18 July 2010

Tennis Warehouse not Distinctive

The Case: Sports Warehouse, Inc. v Fry Consulting Pty Ltd [2010] FCA 664

The Venue: The Federal Court of Australia

Judge: Kenny J

Comment

The Trade Marks Act allows the registration of trade marks with low levels of distinctiveness where sufficient use is shown by the applicant and where that is as a trade mark in the course of trade.  But as Sports Warehouse discovered, there are cases where the trade mark is so descriptive that the Registrar and the Court will set strict requirements for the level and type of use required to achieve registration. The applicant will need to establish accurately that use is "as a trade mark" and that it was such that the mark was capable of distinguishing as at the lodgement date.

This case is instructive in that it provides guidelines for how a Registrar should treat evidence of use when an applicant is attempting to obtain registration relying on extensive use of a trade mark.



The trade mark application

Sports Warehouse lodged an application to register TENNIS WAREHOUSE on 18 August 2005 in class 35 in respect of "online retail services featuring tennis clothing, tennis footwear, tennis gear, tennis equipment, tennis accessories and tennis sports bags" . The application was accepted on 28 September 2006.

Delegate of the Registrar

  • Fry Consulting opposed registration of the word trade mark TENNIS WAREHOUSE by Sports Warehouse.
  • The Delegate found that the words were "the type of expression that another trader, actuated only by proper motive, might want to use to describe its like services".
  • The use of a logo together with the words substantially affected the identity of the trade mark such that use of the combination did not amount to use of the trade mark.
  • Opposition successful.

The Appeal

Sports Warehouse challenged the delegate's decision that the trade mark did not qualify for registration under ss 41(3) and (5) of the Trade Marks Act. Sports Warehouse also challenged the decision that the logo "substantially affected the identity of the trade mark".

The Legislation

This case revolved largely around s 41.

S 41 (2) requires the registrar to reject an application where the trade mark is "not capable of distinguishing the applicant's goods or services in respect of which the trade mark is sought to be registered from the goods or services of other persons".

Whether or not the trade mark is distinctive is governed by ss (3) to (6) of section 41.  The subsections are designed to guide the Registrar's thinking.

Quoting Sundberg J in Chocolaterie Guylian NV v Registrar of Trade Marks [2009] FCA 891 the process involves the following steps:

1. First take into account the extent to which the trade mark is inherently adapted to distinguish.
If it is, then the trade mark is registrable bar no other impediments.

2. If  unable to decide, then one of the following two apply:

(a). If the trade mark is to some extent inherently adapted the registrar is then required to consider:

(i) the extent to which the trade mark is inherently adapted to distinguish;
(ii) the use, or intended use, of the trade mark by the applicant; and
(iii) any other circumstances.

After taking those matters into account the trade mark is capable of distinguishing only if the registrar is satisfied that the trade mark in fact does or will so distinguish the goods.  If not, the trade mark is not capable of distinguishing.

3. If the registrar finds that the trade mark is not to any extent inherently adapted to distinguish, the trade mark is taken not to be capable of distinguishing unless the applicant "establishes" that the trade mark does in fact distinguish because of the extent to which the applicant has used the trade mark prior to the relevant filing date.

Presumption of registrability and standard of proof

In the past, a number of cases appeared to indicate that it was necessary for an opponent to show that the trade mark is "clearly" not to be registered.

However, the court held that, citing the Guylian case, there is no requirement that an opponent needs to achieve a standard higher than the normal "balance of probabilities" standard.  In particular, the registrar must be persuaded by the applicant on the balance of probabilities that the trade mark does or will distinguish, having regard to those considerations described above.

Evidence

Sports Warehouse adduced evidence of hits on its website. While there appeared to be a large number of hits, the Court mentioned that there appeared to be "considerable uncertainty" about where the hits came from, how the evidence was compiled and what it meant. It appeared difficult to assess whether or not any particular persons had made repeat purchases.

In any event, it appeared that the first sale from the website was in July 2005. From that time until September or October 2008, total sales to Australian customers were in order of US$2,857 million. In the same period, it made 17,474 deliveries to Australian customers. Website advertising expenditure was US$557,322 in 2004 and US$1,092,629 from January 2008 to October 2008.

As far as Fry was concerned, it became clear to the court that Mr Fry had selected the domain name www.tenniswarehouse.com.au because he was aware of the sales being made on the Sports Warehouse website.

