Case Number
CA 563/11
Date Decided
8-27-2012
Decision Type
Appellate
Document Type
Full Opinion
Abstract
The Appellant is a corporation operating in the field of sporting goods, clothing and shoes, and holds trademarks in many countries around the world. Three of its trademarks are registered in Israel and they include a logo of three parallel and diagonal stripes that appears on the side of sneakers, comfortable shoes, athletic shoes and shoes for daily wear. The Respondent imports shoes into the Palestinian Authority. In 2005, the Respondent imported sneakers from a factory located in China. As per his order, the shoes were marked with four diagonal stripes and labeled with the name “SYDNEY”, which appeared in three different spots on the shoes. The shipment of these shoes arrived at the Ashdod Port, and the Appellant was notified by the Department of Customs and VAT that the shipment would be held because, from the appearance of the shoes, the Respondent seemed to have violated the Appellant’s intellectual property rights. Officers of the Department of Customs and VAT gave the Appellant’s lawyer the Respondent’s information and a sample shoe, against the deposit of a bank guarantee. The Appellant believed the appearance of the shoes is indeed sufficiently similar to the shoes it manufactures as to be misleading and that the shoes infringe its trademark. The Respondent, for his part, argues that the shoes he imported did not infringe the Appellant’s registered trademark, but in order to reach an agreement with the Appellant, he proposed to make a certain change to the shoes’ design. The Appellant rejected the proposal, and therefore the Department of Customs continued to hold the shipment. The Appellant filed suit against the Respondent in the District Court for trademark infringement, passing off, harm to reputation, and unjust enrichment. The claims were rejected, and hence this appeal.
The Supreme Court rejected the appeal (and in terms of the unjust enrichment cause of action – in a majority) ruling that:
Justice Hayut –
Infringement of a trademark: A trademark is intended to assist the consumer to distinguish between products made by competing manufacturers. Therefore, to be eligible for registration, the product must be of “distinctive character”. Such distinctive character may be inherent distinctiveness or acquired distinctiveness. There is no dispute that the Appellant’s trademark – three diagonal stripes identically wide and spread out on the side of the shoe – is currently absolutely associated with the Appellant corporation all around the world and constitutes a distinct sign for identifying its shoes. Therefore, it seems that there is no question regarding the existence of acquired distinctiveness for this mark. However, and as the lower court held, the inherent distinctiveness of the product is weak.
The weakness of its inherent distinctiveness influences the scope of the protection the mark ought to be given. The fact that the mark has acquired a highly strong distinctive meaning warrants maximum protection. However, its weak acquired distinctiveness warrants protection that is generally limited only to the trademark itself and to extremely similar designs. In other words, allowing the Appellant to additionally monopolize two or four stripes (or any other number of stripes), is problematic as we thus exclude a stripes design from the public domain and prohibit other manufacturers from using this design for their shoes. This is not to say that the Appellant’s investment in advertizing and marketing has not led to the stripe design being popular and desirable, but this cannot lead to a conclusion that any use of stripes by a competitor is prohibited use.
Section 1 of the Trademark Ordinance stipulates that an “infringement” is, among others, the use of a registered trademark or a similar mark, for the purpose of goods or related goods for whom the trademark had been registered, by someone who is not entitled to do so. The section does not detail the extent of similarity required between the marks for the use to constitute an infringement. However, the case law found that in this context the test in section 9(11) of the Ordinance – which sets the method of examining the mark for the purposes of registration, and that a mark is sufficiently similar to a registered trademark as to be misleading is ineligible for registration – should apply. Therefore, when concerning the use of a similar mark (as opposed to the use of an identical mark) the party claiming infringement must show that the other mark resembles its mark as to mislead the public. The acceptable test for examining the existence of a misleading similarity is a triple test that includes the sight and sound test, the type of product and consumers test, and the circumstances test.
While applying these tests, one must remember that the marks as a whole must be compared, rather than specific parts of them, and that the examination must focus on the existence of a misleading similarity between the marks themselves. In our case, however, it is impossible to examine the marks completely separately from the goods upon which they appear. First, even if the consumer does not have the two products in their hands and compares the marks’ details, we cannot assume that the consumer disconnects the marks from the shoes themselves and examines them separately from the shoes. Second, the rule that the marks themselves should be compared was established in cases concerning verbal, rather than visual, marks. This distinction is important because complete separation between a visual trademark from the product upon which it appears, particularly when the mark may be interpreted as a decorative element, is an artificial and problematic separation. The application of the infringement tests must fit the unique circumstances of the case. Considering the circumstances here, it seems the shoe must be examined in its entirety.
