The registration of shapes as trade marks has been possible in Europe since the coming into force of the Trade Marks Directive and the Community Trade mark Regulation. The propensity for three-dimensional shape marks to impose restrictions of competition beyond those arising from conventional trade marks has lead to the close scrutiny and interpretation of this area of law by the Court of Justice of the European Union (CJEU), formerly the ECJ. The latest high profile case to be considered is Lego Juris A/S v OHIM and Mega Brands, Inc. (CJEU (Grand Chamber); C 48/09; 14 September 2010).
Lego applied for a CTM in 1996 for the shape of a red three-dimensional toy brick in its 2 x 4 studded form, as pictured below. Within two days of the trade mark’s registration in 1999 Lego’s main competitor Mega Brands Inc (by its predecessor Ritvik Holdings Inc), the manufacturer of a comparable product Mega Bloks, applied to OHIM for a declaration that the registration was invalid under Article 7(1)(e)(ii) on the ground that the mark was exclusively the shape of the goods necessary to achieve a technical result. The proceeding were stayed pending the ECJ judgment in Koninklijke Philips Electronics NV v Remington Consumer Products Ltd (C-299/99) (concerning a three-headed electric rotary shaver) and resumed in 2002. In 2004 the Cancellation Division of OHIM and then the Grand Board of Appeal declared the registration invalid for ‘construction toys’ in Class 28 on the basis that the shape of the Lego brick performed a technical function. Lego appealed unsuccessfully to the CFI, now the General Court (GC), and in a final last-ditch attempt appealed to the CJEU.
On 26 January 2010 Advocate General Mengozzi gave his Opinion for the CJEU, recommending that Lego’s appeal be dismissed Lego Juris A/S v OHIM and Mega Brands, Inc (C 48/09; 26 January 2010). In essence his view was that the trade mark was invalid on the basis that not only all the essential characteristics of the brick, but also the brick as a whole, had been found, after exhaustive analysis by the Grand Board of Appeal of OHIM, to be functional. The AG went beyond the limits of the appeal on the basis that it was only the second opportunity in 10 years for the Court to look at the interpretation of 7(1)(e)(ii), and he proposed a three stage test which he described as a change in methodology, not a change in the case law. This test is discussed later, in the light of the CJEU judgment which follows.
The CJEU judgment of 14 September 2010
The CJEU dismissed Lego’s appeal against the decision of the GC that its trade mark registration for the shape of a red three-dimensional toy brick for ‘construction toys’ in Class 28 was invalid under Article 7(1)(e)(ii).
The CJEU stated that each of the grounds for refusal in Article 7(1) must be interpreted in the light of the underlying public interest which, in the case of Article 7(1)(e)(ii), is to prevent trade mark law granting a monopoly on technical solutions or functional characteristics of a product.
The prohibition on the registration of trade marks which consist exclusively of the shape of goods which is necessary to obtain a technical result reflects the balancing of two considerations. On the one hand, it ensures that undertakings may not use trade mark law in order to perpetuate, indefinitely, exclusive rights relating to technical solutions. When the shape of a product merely incorporates the technical solution developed and patented by the manufacturer, protection of the shape as a trade mark once the patent has expired would permanently reduce the opportunity for other undertakings to use that technical solution. In the system of intellectual property rights developed in the EU, in relation to both trade marks and designs, technical solutions are capable of protection only for a limited period and then free for use by all economic operators. Particular strictness applies to this provision since the grounds for refusal listed in Article 7(1)(e) are excluded from the exception under Article 7(3). It follows that even if a shape of goods which is necessary to obtain a technical result has become distinctive through use, it is still prohibited from registration as a trade mark.
On the other hand, by restricting the ground for refusal in Article 7(1)(e)(ii) to signs which consist “exclusively” of the shape of goods which is “necessary” to obtain a technical result, it is taken into account that any shape of goods is to some extent functional and it would be inappropriate to refuse to register a shape solely on the ground that it has functional characteristics.