Consideration

Whether or not s 41 of the act operated to prevent the registration of the trade mark depended on two issues:

1. To what extent was the trade mark "TENNIS WAREHOUSE" inherently adapted to distinguish the applicant's online tennis retail services from those of other traders?

2. If the trade mark was only to some extent inherently adapted to distinguish the applicant's services from those other traders, then, given:
(a) the extent to which the trade mark was inherently adapted to distinguish the applicant's services;
(b) the actual or intended use of the trade mark by the applicant; and
(c) any other circumstances,
does or will the trade mark distinguish the applicant's services as those of the applicant?

 It turned out that Sports Warehouse did actually have a tennis warehouse in the form of a commercial building in California in which it stored tennis equipment and other tennis-related items that it offered for sale over the Internet.

The court found that the trade mark was "in a large measure" descriptive.  Sports Warehouse attempted to make an argument that "Tennis Warehouse" was not entirely descriptive because if it was supposed to refer to a warehouse per se, then it should have been "Tennis Gear Warehouse", "Tennis Apparel Warehouse" or the like.  However, the court rejected that argument.

Sports Warehouse placed some weight on the fact that the words "Tennis Warehouse" were not descriptive of the online aspect of its retail services.  The court agreed that the online characteristic was not necessarily an element in the trade mark.

So the court held that while the trade mark was highly descriptive, it did not fully describe the services.

The argument therefore revolved around whether or not there was a likelihood of other traders wishing legitimately to use the words "tennis warehouse" in relation to their own services.

Use of post-lodgement evidence

There appeared to be no evidence of any other trader as at the lodgement date using the word "warehouse" with another word descriptive of a product to denote online (or other) retailing of the product.  Sports Warehouse contended that the desire to use "warehouse" only became something traders might desire to do after the lodgement date.  However, Fry submitted that the evidence that it had selected the words for its online business showed that the words were something that traders might desire to do even before the lodgement date.

The Court accepted that the evidence was admissible.

Citing the Guylian case, the court accepted that in assessing the likelihood, as at the lodgement date, that other traders will behave in a certain way in the future, evidence of how they have in fact come to behave will be relevant, although close attention should be paid to whether such rival behaviour has been actuated only by proper motives.

The overarching enquiry

Even though Fry's evidence indicated that he adopted the name because potential customers would be confused into believing that there was some association between his and Sportman's trade marks, the Court said that the overarching enquiry is "essentially hypothetical".

The ultimate question was whether the sign possessed any ordinary signification and, if it did, whether or not other traders might think of the words and want to use them for that ordinary signification in a manner that would infringe a registered trade mark in respect of that sign.

The Court was satisfied that as at the lodgement date there was some degree of likelihood that other traders acting with improper motives would want in the future to use the words TENNIS WAREHOUSE or words closely resembling them.

As a result, the Court was unable to decide and it was necessary to invoke the balance of s 41.

Evidence of use to correspond with level of distinctiveness

Since the trade mark had a relatively low level of inherent adaptation to distinguish compared to many other marks, it required a correspondingly higher level of use and circumstances to satisfy the Court that it does or will distinguish the designated services. In short, as set out in the Guylian case, an applicant relying on use prior to the lodgement date will need to show that the mark has in fact been used as a trade mark prior to the lodgement date so as to have acquired the requisite capability to distinguish the applicant's goods.

In this regard, evidence of use after the lodgement date may be relevant under s 41(5). The relevance of post lodgement use depends on whether it supports an inference that the trade mark was capable of distinguishing the applicant's services at the lodgement date.

Fry contended that Sportsman's evidence didn't address the question of what was the actual trade mark under which the online retail services were provided and whether this was in fact use of the trade mark within the meaning of the Act.

Extent of sales

The majority of Tennis Warehouse sales were to customers in the US. Prior to August 2005, less than 1 percent of sales were in response to orders from Australian customers. But between July 1995 and 2004, Sports Warehouse made Internet sales to Australian customers through the Tennis Warehouse website totalling $554,872. So the pre-lodgement sales were not insignificant in Australian terms. But they were not particularly large and modest when compared with the totality of Tennis Warehouse sales in this period.

It was unclear whether the expenditure on advertising and promotion of the tennis warehouse website was directed to, or capable of affecting, the Australian market.

Post-lodgement sales between 2006 and September 2008 totalled $2,085,180.  The Court felt that although there was growth in the Australian market, the figures did not reflect an especially high volume of sales in the Australian market, and remained comparatively modest when considered against tennis warehouse sales overall.