In the current case, the parties agree that the Respondent’s shoes are the same type of product for which the Appellant’s trademark was registered – sneakers – or sadly the same category of goods, that is the same commercial family. It is also agreed that the shoes do not carry the same design as the registered trademark, and thus this is not an attempt at counterfeiting goods. We should examine the similarity between the marks and decide whether indeed this similarity is misleading. Applying the sub tests, while accounting for normative findings regarding the scope of protection appropriate for the mark, lead to a conclusion that the Respondent’s shoes do not cause concern for misleading the public and therefore do not infringe the Appellant’s trademark.
Passing off: This tort has two elements, which the party claiming the tort (plaintiff) must prove: reputation acquired through goods or services this party offers, and concern for misleading the public to believe that the goods offered by the defendant offers actually belongs to the plaintiff. There is no disputing the Appellant and its trademarks’ reputation in the field of sports shoes in Israel and around the world. Therefore, the first element is met and we must focus on the second – the concern for misleading. In order to explore the existence of this element we must examine the entirety of the defendant’s actions and conduct. This examination does not lead to a different conclusion than that which we have reached about the lack of concern for misleading in terms of the trademark. This is because the Respondent’s actions, such as attaching to the shoes a label spelling out the name “SYDNEY” in capital letters or packaging the product in a box also clearly marked with that same name, further reduce the concern from misleading. It seems in this case there is no concern for misleading the public.
Reputation dilution: The doctrine of reputation dilution does not require proving a concern for misleading consumers. However, it seems that the cases where it is appropriate to find a reputation dilution exists even in the absence of misleading, are extraordinary cases where the lack of misleading was a result, for instance, of the product belonging to an entirely different category of products. In any event, even when proving misleading is unnecessary for claiming reputation dilution, this does not negate the requirement to show erosion and distorting the reputation acquired by the registered trademark because of the use made of the other mark. When we are concerned with marks on products in the same category, and in the absence of misleading similarity between the products or the marks that are largely differentiated, the claim that the reputation of the trademark’s owner would be diluted should seemingly be rejected. In this case, in light of our finding that it was not proven that the average consumer would be misled to think that the Respondent’s shoes were made by the Appellant, there is no concern that the consumer would indeed link the quality of the Respondent’s shoes to the Appellant, and in any event the cause of action of dilution does not exist.
Unjust enrichment: It seems that the rule that possibly derives from the A.S.I.R case was fully reflected in Justice Strasberg-Cohen’s opinion that the individual’s interest that a creative work they produced and invested time, effort, thought, talent and resources into, is principally worthy of protection within the law of unjust enrichment, and this interest should not a-priori be excluded merely because it is not a cognizable right under intellectual property law. Still, it was decided that the scope and application of unjust enrichment law depends on the extent that the existing law is comprehensive in that it excludes the application of external law; that a requirement for finding in favor of the claim is that enrichment is not “by a lawful right”, that is that the copy or forfeiture consist of an “additional element” of negative value; that there must not be double remedies or compensation; and that when necessary a variety of remedies – which include restraining orders – may be granted under unjust enrichment law, though they are not detailed explicitly in statute.
The Appellant holds a registered trademark and it essentially established its suit in terms of infringing this trademark. The issue is whether, where a court found that the intellectual property law elements that warrant protecting the holder of a trademark do not exist, and the court additionally found that under the circumstances there was no passing off, a plaintiff may be permitted to raise claims regarding unjust enrichment as an alternative cause of action. The majority justices in A.S.I.R. chose not to decide the issue of whether a plaintiff may simultaneously and alternatively file claims under intellectual property law and under unjust enrichment law. In other matters that came before this Court after that decision, the Court found that once the plaintiff failed to show the infringement of a registered trademark and the plaintiff is no longer entitled to protections of property under this “cognizable right”, there is no room to grant remedies under the alternative unjust enrichment claim.
Even where we assume, for discussion’s sake, that rejecting the claim of infringing a registered trademark does not negate at all an alternative cause of action under unjust enrichment, it seems there is no dispute that this rejection carries significant weight in examining the existence of the four elements of the alternative claim, particularly in terms of finding against misleading. In this case, the Respondent used the mark of four stripes on the side of the shoe, as well as – and this is most important – the labeling of the word “SYDNEY”. Under these circumstances we must emphasize this case’s distinction from A.S.I.R., where there was a perfect replica of the product through reverse engineering. There, it was also a product that resulted from invention and development (as opposed to the use of the stripes design element, which has weak distinctiveness.)
