Use of 'Nutello' for hot chocolate beverage held to infringe Ferrero’s trademark

The case of Sarika Connoisseur Café v Ferrero Spa ([2012] SGCA 56) was an appeal by Sarika Connoisseur Café Pte Ltd against a decision of the High Court in which the latter had held that Sarika had infringed the trademark of Ferrero SPA and was liable for passing off.

Sarika operates a chain of cafés known as 'tcc-the connoisseur concerto', which offers a variety of gourmet coffee beverages. Ferrero is an Italian company which sells confectionery, including Nutella, a cocoa-based hazelnut spread. Ferrero is the owner of the word mark NUTELLA and two other composite marks featuring the term 'Nutella', all registered in Class 30 of the Nice Classification.

In 2007 Sarika introduced a new hot chocolate beverage served in a shot glass under the 'Nutello' sign, which contained espresso, milk powder, cocoa powder and Nutella spread. It was described as follows: “An Espresso with lashings of Nutella - perfect for cocoa lovers!”. The term 'Nutello' was used in various forms in Sarika’s promotional material.

The High Court held that Sarika had:

• infringed Ferrero’s NUTELLA mark on the basis of a similarity between the marks and a similarity between the goods giving rise to a likelihood of confusion among the relevant public;
• infringed and diluted Ferrero’s well-known NUTELLA mark; and
• committed the tort of passing off.

The High Court granted injunctions accordingly.

The Court of Appeal first considered whether there was infringement under Section 27(2)(b) of the Trademarks Act.

With regard to the similarity of the marks, the Court of Appeal held that 'Nutella' and 'Nutello' would likely appear similar visually given that only one letter was different; on the basis of established law, it rejected Sarika’s argument that the marks were dissimilar visually due to the different fonts/typeface. The Court of Appeal also commented that the word 'Nutella', being invented, was distinctive. With regard to aural similarity, the court held that the marks were similar based on the way in which the average Singapore customer would pronounce the respective words. With regard to conceptual similarity, the Court of Appeal disagreed with the High Court that there was a conceptual similarity between the marks since it was of the view that both words were meaningless, with no particular idea underlying each of the marks. The overall conclusion was that the marks were similar.

With regard to the similarity of the goods/services, the High Court had held that the Nutello beverage was similar to the “chocolate products” specification for which the Nutella mark was registered, and explained that the comparison was between the Nutello beverage on the one hand, and the actual product in use (ie, the Nutella spread) and the types of products covered by the NUTELLA mark on the other.

The Court of Appeal pointed out that, under the Trademarks Act, the comparison must be made between the infringing goods and the products in respect of which the trademark is registered. Hence, the Court of Appeal was in agreement with the High Court’s approach.

While the High Court had found that the goods were similar on the basis that the Nutello drink was a beverage falling within Class 30, the Court of Appeal was of the opinion that this should not be determinative and that consideration should still be given to the factors set forth in British Sugar plc v James Robertson & Sons Ltd. After all, the classification of goods was held to be merely administrative.

The Court of Appeal acknowledged the difficulties in applying the British Sugar factors to this case, since it was dealing with an actual product versus a specification - many of the factors would not be applicable. The Court of Appeal was of the view that the issue was whether the Nutello drink could be considered as a “chocolate product” and, from the evidence, found that it was the case. Hence, the goods were held to be similar.

The High Court had found that there was a likelihood of confusion due to the similarity between the marks, the similarity between the goods and the distinctive nature of the NUTELLA mark. Moreover, the survey evidence submitted by both parties (after adjustments had been made due to shortcomings in the survey methodology and data collection) indicated that approximately 30% of the public would be confused.

The Court of Appeal held that it was settled law that the test to be adopted was whether a substantial portion of the relevant public would be confused, and agreed with the High Court that a 'substantial portion' must not be an insubstantial number, and must be appreciable and above de minimis - although it is not necessary to show a majority.

The Court of Appeal found that 30% of the public was not an insignificant percentage and ruled that there was confusion among “a substantial number of the relevant public”.