Evidence of website use

As mentioned earlier, the court said that the evidence of page impressions by Australian Internet users, before and after the lodgement date, needed to be treated cautiously.  The number of visits in 2005 appeared to have been considerably less than those in 2007.  However, it was very difficult to put this data in perspective and so reliably assess its value as an indication of the volume of traffic.  Thus, the evidence was of limited value.

The court said that after 2003, the close association of the "TW" logo within the oval and the words "TENNIS WAREHOUSE" (see above) to some degree deprived the use of the words "TENNIS WAREHOUSE" of their significance as a trademark on the web page that standing alone they had before.

But the court accepted that a sign may be registrable as a trademark even though it is used together with another trademark, and that there can still be use of a mark where it is a component of a larger composite mark.

That said, the court pointed out that where an application for registration relies on use, the question is whether the particular sign for which registration is sought has itself been used as a trade mark so as to become capable of distinguishing the relevant goods or services.  In the view of the court, when the TW logo was placed in close association with the words in 2003, this had the effect of substantially diluting any trade mark significance that attached to the words by themselves.

Use of "TM"

Sports Warehouse argued that the delegate had wrongly diminished the importance of the "TM" symbol that appeared beside the words.  But the court said that such a symbol said comparatively little about the use of the mark for the purposes of section 41 (5).

Use of domain name

Sports Warehouse submitted that its use of the domain name www.tennis-warehouse.com was a relevant and substantial use of the trade mark.  Sports Warehouse argued that once the content of a website was associated with a domain name, the domain name became a sign used in relation to the website content.  Fry, on the other hand, argued that a domain name is only an address on the Internet, which provides a link to the applicant's website, in the same way as the name in a telephone directory will lead an inquirer to the telephone number or address of a particular person.

The court accepted that the better view is that a domain name may constitute use of a trade mark.  In support of this, the court cited a number of cases which provide guidance.

However, the court was not suggesting that mere registration of a domain name can amount to use of the mark.  More needs to be shown.  In this case, the public was likely to understand a domain name consisting of the trade mark (or something very like it) as a sign for the online services identified by the trade mark as available at the web page to which it carries the Internet user.

The court did not consider that the additions or alterations of the "www" and ".com" together with the hyphen substantially affected the identity of the mark.  It followed that the court concluded that the use of the domain name constituted use of the trade mark TENNIS WAREHOUSE, being a use of the trade mark with the additions or alterations that did not substantially affect the identity of the mark.

Invoices and Packaging

Sports Warehouse had submitted a number of invoices showing use of the trade mark.  However, the court pointed out that s 17 of the act states that a trade mark is "a sign used, or intended to be used, to distinguish goods or services dealt with or provided in the course of trade by a person from goods or services so dealt with or provided by any other person."

In this case, by the time an invoice left Sports Warehouse with the articles to which it related, the customer had paid for his or her purchases and the articles had been consigned to the customer.  Thus, the trade was complete.  So the court accepted the respondent's submission that the use of the trade mark upon invoices was not a use "in the course of trade" for the purposes of s 17 of the act.

The court went on to say that the use of the words on packaging was also not use "in the course of trade".  By the time the shipping boxes left Sports Warehouse, the customer had paid for his or her purchases and articles within the boxes had been consigned to the customer.

Comment: This appears to me to be an overly narrow construction of s 17.  After all, as any business will attest, part of trade is to promote the brand.  Otherwise, why would the seller bother to use the brand on the packaging or on the invoices? Furthermore, is the trade not completed once the package is received? Does the seller not have an obligation to ensure that the package is received safely?

Sports Warehouse introduced evidence in the form of consumer witnesses.  One of them was an avid tennis player who had become aware of the website in 2003 and had made from 5 to 8 purchases a year through the website.  Another witness said that he had become aware of the website in 2004 and had made a purchase in that year.  Apparently, when he came across Fry's website, his first impression was that Tennis Warehouse had set up an Australian subsidiary.

Unfortunately for Sports Warehouse, the court did not give a great deal of weight to this evidence.  It could not be compared with survey evidence in any real sense.

It was difficult to assess the extent to which the two witnesses would be representative of a wider body of consumers.

Decision

In summary, given the low level of distinctiveness of the trade mark TENNIS WAREHOUSE, the applicant's evidence as to its use of the trade mark was insufficient to satisfy the court that at the lodgement date it could be said that the trade mark distinguished or would have distinguished the applicant's designated services from the services of other traders.

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