This article is written by Siddhant Shah.
With the increase in the number of businesses and hence increase in the competition in the market, manufacturers want to protect their products using intellectual property (IP) rights. Thus, limiting this protection through functionality has never been more important. Trademarks and design functionality aim at protecting their primary purposes of preventing unfair competition and monopolisation in the market and promoting market innovation, respectively. This essay will first critique two out of the three functional grounds of exclusion of trademarks and comment on the new legislative reforms before outlining the importance of functionality in today’s market. Then the functionality in designs will be critiqued after which the court’s current approach will be outlined by analysing the Doceram case followed by the need for design functionality. Finally, whether functionality in the two IP rights should be used interchangeably will be assessed.
The aim of trademarks is to act as a badge of origin for products, reduce search costs and confusion for consumers, and it acts as an advertising tool for manufacturers, among other things. However, its main aim is to protect unfair competition and monopolisation in the market. Therefore, Art.3(1)(e) of the Trade Mark Directive (TMD) and Art.7(1)(e) Community Trade Marks Regulation (ETMR) contains three absolute grounds for refusal which prevent the monopolisation of functional characteristics of a product that a user is likely to seek in the products of competitors. Art.3(1)(e) TMD thus, has three indents that are an obstacle to registration for purely natural, technical and value-adding signs representing the shape of the goods which seeks “to prevent trademark law granting an undertaking a monopoly on technical solutions or functional characteristics of a product.” To widen these exclusions, in 2015 the law was reformed under Art.4(1)(e) TMD and Art.7(1)(e) EUTMR. However, the CJEU has often taken a more formalistic view of the functionality exclusions in Art.3(1)(e)TMD, which has made registration for functional products easier, contrary to its market-competition protection goal.
Shape (or Another Characteristic) necessary to obtain a technical result
This provision excludes technical shapes from trademark protection to prevent trademark monopolies on technical solutions. In the Phillips case, the CJEU ruled that Art.3(1)(e)(ii)TMD is applicable “where the essential functional characteristics of the shape of a product are attributable solely to the technical result even if that result can be achieved by other shapes.” The CJEU affirmed this rationale in Lego and gave some more guidance by saying that all essential functional characteristics of the shape of a product must be attributable solely to the technical result. It clarified this by saying that trademark protection is only possible as long as not all essential characteristics of the shape are functional, and the shape therefore also contains other essential characteristics which do not fulfil a technical function.
The rationale for the use of ‘exclusive’ and ‘necessary’ in the directive was also given in Lego. It serves to restrict the scope of functionality as in some way, any shape of goods are functional and to refuse trademark protection solely on that ground would be overly restrictive and inappropriate. If taken together, the wording ‘necessary’ and ‘exclusively’ strike a balance between permanent exclusion of purely functional signs and potential protection of arbitrary signs merely having some functionality. By using ‘exclusive’ the court meant that when all the essential characteristics of a shape perform a technical function, the shape will be excluded and ‘necessary’ meant that the existence of other shapes which could achieve the same technical result does not in itself preclude application of the technical exclusion.
However, the CJEU has moved on to a strict application, as seen in Nestle regarding the four-fingered Kit Kat chocolate-coated bar. The main issue was regarding the “breaking grooves” which joined each rectangular finger. Evidence suggested the angle of the sides of the product and breaking groove was constrained by the method of manufacture. Therefore while answering the question whether the method of manufacturing goods is included in the ‘technical results’ exclusion in the negative, the CJEU said that widening the scope of functionality is contrary to the policy reasons and is not supported by the wording of Art.3(1)(e)(ii)TMD either. They said that how the goods are manufactured is not important from the consumer’s perspective.
