Trade dress protection weakened by Supreme Court ruling

The First Civil Division of the Swiss Federal Supreme Court has delivered its judgment in Mars Switzerland AG v Nestlé Switzerland AG (Case 4A_86/2009, May 26 2009).

Mars Switzerland AG, the manufacturer of the well-known Maltesers chocolate malt balls, brought an action against competitor Nestlé Switzerland AG for selling a similarly shaped chocolate product called Kit Kat Pop Choc in a highly similar packaging. Mars argued that the get-up of Nestlé's product violated Article 2 and Articles 3(d) and (e) of the Swiss Act against Unfair Competition by:
  • creating a likelihood of confusion with the Maltesers trade dress;
  • imitating the Maltesers trade dress in an unfair manner; and
  • exploiting the reputation of the Maltesers trade dress.
In addition, Mars relied on Articles 3(1)(c) and 13(3) of the Swiss Trademark Act.
The Commercial Court granted preliminary relief to Mars and ordered that Nestlé stop selling its Kit Kat Pop Choc product. The Federal Supreme Court affirmed. However, when the Commercial Court was asked to confirm the preliminary relief, it dismissed the action. The Supreme Court subsequently dismissed Mars’s appeal.
In essence, the Supreme Court held that:
  • the creation of a direct or indirect likelihood of confusion is relevant under unfair competition law only if the trade dress as a whole is distinctive, so that the public perceives it as an indication of origin due to its inherent distinctiveness or secondary meaning (Article 3(d) of the Unfair Competition Act); and
  • the Maltesers trade dress was sufficiently original and was thus inherently distinctive.
However, since the word elements used on the two products differed substantially, the design elements were unable to change the overall impression of the products in a way that was likely to create direct or indirect confusion.
Surprisingly, the court focused solely on the word elements and did not assess whether the graphic elements of the Maltesers trade dress (in particular, the floating chocolate balls on a red background, with one in cross-section, and the combination of the colours red, brown and white) had acquired secondary meaning (as claimed by Mars). Therefore, the court ignored the two main issues of the case:

  • whether the Maltesers trade dress itself (ie, without the word element) had acquired secondary meaning; and 
  • whether use of a highly similar trade dress by Nestlé led to a likelihood of confusion.
The court further held that it is unfair explicitly or implicitly to exploit the reputation of a third party's trade dress by using a similar get-up or evoking associations with the third party's product, including by stating that a product is a “substitute for” or “as good as” the third party's product (Articles 2 and 3(e) of the Unfair Competition Act). However, in the present case, the similarities between the packaging of the products (eg, use of the colour red for the background) could be explained by factual and objective reasons. Therefore, the Kit Kat Pop Choc product did not free-ride on the reputation of the Maltesers trade dress.
The decision seems to contradict European case law (eg, see "ECJ widens scope for protection in landmark L'Oréal decision"). In addition, the relevant provisions of the Unfair Competition Act cover cases where use of a similar get-up creates a likelihood of association with a well-known product, even in the absence of confusion. The requirements for a finding of a likelihood of association are not as strict as those for a finding of a likelihood of confusion. Therefore, the court's argument that the similarities between the products were explained by “objective” reasons was unjustifiable. In light of the high number of design options available to Nestlé, there was no reason to copy the graphic elements of the Maltesers trade dress. Moreover, the court failed to take into account the fact that Nestlé's packaging copied the graphic elements of the Maltesers trade dress both separately and in combination.
From a procedural point of view, it is remarkable that the Supreme Court held a public oral hearing during which it discussed its views. This is an unusual procedure which is usually reserved for very controversial cases and is hardly ever used in the field of intellectual property. The judges were divided and the case was eventually decided by a 3:2 majority. Surprisingly, there is no trace of this division in the written judgment.
The decision is bad news for owners of well-known trade dress in Switzerland, since it allows third parties to copy the dominant elements of a well-known trade dress as long as the word elements differ significantly. It shows that the approach of the courts to acquired distinctiveness and reputation is too restrictive. Moreover, the decision highlights the fact that the courts tend to focus on individual elements, rather than the overall impression conveyed by the packaging - even though the doctrine provides for the opposite. Against this background, trade dress owners will have to ensure that the courts consider whether the trade dress as such (ie, without the word elements) has acquired distinctiveness.

Even though Switzerland is not part of the European Union, the Swiss legislature usually seeks to harmonize Swiss law with European standards. However, the decision of the Supreme Court shows that the degree of protection afforded to brand owners in Switzerland is clearly lower than that in EU countries (eg, in Germany under the unfair competition legislation). It remains to be seen whether the Supreme Court's decision is an exception or reveals an underlying trend.

Matthias Koch and Kathrin Samwer, Freshfields Bruckhaus Deringer, Cologne

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