoe Branding Europe BVBA, the European Union Intellectual Property Office cancelled the registration of the three stripe mark on the ground that it lacked “distinctive character”, both acquired and inherent through use (Dickerson, 2019). According to EUIPO, the mark should not have been registered. In particular, Adidas had failed to establish that the mark had acquired distinctive character throughout the European Union.
In 2019, Adidas appealed to General Court of European Union (European Union’s second-highest court) in order to overturn EUIPO’s decision. The General Court upheld the above mentioned decision of EUIPO of 2016, and found the three stripe EU trademark (EUTM) owned by Adidas to be invalid.

Findings of the General Court
The General Court (GC) noted the three stripe mark to be an ordinary figurative mark and “extremely simple” one instead of a pattern mark; this was because, as per the court neither the description nor its graphical representation could establish a series of regularly repetitive elements. (Pownell, 2019) Also as the mark was so simple a slight variation in the form could lead to alteration of the particular mark registered. Hence it was noted that the claims made by Adidas were not in consonance with the graphical representations of its registered mark. Moreover their description on the register did not state that modifications or cuts could be made to the stripes.

Adidas was not able to justify in pleading an infringement of the “law of permissible variations”. Basically the law of permissible variations is a rule which is embedded in Article 5C (2) of the Paris Convention for the Protection of Industrial Property, which provides that “Use of a trademark by the proprietor in a form differing in elements which do not alter the distinctive character of the mark in the form in which it was registered in one of the countries of the Union shall not entail invalidation of the registration and shall not diminish the protection granted to the mark.”

The company submitted around 12000 pages as evidence, out of which a significant part comprised of material which showed white stripes on a black background, which was opposite of what was registered. The court noted that such a colour scheme should not be treated as an insignificant variation. It held that the EUIPO was right in considering only dark stripes on a light background as evidence in its ruling (Popple, 2019).

Evidence to prove that there was no misuse or alteration of the distinctive character mainly consisted of images from catalogues and promotional materials which had the three stripe mark on them, in order to convince the court. This evidence backfired against Adidas as the court found certain images to affect the distinctive character of the registered mark (Antoniou, 2019).
Moreover, Adidas also produced evidence to show that the mark was well known and had acquired distinctiveness in the EU, by providing five market surveys which were carried out in France, Estonia, Germany, Spain and Romania from 2009 to 2011. The court said that this survey as evidence was only relevant to five member states and could not be extrapolated to the entire territory of the European Union (Bibe, 2019).

Is this the end of Adidas three-stripe trademark(s)? If not, then what shall be the next step for Adidas? How will this ruling impact the trademark of Adidas in EU and worldwide?

One must remember that Adidas has still not appealed against the adverse decision, hence the decision cannot be considered to be conclusive. Adidas probably won’t be affected by this decision to a great extent in Europe. This is not the end of the three-stripe trademark. It is important to note that the company already has protection for its slanted three stripe logo. In fact currently, several three stripe marks are owned by Adidas in various forms, one can refer to the EUIPO database (EUIPO, 2019). Most of these marks are not affected by this ruling as the effect of this ruling is limited to only a specific version of the three stripe logo – which consists of three thick black lines in parallel separated by two thinner white lines (Physorg, 2019). Other versions of the three stripe logo continue to be legally protected; this means that Adidas can still sue anyone over infringement of these versions. Though, Adidas is disappointed with the decision, Adidas has not yet decided whether to appeal against the decision at the European court of justice. More quality evidence is anticipated in case Adidas takes the matter to the higher court; this is because many criticized the quality and kind of evidence given by Adidas in the recent case.

Though the above paragraph throws light on the fact that Adidas still has several three stripe marks registered in Europe, one may assume the situation for Adidas to not be of a serious nature and may also find the ruling’s immediate effect which was a dip of mere 1.8% in company stocks to only be a short term effect as the stock market is generally sensitive to news (Kwatra, 2018) (Smith, 2019). There are trademark lawyers who believe that in the long term, this ruling could create complications for the company’s marketing efforts worldwide. Legal experts opine that the brand will have a tough time fighting rivals who put similar patterns on clothing, footwear and headgear (Warner, 2019). In an interview with Fortune magazine, Tim Meyer-Dulheuer, the managing partner of a German law firm named Dr. Meyer-Dulheuer & Partners LLP which specializes in trademark law, found the loss in the suit to be an enormous loss of reputation for Adidas and even predicted increased legal challenges as Adidas is the only sports brand which claims its entitlement to the three stripe design (Warner, 2019). Hence, the potential problem which Adidas could face is that, in case they are not able to fully protect their brand in Europe, an increase in legal actions against their trademark may emerge in other geographies where the company is located, such as Asia and America ( Dr. Tim Meyer-Dulheuer, 2019).