However, this was contrary to AG Wathelet’s opinion, which recommended a more teleological approach to the exclusion. By excluding the manufacturing process, the CJEU prevents others from making a product incorporating such a technical function (ability to break the fingers of the bar separately), which is contrary to the aim of the functionality of preserving the absolute freedom of competitors. But, the CJEU in the Rubik’s cube case, took a more liberal approach by invalidating the trademark’s registration of the Cube. The CJEU looked beyond the graphic representation of the trademark and considered the Cube’s invisible technical qualities that gave it the rotating capability along the black grid lines irrespective of the fact that the trademark application file did not mention rotating capability. This shows the arbitrary use of the technical function exclusion, which makes the law even more complicated and uncertain.
Shape (or Another Characteristic) that adds substantial value to the goods
Art.3(1)(e)(iii)TMD regarding results in a lot of uncertainty and suffers from lack of clarity and a legally convincing basis about the meaning of ‘substantial value’ which the CJEU’s AG agrees to. The 2015 reform to the TMD also overlooked this despite being scrutinised by numerous legal scholars. In the Hauck case regarding the ‘Tripp Trapp’ children’s chair to the CJEU, tried to clarify what ‘substantive value’ entails. The question posed to the CJEU was whether the chair’s other functional characteristics such as safety, comfort and reliability in addition to the shape which is the main or predominant value of the good, should be considered. The CJEU answered in the affirmative as, in addition to the aesthetic functions, the shape also performs essential functions. If this was rejected, products which have essential functional characteristics and a significant aesthetic element would not be covered, which would be contrary to the aim of Article 3(1)(e). Despite not defining ‘substantial value’, the CJEU has increased the scope of functionality findings.
However, in the Louboutin judgement, the CJEU went back to a more literal approach. Louboutin was trying to protect its red-soled shoes. As the trademark in the registry explicitly stated that the contour of the shoe is not part of the mark and registration of the mark did not seek to protect that shape but sought solely to protect the application of colour to a specific part of that product, the CJEU did not find functionality. This approach was contrary to AG Szpunar’s opinion that would permit applying an aesthetic functionality examination to a mark combining colour and shape. By allowing the registration of the trademark, the CJEU is, in fact, reducing the market competition and monopolising it, which is contrary to trademark law and its functionality protections.
Moreover, the AG said that consumer preference is also determinative of substantial value. The public has dynamic preferences which are affected by the change of trends, styles, etc. which should also affect the substantial value of the product, as once that particular characteristic is no longer sought and valued by the public, the functionality exclusion should also cease to apply. This “evolutionary interpretation’ prevents monopolisation because when the characteristic is ‘trendy’, it will be in the public domain for other competitors to use, which will promote market competition.
Additionally, the reputation of the brand of the product can also determine the substantial value. The reputation built by a brand over the years due to either its product or service offered creates brand loyalty. This has now created a market where consumer demand for the shape is no longer due to its intrinsic appeal but its strong reputation as a result of successful branding efforts. This issue was raised by the AG to be one of the factors as brand loyalty can add to the substantial value of the goods and will potentially reduce monopolisation as big brands can also fall into the exclusion.
The new law
In 2015, the law on trademark functionality was widened, under Art.4(1)(e) TMD and Art.7(1)(e) EUTMR, which added ‘another characteristics’ to each criteria in Art.3(1)(e)TMD. This causes functional shapes and other characteristics that are functional to be excluded from protection. However, in the Louboutin case, the new directive wasn’t applicable as it does not mention anything about retroactive application. The AG said that there was no guidance given by the court regarding the retroactive application and that there should be a transitional provision for the two laws. More guidance regarding the new directive is required, but it seems possible, that had the CJEU applied the new directive in the Louboutin case, it would exclude it from protection as it was a combination of colour and shape. However, if the same literal approach is not taken, the outcome could be different. The EUIPO has provided some guidance on the new directive by giving hypothetical examples of ‘a sound mark representing the sound of a motorbike for motorbikes’ and ‘an olfactory mark of smell for a perfume’. There is no case law applying the new directive whether the existing body of case law concerning shapes will apply equally to ‘other characteristics’, but the guidelines which were introduced in 2017 do show some positive signs.
