On the assessment of compensation for unfair use of competitors' trademarks
23.11.2022 | Intellectual Property Law
Written by: Advokatfullmektig Maren Lumkjær Hoel

When using other people's property, the person who uses the thing with the knowledge that it belongs to someone else must pay remuneration for the use. This also applies to the use of other people's intellectual property rights, such as trademarks.

On 17 November, the Supreme Court delivered a judgment in principle on how compensation should be calculated in the case of unfair use of competitors' trademarks when advertising on the internet in accordance with Section 58 of the Trademarks Act.
 

Brief background of the case:

The specific case concerned three companies that all sell maintenance-free PVC fences to consumers. A relatively newly established company, Kystgjerde, wanted to challenge the more established companies Norgesgjerde and Vindex. Both Norgesgjerde and Vindex are protected trademarks for PVC fences.

As part of the marketing, Kystgjerde bought advertising space through Google Ads. This means that the business buys selected keywords that will ensure that links to their goods and services come before their competitors in Google's hit list. If several people buy the same keyword, the ranking will depend on who paid the most for the keyword.

In 2018, Kystgjerde bought a large number of keywords, including NORGESGJERDE and VINDEX. When searching for these words, an advertisement for Kystgjerde appeared. In the Bank Norwegian judgment (HR-2021-2479-A), the Supreme Court ruled that buying the competitor's name in Google Ads is an expression of "healthy and loyal competition", and thus legal marketing.

The central point in this case is that Kystgjerde had also bought the Google service Dynamic Keyword Insertion. The service ensures that if someone searches for a search term that has been purchased, the search term will appear as part of the advertisement on Google. This meant that in more than 90 percent of the hits that came up when searching for these search terms, the trademarks NORGESGJERDE and VINDEX were also shown in the ad text.

In the Court of Appeal, it was decided that this use of the trademarks in the advertising text was in breach of the trademark rights of Norgesgjerde and Vindex. The Court of Appeal had also ruled that the use of the trademarks was grossly negligent. For the Supreme Court, the topic was therefore only how the compensation for illegal use of other people's trademarks should be measured.
 

The Supreme Court's view of the case:

At the beginning of the Supreme Court's argument, reference is made to Chapter 8 of the Trade Marks Act, which regulates sanctions against trade mark infringements. The two most important sanction options are Section 57 of the Trade Marks Act, which states that the rights holder can obtain a judgment that the intervenor is prohibited from making the intervention again, and Section 58, which states that the rights holder can demand compensation and/or remuneration from the intervenor for the illegal use.

In this case, Kystgjerde himself had voluntarily ended the unlawful use. It was thus up to the Supreme Court to determine how the remuneration and/or compensation to Norgesgjerde and Vindex should be measured.

Section 58 of the Trade Marks Act, first and second paragraph, regulates how compensation is to be measured. The central considerations behind the provision are the rights holder's need for compensation and the contraceptive consideration.

The first paragraph of the provision sets out three different measurement bases. If the intervener has acted negligently, the rights holder shall be entitled to the amount that is the highest according to the three alternatives.

In cases where the intervener has acted grossly negligently or intentionally, section 58 of the Trade Marks Act, second paragraph, states that the remuneration can be set at "double the reasonable license fee for the exploitation".

The Supreme Court carried out an assessment of all the various alternative methods of calculation that had been invoked in the case, but found that there was a lack of documentation to be able to determine the rights holders' loss of profit or to measure a concrete amount of compensation for the unlawful use. It was also concluded that it was not possible to say anything specific about Kystgjerde's gain as a result of the use.

In the judgement, it was therefore concluded that Kystgjerde should pay the rights holders a fee corresponding to a "reasonable license fee".

What is a "reasonable license fee"?
At the outset, the Supreme Court points out that the alternative can be seen as an expression of the general principle that anyone who uses someone else's property with knowledge that he is not entitled to it must pay remuneration for the use.

After a review of relevant legal sources, the Supreme Court summarizes in section 56 that "the license fee [must] reflect the value of the right and the extent of the illegal exploitation. The determination is based on discretion, and the courts will have a leeway to determine what, based on the value of the right in question, constitutes a reasonable license fee for the exploitation".

The specific measurement in the case:
With regard to the specific assessment in the case, the Supreme Court concluded that there were no economic factors that were suitable to provide a reasonable starting point for the determination of what a reasonable license fee would be. The Supreme Court therefore determined the license fee as a discretionary lump sum.

In the Court of Appeal, the starting point was that the license fee for Vindex before doubling should have been NOK 515,000 and for Norgesgjerde NOK 570,619. However, the Supreme Court emphasized that there is little reason to differentiate the companies and that the illegal use of the trademarks only formed a small part of Kystgjerde's marketing. Based on this, the Supreme Court concluded that NOK 400,000 for each of the companies would constitute a reasonable license fee.

As a result of the fact that Kystgjerde had acted grossly negligently in the trademark infringement, the license fee was to be doubled to NOK 800,000 for each of the companies, cf. Section 58 second paragraph of the Trademark Act.


Summary

The judgment determines how the compensation is to be measured in the case of unlawful use of other people's trademarks in advertising.

As a result of the judgment, it will be possible to make a more discretionary assessment in cases where there is little or no concrete financial basis for estimating a reasonable license fee.
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