Justice Rubinstein joins the opinion by Justice Hayut. At the core of his opinion sits Justice Hayut’s premise that, insofar as the weak distinctiveness of the trademark is concerned, and her estimate that one would be hard pressed to argue that had the Appellant not chosen this mark, the shoes would not have been manufactured with stripes on the side. Thus even though Justice Rubinstein cannot say that the Respondent’s choice to use stripes was meaningless. In this context, recall Justice Netanyhu’s opinion in Kalil, that though Kalil’s registered trademarks (stripes on samples used for identification) are limited to three stripes, but a monopoly over any and every number of stripes would prevent many others from using stripes because of the restriction on the number of possible stripes as dictated by the width of the side. We must exercise caution when attaching absolute exclusive use in this context, the type of exclusivity that might, inadvertently, harm the delicate balance between protecting intellectual property and protecting freedom of occupation and freedom of competition.
As for the issue of unjust enrichment (and having read the opinion by Deputy President, Justice Rivlin): the A.S.I.R precedent is relevant where the extent of intellectual property law is too limited, not substantively but for lack of registration, and thus some protection is provided under unjust enrichment law. However, is the Court granting “quasi-intellectual property” protection where intellectual property law was examined and found not to have been violated, as in this case? Normatively, at heart Justice Rubinstein would follow the President, but he remains uncertain as to whether the unjust enrichment claim could supplement intellectual property law where it does not apply for internal, substantive reasons, rather than merely external procedural ones.
Deputy President Rivlin joins Justice Hayut’s position regarding the trademark infringement claim, but had his position prevailed, he would have found in favor of the petitioner in terms of the unjust enrichment claim. In A.S.I.R. the Court decided that generally there is no reason not to recognize an unjust enrichment cause of action where the law of intellectual property applies as well. Under the rules set in that case, it is appropriate to recognize the cause of action in this case, too, both because trademark law does not exclude doing so in the issue at hand, and because the right under “the internal law” of unjust enrichment exists here.
One wishes to use a trademark that resembles a trademark registered to another, which undisputedly has acquired a significant and substantial reputation. The consumer prefers the product bearing the similar mark over the product bearing the registered trademark, due to the latter’s higher cost (among others, because of its reputation). In other words, the consumer is aware that the product purchased is a copy, and is interested in the product precisely because of this. The copying manufacturer and the consumer both benefit from this reality. This harms the manufacturer and the reputation it acquired. Currently, trademark law does not regulate this issue of copies that the consumer purchases with intent rather than by mistake.
And note – the lack of application of trademark infringement claims to obvious copies (that is, products that are clearly a copy, and that even the consumer is aware of their being a copy) does not reflect a decision toward a policy that the “market of copies” is desirable in the eyes of the legislature. At most, this is a gap in trademark law. Bear in mind also that this gap is a result of court-made jurisprudence. It seems the time has come that Israeli law granted remedies against copies, insofar that they are copies of a registered trademark with the sole purpose of benefiting from a reputation of another – another who had taken lawful steps to register the reputable trademark.
It seems there is no reason, in terms of intellectual property law, not to recognize an unjust enrichment cause of action as applied to copies of registered trademarks where there is no misleading similarity because the consumer is aware that the product is a copy. In the next step, we must examine whether the Appellant has a claim under unjust enrichment law per se. This claim has three elements: the first requirement is the existence of an enrichment, the second requirement is that the enriched party’s enrichment resulted from the enriching party, and the third condition is that the enrichment to the enriched party was not “through a lawful entitlement or right”.
In A.S.I.R. we decided that an enrichment that is not “through a lawful entitlement or right”, in that context, is an enrichment that carries an “additional element” of improper conduct. The majority’s position was that conduct that is in bad faith or constitutes unfair competition is sufficient for the purposes of an “additional element”. It seems that where one wishes to copy a registered trademark associated with a reputation that holds economic value, with the purpose to benefit from this reputation in selling its products, and where the original manufacturer invested resources and effort in developing the reputation associated with that trademark while the copying manufacturer benefits from it without having to invest similarly, this would be a case of unfair competition and bad faith.
The negative aspect of a perfect copy of a registered trademark continues also where the mark has been slightly, but insignificantly, modified. Such is the case at hand: the addition of a single stripe, while maintaining the registered trademark’s colors, the use of only one color for the stripes, using the stripes’ same direction and location on the shoe as well as the width of stripes and the width between them – amounts to a real similarity to the Appellant’s registered trademark and is in bad faith.
The existence of the two first elements is primarily a factual question. In the case at hand, the Respondent’s profits from selling the shoes (those for which he had the opportunity to do so) would have caused an enrichment. This enrichment was at the expense of the Appellant. The Respondent wished to benefit from the market that the Appellant developed and the reputation it created for its trademark. Therefore, when the conclusion is that the Appellant indeed has an unjust enrichment claim, the question of remedy arises. Had the Court taken the opinion of Justice Rivlin, he would have proposed a permanent injunction against the Respondent prohibiting him from marketing or distributing the shoes with their current design. This injunction would stand until one of the changes proposed by the Respondent was executed.
Keywords
Copyright -- Remedies, Corporations, Property, Trademarks -- Right to use trademark