[Guest post] Court of appeal The Hague: free-riding not possible if reputed brand has suffered continuous decline

The IPKat has received and is pleased to host the following contribution by former GuestKat Jan Jacobi (BarentsKrans) regarding a recent Dutch decision on free riding and declining reputation of a brand. Here’s what Jan writes:

Court of appeal The Hague: free-riding not possible if reputed brand has suffered continuous decline

by Jan Jacobi

Bankruptcies happen all the time. Quite often, the IP of a bankrupt company is sold to a third party who continues operating all or some of the brands. This process can happen relatively quickly or may take several years, depending on the complexity of the insolvency.

From a trade mark perspective, a reputed mark that is subject to bankruptcy does not lose its reputation overnight. In fact, abrupt bankruptcies (such as the recent bankruptcy of luxury e-bike manufacturer Van Moof), may even give a brand more notoriety and still resonate with the relevant public for many years thereafter.

Yet, what is the impact to a reputation when a brand has been slowly dying due to decreased sales and gradual closing downs of shops? This question was recently answered in an interesting decision by the Dutch Court of Appeal of The Hague.

Background of the case

Mexx is a fashion brand that started in the 1980s in the Netherlands. In the following decades, Mexx had commercial success and sold its clothing in several countries in the EU as well as outside the EU.

Mexx is the proprietor of several trade marks, including a combined word/figurative mark registered in the Benelux in 1986 and a EU trade mark (EUTM) registered in 2012, both marks registered for goods of Class 25 (clothing) and containing the below graphical element:

Over the last decade, the success of Mexx declined. Already in 2008, Mexx closed 61 of its retail outlets across the UK. Further decline occurred in the years thereafter and several core subsidiaries of Mexx were declared bankrupt in 2014. From 2018 onwards, Mexx has been attempting to revive its brand by resuming sales on a more modest scale and predominantly online.

C&S Designs (CS) is a competitor of Mexx and also sells clothes in the Netherlands under the brand ‘G-maxx’, which it registered as a EUTM for the goods of class 25 in 2016, the same year it started selling clothes under the brand.

In 2019, Mexx accused CS of trade mark infringement and in 2020 brought proceedings before the District Court of The Hague. This court dismissed the action by essentially finding the marks dissimilar.

The decision

On appeal before the Court of Appeal of The Hague, the court firstly examined whether Mexx could rely on Article 9(2)(c) of the EUTMR (Regulation EU 2017/1001) and the Benelux equivalent thereof, considering Mexx had argued that its mark was reputed.

An interesting point was raised concerning the moment in time when reputation had to be assessed. CS argued that the reputation should be measured at the moment of first use of the contested mark, so 2016, whereas Mexx argued that the reputation should be measured at the moment of infringement proceedings (so in 2020 and subsequently 2022 for the appeal).

The Court of Appeal avoided addressing the issue directly, by ruling that the other criteria of Article 9(2)(c) EUTMR besides reputation, namely the requirement that there must be a link between the marks and the risk of injury, were in any case not satisfied. In that regard, the court observed that it is unlikely that CS could have taken advantage of any reputation considering the Mexx brand was already going downhill for some years when CS started the use of its own mark (in 2016). In a similar vein, the court dismissed the idea that CS, after having started use of its own mark, could thereafter still profit from (and take unfair advantage of) the revival of the Mexx brand since 2018.

With regard to potential dilution of the distinctive character, CS alleged that such dilution had not occurred, because the marks, until shortly before the start of the infringement proceedings in 2020, had co-existed ‘peacefully’ for some years. The appeal court found that Mexx had not successfully countered this argument and failed to demonstrate the economic behaviour had changed in the years prior to the infringement proceedings, or there being a likelihood that it would change in the future due to CS’ use of the G-maxx mark.

On the subsequent examination of likelihood of confusion pursuant to Article 9(2)(b) EUTMR, the court was not satisfied that the identical goods of Class 25 and the visual and phonetic similarities would lead to a risk of confusion. In particular, the court found the degree of visual and phonetic similarity to be low (due to the element ‘G’ in the G-maxx mark and a perceived different pronunciation) and took into account a market survey where 52% of the participants indicated not to be confused by the different marks.

Concluding in the sense of no infringement, the court dismissed the appeal in its entirety.

Comment

Reflecting on this case, this Katfriend disagrees with several principal findings of the Dutch Court of Appeal. Firstly, although we can accept that reputation is dynamic by nature, it is debatable whether reputation can ‘fade’ merely because of commercial decline. Especially when a brand has been prominently on the market for decades, it is unlikely consumers will no longer be able to recollect that brand, even if it has been slowly disappearing from the high street.

Secondly, on the point in time of reputation, some IPKat readers may recall the Levi Strauss / Casucci case by the (then) ECJ (case C-145/05). In that decision, the ECJ ruled with respect to a mark which had acquired distinctiveness through use, that the point in time to measure the distinctiveness and risk of confusion is the moment of first use of the contested sign. Any built up reputation by the infringing mark should be disregarded, so the ECJ held that:

If the likelihood of confusion were assessed at a time after the sign in question began to be used, the user of that sign might take undue advantage of his own unlawful behaviour by alleging that the product had become less renowned, a matter for which he himself was responsible or to which he himself contributed. (point 18)

If this logic were to be applied to reputed marks, one can argue that a mark has to be reputed at the moment of first use of the contested sign, up until the moment of infringement proceedings, but that a decrease of reputation because of the use of contested sign cannot be used against the proprietor of the reputed mark.

Not The IPKat!

Thirdly, this Katfriend believes that increased reputation between the moment of first use and infringement proceedings should be taken into account. If a mark already had some reputation and, due to renewed efforts, is gaining more and more reputation in the interim, it would be contrary to the logic of the Levi Strauss / Casucci case that the proprietor cannot profit from that increased reputation.

It is interesting to take into account the EUIPO Guidelines on this matter. With respect to the point in time to assess enhanced distinctiveness or reputation the EUIPO comments, in paragraph 4.2.2.1 that reputation must already exist by the filing date of the contested EUTM and must still exist when the decision on invalidity is taken. It is for the proprietor of the reputed mark to demonstrate this. In relation to opposition proceedings based on reputed marks, the EUIPO confirms (in paragraph 3.1.2.5) the same point in time (moment of registration of the opposed mark until decision in opposition proceedings) and additionally states, at paragraph 3.1.3.5 that: “[…] if use of the mark was suspended over a significant period […] it will be more difficult to conclude that the mark’s reputation survived the interruption of use.”

Going back to the facts of the case, it is difficult to deny that the marks are at least visually and phonetically similar, whilst they were used in the identical class of goods. In those circumstances, this Katfriend finds it possible that ,despite the commercial decline (which is not the same as suspension of using the mark), CS could still take unfair advantage of the reputation built by Mexx in 2016 and also of the brand’s subsequent ‘revival’.