Does functionality in trademarks ignore market realities
Despite the uncertainty caused by the Louboutin case, trademark functionality is necessary. It assumes that some features or shapes of a product are so important to the freedom of manufacturers that they must be free from protection of trademarks which shows that maintaining a competitive market overrides the public interest to avoid consumer confusion. Its main purpose was underlined in Lego to be anti-monopoly and demarcation with other IP regimes. The former is important as reserving certain product features to one competitor using a trademark can run the risk of closing the market, leading to monopolisation. Market realities and the fact that they make appropriate regimes for the protection of appearance of goods is a strong indication that they are not sufficient in themselves to say that they should be avoided.
The demarcation role is important as a cumulation of several IP rights can be held by one person and hence, trademark functionality needs to be kept separate. Moreover, these functionality exclusions serve the purpose of preventing registration of trademarks that are aimed at extending time-limited protection of other IP rights. Therefore, in the London Taxi case, the shape subject to a trademark was rejected under Art.3(1)(e)(iii)TMD because it was also a registered design. This prevents the misuse of trademark protection by double-protecting the product with other IP rights which would monopolise the market and hinder competition as it would limit the choice of competitors to choose technical solutions. Therefore, trademark functionality, in fact, prevents market disturbance, but more clarity and guidance in judgements by courts could bring some certainty.
Article 8(1)CDR aims to promote technological innovation by preventing competitors from the usage of functional designs, by disallowing registration of designs that are ‘solely dictated by technical function’. However, the courts have used two different approaches, i.e. ‘multiplicity of forms’ theory and the ‘no aesthetic considerations’ theory. The CJEU chose the latter in the Doceram case, but with problematic modifications to an already flawed theory.
Multiplicity of forms
The multiplicity of forms test states that a feature of appearance is not “solely” dictated by technical function if that technical function is achievable by another configuration (or “alternative design”). This is a certain test and has the legislative backing as does not require any consideration of aesthetic merit, which makes it consistent with the definition of “design” and Recital 10 of the CDR. The UK courts used it in the Landor case in which the court allowed the registration as the ‘piping’ on the luggage could be achieved by other systems. This is a narrow test as most certainly there will be an alternative means to achieving a technical function and hence, Art 8(1) CDR will be applicable only in highly exceptional cases which is contrary to its purpose. Moreover, if the same person holds the alternate technical solution, the design in question will not be held under the provision, which will lead to monopolisation in the market. For an ‘alternative design’ whether the test requires an alternative design of a feature or an alternative overall product design, needs to be made clear.
No aesthetic considerations
The Board of Appeal in Lindner rejected the multiplicity of forms test and introduced no aesthetic considerations test. It asks whether the designer had considered any function (such as “visual appearance”) other than a technical function and if he hadn’t, then the design of the feature is solely dictated by technical function. The court added that these matters must be assessed objectively from the standpoint of a’ reasonable observer’, but did not define it. This allows Art.8(1) CDR to function in a more meaningful and purposive manner without hampering innovation. However, the test is broad, and no guidance has been given for the meaning of ‘reasonable use’. It also doesn’t have legislative backing as it is inconsistent with the definition of “design” and Recital 10 of the CDR as they don’t support aesthetic considerations. This test also combines functional and aesthetic design innovation, which was rejected by the EU as “irreconcilable with the protection of modern design”.
The current approach- Doceram case
The CJEU had the opportunity to clarify which of the above two tests should be used in the Doceram case. It affirmed the no aesthetic considerations test, but modified it by saying that the national courts must consider the “objective circumstances indicative of the reasons which dictated the choice of features of appearance of the product” and listed some non-exhaustive criteria like “the existence of alternative designs which fulfil the same technical function”. However, there was no guidance on how to use these. By allowing the national courts to interpret the criteria themselves could lead to non-uniformity in decisions across Europe.