Interpretation of ‘exclusively’
The GC had held that a sign would consist ‘exclusively’ of the shape of goods which is necessary to obtain a technical result when all the essential characteristics of a shape perform a technical function, the presence of non-essential characteristics with no technical function being irrelevant in that context. The CJEU agreed and held that the GC’s interpretation was consistent with the Court’s judgment in Case C-299/99 Philips. In particular the CJ confirmed:
- the presence of one or more minor arbitrary elements in a three-dimensional sign, all of whose essential characteristics are dictated by the technical solution to which that sign gives effect, does not alter the conclusion that the sign consists exclusively of the shape of goods which is necessary to obtain a technical result
- a sign cannot be refused registration as a trade mark if the shape of goods incorporates a major non-functional element, such as a decorative or imaginative element which plays an important role in the shape.
Interpretation of ‘necessary’
The CJEU held that the GC had correctly found that the condition for refusal of registration under Article 7(1)(e)(ii) that the shape must be ‘necessary’ to obtain the technical result intended, did not mean that the shape at issue must be the only one capable of obtaining that result. The fact that there may be alternative shapes, with other dimensions or another design, capable of achieving the same technical result, did not of itself mean that registering the shape as trade mark would have no effect on the availability, to other economic operators, of the technical solution which it incorporates.
Lego had submitted that its competitors did not need to market toy bricks whose shape and dimensions were in all respects identical to those of the Lego brick in order to use the same technical solution. The CJEU noted that it had been found by the GC (on the basis of the OHIM Grand Board of Appeal’s exhaustive analysis) that the shape of the Lego brick was the technically preferable solution for the category of goods concerned and therefore, were the shape to be registered as a trade mark, it would be difficult for competitors to place on the market shapes constituting a real alternative, i.e. not similar and yet attractive to the consumer from a functional perspective.
Identification of the essential characteristics of a shape of goods
The CJEU agreed with the AG’s observation that the expression “essential characteristics” must be understood as referring to the most important elements of the sign and must be identified on a case-by-case basis. Identification of the essential characteristics of a three-dimensional sign can be made by a simple visual analysis, or by a detailed examination taking into account assessment criteria such as surveys, expert opinions, or data re IP rights conferred previously in respect of the goods concerned.
Once the essential characteristics are identified, it is still necessary to ascertain whether they all perform the technical function of the goods in issue. The OHIM Grand Board of Appeal had found that the most important element of the Lego brick sign consisted of the two rows of studs on the upper surface of the brick and placed particular emphasis on the inclusion of that element in Lego’s prior patents. As a result it had found that element was necessary to obtain the intended technical result of the product, i.e. the assembly of toy bricks, and that, with the sole exception of its colour, all the other elements of the sign constituted by the brick were also functional.
The GC had not erred in law in finding that surveys on the target public’s perception of the shape of the goods at issue were irrelevant, since the presumed perception of the sign by the average consumer is not a decisive element in applying the grounds for refusal in Article 7(1)(e)(ii), but at most a criterion of assessment in identifying the essential characteristics of the sign.
Criteria to determine functionality
The existence of other shapes which could achieve the same technical result does not prevent a shape from being refused registration. Once the essential characteristics have been identified, the assessment of whether those characteristics perform the technical function of the product concerned must be carried out by analysing that sign, and not by comparing those characteristics with alternative shapes of goods. The technical functionality of the characteristics of a shape may be assessed inter alia, as the GC and Grand Board of Appeal of OHIM had done, by taking account of documents relating to previous patents describing the functional elements of the shape.
This decision of the CJEU has closely followed the seminal Philips case of almost 10 years earlier, confirming in particular that the existence of alternative shapes which may perform the same function is irrelevant to the assessment of whether a shape mark should be refused registration on the ground of functionality. The CJEU did not provide any detailed guidance on the definition of “essential” and “non-essential characteristics”, and the precise meaning and application of this is likely to be the subject of further references. In addition the CJEU did not address in any detail the issue of what might be termed hybrid marks which have both functional and non-functional characteristics because the Lego brick was found to be entirely functional in all its characteristics, essential or otherwise.
