Trade Marks and Passing off - Pliteq Inc v iKoustic Ltd
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Intellectual Property Enterprise Court (Recorder Amanda Michaels) Pliteq Inc and another v iKoustic Ltd and another  EWHC 2564 (IPEC) (2 Ocr 2020)
This was a dispute between Pliteq Inc, a manufacturer of acoustic damping and sound control products and its UK subsidiary and iKoustic Ltd ("iKoustiic"), their former distributor When the two sides fell out iKoustic held a large quantity of Pliteq stock which the claimants refused to take back. iKoustic used Pliteq's marks to sell off that stock while at the same time selling their own range of competing products, Pliteq complained that the use of their marks in relation to iKoustic products amounted to trade mark infringement and passing off, The defendants denied that their use of the claimants' marks amounted to infringement but if it did they could rely on the exhaustion defence set out in s.12 (1) of the Trade Marks Act 1994 and art 15 (1) of the EU Trade Mark Regulation (Regulation (EU) 2017/1001 of the European Parliament and of the Council of 14 June 2017 on the European Union trade mark (Text with EEA relevance.) OJ L 154, 16.6.2017, p. 1–99.
At the case management conference, the following issues were ordered to be tried:
"Trade Mark Infringement
(1) (a) Has the Defendants' use of the Signs ["GENIEMAT" and "GENIECLIP"] at all times been in relation to goods which have been put on the market in the European Economic Area under the Trade Marks by the First Claimant or with its consent?
(b) If so, does the First Claimant have legitimate reasons to oppose the further commercialisation of those goods in the ways complained of in the Amended Particulars of Claim?
(2) Has the Defendants' use of the Signs had any effect on the functions of the Trade Marks?
(3) Has the Defendants' use of the Signs taken unfair advantage of the distinctive character or repute of the Trade Marks?
(4) Was the Defendants' use of the Signs with due cause?
(5) Are the Claimants owners of a separate and distinct goodwill in and to the products shown in the photographs of the Claimants' products?
(6) Have the Defendants made an actionable misrepresentation by their use of the Signs?
(7) Have the Defendants made an actionable misrepresentation by using a photograph of the Claimants' goods in connection with the Defendants' product?
(8) Effect of section 25 of the Act/Article 27 of EUTMR"
The action came on before Miss Amanda Michaels, a recorder, who tried the action by video on 23 and 24 June 2020. By her judgment which she handed down on 2 Oct 2020, she dismissed the claim except for one instance that will be discussed below, It was not therefore necessary for her to decide issue #8 as that would have arisen only if the claimants had been successful.
At paragraph  of her judgment, Miss Michaels said:
"The nub of the Claimant's complaint is that during this period the Defendants used the Marks for the purpose of selling iKoustic's rather than the Claimants' products, using the Marks in various ways on pages of its website and also in keywords/sponsored adverts on Google to attract custom which was diverted to iKoustic's own goods. Use of the Marks was a cover for sales of iKoustic's competing goods and so was an infringement."
Alleged Infringing Acts
The specific allegations against iKoustic are listed at paragraph :
"a) The Defendants used sponsored Google ads. See Annex A. There was no claim that the advertisements were confusing or deceptive. Instead, the complaint was about what happened once the user landed on iKoustic's website. The Defendants admitted having made some use of the Marks as keywords but said that the advertisements were generated by Google's "dynamic ads" service, in which the keyword was chosen by Google, not by the Defendants. This was not their use of the Marks.
b) The Claimants complained of instances when the landing page was either an "Existing Customers Login" page, with contact details, or a page for the particular product stating that it was unavailable to buy online, with a Contact link. Examples were pleaded at various dates in 2019. See Annex B. These were admitted. The Defendants said that when a product was out of stock the relevant webpage would be removed, and the search engine result would default to the Existing Customers Login page, which shows neither side's products. A product would be shown as unavailable to buy online in particular where advice was required before purchase.c) The Claimants alleged that a list of the Defendants' own products was displayed on the site to potential customers of the Claimants' goods. The Defendants said that such a list was only displayed when a customer clicked on/hovered over a "Products" tab on the main menu of the website. Alternatively, their products were at times displayed beneath the Claimants' product under the heading "Related Products," which was said to be a legitimate advertisement for a competing product.
d) The Claimants complained that in late September 2019 the website was changed to show the FF10 mat in stock, though no stock was then held by iKoustic. It is now accepted that throughout 2019 iKoustic had a single roll of FF10 in stock and the change to the site was not pursued as an infringement.