For a mark to have a reputation or to be considered as well known is it mandatory to meet a certain knowledge or recognition threshold? In case yes, what is the threshold? What percentage of population awareness is required?

Both, the EU Community Trademark Regulation (207/2009) and the EU Directive 2015/2436/EC recognise well-known trademarks as relative grounds for refusing potentially similar trademarks for registration. Moreover, Article 8(2)(c) of the EU Community Trademark Regulations and Article 5(2)(d) of EU Directive 2015/2436/EC permit opposition based on trademarks which are well known in a Member State, in the same sense the words ‘well known’ are used in Article 6bis of the Paris Convention (Wijnnobel, 2016).

Firstly, it is important to distinguish between reputation and fame (well known) as they are legally distinct concepts. Fame as a concept lays focus on the quantity of consumers (the public at large) who have knowledge about the product, whereas reputation has more to do with the commercial magnetism of the mark say in niche markets or specific sectors. (L. Tittermore, 2012)

What we need to know are the key points on the basis of which European legislature and judiciary consider a trademark to be a well-known or famous trademark. In order to address the above issue, this paper heavily relies on the landmark decision of the Court of Justice of the European Union in General Motors v Yplon, where it was said that the decision-maker must consider “the market share held by the trade mark, the intensity, geographical extent and duration of its use, and the size of the investment made … in promoting” by the mark.

As for the reputation threshold, in the same judgement it was held that in order to consider the level of reputation required, the decision-maker must consider whether the mark is known to “the public concerned by the products or services” covered by the registration. It is only amongst this group that the mark must be recognised by a ‘significant’ portion of consumers, we can safely interpret that this judgement helped in recognition of the concept of niche markets in Europe ( General Motors Corporation v Yplon SA, 1999).As a result of standards mentioned above, the threshold for proving reputation has been lowered considerably, as both- brands with deep and broad reputation are considered now. (Basma, 2016)

Giving a numerical expression as in by way of percentage to assess the amount of population awareness is not a way of calculating population awareness till now as the 1999 judgement still holds, “it cannot be inferred from either the letter or the spirit of Article 5(2) of the Directive that the trade mark must be known by a given percentage of the public so defined”. ( General Motors Corporation v Yplon SA, 1999)

What is the applicable population in deciding the knowledge, recognition or fame of the mark, the overall population or a relevant sector of the public? Is recognition or fame in a limited product market (“niche market”) sufficient?

For answering this question, International Association for the Protection of Intellectual Property (AIPPI) prepared a summary report where they relied on group reports from various countries. It was observed that European groups from Latvia, France, Denmark, Czech Republic, Italy, Sweden, Spain, Germany and Netherlands were of the view that reputed marks in niche markets (limited product markets) should be eligible for protection. Whereas, the Swiss, Finnish, Japanese and US groups opined that the concept of niche market should not be sufficient to grant recognition (AIPPI, 2010).

Niche fame is achieved by a trademark when an owner is able to demonstrate the knowledge and reputation amongst a specific group of consumers or community, this also means that the owner has created a niche in the market related to specific good and services he offers further resulting in the definition of nice markets. Many experts argue as to whether an owner of a mark deserves to own a trademark only on the basis of being known amongst a narrow set of customers over a wide population base (Burrell, 2016).

Stressing more on the European framework for recognising niche markets, it is clear that one major aim of European law is to prevent dilution of the trademark which is registered, as dilution caused by blurring or tarnishment can lessen the company’s exclusivity and brand image. (hukuk, 2015). So overall yes, recognition or fame in a limited product market (“niche market”) is sufficient.

Criticisms to the concept of niche markets- Though the European law aims at bringing in Anti-dilution protection to trademarks for the reasons mentioned above, a concern which arises is that it is somewhat arbitrary to grant anti-dilution protection on marks that are well known in a particular market (carry niche fame) while denying such protection to marks that have a larger scope, but comparatively more diffused customer base (Burrell, 2016).

