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A close look at survey methodology for proof of acquired distinctiveness

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A close look at survey methodology for proof of acquired distinctiveness

The grounds for the German Federal Court of Justice's decision in the Sparkassen Group/Banco Santander dispute over the validity of Sparkassen's colour mark "red" (HSK 13) for financial services, namely retail banking, have been published last week. The 46-page judgment takes a very close look at the proper methodology of consumer surveys designed to prove acquired distinctiveness. Since no less than four surveys were submitted by the parties, two by each side, the Court had a wealth of material to work with.

If you are not familiar with the background of the dispute, have a look at our earlier post on the decision. Essentially, Banco Santander applied for a declaration of invalidity for lack of (acquired) distinctiveness of Sparkassen's colour mark, was unsuccessful before the German IPO, successful before the Federal Patent Court and ultimately unsuccessful before the Bundesgerichtshof, which confirmed the validity of the mark. The case led to a referral to the CJEU, which was answered in the joined cases  C‑217/13 and C‑218/13 in 2014 (see summary by Birgit Clark on IPKat).
Given the length of the decision, I can only highlight a few points in the following. The decision will be the reference case for the design of consumer surveys for proof of acquired distinctiveness for years to come.
The IPSOS survey from 2006 showed the participants a red card and opened with the following question:
Have you ever seen this colour in connection with financial institutions, or does it appear familiar in this context? Or have you never encountered this colour in connection with financial institutions?
According to the BGH, this question was suggestive, as it already created a link to a certain kind of companies, namely financial institutions. It already introduced the key question - whether the sign was understood as reference to a single entity - into the first question, which should only filter for persons that have never encountered the sign (para. 43). The proper way was to ask whether the respondents had seen the colour in connection with the claimed products.
A further "grave flaw" of the IPSOS survey was counting those respondents that said that they had never encountered the sign among the 66% of respondents that associated the sign with the Sparkassen Group. Those respondents who do not recall ever having seen the sign must be counted among those who do not perceive the sign as an indication of source (para. 45). The Pflüger survey submitted by Sparkassen Group in 2013 was not able to correct the deficiencies of the IPSOS survey from 2006. Surveys conducted several years after the relevant date - here the trade mark owner tried to prove acquired distinctiveness at the time of filing in 2002 - could only be considered if the market conditions were stable over longer periods of time, which was not established here (para. 50).
Too much paper...

Another flaw of the Pflüger survey - which equally applies to the IPSOS survey - was that the first question asked "Have you ever seen this colour in connection with financial services [as listed] or does it appear familiar in this context? Or have you never encountered this colour in this context?" According to the Court, the part of the question here put in italics is impermissible, as it leads respondents to consider a third answer, other than yes or no, to the question. It was fine to count those who spontaneously answered that the colour appeared familiar among those who know the sign, but "looks familiar" must not be an explicit option, as it leads to inflated figures (para. 72. In the case at hand, only about 17% of respondents spontaneously answer that the colour seems familiar, but 24% if explicitly given the option).
The Court addressed, but left deliberately open, the allocation of the burden of proof. According to German case law, if lack of acquired distinctiveness at the time of filing cannot be established, the validity of the mark is confirmed, so the burden of proof lies with the nullity plaintiff. According to the CJEU's judgment in cases C-217/13 and C-218/13, the opposite is true - the burden of proof for acquired distinctiveness lies with the trade mark owner (there at para. 68). The BGH did not have to decide the issue - it hints that it is unhappy with the CJEU's finding - because it found that the evidence on record established that the mark had acquired distinctiveness at the time of the Federal Patent Court's decision in 2015. Because Germany exercised the option under Article 3(3) second sentence Directive 2008/95, proof of acquired distinctiveness either at the time of filing or at the time of decision leads to validity of the mark (§ 8(3) German Trade Mark Act).
The respondents in the Pflüger survey answered the second question as follows:
In connection with financial services...
  • the colour refers to ("hinweisen") a specific financial institution (63%)
  • the colour refers to several financial institutions (8%)
  • the colour does not refer to any financial institution (4%)
  • cannot answer (6%)
This question was appropriate (para. 79). 62% of respondents named a company of the trade mark owner's group in answer to the third question "Do you know the name of this financial instution?".
Overall, the Bundesgerichtshof considered that the survey, flawed as it was, proved that more than 50% of the relevant consumers perceived the colour as a reference to a specific financial institution, i.e. as distinctive. Although the Court repeats the old "there cannot be fixed percentage values as absolute limits" (para. 92), it is pretty clear that anything above 50% is enough (para. 109).
Also interesting is what the Court did not address with a single word - whether it is enough that the consumers perceive the colour as a reference to a single entity, or whether it must be demonstrated that they rely on the mark when choosing the product. As you may recall, Arnold J in his second KitKat decision (IPKat post) held that "the applicant or trade mark proprietor must prove that, at the relevant date, a significant proportion of the relevant class of persons perceives the relevant goods or services as originating from a particular undertaking because of the sign in question" (there at para. 57) and considered the survey evidence submitted by Nestlé, structurally very similar to the evidence before the Federal Court of Justice, to be inadequate to answer this question. Since the briefs are not on public record in Germany, it is unclear whether the nullity plaintiff even raised the issue. In any case, German Courts do not seem to be inclined to follow Arnold J's lead (for a critical take on the KitKat decision, see my recent piece in ABA's Landslide Magazine).

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