A valuable precedent against online substitute sellers
Melanie McGuirk
06/07/2017

The Intellectual Property Enterprise Court (IPEC) finds in favour of a brand owner subjected to online substitute sales and awards significant damages.

Brand owners who sell through online trading platforms (either directly or indirectly) often face “substitute sales”. This involves an online seller advertising products under a popular brand listing to attract customers but thereafter supplies generic, imitation or substitute products to the shopper.
In June 2017, an Amazon seller was held liable for trade mark infringement and passing off for substitute selling through the claimants’ Amazon listing and was ordered to pay £25,359.75 compensation . The decision is a helpful precedent for brand owners, particularly as the judge was prepared to “wield a broad axe” to the assessment of compensation.

BACKGROUND
The claimants relied on a logo trade mark for DESIGN ELEMENTS for the sale of flagpoles made in China, packaged into the claimants’ own branding and sold through eBay and Amazon.
The defendant also sells flagpoles made in China. It “tagged onto” one of the claimants’ Amazon listings, undercutting its price and thereby winning the “buy box” (which awards top rate sellers the most prominent advertisement and the ability for shoppers to buy with one click).
The defendant argued that the listing was generic as it did not include any reference to the DESIGN ELEMENTS trade mark, that it was entitled to use the listing to sell flagpoles that met the listing’s generic description and that Amazon did not allow new listings when there is an existing listing which matches the product concerned. Further, it had not used the claimants’ trade mark because this does not appear in the product description, and the phrase “by Design Elements” in the listing did not amount to use of a trade mark but indicated the seller who created the listing.
The claimants argued that “Design Elements” had been confirmed as being both the brand and the manufacturer, as required by Amazon for listings. It was a matter of fact that the defendant was selling a different flagpole produced with a different specification by a different manufacturer and with a different brand to that advertised in the listing. As such it was not allowed under Amazon’s terms and conditions to “piggyback” onto the claimants’ listing.

WAS THERE USE OF THE TRADE MARK?
The court held there was use of the claimants’ trade mark, in that the defendant had been offering for sale goods under the trade mark. When the trade mark appears in the description “By Design Elements”, this indicates the origin of the goods. The average consumer can easily identify this information as being the manufacturer. The supplier has its own separate place in the listing.

WAS THERE A LIKELIHOOD OF CONFUSION?
The defendant argued that it had used the listing for over 4 years with no instances of actual confusion and that there was no reference to confusion in the customer reviews for the listing.
The judge held that, given that the defendant’s product would have the same qualities of utility, quality and price as the claimants’, even if the average consumer realised the error as regards trade origin on receipt of the product, the product fulfilled that customer’s requirements. He or she may not therefore complain and there was a real possibility of unreported actual confusion. Moreover, there was a likelihood that an average consumer would consider the product came from Design Elements. Trade mark infringement and passing off was therefore found.

COMPENSATION
The claimants elected to be awarded damages, based on their lost profits in respect of each sale made by the defendant which would otherwise have been a sale by the claimants, an estimated 1,755 flagpoles. The judge decided the net profit per unit sold by the claimants was £14.45 per unit. The judge accordingly calculated the claimants’ lost profits as £14.45 x 1,755 = £25,359.75.

SO WHAT?
This case is good news for brand owners. Even though the claimants’ branding did not appear on its product or in the product listing description on Amazon, and even through there were no photographs of the product in branded packaging in the listing itself, the “By Design Elements” statement in the listing was considered sufficient to amount to trade mark use.
The decision is particularly helpful to any brand owner who sells products where the design of the product is equally as important as the brand, meaning that consumers are often not minded to return a substitute product they have been supplied because it has a utility which satisfies their reason for purchasing the product in the first place.
It is further encouraging that even with incomplete and unsatisfactory disclosure from a defendant on the number of sales made (such disclosure typically always being incomplete), the court was prepared to adopt a very pragmatic and broad brush approach to the calculation of compensation.
The case is also a clear signpost to brand owners that ensuring that its brand name appears in a product listing description and in photographs of the product packaging will increase the prospects of a successful claim. This should encourage defendants to come to a quicker and more prompt settlement of a dispute without litigation being necessary.

The Group is grateful to Melanie McGuirk of Pannone Corporate LLP for this Brand Briefing.

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