The ‘alternate design’ addition opens the doors to the multiplicity of forms test which the court had itself rejected in the past. With it being just one criterion, the national courts can decide whether the lack of such alternatives is sufficient to exclude a feature from protection, which opens up the possibility to grant design protection despite the requirements of a narrower alternative designs/multiplicity forms test being met. This test opens doors to other considerations, such as the designer’s freedom, which wasn’t explicitly mentioned in the judgement but was mentioned in the Advocate General’s Opinion. The exact intention of the designer can never be established which will result in subjectivity and therefore, to reconcile the subjective intention of a designer with the CJEU’s requirement that “objective circumstances” will be onerous.
Does the functionality of designs ignore market realities
Despite its flaws, functionality exclusions are necessary to fulfil the purpose of design protection as it restricts applications but still manages to promote innovation. Where a feature is solely dictated by a technical function, the positive innovation effects of a design right are outweighed by its negative effects on technological innovation. Therefore, competitors are prevented from offering products incorporating certain functional elements or technical solutions. Thus, if some functional designs are not protected, competition for that product will increase, leading to manufacturers trying to create alternative products which could lead to innovation. Functionality also helps to mediate between the utility patent regime and regimes available to protect designs. Firstly, if the functionality is removed, it will be contrary to recital 7 CDR, which states that design protection “also encourages innovation and development of new products”.
Also, it would increase design registrations due to the lack of a technical solution exclusion. Manufacturers will opt for design protection instead of patents as the former also has a longer period of stability and is cheaper. Functionality is also necessary as design-depletion can take place when a single manufacturer can register several or all available different appearances, i.e., all functionally equivalent features. That manufacturer will then have a monopoly over that design and its variants, which hinders market competition. Therefore, functionality in designs is necessary and does ignore market realities, but needs improvements. A step forward could be to clarify the stance of Doceram and to give some guidance to the national courts on how to apply its rationale to cases henceforth.
Should the tests for trademarks and designs be interchangeable
There is strong support from trademark case law to use the test of functionality interchangeably for designs and trademarks. Some of CJEU findings passed on the former are slowly penetrating design practice, which may entail considerable risks for keeping design protection still available for functional shapes. Moreover, after Doceram, a competition-based approach to design law is possible. The AG, in his opinion, said that this new approach is correct as it is consistent with the current functionality in trademark law.
The interchangeable use of tests has its downfalls. Firstly, trademark protection is not time-bound unlike design rights, which end in 25 years. Therefore, the issue of monopolisation of the market is not as daunting when a design is protected as it is only for a fixed time. Secondly, functionality in designs is only for the features of appearance of a product with a technical function and not the entire design. Article 8(1) CDR thus, does not impede design protection but it may be invoked as a ground to declare the nullity of design in the proceedings initiated before OHIM or before a community design court.
Trademark functionality, however, takes an all-or-nothing approach as if all the necessary aspects of the shape are functional, the entire trademark will be excluded. Finally, the new design regime called the ‘design approach’ includes both functional and aesthetic considerations which show the desire to create an independent sui generis system, uninfluenced by other IP regimes. Art 8 CDR aims to enable innovation and to open the market for competitors is just a by-product, whereas, the functional shapes exclusion in trademarks tries to enable competition in the market by providing consumers with alternative products. Therefore, trademark law should not be put under significant pressure where there are other regimes designed for traders seeking to protect the appearance of the goods. Therefore, as both tests have different purposes, it is best to not use them interchangeably.
As noted above, functionality is extremely important to provide manufacturers with some scope of flexibility to manufacture goods, which is needed in the modern competitive market. The courts in Louboutin, however, have taken a more literal and restrictive approach towards functionality in trademarks which is contrary to what it aimed to do when the legislative reforms were announced in 2015. However, there’s yet a case under Art.4(1)(e) TMD to come up and how the courts implement it will have to be seen. In terms of designs, after clearly preferring one test over the other, the courts still added elements of the ‘multiplicity of forms’ theory into the current ‘no aesthetic elements’ theory in the Doceram case. They provided no guidance for this same and increased the uncertainty of the law. Hopefully, future case law provides some guidance for how this merged test should be applied. Therefore, with some more guidance, either legislative or in the form of case law, the law of functionality of trademarks and designs can adopt a more principled approach to implement the respective functionality provisions.
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