Supreme Court decision highlights importance of using trademarks as registered

The Federal Supreme Court of Switzerland has ruled (4A_128/2013) on the appeal by Migros Genossenschafts-Bund, a leading Swiss retailer, against a prior decision rendered by the Commercial Court of Zurich. The lower court had rejected a lawsuit initiated by Migros against Mondaine Ltd, a Swiss watch manufacturer, and had enjoined Migros from using the sign M-WATCH commercially for the designation of watches in Switzerland. On September 30 2013 the Supreme Court overturned the lower court's decision and declared that Mondaine's figurative trademark M^oWATCH was null and void.

In 1975 Migros and Mondaine entered into, and executed, a cooperation relationship. Pursuant to this cooperation, Migros acted as exclusive distributor of the watches manufactured by Mondaine and labelled them with the sign M-WATCH. In parallel to this arrangement, Mondaine gradually registered trademarks in its own name (eg, M-WATCH MONDAINE in 1985 and M^oWATCH in 2003). Migros, on the other hand, registered word marks of its own, namely M-WATCH and M WATCH in 2008, in line with Migros’ 'family branding' strategy (ie, labelling products with an 'M' followed by further individual denominations, 'M' being short for 'Migros').

In May 2010 the parties terminated their cooperation due to several differences. Ever since, both parties have been in dispute as to who was entitled to use the signs M-WATCH and M WATCH for the designation of watches in Switzerland. Ultimately, Migros filed a lawsuit with the Commercial Court of Zurich. In summary, Migros requested that:

1. Mondaine be enjoined from using M-WATCH and/or M WATCH for watches in Switzerland; and
2. Mondaine’s trademarks be assigned to Migros (since Migros had a better claim to them); or
3. alternatively, Mondaine’s trademarks be deleted.

Mondaine requested that the case be dismissed and raised a counterclaim demanding that:

1. Migros’ trademarks be invalidated; and
2. Migros be enjoined from using the signs M-WATCH or M WATCH for watches in Switzerland.

The Commercial Court of Zurich rejected Migros’ claims. In a nutshell, the court held that Migros had not sufficiently opposed or counteracted, over a substantial period of time, Mondaine’s registration of the trademarks M-WATCH MONDAINE and M^oWATCH. Therefore, Migros’ alleged claims to these trademarks were considered to be forfeited (under Swiss law, claims in general can be considered to be forfeited in exceptional circumstances). Finally, the court upheld Mondaine’s counterclaim and enjoined Migros from commercially using the sign M WATCH for watches in Switzerland. Migros appealed to the Swiss Federal Supreme Court.

On September 30 2013 the Supreme Court partially upheld Migros’ appeal. The prior decision of the Zurich Commercial Court was annulled in its essential points and Mondaine’s combined word and figurative trademark M^oWATCH was declared to be null and void. The case was remanded to the Zurich Commercial Court for further consideration.

The essential considerations of the Supreme Court are briefly summarised below.

First, according to the Supreme Court, Mondaine had not used its combined word and figurative trademark M^oWATCH in a sufficiently effective manner following the five-year grace period. As a matter of principle, trademarks enjoy protection only if they are used during this time period (calculated as of the date of registration) in relation to the goods and services for which they are registered, provided that the use does not differ significantly from the trademark as registered (Article 11 of the Swiss Federal Act on the Protection of Trademarks).

The evidence showed that trademark use by Mondaine had occurred only in the form of 'M-Watch' or 'M WATCH' (ie, with a circle integrating the Swiss national cross between 'M' and 'WATCH'). Neither the use of the word 'M-Watch' nor the use of the sign M WATCH was considered to constitute use of the combined word and figurative trademark M^oWATCH. The court noted that the visual element included in M^oWATCH (ie, the elevated empty circle) ought not to be considered as a mere decorative element, but rather as a distinctive, dominant element of the trademark. In contrast, the elements 'M' and 'WATCH' consisted of one letter and a descriptive term, both hardly capable of distinguishing the relevant goods (ie, watches). By choosing not to use the distinctive visual element consisting of an elevated empty circle, the overall impression of Mondaine’s registered trademark M^oWATCH was considerably different and, therefore, the mark was not used in the market.

Based on the foregoing, the Supreme Court declared that Mondaine’s trademark M^oWATCH was null and void. Since the trademark M^oWATCH was invalid and Mondaine’s first-instance counterclaim was based uniquely on that trademark, the basis of Mondaine’s counterclaim was also considered to be void.

Second, as regards Mondaine’s trademark M-WATCH-MONDAINE, the trial had provided sufficient evidence that, under the cooperation relationship between both parties, Mondaine was entitled to register the trademark only on a fiduciary basis (ie, on behalf of Migros). This stemmed from the fact that both parties originally envisaged to develop new products together under the final denomination M-WATCH-MONDAINE. Under these contractual circumstances, Mondaine was subject to an increased fiduciary duty and the registered trademark was therefore qualified as an 'agent trademark' under Article 4 of the Act on the Protection of Trademarks. As set forth in Article 4, a trademark registered in the name of agents, representatives or other authorised users is considered to be the property of the rightful owner (in the present case, Migros).

Third, the Supreme Court disagreed with the finding that Migros’ claims to the trademarks M-WATCH-MONDAINE and M^oWATCH were forfeited due to non-contention. Under Swiss law, the forfeiture of claims is an exceptional notion of law granted on a restrictive basis and only under exceptional circumstances. In particular, the Supreme Court held that it was irrelevant whether a formalised licence agreement existed between the parties. Instead, the decisive criterion lay in the relationship between the parties: since the parties had engaged in a cooperation relationship over the years (manufacturing and distribution), both parties had implicitly consented to the use of the other party’s registered trademarks. Thus, Migros had no compelling reasons to object to the trademarks registered by Mondaine (at least not during the collaboration period).

The lessons to be learned from this case are as follows:

1. The decision of the Supreme Court underlines the importance of effective trademark use in the market to perpetuate a trademark’s value. Despite the need of market players to use flexible branding, brand owners should always maintain the distinctive and/or dominant elements of their trademark by using them on the designated goods or services in the market. Depending on the nature of the trademark involved, such distinctive element may be a mere visual element (eg, the circle in M^oWATCH). In case of uncertainty, the advice of an IP expert might prove helpful.


2. The decision of the Supreme Court further demonstrates that formalised cooperation, manufacturing and/or distribution agreements that have been diligently drafted with intellectual property in mind are preferable. In particular, the registration of IP rights identical or confusingly similar to those used or registered by the rightful owner should be addressed in such agreements.

Dirk Spacek, Walder Wyss Ltd, Zurich