Swiss Supreme Court invalidates the Nespresso Capsule 3D Mark

Former Guest Kat Peter Ling, together with his associate, Joana Gurtner, report on the recent Swiss Supreme Court decision on the Nespresso Capsule 3D mark.

Coffee capsules have turned out to be a revolution for how coffee is served in millions of homes … and also for case law on 3D trade marks. In a decision that has just been published (available here in French), the Swiss Federal Supreme Court invalidated the 3D mark of Nestlé's related to the shape of the capsules. The decision echoes one by the German Federal Court of Justice given a few years ago (Katpost here).

In the 1970s, Nestlé invented a hermetically-sealed capsule containing a dose of ground coffee, and a "Nespresso" coffee machine in which to insert the capsule. Nestlé had received several patents for various aspects of the machines and the capsules (all of which had expired by this point). The shape of the capsule compartment has changed over time, but the technology has essentially remained the same.

Nestlé has become the largest supplier of single-serve coffee in Switzerland – and no doubt in many other countries. In 2000, Nestlé filed an application with the Swiss Trademark Office for registration of a 3D trade mark in class 30 for coffee, coffee extracts and coffee preparations. The Office registered the mark based on acquired distinctiveness.

The respondent and counterplaintiff, Ethical Coffee Company, developed a biodegradable coffee capsule (based on vegetable fibers and starch) compatible with the Nespresso system.

In 2011, Nestlé secured a preliminary injunction in Switzerland, based on its registered 3D mark, against Ethical Coffee Company's capsules. This decision was eventually overturned by the Federal Supreme Court on procedural grounds and the lower court, in a second decision, rejected the request for preliminary injunction on the grounds that the shape of the capsule was technically necessary.

Nestlé eventually sued Ethical Coffee Company in the main proceedings and requested a permanent injunction against the distribution of the capsules. Ethical Coffee Company countersued for invalidity of the trade mark.

The lower court dismissed the request for a permanent injunction and upheld the counterclaim, declaring Nestlé's trade mark null and void. The lower court considered that, while the mark was not technically necessary (which would have led to the invalidity of the trade mark regardless of acquired distinctiveness), the trade mark was part of the public domain and Nestlé failed to prove that the trademark had acquired distinctiveness. Nestlé appealed to the Federal Supreme Court.

The Federal Supreme Court's decision not only deals with the concept of "technical necessity" as an absolute ground for exclusion in Switzerland, but also compares the Swiss legal situation with the EU and Germany, in particular. Based on this comparative law analysis, the Federal Supreme Court ruled that a shape is technically necessary when no alternative solutions are available.

Any alternative solution must fulfil two criteria: (1) it needs to be "equivalent" in that it must not have any disadvantages for the competitors; and (2) it must not lead to higher manufacturing costs, whereby even a slight increase in cost is not acceptable.

The Federal Supreme Court then examined with what type of alternative shapes in other coffee machine might be compatible. The Federal Supreme Court chose to rely on the "Pixie" machine (a specific machine compatible with Nespresso capsules), as it is widely known and very popular. The Federal Supreme Court concluded that there are alternative shapes compatible with the Nespresso coffee machines, as proven by the existence of compatible capsules of competitors and several hypothetical capsules proposed by Nestlé.

The Federal Supreme Court then examined the alternative capsules shapes in detail. It concluded that the alternatives have disadvantages compared with the original Nespresso capsule: higher production costs, smaller amount of coffee per capsule and an increased risk of getting stuck in the coffee machine.

Therefore, the Federal Supreme Court concluded that the shape of the 3D mark is technically necessary to be used in a Nespresso machine. As such, it is "absolutely excluded" from trade mark protection (and therefore, acquired distinctiveness is not examined at all).

Comment

The decision was handed down ten years after the dispute started with a request for a preliminary injunction. One of the reasons for this long period of time is that Ethical Coffee Company was declared bankrupt during the proceedings; the claims against Nestlé were then acquired by third parties from the bankruptcy estate.

To interpret the term "technical necessity", the Federal Supreme Court referred, inter alia, to the decisions Lego C-48/09 and Philips C-299/99 of the CJEU. Quoting the CJEU, the Federal Supreme Court explained that trade mark law is an essential aspect of, and must contribute to, a competitively functioning free market. Thus, the existence of acceptable alternatives to the original product must be assessed strictly.

While this seems a correct proposition, the Federal Supreme Court did not clearly set forth why it implicitly considers that companies active in the coffee industry need to be able to distribute capsules that are compatible specifically with Nespresso-machines.

Nespresso's machines are not the only coffee capsule standard on the market, let alone the only way to prepare coffee at all. It seems that instead of discussing "technical necessity", this case could have been resolved as an issue of competition law, namely whether a company having a (possibly) dominant position on the market is abusing its position by enforcing its (perfectly valid) intellectual property.

A further aspect that did not help Nestlé was the existence of (expired) patents on the same capsules, incorporating figures that show a shape almost identical to Nestlé's 3D mark. Similar to the 2017 German Federal Court of Justice decision (Katpost here), the Swiss Federal Supreme Court insisted several times in this decision that the goal of trade mark law cannot be to "perpetuate the protection of technical solutions", once the patent term has expired.

Picture on top right is by Joe Shlabotnik and is licensed under the Creative Commons Attribution 2.0 Generic license.

Picture on bottom left is in the public domain.