Another issue related to whether 'extraneous' factors (which encompass matters outside and beyond the marks and the goods themselves) ought to be taken into consideration in determining confusion. The Court of Appeal ruled that extraneous factors should be included when determining whether there was a likelihood of confusion, as the main concern was to ensure that consumers did not get confused as to the source of goods. Further, Singapore courts have always clearly and consistently included the 'extraneous factors' in their analysis.

Policy considerations in relation to trademark law were also raised – namely, the competing policy concerns of preventing confusion on the one hand and promoting business certainty on the other. Additionally, there was also the need to guard against the danger of creating a monopoly for the registered trademark owner, which extends protection beyond what is necessary and required in the circumstances. In its final analysis, the Court of Appeal ruled that the main concern was to ensure that consumers do not get confused as to the source of goods.

Therefore, the court took a holistic view of all the circumstances – including the 'extraneous factors' – in order to determine whether there was a likelihood of confusion based on the facts of each case. Confusion will not be presumed simply because the marks and the goods are similar. The Court of Appeal also ruled that the survey evidence should not be conclusive and was only one factor in the global confusion analysis.

Balancing all the factors, the Court of Appeal found that there existed a real likelihood that a substantial portion of the relevant public would be confused into thinking that the parties were related or had business links.

The Court of Appeal then considered whether there was infringement of a well-known trademark. Under Section 55(2) of the act, the owner of a well-known trademark is entitled to prevent the use of any trademark which (or an essential part of which) is identical or similar to its trademark in relation to identical or similar goods or services where such use is likely to cause confusion. The Court of Appeal applied the above findings to affirm the High Court’s ruling that infringement under Section 55(2) has been established.

The Court of Appeal further considered whether there was infringement through a damaging connection with a well-known mark under Section 55(3)(a). Under this provision, it had to be shown that:

• Sarika’s mark (or an essential part of that mark) was identical or similar to Ferrero’s mark;
• use of Sarika’s mark would indicate a connection between Sarika's goods or services and Ferrero; and
• because of that connection, Ferrero’s interests were likely to be damaged.

The High Court had held, based on previous authority, that the test to establish a connection and a likelihood of damage and the tests relating to misrepresentation and damage under passing off are substantially the same – there must be a likelihood of confusion. The Court of Appeal upheld the High Court’s finding that there was the requisite confusing connection under Section 55(3)(a). On the issue of damage, the Court of Appeal agreed with the High Court that damage was likely since Ferrero’s expansion into the drinks business would be restricted as a result.

Most of the Court of Appeal’s judgment related to the issue of unfair dilution under Section 55(3)(b)(i). Under this provision, it had to be shown that:

• Sarika had used without consent on its goods/services a mark the essential part of which was identical or similar to Ferrero’s mark (which is well known to the public at large); and
• use of this mark by Sarika would dilute in an unfair manner the distinctive character of Ferrero’s well-known mark.

The High Court had found that Sarika’s use of 'Nutello' would cause dilution by blurring of Ferrero’s NUTELLA mark.

Sarika sought to argue, based on an academic article, that a finding of dilution and infringement based on confusion was incongruous on the basis that infringement meant that consumers believed that the goods came from the same source and, therefore, there would be no whittling away of the identification of the mark with a single source (ie, dilution). The Court of Appeal was unimpressed with that argument and noted that the writer of the article in question had also conceded that proof of confusion does not undermine dilution because the fact that some consumers are confused does not mean that all consumers will be confused. The Court of Appeal also referred to another academic article which noted that while, with regard to a single individual, infringement and dilution are mutually exclusive, both perceptions are possible among the public.

The Court of Appeal was also mindful of the definition of 'dilution' in the act, which expressly states that dilution can be established regardless of whether there is a likelihood of confusion; hence, it held that dilution can stand even when a likelihood of confusion has been established. Similarly, it emphasised that the act states that dilution may be established regardless of competition, rejecting Sarika’s argument that dilution can apply only to distinct or dissimilar goods.