It is admitted that the criteria set by the General Motors Corporation v Yplon SA judgement increases the dimensions for protecting well known marks and provide flexibility to courts in approaching cases relating to dilutive harms. But as a result of prevailing standards which permit the concept of niche fame to exist, experts are concerned about the monopoly over the market competition which the mark holders get (Tyagi, 2017). Experts have suggested that elimination of the concept of niche fame in EU law will be beneficial in removing monopoly these niche goods/service providers get and have also suggested that the usage of Article 5(2) of the EU Trademarks directive should only be given to those marks which are well known by the consumers or public as a whole in a given region (Basma, 2016) .

Protection to marks which are regarded as “well known marks” and benefits of having such marks in India and worldwide

A trademark which has a well-known status gets improved protection worldwide. Many countries provide protection to unregistered well-known trademarks in order to keep up with the international obligations as per the Agreement on Trade-Related Aspects of Intellectual Property Rights (the TRIPS Agreement) and Paris convention (WIPO). Modern jurisprudence on “Well-known Marks” doctrine derives from Article 6bis of the Paris Convention, which states in part that member countries agree – “to refuse or to cancel the registration, and to prohibit the use, of a trademark which constitutes a reproduction, an imitation, or a translation, liable to create confusion, of a mark considered by the competent authority of the country of registration or use to be well-known in that country as being already the mark of a person entitled to the benefits of [the Paris Convention] and used for identical or similar goods”. A major benefit for a company holding a well-known trademark is that it does not need to be locally registered in a country in order to obtain protection under Article 6bis. (Lackert, 2008)

In India, Section 2(1) (zg) of the Trade Marks Act 1999 defines the term “well- known trademark” and states it to be a mark which has become well known to a section of public, which uses the particular goods and services. It further considers the usage of that well known mark in relation to goods and services of other business to be an infringement, as customers using the product might perceive the goods and services to be in relation to the well- known brand (Bhatia, 2018).

In India, the major benefit of getting the “well known’ tag for a trademark is that once the Registrar of Trademarks or a court of law declares it to be ‘well known’, the Trade Mark Registry is legally bound to not register any other trademark which is identical or similar to the ‘well known’ trademark across all classes of goods and services (Reddy, 2017). The Trade Marks Act protects well known trademarks against registration of similar marks and provides for action against any misuse of the “well known trademark”.

One of the requisites for determining a trademark to be well known involve taking into consideration the knowledge or recognition of the trademark in the relevant section of the public, hence knowledge of the public at large isn’t mandatory (Prasad, 2017).

Moreover the process of declaring marks as well-known was at the sole discretion of tribunals or courts, which resulted in increased litigation. Today we have the Trademark Rules 2017 which have been brought in order to reduce complexities of increased paperwork, litigation and increase the ease of doing business in India (Prasad, 2017). Out of the many rules we lay focus on Rule 124, this is because this rule permits any trademark owner to file a request (in Form TM-M along with prescribed fee) with the registrar to declare a trademark as “well known” mark. The Rule further adds that when such an application is submitted to the registrar, the registrar must consider the provisions of Section 11(6) to 11(9) of the Trade Marks Act, which provide for factors such as recognition among the relevant section of the public, geographical extent etc. (Priyadharshini, 2017).

Prior to enactment of this rule a registrar could designate a trademark to be “well known” only in case of opposition, rectification or infringement proceedings, else such a distinction was given by the courts. What this rule brings in is an entirely new procedure for recognition of well-known trademarks. Though the registrar is at liberty to invite objections from public prior to declaring the mark as well known, it is basically different from opposition, infringement and rectification proceedings as it does not guarantee a right to be heard to a prospective opposing party .It must be noted that the rule gives more power to the Trade Mark Registry (Reddy, 2017), and carries with itself chances of intentional or unintentional human errors.

What benefits can MNC’s get by registering for recognition as a well-known Trademark in India?
Multinational companies aiming at overall brand protection and legal strategy should consider registering themselves for declaring their mark as a well-known mark. In case such companies engage in usage of unregistered trademarks for a period of five years and three months or more, they may face cancellation for non-usage. But in case they are registered as a well-known mark then they will automatically be cited as the conflicting trademark in any future applications and the registrar may refuse the application. This will help in reduction of opposition costs for those whose trademarks are well-known marks. (Kapadia, 2018)

May the owner of the earlier trademark file an opposition and/or a cancellation action? May he ask for permanent injunctive relief or preliminary injunctive relief?

