Naked trade mark infringement, and what goes on behind the veil of AdWords

Thursday 10th April 2014

New Zealand has its first judgment on the use of trade marks in Google AdWords. In InterCity Group (NZ) Ltd v Nakedbus NZ Ltd [2014] NZHC 124, the High Court held that Nakedbus had infringed InterCity’s registered trade mark INTERCITY by using it in advertisements for its own services on the Google search engine.  However, in contrast to recent decisions in the UK and Europe, there was not much more to AdWords trade mark infringement than met the naked eye.

Background

InterCity and Nakedbus are the two biggest long distance coach companies in New Zealand, with about 60 and 35 per cent market share, respectively. InterCity is the successor of the former New Zealand Railway Corporation’s coach services. Nakedbus was founded in 2006 and targeted what it considered to be InterCity’s “near monopoly” position, primarily marketing and selling its fares online.

The Court found that Nakedbus had used the words “inter city” from the outset in its pursuit of customers. Within a month of Nakedbus’s launch, InterCity’s solicitors had written to it about its use of “intercity”. For the next few years, a battle took place between the two companies, the history of which makes for compelling reading in Justice Asher’s judgment. This culminated in a major AdWords campaign by Nakedbus in 2012 through which Google searches containing the terms “inter city” brought up Nakedbus advertisements containing the phrase “inter city”.

Issues and decision

InterCity issued proceedings for breach of an undertaking, trade mark infringement, passing off and breach of the Fair Trading Act.

InterCity initially alleged that Nakedbus had provided an undertaking not to market its services as “inter city” and to use “city to city” instead. It did not pursue this claim at trial, but as this allegation was relevant to the background of all the claims, the Judge considered it and held that there had been no binding undertaking.

The main issue was InterCity’s claims of trade mark infringement. The passing off and Fair Trading Act claims were ancillary causes of action.

First trade mark claim: using AdWord keywords

InterCity claimed that Nakedbus had infringed its registered trade mark INTERCITY by including 87 variants of the key word or words “inter city” in its AdWords campaign. InterCity argued that this was the use of a same, or a similar, sign in the course of trade, contrary to the Trade Marks Act 2002.[1]

The Court received detailed evidence about how the Google search engine and AdWords work and accepted Mr Justice Arnold’s summary of this in the Interflora case in England.[2]However, in contrast to the English and European courts, the New Zealand High Court did not accept that the purchase and use of keywords which are identical or similar to a registered trade mark constitutes trade mark infringement.

InterCity’s expert witness testified that Nakedbus generated very little organic traffic to its website from Google searches for “intercity” or “inter city”. However, Nakedbus’s AdWords campaign in 2012 generated significant sales, for comparatively little cost.

InterCity relied on European cases such as Google France SARL v Luis Vuitton Malletier SA to argue that an AdWords customer who purchases and uses a keyword identical to another party’s trade mark is using that trade mark in the course of trade and is, therefore, infringing it.[3]

Nakedbus pointed out that section 89(1) of the Trade Marks Act 2002, which defines trade mark infringement, is subject to section 89(2): it applies only if the sign is used in such a manner as to render the use of the sign likely to be used as a trade mark.

Justice Asher agreed: “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’.” Nakedbus’s use of INTERCITY as a keyword was therefore not trade mark infringement.

Second trade mark claim: advertising with the words “inter city”

Nakedbus used the words “inter city” in its Google advertisements and on its own website. It attempted to argue that this, too, was not use likely to be taken as being use as a trade mark, and therefore did not infringe the INTERCITY trade mark.

However, the Court concluded on the basis of InterCity’s survey evidence that most New Zealand internet users who searched for “intercity” and variants were not using the search term generically, but instead were looking for the InterCity brand. It found that Nakedbus had deliberately used “inter city” as a trade mark. The words were “used as hooks to attract those looking for the [InterCity] bus services to Nakedbus.”