Sarika further argued that an additional factor, in addition to a mere mental link between 'Nutello' and 'Nutella', had to be shown: what needed to be shown was actual or prospective damage to the NUTELLA mark or a change in the behaviour of Ferrero’s consumers. The Court of Appeal cited Citicorp and Citibank NA v Incepta with approval – in that case, it was noted that it must be shown that the economic value of the reputed mark would be impaired, possibly in the medium or long term, as a consequence of the use of the later mark, in the sense that consumers of the goods/services covered by the reputed mark would be less inclined to associate it immediately with the undertaking that had built up the mark's reputation; there was no need to show an imminent danger to sales. It was further noted that it is sufficient to show a probability of damage to the mark’s advertising function as a vehicle for building up and retaining brand loyalty.

The Court of Appeal further cited the statutory definition of 'dilution', stating that dilution could occur regardless of competition or likelihood of confusion and that no actual loss needed to be shown. It was sympathetic to the fact that requiring proof of loss and evidence of actual damage may lead to the under-protection of well-known marks. Hence, it concluded that it is sufficient to show a real or serious probability of damage to the well-known mark’s advertising or symbolic function in order to establish a dilution claim.

'Dilution by blurring' was described as the situation where consumers no longer view the mark as indicating a distinct source for the product - that is, when the mark is harmed by an association with different sources. The distinctiveness of a mark is blurred when it is no longer capable of creating an immediate association with the goods for which it is registered and used. The Court of Appeal noted that an action for dilution prevents the well-known mark’s distinctiveness or uniqueness from being eroded, protecting its "selling power" and "commercial magnetism". This reflects the transition of the role of trademarks from indicators of origin to symbols and valuable assets. Well-known marks attract customers due to their selling power.

The Court of Appeal held that, to establish dilution by blurring, it must be shown that the relevant public makes a connection or establishes a link between the allegedly infringing sign and the well-known mark. A link implies that the sign will “call to mind” the well-known mark. The Court of Appeal held that a court must determine whether a link has been established and whether there is a real and serious likelihood of damage to the distinctive character of the mark.

In the present case, the Court of Appeal found that there was such a link, as NUTELLA is recognised by many, including Sarika’s target consumers, and is highly distinctive. Moreover, there was a close similarity between the marks, and the goods are similar. Hence, the Court of Appeal held that consumers would make a mental link between the marks and that 'Nutello' would call to mind 'Nutella'. The court reasoned that the use of 'Nutello' over an extended period of time on Sarika’s drinks would create a real or serious likelihood that the distinctiveness of Ferrero’s mark might be weakened in the long to medium term, in that the NUTELLA mark would have a diminished ability to identify the products for which it is registered; further, it might no longer have the capacity to conjure up an immediate association with Ferrero’s products. Hence, the court found that dilution by blurring had been made out.

As regards passing off, Sarika argued that actual damage had to be shown, and that the High Court’s finding that there would be damage to Ferrero's mark - in the sense that Ferrero’s expansion into the drinks business in Singapore would be restricted - was erroneous. The Court of Appeal held that it was not logical to demand proof of actual damage before these heads of damage could be made out because actual damage is not the basis for those heads of damage, which involve a loss of opportunity or a loss that has yet to manifest itself in practice (a loss of future profit) - rather, it was more appropriate to require that a real likelihood of damage be shown.

The Court of Appeal observed that a restriction of expansion into another field of commercial activity naturally extending from the original activity has been recognised as a head of damage under passing off: what is required is a close connection between the established activity and the potential activity in that the latter is a natural extension of the first activity. The Court of Appeal agreed with the High Court’s finding that both parties’ fields are closely connected, in that both parties are in the business of providing consumption foodstuff and the respective products include a significant chocolate content. The evidence showed that Ferrero had expanded its product line to offer a Nutella milkshake, at least in France.

Consequently, the Court of Appeal found that there was a likelihood that Ferrero’s expansion into the Singapore beverage business would be restricted. The passing-off claim had thus been established.

Regina Quek, One Legal LLC, Singapore