In the International Association for the Protection of Intellectual Property (AIPPI) summary report it was found that most of the reporting countries permitted owners of an earlier trademark to file an opposition and/or a cancellation action. They also permitted the plaintiffs to ask for injunctive relief and preliminary injunctive relief in case of infringement. These reporting countries included member states of the European Union, China, Russia, Turkey, Canada, Singapore, New Zealand, Indonesia, Panama, United States, Malaysia, Japan, etc. (AIPPI, 2010).
A trademark owner generally seeks an injunction to stop the opposite infringing party from using the symbol which could confuse the customers. The plaintiff who is able to receive a preliminary injunction from the court has a tremendous advantage. The defendant is stopped on the spot (Brown, 1992). In Germany, injunctions are available in case of infringement of IP rights of owners of an earlier trademark. The IPR owner is required to show that he has a claim for infringement of his mark in order to seek grant of a preliminary injunction, in case of urgency the court will be more likely to grant a preliminary injunction. Injunction can only be claimed against known parties and not potential infringers (Haft, 2011). In Czech, an owner of an earlier trademark can file opposition or cancellation against a trademark which is already registered but later than the earlier one. The owner cannot ask for injunctive relief or preliminary relief as the question is solved only during the proceedings of Czech IPO, such questions are not asked before the court (Dr.Korejzová, 2010).

In India, a person whose trademark has been infringed can seek to enforce civil as well as criminal remedies. Criminal remedies for infringement and passing off are provided in the Trade Marks Act 1999 under chapter XII. Section 103 and 104 of the Act provide for punishment and penalties, where period of imprisonment must not be less than six months and which may extend to a period of three years, and a minimum fine of fifty thousand which may extend to two lakh rupees. Section 105 of the Act further provides for the provision of enhanced punishment (Dalmia, 2015).

In case of civil remedies one can seek damages or accounts of profit, and also seek a temporary, permanent or interlocutory injunction etc. Nowadays preliminary or temporary relief is mostly claimed in law suits wherever violation of trademarks is done as they have an immediate effect. Order 39, Rules 1 and 2 of The Code of Civil Procedure 1908 facilitate in filing an application for injunction in order to restrain the infringer from doing further harm. In order to secure such kind of an injunction the claimant needs to show that the case is a prima facie case, irreparable harm would be done to his goodwill and market share and the granting of such an injunction would more equitable than not granting one. A monetary relief can be claimed under Section 135 of the Trade Marks Act and a permanent injunction can be sought for as per Section 135(1) of the Act (Mittal, 2017).

What treatment would the case have met had it been tried in India.
As far as the question of what treatment would the case have met had it been tried in India, we cannot comment on the treatment straight away as judicial interpretation on the matter of distinctiveness and other facts of the case need to be dealt with by the court. A question which arises in situations is, where a trade mark is well known but lacks distinctiveness, what would be the legal position of such a trademark in India. We will be looking at two aspects, distinctiveness and well known statues of the trademark to reach a conclusion. On a plain reading of Section 9 (1) (b) of the Indian Trademarks Act, the section provides for absolute grounds for refusal of registration, the section also lays an exception to the grounds stating that “a trade mark shall not be refused registration if before the date of application for registration it has acquired a distinctive character as a result of the use made of it or is a well-known trade mark”. For a mark to be considered as a well-known mark , Section 11 clause (9) provides that it is not compulsory for a mark to be popular and well recognized by the public at large in India (Dubey Partners, 2017).

Hence, it’s implied that currently Adidas has a well-known reputation in India, as well as abroad, and the courts may rule in its favour on the basis of the above mentioned section and also on the basis of it being a registered trademark. But to make a stronger case in its favour and avoid infringement or ending up in a situation like it has in case of Europe it’s important for Adidas to get itself listed as a well-known trademark in the Indian Trademarks Registry. This may involve filling documents and cost of mere one lakh Rupees for a big company like Adidas but could be a game changer for it in suing any infringers and getting enhanced legal protection.

To gain an idea we can rely on relevant case laws relating to well-known trademarks. The High Court of Delhi in Hennes & Mauritz Ab & Anr v. HM Megabrands Pvt. Ltd. & Ors confirmed that prior adoption of a trademark worldwide can be superior to prior use of the mark in India ( Hennes & Mauritz Ab & Anr v. HM Megabrands Pvt. Ltd & Ors, 2018). In Adidas A.G. vs . Prashant Goswami where the logo of Adidas and its three stripes were infringed the District court of Delhi observed that registration of the trademarks gives exclusive rights to a plaintiff to protect his marks and take action against infringers. The ruling was in favour of Adidas where it was awarded punitive/compensatory damages (Adidas A.G. vs . Prashant Goswami, 2018).