Justice Asher found that the words “inter city” as used by Nakedbus were identical to the registered trade mark INTERCITY. In case the decision was appealed and that finding was wrong, he went on to find that he considered them to also be similar and that their use by Nakedbus was likely to deceive or confuse.[4] There was evidence of consumer confusion.

Passing off and breach of the Fair Trading Act

Having found that Nakedbus had infringed InterCity’s trade mark and caused confusion among consumers, the Court readily held that Nakedbus had passed its bus services off as those of InterCity.  Nakedbus had also engaged in misleading and deceptive conduct, contrary to the Fair Trading Act 1986.

Importantly, the Court not only found that Nakedbus had breached the Fair Trading Act by displaying an advertisement and website which would mislead a significant number of consumers into thinking they are dealing with InterCity but also considered that the purchase of the keyword “intercity”, so that the Nakedbus advertisement responded to it featuring the words “inter city”, was itself misleading and deceptive conduct.

Although Justice Asher did not spell out the connection in detail, this finding addresses the possible lacuna that he acknowledged when he accepted that his interpretation of the Trade Marks Act 2002 could leave an Interflora-type plaintiff without a remedy in New Zealand.

In Interflora v Marks & Spencer, the English High Court found that Marks & Spencer had infringed Interflora’s UK and European Community trade marks by purchasing AdWord keywords which directed people searching for Interflora to Marks & Spencer’s advertisements. According to the New Zealand High Court, the purchase of keywords cannot constitute trade mark infringement in and of itself. However, a trade mark owner who has suffered, or is likely to suffer, loss or damage by such use of AdWords can sue for breach of the Fair Trading Act.

Similarly, in Australia, a trade mark owner could sue for breach of the Australian Consumer Law in respect of AdWords which are misleading or deceptive or are likely to mislead or deceive.[5]

Results

The Court has issued an injunction restraining Nakedbus from using the signs INTERCITY, INTER CITY, or INTER-CITY, or any deceptively or confusingly similar signs, unless the advertisement distinguishes Nakedbus’s services sufficiently from those of InterCity.[6] The Judge adjourned the proceeding for a further hearing on InterCity’s claim of an account of profits against Nakedbus. In the meantime, however, Nakedbus has appealed the decision.[7]

Points to take home

According to the High Court:

  • Using another party’s registered trade mark as an AdWords keyword will not of itself constitute trade mark infringement;
     
  • However, the Fair Trading Act can apply – like the Australian Consumer Law, this prohibits misleading and deceptive conduct, which can include the purchase of keywords; and
     
  • Using another party’s trade mark in the text of any kind of advertisement, including AdWords, can infringe the trade mark.
     

Google AdWords provide a means of advertising which has enormous potential value. There is an obvious temptation for traders to use their competitors’ brand names to gain business. However, trade mark law, like the rest of IP and consumer law, applies online as well as offline. And while an AdWord keyword itself may not infringe a trade mark in New Zealand, using a keyword in a way that is misleading or deceptive is prohibited by the Fair Trading Act and the Australian Consumer Law.
 


[1] Section 89(1).
[2]Interflora Inc v Marks & Spencer plc [2013] EWHC 1291 (Ch). For a brief explanation of what AdWords are and how they work, see http://www.baldwins.com/misleading-and-deceptive-conduct-the-ongoing-adwords-saga/.
[3] Joined Cases C-236/08 to C-238/08 Google France SARL v Louis Vuitton Malletier SA [2010] ECR I-2417.
[4] Therefore an infringement contrary to section 89(1)(c).
[5] Competition and Consumer Act 2010 (Cth), schedule 2, section 18. See Australian Competition and Consumer Commission v Trading Post Australia Pty Ltd [2011] FCA 1086; affirmed Google Inc v Australian Competition and Consumer Commission [2013] HCA 1.
[6]InterCity Group (NZ) Ltd v Nakedbus NZ Ltd [2014] NZHC 410.
[7] Hamish Fletcher, “Nakedbus appeals trademark decision” The New Zealand Herald (online ed, Auckland, 13 March 2014).

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