Supreme Court enforces 'use it or lose it' trademark rule (published on 27 October 2017)
The Supreme Court decision in Crocodile International Ltd v Lacoste has clarified the law applicable to unused registered trademarks in New Zealand and limited the scope of protection afforded to trademarks under the Trademarks Act 2002.(1)
The decision will affect companies which have sought to expand the protection available under the act by acquiring, but not using, trademarks that resemble their own purely to prevent other traders from using them.
Crocodile International centred on a trademark registered in New Zealand to Lacoste, a clothing brand. Lacoste had acquired the mark in question (Figure 1) from Crocodile Garments (which was historically affiliated with Crocodile International) in 2004. Lacoste had no intention of using the mark in its registered form, but acquired it in order to prevent the mark from being used by potential competitors, in light of its similarity to the Lacoste mark. Lacoste has not used the mark since acquiring it and has instead used the Lacoste mark (Figure 2).
Under the act, a mark that has not been used for a continuous period of three years can be removed from the register. 'Use' is defined in Section 7(1)(a) of the act as including "use in a form differing in elements that do not alter the distinctive character of the trade mark in the form in which it was registered".
The aim of this 'use it or lose it' rule is to prevent the trademark register from becoming filled with out of action trademarks that cannot then be used by other traders entering the market. Similar provisions are found in both the UK Trademarks Act 1995 and the Singapore Trademarks Act 1998.
Crocodile International applied for the trademark in dispute to be removed from the register, as it was unused. Lacoste accepted that it had not used the trademark in the registered form, but argued that its use of the Lacoste mark amounted to 'use' of a similar trademark. Lacoste relied heavily on its position in the New Zealand market, evidenced by consumer surveys on brand recognition. It argued that customers associate images of crocodiles on clothing with Lacoste and that this should be considered when determining whether it was using the trademark.
The assistant commissioner found in favour of Lacoste, but this decision was overturned in the High Court. The High Court decision was upheld by the Court of Appeal. Crocodile International subsequently appealed to the Supreme Court.
Supreme Court decision
The Supreme Court held that there are two steps in determining whether a party's use of a related mark (eg, the Lacoste mark) amounted to 'use' of a registered mark under the Trademarks Act:
- the points of difference between the mark used and the registered mark must be identified; and
- the distinctive character of the registered trademark must be identified and it must be evaluated whether the differences identified in the above step alter the distinctive character (ie, the essential visual, aural or conceptual elements) of the registered mark.
The Supreme Court criticised the lower courts for focusing on whether the central message of the two marks was the same. It held that this approach risked overlooking or downplaying significant visual differences and could lead to an expansion of the scope of protection afforded to trademarks under the Trademarks Act.
The court also cautioned against placing too much weight on brand reputation. It noted that a strong reputation may mean that greater changes must be made to a mark before its distinctive character is lost than would be the case for a less established brand. However, it held that care must be taken not to permit this to undermine the language of, and purpose behind, the statutory provision concerning revocation for non-use.
The court held that use of the Lacoste mark did not amount to use of the trademark in dispute. While there were conceptual and aural similarities, the visual differences distinguished the two marks. The disputed trademark comprised two distinctive visual elements: the stylised word crocodile and the crocodile device. The fact that the word element did not appear in the Lacoste trademark would likely be sufficient to rob it of the disputed mark's distinctive character. When the differences between the stylised Lacoste crocodile device and the more realistic crocodile in the disputed mark were considered, the court found this conclusion inescapable.
The Crocodile International decision creates an issue for companies that have acquired trademarks that resemble their own in order to prevent other traders from using them. The scope for such a practice is now limited in New Zealand.
The scope of protection afforded to registered marks under the Trademarks Act reflects a balance between the interests of the owner of a mark and those of other traders seeking to operate in or enter a market.
The Supreme Court repeatedly referred to the need to preserve the balance of protection under the act. The court's decision sends a clear message to companies seeking to expand the protection afforded to their trademarks by registering (but not using) marks that have some resemblance to their own. While there is nothing to prevent companies from registering marks in this manner, unless the registered mark carries the same distinctive character as the mark in use, their position in the trademark register will be open to challenge.
(1) Crocodile International Pte Ltd v Lacoste  NZSC 14 [Lacoste SC]