Brand values under attack

PROTECTING intellectual property (IP) is vital as a means of ring-fencing key revenue streams. Shareholders and regulators demand sufficient valuation, administration and protection of intellectual property because its value as an intangible asset is unparalleled and can be prone to under valuation.

Finance directors are well placed to influence operational decision makers and support an organisation’s overall approach to IP protection. The responsibility of managing costs, linked to maintaining and securing patent and trade mark protection year on year, puts FDs and CFOs in an ideal position to endorse (or oppose) their use, based on an assessment of their business value.

However, there are a number of key risks which FDs need to be aware of, in order to avoid eroding the value of their IP.

Choosing a trade mark (TM) that is not distinctive enough is a common issue, as discovered by the confectioner, Lindt, in 2004. The company has been selling chocolate bunnies since 1930 in a variety of different shapes, colours and sizes. Having obtained TM protection for its 3D chocolate bunny, Lindt brought infringement proceedings against a competitor, Hauswirth, and they responded by claiming that the original registration was made in bad faith. The rival claimed that Lindt only gained the registration in order to eliminate competing products which were already present in the market.

Lindt was successful in arguing that Hauswirth’s bunnies were similar in appearance and could cause confusion in the mind of the customer. As a result, in Austria, Germany and Switzerland, injunctions have been granted which prevent Hauswirth from selling or distributing their gold-wrapped chocolate bunnies. Hauswirth attempted an appeal but this was immediately quashed by the Higher Regional Court of Vienna. If the outcome had been different, it could have opened the door to further competition, potentially devaluing the brand and diminishing a reputation built up over decades.

It is important to be judicious when securing trade mark protection for individual elements of a brand. Trade mark protection can be sought for a variety of design elements, including the use of sound and colour, but if these descriptions are too broad, brand owners may find themselves facing challenges to their IP rights and be forced to defend their position.

Having secured US trade mark protection for the design and manufacture of red shoe soles, Christian Louboutin became aware of an Yves Saint Laurent shoe design, which also had red soles. The designer brought infringement proceedings in April 2011, but the District Judge refused to grant an injunction preventing sale of the YSL shoes, commenting that protection of a single colour was too broad and was therefore inconsistent with the principles of trade mark law. It was acknowledged that red shoe soles have become closely associated with Louboutin over the years, resulting in revenues in excess of $135 million projected for 2011 alone and if their claim fails, this value could be significantly reduced. The company has therefore appealed against the decision, the outcome of which will be confirmed in the coming months.

Other luxury goods that rely on colour trade marks, such as Tiffany & Co, were also concerned about the negative effect of the decision, and filed an amicus brief in support of Christian Louboutin. If the decision is upheld, Tiffany & Co’s ‘Tiffany Blue’ mark may also be vulnerable.

The ‘uncontrolled’ use of a trade mark by a third party in a way that enhances the offering of another brand owner is another relatively common issue. This highlights the importance of ensuring that permitted third party use is controlled by a formal licence agreement, and that the market is regularly monitored to detect potential infringements. Global flower retailer Interflora recently brought trade mark infringement proceedings against Marks & Spencer over their use of online advertising keywords containing the marks – INTERFLORA and INTERFLORA.COM.

Internet users searching for INTERFLORA were presented with a list of sponsored results, which included a Marks & Spencer advert for their own flower-delivery service. Interflora argued that this use of their trade mark took unfair advantage of their reputation, which could lead to dilution, and therefore devaluation of their brand. They also highlighted that it implied there was a connection between Marks & Spencer and the services of Interflora, which could affect their customer loyalty and ability to attract new customers.

Subsequently, the Court of Justice of the European Union decided that companies such as Interflora should be able to prevent others from using their trade marks as keywords in online adverts where consumers could be left uncertain as to whom they are buying from. They should also be able to take action where the use of their trade mark takes advantage of, or dilutes the reputation of their brand, including where it could affect their ability to maintain such a reputation.

Among other risks to stay abreast of, securing trade mark protection without first checking that such rights are not already spoken for can cause costly problems if a company is subsequently forced to yield to another’s rights. Supporting this premise is the need to use defined classes of goods and services to accurately categorise a trade mark to ensure that there is adequate protection in relevant markets, guarding against potential infringement. However, this protection could be rendered useless if a company then fails to renew a protected trade mark – financial directors are ideally placed to alert senior management teams well ahead of an expiry date. Additionally, brand owners run the risk of a trade mark being removed due to non-use.

In terms of required additional spend, elements of a brand that incorporate logos or graphic material may also require design rights or copyright protection. It is a common error to assume that the individual or organisation that has created these elements automatically owns the copyright. Not addressing this from the outset can undermine any trade mark protection that is subsequently obtained.

FDs have an important role to play in ensuring that IP strategies are being managed effectively and brand value is adequately protected. The potential repercussions for failing to do so could be considerable – limiting the brand’s investment potential and potentially risking a significant drop in share price or revenues due to brand infringement.

Fiona McBride is a partner and trade mark attorney at Withers & Rogers