e) The Claimants complained about a blogpost on the iKoustic website on 30 September 2019 which said, "The wall below shows how the cutting-edge technology of a Genie Clip works … iKoustic is one of only two suppliers of this technique in the UK." The Claimants pleaded that at that date, iKoustic was not a supplier of GenieClips. This point was not pursued at trial. The Claimants also complained that on the same date a webpage stated that iKoustic no longer stocked the GENIECLIP, but included a link to the MuteClip, described as iKoustic's new alternative isolation clip. See Annex C. The Defendants said that when that post was on the site, they still had GenieClips in stock and that it would be plain to a customer that an alternative product was on offer.
f) The Claimants concentrated at trial on the claim that iKoustic was luring internet users into purchasing its products, by advertising the Claimants' products when it was unable to provide them. Its use of the Marks was for the purpose of selling iKoustic's goods. This was denied. The Defendants said that the Marks were used only to advertise and sell the Claimants' products and when they were not in stock the products were not displayed on the iKoustic website. A purchaser would have to consciously select a link containing the MuteMat/MuteClip name to purchase those goods, so that no-one would be confused into doing so.
g) The Claimants alleged that similar "bait and switch" tactics were used directly to consumers, and gave examples. This was alleged to damage the origin function by encouraging purchasers to use the Marks to identify competing products, genericising the Mark, and to damage the advertising and investment functions of the Marks. The Defendants denied that they had used the Marks inappropriately and denied any impact on any of the Marks' functions. All of the Defendants' uses fell within the exhaustion defence of section 12(1) of the Act/Article 15(1) of the EUTMR. In the Reply, the Claimants denied that those defences applied, as they had legitimate grounds to oppose the further commercialisation of their goods.
h) The Claimants alleged that the Defendants' use of the Marks infringed under s 10(3) /Article 9 (2)... c) as it took unfair advantage of them, due to the "bait and switch" selling, whether or not the alternative trade origin was discernible. This was denied and the Defendants claimed due cause to use the Claimants' Marks to sell the Claimants' products."
Bait and Switch
There have been conflicting decisions on "bait and switch" marketing. In Och-Ziff Management Europe Ltd v Och Capital LLP  Bus LR 632,  ETMR 1,  ECC 5,  EWHC 2599 (Ch),  FSR 11, Mr Justice Arnold (as he then was) said that "bait and switch" marketing could constitute infringement in initial interest confusion cases, but it was common ground that the facts of that case were very different from those of the case before Miss Michaels. The claimants also relied on John Baldwin QC's judgment in Cosmetic Warriors Ltd and another v Amazon.co.uk Ltd and another  EWHC 1316 (Ch) (2 May 2014) but this was incompatible with the Court of Appeal's decision in Interflora Inc and another v Marks and Spencer Plc (Rev 1)  EWCA Civ 1403 (5 Nov 2014) held that the purchase of Adwords that included the claimant's trade mark was actionable only if such use interfered with one of the functions of the trade mark.
The Claim on Trade Mark Infringement
The claimants had originally relied on s.10 (1) and (3) of the Act and art 9 (2) (a) and (c) of the EU trade mark regulation but as the case developed they concentrated on s.10 (1) and art 9 (2) (a). That was because it was common ground that the essential elements of trade mark infringement under s 10 (1) and art 9 (2) (a) were as follows:
b. The use must be in the course of trade.
c. The use must be without the consent of the proprietor of the trade mark.
d. The use must be of a sign which is identical to the trade mark.
e. The use must be (a) in relation to goods or services (b) which are identical to those for which the trade mark is registered.
f. The use must affect, or be liable to affect, one of the functions of the trade mark."
Ar paragraph  she concluded that the exhaustion defences of s,12 and art 15 apply in principle to any infringing uses of the claimant;s marks, save for the exception mentioned above, unless the Claimants have legitimate reasons to oppose the use of their marks. In her judgment there were no legitimate reasons to oppose the further commercialisation of the claimants' goods by the defendants, so as to disapply the s.12 (1) and art 16 (1) defences.
"A purchaser of a conservatory would be bound to be influenced by the images shown to him, given the nature of the product, but it does not seem likely to me, nor was there any evidence to suggest, that a banal photograph of the purely functional GENIEMAT would generate goodwill, as opposed to the name and/or the technical description of the product. On balance, I consider that the Claimants have not proved that this was a misrepresentation. If I am wrong on that, I am comforted by the view that any such misrepresentation would not, realistically, have led to any damage to the Claimant's goodwill."
This case or rather the circumstances that gave rise to it should be taken into account when negotiating and drafting distribution, franchise and licensing agreements. It is the best possible time to consider what should be done about the use of trade marks when running down stock at a time when relations between the parties may well be strained.
Should amplification or clarification of any part of this article or any point of law be required, call me on 020 7404 5252 during office hours or send me a message through my contact form.