One thing Adidas must take note of is to use its three stripe trademark carefully in the future and not increase the variations in the mark permitted to be used by the registry as increased variations could result in complexities which may play against the company.

How would the power to declare marks as well-known to the sole domain of the Registrar in India play out in cases where the plaintiffs express their cause of action within the law on well-known marks. Would a party opposing the decision of the registrar first have to approach the Registry in such circumstances?

It is settled that where a party needs to file for registration of a “well-known trademark” it needs to approach the registrar. As per Rule 124 of the Trademark Rules 2017, the power to determine a trademark as well-known is the sole domain of the Registrar now. Hence this gives registrar the power to “invite objections”, which means that it’s up to the discretion and sole judgement of the registrar to seek opposition for the applicants mark which seeks to be well known (Dubey Partners, 2017). In case the opposing party is invited and is successful in establishing prior use and registration of the mark, the application of well-known trademark would be disposed. This means that it is mandatory for the plaintiff (one who seeks to prevent grant of “well-known status”) to approach the registry first as soon as objections are invited for to allege infringement and stop the process of registration. In case the registrar still accepts the application the opposing party can approach the Intellectual Property Appellate Board.

After following the procedure as per Rule 125 of the Trademark Rules, 2017; where an appeal against any decision of the Registrar needs to be filed in the Intellectual Property Appellate Board within a period of three months from the date of decision of the registrar, if the person is still dissatisfied with the ruling of the Intellectual Property Appellate Board, he cannot approach the High Court against the adverse order. However, a writ maybe filed before the High Court relating to this matter.

Assuming the decision of Indian courts in the same line as that of European Courts, what proprietary rights would Adidas now have on the mark in question?

In case the Indian courts pass a decision in the same line as the European Courts, stating that the trademark lacks distinctiveness, Adidas being the proprietor will no longer be able to protect its three stripe mark, and other companies will be permitted to use stripes without any fear of being termed as an infringing party. The proprietor of the mark would lose exclusive rights in relation to the specific mark and would not be able to enforce its rights based on the said mark against third parties. Adidas has registered several marks in India, so if the proprietary rights guaranteed to Adidas for the mark in question cease to exist, other proprietary rights will continue to remain with it. The only right which Adidas would have over the specific mark in question would be of still continuing with litigation by appealing in a higher court. Since a trade mark grants the proprietor exclusivity to a mark in relation to the goods and services for which it is registered.

As a corrective step, it is best for Adidas to apply for a “well known” trademark tag to a trademark registrar in India at the earliest, before it ends up in a similar situation as it is not listed on the well-known trademark list of the Indian trademarks registry (IP India ). Getting listed would help it in case any other sports company tries to drag it into litigation, it will help in suing other infringers and in gaining increased legal immunity to its mark, up to a certain extent. Adidas has a strong revenue market leadership position in India (Financial Express, 2017); hence in case it ends up in such a position, its performance and revenue shares could be materially affected.

Conclusion
The ruling is a useful reminder that the ‘law of permissible variations’ is not limitless and must be applied to have specific regard to the mark at issue. It shows how important it is to exercise care while describing your mark and graphical representation while seeking registration. Even the General Court while delivering the judgement pointed that an applicant while filing a graphical representation must make sure that it precisely corresponds to the subject matter sought to be secured. This is because a proprietor will not be entitled to a broader protection than that covered by the graphic representation which was submitted and registered while applying for the trademark. Moreover, care needs to be taken with regards to the quality and kind of evidence being submitted in court, as many comment that had the quality of evidence given to the court been better the outcome would have been different today. Parties must take due care while using variations of their marks in the market as protection given by the law of permissible variations is not unlimited and may backfire in courts as uncertainty always remains on the scope till which a mark can be altered and still remain in the confined of being a “permissible variation”. Adidas while presenting evidence of the trademark to prove its relevance and acquired distinctiveness should have gathered more data from other states European Union as well. Before this judgement serves as an international precedent, Adidas should file an appeal and present quality evidence to increase the chances of overturning the present decision by way of appeal. The company should learn a lesson and pay due consideration to the recommendations given by the GC court in this judgement, this will help in avoiding future complications worldwide.

Coming to the angle of how Indian courts would deal with this sort of a situation, Adidas already has various marks registered just like it has in various other countries and with the kind of lesson learnt from the European Courts ruling, Adidas should consider using the mark in question in an extensive and widespread manner and post that apply for a well-known trademark as per Rule 124 of the Trade Mark Rules 2017 to gain increase legal protection.

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