Although the CJEU followed the recommendation to dismiss Lego’s appeal, it did not adopt or endorse the three-stage test for registrability proposed in AG Mengozzi’s opinion. Lego Juris A/S v OHIM and MEGA Brands, Inc. (AG Mengozzi for the ECJ; C 48/09; 26 January 2010). AG Mengozzi had proposed the first stage would be the identification of the essential characteristics followed by the assessment of the functionality of each of these essential characteristics; if all are functional the shape itself is functional and registration is refused. If not all characteristics are functional, the second stage would come into play and here the AG said two alternative approaches were possible: either (1) use disclaimers to restrict the trade mark right to the essential and distinctive non-functional elements of the shape, or (2) compare the sign to other alternative shapes, taking into account interoperability and the requirement of availability. The third stage would be to determine if the shape mark had distinctive character, at which point the overall impression of the sign from the consumer’s viewpoint would be relevant.
The CJEU has stated that there is no obligation to consider the perception of the average consumer in deciding whether or not a shape mark should be refused registration on the ground of functionality. However, the assessment of similarity in trade mark law, both for registrability and infringement, is based on what the average consumer would perceive to be the overall impression bearing in mind the marks’ distinctive and dominant elements. In deciding what are the ‘essential characteristics’ of a shape, what are ‘minor arbitrary elements’ and also what non-functional decorative or imaginative elements play an important role in the shape, it is difficult to see how these can be divorced entirely in this context from consumer perception.
An interesting aspect of the CJEU judgment is the public policy rationale running through the Court’s decision-making that competition should not be stifled by extending the time-limited monopolies of patent, design or copyright laws into the potentially infinite protection conferred by trade mark protection. There are several references to Lego’s expired patents which Lego had admitted described the functional elements of the Lego brick. While statements made in relation to one type of intellectual property right may be problematical in the context of attempting to secure another type, different types of intellectual property are not generally prevented from running in parallel with one another and, unless there is specific provision to the contrary, concurrent or consecutive rights may usually co-exist. It remains to be seen whether this principle will be adopted in other contexts as part of European trade mark and design law jurisprudence.
The public policy rationale of not stifling competition could be achieved in a more coherent way by openly considering whether or not effective competition would be prevented or hindered by the registration of a particular shape mark, and building such considerations into the determination of whether or not the registration should be refused on the ground of functionality. However, considering whether the allowing of a monopoly in respect of a particular shape would prevent other traders from selling the same product, or place them at a competitive disadvantage in doing so, including for example where a shape has become the industry standard for products of that kind, must inevitably lead to a consideration of whether alternative shapes for the product are available, something which the CJEU has categorically said is not relevant. (Interestingly this was not so for AG Mengozzi who proposed comparison with alternative shapes for interoperability and the requirement of availability in the second part of his test.) As matters stand European trade mark law and competition law cannot be balanced in the same equation but must be considered separately.
Although registered trade mark protection might not be available, the CJEU said that where competitors put on the market ‘slavish copies’ of the product shape incorporating exactly the same technical solution, the position could, where appropriate, be examined in the light of unfair competition rules, although that was outside the scope of those proceedings, and indeed such laws are not harmonised in Europe. Lego’s attempt to rely on unfair competition in the Netherlands has, however, to date failed (Decision of the Supreme Court (Hoge Raad) 20 November 2009 – Case No. 07/13142 Lego Nederland B.V. v Mega Brands Inc). In that case the Dutch Court held that a need for standardisation among potential buyers of products can be a justification for the imitation of a product even if there would be a risk of confusion. In the case of building bricks for example the Court pointed out there is a need that size and appearance fit and match with bricks already in children’s possession which would in Dutch households usually be LEGO or DUPLO bricks. Thus the options for Lego to make use of unfair competition laws, or other unregistered trade mark protection, may be limited or non-existent.
Ironically, if the shape of its product has indeed become the de facto industry standard for children’s toy bricks, Lego may be said to be the victim of its own success. In practice of course its products will remain protected by its well-known word mark for an indefinite and potentially infinite duration, and the Lego shape mark also remains available to the extent it is used in relation to goods and services other than ‘construction toys’.